<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) MAY 14, 1997
GARGOYLES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 0-21355 91-1247269
(STATE OF INCORPORATION) (COMMISSION (IRS EMPLOYER
FILE NUMBER) IDENTIFICATION NO.)
5866 SOUTH 194TH STREET
KENT, WASHINGTON 98032
(206) 872-6100
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On May 14, 1997, Gargoyles Acquisition Corporation II, a newly formed
Washington corporation ("Purchaser") and wholly-owned subsidiary of
Gargoyles, Inc. ("Registrant") acquired substantially all the assets, and
assumed certain liabilities, of The Private Eyes Sunglass Corporation, a
Massachusetts corporation ("Private Eyes"), pursuant to the terms of an
Asset Purchase and Sale Agreement dated May 5, 1997, by and between
Private Eyes and its shareholders and Purchaser (the "Agreement").
The purchased assets include tangible assets, contracts, warranties, books
and records, drawings and designs, leasehold interests, license agreements
and other intellectual properties including rights to the "Private Eyes"
name. Certain members of Private Eyes' management, including its
president, were hired by Purchaser and will continue to operate the
sunglass business for the purchaser from Private Eyes' former facilities
in Norwell, Massachusetts.
As consideration for the purchased assets, Purchaser paid $6.5 million
cash at the closing and agreed to pay, subject to certain conditions,
additional amounts equal to $2.5 million.
The purchase price was paid with funds borrowed from U. S. Bank of
Washington, National Association under Registrant's credit facility. The
purchase price will be allocated among the purchased assets based on the
fair value of the assets acquired and the obligations assumed.
(b) Private Eyes was a sunglass design and distribution company with its
principal executive office in Norwell, Massachusetts. Private Eyes' plant
and equipment were used for designing and manufacturing sunglasses.
Registrant intends to continue using these assets in a similar manner.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
It is impracticable for Registrant to provide the required Private Eyes
financial statements at this time. Such statements will be filed when they
are available. Registrant anticipates filing such statements on or about
July 28, 1997.
(b) Pro Forma Financial Information.
It is impracticable for Registrant to provide pro forma financial
information at this time. Such statements will be filed when they are
available. Registrant anticipates filing such statements on or about July
28, 1997.
<PAGE> 3
(c) Exhibits.
Exhibit
Number
2.1 Asset Purchase and Sale Agreement
2.2 Amendment Agreement
99.1 Press Release of Registrant dated May 6, 1997
99.2 Press Release of Registrant dated May 21, 1997
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GARGOYLES, INC.
Date: May 28, 1997
By: /s/ Steven R. Kingma
--------------------------------------
Steven R. Kingma
Vice President, Chief Financial
Officer, Secretary and Treasurer
<PAGE> 5
Exhibits. Index
- ---------------
Exhibit
Number
- -------
2.1 Asset Purchase and Sale Agreement
2.2 Amendment Agreement
99.1 Press Release of Registrant dated May 6, 1997
99.2 Press Release of Registrant dated May 21, 1997
<PAGE> 1
ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT (this "Agreement") is entered
into as of this 5th day of May, 1997, by and between THE PRIVATE EYES SUNGLASS
CORPORATION, a Massachusetts corporation ("Seller"), and the following of
Seller's shareholders: RICHARD W. HAMMEL, SR., PATRICIA LYNCH, ANNETTE HAMMEL,
ROBERT HAMMEL and RONALD HAMMEL (the "Shareholders"), on the one hand, and
GARGOYLES ACQUISITION CORPORATION II, a Washington corporation and wholly-owned
subsidiary of Gargoyles, Inc. ("Purchaser"), and GARGOYLES, INC. a Washington
corporation ("Gargoyles"), on the other hand.
RECITALS
A. Seller owns and operates a business that designs, distributes
and sells sunglasses and related products (the "Business") from its company
headquarters located at 77 Accord Park Drive, Building B3, Norwell,
Massachusetts (the "Premises").
B. Seller desires to sell the assets of the Business to
Purchaser, and Purchaser desires to purchase the assets of the Business from
Seller, upon the terms and subject to the conditions set forth herein.
C. Capitalized terms shall have the meanings set forth in Section
18 hereof.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained herein, the parties hereto agree as
follows:
1. Property to be Purchased. Subject to the terms and conditions
contained in this Agreement, Purchaser shall purchase from Seller and Seller
shall sell to Purchaser all of the following assets and property of Seller
related to the Business, except for such items which are specifically included
within the Excluded Assets (the "Assets"):
1.1 Cash and Cash Equivalents. All cash, cash
equivalents, prepaid expenses, advance payments, security and other deposits,
credits and similar items;
1.2 Accounts Receivable; Work in Process. All accounts,
notes, and other receivables and work in process, billed and unbilled;
1.3 Equipment; Tangible Personal Property. All
machinery, equipment, tooling, dies, tools, furniture, office equipment,
vehicles, spare parts, automobiles, trucks, trailers, leasehold improvements
and all other personal property used in the Business, including without
limitation those items listed on the attached Exhibit 1.3, together with any
express or implied warranty by the manufacturers or sellers of any item or
component part thereof, to the extent transferable, and all maintenance
records, brochures, catalogues and other documents relating to such personal
property or to the installation or functioning thereof;
Page 1
<PAGE> 2
1.4 Inventory. All finished goods, work in process,
component parts, raw materials, supplies and other inventories of the Business;
1.5 Customer Purchase Orders and Contracts. All right,
title and interest of Seller in all customer purchase orders or Contracts for
goods or services placed with Seller;
1.6 Contracts. All of Seller's right, title and interest
in and to all equipment leases, agreements, insurance contracts, employee life
insurance policies, employee confidentiality and non-competition agreements,
sales and purchase orders and other commitments to which Seller is a party,
including without limitation those items listed on the attached Exhibit 1.6,
together with any security or other deposits relating thereto;
1.7 Warranties. All manufacturer's, vendor's and
supplier's warranties, to the extent assignable, in respect of any items of
property included in the Assets;
1.8 Real Property Leases. All of Seller's right, title
and interest as tenant in and to all real property leases listed on the
attached Exhibit 1.8;
1.9 Customer Lists; Books and Records. All records,
customer and supplier lists, payroll and personnel records, formulae,
specifications, drawings, plans, reports, data, notes, correspondence,
Contracts, labels, catalogues, brochures, art work, photographs, advertising
materials, files and other documents in the possession of Seller, including the
books of account, ledgers and other financial records of Seller, whether in
hard copy or computer format;
1.10 Drawings and Design. All product designs, drawings,
blueprints, specifications and other similar documents;
1.11 Intellectual Property. All of Seller's right, title
and interest in and to all patents, trademarks, trade names, service marks,
brand names, logos, copyrights, and applications for any of the foregoing,
licenses, license agreements, formulae, trade secrets, processes, inventions,
know-how and all other Intellectual Property relating to or used in the conduct
of the Seller's Business, including, without limitation, those items listed on
Exhibit 1.11;
1.12 Software; Production Data. All sales reports, cost
sheets, bills of material, technical information, production data, software
(including documentation and source code) including without limitation those
items set forth on the attached Exhibit 1.12;
1.13 Prepaid Expenses. All prepaid expenses of Seller,
including without limitation, ad valorem taxes, rentals, and all surety bonds,
surety deposits, security deposits, lease deposits, letters of credit and other
such instruments posted by or on behalf of Seller as security for its
performance of any Contract or agreement of Seller to be transferred to Buyer
pursuant to this Agreement;
Page 2
<PAGE> 3
1.14 Permits. To the extent transferable, all Permits,
relating to or maintained as part of the Business, including without limitation
all of those items listed on the attached Schedule 5.18;
1.15 Claims. All choses in action, Claims, causes or
rights of action and intangible property rights of Seller against third parties
relating to the Assets or the Business; and
1.16 Seller's Name. The name "The Private Eyes Sunglass
Corporation" and any derivative thereof, and all goodwill associated with the
Business, together with the right of Purchaser to represent itself to third
parties as the successor to the Business.
2. Excluded Assets. Notwithstanding anything contained in this
Agreement to the contrary, the following assets and property (the "Excluded
Assets") shall not be acquired by Purchaser or sold by Seller:
2.1 Corporate Franchise. Seller's corporate franchise,
stock record books, corporate records books containing minutes of meetings of
directors and stockholders and such other records as have to do exclusively
with Seller's organization or stock capitalization, or any other corporate
affairs (provided Seller shall provide copies of all such records to Purchaser
as Purchaser shall request);
2.2 Account. Seller's account with the Bank of Boston
established for receipt of the Purchase Price; and
2.3 Other Unrelated Property. The property or rights
(other than cash, deposits, bank accounts or the like), both tangible or
intangible, owned by Seller and not used in or related to Seller's operation of
the Business, and which are and listed on the attached Exhibit 2.3.
3. Purchase Price. In consideration of the transfer of the
Assets to Purchaser and the other agreements set forth herein, Purchaser agrees
to pay to Seller the sum of Seven Million Dollars ($7,000,000) (the "Purchase
Price"), which shall be paid as follows:
3.1 Standstill Deposit. Seller acknowledges that
Purchaser has deposited the sum of Thirty-Five Thousand Dollars ($35,000) (the
"Standstill Deposit") in escrow with Goldstein & Manello, P.C. (the "Escrow"),
which, subject to the terms and conditions of the Standstill Agreement between
Seller and Gargoyles, dated March 18, 1997 (the "Standstill Agreement")
including without limitation the terms and conditions of the Escrow Agreement
annexed thereto ("Escrow Agreement") and upon the Closing, shall be disbursed
(together with any interest accrued thereon) to Purchaser and credited toward
the Purchase Price;
3.2 Deposit. If the Closing is not reasonably likely to
be consummated for any reason by 5:00 p.m. EST on May 14, 1997, no later than
1:30 p.m. on May 14, 1997, Purchaser shall cause the wire transfer to the
Escrow the sum of Two Hundred
Page 3
<PAGE> 4
Fifteen Thousand Dollars ($215,000) which shall, together with the Standstill
Deposit, be held by the Escrow as a deposit (collectively, the "Deposit")
pursuant to the terms and conditions of the Escrow Agreement all of which are
incorporated herein by reference, as modified so as to reference this Agreement
as the "Agreement" and the Deposit as the "Property". Upon the consummation of
the Closing, the Deposit shall be disbursed (together with any interest accrued
thereon) to Purchaser and credited toward the Purchase Price.
3.3 Balance at Closing. At Closing, Purchaser shall pay
to Seller the balance of the Purchase Price in immediately available funds.
3.4 Contingent Payments. As additional consideration for
the Assets, if certain conditions are met as described more particularly in the
Contingent Price Agreement attached hereto as Exhibit 3.4, the terms and
conditions of which are incorporated herein by reference (the "Contingent Price
Agreement"), Purchaser shall pay to Seller certain payments which in the
aggregate will not exceed Two Million Dollars ($2,000,000) (the "Contingent
Payments").
3.5 Line of Credit. As further consideration for the
Assets, at Closing Purchaser shall pay off the entire outstanding balance under
Seller's revolving line of credit with Bank of Boston (the "Line of Credit")
provided the proceeds from the Line of Credit were used to pay obligations of
Seller arising from operations in the ordinary course of the Business.
3.6 Allocation of the Purchase Price. The Purchase
Price shall be allocated among the Assets in accordance with the attached
Exhibit 3.6 (the "Allocation Certificate"). Seller and Purchaser acknowledge
and agree that the Allocation Certificate may require amendment following audit
of the Business which will be conducted following the Closing, and Seller and
Purchaser agree to work together in good faith to agree on amendments to the
Allocation Certificate if such amendments are required, provided that Purchaser
pays any additional sales tax resulting from such amendments. Purchaser and
Seller shall report consistently with the allocation as provided for in the
Allocation Certificate for all federal, state and local tax purposes. Not
later than ten (10) days prior to the filing of their respective Form 8594
relating to the transactions contemplated by this Agreement, Seller and
Purchaser shall each deliver to the other a copy of their respective Form 8594.
3.7 Assumption of Certain Obligations. As further
consideration for the Assets, as of the close of business on the Closing Date,
Purchaser shall assume and thereafter pay, perform or discharge, when due, the
following liabilities and obligations of Seller (the "Assumed Liabilities"):
(a) the trade accounts payable arising from the
operation of the ordinary course of the Business through the Closing Date,
consistent with past practices;
(b) the liabilities as of the Closing Date under
the Contracts comprising the Assets (the "Assumed Contracts") except for any
liability under any of
Page 4
<PAGE> 5
the Assumed Contracts arising out of Seller's failure to perform its
obligations due thereunder on or prior to the Closing Date;
(c) any liability for losses, personal injury,
property damage or other damages of any kind whatsoever, whether suffered or
incurred by the Seller's customer or Purchaser's customer or any other person,
arising out of products manufactured or sold by the Seller or repair services
performed by the Seller on or prior to the Closing Date, but only where the
occurrence giving rise to such liability occurs after the Closing; and
(d) any liability for defects, returns or
allowances arising out of products manufactured or sold by Seller or repair
services performed by Seller on or prior to the Closing Date.
3.8 Excluded Liabilities. Except for the Assumed
Liabilities, the Purchaser assumes no liabilities or other obligations,
commercial or otherwise, of the Seller, whether known or unknown, and all
liabilities, other than the Assumed Liabilities, shall remain obligations and
liabilities of, and shall be retained and discharged by, Seller (the "Excluded
Liabilities"). Without limiting the generality of the foregoing, Excluded
Liabilities shall include, the following:
(a) any liability of the Seller with respect to
any transaction occurring after the Closing Date, except for Seller's
continuing liabilities after the Closing under the Leases assigned to Purchaser
with respect to transactions occurring after the Closing;
(b) any liability of the Seller for federal,
state or local taxes, fees, assessments or other similar charges (including,
without limitation, income taxes, real estate taxes, payroll taxes, sales and
use taxes and personal property taxes), except for any additional sales tax
resulting from amendments to the Allocation Certificate pursuant to Section
3.6;
(c) any liability for losses, personal injury,
property damage or other damages of any kind whatsoever, whether suffered or
incurred by the Seller's customer or Purchaser's customer or any other person,
arising out of products manufactured or sold by the Seller or services
performed by the Seller on or prior to the Closing Date, where the occurrence
giving rise to such liability occurs on or before the Closing, whether the
Claim is asserted before or after the Closing;
(d) any responsibility, liability or obligation
with respect to salary, wages, sick pay, vacation pay, severance pay, savings
plans, deferred compensation, any of Seller's pension, profit-sharing,
retirement, and other fringe benefit plans, or other obligations for the
benefit of any personnel of the Seller including pension benefits accrued
(vested or unvested), or arising out of their employment through the Closing
Date and/or their termination of employment by the Seller upon the consummation
of the transactions contemplated hereby, for which the Seller shall be liable
and, as to which Purchaser shall have no responsibility whatsoever arising
either before or after the Closing Date;
Page 5
<PAGE> 6
(e) any liability of any kind whatsoever
resulting from the failure of the Seller to comply with any Requirement of Law
applicable to the Seller or the conduct of the Business;
(f) any liability under any Assumed Contract to
the extent such liability arises out of the Seller's failure to perform its
obligations due thereunder prior to the Closing Date;
(g) except for any liability related to the Line
of Credit, any liability of the Seller arising out of Indebtedness for borrowed
money, whether from shareholders, third-party lenders, or otherwise;
(h) subject to Sections 3.7(a), (b) and (d), any
liability arising out of the operation of Seller's Business occurring prior to
the Closing Date;
(i) any liability for fees and costs of Seller's
consultants and advisors, including any attorneys' and accountants' fees and
costs, related to the transactions contemplated by this Agreement; and
(j) any liability whatsoever relating to an
Excluded Asset.
Seller shall have any and all responsibility to all
creditors and all third parties and to the Purchaser with respect to, and shall
pay, discharge and perform when due, any liability or obligation of Seller not
expressly assumed by the Purchaser and, without limiting the generality of
Section 13 hereof, Seller and each of the Shareholders, jointly and severally,
shall indemnify and hold harmless the Purchaser from and against any and all
cost, loss, or expense (including reasonable attorneys' fees and expenses)
arising from such obligations or liabilities.
3.9 State and Local Taxes.
(a) Sales/Use and Transfer Taxes. Seller shall
prepare and file, in form and substance reasonably satisfactory to Purchaser,
all sales/use and transfer tax returns due in connection with the sale of the
Assets (the "Use Tax Returns") by Seller to Purchaser, and Purchaser shall pay
all sales or use taxes and all transfer or excise taxes due in connection with
such sale.
(b) Personal Property Taxes. All state, county
and local personal property taxes relating to the Assets which have been
assessed shall be prorated as of the Closing Date. All such taxes assessed for
periods after the Closing Date shall be the obligation of Purchaser.
(c) Basis for Calculation of Sales/Use and
Transfer Taxes. Any sales/use or transfer taxes incidental to the transactions
contemplated by this Agreement shall be calculated on the basis of the
allocation of the Purchase Price set forth in the Allocation Certificate, as
the same may be amended pursuant to Section 3.6 hereof.
Page 6
<PAGE> 7
4. Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Goldstein &
Manello, P.C., 265 Franklin Street, Boston, Massachusetts, commencing at 10:00
a.m. local time on May 14, 1997, or at such other date as Seller and Purchaser
shall agree (the "Closing Date").
4.1 Obligations of Seller at Closing. At the Closing,
Seller shall deliver to Purchaser:
(a) a bill of sale in the form of the attached
Exhibit 4.1(a);
(b) an assignment and assumption of contracts in
the form of the attached Exhibit 4.1(b) (the "Assignment and Assumption of
Contracts");
(c) a general assignment and assumption of
obligations in the form of the attached Exhibit 4.1(c) (the "General Assignment
and Assumption of Obligations");
(d) the License Agreement with respect to use of
the Ellen Tracy License trademark in the form of the attached Exhibit 4.1(d)
("the Ellen Tracy License");
(e) an assignment and assumption of License
Agreement with respect to the Emmanuelle Khanh License in the form of the
attached Exhibit 4.1(e) together with a consent to such assignment executed by
Cebe International S.A., or the proposed Emmanuelle Khanh License included in
such Exhibit (the "Assignment and Assumption of the Emmanuelle Kahnh License");
(f) employment agreements between Purchaser and
each of the Shareholders in the forms of the attached Exhibits 4.1(f)1-5 (the
"Employment Agreements");
(g) all books of account, accounting records,
drawings, records and other documents to be acquired by Purchaser;
(h) the Seller's certificate described in Section
10.4 hereof;
(i) the opinion of Goldstein & Manello, P.C.
counsel to Seller, described in Section 10.3 hereof;
(j) certified copies of the resolutions of the
directors and shareholders of Seller authorizing the consummation of the
transactions contemplated by this Agreement;
(k) the Allocation Certificate;
(l) the Use Tax Returns;
(m) a letter of commitment from Mullen & Company,
successor in interest to Leydon & Gallagher, agreeing to cooperate with
Purchaser and its
Page 7
<PAGE> 8
independent accountants in the preparation of audited financial statements of
Seller and to provide such consents as may be required from time to time in
connection with the preparation and filing of Purchaser's financial statements
and reports;
(n) the Contingent Price Agreement; and
(o) all written consents necessary in connection
with the transfer of the Assets, including without limitation the consent of
the landlord of the property used by the Seller in Norwell ("Norwell Consent")
and the consent of the landlord of the property used by Seller for its showroom
in New York ("New York Consent").
In addition to the documents and other items specifically described above,
Seller shall execute and deliver to Purchaser other documents and instruments
at the Closing as may be reasonably required to consummate the transactions
contemplated by this Agreement.
4.2 Obligations of Purchaser at Closing. At the Closing,
Purchaser and Gargoyles, to the extent applicable, shall deliver to Seller:
(a) the cash portion of the Purchase Price due at
Closing;
(b) the Assignment and Assumption of Contracts;
(c) the General Assignment and Assumption of
Obligations;
(d) the Assignment and Assumption of the Ellen
Tracy License;
(e) the Assignment and Assumption of the
Emmanuelle Khanh License;
(f) the Employment Agreements;
(g) the Purchaser's certificate described in
Section 11.3 hereof;
(h) the opinion of Cynthia L. Pope, counsel to
Purchaser, described in Section 11.2 hereof;
(i) the Allocation Certificate;
(j) the Use Tax Returns;
(k) the Contingent Price Agreement;
(l) certified copies of the resolutions of the
directors of Purchaser authorizing the consummation of the transactions
contemplated by this Agreement;
Page 8
<PAGE> 9
(m) certified copies of the resolutions of the
directors of Gargoyles authorizing the consummation of the transactions
contemplated by this Agreement;
(n) evidence reasonably satisfactory to Seller
that the Line of Credit has been paid in full;
(o) the Norwell Consent and the New York Consent
executed by both Purchaser and Gargoyles.
In addition to the documents and other items specifically described above,
Purchaser shall also execute and deliver other instruments at the Closing as
may be reasonably required to consummate the transactions contemplated by this
Agreement.
4.3 Possession. On consummation of the Closing, Seller
shall be deemed to have delivered possession of the Assets to Purchaser
wherever the Assets are located as of the Closing Date.
5. Representations and Warranties of Seller and Shareholders.
Seller and each of the Shareholders, jointly and severally, represents and
warrants to Purchaser that the statements set forth in this Section 5 are true
and correct as of the date hereof, (or with respect to any matter involving a
Schedule, on the date of delivery to Purchaser of the applicable Schedule) and,
subject to Section 10.1 hereof, will be true and correct on the Closing Date as
though made on such date. Seller agrees that it shall deliver any Schedules
not annexed hereto to Purchaser as promptly as possible, but in no event later
than five business days from the date hereof, unless Purchaser shall agree to a
delay in writing. No due diligence investigation performed by Purchaser or
information developed in connection therewith shall lessen, mitigate or
supersede any of the representations and warranties of Seller and each of the
Shareholders set forth in this Section 5, or any right of indemnity or other
remedy of Purchaser for breach thereof.
5.1 Disclosure Schedule. If not delivered herewith,
within five business days after the date hereof, Seller shall have delivered to
Purchaser disclosure schedules and documents relating thereto (the "Disclosure
Schedule"), which shall include the numbered schedules specifically referred to
in this Agreement. Subject to Section 10.1 hereof, the information contained
in the Disclosure Schedule will be on the Closing Date complete and accurate in
all material respects, and all documents that are attached to or form a part of
the Disclosure Schedule will be true and complete copies of the genuine
original documents they purport to represent.
5.2 Organization and Standing of Seller; Related
Entities. Seller is a corporation duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts with requisite
corporate power and authority to carry on its business as it is now being
conducted and to own, operate and lease its property and assets. Seller is
qualified to do business in each jurisdiction in which the ownership of its
properties or the conduct of its business requires such qualification, if the
failure to so qualify would affect materially and adversely its business or
financial condition. A true copy of Seller's Articles of Organization,
including all amendments
Page 9
<PAGE> 10
thereto, and of its current Bylaws is attached to Schedule 5.2 of the
Disclosure Schedule. Schedule 5.2 also sets forth a list of the shareholders
of Seller and a description of all corporations, partnerships, joint ventures
and other business entities in which Seller has an ownership interest, if any
(the "Related Entities"). Copies of all agreements with Related Entities to
which Seller is a party are attached to Schedule 5.2.
5.3 Financial Statements. A copy of financial statements
for Seller as of and for the years ended September 30, 1994, 1995 and 1996, as
reviewed by Leydon and Gallagher are attached to Schedule 5.3 of the Disclosure
Schedule (the "Financial Statements"). The Financial Statements include a
balance sheet for Seller as of September 30, 1996 (the "Balance Sheet") and
statements of operations and cash flows for the year then ended. The Financial
Statements and the notes thereto fairly present the financial position of the
Seller as of the dates thereof and the results of operations and cash flows of
the Seller and its Business for the periods indicated therein, and have been
prepared in accordance with generally accepted accounting principles,
consistently applied.
(a) The accounts receivable of Seller, as
reflected in the Financial Statements and thereafter arising, (i) are owned by
the Seller and subject only to the Liens set forth in Schedule 5.3, (ii) are
legal, valid and binding obligations of the account debtors in respect of such
accounts receivable, and (iii) are fully collectible.
(b) Except as set forth in the Financial
Statements, Seller has no liability (whether accrued, absolute, contingent,
unliquidated or otherwise), Indebtedness, or any trade or warranty obligation
arising out of transactions entered into or any state of facts existing at or
prior to the Closing Date, which is material to the Business (either
individually or in the aggregate), other than: (i) liabilities and obligations
set forth in the Balance Sheet and the notes thereto; (ii) liabilities and
obligations which have arisen after the date of the Balance Sheet in the
ordinary course of business and consistent with past practices in type and
amount; and (iii) other Indebtedness, liabilities and obligations expressly
disclosed in Schedule 5.3 of the Disclosure Schedule.
(c) Except as set forth on Schedule 5.3, all
amounts outstanding under the Line of Credit as of the Closing Date, represent
moneys used by Seller to pay obligations of Seller incurred in the ordinary
course of the Business.
5.4 Title to and Condition of Assets. The Assets
constitute, and on the Closing Date will constitute, all assets and property
used or held for use in, and, except for the Excluded Assets, all assets and
property necessary for the operation of, the Business. Except as disclosed in
the Financial Statements or in Schedule 5.4 of the Disclosure Schedule, Seller
has good and marketable title to all of the property and other assets, tangible
and intangible, including the Assets, reflected in the Balance Sheet acquired
after the dates thereof (except for products and properties sold or otherwise
disposed of since the date thereof in the ordinary course of business), free
and clear of all Liens and restrictions on transfer, except statutory Liens not
yet delinquent and Liens disclosed in Schedule 5.3. Except as set forth on
Page 10
<PAGE> 11
Schedule 5.4, the fixed assets of Seller are in good and operable condition,
normal wear and tear excepted. Upon consummation of the transactions
contemplated by this Agreement, Purchaser will have acquired good and
marketable title to, or a valid leasehold interest in, each of the Assets, free
and clear of all Liens except those created by Purchaser.
5.5 Customers. Schedule 5.5 of the Disclosure Schedule
contains a list of the customers with whom Seller is dealing or providing
services as of January 31, 1997, and copies of the material Contracts with any
such customers are attached thereto. Except as set forth in Schedule 5.5,
Seller knows of no fact which would lead it to believe that any of such listed
customers will change materially their business relationship with respect to
the Business following the Closing.
5.6 Material Contracts.
(a) Except for the Contracts disclosed in and
attached to Schedule 5.6 and Contracts with customers disclosed in Schedule
5.5, with respect to the Business, Seller is neither a party to nor bound by,
nor are the Assets or Business subject to:
(i) any lease of real or personal
property providing for annual rentals of $10,000 or more;
(ii) any Contract for the purchase of
materials, supplies, goods, services, equipment or other assets providing for
annual payments by Seller of $50,000 or more;
(iii) any sales, distribution or other
similar agreement providing for the sale by Seller of materials, supplies,
goods, services, equipment or other assets that provides for annual payments to
Seller of $50,000 or more;
(iv) any partnership, joint venture or
other similar arrangement or agreement;
(v) any Contract relating to
Indebtedness, except Contracts relating to Indebtedness incurred in the
ordinary course of business in an amount not exceeding $10,000;
(vi) any license agreement, franchise
agreement or agreement in respect of similar rights granted to or held by
Seller;
(vii) any agency, dealer, sales
representative or other similar Contract;
(viii) any Contract that substantially
limits the freedom of Seller to compete in any line of business or with any
Person or in any area or to own, operate, sell, transfer, pledge or otherwise
dispose of or encumber any Asset or to Seller's Knowledge which would so limit
the freedom of Purchaser after the Closing Date;
Page 11
<PAGE> 12
(ix) any Contract that is or relates to
an agreement with, or for the benefit of, any affiliate of Seller including the
Shareholders; or
(x) any other Contract not made in the
ordinary course of business that is material to the Business.
(b) Each Contract disclosed in any Schedule to
this Agreement or required to be disclosed pursuant to Section 5.6(a) is a
valid and binding agreement of Seller and is in full force and effect, and
neither Seller nor, to the Knowledge of Seller or any of the Shareholders, is
any other party thereto is in default in the performance of any material
obligation under the terms of any such Contract, nor, to the Knowledge of
Seller or any of the Shareholders, has any event or circumstance occurred that,
with notice or lapse of time or both, would constitute any event of default as
defined in any such Contract.
5.7 Third-Party Consents. Except as set forth in
Schedule 5.7, neither the execution of this Agreement nor the consummation of
the transactions contemplated hereunder, including without limitation the
transfer of the Assets, requires the approval or consent of any Person,
Authority, or any party to any Contract with Seller.
5.8 Litigation. Except as set forth in Schedule 5.8, (i)
no Claim is pending against or on behalf of Seller or, to the Knowledge of
Seller or either any of the Shareholders, threatened against or affecting
Seller, the Business or any Asset, which if resolved or decided against Seller
would have a Material Adverse Effect.
5.9 Employee Matters.
(a) Schedule 5.9 of the Disclosure Schedule sets
forth the name and current annual compensation of each employee of Seller
(including all bonuses, commissions, benefits, and entitlements).
(b) With respect to all employees and former
employees, except as set forth on Schedule 5.9, Seller presently neither
maintains, contributes to nor has any liability (including current or potential
multi-employer plan withdrawal liability) under any (i) non-qualified deferred
compensation or retirement plan or arrangement which is an "employee pension
benefit plan" as such term is defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) qualified
defined contribution retirement plan, (iii) qualified defined benefit pension
plan, (iv) funded or unfunded medical, health or life insurance plan or
arrangement for present or future retirees or present or future terminated
employees which is an employee welfare benefit plan as defined in Section 3(1)
of ERISA, or (v) any other employee welfare benefit plan. The qualified
employee pension benefit plans (as defined in Section 3(2) of ERISA are
referred to herein as the "Pension Plans" and the employee welfare benefit
plans (as defined in Section 3(1) of ERISA) are referred to herein as the
"Welfare Plans". Pension Plans and Welfare Plans are referred to collectively
as "Plans".
Page 12
<PAGE> 13
(c) The Plans comply in all material respects
with the applicable requirements of ERISA. The Pension Plans meet the
requirements of "Qualified Plans" under Section 401(a) of IRC, and each such
plan has received a favorable determination letter from the Internal Revenue
Service. All required contributions, reports and descriptions have been made,
filed or distributed with respect to the Pension Plans. There have been no
prohibited transactions as defined in Section 406 of ERISA or Section 4975 of
the IRC.
(d) Except as set forth on Schedule 5.9 of the
Disclosure Schedule, Seller has no collective bargaining agreements, and there
are no strikes, work stoppages, or, to the Knowledge of Seller, threatened
strikes or work stoppages, nor any demands for collective bargaining by any
union or labor organization.
5.10 Environmental Matters. Except as set forth in
Schedule 5.10 to the Disclosure Schedule, the operations of Seller comply and
have at all times complied in all material respects with all applicable
Requirements of Law concerning environmental health and safety. Seller has
obtained all environmental, health and safety Permits necessary for its
operations and all such Permits are in good standing, and Seller is in all
material respects in compliance with all terms and conditions of such Permits.
Seller is, in all material respects, in compliance with all terms and
conditions of such Permits. Seller has not been notified that any of its
present or past operations is the subject of any investigation by any
governmental authority evaluating whether any remedial action is required nor
has it needed to respond to or to Seller's Knowledge file any notice with
respect to a Release or threatened Release of a Contaminant into the
environment. Neither Seller nor, to the best Knowledge of Seller, has any
agent (other than Seller's vendors, with respect to which Seller makes no
representation or warranty under this Section 5.10) Released or permitted the
Release of any Contaminants from the Premises, or any other leased premises
currently or formerly occupied by Seller in violation of any requirement of
law.
5.11 Authorization and Enforceability. Seller has full
capacity, power and authority to enter into and perform this Agreement and the
other agreements contemplated hereby and to carry out the transactions
contemplated hereby, and all such agreements have been duly authorized by all
necessary corporation and other act action and are binding upon Seller and
enforceable against Seller in accordance with their terms subject to applicable
bankruptcy, reorganization, insolvency, moratorium, or other similar laws
relating to or affecting the rights and remedies of creditors generally and to
equitable principles whether applied at law or at equity. Except as disclosed
in Schedule 5.11, the execution, delivery and performance by Seller of this
Agreement does not and will not: (i) result in a breach, default or event of
default (with due notice, lapse of time or both) under any Contract to which
Seller or any of the Assets is subject (a "Seller Contract or Permit"), (ii)
conflict with the provisions of any Requirement of Law or any Seller Contract
or Permit, (iii) result in the creation of a Lien upon the Assets, or (iv) give
any third party the right to amend, terminate, or accelerate any obligation
under a Seller Contract or Permit.
5.12 Insurance. Seller currently has insurance Contracts
or policies in full force and effect which provide for coverages that are usual
and customary as to amount and scope in respect to Seller's businesses.
Schedule 5.12 contains a list of
Page 13
<PAGE> 14
all insurance coverages and fidelity bonds currently maintained by Seller, and
copies of all such policies and bonds are attached. All premiums payable under
such policies and bonds have been paid, and Seller is otherwise in compliance
with the terms thereof. There is no Claim under any such policy or bond as to
which coverage has been questioned, denied, or disputed. Such policies and
bonds (or other substantially similar coverages) have been in effect since
January 1, 1991.
5.13 Banking Arrangements. Schedule 5.13 of the
Disclosure Schedule lists all bank accounts currently maintained by Seller and
the authorized signatories with respect to each such account.
5.14 Taxes Through Closing. All federal, state and local
tax returns required by law to be filed prior to the Closing Date by Seller
have been filed, and Seller has paid all taxes required to be paid in respect
of the periods covered by the tax returns. All money required to be withheld
by Seller from the wages or salaries of its employees for income tax, Social
Security and unemployment taxes has been withheld, and either paid to the
proper tax receiving Authority or set aside in accounts for such purpose, or
accrued, reserved against, and entered upon the books of Seller.
5.15 Inventory. The Inventories set forth in the Balance
Sheet were properly stated therein at the lower of cost or fair market value
and determined in accordance with generally accepted accounting principles.
Except as set forth in Schedule 5.15 of the Disclosure Schedule, all raw
materials, work-in-process, finished goods, and other items of inventory of
Seller are of a quality and quantity usable and salable in the ordinary and
usual course of business, and none of the inventory is obsolete or will become
obsolete within twelve (12) months from the Closing Date based upon the
obsolescence criteria consistently applied by Seller, which criteria are in
accordance with generally accepted accounting principles and are described on
Schedule 5.15 of the Disclosure Schedule. Since the date of the Balance Sheet,
all inventories have been maintained in the ordinary course of business
consistent with past practices, and all inventories are in quantities
sufficient for the normal operation of the Business.
5.16 Product Warranties. There are no express warranties
applicable to products sold by Seller, except as disclosed on Schedule 5.16 of
the Disclosure Schedule or as required by law in the jurisdictions of sale.
Schedule 5.16 also summarizes all warranty or product liability claims that
have been asserted against Seller during the five (5) years preceding the date
of this Agreement.
5.17 Related Businesses. Except as disclosed on Schedule
5.17 of the Disclosure Schedule, no shareholder or to Seller's Knowledge key
employee of Seller is presently an owner, shareholder, creditor, director,
agent, consultant or employee of any business entity engaged in a business that
acts as a supplier of any goods or services to Seller or any part of which is
in actual or potential competition with Seller.
5.18 Permits. Seller has all Permits necessary for Seller
to carry on its business as presently conducted, and all such Permits are
identified on Schedule 5.18 of the Disclosure Schedule and are in full force
and effect and have been complied with in all material respects. All fees and
charges incident to such Permits have been
Page 14
<PAGE> 15
fully paid and are current and, to the best of Seller's Knowledge, no
suspension or cancellation of any Permit has been threatened or could result by
reason of the transactions contemplated by this Agreement.
5.19 Intellectual Property.
(a) Schedule 5.19 contains a list of all patents,
trademarks, service marks, tradenames, copyrights, licenses, applications for
patents, applications for trademarks, copyright registrations, and inventions
used by Seller in the operation of its Business. Such items, together with
Seller's trade secrets, know-how, proprietary processes and formulae, and other
intellectual property rights (the "Intellectual Property") comprise all the
Intellectual Property used in or necessary to the operation of Seller's
business, and except as set forth on Schedule 5.19, Seller owns or otherwise
has rights or licenses to use all such Intellectual Property subject only to
the restrictions described on Schedule 5.19.
(b) Schedule 5.19 contains a list of the
Intellectual Property of Seller which has been duly registered in, filed in, or
issued by the United States Patent and Trademark Office, the United States
Register of Copyrights or the corresponding offices of other countries, states
or other jurisdictions (the "Registers"). Neither Seller nor any of the
Shareholders has any Knowledge (i) of an adverse claim of ownership by any
third party of any of the Intellectual Property, (ii) of any invalidity or
unenforceability of any of the Intellectual Property, (iii) of any act of fraud
or inequitable conduct committed on the Registers, or (iv) any infringement by
any other Person of any of the Intellectual Property. Seller has not entered
into any agreement to indemnify another Person against claims of infringement
with respect to the Intellectual Property, except as set forth in Schedule
5.19.
(c) Except as set forth on Schedule 5.19, use of
the Intellectual Property by the Seller does not require the consent of any
third party, and the same are freely transferable and are owned exclusively by
the Seller free and clear of any Liens, royalties, encumbrances, adverse claims
or any other ownership interest whatsoever.
(d) Except as set forth on Schedule 5.19, there
are no Claims, actions, or proceedings pending, or to Seller's Knowledge
threatened, by or against the Seller with respect to its Intellectual Property
or the intellectual property rights of another Person which likely would have a
Material Adverse Effect on the financial condition or results of operations of
the Business. In addition, Seller's use of the Intellectual Property in its
Business as currently conducted will not infringe any trademarks, service
marks, trade names, copyrights, patents or other intellectual property rights
of another Person which likely would have a Material Adverse Effect on the
financial condition or results of operations of the Business.
(e) Schedule 5.19 contains a list of license
agreements and other Contracts currently being negotiated for and on behalf of
the Seller with any third parties related to any of the Intellectual Property.
Page 15
<PAGE> 16
5.20 Compliance with Laws. Seller is not in any material
respect in violation of, any Requirement of Law or Regulation. Seller is not
subject to, nor has it been threatened with, any fine, penalty, liability or
disability as the result of a failure to comply in any material respect with
any Requirement of Law or Regulation (including those relating to the
employment of labor and occupational health and safety) or any requirement of
any Authority having jurisdiction over Seller, the conduct of its Business, the
use of its assets and properties, or any of its premises, and to the Knowledge
of Seller, no Authority is conducting any investigation of Seller or the
Business with respect to any alleged or possible violation of any Requirement
of Law.
5.21 Absence of Changes. Except as set forth in Schedule
5.21, since September 30, 1996, Seller has conducted the Business in the
ordinary course consistent with past practices, and there has not been:
(a) any Material Adverse Change or any event,
occurrence, development or state of circumstances or facts that could
reasonably be expected to result in a Material Adverse Change;
(b) any incurrence, assumption or guarantee by
Seller of any Indebtedness for borrowed money with respect to the Business
other than in the ordinary course of business and in amounts and on terms
consistent with past practices;
(c) any creation or other incurrence of any Lien
on any Asset other than in the ordinary course of business consistent with past
practices;
(d) any damage, destruction or other casualty
loss (whether or not covered by insurance) affecting the Business or any Asset
that, individually or in the aggregate, has had or could reasonably be expected
to have a Material Adverse Effect;
(e) any transaction, contract, agreement or other
instrument entered into, or commitment made, by Seller relating to the Business
or any Asset (including the acquisition or disposition of any assets) or any
relinquishment by Seller of any contract or other right, in either case other
than transactions and commitments in the ordinary course of business consistent
with past practices and those contemplated by this Agreement;
(f) any change in any method of accounting or
accounting practice by Seller with respect to the Business;
(g) any (i) grant of any severance or termination
pay to any employee of the Business, (ii) entering into any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any employee of the Business, (iii) increase in
benefits payable under any existing severance or termination pay policies or
employment agreements or (iv) increase in compensation, bonus or other benefits
payable to employees of the Business, other than in the ordinary course of
business consistent with past practice;
Page 16
<PAGE> 17
(h) any labor dispute, other than routine
individual grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of the Business, or any
lockouts, strikes, slowdowns, work stoppages or threats thereof by or with
respect to such employees; or
(i) any capital expenditure, or commitment for a
capital expenditure, for additions or improvements to property, plant and
equipment.
5.22 No Broker or Finder. Seller has retained no broker
in connection with the transactions contemplated by this Agreement or has dealt
with no broker or finder in connection with the transactions contemplated by
this Agreement which would create an entitlement by any Person to a finders' or
brokers' fee.
5.23 Questionable Payments. Neither Seller, nor to
Seller's Knowledge any affiliate, director, officer, agent, employee of Seller,
nor to the Knowledge of Seller or any of the Shareholders, any other Person
acting on behalf of Seller has directly or indirectly (i) used any corporate
funds for unlawful contributions, gifts, entertainment, or other unlawful
expenses, relating to political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds, (iii) established or
maintained any unlawful fund of corporate moneys or other assets, (iv) made or
received any bribe, or any unlawful rebate, payoff, influence payment, kickback
or other payment, or (v) made any bribe, kickback, or other payment of a
similar or comparable nature, to any Person, regardless of form, whether in
money, property or services, to obtain favorable treatment in securing business
or to obtain special concessions or to pay for favorable treatment for business
or for special concessions secured the affect of which would have a Material
Adverse Effect on the financial condition or results of operations of the
Business.
5.24 Business Relationships. Except as set forth on
Schedule 5.24, since January 1, 1991, no customer, supplier of goods or
services, lessor, lender, licensor, licensee, distributor or other Person with
whom Seller does business has terminated or modified its business relationship
with Seller to Seller's disadvantage, or indicated an intention or threatened
to do so, where such actual or prospective termination or modification has had
or might have a Material Adverse Effect.
5.25 Accuracy of Statements. Neither this Agreement nor
any of the exhibits, schedules, written statements, documents, certificates or
other written items furnished to Purchaser by or on behalf of Seller with
respect to this Agreement and the transactions contemplated hereby contains any
untrue statement of a material fact or omits a material fact necessary to make
each statement contained herein or therein not misleading.
6. Representations and Warranties of Purchaser. Purchaser
represents and warrants to Seller and each of the Shareholders that the
following statements are true and correct as of the date hereof: and will be
true and correct on the Closing Date as though made on such date:
Page 17
<PAGE> 18
6.1 Organization and Standing of Purchaser. Purchaser is
a corporation duly organized, validly existing and in good standing under the
laws of the state of Washington with all requisite corporate power and
authority to carry on its business as now being conducted and to own, operate
and lease its property and assets. A true copy of Purchaser's Articles of
Incorporation and of its current by-laws are attached hereto as Schedule 6.1.
6.2 Authorization and Enforceability. Purchaser has full
capacity, power and authority to enter into and perform this Agreement and to
carry out the transactions contemplated hereby, and this Agreement is binding
upon Purchaser and is enforceable against Purchaser in accordance with its
terms and the other agreements contemplated hereby, and all such agreements
have been duly authorized by all necessary corporate action and are binding
upon Purchaser and enforceable against Purchaser in accordance with their
terms, except as contemplated by bankruptcy, reorganization, insolvency,
moratorium, or other similar laws relating to or affecting the rights and
remedies of creditors' generally. The execution, delivery and performance by
Purchaser of this Agreement does not and will not: (i) result in a breach,
default or event of default (with due notice, lapse of time or both) under any
Contract to which Purchaser or any of its assets is subject (a "Purchaser
Contract"), (ii) conflict with the provisions of any Requirement of Law or any
Purchaser Contract, or (iii) give any third party the right to accelerate any
obligation under a Purchaser Contract.
6.3 No Broker or Finder. Purchaser has retained no broker
in connection with the transactions contemplated by this Agreement or has dealt
with no broker or finder in connection with the transactions contemplated by
this Agreement which would create an entitlement by any Person to a finders' or
brokers' fee.
6.4 Litigation. Except as set forth in Schedule 6.4, no
Claim is pending against or on behalf of Purchaser or, to the Knowledge of
Purchaser, threatened against or affecting Purchaser or its business or any of
its assets, and to the Knowledge of Purchaser, there is no basis for any such
Claim.
6.5 Third-Party Consents. Except as set forth in
Schedule 6.5, neither the execution of this Agreement nor the consummation of
the transactions contemplated hereunder, including without limitation the
purchase of the Assets, requires the approval or consent of any Person,
Authority, or any party to any Contract with Purchaser.
7.A Representations and Warranties of Gargoyles. Gargoyles
represents and warrants to Seller and each of the Shareholders that the
following statements are true and correct as of the date hereof:
7.1 Organization and Standing of Gargoyles. Gargoyles is
a corporation duly organized, validly existing and in good standing under the
laws of the state of Washington with all requisite corporate power and
authority to carry on its business as now being conducted and to own, operate
and lease its property and assets. A true copy of Gargoyles' Articles of
Incorporation and of its current by-laws are attached hereto as Schedule 7.1.
Page 18
<PAGE> 19
7.2 Authorization and Enforceability. Gargoyles has full
capacity, power and authority to enter into and perform this Agreement and the
other agreements contemplated hereby, and all such agreements have been duly
authorized by all necessary corporate action and are binding upon Gargoyles and
enforceable against Gargoyles in accordance with their terms, except as
contemplated by bankruptcy, reorganization, insolvency, moratorium, or other
similar laws relating to or affecting the rights and remedies of creditors'
generally. The execution, delivery and performance by Gargoyles of this
Agreement does not and will not: (i) result in a breach, default or event of
default (with due notice, lapse of time or both) under any Contract to which
Gargoyles or any of its assets is subject (a "Gargoyles Contract"), (ii)
conflict with the provisions of any Requirement of Law or any Gargoyles
Contract, or (iii) give any third party the right to accelerate any obligation
under a Gargoyles Contract.
7.3 No Broker or Finder. Gargoyles has retained no broker
in connection with the transactions contemplated by this Agreement or has dealt
with no broker or finder in connection with the transactions contemplated by
this Agreement which would create an entitlement by any Person to a finders' or
brokers' fee.
7.4 Litigation. Except as set forth in Schedule 7.4, no
Claim is pending against or on behalf of Gargoyles or, to the Knowledge of
Gargoyles, threatened against or affecting Gargoyles or its business or any of
its assets which, if resolved or decided against Gargoyles would have a
Material Adverse Effect on the business of Gargoyles or the results of its
operations.
7.5 Third-Party Consents. Except as set forth in
Schedule 7.5, neither the execution of this Agreement nor the consummation of
the transactions contemplated hereunder, including without limitation the
purchase of the Assets, requires the approval or consent of any Person,
Authority, or any party to any Contract with Purchaser.
7.B Additional Representations and Warranties of Purchaser and
Gargoyles. Purchaser and Gargoyles, jointly and severally, warrant and
represent to Seller and each of the Shareholders that they are parties to a
First Amended and Restated Credit Agreement dated April _ , 1997 ("Loan
Agreement") with U.S. Bank of Washington N.A. ("U.S. Bank"). The Loan Agreement
is a valid and binding agreement of Purchaser, Gargoyles and U.S. Bank and is
in full force and effect. Neither Purchaser and Gargoyles, nor U.S. Bank to
the Knowledge of either of them, is in default in the performance of any
material obligation under the terms of the Loan Agreement, nor, to the
Knowledge of Purchaser and Gargoyles, has any event or circumstance occurred
that, with notice or lapse of time or both, would constitute any event of
default as defined in the Loan Agreement. U.S. Bank has approved in writing
the transactions contemplated by this Agreement, subject to fulfillment of the
conditions stated under Section 6.3 (b) and (c) of the Loan Agreement, and
Purchaser and Gargoyles know of no fact which would lead either to believe that
the Bank would revoke such approval (except any such fact that is the fault of
Seller or its Shareholders).
Page 19
<PAGE> 20
8.A Pre-Closing Covenants of Seller. Seller covenants to and
agrees with Purchaser as follows:
8.1 Conduct of Business Pending the Closing. From the
date of this Agreement to the Closing Date, Seller shall operate the Business
in the ordinary and usual course consistent with past practices and shall
maintain its records and books of account in a manner that fairly and
accurately reflects its transactions, assets and liabilities and otherwise in
accordance with standard accounting practices applied on a basis consistent
with prior periods and without limiting the generality of the foregoing, Seller
shall not acquire a material amount of Assets or sell, lease, license, or
dispose of any Assets except in the ordinary course of business consistent with
past practices. Seller shall pay and discharge all obligations and
Indebtedness as they come due in a manner consistent with past practice.
Seller shall, without purporting to make any commitment on behalf of Purchaser,
exercise its best efforts to preserve intact the present business organization
and personnel of Seller, preserve the present goodwill of Seller with all
persons having business dealings with it, and comply with all Requirements of
Law applicable to the conduct of Seller's business.
8.2 Representations and Warranties; Interference. Seller
shall conduct its business in such a manner that the representations and
warranties contained in this Agreement shall continue to be true and correct on
and as of the Closing Date as if made on and as of the Closing Date, and Seller
shall take no action (and shall not commit to take any action) which would be
inconsistent in any material respect, or would in any material respect
interfere with or prevent performance of, this Agreement.
8.3 Access to Records and Assets of Seller. From the
date of this Agreement to the Closing Date, Seller agrees to give to Purchaser
and its counsel, accountants and other authorized representatives, reasonable
access during business hours to the offices, warehouse, properties, books and
records of Seller in order that Purchaser may have full opportunity to make
such reasonable investigations of the Business as Purchaser shall desire;
provided, however, such investigation shall be conducted in a manner as not to
interfere unreasonably with the operation of the Business.
8.4 Merger, Consolidation or Acquisition. From the date
of this Agreement to the Closing Date, neither the Shareholders nor Seller
shall enter into any negotiations, discussions or agreements contemplating or
respecting the acquisition of Seller, the sale or purchase of any capital stock
or equity securities of Seller, whether through a merger or consolidation of
Seller with another party, the sale of all or substantially all, or a
significant portion of the assets of Seller or otherwise involving any party
other than Purchaser, or any type of recapitalization of Seller, or amend the
Articles of Incorporation or Bylaws of Seller, except for purposes of effecting
a change of name of Seller to be effective at Closing.
8.5 Notice of Certain Events. Seller shall promptly
notify Purchaser of: (i) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement, (ii) any notice or other
communication from any Authority in
Page 20
<PAGE> 21
connection with the transactions contemplated by this Agreement, and (iii) any
actions, suits or Claims commenced or, to the best Knowledge of Seller or any
of the Shareholders, threatened against, relating to or involving or otherwise
affecting Seller or the Business or Assets, that if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to Section
5.8 or that relate to the consummation of the transactions contemplated by this
Agreement.
8.6 Noncompetition.
(a) Seller agrees that for a period of three (3)
full years from the Closing Date, Seller shall not (i) engage, either directly
or indirectly, as a principal or for its own account or solely or jointly with
others, or as stockholders in any corporation or joint stock association, in
any business that competes with the Business as it exists on the Closing Date
throughout the world, (ii) except with the prior written consent of Purchaser,
employ or solicit, or receive or accept the performance of services by, any
employee of Seller hired by Purchaser, or (iii) induce or attempt to induce or
solicit any customer, supplier or other Person with a business relationship
with Seller or Purchaser not to do business with Purchaser or to alter its
relationship with Purchaser to the detriment of Purchaser.
(b) If any provision contained in this Section
8.6 shall for any reason be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions of this Section 8.6, but this Section 8.6 shall be construed
as if such invalid, illegal or unenforceable provision had never been contained
herein. It is the intention of the parties that if any of the restrictions or
covenants contained herein is held to cover a geographic area or to be for a
length of time that is not permitted by applicable law, or in any way construed
to be too broad or to any extent invalid, such provision shall not be construed
to be null, void and of no effect, but to the extent such provisions would be
valid or enforceable under applicable law, a court of competent jurisdiction
shall construe and interpret or reform this Section 8.6 so that it complies
with and is enforceable under applicable law.
8.7 Use of Private Eyes Name. Seller and Shareholders
agree that after the Closing Date, neither Seller nor any of the Shareholders
nor any of their affiliates will use the name "Private Eyes," or any
derivations thereof, or any other trade name, trademark or service mark used in
the operation of the Business. On or immediately following the Closing Date,
Seller shall change its corporate name to a name which does not use the term
Private Eyes or any derivation thereof and will deliver evidence of such change
to Purchaser.
8.B Certain Covenants of Purchaser and Gargoyles. Purchaser and
Gargoyles, jointly and severally, hereby agree to use their best efforts to
satisfy all conditions required by U.S. Bank for approval of the transactions
contemplated by this Agreement, including without limitation not taking any
action, or failing to take any action, that would create a default under the
Loan Agreement.
Page 21
<PAGE> 22
9. Mutual Covenants of the Parties.
9.1 Risk of Loss. Seller and Purchaser hereby agree that
the risk of any loss or damage to any of the Assets shall be on Seller at all
times prior to the Closing. In the event of any loss or damage to any of the
Assets prior to the Closing, Seller shall attempt to repair, replace or restore
the same as soon as practicable. If any lost or damaged Assets the loss or
damage to which shall have a Material Adverse Effect and for which insurance
proceeds would be inadequate to provide repair or replacement, shall not have
been repaired, replaced or restored by the Closing Date, Purchaser may, by
written notice to Seller, elect (i) to postpone the Closing for a period of not
more than thirty (30) days to permit Seller an opportunity to repair, replace
or restore such lost or damaged Assets, or (ii) to proceed with the Closing in
which latter event Purchaser shall take such assets in their condition on the
Closing Date, and Seller shall pay or assign to Purchaser all insurance
proceeds paid or payable to Seller as a result of such loss or damage to the
extent attributable to the Assets.
9.2 Key Employment Contracts. At Closing, Purchaser and
each of the Shareholders shall enter into an Employment Agreement.
9.3 Seller's Employees. Immediately prior to the
Closing, Seller shall terminate all employees of the Business and Purchaser
shall rehire them.
9.4 Remittances. Following the Closing, Seller agrees to
promptly turn over to Purchaser upon receipt, all remittances received by
Seller which are associated with or relate to the Assets and Business being
purchased by Purchaser.
9.5 Release of Liens on Assets. Prior to or as of the
Closing, Seller shall have repaid any Indebtedness as required to obtain a
release of any and all Liens against the Assets, except those liens related to
the Line of Credit, and at Closing the Assets shall be transferred to Purchaser
free and clear of all Liens except for any statutory tax Liens which are not
yet due and payable.
9.6 Access to Accounting Records. After Closing,
Purchaser shall provide Seller with all reasonable access to the books of
account and other accounting records related to the Business as may be
reasonably required in the preparation of Seller's and Shareholders' tax
returns and in Seller's review of the calculation of the Royalty Contingent
Price payments.
9.7 Best Efforts; Further Assurances.
(a) Subject to the terms and conditions of this
Agreement, each party will use its best efforts to take or cause to be taken,
all actions and to do, or cause to be done, all things necessary or desirable
under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. Seller, each of the Shareholders and
Purchaser each agree to execute and deliver such other documents, certificates,
agreements, and other writings and to take such other actions as may be
necessary or desirable to consummate or implement expeditiously the
transactions contemplated by this Agreement and to vest in Purchaser good and
Page 22
<PAGE> 23
marketable title to the Assets, except that post-closing, any such actions
requested by Purchaser shall be at the Purchaser's sole expense.
(b) Seller hereby constitutes and appoints,
effective as of the Closing Date, Purchaser and its successors and assigns as
the true and lawful attorney of Seller with full power of substitution in the
name of Purchaser or in the name of Seller, but for the benefit of Purchaser,
(i) to collect for the account of Purchaser any items of Assets, (ii) to
institute and prosecute all proceedings that Purchaser may in its sole
discretion deem proper to assert or enforce any right, title or interest in, to
or under the Assets, and (iii) to defend or compromise any and all actions,
suits or proceedings in respect of the Assets. Purchaser shall be entitled to
retain for its own account any amounts collected pursuant to the foregoing
powers, including any amounts payable as interest in respect thereof.
9.8 Certain Filings. Seller and Purchaser shall
cooperate with one another (i) in determining whether any action by or in
respect of, or filing with, any Authority is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
material Contracts, in connection with the consummation of the transactions
contemplated by this Agreement, and (ii) in taking such actions or making any
such filings, furnishing information required in connection therewith and
seeking timely to obtain any such actions, consents, approvals or waivers.
9.9 Owner's Equity at the Closing Date. On the Closing
Date, the net assets of Seller shall equal or exceed the net assets of Seller
as of September 30, 1996, which was $1,251,151, or the Purchase Price shall be
reduced (but not increased) on a dollar for dollar basis. For purposes of this
Section 9.9, net assets of Seller shall mean total assets of Seller net of
total liabilities, as stated on the September 30, 1996 balance sheet of Seller
and the balance sheet at closing.
10. Conditions Precedent to Purchaser' Obligations. The obligation
of Purchaser to purchase the Assets and to consummate the transactions
contemplated by this Agreement are subject to fulfillment of the following
conditions at or prior to the Closing Date (unless waived in writing by
Purchaser):
10.1 Representations and Performance. Except (i) as
affected by the transactions expressly contemplated by this Agreement, (ii) for
those representations and warranties which were intended by their context to be
accurate only as of the date on which made, or (iii) as agreed to by Purchaser
in writing, the representations and warranties made by Seller hereunder shall
be true and correct in all material respects at and as of Closing, and Seller
shall have performed and complied in all material respects with all agreements,
covenants and conditions contained in this Agreement required to be performed
or complied with by Seller prior to or at Closing;
10.2 No Adverse Change. Except as contemplated by this
Agreement, there shall have been no Material Adverse Change in the financial
condition, business or operations, financial or otherwise, of the Business or
Assets from the date of this Agreement to the Closing Date;
Page 23
<PAGE> 24
10.3 Opinion of Counsel. Purchaser shall have received an
opinion of Goldstein & Manello, P.C., counsel for Seller, dated as of the
Closing Date substantially in the form of the attached Exhibit 10.3;
10.4 Seller's Certificate. Purchaser shall have received
a certificate substantially in the form of the attached Exhibit 10.4 signed by
Seller and dated as of the Closing Date; to the effect that all
representations, covenants and warranties made in this Agreement by Seller were
on the date of this Agreement and are on the Closing Date true and correct in
all material respects and that Seller has performed in all material respects
the obligations, agreements, and covenants undertaken by Seller in this
Agreement to be performed on or prior to the Closing Date;
10.5 Litigation. On the Closing Date, there shall not be
any pending or threatened litigation by a third party against Seller or
Purchaser in any court or any proceedings by or before any Authority, with a
view to seeking, or in which it is sought, to restrain or prohibit the
consummation of the transactions contemplated by this Agreement or in which it
is sought to obtain divestiture, rescission or damages in connection with the
transactions contemplated by this Agreement, and no investigation by any
Authority shall be pending or threatened which might result in any such
litigation or other proceeding;
10.6 License Agreements. As of the Closing Date, the
Ellen Tracy License shall have been executed by Ellen Tracy, Inc. and Seller or
Purchaser shall be a party to a license agreement with Ellen Tracy which shall
contain at least the terms set forth in the draft form of License Agreement
attached hereto as Exhibit 10.6(a). In addition, Seller or Purchaser and shall
be a party to a license agreement with Cebe International S.A. concerning
Emmanuelle Khanh which shall contain at least the terms set forth on the
attached Exhibit 10.6,(b) and Seller shall have obtained consent to the
assignment of each of such license agreements to Purchaser;
10.7 Discharge of Indebtedness; Release of Liens Against
the Assets. Seller shall have paid and discharged any Indebtedness, except for
the Line of Credit and any Indebtedness included in the Assumed Liabilities,
the repayment of which is secured by a Lien against the Assets, and all such
Liens against the Assets shall have been fully released;
10.8 Necessary Consents; Notices. All authorizations,
consents and approvals by any third parties, including without limitation the
Norwell Consent and the New York Consent, which Purchaser has timely advised
Seller that Seller has the obligation to obtain because they are in its
reasonable opinion necessary for the consummation of the transactions
contemplated by this Agreement, shall have been received and shall be in full
force and effect; except that in the event the landlord ("New York Landlord")
for the Seller's New York showroom ("New York Showroom") has not delivered the
New York Consent or entered into a new lease with Purchaser for the New York
Showroom (collectively "New York Lease") by the time of Closing, the parties
agree to negotiate in good faith within thirty (30) days after Closing the
conditions for termination of the New York Lease and relocation of the New York
Showroom, and Seller agrees that any costs reasonably incurred by Purchaser
with
Page 24
<PAGE> 25
respect to such termination and relocation, including without limitation any
rent due under the New York Lease for periods after the Closing when Purchaser
does not occupy the New York Showroom, shall be an adjustment to the Contingent
Payments, and subject to Seller's indemnification hereunder.
10.9 Approval of Seller's Shareholders and Boards of
Directors. The transactions contemplated by this Agreement shall have been
approved by the Shareholders and the Board of Directors of Seller; and
10.10 Documents to be Delivered. Seller shall have
delivered all such resolutions, certificates, documents or other instruments,
with respect to Seller and the Assets as Purchaser and Purchaser's counsel may
reasonably request to carry out the purposes of this Agreement.
11. Conditions Precedent to Seller's Obligations. The obligation
of Seller to sell the Assets and to consummate the transactions contemplated by
this Agreement are subject to fulfillment of the following conditions at or
prior to the Closing Date (unless waived in writing by Seller):
11.1 Representations and Performance. The representations
and warranties made by Purchaser and Gargoyles hereunder shall be true and
correct in all material respects at and as of Closing, and Purchaser and
Gargoyles shall have performed and complied in all material respects with all
agreements, covenants and conditions contained in this Agreement required to be
performed or complied with by Purchaser and Gargoyles prior to or at Closing;
11.2 Opinion of Counsel. Seller shall have received an
opinion of Cynthia Pope, counsel for Purchaser and Gargoyles, dated as of the
Closing Date substantially in the form of the attached Exhibit 11.2;
11.3 Purchaser's and Gargoyles' Certificates. Seller
shall have received a certificate substantially in the form of the attached
Exhibit 11.3, signed by each of Purchaser and Gargoyles and dated as of the
Closing Date; to the effect that all representations, covenants and warranties
made in this Agreement by Purchaser were on the date of this Agreement and are
on the Closing Date true and correct in all material respects and that
Purchaser has performed in all material respects the obligations, agreements,
and covenants undertaken by Purchaser in this Agreement to be performed on or
prior to the Closing Date;
11.4 Employment Agreements. Purchaser shall have executed
and delivered to each of the Shareholders an Employment Agreement;
11.5 Consideration and Documents to be Delivered.
Purchaser shall have delivered to Seller the cash portion of the Purchase Price
due at Closing and shall have delivered all such resolutions, certificates,
documents or other instruments with respect to Purchaser as Seller and Seller's
counsel may reasonably request to carry out the purposes of this Agreement; and
Page 25
<PAGE> 26
11.6 Litigation. On the Closing Date, there shall not be
any pending or threatened litigation by a third party against Seller or
Purchaser in any court or any proceedings by or before any Authority, with a
view to seeking, or in which it is sought, to restrain or prohibit the
consummation of the transactions contemplated by this Agreement or in which it
is sought to obtain divestiture, rescission or damages in connection with the
transactions contemplated by this Agreement, and no investigation by any
Authority shall be pending or threatened which might result in any such
litigation or other proceeding.
12. Termination.
12.1 Who May Terminate. This Agreement may be terminated
and the transactions contemplated hereunder may be abandoned at any time:
(a) by mutual consent of Seller and Purchaser;
(b) by either Seller or Purchaser, if this
Agreement is not closed on or before June 13, 1997; provided, however, if any
party has breached or defaulted in any material respect with regard to its
respective obligations under this Agreement on or before such date, such party
may not terminate this Agreement pursuant to this Section, and the other party
to this Agreement shall at its option enforce its rights against the breaching
or defaulting party and seek any remedies against such party as provided
hereunder and by applicable law. The breaching or defaulting party shall be
responsible for reimbursing all out-of-pocket expenses incurred by the other
party in connection with the transactions contemplated hereby in addition to
any liability for any other remedies available to the non-defaulting party;
(c) by Purchaser, at its option, if as of the
Closing Date any of the conditions specified in Section 4.1 and Section 10
hereof has not been satisfied in any material respect or if the Seller is
otherwise in default in any material respect under this Agreement, provided,
however, if Purchaser elects to terminate this Agreement under this Section,
Purchaser may enforce its rights against Seller and seek any remedies against
Seller, as provided hereunder and by applicable law;
(d) by Seller, at its option, if as of the
Closing Date any of the conditions specified in Section 4.2 and Section 11
hereof has not been satisfied in any material respect or if Purchaser is
otherwise in default in any material respect under this Agreement, provided,
however, if Seller elects to terminate this Agreement under this Section,
Seller may enforce its rights against Purchaser and seek any remedies against
Purchaser, as provided hereunder and by applicable law; or
(e) Notwithstanding anything that may be
construed to the contrary herein, if the reason for termination of this
Agreement is because of an event of litigation pursuant to Section 10.5 or 11.6
hereof, it shall be deemed a breach of this Agreement: (i) by the Seller, if
the cause for such litigation is a breach of representations, warranties or
covenants herein of Seller; or (ii) by the Purchaser or Gargoyles, if the cause
for such litigation is a breach of representations, warranties or covenants
herein of Purchaser or Gargoyles.
Page 26
<PAGE> 27
12.2 Effectiveness of Termination; Return of Deposit.
Termination of this Agreement and abandonment of the transactions contemplated
hereunder shall be deemed effective on the date mutually agreed upon by the
parties, or, in the event of termination by unilateral action, on the date
specified in a written notice to the other party. If this Agreement is
terminated for any reason other than a breach by Purchaser, the Standstill
Deposit and the Deposit, plus all interest accrued thereon, promptly shall be
returned to Purchaser. If this Agreement is terminated for breach by
Purchaser, the Standstill Deposit and the Deposit shall be promptly delivered
to Seller.
13. Survival of Representations and Warranties. All
representations and warranties of Seller and Purchaser contained in this
Agreement shall survive the Closing Date and (i) those representations and
warranties made under Sections 5.3, 5.4, 5.5, 5.6, 5.11, 5.12, 5.13, 5.14,
5.15, 5.16, 5.17, 5.22, 5.23, 5.24 and 5.25 shall continue in full force and
effect until the first anniversary of the Closing Date; (ii) all other
representations and warranties made under Section 5, except for Section 5.10,
shall continue in full force and effect until the third anniversary of the
Closing Date, and (iii) those representations and warranties made under Section
5.10 shall continue until expiration of applicable statutes of limitation.
14. Indemnification by Seller and Shareholders.
14.1 Indemnity. From and after the Closing Date, Seller
and Shareholders, jointly and severally, shall indemnify, defend and hold
harmless Purchaser from and against and shall reimburse Purchaser for any and
all losses, liabilities, deficiencies, Claims and expenses (including, but not
limited to, costs of defense and reasonable attorneys' fees) incurred by
Purchaser arising from or in connection with (i) any breach by Seller of any
covenant or agreement contained in this Agreement, (ii) any misrepresentation
or breach of any of the representations and warranties of Seller contained in
this Agreement, or (iii) any liability or loss that is not an Assumed
Liability.
14.2 Limitations on Warranties and Liability.
NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, NEITHER PARTY MAKES
ANY WARRANTIES, EITHER EXPRESS OR IMPLIED, TO THE OTHER EXCEPT AS SET FORTH
SPECIFICALLY HEREIN. EXCEPT WITH RESPECT TO BREACH OF ANY OF THE PROVISIONS OF
SECTION 8 HEREOF, NO PARTY SHALL BE LIABLE TO ANY OTHER PARTY HERETO FOR ANY
SPECIAL OR CONSEQUENTIAL DAMAGES (SUCH AS BUT NOT LIMITED TO A LOSS OF
PROFITS), EVEN IF SUCH PARTY HAS BEEN NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.
14.3 Right of Off-Set. Purchaser shall have the right to
offset against any Contingent Payments due Seller, any losses incurred or
amounts paid by Purchaser with respect to obligations against which Seller's
and Shareholders, jointly and severally, have indemnified Purchaser under
Subsection 14.1 hereof.
14.4 Basket; Liability Cap. Neither Seller nor any of the
Shareholders on the one hand, or Purchaser on the other hand, shall be
obligated to indemnify the other under Sections 14.1 or 15 hereof, except and
to the extent that claims for indemnification exceed in the aggregate the sum
of Twenty-Five Thousand Dollars
Page 27
<PAGE> 28
($25,000). In no event, however, shall the indemnity obligation of Seller and
the Shareholders under Section 14.1 hereof exceed the sum of (i) the Purchase
Price, and (ii) the total amount of the Contingent Payments which the Seller
has actually received. Notwithstanding the foregoing, there shall be no basket
or liability cap, and Purchaser shall be entitled to complete indemnification
for any and all loss, cost, damage, liability, obligation, expense or
deficiency arising from or relating to any breach of the provisions of Section
8 hereof.
14.5 Notice; Defense of Claims. An indemnified party
under this Section 14 or Section 15 hereof, may make claims for indemnification
hereunder by giving written notice thereof to the indemnifying party within the
applicable survival period hereunder. If indemnification is sought for a claim
or liability asserted by a third party, the indemnified party shall also give
written notice thereof to the indemnifying party promptly after it receives
notice of the claim or liability being asserted, but the failure to do so shall
not relieve the indemnifying party from any liability except to the extent that
it is prejudiced by the failure or delay in giving such notice. Such notice
shall be given reasonably promptly after the indemnified party has determined
that a claim for indemnification exists and shall summarize the basis for the
claim for indemnification and any claim or liability being asserted by a third
party. Within 10 days after receiving such notice, the indemnifying party
shall give written notice to the indemnified party stating whether it disputes
the claim for indemnification and whether it will defend against any third
party claim or liability at its own cost and expense. If the indemnifying
party fails to give notice that it disputes an indemnification claim within 10
days after receipt of notice thereof, it shall be deemed to have accepted and
agreed to the claim, which shall become immediately due and payable. The
indemnifying party shall be entitled to direct the defense against third party
claims or liability with counsel selected by it (subject to the consent of the
indemnified party, which consent shall not be unreasonably withheld) as long as
the indemnifying party is conducting a good faith and diligent defense. The
indemnified party shall at all times have the right to fully participate in the
defense of a third party claim or liability at its own expense directly or
through counsel; provided, however, that if the named parties to the action or
proceeding include both the indemnifying party and the indemnified party and
the indemnified party is advised that representation of both parties by the
same counsel would be inappropriate under applicable standards of professional
conduct, the indemnified party may engage separate counsel at the expense of
the indemnifying party. If no such notice of intent to dispute and defend a
third party claim or liability is given by the indemnifying party, or if such
good faith and diligent defense is not being or ceases to be conducted by the
indemnifying party, the indemnified party shall have the right, at the expense
of the indemnifying party, to undertake the defense of such claim or liability
and to compromise or settle it, exercising reasonable business judgment. If
the third party claim or liability is one that by its nature cannot be defended
solely by the indemnifying party, then the indemnified party shall make
available such information and assistance as the indemnifying party may
reasonably request and shall cooperate with the indemnifying party in such
defense, at the expense of the indemnifying party.
15. Indemnification by Purchaser. From and after the Closing
Date, Purchaser shall indemnify, defend and hold harmless Seller from and
against and shall reimburse Seller for any and all losses, liabilities,
deficiencies, Claims and
Page 28
<PAGE> 29
expenses (including, but not limited to, costs of defense and reasonable
attorneys' fees) incurred by Seller arising from or in connection with (i) any
breach by Purchaser of any covenant or agreement contained in this Agreement,
(ii) any misrepresentation or breach of any of the representations and
warranties of Purchaser contained in this Agreement, (iii) any liability or
loss that is an Assumed Liability including without limitation any continuing
liability of Seller under Leases assigned to Purchaser, arising after the dates
of assignment.
16. Guaranty of Gargoyles. Gargoyles hereby unconditionally
guarantees as a primary obligation the full satisfaction of all obligations of
Purchaser hereunder, including, without limitation, the prompt and timely
payment of any and all amounts and any and all losses, costs, damages, claims
and expenses which, by virtue of this Agreement and such other agreements and
documents, might become recoverable by Seller and/or the Shareholders from the
Purchaser. Gargoyles agrees that this guarantee shall apply with the same
force and effect to all amendments and modifications of this Agreement and any
such other agreement or document executed by the Purchaser, whether or not
Gargoyles agrees to such amendment or modification. Gargoyles expressly waives
notice of acceptance, nonperformance or nonpayment by the Purchaser,
presentment, demand, protest and notice of this on or in connection with the
foregoing guarantee. Notwithstanding the foregoing, Gargoyles shall not be
obligated under this Agreement to any greater extent than the Purchaser is so
obligated.
17. Miscellaneous Provisions.
17.1 Amendment and Modification. Prior to the Closing
Date this Agreement may be amended, modified and supplemented or any provision
waived only by written agreement, executed by Seller and Purchaser.
17.2 Dispute Resolution. In the event of any controversy,
claim or dispute arising out of or relating to this Agreement, or the alleged
breach hereof, the parties shall first use their best efforts to resolve the
dispute amicably. If the parties fail to resolve any such dispute, then such
dispute shall be resolved by binding arbitration by one arbitrator subject to
the sole jurisdiction of the American Arbitration Association of Boston,
Massachusetts (A.A.A.). If the parties fail to agree on selection of an
arbitrator, any party may petition the presiding judge of a court of competent
jurisdiction to appoint a member of A.A.A. as an arbitrator. Thereafter, the
arbitrator shall permit a period of open and free discovery, including the
taking of depositions, and will promptly conduct an arbitration hearing. It is
the intent of the parties hereto that an arbitration hearing be concluded
within 90 days of the appointment of the arbitrator. The arbitrator shall have
broad authority to fashion any legal or equitable remedy including the
authority to award specific performance. The arbitration award may allocate
costs of arbitration and reasonable attorneys' fees. The finding of the
arbitrator will be binding upon the parties, and judgment thereon may be
entered in any court of competent jurisdiction. Nothing in this section,
however, shall deprive a court of competent jurisdiction of the authority to
apply a temporary restraining order or preliminary injunction prohibiting a
violation of this Agreement prior to any arbitration proceeding.
Page 29
<PAGE> 30
17.3 Waiver of Compliance; Consents. Any failure of
Seller on the one hand, or Purchaser on the other hand, to comply with any
obligation, covenant, agreement or condition herein, may be waived in writing
as provided in Section 17.1 hereof, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing.
17.4 Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
given by: (a) hand delivery; (b) first-class registered or certified mail with
postage prepaid, (c) overnight receipted courier service, or (d) telephonically
confirmed facsimile transmission during normal business hours, which notice is
addressed to the party at the address set forth below, or such other address as
may hereafter be designated in writing by the party. Notices given in
accordance with this Section shall be effective upon receipt or when receipt is
refused, and notice given to the Seller shall be deemed effective notice to
each and every Shareholder as if given individually to each such Shareholder.
IF TO SELLER AND THE SHAREHOLDERS, TO:
Richard W. Hammel, Sr.
44 Fox Hill Lane
Milton, MA 02186
Tel: 617-698-1358
with a copy to:
Anthony D. Martin
Goldstein & Manello P.C.
265 Franklin Street
Boston, MA 02110-3102
Tel: (617) 946-8138
Fax: (617) 439-8988
IF TO PURCHASER, TO:
Gargoyles, Inc.
5866 South 194th Street
Kent, Washington 98032
Attn: Douglas B. Hauff, President and CEO
Tel: (206) 872-6100 Ext. 3400
Fax: (206) 872-3317
with a copy to:
Cynthia L. Pope, Esq.
114 West Magnolia
Fourth Floor
Bellingham, Washington 98225
Tel: (360) 671-5939
Fax: (360) 671-5931
Page 30
<PAGE> 31
17.5 Assignment; Form of Transaction. This Agreement and
all of the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns, and
with respect to the Shareholders, their heirs, devisees, estates and legal
representatives, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any party hereto without the prior
written consent of the other.
17.6 Governing Law. This Agreement shall be governed by
the internal law (i.e., disregarding its principles of conflicts of laws) of
The Commonwealth of Massachusetts as to all matters, including but not limited
to matters of validity, construction, effect and performance (except that the
Employment Agreements shall be governed by the internal law of the State of
Washington).
17.7 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
17.8 Headings. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
17.9 Exhibits and Schedules. The exhibits and schedules
attached hereto are incorporated herein by reference as if fully set forth
herein.
17.10 Entire Agreement. This Agreement, including the
exhibits and schedules hereto and the documents, certificates and instruments
referred to herein, including the Standstill Agreement and Escrow Agreement
attached as an exhibit thereto, embodies the entire agreement and understanding
of the parties hereto in respect of the transactions contemplated by this
Agreement and supersedes all prior agreements, representations, warranties,
promises, covenants, arrangements, communications and understandings, oral or
written, express or implied, between the parties with respect to such
transactions, which shall remain in full force and. There are no agreements,
representations, warranties, promises, covenants, arrangements or
understandings between the parties with respect to such transactions, other
than those expressly set forth or referred to herein.
17.11 Expenses. Each party to this Agreement shall bear
his or its own expenses in connection with the preparation of this Agreement
and the consummation of the transaction contemplated hereby. Such expenses of
Seller shall be Excluded Liabilities.
18. Definitions. Capitalized terms used herein and not otherwise
defined shall have the respective meanings ascribed to them below.
"Agreement" shall have the meaning set forth in the opening paragraph
hereof.
"Allocation Certificate" shall have the meaning set forth in Section
3.35 hereof.
Page 31
<PAGE> 32
"Assets" shall have the meaning set forth in Section 1 hereof.
"Assumed Contracts" shall have the meaning set forth in Section
3.46(b) hereof.
"Assumed Liabilities" shall have the meaning set forth in Section 3.46
hereof.
"Authority" means any governmental, regulatory or administrative body,
agency or authority, any court or judicial authority, any public, private or
industry regulatory authority, whether international, national, Federal, state
or local or otherwise, or any similarly empowered Person.
"Business" shall have the meaning set forth in Paragraph A hereof.
"Claim" means any claim, lawsuit, demand, suit, inquiry, hearing,
investigation, notice of a violation, litigation, proceeding, arbitration, or
other dispute, whether civil, criminal, administrative or otherwise.
"Closing" and shall have the meaning set forth in Section 4 hereof.
"Closing Date" shall have the meaning set forth in Section 4 hereof.
"Contaminant" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, or any constituent of any such substance or waste,
including, without limitation, any such substance regulated under any
Environmental Law.
"Contingent Payments" and "Contingent Price Agreement" shall have the
meanings set forth in Section 3.4 hereof.
"Contract" means any agreement, contract, commitment, instrument or
other binding arrangement or understanding, whether written or oral, and all
amendments thereto, whether written or oral.
"Deposit" shall have the meaning set forth in Section 3.2 hereof.
"Disclosure Schedule" shall have the meaning set forth in Section 5.1
hereof.
"Environmental Law" means any and all present or future federal, state
and local environmental laws, including but not limited to the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601
et seq.), the Hazardous Material Transportation Act (49 U.S.C. Section 1801 et
seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et
seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Occupational
Safety and Health Act (29 U.S.C. Section 651 et seq.), and the Washington Model
Toxics Control Act, as such laws have been amended or supplemented, and the
regulations promulgated pursuant thereto, and any other present or future
federal, state or local environmental Regulations.
Page 32
<PAGE> 33
"Environmental Liabilities and Costs" means all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including,
without limitation, all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation and feasibility studies),
fines, penalties, monetary sanctions and interest, direct or indirect, known or
unknown, absolute or contingent, past, present or future, resulting from any
Claim or demand, by any Person, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute, including
involving any Environmental Law, Permit, Environmental Lien, Order or agreement
with any Authority, arising from environmental, health or safety conditions, or
the Release or threatened Release of a Contaminant into the environment, as a
result of past, present or future operations of the Company or the Business as
a result of past, present or future ownership or use of property by the
Company Seller.
"Environmental Lien" means any Lien in favor of any Authority for
Environmental Liabilities and Costs.
"ERISA" shall have the meaning set forth in Section 5.9(b) hereof.
"Escrow" shall have the meaning set forth in Section 3.1 hereof.
"Excluded Assets" shall have the meaning set forth in Section 2
hereof.
"Excluded Liabilities" shall have the meaning set forth in Section 3.5
hereof.
"Financial Statements" shall have the meaning set forth in Section 5.3
hereof.
"Gargoyles Contract" shall have the meaning set forth in Section 7.2
hereof.
"Guarantee" means any guarantee or other contingent liability (other
than any endorsement for collection or deposit in the ordinary course of
business), direct or indirect with respect to any obligations of another
Person, through an agreement or otherwise, including, without limitation, (a)
any other endorsement or discount with recourse or undertaking substantially
equivalent to or having economic effect similar to a guaranty in respect of any
such obligations and (b) any Contract (i) to purchase or to advance or supply
funds for the payment or purchase of any such obligations, (ii) to purchase,
sell or lease property, products, materials or supplies, or transportation or
services, in respect of enabling such other Person to pay any such obligation
or to assure the owner thereof against loss regardless of the delivery or
nondelivery of the property, products, materials or supplies of transportation
or services or (iii) to make any loan, advance or capital contribution to or
other investment in or to otherwise provide funds to or for such other Person
in respect of enabling such Person to satisfy an obligation (including any
liability for a dividend, stock liquidation payment or expense) or to assure a
minimum equity, working capital or other balance sheet condition in respect of
any such obligation.
"Indebtedness" with respect to any Person means any obligation of such
Person for borrowed money, and in any event shall include (i) any obligation
incurred for all or any part of the purchase price of property or other assets
or for the cost of property or
Page 33
<PAGE> 34
other assets constructed or of improvements thereto, other than accounts
payable included in current liabilities and incurred in respect of property
purchased in the ordinary course of business, (ii) the face amount of all
letters of credit issued for the account of such Person and all drafts drawn
thereunder, (iii) obligations (whether or not such Person has assumed or become
liable for the payment of such obligation) secured by Liens, (iv) Capitalized
Lease Obligations, and (v) all Guarantees of such Person.
"IRC" means the Internal Revenue Code of 1986, as amended.
"Intellectual Property" shall have the meaning set forth in Section
5.19(a).
"Knowledge" means the actual current collective knowledge of the
management employees of the applicable party together with such knowledge that
such person has obtained after diligent inquiry concerning the subject matter,
including without limitation, inquiry of those officers and employees of, and
appropriate advisers and consultants to, such party who have responsibility for
the subject matter as to which Knowledge relates in the particular instance.
For purposes of this definition, management employees of Seller shall mean
Richard W. Hammel, Sr. and Patricia Lynch.
"Lien" means any security interest, lien, charge, mortgage, deed,
assignment, pledge, hypothecation, encumbrance, easement, restriction or
interest of another Person of any kind or nature.
"Line of Credit" shall have the meaning set forth in Section 3.4(b)
hereof.
"Material Adverse Change" means any developments or changes which
would have a Material Adverse Effect.
"Material Adverse Effect" means any circumstances, developments,
occurrences, state of facts or matters which are known to Seller and might
reasonably be expected to have a material adverse effect in respect of the
Seller's business, operations, properties, assets, condition (financial or
otherwise), results, plans, strategies or prospects, or the same of Purchaser,
if the context so requires.
"Order" means any decree, order, injunction, rule, judgment or consent
of or by an Authority.
"Pension Plans" shall have the meaning set forth in Section 5.9(b)
hereof.
"Person" means any corporation, partnership, joint venture,
organization, entity, Authority or natural person.
"Permit" means any permit, approval, authorization, license, variance,
or permission required from an Authority under an applicable Requirement of
Law.
"Plans" shall have the meaning set forth in Section 5.9(b) hereof.
Page 34
<PAGE> 35
"Premises" shall have the meaning set forth in Paragraph A hereof.
"Purchase Price" shall have the meaning set forth in Section 3 hereof.
"Purchaser" shall have the meaning set forth in the opening paragraph
hereof.
"Purchaser Contract" shall have the meaning set forth in Section 6.2
hereof.
"Registers" shall have the meaning set forth in Section 5.19(b)
hereof.
"Regulation" means any law, code, statute, regulation, ordinance,
requirement, announcement or other binding or restrictive action or requirement
of or by an Authority.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment or into or out of any property owned by the
Company, including the movement of Contaminants through or in the air, soil,
surface water, groundwater or property.
"Remedial Action" means all actions required to: (i) clean up, remove,
treat or in any other way address Contaminants in the indoor or outdoor
environment; (ii) prevent the Release or threat of Release or minimize the
further Release of Contaminants so that they do not migrate or endanger or
threaten to endanger public health or welfare or the indoor or outdoor
environment; or (iii) perform pre-remedial studies and investigations and
post-remedial monitoring and care.
"Requirement of Law" means, as to any Person, the charter and bylaws
or other organizational or governing documents of such Person, and any
Regulation, or Order, including without limitation the requirements of
Environmental Laws, in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is subject.
"Seller" shall have the meaning set forth in the opening paragraph
hereof.
"Seller Contract" shall have the meaning set forth in Section 5.11
hereof.
"Standstill Agreement and Standstill Deposit" shall have the meanings
set forth in Section 3.1 hereof.
"Use Tax Return" shall have the meaning set forth in Section 3.9(a)
hereof.
"Welfare Plans" shall have the meaning set forth in Section 5.9(b)
hereof.
IN WITNESS WHEREOF, Seller and Purchaser have made and entered into
Page 35
<PAGE> 36
this Agreement as of the day and year first above written.
SELLER:
THE PRIVATE EYES SUNGLASS CORPORATION
a Massachusetts corporation
By /s/ Richard W. Hammel
---------------------------------
Richard W. Hammel, Sr., President
SHAREHOLDERS:
/s/ Richard W. Hammel, Sr.
-----------------------------------
RICHARD W. HAMMEL, SR.
/s/ Patricia Lynch
-----------------------------------
PATRICIA LYNCH
/s/ Annette Hammel
-----------------------------------
ANNETTE HAMMEL
/s/ Robert Hammel
-----------------------------------
ROBERT HAMMEL
/s/ Ronald Hammel
-----------------------------------
RONALD HAMMEL
PURCHASER:
GARGOYLES, INC., GARGOYLES ACQUISITION CORPORATION II,
a Washington corporation a Washington corporation
By /s/ Douglas B. Hauff By /s/ Douglas B. Hauff
--------------------------- -----------------------------------
Douglas B. Hauff, President Douglas B. Hauff, President and CEO
and CEO
Page 36
<PAGE> 1
AMENDMENT AGREEMENT
AGREEMENT dated this 14th day of May, 1997, between The Private Eyes
Sunglass Corporation and Gargoyles Acquisition Corporation II, to amend the
Asset Purchase and Sale Agreement dated as of May 5, 1997 ("P&S"), the defined
terms of which are used herein, between the parties hereto and certain
shareholders of the Seller.
WHEREAS, certain conditions to Closing under the P&S have not been met
this date, including the delivery of the Emmanuelle Khanh License, the
Assignment and Assumption of the Emmanuelle Khanh License, and the balance
sheet of Seller as at May 14, 1997 ("Closing Date Balance Sheet"), and the
parties are willing to waive the performance of such conditions on the terms
and conditions hereof.
NOW THEREFORE, in consideration of the mutual promises herein and for
other good and valuable consideration, the receipt and sufficiency whereof are
hereby acknowledged, it is agreed as follows:
1. Purchaser has held back from delivery to Seller the amount of
Five Hundred Thousand Dollars ($500,000) of the Purchase Price ("Purchase Price
Hold-Back"). Purchaser agrees to deliver to Seller, by wire transfer, to
Seller's designated bank account ("Seller's Account"), the Purchase Price
Hold-Back promptly after receipt of the Emmanuelle Khanh License and Assignment
and Assumption of the Emmanuelle Khanh License, duly executed by Cebe
International, S.A.
2. Seller agrees to maintain $500,000 in Seller's Account or in
immediately available investment grade securities for a period not to exceed
sixty (60) days from the date hereof. Seller shall be entitled to release such
funds upon receipt of the finalized Closing Date Balance Sheet.
3. Purchaser agrees to use its best efforts to prepare the
Closing Date Balance Sheet as soon as possible following the closing audit, and
both parties agree to cooperate in reviewing the same and finalizing it
promptly thereafter.
4. In all other respects, the P&S remains in full force and
effect without any further changes, and this Amendment Agreement incorporates
herein all such other provisions thereof, including without limitation the
obligations of Gargoyles, Inc. to guarantee the performance of Purchaser
hereunder.
EXECUTED as an instrument under seal as of the date first written
above.
THE PRIVATE EYES SUNGLASS GARGOYLES ACQUISITION
CORPORATION CORPORATION II
By: /s/ Richard W. Hammel, Sr. By /s/ Steven R. Kingma
-------------------------------- --------------------------------
Richard W. Hammel, Sr., its Steven R. Kingma, its
President Vice President and
Chief Financial Officer
<PAGE> 1
GARGOYLES(R) NEWS EX 99.1
PERFORMANCE EYEWEAR
FOR IMMEDIATE RELEASE CONTACT:
May 6, 1997 Doug Hauff, Gargoyles
(206) 872-6100, x3400
Rich Scaglione, Buntin Public Relations
(615) 244-5720
GARGOYLES TO ACQUIRE PRIVATE EYES SUNGLASS CORPORATION
ACQUISITION WILL INCLUDE ELLEN TRACY EYEWEAR
KENT, Wash. -- Gargoyles, Inc. (NASDAQ:GOYL), in a move to grow its share of
the women's premium sunglass market, has reached a preliminary agreement to
acquire Norwell, Mass.-based Private Eyes Sunglass Corporation, the licensee for
Ellen Tracy eyewear. The sale is expected to close later in the second quarter.
Private Eyes, which becomes a Gargoyles subsidiary, was founded in 1977. The
company is also the North American distributor for Emmanuelle Khanh Paris
Eyewear and a manufacturer of its own high-quality line of prescription frames
and eyewear accessories.
Ellen Tracy eyewear features a collection of high-quality, high-fashion
women's sunglasses, readers, optical frames and accessories in a variety of
designs ranging from traditional to fashion-forward. The collection reflects the
professional, self-assured and feminine look associated with the highly
successful Ellen Tracy line of women's clothing.
Doug Hauff, president and chief executive officer of Gargoyles, said the
reputation of the Ellen Tracy name gives the brand huge potential. "The Ellen
Tracy name is golden, and has been since the clothing line was first introduced
in 1949," he said. "That's the kind of quality, long-lasting brand we were
looking for."
The acquisition, said Hauff, allows Gargoyles to broaden its customer base
and strengthen its distribution capabilities.
"With Private Eyes, we will significantly expand our presence in the women's
market, which has been an important target for us," said Hauff. "It gives us
access to the high-end fashion consumer, which is a new customer for Gargoyles.
At the same time, the research, development, design and sales expertise at
Private Eyes will allow us to continue to meet the needs of that customer. "
The acquisition will also enable Gargoyles to strengthen its presence in the
department store channel, which had been underpenetrated by the company.
"Private Eyes has its own direct sales force for department stores, which is an
excellent fit with our existing sales staff," Hauff added.
Hauff said the acquisition makes sense for both companies. "Many companies,
like Private Eyes and Sungold I-Wear, which we also recently acquired, are
looking for opportunities to put more muscle behind their brands," he said. "The
Private Eyes collections will benefit from our financial strength and our
marketing and distribution capabilities. And because
5866 SOUTH 194TH ST. KENT, WA 98032 T 206.872.6100 F 206.872.3468
<PAGE> 2
our two organizations are highly complementary, the acquisition gives us
incremental resources and expertise to strengthen our competitive position in
the industry."
"We now have access to resources we've never had before," said Richard
Hammel, president of Private Eyes who is a 30-year veteran of the sunglass
industry. "Our goal is to grow all our brands to an entirely new level. The
demand for brand-identity eyewear is exploding, and by joining forces with
Gargoyles, we are offering our distribution channels access to a larger group of
powerful brand names."
Like Ellen Tracy eyewear, the Emmanuelle Khanh Paris Eyewear collection is a
high-end premium eyewear line for women, with a 25-year history of producing
frames with unique, hand-crafted ornamentations.
"The newest collections for 1997 aim to broaden the Emmanuelle Khanh customer
base with more contemporary styling and clean, subtle, elegant details to appeal
to today's high-fashion woman," said Patricia Lynch, executive vice president at
Private Eyes.
Retail prices for Ellen Tracy eyewear range from $50 to $250, while retail
prices for Emmanuelle Khanh Paris Eyewear range from $125 to $300.
Private Eyes also manufactures its own line of accessories -- designed to
complete the consumer's eyewear package with beautifully crafted cases, chains
and repair kits -- as well as prescription eyewear frames sold exclusively
through top optical outlets.
"Accessories is one of the fastest-growing areas of the industry," said
Hauff. "Private Eyes has an excellent reputation for accessories in the
marketplace, and the acquisition will allow us to offer a new line of
high-quality products to our customers."
Gargoyles, Inc., founded in 1983 and based in Kent, Wash., manufactures and
markets Gargoyles Performance Eyewear, a line of performance and outdoor
lifestyle-oriented sunglasses which combine innovative styling with its patented
dual lens toric curve technology.
The company owns the Hobie sunglass line, a leading line of polarized
sunglasses, which is one of the fastest-emerging categories within the premium
sunglass market. In the first quarter of 1997, the company introduced the
Timberland line, a line of outdoor lifestyle-oriented sunglasses under license
from the Timberland Company. In addition, early in the second quarter of 1997,
the company completed its acquisition of Sungold I-Wear, which manufactures the
Stussy and Anarchy lines.
The company also offers a popular line of protective eyewear focused
primarily on the medical and dental market segments.
###
<PAGE> 1
GARGOYLES(R) EX 99.2
PERFORMANCE EYEWEAR NEWS
FOR IMMEDIATE RELEASE CONTACT:
May 21, 1997 Doug Hauff, Gargoyles
(206) 872-6100, x3400
Rich Scaglione, Buntin Public Relations
(615) 244-5720
GARGOYLES COMPLETES ACQUISITION OF PRIVATE EYES SUNGLASS CORPORATION
-----
ADDS ELLEN TRACY EYEWEAR TO ITS BRAND COLLECTION
KENT, Wash. -- Gargoyles, Inc. (NASDAQ:GOYL) has completed its acquisition of
Norwell, Mass.-based Private Eyes Sunglass Corporation, the licensee for Ellen
Tracy eyewear.
Private Eyes, which becomes a Gargoyles subsidiary, was founded in 1977. The
company is also the North American distributor for Emmanuelle Khanh Paris
Eyewear and a manufacturer of its own high-quality line of prescription frames
and eyewear accessories.
The acquisition increases Gargoyles' share of the women's premium sunglass
market, a key growth target for the company, said Doug Hauff, president and
chief executive officer.
"The addition of the widely respected Ellen Tracy name immediately gives us a
strong presence in the high-fashion women's premium sunglass market, which is a
new segment for us," he said. "We are excited to add Ellen Tracy eyewear, as
well as the other quality Private Eyes collections, to the Gargoyles family."
Hauff said the acquisition of Private Eyes, which has its own sales force for
department stores, also enables Gargoyles to strengthen its presence in the
department store channel, which had been underpenetrated by the company.
"Private Eyes also brings us outstanding expertise in the research,
development and design of women's premium eyewear, which we didn't have before,"
Hauff added.
Ellen Tracy eyewear features a collection of high-quality, high-fashion
women's sunglasses, readers, optical frames and accessories in a variety of
designs ranging from traditional to fashion-forward. The
5866 SOUTH 194TH ST. KENT, WA 98032 T 206.872.6100 F 206.872.3468
<PAGE> 2
collection reflects the professional, self-assured and feminine look associated
with the highly successful Ellen Tracy line of women's clothing.
Emmanuelle Khanh Paris Eyewear is a high-end premium eyewear line for women,
with a 25-year history of producing frames with unique, hand-crafted
ornamentations. Its newest collections for 1997 are designed to broaden the
Emmanuelle Khanh customer base with more contemporary styling and clean, subtle,
elegant details.
Retail prices for Ellen Tracy eyewear range from $50 to $250, while retail
prices for Emmanuelle Khanh Paris Eyewear range from $125 to $300.
Private Eyes also manufactures its own line of accessories -- designed to
complete the consumer's eyewear package with beautifully crafted cases, chains
and repair kits -- as well as prescription eyewear frames sold exclusively
through top optical outlets.
"This move makes sense for both companies," said Richard Hammel, president of
Private Eyes. "Gargoyles adds high-quality brands that fit well with the
company's business strategies, while Private Eyes now has access to the
distribution and marketing resources necessary to take our brands to a higher
level."
Herb Gallen, chairman of Ellen Tracy, remarked, "We are very excited with the
acquisition of Private Eyes by Gargoyles. The merging of these two organizations
makes for a stronger combination of design, marketing and promotional skills.
Doug Hauff and his organization will bring Ellen Tracy optical and sunglasses to
the forefront of the fashion eyewear business."
Gargoyles, Inc., founded in 1983 and based in Kent, Wash., manufactures and
markets Gargoyles Performance Eyewear, a line of performance and outdoor
lifestyle-oriented sunglasses which combine innovative styling with its patented
dual lens toric curve technology.
The company owns the Hobie sunglass line, a leading line of polarized
sunglasses, which is one of the fastest-emerging categories within the premium
sunglass market. In the first quarter of 1997, the company introduced the
Timberland line, a line of outdoor lifestyle-oriented sunglasses under license
from the Timberland Company. In addition, early in the second quarter of 1997,
the company completed its acquisition of Sungold I-Wear, which manufactures the
Stussy and Anarchy lines.
The company also offers a popular line of protective eyewear focused
primarily on the medical and dental market segments.
###
