<PAGE> 1
As filed with the Securities and Exchange Commission on September 4, 1998
Registration No. 333-59169
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------
THE L. L. KNICKERBOCKER CO., INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0230641
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25800 COMMERCENTRE DRIVE
LAKE FOREST, CALIFORNIA 92630
(949) 595-7900
(Address and telephone number of Registrant's principal executive
offices and principal place of business)
------------------
GERALD A. MARGOLIS, ESQ.
9595 WILSHIRE BOULEVARD, SUITE 900
BEVERLY HILLS, CALIFORNIA 90212
(310) 550-0555
(Name, address and telephone number of agent for service)
Approximate date of commencement of proposed sale to the public
............ From time to time following the effective date of this Registration
Statement
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering [ ] _____________
If this Form is a post effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering [ ] ______________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered offering price per aggregate offering registration fee
registered Share(1) price(1)
<S> <C> <C> <C> <C>
Common Stock(2) 3,720,000(4) $2.75 $10,230,000 $3,017.85(5)
Common Stock(3) 525,000(4) $2.75 $ 1,443,750 $ 425.91(5)
Total registration fee $3,443.76(5)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) on the basis of the average high and low bid
prices of the Registrant's common stock as reported by the Nasdaq Stock
Market on July 10, 1998.
(2) Shares issuable upon conversion of 6% Convertible Debentures.
(3) Shares issuable upon exercise of Stock Purchase Warrants.
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(4) Pursuant to Rule 416 of the Securities Act, there are also being
registered such presently indeterminable number of additional shares of
Common Stock as may be issued with respect to the Convertible
Debentures and the Stock Purchase Warrants as a result of stock splits,
stock dividends and anti-dilution provisions.
(5) A total registration fee of $3,443.76 was previously paid with respect
to the shares covered by this Registration Statement. No additional
registration fee is required with respect to this Amendment pursuant to
Rule 457(a) promulgated under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8 (a),
MAY DETERMINE.
<PAGE> 3
PROSPECTUS
SUBJECT TO COMPLETION
DATED SEPTEMBER 4, 1998
THE L. L. KNICKERBOCKER CO., INC.
4,245,000 SHARES OF COMMON STOCK
This Prospectus relates to the offer and sale by the selling
stockholders named herein (the "Selling Stockholders"), from time to time, of up
to 4,245,000 shares (the "Shares") of common stock, no par value ("Common
Stock"), of The L. L. Knickerbocker Co., Inc., a California corporation (the
"Company"). The Shares are issuable by the Company upon conversion by the
Selling Stockholders of 6% convertible debentures, due October 6, 1998, in the
aggregate principal amount of $7,000,000 (the "Convertible Debentures") and upon
exercise by the Selling Stockholders of warrants to acquire shares of Common
Stock (the " Stock Purchase Warrants"). This Prospectus also covers, pursuant to
Rule 416 of the Securities Act of 1933, as amended (the "Act"), the offer and
sale by the Selling Stockholders of such presently indeterminable number of
additional shares of Common Stock issued with respect to the Convertible
Debentures and the Stock Purchase Warrants as a result of stock splits, stock
dividends and anti-dilution provisions. The shares of Common Stock covered under
the Registration Statement of which this Prospectus is a part (the "Offered
Shares") may be offered for sale from time to time by or for the account of such
Selling Stockholders in the open market, on the NASDAQ National Market System,
in privately negotiated transactions, in an underwritten offering, or in a
combination of such methods, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, or at negotiated prices. The
Offered Shares are intended to be sold through one or more broker-dealers or
directly to purchasers. Such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the Selling Stockholders and/or
the purchasers of the Offered Shares for whom such broker-dealers may act as
agent or to whom they may sell as principal, or both (which compensation as to a
particular broker-dealer may be in excess of customary commissions). The Selling
Stockholders and any broker-dealers acting in connection with the sale of the
Offered Shares hereunder may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Act, and any commissions received by them and any profit
realized by them on the resale of the Offered Shares as principals may be deemed
underwriting compensation under the Act. See "Selling Stockholders" and "Plan of
Distribution."
The Common Stock of the Company is currently trading on the NASDAQ
National Market System under the symbol "KNIC." On August 26, 1998, the closing
price per share of the Company's Common Stock was $1.75.
The Company will not receive any of the proceeds from the sale of the
Offered Shares pursuant to this Prospectus. However, the Company will receive
proceeds from the exercise of the Stock Purchase Warrants if the Stock Purchase
Warrants are exercised. The Company has agreed to bear the expenses with respect
to the offering and sale of the Offered Shares to the public, including the
costs associated with the registration of the Offered Shares under the Act and
preparing and printing this Prospectus. Normal underwriting commissions and
broker fees, however, as well as any applicable transfer taxes, are payable
individually by the Selling Stockholders.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK WHICH INVESTORS
SHOULD CAREFULLY CONSIDER. SEE "RISK FACTORS" BEGINNING AT PAGE 6
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES ADMINISTRATOR NOR HAS THE COMMISSION
OR ANY STATE SECURITIES ADMINISTRATOR PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sales of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of such state.
* * * * * * * * * * * * * * * * * * * * * * * * * * *
The date of this Prospectus is September 4, 1998
<PAGE> 5
AVAILABLE INFORMATION
The Registrant is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company with the Commission may be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, DC 20549, and at the following regional offices of the
Commission: Seven World Trade Center, 13th Floor, New York, NY 10048; and the
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661; and
copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W. Judiciary Plaza, Washington, DC 20549 at
prescribed rates. The Commission maintains a Web site that contains reports,
proxy and informational statements electronically filed with the Commission. The
address of such site is http://www.sec.gov. The Company's Common Stock is traded
on the Nasdaq National Market System. Reports, proxy statements and other
information concerning the Company may be inspected at the National Association
of Securities Dealers, Inc. at 1735 K Street N.W., Washington, DC 20006.
The Company has filed with the Commission a registration statement on
Form S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Act with respect to the Offered Shares. This
Prospectus is part of the Registration Statement and does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement and the documents incorporated herein by reference and
attached hereto. Such additional information may be obtained from the
Commission's principal office in Washington, DC.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed by the Company with the
Securities and Exchange Commission, and are specifically incorporated by
reference into this Prospectus:
(a) the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997, as amended by Form 10-KSB/A
(b) the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998,
(c) the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998,
(d) the Company's Current Report on Form 8-K filed June 9, 1998,
(e) all other reports filed by the Company pursuant to Section
13(a) or 13(d) or 15(d) of the Exchange Act after the fiscal
year ended December 31, 1997, and
(f) the description of the Company's Common Stock contained in the
registration statement filed by the Company pursuant to
Section 12 of the Exchange Act.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the filing of a post-effective amendment which
indicates that all securities offered have been sold or which deregisters all
securities then remaining unsold shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which is also incorporated or deemed
to be incorporated herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any and all of the
documents referred to above which have been incorporated into this Prospectus by
reference (other than exhibits to such documents, unless
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such exhibits are specifically incorporated by reference into such documents).
Requests for such copies should be directed to Mr. Anthony P. Shutts, Chief
Financial Officer, The L.L. Knickerbocker Co.,Inc., 25800 Commercentre Drive,
Lake Forest, CA 92630, telephone (949) 595-7900.
THE COMPANY
The L. L. Knickerbocker Co., Inc., a California corporation (the
"Company") was formed in 1985 under the name International Beauty Supply, Ltd.
In 1993, the articles of incorporation were amended, changing the name of the
corporation to the Company's current name, "The L. L. Knickerbocker Co., Inc."
The Company completed an initial public offering of common stock and warrants on
January 25, 1995. On August 30, 1995, the Board of Directors approved a five for
one split of the Company's common stock and the increase of the number of
authorized shares of its common stock to 100,000,000.
The Company markets a variety of branded consumer items ("Brands"),
including collectibles, costume and fine jewelry, fashion accessories, patented
consumer products and consumables. The Company strives to deliver value to the
consumer through product design and quality, together with a fair price. The
goal is to create and build each Brand to the point where the Brand can be
marketed through a variety of distribution channels.
The manufacturing of non-jewelry items is out-sourced to a variety of
manufacturers that consistently deliver high-quality products. Jewelry
operations are vertically integrated, and most of the design, stone sourcing,
advanced stone cutting, and jewelry manufacturing is performed by in-house
personnel. The Brands are marketed domestically and internationally through
diverse channels of distribution, including but not limited to, the television
shopping industry, direct response print advertisements, direct mail, catalog,
retail outlets and the Internet. Celebrity spokespersons contribute to many of
the marketing efforts. These celebrities are chosen carefully on the basis of
name recognition, communications ability and a personal commitment to
participate in the programs.
The Company's current Brands include: Marie Osmond Fine Porcelain
Collector Dolls, Annette Funicello Collectible Bears, The Knickerbocker
Collectible Toy Company, Collection of the Masters by Richard Simmons, Bob
Mackie Legendary Beauties, The Georgetown Collection, The Magic Attic Catalog,
The Magic Attic Press, Barbara Mandrell Costume Jewelry, Nolan Miller Costume
Jewelry, Kenneth Jay Lane Costume Jewelry, Pilar Crespi Costume Jewelry, Harlyn
International Fine Jewelry, Mary McFadden Fashion Accessories, Dennis Basso
Fashion Accessories , Framm Accessories, ECT Ionizer, Fit & Firm(TM) by Florence
Griffith Joyner, Life Time of Skincare Facial Steamer, and Anushka Body
Contouring Spa System.
During 1996, the Company vertically integrated and expanded its Brands
and distribution channels through (i) the acquisition of Grant King
International Co., Ltd., a jewelry design and development company; Harlyn
International Company, Ltd., a fine jewelry company with international
distribution; and S.L.S. Trading Co., Ltd., a cutting and gemstone business, all
located in Bangkok Thailand; (ii) acquisition of Krasner Group, Inc., with
costume jewelry and accessories manufacturing and marketing operations based in
New York; (iii) merger of the operations of Grant King International Co., Ltd.
and S.L.S. Trading Co., Ltd. into a Thai corporation which was acquired and
renamed The L.L. Knickerbocker (Thai) Company, Ltd.; and (iv) acquisition of
approximately 82% of the outstanding stock of Georgetown Collection, Inc., a
collectible doll company with operations in Portland, Maine, and its wholly
owned subsidiary, Magic Attic Press, Inc., a book publishing company with
operations in Portland, Maine. The purchase price for the acquisition of Grant
King International Co., Ltd.; Harlyn International Company, Ltd.; S.L.S. Trading
Company, Ltd.; Krasner Group, Inc.; and Georgetown Collection, Inc.was $664,000,
$2,711,000, $555,000, $3,205,000 and $3,199,000, respectively. The Company
recorded additional purchase price of $1,230,000 related to the liquidation of
Krasner Group, Inc. inventory on hand at the date of acquisition, in accordance
with the terms of the purchase agreement.
In August 1998 the Company formed a subsidiary corporation to hold and
manage it's equity investments in other companies. These investments include a
32.3% equity interest in Pure Energy Corporation, which is developing an
alternative fuel, and a 13.2% equity interest in Ontro, Inc. (formerly Self
Heating Container Corporation of California) which develops self-heating
containers for a variety of food products. The Company plans to appoint a board
of directors for this subsidiary to manage and monitor its interest in these
equity investments.
The Company's general 5 year growth plan consists of expanding the
current Brands by introducing new product categories into the existing Brands,
expanding distribution of the Brands internationally, exploring acquisition
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opportunities that provide complementary Brands for current distribution
channels and additional distribution channels, and continuing to review new
products and develop new Brands. There can be no assurance, however, that any of
these products or investments will prove successful.
In 1997, the Company incurred a loss from operations of $2,042,000 and net loss
of $4,377,000. In 1996 and 1995, the Company recognized income from operations
of $3,850,000 and $2,046,000 and net income of $1,375,000 and $1,269,000,
respectively.
The mailing address, street address and telephone number for the
principal executive offices of the Company are 25800 Commercentre Drive, Lake
Forest, California 92630 (949) 595-7900.
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RISK FACTORS
An investment in the shares being offered by this Prospectus involves a
high degree of risk. In addition, this Prospectus contains forward-looking
statements within the meaning of the safe harbor provisions of Section 27A of
the Securities Act of 1933, as amended (the "Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") that involve
risk and uncertainties. The Company's actual results could differ materially
from those anticipated in such forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus. Accordingly, prospective investors should consider carefully
the following risk factors, in addition to the other information contained in
this Prospectus and the documents incorporated by reference in this Prospectus
concerning the Company and its business, before purchasing the shares offered
hereby.
DEPENDENCE ON SIGNIFICANT CUSTOMER
During the fiscal year ended December 31, 1997, one of the Company's
customers, QVC Network, a cable shopping network which runs programs to market
the Company's products, accounted for approximately 29.0% of the Company's
revenues. In addition, with respect to its collectible products orders, QVC
Network provides a direct or transferrable letter of credit with its purchase
orders and the Company is materially dependent on this production financing in
order to fill its orders. The Company may continue to be dependent on this or
other significant customers, the loss of which could adversely affect the
Company's business. During the fiscal year ended December 31, 1997, no other
customer accounted for 10% or more of the Company's revenues.
DEPENDENCE ON KEY PRODUCT LINES
During the fiscal year ended December 31, 1997, two key product lines,
the Marie Osmond Collectibles and Annette Funicello Collectibles, accounted for
approximately 14.7% of the Company's sales. The Company has been marketing these
product lines through QVC and the Walt Disney Company since 1991, and the
Company has contracts with Marie, Inc. and Cello, Inc. to develop and promote
the product lines for five years beginning in 1998, with five year renewal
options. The contracts for development and promotion of the products are
dependent on minimum annual royalties of $500,000 and $100,000 being paid to
Marie, Inc. and Cello, Inc., respectively, however, and the continuing sales of
the product lines are dependent on the continued acceptance of the product lines
by QVC or other methods of distribution. Actual royalties paid during 1997 were
$718,000 for Marie, Inc. and $407,000 for Cello, Inc. There can be no assurance
that the Company will be able to maintain the present volume of sales of the
Marie Osmond Collectibles and Annette Funicello Collectibles product lines, the
loss of which could adversely affect the Company's business.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on its executive officers, the loss of any one
of whom would have an adverse effect on the Company. While the Company has
employment agreements with its President, Chief Operating Officer, Executive
Vice President, Chief Financial Officer and General Counsel for terms ending in
2001, with five year renewal options, unforeseen circumstances could cause these
persons to no longer be able to render their services to the Company. The
Company maintains key-man life insurance on the life of Mr. Louis L.
Knickerbocker, the President, Chief Executive Officer and Chairman of the
Company, in the amount of $1,000,000.
DEPENDENCE ON NEW PRODUCTS
The Company's future growth will be dependent on its ability to
identify and develop products which can be sold through the home shopping
industry, retail, direct response and the Internet at acceptable profit margins,
to acquire necessary rights to market and distribute such products, and to enter
into arrangements with third-party manufacturers to produce the products. There
can be no assurance that the Company will be successful in identifying and
developing quality
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products that may be successfully marketed through the home shopping industry,
retail, direct response and the Internet, in acquiring the rights to such
products, or in obtaining adequate supplies of such products from third-party
manufacturers. A failure to identify and develop new products for marketing
through the home shopping industry, retail, direct response or the Internet
would have a detrimental impact on the Company's future performance.
DEPENDENCE ON INDEPENDENT CONTRACTOR ARTISTS AND CELEBRITIES
The Company relies on independent contractor artists to provide design
work in the development of products and programs. Additionally, a significant
factor in the Company's ability to market its products and programs to its
customers is the Company's ability to secure contracts with celebrities who will
become involved in the development of products and act as spokespersons for
those products. The contracts with celebrities and others are further contingent
upon the Company meeting its minimum royalty obligations under those contracts.
The continued success of the Company is dependent on its ability to attract and
retain such independent contractor artists and celebrity spokespersons. There
can be no assurance that the Company will be able to recruit and retain such
personnel.
INDUSTRY TRENDS
The Company's historical growth has been based in part on both the
evolution of consumer tastes and preferences toward the Company's products and
the emergence of the home shopping, direct response and Internet segments. While
the Company is expanding into other marketing segments, the viability among
consumers of the home shopping, direct response and Internet marketing segments
will remain key to the Company's future operations. A change in consumer tastes
and preferences regarding the Company's products and the home shopping, direct
response and Internet marketing segments may have an adverse effect on the
Company's results of operations. There can be no assurance that consumer tastes
and preferences will continue to favor the Company's products and marketing
segments.
COMPETITION
The growth of the home shopping industry has given rise to fierce
competition among product merchandisers for sales of products and programs
through the home shopping networks. The home shopping channels are finite in
number and have only 24 hours per day to air products. Air time during the
"prime time" viewing hours is especially limited. As a result, the buyers for
home shopping channels choose products which they feel are most likely to
provide them the highest response and return. The continued growth of the
Company is dependent on its ability to compete effectively with other companies
for the limited air time and purchasing decisions of the home shopping channels.
While the barriers to entry in the home shopping market are significant due to
the selectiveness of the buyers for the home shopping channels, the competitive
efforts of other large, well financed merchandisers may have an adverse effect
on the Company's results from operations.
RISKS OF FOREIGN MANUFACTURING
The Company maintains operations in Bangkok, Thailand and contracts for
the manufacture of its products in Thailand, Taiwan, China and other foreign
countries. As such, the Company is subject to risks inherent in foreign
manufacturing including the following: fluctuations in currency exchange rates;
economic and political instability; transportation delays; restrictive actions
by foreign governments; nationalizations; the laws and policies of the United
States affecting the importation of goods (including duties, quotas and taxes);
and trade and foreign tax laws. In particular, the Company's costs could be
effected adversely on a short term basis if the currency of any country in which
the Company conducts business appreciated significantly relative to the United
States dollar. The Company's jewelry operation in Bangkok, Thailand is exposed
to risks associated with foreign currency fluctuations. In 1997, the Company
recognized foreign currency gains as a result of the devaluation of the Thai
baht in relation to the U.S. dollar. The Company exports its products, which
sales are denominated in U.S. dollars. As the accounts receivable which are
comprised of U.S. dollar receivables increased in value as measured in Thai
baht, the Company recognized foreign currency gains in the translation of its
Thai financial statements into U.S. dollars.
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Substantially all of the Company's products are subject to United
States customs duties and regulations pertaining to the importation of goods.
The United States and the countries in which the Company's goods are
manufactured may, from time to time, impose new duties, tariffs, quotas or other
charges or restrictions, or adjust presently prevailing quotas, duties or tariff
levels, which could adversely effect the Company's financial condition or
results from operations or its ability to continue to import products at current
or increased levels. The Company cannot predict what regulatory changes may
occur or the type or amount of any financial impact on the Company which those
changes may have in the future.
PRODUCT LIABILITY AND OTHER CLAIMS
The Company faces an inherent business risk of exposure to product
liability costs in the event that claims arise out of problems associated with
the use of the Company's products. The Company has not experienced any material
product liability costs or claims, however, the Company carries a policy of
product liability insurance against such contingencies. While the Company will
continue to attempt to take appropriate precautions, there can be no assurance
that it will avoid significant product liability exposure or that there will not
be a product liability claim in the future. The Company seeks to obligate
clients and suppliers of products to maintain product liability insurance
coverage for the benefit of the Company and to indemnify the Company against
such product liability. There can be no assurance, however, that such
arrangements can be made, or if made, will be effective to insulate the Company
from such claims. The Company may also be subject to other legal claims, such as
unfair competition and trademark infringement. Any legal claims, if brought,
could materially adversely affect the business or financial condition of the
Company. The Company maintains a policy of advertiser's liability insurance and
a policy of director's and officer's liability insurance. There can be no
assurance, however, that the liability insurance policies maintained by the
Company will be effective to insulate the Company from all covered claims.
INFLUENCE BY EXISTING SHAREHOLDERS
The Common Stock currently owned beneficially by the President and a
Vice President of the Company represents approximately 40% of the outstanding
shares of Common Stock. Accordingly, such persons will be able to exert
influence over the Board of Directors of the Company and direct the Company's
affairs. The Company's Articles of Incorporation and by-laws do permit
cumulative voting, however the founding shareholders of the Company will
continue to influence the Company's business and affairs.
COMMON STOCK ELIGIBLE FOR FUTURE SALE
As of August 26, 1998, 19,746,205 shares of Common Stock of the Company
are issued and outstanding. As of August 26, 1998 approximately, 36.8% of the
Company's issued and outstanding shares of Common Stock are "restricted
securities", as that term is defined under Rule 144 promulgated under the Act
("Rule 144"), and may not be sold in the absence of registration under the Act,
unless an exemption from registration is available, including the exemption
provided by Rule 144. Rule 144 generally provides that beneficial owners of
restricted securities may sell within a three-month period a number of shares
not exceeding 1% of the total outstanding shares or the average weekly trading
volume of the shares during the four calendar weeks preceding such sale as long
as a period of at least one year has elapsed since the date on which such
securities were acquired from the issuer or an affiliate of the issuer
(whichever is later). Rule 144(K) provides that a person who is not deemed an
"affiliate" is entitled to sell such shares at any time under Rule 144 without
regard to the limitations described above as long as a period of at least 2
years has elapsed since the date on which such securities were acquired from the
issuer or an affiliate of the issuer (whichever is later). Future sales of
restricted securities under Rule 144 could negatively impact the market price of
the Common Stock.
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EFFECT OF CONVERTIBLE DEBENTURES
As of August 31, 1998, the Company had outstanding Convertible
Debentures in the principal amount of $7,000,000 which are convertible into
shares of Common Stock of the Company at an initial conversion price of $4.02
per share, and, if the Convertible Debentures are outstanding after December 5,
1998, at a conversion price which is the lower of $4.02 per share or the
Variable Conversion Price (as defined below). The "Variable Conversion Price" of
the Convertible Debentures is the amount which results from multiplying the
Conversion Percentage (as defined below) and the average of the lowest closing
bid prices for the Common Stock for any 7 trading days during the 30 consecutive
trading days ending on the trading day immediately preceding the conversion
date. The "Conversion Percentage" is 100% during the 180 day period following
the date of issuance of the debentures (the "Issue Date"), 97% on or after the
181st day following the Issue Date and prior to the 271st day following the
Issue Date, 94.5% on or after the 271st day following the Issue Date and prior
to the 366th day following the Issue Date, 92% on or after the 366th day
following the Issue Date and prior to the 731st day following the Issue Date and
90% on or after the 731st day following the Issue Date.
Pursuant to the terms of the Convertible Debentures and the Stock
Purchase Warrants, each holder thereof may not convert such debentures and may
not exercise such warrants to the extent that such conversion and/or exercise
would cause the holder to beneficially own more than 4.99% of the total
outstanding Common Stock of the Company. In addition, the terms of the
Convertible Debentures provide that no more than 3,813,503 shares of Common
Stock may be issued in connection with the conversion of the Convertible
Debentures unless and until the shareholders of the Company approve the
transactions related to the issuance of the Convertible Debentures and the
conversion of the Convertible Debentures into a number of shares of Common Stock
which may exceed 3,813,503 shares, which amount is approximately 20% of the
shares of Common Stock outstanding on the date of the closing of the issuance by
the Company of the Conversion Debentures.
The exercise of the Stock Purchase Warrants and the conversion of the
Convertible Debentures will result in at least modest dilution to the existing
shareholders of the Company and may result in substantial dilution. The
conversion of the Convertible Debentures will result in increased dilution to
the shareholders of the Company if such debentures are converted more than 180
days after the respective Issue Dates of such debentures due to the Conversion
Percentage in effect at such time of conversion. The potential for dilution of
the shareholders of the Company may negatively impact the market price of the
Common Stock of the Company and may impede the Company's ability to obtain
additional equity capital in the future.
The conversion of the debentures at a maximum of 90% of the price of
the Company's common stock resulted in the debentures being issued at a
discount. The discounted price of 90% applies if the investor does not convert
prior to the two-year anniversary of the closing. The discount of 10% of the
face value of the debentures was recorded as debt discount with a corresponding
increase to additional paid-in capital. The Company will recognize the discount
as non-cash interest expense over the estimated term of the debentures (two
years). Upon conversion of the debentures any portion of the discount not
previously recognized will be recorded as interest expense on the conversion
date.
REGISTRATION RIGHTS
The Company agreed to file this Registration Statement with the
Commission in accordance with the terms of the Registration Rights Agreement
dated as of June 8, 1998 (the "Registration Rights Agreement") among the Company
and the investors named therein. Pursuant to the terms of the Registration
Rights Agreement, the Company agreed to keep this Registration Statement
effective until such time as all shares covered by this Registration Statement
have been disposed of in accordance with the intended methods of disposition as
set forth in this Registration Statement. See "Plan of Distribution" below. In
addition, pursuant to the terms of the Registration Rights Agreement, the
Company agreed from time to time to amend this Registration Statement or file a
new Registration Statement, or both, so as to cover 200% of the securities
subject to registration pursuant to the terms of the Registration Rights
Agreement. The sale of
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<PAGE> 12
shares of Common Stock pursuant to the terms of this Registration Statement may
negatively impact the market price of the Common Stock of the Company and may
impede the Company's ability to obtain additional equity capital in the future.
ABSENCE OF DIVIDENDS
The Company has never paid any cash dividends on its Common Stock and
does not anticipate that it will pay dividends in the foreseeable future.
Instead, the Company intends to apply any earnings to the expansion and
development of its business. The Company's line of credit agreement prohibits
the payment of dividends without the prior written consent of the lender.
FUTURE CAPITAL REQUIREMENTS
In order to realize its objectives, the Company may have need for
additional capital in the future. If so, the Company intends to seek such
capital through public or private borrowing or equity financings. Any additional
equity financings may be dilutive to shareholders and debt financing, if
available, may involve restrictions on Common Stock dividends. Adequate funds,
whether through financial markets or other arrangements with corporate partners
or from other sources, may not be available when needed or on terms acceptable
to the Company. Insufficient funds may require the Company to delay, scale back
or eliminate some or all of its product development, market development and
corporate development programs with an adverse effect on the Company's future
performance.
Based on current plans and business conditions the Company expects that
its cash, investments and/or available borrowings under its line of credit
together with any amounts generated from operations will be sufficient to meet
the Company's cash requirements for the next 12 months. However, there can be no
assurance that the Company will not be required to seek other financing sooner
or that such financing, if required, will be available on terms satisfactory to
the Company.
INVESTMENTS IN OTHER LINES OF BUSINESS
The Company has invested in several startup companies with innovative
products under development but who have no historical operational or financial
results. These investments include a 32.3% equity interest in Pure Energy
Corporation, which is developing a proprietary, patented alternative fuel, and a
13.2% equity interest in Ontro, Inc. (formerly Self Heating Container
Corporation of California) which develops self-heating containers for a variety
of food products. If successful, these equity investments could contribute to
the financial success of the Company. If unsuccessful, the Company could lose
the value of its investment in these companies, approximately $2.5 million.
There can be no assurance that these investments will prove successful.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has initiated a conversion from existing accounting software to
programs that are year-2000 compliant. Management has determined that the year
2000 issue will not pose significant operational problems for its computer
systems.
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<PAGE> 13
The Company will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. The Company
anticipates completing the Year 2000 project within one year but not later than
October 31, 1999, which is prior to any anticipated impact on its operating
systems. In the third quarter of 1998 the Company decided to outsource a key
data processing function which reduced the Company's estimate of the total cost
of the Year 2000 project to $200,000, which is being funded through operating
cash flows and lease financing.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third-party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
REPURCHASE OF CONVERTIBLE DEBENTURES
In August 1998, the Company entered into an agreement with the holder (the
Holder) of convertible debentures issued in September 1997 (the 1997
Debentures). Under the terms of the agreement the Company has the right, until
September 1, 1998 to purchase up to $3,000,000 of the principal amount of the
debentures, adjusted for conversions through September 1, 1998, for a purchase
price in cash of 110% of face value plus accrued interest. In connection with
the agreement, the Company issued warrants to the Holder to purchase an
aggregate of 213,132 shares of common stock at an exercise price of $3.00 per
share. This transaction could result in expense in the third quarter of 1998 of
up to $713,000, related to the warrants issued, the 10% premium paid and the
retirement of unamortized debt discount related to the debentures. As of
September 4, 1998, the Company has not purchased any of the debentures under
the agreement.
RECENT LOSSES
In 1997, the Company incurred a loss from operations of $2,042,000 and net loss
of $4,377,000. In 1996 and 1995, the Company recognized income from operations
of $3,850,000 and $2,046,000 and net income of $1,372,000 and $1,269,000,
respectively.
ASIAN FINANCIAL CRISIS
The Asian financial crisis has not had a material affect on the Company to date.
Approximately 78% of the Company's products are manufactured in Asia. Most of
the manufacturers used by the Company export their products to the United States
and elsewhere, where demand has not been impacted by the Asian crisis. The
banking and credit functions in Asia have been severely impacted by the crisis
and the Company's manufacturers could be damaged by the contraction of credit
availability. To date, the Company's manufacturers have not been materially
impacted by banking and credit issues in Asia.
BANK COVENANTS
The Company has occasionally been out of compliance with certain financial
covenants established under its line of credit agreement. In the past instances
in which the Company has not met covenants, it has obtained a waiver for the
time period in which the violation occurred.
NASDAQ LISTING REQUIREMENTS
The Common Stock is quoted on the Nasdaq National Market System. The
maintenance criteria for continued quotation on the Nasdaq National Market
System include, among other criteria, (i) net tangible assets of $4.0 million,
(ii) a minimum bid price per share of $1.00, (iii) a public float of 750,000
shares with market value of $5.0 million, (iv) 400
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<PAGE> 14
round lot shareholders and (v) two market makers. Although the Company presently
meets the above-described maintenance criteria, there can be no assurance that
it will continue to do so in the future.
The failure of the Company to continue to meet such maintenance
criteria could result in the Common Stock losing its Nasdaq National Market
System designation. The Nasdaq National Market System provides brokers and
others with immediate access to the best bid and ask prices and other
information about the Common Stock during each trading day. If the Company were
to lose its Nasdaq National Market System designation, real-time price
information for the Common Stock might cease to be available. As a result, an
investor might find it more difficult to dispose of, or to obtain more accurate
quotations as to the price of, the Common Stock.
If the Company were to lose its Nasdaq National Market System
designation, the Company would seek to have its securities listed on the Nasdaq
SmallCap Market or another securities exchange, subject to the Company's ability
to satisfy the eligibility criteria for such exchange. If the Company were
unable to meet the Nasdaq SmallCap Market maintenance criteria, trading, if any,
in the Common Stock might continue to be conducted in non-Nasdaq
over-the-counter markets. The Common Stock would then be subject to the risk
that it could become characterized as a low-priced or "penny stock," which
characterization could have a material adverse effect on the market liquidity of
the Common Stock. See "Penny Stock Regulation." In addition, if the Company was
delisted from the Nasdaq National Market and was unable to obtain listing with
the New York Stock Exchange, American Stock Exchange or Nasdaq SmallCap Market,
holders of the 1997 Debentures and the Convertible Debentures could compel the
Company to redeem all or any portion of such debentures at a price equal to the
greater of: (i) the product of (A) the quotient of (1) the sum of the principal
amount of the debentures being paid plus interest thereon plus any outstanding
prepayment default amounts, divided by (2) the conversion price of the
debentures in effect at such time and (B) the highest closing bid price of the
Common Stock during the applicable default period or (ii) the product of (X) the
sum of the principal amount of the debentures being paid plus interest thereon
plus any outstanding prepayment default amounts and (Y) 111%.
PENNY STOCK REGULATION
Broker-dealer practices in connection with transactions in "penny
stocks" are regulated by certain penny stock rules adopted by the Commission.
Penny stocks generally are equity securities with a price of less than $5.00
(other than securities registered on certain national securities exchanges or
quoted on the Nasdaq Stock Market system, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction,
and monthly account statements showing the market value of each penny stock held
in the customer's account. In addition, the penny stock rules generally require
that prior to a transaction in a penny stock the broker-dealer make a special
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the transaction. If
the Common Stock becomes subject to the penny stock rules, such rules may
restrict the ability of broker-dealers to sell the Company's Common Stock and
may affect the ability of holders to sell the Company's Common Stock in the
secondary market and the price at which such holders can sell any such Common
Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Offered
Shares by the Selling Stockholders. The Company will receive proceeds from the
exercise of the Stock Purchase Warrants, and will use such proceeds for general
corporate purposes and working capital.
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<PAGE> 15
SELLING STOCKHOLDERS
The following table sets forth the names of the Selling Stockholders,
the number of shares of Common Stock beneficially owned by such Selling
Stockholders as of August 31, 1998 and the number of Offered Shares which may be
offered for sale pursuant to this Prospectus by each Selling Stockholder. None
of the Selling Stockholders has held any position, office or other material
relationship with the Company or any of its predecessors or affiliates within
the last three years other than as a result of his or its ownership of shares of
Common Stock. The Offered Shares may be offered from time to time by the Selling
Stockholders named below. However, such Selling Stockholders are under no
obligation to sell all or any portion of such Offered Shares, nor are such
Selling Stockholders obligated to sell any such Offered Shares immediately under
this Prospectus. All information with respect to share ownership has been
furnished by the Selling Stockholders. Because the Selling Stockholders may sell
all or part of their Offered Shares, no estimates can be given as to the number
of shares of Common Stock that will be held by any Selling Stockholder upon
termination of any offering made hereby.
The number of shares shown in the following table represents an
estimate of the number of shares of Common Stock to be offered by the Selling
Stockholders. The actual number of shares of Common Stock issuable upon
conversion of the Convertible Debentures and exercise of the Stock Purchase
Warrants is indeterminate, is subject to adjustment and could be materially more
than such estimated number depending upon factors which cannot be predicted by
the Company at this time. The actual number of shares of Common Stock offered
hereby, and included in the Registration Statement of which this Prospectus is a
part, includes such additional shares of Common Stock as may be issued or
issuable upon conversion of the Convertible Debentures and exercise of the Stock
Purchase Warrants as a result of stock splits, stock dividends and anti-dilution
provisions in accordance with Rule 416 of the Act.
<TABLE>
<CAPTION> Beneficial
Beneficial Maximum ownership and percentage
ownership of number of shares of Common Stock after sale
Common Stock at of Common Stock --------------------------
Name August 31, 1998(1) approved for sale Number Percent
---- ------------------ ----------------- ------ -------
<S> <C> <C> <C> <C>
Capital Ventures International 1,037,086(2) 1,366,172(1) 0(4) 0(4)
CC Investments, LDC 723,762(3) 1,439,414(1) 0(4) 0(4)
Marshall Capital Management, Inc. 723,762(3) 1,439,414(1) 0(4) 0(4)
</TABLE>
- ----------
(1) Pursuant to a Securities Purchase Agreement dated June 8, 1998, between
the Selling Stockholders and the Company, the Selling Stockholders
purchased the Convertible Debentures and Stock Purchase Warrants for
$7,000,000. The Convertible Debentures accrue interest at the rate of
6% per annum, and provide for the principal and accrued interest to be
convertible into shares of the Company's Common Stock at a fixed
conversion price of $4.02 for six months following June 8, 1998, and
thereafter at the lower of the fixed conversion rate or a variable
conversion rate based on a discount of up to 10% to the average price
of the Company's Common Stock for the seven lowest trading days for a
30 day trading period preceding the conversion. The convertible
debentures mature on October 6, 1998. The conversion of the debentures
at a maximum of 90% of the price of the Company's common stock resulted
in the debentures being issued at a discount. The discounted price of
90% applies if the investor does not convert prior to the two-year
anniversary of the closing. The discount of 10% of the face value of
the debentures was recorded as debt discount with a corresponding
increase to additional paid-in capital. The Company will recognize the
discount as non-cash interest expense over the estimated term of the
debentures (two years). Upon conversion of the debentures any portion
of the discount not previously recognized will be recorded as interest
expense on the conversion date. The Stock Purchase Warrants provide for
the purchase of shares of the Company's Common Stock at an exercise
price of $4.72 per share.
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<PAGE> 16
None of the Selling Stockholders is entitled to convert the Convertible
Debentures or exercise the Stock Purchase Warrants to the extent that
such exercise or conversion would cause the Selling Stockholder to
beneficially own more than 4.99% of the total outstanding Common Stock
of the Company (the "4.99% Limitation"). The number of shares of Common
Stock registered pursuant to this Registration Statement on behalf of
the Selling Stockholders and the number of shares offered hereby by
such holders have been determined by agreement between the Company and
the Selling Stockholders. Because the number of shares of Common Stock
that will ultimately be issued upon conversion of the Convertible
Debentures may, in the future, be dependent, subject to certain
limitations, upon the average of prices of the Common Stock over a
period prior to conversion, as described above, and certain
antidilution adjustments, such number of shares (and therefore the
number of shares to ultimately be offered hereby) cannot be determined
at this time. Moreover, pursuant to the regulations of the National
Association of Securities Dealers, in the absence of stockholder
approval, the aggregate number of shares of Common Stock issuable to
the Selling Stockholders at a discount from market prices upon the
conversion of the Convertible Debentures may not exceed 19.99% of the
outstanding shares of Common Stock on June 8, 1998. Unless stockholder
approval is obtained to issue shares of Common Stock in excess of the
maximum amount set forth above, none of the Selling Stockholders will
be entitled to acquire more than its proportionate share of such
maximum amount. Any Convertible Debentures which may not be converted
and any Stock Purchase Warrants which may not be exercised because of
such limitation must be redeemed by the Company.
(2) Includes shares of Common Stock which may be acquired through the
exercise of the Company's warrants and the conversion of the Company's
debentures (including the Convertible Debentures). All such warrants
and debentures contain the 4.99% Limitation.
(3) Includes shares of Common Stock which may be acquired through the
exercise of the Company's Stock Purchase Warrants and the conversion of
the Company's Convertible Debentures.
(4) Assumes the sale of all Offered Shares covered by this Prospectus.
There is no assurance, however, that any of the Selling Stockholders
will sell any or all of the Offered Shares registered hereunder.
PLAN OF DISTRIBUTION
The Offered Shares may be sold or distributed from time to time by the
Selling Stockholders, or by pledgees, donees or transferees of, or successors in
interest to, the Selling Stockholders, directly to one or more purchasers
(including pledgees) or through brokers, dealers or underwriters who may act
solely as agents or may acquire Offered Shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices, which may be changed. The
distribution of the Offered Shares may be effected in one or more of the
following methods: (i) ordinary brokers' transactions, which may include long or
short sales, (ii) transactions involving cross or block trades or otherwise on
the NASDAQ National Market System, (iii) purchases by brokers, dealers or
underwriters as principal and resale by such purchasers for their own accounts
pursuant to this Prospectus, (iv) "at the market" to or through market makers or
into an existing market for the Common Stock, (v) in other ways not involving
market makers or established trading markets, including direct sales to
purchasers or sales effected through agents, (vi) through transactions in
options, swaps or other derivatives (whether exchange listed or otherwise), or
(vii) any combination of the foregoing, or by any other legally available means.
In addition, the Selling Stockholders or their successors in interest may enter
into hedging transactions with broker-dealers who may engage in short sales of
Offered Shares in the course of hedging the positions they assume with the
Selling Stockholders. The Selling Stockholders or their successors in interest
may also enter into option or other transactions with broker-dealers that
require the delivery by such broker-dealers of the Offered Shares, which Offered
Shares may be resold thereafter pursuant to this Prospectus.
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<PAGE> 17
Brokers, dealers, underwriters or agents participating in the
distribution of the Offered Shares may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of Offered Shares for whom such broker-dealers may act as agent or to
whom they may sell as principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions). The Selling
Stockholders and any broker-dealers acting in connection with the sale of the
Offered Shares hereunder may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Act, and any commissions received by them and any profit
realized by them on the resale of Offered Shares as principals may be deemed
underwriting compensation under the Act. Neither the Company, nor any Selling
Stockholder can presently estimate the amount of such compensation. The Company
knows of no existing arrangements between any Selling Stockholder and any other
stockholder, broker, dealer, underwriter or agent relating to the sale or
distribution of the Offered Shares.
Except for the exercise price of the Stock Purchase Warrants, the
Company will not receive any proceeds from the sale of the Offered Shares
pursuant to this Prospectus. The Company has agreed to bear the expenses of the
registration of the shares, including legal and accounting fees, and such
expenses are estimated to be $50,000.
The Company has informed the Selling Stockholders that certain
anti-manipulative rules contained in Regulation M under the Exchange Act may
apply to their sales in the market and has furnished each Selling Stockholder
with a copy of such Rule and has informed them of the need for delivery of
copies of this Prospectus.
Selling Stockholders may also use Rule 144 under the Act to sell the
shares if they meet the criteria and conform to the requirements of such Rule.
EXPERTS
The financial statements incorporated in this Prospectus by reference
from the Company's Annual Report on Form 10-KSB for the year ended December 31,
1997, as amended by Form 10-KSB/A, have been audited by Deloitte & Touche LLP,
independent auditors as stated in their report which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the legality of the securities
offered hereby will be passed upon for the Company by Mr. William R. Black. Mr.
Black is the Executive Vice President, General Counsel and Secretary of the
Company, and a member of the Company's Board of Directors, and owns beneficially
290,000 shares of the Company's Common Stock. None of the shares owned by Mr.
Black are included in the shares to be offered hereby.
MATERIAL CHANGES
There have been no material changes in the Company's affairs which have
occurred since the end of the latest fiscal year for which certified financial
statements were included in the latest annual report to securities holders and
which have not been described in the report on Form 10-KSB for the year ended
December 31, 1997 filed March 31, 1998, as amended by Form 10-KSB/A filed
September 4,1998, the Quarterly Report on Form 10-Q for the quarter ended March
31, 1998 filed May 14, 1998, the Quarterly Report or Form 10-Q for the quarter
ended June 30, 1998 filed August 13, 1998 or the Current Report on Form 8-K
filed June 9, 1998 under the Exchange Act.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The By-Laws of the Company provide that the Company may indemnify any
director, officer, agent or employee as specified in Section 317 of the
California Corporations Code. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
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<PAGE> 18
THE L. L. KNICKERBOCKER CO., INC.
4,245,000 SHARES OF COMMON STOCK
No person is authorized to give any information or to make any
representations, other than those contained or incorporated by reference in this
Prospectus, in connection with the offering contemplated hereby, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company or the Selling Stockholders. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the registered securities to which it relates. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of the
Company since the date hereof or that the information contained or incorporated
by reference herein is correct as of any time subsequent to its date.
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<PAGE> 19
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses payable in connection with the distribution of the securities
being registered (estimated except for the registration fee), all of which will
be borne by the Company, are as follows:
<TABLE>
<S> <C>
Registration Fee $ 3,443.76
Legal Fees and Expenses $25,000.00
Accounting fees $10,000.00
Miscellaneous Expenses $11,556.24
----------
Total $50,000.00
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The By-Laws of the Company provide that the Company may indemnify any
Director, Officer, agent or employee as specified in Section 317 of the
California Corporations Code (the "Code"). Specifically, Article X 4. of the
Company's Amended By-Laws provides as follows:
The corporation may indemnify any Director, Officer, agent or employee
as to those liabilities and on those terms and conditions as are
specified in Sec. 317 of the Code. In any event, the corporation shall
have the right to purchase and maintain insurance on behalf of any such
persons whether or not the corporation would have the power to
indemnify such person against the liability insured against.
Section 317 of the California Corporations Code provides that a
corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any civil, criminal, administrative or
investigative proceeding (other than an action by or in the right of the
corporation to procure a judgment in its favor) by reason of the fact that the
person is or was a director, officer, employee or other agent of the
corporation, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with the proceeding if that
person acted in good faith and in a manner the person reasonably believed to be
in the best interests of the corporation and, in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of the person was
unlawful.
No indemnification shall be made under Section 317 in the event that:
(i) the person seeking indemnification shall have been adjudged to be liable to
the corporation and its shareholders, unless, and only to the extent that the
court before which the proceeding was pending shall determine, in view of all
the circumstances of the case, the person is fairly and reasonably entitled to
indemnity to the extent that the court determines; (ii) the person seeks
indemnity for amounts paid in settling or otherwise disposing of a pending
action without court approval; or (iii) the person seeks indemnity for expenses
incurred in defending a pending action which is settled or otherwise disposed of
without court approval.
Section 317 provides that indemnification under that section shall be
made by the corporation only if authorized in the specific case, upon
determination that indemnification is proper because the person has met the
applicable standards of conduct set forth in subdivision 317(b) or 317(c), by
(i) a majority vote of a quorum of directors who are not parties to the
proceeding; (ii) if such a quorum is not obtainable, by independent legal
counsel in a written opinion; (iii) approval of the shareholders, with the
shares owned by the person to be indemnified not entitled to vote thereon; or
(iv) the court in which the proceeding is or was pending upon application made
by the corporation or the person or the attorney or other person rendering
services in connection with the defense, whether or not the application by the
person or the attorney or other person rendering services in connection with the
defense is opposed by the corporation.
The indemnification provided for in Section 317 for acts, omissions or
transactions while acting in the capacity of or while serving as, a director or
officer of the corporation but not involving breach of duty to the corporation
and its
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<PAGE> 20
shareholders shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any bylaw, agreement, vote
of shareholders or disinterested directors, or otherwise, to the extent the
additional rights to indemnification are authorized in the articles of
incorporation. Additionally, Section 317 provides that the corporation shall
have the power to purchase and maintain insurance on behalf of any agent of the
corporation against any liability asserted against or incurred by the agent in
that capacity or arising out of the agent's status as such whether or not the
corporation would have the power to indemnify the agent against that liability
under Section 317.
The Registrant's Articles of Incorporation do not provide for
additional rights to indemnification of directors, officers, employees or other
agents, however the board of directors of the Registrant, by resolution has
provided for the purchase and maintenance of liability insurance to cover the
directors of the Registrant.
Reference is hereby made to Item 17 entitled "Undertakings" of this
Registration Statement for the Company's undertaking with respect to submitting
claims for indemnification to a court of appropriate jurisdiction to determine
the question of whether such indemnification is against public policy as
expressed in the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS*
3.1 Amended Articles of Incorporation of the Registrant**
3.2 Amended By-Laws of the Registrant**
4.1 Securities Purchase Agreement dated June 8, 1998***
4.2 Form of Convertible Term Debenture***
4.3 Form of Stock Purchase Warrant***
4.4 Form of Registration Rights Agreement***
5. Opinion of William R. Black****
23.1 Consent of William R. Black (included in Exhibit
5).****
23.2 Consent of Deloitte & Touche, LLP****
- ----------
* Exhibits 2, 8, 12, 15, 25, 26, 27, 28 and 99 have been omitted because
they are not applicable.
** Incorporated by reference to the Company's Registration Statement on
Form SB-2 (File No. 33-85230-LA).
*** Incorporated by reference to the Company's Current Report on Form 8-K
filed June 9, 1998.
**** Filed herewith.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most
recent post-effective amendment thereof)
18
<PAGE> 21
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the registration
statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement;
provided, however, that paragraphs (a)(i) and (ii) do
not apply if the information required to be included
in a post-effective amendment by those paragraphs is
contained in the periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of
the Exchange Act that are incorporated by reference
in the registration statement.
(b) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(d) That for purposes of determining any liability under
the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of
1934 that is incorporated by reference in the
registration statement shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the indemnification provisions described under Item
15, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is. therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
19
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Lake Forest, State of California on
September 2, 1998.
THE L. L. KNICKERBOCKER CO., INC.
By: /S/ Louis L. Knickerbocker
-------------------------------------
Name: Louis L. Knickerbocker
Title: President, Chief Executive
Officer and Chairman
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/S/ Louis L. Knickerbocker President, Chief Executive 9/02/98
- -------------------------------- Officer and Chairman
Louis L. Knickerbocker (Principal Executive Officer)
/S/ Anthony P. Shutts Chief Financial Officer 9/02/98
- -------------------------------- and Director
Anthony P. Shutts (Principal Financial
and Accounting Officer)
/S/ Gerald Margolis Director 9/02/98
- --------------------------------
Gerald Margolis
/S/ Tamara Knickerbocker Executive Vice President 9/02/98
- -------------------------------- and Director
Tamara Knickerbocker
/S/ William R. Black Executive Vice President, 9/02/98
- -------------------------------- General Counsel, Secretary
William R. Black and Director
/S/ F. Rene Alvarez, Jr. Director 9/02/98
- --------------------------------
F. Rene Alvarez, Jr.
</TABLE>
20
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
3.1 Amended Articles of Incorporation of the Registrant**
3.2 Amended By-Laws of the Registrant**
4.1 Securities Purchase Agreement dated June 8 1998***
4.2 Form of Convertible Term Debenture***
4.3 Form of Stock Purchase Warrant***
4.4 Form of Registration Rights Agreement***
5. Opinion of William R. Black****
23.1 Consent of William R. Black (included in Exhibit 5).****
23.2 Consent of Deloitte & Touche, LLP****
</TABLE>
- ----------
* Exhibits 2, 8, 12, 15, 25, 26, 27, 28 and 99 have been omitted because
they are not applicable.
** Incorporated by reference to the Company's Registration Statement on
Form SB-2 (File No. 33-85230-LA).
*** Incorporated by reference to the Company's Current Report on Form 8-K
filed June 9, 1998.
**** Filed herewith.
21
<PAGE> 1
EXHIBIT 5
WILLIAM R. BLACK
ATTORNEY AT LAW
25800 COMMERCENTRE DRIVE
LAKE FOREST, CALIFORNIA 92630
----------
TELEPHONE (949) 595-7900
FACSIMILE (949) 595-7913
September 4, 1998
Board of Directors
The L. L. Knickerbocker Company, Inc.
25800 Commercentre Drive
Lake Forest, California 92630
RE: REGISTRATION STATEMENT ON FORM S-3,
THE. L. L. KNICKERBOCKER CO., INC.
Ladies and Gentlemen:
I have acted as counsel to The L. L. Knickerbocker Company,
Inc. (the "Company") in connection with Amendment No. 1 to the Registration
Statement on Form S-3 (the "Registration Statement") to be filed by the Company
pursuant to the Securities Act of 1933, as amended, on or about September 4,
1998, with respect to 4,245,000 shares (the "Shares") of the Company's Common
Stock (no par value) (the "Common Stock") which are being offered by the certain
Selling Shareholders upon the conversion of convertible debentures and exercise
of warrants issued by the Company to those Selling Shareholders in June 1998.
As counsel for the Company in connection with the preparation
and filing of such Registration Statement, I have examined, among other things,
the originals, or copies properly certified or otherwise identified to my
satisfaction as being in the form of the originals, of the following:
A. the corporate proceedings relating to the
organization and present existence of the Company,
including its Registered Certificate of Incorporation
and all amendments thereto, and all acts of
incorporators, shareholders and directors in
connection therewith;
B. the By-Laws of the Company as amended and as in
effect at relevant dates;
C. the Registration Statement as filed on form SB-2
pursuant to the provisions of the Securities Act of
1933, as amended;
D. the annual report on form 10-KSB/A filed pursuant to
Section 13(a) of the Securities Exchange Act of 1934
(the "Exchange Act") on September 4, 1998; and
E. all reports filed on behalf of the Company pursuant
to Section 13(a) or 13(d) or 15(d) of the Exchange
Act.
22
<PAGE> 2
BOARD OF DIRECTORS
THE L. L. KNICKERBOCKER COMPANY, INC.
SEP 4, 1998
PAGE 2
Based upon my examination of the foregoing and of other data
and evidence deemed by me necessary in rendering this opinion, and upon
consideration of applicable law, I am of the opinion that:
1. the Company is a corporation validly organized and existing
under the laws of the State of California and is qualified to transact business
in that state;
2. the Shares, when issued and sold in accordance with the
offering described in the Registration Statement, will be legally issued, fully
paid, and nonassessable.
I hereby consent to the filing of this opinion with the
Securities and Exchange Commission as an exhibit to Part II of the Registration
Statement and to the references made to me in the Registration Statement.
Very truly yours,
LAW OFFICES OF WILLIAM R. BLACK
/S/ William R. Black
-----------------------------------------
By: William R. Black
23
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment No. 1 to Registration
Statement No. 333-59169 of The L.L. Knickerbocker Co., Inc. on Form S-3 of our
report dated March 31, 1998 appearing in the Annual Report on Form 10-KSB/A of
The L.L. Knickerbocker Co., Inc. for the year ended December 31, 1997.
We also consent to the reference to us under the heading "Experts" in this
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
September 2, 1998
24
