KNIC
Ken: This company has virtually lived off of convertible debentures for the last few years. Once you get the taste of one, it becomes addictive, almost like heroin... keeps you coming back for more.
FYI, from the latest DEFS14A proxy, filed 11/18/98:
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<<November 18, 1998
Shareholders of The L.L. Knickerbocker Co., Inc.
Dear valued shareholders:
Enclosed in this package is a proxy statement containing proposals for which the Company requests your approval. Your approval is executed by casting your vote in favor of the proposals and mailing the information in the envelope provided. We apologize for the amount of pages it took to complete the proxy and hope that it is not ignored due to its sheer size.
There are two proposals included in the proxy statement. The first proposal authorizes the Company to issue a new class of stock, preferred stock. The primary reasons the Company wants preferred stock authorized is to refinance certain convertible debentures and to provide greater flexibility in future financing endeavors, should they be necessary. Refinancing the convertible debentures into preferred stock will provide more favorable accounting treatment than what the convertible debentures afford.
The second proposal approves the June 8, 1998 convertible debenture offering and, under the terms of the debenture agreement and as required by the NASD, authorizes the Company to issue the number of shares required should the investors in the debenture offering convert the principal amount of the debenture into common stock of the Company.
We believe the proposals contained in the proxy statement are in the best interests of the Company and encourage you to vote in favor of the proposals.
Your vote is needed before December 8, 1998.
Very truly yours,
/s/ Anthony P. Shutts
--------------------------------
Anthony P. Shutts
Chief Financial Officer>>
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<<On June 8, 1998, the Company and the Investors entered into the Securities Purchase Agreement pursuant to which the Company agreed to consummate a private placement (the "Private Placement") of the following securities: (i) at a closing consummated on June 8, 1998 (the "First Closing"), the Company issued Debentures in the original principal amount of $7,000,000 and Warrants to purchase 261,195 shares of Common Stock at an exercise price of $4.72 per share, in exchange for the payment by the Investors of a purchase price of $7,000,000, (ii) at a closing to be consummated at a subsequent date (the "Exchange Closing"), the Company agreed to issue shares of Series A Stock of the Company with a stated value equal to the outstanding principal balance of the Debentures, which shares will be issued in exchange for the cancellation of the Debentures and (iii) at a closing to be consummated at a subsequent date (the "Second Closing"), the Company agreed to issue shares of Series A Stock of the Company with a stated value of $3,000,000 and Warrants to purchase 111,940 shares of Common Stock at an exercise price of $4.72 per share, in exchange for the payment by the Investors of a purchase price of $3,000,000. At the First Closing, the Company received gross proceeds of $7,000,000 from the issuance of the Debentures, and net proceeds of approximately $6,650,000, after the payment of costs and expenses related to the Private Placement, including $350,000 paid to The Shemano Group as compensation for placement services rendered in connection with the Private Placement. The issuance of the securities to the Investors under the Private Placement is being conducted as a private offering pursuant to Regulation D under the Securities Act of 1933, as amended.
The Company sold securities in the Private Placement in order to obtain funds to meet its seasonal cash flow requirements, to fund inventory purchases for the 1998 fall season and to meet short-term purchase and other obligations. The Company agreed to exchange the Debentures for shares of Series A Stock in order to capitalize its short-term debt into equity and thereby strengthen its financial position.
WHY THE COMPANY IS REQUESTING SHAREHOLDER APPROVAL OF THE PROPOSAL 2 MATTERS
The Company is requesting that its shareholders approve the Proposal 2 Matters because the terms of the Securities Purchase Agreement require such approval. See "-- Securities Purchase Agreement." In addition, certain rules of the Nasdaq National Market ("Nasdaq") applicable to the Company require that the Company obtain the approval of its shareholders before the issuance at a price per share below the greater of market or book value of the Common Stock (or securities convertible into Common Stock) of the Company having voting power equal to or greater than 20% or more of the outstanding Common Stock of the Company. In connection with the conversion of the Debentures and the Series A Stock and the exercise of the Warrants, shares of the Common Stock of the Company may be issued at a price per share below the greater of market or book value of such Common Stock and the voting power of such shares may exceed 20% of the outstanding Common Stock of the Company. Accordingly, the Company is required under the Nasdaq rules to obtain the approval of its shareholders of such issuances of securities. See "-- Nasdaq Listing Obligation." Also, certain provisions of the General Corporation Law of the State of California require that the shareholders of the Company consent to the amendment of the Articles of Incorporation of the Company to provide for the issuance of the Series A Stock. A failure to obtain the approval of the shareholders of the Company of the Proposal 2 Matters could have certain adverse consequences, including
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requiring that the Company repay from time to time portions of the Debentures at the Default Amount (as defined below) in order to comply with the requirements regarding the Stock Limitation (as defined below) contained in the Debentures and that the Company repay the outstanding balance of the Debentures at their December 28, 1998 maturity date. See "--Debentures--Conversion" and "-- Consequences if Shareholder Approval is not Obtained.">>
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<<r. Acknowledgment of Dilution. The number of Conversion Shares issuable upon conversion of the Debentures may increase substantially in certain circumstances, including the circumstance wherein the trading price of the Common Stock declines. The Company's executive officers have studied and fully understand the nature of the Securities being sold hereunder. The Company acknowledges that its obligation to issue Conversion Shares upon conversion of the Debentures in accordance with the terms of the Debentures is absolute and unconditional, regardless of the dilution that such issuance may have on the ownership interests of other stockholders. Taking the foregoing into account, the Company's Board of Directors has determined in its good faith business judgment that the issuance of the Debentures and the Warrants hereunder and the consummation of the other transactions contemplated hereby are in the best interests of the Company and its stockholders.>>
Sure seems like a pretty toxic convertible to me.
Razor
PS - No, I'm not short. Actually I'm about 6'4". ;^) |
