THE L. L. KNICKERBOCKER CO., INC.
April 6, 1998
To Our Stockholders:
On behalf of the Board of Directors, I cordially invite you to attend the
Annual Meeting of Stockholders to be held Friday May 15, 1998 at 10:00 a.m.,
Pacific time, at the Company's principal executive offices at 25800 Commercentre
Drive, Lake Forest, California 92630. The formal notice and proxy statement for
the Annual Meeting are attached to this letter.
It is important that you sign, date and return your proxy card in the
enclosed envelope as soon as possible, even if you currently plan to attend the
Annual Meeting. By doing so, you will ensure that your shares are represented
and voted at the meeting. If you decide to attend, you can still vote your
shares in person, if you wish.
On behalf of the Board of Directors, I thank you for your cooperation and I
look forward to seeing you on May 15th.
Very truly yours,
/s/ Louis L. Knickerbocker
Louis L. Knickerbocker
Chairman of the Board
THE L. L. KNICKERBOCKER CO., INC.
25800 Commercentre Drive
Lake Forest, California 92630
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held May 15, 1998
TO THE STOCKHOLDERS OF THE L. L. KNICKERBOCKER CO., INC.
Notice is hereby given that the annual meeting of stockholders of the L. L.
Knickerbocker Co., Inc. (the "Company") will be held at the Company's principal
executive offices at 25800 Commercentre Drive, Lake Forest, California 92630 on
Friday May 15, 1998 at 10:00 a.m., Pacific time for the following purposes:
1. Election of Directors. To elect by vote of the holders of Common Stock a
total of six persons to the Board of Directors to serve until the next
annual meeting of stockholders and until their successors are elected
and have qualified. The Board of Directors, nominees are:
Louis L. Knickerbocker Gerald A. Margolis
Tamara Knickerbocker Anthony Shutts
William R. Black F. Rene Alvarez, Jr.
2. Ratification of Appointment of Independent Public Accountants. To ratify
the Board of Directors' selection of Deloitte & Touche LLP as the
Company's independent accountants for the fiscal year ended December 31,
1998.
3. Other Business. To consider and act upon such other business as may
properly come before the meeting.
Only stockholders of record at the close of business on March 31, 1998 will
be entitled to notice of the annual meeting and to vote at the annual meeting
and at any adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William R. Black
William R. Black
Secretary
Dated: April 6, 1998
WHETHER OR NOT YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE.
YOU MAY REVOKE YOUR PROXY IF YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO
VOTE YOUR SHARES IN PERSON.
THE L. L. KNICKERBOCKER CO., INC.
25800 Commercentre Drive
Lake Forest, California 92630
(714) 595-7900
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
May 15, 1998
GENERAL
This proxy statement is furnished to stockholders of the L. L.
Knickerbocker Co., Inc., a California corporation (the "Company") in connection
with the solicitation of proxies by the Board of Directors of the Company (the
"Board" or "Board of Directors") for use at the Annual Meeting of Stockholders
to be held at 10:00 a.m., Pacific time on Friday May 15, 1998 at the Company's
principal executive offices at 25800 Commercentre Drive, Lake Forest, California
92630 and at any adjournments thereof (the "Annual Meeting" or "Meeting").
Common stockholders of record as of the close of business on March 31, 1998
will be entitled to vote at the Meeting or any adjournments thereof. As of the
record date, the Company has outstanding 19,077,057 shares of Common Stock, each
entitled to one vote on all matters to be voted upon. This proxy statement, the
accompanying form of proxy and the Company's annual report to stockholders for
the fiscal year ended December 31, 1997 are being mailed on or about April 15,
1997 to each stockholder entitled to vote at the Meeting.
VOTING AND REVOCATION OF PROXIES
Voting
If the enclosed proxy is executed and returned in time and not revoked, all
shares represented thereby will be voted. Each proxy will be voted in
accordance with the stockholder's instructions. If no such instructions are
specified, the proxies will be voted FOR the election of each person nominated
for election as a director, and FOR the ratification of the Board's selection of
Deloitte & Touche LLP as the Company's independent accountants for the fiscal
year ended December 31, 1998.
Assuming a quorum is present, the affirmative vote of a plurality of the
votes cast at the Meeting will be required for the election of directors, the
affirmative vote of a majority of the votes cast at the Meeting will be required
for the ratification of the Board's selection of Deloitte & Touche LLP as the
Company's independent accountants, and the affirmative vote of a majority of the
votes cast at the Meeting will be required to act on all other matters to come
before the Annual Meeting. For purposes of determining the number of votes
cast with respect to any voting matter, only those cast "for" or "against" are
included. Abstentions and broker non-votes are counted only for the purposes of
determining whether there is a quorum present at the Meeting. With respect to
all matters (other than the election of directors), abstentions and broker non-
votes will have the effect of reducing the number of affirmative votes required
to achieve a majority of the votes cast.
Revocation
A stockholder giving a proxy may revoke it at any time before it is voted
by delivery to the Company of a subsequently executed proxy or a written notice
of revocation. In addition, returning your completed proxy will not prevent you
from voting in person at the Annual Meeting should you be present and wish to do
so.
ELECTION OF DIRECTORS
The Company's Amended and Restated By-laws set the number of directors at
six. The size of the Company's Board is currently six directors. On January 1,
1998, Ms. Farrah Fawcett resigned from the Board of Directors. This vacancy on
the Board of Directors was filled by the appointment, effective January 1, 1998,
of Ms. Tamara Knickerbocker. Directors hold office until the next annual
meeting of stockholders and until their successors are elected and have
qualified.
Unless otherwise directed, proxies in the accompanying form will be voted
FOR the nominees listed below. If any one or more of the nominees is unable to
serve for any reason or withdraws from nomination, proxies will be voted for the
substitute nominee or nominees, if any, proposed by the Board of Directors. The
Board has no knowledge that any nominee will or may be unable to serve or will
or may withdraw from nomination. All of the following nominees are current
directors of the Company whose terms end at the 1998 Annual Meeting.
Information concerning nominees for director is set forth below.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE BOARD OF DIRECTORS'
NOMINEES FOR DIRECTOR TO BE ELECTED BY THE HOLDERS OF COMMON STOCK.
Nominees for Election by Holders of Common Stock
MR. LOUIS L. KNICKERBOCKER is the founder of the Company and has been
Chief Executive Officer, President, and Chairman since its inception. He
received an AA degree in 1964 from Santa Monica College with a major in medicine
and a minor in economics, then worked from 1965 through 1974 as a salesman and
sales supervisor at M. Cooper & Son, purchased and sold several liquor stores,
and acquired and sold a total of seven restaurants. Between 1974 and 1985, he
acted as a private investor and businessman, investing in real estate and
purchasing and selling small businesses. Mr. Knickerbocker and his wife,
Tamara, Executive Vice President and Director of the Company, formed the Company
as International Beauty Supply in 1985, co-founded LaVie Cosmetics with Michael
Elam and comedienne, Phyllis Diller in 1987, co-founded MLF Enterprises, in 1989
with Michael Elam and Farrah Fawcett, formed Knickerbocker Creations, Ltd. in
1990 and began developing the celebrity driven products which are now part of
the L. L. Knickerbocker Co., Inc. Age: 57.
MS. TAMARA KNICKERBOCKER was appointed to the Board of Directors on January
1, 1998 to fill the vacancy created by the resignation of Farrah Fawcett. Ms.
Knickerbocker is the co-founder of the Company and has been with the Company as
Vice President since its inception. She has over 10 years experience in the
field of direct marketing. In 1985, Ms. Knickerbocker helped to form the Company
as International Beauty Supply, and thereafter LaVie Cosmetics, MLF Enterprises
and Knickerbocker Creations, Ltd. Since 1985, she has worked to develop and
market products and programs for the home shopping industry. Her focus has
mainly been the creation and development of the products, and she has emphasized
collectibles. Ms. Knickerbocker is currently managing all aspects of the Marie
Osmond Doll Collection program, including product and program development,
production, marketing and sales. In addition, she also oversees the other
collectible programs, including the collectable bears. She has had primary
responsibility for the profitability and diversity of the collectible lines and
is currently coordinating expansion in these programs. Age: 34.
2
MR. ANTHONY P. SHUTTS, CPA was hired as a consultant on April 1, 1993 and
became Chief Financial Officer of the Company on June 30, 1993. From 1993
through 1995, Mr. Shutts served as Chief Financial Officer of the Company
approximately 90 hours per month, overseeing the financial records preparation
and reporting, and performing the general functions of CFO. In 1996, Mr. Shutts
joined the Company full time as Chief Financial Officer. He is a certified
public accountant and holds a masters degree in taxation from the University of
Southern California. From 1993 to 1996, Mr. Shutts maintained a private
accountancy and financial consulting practice. Prior to his private practice,
he worked as Business Manager with Breslauer, Jacobson, Rutman & Sherman from
1992 to 1993 and with Allen, Haight & Schurawel as a Senior Accountant from 1991
to 1992. Mr. Shutts worked with Deloitte & Touche as a Senior Consultant from
1986 to 1991. Age: 34.
MR. GERALD A. MARGOLIS was appointed to the Board of Directors of the
Company in June 1994. He graduated from U.C.L.A. Law School in 1954 and has
been a licensed attorney in private practice and a member of the California
State Bar since 1955. Mr. Margolis was a City Council member of the Culver City
Counsel from 1962 to 1966. Mr. Margolis has advised the Company on general
corporate matters since its inception in 1985. Age: 68.
MR. WILLIAM R. BLACK was appointed to the Board of Directors in October
1995. Mr. Black joined the Company as Vice President and General Counsel in
April 1997. He received a BSBA and an MBA from the University of Denver in
1978 and 1981 respectively, and a Juris Doctor from Western State University
College of Law in 1987. Mr. Black is a licensed attorney and a member of the
California State and Federal Bars. Mr. Black worked as an Area Manager for
Deere & Company from 1979 through 1984, Director of Analysis for Management
Resource Services Company from 1984 through 1985, Senior Vice President of
Geneva Corporation from 1985 through 1990, and General Counsel of Sunclipse,
Inc. from 1992 through 1997. He maintained a private law practice from 1991
through 1997 and has been General Counsel and Director of Pyraponic Industries,
Inc.; Special Counsel for Amcor, Ltd.; General Counsel, Secretary and Director
of Anle Paper Co., Inc.; General Counsel, Secretary and Director of Mann-Craft
Container Corporation; Director of Raymark Container, Inc.; Director General of
Amcor de Mexico, S.A. de C.V. in Jalisco Mexico; and Director General of Kent H.
Landsberg Co. de Mexico, S.A. de C.V. in Baja California Mexico. Age: 45.
MR. F. RENE ALVAREZ, JR. was appointed to the Board of Directors on May 13,
1997 to fill the vacancy created by the resignation of Lowell W. Paxson in March
1997. Mr. Alvarez has been the Senior Vice President, Finance of the Pacific
Bay Homes subsidiary of Ford Motor Company since 1995. He worked as a member of
the finance staff for Ford Motor Company from 1969 to 1989, as Director of
Internal Audit for the USL Capital subsidiary of Ford Motor Company from 1989 to
1994 and as Audit Manager, Finance Staff, for Ford Financial Services Group from
1994 to 1995. Mr. Alvarez attained the rank of Captain in the United States
Army, and was awarded the Bronze Star for service in Vietnam. He received a BS,
Accounting, from Canisius College in 1962 and a Juris Doctor and LLB from State
University of New York at Buffalo in 1967. Mr. Alvarez is a licensed attorney
and a member of the New York State Bar. Age: 59.
FURTHER INFORMATION CONCERNING
THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company directs the management of the
business and affairs of the Company as provided by California law, and conducts
its business through meetings of the Board and two standing committees:
Compensation and Stock Option. In addition, from time to time, special
committees may be established under the direction of the Board when necessary to
address specific issues. The Company has no nominating or similar committees.
3
Committees of the Board - Board Meetings
The Board of Directors of the Company held four meetings in fiscal 1997.
Each director except Farrah Fawcett attended 100% of the aggregate of (i)
meetings of the Board held during the period for which he or she served as a
director and (ii) meetings of all committees held during the period for which he
or she served on those committees. Ms. Fawcett did not attend any meetings.
Average attendance at all such meetings of the Board and committees was
approximately 83%.
The COMPENSATION COMMITTEE is charged with the responsibility of
supervising the Company's compensation policies, management awards, reviewing
salaries, approving significant changes in salaried employee benefits, and
recommending to the Board such other forms of renumeration as it deems
appropriate. The Compensation Committee is currently comprised of Mr.
Knickerbocker as chairman, and Mr. Alvarez, Mr. Margolis and Mr. Black. The
Compensation Committee held one meeting in fiscal 1997.
The STOCK OPTION COMMITTEE has the principal functions of determining
individuals to whom stock options will be granted under the L. L. Knickerbocker
1995 Amended and Restated Stock Option Plan (the "Stock Option Plan") and the LL
Knickerbocker Co., Inc. Stock Incentive Compensation Plan (the "ISO Plan"), the
terms on which such stock options will be granted, and to administer the Stock
Option Plan and the ISO Plan. During fiscal 1997, the Stock Option Committee
was comprised of Mr. Knickerbocker as chairman, Mr. Black, a management
director, and Mr. Alvarez and Mr. Margolis, who are independent non-employee
directors and "disinterested persons" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934 (the "Exchange Act"). The Stock Option
Committee held two meetings in fiscal 1997.
RATIFICATION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected the accounting firm of Deloitte &
Touche LLP to audit the Company's financial statements for and otherwise act as
the Company's independent accountants with respect to, the fiscal year ended
December 31, 1998. In accordance with the Board's resolution, its selection of
Deloitte & Touche LLP as the Company's independent accountants for fiscal 1998
is being presented to the stockholders for ratification at the Annual Meeting.
The Company knows of no direct or material indirect financial interest of
Deloitte & Touche LLP in the Company or any connection of that firm with the
Company in the capacity of promoter, underwriter, voting trustee, officer or
employee.
Members of Deloitte & Touche LLP will be present at the meeting, will have
an opportunity to make a statement if they so desire, and will be available to
respond to appropriate questions.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE INDEPENDENT ACCOUNTANTS OF THE
COMPANY.
4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the shares of
Common Stock beneficially owned as of March 31, 1998 by (i) each person known
to the Company to own beneficially more than 5% of the outstanding shares of
Common Stock as of such date, (ii) each director of the Company and all non-
director nominees for director, (iii) the CEO of the Company and the four most
highly compensated executive officers of the Company for the fiscal year ended
December 31, 1997, and (iv) all directors and executive officers as a group:
Common Stock Percent
Name Beneficially Owned (1) of Shares (2)
- ------------------------------------- ---------------------- -------------
Louis L. Knickerbocker(3) 4,292,392 22.8%
Tamara Knickerbocker(4) 3,446,979 18.3%
Anthony Shutts (5) 205,400 1.0%
Gerald A. Margolis (6) 220,000 1.1%
F. Rene Alvarez, Jr. (7) 10,000 *
William R. Black (8) 290,000 1.5%
All Directors and Executive Officers
as a Group (6 persons) (9) 8,464,771 44.5%
____________________
* The percentage of shares of Common Stock beneficially owned does not exceed
one percent of the outstanding shares of Common Stock
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of common stock which such person has
the right to acquire within 60 days following March 31, 1998.
(2) For purposes of computing the percentage of outstanding shares of Common
Stock held by each person or group of persons named above, any security
which such person or persons has or have the right to acquire within 60
days following March 31, 1998 is deemed to be outstanding, but is not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
(3) Mr. Knickerbocker currently owns 3,792,392 shares of Common Stock, and
options to acquire 500,000 shares of the Company's Common Stock which will
have vested within 60 days of March 31, 1998.
(4) Mrs. Knickerbocker currently owns 3,432,392 shares of Common Stock, and
options to acquire 14,587 shares of the Company's Common Stock which will
have vested within 60 days of March 31, 1998.
(5) Mr. Shutts currently owns 400 shares of Common Stock, and options to
acquire 205,000 shares of the Company's Common Stock which will have vested
within 60 days of March 31, 1998.
(6) Mr. Margolis currently owns 150,000 shares of Common Stock, and options to
acquire 70,000 shares of the Company's Common Stock which will have vested
within 60 days of March 31, 1998.
(7) Mr. Alvarez currently owns options to acquire 10,000 shares of the
Company's Common Stock which will have vested within 60 days of March 31,
1998.
(8) Mr. Black currently owns 102,398 shares of Common Stock, and options to
acquire 187,602 shares of the Company's Common Stock which will have vested
within 60 days of March 31, 1998.
(9) Beneficial ownership of the Directors and Executive Officers as a group is
based on 7,477,582 shares of the Company's Common Stock currently held of
record plus options issued by the Company to Directors and Executive
Officers to acquire 987,189 shares of the Company's Common Stock which will
have vested within 60 days of March 31, 1998.
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and holders of more than 10% of the Company's Common Stock to
file with the Securities and Exchange Commission reports of ownership and
changes in ownership of Common Stock and other equity securities of the Company
on Forms 3, 4 and 5. Based on a review of such forms and written representations
of reporting persons, the Company believes that during the fiscal year ended
December 31, 1997, its officers and directors and holders of more than 10% of
the Company's Common Stock complied with all applicable filing requirements.
5
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information regarding each of the current
executive officers of the Company. Information about Mr. Knickerbocker, Ms.
Knickerbocker, Mr. Black and Mr. Shutts is presented in "ELECTION OF DIRECTORS -
Nominees for Election by Holders of Common Stock." Officers are appointed by and
serve at the discretion of the Board.
Name Age Position
- ------------------------- ----- -----------------------------------------
Louis L. Knickerbocker 57 Chief Executive Officer, President
and Chairman of the Board
Robert L. West, Jr. 39 Chief Operating Officer
Tamara Knickerbocker 34 Executive Vice President and Director
Anthony P. Shutts 34 Chief Financial Officer and Director
William R. Black 45 Vice President, General Counsel,
Secretary and Director
The principal occupations and positions for the past five years, and in
certain cases prior years, of the executive officers of the Company who are not
also nominees for election as director, are as follows:
Mr Robert L. West, Jr joined the Company in February 1997 as acting interim
president of Georgetown Collection, Inc. He assumed the position of Chief
Operating Officer in January 1998. From 1981 to 1984, he worked as Division
Controller for Royster Company in Norfolk, Virginia. He was Manager of
Financial Analysis for Rohm and Haas Company in Philadelphia, Pennsylvania from
1984 to 1987. Mr. West was the Head of European Operations for the Franklin
Mint, headquartered in London, England, from 1987 to 1990. From 1990 to 1991,
he served as Consultant to the Chief Executive Officer of J. Crew Group in New
York, New York, and Consultant and Vice President of Finance and Operations for
Paradise Galleries, Inc. in San Diego, California. Mr. West was Vice President
and Chief Financial Officer of Georgetown Collection, Inc. in Portland, Maine
from 1991 to 1995, and Vice President of Worldwide Operations for Quantum North
America from 1995 to 1996. Mr. West holds a BSBA in Management and Finance
from the University of North Carolina, and has completed graduate work in
Organizational Dynamics and Leadership at the University of Pennsylvania. He is
a member of the American Management Association, the American Financial
Association, the Institute of Management Accountants, the World Affairs Council
and is listed in several Who's Who publications.
6
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth certain
--------------------------
information concerning annual, long term and other compensation received during
the last three fiscal years and to be received by each of the Named Executive
Officers for services rendered in all capacities to the Company during the three
fiscal years ended December 31, 1997, 1996 and 1995.
Long Term
Annual Compensation Compensation
------------------------------------ ---------------
Securities
Fiscal All Other underlying
Name and Principal Position Year Salary Bonus Compensation Options(1)
- ------------------------------- ------ --------- --------- ------------ ---------------
Louis L. Knickerbocker 1997 $300,000 $200,000 N/A 500,000
Chairman, Chief Executive 1996 $300,000 N/A N/A N/A
Officer and President 1995 $175,000 $175,000 N/A 500,000
Robert L. West, Jr. 1997 N/A N/A N/A N/A
Chief Operating Officer 1996 N/A N/A N/A N/A
1995 N/A N/A N/A N/A
Tamara Knickerbocker 1997 $ 80,000 $ 50,000 N/A 2,216
Executive Vice President 1996 $ 80,000 N/A N/A 12,362
1995 $ 75,000 N/A N/A N/A
Anthony Shutts 1997 $120,000 $ 72,939 N/A 205,000
Chief Financial Officer 1996 $110,000 N/A N/A N/A
1995 $ 63,046 N/A N/A 50,000
William R. Black 1997 $109,038 N/A N/A 250,000
Vice President and 1996 $ N/A N/A N/A 10,000
General Counsel 1995 $ N/A N/A N/A 108,750
_________________
(1) All share amounts have been retroactively adjusted to give effect to the
five for one stock split effective August 1995.
7
Table of Option Grants. The following table sets forth information
----------------------
concerning the grant of stock options during the fiscal year ended December 31,
1997 to each of the Named Executive Officers.
OPTION GRANTS IN THE FISCAL YEAR ENDED DECEMBER 31, 1997
Individual Grants(1)
-------------------------------------------------------
Percent of
Total Options Potential Realizable
Granted to Value at Assumed
Employees Exercise or Annual Rates of
Options in Fiscal Base Price Expiration Stock Price Appreciation
Name Granted Year 1996(2) (per share)(3) Date(4) for Option Term
- --------------------- --------- ------------- -------------- ---------- ------------------------
5% (5) 10% (5)
-------- ----------
Louis L Knickerbocker 500,000 39.50% $5.00 2002 $701,755 $1,550,695
Tamara Knickerbocker 2,216 0.17% $5.87 2002 $ 3,594 $ 7,941
Anthony P. Shutts 205,000 16.10% $4.62 2007 $261,666 $ 578,214
William R. Black 250,000 19.70% $4.62 2007 $319,105 $ 705,139
_______________
(1) These options were granted pursuant to the Company's Incentive Stock
Compensation Plan.
(2) In fiscal 1997, 1,265,617 options were granted pursuant to the Company's
Incentive Stock Compensation Plan. This number was used in calculating the
percentages in the above table.
(3) All exercise prices are set at 100% of the market value of the Company's
stock as of the date of grant, except Mr. and Ms. Knickerbocker, whose
options were granted at 110% of the market value of the Company's stock as
of the date of grant.
(4) The Options granted under the Company's Incentive Stock Compensation Plan
expire on the tenth anniversary of the date of grant except Mr. and Ms.
Knickerbocker, whose options expire on the fifth anniversary of the date
of grant.
(5) The assumed 5% and 10% annual rates of appreciation over the term of the
options are set forth in accordance with rules and regulations adopted by
the Securities and Exchange Commission and do not represent the Company's
estimate of stock price appreciation.
Aggregate Options Exercised. There were 200,000 options exercised by the
---------------------------
Named Executive Officers during the fiscal year ended December 31, 1997.
DIRECTOR COMPENSATION
Directors, other than management directors (Louis L. Knickerbocker, Tamara
Knickerbocker, William R. Black and Anthony Shutts) currently receive $500 per
Board or Committee meeting attended. Each director, including management
directors, is reimbursed for his or her out-of-pocket expenses arising from
attendance at meetings of the Board or committees thereof.
Pursuant to the Company's Stock Option Plan, each non-management director
receives 10,000 options at the time of his or her initial appointment to the
Board and an additional 10,000 options upon each subsequent election to the
Board by the vote of the stockholders.
8
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company entered into employment agreements with Louis L. Knickerbocker,
its President, Anthony P. Shutts, its CFO, and Tamara Knickerbocker, its Vice
President on July 1, 1996. On April 1, 1997, the Company entered into an
employment agreement with William R. Black, Vice President and General Counsel.
On February 1, 1998, the Company entered into an employment agreement with
Robert L. West, Jr., Chief Operating Officer. The respective terms of the
employment agreements are five years each. The agreements are subject to early
termination by the Company under certain conditions, including breach of the
agreement, fraud by the employee, and/or breach of fiduciary duty owed to the
Company by the employee. The Company has the right to extend the terms of the
employment agreements for an additional five years each upon written notice to
the employees. Under terms of the agreements, each of the employees agrees to
devote his or her full time and effort to the business affairs of the Company
and to use his or her best efforts to promote the best interests of the Company.
Except for the provisions of the Stock Option Plan and the ISO Plan, there
are no compensatory plans or arrangements with respect to any of the Named
Executive Officers which are triggered by, or result from, the resignation,
retirement or other termination of such executive officer's employment, a
change-in-control of the Company or a change in the executive officer's
responsibilities following a change-in-control.
During the first year, the employment agreements called for Louis L.
Knickerbocker to receive an annual base salary of $300,000, for Anthony Shutts
to receive an annual base salary of $120,000, for Tamara Knickerbocker to
receive an annual base salary of $80,000, for William R. Black to receive an
annual base salary of $150,000, and for Robert L. West, Jr. to receive an annual
base salary of $160,000. In December 1997, Ms. Knickerbocker was promoted to
Executive Vice President and received a salary increase to an annual base salary
of $120,000. In addition to their respective base salaries, Mr. Knickerbocker,
Mr. Shutts, Ms. Knickerbocker, Mr. Black and Mr. West are eligible to receive
an annual bonus in an amount to be determined by a compensation committee and
ratified by the Board of Directors out of a Management Bonus Fund up to a
maximum of 10% of the operating profits of the Company and are entitled to
receive certain stock options from the Stock Option Plan and ISO Plan previously
adopted by the Company.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
From June 1994 through the present, Louis L. Knickerbocker, who was on the
Compensation Committee throughout fiscal 1997, has served as President of the
Company and also served as Chairman of the Board of Directors and served on the
Stock Option Committee. From November 1995 through the present, William R.
Black, who was on the Compensation Committee and the Stock Option Committee
throughout fiscal 1997, has served as a director of the Company. In addition,
Mr. Black has served as Vice President and General Counsel beginning April 1,
1998. Neither Mr. Knickerbocker nor Mr. Black received compensation from the
Company for services rendered as members of the Board of Directors or the
Compensation or Stock Option Committees.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES
ON EXECUTIVE COMPENSATION
Introduction. The Compensation Committee of the Board of Directors in 1997
was comprised of Louis L. Knickerbocker, Gerald A. Margolis, F. Rene Alvarez,
Jr. and William R. Black. The Company's Stock Option Plan and ISO Plan are
administered by the Stock Option Committee, which was comprised in 1997 of Louis
L. Knickerbocker, Gerald A. Margolis, F. Rene Alvarez, Jr. and William R. Black.
9
Compensation Objectives and Policies. The principle objectives of the
Company's executive compensation are to: (i) support the achievement of desired
Company performance, (ii) align the executive officers' interests with the
success of the Company and with the interests of the Company's stockholders and
(iii) provide compensation that will attract and retain superior talent and
reward performance. These objectives are principally achieved through
compensation in the form of annual base salaries, bonuses and equity investment
opportunities.
The Company entered into employment agreement with certain of its key
employees including Louis L. Knickerbocker, Anthony P. Shutts and Tamara
Knickerbocker in July 1996. The Company entered into an employment agreement
with William R. Black in April 1997, and with Robert L. West, Jr. in February
1998. These agreements are described in section "Employment Contracts and
Termination of Employment and Change-in-Control Arrangements."
Executive officers generally receive salary increases at the time of their
respective employment anniversaries as approved by the Compensation Committee,
taking into consideration the recommendations of the Company's Chairman and the
Company's Chief Executive Officer. In December 1997, Ms. Knickerbocker was
promoted to Executive Vice President and given significantly expanded
responsibilities for product development. In conjunction with this promotion,
Ms. Knickerbocker received a salary increase to an annual salary of $120,000.
Other than the salary increase to Ms. Knickerbocker in conjunction with her
promotion, none of the executive officers received salary increases. In
deciding not to provide salary increases to the executive officers, the
Compensation Committee determined that the Company's consolidation and
reorganization activity in 1997 presented the need to preserve cash for working
capital in light of the Company's current and prospective operations.
The Board of Directors believes that executive officers who are in a
position to make a substantial contribution to the long-term success of the
Company and to build stockholder value should have a significant stake in the
Company's on-going success. To this end, the Company's compensation objectives
have been designed to be achieved through significant stock ownership in the
Company by executive officers in additional to base salary and bonus payments.
During 1997, bonuses were paid to Mr. and Ms. Knickerbocker and to Anthony P.
Shutts, based on operating results of the Company during fiscal 1996. No
bonuses were accrued or paid during 1997 based on 1997 operating results.
The purpose of the Stock Plan and ISO Plan is to provide an additional
incentive to employees and independent contractors to work to maximize
stockholder value and to facilitate broadening and increasing stock ownership by
executives, employees and other key persons. In 1997, options to purchase an
aggregate of 1,265,617 shares were granted, with 957,216 of those being granted
to the Named Executive Officers. The Stock Option Committee believes that these
stock option grants were appropriate in light of the policy of the Board of
Directors that significant equity ownership by executive officers is an
important contributor to aligning the interests of executive officers with those
of the stockholders of the Company. The number of options awarded to individual
officers were set based on the Stock Option Committee's perception, partly in
light of recommendations by the Company's Chairman and Chief Executive Officer,
as to each officer's ability to affect the Company's overall future performance.
The Stock Option Committee believes that these options have provided
significant incentives for executives to increase the value of the Company for
the benefit of all stockholders and have offered executives significant
opportunities to profit personally from their efforts to increase that value.
The Compensation Committee and the Stock Option Committee have considered
the impact of Section 162(m) of the Internal Revenue Code on their executive
compensation decisions. Section 162(m) generally disallows a federal income tax
deduction to any publicly-held corporation for compensation paid to the chief
executive officer and the four other most highly compensated executive officers
to the extent that such compensation in a taxable year exceeds $1 million.
Section 162(m), however, does not disallow a deduction for qualified
"performance-based compensation" the material terms of which are disclosed to
and approved by stockholders. The Company's Bonus Plan as in effect in 1997
does not qualify as performance-based compensation for the purposes of Section
162(m). During 1997, the Compensation Committee believed it unlikely that any
executive officer of the Company would receive in excess of $1
10
million in compensation, and the Compensation Committee believes that it
unlikely that any executive officer will receive in excess of that amount in
1998. As a result, the Compensation Committee has not taken any steps to qualify
the bonus plan as performance based compensation, although it anticipates that
the Company would do so before any executive receives salary, bonus and other
non-performance based compensation in excess of $1 million.
Compensation of Chief Executive Officer. Louis L. Knickerbocker's
compensation during 1997 as President and Chief Executive Officer was reviewed
in connection with the Compensation Committee's overall review of executive
officer compensation. As provided above, Mr. Knickerbocker has entered into an
employment agreement with the Company (See "--Employment Contracts and
Termination of Employment and Change-in Control Arrangements"). As was the case
with the other executive officers, the Compensation Committee believed that the
Company's performance, reorganization and consolidation efforts and working
capital requirements required a deferral of salary increases in 1997.
Compensation Committee Stock Option Committee
---------------------- ----------------------
Louis L. Knickerbocker Louis L. Knickerbocker
Gerald A. Margolis Gerald A. Margolis
F. Rene Alvarez, Jr. F. Rene Alvarez, Jr.
William R. Black William R. Black
The Board Compensation Committee Report on Executive Compensation shall not
be deemed incorporated by reference by any general statement incorporating by
reference this Proxy Statement into any filing under the Securities Act of 1933,
as amended (the "Securities Act") or the Exchange Act and shall not otherwise be
deemed filed under such Acts.
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended December 31, 1997
(the "1997 Annual Report") is included with the mailing of this Proxy Statement.
The 1997 Annual Report contains financial statements of the Company and a report
thereon of Deloitte & Touche LLP, independent accountants.
PROXY SOLICITATION
The cost of soliciting proxies will be paid by the Company. American
Securities Transfer, Inc. has been retained to solicit proxies by mail. The
Company has also arranged for reimbursement, at the rate suggested by NASDAQ, of
brokerage houses, nominees, custodians and fiduciaries for the forwarding of
proxy materials to the beneficial owners of shares held of record. Proxies may
also be solicited by directors, officers and employees of the Company, but such
persons will not be specially compensated for such services.
PROPOSALS OF STOCKHOLDERS
Under certain circumstances, stockholders are entitled to present proposals
at stockholder meetings. Any such proposals to be included in the Proxy
Statement for the Company's 1999 Annual Meeting of Stockholders must be received
by the Company no later than December 4, 1998 in a form that complies with
applicable regulations. Proposals should be directed to the Secretary of the
Company.
11
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Reports, proxy statements and other information filed by
the Company may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N. W.,
Washington, DC 20549 and at the Sec's Regional Offices located at 7 World Trade
Center (13th Floor), New York, New York 10048 and Suite 1400 Northwest Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
materials can be obtained by mail from the Public Reference Section of the SEC
at 450 Fifth Street, N. W., Washington, DC 20549 at prescribed rates. In
addition, such material may also be inspected and copied at the offices of the
National Association of Securities Dealers, Inc. 1735 K Street, N. W.,
Washington, DC 20006-1506.
OTHER MATTERS
The Board knows of no matters other than those listed in the attached
Notice of Annual Meeting which are likely to be brought before the Meeting.
However, if any other matter properly comes before the Meeting, the persons
named on the enclosed proxy card will vote the proxy in accordance with their
best judgment on such matter.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William R. Black
William R. Black
Secretary
April 6, 1998
12
THE L.L. KNICKERBOCKER CO., INC.
The undersigned stockholder of the L. L. Knickerbocker Co., Inc.
hereby appoints LOUIS L. KNICKERBOCKER, WILLIAM R. BLACK and ANTHONY P.
SHUTTS, or any of them, Proxies of the undersigned, each with full power
P to act without the other and with the power of substitution, to
represent the undersigned at the Annual Meeting of Stockholders of the
R L. L. Knickerbocker Co., Inc., to be held at the Company's principal
executive offices at 25800 Commercentre Drive, Lake Forest, California
O 92630 on Friday May 15, 1998 at 10:00 a.m., Pacific time, and at any
adjournments thereof, and to vote all shares of stock of the Company
X standing in the name of the undersigned with all the powers the
undersigned would possess if personally present, in accordance with the
Y instructions below and on the reverse hereof, and in their discretion
upon such other business as may properly come before the meeting or any
adjournments thereof.
THIS PROXY WILL BE VOTED ON THE REVERSE HEREOF, AND WILL BE VOTED
IN FAVOR OF PROPOSALS 1 AND 2, IF NO INSTRUCTIONS ARE INDICATED.
IMPORTANT: SIGNATURE REQUIRED ON REVERSE SIDE
________________________________________________________________________
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENT/ADDRESS BOX ON REVERSE SIDE
_______________________________________________________________________
(continued and to be signed on reverse side)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. YOUR
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS
__________________
Common
1. ELECTION OF DIRECTORS FOR all nominees WITHHOLD
listed (except as AUTHORITY
marked to the to vote for all
contrary) nominees listed
_________ _________
Nominees: Louis L. Knickerbocker
Anthony P. Shutts
Tamara Knickerbocker
Gerald A. Margolis
William R. Black
F. Rene Alvarez, Jr.
FOR AGAINST ABSTAIN
2. Ratification of the appointment of Deloitte
& Touche LLP as the independent accountants
of the Company. _____ _______ _______
FOR AGAINST ABSTAIN
3. In their discretion, the Proxies are
authorized to vote upon such other business
as may properly come before the meeting
or any adjournment thereof _____ _______ _______
I PLAN TO ATTEND THE MEETING ____
COMMENTS/ADDRESS CHANGE
Please mark this box
if you have written
comments/address change
on the reverse side. ____
_____________________________________________
The undersigned hereby
acknowledges receipt of the
Notice of Annual Meeting of
Stockholders to be held May
15, 1998 and the Proxy
Statement furnished
herewith.
Signature(s) ___________________________ Date ___________________
Please sign exactly as your name appears hereon. When signing as
attorney, executor, administrator, trustee or guardian, give full
title as such. If more than one name appears hereon, all parties
should sign.