<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1997
REGISTRATION NO. 333-30017
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SIGNATURE EYEWEAR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 3851 95-3876317
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANI-
ZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
498 NORTH OAK STREET
INGLEWOOD, CALIFORNIA 90302
(310) 330-2700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
JULIE HELDMAN, CO-CHAIRMAN OF THE BOARD AND PRESIDENT
SIGNATURE EYEWEAR, INC.
498 NORTH OAK STREET
INGLEWOOD, CALIFORNIA 90302
(310) 330-2700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
ALAN B. SPATZ, ESQ. CHRISTOPHER C. WHEELER, ESQ.
JOHN J. MCILVERY, ESQ. DONALD E. THOMPSON, II, ESQ.
TROOP MEISINGER STEUBER & PASICH, LLP PROSKAUER ROSE LLP
10940 WILSHIRE BOULEVARD 2255 GLADES ROAD, SUITE 340W
LOS ANGELES, CALIFORNIA 90024 BOCA RATON, FLORIDA 33431
(310) 824-7000 (561) 241-7400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered in this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SIGNATURE EYEWEAR, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
-------------------------------- ---------------------------------
<S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................ Facing Page; this Cross-Reference
Sheet; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................... Inside Front Cover Page of
Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.... Prospectus Summary; Risk Factors;
Summary Financial And Operating
Data; The Company
4. Use of Proceeds....................... Use of Proceeds
5. Determination of Offering Price....... Underwriting
6. Dilution.............................. Dilution
7. Selling Security Holders.............. Principal and Selling Shareholders
8. Plan of Distribution.................. Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be
Registered............................ Description of Capital Stock
10. Interests of Named Experts and
Counsel............................... Experts
11. Information with Respect to the
Registrant
(a) Description of Business............. Prospectus Summary; Risk Factors;
The Company; Termination of S
Corporation; Use of Proceeds;
Management's Discussion and
Analysis of Results of Operations
and Financial Condition; Business
(b) Description of Property............. Business--Properties
(c) Legal Proceedings................... Business--Legal Proceedings
(d) Market Price, Dividends and Related
Stockholder Matters................. Outside Front Cover Page of
Prospectus; Risk Factors; Dividend
Policy; Management; Description of
Capital Stock; Shares Eligible for
Future Sale
(e) Financial Statements................ Financial Statements
(f) Selected Financial Data............. Selected Financial Data; Summary
Financial And Operating Data
(g) Supplementary Financial
Information......................... *
(h) Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... Management's Discussion and Analysis
of Results of Operations and
Financial Condition
(i) Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosures............... *
(j) Directors and Executive Officers.... Management
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
-------------------------------- ---------------------------------
<S> <C>
(k) Executive Compensation................. Management
(l) Security Ownership of Certain
Beneficial Owners and Management....... Principal and Selling Shareholders
(m) Certain Relationships and Related
Transactions........................... Certain Relationships and Related
Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
</TABLE>
- --------
* Omitted because the item is negative or inapplicable
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 2, 1997
1,800,000 SHARES
[LOGO OF SIGNATURE EYEWEAR, INC.]
COMMON STOCK
Of the 1,800,000 shares of Common Stock of Signature Eyewear, Inc.
("Signature" or the "Company") offered hereby (the "Offering"), 1,600,000
shares are being sold by the Company and 200,000 shares are being sold by
certain shareholders of the Company (the "Selling Shareholders"). See
"Principal and Selling Shareholders." The Company will not receive any proceeds
from the sale of shares by the Selling Shareholders. Prior to the Offering,
there has been no public market for the Common Stock. It is currently estimated
that the initial public offering price of the Common Stock will be between
$9.00 and $11.00 per share. For information relating to the factors considered
in determining the initial offering price to the public, see "Underwriting."
The Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol "SEYE."
SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK OFFERED BY THIS
PROSPECTUS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
- --------------------------------------------------------------------------------
Total (3).............. $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Does not include compensation to Fechtor, Detwiler & Co., Inc. and Van
Kasper & Company (the "Representatives") in the form of (i) an obligation
to reimburse the Representatives for expenses of up to $135,000; and (ii)
warrants to purchase up to 180,000 shares of Common Stock. The Company and
the Selling Shareholders have also agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $520,000.
(3) The Company and the Selling Shareholders have granted to the Underwriters a
30-day option to purchase up to an aggregate of 67,500 additional shares
from the Company and 202,500 additional shares from the Selling
Shareholders on the same terms and conditions set forth above solely to
cover over-allotments of shares, if any (the "Over-Allotment Option"). See
"Underwriting." If the Over-Allotment Option is exercised in full, the
total Price to Public will be $ , Underwriting Discounts and Commissions
will be $ , Proceeds to the Company will be $ , and Proceeds to the
Selling Shareholders will be $ .
-----------
The shares of Common Stock are offered by the several Underwriters named
herein on a "firm commitment" basis, subject to prior sale, when, as and if
issued by the Company, delivered to and accepted by the Underwriters and
subject to the right of the Underwriters to reject any order in whole or in
part and to certain other conditions. It is expected that delivery of the
certificates representing the Common Stock will be made against payment
therefor at the offices of Fechtor, Detwiler & Co., Inc., 225 Franklin Street,
Boston, MA 02110 on or about , 1997.
-----------
FECHTOR, DETWILER & CO., INC. VAN KASPER & COMPANY
THE DATE OF THIS PROSPECTUS IS 1997.
<PAGE>
[PICTURES]
INSIDE FRONT COVER:
Reversing out of solid back is the copy line in all caps "The Signature Brand
Names of Signature Eyewear".
INSIDE FRONT COVER TWO PAGE COLOR FOLD OUT:
Laura Ashley Eyewear lifestyle photograph depicting a woman wearing Laura
Ashley Eyewear, sitting up in her bed, reading the newspaper. The Laura Ashley
Eyewear logo is placed at the bottom of the image with the brand's trade
theme-line "The Premier Feminine Collection" resting just below the logo. At
the bottom of the page are the lines "Made by Signature Eyewear under license
from Laura Ashley" and "Laura Ashley Eyewear net sales were 73% of the
Company's net sales in the six months ended April 30, 1997."
Eddie Bauer Eyewear lifestyle photograph depicting a couple wearing Eddie
Bauer Eyewear. The Eddie Bauer Eyewear logo is at the bottom of the image. At
the bottom of the page are the lines "Sold by Signature Eyewear under license
from Eddie Bauer" and "Launch planned for the Spring of 1998. To date the
Company has had no revenues from Eddie Bauer Eyewear."
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company or any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any of the securities offered hereby in any jurisdiction in which such
offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein is correct as of any time
subsequent to the date hereof or that there has been no change in the affairs
of the Company since that date.
Until , 1997 (25 days after commencement of the Offering) all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
The Company.............................................................. 14
Termination of S Corporation Status...................................... 14
Capitalization........................................................... 15
Use of Proceeds.......................................................... 15
Dilution................................................................. 16
Dividend Policy.......................................................... 16
Selected Financial Data.................................................. 17
Management's Discussion and Analysis of Results of Operations and
Financial Condition .................................................... 18
Business................................................................. 23
Management............................................................... 34
Certain Relationships and Related Transactions........................... 39
Principal and Selling Shareholders....................................... 40
Description of Capital Stock............................................. 41
Shares Eligible For Future Sale.......................................... 42
Underwriting............................................................. 43
Legal Matters............................................................ 44
Experts.................................................................. 44
Additional Information................................................... 44
Index to Financial Statements............................................ F-1
</TABLE>
----------------
"Laura Ashley" is a registered trademark of Laura Ashley Manufacturing B.V.
and Laura Ashley Limited (collectively, "Laura Ashley"), "Hart Schaffner &
Marx" is a registered trademark of Hart Schaffner & Marx ("Hart Schaffner &
Marx"), "Jean Nate" is a registered trademark of Revlon Consumer Products
Corporation ("Revlon"), and "Eddie Bauer" is a registered trademark of Eddie
Bauer, Inc. ("Eddie Bauer").
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," "Business" and the Financial Statements
and notes thereto, appearing elsewhere in this Prospectus. The statements which
are not historical facts contained in this Prospectus are forward-looking
statements that involve risks and uncertainties, including those described
under "Risk Factors." Prospective purchasers of the securities offered by this
Prospectus should carefully consider the "Risk Factors" section, as well as the
other information and data included in this Prospectus, before making an
investment in the securities offered hereby.
THE COMPANY
Signature designs, markets and distributes prescription eyeglass frames
primarily under exclusive licenses for Laura Ashley Eyewear, Hart Schaffner &
Marx Eyewear and Jean Nate Eyewear, as well as its own Camelot label. The Laura
Ashley Eyewear collection is one of the leading women's brand-name collections
in the United States. The Company attributes its success to its brand-name
development process and frame designs. The Company's brand-name development
process includes identifying a market niche, obtaining the rights to a
carefully selected brand name, producing a comprehensive marketing plan,
developing unique in-store displays, and creating innovative sales and
merchandising programs for independent optical retailers and retail chains.
Signature's in-house designers work with many respected frame manufacturers
throughout the world to develop high-quality, creative designs which are
consistent with each brand-name image.
In June 1997, Signature acquired the exclusive license to design and market
an Eddie Bauer Eyewear collection, which the Company plans to launch in the
Spring of 1998. The Company pursued the Eddie Bauer brand name, which had not
previously been licensed for prescription eyewear, for its widespread
recognition, outdoor heritage, casual styling and reputation for value and
quality. The Eddie Bauer Eyewear collection will offer men's and women's styles
and will be positioned in the medium-price segment of the brand-name
prescription eyewear market.
In 1996, domestic retail sales of all eyewear products were $14.6 billion,
and domestic retail sales of eyeglasses were $4.6 billion. Just over 60% of the
nation's entire population, and more than 90% of people over the age of 45,
needed corrective eyewear in 1996. The average age of the United States
population is expected to increase over the next 25 years due to the aging of
the "baby-boomers" who were born between 1946 and 1964. As more of the baby-
boomers exceed age 45, the Company believes sales of corrective eyewear should
increase.
Signature produces "turnkey" marketing, merchandising and sales promotion
programs to promote sales at each level in the distribution chain. For optical
retailers, the Company develops unique in-store displays, such as its Laura
Ashley Eyewear "store within a store" environments. For the sales
representatives who call on retail accounts, whether they are employed by
distributors or by Signature, the Company creates presentation materials,
marketing bulletins, motivational audio and video tapes and other sales tools
to facilitate professional presentations, and the Company offers attractive
incentive awards for reaching targeted sales levels. For its distributors who
sell to independent optical retailers, Signature provides its innovative
loyalty programs.
Under the loyalty programs, which generally last from six to ten months, each
participating retailer agrees to purchase a specified quantity of frames of new
styles released during the program period. Although a participating retailer
may cancel at any time, historically most have completed the program and
renewed their participation in ensuing years. These "automatic" sales programs
have facilitated the widespread placement of new styles in optical retail
stores, have increased the Company's leverage with its manufacturers due to the
large size of the Company's orders, and have assisted its inventory planning.
The Company's largest loyalty program is its Laura Ashley Loyal Partners
program, which at April 30, 1997 had over 4,750 participating retailers in the
United States (approximately 16% of all independent optical retailers in the
United States) as well as over 800 international participants.
4
<PAGE>
The Company contracts with overseas factories to manufacture the frames it
designs. Signature distributes its frames through distributors in the United
States and through exclusive distributors in foreign countries. In addition,
the Company sells directly through its own sales representatives to major
retail chains, including LensCrafters, Pearle Vision and Eyecare Centers of
America, and to independent optical retailers in California.
The Company's principal product line is Laura Ashley Eyewear, which was
launched in 1992. Signature designs frames and in-store displays which seek to
capture the distinctive, feminine image associated with Laura Ashley clothing
and home furnishings. Laura Ashley Eyewear styles are feminine and classic, and
are positioned in the medium to mid-high price range to reach a broad segment
of the women's eyewear market. The Company's net sales of Laura Ashley Eyewear
have increased from $2.2 million in fiscal 1992 to $21.1 million in fiscal
1996.
Capitalizing on Signature's customer relationships and the success of Laura
Ashley Eyewear, the Company launched Jean Nate Eyewear in March 1996 and Hart
Schaffner & Marx Eyewear in September 1996. Jean Nate Eyewear is targeted at
women seeking to pay an affordable price for high-quality frames which offer
unique designs, attention to detail and brand-name identification. Hart
Schaffner & Marx Eyewear is a mid-high priced line targeted at men desiring
quality, comfort and craftsmanship.
The Company's growth strategy includes: (i) continuing to increase the market
penetration of its existing lines of brand-name prescription eyewear; (ii)
launching Eddie Bauer Eyewear in the Spring of 1998; (iii) acquiring additional
exclusive brand-name licenses to market prescription eyeglass frames; (iv)
developing new product lines, which may include expanding the marketing of its
own Camelot collection; (v) expanding market penetration of its existing Laura
Ashley Sunwear line and acquiring additional exclusive brand-name licenses for
sunglass frames; and (vi) continuing to expand its international sales efforts.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 1,600,000 shares
Common Stock offered by the Selling
Shareholders................................ 200,000 shares
Common Stock outstanding after the Offering.. 5,200,527 shares (1)
Use of proceeds from sale of Common Stock by
the Company................................. To retire existing bank debt; to
launch Eddie Bauer Eyewear; and
for working capital and general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol................ SEYE
</TABLE>
- --------
(1) Excludes 600,000 shares of Common Stock available for issuance pursuant to
the Company's Stock Plan. See "Management--Stock Plan."
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Over-Allotment Option or the warrants (the "Representatives'
Warrants") granted to the Representatives to purchase up to 180,000 shares of
Common Stock at 120% of the initial public offering price, no grant of awards
under the Company's 1997 Stock Plan (the "Stock Plan"), the adjustment in 1997
of the outstanding shares of Common Stock to give effect to a 3.175-for-1 stock
split (the "Stock Split"), and the change of the status of the Company from an
S corporation to a C corporation for income tax purposes. See "Underwriting,"
"Management--Stock Plan" and "Termination of S Corporation Status."
5
<PAGE>
SUMMARY FINANCIAL DATA
Set forth below are summary data from the Company's statements of income and
balance sheets. The following data should be read in conjunction with the
Financial Statements and related notes and with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
----------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............... $9,185 $13,858 $20,051 $23,571 $28,280 $13,052 $16,038
Gross profit............ 3,383 6,929 10,385 12,582 16,349 7,427 9,406
Total operating
expenses............... 3,443 6,562 9,079 10,780 14,027(1) 6,033 7,508
Income (loss) from
operations............. (60) 367 1,306 1,802 2,322 1,394 1,898
Net income (loss)....... (131) 137 1,107 1,635 2,012 1,233 1,706
Pro forma net income
(2).................... 690 1,030 1,265 761 1,030
Pro forma net income per
share (2).............. 0.36 0.22 0.29
Pro forma common shares
outstanding............ 3,546,519 3,492,511 3,600,527
</TABLE>
<TABLE>
<CAPTION>
AT OCTOBER 31, AT APRIL 30, 1997
---------------------------------- ----------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(3)
------ ------ ------ ------ ------ ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets....... $3,261 $4,726 $4,676 $6,462 $8,989 $10,581 $19,137
Total assets......... 3,959 5,247 5,211 7,260 10,293 11,977 20,533
Current liabilities.. 3,151 3,792 3,490 4,602 7,207 9,280 4,105
Total liabilities.... 3,635 4,686 4,350 5,314 7,364 9,342 4,113
Stockholders'
equity.............. 324 561 861 1,946 2,929 2,635 16,360
</TABLE>
- --------
(1) Includes $300,000 in compensation expense recognized by the Company in
connection with the issuance of 108,016 shares of Common Stock to an
executive officer.
(2) The pro forma presentation reflects a provision for income taxes as if the
Company had always been a C corporation.
(3) As adjusted to reflect (i) the conversion of the Company from an S
corporation to a C corporation, (ii) the sale of 1,600,000 shares of Common
Stock offered by the Company by this Prospectus at an assumed initial
public offering price of $10.00 per share and the application of the net
proceeds from the sale and (iii) payment of a $635,000 dividend before the
closing of the Offering (the Company intends to pay additional dividends
before the closing of the Offering in an amount equal to the net income of
the Company from May 1, 1997 through the closing of the Offering). See
"Termination of S Corporation Status."
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors before
purchasing shares of Common Stock offered by this Prospectus.
SUBSTANTIAL DEPENDENCE UPON LAURA ASHLEY LICENSE
Net sales of Laura Ashley Eyewear accounted for 77.8%, 74.6% and 73.4% of
the Company's net sales in fiscal 1995, fiscal 1996 and for the six months
ended April 30, 1997, respectively. The Company manufactures Laura Ashley
Eyewear through an exclusive license with Laura Ashley entered into in 1991.
The Laura Ashley license terminates in 2001, but may be renewed by the Company
at least through January 2006 so long as the Company is not in breach of the
license agreement and meets certain minimum net sales requirements. Laura
Ashley may terminate the license before its term expires if (i) the Company
commits a material breach of the license agreement and fails to cure that
breach within 30 days after notice is given, (ii) the management or control of
the Company passes from Bernard Weiss and Julie Heldman to other parties whom
Laura Ashley may reasonably regard as unsuitable, (iii) the Company fails to
propose a selection of styles of eyewear which Laura Ashley in exercising good
faith is willing to approve for manufacture and distribution, (iv) the Company
fails to have net sales of Laura Ashley Eyewear sufficient to generate minimum
royalties in each of any two years, (v) the Company is unable to pay its debts
in the ordinary course of business or enters into liquidation, becomes
bankrupt or insolvent, or is placed in the control of a receiver or trustee,
or (vi) the Company in any year fails to spend a specified percentage of net
sales of Laura Ashley Eyewear on advertising and promotion. The termination of
the Laura Ashley Eyewear license would have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Products--Laura Ashley Eyewear."
APPROVAL REQUIREMENTS OF BRAND-NAME LICENSORS
The Company's business is predominantly based on its brand-name licensing
relationships. In addition to its licensing relationship with Laura Ashley,
the Company licenses the right to use proprietary marks from Hart Schaffner &
Marx, Revlon for its Jean Nate brand name, and Eddie Bauer. See "Business--
Products." Each of the Laura Ashley, Hart Schaffner & Marx, Jean Nate and
Eddie Bauer licenses requires mutual agreement of the parties for significant
matters. Each of these licensors has final approval over all eyeglass frames
and other products bearing the licensor's proprietary marks, and the frames
must meet the licensor's general design specifications and quality standards.
Consequently, each licensor may, in the exercise of its approval rights, delay
the distribution of eyeglass frames bearing its proprietary marks. The Company
expects that each future license it obtains will contain similar approval
provisions. Accordingly, there can be no assurance that the Company will be
able to continue to maintain good relationships with each licensor, or that
the Company will not be subject to delays resulting from disagreements with,
or an inability to obtain approvals from, its licensors. These delays could
materially and adversely affect the Company's business, operating results and
financial condition.
LIMITATIONS ON ABILITY TO DISTRIBUTE OTHER BRAND-NAME EYEGLASS FRAMES
Each of the Company's licenses limits the Company's right to market and sell
products with competing brand names. The Laura Ashley license prohibits the
Company from selling any range of designer eyewear that is similar to Laura
Ashley Eyewear in price and any of style, market position and market segment.
The Hart Schaffner & Marx license prohibits the Company from marketing and
selling another men's brand of eyeglass frames under a well-known fashion name
with a wholesale price in excess of $40. The Jean Nate license prohibits the
Company from manufacturing and selling eyeglass frames under any brand name
primarily known as a cosmetic, toiletry, fragrance or haircare trademark or
brand name. The Eddie Bauer license prohibits the Company from entering into
license agreements with companies which Eddie Bauer believes are its direct
competitors. The Company expects that each future license it obtains will
contain some limitations on competition within market segments. The Company's
growth, therefore, will be limited to capitalizing on its existing licenses in
the prescription eyeglass market, introducing eyeglass frames in other
segments of the prescription eyeglass market, and manufacturing and
distributing products other than prescription eyeglass frames such as
sunglasses. In addition, there can be no assurance that disagreements will not
arise between the Company and its licensors regarding whether certain brand-
name lines would be prohibited by their respective
7
<PAGE>
license agreements. Disagreements with licensors may adversely affect sales of
the Company's existing eyeglass frames or prevent the Company from introducing
new eyewear products in market segments the Company believes are not being
served by its existing products.
DEPENDENCE UPON CONTRACT MANUFACTURERS; FOREIGN TRADE REGULATION
The Company's frames are manufactured to its specifications by a number of
contract manufacturers located outside the United States, principally in
Japan, Hong Kong/China, France and Italy. The manufacture of high quality
metal frames is a labor-intensive process which can require over 200
production steps (including a large number of quality-control procedures) and
from 90 to 180 days of production time. These long lead times increase the
risk of overstocking, if the Company overestimates the demand for a new style,
or understocking, which can result in lost sales if the Company underestimates
demand for a new style. While a number of contract manufacturers exist
throughout the world, there can be no assurance that an interruption in the
manufacture of the Company's eyeglass frames will not occur. An interruption
occurring at one manufacturing site that requires the Company to change to a
different manufacturer could cause significant delays in the distribution of
the styles affected. This could cause the Company to miss delivery schedules
for these styles, which could materially and adversely affect the Company's
business, operating results and financial condition. See "Business--
Manufacturing."
In addition, the purchase of goods manufactured in foreign countries is
subject to a number of risks, including foreign exchange rate fluctuations,
economic disruptions, transportation delays and interruptions, increases in
tariffs and duties, changes in import and export controls and other changes in
governmental policies. For frames purchased other than from Hong Kong/China
manufacturers, the Company pays for its frames in the currency of the country
in which the manufacturer is located and thus the costs (in United States
dollars) of the frames vary based upon currency fluctuations. Increases and
decreases in costs (in United States dollars) resulting from currency
fluctuations generally do not affect the price at which the Company sells its
frames, and thus currency fluctuations can impact the Company's gross margin
and results of operations.
In fiscal 1996, approximately 40% of the Company's eyeglass frames were
manufactured by companies headquartered in Hong Kong that have manufacturing
facilities in China. Effective July 1, 1997, the exercise of sovereignty over
the British Crown Colony of Hong Kong was transferred from the United Kingdom
to China pursuant to a treaty between the two countries, and Hong Kong became
a part of China. Any political or economic disruptions in Hong Kong or China
may force the Company to manufacture its eyeglass frames in other countries
which could increase frame costs. The Company is uncertain as to the impact
that the change in government will have on its business operations in Hong
Kong. Further, China currently enjoys Most Favored Nation trading status with
the United States. Under the Trade Act of 1974, the President of the United
States is authorized, upon making specific findings, to waive certain
restrictions that would render China ineligible for Most Favored Nation
treatment. The President has waived these provisions every year since 1979.
China's Most Favored Nation status presently extends until July 1998. No
assurance can be given that China will continue to enjoy Most Favored Nation
status in the future. Any legislation or administrative action by the United
States government that revokes or places further conditions on China's Most
Favored Nation status, or otherwise limits imports of Chinese eyeglass frames
into the United States, could, if enacted, have a material adverse effect on
the Company's business, operating results and financial condition.
MANAGEMENT'S DISCRETION AS TO USE OF PROCEEDS
The Company's management will have broad discretion as to the application of
the net proceeds to the Company from the sale of Common Stock offered by the
Company by this Prospectus. The net proceeds to the Company are estimated to
be approximately $14.4 million. The Company expects to use approximately $7.5
million of the net proceeds to repay all bank debt existing at the closing of
the Offering, approximately $2.5 million to launch the Eddie Bauer Eyewear
line, and the balance for working capital and general corporate purposes. The
Company may change the allocation of these proceeds in response to
developments in the manufacturing and retail industries and changes in the
Company. See "Use of Proceeds."
8
<PAGE>
SUCCESSFUL LAUNCH OF EDDIE BAUER EYEWEAR
The Company intends to use approximately $2.5 million of the net proceeds
from the Offering to develop and introduce the Company's Eddie Bauer Eyewear
line. It is expected that certain members of the Company's management and of
its design and marketing teams will devote considerable time towards
introducing this new line. There can be no assurance that the Company will be
able to introduce Eddie Bauer Eyewear at the budgeted price or through the
Company's existing distribution channels, or that the introduction of Eddie
Bauer Eyewear will occur when planned. Furthermore, once Eddie Bauer Eyewear
is released, there can be no assurance of its acceptance by the market.
RELATIONSHIPS WITH DOMESTIC DISTRIBUTORS
The Company distributes its eyeglass frames to independent optical retailers
in the United States (other than California) largely through distributors who
sell competing lines of eyeglass frames. Although the Company believes that
its distributors currently devote a great deal of time and resources to
promoting the Company's products, there can be no assurance that these
distributors will continue to do so. The Company does not have written
agreements with its domestic distributors except for written understandings
not to resell or divert Laura Ashley Eyewear through unauthorized channels of
distribution, and not to expand the territories in which they sell the
Company's products without the Company's prior consent. Accordingly, the
Company's domestic distributors may spend an increased amount of effort and
resources marketing competing products, and may terminate their relationships
with the Company at any time without penalty. There can be no assurance that
the informal nature of the Company's relationships with its domestic
distributors will not lead to disagreements between the Company and its
distributors or between the distributors themselves, which could have a
material adverse impact on the Company's business, operating results and
financial condition. See "Business--Distribution."
INTERNATIONAL SALES
International sales accounted for approximately 9.0%, 8.8% and 9.5% of the
Company's net sales in fiscal 1995, fiscal 1996, and the six months ended
April 30, 1997, respectively. These sales were primarily in England, Canada,
Australia, New Zealand, France and the Netherlands. The Company's
international business is subject to numerous risks, including the need to
comply with export and import laws, changes in export or import controls,
tariffs and other regulatory requirements, the imposition of governmental
controls, political and economic instability, trade restrictions, the greater
difficulty of administering business overseas and general economic conditions.
Although the Company's international sales are principally in United States
dollars, sales to international customers may also be affected by changes in
demand resulting from fluctuations in interest and currency exchange rates.
There can be no assurance that these factors will not have a material adverse
effect on the Company's business, operating results and financial condition.
QUARTERLY AND SEASONAL FLUCTUATIONS
The Company's results of operations have fluctuated from quarter to quarter
and the Company expects these fluctuations to continue in the future.
Historically, the Company's net sales in the quarter ending January 31 (its
first quarter) have been lower than net sales in other fiscal quarters. The
Company attributes lower net sales in the first fiscal quarter in part to low
consumer demand for prescription eyeglasses during the holiday season and
year-end inventory adjustments by distributors and independent optical
retailers. A factor which may significantly influence results of operations in
a particular quarter is the introduction of a brand-name collection, which
results in disproportionate levels of selling expenses due to additional
advertising, promotions, catalogs and in-store displays. Introduction of a new
brand may also generate a temporary increase in sales due to initial stocking
by retailers. Other factors which can influence the Company's results of
operations include customer demand, the mix of distribution channels through
which the eyeglass frames are sold, the mix of eyeglass frames sold, product
returns, delays in shipment and general economic conditions. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Quarterly and Seasonal Fluctuations."
9
<PAGE>
PRODUCT RETURNS
The Company has a product return policy which it believes is standard in the
optical industry. Under that policy, the Company generally accepts returns of
non-discontinued product for credit, upon presentment and without charge.
According to the 1996 U.S. Optical Industry Handbook, the existence of this
policy in the optical business has led to some companies having return rates
as high as 20%. While the Company's product returns for fiscal 1995 and fiscal
1996 amounted to 11.6% and 12.1% of gross sales (sales before returns),
respectively, and while the Company maintains reserves for product returns
which it considers adequate, the possibility exists that the Company could
experience returns at a rate significantly exceeding its historical levels,
which could have a material adverse impact on the Company's business,
operating results and financial condition.
AVAILABILITY OF VISION CORRECTION ALTERNATIVES
The Company's future success could depend to a significant extent on the
availability and acceptance by the market of vision correction alternatives to
prescription eyeglasses, such as contact lenses and refractive (optical)
surgery. While the Company does not believe that contact lenses, refractive
surgery or other vision correction alternatives materially and adversely
impact its business at present, there can be no assurance that technological
advances in, or reductions in the cost of, vision correction alternatives will
not occur in the future, resulting in their more widespread use. Increased use
of vision correction alternatives could result in decreased use of the
Company's eyewear products, which would have a material adverse impact on the
Company's business, operating results and financial condition.
ACCEPTANCE OF EYEGLASS FRAMES; UNPREDICTABILITY OF DISCRETIONARY CONSUMER
SPENDING
The Company's success will depend to a significant extent on the market's
acceptance of the Company's brand-name eyeglass frames. If the Company is
unable to develop new, commercially successful styles to replace revenues from
older styles in the later stages of their life cycles, the Company's business,
operating results and financial condition could be materially and adversely
affected. The Company's future growth will depend in part upon the
effectiveness of the Company's marketing and sales efforts as well as the
availability and acceptance of other competing eyeglass frames released into
the market place at or near the same time, the availability of vision
correction alternatives, general economic conditions and other tangible and
intangible factors, all of which can change and cannot be predicted.
The Company's success also will depend to a significant extent upon a number
of factors relating to discretionary consumer spending, including the trend in
managed health care to allocate fewer dollars to the purchase of eyeglass
frames, and general economic conditions affecting disposable consumer income,
such as employment business conditions, interest rates and taxation. Any
significant adverse change in general economic conditions or uncertainties
regarding future economic prospects that adversely affect discretionary
consumer spending generally, and purchasers of prescription eyeglass frames
specifically, could have a material adverse effect on the Company's business,
operating results and financial condition.
COMPETITION
The markets for prescription eyewear are intensely competitive. There are
thousands of styles, including hundreds with brand names. At retail, the
Company's eyewear styles compete with styles that do and do not have brand
names, styles in the same price range, and styles with similar design
concepts. To obtain board space at an optical retailer, the Company competes
against many companies, both foreign and domestic, including Luxottica Group
S.p.A. (operating in the United States through a number of its subsidiaries),
Safilo Group S.p.A. (operating in the United States through a number of its
subsidiaries) and Marchon Eyewear, Inc. Signature's largest competitors have
significantly greater financial, technical, sales, manufacturing and other
resources than the Company. They also employ direct sales forces that are
significantly larger than the Company's, and are thus able to realize a higher
gross profit margin. At the distributor level, sales representatives often
carry many lines of eyewear, and the Company must vie for their attention. At
the major retail chains, the Company competes not only against other eyewear
suppliers, but also against the chains themselves, which license some of their
own
10
<PAGE>
brand names for design, manufacture and sale in their own stores. Luxottica,
one of the largest eyewear companies in the world, is vertically integrated in
that it manufactures frames, distributes them through direct sales forces in
the United States and throughout the world, and owns LensCrafters, one of the
largest United States retail optical chains.
The Company competes in its target markets through the quality of the brand
names it licenses, its marketing, merchandising and sales promotion programs,
the popularity of its frame designs, the reputation of its styles for quality,
and its pricing policies. There can be no assurance that the Company will be
able to compete successfully against current or future competitors or that
competitive pressures faced by the Company will not materially and adversely
affect its business, operating results and financial condition. See
"Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's success has and will continue to depend to a significant
extent upon its executive officers, including Bernard Weiss (Chief Executive
Officer), Julie Heldman (President), Michael Prince (Chief Financial Officer),
Robert Fried (Senior Vice President of Marketing) and Robert Zeichick (Vice
President of Advertising and Sales Promotion). The loss of the services of one
or more of these key employees could have a material adverse effect on the
Company. The Company has entered into employment agreements with each of Ms.
Heldman and Messrs. Weiss, Prince, Fried and Zeichick, all effective as of the
closing of the Offering, pursuant to which they have agreed to render services
to the Company until October 31, 2000. See "Management--Employment
Agreements." The Company maintains and is the sole beneficiary of "key person"
life insurance on Ms. Heldman and Messrs. Weiss, Prince, Fried and Zeichick in
the amount of $1,500,000 each. In the event of the death of an executive
officer, a portion of the proceeds of the applicable policy would be used to
pay the Company's obligation under the officer's employment agreement (see
"Management--Employment Agreements with Executive Officers"). There can be no
assurance that the remaining proceeds of these policies will be sufficient to
offset the loss to the Company due to the death of that executive officer. In
addition, the Company's future success will depend in large part upon its
ability to attract, retain and motivate personnel with a variety of creative,
technical and managerial skills. There can be no assurance that the Company
will be able to retain and motivate its personnel or attract additional
qualified members to its management staff. The inability to attract and retain
the necessary managerial personnel could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Management."
MANAGEMENT OF GROWTH
The Company has grown rapidly in recent years, with net sales increasing
from $9.2 million in fiscal 1992 to $28.3 million in fiscal 1996, and the
number of employees increasing from 41 at November 1, 1992 to 101 at April 30,
1997. The Company's growth has placed substantial burdens on its management
resources, and as a result of its growth, the Company has made additions to
its management team. Additionally, the Company plans to expand its operations
by introducing Eddie Bauer Eyewear in the Spring of 1998. The Company's
ability to manage its growth effectively will require it to continue to
improve its operational, financial and management information systems and
controls and to train, motivate and manage a larger number of employees. There
can be no assurance that the Company will be able to sustain its historic rate
of revenue growth, continue its profitable operations or manage future growth
successfully. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
Immediately following the Offering, the directors and executive officers of
the Company will own approximately 59.0% of the Company's outstanding shares
(approximately 54.8% assuming the full exercise of the Over-Allotment Option).
As a result, the directors and executive officers will be able to control the
Company and its operations, including the approval of significant corporate
transactions and the election of at least a majority of the Company's Board of
Directors and thus the policies of the Company. The voting power of the
11
<PAGE>
directors and executive officers could also serve to discourage potential
acquirors from seeking to acquire control of the Company through the purchase
of the Common Stock, which might depress the price of the Common Stock. See
"Management," "Principal and Selling Shareholders" and "Description of Capital
Stock."
NO DIVIDENDS ANTICIPATED
After the consummation of the Offering, the Company does not currently
intend to declare or pay any cash dividends and intends to retain earnings, if
any, for the future operation and expansion of the Company's business. See
"Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
The proposed initial public offering price is substantially higher than the
book value per outstanding share of Common Stock. Specifically, investors will
sustain immediate dilution of $6.85 per share based on the net tangible book
value of the Company at April 30, 1997 of $0.73 per share. Investors in the
Offering therefore will bear a disproportionate part of the financial risk
associated with the Company's business while effective control will remain
with the Company's directors and executive officers. See "Dilution" and
"Principal and Selling Shareholders."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; ARBITRARY
DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for quotation on the Nasdaq
National Market, there can be no assurance that an active trading market for
the Common Stock will develop as a result of the Offering or, if a trading
market does develop, that it will continue. In the absence of such a market,
investors may be unable readily to liquidate their investment in the Common
Stock. The trading price of the Common Stock could be subject to wide
fluctuations in response to quarter to quarter variations in operating
results, news announcements relating to the Company's business (including new
product introductions by the Company or its competitors), changes in financial
estimates by securities analysts, the operating and stock price performance of
other companies that investors may deem comparable to the Company as well as
other developments affecting the Company or its competitors. In addition, the
market for equity securities in general has been volatile and the trading
price of the Common Stock could be subject to wide fluctuations in response to
general market trends, changes in general conditions in the economy, the
financial markets or the manufacturing or retail industries and other factors
which may be unrelated to the Company's performance. The public offering price
of the shares of Common Stock has been determined by negotiations between the
Company and the Representatives and does not necessarily bear any relationship
to the Company's book value, assets, past operating results, financial
condition or any other established criteria of value. There can be no
assurance that the shares offered by this Prospectus will trade at market
prices in excess of the initial public offering price. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing shareholders could adversely affect
the prevailing market price of the Common Stock and the Company's ability to
raise capital. Upon completion of the Offering, the Company will have
5,200,527 shares of Common Stock outstanding. Of those shares, the 1,800,000
shares of Common Stock offered by this Prospectus will be freely tradeable
without restriction or further registration under the Securities Act, unless
purchased by "affiliates" of the Company as that term is defined in Rule 144
("Rule 144") under the Securities Act of 1933, as amended (the "Securities
Act"). The remaining 3,400,527 shares of Common Stock outstanding are
"restricted securities," as that term is defined by Rule 144. Under lock-up
agreements with Fechtor, Detwiler & Co., Inc. ("Fechtor Detwiler"), each
existing shareholder has agreed that he or it will not, directly or
indirectly, sell, assign or otherwise transfer any shares of Common Stock
owned by him or it for a period of 360 days after the date of this Prospectus,
except with Fechtor Detwiler's prior written consent and except that each
shareholder may transfer up to 104,000 shares in the aggregate after 180 days
following the date of this Prospectus. Once the lock-up agreements expire, all
of the 3,400,527 shares of Common Stock will become eligible for immediate
sale, subject to compliance with the volume limitations of Rule 144 by holders
of 3,070,677 of these shares. See "Shares Eligible for Future Sale" and
"Underwriting."
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<PAGE>
The Company intends to file a registration statement under the Securities
Act to register the 600,000 shares of Common Stock authorized for issuance
pursuant to the Stock Plan. See "Management--Stock Plan." This registration
statement will become effective immediately upon filing.
The availability for sale, as well as actual sales, of currently outstanding
shares of Common Stock, and shares of Common Stock issuable pursuant to the
Stock Plan, may depress the prevailing market price for the Common Stock and
could adversely affect the terms upon which the Company would be able to
obtain additional equity financing.
POSSIBLE ANTI-TAKEOVER EFFECTS
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the shareholders. The Preferred Stock could be
issued with voting, liquidation, dividend and other rights superior to those
of the Common Stock. Following the Offering, no shares of Preferred Stock of
the Company will be outstanding, and the Company has no present intention to
issue any shares of Preferred Stock. However, the rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company, which may depress the market
value of the Common Stock. See "Description of Capital Stock--Preferred
Stock." In addition, each of the Laura Ashley, Hart Schaffner & Marx, Jean
Nate and Eddie Bauer licenses allows the licensor to terminate its license
upon certain events which under the license are deemed to result in a change
in control of the Company. See "--Substantial Dependence Upon Laura Ashley
License," and "Business--Products." The licensors' rights to terminate their
licenses upon a change in control of the Company could have the effect of
discouraging a third party from acquiring or attempting to acquire a
controlling portion of the outstanding voting stock of the Company and could
thereby depress the market value of the Common Stock.
ELIMINATION OF CUMULATIVE VOTING
The Articles of Incorporation of the Company provide that at such time as
the Company has 800 or more holders of its Common Stock as of the record date
of the Company's most recent annual meeting of shareholders, the cumulative
voting rights of shareholders will cease. This will have the effect of making
it more difficult for minority shareholders to obtain representation on the
Board of Directors.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements." All statements other
than statements of historical fact included in this Prospectus, including,
without limitation, the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Business," regarding the Company's strategies, plans,
objectives and expectations; the Company's ability to design, develop, import
and market eyewear products; the ability of the Company's eyewear products to
maintain commercial acceptance; the Company's ability to successfully
introduce new brands or products; the anticipated growth of its target
markets; its future operating results; and other matters are all forward-
looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable at this time, it
can give no assurance that those expectations will prove to be correct.
Important factors that could cause actual results to differ materially from
the Company's expectations are set forth in these "Risk Factors," as well as
elsewhere in this Prospectus. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these "Risk Factors."
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<PAGE>
THE COMPANY
The Company was incorporated in California in 1983 as USA Optical
Distributors, Inc. ("USA Optical"). USA Optical began as a distributor of
high-quality selections of brand-name eyeglass frames. Those frames were
designed and imported by other eyeglass frame manufacturers and suppliers,
purchased by USA Optical and sold directly to optical retailers. In 1986, USA
Optical began designing its own eyeglass frames and contracting with overseas
manufacturers for the manufacture of the frames.
In 1988, Bernard Weiss and Julie Heldman, principal shareholders and
directors of Signature and the Chief Executive Officer and President,
respectively, formed Optical Surplus, Inc. ("Optical Surplus"). Optical
Surplus acquires eyeglass frame close-outs and sells them at a discount
directly to optical retailers throughout the United States. Optical Surplus
was merged into USA Optical in 1991, and the Company's name was changed to
Signature Eyewear, Inc. shortly thereafter. USA Optical and Optical Surplus
are now divisions of Signature and complement the Company's primary business
of designing, marketing and distributing brand-name eyeglass frames.
The Company's executive offices are located at 498 North Oak Street,
Inglewood, California 90302, and its telephone number is (310) 330-2700.
TERMINATION OF S CORPORATION STATUS
The Company has been treated as an S Corporation since 1990. As a result,
through the date immediately preceding the termination of its S Corporation
status (the "Termination Date"), its earnings have been and will be taxed for
federal income tax purposes directly to the holders of the Common Stock,
rather than to the Company. Other than a tax imposed on S Corporations by the
State of California (currently 1.5% of taxable income), state income taxes on
earnings also have been the responsibility of the Company's shareholders. The
Termination Date will occur immediately before the closing of the Offering. On
the Termination Date, the Company will become subject to federal and state
corporate income taxes. See Note 1 of Notes to Financial Statements.
The Company paid an aggregate of $4,685,000 in dividends to its shareholders
from November 1, 1993 through April 30, 1997. These dividends were paid to the
shareholders to pay their income taxes and as a return of their investment.
Before the closing of the Offering, the Company intends to pay dividends to
the shareholders equal to $635,000 plus an amount equal to the Company's net
income from May 1, 1997 through the Termination Date.
Before the Offering, the Company and the shareholders at the time of the
Offering (the "Existing Shareholders") will enter into a tax indemnification
agreement (the "Tax Agreement"). The Tax Agreement is intended to assure that
taxes are borne by the Company on the one hand and the Existing Shareholders
on the other only to the extent that the parties received the related income.
The Tax Agreement generally provides that, if an adjustment is made to the
taxable income of the Company for a year in which it was treated as an S
Corporation, the Company will indemnify the Existing Shareholders and the
Existing Shareholders will indemnify the Company against any increase in the
indemnified party's income tax liability (including interest and penalties and
related costs and expenses) for any tax year to the extent the increase
results in a related decrease in the income tax liability of the indemnifying
party for that year. The Company will also indemnify the Existing Shareholders
for all taxes imposed upon them as the result of their receipt of an
indemnification payment under the Tax Agreement. Any payment made by the
Company to the Existing Shareholders under the Tax Agreement may be considered
by the Internal Revenue Service or state taxing authorities to be non-
deductible by the Company for income tax purposes.
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<PAGE>
CAPITALIZATION
The following table sets forth the short term debt and the capitalization of
the Company at April 30, 1997 and as adjusted after giving effect to (i) the
sale of the 1,600,000 shares of Common Stock offered by the Company by this
Prospectus (at an assumed initial public offering price of $10.00 per share)
and application of the net proceeds from the sale (see "Use of Proceeds") and
(ii) the payment of a dividend equal to $635,000 before the closing of the
Offering. This does not include additional dividends to be paid by the Company
before the closing of the Offering in an amount equal to the net income of the
Company from May 1, 1997 through the Termination Date. See "Termination of S
Corporation Status."
<TABLE>
<CAPTION>
AT APRIL 30, 1997
------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt............................................. $5,167 $ 0
====== =======
Long-term debt, less current portion........................ 62 0
------ -------
Stockholders' equity:
Preferred Stock, $0.001 par value; 5,000,000 shares
authorized; no shares outstanding........................ 0 0
Common Stock, $0.001 par value; 30,000,000 shares
authorized; 3,600,527 shares outstanding; 5,200,527
shares outstanding as adjusted........................... 8 10
Paid-in capital........................................... 413 14,771
Retained earnings......................................... 2,214 1,579
------ -------
Total stockholders' equity.............................. 2,635 16,360
------ -------
Total capitalization.................................. $2,697 $16,360
====== =======
</TABLE>
USE OF PROCEEDS
The net proceeds to the Company from its sale of the 1,600,000 shares of
Common Stock offered by this Prospectus (at an assumed initial public offering
price of $10.00 per share), after deducting the estimated underwriting
discounts and offering expenses, are estimated to be approximately $14.4
million ($15.0 million if the Over-Allotment Option is exercised in full).
The Company expects to use approximately $7.5 million of the net proceeds to
repay all bank debt existing at the closing of the Offering. At April 30,
1997, the bank debt consisted of (i) $4,625,000 in loans under the Company's
revolving line of credit with interest rates ranging from 8.375% to 9.25%, and
(ii) three installment loans totaling $604,000, maturing at various times in
1997 and 1998 and bearing interest at a weighted average rate of 9.11% per
annum. Subsequent to April 30, 1997 and before the closing of the Offering,
the Company will borrow an additional amount equal to approximately $2,250,000
for working capital purposes and shareholder distributions. The Company
intends to use approximately $2.5 million of the net proceeds to launch the
Eddie Bauer Eyewear collection which the Company expects to release in the
Spring of 1998. The balance of the net proceeds will be used for working
capital and general corporate purposes.
The Company intends to maintain flexibility in the use of the proceeds of
the Offering (other than amounts to retire existing bank debt). The amounts
actually expended for each use of the proceeds, if any, are at the discretion
of the Company and may vary significantly depending upon a number of factors,
including requirements for launching new product lines, marketing, advertising
and working capital to support growth. Accordingly, management reserves the
right to reallocate the proceeds of the Offering as it deems appropriate. The
Company may also use a portion of the net proceeds to acquire businesses,
products or proprietary rights; however, the Company currently has no
commitments or agreements relating to any of these types of transactions other
than those disclosed in this Prospectus. Until the net proceeds of the
Offering are used, the Company intends to invest them in United States
government securities, short-term certificates of deposit, money market funds
or other short-term interest bearing investments.
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DILUTION
The net tangible book value of the Common Stock as of April 30, 1997 was
$2,635,000 or $0.73 per share. Net tangible book value per share is equal to
the total tangible assets of the Company, less total liabilities, divided by
the number of shares of Common Stock outstanding. After giving effect to the
sale of 1,600,000 shares of Common Stock offered by the Company by this
Prospectus and the application of the net proceeds from the sale (at an
assumed initial public offering price of $10.00 per share, after deducting (i)
the underwriting discount, and (ii) estimated offering expenses of $520,000),
the net tangible book value of the Company as of April 30, 1997 would have
been approximately $16,360,000 or $3.15 per share. This represents an
immediate increase in net tangible book value of $2.60 per share to the
Existing Shareholders and an immediate dilution of $6.85 per share to new
shareholders purchasing shares in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $10.00
Net tangible book value per share as of April 30, 1997.... $ 0.73
Decrease attributable to dividends (1).................... (0.18)
Increase per share attributable to new shareholders....... 2.60
------
Pro forma net tangible book value per share as of April 30,
1997 after the Offering.................................... 3.15
------
Dilution per share to new shareholders...................... $ 6.85
======
</TABLE>
- --------
(1) Based on a $635,000 dividend which will be paid before the closing of the
Offering. Does not include additional dividends which will be paid before
the closing of the Offering in an amount equal to the net income of the
Company from May 1, 1997 through the Termination Date. See "Termination of
S Corporation Status."
The following table summarizes, for Existing Shareholders and new investors,
a comparison of the number of shares of Common Stock acquired from the
Company, the percentage ownership of those shares, the total consideration,
the percentage of total consideration and the average price per share.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK ACQUIRED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders........... 3,600,527 69.2% $ 401,000 2.4% $ 0.11
New investors................... 1,600,000 30.8 16,000,000 97.6 $10.00
--------- ------ ----------- ------
5,200,527 100.0% $16,401,000 100.0%
========= ====== =========== ======
</TABLE>
The foregoing tables and calculations assume no exercise of the Over-
Allotment Option.
DIVIDEND POLICY
The Company does not currently intend to pay dividends on its Common Stock
following the Offering and plans to follow a policy of retaining earnings to
finance the growth of its business. Any future determination to pay dividends
will be at the discretion of the Company's Board of Directors and will depend
on the Company's results of operations, financial condition, contractual and
legal restrictions and other factors deemed relevant by the Board of Directors
at that time.
16
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company for
the periods and as of the dates indicated. The statement of income data for
each of the three years ended October 31, 1994, 1995 and 1996, and the balance
sheet data as of October 31, 1995 and 1996 are derived from the financial
statements and related notes audited by Altschuler, Melvoin and Glasser LLP,
independent public accountants, as set forth in their report included
elsewhere in this Prospectus. The statement of income data for the six-month
periods ended April 30, 1996 and 1997, and the balance sheet data as of April
30, 1997, are derived from unaudited financial statements of the Company
prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the Company's financial
position and results of operations. The results of operations for an interim
period are not necessarily indicative of results to be expected for a full
year. The following data should be read in conjunction with the Financial
Statements and related notes and with "Management's Discussion and Analysis of
Results of Operations and Financial Condition" appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED APRIL 30,
--------------------------- --------------------------
1994 1995 1996 1996 1997
------- ------- --------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............... $20,051 $23,571 $28,280 $13,052 $16,038
Cost of sales........... 9,666 10,989 11,931 5,625 6,632
------- ------- --------- ------------- -------------
Gross profit............ 10,385 12,582 16,349 7,427 9,406
------- ------- --------- ------------- -------------
Operating expenses:
Selling............... 5,855 6,510 8,328 3,682 4,701
General and
administrative....... 3,224 4,035 5,612(1) 2,302 2,807
Relocation expense.... 0 235 87 49 0
------- ------- --------- ------------- -------------
Total operating
expenses........... 9,079 10,780 14,027 6,033 7,508
------- ------- --------- ------------- -------------
Income from operations.. 1,306 1,802 2,322 1,394 1,898
Other expense, net...... (198) (166) (309) (160) (191)
------- ------- --------- ------------- -------------
Income before pro forma
provision for income
taxes.................. 1,108 1,636 2,013 1,234 1,707
Pro forma provision for
income taxes(2)........ 418 606 748 473 677
------- ------- --------- ------------- -------------
Pro forma net
income(2).............. $690 $1,030 $1,265 $761 $1,030
======= ======= ========= ============= =============
Pro forma net income per
share(2)............... $0.36 $0.22 $0.29
========= ============= =============
Pro forma common shares
outstanding............ 3,546,519 3,492,511 3,600,527
========= ============= =============
Supplementary pro forma
net income per
share(3)............... $0.37 $0.28
========= =============
Supplementary pro forma
common shares
outstanding(3)......... 3,892,847 4,126,448
========= =============
</TABLE>
<TABLE>
<CAPTION>
AT OCTOBER 31,
----------------- AT APRIL 30,
1995 1996 1997
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................................... $6,462 $8,989 $10,581
Total assets..................................... 7,260 10,293 11,977
Current liabilities.............................. 4,602 7,207 9,280
Total liabilities................................ 5,314 7,364 9,342
Stockholders' equity............................. 1,946 2,929 2,635
</TABLE>
- -------
(1) Includes $300,000 in compensation expense recognized by the Company in
connection with the issuance of 108,016 shares of Common Stock to an
executive officer.
(2) The pro forma presentation reflects a provision for income taxes as if the
Company had always been a C corporation.
(3) Supplementary per share amounts are adjusted to reflect the repayment of
debt and related reduction of interest expense as if the debt was repaid
on November 1, 1995 and 1996. The number of shares required to be issued,
assuming a $10.00 price per share, have been added to the number of common
shares outstanding for the period.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in connection with the
Company's Financial Statements and the notes thereto and other financial
information included elsewhere in this Prospectus.
OVERVIEW
The Company derives revenues primarily through the sale of brand-name
eyeglass frames, including Laura Ashley Eyewear, Hart Schaffner & Marx Eyewear
and Jean Nate Eyewear. The Company also has a division which distributes
prescription eyeglass frames under the Company's own Camelot brand and a
division which sells brand-name close-outs at discounted prices. In June 1997,
the Company acquired an exclusive license from Eddie Bauer to market a
collection of men's and women's prescription eyewear under the Eddie Bauer
brand name. The Company anticipates spending approximately $2.5 million to
launch the Eddie Bauer Eyewear collection in the Spring of 1998.
The Company's revenues have grown from $9.2 million in fiscal 1992 to $28.3
million in fiscal 1996. Since 1993, the Laura Ashley Eyewear collection has
been the leading source of revenue for the Company. Net sales of Laura Ashley
Eyewear accounted for 77.8%, 74.6%, and 73.4% of the Company's net sales
during fiscal 1995, fiscal 1996, and the six months ended April 30, 1997,
respectively. While the Company continues to reduce its dependence on the
Laura Ashley Eyewear line through the development of other brand names and
additional product offerings, the Company expects this line to continue to be
the Company's leading source of revenue for the foreseeable future. See "Risk
Factors--Substantial Dependence Upon Laura Ashley License."
The Company's cost of sales consists primarily of payments to foreign
contract manufacturers who produce frames to the Company's specifications. The
complete development cycle for a new frame design typically takes
approximately twelve months from the initial design concept to the release.
Generally, at least six months are required to complete the initial
manufacturing process. For frames purchased other than from Hong Kong/China
manufacturers, the Company pays for its frames in the currency of the country
in which the manufacturer is located and thus the costs (in United States
dollars) of the frames vary based upon currency fluctuations. Increases and
decreases in costs (in United States dollars) resulting from currency
fluctuations generally do not affect the price at which the Company sells its
frames, and thus currency fluctuation can impact the Company's gross margin.
In 1994, the Company recognized that it was dependent on frame manufacturers
located in Japan. Starting in 1995, the Company implemented a program to
reduce that dependence by purchasing an increasing percentage of its frames
from manufacturers located in other countries, particularly in Hong Kong/China
and to a lesser extent in France and Italy. The use of Hong Kong/China
manufacturers has also reduced the Company's average frame cost, which has
increased the Company's gross margin.
EFFECT OF CHANGE IN FORM FROM AN S CORPORATION TO A C CORPORATION
As a result of the Offering, the Company will be required to change in form
from an S Corporation to a C Corporation, which will affect its operations and
financial condition by increasing the level of federal and state income taxes.
As such, the change in form will affect the net income and the cash flows of
the Company.
As an S Corporation, the Company's income, whether or not distributed, was
taxed at the shareholder level for federal and state income tax purposes. In
addition, for California franchise tax purposes, S Corporations were taxed at
2.5% of taxable income through 1993 and 1.5% of taxable income in 1994, 1995
and 1996, net of income tax credits under the Los Angeles Revitalization Zone
Act. Currently, the highest federal tax rate for C Corporations is 38%
(although the majority of the taxable income is taxed at 35%) and the
corporate tax rate in California is 9.3%. The pro forma provision for income
taxes in the statement of income data included elsewhere in this Prospectus
shows results as if the Company had always been a C Corporation and had
adopted Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes".
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected statements
of income data shown as a percentage of net sales. Pro forma operating results
reflect adjustments to the historical operating results for federal and state
income taxes as if the Company had been taxed as a C Corporation rather than
an S Corporation.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED OCTOBER 31, ENDED APRIL 30,
------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................... 48.2 46.6 42.2 43.1 41.3
------- ------- ------- ------- -------
Gross profit..................... 51.8 53.4 57.8 56.9 58.7
------- ------- ------- ------- -------
Operating expenses:
Selling........................ 29.2 27.6 29.4 28.2 29.3
General and administrative..... 16.1 17.1 19.9 17.6 17.5
Relocation expense............. 0 1.0 0.3 0.4 0
------- ------- ------- ------- -------
Total operating expenses..... 45.3 45.7 49.6 46.2 46.8
------- ------- ------- ------- -------
Income from operations........... 6.5 7.7 8.2 10.7 11.9
------- ------- ------- ------- -------
Other expense, net............... (1.0) (0.7) (1.1) (1.2) (1.2)
------- ------- ------- ------- -------
Income before pro forma provision
for income taxes................ 5.5 7.0 7.1 9.5 10.7
Pro forma provision for income
taxes........................... 2.1 2.6 2.6 3.6 4.2
------- ------- ------- ------- -------
Pro forma net income............. 3.4% 4.4% 4.5% 5.9% 6.5%
======= ======= ======= ======= =======
</TABLE>
Comparison of Six Months Ended April 30, 1997 to Six Months Ended April 30,
1996
Net Sales. Net sales increased by 23% from $13,052,000 in the six months
ended April 30, 1996 (the "1996 period") to $16,038,000 in the six months
ended April 30, 1997 (the "1997 period"). This increase in net sales was due
principally to an increase of $1,801,000 in net sales of Laura Ashley Eyewear
and net sales of $938,000 of Hart Schaffner & Marx Eyewear (which was
introduced in the fourth quarter of fiscal 1996). The increase in Laura Ashley
net sales was due principally to an increase in unit sales. Net sales also
increased as a result of the Company's decision in March 1996 to sell directly
to independent optical retailers in California through its own sales
representatives, rather than through a distributor, which resulted in a higher
sales price per frame.
Gross Profit. Gross profit increased from $7,427,000 in the 1996 period to
$9,406,000 in the 1997 period. This increase was due to an increase in net
sales and to an increase in the gross margin from 56.9% in the 1996 period to
58.7% in the 1997 period. This increase was due principally to lower average
frame costs resulting from the Company's continued shift to lower cost frame
manufacturers and to favorable currency fluctuations.
Operating Expenses. Operating expenses increased 24% from $6,033,000 in the
1996 period to $7,508,000 in the 1997 period, which included an increase of
$1,019,000 or 28% in selling expenses and an increase of $505,000 or 22% in
general and administrative expenses. The increase in selling expenses resulted
principally from a $226,000 increase in convention and trade show expenses, a
$214,000 increase in advertising expense and a $206,000 increase in royalty
expense. General and administrative expenses increased principally as a result
of a $372,000 increase in compensation expense, primarily due to an increase
in the number of employees (including a number of mid-level manager
employees).
Other Expense, Net. The $31,000 increase in other expenses in the 1997
period was due primarily to increased interest expense.
19
<PAGE>
Pro Forma Provision for Income Taxes. While an S Corporation, the Company's
income taxes primarily consisted of California state franchise taxes. On a pro
forma basis, income taxes would have been $473,000 and $677,000 in the 1996
period and the 1997 period, respectively.
Pro Forma Net Income. Pro forma net income increased from $761,000 in the
1996 period to $1,030,000 in the 1997 period due to the factors set forth
above.
Comparison of Fiscal Years 1994, 1995 and 1996
Net Sales. Net sales increased by 18% from $20,051,000 for fiscal 1994 to
$23,571,000 in fiscal 1995 and by 20% to $28,280,000 for fiscal 1996. The
increase in net sales from fiscal 1994 to fiscal 1995 was due to a 22%
increase in net sales of Laura Ashley Eyewear from $15,008,000 to $18,348,000.
The increase in net sales from fiscal 1995 to fiscal 1996 resulted primarily
from a 15% increase in net sales of Laura Ashley Eyewear to $21,109,000 and
net sales of $1,889,000 of Jean Nate Eyewear and Hart Schaffner & Marx
Eyewear, which were introduced by the Company in the second and fourth
quarters, respectively, of fiscal 1996. The increase in Laura Ashley Eyewear
net sales in both fiscal years was due principally to an increase in unit
sales and to a lesser extent to an increase in prices for selected frames.
Gross Profit. Gross profit was $10,385,000 in fiscal 1994, $12,582,000 in
fiscal 1995 and $16,349,000 in fiscal 1996. These increases in gross profit
were attributable to increases in net sales as well as improvements in the
gross margin, which increased from 51.8% in fiscal 1994, to 53.4% in fiscal
1995 and to 57.8% in fiscal 1996. During these years, the Company utilized
lower cost frame manufacturers for an increasing percentage of its frames,
which has resulted in lower average frame costs. This positive impact on gross
margin was offset in part in fiscal 1995 due to adverse currency fluctuations,
and was augmented in fiscal 1996 due to beneficial currency fluctuations.
Gross margin was also positively impacted in fiscal 1995 and fiscal 1996 by
increases in the average selling price of frames and by reductions in import
duties and tariffs.
Operating Expenses. Operating expenses were $9,079,000 in fiscal 1994,
$10,780,000 in fiscal 1995 and $14,027,000 in fiscal 1996. These increases
resulted primarily from higher selling and general and administrative expenses
commensurate with the Company's growth.
Selling expenses were $5,855,000 in fiscal 1994, $6,510,000 in fiscal 1995
and $8,328,000 in fiscal 1996, representing 29%, 28% and 29%, respectively, of
net sales for such periods. The 11% increase from fiscal 1994 to fiscal 1995
resulted principally from a $280,000 increase in expenses associated with
sales incentive programs, a $209,000 increase in royalty expense, a $182,000
increase in sales compensation expense and a $123,000 increase in in-store
display expenditures. These increases were offset in part by a decrease of
$446,000 in advertising expenses; the higher advertising expenses in 1994 were
due to a special consumer advertising campaign implemented in connection with
the Company's initial Laura Ashley Loyal Partners program. The 28% increase
from fiscal 1995 to fiscal 1996 was due primarily to a $494,000 increase in
advertising expenses and a $406,000 increase in in-store display expenditures,
due primarily to the introduction of the Jean Nate and Hart Schaffner & Marx
Eyewear lines in fiscal 1996. In addition, in fiscal 1996, royalty expenses
increased by $288,000, expenses associated with sales incentive programs
increased by $223,000 and convention and trade show expenses increased by
$155,000.
General and administrative expenses were $3,224,000 in fiscal 1994,
$4,035,000 in fiscal 1995 and $5,612,000 in fiscal 1996, representing 16%, 17%
and 20%, respectively, of net sales in these periods. The 25% increase from
fiscal 1994 to fiscal 1995 resulted principally from a $505,000 increase in
compensation expense. The 39% increase from fiscal 1995 to fiscal 1996
resulted principally from a $567,000 increase in salaries, a $385,000 increase
in employee bonuses, and compensation expense of $300,000 in connection with
the issuance of 108,016 shares of Common Stock to an executive officer.
The Company incurred expenses of $235,000 and $87,000 in fiscal 1995 and
fiscal 1996, respectively, in connection with the relocation of the Company's
corporate offices and warehouse.
20
<PAGE>
Other Expense, Net. Other expense, net, consisted principally of interest
expense. Interest expense was $201,000 in fiscal 1994, $201,000 in fiscal 1995
and $338,000 in fiscal 1996. The increase in fiscal 1996 was due, in part, to
the increase in borrowings of the bank's credit line as a result of (i) an
increase in accounts receivable resulting from higher sales, (ii) a higher
level of inventories that the Company maintained to support higher sales
levels and better customer service, (iii) capital expenditures relating to
improvements of the Company's facilities and the modernization of its computer
equipment; and (iv) larger S corporation distributions.
Pro Forma Provisions for Income Taxes (unaudited). On a pro forma basis,
income taxes would have been $418,000 in fiscal 1994, $606,000 in fiscal 1995
and $748,000 in fiscal 1996.
Pro Forma Net Income (unaudited). Pro forma net income was $690,000 in
fiscal 1994, $1,030,000 in fiscal 1995 and $1,265,000 in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has relied primarily on internally generated
funds, credit from suppliers and bank lines of credit to meet its liquidity
needs.
The Company has a credit agreement (the "Credit Agreement") with a
commercial bank which provides for the use of letters of credit, banker's
acceptances and loans in the aggregate amount of $7,935,417. The commitment
formula limits the amount available to the sum of 75% of eligible accounts
receivable and 40% of eligible inventory, with the inventory portion limited
to the lesser of $3,000,000 or the accounts receivable borrowing base. At the
Company's option, interest may be based on the London Interbank Offered Rate
("LIBOR") plus 2.25% or at the bank's prime rate plus .25%. At April 30, 1997,
interest rates ranged from 8.375% to 8.437% on a loan balance of $4,000,000
under the LIBOR option and 9.25% on the remaining balance of $625,000 under
the prime rate option. The Credit Agreement also governs three term loans,
which are due at various times in 1997 and 1998, bear interest at a weighted
average rate of 9.11% per annum, and had an aggregate outstanding principal
balance of $604,000 at April 30, 1997. The Credit Agreement (which expires in
May 1998) is secured by substantially all of the assets of the Company. The
Credit Agreement provides for certain limitations on capital expenditures and
requires the Company to satisfy certain financial tests, including the
maintenance of minimum tangible net worth.
The Company intends to repay the outstanding balance under the Credit
Agreement (estimated to be approximately $7.5 million at the closing of the
Offering) with a portion of the proceeds of the Offering. The increase in
borrowings since April 30, 1997 will be due to borrowings for working capital
and shareholder distributions.
As a result of the Company's treatment as an S Corporation for federal and
state income tax purposes, the Company historically has provided its
shareholders, through dividends, with funds for the payment of income taxes on
the earnings of the Company which have been included in the taxable income of
the shareholders. In addition, the Company has paid dividends to shareholders
to provide them with a return on their investment. The Company paid dividends
of $807,000, $550,000 and $1,328,000 for fiscal 1994, fiscal 1995 and fiscal
1996, respectively, and $2,000,000 in the first six months of fiscal 1997. The
Company also intends to pay the Existing Shareholders dividends equal to
$635,000 plus the amount of the Company's net income from May 1, 1997 through
the Termination Date. These dividends will be paid before the closing of the
Offering. The Company does not currently intend to pay dividends on its Common
Stock following the Offering and plans to follow a policy of retaining
earnings to finance the growth of its business.
Of the Company's accounts payable at October 31, 1996 and April 30, 1997,
$865,069 and $1,086,638, respectively, were payable in foreign currency. To
monitor risks associated with currency fluctuations, the Company on a weekly
basis assesses the volatility of certain foreign currencies and reviews the
amounts and expected payment dates of its purchase orders and accounts payable
in those currencies. Based on those factors,
21
<PAGE>
the Company may from time to time mitigate some portion of that risk by
purchasing forward commitments to deliver foreign currency to the Company. The
Company held forward commitments for foreign currencies in the amount of
$1,459,457 at October 31, 1996, and held no forward commitments at April 30,
1997. See Note 1 of Notes to the Financial Statements.
The Company's bad debt write-offs were less than 0.2% of net sales for the
year ended October 31, 1996 and for the six months ended April 30, 1997. As
part of the Company's management of its working capital, the Company performs
most customer credit functions internally, including extensions of credit and
collections.
The Company believes that cash generated from operations, the net proceeds
received by the Company from this Offering, borrowings under its credit
facility, and credit from its suppliers will be sufficient to fund its working
capital requirements at least through fiscal 1998.
QUARTERLY AND SEASONAL FLUCTUATIONS
The Company's results of operations have fluctuated from quarter to quarter
and the Company expects these fluctuations to continue in the future.
Historically, the Company's net sales in its first fiscal quarter (the quarter
ending January 31) have been lower than net sales in other fiscal quarters.
The Company attributes lower net sales in the first fiscal quarter in part to
low consumer demand for prescription eyeglasses during the holiday season and
year-end inventory adjustments by distributors and independent optical
retailers. A factor which may significantly influence results of operations in
a particular quarter is the introduction of a new brand-name collection, which
results in disproportionate levels of selling expenses due to additional
advertising, promotions, catalogs and in-store displays. Introduction of a new
brand may also generate a temporary increase in sales due to initial stocking
by retailers. Other factors which can influence the Company's results of
operations include customer demand, the mix of distribution channels through
which the eyeglass frames are sold, the mix of eyeglass frames sold, product
returns, delays in shipment and general economic conditions. See "Risk
Factors--Quarterly and Seasonal Fluctuations."
The following table sets forth certain unaudited results of operations for
the ten fiscal quarters ended April 30, 1997. The unaudited information has
been prepared on the same basis as the audited financial statements appearing
elsewhere in this Prospectus and includes all normal recurring adjustments
which management considers necessary for a fair presentation of the financial
data shown. The operating results for any quarter are not necessarily
indicative of future period results.
<TABLE>
<CAPTION>
1995 1996 1997
---------------------------------- ---------------------------------- -----------------
JAN. 31 APRIL 30 JULY 31 OCT. 31 JAN. 31 APRIL 30 JULY 31 OCT. 31 JAN. 31 APRIL 30
------- -------- ------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $4,481 $6,309 $6,469 $6,312 $5,308 $7,744 $7,050 $8,178 $6,802 $9,236
Cost of sales................ 2,128 3,041 3,056 2,764 2,449 3,177 2,895 3,410 2,882 3,750
Gross profit................. 2,353 3,268 3,413 3,548 2,859 4,567 4,155 4,768 3,920 5,486
Operating expenses:
Selling..................... 1,056 1,682 1,853 1,919 1,472 2,209 2,055 2,592 2,021 2,680
General and administrative.. 782 970 1,057 1,226 969 1,334 1,554 1,755 1,364 1,443
Relocation expense.......... 0 34 65 136 30 19 17 21 0 0
Total operating expenses..... 1,838 2,686 2,975 3,281 2,471 3,562 3,626 4,368 3,385 4,123
Income from operations....... 515 582 438 267 388 1,005 529 400 535 1,363
Other expense, net........... (38) (44) (29) (55) (67) (92) (84) (66) (85) (106)
Income before pro forma
provision for income taxes.. 477 538 409 212 321 913 445 334 450 1,257
</TABLE>
INFLATION
The Company does not believe its business and operations have been
materially affected by inflation.
22
<PAGE>
BUSINESS
GENERAL
Signature designs, markets and distributes prescription eyeglass frames
primarily under exclusive licenses for Laura Ashley Eyewear, Hart Schaffner &
Marx Eyewear and Jean Nate Eyewear, as well as its own "Camelot" label. The
Laura Ashley Eyewear collection is one of the leading women's brand-name
collections in the United States. The Company attributes its success to its
brand-name development process and high quality, creative frame designs. The
Company's brand-name development process includes identifying a market niche,
obtaining the rights to a carefully selected brand name, producing a
comprehensive marketing plan, developing unique in-store displays and creating
innovative sales and merchandising programs for independent optical retailers
and retail chains. Signature's in-house designers work with many respected
frame manufacturers throughout the world to develop high-quality, creative
designs which are consistent with each brand-name image.
In June 1997, Signature acquired the exclusive license to design and market
an Eddie Bauer Eyewear collection, which the Company plans to launch in the
Spring of 1998. The Company pursued the Eddie Bauer brand name, which had not
previously been licensed for prescription eyewear, for its widespread
recognition, outdoor heritage, casual styling, and reputation for value and
quality. The Eddie Bauer Eyewear collection will offer men's and women's
styles and will be positioned in the medium-price segment of the brand-name
prescription market.
Signature produces "turnkey" marketing, merchandising and sales promotion
programs to promote sales at each level in the distribution chain. For optical
retailers, the Company develops unique in-store displays, such as its Laura
Ashley Eyewear "store within a store" environments. For the sales
representatives who call on retail accounts, whether they are employed by
distributors or by Signature, the Company creates presentation materials,
marketing bulletins, motivational audio and video tapes and other sales tools
to facilitate professional presentations, and the Company offers attractive
incentive awards for reaching targeted sales levels. For its distributors who
sell to independent optical retailers, Signature provides its innovative
loyalty programs.
Under the loyalty programs, which generally last from six to ten months,
each participating retailer agrees to purchase a specified quantity of frames
of new styles released during the program period. Although a participating
retailer may cancel at any time, historically most have completed the program
and renewed their participation in ensuing years. These "automatic" sales
programs have facilitated the widespread placement of new styles in optical
retail stores, have increased the Company's leverage with its manufacturers
due to the large size of the Company's orders, and have assisted its inventory
planning. The Company's largest loyalty program is its Laura Ashley Loyal
Partners program, which at April 30, 1997 had over 4,750 participating
retailers in the United States (approximately 16% of all independent optical
retailers in the United States) as well as over 800 international
participants.
The Company contracts with overseas factories to manufacture the frames it
designs. Signature distributes its frames through distributors in the United
States and through exclusive distributors in foreign countries. In addition,
the Company sells directly through its own sales representatives to major
retail chains, including LensCrafters, Pearle Vision and Eyecare Centers of
America, and to independent optical retailers in California.
The Company's principal product line is Laura Ashley Eyewear, which was
launched in 1992. Signature designs frames and in-store displays which seek to
capture the distinctive, feminine image associated with Laura Ashley clothing
and home furnishings. Laura Ashley Eyewear styles are feminine and classic,
and are positioned in the medium to mid-high price range to reach a broad
segment of the women's eyewear market. The Company's net sales of Laura Ashley
Eyewear have increased from $2.2 million in fiscal 1992 to $21.1 million in
fiscal 1996.
Capitalizing on Signature's customer relationships and the success of Laura
Ashley Eyewear, the Company launched Jean Nate Eyewear in March 1996 and Hart
Schaffner & Marx Eyewear in September 1996. Jean Nate Eyewear is targeted at
women seeking to pay an affordable price for high-quality frames which offer
unique designs, attention to detail and brand-name identification. Hart
Schaffner & Marx Eyewear is a mid-high priced line targeted at men requiring
quality, comfort and craftsmanship.
23
<PAGE>
INDUSTRY OVERVIEW(/1/)
Eyewear Consumers. Optical retail sales in the United States have increased
during the 1990s. Retail sales of all eyewear products increased from $11.4
billion in 1990 to $14.6 billion in 1996. Correspondingly, retail sales of
eyeglass frames increased from $3.87 billion in 1990 to $4.6 billion in 1996.
In 1996, approximately 159 million Americans, just over 60% of the nation's
population, needed some form of vision correction (either eyeglass frames with
corrective lenses or contact lenses). More than 90% of people over the age of
45 need corrective eyewear, many due to presbyopia, a condition which makes it
difficult to focus on nearby objects, such as small newspaper print. The table
below demonstrates how the number of people needing vision correction
increases with age.
AGE BREAKDOWN OF U.S. POPULATION NEEDING VISION CORRECTION
<TABLE>
<CAPTION>
AGE GROUP OF
1996 PURCHASERS AS % OF % OF AGE GROUP
POPULATION TOTAL PURCHASERS OF NEEDING VISION
AGE (IN MILLIONS) VISION CORRECTION CORRECTION
--- ------------- -------------------- ---------------
<S> <C> <C> <C>
0-14................... 58.0 5.7% 15.5%
15-24................... 35.9 11.5 51.0%
25-44................... 83.7 33.0 62.8%
45-64................... 53.7 32.0 95.0%
65 and up............... 33.9 19.8 93.1%
----- -----
Total................. 265.2 100.0%
===== =====
</TABLE>
The average age of the United States population is expected to increase over
the next 25 years, due to the aging of the "baby-boomers" who were born
between 1946 and 1964. As more of the baby-boomers exceed age 45, the Company
believes sales of corrective eyewear should increase.
Sales of eyewear are also increasing due to the evolution of eyewear into a
fashion accessory. Until the mid-1970s, eyeglass frames were viewed as medical
implements which were "dispensed" but never "sold." Because styling was not
emphasized, successful frames often remained popular for years, and sometimes
for decades. In the mid-1970s, experts from other industries introduced
designer names and consumer advertising to the optical industry, as well as
sweeping design changes. These changes resulted in increased consumer demand
for the new products. Although eyeglass frames are a fashion accessory for
many people, the styles are not subject to seasonal changes, and they change
less rapidly than styles in the apparel industry.
Competitive Vision Correction Methods. Currently, there are two methods of
correcting vision impairment which compete with prescription eyeglasses:
contact lenses and surgery. Although retail sales of contact lens remained
flat from 1995 through 1996 at $1.9 billion, their sales as a percentage of
total retail sales decreased from 13.5% in 1995 to 13.0% in 1996. The Company
believes that sales of contact lenses do not currently materially threaten
eyeglass frame sales because many people who wear contact lenses need a pair
of eyeglasses for night time and for the days when they decide not to wear
their lenses.
A number of surgical techniques have been developed to correct vision
problems such as myopia (nearsightedness), hyperopia (farsightedness) and
astigmatism. The Company does not believe that these techniques will
materially and adversely affect sales of prescription eyewear in the near
future. The Company believes that a number of people who have had successful
eye surgery may still need some form of corrective eyeglasses, and others may
need eyeglasses at a later date due to the onset of presbyopia.
- --------
(1) Unless otherwise noted, all the data in this Industry Overview section
relates to the eyewear market in the United States. The source for this
data is the 1997 U.S. Optical Industry Handbook published by Jobson
Publishing Corporation in May 1997.
24
<PAGE>
Optical Retail Outlets. Optical retailers consist of optometrists, opticians
and ophthalmologists. There are two main types of optical retailers:
independents (with one or two stores) and chains. Chains include national
optical retailers such as LensCrafters, Cole Vision Corp. and its subsidiary
Pearle Vision, and Eyecare Centers of America, and mass merchandisers such as
Wal-Mart and Price Club. In 1996, independent optical retailers had a 63.0%
market share, chains had a 35.5% market share, and others had a 1.5% market
share.
GROWTH STRATEGY
The Company intends to capitalize on the success of the Laura Ashley Eyewear
line by further diversifying into new lines, adding new products and expanding
its distribution. Specific elements of the Company's growth strategy include:
. Existing Brands. The Company intends to continue to create innovative
marketing, merchandising and sales promotion programs to increase the
market penetration of its existing lines of brand-name eyewear.
. Eddie Bauer Eyewear. The Company plans to launch Eddie Bauer Eyewear in
the Spring of 1998.
. Additional Brands. The Company will continue its efforts to acquire
exclusive brand-name licenses to market prescription eyeglass frames in
market niches in which the Company does not currently compete.
. New Product Lines. The Company intends to expand the marketing of its
own Camelot collection of frames and may develop one or more additional
brand-name lines of its own.
. Sunwear. The Company intends to expand the market penetration of its
existing Laura Ashley Sunwear line and may acquire additional exclusive
brand-name licenses for sunglass frames.
. International Sales. The Company plans to expand the international
markets into which it distributes its eyewear lines.
BRAND DEVELOPMENT
The Company attributes its success to its brand-name development process and
frame designs. The Company's brand-name development process includes
identifying a market niche, obtaining the rights to a carefully selected brand
name, producing a comprehensive marketing plan, designing frames consistent
with each brand image, developing unique in-store displays, and creating
innovative sales and merchandising programs for independent optical retailers
and retail chains.
Identifying a Market Niche and Obtaining the Rights to a Brand
Name. Signature's brand-name development process begins with identifying an
eyewear market niche. The Company characterizes a market niche by referring to
the target customer's gender and age (e.g., adult, child, teenage), the
niche's general image and styling (e.g., feminine, masculine, casual), its
price range, and the applicable channels of distribution. Once the Company
chooses a market niche, a brand name is identified which the Company believes
will appeal to the target customer in that niche. The Company believes that
for a brand name to have the potential for widespread sales in the optical
industry, the name must have strong, positive consumer awareness, a
distinctive personality and an image of enduring quality. Brands that are
aimed at narrower niches can also have optical industry impact (albeit
smaller), so long as consumer awareness exists within the targeted niche.
After the Company has determined that a targeted brand name is available,
the Company develops a preliminary marketing plan to present to the potential
licensor. The development process is a team effort which includes determining
the market position of the brand name outside the optical industry and the
availability of cross-marketing opportunities. The preliminary marketing plan
demonstrates the Company's (i) in-depth understanding of the potential
licensor's market position, (ii) innovative strategies for extending the
brand's image to the eyewear market, (iii) preliminary plans for
merchandising, advertising and sales promotion, and (iv) broad concepts for
frame design.
The Company then formally presents the preliminary marketing plan to the
potential licensor. The final steps in acquiring an exclusive eyewear license
for a brand name are receiving the licensor's approval and entering into a
license agreement.
25
<PAGE>
The Company's existing license agreements contain terms limiting the ability
of the Company to market competing brand names. See "Risk Factors--Limitations
on Ability to Distribute Other Brand-Name Eyeglass Frames."
Final Marketing Plan. Once the Company has acquired an exclusive eyewear
license for a brand name, it creates a final marketing plan. The final
marketing plan contains detailed concepts for frame designs, establishes the
brand's identity within the optical industry, and sets forth the first year's
merchandising, advertising and sales promotion plans. The Company's ongoing
focus on its marketing plans, including annual updates, provides a framework
for keeping the Company's marketing and sales strategies current with changes
in the eyewear industry and the licensor's marketing.
Frame Design and Quality. The Company's frames are designed by its in-house
design team, which consists of two designers and a management frame committee
which reviews each style. The designers work with many respected frame
manufacturers throughout the world to develop unique designs, and continue to
work closely at each stage of a style's development to assure quality. The
Company's frames generally require over 200 production steps to manufacture,
including hand soldering of bridges, fronts and endpieces. Some frames require
labor-intensive decorative features such as cloisonne color treatments, which
involve painting each frame by hand under a magnifying glass, using tiny
bristle brushes.
Quality Control. The Company uses only manufacturers capable of meeting
Signature's criteria for quality, delivery and attention to design detail.
Signature specifies the materials to be used in the frames, and examines
prototypes before committing to production. The Company places its initial
orders for each style at least six months before the style is released, and
requires the factory to deliver several advance shipments of samples. The
Company's quality committee examines every frame in the sample shipments. The
Company believes this process permits sufficient time to resolve problems with
a style's quality before its release date. The Company's quality committee
selectively examines frames in subsequent shipments to ensure ongoing quality
standards.
Limited Quantity of Style Releases. The Company has historically launched
each brand-name collection with only three styles. Further, although for each
brand the Company has many designs in different stages of development, it has
released no more than three styles per brand per month (each style generally
comes in two or three colors and one or two sizes). This strategy has
contrasted with many of the Company's competitors, who release many more
styles than Signature. The Company believes that its limited release strategy
helps to ensure focus on each new style. Further, the Company believes that
this strategy has resulted in larger orders per style, which has increased its
leverage with the contract manufacturers of its frames.
Marketing, Merchandising and Sales Programs. Signature produces "turnkey"
marketing, merchandising and sales promotion programs to promote sales at each
level in the distribution chain. For optical retailers, the Company develops
unique in-store displays, such as its Laura Ashley Eyewear "store within a
store" environments. For the sales representatives who call on retail
accounts, whether they are employed by distributors or by Signature, the
Company creates presentation materials, marketing bulletins, motivational
audio and video tapes and other sales tools to facilitate professional
presentations, and the Company offers attractive incentive awards for reaching
targeted sales levels. For its distributors who sell to independent optical
retailers, Signature provides its innovative loyalty programs.
Loyalty Programs. The Company attributes a significant portion of its
success with independent optical retailers in the United States to its loyalty
programs. Under these programs, which generally last from six to ten months,
each participating retailer agrees to purchase a specified quantity of frames
(generally three to six frames per month) of new styles released for that
brand during the program period. The Company's loyalty programs benefit the
Company, its distributors and participating retailers. The Company and its
distributors benefit from the automatic sales and the reorders they generate.
The distributors also benefit from the retailers' agreement not to change
distributors for that specific program. Retailers benefit from sales of new
styles, program-ending gifts, and from the special in-store merchandising
(often available first--or only--to participating retailers).
26
<PAGE>
Although a retailer may drop out of a loyalty program at any time without
penalty, historically most participating retailers have completed the program
and renewed their participation in ensuing years. The Company believes this is
principally because the frames have sold well and retailers have wanted to
earn the attractive incentive awards provided by the Company and its
distributors at the end of the program.
Signature's first loyalty program was the 1994 Laura Ashley Eyewear Loyal
Partners Program which had 2,494 participants. The 1997 Laura Ashley Loyal
Partners Program had approximately 4,750 United States participants and 800
international participants at April 30, 1997. Each United States participant
in the 1997 program has agreed to purchase a total of 39 Laura Ashley frames
in accordance with its distributor's release schedule. Approximately 16% of
the independent optical retailers in the United States are participating in
the 1997 Laura Ashley Loyal Partners Program.
The Company introduced its Hart Schaffner & Marx Eyewear collection in
September 1996 with a loyalty program. Over 1,200 independent optical
retailers participated in the program, each agreeing to purchase a total of 18
frames from the collection's first six styles.
PRODUCTS
The Company's principal products are eyeglass frames sold under the brand
names Laura Ashley Eyewear, Hart Schaffner & Marx Eyewear and Jean Nate
Eyewear. In June 1997, the Company acquired an exclusive license to design,
market and distribute eyeglass frames under the name Eddie Bauer Eyewear, and
the Company plans to release this line in the Spring of 1998. The Company also
has a division which distributes eyeglass frames under the Company's own
Camelot brand and a division which sells brand-name close-outs at discounted
prices.
The following table provides certain information about the market segments,
introduction dates and approximate retail prices of the Company's products.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CUSTOMER INTRODUCTION APPROXIMATE
BRAND NAME / SEGMENT GENDER/AGE DATE RETAIL PRICES(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Laura Ashley
Prescription Women March 1992 $125 - 180
Sunwear Women March 1993 $ 80 - 100
Children Girls June 1993 $ 80 - 100
- --------------------------------------------------------------------------------
Jean Nate Women April 1996 $ 70 - 90
- --------------------------------------------------------------------------------
Hart Schaffner & Marx Men September 1996 $140 - 170
- --------------------------------------------------------------------------------
Eddie Bauer Men/Women Spring 1998(2) $100 - 135
- --------------------------------------------------------------------------------
Signature's Camelot
Line Men/Women 1986 $ 70 - 130
Unisex 1987 $ 70 - 130
Boys/Girls 1987 $ 60 - 90
- --------------------------------------------------------------------------------
</TABLE>
(1) Retail prices are established by retailers, not the Company.
(2) Scheduled launch date.
Laura Ashley Eyewear
Signature's sales growth since 1992 has been primarily attributable to the
success of its Laura Ashley Eyewear collection. The Company's net sales of
Laura Ashley Eyewear have increased from $2.2 million in fiscal 1992 to $21.1
million in fiscal 1996.
Signature pursued Laura Ashley for its strong female following; its feminine
styling and image which are renowned worldwide; its significant worldwide
retail presence; its distinctive, high quality fabrics, home furnishings and
clothing; and its reputation for producing products of enduring quality. At
the time Signature obtained the license in 1991, Laura Ashley had never
previously licensed its name outside the home furnishings industry.
27
<PAGE>
Like Laura Ashley clothing and home furnishings, Laura Ashley Eyewear has
been designed to be feminine and classic, to be fashionable without being
trendy, and to reach a broad segment of the women's eyewear market. Signature
uses the phrase "premier feminine collection" to describe Laura Ashley
Eyewear. The hallmark of Laura Ashley Eyewear is its attention to detail, and
the collection is known for its unique designs on the styles' temples, fronts
and end pieces. The designs are also known for their color treatments; several
styles require cloisonne hand painting. The more recent Laura Ashley Eyewear
styles tend towards smaller shapes and take advantage of modern technical
advances, such as thinner spring hinges (which flex outward and spring back)
and lighter metal alloys, both of which permit the manufacture of frames which
are thinner and lighter while retaining strength.
When Laura Ashley Eyewear was first introduced, most optical sales outlets
had a sterile appearance, using mainly contemporary plastic and glass displays
and fixtures. Signature's in-house team conceptualized and designed unique in-
store "environments" to attract the target customer to the frames. The
original and second-generation Laura Ashley Eyewear environments were covered
with colorful Laura Ashley textured floral-print fabric, which provided the
retailer with an instant new look, and, in effect, a Laura Ashley "store
within a store." The third-generation display environments, released in March
1997, have as their centerpiece a wooden chest modeled after antique English
furniture. The new environments use a subdued Laura Ashley fabric to provide a
subtle feminine accent.
The principal market segment for Laura Ashley Eyewear is women's
prescription eyewear, and each year since 1993 the Company has released
approximately 12 women's prescription eyewear styles. Net sales for those
styles were $16.5 million in fiscal 1995, $19.0 million in fiscal 1996, and
$10.4 million in the six months ended April 30, 1997.
Each Spring since 1993, the Company has released three Laura Ashley Sunwear
styles during its second fiscal quarter. These frames are delivered to optical
retailers with ready-to-wear non-prescription sunglass lenses containing
quality UV 400 protection. These lenses can be replaced with prescription
sunglass lenses if the customer desires. Net sales of Laura Ashley Sunwear
were $0.8 million in fiscal 1995, $0.9 million in fiscal 1996 and $0.8 million
in the six months ended April 30, 1997. In addition to Laura Ashley Sunwear,
almost all of the Company's styles can be fitted with sunglass lenses to make
them into sunwear.
Each Summer since 1993, Signature has released three Laura Ashley for Girls
styles, with their own specialized displays, targeting girls aged 7-13. This
collection is one of the few adult optical brand names to be marketed toward
girls in that age range. Because the frames are designed and produced in small
sizes, they are also purchased from time to time by petite women. Net sales of
Laura Ashley for Girls Eyewear were $1.1 million in fiscal 1995, $1.2 million
in fiscal 1996, and $0.55 million in the six months ended April 30, 1997.
Results for the first six months of fiscal 1997 did not include sales of the
Company's 1997 Laura Ashley for Girls styles, which were released in the third
quarter of fiscal 1997.
The Company has the exclusive right to market and sell Laura Ashley Eyewear
through a license with Laura Ashley entered into in May 1991. The license
covers a specified territory including the United States, Canada, the United
Kingdom, Australia, New Zealand, Colombia, France, Belgium and the
Netherlands. The Company also has a right of first refusal to distribute Laura
Ashley Eyewear in Mexico and all other European countries. The Laura Ashley
license terminates in 2001, but may be renewed by the Company at least through
January 2006 so long as the Company is not in breach of the license agreement
and generates the required amount of minimum net sales. Laura Ashley may
terminate the license before its term expires if (i) the Company commits a
material breach of the license agreement and fails to cure that breach within
30 days after notice is given, (ii) the management or control of the Company
passes from Bernard Weiss and Julie Heldman to other parties whom Laura Ashley
may reasonably regard as unsuitable, (iii) the Company fails to propose a
selection of styles of eyewear which Laura Ashley in exercising good faith is
willing to approve for manufacture and distribution, (iv) the Company fails to
have net sales of Laura Ashley Eyewear sufficient to generate minimum
royalties in each of any two years, (v) the Company is unable to pay its debts
in the ordinary course of business or enters into liquidation, becomes
bankrupt or insolvent, or is placed in the control of a receiver or trustee,
or (vi) the Company in any year fails to spend a specified percentage of net
sales of Laura Ashley Eyewear on advertising and promotion.
28
<PAGE>
Jean Nate Eyewear
In 1995, the Company identified an underdeveloped niche for feminine brand-
name eyeglass frames marketed in the mid-low price range (approximately $70 to
$90 at retail). To capitalize on this opportunity, the Company pursued and
obtained the eyewear license for Jean Nate, a brand name that is widely
recognized within the target niche for its women's fragrance and bath
products, especially its after-bath splash.
The Jean Nate Eyewear collection is targeted at women who are seeking to pay
an affordable price for quality brand-name frames which offer unique designs,
attention to details, features such as spring hinges that flex outwards and
spring back, and brand-name identification. Jean Nate Eyewear advertisements
have had an eyecatching "splash of water" theme, and most of the frames
incorporate sea shells in their design. Sales promotional tools for Jean Nate
Eyewear have included in-store displays and two-for-one specials.
The Company has the exclusive right to market and sell Jean Nate Eyewear in
the United States and Canada through a license with Revlon entered into in
June 1995. "Jean Nate" is a registered trademark of Revlon. The Jean Nate
license terminates in September 1998, but may be renewed by the Company for
two additional terms of three and four years, respectively, so long as the
Company is in compliance in all material respects with all of its terms and
conditions, including the minimum net sales requirements for the two years
preceding the renewal date. Revlon may terminate the license before its term
expires if (i) someone other than Bernard Weiss, Julie Heldman, Robert Fried
or Robert Zeichick acquires in excess of 50% of the Company's outstanding
voting securities; (ii) the Company sells or otherwise transfers substantially
all its assets used in the manufacture, promotion and distribution of eyeglass
frames, (iii) the Company does not generate the minimum net sales required by
the license for two consecutive years, (iv) the Company fails to pay royalties
and any other amounts when due, (v) the Company is unable to pay its debts as
they become due, enters into liquidation, makes an assignment for the benefit
of creditors, enters bankruptcy proceedings or ceases doing business as a
going concern, or (vi) the Company fails to perform its other obligations
under or otherwise breaches the license agreement and fails to cure that
breach within 30 days after notice is given.
Hart Schaffner & Marx Eyewear
Signature expanded its presence to the brand-name men's eyewear market in
fiscal 1996 when it acquired a license from Hart Schaffner & Marx, a
subsidiary of Hartmarx Corporation, a leading manufacturer of tailored
clothing. Hart Schaffner & Marx has an image of enduring quality, and is a
recognized name among men who purchase apparel in the medium to high price
range.
The Hart Schaffner & Marx Eyewear collection is targeted at men who are
somewhat conservative and interested in quality, comfort and craftsmanship.
The Company determined that men are generally concerned about both function
and fashion, so the frames contain features which enhance their durability--
the highest quality screws, nosepads and spring hinges--and come with a two-
year "no fault, worry-free" warranty. The collection is designed to fit a
broad spectrum of men, and selected styles have longer temples and larger
sizes than those generally available. Further, many of the styles integrate
Hart Schaffner & Marx fabric patterns into the frame designs.
The Company has the exclusive right to market and sell Hart Schaffner & Marx
Eyewear in the United States through a license with Hart Schaffner & Marx
entered into in January 1996. The license agreement provides that Hart
Schaffner & Marx may not grant to any third person the right to distribute
eyeglass and sunglass frames, lenses and other eyewear products under the Hart
Schaffner & Marx brand name in any country in the world without first offering
the Company the exclusive right to do so. As of the date of this Prospectus,
no Hart Schaffner & Marx Eyewear is sold anywhere outside of the United
States. The Hart Schaffner & Marx license terminates in June 1999, but may be
renewed for three-year terms by the Company in perpetuity provided the Company
is not in default under the license agreement. Hart Schaffner & Marx may
terminate its license with the Company before the expiration of its term if
(i) someone other than Bernard Weiss, Julie Heldman, Robert Fried or Robert
Zeichick acquires more than 50% of the Company's outstanding voting
securities, (ii) all of Ms. Heldman and Messrs. Weiss, Zeichick and Fried
cease to be involved in a significant manner in the exploitation of Hart
Schaffner & Marx Eyewear before June 30, 1999 and after the last of such four
persons
29
<PAGE>
ceases to be involved the Company fails within 90 days to submit a marketing
plan for Hart Schaffner & Marx Eyewear that is acceptable to Hart Schaffner &
Marx, (iii) the Company sells or otherwise transfers substantially all its
assets used in the manufacture, promotion and distribution of eyeglass frames,
(iv) the Company does not generate the minimum net sales required by the
license for two consecutive years, (v) the Company fails to perform its
material obligations under the license agreement and fails to cure that breach
within 30 days after notice is given, or (vi) after written notice in the
event any of the Company's representations and warranties are not correct in
any material respect.
Eddie Bauer Eyewear
In June 1997, the Company acquired the exclusive license from Eddie Bauer to
market Eddie Bauer Eyewear, a collection of men's and women's prescription
eyewear styles. Eddie Bauer, which was founded in 1920, is a subsidiary of
Spiegel, Inc. The Company pursued the Eddie Bauer name, which had not
previously been licensed for prescription eyewear, for its widespread name
recognition, outdoor heritage, casual styling, and reputation for value and
quality. Eddie Bauer currently has over 400 retail stores worldwide, and
annually distributes approximately 100 million Eddie Bauer merchandise
catalogs.
The Eddie Bauer Eyewear collection, which the Company expects to launch in
the Spring of 1998, will be aimed at a different market niche than any of the
Company's other brand names. The Company's marketing plan calls for the
coordination of the collection's frame designs and its marketing,
merchandising and sales promotion programs so that they capture the free
spirit of the Eddie Bauer casual lifestyle and its heritage of the great
outdoors. In keeping with Eddie Bauer's commitment to value, the collection
will consist of medium priced frames, a market-pricing niche which does not
currently have many brand-name competitors. The Company believes that its
purchasing power and its commitment to frame quality will result in the Eddie
Bauer Eyewear collection having higher quality and better features than other
brand-name collections currently targeting the same niche.
The Company has the exclusive worldwide right to market and sell Eddie Bauer
Eyewear through a license agreement with Eddie Bauer entered into in June
1997. Without the prior written consent of Eddie Bauer, however, the Company
may market and sell Eddie Bauer Eyewear only in the United States and in the
other countries specified in the license agreement, most notably Japan, the
United Kingdom, Germany, France, Australia and New Zealand. The license
agreement terminates in December 2002, but the Company may renew it for two
three-year terms provided the Company meets certain minimum net sales and
royalty requirements and is not in material default. Eddie Bauer may terminate
the license before the expiration of its term if (i) a person or entity
acquires more than 30% of the Company's outstanding voting securities, and
thereby becomes the largest shareholder and owns more shares than the Existing
Shareholders, or (ii) the Company commits a material breach of the license
agreement and fails to cure that breach within 30 days after notice is given.
Signature's Camelot Collection
From its inception in 1983 until 1986, the Company, then known as USA
Optical Distributors, Inc., sold only brand-name frames purchased from other
frame suppliers. To take advantage of the increased margins available to
importers, the Company in 1986 began designing its own styles for contract
manufacture overseas. Those styles became the Camelot collection, which
contains a broad range of high-quality men's, women's, unisex, girls' and
boys' styles.
To date, the Company has sold the Camelot collection only through USA
Optical, which is now a division of Signature. The Camelot collection's net
sales were $2,005,000 in fiscal 1995, $2,012,000 in fiscal 1996 and $1,007,000
for the six months ended April 30, 1997. USA Optical continues to sell frames
from other suppliers as part of its sales mix. USA Optical had total net sales
of $3,771,000 in fiscal 1995, $3,709,000 in fiscal 1996, and $1,775,000 for
the six months ended April 30, 1997.
Brand Name Close-Outs
Another Signature division, Optical Surplus, sells brand-name close-outs
(discontinued styles) at discounts. Optical Surplus has also served as a
useful outlet for selling the Company's overstocks of its own brand-name
products, as well as of its Camelot collection. Using Optical Surplus, the
Company is able to control the distribution of its overstocks without
disturbing the market. Optical Surplus had net sales of $1,075,000 in fiscal
1995, $1,153,000 in fiscal 1996, and $492,000 for the six months ended April
30, 1997.
30
<PAGE>
DISTRIBUTION
The Company distributes its products through its distributors in the United
States and through exclusive distributors in foreign countries; through its
own account managers to major optical retail chains, including LensCrafters,
Pearle Vision and Eyecare Centers of America; through its own direct sales
force, which sells directly to independent optical retailers in California;
and through telemarketing (USA Optical and Optical Surplus).
The following table sets forth the Company's net sales by distribution
channel for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------- SIX MONTHS ENDED
1994 1995 1996 APRIL 30, 1997
------ ------- ------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Domestic distributors............... $9,155 $10,792 $12,965 $6,995
Optical retail chains............... 4,593 5,798 7,120 4,593
Telemarketing(1).................... 4,809 4,846 4,862 2,268
International distributors.......... 1,494 2,135 2,486 1,330
Direct sales (California)(2)........ -- -- 847 852
</TABLE>
- --------
(1) USA Optical and Optical Surplus.
(2) The Company began selling directly to independent optical retailers in
California in March 1996.
Domestic Distributors. The Company believes that, to maximize sales of its
brand-name eyeglass frames, it must selectively limit its distributors to
those who (i) adhere to and implement the Company's marketing strategies, (ii)
distribute eyewear to optical retailers that market products consistent with
each brand's image and pricing strategy, and (iii) provide a high level of
customer service and technical expertise. Moreover, Signature's marketing
plans require a significant commitment of time, effort and money on the part
of the distributors. At April 30, 1997, the Company had 25 domestic
distributors. Signature believes that it has good working relationships with
all of its distributors.
Because its distributors sell frames supplied by more than one company, the
Company attempts to motivate the distributors' sales representatives to show
Signature's frames first. The Company provides them with various sales tools,
which have included automatic sales through its loyalty programs, and other
tools which are created and produced by the Company's in-house team, including
motivational audio tapes and videotapes, marketing bulletins and high impact
sales promotions. The Company also offers incentive awards, such as first-
class trips, for reaching targeted sales levels.
The Company has no written agreements with its domestic distributors except
written understandings not to resell or divert Laura Ashley Eyewear through
unauthorized channels of distribution, and not to expand the territories in
which they sell the Company's products without the Company's prior consent.
Accordingly, the relationships may be terminated by either party at any time,
without penalty (subject, in Signature's case, to any restrictions under
applicable state law).
Optical Retail Chains. Signature sells directly, through its own key account
managers, to optical retail chains whose images are compatible with the images
of the Company's brand-name eyewear, including LensCrafters, Pearle Vision and
Eyecare Centers of America. Pearle Vision and Eyecare Centers of America have
each used in-store displays which were customized by the Company to feature
the Company's products, and Eyecare Centers of America has dedicated prime
floor space to Laura Ashley Eyewear.
Telemarketing. The Company's USA Optical and Optical Surplus divisions sell
frames through a form of telemarketing to optical retailers, focusing on
establishing long-term, ongoing relationships. USA Optical offers its
customers premium incentives, such as first class vacations, electronic
equipment and household items for purchasing specified numbers of frames. Many
USA Optical customers buy frames from the Company on a monthly basis in order
to earn the premiums they have chosen to pursue. USA Optical's annual
vacations have been among its most successful premiums, and since 1991 over
325 USA Optical customers have attended one or more of its trips.
31
<PAGE>
International Distributors. Since 1993, the Company has sold Laura Ashley
Eyewear internationally through distributors who have exclusive agreements for
defined territories. Before establishing a distributor relationship, Signature
reviews the distributor's financial condition and its ability to work closely
with the Company in marketing and selling its brand-name products.
International distributors must meet specific unit volumes within specified
time periods. Substantially all international sales have been of Laura Ashley
Eyewear in England, Canada and Australia.
Direct Sales (California). In March 1996, in connection with the retirement
of Signature's California distributor, the Company decided to sell directly to
independent optical retailers in California rather than engage another
distributor. Direct sales to independent optical retailers in California for
the first six months of fiscal 1997 were $852,000, an increase of $519,000 (or
256%) over net sales of $333,000 made to the Company's California distributor
in the first five months of fiscal 1996 and through the Company's direct sales
force in April 1996. One reason for the increase in net sales is the higher
unit price the Company receives when it sells directly to the optical
retailer. Another reason was an increase in the number of units sold in
California from 9,571 for the first six months of fiscal 1996 to 22,501 for
the first six months of fiscal 1997. The Company believes the combined
increase in dollar and unit volume in California is attributable to the
Company's ability to work closely with its own direct sales representatives,
who, unlike distributors' sales representatives, are dedicated to selling only
the Company's products, and the Company's increased ability to require its
sales representatives to implement the Company's marketing plans.
CONTRACT MANUFACTURING
The Company's frames are manufactured to its specifications by a number of
contract manufacturers located outside the United States. The manufacture of
high quality metal frames is a labor-intensive process which can require over
200 production steps (including a large number of quality-control procedures)
and from 90 to 180 days of production time. Signature has used manufacturers
principally in Japan, Hong Kong/China, France and Italy.
Historically, most of the Company's frames have been manufactured in Japan,
which accounted for approximately 41.8%, 56.7%, 39.9% and 41.2% (in cost) of
the frames purchased by the Company in fiscal 1994, fiscal 1995, fiscal 1996
and in the six months ended April 30, 1997, respectively. During the past
several years, the Company has expanded the number and geographic locations of
its contract manufacturers. The Company believes that throughout the world
there are a sufficient number of manufacturers of high-quality frames so that
the loss of any particular frame manufacturer, or the inability to import
frames from a particular country, would not materially and adversely affect
the Company's business in the long-term. However, because lead times to
manufacture the Company's eyeglass frames generally range from 90 to 180 days,
an interruption occurring at one manufacturing site that requires the Company
to change to a different manufacturer could cause significant delays in the
distribution of the styles affected. This could cause the Company not to meet
delivery schedules for these styles, which could materially and adversely
affect the Company's business, operating results and financial condition.
In determining which manufacturer to use for a particular style, the Company
considers manufacturers' expertise (based on type of material and style of
frame), their ability to translate design concepts into prototypes, their
price per frame, their manufacturing capacity, their ability to deliver on
schedule, and their ability to adhere to the Company's quality control and
quality assurance requirements.
Because of the long lead times required for the Company's frames, the
Company has developed a computer model which helps project the Company's needs
for each frame style. This model takes into account the inventory on hand by
style, its three-month and six-month sales rate, the quantity and scheduled
delivery date of any future purchase orders, and other adjustments which the
Company's purchasing department may need to make to model future proposed
changes.
32
<PAGE>
The Company is not required to pay for any of its frames prior to shipment.
Payment terms for the Company's products currently range from cash upon
shipment (with a 2% discount) to terms ranging from 60 to 90 days. For frames
purchased other than from Hong Kong manufacturers, the Company is obligated to
pay in the currency of the country in which the manufacturer is located. In
the case of frames purchased from manufacturers located in Hong Kong/China,
the currency is United States dollars. For almost all of the Company's other
frame purchases, its costs vary based on currency fluctuations, and it
generally cannot recover increased frame costs (in United States dollars) in
the selling price of the frames.
The purchase of goods manufactured in foreign countries is subject to a
number of risks. See "Risk Factors--Dependence Upon Contract Manufacturers;
Foreign Trade Regulation."
COMPETITION
The markets for prescription eyewear are intensely competitive. There are
thousands of frame styles, including hundreds with brand names. At retail, the
Company's eyewear styles compete with styles that do and do not have brand
names, styles in the same price range, and styles with similar design
concepts. To obtain board space at an optical retailer, the Company competes
against many companies, both foreign and domestic, including Luxottica Group
S.p.A. (operating in the United States through a number of its subsidiaries);
Safilo Group S.p.A. (operating in the United States through a number of its
subsidiaries); and Marchon Eyewear, Inc. Signature's largest competitors have
significantly greater financial, technical, sales, manufacturing and other
resources than the Company. They also employ direct sales forces that are
significantly larger than the Company's, and are thus able to realize a higher
gross profit margin. At the distributor level, sales representatives often
carry many lines of eyewear, and the Company must vie for their attention. At
the major retail chains, the Company competes not only against other eyewear
suppliers, but also against the chains themselves, which license some of their
own brand names for design, manufacture and sale in their own stores.
Luxottica, one of the largest eyewear companies in the world, is vertically
integrated, in that it manufactures frames, distributes them through direct
sales forces in the United States and throughout the world, and owns
LensCrafters, one of the largest United States retail optical chains.
The Company competes in its target markets through the quality of the brand
names it licenses, its marketing and merchandising, the popularity of its
frame designs, the reputation of its styles for quality, and its pricing
policies. See "Brand Development" and "Products".
BACKLOG
The Company generally ships eyeglass frames upon receipt of orders, and does
not operate with a material backlog.
EMPLOYEES
At April 30, 1997, the Company had 101 full-time employees, including 31 in
sales and marketing, 24 in customer service and support, 25 in warehouse
operations and shipping and 21 in general administration and finance. None of
the employees of the Company is covered by a collective bargaining agreement.
The Company considers its relationship with its employees to be good.
PROPERTIES
The Company leases a building of approximately 44,000 square feet in
Inglewood, California. The building is used as the Company's principal
executive offices and as a warehouse. The lease for this facility expires in
2005. The Company believes that its existing facility is well maintained and
in good operating condition and is adequate for the Company's level of
operations through October 31, 2000.
LEGAL PROCEEDINGS
The Company is not involved in any pending, nor is the Company aware of any
threatened, legal proceedings which the Company believes could reasonably be
expected to have a material adverse effect on the Company's business,
operating results or financial condition.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bernard Weiss (1)..... 59 Co-Chairman of the Board and Chief Executive Officer
Julie Heldman (1)..... 51 Co-Chairman of the Board and President
Michael Prince........ 48 Chief Financial Officer and Director
Robert Fried.......... 52 Senior Vice President, Marketing
Robert Zeichick....... 46 Vice President, Advertising and Sales Promotion
Daniel Warren......... 40 Director
</TABLE>
- --------
(1) Mr. Weiss and Ms. Heldman are married to each other.
Directors are elected at each annual meeting of shareholders and hold office
until the following annual meeting and their successors are duly elected and
qualified. The Bylaws of the Company presently provide that the number of
directors shall not be less than 4 nor more than 7, with the exact number to
be fixed from time to time by resolution of the Board of Directors. The
current number of directors is 4. Any vacancy on the Board of Directors,
including a vacancy resulting from an increase in the size of the Board of
Directors, may be filled by the remaining directors. In no case may the Board
of Directors decrease the number of directors or shorten the term of any
incumbent director.
Pursuant to the Underwriting Agreement, for a period of three years from the
consummation of the Offering, Fechtor Detwiler may designate one
representative to sit on the Company's Board of Directors. See "Underwriting."
Executive officers are appointed and serve at the discretion of the Board of
Directors, subject to applicable employment contracts.
BERNARD WEISS has served as Chief Executive Officer of the Company since
1983. Mr. Weiss served as Chairman of the Board from 1983 to 1988, and has
served as Co-Chairman of the Board since 1989. Mr. Weiss started in the
optical industry in 1975 as Vice President of Sales and Marketing for Optique
du Monde. From 1977 until he founded the Company in 1983, Mr. Weiss worked in
a variety of executive positions at companies in the optical industry. Mr.
Weiss has a degree in business administration from the University of
Pittsburgh.
JULIE HELDMAN has served as Co-Chairman of the Board since 1989 and
President of the Company since 1995. Ms. Heldman joined the Company in 1985
and since that time has served in various executive positions including Chief
Financial Officer and Executive Vice President of Operations. She held the
position of Chief Operating Officer from 1992 until she was appointed
President of the Company in 1995. Ms. Heldman graduated from Stanford
University in 1966 and has a law degree from UCLA Law School which she
obtained in 1981. Ms. Heldman worked as an attorney from 1981 until she joined
the Company in 1985.
MICHAEL PRINCE joined the Company in 1993 and has served as the Chief
Financial Officer and as a Director of the Company since March 1994. For more
than 14 years before joining the Company, Mr. Prince's principal occupation
was as a consultant with Prince & Co., a business consulting firm which he
owned. Mr. Prince has a degree in business administration from Babson College.
ROBERT FRIED has served as the Company's chief marketing executive since
joining the Company in 1990. In 1995, he was appointed Senior Vice President,
Marketing of the Company. Prior to joining the Company in 1990, Mr. Fried
served in various executive marketing positions at Motorola, Quasar
Electronics, Rockwell International, Starcraft Leisure Products, Marantz
Stereo Company, Nautilus Fitness, Inc. and Hansen Foods.
34
<PAGE>
Mr. Fried has a bachelors degree from Providence College and a masters degree
in marketing from Boston University.
ROBERT ZEICHICK has served as the Company's chief advertising and promotion
executive since joining the Company in November 1990. In 1995, he was
appointed Vice President, Advertising and Sales Promotion of the Company. From
1988 until joining the Company in 1990, Mr. Zeichick served as Vice President
of Advertising and Sales Promotion at Nautilus Fitness, Inc. and Hansen Foods.
Mr. Zeichick worked as an independent advertising consultant from 1984 until
1988 and worked on such brand names as Applause, Walt Disney Home Video and
Marantz. Mr. Zeichick has degrees in journalism and mass communications from
California State University.
DANIEL WARREN has served as a director of the Company since 1993. From
January 1996 until the present, Mr. Warren has been self-employed as a
consultant. From March 1992 until January 1996, Mr. Warren was Vice President
of Planning and Accounting of National Vision Associates, Ltd.
BOARD COMMITTEES
The Board of Directors intends to establish an Audit Committee and a
Compensation Committee following the closing of the Offering. The Audit
Committee's functions include recommending to the Board of Directors the
engagement of the Company's independent certified public accountants,
reviewing with those accountants the results of their audit of the financial
statements and determining the independence of the accountants. The
Compensation Committee reviews and makes recommendations about compensation
payable to the Company's executive officers and key employees and about the
Company's employee benefit plans. A majority of the members of the Audit and
Compensation Committees will consist of independent directors.
DIRECTOR COMPENSATION
Before the Offering, the Company has not paid fees to its directors.
Following the Offering, the Company intends to pay non-employee directors a
fee of $8,000 per year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not currently have a compensation committee. For the fiscal
year ended October 31, 1996, all decisions regarding executive compensation
were made by the Company's Board of Directors. No interlocking relationship
exists between any member of the Company's Compensation Committee and any
member of any other company's board of directors or compensation committee.
35
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
fiscal 1996 to the Chief Executive Officer and each of the four most highly
compensated executive officers of the Company (the "Named Executive Officers")
in that fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
--------------------------- -------------------- ------------
<S> <C> <C> <C>
Bernard Weiss, Chief Executive Officer..... $ 145,414 $ 0 $ 1,335(1)
Julie Heldman, President................... $ 161,700 $ 0 $ 5,542(1)
Michael Prince, Chief Financial Officer.... $ 157,345 $ 300,000 $ 300,000(2)
Robert Fried, Senior Vice President,
Marketing................................. $ 138,692 $ 50,000 $ 0
Robert Zeichick, Vice President,
Advertising and Sales Promotion........... $ 138,692 $ 50,000 $ 0
</TABLE>
- --------
(1) Consists of auto allowances.
(2) Represents the value in May 1996 (as determined by the Board of Directors)
of 108,016 shares of Common Stock issued to Mr. Prince in consideration of
services rendered to the Company.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
Bernard Weiss, Julie Heldman, Michael Prince, Robert Fried and Robert
Zeichick have each entered into an employment agreement with the Company to
take effect as of the closing of the Offering. Pursuant to those agreements,
these executive officers have agreed to render services until October 31,
2000, and will be entitled to salary at the following annual rates during the
term of their contracts (subject to increases from time to time approved by
the Board of Directors or Compensation Committee): Mr. Weiss--$190,000; Ms.
Heldman--$190,000; Mr. Prince--$175,000; Mr. Fried--$175,000; and Mr.
Zeichick--$160,000. Upon termination of employment by the Company without
cause or by an executive officer upon an adverse event, an executive officer
will continue to receive salary and benefits until the later to occur of
October 31, 2000 or one year following termination. The employment agreements
define an "adverse event" to include the occurrence of any of the following,
without the prior written consent of the executive officer: (i) the
executive's demotion as evidenced by the loss of the executive officer's
title, (ii) a significant diminution of the executive's on-going duties and
responsibilities, (iii) the relocation of the Company's principal executive
offices outside the Los Angeles Metropolitan area, or (iv) the Company
requiring executive to relocate to an office outside the Los Angeles
Metropolitan area for a period exceeding three months in any calendar year. If
employment terminates as a result of death, the executive officer's estate
will receive a payment equal to the aggregate amount of unpaid salary through
October 31, 2000. The payment will be made, if insured, upon receipt of the
proceeds of the key person life insurance maintained by the Company. Otherwise
the payment will be made over the term of the executive's employment
agreement. If employment terminates as a result of disability, the executive
officer will continue to receive salary and benefits through October 31, 2000,
offset by any government benefits and any benefits the employee receives under
disability insurance provided by the Company.
STOCK PLAN
The Company adopted a Stock Plan (the "Stock Plan") in May 1997. Each
executive officer, other employee, non-employee director or consultant of the
Company or any of its future subsidiaries is eligible to be considered for the
grant of awards under the Stock Plan. A maximum of 600,000 shares of Common
Stock may be issued pursuant to awards granted under the Stock Plan, subject
to certain adjustments to prevent dilution. Any shares of Common Stock subject
to an award which for any reason expires or terminates unexercised are again
available for issuance under the Stock Plan. The Plan terminates in 2007.
The Stock Plan will be administered by the Company's Board of Directors or
by a committee of two or more directors appointed by the Board of Directors
(the "Administrator"). Subject to the provisions of the Stock Plan, the
Administrator will have full and final authority to select the executives and
other employees to whom awards will be granted thereunder, to grant the awards
and to determine the terms and conditions of the awards and the number of
shares to be issued pursuant thereto.
36
<PAGE>
The Stock Plan authorizes the Administrator to enter into any type of
arrangement with an eligible employee that, by its terms, involves or might
involve the issuance of (i) shares of Common Stock, (ii) an option, warrant,
convertible security, stock appreciation right or similar right with an
exercise or conversion privilege at a price related to the Common Stock, or
(iii) any other security or benefit with a value derived from the value of the
Common Stock. No person may receive awards representing more than 25% of the
number of shares of Common Stock covered by the Stock Plan (150,000 shares).
Awards under the Stock Plan are not restricted to any specified form or
structure and may include arrangements such as sales, bonuses and other
transfers of stock, restricted stock, stock options, reload stock options,
stock purchase warrants, other rights to acquire stock or securities
convertible into or redeemable for stock, stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares. An award
may consist of one such arrangement or two or more such arrangements in tandem
or in the alternative. An award may provide for the issuance of Common Stock
for any lawful consideration, including services rendered or, to the extent
permitted by applicable state law, to be rendered.
An award under the Stock Plan may permit the recipient to pay all or part of
the purchase price of the shares or other property issuable pursuant to the
award, and/or to pay all or part of the recipient's tax withholding
obligations for that issuance, by delivering previously owned shares of
capital stock of the Company or other property, or by reducing the amount of
shares or other property otherwise issuable pursuant to the award. If an
option granted under the Stock Plan permits the recipient to pay for the
shares underlying the option with previously owned shares, the option may
grant the recipient the right to "pyramid" his or her previously owned shares,
i.e., to exercise the option in successive transactions, starting with a
relatively small number of shares and, by a series of exercises using shares
acquired from each transaction to pay the purchase price of the shares
acquired in the following transaction, to exercise the option for a larger
number of shares with no more investment than the original share or shares
delivered.
The Administrator may amend or terminate the Stock Plan at any time and in
any manner, subject to the following: (i) no recipient of any award may,
without his or her consent, be deprived of the award or of any of his or her
rights under or relating to the award as a result of the amendment or
termination; and (ii) if any rule or regulation promulgated by the Securities
and Exchange Commission (the "Commission"), the Internal Revenue Service or
any national securities exchange or quotation system upon which any of the
Company's securities are listed requires that the amendment be approved by the
Company's stockholders, then the amendment will not be effective until it has
been approved by the Company's shareholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation include a provision that eliminates
the personal liability of its directors to the Company and its shareholders
for monetary damages for breach of the directors' fiduciary duties in certain
circumstances. This limitation has no effect on a director's liability (i) for
acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law, (ii) for acts or omissions that a director believes
to be contrary to the best interests of the Company or its shareholders or
that involve the absence of good faith on the part of the director, (iii) for
any transaction from which a director derived an improper personal benefit,
(iv) for acts or omissions that show a reckless disregard for the director's
duty to the Company or its shareholders in circumstances in which the director
was aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of a serious injury to the Company or its
shareholders, (v) for acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
Company or its shareholders, (vi) under Section 310 of the California
Corporations Code (the "California Code") (concerning contracts or
transactions between the Company and a director) or (vii) under Section 316 of
the California Code (concerning directors' liability for improper dividends,
loans and guarantees). The provision does not extend to acts or omissions of a
director in his capacity as an officer. Further, the provision will not affect
the availability of injunctions and other equitable remedies available to the
Company's shareholders for any violation of a director's fiduciary duty to the
Company or its shareholders.
The Company's Articles of Incorporation also include an authorization for
the Company to indemnify its agents (as defined in Section 317 of the
California Code), through bylaw provisions, by agreement or otherwise,
37
<PAGE>
to the fullest extent permitted by law. Pursuant to this provision, the
Company's Bylaws provide for indemnification of the Company's directors,
officers and employees. In addition, the Company, at its discretion, may
indemnify persons whom the Company is not obligated to indemnify. The Bylaws
also allow the Company to enter into indemnity agreements with individual
directors, officers, employees and other agents. The Company has entered into
indemnification agreements designed to provide the maximum indemnification
permitted by law with all the directors and executive officers of the Company.
These agreements, together with the Company's Bylaws and Articles of
Incorporation, may require the Company, among other things, to indemnify these
directors and executive officers against certain liabilities that may arise by
reason of their status or service as directors or executive officers (other
than liabilities resulting from willful misconduct of a culpable nature), to
advance expenses to them as they are incurred, provided that they undertake to
repay the amount advanced if it is ultimately determined by a court that they
are not entitled to indemnification, and to obtain directors' and officers'
insurance if available on reasonable terms. The Company maintains directors'
and officers' liability insurance.
Section 317 of the California Code, the Company's Bylaws and the Company's
indemnification agreements with its directors and executive officers make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify those persons, under certain
circumstances, for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
38
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has been treated as an S Corporation since 1990. The Company
paid an aggregate of $4,685,000 in dividends to the Existing Shareholders from
November 1, 1993 through April 30, 1997. These dividends were paid to the
Existing Shareholders to pay their income taxes, and as a return on their
investment. The Company intends to pay to the Existing Shareholders dividends
equal to $635,000 plus the amount of the Company's net income from May 1, 1997
through the Termination Date. These dividends will be paid to the Existing
Shareholders before the closing of the Offering.
The Company and the Existing Shareholders have entered into a tax
indemnification agreement relating to their respective income tax liabilities.
See "Termination of S Corporation Status."
Until April 1997, Mr. Weiss and Ms. Heldman personally guaranteed the
Company's obligation under the loan from its commercial bank. Mr. Weiss and
Ms. Heldman have personally guaranteed the Company's performance under the
lease for its corporate offices and warehouse (the "Lease Guarantee"). The
Lease Guarantee has been suspended and shall remain suspended so long as the
Company's net worth equals or exceeds $1,500,000, and will terminate upon the
closing of the Offering.
Robert Fried and Robert Zeichick, executive officers of the Company, are
officers, directors and significant shareholders of Brandmark, Inc., a
corporation which has a license from Laura Ashley to produce timepieces
bearing the Laura Ashley trademark. In fiscal 1996, the Company purchased from
Brandmark, Inc. an aggregate of $362,000 of timepieces bearing the Laura
Ashley trademark. The Company, with the financial participation of its
distributors, gave these timepieces to its 1996 Laura Ashley Loyal Partners as
a promotional incentive. The Company did not make any purchases from
Brandmark, Inc. during the six months ended April 30, 1997; however, by the
end of fiscal 1997, the Company plans to purchase from Brandmark, Inc.
approximately $450,000 of Laura Ashley timepieces for its 1997 Laura Ashley
Loyal Partners. The activities of Mr. Fried and Mr. Zeichick with Brandmark,
Inc. have not interfered with their responsibilities as executive officers of
the Company.
In January 1995, the Company purchased from The Weiss Family Trust a limited
partnership interest in International Business Center, a California limited
partnership ("IBC"), which owns the premises formerly used by the Company as
its principal executive offices. Bernard Weiss and Julie Heldman, the Chief
Executive Officer and President, respectively, and Co-Chairmen of the Board of
the Company, are trustees of The Weiss Family Trust. The Company paid $75,000
for the limited partnership interest, an amount equal to the purchase price
originally paid by The Weiss Family Trust. The Company paid for the limited
partnership interest with a non-interest bearing promissory note which was
paid in full in January 1996.
In March 1993, the Company issued two subordinated notes (the "Subordinated
Notes"), each in the principal amount of $200,000, to Edward Weiner and Daniel
Warren in consideration of the cancellation of demand loans made by Messrs.
Weiner and Warren to the Company. Mr. Warren is a director of the Company and
Messrs. Weiner and Warren are significant shareholders of the Company. The
Subordinated Notes, which provided for an annual interest rate of 5.5%,
payable annually, were due on March 1, 1998. One of the Subordinated Notes was
repaid in April 1995 and the other was repaid in October 1996.
In June 1992, Mr. Weiss and Ms. Heldman loaned the Company $400,000. The
promissory note evidencing the loan provided for an annual interest rate equal
to one and one-half percent over the prime rate of Wells Fargo Bank, adjusted
annually, and was due on May 31, 1997. The loan was repaid in October 1996.
The Company believes that the transactions described above were on terms no
less favorable to the Company than could have been obtained in arm's length
transactions from unaffiliated third parties.
39
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 30, 1997, and as adjusted to reflect
the sale of 1,600,000 shares of Common Stock by the Company and the sale of
200,000 shares of Common Stock by the Selling Shareholders offered by this
Prospectus, for (i) each person who is known to the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, (ii) each of
the Company's directors, (iii) each of the Named Executive Officers, and (iv)
all directors and executive officers of the Company as a group. The address of
each person listed is in care of the Company, 498 North Oak Street, Inglewood,
California 90302, unless otherwise set forth below such person's name.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) AFTER THE OFFERING(1)(2)
---------------------------- ----------------------------
NUMBER OF
NUMBER OF PERCENT SHARES NUMBER OF PERCENT
NAME AND ADDRESS SHARES OF CLASS OFFERED(2) SHARES OF CLASS
---------------- --------------- ------------ ---------- --------------- ------------
<S> <C> <C> <C> <C> <C>
The Weiss Family Trust
(3).................... 2,393,543 66.5% 132,954 2,260,589 43.5%
Bernard Weiss (3)....... 2,393,543 66.5 132,954 2,260,589 43.5
Julie Heldman (3)....... 2,393,543 66.5 132,954 2,260,589 43.5
Edward Weiner (4)....... 349,250 9.7 19,400 329,850 6.3
600 Golden Harbor Drive
Boca Raton, Florida
33431
Daniel Warren........... 349,250 9.7 19,400 329,850 6.3
85 Old Stratton Chase
Atlanta, GA 30328
Robert Fried............ 200,234 5.6 11,123 189,111 3.6
Robert Zeichick......... 200,234 5.6 11,123 189,111 3.6
Michael Prince.......... 108,016 3.0 6,000 102,016 2.0
All of the directors and
executive officers as a
group (6 Persons)...... 3,251,277 90.3 180,600 3,070,677 59.0
</TABLE>
- --------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that deem shares to be beneficially
owned by any person who has or shares voting or investment power for those
shares. Unless otherwise indicated, the persons named in this table have
sole voting and sole investment power for all shares shown as beneficially
owned, subject to community property laws where applicable.
(2) Assumes no exercise of the Over-Allotment Option. If the Over-Allotment
Option is exercised in full, the Company will sell an additional 67,500
shares of Common Stock and the Selling Shareholders will sell an
additional 202,500 shares of Common Stock. In such event, upon the closing
of the Offering (i) The Weiss Family Trust will sell an aggregate of
267,571 shares and beneficially own 2,125,972 shares, or 40.4% of the
Company's outstanding Common Stock, (ii) Bernard Weiss will beneficially
own 2,125,972 shares, or 40.4% of the Company's outstanding Common Stock,
(iii) Julie Heldman will beneficially own 2,125,972 shares, or 40.4% of
the Company's outstanding Common Stock, (iv) Edward Weiner will sell an
aggregate of 39,042 shares and beneficially own 310,208 shares, or 5.9% of
the Company's outstanding Common Stock, (v) Daniel Warren will sell an
aggregate of 39,042 shares and beneficially own 310,208 shares, or 5.9% of
the Company's outstanding Common Stock, (vi) Robert Fried will sell an
aggregate of 22,385 shares and beneficially own 177,849 shares, or 3.4% of
the Company's outstanding Common Stock, (vii) Robert Zeichick will sell an
aggregate of 22,385 shares and beneficially own 177,849 shares, or 3.4% of
the Company's outstanding Common Stock, (viii) Michael Prince will sell an
aggregate of 12,075 shares and beneficially own 95,941 shares, or 1.8% of
the Company's outstanding Common Stock, and (ix) all directors and
executive officers as a group will beneficially own 2,887,819 shares, or
54.8% of the Company's outstanding Common Stock.
(3) Bernard Weiss and Julie Heldman are married. Mr. Weiss and Ms. Heldman are
co-trustees of The Weiss Family Trust, and have voting and investment
power for shares held by The Weiss Family Trust.
(4) Edward Weiner served as a director of the Company from March 1993 until
June 2, 1997.
40
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 30,000,000 shares of Common Stock, par
value $0.001 per share, and 5,000,000 shares of Preferred Stock, par value
$0.001 per share. At April 30, 1997, the Company had six holders of record of
the Common Stock. The following statements are brief summaries of certain
provisions relating to the Company's capital stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters on which the holders of Common Stock are entitled to
vote and have cumulative voting rights for the election of directors. The
right to cumulate votes will automatically cease as of the first record date
of the Company's annual meeting of shareholders where the Company has at least
800 holders of its equity securities (as determined under the California
General Corporation Law). The holders of Common Stock are entitled to receive
dividends ratably when, as and if declared by the Board of Directors out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled, subject
to the rights of holders of Preferred Stock issued by the Company, if any, to
share ratably in all assets remaining available for distribution to them after
payment of liabilities and after provision is made for each class of stock, if
any, having preference over the Common Stock.
The holders of Common Stock have no preemptive or conversion rights and they
are not subject to further calls or assessments by the Company. There are no
redemption or sinking fund provisions applicable to the Common Stock. The
outstanding shares of Common Stock are, and the shares of Common Stock
issuable pursuant to this Prospectus will be, when issued, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the authorized and
unissued Preferred Stock in one or more series with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without
shareholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights which adversely affect the voting power or
other rights of the holders of the Company's Common Stock. In the event of
issuance, the Preferred Stock could be utilized, under certain circumstances,
as a way of discouraging, delaying or preventing an acquisition or change in
control of the Company. The Company does not currently intend to issue any
shares of its Preferred Stock.
REGISTRATION RIGHTS
Pursuant to an agreement between the Company and the Existing Shareholders,
the Existing Shareholders have the right to include all shares of Common Stock
from time to time held by them in any registered public offering by the
Company for cash (subject to customary provisions regarding underwriter
cutbacks). The Board of Directors of the Company has the right to terminate
this agreement in its sole and absolute discretion in the event of any merger
or consolidation between the Company and another entity in which the Company
is not the surviving corporation.
TRANSFER AGENT
The Company's transfer agent and registrar for its Common Stock is American
Stock Transfer and Trust Company, 40 Wall Street, New York, New York 10005.
41
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before the Offering, there has been no public market for the Company's
Common Stock. Sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock.
Upon completion of the Offering, the Company will have outstanding an
aggregate of 5,200,527 shares of Common Stock, assuming no exercise of the
Over-Allotment Option. Of these shares, the 1,800,000 shares sold in the
Offering will be freely tradeable without restriction or further registration
under the Securities Act, unless held by "affiliates" of the Company, as that
term is defined in Rule 144 under the Securities Act. The remaining 3,400,527
shares of Common Stock held by the Existing Shareholders are "restricted"
securities within the meaning of Rule 144 under the Securities Act. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rule 144 promulgated under
the Securities Act, as summarized below.
Each Existing Shareholder has agreed not to sell, transfer, assign, or
otherwise dispose of, any beneficial interest in the Common Stock held by him
or her (except for transfers to and/or among their respective family members)
for a period of 360 days following the date of this Prospectus, except with
Fechtor Detwiler's prior written consent and except that each shareholder may
transfer up to 104,000 shares in the aggregate after 180 days following the
date of this Prospectus. As a result of these contractual restrictions, no
shares will be eligible for immediate sale on the effective date of the
Offering. All of the 3,400,527 shares will become eligible for sale upon
expiration of or earlier release from the lock-up provisions, subject to
compliance with the volume limitations of Rule 144 (summarized below) by
holders of 3,070,677 of these shares.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least one year but less than two
years, will be entitled to sell in any three-month period a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock (approximately 52,000 shares immediately after the Offering) or
(ii) the average weekly trading volume during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or person whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding the sale and who has
beneficially owned his or her shares for at least two years is entitled to
sell these shares pursuant to Rule 144(k) without regard to the limitations
described above.
The Company has reserved an aggregate of 600,000 shares of Common Stock for
issuance pursuant to the Stock Plan. The Company intends to file a
registration statement under the Securities Act to register the 600,000 shares
of Common Stock reserved for issuance under the Stock Plan. The registration
statement is expected to be filed following the date of this Prospectus and
will become effective immediately upon filing with the Securities and Exchange
Commission. Shares issued under the Stock Plan after the effective date of
such registration statement generally will be available for sale to the public
without restriction, except for shares issued to affiliates of the Company,
which will remain subject to the volume and manner of sale limitations of Rule
144 and the 360 day lock-up provisions. See "Underwriting."
42
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Fechtor,
Detwiler & Co., Inc. and Van Kasper & Company (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement (the "Underwriting Agreement"), to purchase from the Company and the
Selling Shareholders, and the Company and the Selling Shareholders have agreed
to sell to the Underwriters, the number of shares of Common Stock set forth
opposite the Underwriter's name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Fechtor, Detwiler & Co., Inc. .................................
Van Kasper & Company...........................................
---------
Total........................................................ 1,800,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and the Selling
Shareholders and their counsel and independent auditors. The nature of the
underwriting commitment is such that the Company is obligated to sell and the
Underwriters are obligated to purchase all, if any, of the shares of Common
Stock offered by this Prospectus.
The Company has been advised by the Underwriters that they propose initially
to offer the Common Stock to the public at the public offering price set forth
on the cover page of this Prospectus and to allow to certain dealers
concessions not in excess of $ per share of Common Stock. Such dealers may
re-allow a concession not in excess of $ per share of Common Stock to other
dealers. After the commencement of the Offering, the public offering price,
concession and reallowance may be changed by the Underwriters. The
Underwriters have advised the Company that they do not anticipate sales to
discretionary accounts by the Underwriters to exceed five percent of the total
number of shares of Common Stock offered by this Prospectus.
At the request of the Company, up to 150,000 shares of Common Stock offered
in the Offering will be reserved for sale to employees and others having a
business relationship with the Company. The price of these shares to these
persons will be the public offering price set forth on the cover page of this
Prospectus.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, the Exchange Act
and any other statute or at common law or otherwise under the laws of foreign
countries, arising out of or based upon any untrue statement of or failure to
state a material fact in any preliminary Prospectus, final Prospectus, the
Registration Statement of which this Prospectus is a part or in certain other
documents and to contribute to certain payments that the Underwriters may be
required to make. The Company has also agreed to reimburse the Underwriters
for their actual out-of-pocket expenses not to exceed $135,000 in the
aggregate, of which none has been paid to date.
The Company and the Selling Shareholders have granted to the Underwriters
the Over-Allotment Option, exercisable within 30 days after the date of this
Prospectus, to purchase up to an aggregate of 67,500 additional shares from
the Company and 202,500 additional shares from the Selling Shareholders at the
initial public offering price per share of Common Stock offered by this
Prospectus, less underwriting discounts. The option may be exercised only for
the purpose of covering over-allotments, if any, incurred in the sale of the
Common Stock offered by this Prospectus.
Pursuant to the Underwriting Agreement, the Company has granted Fechtor
Detwiler a right of first refusal to represent the Company in any subsequent
financing or other transaction for which the Company requires the services of
an investment banker or broker/dealer for a three-year period commencing upon
the consummation of the Offering.
43
<PAGE>
In connection with the Offering, the Company has agreed to sell to the
Representatives, for nominal consideration, the Representatives' Warrants to
purchase from the Company 180,000 shares of Common Stock which have been
registered in the Registration Statement of which this Prospectus is a part.
The Representatives' Warrants are initially exercisable at a price equal to
120% of the initial public offering price for a period of four years
commencing one year from the effective date of the Registration Statement. The
Representatives' Warrants contain anti-dilution provisions for, among others,
stock dividends, stock splits, mergers, sale of substantially all of the
Company's assets (but not the sale or issuance of Common Stock at a price
below the then current exercise price of the Representatives' Warrants).
Pursuant to the Underwriting Agreement, for a period of three years from the
consummation of the Offering, Fechtor Detwiler may designate one
representative to sit on the Board of Directors of the Company.
Before the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock has been
determined by negotiations between the Company and the Representatives and is
not necessarily related to the Company's asset value, net worth or other
established criteria of value. The factors considered in such negotiations, in
addition to prevailing market conditions, included the history of, and
prospects for, the industry in which the Company competes, an assessment of
the Company's management, the prospects of the Company, its capital structure
and certain other factors which were deemed relevant.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a
copy of each such agreement which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. See "Additional Information."
LEGAL MATTERS
Counsel for the Company, Troop Meisinger Steuber & Pasich, LLP, Los Angeles,
California, will render an opinion to the effect that the Common Stock offered
by the Selling Shareholders is, and the Common Stock offered by the Company
upon sale will be, duly and validly issued, fully paid and non-assessable.
Proskauer Rose LLP, Boca Raton, Florida, has acted as counsel to the
Underwriters in connection with certain legal matters relating to the
Offering.
EXPERTS
The financial statements of Signature Eyewear, Inc. at October 31, 1996 and
October 31, 1995, and for each of the three years in the period ended October
31, 1996 have been audited by Altschuler, Melvoin and Glasser LLP, independent
auditor, as set forth in their reports appearing elsewhere in this Prospectus
and Registration Statement, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement under the Securities Act for the
shares offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits included
with the Registration Statement. Statements contained in this Prospectus as to
the contents of any contract or any other document referred to are not
necessarily complete, and with respect to any contract or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such
statement is qualified in its entirety by this reference. For further
information about the Company and the shares offered by this Prospectus,
reference is hereby made to the Registration Statement and
44
<PAGE>
exhibits included with the Registration Statement. A copy of the Registration
Statement, including exhibits, may be inspected without charge at the
Securities and Exchange Commission's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from the Public Reference
Section of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of certain prescribed rates.
Upon consummation of the Offering, the Company will become subject to the
information requirements of the Exchange Act and, in accordance therewith,
will file reports and other information with the Securities and Exchange
Commission in accordance with its rules. These reports and other information
concerning the Company may be inspected and copied at the public reference
facilities referred to above as well as certain regional offices of the
Securities and Exchange Commission.
The Securities and Exchange Commission maintains a Web Site which contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Securities and Exchange Commission
(such as the Company) at http://www.sec.gov.
45
<PAGE>
SIGNATURE EYEWEAR, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheets at October 31, 1995 and 1996 and (Unaudited) April 30,
1997..................................................................... F-3
Statement of Income for the years ended October 31, 1994, 1995 and 1996
and (Unaudited) for the Six Months Ended April 30, 1996 and 1997......... F-4
Statement of Changes in Stockholders' Equity for the years ended October
31, 1994, 1995 and 1996 and (Unaudited) for the Six Months Ended April
30, 1997................................................................. F-5
Statement of Cash Flows for the years ended October 31, 1994, 1995 and
1996 and (Unaudited) for the Six Months Ended April 30, 1996 and 1997.... F-6
Notes to the Financial Statements......................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Signature Eyewear, Inc.
We have audited the accompanying balance sheets of SIGNATURE EYEWEAR, INC.
(an S corporation) as of October 31, 1995 and 1996, and the related statements
of income, changes in stockholders' equity and cash flows for each of the
three years in the period ended October 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Signature Eyewear, Inc. at
October 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended October 31, 1996, in
conformity with generally accepted accounting principles.
ALTSCHULER, MELVOIN AND GLASSER LLP
Los Angeles, California
January 15, 1997
F-2
<PAGE>
SIGNATURE EYEWEAR, INC.
BALANCE SHEETS
OCTOBER 31, 1995 AND 1996 AND UNAUDITED APRIL 30, 1997
<TABLE>
<CAPTION>
APRIL 30, 1997
-----------------------
PRO FORMA
1995 1996 ACTUAL (NOTE 1)
---------- ----------- ----------- -----------
UNAUDITED
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.......................... $ 28,724 $ 214,399 $ 59,673 $ 59,673
Accounts receivable, trade
(net of allowance for
doubtful accounts of $24,028
in 1995, $45,000 in 1996 and
$65,000 in 1997)............. 2,745,291 3,849,750 4,724,307 4,724,307
Inventories................... 3,627,951 4,635,928 5,338,000 5,338,000
Prepaid expenses and other
current assets............... 60,182 288,859 458,793 458,793
---------- ----------- ----------- -----------
6,462,148 8,988,936 10,580,773 10,580,773
---------- ----------- ----------- -----------
Property and Equipment (net of
accumulated depreciation and
amortization--Note 2).......... 599,461 1,040,374 1,132,822 1,132,822
---------- ----------- ----------- -----------
Other Assets:
Deferred charges (net of
amortization of $194,743 in
1995, $210,972 in 1996 and
$210,972 in 1997--Note 1).... 16,229 0 0 0
Deposits and other............ 181,985 263,747 263,747 263,747
---------- ----------- ----------- -----------
198,214 263,747 263,747 263,747
---------- ----------- ----------- -----------
$7,259,823 $10,293,057 $11,977,342 $11,977,342
========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable, trade....... $1,566,019 $ 2,571,945 $ 2,941,903 $ 2,941,903
Note payable, bank (Note 3)... 1,755,000 3,100,000 4,625,000 4,625,000
Current portion of long-term
debt (Note 4)................ 202,826 206,394 571,790 571,790
Accrued expenses and other
current liabilities.......... 1,078,767 1,328,698 1,140,992 1,140,992
Dividends payable............. 0 0 0 635,000
---------- ----------- ----------- -----------
4,602,612 7,207,037 9,279,685 9,914,685
---------- ----------- ----------- -----------
Long-term Debt (Note 4)......... 349,199 156,883 62,415 62,415
Notes Payable, Stockholders
(Note 7)....................... 362,500 0 0 0
---------- ----------- ----------- -----------
711,699 156,883 62,415 62,415
---------- ----------- ----------- -----------
Commitments (Note 5)
Stockholders' Equity (Note 6):
Preferred stock............... 0 0 0 0
Common stock (3,492,511 shares
issued and outstanding at
October 31, 1995 and
3,600,527 shares issued and
outstanding at October 31,
1996 and April 30, 1997)..... 7,500 7,732 7,732 7,732
Paid-in capital............... 113,261 413,029 413,029 1,912,341
Retained earnings............. 1,824,751 2,508,376 2,214,481 80,169
---------- ----------- ----------- -----------
1,945,512 2,929,137 2,635,242 2,000,242
---------- ----------- ----------- -----------
$7,259,823 $10,293,057 $11,977,342 $11,977,342
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
SIGNATURE EYEWEAR, INC.
STATEMENT OF INCOME
YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
UNAUDITED FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
UNAUDITED
<S> <C> <C> <C> <C> <C>
Net Sales............... $20,050,685 $23,570,513 $28,280,086 $13,052,354 $16,038,054
Cost of Sales........... 9,666,062 10,988,106 11,931,299 5,625,371 6,632,110
----------- ----------- ----------- ----------- -----------
Gross Profit............ 10,384,623 12,582,407 16,348,787 7,426,983 9,405,944
----------- ----------- ----------- ----------- -----------
Operating Expenses:
Selling............... 5,854,838 6,509,752 8,328,296 3,681,742 4,700,464
General and
administrative....... 3,223,909 4,035,432 5,611,874 2,302,726 2,807,433
Relocation expense ... 0 235,419 86,871 48,942 0
----------- ----------- ----------- ----------- -----------
9,078,747 10,780,603 14,027,041 6,033,410 7,507,897
----------- ----------- ----------- ----------- -----------
Income from Operations.. 1,305,876 1,801,804 2,321,746 1,393,573 1,898,047
----------- ----------- ----------- ----------- -----------
Other Income (Expense):
Interest expense...... (200,814) (201,196) (338,373) (166,612) (188,654)
Sundry income
(expense)............ 3,124 35,448 29,196 6,879 (2,488)
----------- ----------- ----------- ----------- -----------
(197,690) (165,748) (309,177) (159,733) (191,142)
----------- ----------- ----------- ----------- -----------
Income before State
Income Taxes........... 1,108,186 1,636,056 2,012,569 1,233,840 1,706,905
Provision for State
Income Taxes (Note 1).. 1,072 1,352 800 800 800
----------- ----------- ----------- ----------- -----------
Net Income.............. $ 1,107,114 $ 1,634,704 $ 2,011,769 $ 1,233,040 $ 1,706,105
=========== =========== =========== =========== ===========
Pro Forma Data
(unaudited):
Income before
provision for state
income taxes (from
above)............... $ 1,108,186 $ 1,636,056 $ 2,012,569 $ 1,233,840 $ 1,706,905
Income tax provision.. 418,000 606,000 748,000 473,000 677,000
----------- ----------- ----------- ----------- -----------
Net income............ $ 690,186 $ 1,030,056 $ 1,264,569 $ 760,840 $ 1,029,905
=========== =========== =========== =========== ===========
Net income per common
share................ $ 0.36 $ 0.22 $ 0.29
=========== =========== ===========
Common shares
outstanding ......... 3,546,519 3,492,511 3,600,527
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
SIGNATURE EYEWEAR, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
UNAUDITED FOR THE SIX MONTHS ENDED APRIL 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK
----------------
NO. OF
SHARES PAID-IN RETAINED
ISSUED AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, November 1, 1993
(Note 6)................. 3,492,511 $7,500 $113,261 $ 440,183 $ 560,944
Net Income................ 0 0 0 1,107,114 1,107,114
Dividends Paid............ 0 0 0 (807,250) (807,250)
--------- ------ -------- ----------- -----------
Balance, October 31,
1994..................... 3,492,511 7,500 113,261 740,047 860,808
Net Income................ 0 0 0 1,634,704 1,634,704
Dividends Paid............ 0 0 0 (550,000) (550,000)
--------- ------ -------- ----------- -----------
Balance, October 31,
1995..................... 3,492,511 7,500 113,261 1,824,751 1,945,512
Net Income................ 0 0 0 2,011,769 2,011,769
Issuance of Common Stock.. 108,016 232 299,768 0 300,000
Dividends Paid............ 0 0 0 (1,328,144) (1,328,144)
--------- ------ -------- ----------- -----------
Balance, October 31,
1996..................... 3,600,527 7,732 413,029 2,508,376 2,929,137
Net Income (unaudited).... 0 0 0 1,706,105 1,706,105
Dividends Paid
(unaudited).............. 0 0 0 (2,000,000) (2,000,000)
--------- ------ -------- ----------- -----------
Balance, April 30, 1997
(unaudited).............. 3,600,527 $7,732 $413,029 $ 2,214,481 $ 2,635,242
========= ====== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
SIGNATURE EYEWEAR, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
UNAUDITED FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
UNAUDITED
<S> <C> <C> <C> <C> <C>
Cash Flows from
Operating Activities:
Net income............. $ 1,107,114 $ 1,634,704 $ 2,011,769 $ 1,233,040 $ 1,706,105
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
Depreciation and
amortization.......... 124,047 218,956 249,013 117,099 209,560
Provision for bad
debts................. 25,000 (26,952) 20,972 15,972 20,000
Stock compensation..... 0 0 300,000 0 0
Loss on abandonment of
property and
equipment............. 0 92,123 0 0 0
Changes in assets--
(increase) decrease:
Accounts receivable,
trade................ 155,767 (851,423) (1,125,431) (1,004,132) (894,557)
Inventories........... (46,647) (1,134,544) (1,007,977) (1,118,084) (702,072)
Prepaid expenses and
other assets......... 15,009 (142,549) (310,439) (309,197) (169,934)
Changes in
liabilities--increase
(decrease):
Accounts payable,
trade................ 223,076 79,003 1,005,926 (107,490) 369,958
Accrued expenses and
other liabilities.... 262,808 409,828 249,931 (56,989) (187,706)
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities............ 1,866,174 279,146 1,393,764 (1,229,781) 351,354
----------- ----------- ----------- ----------- -----------
Cash Flows from
Investing Activities:
Purchases of property
and equipment......... (128,478) (464,200) (655,074) (135,289) (302,008)
Net proceeds on sale of
equipment............. 3,583 0 0 0 0
----------- ----------- ----------- ----------- -----------
Net cash used in
investing activities.. (124,895) (464,200) (655,074) (135,289) (302,008)
----------- ----------- ----------- ----------- -----------
Cash Flows from
Financing Activities:
Borrowings on long-term
debt.................. 0 525,000 0 0 0
Borrowings on note
payable, bank......... 7,520,000 9,275,000 9,310,000 5,085,000 4,900,000
Repayments on note
payable, bank......... (8,100,000) (8,820,000) (7,965,000) (2,740,000) (3,375,000)
Principal payments on
long-term debt........ (41,775) (66,936) (207,371) (217,069) (229,072)
Principal payments on
notes payable,
stockholders.......... (200,000) (437,500) (362,500) 0 0
Proceeds from long-term
debt.................. 0 0 0 0 500,000
Dividends paid......... (807,250) (550,000) (1,328,144) (640,000) (2,000,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities............ (1,629,025) (74,436) (553,015) 1,487,931 (204,072)
----------- ----------- ----------- ----------- -----------
Net Increase (Decrease)
in Cash................ 112,254 (259,490) 185,675 122,861 (154,726)
Cash, Beginning of
Period................. 175,960 288,214 28,724 28,724 214,399
----------- ----------- ----------- ----------- -----------
Cash, End of Period..... $ 288,214 $ 28,724 $ 214,399 $ 151,585 $ 59,673
=========== =========== =========== =========== ===========
Supplemental
Disclosures of Cash
Flow Information:
Cash paid during the
period for:
Interest.............. $ 200,810 $ 193,044 $ 337,575 $ 159,932 $ 179,787
=========== =========== =========== =========== ===========
Income taxes.......... $ 1,072 $ 1,352 $ 800 $ 800 $ 800
=========== =========== =========== =========== ===========
Supplemental Schedule
of Noncash Investing
and Financing
Activities:
Purchase of equipment
financed by capital
lease obligation..... $ 0 $ 0 $ 18,623 $ 18,623 $ 0
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
SIGNATURE EYEWEAR, INC.
NOTES TO THE FINANCIAL STATEMENTS
OCTOBER 31, 1994, 1995 AND 1996 AND UNAUDITED APRIL 30, 1997
NOTE 1--NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES:
Signature Eyewear, Inc. (the "Company") designs, markets and distributes
prescription eyeglass frames throughout the United States and internationally.
Operations are conducted from leased premises in Inglewood, California.
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
A summary of significant accounting policies is as follows:
Inventories--Inventories (consisting of finished goods) are valued at the
lower of cost, determined on a first-in, first-out (FIFO) basis, or market.
Revenue Recognition--Revenue is recognized when merchandise is shipped. An
allowance for estimated product returns is established based upon actual
historical return percentages multiplied by current period sales less actual
returns.
Depreciation and Amortization--Depreciation and amortization of property and
equipment are computed using the straight-line method over the useful economic
life of the assets.
Deferred Charges--Costs of product development incurred in connection with
establishing the Laura Ashley Eyewear line (Note 5) were amortized on the
straight-line basis over 39 months. The deferred charges were fully amortized
as of January 31, 1996. Provision for amortization charged to operations for
the years ended October 31, 1994, 1995 and 1996 amounted to $12,711, $64,914
and $16,229, respectively. Product development costs incurred subsequent to
the Laura Ashley Eyewear line have been charged as expenses when and as
incurred.
Income Taxes--Pursuant to its S corporation status under the Internal
Revenue Code, the Company is not subject to federal income taxes, and its
income is allocated and taxed to the stockholders' individual income tax
returns. Accordingly, no liability or provision for federal income taxes
attributable to S corporation operations is included in the accompanying
financial statements, nor are any deferred taxes provided for temporary
differences between tax and financial reporting. Provision for state income
taxes has been provided based upon the applicable state income tax rate, net
of income tax credits and deductions as provided under the provisions of the
Los Angeles Revitalization Zone.
The impact on the Company's financial position and results of operations had
the change in income tax status to a C corporation been effected as of April
30, 1997 would be to record a deferred tax asset and a deferred tax benefit in
the amount of approximately $100,000. Management estimates that this amount
will not materially differ at the actual S corporation termination date.
Financial Instruments--The Company's financial instruments, when valued
using market interest rates, would not be materially different from the
amounts presented in the financial statements.
Impairment of Assets--In November 1996, the Company adopted Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
The Statement establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles, and goodwill related to those
assets. There was no material effect on the financial statements from the
adoption of SFAS 121. Under provisions of the Statement, impairment losses are
F-7
<PAGE>
SIGNATURE EYEWEAR, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
recognized when expected future cash flows are less than the assets' carrying
value. Accordingly, when indicators of impairment are present, the Company
evaluates the carrying value of property, plant and equipment and intangibles
in relation to the operating performance and future undiscounted cash flows of
the underlying business. The Company adjusts the net book value of the
underlying assets if the sum of expected future cash flows is less than book
value.
Derivatives--The Company has from time to time used derivative financial
instruments to help manage its foreign currency exposure. The purpose is to
hedge commitments for the purchase of inventory which are denominated in a
specific foreign currency. Gains and losses on derivative financial
instruments are deferred and recognized only when the transaction is
completed.
At October 31, 1995 and 1996, the Company had off-balance sheet forward
commitments to purchase Japanese Yen in the amount of $1,459,111 and
$1,459,457 related to the purchase of inventory. Each of the forward
commitments matured in less than three months. As of April 30, 1997, the
Company had no off-balance sheet forward commitments to purchase foreign
currency.
Unaudited Pro Forma Net Income--The unaudited pro forma net income
represents the results of operations adjusted to reflect a provision for
income tax on historical income before provision for income taxes, which gives
effect to the change in the Company's income tax status to a C corporation
subsequent to the public sale of its common stock. The difference between the
pro forma income tax rates utilized and federal statutory rate of 35% relates
primarily to state income taxes (approximately 6%, net of federal tax
benefit).
Unaudited Pro Forma Net Income Per Share--Historical net income per common
share is not presented because it is not indicative of the ongoing entity.
Unaudited pro forma net income per common share has been computed by dividing
unaudited pro forma net income by the weighted average number of shares of
common stock outstanding during the period.
Unaudited Interim Financial Data--The interim financial data as of April 30,
1997 and for the six months ended April 30, 1996 and 1997 have been derived
from unaudited financial statements of the Company. Management believes the
Company's unaudited financial statements have been prepared on the same basis
as the audited financial statements and include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for such periods. Results for the
six months ended April 30, 1997 have not been audited and are not necessarily
indicative of results to be expected for the full fiscal year.
Unaudited Interim Pro Forma Balance Sheet--The interim unaudited pro forma
balance sheet as of April 30, 1997 has been adjusted to reflect dividends
payable of $635,000 and the reclassification of undistributed S corporation
earnings to paid-in capital upon termination of the S corporation election.
The remaining retained earnings balance of $80,169 represents C corporation
earnings by the Company prior to the Company electing S corporation status in
1990.
F-8
<PAGE>
SIGNATURE EYEWEAR, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--PROPERTY AND EQUIPMENT:
Property and equipment (stated at cost) as of October 31, 1995 and 1996 and
April 30, 1997 consisted of the following:
<TABLE>
<CAPTION>
PERIODS OF APRIL 30,
DEPRECIATION 1995 1996 1997
------------- ---------- ---------- ----------
UNAUDITED
<S> <C> <C> <C> <C>
Office furniture and fixtures... 7 years $ 243,190 $ 372,368 $ 417,233
Computer equipment.............. 3 to 7 years 401,077 574,510 633,517
Software........................ 3 years 0 317,536 498,833
Vehicles........................ 7 years 162,744 153,141 153,141
Leasehold improvements.......... term of lease 146,582 164,685 178,880
Machinery and equipment held
under capitalized leases....... 5 years 102,411 137,857 140,438
---------- ---------- ----------
1,056,004 1,720,097 2,022,042
Less accumulated depreciation
and amortization (including
amortization on capitalized
leases of $66,578, $94,693 and
$103,769, respectively)........ 456,543 679,723 889,220
---------- ---------- ----------
Net book value.................. $ 599,461 $1,040,374 $1,132,822
========== ========== ==========
</TABLE>
Provision for depreciation and amortization charged to operations for the
years ended October 31, 1994, 1995 and 1996 and the six months ended April 30,
1996 and 1997 amounted to $111,336, $154,042, $232,784, $100,870 and $209,560,
respectively (including capitalized lease amortization of $20,169, $17,484,
$26,587, $11,898 and $9,075, respectively).
NOTE 3--NOTE PAYABLE, BANK:
At October 31, 1996, the Company had available, pursuant to a revolving
Credit Agreement (the "Credit Agreement") with its commercial bank (the
"Bank"), the use of letters of credit, banker's acceptances and loans in the
aggregate amount of $5,000,000 ($4,025,000 at October 31, 1995). The
commitment formula limited the amount available to the sum of 75% of eligible
accounts receivable (as defined) and 40% of eligible inventory (as defined),
with the inventory portion limited to the lesser of $2,000,000 or the accounts
receivable borrowing base (as defined). At the Company's option, interest
under the agreement was based on the London Interbank Offered Rate ("LIBOR")
plus 2.75% and at the Bank's prime rate plus .75%. At October 31, 1996,
interest rates ranged from 8.125% to 8.378% (8.617% to 8.625% at October 31,
1995) on a loan balance of $2,500,000 ($1,500,000 at October 31, 1995) under
the LIBOR option and 9% (9.5% at October 31, 1995) on the remaining balance of
$600,000 ($255,000 at October 31, 1995) under the prime rate option. The
weighted average interest rate was 8.23% for the year ended October 31, 1996
(9.16% for the year ended October 31, 1995). The Credit Agreement was secured
by substantially all of the assets of the Company and was guaranteed by the
major stockholders of the Company up to $1,750,000. Under the commitment
formula, the Company had available for borrowing approximately $1,077,000 and
$1,011,000 as of October 31, 1996 and 1995, respectively.
The Credit Agreement contains various covenants including requirements for
the maintenance of minimum tangible net worth (as defined) and certain
financial ratios, and provisions restricting the payment of dividends without
the consent of the Bank, except for dividends in 1997 in an amount equal to
the net income of the Company during the period it is an S corporation. The
Company was in compliance with these covenants at October 31, 1996 and 1995.
F-9
<PAGE>
SIGNATURE EYEWEAR, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
In April 1997, the Company executed an amendment to the Credit Agreement
(the "Amendment"), which expires in May 1998. The Amendment provides for an
increase in the total commitments to $6,760,417. In connection with the
Amendment, the interest rate option decreased to LIBOR plus 2.25% or the
Bank's prime rate plus .25%. The weighted average interest rate was 8.19% for
the six months ended April 30, 1997. Additionally, the Amendment provides that
the major stockholders of the Company no longer guarantee the credit facility.
Under the commitment formula, the Company had available for borrowing
approximately $701,000 as of April 30, 1997.
In June and July 1997, the Company executed two additional amendments to the
Credit Agreement. The amendments provide for an increase in the total
commitments to $7,935,417. The Amendments also provide for an increase in the
inventory portion of the borrowing base to the lesser of $3,000,000 or the
accounts receivable borrowing base (as defined), and the elimination of the
provision restricting the payment of dividends without the consent of the
Bank.
NOTE 4--LONG-TERM DEBT:
Long-term debt at October 31, 1995 and 1996 and April 30, 1997 consisted of
the following:
<TABLE>
<CAPTION>
APRIL 30,
1995 1996 1997
-------- -------- ----------
UNAUDITED
<S> <C> <C> <C>
Note payable, bank (secured by substantially all
the assets of the Company, payable in monthly
installments of $41,667, plus interest at the
Bank's prime rate plus .5% per annum)........... $ 0 $ 0 $375,000
Note payable, bank (secured by substantially all
the assets of the Company, payable in monthly
installments of $11,111, plus interest at 9.75%
per annum)...................................... 366,667 233,333 166,667
Note payable, Bank (secured by certain vehicles,
payable in monthly installments of $3,472, plus
interest at 8.75% per annum).................... 125,000 83,334 62,500
Liability for transportation equipment under a
purchase agreement (interest at 8.9%)........... 19,124 13,306 10,192
Liability for machinery and equipment under
various capitalized lease agreements (interest
rates ranging from approximately 12% to 21%).... 41,234 33,304 19,846
-------- -------- --------
552,025 363,277 634,205
Less current portion............................. 202,826 206,394 571,790
-------- -------- --------
Long-term portion................................ $349,199 $156,883 $ 62,415
======== ======== ========
</TABLE>
Future minimum payments as of October 31, 1996, under the aforementioned
long-term debt, are as follows:
<TABLE>
<CAPTION>
NOTES CAPITALIZED
PAYABLE PURCHASE LEASE
OCTOBER 31, BANK AGREEMENTS AGREEMENTS TOTAL
----------- -------- ---------- ------------ --------
<S> <C> <C> <C> <C>
1997............................. $175,000 $ 6,365 $27,883 $209,248
1998............................. 141,667 6,941 7,639 156,247
1999............................. 0 0 1,229 1,229
-------- ------- ------- --------
316,667 13,306 36,751 366,724
Less imputed interest thereon..... 0 0 3,447 3,447
-------- ------- ------- --------
$316,667 $13,306 $33,304 $363,277
======== ======= ======= ========
</TABLE>
F-10
<PAGE>
SIGNATURE EYEWEAR, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--COMMITMENTS:
Operating Leases--The Company maintains its offices and warehouse in leased
facilities in Inglewood, California under an operating lease which expires on
May 31, 2005. The lease agreement provides for minimum monthly rental payments
ranging from $23,000 presently and escalating to $29,000 for the last five
years of the lease. The Company is also responsible for the payment of (i)
common area operating expenses (as defined), (ii) utilities, and (iii)
insurance. The security deposit on the lease includes a $70,000 irrevocable
standby letter of credit in favor of the lessor. The lease agreement provides
for an option to extend the term of the lease for five additional years.
Future minimum lease payments (excluding common area operating expenses,
property taxes, utilities and insurance) under the lease at October 31, 1996,
are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, AMOUNT
----------- ----------
<S> <C>
1997.......................................................... $ 269,000
1998.......................................................... 281,000
1999.......................................................... 293,000
2000.......................................................... 320,000
2001.......................................................... 348,000
Thereafter..................................................... 1,247,000
----------
$2,758,000
==========
</TABLE>
Total rent expense for the years ended October 31, 1994, 1995 and 1996 and
the six months ended April 30, 1996 and 1997 amounted to $210,074, $201,333,
$254,091, $116,936 and $143,312, respectively.
License Agreements--The Company has a license agreement with Laura Ashley
Manufacturing, B.V., which grants the Company certain rights to use the "Laura
Ashley" trademark in connection with the distribution, marketing and sale of
Laura Ashley eyewear products. The license period extends through January 31,
2001, with automatic one-year renewals thereafter through at least 2006,
provided that specified minimum sales are achieved.
The Company has a license agreement with Revlon Consumer Products
Corporation, which grants the Company certain rights to use the "Jean Nate"
trademark in connection with the distribution, marketing and sale of Jean Nate
eyewear products. The license period extends through September 30, 1998, with
automatic renewal terms (as defined) thereafter, provided that specified
minimum sales are achieved.
The Company has a license agreement with Hart Schaffner & Marx, which grants
the Company certain rights to use the "Hart Schaffner & Marx" trademark in
connection with the distribution, marketing and sale of Hart Schaffner & Marx
eyewear products. The license period extends through June 30, 1999, with
automatic three year renewal terms (as defined) thereafter, provided that
specified minimum sales are achieved.
Total minimum royalties under all of the Company's license agreements are as
follows:
<TABLE>
<CAPTION>
OCTOBER 31, AMOUNT
----------- ----------
<S> <C>
1997.......................................................... $ 812,500
1998.......................................................... 883,750
1999.......................................................... 898,750
2000.......................................................... 763,750
2001.......................................................... 195,000
----------
$3,553,750
==========
</TABLE>
Total royalty expense charged to operations for the years ended October 31,
1994, 1995 and 1996 and the six months ended April 30, 1996 and 1997 amounted
to $962,205, $1,171,091, $1,459,559, $641,961 and $848,393, respectively.
F-11
<PAGE>
SIGNATURE EYEWEAR, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--STOCKHOLDERS' EQUITY:
In July 1995, the Company's Articles of Incorporation were amended to
increase the total number of authorized shares of Common Stock, par value
$.001 per share, to 30,000,000, and to authorize the issuance of up to
5,000,000 shares of Preferred Stock, par value $.001 per share. Additionally,
in July 1995 an 800 to 1 split of the Company's Common Stock was effected. In
June 1997, a 3.175 to 1 split of the Company's Common Stock was effected. All
share and per share amounts included in the accompanying financial statements
and footnotes have been restated to reflect the stock splits.
The Board of Directors has the authority to issue the authorized and
unissued Preferred Stock in one or more series with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors, without shareholder approval. No shares of the Preferred Stock were
issued as of October 31, 1995 and 1996 and April 30, 1997.
NOTE 7--RELATED PARTY TRANSACTIONS:
Notes Payable, Stockholders--As of October 31, 1995, the following amounts
were due to stockholders of the Company:
<TABLE>
<S> <C>
Note payable (unsecured, interest at 5.5% per annum)................. $162,500
Notes payable (unsecured, interest at the Bank's prime rate plus 1.5%
per annum).......................................................... $200,000
--------
$362,500
========
</TABLE>
These amounts were repaid during fiscal 1996. Interest expense paid on the
notes payable to the stockholders amounted to $65,086, $46,579, $21,337,
$13,286 and $0 for the years ended October 31, 1994, 1995 and 1996 and the six
months ended April 30, 1996 and 1997, respectively.
Purchases from Related Party--Two executive officers, who are also
shareholders of the Company, are officers, directors and significant
shareholders of Brandmark, Inc., a corporation which has a license from Laura
Ashley to produce timepieces bearing the Laura Ashley trademark. In fiscal
1996, the Company purchased from Brandmark, Inc. an aggregate of $362,000 of
timepieces bearing the Laura Ashley trademark, which amount is included in
selling expenses for the year ended October 31, 1996.
Limited Partnership Investment--In January 1995, the Company purchased from
The Weiss Family Trust a limited partnership interest in a California limited
partnership which owns the premises formerly used by the Company as its
principal executive offices. Bernard Weiss and Julie Heldman, the Chief
Executive Officer and President, respectively, and Co-Chairmen of the Board of
the Company, are trustees of The Weiss Family Trust. The Company paid $75,000
for the limited partnership interest, an amount equal to the purchase price
originally paid by The Weiss Family Trust. The investment is included in the
deposits and other assets balance at October 31, 1995 and 1996 and April 30,
1997.
F-12
<PAGE>
INSIDE BACK COVER--TWO PAGE COLOR FOLD OUT:
Across the top of the gatefold is the headline "The Signature Marketing of
Signature Eyewear".
Across the gatefold is a collection of photographs of various marketing in-
store displays and trade show booths.
Across the bottom of the gatefold is a full left to right photograph of 18
Signature eyeglass frames.
<PAGE>
[PICTURES]
INSIDE BACK COVER
Jean Nate Eyewear lifestyle photograph of a woman wearing Jean Nate Eyewear
being "splashed" from below, up towards her face. At the bottom of the image
is the Jean Nate Eyewear logo with the phrase "Always make a splash" at the
bottom of the page and the lines "Jean Nate is used under license (C) 1997"
and "Jean Nate Eyewear net sales were 4% of the Company's net sales in the six
months ended April 30, 1997."
<PAGE>
[PICTURES]
OUTSIDE BACK COVER
Hart Schaffner & Marx Eyewear lifestyle photograph of a man wearing Hart
Schaffner & Marx Eyewear in front of a swimming pool. At the bottom of the
image is the Hart Schaffner & Marx logo and trade theme-line "For A Man's
Frame of Mind." At the bottom of the page are the lines "Hart Schaffner & Marx
Eyewear net sales were 6% of the Company's net sales in the six months ended
April 30, 1997" and "Made by Signature Eyewear under license from Hart
Schaffner & Marx."
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and distribution of the Securities being
registered, other than underwriting discounts. All the amounts shown are
estimates except the Securities and Exchange Commission registration fee and
the NASD filing fee.
<TABLE>
<S> <C>
Registration fee--Securities and Exchange Commission............ $ 7,620
NASD filing fee................................................. 3,015
Nasdaq National Market fee...................................... 30,532
Accounting fees and expenses.................................... 50,000
Legal fees and expenses (other than blue sky)................... 150,000
Blue sky fees and expenses, including legal fees................ 10,000
Representatives' expenses....................................... 135,000
Printing; stock certificates.................................... 125,000
Transfer agent and registrar fees............................... 3,500
Miscellaneous................................................... 5,333
--------
Total....................................................... $520,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation include a provision that
eliminates the personal liability of its directors to the Registrant and its
shareholders for monetary damages for breach of the directors' fiduciary
duties in certain circumstances. This limitation has no effect on a director's
liability (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director believes to be contrary to the best interests of the Registrant or
its shareholders or that involve the absence of good faith on the part of the
director, (iii) for any transaction from which a director derived an improper
personal benefit, (iv) for acts or omissions that show a reckless disregard
for the director's duty to the Registrant or its shareholders in circumstances
in which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of a serious injury to the
Registrant or its shareholders, (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the
director's duty to the Registrant or its shareholders, (vi) under Section 310
of the California Corporations Code (the "California Code") (concerning
contracts or transactions between the Registrant and a director) or (vii)
under Section 316 of the California Code (concerning directors' liability for
improper dividends, loans and guarantees). The provision does not extend to
acts or omissions of a director in his capacity as an officer. Further, the
provision will not affect the availability of injunctions and other equitable
remedies available to the Registrant's shareholders for any violation of a
director's fiduciary duty to the Registrant or its shareholders.
The Registrant's Articles of Incorporation also include an authorization for
the Registrant to indemnify its agents (as defined in Section 317 of the
California Code), through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this latter provision, the
Registrant's Bylaws provide for indemnification of the Registrant's directors,
officers and employees. In addition, the Registrant, at its discretion, may
provide indemnification to persons whom the Registrant is not obligated to
indemnify. The Bylaws also allow the Registrant to enter into indemnity
agreements with individual directors, officers, employees and other agents.
These indemnity agreements have been entered into with all directors and
provide the maximum indemnification permitted by law. These agreements,
together with the Registrant's Bylaws and Articles of Incorporation, may
require the Registrant, among other things, to indemnify such directors
against certain liabilities that may arise by reason of their status or
service as directors (other than liabilities resulting from willful misconduct
of a culpable nature), to advance expenses to them as they are incurred,
provided that they
II-1
<PAGE>
undertake to repay the amount advanced if it is ultimately determined by a
court that they are not entitled to indemnification, and to obtain directors'
and officers' insurance if available on reasonable terms.
The Company and certain of the Company's shareholders (the "Existing
Shareholders") plan to enter into a tax indemnification agreement (the "Tax
Agreement") relating to their respective income tax liabilities. Because the
Company will be fully subject to corporate income taxation after the
termination of the Company's S Corporation status, the reallocation of income
and deductions between the period during which the Company was treated as an S
Corporation and the period during which the Company will be subject to
corporate income taxation may increase the taxable income of one party while
decreasing that of another party. Accordingly, the Tax Agreement is intended
to assure that taxes are borne by the Company on the one hand and the Existing
Shareholders on the other only to the extent that such parties received the
related income. The Tax Agreement generally provides that, if an adjustment is
made to the taxable income of the Company for a year in which it was treated
as an S Corporation, the Company will indemnify the Existing Shareholders and
the Existing Shareholders will indemnify the Company against any increase in
the indemnified party's income tax liability (including interest and penalties
and related costs and expenses), with respect to any tax year to the extent
such increase results in a related decrease in the income tax liability of the
indemnifying party for that year. The Company will also indemnify the Existing
Shareholders for all taxes imposed upon them as the result of their receipt of
an indemnification payment under the Tax Agreement.
Section 317 of the California Code and the Registrant's Bylaws make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify such persons, under certain
circumstances, for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
Section 10 of the Underwriting Agreement filed as Exhibit 1.1 hereto sets
forth certain provisions with respect to the indemnification of certain
controlling persons, directors and officers against certain losses and
liabilities, including certain liabilities under the Securities Act.
The Registrant maintains director and officer liability insurance.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Proposed form of Underwriting Agreement....................... 1.1
Registrant's Restated Articles of Incorporation............... 3.1
Registrant's Amended and Restated Bylaws...................... 3.2
Registrant's Form of Indemnification Agreement................ 10.3
Tax Indemnification Agreement................................. 10.4
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In May 1996, the Company issued 108,016 shares of Common Stock to Michael
Prince, the Company's Chief Financial Officer, for services which had been
rendered by Mr. Prince valued by the Board of Directors at $300,000 ($2.78 per
share). The issuance of these shares was exempt from registration pursuant to
Section 4(2) of the Securities Act as a transaction not involving any public
offering.
II-2
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Representatives' Warrant.
3.1 Restated Articles of Incorporation of Registrant.#
3.2 Amended and Restated Bylaws of Registrant.#
4.1 Specimen Stock Certificate of Common Stock of Registrant.#
5.1 Opinion and Consent of Troop Meisinger Steuber & Pasich, LLP
10.1 1997 Stock Plan.
10.2 Form of Registrant's Stock Option Agreement (Non-Statutory Stock
Option).#
10.3 Form of Indemnification Agreement for Directors and Officers.#
10.4 Tax Indemnification Agreement among Registrant and the Existing
Shareholders.
10.5 License Agreement, dated May 28, 1991, between Laura Ashley
Manufacturing B.V. and Registrant, as amended.+
10.6 Lease Agreement, dated March 23, 1995, between the Registrant and
Roxbury Property Management, and Guaranty of Lease, dated March 23,
1995, between Julie Heldman and Bernard Weiss and Roxbury Property
Management.#
10.7 Amended and Restated Accounts Receivable and Inventory Loan Agreement,
dated April 21, 1997, between Registrant and City National Bank, First
Amendment to Amended and Restated Accounts Receivable and Inventory
Loan Agreement, dated June 26, 1997, between Registrant and City
National Bank, and Second Amendment to Amended and Restated Accounts
Receivable and Inventory Loan Agreement, dated July 23, 1997, between
Registrant and City National Bank.#
10.8 Employment Agreement between the Registrant and Bernard Weiss.
10.9 Employment Agreement between the Registrant and Julie Heldman.
10.10 Employment Agreement between the Registrant and Michael Prince.
10.11 Employment Agreement between the Registrant and Robert Fried.
10.12 Employment Agreement between the Registrant and Robert Zeichick.
10.13 License Agreement, dated January 12, 1996, between Hart Schaffner &
Marx and the Registrant.+
10.14 License Agreement, dated June 2, 1995, between Revlon Consumer
Products Corporation and the Registrant, as amended.+
10.15 License Agreement, dated June 24, 1997, between Eddie Bauer, Inc. and
the Registrant.+
23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in its
opinion filed as Exhibit 5.1 hereto).
23.2 Consent of Altschuler, Melvoin and Glasser LLP.
24.1 Power of Attorney (included on signature page).#
27.1 Financial Data Schedule.#
99.1 Schedule II--Valuation and Qualifying Accounts.#
</TABLE>
- --------
+ Certain portions of this exhibit have been omitted and filed separately with
the Securities and Exchange Commission pursuant to a request for an order
granting confidential treatment pursuant to Rule 406 of the General Rules
and Regulations under the Securities Act of 1933.
# Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise,
II-3
<PAGE>
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer of
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by a
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-1 AND HAS DULY CAUSED THIS AMENDMENT NO. 2
TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA, ON
AUGUST 28, 1997.
Signature Eyewear, Inc.
/s/ Julie Heldman
By:_________________________________
JULIE HELDMAN, CO-CHAIRMAN OF THE
BOARD AND PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES STATED.
SIGNATURE TITLE DATE
* Co-Chairman of the
- ------------------------------------- Board and Chief August 28, 1997
BERNARD WEISS Executive Officer
/s/ Julie Heldman Co-Chairman of the
- ------------------------------------- Board and President August 28, 1997
JULIE HELDMAN
* Chief Financial
- ------------------------------------- Officer and August 28, 1997
MICHAEL PRINCE Director (Principal
Financial and
Accounting Officer)
* Director
- ------------------------------------- August 28, 1997
DANIEL WARREN
*By /s/ Julie Heldman
- -------------------------------------
his attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Representatives' Warrant.
3.1 Restated Articles of Incorporation of Registrant.#
3.2 Amended and Restated Bylaws of Registrant.#
4.1 Specimen Stock Certificate of Common Stock of Registrant.#
5.1 Opinion and Consent of Troop Meisinger Steuber & Pasich, LLP
10.1 1997 Stock Plan.
10.2 Form of Registrant's Stock Option Agreement (Non-Statutory Stock
Option).#
10.3 Form of Indemnification Agreement for Directors and Officers.#
10.4 Tax Indemnification Agreement among Registrant and the Existing
Shareholders.
10.5 License Agreement, dated May 28, 1991, between Laura Ashley
Manufacturing B.V. and Registrant, as amended.+
10.6 Lease Agreement, dated March 23, 1995, between the Registrant and
Roxbury Property Management, and Guaranty of Lease, dated March 23,
1995, between Julie Heldman and Bernard Weiss and Roxbury Property
Management.#
10.7 Amended and Restated Accounts Receivable and Inventory Loan Agreement,
dated April 21, 1997, between Registrant and City National Bank, First
Amendment to Amended and Restated Accounts Receivable and Inventory
Loan Agreement, dated June 26, 1997, between Registrant and City
National Bank, and Second Amendment to Amended and Restated Accounts
Receivable and Inventory Loan Agreement, dated July 23, 1997, between
Registrant and City National Bank.#
10.8 Employment Agreement between the Registrant and Bernard Weiss.
10.9 Employment Agreement between the Registrant and Julie Heldman.
10.10 Employment Agreement between the Registrant and Michael Prince.
10.11 Employment Agreement between the Registrant and Robert Fried.
10.12 Employment Agreement between the Registrant and Robert Zeichick.
10.13 License Agreement, dated January 12, 1996, between Hart Schaffner &
Marx and the Registrant.+
10.14 License Agreement, dated June 2, 1995, between Revlon Consumer
Products Corporation and the Registrant, as amended.+
10.15 License Agreement, dated June 24, 1997, between Eddie Bauer, Inc. and
the Registrant.+
23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in its
opinion filed as Exhibit 5.1 hereto).
23.2 Consent of Altschuler, Melvoin and Glasser LLP.
24.1 Power of Attorney (included on signature page).#
27.1 Financial Data Schedule.#
99.1 Schedule II--Valuation and Qualifying Accounts.#
</TABLE>
- --------
+ Certain portions of this exhibit have been omitted and filed separately with
the Securities and Exchange Commission pursuant to a request for an order
granting confidential treatment pursuant to Rule 406 of the General Rules and
Regulations under the Securities Act of 1933.
# Previously filed.
<PAGE>
EXHIBIT 1.1
1,800,000 SHARES OF COMMON STOCK*
SIGNATURE EYEWEAR, INC.
UNDERWRITING AGREEMENT
----------------------
September ___, 1997
FECHTOR, DETWILER & CO., INC.
VAN KASPER & COMPANY
C/o Fechtor, Detwiler & Co., Inc.
225 Franklyn Street, 20/th/ Floor
Boston, MA 02110
as Representatives of the several
Underwriters named in Schedule I
attached hereto.
Ladies and Gentlemen:
The undersigned, Signature Eyewear, Inc., a California corporation (the
"Company"), hereby confirms its agreement with you (the "Representatives") and
------- ---------------
the other underwriters named in Schedule I hereto (the Representatives and the
other underwriters being herein collectively referred to as the "Underwriters")
------------
as follows:
1. General. Subject to the terms and conditions stated herein, the
-------
Company proposes to issue and sell to the Underwriters 1,600,000 shares of
common stock, $.001 par value per share, of the Company (the "Common Stock"),
------------
and the stockholders of the Company named in Schedule II attached hereto (the
"Selling Stockholders") propose to sell to the Underwriters an aggregate of
--------------------
200,000 shares of the Common Stock. In addition, solely for the purpose of
covering over-allotments, if any, the Company and Selling Stockholders propose
to grant the Underwriters the option to purchase up to an additional 270,000
Shares. The Company also proposes to grant to the Representatives Warrants to
purchase 180,000 additional shares (the "Representatives' Warrants") of Common
Stock on the terms and for the purposes set forth in Section 4(g) hereof. The
aggregate 1,800,000 shares of the Common Stock to be sold by the Company and the
Selling Stockholders are herein called the "Firm Shares" and the aggregate
-----------
270,000 additional shares of the Common Stock to be sold by the Company and the
Selling
- -------------------------
* PLUS AN OPTION TO PURCHASE FROM THE COMPANY AND SELLING STOCKHOLDERS UP
TO 270,000 ADDITIONAL SHARES TO COVER OVER-ALLOTMENTS.
<PAGE>
Stockholders for the purpose of covering over-allotments, if any, are herein
called the "Additional Shares". The Firm Shares, the Additional Shares and the
-----------------
share of Common Stock issuable upon exercise of the Representatives' Warrants
are together called the "Shares". The Shares and the Common Stock are more
------
fully described in the Prospectus referred to below. Bernard Weiss and Julie
Heldman, whom are indirectly included within the Selling Stockholders, are
sometimes collectively referred to herein as the "Founding Stockholders".
2. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to, and agrees with, the several Underwriters that:
(a) SEC Filing. The Company has filed with the Securities and
----------
Exchange Commission (the "Commission") a registration statement, and may have
----------
filed one or more amendments thereto, on Form S-1 (Registration No. 333-30017),
including in such registration statement and each such amendment a related
preliminary prospectus, for the registration of the Shares under the Securities
Act of 1933, as amended (the "Act"). As used in this Agreement, the term
---
"Registration Statement" means such registration statement, as amended, on file
----------------------
with the Commission at the time such registration statement becomes effective
under the Act (including the prospectus, financial statements, exhibits, and all
other documents filed as a part thereof), provided, however, that such
-----------------
registration statement, at the time it becomes effective under the Act, may omit
such information as is permitted to be omitted from such registration statement
when it becomes effective under the Act pursuant to Rule 430A of the General
Rules and Regulations of the Commission promulgated under the Act (the
"Regulations"), which information (the "Rule 430A Information") shall be deemed
----------- ---------------------
to be included in such registration statement when a final prospectus is filed
with the Commission in accordance with Rules 430A and 424(b)(1) or (4) of the
Regulations; the term "Preliminary Prospectus" means each Prospectus included in
----------------------
the Registration Statement, or any amendments thereto, before the Registration
Statement becomes effective under the Act, the form of prospectus omitting the
Rule 430A Information included in the Registration Statement when the
Registration Statement becomes effective under the Act, if applicable (the "Rule
----
430A Prospectus"), and any prospectus filed by the Company with your consent
- ---------------
pursuant to Rule 424(a) of the Regulations; and the term "Prospectus" means the
----------
final prospectus included as part of the Registration Statement in the form
first filed with the Commission pursuant to Rule 424(b)(1) or (4) of the
Regulations or, if no such filing is required, the final form of the prospectus
forming a part of the Registration Statement. For purposes of this Agreement,
all references to the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement to any of the foregoing, shall be
deemed to include the respective copies thereof filed with the Commission
pursuant to the Commission's Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
-----
(b) Completeness. When the Registration Statement becomes or
------------
became effective under the Act, and at all times subsequent thereto, to and
including the Closing Date (as defined in Section 4) and each Additional Closing
Date (as defined in Section 4), and during such longer period as the Prospectus
may be required to be delivered in connection with sales by the Underwriters or
a dealer, and during such longer period until any post-effective amendment
thereto shall become effective under the Act, the Registration Statement (and
any post-effective amendment thereto) and the Prospectus (as amended or as
supplemented if the Company shall
2
<PAGE>
have filed with the Commission any amendment or supplement to the Registration
Statement or the Prospectus) will contain all statements which are required to
be stated therein in accordance with the Act and the Regulations, will comply
with the Act and the Regulations in all material respects, and will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading (or, in the case of the Prospectus, will not include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading), and no event will have occurred which should
have been set forth in an amendment or supplement to the Registration Statement
or the Prospectus which has not then been set forth in such an amendment or
supplement; if a Rule 430A Prospectus is contemplated at the time the
Registration Statement becomes effective under the Act, the Prospectus filed
pursuant to Rules 430A and 424(b)(1) or (4) of the Regulations will contain all
Rule 430A Information and all statements which are required to be stated therein
in accordance with the Act or the Regulations, will comply with the Act and the
Regulations in all material respects, and will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and each Preliminary Prospectus, as of the date filed with
the Commission, contained all statements required to be stated therein in
accordance with the Act and the Regulations, complied with the Act and the
Regulations in all material respects, and did not include any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. No representation or warranty is made in this Section
2(b), however, with respect to statements or omissions from the Registration
Statement or the Prospectus or any related Preliminary Prospectus or any
amendment thereof or supplement thereto made in reliance upon, and in conformity
with, written information furnished to the Company as stated in Section 9(d)
with respect to any Underwriter expressly for inclusion in the Registration
Statement, the Prospectus, or any related Preliminary Prospectus, or any
amendment or supplement thereto.
(c) Stop Orders. Neither the Commission nor the "blue sky" or
-----------
securities authority of any jurisdiction has issued an order (a "Stop Order")
----------
suspending the effectiveness of the Registration Statement, or preventing or
suspending the use of any Preliminary Prospectus, the Prospectus, the
Registration Statement, or any amendment or supplement thereto, or refusing to
permit the effectiveness of the Registration Statement, or suspending the
registration or qualification of the Shares, nor to the knowledge of the Company
has any of such authorities instituted or threatened to institute any
proceedings with respect to a Stop Order.
(d) Descriptions. Any contract, agreement, instrument, lease,
------------
license, certification or permit or other arrangement, whether written or oral,
required by the Act or the Regulations to be described in the Registration
Statement or the Prospectus has been properly described as required therein.
Any contract, agreement, instrument, lease, license, certification, permit or
other arrangement required to be filed as an exhibit to the Registration
Statement has been filed with the Commission as an exhibit to the Registration
Statement. The statements in the Registration Statement or the Prospectus
summarizing the provisions of laws, rules, regulations, contracts, leases and
other arrangements, whether written or oral, including, without
3
<PAGE>
limitation, the statements set forth under the captions "Risk Factors --
Substantial Dependence Upon Laura Ashley License," "-- Approval Requirements of
Brand-Name Licensors," "--Limitations on Ability to Distribute Other Brand-Name
Eyeglass Frames," "-- Relationships with Domestic Distributions," "Business --
Products," "Certain Relationships and Related Transactions" and "Shares Eligible
for Future Sale" are accurate in all material respects and do not omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. To the Company's knowledge, there are no proposed amendments or
additions to any such provisions of laws, rules, regulations, contracts, leases
or other arrangements.
(e) Corporate Governance. The Company is a corporation duty
--------------------
organized, validly existing and in good standing under the laws of the state of
its incorporation, with full power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits of and
from, and declarations and filings with all federal, state, local and other
governmental authorities and all courts and other tribunals (collectively, the
"Consents"), to own, lease, license and use its properties and assets and to
--------
conduct its business in the manner described in the Prospectus, except where the
failure to obtain such Consents would not have a material adverse effect on the
Company. The Company is duly qualified to do business as a foreign corporation
and is in good standing in every jurisdiction in which its ownership, leasing,
licensing or use of property and assets or the conduct of its business makes
such qualification necessary, except where the failure to be so qualified would
not have a material adverse effect upon the Company.
(f) Capitalization. The authorized capital stock of the Company
--------------
consists of 30,000,000 shares of Common Stock, of which 3,600,527 shares are
outstanding, and 5,000,000 shares of Preferred Stock, $.001 par value, of which
there are no shares outstanding. Each outstanding share of capital stock of the
Company is validly authorized and issued, fully paid and non-assessable, without
any personal liability attaching to the ownership thereof, and has not been
issued and is not owned or held in violation of any preemptive or other similar
rights of stockholders. There is no commitment, plan or arrangement to issue,
and no outstanding option, warrant or other right calling for the issuance of,
any share of capital stock of the Company or any security or other instrument
which by its terms is convertible into, exercisable for, or exchangeable for
capital stock of the Company, except as described in the Prospectus. Except as
set forth in the Prospectus, there is outstanding no security or other
instrument which by its terms is convertible into, or exchangeable for, capital
stock of the Company. The certificates evidencing the Common Stock are in due
and proper form.
(g) Financial Statements. The financial statements of the Company
--------------------
(including the notes thereto and the supporting schedules) included in the
Registration Statement and the Prospectus (collectively, the "Financial
---------
Statements") fairly present, with respect to the Company, the financial
- ----------
position, the results of operations, the cash flows, and the other information
purported to be shown therein at the respective dates and for the respective
periods to which they apply. The Financial Statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved and are in accordance with the books and records
of the Company. Altschuler, Melvoin and Glasser LLP, the
4
<PAGE>
accountants ("Accountants") whose report on the audited financial statements is
-----------
filed with the Commission as a part of the Registration Statement, are, and
during the periods covered by their report(s) included in the Registration
Statement and the Prospectus were, independent certified public accountants with
respect to the Company within the meaning of the Act and the Regulations. No
other financial statements are required by Form S-1 or otherwise to be included
in the Registration Statement or the Prospectus. The assumptions used in
preparing the "As adjusted" financial information included in the Prospectus
under the caption "Capitalization" are reasonable. The selected and summary
financial and statistical data appearing in the Prospectus, including without
limitation, under the captions "Summary Financial Data", "Dilution" and
"Selected Financial Data" presents fairly the information purported to be shown
therein, on the basis stated in the Prospectus as of the dates and for the
periods indicated.
(h) Litigation. Except as disclosed in the Prospectus, there is
----------
no litigation, arbitration, claim, governmental or other proceeding (formal or
informal) or investigation pending or, to the knowledge of the Company,
threatened, or any basis therefor known to the Company, with respect to the
Company or any of its operations, businesses, properties or assets, except such
as individually or in the aggregate do not now have, and will not in the future
have, a material adverse effect upon the financial condition, operations,
business, properties, assets, liabilities or future prospects (a "Material
--------
Adverse Effect") of the Company. The Company is not in violation of, or in
- --------------
default with respect to, any law, rule, regulation, order, judgment or decree of
any agency or body of the United States or of any state, county or locality,
except such as individually or in the aggregate do not now have, and will not in
the future have, a Material Adverse Effect upon the Company; nor is the Company
required to take any action in order to avoid any such violation or default of
any order, judgment or decree.
(i) Properties. The Company has (i) good and marketable title in
----------
fee simple absolute to all real properties, and good title to all other material
properties and assets, which the Prospectus indicates are owned by it, free and
clear of all liens, claims, security interests, pledges, charges, encumbrances
and mortgages, except as described in the Prospectus, and (ii) valid, subsisting
and enforceable leases for the property described in the Prospectus as leased by
it. No real property owned, leased, licensed or used by the Company lies in an
area which is, or to the knowledge of the Company after due inquiry will be,
subject to zoning, use or building code restrictions which would prevent the
continued effective ownership, leasing, licensing or use of such real property
in the business of the Company as presently conducted or as the Prospectus
indicates it contemplates conducting.
(j) Compliance. Neither the Company nor, to the knowledge of the
----------
Company after due inquiry, any other party, is now or is expected to be in
violation or breach of, or in default with respect to, any material provision of
any material contract, agreement, instrument, lease, license, arrangement or
understanding to which the Company is a party or by which its properties or
assets may be bound, and each such contract, agreement, instrument, lease,
license, arrangement and understanding is in full force and effect and is the
legal, valid and binding obligation of the Company and is enforceable as to the
Company in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforceability of creditors' rights generally, by equitable principles and
applicable
5
<PAGE>
laws governing indemnification and contribution provisions. The Company enjoys
peaceful and undisturbed possession under all leases and licenses under which it
is operating. The Company is not a party to, nor bound by, any contract,
agreement, instrument, lease, license, arrangement or understanding, whether
written or oral, or subject to any charter or other restriction, which has had,
or is expected to have, individually or in the aggregate, a Material Adverse
Effect. The Company is not in violation or breach of, or in default with
respect to, any term of its Articles of Incorporation or By-Laws.
(k) Trademarks, Licenses. All trademarks, trademark applications,
--------------------
trade names, service marks, copyrights, franchises, licenses, and other
intangible properties and assets (all of the foregoing being herein called
Intangibles") that the Company owns or has pending, or under which it is
- -----------
licensed, which are material to its business are in good standing and, to the
knowledge of the Company after due inquiry, uncontested. There is no right
under any Intangible necessary to the business of the Company as presently
conducted or as the Prospectus indicates it contemplates conducting, except as
described in the Prospectus. To the knowledge of the Company, the Company has
not infringed, is not infringing, or has not received notice of infringement or
conflict with respect to asserted Intangibles of others. To the knowledge of
the Company, there is no infringement by others which has had, or is expected to
have, individually or in the aggregate, a Material Adverse Effect.
(l) Insurance. The Company is insured by insurers of recognized
---------
financial responsibility against such losses and risks and in such amounts as
are, in the opinion of the Company's management, customary and adequate for the
businesses in which it is engaged, including, but not limited to, general
liability insurance and insurance covering real and personal property owned or
leased by the Company against theft, damage, destruction, acts of vandalism and
all other risks customarily insured against by any company that is comparable to
the Company in terms of its financial condition, all of which insurance is in
full force and effect. The Company has no reason to believe that it will not be
able to renew existing insurance coverage with respect to the Company as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not now have,
individually or in the aggregate, a Material Adverse Effect.
(m) Contributions; Payments. Neither the Company nor any
-----------------------
director, officer, agent, employee or other person associated with, or acting on
behalf of, the Company has, directly or indirectly at any time since the
inception of the Company: used any Company funds for unlawful contributions,
gifts, entertainment, or other unlawful expenses relating to political activity;
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from Company
funds; violated any provision of the Foreign Corrupt Practices Act of 1977 (the
"FCPA"), as amended; or made any unlawful payment. The Company's internal
----
accounting controls and procedures are sufficient to cause the Company to comply
in all respects with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the FCPA.
------------
(n) Corporate Authority. The Company has all requisite power and
-------------------
authority to execute, deliver and perform this Agreement and to consummate the
transactions contemplated
6
<PAGE>
hereby, including but not limited to, the power and authority to issue, sell and
deliver the Shares being delivered by the Company in accordance with and upon
the terms set forth in this Agreement. All necessary corporate proceedings of
the Company have been duly taken to authorize the execution, delivery, and
performance of this Agreement by the Company and to consummate the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company, is the legal, valid and binding obligation of the
Company and is enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting the enforceability of creditors' rights generally, by
equitable principles and applicable laws governing indemnification and
contribution provisions. No consent, authorization, approval, order,
registration, license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local or other governmental or regulatory
authority or any court or other tribunal is required for the execution, delivery
or performance by the Company of this Agreement or the consummation of the
transactions contemplated hereby (including the issuance, sale and delivery of
the Shares to be issued, sold and delivered by the Company), except filings
under the Act which have been or will be made before the Closing Date and such
consents consisting only of consents under "blue sky" or securities laws. No
consent of any party to any contract, agreement, instrument, lease, license,
arrangement or understanding to which the Company is a party, or to which any of
its properties or assets are subject, is required for the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby except such as have been obtained. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby will not: (i) violate, result in a breach of any of the
terms and provisions of, conflict with, result in the creation or imposition of
any lien, charge or encumbrance upon any properties or assets of the Company
pursuant to the terms of, or, with or without the giving of notice of the
passage of time or both, entitle any party to terminate or call a default under,
any contract, agreement, instrument, lease, license, arrangement, or
understanding to which the Company is a party or by which its properties or
assets may be bound; (ii) violate, result in a breach of, or conflict with, any
term of the Articles of Incorporation or By-Laws of the Company; or (iii)
violate, result in a breach of, or conflict with, any law, rule, regulation,
order, judgment or decree of any court or any public, governmental or regulatory
authority having jurisdiction over the Company or any of its operations,
businesses, properties or assets.
(o) Issuance of Shares. The Shares are validly authorized and,
------------------
when issued, delivered and sold in accordance with this Agreement, will be
validly issued and outstanding, fully paid, and non-assessable, without any
personal liability attaching to the ownership thereof and will not have been
issued in violation of or subject to any preemptive or similar rights of
shareholders to subscribe for or to purchase such Shares. The Underwriters will
receive good and valid title to the Shares purchased from the Company, free and
clear of liens, claims, security interests, pledges, charges, encumbrances,
stockholders' agreements and voting trusts and other defects in title. The
Shares and the Common Stock conform to all statements relating thereto contained
in the Registration Statement or the Prospectus.
(p) Recent Events. Subsequent to the respective dates as of which
-------------
information is given in the Registration Statement and the Prospectus, and
except as may otherwise be
7
<PAGE>
properly described in the Prospectus, the Company has not (i) issued any
securities or incurred any liability or obligation, primary or contingent, for
borrowed money, (ii) entered into any transaction not in the ordinary course of
business, (iii) declared or paid any dividend on its capital stock, (iv)
experienced any adverse change or any development which is expected to have a
Material Adverse Effect, or (v) made any change in its capital stock or made any
issuance of options, warrants, convertible securities or other rights to
purchase the capital stock of the Company.
(q) Stabilization. Neither the Company nor any of its officers,
-------------
directors or affiliates (as defined in the Regulations), has taken or will take,
directly or indirectly, any action designed to stabilize or manipulate the price
of any security of the Company, or which has caused or resulted in, or which
might in the future reasonably be expected to cause or result in, stabilization
or manipulation of the price of any security of the Company or to facilitate the
sale or resale of any of the Shares.
(r) Lock-Up Agreements. The Company has obtained from each of its
------------------
directors and executive officers (as defined in the Regulations), and from each
other person who owns shares of Common Stock, his, her or its enforceable
written agreement, in form attached hereto as Appendix A (the "Lock-Up
---------- -------
Agreement") that he, she or it will not, for a period of one year after the date
- ---------
of the Prospectus, without the prior written consent of Fechtor, Detwiler &
Co., Inc. ("Fechtor Detwiler") indirectly, offer to sell, sell, hypothecate,
----------------
contract to sell, grant any option to purchase, or otherwise dispose of
(collectively, "transfer"), any shares of Common Stock beneficially owned as of
the date such lockup agreement is executed (including, without limitation,
shares of Common Stock which may be deemed to be beneficially owned in
accordance with the Rules and Regulations and shares of Common Stock which may
be issued upon exercise of a stock option or warrant) or any securities
convertible into or exercisable or exchangeable for such Common Stock except (i)
pursuant to a bona fide gift to any person or other entity which agrees in
writing to be bound by this restriction; (ii) in connection with a merger of the
Company or a tender offer made to all of the Company's stockholders for control
of the then outstanding shares of Common Stock; and (iii) after a period of 180
days from the date of this Prospectus, in an amount not in excess of 104,000
shares of Common Stock (as adjusted for stock splits and dividends) in the
aggregate.
(s) Investment Company Act. The Company is not, and does not
----------------------
intend to conduct its business in a manner in which it would become, an
investment company as defined in Section 3(a) of the Investment Company Act of
1940, as amended (the "Investment Company Act").
----------------------
(t) Registration Rights. Except as described in the Prospectus,
-------------------
no person or entity has the right to require registration of shares of Common
Stock or other securities of the Company.
(u) Finders. Except as described in the Prospectus, the Company
-------
ha not incurred any liability for a fee, commission or other compensation on
account of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
8
<PAGE>
(v) Environmental Matters. The Company is (i) in compliance with
---------------------
any and all applicable federal, state and local environmental laws, rules,
regulations, treaties, statutes and codes promulgated by all governmental
authorities relating to the protection of human health and safety, the
environment or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) has received all permits, licenses or other
------------------
approvals required of it under applicable Environmental Laws to conduct its
business, and (iii) is in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance with Environmental
Laws, failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits, licenses or
approvals would not, individually or in the aggregate, have a Material Adverse
Effect. No action, proceeding, revocation proceeding, writ, injunction or claim
is pending or, to the Company's knowledge, threatened (nor, to the Company's
knowledge, is there any basis therefor) relating to the Environmental Laws or to
the Company's activities involving Hazardous Materials. "Hazardous Materials"
means any material or substance (i) that is prohibited or regulated by any
Environmental Law, or (ii) that has been designated or regulated by any
governmental authority as radioactive, toxic, hazardous or otherwise a danger to
health, reproduction or the environment. There has been no costs or liabilities,
to the Company's knowledge after due inquiry, associated with the effect of
Environmental Laws on the business, operations, properties or assets of the
Company that would, individually or in the aggregate, have a Material Adverse
Effect.
(w) NASD Affiliation. To the knowledge of the Company after due
----------------
inquiry, no officer, director or shareholder of the Company has any affiliation
or association with the National Association of Securities Dealers, Inc. (the
"NASD") or any member thereof, except as described in the Prospectus.
----
(x) Taxes. The Company has filed all necessary federal, state,
-----
local and foreign income, franchise and other tax returns and other reports
required to be filed and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been, or, to the knowledge of the Company might be,
asserted against the Company.
(y) Distribution of Prospectus. The Company has not distributed
--------------------------
and will not distribute any prospectus or other offering material in connection
with the offering and sale of the Shares, other than the Preliminary Prospectus
or the Prospectus or other materials permitted by the Act and the Regulations to
be distributed.
(z) Cuba. The Company confirms as of the date hereof that it is
----
in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-
198, An Act Relating to Disclosure of doing Business with Cuba, and the Company
---------------------------------------------------------
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes effective with the Commission or with the Florida
Department of Banking and Finance (the "Department"), whichever date is later,
----------
or if the information reported or incorporated by reference in the Prospectus,
if any, concerning the Company's business with Cuba or with any person or
affiliate located in Cuba changes in any
9
<PAGE>
material way, the Company will provide the Department notice of such business or
change, as appropriate, in a form acceptable to the Department.
(aa) Labor. The Company is not involved in any labor dispute or
-----
disturbance nor, to the knowledge of the Company, is any such dispute or
disturbance threatened; and the Company is not aware of any existing or imminent
labor disturbance by the employees of any of its principal suppliers,
manufacturers, customers or contractors which, in either case may reasonably be
expected to result in a Material Adverse Effect.
(ab) NASDAQ Qualification. The Common Stock is registered pursuant
--------------------
to Section 12(g) of the Exchange Act. The Shares have been duly authorized for
quotation on the National Association of Securities Dealers, Inc. Automated
Quotation System National Market System ("Nasdaq National Market"). The Company
----------------------
has taken no action designed to, or likely to have the effect of, terminating
the registration of the Common Stock under the Exchange Act or delisting the
Common Stock from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the Nasdaq National Market is contemplating
terminating such registration or listing.
(ac) ERISA. Except as disclosed in the Prospectus, the Company
-----
does not maintain, sponsor or contribute to any program or arrangement that is
an "employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute
----- -----------
now, or at any time previously maintained or contributed, to a defined benefit
plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, which could subject the
Company to any tax penalty on prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance with all material
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. The Company has not ever completely or partially
withdrawn from a "multiemployer plan."
3. Representations and Warranties of the Selling Stockholders. Each of
----------------------------------------------------------
the Selling Stockholders, severally and not jointly, represents and warrants to,
and agrees with, the several Underwriters and the Company that:
(a) Authority. All consents, approvals, authorizations and orders
---------
necessary for the execution and delivery by such Selling Stockholder of this
Agreement and the Power-of-Attorney (the "Power-of-Attorney") and the Custody
-----------------
Agreement (the "Custody Agreement") hereinafter referred to, and for the sale
-----------------
and delivery of the Shares to be sold by such Selling Stockholder hereunder,
have been obtained; and such Selling Stockholder has full right, power and
authority to enter into this Agreement, the Power-of-Attorney and the Custody
Agreement and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Stockholder hereunder.
10
<PAGE>
(b) Execution and Delivery. This Agreement, the Power-of-Attorney
----------------------
and the Custody Agreement have each been duly authorized, executed and delivered
by such Selling Stockholder and each such document constitutes a valid and
binding obligation of such Selling Stockholder in accordance with its terms.
(c) Consents. No consent, approval, authorization, order,
--------
registration or qualification of or with any court or governmental body is
required in connection with the sale of Shares by such Selling Stockholder or
the consummation by such Selling Stockholder of the transactions contemplated by
this Agreement, the Power-of-Attorney and the Custody Agreement, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, resignations, or qualification as may be required under the
state securities or "blue sky" laws or the by-laws and rules of the NASD in
connection with the purchase and distribution of the Shares by the Underwriters.
(d) No Conflict. The sale of the Shares to be sold by such
-----------
Selling Stockholder hereunder and the compliance by such Selling Stockholder
with all applicable provisions of this Agreement, the Power-of-Attorney and the
Custody Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach of violation of any of
the terms or provisions of, or constitute a default under, any statute, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which such Selling Stockholder is a party or to which such Selling
Stockholder is subject, nor will such action result in any violation of the
provisions of the charter documents or by-laws of such Selling Stockholder if
such Selling Stockholder is a corporation, the organization documents of such
Selling Stockholder if such Selling Stockholder is another form of entity or any
statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over such Selling Stockholder or the property of such
Selling Stockholder;
(e) Title to Shares. Such Selling Stockholder has, and
---------------
immediately prior to the Closing Date and each Additional Closing Date such
Selling Stockholder will have, good and valid title to the Shares to be sold by
such Selling Stockholder hereunder at the Closing Date or Additional Closing
Date, as the case may be, free and clear of all liens, claims, security
interests, pledges, charges, encumbrances, stockholders' agreements, voting
trusts and other defects in title; and, upon delivery of such Shares and payment
therefor pursuant hereto, good and valid title to such Shares, free and clear of
all liens, claims, security interests, pledges, charges, encumbrances,
stockholders' agreements, voting trusts and other defects in title will pass to
each of the several Underwriters;
(f) Stabilization. Neither such Selling Stockholder nor any of
-------------
such Selling Stockholder's affiliates (as defined in the Act and the Exchange
Act) has taken nor will take, directly or indirectly, any action designed to
stabilize or manipulate the price of any security of the Company, or which has
caused or resulted in, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any security
of the Company or to facilitate the sale or resale of any of the Shares; and
11
<PAGE>
(g) No Omissions or Misstatements. To the extent that any
-----------------------------
statements or omissions made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto are made in
reliance upon and in conformity with written information furnished to the
Company by such Selling Stockholder expressly for use therein, such Preliminary
Prospectus and the Registration Statement did, and the Prospectus and any
further amendments or supplements to the Registration Statement and the
Prospectus will, when they become effective or are filed with the Commission, as
the case may be, conform in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading.
In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act of
1982 with respect to the transactions herein contemplated, each of the Selling
Stockholders agrees to deliver to you prior to or on the Closing Date a properly
completed and executed United States Treasury Department Form W-8 or W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
Each of the Selling Stockholders represents and warrants that
certificates in negotiable form representing all of the Shares to be sold by
such Selling Stockholder have been placed in custody under a Custody Agreement,
in the form heretofore furnished to you, duly executed and delivered by such
Selling Stockholder, to Michael Prince, as custodian (the "Custodian"), and that
---------
such Selling Stockholder has duly executed and delivered a Power-of-Attorney, in
the form heretofore furnished to you, appointing Julie Heldman or Michael
Prince, and each of them, as such Selling Stockholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute and deliver this Agreement on
-----------------
behalf of such Selling Stockholder, to determine the purchase price to be paid
by the Underwriters to the Selling Stockholders as provided in Section 4 hereof,
to authorize the delivery of the Shares to be sold by such Selling Stockholder
hereunder and otherwise to act on behalf of such Selling Stockholder in
connection with the transactions contemplated by this Agreement and the Custody
Agreement.
Each of the Selling Stockholders specifically agrees that the Shares
represented by the certificates held in custody for such Selling Stockholder
under the Custody Agreement are subject to the interests of the Underwriters
hereunder, and that the arrangements made by such Selling Stockholder for such
custody, and the appointment by such Selling Stockholder of the Attorneys-in-
Fact by the Power-of-Attorney, are to that extent irrevocable. Each of the
Selling Stockholders specifically agrees that his or its obligations hereunder
shall not be terminated by operation of law, whether by the death or incapacity
of any individual Selling Stockholder or, in the case of an estate or trust, by
the death or incapacity of any executor or trustee or the termination of such
estate or trust, or in the case of a corporation or other entity, by the
dissolution of such corporation or other entity, or by the occurrence of any
other event. If any individual Selling Stockholder or any such executor or
trustee should die or become incapacitated, or if any such estate or trustee
should be terminated, or if any such partnership, corporation or other entity
should be dissolved, or if any other such event should occur, before the
delivery of
12
<PAGE>
the Shares hereunder, certificates representing the Shares shall be delivered by
or on behalf of the Selling Stockholders in accordance with the terms and
conditions of this Agreement and the Custody Agreements, and actions taken by
the Attorneys-in-Fact pursuant to the Powers-of-Attorney shall be as valid as if
such death, incapacity, termination, dissolution or other event had not
occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or
any of them, shall have received notice of such death, incapacity, termination,
dissolution or other event.
4. Purchase, Sale, and Delivery of the Firm Shares, the Additional
----------------------------------------------------------------
Shares and the Representatives' Warrant.
- ---------------------------------------
(a) Firm Shares. On the basis of the representations, warranties,
-----------
covenants and agreements of the Company and the Selling Stockholders herein
contained, but subject to the terms and conditions herein set forth, the Company
and the Selling Stockholders agree to sell to the several Underwriters, and the
Underwriters agree to purchase from the Company and each of the Selling
Stockholders, the number of Firm Shares set forth opposite the respective names
of the Underwriters in column (2) of Schedule I hereto.
(b) Purchase Price. The purchase price per Firm Share to be paid
--------------
by the several Underwriters shall be $_______. The initial public offering price
per Firm Share shall be $______.
(c) Payment for Firm Shares. Payment for the Firm Shares by the
-----------------------
several Underwriters shall be made by wire transfer or by certified or official
bank checks in New York Clearing House funds (or similar next day funds) payable
to the order of the Company and each Selling Stockholder in the applicable
amount at the offices of ________________________________________________, or at
such other place as you shall determine and advise the Company by at least two
full days' notice in writing, upon delivery of the Firm Shares to you for the
respective accounts of the Underwriters (the "Closing"). Such delivery and
-------
payment shall be made at 10:00 A.M., Boston local time, on the third business
day following the Effective Date (as defined in Section 12), unless postponed in
accordance with the provisions of Section 10, or at such other time as shall be
agreed upon between you and the Company. The time and date of such delivery and
payment are herein called the "Closing Date".
------------
(d) Certificates. Certificates for the Firm Shares shall be
------------
registered in such name or names and in such authorized denominations as you may
request in writing at least two full business days prior to the Closing Date.
The Company and the Selling Stockholders shall permit you to examine and package
such certificates for delivery at least one full business day prior to the
Closing Date.
(e) Over-allotment Shares. The Company and the Selling
---------------------
Stockholders hereby grant to the several Underwriters the option to purchase all
or a portion of the Additional Shares solely to cover over-allotments, if any,
at the same purchase price per share to be paid by the several Underwriters to
the Selling Stockholders for the Firm Shares as provided for in this Section 4.
The Additional Shares shall be purchased by the several Underwriters from the
Company and the Selling Stockholders as provided herein. This option may be
exercised only
13
<PAGE>
to cover over-allotments in the sale of the Firm Shares by the several
Underwriters. This option may be exercised by the several Underwriters on the
basis of the representations, warranties, covenants and agreements of the
Company and the Selling Stockholders herein contained, but subject to the terms
and conditions herein set forth, at any time and from time to time on or before
the thirtieth day following the date on which the Registration Statement was
declared effective under the Act, by written notice from the Representatives to
the Company and the Selling Stockholders. Such notice shall set forth the
aggregate number of Additional Shares as to which the option is being exercised,
the name or names in which the certificates for the Additional Shares are to be
registered, the authorized denominations in which the Additional Shares are to
be issued, and the time and date, as determined by the Representatives, when
such Additional Shares are to be delivered (such time and date are herein called
the "Additional Closing Date"); provided, however, that the Additional Closing
----------------------- -----------------
Date shall not be earlier than the Closing Date nor earlier than the second
business day after the date on which the notice of the exercise of the option
shall have been given nor later than the eighth business day after the date on
which such notice shall have been given. If the over-allotment option is
exercised with respect to fewer than all of the Additional Shares, it shall be
exercised on a pro rata basis among the Company and the Selling Stockholders
based on the number of Additional Shares that the Company and each Selling
Stockholder intended to sell. The aggregate number of Additional Shares to be
sold by the Company and the Selling Stockholders to the Underwriters shall be
the number set forth in Schedule II.
(f) Payment for Additional Shares. Payment for the Additional
-----------------------------
Shares by the Underwriters shall be made by wire transfer or certified or
official bank check in New York Clearing House funds (or similar next day funds)
payable to the order of the Company and each Selling Stockholder at the offices
of _____________________________ __________________ or at such other place as
you shall determine and advise the Company by at least two full days' notice in
writing, upon delivery of the Additional Shares to you for the respective
accounts of the Underwriters.
(g) Representatives' Warrants. On the basis of the
-------------------------
representations, warranties and covenants herein contained, and subject to the
terms and conditions herein set forth, upon the Closing Date the Company will
sell to the Representatives, for a consideration of one mil ($.001) per warrant,
180,000 warrants. Each Warrant represents the right to purchase one (1) Share.
The Representatives' Warrants and all underlying securities shall be registered
in the Registration Statement. The exercise price of each Warrant is a price
equal to 120% of the offering price to the public. The Representatives' Warrants
shall be exercisable for a period of four years commencing one year after the
Closing Date, and shall contain appropriate anti-dilution provisions. Such
anti-dilution provisions shall include, without limitation, protection against
dilution in both price and percentage of the Company if there is (a) any
issuance of shares of common stock or other securities convertible into Common
Stock as a dividend or (b) a subdivision or combination of the outstanding
shares of Common Stock or other securities convertible into Common Stock as the
result of a merger, consolidation, spin-off or otherwise. The Representatives'
Warrants shall be in substantially the form filed as Exhibit 1.2 to the
Registration Statement.
14
<PAGE>
5. Offering. Upon your authorization of the release of the Firm Shares
--------
and on or after the date the Registration Statement is declared effective under
the Act, the several Underwriters propose to offer the Firm Shares to the public
at the initial public offering price as provided for in Section 4(a) (such price
being hereinafter called the "public offering price"). After the initial public
---------------------
offering, you may from time to time increase or decrease the public offering
price, in your sole discretion, by reason of changes in general market
conditions or otherwise.
6. Covenants of the Company. The Company covenants and agrees with the
------------------------
several Underwriters that:
(a) SEC Effectiveness. If the Registration Statement has not yet
-----------------
been declared effective under the Act, the Company will use its best efforts to
cause the Registration Statement to become effective under the Act as promptly
as possible. If the Registration Statement has become or becomes effective under
the Act with a form of prospectus omitting Rule 430A Information, or filing of
the Prospectus is otherwise required under Rule 424(b) of the Regulations, the
Company will file the Prospectus, properly completed, pursuant to Rule 424(b) of
the Regulations within the time period prescribed and will provide evidence
satisfactory to you of such timely filing.
(b) Stop Order. The Company will notify you immediately, and
----------
confirm such notice in writing, (i) when the Registration Statement and any
post-effective amendment thereto becomes effective under the Act, (ii) the
receipt of any comments from the Commission or the "blue sky" or securities
authority of any jurisdiction regarding the Registration Statement, any post-
effective amendment thereto, the Prospectus, or any amendment or supplement
thereto, (iii) of the filing with the Commission of any supplement to the
Prospectus, and (iv) the receipt of any notification with respect to a Stop
Order or the initiation or threatening of any proceeding with respect to a Stop
Order. The Company will use its best efforts to prevent the issuance of any Stop
Order and, if any Stop Order is issued, to obtain the lifting thereof as
promptly as possible.
(c) Compliance. During the time when a prospectus relating to the
----------
Shares is required to be delivered under the Act or the Regulations, the Company
will comply with all requirements imposed upon it by the Act, as now existing
and as hereafter amended, and by the Regulations, as from time to time in force,
so far as necessary to permit the continuance of sales of, or dealings in, the
Shares in accordance with the provisions hereof and the Prospectus. If, at any
time when a prospectus relating to the Shares is required to be delivered under
the Act or the Regulations, any event shall have occurred as a result of which,
in the reasonable opinion of counsel for the Company or counsel for the several
Underwriters, the Registration Statement or the Prospectus as then amended or
supplemented contains any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, or if, in the opinion of either of such
counsel, it is necessary at any time to amend or supplement the Registration
Statement or the Prospectus to comply with the Act or the Regulations, the
Company will immediately notify you and promptly prepare and file with the
Commission an appropriate amendment or supplement (in form and substance
15
<PAGE>
satisfactory to you) which will correct such statement or omission or which will
effect such compliance and will use its best efforts to have any such amendment
declared effective under the Act as soon as possible. After receipt of any such
notice, you agree to promptly refrain from making any further offers or sales of
the Common Stock pursuant to the Registration Statement until the Registration
Statement is appropriately amended or supplemented.
(d) Registration Statement; Prospectus. The Company will deliver
----------------------------------
without charge to each of the several Underwriters such number of copies of each
Preliminary Prospectus as may reasonably be requested by the Underwriters and,
as soon as the Registration Statement, or any amendment thereto, becomes
effective under the Act or a supplement is filed with the Commission, deliver
without charge to you two signed copies of the Registration Statement, including
exhibits, or such amendment thereto, as the case may be, and two copies of any
supplement thereto, and deliver without charge to each of the several
Underwriters such number of copies of the Prospectus, the Registration
Statement, and amendments and supplements thereto, if any, without exhibits, as
you may request. To the extent applicable, the copies of the Registration
Statement and each amendment thereto (including all exhibits filed therewith),
any Preliminary Prospectus or Prospectus (in each case, as amended or
supplemented) furnished to the Underwriters will be identical to the electronic
copies filed with the Commission pursuant to EDGAR except to the extent
permitted by Regulation S-T.
(e) State Qualification. The Company will endeavor in good faith,
-------------------
in cooperation with you, at or prior to the time the Registration Statement
becomes effective under the Act, to qualify the Shares, to the extent required,
for offering and sale under the "blue sky" or securities laws of such
jurisdictions as you may designate and maintain such qualification in effect for
so long as is required for the distribution of such Shares; provided, however,
-------- -------
that no such qualification shall be required in any jurisdiction where, as a
result thereof, the Company would be subject to service of general process or to
taxation as a foreign corporation doing business in such jurisdiction to which
it is not then subject. In each jurisdiction, where such qualification shall be
effected, the Company will, unless you agree in writing that such action is not
at the time necessary or advisable, file and make such statements or reports at
such times as are or may be required by the laws of such jurisdiction.
(f) Earnings Statement. The Company will make generally available
------------------
(within the meaning of Section 11(a) of the Act and the Regulations) to its
security holders and to you as soon as practicable, but not later than 45 days
after the end of its fiscal quarter in which the first anniversary date of the
effective date of the Registration Statement occurs under the Act, an earnings
statements (which need not be certified by independent certified public
accountants unless required by the Act or the Regulations, but which shall
satisfy the provisions of Section 11(a) of the Act and the Regulations) covering
a period of least twelve months beginning after the date on which the
Registration Statement was declared effective under the Act.
(g) Additional Sales. For a period of 180 days after the date of
----------------
the Prospectus, the Company will not, without the prior written consent of
Fechtor Detwiler, directly or indirectly, register, offer, sell, offer to sell,
contract to sell, hypothecate, pledge or otherwise dispose of any shares of
Common Stock (or any security or other instrument which by its terms
16
<PAGE>
is convertible into, exercisable for, or changeable for shares of Common Stock),
except for the grant of stock options pursuant to the Company's Stock Option
Plan, and provided that such options shall not be exercisable prior to 180 days
after the date of the Prospectus.
(h) Periodic Reports. For a period of five years after the date
----------------
the Registration Statement was declared effective under the Act, the Company
will furnish you, without charge, the following:
(i) within 90 days after the end of each fiscal year,
three copies of financial statements certified by independent certified public
accountants, including a balance sheet, statement of income and statement of
cash flows of the Company and its then existing subsidiaries, if any, with
supporting schedules, prepared in accordance with generally accepted accounting
principles, as at the end of such fiscal year and for the 12 months then ended,
which may be on a consolidated basis;
(ii) as soon as practicable after they have been sent to
stockholders of the Company or filed with the Commission or the Nasdaq National
Market System (or a similar market), three copies of each annual, quarterly and
interim financial and other report or communication sent by the Company to its
shareholders or filed with, or furnished to, the Commission or the Nasdaq
National Market System (or a similar market); to the extent applicable such
reports or documents shall be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T;
(iii) as soon as practicable, two copies of every press
release issued by the Company in respect of the Company or its affairs; and
(iv) such additional documents and information with respect
to the Company and its affairs, and the affairs of its subsidiaries, if any, as
you may from time to time reasonably request.
(i) Use of Proceeds. The Company will apply the net proceeds
---------------
received by it from the sale of the Shares in the manner set forth under the
caption "Use of Proceeds" in the Prospectus.
(j) Interim Financial Statements. The Company will furnish to you
----------------------------
as early as practicable prior to the Closing Date and the Additional Closing
Date, if any, as the case may be, but no less than two full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company which, if such interim financial statements are included in the
Registration Statement, shall have been reviewed by the Company's independent
certified public accountants, as stated in their letters to be furnished
pursuant to Section 8(h).
(k) Amendments to Registration Statement. The Company will not
------------------------------------
file any amendment or supplement to the Registration Statement or Prospectus at
any time, whether before or after the date on which the Registration Statement
was declared effective under the Act, unless such filing shall comply with the
Act and the Regulations in all material respects and unless you
17
<PAGE>
shall previously have been advised of such filing and furnished with a copy
thereof, and you and counsel for the Underwriters shall have approved such
filing. Until the later of (i) the completion by you of the distribution of the
Firm Shares and the Additional Shares (but in no event more than nine months
after the date on which the Registration Statement shall have been declared
effective under the Act), and (ii) 25 days after the date on which the
Registration Statement shall have been declared effective under the Act, the
Company will prepare and file with the Commission, promptly upon your request,
any amendments or supplements to the Registration Statement or the Prospectus
which, in your reasonable opinion, may be necessary or advisable in connection
with the distribution of the Firm Shares and the Additional Shares.
(l) Exchange Act Requirements. The Company will comply, in a
-------------------------
timely manner, with all registration, filing, and reporting requirements of the
Exchange Act, which may from time to time be applicable to the Company.
(m) Registration Statement Undertakings. The Company will comply
-----------------------------------
with all provisions of all undertakings contained in the Registration Statement.
(n) Publicity. Prior to the Closing Date or the Additional
---------
Closing Date, as the case may be, the Company will not issue any press release
or other communication, directly or indirectly, or hold any press conference
with respect to the Company, the financial condition, results of operations,
business. properties, assets or liabilities thereof, or this offering, without
your prior written consent, which consent will not be unreasonably withheld.
(o) Form SR. The Company will file timely with the Commission
-------
accurate reports on Form SR in accordance with Rule 463 of the Regulations or
any successor provision.
(p) NASDAQ National Market. The Company will use its best efforts
----------------------
to maintain, for a period of three (3) years from the effective date of the
Registration Statement, the listing of the Shares and the Common Stock
underlying the options issued under the stock option plans and the
Representatives' Warrants on the Nasdaq National Market System or upon another
national securities exchange; provided, however, nothing herein shall restrict
the Company from taking any act which is approved by vote of the stockholders of
the Company, notwithstanding that such act may result in the Company failing to
meet the listing or maintenance criteria for the Nasdaq National Market System
or such other national securities exchange.
(q) Closing Binders. The Company will deliver to you, without
---------------
charge, within a reasonable period after the Additional Closing Date or the
expiration of the period in which the Underwriters may exercise the over-
allotment option (but in no event later than six (6) months from the date of the
Prospectus), such bound volumes of the Registration Statement and all related
materials as you may reasonably request.
(r) Stock Transfer Information. For a period of three years after
--------------------------
the date on which the Registration Statement is declared effective under the
Act, the Company will provide to you, on a confidential basis and at its sole
expense, copies of the Company's daily transfer sheets, if so requested by you.
18
<PAGE>
(s) Lock-Up Agreements. The Company will execute a letter
------------------
addressed to the transfer agent for the Company which instructs the transfer
agent to note stop transfer instructions with respect to all of the shares of
Common Stock which are subject to Lock-Up Agreements.
(t) Other Matters. The Company will do and perform all things
-------------
reasonably required or necessary to be done and performed under this Agreement
by it prior to the Closing Date and the Additional Closing Date and to satisfy
all conditions precedent to the delivery of the Shares.
(u) Board of Directors. At its option, Fechtor Detwiler,
------------------
following the Closing Date and for a period of three (3) years thereafter, may
designate a representative to serve on the Company's Board of Directors, and the
Company will use its best efforts to cause such designee to be elected to the
Board. Alternatively, a representative of Fechtor Detwiler shall be entitled to
notice of, to attend as an observer, and to participate in the discussion (but
not vote) at all meetings of the Company's Board of Directors; provided,
however, that the Company may exclude such observer from portions of any meeting
relating to: (i) any matter between the Company and Fechtor Detwiler and (ii)
any claim or potential claim by any third party, or matter which may result in a
claim or potential claim by a third party, which is to be discussed with Company
counsel and with respect to which counsel advises the Board that the presence of
such observer could result in a loss of the attorney-client privilege. The
Company will reimburse Fechtor Detwiler's designee, whether a director or
observer, for all reasonable out-of-pocket travel, lodging, meal and ancillary
expenses incurred in attendance at any Board meeting.
(v) Employment Agreements. At the Closing Date, the Company will
---------------------
be a party to employment agreements with each of Bernard Weiss, Julie Heldman,
Michael Prince, Robert Fried and Robert Zeichick in the forms filed as Exhibits
to the Registration Statement.
(w) Future Transactions; Rights of First Refusal. Following the
--------------------------------------------
Closing Date and for a period of three (3) years thereafter, Fechtor Detwiler
shall have a right of first refusal to provide investment banking or brokerage
services with respect to: (i) any public or private offering of securities
(including without limitation, debt, equity and convertible instruments) of the
Company, (ii) any merger, reorganization, recapitalization, sale, license or
other disposition of all or substantially all of the assets of the Company or
any acquisition of assets or securities of another (other than in the ordinary
course of business) or similar type of transaction, or (iii) any other type of
significant corporate transaction, in each case for which the Company desires to
engage the services of an investment banking firm (collectively, a "Covered
Transaction"). In the event that the Company desires to undertake a Covered
Transaction it shall first provide written notice of the proposed Covered
Transaction, which notice shall describe in reasonable detail the material terms
of such Covered Transaction, including without limitation, the proposed terms of
compensation of Fechtor Detwiler for its services with respect to the Covered
Transaction. Fechtor Detwiler shall have twenty (20) days from receipt of such
notice to notify the Company whether it intends to participate in the Covered
Transaction. The Company shall promptly comply with all reasonable requests and
inquiries for additional information with respect to the Covered Transaction. In
the event Fechtor Detwiler does not elect to participate in the Covered
Transaction or fails to notify the Company in writing within such twenty (20)
day period
19
<PAGE>
that it accepts such engagement, then the Company may engage the services of
another investment banking or brokerage firm for such purposes; provided,
however, that (i) the terms of such engagement are no more favorable than those
offered to Fechtor Detwiler, (ii) the terms of the proposed Covered Transaction
do not materially change from the terms described in the Company's notice to
Fechtor Detwiler, and (iii) both the engagement of any such other investment
banking firm and the commencement of the Covered Transaction occur within six
(6) months of the date after which Fechtor Detwiler elected not to participate
in such Covered Transaction.
(x) Public Relations Firm. Following the Closing Date and for a
---------------------
period of (2) two years thereafter, the Company agrees to engage a financial
public relations firm that is reasonably acceptable to Fechtor Detwiler.
(y) Minimum Shareholder Equity. On the Closing Date, without
--------------------------
giving effect to the proceeds from the sale of the Shares, the Company shall
have Shareholders' Equity of at least Two Million Dollars ($2,000,000).
7. Payment of Expenses.
--------------------
(a) Expenses of the Offering. Whether or not the transactions
-------------------------
contemplated in this Agreement are consummated or this Agreement is terminated,
the Underwriters hereby agree with the Company that they will bear all of their
expenses incurred in connection with syndication and advertising and the
Company hereby agrees with the several Underwriters that it will pay all other
costs and expenses (other than fees of counsel for the Underwriters, except as
provided in Section 12(e)) in connection with the sale of the Shares, including
(a) the preparation, printing, filing, distribution and mailing of the
Registration Statement, as originally filed and all amendments, and the
Prospectus and the printing, filing, distribution and mailing of this Agreement,
any selected dealers agreement and related documents, including the cost of all
copies thereof and of the Preliminary Prospectuses and of the Prospectus and any
amendments or supplements thereto supplied to you in quantities as stated in
this Agreement, (b) the issuance, sale, transfer and delivery of the Shares,
including any transfer or other taxes payable thereon, (c) the qualification of
the Shares under state or foreign "blue sky"or securities laws, including the
costs of printing and mailing the preliminary and final "Blue Sky Survey" and
the fees of counsel for the Underwriters and its disbursements in connection
therewith, (d) the filing fees payable to the Commission, the NASD and the
jurisdictions in which such qualification is sought, (e) any fees relating to
the listing (and maintaining the listing) of the Shares on the Nasdaq National
Market System, (f) the fees of the transfer agent for the Shares, (g) the cost
of printing certificates representing the Shares, (h) the cost and charges of
any meetings with prospective investors in the Shares, and (i) all other costs
and expenses incident to the performance of the Company's obligations hereunder
and not otherwise specifically provided for in this Section. Notwithstanding
the foregoing, the Company and the Underwriters will bear their respective
portions of all expenses associated with the "road show."
(b) Underwriters' Expenses. Except as specifically provided in
----------------------
paragraph 7(a), the Company will reimburse the Underwriters for their
accountable expenses (including without
20
<PAGE>
limitation, the fees and expenses of Underwriters' Counsel) incurred in
connection with reviewing the Registration Statement and the Prospectus and in
otherwise investigating, preparing to market or marketing the Shares; provided,
however, that the Company's obligations under this paragraph 7(b) shall not
exceed $135,000 in the aggregate.
8. Conditions of Underwriters' Obligations. The obligations of the
---------------------------------------
several Underwriters to purchase and pay for the Shares, as provided herein,
shall be subject, in your discretion, to the continuing accuracy of the
representations and warranties of the Company and the Selling Stockholders
contained herein and in each certificate and document contemplated under this
Agreement to be delivered to you, as of the date hereof and as of the Closing
Date (or the Additional Closing Date, as the case may be), to the performance by
the Company and the Selling Stockholders of their respective obligations
hereunder, and to the following conditions:
(a) SEC Effectiveness. The Registration Statement shall have
-----------------
become effective under the Act, and no stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission.
(b) Opinion of Company Counsel. You shall have received, at no
--------------------------
cost to you, on the Closing Date and on any later Additional Closing Date, as
the case may be, the opinion of Troop Meisinger Steuber & Pasich, LLP, corporate
counsel to the Company, dated the Closing Date or such later Additional Closing
Date, in the form attached hereto on Appendix B addressed to the Underwriters.
----------
(c) Selling Stockholder Opinion. The Selling Stockholders shall
---------------------------
have furnished to you, the opinion of Troop Meisinger Steuber & Pasich, LLP
counsel for the Selling Stockholders, dated the Closing Date or such later
Additional Closing Date, in the form attached hereto on Appendix C, addressed to
----------
the Underwriter.
(d) Opinion of Underwriters' Counsel. You shall have received
--------------------------------
from Proskauer Rose LLP, Underwriters' Counsel, an opinion or opinions, dated
the Closing Date or on any later Additional Closing Date, as the case may be, in
form and substance reasonably satisfactory to you, with respect to the
sufficiency of all corporate proceedings undertaken by the Company and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as it may have reasonably requested for the purpose
of enabling it to pass upon such matters.
(e) Other Documents. On or prior to the Closing Date and the
---------------
Additional Closing Date, as the case may be, you shall have been furnished such
additional information, documents, certificates and opinions as you may
reasonably require for the purpose of enabling you to review the matters
referred to in Section 8(b) and in order to evidence the accuracy, completeness,
or satisfaction of any of the representations, warranties, covenants,
agreements, or conditions herein contained, or as you may reasonably request.
21
<PAGE>
(f) Conformity of Registration Statement. At the Closing Date or
------------------------------------
the Additional Closing Date, as the case may be, (i) the Registration Statement
and the Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Regulations, and in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, (ii) there shall have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, no material adverse change, or any development involving a
prospective material adverse change, in the business, properties, or condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt, or general affairs of the Company from that set forth in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and the Prospectus indicate might occur after the date on which the
Registration Statement becomes effective under the Act, and the Company shall
not have incurred any material liabilities or entered into any agreements not in
the ordinary course of business, other than as referred to in the Registration
Statement and the Prospectus, and (iii) the Common Stock shall have been
approved for listing on the Nasdaq National Market System.
(g) Officer's Certificate. At the Closing Date and the Additional
---------------------
Closing Date, as the case may be, you shall have received a certificate of the
Company, executed by the President and the Chief Financial Officer of the
Company, dated the Closing Date or such Additional Closing Date, as the case may
be, to the effect that, among other things, (i) the conditions set forth in
Sections 8(a) and 8(f) have been satisfied, (ii) as of the date of this
Agreement and as of the Closing Date or such Additional Closing Date, as the
case may be, the representations and warranties of the Company contained herein
were and are accurate and correct in all material respects, and (iii) as of the
Closing Date or such Additional Closing Date, as the case may be, the
obligations to be performed by the Company hereunder on or prior thereto have
been fully performed in all material respects.
(h) Reasonable Satisfaction. All proceedings taken in connection
-----------------------
with the issuance, sale, transfer and delivery of the Shares shall be reasonably
satisfactory in form and substance to you and to counsel for the Underwriters.
(i) Accountant's Comfort Letter. At the time this Agreement is
---------------------------
executed and at the Closing Date and the Additional Closing Date, as the case
may be, you shall have received a letter from the Accountants dated the date of
delivery, and addressed to the Underwriters, and in form and substance
satisfactory to you:
(i) confirming that they are, and during the period
covered by their report(s) included in the Registration Statement and the
Prospectus were, independent certified public accountants with respect to the
Company within the meaning of the Act and the Regulations and stating that the
answer to Item 13 of the Registration Statement is correct insofar as it relates
to them;
22
<PAGE>
(ii) stating that, in their opinion, the Financial
Statements of the Company included in the Registration Statement and Prospectus
and covered by their opinion therein comply in form in all material respects
with the applicable accounting requirements of the Act and the related published
rules and regulations;
(iii) stating that, on the basis of procedures (but not an
examination made in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes (and consents) of the stockholders and Board of Directors of
the Company and committees of such Board of Directors, inquiries to certain
officers and other employees of the Company responsible for financial and
accounting matters, and other specified procedures and inquiries to a date not
more than five (5) business days prior to the date of such letter, nothing has
come to their attention that cause them to believe that: (A) the unaudited
financial statements of the Company included in the Registration Statement and
Prospectus do not comply in form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the related
published rules and regulations under the Act of the Exchange Act or are not
fairly presented in conformity with generally accepted accounting principles
(except to the extent that certain footnote disclosures regarding any interim
period may have been omitted in accordance with the applicable rules of the
Commission under the Exchange Act) applied on a basis consistent with that of
the audited financial statements appearing therein; (B) except as contemplated
by the Prospectus, there was any change in the capital stock or increase in
long-term debt of the Company or any decrease in the net current assets or
shareholders' equity of the Company as of the date of the latest available
monthly financial statements of the Company or as of a specified date not more
than five (5) business days prior to the date of such letter, each as compared
with the amounts shown in the April 30, 1997 balance sheet included in the
Registration Statement and Prospectus or any change or decrease (which shall be
set forth therein) which you, in your sole discretion, shall accept; or (C)
there was any decrease in net sales or any decrease in net income or net income
per share of Common Stock of the Company, during the period from April 30, 1997
to the date of the latest available monthly financial statements of the Company
or to a specified date not more than five business days prior to the date of
such letter, as compared with the corresponding period in 1996, other than as
properly described in the Registration Statement and the Prospectus or any
increase (which shall be set forth therein) which you, in your sole discretion,
shall accept; and
(iv) stating that they have compared specific numerical data and
financial information pertaining to the Company set forth in the Registration
Statement, which have been specified by you prior to the date of this Agreement,
to the extent that such data and information may be derived from the general
accounting records of the Company, and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
23
<PAGE>
(j) NASD Matters. The NASD, upon review of the terms of the
------------
public offering of the Shares, shall not have objected to the Underwriters'
participation in such offering nor the terms of compensation of the
Representatives.
(k) Lock-Up Agreements. Prior to or on the Closing Date, the
------------------
Company shall have provided to you copies of the Lock-Up Agreements referred to
in Section 2(r).
Any certificate or other documents signed by any officer of
the Company and delivered to the Representatives or to counsel to the
Underwriters shall be deemed a representation and warranty by the Company
hereunder to the Underwriters as to the statements made therein. If any
condition to the Underwriters' obligations hereunder to be fulfilled by the
Company prior to or at the Closing Date or any Additional Closing Date, as the
case may be, is not so fulfilled, you may terminate this Agreement or, if you so
elect, in writing waive any such conditions which have not been fulfilled or
extend the time for their fulfillment.
9. Indemnification and Contribution.
--------------------------------
(a) By the Company and Founding Stockholders. The Company agrees
----------------------------------------
to indemnify and hold harmless each Underwriter, its officers, directors,
partners, employees, agents and counsel, and each person, if any, who controls
any Underwriter within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act, against any and all loss, liability, claim, damage and expense
whatsoever (which shall include, for all purposes of this Section 9, but not
limited to, attorneys' fees and any and all expense whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever whether or not in connection with any
litigation in which an indemnified party is a party and whether or not involving
a third party claim and any and all amounts paid in settlement of any claim or
litigation), joint or several, as to which they or any of them may be subject as
and when incurred arising out of, based upon, or in connection with (i) any
untrue statement or alleged untrue statement of a material fact or any omission
or alleged commission to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, contained in (A) the Registration
Statement, any Preliminary Prospectus, or the Prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto or (B) any
application or other document or communication (for purposes of this Section 9,
collectively called an "application") executed by, or on behalf of, the Company
-----------
or based upon written information furnished by, or on behalf of, the Company
filed in any jurisdiction in order to qualify the Shares under the "blue sky" or
securities laws thereof or filed with the Commission or any securities exchange;
unless such statement or omission was made in reliance upon, and in conformity
with, written information furnished to the Company as stated in Section 9(b) by
any Underwriter through you expressly for inclusion in the Registration
Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or
supplement thereto, or in any application, as the case may be, (ii) any breach
of any representation, warranty, covenant or agreement of the Company or the
Founding Stockholders contained in this Agreement, or (iii) any matters which
arise out of or are based upon acts taken or omitted to be taken by any
Underwriter in contemplation of the Offering, except to the extent such loss,
liability, claim, demise or expense arises out of such
24
<PAGE>
Underwriter's gross negligence or willful misconduct. The foregoing agreement
to indemnify shall be in addition to any liability the Company may otherwise
have, including liabilities arising under this Agreement.
(b) By the Selling Stockholders. Each of the Selling
---------------------------
Stockholders, severally and not jointly, will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, in each case to the extent that such statement or omission
arises from or is based on information furnished by such Selling Stockholder for
use in connection therewith, and will reimburse each Underwriter for any legal
or other expenses reasonably incurred by such Underwriter in connection with the
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that (A) the Selling Stockholders shall not be
-------- -------
liable to any Underwriter under the indemnity agreement of this subsection (a)
with respect to any Preliminary Prospectus to the extent that any such loss,
claim, damage or liability of such Underwriter results from the fact that such
Underwriter sold Shares to a person as to whom it shall be established that
there was not sent or given, at or prior to the written confirmation of such
sale, a copy of the Prospectus or of the Prospectus as then amended or
supplemented in any case where such delivery is required by the Act if the
Company has previously furnished copies thereof in sufficient quantity to such
Underwriter and the loss, claim, damage or liability of such Underwriter results
from an untrue statement or omission of a material fact contained in the
Preliminary Prospectus which was identified in writing at such time to such
Underwriter and corrected in the Prospectus or in the Prospectus as amended or
supplemented, and (B) the liability of each Selling Stockholder under the
indemnity agreement in this Section 9(b) shall not exceed the product of (i)
the purchase price paid by the Underwriters for the Shares and (ii) the number
of Shares sold by such Selling Stockholder under this Agreement.
(c) Notification and Procedure. If any action is brought against
--------------------------
any Underwriter or any of its officers, directors, partners, employees, agents
or counsel, or any controlling persons of any Underwriter (an "indemnified
-----------
party") in respect of which indemnity may be sought against the Company or any
- -----
of the Selling Stockholders pursuant to the foregoing paragraphs, such
indemnified party or parties shall promptly notify the Company or such Selling
Stockholder, as the case may be, in writing of the institution of such action
(but the failure to so notify, shall not relieve the Company or such Selling
Stockholders, as the case may be, from any liability it may have other than
pursuant to this Section 9) and the Company or such Selling Stockholders shall
promptly assume the defense of such action, including, without limitation, the
employment of counsel satisfactory to such indemnified party or parties and
payment of expenses. Notwithstanding the foregoing, such indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties, unless (i) the employment of such counsel shall
25
<PAGE>
have been authorized in writing by the Company or such Selling Stockholder, as
the case may be, in connection with the defense of such action, (ii) the Company
or such Selling Stockholder, as the case may be, shall not have promptly
employed counsel satisfactory to such indemnified party or parties to have
charge of the defense of such action or within a reasonable time after notice of
commencement of the action, or (iii) the indemnified party or parties shall have
reasonably concluded that there are defenses available to it or them not
available to the Company or Selling Stockholders, which counsel for the Company
or Selling Stockholders would be precluded from asserting. Anything in this
Section 9 to the contrary notwithstanding, the Company or such Selling
Stockholder, as the case may be, shall not be liable for any settlement of any
such claim or action effected without its written consent, which consent shall
not be unreasonably withheld. The Company or such Selling Stockholder, as the
case may be, shall not, without the prior written consent of each indemnified
party that is not released as described in this sentence, settle or compromise
any action, or permit a default or consent to the entry of judgment or otherwise
seek to terminate any pending or threatened action, in respect of which
indemnity may be sought thereunder (whether or not any indemnified party is a
party thereto), unless such settlement, compromise, consent or termination
includes an unconditional release of each indemnified party from all liability
in respect of such action. The Company and each of the Selling Stockholders
agrees promptly to notify the Representatives of the commencement of any
litigation or proceedings against the Company, such Selling Stockholder or any
of its officers or directors in connection with the sale of the Shares, the
Registration Statement, any Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, or any application.
(d) By the Underwriters. Each Underwriter, severally and not
-------------------
jointly, agrees to indemnify and hold harmless the Company, each Selling
Stockholder, each director of the Company, each officer of the Company who shall
have signed the Registration Statement, and each other person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnity from
the Company and Selling Stockholders to the several Underwriters in Section
9(a), but only with respect to statements or omissions, if any, made in the
Registration Statement, any Preliminary Prospectus, or the Prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto,
or in any application, in reliance upon, and in conformity with, written
information furnished to the Company with respect to the Underwriters through
you expressly for inclusion in the Registration Statement, any Preliminary
Prospectus, or the Prospectus, or any amendment or supplement thereto, or in any
application, as the case may be; provided, however, that any obligation of any
-------- -------
Underwriter to provide indemnity under the provisions of this Section 9(d) shall
not be in excess of the underwriting discount and commission applicable to the
Shares purchased by such Underwriter hereunder. For all purposes of this
Agreement, the Company and the Selling Stockholders acknowledge that the
statements set forth in the second paragraph under the caption "Underwriting,"
as they relate to the selling concession and reallowance, constitute the only
information furnished in writing by, or on behalf of, any Underwriter expressly
for inclusion in the Registration Statement, any Preliminary Prospectus, or the
Prospectus, or any amendment or supplement thereto, or in any application, as
the case may be. If any action shall be brought against the Company, any selling
Stockholder or any other person so indemnified based on the Registration
Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or
supplement thereto, or any application, and in respect of
26
<PAGE>
which indemnity may be sought against any Underwriter pursuant to this Section
9(d), any Underwriter shall have the rights and duties given to the Company or
such Selling Stockholder, and the Company or such Selling Stockholder and each
other person so indemnified shall have the rights and duties given to the
indemnified parties, by the provisions of Section 9(c).
(e) Contribution. To provide for just and equitable contribution,
------------
if (i) an indemnified party makes a claim for indemnification pursuant to
Section 9(a), 9(b) or 9(d) (subject to the limitations thereof) but it is found
in a final judicial determination, not subject to further appeal, that such
indemnification may not be enforced in such case, even though this Agreement
expressly provides for indemnification in such case or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange Act, or
otherwise, then the Company (including for this purpose any contribution made
by, or on behalf of, any director of the Company, any officer of the Company who
signed the Registration Statement, and any controlling person of the Company)
and the Selling Stockholders, as one entity and the Underwriters (including for
this purpose any contribution by, or on behalf of, an indemnified party ), as a
second entity, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, so that the
Underwriters are responsible for the proportion thereof equal to the percentage
which the underwriting discount per Share set forth on the cover of the
Prospectus represents of the initial public offering price per share set forth
on the cover page of the Prospectus and the Company is responsible for the
remaining portion; provided, however, that if applicable law does not permit
-------- -------
such allocation, then other relevant equitable considerations, such as the
relative fault of the Company, the Selling Stockholders and the Underwriters in
connection with the facts which resulted in such losses, liabilities, claims,
damages, and expenses shall also be considered. The relative fault, in the case
of an untrue statement, alleged untrue statement, omission, or alleged omission,
shall be determined by, among other things, whether such statement, alleged
statement, omission, or alleged omission, relates to information supplied by the
Company, the Selling Stockholders or by the Underwriters, and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Company, the Selling Stockholders and the Underwriters agree that it would be
unjust and inequitable if the respective obligations of the Company and the
Underwriters for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages and expenses
(even if the Underwriters and the other indemnified parties were treated as one
entity for such purpose) or by any other method of allocation that does not
reflect the equitable considerations referred to in this Section 9(e). No
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 9(e),
each person, if any, who controls an Underwriter within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act and each officer, director,
partner, employee, agent, and counsel of any Underwriter shall have the same
rights to contribution as such Underwriter and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement, and each director of the Company shall have same rights to
contribution as the Company, subject in each case to the provisions of this
Section 9(e). Anything in this Section 9(e) to the contrary notwithstanding, no
party shall be liable for contribution with respect to the settlement of any
27
<PAGE>
claim or action effected without its written consent. This Section 9(e) is
intended to supersede any right to contribution under the Act, the Exchange Act,
or otherwise.
10. Default by an Underwriter.
-------------------------
(a) 10% or Less. If any Underwriter or Underwriters shall default
-----------
in its or their obligation to purchase Firm Shares or Additional Shares
hereunder, and if the Firm Shares or Additional Shares with respect to which
such default relates does not (after giving effect to arrangements, if any, made
by you pursuant to subsection (b) below) exceed in the aggregate 10% of the
number of shares of Firm Shares or Additional Shares, as the case may be, which
all Underwriters have agreed to purchase hereunder, then such shares of Firm
Shares or Additional Shares to which the default relates shall be purchased by
the non-defaulting Underwriters in proportion to their respective proportions by
which the number of Firm Shares set forth opposite their respective names in
Schedule I hereto bear to the aggregate number of shares of Firm Shares set
forth opposite the names of all the non-defaulting Underwriters.
(b) Greater than 10%. In the event that such default relates to
----------------
more than 10% of the Firm Shares or Additional Shares, as the case may be, you
may in your discretion arrange for yourself or for another party or parties
(including any non-defaulting Underwriter or Underwriters who so agree) to
purchase such Firm Shares or Additional Shares, as the case may be, to which
such default relates on the terms contained herein. In the event that within two
(2) business days after such a default you do not arrange for the purchase of
the Firm Shares or Additional Shares, as the case may be, to which such default
relates as provided in this Section 10, this Agreement or, in the case of a
default with respect to the Additional Shares, the obligations of the
Underwriters to purchase, and the Company to sell, Additional Shares, shall
thereupon terminate, without liability on the part of the Company with respect
thereto (except in each case as provided in Section 7, 9 and 12 hereof) or the
several Underwriters (except as provided in Sections 9 and 12 hereof), but
nothing in this Agreement shall relieve a defaulting Underwriter or Underwriters
of its or their liability, if any, to the other several Underwriters, and the
Company for damages occasioned by its or their default hereunder.
(c) Closing Matters. In the event that the Firm Shares or
---------------
Additional Shares to which the default relates are to be purchased by the non-
defaulting Underwriters, or are to be purchased by another party or parties as
aforesaid, you or the Company shall have the right to postpone the Closing Date
or additional Closing Date, as the case may be, for a period, not exceeding five
(5) business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus or in any other
documents and arrangements, and the Company agrees to file promptly any
amendment or supplement to the Registration Statement or the Prospectus which,
in the opinion of Underwriters' counsel, may thereby be made necessary or
advisable. The term "Underwriter" as used in this Agreement shall include any
party substituted under this Section 10 with like effect as if it had originally
been a party to this Agreement with respect to such Firm Shares and the
Additional Shares.
11. Representations and Agreements to Survive Delivery. All
--------------------------------------------------
representations, warranties, covenants and agreements contained in this
Agreement shall be deemed to be
28
<PAGE>
representations, warranties, covenants and agreements at the Closing Date and
any Additional Closing Date, and such representations, warranties, covenants and
agreements of the Underwriters and the Company and the Selling Stockholders,
including the agreements contained in Section 6, the indemnity and contribution
agreements contained in Section 9, shall remain operative and in full force and
effect regardless of any investigation made by, or on behalf of, the Company or
any person or entity which is entitled to be indemnified under Section 9(d),
and shall survive delivery of the Firm Shares or the Additional Shares. In
addition, the provisions of Sections 7, 9, 11, 12, 13, 15 and 16 shall survive
termination of this Agreement, whether such termination occurs before or after
the Closing Date or any Additional Closing Date.
12. Effective Date of This Agreement and Termination Thereof.
--------------------------------------------------------
(a) Effective Date. This Agreement shall become effective upon
--------------
the later of (i) 9:30 A.M., Boston local time, on the first full business day
following the day on which the Registration Statement becomes effective under
the Act or (ii) the execution of this Agreement (the "Effective Date").
--------------
(b) Failure to Price. If the purchase price of the Firm Shares
----------------
has not been determined as provided for in Section 4 prior to 4:30 P.M., Boston
local time, on the third full business day after the date on which the
Registration Statement was declared effective under the Act, this Agreement may
be terminated at any time thereafter either by you or by the Company by giving
notice to the other unless before such termination the purchase price for the
Firm Shares has been so determined. If the purchase price of the Firm Shares
has not been determined prior to 4:30 P.M., Boston local time, on the tenth full
business day after the date on which the Registration Statement was declared
effective under the Act, this Agreement shall automatically terminate forthwith.
(c) Termination Events. You shall have the right to terminate
------------------
this Agreement at any time prior to the Closing Date or any Additional Closing
Date, as the case may be, by giving notice to the Company if (i) any domestic or
international event, act or occurrence has materially disrupted, or in your
opinion will in the immediate future materially disrupt, the securities markets;
or (ii) if there shall have been a general suspension of, or a general
limitation on prices for, trading in securities on the New York Stock Exchange,
the American Stock Exchange, the Nasdaq Stock Market or any regional stock
exchange or in the over-the-counter market; or (iii) if there shall have been an
outbreak or increase in the level of major hostilities or other national or
international calamity; or (iv) if a banking moratorium has been declared by a
state or federal authority; or (v) if a moratorium in foreign exchange trading
by major international banks or persons has been declared; or (vi) if there
shall have been a material interruption in the mail service or another means of
communications within the United States; or (vii) if the Company shall have
sustained a material or substantial loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether or
not such loss shall have been insured, will, in your opinion make it inadvisable
to proceed with the offering, sale or delivery of the Shares; or (viii) if any
material governmental restrictions shall have been imposed on trading in
securities in general, which restrictions are not in effect on the date hereof;
or (ix) if there shall be passed by the Congress of the United States or by any
state
29
<PAGE>
legislature any act or measure, or adopted by any governmental body or
authoritative accounting institute or board, or any governmental executive
orders, rules or regulations, which you believe are likely to have a material
adverse effect on the business, financial condition or financial statements of
the Company or the market for any of the Company's securities; or (x) if there
shall have been such change in the market for Company's securities or securities
in general or in political, financial or economic conditions as in your judgment
makes it inadvisable to proceed with the offering, sale and delivery of the Firm
Shares or the Additional Shares, as the case may be, on the terms contemplated
by the Prospectus; or (xi) the Company or any Selling Stockholder shall have
failed, refused or been unable to perform in any material respect any agreement
or covenant on its, his or her part to be performed hereunder, failed to satisfy
any condition required to be performed or satisfied by it, he or she, or
breached in any material respect any representation or warranty contained
herein; (xii) any of the conditions precedent to your obligations as set forth
in Section 8 hereof are not satisfied; or (xiii) if in your judgment any
Material Adverse Effect shall have occurred since the respective dates as of
which information is given in the Registration Statement or the Prospectus.
(d) Notice. If you elect to prevent this Agreement from becoming
------
effective, as provided in this Section 12, or to terminate this Agreement
pursuant to this Section 12, you shall notify the Company and the Selling
Stockholders promptly by telephone, telex, telegram or facsimile, confirmed by
letter. If, as so provided, the Company or the Selling Stockholders elect to
prevent this Agreement from becoming effective or to terminate this Agreement,
the Company or the Selling Stockholders, as the case may be, shall notify you
promptly by telephone, telex, telegram or facsimile, confirmed by letter.
(e) Failure of Conditions. Anything in this Agreement to the
---------------------
contrary notwithstanding and other than Section 12(f), the sole liability of the
Company to you, in addition to the obligations the Company assumed pursuant to
Section 7, if this Agreement shall not become effective by reason of: (i) an
election by you pursuant to Section 12(c)(xi), will be to reimburse the
Underwriters for such out-of-pocket expenses (including the fees and
disbursements of Underwriters' counsel and "blue sky" expenses) as shall have
been incurred by them in connection with this Agreement or the proposed offer,
sale and delivery of the Shares, or (ii) any other reason, will be to reimburse
the Underwriters for such out-of-pocket blue sky fees and expenses (including
the fees and disbursements of blue sky counsel) as shall have been incurred by
them. Upon demand the Company agrees to pay promptly the full amount due to you
under this paragraph.
(f) Survival of Provisions. Notwithstanding any election
----------------------
hereunder or any termination of this Agreement, and whether or not this
Agreement is otherwise carried out, the provisions of Sections 7, 9, 11 and 13
shall not be in any way affected by such election or termination or failure to
carry out the terms of this Agreement or any part hereof.
13. Notices. All communications hereunder, except as may be otherwise
-------
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
by letter, to Fechtor, Detwiler & Co., Inc., [155 Federal Street, Boston,
Massachusetts, Attention: Mr. Sheldon Fechtor,] with a copy to Proskauer Rose
30
<PAGE>
LLP, 2255 Glades Road, Suite 340 West, Boca Raton, Florida 33431, Attention:
Christopher C. Wheeler and Donald E. Thompson, II, or, if sent to the Company or
any Selling Stockholder, shall be mailed, delivered, or telexed or telegraphed
and confirmed by letter, to Signature Eyewear, Inc., 498 N. Oak Street,
Inglewood, CA 09302, Attention: Michael Prince, with a copy to Troop Meisinger
Steuber & Pasich, LLP, 10940 Wilshire Boulevard, 8/th/ Floor, Los Angeles,
California 90024, Attention: Alan Spatz.
14. Parties. This Agreement shall inure solely to the benefit of, and
-------
shall be binding upon the several Underwriters, the Selling Stockholders and the
Company and the persons and entities referred to in Section 9 who are entitled
to indemnification or contribution, and their respective successors, legal
representatives and assigns (which shall not include any buyer, as such, of the
Shares), and no other person shall, have or be construed to have, any legal or
equitable right, remedy or claim under, or in respect of, or by virtue of this
Agreement or any provision herein contained. Notwithstanding anything contained
in this Agreement to the contrary, all of the obligations of the Underwriters
are several and not joint.
15. Partial Unenforceabilitv. The invalidity or unenforceability of any
------------------------
Section, paragraph or provision of this Agreement shall not effect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as is necessary to make it valid and
enforceable.
16. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of The Commonwealth of Massachusetts without
giving effect to be laws pertaining to conflicts of laws.
17. Submission to Jurisdiction. The Company and the Selling Stockholders
--------------------------
hereby irrevocably submit to the exclusive jurisdiction of any state or federal
court sitting in the County of Suffolk, The Commonwealth of Massachusetts in
connection with any action or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby or thereby. The Company each
hereby irrevocably waives any objection that it may now or hereafter have to the
laying of the venue of any such action or proceeding brought in any court and
any claim that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.
18. General. This Agreement may be executed in one or more counterparts,
-------
each of which, when so executed and delivered, shall be deemed to be an
original, but all of which when taken together, shall constitute one and the
same document binding on all of the parties thereto. Transmission by telecopier
of an executed counterpart of this Agreement shall be deemed to constitute due
and sufficient delivery of such counterpart, provided that the party so
delivering such counterpart shall, promptly after such delivery, deliver the
original of such counterpart of this Agreement to the other party thereto.
[Signatures appear on following page]
31
<PAGE>
If the foregoing correctly sets forth the understanding between you, the
Selling Stockholders and the Company, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement between us.
Very truly yours,
SIGNATURE EYEWEAR, INC.
By:
----------------------------------------------
-------------
Julie Heldman, Co-Chairman of the Board
and President
SELLING STOCKHOLDERS
(named in Schedule II to this Agreement)
By:
----------------------------------------------
- -------------
Attorney-in-Fact
Accepted as of the date first above written:
FECHTOR, DETWILER & CO., INC.
By:
--------------------------------------------
On behalf of itself and the
other several Underwriters
named in Schedule I hereto.
Boston, Massachusetts
32
<PAGE>
SCHEDULE I
(1) (2)
NUMBER OF FIRM SHARES
NAME OF UNDERWRITER TO BE PURCHASED
- ------------------- ---------------------
Fechtor, Detwiler & Co., Inc.
Van Kasper & Company
-----------
Total 1,800,000
=========
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
<S> <C> <C>
(1) (2) (3)
ADDITIONAL
SELLING STOCKHOLDERS FIRM SHARES SHARES
- -------------------- ----------- ------
The Weiss Family 132,954 134,617
Trust*
Edward Weiner 19,400 19,642
Daniel Warren 19,400 19,642
Robert Fried 11,123 11,262
Robert Zeichick 11,123 11,262
Michael Prince 6,000 6,075
------- -------
200,000 202,500**
</TABLE>
- -------------------
* Including for purposes of the Lock-Up Agreements, Bernard L. Weiss and
Julie Heldman.
** An additional 67,500 Shares shall be purchased from, and sold by, the
Company.
<PAGE>
APPENDIX A
Public Offering of Common Stock
-------------------------------
____________, 1997
Fechtor Detwiler & Co., Inc.
2255 Glades Road, Suite 234-W
Boca Raton, FL 33431
Dear Sirs:
This letter agreement is being delivered to you in connection with
the proposed Underwriting Agreement (the "Underwriting Agreement") between
Signature Eyewear, Inc., a California corporation (the "Company"), certain
Selling Stockholders named therein and you as one of the Representatives of the
Underwriters named therein, relating to an underwritten public offering of
Common Stock, $0.001 par value ("Common Stock"), of the Company.
In order to induce you to enter into the Underwriting Agreement,
the undersigned agrees not to offer, sell, pledge, hypothecate or contract to
sell, grant any option to purchase or otherwise dispose of, directly or
indirectly (collectively, "transfer"), any shares of Common Stock beneficially
owned by the undersigned or any securities convertible into, or exchangeable
for, shares of Common Stock ("Common Stock Equivalents") for a period of one
year following the day on which the Underwriting Agreement is executed without
your prior written consent, other than: (i) shares of Common Stock transferred
as bona fide gifts, and pursuant to which the recipient agrees in writing to be
bound by the terms of this letter to the same extent as the undersigned; (ii)
transfers in connection with a merger of the Company or a tender offer to all of
the stockholders of the Company for control of the then outstanding shares of
Common Stock; and (iii) the transfer of up to 104,000 shares of Common Stock in
the aggregate, if such transfer is after 180 days following the effective date
of the Registration Statement.
The undersigned agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of shares of
Common Stock and Common Stock Equivalents beneficially owned by the undersigned,
except in compliance with this letter agreement.
If for any reason the Underwriting Agreement shall be terminated
prior to the Closing Date (as defined in the Underwriting Agreement), this
letter agreement shall likewise be terminated.
Yours very truly,
[Signature]
[Name and address]
<PAGE>
APPENDIX B
Opinion of Corporate Counsel to the Company.
-------------------------------------------
[Note: Defined terms have the same meanings as ascribed to such
terms in the Underwriting Agreement.]
Troop Meisinger Steuber & Pasich, LLP shall opine to the effect that:
(A) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of California;
(B) The Company has the corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus;
(C) To the knowledge of such counsel, the Company does not own or
control, directly or indirectly, any corporation, association or other entity;
(D) The authorized capital stock of the Company consists of
30,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock, of
which there are outstanding no shares of Preferred Stock and [5,200,527] shares
of Common Stock (including the Company Firm Shares). The issued and outstanding
shares of the Company's capital stock have been duly authorized and validly
issued and are fully paid and nonassessable, and have not been issued in
violation of any preemptive right, co-sale right, registration right, right of
first refusal or other similar right known to such counsel;
(E) The Shares to be issued by the Company pursuant to the
Agreement and the Representatives' Warrant have been duly authorized and will
be, upon issuance and delivery against payment therefor in accordance with the
terms hereof, validly issued, fully paid and nonassessable, and, to the
knowledge of such counsel, the stockholders of the Company do not have any
preemptive right, co-sale right, registration right, right of first refusal or
other similar right, which rights have not previously been waived or complied
with, in connection with the purchase or sale of any of the Shares. Upon payment
for and delivery of the Shares in accordance with the terms of this Agreement,
and assuming that the Underwriters are acquiring the Shares in good faith and
without notice of any "adverse claim" (as such term is used in Section 8102 of
the Uniform Commercial Code as in effect in the State of California), the
Underwriters will receive title to the Shares purchased by them from the
Company, free and clear of any adverse claims;
<PAGE>
(F) The terms and provisions of the capital stock of the Company
conform to the description thereof contained in the Registration Statement and
the Prospectus, and the information in the Prospectus under the captions
"Description of Capital Stock" and "Shares Eligible for Future Sale", to the
extent that it constitutes matters of law or legal conclusions, has been
reviewed by such counsel and is a fair summary of such matters and conclusions,
and the form of certificate evidencing the Common Stock complies with the
applicable provisions of California law;
(G) The statements in the Registration Statement and the
Prospectus summarizing statutes, rules and regulations, including the California
Corporation Law and the description of the Articles of Incorporation and By-laws
are accurate and fairly and correctly present the information required to be
presented by the Act or the Rules and Regulations in all material respects; and
such counsel does not know of any statutes, rules or regulations required to be
described in the Registration Statement or the Prospectus that are not described
or referred to therein as required;
(H) The Company has full corporate power and authority to enter
into the Underwriting Agreement and to issue, sell and deliver to the
Underwriters the Company Firm Shares, the Additional Shares, and the
Representatives' Warrant, as the case may be, to be issued and sold by it
thereunder;
(I) The Underwriting Agreement and the Representatives' Warrant
have been duly authorized by all necessary corporate action on the part of the
Company and have been duly executed and delivered by the Company and are valid
and binding agreements of the Company, enforceable in accordance with their
respective terms, except that rights to indemnity and contribution thereunder
may be limited by applicable laws or equitable principles and except as
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(J) The Registration Statement has become effective under the Act
and, to such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement or suspending or preventing the use of the Prospectus
has been issued and no proceedings for that purpose have been instituted or are
pending or threatened under the Act; any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) of the Rules and Regulations has
been made in the manner and within the time period required by such Rule 424(b);
(K) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements, financial
data and supporting schedules included therein, as to which no opinion is
expressed) comply as to form in all material respects with the requirements of
the Act and the applicable Rules and Regulations and to such counsel's
knowledge, there are no agreements, contracts, leases or documents of a
character required to be described in, or filed as an exhibit to, the
Registration Statement which are not described or filed as required by the Act
and the applicable Rules and Regulations;
(L) The statements under the captions "Risk Factors -- Substantial
Dependence Upon Laura Ashley License (third and fourth sentences)," "--
Limitations on Ability to Distribute Other Brand-Name Eyeglass Frames (second
through fifth sentences)," "Management -- Limitation
<PAGE>
of Liability and Indemnification Matters" (insofar as such statements relate to
indemnification under California law) and the statements set forth in the last
paragraph under each of "Business -- Products -- Laura Ashley Eyewear, Jean Nate
Eyewear (except for the second sentence), Hart Schaffner & Marx Eyewear and
Eddie Bauer Eyewear" in the Prospectus, insofar as such statements constitute a
summary of documents referred to therein or matters of law, do not contain any
untrue statement of material fact;
(M) The execution, delivery and performance of the Agreement, the
Representatives' Warrants, and the consummation of the transactions therein
contemplated do not and will not (a) conflict with or result in a breach of any
of the terms or provisions of or, constitute a default under, the Articles of
Incorporation or By-laws of the Company, any agreement or document filed as an
exhibit to the Registration Statement or otherwise identified by the Company for
review in the attached Officer's Certificate (including all license agreements
described in the Prospectus) (the "Material Contracts"), or any California or
Federal statute, rule or regulation applicable to the Company (except that no
opinion need to be expressed with respect to compliance with federal and state
securities laws) or (b) to the knowledge of such counsel, result in the creation
or imposition of any lien or encumbrance upon any of the assets of the Company
pursuant to the terms or provisions of any Material Contract or instrument of
the Company (including all license agreements) or (c) to the knowledge of such
counsel, conflict with or result in a violation or breach of, or constitute a
default under, any applicable license, authorization, approval, permit,
judgment, franchise, order, writ or decree of any court or governmental agency
or body;
(N) The Company is not in violation of its Articles of
Incorporation or By-laws;
(O) To such counsel's knowledge, there are no pending or
threatened actions, suits, claims, proceedings or investigations that would
limit, revoke, cancel, suspend, or cause not to be renewed any existing license,
certificate, registration, approval or permit, known to such counsel, from any
state, federal, or regulatory authority that is material to the conduct of the
business of the Company as presently conducted, or that is of a character
otherwise required to be disclosed in the Registration Statement or the
Prospectus under the Act or the applicable Rules and Regulations which is not so
disclosed;
(P) No transfer taxes are required to be paid in connection with
the sale or delivery to the Underwriters of the Company Firm Shares or the
Additional Shares;
(Q) The Company will not, upon consummation of the transactions
contemplated by this Agreement, be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended; and
(R) The Shares issued and sold by the Company have been duly
approved for quotation by the Nasdaq National Market.
In addition, such counsel shall include a statement to the effect
that such counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, Underwriters' Counsel and
the independent public accountants of the Company, at
B-3
<PAGE>
which conferences the contents of the Registration Statement and the Prospectus
and related matters were discussed, and although they have not verified the
accuracy or completeness of the statements contained in the Registration
Statement or the Prospectus, nothing has come to the attention of such counsel
which caused them to believe that, at the time the Registration Statement became
effective the Registration Statement (except as to financial statements,
financial and statistical data and supporting schedules contained therein, as to
which no opinion is expressed) contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or at the Closing Date or any later Additional
Closing Date, as the case may be, the Registration Statement or the Prospectus
(except as aforesaid) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
[Counsel rendering the foregoing may rely (i) as to questions of law
not involving the laws of the State of California or the United States upon
opinions of local counsel, and (ii) representations or certificates of officers
of the Company and of governmental officials, as the case may be, in which case
its opinion is to state that it is so doing and that it has no actual knowledge
of any material misstatement or inaccuracy in such opinions, representations or
certificates, and that they believe that they and the Underwriters are justified
in relying on such opinions or certificates. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you and to
Underwriters' Counsel.]
B-4
<PAGE>
APPENDIX C
Opinion of Counsel to the Selling Stockholders.
----------------------------------------------
[Note: Defined terms have the same meanings as ascribed to such
terms in the Underwriting Agreement.]
[Further Note: If desired, this opinion may be combined with
the opinion set forth in Appendix B]
Troop Meisinger Steuber & Pasich shall opine to the effect that:
1. The Agreement, the Power of Attorney, and the Custody
Agreement have been duly executed and delivered by or on behalf of each Selling
Stockholder; each Selling Stockholder has full legal right and authority to
sell, transfer and deliver in the manner provided in the Underwriting Agreement
the Selling Stockholder Shares being sold by such Selling Stockholder
thereunder; and the Agreement, the Power of Attorney and the Custody Agreement
constitute the legal, valid and binding agreement of each such Selling
Stockholder and are enforceable against each such Selling Stockholder in
accordance with their respective terms, except that rights to indemnity and
contribution thereunder may be limited by applicable law or equitable principles
and except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws thereof relating to or affecting creditors'
rights generally or by general equitable principles.
2. Upon delivery on behalf of each of the Selling Stockholders to
the Underwriters of certificates for the Selling Stockholder Shares being sold
hereunder by such Selling Stockholder against payment therefor as provided
herein, the Underwriters will acquire all the rights of such Selling Stockholder
to such Selling Stockholder Shares and will acquire such Selling Stockholder
Shares free and clear of any "adverse claim" (as such term is used in Section
8201 of the Uniform Commercial Code as in effect in the State of California),
assuming the Underwriters acquire such Selling Stockholder Shares in good faith
and without notice of any such "adverse claim".
3. No consent, approval, authorization or order of any federal or
California court or governmental agency or body is required for the consummation
by any Selling Stockholder of the transactions contemplated herein, except (i)
such as may have been obtained under the Act (ii) such as may be required under
the Blue Sky of any jurisdiction in connection with the purchase and
distribution of the Selling Stockholder Shares by the Underwriters and (iii)
such other approvals (specified in such opinion) as have been obtained.
4. Neither the sale of the Selling Stockholder Shares being sold
by any Selling Stockholder nor the consummation of any other of the transactions
herein contemplated by any Selling Stockholder or the fulfillment of the terms
hereof by any Selling Stockholder will conflict with, result in a breach or
violation of, or constitute a default under any law or the terms of any
indenture or other agreement or instrument actually known to such counsel and to
which any Selling Stockholder is a party or bound, or any judgment, order or
decree actually known to such counsel
C-1
<PAGE>
to be applicable to any Selling Stockholder of any federal or California court,
regulatory body, administrative agency, governmental body or arbitrator having
jurisdiction over any Selling Stockholder.
C-2
<PAGE>
EXHIBIT 1.2
THESE WARRANTS AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF CAN BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS. THESE WARRANTS AND SUCH SECURITIES MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT, UNLESS, IN THE OPINION OF COUNSEL TO THE COMPANY, SUCH REGISTRATION
IS NOT THEN REQUIRED.
SIGNATURE EYEWEAR, INC.
498 NORTH OAK STREET
INGLEWOOD, CA 90302
Warrant No. ______ ____________ Warrants
REPRESENTATIVES' WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
Date of Issuance: As of ____________, 1997
Expiration Date: As of ____________, 2002
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT, in consideration of the payment by the party named
immediately below (an "Underwriter," as defined in Section 1 hereof) of one mil
($.001) per Warrant, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged,
[_______________________________]
or its registered assigns (the "Registered Holder"), is entitled to purchase
from SIGNATURE EYEWEAR, INC., a California corporation (the "Company"), the
number of shares of common stock, par value $.001 per share (the "Common
Stock"), of the Company set forth above, subject to adjustment pursuant to
Section 5 hereof, at the price of [$_______] (120% of the initial public
offering price of the Common Stock) per share of Common Stock (as adjusted from
time to time pursuant to Section 4 or Section 6 hereof, the "Exercise Price").
These Warrants are part of an issuance of 180,000 Warrants as contemplated by
that certain Underwriting Agreement dated as of ___________, 1997 between
Fechtor, Detwiler & Co., Inc., Van Kasper & Company, the Company and certain
underwriters named on Schedule I thereto (the "Agreement").
These Warrants are also subject to the following provisions:
<PAGE>
SECTION 1
CERTAIN DEFINITIONS
-------------------
As used herein, the following terms have the meanings set forth below:
"AGREEMENT" is the Underwriting Agreement dated as of August ___, 1997
among the Company and Fechtor, Detwiler & Co., Inc. and Van Kasper & Company, as
representatives of the several Underwriters.
"CERTIFICATE" means this Representatives' Warrant Certificate representing
the Warrants set forth on the face hereof.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's common stock, $.001 par value per share.
"DATE OF ISSUANCE" is the date set forth on the front page of these
Warrants, and the terms "date hereof," "date of these Warrants," and similar
expressions shall be deemed to refer to the Date of Issuance, as specified in
Section 12 of these Warrants.
"EFFECTIVE DATE" means the date on which the Registration Statement is
declared effective by the Commission.
"EXERCISE PERIOD" means the period of time commencing at 12:01 A.M.,
Eastern Time, on the first anniversary date of the Effective Date and ending at
5:00 P.M., Eastern Time, on the fifth anniversary date of the Effective Date.
"MARKET PRICE" on any day means the last reported sale price on such day,
or, in case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or by Nasdaq, or, if the Common Stock is
not listed or admitted to trading on any national securities exchange or by
Nasdaq, the average closing bid price as furnished by the NASD through Nasdaq or
similar organization if Nasdaq is no longer reporting such information, or if
the Common Stock is not quoted on Nasdaq, as determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information then available to it. Should the Market Price be determined by the
Board of Directors of the Company pursuant to the last clause of the previous
sentence, such determination shall, absent manifest error, be binding upon the
Registered Holder.
"NASDAQ" means The Nasdaq National Market or the Nasdaq Small Cap Market,
as the case may be, or such other similar interdealer quotation system as may in
the future be used generally by members of the National Association of
Securities Dealers, Inc. ("NASD") for over-the-counter transactions in
securities.
"PERSON" means an individual, a partnership, a corporation, a trust, a
joint venture, an unincorporated organization, and a government or any
department or agency thereof.
2
<PAGE>
"REGISTRATION STATEMENT" means the Company's registration statement on Form
S-1, File No. 333-30017, filed with the Commission.
"REPRESENTATIVES' WARRANTS" means the Warrants represented by this
Certificate and all other Representatives' Warrants issued as contemplated by
the Agreement, and all Warrants issued in exchange or substitution for such
Warrants or any such other Warrants pursuant to the terms hereof or thereof, as
the case may be.
"STOCK" means shares of the Common Stock issued or issuable upon exercise
of the Warrants represented by this Certificate or any other of the
Representatives' Warrants; provided that if there is a change such that the
--------
securities issuable upon exercise of a Warrant are issued by an entity other
than the Company, or there is a change in the class of securities so issuable,
then the term "Stock" will mean one share of the security issuable upon exercise
of the Representatives' Warrants if such security is issuable in shares, or will
mean the smallest unit in which such security is issuable if such security is
not issuable in shares.
"UNDERWRITER" or "UNDERWRITERS" means Fechtor, Detwiler & Co., Inc., Van
Kasper & Company, and such other broker-dealers participating as underwriters
with respect to the public offering of Common Stock as contemplated by the
Agreement.
"WARRANTS" mean the Warrants evidenced by this Representatives' Warrant
Certificate.
SECTION 2
TRANSFER RESTRICTIONS UNTIL EXERCISE PERIOD
-------------------------------------------
Until the commencement of the Exercise Period, the Warrants may not be
sold, assigned, transferred or hypothecated, in whole or in part, except: (i) to
the officers and partners of any Underwriter; (ii) to selected dealers, whether
or not named in the Agreement, which participated in the initial public offering
pursuant to the Registration Statement, and their officers or partners; and
(iii) by operation of law.
SECTION 3
EXERCISE OF WARRANTS
--------------------
3.1 EXERCISE PERIOD. The Registered Holder may exercise the Warrants, in
---------------
whole or in part, at any time and from time to time, during the Exercise Period.
3.2 EXERCISE PROCEDURE
------------------
(a) The Warrants will be deemed to have been exercised at such time as
the Company has received all of the following items (the "Exercise Date"):
(i) a completed Exercise Agreement, as described below, executed
by the Person exercising all or part of the purchase rights represented by this
Certificate (the "Purchaser");
3
<PAGE>
(ii) this Certificate (subject to delivery by the Company of a
new Certificate with respect to any unexercised portion, as provided in
Subsection 3.2(b));
(iii) if the Purchaser is not the Registered Holder, an Assignment
or Assignments in the form set forth as Exhibit II hereto, evidencing the
assignment of Warrants to the Purchaser of the Warrants to be exercised; and
(iv) except as provided in Section 3.3 below, a certified or bank
check or other certified funds payable to the Company in an amount equal to the
product of the Exercise Price multiplied by the number of shares of Stock being
purchased upon such exercise.
(b) Certificates for shares of Stock purchased upon exercise of these
Warrants will be delivered by the Company to the Purchaser within three (3)
business days after the Exercise Date. Unless these Warrants have expired or
all of the purchase rights represented hereby have been exercised, the Company
will prepare a new certificate evidencing such number of Warrants that have not
expired or been exercised. The Company will, within seven (7) business days
after the Exercise Date, deliver such new certificate to the Person designated
for delivery in the Exercise Agreement.
(c) The Stock issuable upon the exercise of these Warrants will be
deemed to have been issued to the Purchaser on the Exercise Date, and the
Purchaser will be deemed for all purposes to have become the record holder of
such Stock on the Exercise Date.
(d) The issuance of certificates for Stock upon exercise of these
Warrants will be made without charge to the Registered Holder or the Purchaser
for any issuance tax in respect thereof or any other cost incurred by the
Company in connection with such exercise and the related issuance of Stock;
provided, however that the Company shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance and delivery
of any certificate or instrument in a name other than that of the Registered
Holder and the Company shall not be required to issue or deliver any such
certificate unless and until the Person or Persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
(e) The Company will not close its books for the transfer of these
Warrants or the Stock issued or issuable upon the exercise of these Warrants in
any manner that interferes with the timely exercise of these Warrants. The
Company will from time to time take all such action as may be necessary to
assure that the par value per share of the Stock is at all times equal to or
less than the Exercise Price.
3.3 EXERCISE BY SURRENDER OF WARRANTS. In addition to the method of
---------------------------------
payment set forth in Section 3.2 and in lieu of any cash payment required
thereunder, the Registered Holder shall have the right at any time and from time
to time subject to Section 3.1, and further subject to such Registered Holder
having a sufficient number of shares of Stock remaining to be purchased under
these Warrants so as to allow for the payment as provided for below, to exercise
these Warrants in whole or in part by surrendering hereof in the manner
specified in Section 3.2 as payment of the aggregate Exercise Price per share of
the Stock. The number of Warrants to be surrendered in payment of the aggregate
Exercise Price of the Stock for the Warrants to be exercised shall be determined
by multiplying the number of Warrants to be exercised by the Exercise Price, and
then dividing the product thereof by an amount equal to the Market Price per
share of Stock minus the Exercise Price. Solely for the purposes of this
Section 3.3, Market Price shall be the average of the Market Price for the three
(3) trading days preceding the
4
<PAGE>
date on which the form of Exercise Agreement attached hereto is deemed to have
been sent to the Company pursuant to Section 15.3 hereof ("Notice Date").
3.4 EXERCISE AGREEMENT. The Exercise Agreement will be substantially in
------------------
the form set forth as Exhibit I hereto, except that if the Stock is not to be
issued in the name of the Registered Holder, the Exercise Agreement will also
state the name of the Person to whom the certificates or instrument for the
Stock is to be issued, and if the number of shares of Stock purchasable does not
include all of such securities purchasable hereunder, it will also state the
name of the Person to whom a new Certificate for the unexercised Warrants is to
be delivered.
3.5 FRACTIONAL SHARES OR WARRANTS. If a fractional share of Stock would,
-----------------------------
but for the provisions of Subsection 3.1, be issuable upon exercise of the
rights represented by these Warrants, the Company will, within twenty days after
the Exercise Date, deliver to the Purchaser a check payable to the Purchaser, in
lieu of such fractional share of Stock, in an amount equal to the Market Price
as of the close of business on the Exercise Date multiplied by the fractional
share of Stock.
SECTION 4
EXERCISE PRICE
--------------
4.1 GENERAL. The initial Exercise Price of these Warrants is set forth on
-------
the front page of this Certificate. In order to prevent dilution of the rights
granted under these Warrants, the initial Exercise Price will be subject to
adjustment from time to time pursuant to this Section 4.
4.2 SUBDIVISION OR COMBINATION OF COMMON STOCK; AND STOCK DIVIDENDS. If
--------------------------------------------------------------
the Company shall at any time after the date hereof (a) issue any shares of
Common Stock as a dividend upon Common Stock, (b) issue any shares of Common
Stock, in subdivision of outstanding shares of Common Stock by reclassification
or otherwise, or (c) combine outstanding shares of Common Stock, by
reclassification or otherwise, then the Exercise Price that would apply if
purchase rights hereunder were being exercised immediately prior to such action
by the Company shall be adjusted by multiplying it by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such dividend, subdivision, or combination and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such
dividend, subdivision, or combination.
4.3 CERTAIN DIVIDENDS OR DISTRIBUTIONS. If the Company shall declare a
----------------------------------
dividend or distribution upon the Common Stock payable otherwise than out of
earnings or earned surplus and otherwise than in Common Stock, the Exercise
---
Price shall be reduced by an amount equal, in the case of a dividend or
distribution in cash, to the amount thereof payable per share of the Common
Stock or, in the case of any other dividend or distribution, to the fair value
of such dividend or distribution per share of the Common Stock as reasonably
determined in good faith by the Board of Directors of the Company. For purposes
of the foregoing, a dividend or distribution other than in cash shall be
considered payable out of earnings or earned surplus only to the extent that
such earnings or earned surplus are charged an amount equal to the fair value of
such dividend or distribution as reasonably determined in good faith by the
Board of Directors of the Company. Such reductions shall take effect as of the
date on which a record is taken for the purpose of such dividend or
distribution, or, if a record is not taken, the date as of which the holders of
Common Stock of record entitled to such dividend or distribution are to be
determined.
5
<PAGE>
4.4 NO DE MINIMIS ADJUSTMENTS. No adjustment of the Exercise Price shall
-------------------------
be made if the amount of such adjustment would be less than one cent per share.
In such case any adjustment that otherwise would be required to be made shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment that, together with any adjustment or adjustments so
carried forward, shall amount to not less than one cent per share.
SECTION 5
ADJUSTMENT OF NUMBER OF
SECURITIES ISSUABLE UPON EXERCISE
---------------------------------
Upon each adjustment of the Exercise Price pursuant to Section 4 hereof,
the Registered Holder shall thereafter (until another such adjustment) be
entitled to purchase, at the adjusted Exercise Price in effect on the date
purchase rights under these Warrants are exercised, the number of shares of
Stock, calculated to the nearest number of shares of Stock, determined by (a)
multiplying the number of shares of Stock purchasable hereunder immediately
prior to the adjustment of the Exercise Price by the Exercise Price in effect
immediately prior to such adjustment, and (b) dividing the product so obtained
by the adjusted Exercise Price in effect on the date of such exercise.
SECTION 6
EFFECT OF REORGANIZATION,
RECLASSIFICATION, CONSOLIDATION, MERGER, OR SALE
------------------------------------------------
If at any time while these Warrants are outstanding there shall be any
reorganization or reclassification of the capital stock of the Company (other
than a subdivision or combination of shares provided for in Subsection 4.2
hereof), any consolidation or merger of the Company with another corporation
(other than a consolidation or merger in which the Company is the surviving
entity and which does not result in any change in the Common Stock), or any sale
or other disposition by the Company of all or substantially all of its assets to
any other corporation, then the Registered Holder shall thereafter upon exercise
of these Warrants be entitled to receive the number of shares of capital stock
or other securities or property (including cash) of the Company, or of the
successor corporation resulting from such consolidation or merger, as the case
may be, to which the Stock (and any other securities and property) of the
Company, deliverable upon the exercise of these Warrants, would have been
entitled upon such reorganization, reclassification of capital stock,
consolidation, merger, sale, or other disposition if such Warrants had been
exercised immediately prior to such reorganization, reclassification of capital
stock, consolidation, merger, sale, or other disposition. In any such case,
appropriate adjustment (as reasonably determined in good faith by the Board of
Directors of the Company) shall be made in the application of the provisions set
forth in these Warrants with respect to the rights and interests thereafter of
the Registered Holder to the end that the provisions set forth in this
Certificate (including those relating to adjustments of the Exercise Price and
the number of shares and warrants issuable upon the exercise of these Warrants)
shall thereafter be applicable, as near as reasonably may be, in relation to any
shares or other property thereafter deliverable upon the exercise hereof as if
these Warrants had been exercised immediately prior to such reorganization,
reclassification of capital stock, consolidation, merger, sale, or other
disposition and the Registered Holder had carried out the terms of the exchange
as provided for by such reorganization, reclassification of capital stock,
consolidation, or merger. If in any such reorganization, reclassification,
consolidation, or merger, additional shares of
6
<PAGE>
Stock be issued in exchange, conversion, substitution, or payment, in whole or
in part, for or of a security of the Company other than Stock deliverable from
exercise of these Warrants, any such issue shall be treated as an issue of Stock
covered by the provisions of Section 4. The Company shall not effect any such
reorganization, consolidation, or merger unless, upon or prior to the
consummation thereof, the successor corporation shall assume by written
instrument the obligation to deliver to the Registered Holder such shares of
stock or other securities, cash, or property as the Registered Holder shall be
entitled to purchase in accordance with the foregoing provisions.
Notwithstanding any other provisions of these Warrants: (i) in the event of
sale or other disposition of all or substantially all of the assets of the
Company as a part of a plan for liquidation of the Company, all rights to
exercise the Warrants shall terminate upon the earlier of the expiration of the
Exercise Period or nine (9) months after the Company gives written notice to the
Registered Holder that such sale or other disposition has been consummated and
(ii) in the event of a merger pursuant to which each stockholder of the Company
is to receive solely cash in exchange for all of his, her or its shares of
Common Stock in the Company (a so called "cash-out" merger), all rights to
exercise the Warrants shall terminate upon the earlier of the expiration of the
Exercise Period or twenty (20) days after the effective date of such merger
(provided, however, Holder has been timely given written notice of such cash-out
merger in accordance with Section 8 hereof). Any exercise of the Warrants from
and after the effective date of any cash-out merger referred to in clause (ii)
of the preceding sentence, shall entitle the Registered Holder solely to the
amount of cash to which the Stock otherwise deliverable upon exercise of the
Warrants would have been entitled as if such Warrants had been exercised
immediately prior to such cash-out merger.
SECTION 7
NOTICE OF ADJUSTMENT
--------------------
Immediately upon any adjustment of the Exercise Price, or increase or
decrease in the number of shares of Stock purchasable upon exercise of these
Warrants, the Company will send written notice thereof to the Registered Holder,
stating the adjusted Exercise Price and the increased or decreased number of
shares of Stock purchasable upon exercise of these Warrants and setting forth in
reasonable detail the method of calculation for such adjustment and increase or
decrease. When appropriate, such notice may be given in advance and included as
part of any notice required to be given pursuant to Section 8 below.
SECTION 8
PRIOR NOTICE OF CERTAIN EVENTS
------------------------------
If at any time:
(a) the Company shall pay any dividend payable in stock upon its
Common Stock or make any distribution (other than cash dividends payable out of
earnings or earned surplus) to the holders of its Common Stock;
(b) the Company shall offer for subscription pro rata to the holders
--------
of its Common Stock any additional shares of stock of any class or any other
rights;
7
<PAGE>
(c) there shall be any reorganization or reclassification of the
capital stock of the Company, any consolidation or merger of the Company with
another corporation, or a sale or disposition of all or substantially all its
assets; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation, or winding up of the Company,
then, in each such case, the Company shall give prior written notice, by hand
delivery or by first class mail, postage prepaid, addressed to the Registered
Holder at the address of such holder as shown on the books of the Company, of
the date on which (i) the books of the Company shall close or a record shall be
taken for such stock dividend, distribution, or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up shall take place, as the case may be. A copy of each
such notice shall be sent simultaneously to each transfer agent of the Common
Stock. Such notice shall also specify the date as of which the holders of
Common Stock of record shall participate in said dividend, distribution, or
subscription rights or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding up, as the case may be. Such written notice shall be given at least
twenty (20) days prior to the record date or the effective date, whichever is
earlier, of the subject action or other event.
SECTION 9
NEW PRO RATA PURCHASE RIGHTS
----------------------------
If at any time prior to the expiration of the Exercise Period the Company
grants, issues, or sells any stock or other securities convertible into or
exchangeable for Common Stock, options, or rights to purchase stock, warrants,
securities, or other property, pro rata to the record holders of Common Stock
(the "Purchase Rights"), then the Company shall grant or issue to the Registered
Holder the number of Purchase Rights which the Registered Holder would have been
entitled had the Registered Holder exercised the Warrants immediately prior to
the record date for the grant or issuance of such Purchase Rights (but only with
respect to such number of the Warrants as had not previously been exercised).
SECTION 10
RESERVATION OF COMMON STOCK
---------------------------
The Company will at all times reserve and keep available for issuance upon
the exercise of these Warrants such number of its authorized but unissued shares
of Common Stock as will be sufficient to permit the exercise in full of all
outstanding Representatives' Warrants and Purchase Rights, and the Company
covenants and agrees that, upon such issuance such shares of Common Stock will
be validly issued, fully paid, and nonassessable and not subject to the
preemptive right of any stockholder. As long as any Representatives' Warrants
shall be outstanding, the Company shall use its best efforts to cause all shares
of Stock issuable upon the exercise of the Warrants to be approved for listing
(subject to official notice of issuance) on all securities exchanges on which
the Common Stock issued to the public in connection herewith may then be listed
and/or quoted on Nasdaq.
8
<PAGE>
SECTION 11
NO STOCKHOLDER RIGHTS OR OBLIGATION
-----------------------------------
These Warrants will not entitle the Registered Holder to any voting
rights or other rights as a stockholder of the Company, except as specifically
provided in this Agreement. No provision of this Certificate, in the absence of
affirmative action by the Registered Holder to purchase Stock, and no
enumeration in this Certificate of the rights or privileges of the Registered
Holder, will give rise to any obligation of such Registered Holder for the
Exercise Price of Stock acquirable by exercise hereof or as a stockholder of the
Company.
SECTION 12
EXCHANGE AND REPLACEMENT
FOR DIFFERENT DENOMINATIONS
---------------------------
This Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the principal office of the Company, for new Certificates
of like tenor representing in the aggregate the number of Warrants hereunder,
and each of such new Certificates, as set forth on the front page hereof, will
represent such portion of such Warrants as is designated by the Registered
Holder at the time of such surrender. Upon receipt by the Company of evidence
reasonably satisfactory to it of loss, theft or destruction or mutilation of
this Certificate and, in the case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it and reimbursement of all reasonable
expenses, and upon surrender and cancellation of this Certificate, if
mutilated, the Company will make and deliver a new Certificate of like tenor, in
lieu thereof. The date the Company initially issued these Warrants, which is
set forth on the front page hereof, will be deemed to be the "Date of Issuance"
of these Warrants and any Warrants exchanged or substituted therefor, regardless
of the number of times (and dates on which) new certificates representing the
unexpired and unexercised rights formerly represented by the Warrants are
issued.
SECTION 13
TRANSFERABILITY
---------------
Subject to the transfer conditions referred to in Section 2 or in the
remaining provisions or this Section 13, these Warrants and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder,
upon surrender of this Certificate with a properly executed Assignment (in the
form of Exhibit II hereto) at the principal office of the Company located at 498
N. Oak Street, Inglewood, CA 09302. The Warrants and the Stock issued upon
exercise hereof may not be offered, sold, or transferred except in compliance
with the Securities Act of 1933, as amended (the "Act"), and any applicable
state securities laws; and then only against receipt of an agreement of the
Person to whom such offer or sale is made to comply with the provisions of this
Section 13 with respect to any resale or other disposition of such securities;
provided that no such agreement shall be required from any Person purchasing any
Warrants or any underlying security pursuant to a registration statement
effective under the Act. The Registered Holder agrees that, prior to the
disposition of any Stock purchased on the exercise hereof under circumstances
that might require registration of such Stock under the Act, or any similar
statute then in effect, the Registered Holder shall give written notice to the
Company, expressing
9
<PAGE>
his intention as to such disposition. Promptly upon receiving such notice, the
Company shall present a copy thereof to its securities counsel. If, in the
opinion of such counsel, the proposed disposition does not require registration
of such Stock under the Act, or any similar statute then in effect, the Company
shall, as promptly as practicable, notify the Registered Holder of such opinion,
whereupon the Registered Holder shall be entitled to dispose of such Stock in
accordance with the terms of the notice delivered by the Registered Holder to
the Company. The above agreement by the Registered Holder shall not be deemed
to limit or restrict in any respect the exercise of rights set forth in Section
14 hereof.
SECTION 14
REGISTRATION RIGHTS
-------------------
14.1 DEMAND RIGHTS. At any time during the Exercise Period, the
-------------
registered holders of Stock whose holdings thereof comprise a "majority" (as
hereinafter defined) of the shares of Stock purchasable upon the exercise of
outstanding Representatives' Warrants shall have the right (which right is in
addition to the registration rights under Section 14.2 hereof), exercisable by
written notice to the Company, to require the Company to prepare and file with
the Commission, on one occasion, a new registration statement under the Act (or,
in lieu thereof, a post-effective amendment or amendments to the Registration
Statement, if then permitted under the Act), covering all or any portion (as
designated by the registered holders) of the Warrant Securities (as hereinafter
defined) and to use its best efforts to obtain promptly and maintain the
effectiveness thereof for at least nine (9) months. For purposes hereof, the
term "Warrant Securities" shall mean the shares of Stock purchasable upon the
exercise of outstanding Warrants and outstanding shares of Stock from exercise
of Representatives' Warrants not previously sold pursuant to a registration
statement as contemplated by this Section 14. The Company covenants and agrees
to give written notice of any registration request under this Section 14.1 by
any Registered Holder to all other Registered Holders of the Warrant Securities
within ten (10) days from the date of receipt of any such registration request.
Registered holders electing to participate in any registration statement
pursuant to this Section 14.1 or Section 14.2 hereof, are referred to herein as
"Participating Holders".
14.2 "PIGGYBACK RIGHTS". In addition, if at any time during the
------------------
seven (7) years after the Effective Date, the Company shall prepare and file one
or more post-effective amendments to the Registration Statement, or new
registration statements under the Act, with respect to a public offering of
equity or debt securities of the Company, or of any such securities of the
Company held by its security holders, other than registration statements on
forms S-4 or S-8 (or their successor forms), the Company will include in any
such post-effective amendment such information as may be required to permit a
public offering of the Warrant Securities by the Participating Holders thereof
or their respective designees or transferees, or will include in any such new
registration statement such information as is required, and such number of
Warrant Securities held by the Participating Holders thereof or their respective
designees or transferees as may be requested by them, to permit a public
offering of the Warrant Securities so requested; provided, however, that in the
-------- -------
case of an underwritten offering, if, in the written opinion of the Company's
managing underwriter for such offering, the inclusion of the Warrant Securities
requested to be registered, when added to the securities being registered by the
Company or any other selling security holder(s), would exceed the maximum amount
of the Company's securities that can be marketed without otherwise materially
and adversely affecting the entire offering, then such managing underwriter may
exclude from such offering that portion of the Warrant Securities requested to
be so registered, so that the total number of securities to be registered is
within the maximum number of shares that, in the opinion of the managing
underwriter, may be marketed without otherwise materially and adversely affect
the entire offering, provided that at least a pro rata amount of the securities
that otherwise were proposed to be registered for other stockholders (but not
the Company and other than with respect to securities
10
<PAGE>
registered pursuant to demand registration rights if such securities are
otherwise included in the underwriting) is also excluded. In the event of such
a proposed registration, the Company shall furnish the then Registered Holders
of Warrant Securities with not less than twenty (20) days' written notice prior
to the proposed date of filing of such post-effective amendment or new
registration statement. Such notice shall continue to be given by the Company
to Registered Holders of Warrant Securities, with respect to subsequent
registration statements or post-effective amendments filed by the Company, until
such time as all of the Warrant Securities have been registered or may be sold
without registration under the Act or applicable state securities laws and
regulations, and without limitation as to volume, pursuant to Rule 144 of the
Act. The holders of Warrant Securities shall exercise the rights provided for
in this Subsection 14.2 by giving written notice to the Company, within fifteen
(15) days of receipt of the Company's notice of its intention to file a post-
effective amendment or new registration statement. In the event the offering
involves an underwritten offering, the Participating Holders shall also execute,
and be a party to, the underwriting agreement of the Company.
14.3 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
-----------------------------------------------------
connection with any registration under Section 14.1 or 14.2 hereof, the Company
covenants and agrees as follows:
(a) For any registration undertaken pursuant to Section 14.1
hereof, the Company shall use its best efforts to file a registration statement
within sixty (60) days of receipt of any demand therefor, shall use its best
efforts to have any registration statements declared effective at the earliest
possible time, and shall furnish each Participating Holder desiring to sell
Warrant Securities such number of prospectuses as shall reasonably be required;
provided, however, that the Company may at any time, delay the filing or delay
- -------- -------
or suspend the effectiveness of such demand registration or, without suspending
such effectiveness, instruct the Participating Holder(s) not to sell any
securities included in such demand registration if the Company shall have
determined upon the written advice of counsel (confirmation of which notice
shall be provided to the Participating Holder(s) in writing by such counsel)
that the Company would be required to disclose any actions taken or proposed to
be taken by the Company in good faith and for valid business reasons, including
without limitation, the acquisition or divestiture of assets, and the Company
believes such disclosure would have a material adverse effect on the Company or
on such actions (a "Suspension Period") by providing the Participating
Holder(s) with written notice of such Suspension Period and the reasons
therefor; and provided further, that the Suspension Periods, in the aggregate,
-------- -------
do not exceed sixty (60) days. The Company shall provide such notice as soon as
practicable and in any event prior to the commencement of such a Suspension
Period. Provided the Participating Holders(s) requesting registration shall
have timely furnished the Company with all information and taken such other
actions as may be required by the Company in order to effect such registration,
if the Company shall willfully fail to comply with the provisions of Section
14.3(a), the Company shall, in addition to any other equitable or other relief
available to the Participating Holder(s), extend the Exercise Period by such
number of days as shall equal the delay caused by the Company's failure.
(b) The Company shall pay all costs (excluding fees and expenses
of the Registered Holder(s)' counsel and any underwriting or selling commissions
or other charges of any broker-dealer acting on behalf of the Participating
Holder(s) and except to the extent persons other than Participating Holders have
agreed to pay such costs), fees and expenses in connection with all post-
effective amendments or new registration statements filed pursuant to Sections
14.1 and 14.2 hereof including, without limitation, the Company's legal and
accounting fees, printing expenses, blue sky fees and expenses.
11
<PAGE>
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as is reasonably requested by the Participating Holder(s),
provided that the Company shall not be obligated to execute or file any general
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(d) Nothing contained in this Agreement shall be construed as
requiring the Registered Holder(s) to exercise the Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(e) The Company shall furnish to each Participating Holder a
signed counterpart, addressed to such Participating Holder, of (i) if such
registration includes an underwritten public offering, an opinion of counsel to
the Company, dated the effective date of such registration statement and an
opinion dated the date of the closing under the underwriting agreement, and (ii)
a "cold comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
dated the date of the closing under the agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(f) The Company shall as soon as practicable after the effective
date of the registration statement, and in any event within fifteen (15) months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least twelve (12) consecutive months beginning after the effective date of the
registration statement.
(g) The Company shall deliver promptly to each Participating
Holder who shall have requested in writing the correspondence and memoranda
described below and to the managing underwriters, if any, copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the registration statement and permit each Participating Holder and
underwriter to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration statement
as it deems reasonably necessary to comply with applicable securities laws or
rules of the NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such Participating Holder or underwriter
shall reasonably request.
(h) The Company agrees that until all the Warrant Securities
have been sold under a registration statement or pursuant to Rule 144 under the
Act, it shall keep current in filing all reports, statements and other materials
required to be filed with the Commission to permit Registered Holders of the
Warrant Securities to sell such securities under Rule 144.
(i) For purposes of this Agreement, the term "majority" in
reference to the Registered Holder(s) of Warrant Securities, shall mean in
excess of fifty percent (50%) of the then outstanding Warrant Securities that
(i) are not held by the Company, an affiliate (excluding any director
12
<PAGE>
who is also an affiliate of an Underwriter), officer, creditor, employee or
agent thereof or any of their respective affiliates, members of their family,
persons acting as nominees or in conjunction therewith, and (ii) have not been
resold to the public pursuant to a registration statement filed with the
Commission under the Act.
14.4 BLACK-OUT PERIODS The Registered Holder agrees that, upon
-----------------
receipt of any notice from the Company of an Amendment Event, the Registered
Holder will discontinue disposition of Warrant Securities pursuant to the
registration statement until the Holder receives copies of the supplemented or
amended prospectus which reflects the Amendment Event. If directed by the
Company, the Registered Holder will also deliver to the Company all copies,
other than any permanent file copies then in such Holder's possession, of the
most recent prospectus covering such Warrant Securities. In the event that the
Company shall give such notice, the Company shall extend the period during which
the registration statement shall be maintained effective by the number of days
which the Registered Holder shall have been required to discontinue disposition
of the Warrant Securities pursuant to such notice. An "Amendment Event" shall
mean an event requiring the preparation of a supplement or amendment to the
prospectus so that, as thereafter delivered to a purchaser of Warrant
Securities, such prospectus would not contain an untrue statement of material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made.
14.5 INDEMNIFICATION The sellers of Warrant Securities issuable upon
---------------
exercise thereof shall be indemnified by the Company in the same manner as is
contained in Section 9(a)(c) and (e) of the Agreement between the Company and
the Underwriters, with respect to such post-effective amendments, additional
registration statements and prospectuses to the same extent as the Underwriters
are covered by indemnity agreements with respect to the Registration Statement,
and each seller of Warrant Securities shall indemnify the Company and any
Underwriter in the same manner as is contained in Section 9(b), (c) and (e) of
the Agreement to the same extent as the Company and Underwriters are covered by
the indemnity provisions of Section 9(b) of the Agreement.
14.6 SURVIVAL. The rights and obligations set forth in this Section
--------
14 shall survive the exercise and surrender of these Warrants.
SECTION 15
MISCELLANEOUS
-------------
15.1 ORIGINAL ISSUE TAXES. The Company will pay all United States,
--------------------
state and local (but not foreign) original issue taxes, if any, upon the
issuance of these Warrants or the Stock deliverable upon exercise hereof.
15.2 AMENDMENT AND WAIVER. Except as otherwise provided herein, the
--------------------
provisions of this Certificate may be amended, and the Company may take any
action herein prohibited or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders representing at least fifty percent (50%) of the
Representatives' Warrants outstanding at the time of such consent.
15.3 NOTICES. Any notices required to be sent to a Registered Holder
-------
or of any Common Stock purchased upon the exercise hereof will be delivered to
the address of such Registered Holder shown on
13
<PAGE>
the books of the Company. All notices referred to herein will be delivered in
person or sent by registered or certified mail, postage prepaid, and will be
deemed to have been given when so delivered in person, by facsimile, overnight
courier or on the third business day following the date so sent by mail.
Whether or not Fechtor, Detwiler shall then be a Registered Holder, a copy of
any notice sent to such a Registered Holder shall be sent to it, in the manner
provided above, at the following address:
Fechtor, Detwiler & Co., Inc.
70 East 55th Street, 24th Floor
New York, NY 10022
(212) 888-0808 Telephone No.
(212) 888-8008 Fax No.
Attn:__________________
and
Fechtor, Detwiler & Co., Inc.
2255 Glades Road
Suite 234W
Boca Raton, FL 33431
(561) 998-1577 Telephone No.
(561) 998-0370 Fax No.
Attn: Maurice Buchsbaum,
with a copy to:
Proskauer Rose LLP
2255 Glades Road, Suite 340 West
Boca Raton, FL 33431
Attn: Christopher C. Wheeler, Esq.
Donald E. Thompson, II, Esq.
(561) 241-7400 Telephone No.
(561) 241-7145 Fax No.
15.4 DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive headings of the
-----------------------------------
sections and paragraphs of this Certificate are inserted for convenience only
and do not constitute a part of the Warrants. The construction, validity, and
interpretation of these Warrants will be governed by the laws of the
Commonwealth of Massachusetts, without giving effect to choice of law or
conflict of laws principles thereof.
[Signatures Appear on the Following Page]
14
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be executed
and attested by its duly authorized officers under its corporate seal.
SIGNATURE EYEWEAR, INC.,
a California corporation
By:______________________
Name:____________________
Title:___________________
[Corporate Seal]
Attest:
________________________
Name:___________________
Title:__________________
15
<PAGE>
EXHIBIT I
---------
EXERCISE AGREEMENT
------------------
To: Dated:
THE UNDERSIGNED Registered Holder, pursuant to the provisions set forth in
the within Representatives' Warrants, hereby exercises _________ of the Warrants
covered by such Warrants and herewith either makes full cash payment of
$______________ for such Common Stock or otherwise tenders that number of the
Warrants for cashless exercise as is permitted by Section 3.3 thereof, at the
Exercise Price provided by such Representatives' Warrants.
-------------------------
(Signature)
-------------------------
(Print or type name)
-------------------------
(Address)
-------------------------
-------------------------
NOTICE: The signature on this Exercise Agreement must correspond with the
name as written upon the face of the within Certificate, or upon the Assignment
thereof if applicable, in every particular, without alteration, enlargement, or
any change whatsoever, and must be Medallion guaranteed by a bank, other than a
saving bank, having an office or correspondent in New York, New York, Boca Raton
or Miami, Florida, or Boston, Massachusetts, or by a firm having membership on a
registered national securities exchange and an notice in New York, New York,
Boca Raton or Miami, Florida, or Boston, Massachusetts.
SIGNATURE GUARANTEE
Authorized Signature:-------------------------
Name of Bank or Firm:-------------------------
Dated:----------------------------------------
16
<PAGE>
EXHIBIT II
----------
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned Registered Holder hereby sells,
assigns, and transfers all of the rights of the undersigned under the within
Certificate with respect to the number of Securities covered thereby set forth
below, unto the Assignee identified below, and does hereby irrevocably
constitute and appoint ___________________ ______________________________ to
effect such transfer of rights on the books of the Company, with full power of
substitution:
<TABLE>
<CAPTION>
- ------------------- ------------------- --------------- ---------------
No. of Shares
Name of Assignee Address of Assignee of Common Stock No. of Warrants
- ------------------- ------------------- --------------- ---------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
Dated:
------------- --------------------------------
(Signature of Registered Holder)
--------------------------------
(Print or type name)
NOTICE: The signature on this Assignment must correspond with the name as
written upon the face of the within Certificate, in every particular, without
alteration, enlargement, or any change whatsoever, and must be Medallion
guaranteed by a bank, other than a savings bank, having an office or
correspondent in New York, New York, Boca Raton or Miami, Florida, or Boston,
Massachusetts, or by a firm having membership on a registered national
securities exchange and an office in New York, New York, Boca Raton or Miami,
Florida, or Boston, Massachusetts.
SIGNATURE GUARANTEE
Authorized Signature:
-----------------------------------
Name of Bank or Firm:
-----------------------------------
Dated:
--------------------------------------------------
156012 v4
17
<PAGE>
EXHIBIT 5.1
Troop Meisinger Steuber & Pasich, LLP
lawyers
August 27, 1997
Signature Eyewear, Inc.
498 North Oak Street
Inglewood, CA 90302
Ladies/Gentlemen:
At your request, we have examined the Registration Statement on Form S-1
(the "Registration Statement") to which this letter is attached as Exhibit 5.1
filed by Signature Eyewear, Inc., a California corporation (the "Company"), in
order to register under the Securities Act of 1933 (the "Act"), 1,600,000 shares
of Common Stock, par value $0.001 per share (the "Common Stock"), of the Company
(the "Company Firm Shares"), 200,000 shares of Common Stock of certain selling
shareholders (the "Selling Shareholder Firm Shares"), a warrant to purchase up
to 180,000 shares of Common Stock to be issued to the Representatives of the
Underwriters (the "Representatives' Warrant"), 180,000 shares of Common Stock
underlying the Representatives' Warrant (the "Underlying Shares"), up to an
additional 67,500 shares of Common Stock of the Company (the "Company Option
Shares") and 202,500 shares of Common Stock of certain selling shareholders (the
"Selling Shareholder Option Shares" and together with the Selling Shareholder
Firm Shares, the "Selling Shareholder Shares") subject to the Underwriters'
over-allotment option, and any additional shares of Common Stock of the Company
which may be registered pursuant to Rule 462(b) under the Act (together with the
Company Firm Shares and the Company Option Shares, the "Company Shares").
We are of the opinion that the Company Shares have been duly authorized and
upon issuance and sale of the Shares in conformity with and pursuant to the
Registration Statement, the Shares will be validly issued, fully paid and non-
assessable.
We are of the opinion that the Selling Shareholder Shares have been duly
authorized and are validly issued, fully paid and non-assessable.
We are of the opinion that the Representatives' Warrant has been duly
authorized and upon issuance and sale of the Representatives' Warrant in
conformity with and pursuant to the Registration Statement, the Representatives'
Warrant will be validly issued, fully paid and non-assessable.
<PAGE>
Signature Eyewear, Inc.
August 27, 1997
Page 2
We are of the opinion that the Underlying Shares have been duly authorized
and, upon exercise and payment of the exercise price therefor in accordance with
the terms of the Representatives' Warrant, will be validly issued, fully paid
and non-assessable.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to use of our name in the Prospectus constituting a part thereof.
Respectfully submitted,
/s/ Troop Meisinger Steuber & Pasich, LLP
TROOP MEISINGER STEUBER & PASICH, LLP
<PAGE>
Exhibit 10.1
SIGNATURE EYEWEAR, INC.
1997 STOCK PLAN
1. PURPOSE OF THE PLAN.
The purpose of this 1997 Stock Plan (the "Plan") is to provide incentives
and rewards to selected eligible directors, officers, employees and consultants
of Signature Eyewear, Inc. (the "Company") or its subsidiaries in order to
assist the Company and its subsidiaries in attracting, retaining and motivating
those persons by providing for or increasing the proprietary interests of those
persons in the Company, and by associating their interests in the Company with
those of the Company's shareholders.
2. ADMINISTRATION OF THE PLAN.
The power to administer the Plan shall be vested in the Board of
Directors of the Company (the "Board"), or in a committee of the Board (the
"Committee") whose members shall serve at the pleasure of the Board. During the
time the administration of the Plan is delegated to the Committee, the Committee
shall have all powers previously possessed by the Board relating to the
administration of the Plan (and references in this Plan to the Board shall
thereafter be to the Committee) subject, however, to any resolutions which are
consistent with the provisions of the Plan and which the Board may from time to
time adopt.
The Board shall have all of the following exclusive powers: (a) to
select, from among eligible directors, officers, employees and consultants,
those persons to be granted "Awards" (as defined in Paragraph 4 below) under the
Plan; (b) to determine the type, size and terms of individual Awards (which need
not be identical) to be made to each person selected; (c) to determine the time
when Awards shall be granted and to establish objectives and conditions
(including, without limitation, vesting and performance conditions), if any, for
earning Awards; (d) to amend the terms or conditions of any outstanding Award,
subject to applicable legal restrictions and to the consent of the other party
to the Award; (e) to determine the duration and purpose of leaves of absences
which may be granted to holders of Awards without constituting termination of
their employment for purposes of their Awards; (f) to authorize any person to
execute, on behalf of the Company, any instrument required to carry out the
purposes of the Plan; and (g) to make any and all other determinations which it
deems necessary or advisable in the administration of the Plan. The Board shall
have the exclusive power, as it deems necessary or advisable, to administer and
interpret the Plan and to adopt, amend and revoke any rules, regulations,
agreements, guidelines and instruments for the administration of the Plan and
for the conduct of its business. The Board's interpretation of the Plan, and all
actions taken and determinations made by the Board pursuant to the powers vested
in it under the Plan, shall be conclusive and binding on all parties concerned,
including the Company, its shareholders, any Participants in the Plan and any
other employee of the Company or any of its subsidiaries.
3. PERSONS ELIGIBLE UNDER THE PLAN.
Page 1
<PAGE>
Any person who is a director, officer, employee or consultant of the
Company, or any of its subsidiaries (a "Participant"), shall be eligible to be
considered for the grant of an Award or Awards under the Plan.
4. AWARDS.
(a) Common Stock and Derivative Security Awards. An award authorized
under the Plan (an "Award") shall consist of any type of arrangement with a
Participant that is consistent with the provisions of the Plan and that, by its
terms, involves or might involve or be made with reference to the issuance of
(i) shares of the Common Stock, $.001 par value per share, of the Company (the
"Common Stock") or (ii) a "derivative security" (as that term is defined in Rule
16a-1(c) of the Rules and Regulations of the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended, as the same may be
amended from time to time) with an exercise or conversion price related to the
Common Stock or with a value derived from the value of the Common Stock.
(b) Types of Awards. Awards are not restricted to any specified form
or structure and may include, but need not be limited to, sales, bonuses and
other transfers of stock, restricted stock, stock options, reload stock options,
stock purchase warrants, other rights to acquire stock or securities convertible
into or redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares, or any other type of Award
which the Board deems to be consistent with the objectives and limitations of
the Plan. An Award may consist of one such security or benefit, or two or more
of them in tandem or in the alternative.
(c) Consideration. Common Stock may be issued pursuant to an Award for
any lawful consideration as determined by the Board, including, without
limitation, a cash payment, services rendered, or the cancellation of
indebtedness.
(d) Guidelines. The Board may from time to time adopt, amend or revoke
written policies implementing the Plan. Those policies may include, but need not
be limited to, the type, size and term of Awards to be made to Participants and
the conditions for payment of the Awards.
(e) Terms and Conditions. Subject to the provisions of the Plan, the
Board, in its sole and absolute discretion, shall determine all of the terms and
conditions of each Award granted pursuant to the Plan, which terms and
conditions may include, among other things:
(i) any provision necessary for an Award to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") (an "Incentive Stock Option");
(ii) a provision permitting the recipient of an Award to pay the
purchase price of the Common Stock or other property issuable pursuant to
the Award, or to pay the recipient's tax withholding obligation relating
to that issuance, in whole or in part, by delivering previously owned
shares of capital stock of the Company (including "pyramiding") or other
Page 2
<PAGE>
property, or by reducing the number of shares of Common Stock or the
amount of other property otherwise issuable pursuant to the Award; or
(iii) a provision conditioning or accelerating the receipt of benefits
pursuant to the Award, or terminating the Award, either automatically or
in the discretion of the Board, upon the occurrence of specified events,
including, without limitation, a change of control of the Company, an
acquisition of a specified percentage of the voting power of the Company,
the dissolution or liquidation of the Company, a sale of substantially
all of the property and assets of the Company or an event of the type
described in Section 7 of the Plan.
(f) Suspension or Termination of Awards. If the Company believes that
a Participant has committed an act of misconduct as described below, the Company
may suspend the Participant's rights under any then outstanding Award pending a
determination by the Board. If the Board determines that a Participant has
committed an act of embezzlement, fraud, nonpayment of any obligation owed to
the Company or any subsidiary, breach of fiduciary duty or deliberate disregard
of the Company's rules resulting in loss, damage or injury to the Company, or if
a Participant makes an unauthorized disclosure of a trade secret or confidential
information of the Company, engages in any conduct constituting unfair
competition, or induces any customer of the Company to breach a contract with
the Company, neither the Participant nor his or her estate shall be entitled to
exercise any rights whatsoever relating to any then outstanding Award. In making
such a determination, the Board shall act fairly and shall give the Participant
a reasonable opportunity to appear and present evidence on his or her behalf to
the Board.
(g) Maximum Grant of Awards to any Participant. No Participant shall
receive Awards representing more than 25% of the aggregate number of shares of
Common Stock issuable pursuant to all Awards under the Plan as set forth in
Section 5 of the Plan.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
The aggregate number of shares of Common Stock issuable pursuant to all
Awards under the Plan (including Awards in the form of Incentive Stock Options
and Non-Statutory Stock Options) shall not exceed 600,000, subject to adjustment
as provided in Section 7 of the Plan. Shares of Common Stock subject to the Plan
may consist, in whole or in part, of authorized and unissued shares or treasury
shares. If any Award either expires or is terminated leaving all or a portion of
the shares of Common Stock subject to the Award unexercised, the unexercised
shares shall again be available for issuance under the Plan. For purposes of
this Section 5, the aggregate number of shares of Common Stock that may be
issued at any time pursuant to Awards granted under the Plan shall be reduced
by: (i) the number of shares of Common Stock previously issued pursuant to
Awards granted under the Plan, other than shares of Common Stock subsequently
reacquired by the Company pursuant to the terms and conditions of such Awards
and for which the holder received no benefits of ownership, such as dividends;
and (ii) the number of shares of Common Stock which would otherwise have been
issuable pursuant to Awards granted under this Plan but which the Company
withheld as payment either of the purchase price for the Common Stock issued
pursuant to those Awards or of the recipient's tax withholding obligation
relating to that issuance.
Page 3
<PAGE>
6. PAYMENT OF AWARDS.
The Board shall determine the extent to which Awards shall be payable in
cash, shares of Common Stock or any combination thereof. The Board may, upon
request of a Participant, determine that the Company may defer all or a portion
of a payment to that Participant under the Plan (whether the Award is to be made
in cash, shares of Common Stock or a combination thereof). The Board may
determine in its sole discretion the period and the terms of any such deferrals.
7. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding shares of the Common Stock
or other securities then subject to the Plan by reason of any stock split,
reverse stock split, stock dividend, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change, or if the
outstanding securities of the class then subject to the Plan are exchanged for
or converted into cash, property or a different kind of securities, or if cash,
property or securities are distributed in connection with all outstanding
securities as a class (other than cash dividends), then the Board may make such
equitable adjustments to the Plan and to any Awards (including, without
limitation, appropriate and proportionate adjustments in (a) the number and type
of shares or other securities or cash or other property that may be acquired
pursuant to Awards then outstanding, and (b) the maximum number and type of
shares or other securities that may be issued pursuant to Awards granted
thereafter) as the Board deems appropriate.
8. MISCELLANEOUS PROVISIONS.
(a) Definitions. As used in the Plan, "subsidiary" means any future
corporation which would be a "subsidiary corporation," as that term is defined
in Section 424(f) of the Code, of the Company; and the term "or" means "and/or."
(b) Conditions on Issuance. No securities shall not be issued pursuant
to any Award unless their grant and issuance complies with all relevant
provisions of law and the requirements of any securities exchange or quotation
system upon which any securities of the Company are then listed, as determined
by counsel for the Company. If the Company is unable to obtain authority from
any regulatory body having jurisdiction to issue or sell any securities or
Award, and Company counsel determines that the authority is necessary for their
lawful issuance or sale, then the Company shall be relieved of any liability
relating to the failure to issue or sell the securities.
(c) Rights as Shareholder. A Participant shall have no rights as a
holder of shares of Common Stock pursuant to Awards under the Plan, unless and
until certificates for those shares are issued to the Participant.
(d) Assignment or Transfer. Subject to the discretion of the Board,
and except for
Page 4
<PAGE>
Incentive Stock Options which are not transferable except by will
or the laws of descent and distribution, Awards under the Plan, and any rights
or interests in those Awards, may be assigned or transferred.
(e) Agreements. All Awards granted under the Plan shall evidenced by
written agreements in such form and containing such terms and conditions
(consistent with the Plan) as the Board may from time to time adopt.
(f) Withholding Taxes. The Company shall have the right to deduct from
all Awards paid in cash any federal, state, local or foreign taxes required by
law to be withheld for that type of award and, for Awards paid in Common Stock,
to require the payment of any such taxes, through withholding from the
Participant's salary or otherwise. The Company's obligation to deliver Awards in
cash or Common Stock shall be subject to the restrictions imposed by any and all
governmental authorities.
(g) No Rights to Award. No Participant or other person shall have any
right to be granted an Award under the Plan. Neither the Plan nor any action
taken under the Plan (i) shall be construed as giving any Participant any right
to be retained in the employ of the Company or any of its subsidiaries or (ii)
shall interfere with or restrict in any way the rights of the Company or any of
its subsidiaries, which are hereby reserved, to discharge a Participant at any
time for any reason whatsoever, with or without good cause.
(h) Costs and Expenses. The Company shall bear the costs and expenses
of administering the Plan. No such costs or expenses shall be charged to any
Award or to any Participant receiving an Award.
(i) Funding of Plan. The Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to segregate any assets
to assure the payment of any Award under the Plan.
9. AMENDMENTS AND TERMINATION.
(a) Amendments. The Board may at any time terminate or from time to
time amend the Plan in whole or in part, but no such action shall adversely
affect any rights or obligations relating to any Award previously made under the
Plan. However, with the consent of the Participant affected, the Board may amend
outstanding agreements evidencing Awards under the Plan in a manner consistent
with the terms of the Plan.
(b) Shareholder Approval. To the extent that Section 422 of the Code,
other applicable law, or the rules, regulations, procedures or listing agreement
of any national securities exchange or quotation system, requires that any
amendment of the Plan be approved by the shareholders of the Company, no such
amendment shall be effective unless and until it is approved by the shareholders
in such a manner and to such a degree as is required.
(c) Termination. Unless previously terminated as provided above, the
Plan (but not the Awards already granted under the Plan) shall terminate on and
no Awards shall be granted after
Page 5
<PAGE>
May 27, 2007.
10. EFFECTIVE DATE.
(b) Effective Date. The Plan is effective on May 27, 1997, the date on
which it was adopted by the Board of Directors of the Company and the holders of
the majority of the shares of Common Stock.
(b) Dates of Amendments. This Plan was amended on August 27, 1997 by the
Board of Directors of the Company, and the majority of its shareholders approved
that amendment.
11. GOVERNING LAW.
The Plan and any agreements entered into under the Plan shall be
construed and governed by the laws of the State of California applicable to
contracts made within, and to be performed wholly within, that state, without
regard to the application of its rules of conflict of laws.
Page 6
<PAGE>
EXHIBIT 10.4
TAX INDEMNIFICATION AGREEMENT
THIS TAX INDEMNIFICATION AGREEMENT (this "AGREEMENT") is made this ___ day
of _________, 1997, between Signature Eyewear, Inc., a California corporation
(the "COMPANY"), and The Weiss Family Trust, Bernard Weiss, Julie Heldman,
Edward Weiner, Daniel Warren, Robert Fried, Robert Zeichick and Michael Prince
(collectively, the "SHAREHOLDERS") (the Company and the Shareholders are
hereinafter referred to individually as a "PARTY" and collectively as the
"PARTIES").
WHEREAS, the Company contemplates a public offering of its stock in order
to raise additional equity capital for the expansion of the Company's business
operations (the "PUBLIC OFFERING");
WHEREAS, the execution of this Agreement by the Company and the
Shareholders is a condition to the closing (the "CLOSING") of the contemplated
Public Offering;
WHEREAS, from November 1, 1990 through _________, 1997 the Company was an S
corporation under the Internal Revenue Code of 1986, as amended (the "CODE"),
after which it became a C corporation under the Code (and under the
corresponding provisions of state income tax law);
WHEREAS, on ____________, 1997 the Company elected under Section 1362(e)(3)
of the Code to have the rules of Section 1362(e)(2) not apply for its S
Termination year (as hereinafter defined); and
WHEREAS, the Company and the Shareholders wish to provide for a tax
indemnification agreement in connection with the Company's termination as an S
corporation.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions. The following terms, as used herein, have the following
-----------
meanings:
"C CORPORATION TAXABLE YEAR" means any taxable year or portion thereof
during which the Company is taxable as a C Corporation.
"C SHORT YEAR" means that portion of the S Termination Year of the Company
defined in Section 1362(e)(1)(B) of the Code.
"S CORPORATION TAXABLE INCOME" means the taxable income of the Company from
all sources through and including the close of business on the last day of the S
Short Year of the Company.
<PAGE>
"S CORPORATION TAXABLE YEAR" means any taxable year or portion thereof
during which the Company is taxable as an S corporation.
"S SHORT YEAR" means that portion of the S Termination Year of the Company
defined in Section 1362(e)(1)(A) of the Code.
"S TERMINATION YEAR" shall have the meaning set forth in Section 1362(e)(4)
of the Code.
ARTICLE II
TAXES
-----
2.1 Shareholders' Filing of Tax Returns and Payment of Taxes. Each
--------------------------------------------------------
Shareholder, severally and not jointly, represents, covenants and agrees that:
(i) such Shareholder has duly included, or shall duly include, in his or her own
federal and state income tax returns his or her share of all items of income,
gain, loss, deduction or credit attributable to the S Short Year of the Company
or any prior period (or that portion of any period) during which the Company was
an S corporation as required by applicable law; (ii) such returns have included,
or shall include, his or her allocable share of S Corporation Taxable Income;
and (iii) such Shareholder has paid, or shall pay, any and all taxes he or she
is required to pay with respect to such allocable share of S Corporation Taxable
Income for all taxable periods (or that portion of any period) during which the
Company was an S corporation.
2.2 Company's Filing of Tax Returns and Payment of Taxes. The Company
----------------------------------------------------
represents, covenants and agrees that: (i) the Company is and shall be
responsible for and has effected, or shall effect, the filing of all federal,
state, foreign and local returns for the Company with respect to any and all
taxable periods; (ii) such Company returns have included, or shall include, the
Company's income from all sources for all periods covered by the returns; and
(iii) the Company has paid, or shall pay, any and all taxes required to be paid
by the Company for all periods covered by the returns as required by applicable
law.
2.3 Company's Indemnification for Tax Liabilities. The Company hereby
---------------------------------------------
indemnifies and agrees to hold each Shareholder harmless from, against and in
respect of any federal and state income tax liability (including interest and
penalties and any taxes resulting from payments under this Section 2.3, but
reduced by the benefit received from the deduction for state income taxes paid
against taxable income for federal income tax purposes), if any, incurred by
such Shareholder resulting from a final determination of an adjustment (by
reason of an amended return, claim for refund, audit or otherwise) to the
Company's taxable income resulting in a decrease in the Company's taxable income
and a corresponding increase in the federal or state, as the case may be,
taxable income of such Shareholder with respect to such Shareholder's allocable
share of S Corporation Taxable Income; provided, however, that in no event shall
the Company's liability to any one of the Shareholders under this Section 2.3
exceed the amount of the income tax liability (including interest and penalties
and any taxes resulting from payments
2
<PAGE>
under this Section 2.3) of such Shareholder arising from the increase in S
Corporation Taxable Income allocated to such Shareholder shifted from a C
Corporation Taxable Year to an S Corporation Taxable Year.
2.4 Shareholder Indemnification for Tax Liabilities.
-----------------------------------------------
(a) The Shareholders, severally (according to the percentage of the
outstanding shares of the Company's Common Stock owned by each Shareholder
during the applicable S Corporation Taxable Year from which there is a shift of
S Corporation Taxable Income, as referred to hereinbelow, pro rated by number of
days of ownership in the case of partial periods of ownership) and not jointly,
hereby indemnify and agree to hold the Company harmless from, against and in
respect of any federal and state income tax liability (including interest and
penalties and any taxes resulting from payments under this Section 2.4(a)), if
any, resulting from a final determination of any adjustment (by reason of an
amended return, claim for refund, audit or otherwise) to the Shareholders'
taxable income resulting in a decrease in the Shareholders' S Corporation
Taxable Income and a corresponding increase in the federal or state, as the case
may be, taxable income of the Company; provided, however, the amount of any such
indemnified tax liability shall be reduced by an amount equal to the refund of
state income tax, including interest, received by the Company for state income
taxes paid by the Company in respect of any taxable income shifted from an S
Corporation Taxable Year to a C Corporation Taxable Year of the Company which is
subject to indemnification hereunder; and provided, further, that in no event
shall any Shareholder's liability under this Section 2.4(a) exceed the amount of
any credit or refund of taxes and interest actually received by such Shareholder
as a result of such final determination, related final determination or claim
for refund.
(b) The Shareholders, severally (according to the percentage of the
outstanding shares of the Company's Common Stock owned by each Shareholder
during the applicable taxable period ending prior to _______________, 1997, with
respect to which it is determined that the Company was not an S Corporation) and
not jointly, hereby indemnify and agree to hold the Company harmless from,
against and in respect of any federal and state income tax liability (including
penalties, interest and any taxes resulting from the payments under this Section
2.4(b)) incurred by the Company as a result of a final determination that the
Company was not an S corporation for federal or state income tax purposes for
any taxable period ending prior to ______________, 1997 (including a short
taxable period ending the day before ______________, 1997); provided, however,
that in no event shall any Shareholder's liability under this paragraph 2.4(b)
exceed the amount any credit or refund of taxes and interest actually received
by such Shareholder as a result of such final determination, related final
determination or claim for refund.
2.5 Payments. The party (or parties) providing the indemnity under either
--------
Section 2.3 or Section 2.4 (the "INDEMNIFYING PARTY") shall make any payment
required to be paid under this Agreement to the party being indemnified under
Section 2.3 or Section 2.4, respectively (the "INDEMNIFIED PARTY"), within
thirty (30) days after the later to occur of (i) the receipt of notice from the
Indemnified Party that a payment is due by the Indemnified Party to
3
<PAGE>
the appropriate taxing authority pursuant to the applicable final determination
and (ii) the receipt by the Indemnifying Party of the credit or refund of taxes,
if any, resulting from the corresponding applicable final determination, related
final determination or claim for refund.
2.6 Subrogation. The Indemnifying Party shall be subrogated to all rights
-----------
of recovery that the Indemnified Party may have against any person or
organization in respect of the tax liabilities for which the Indemnifying Party
is providing indemnity. Such right of subrogation shall not exceed the amount
paid by the Indemnifying Party to the Indemnified Party. The Indemnified Party
shall execute and deliver instruments and papers and such other items, and take
such actions, as are reasonably necessary to secure such rights of subrogation
for the Indemnifying Party and to permit the Indemnifying Party to pursue such
rights of recovery.
ARTICLE III
MISCELLANEOUS
-------------
3.1 Notices. All notices and other communications made in connection with
-------
this Agreement shall be in writing and shall be deemed given when delivered
personally or sent by facsimile transmission to the numbers indicated below (if
physical confirmation of transmission is retained) or on the third succeeding
business day after being mailed by registered or certified mail, deposited in
the United States mail, postage prepaid, return receipt requested, to the
appropriate party at its, his or her address below or at such other address for
such party (as shall be specified by written notice when in fact delivered
pursuant hereto):
If to the Company, at:
Signature Eyewear, Inc.
498 North Oak Street
Inglewood, CA 90302
Attention: Mr. Michael Prince, CFO
Facsimile: (310) 330-2770
If to the Shareholders, at:
Ms. Julie Heldman
c/o Signature Eyewear, Inc.
498 North Oak Street
Inglewood, CA 90302
Facsimile: (310) 330-2770
3.2 Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed an original, but all of which counterparts
collectively shall constitute an instrument representing the agreement between
the parties hereto.
4
<PAGE>
3.3 Construction of Terms. Nothing herein expressed or implied is
---------------------
intended, or shall be construed, to confer upon or give any person, firm or
corporation, other than the parties hereto or their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
3.4 Governing Law. This Agreement and the legal relations between the
-------------
parties hereto shall be governed by and construed in accordance with the
substantive laws of the State of California without regard to California choice
of law rules.
3.5 Amendment and Modification. This Agreement may be amended by the
--------------------------
agreement of the Company and Shareholders holding a majority of the shares of
Common Stock outstanding on the date of this Agreement; provided, however, that
no amendment may adversely affect any particular Shareholder in a manner not
equally applicable to the other Shareholders unless such amendment is approved
by such Shareholder.
3.6 Assignment. 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, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties, nor is
this Agreement intended to confer upon any other person except the parties, any
rights or remedies hereunder; provided, however, nothing in this Section shall
be construed as prohibiting an assignment of this Agreement by the Company to a
successor by operation of law.
3.7 Interpretation. The title, articles and section headings contained in
--------------
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
3.8 Severability. In the event that any one or more of the provisions of
------------
this Agreement shall be held to be illegal, invalid or unenforceable in any
respect, the same shall not in any respect affect the validity, legality or
enforceability of the remainder of this Agreement, and the parties shall use
their best efforts to replace such illegal, invalid or unenforceable provisions
with an enforceable provision approximating, to the extent possible, the
original intent of the parties.
3.9 Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding of the parties hereto in respect of the subject matter contained
herein. There are no representations, promises, warranties, covenants, or
undertakings, other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and the understandings between the
parties with respect to such subject matter.
3.10 Arbitration. Any action to enforce or interpret this Agreement or to
-----------
resolve disputes arising in connection with this Agreement shall be settled by
arbitration in accordance with the rules of the American Arbitration
Association. Any party may commence arbitration by sending a written demand for
arbitration to the other parties. Such demand shall set forth
5
<PAGE>
the nature of the matter to be resolved by arbitration. The substantive law of
the State of California shall be applied by the arbitrator to the resolution of
the dispute. The Company, on the one hand, and the Shareholders, on the other
hand, shall share equally all initial costs of arbitration. The prevailing
party or parties shall be entitled to reimbursement of attorney fees, costs, and
expenses incurred in connection with the arbitration. All decisions of the
arbitrator shall be final, binding, and conclusive on all parties. Judgment may
be entered upon any such decision in accordance with applicable law in any court
having jurisdiction thereof.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement in Los
Angeles, California, as of this ___ day of ________, 1997.
SIGNATURE EYEWEAR, INC.
By:
---------------------------------------
Bernard Weiss, Co-Chairman of the Board
and Chief Executive Officer
SHAREHOLDERS:
THE WEISS FAMILY TRUST
By:
---------------------------------------
Bernard Weiss, Trustee
By:
---------------------------------------
Julie Heldman, Trustee
--------------------------------------------
Bernard Weiss
--------------------------------------------
Julie Heldman
--------------------------------------------
Edward Weiner
--------------------------------------------
Daniel Warren
--------------------------------------------
Robert Fried
--------------------------------------------
Robert Zeichick
--------------------------------------------
Michael Prince
7
<PAGE>
Exhibit 10.5
LICENSE AGREEMENT
LAURA ASHLEY MANUFACTURING B.V.
AND
USA OPTICAL DISTRIBUTORS, INC.
Certain portions of this agreement have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for an order
granting confidential treatment pursuant to Rule 406 of the General Rules and
Regulations under the Securities Act of 1933.
<PAGE>
LICENSE AGREEMENT
THIS AGREEMENT is made the 28th day of May, 1991.
BETWEEN
1. LAURA ASHLEY MANUFACTURING B.V., a company incorporated in the Netherlands
-------------------------------
and having its principal place of business at Luchthavenweg 24, 5507 SK
Veldhoven, The Netherlands (hereinafter called "the Licensor") of the one
part; and
2. USA OPTICAL DISTRIBUTORS, INC., a company incorporated in the State of
------------------------------
California having its principal office at 419A South Hindry Avenue,
Inglewood, CA 90301, U.S.A. (hereinafter called "the Licensee") of the
other part
WHEREAS:
1. The Licensor is a member of the Laura Ashley group of companies which
designs, manufactures and retails home furnishing products and garments,
marketed and sold in many countries of the world, including North America.
2. The Licensor is the registered proprietor of the trademarks LAURA ASHLEY
and a distinctive oval device.
3. The Licensor is the proprietor of a wide range of distinctive textile
designs and patterns featured on Laura Ashley home furniture products and
garments.
4. The Licensee is an established designer, importer and wholesaler of
fashionable eyeglass frames, including in its range of eyewear styles a
portfolio of recognized brand names.
5. The Licensee now wishes to design, import and sell in North America certain
styles of eyeglass frames under the LAURA ASHLEY brand name.
1
<PAGE>
IT IS THEREFORE AGREED AND DECLARED AS FOLLOWS:
1. DEFINITIONS
As used in this Agreement:
1.1 "Affiliate" of a party means a company which is affiliated to such party by
one or more shareholdings such that, directly or indirectly, one of them is
subject to the control of the other or both are subject to the common
control of a third party;
1.2 "Approved Outlets" means first class retail outlets of a quality and
standing consistent both with the high reputation of the Licensor for
design, merchandising excellence and service and having the image and
market positioning of the LAURA ASHLEY brand;
1.3 "Commencement Date" means September 1, 1991, or such later date prior to
October 1, 1991 when the Licensor notifies the Licensee of its approval of
the Marketing Plan for the First Contract Year.
1.4 "Contract Term" means the term of this Agreement as provided in Clause 13;
1.5 "Contract Year" means a period of twelve consecutive months from 1st
February to 31st January during the Contract Term save that the first
Contract Year shall be deemed to commence on the Commencement Date and to
end on 31st January 1993 and the last Contract Year shall be deemed to
commence on 1st February of the Year during which the Contract Term
terminates and to end on the date of actual termination;
1.6 "Laura Ashley Designs" means surface prints originated or developed by the
Licensor or its Affiliates;
1.7 "Laura Ashley Group" means the Licensor and its Affiliates referred to
collectively;
1.8 "Laura Ashley Outlets" means outlets operated by a member of the Laura
Ashley Group in the Territory under the LAURA ASHLEY name with the consent
of the Licensor;
1.9 "Licensee" means USA Optical Distributors, Inc., and any of its Affiliates;
1.10 "Licensor" means Laura Ashley Manufacturing B.V.;
1.11 "Marketing Plan" means a plan for marketing Products prepared by the
Licensee and agreed with the Licensor for each Contract Year as provided in
Clause 6;
1.12 "Minimum Royalty" means the minimum sum payable to the Licensor by the
Licensee by way of Royalty in respect of each Contract Year as provided in
sub-clause 9.3;
2
<PAGE>
1.13 "Net Sales" means the gross amount of wholesale sales of Products invoiced
by the Licensee less any deductions for returns, discounts or allowances
granted to customers, all of which are reasonable and customary in the
eyewear industry in the Territory, and less any bad debts, as that term is
recognized under generally accepted accounting principles in the Territory;
1.14 "Parties" means the Licensor and the Licensee;
1.15 "Products" means ophthalmic frames for prescription eyeglasses, eyeglass
cases and other accessories and related items, all of which are agreed as
Products intended for sale bearing the Trademarks, and which are listed in
Schedule I to this Agreement;
1.16 "Royalty" means the Royalty payable by the Licensee to the Licensor and
described in Clause 9;
1.17 "Selected Designs" means Laura Ashley Designs selected from time to time by
agreement between the Parties for application to the Products or packaging
or promotional materials therefor;
1.18 "Territory" means the United States of America, its territories and
possessions and Canada;
1.19 "Trademarks" means the trademarks of the Licensor listed in Schedule II,
together with such additional trademarks (if any) as may be included in
this Agreement from time to time by agreement between the parties;
2. CONDITION PRECEDENT
The Licensor's approval of the Marketing Plan for the first Contract Year
under sub-clause 6.4 is a condition precedent to the Licensor's grant of
the license under clause 3, and to all other rights, duties and obligations
under this Agreement which are unrelated to the Licensor's approval of the
Licensee's first Marketing Plan or to the Parties' confidentiality
obligations under clause 10. If the Licensor does not approve the
Licensee's first Marketing Plan by October 1, 1991, then this Agreement
shall (unless the Parties otherwise agree in writing) terminate on that
date. Upon such a termination, the parties shall have no further rights,
duties or obligations under this Agreement, except the confidentially
obligations under clause 10.
3. GRANT OF LICENSE
3.1 With effect from the Commencement Date the Licensor hereby grants to the
Licensee exclusive rights throughout the Contract Term
3
<PAGE>
(a) to use the Trademarks on or in connection with the importation,
distribution, marketing and sale of Products, and
(b) to apply Selected Designs to packaging or promotional materials for
the Products in the Territory upon the terms and conditions of this
Agreement.
3.2 Whilst the Licensor shall not, throughout the Contract Term, grant to any
third party the right to use the Trademarks for the sale of Products within
the Territory, nothing herein shall restrict the use, licensing,
manufacture or sale (as the case may be) by the Licensor or any Licensor
Affiliate either in the Territory or elsewhere of any goods other than
Products.
4. PRODUCT QUALITY AND APPROVAL
4.1 The type and quality of each item to be imported, marketed, distributed or
sold as a Product by the Licensee shall be the subject of discussion and
agreement with the Licensor prior to its adoption as a Product.
4.2 The Licensee may propose new styles to the Licensor at two possible times:
either at the same time as it is proposing a new Marketing Plan pursuant to
sub-clause 6.5, or at other times during the course of any Contract Year.
Styles proposed by the Licensee at the same time as the Marketing Plan
shall fall within categories of Products approved in that Marketing Plan.
Styles proposed at any other time during the Contract Year must fall within
categories of Products previously approved by the Licensor as part of the
most recently approved Marketing Plan.
4.3 Each style approved by the Licensor as a Product shall be included in
Schedule I.
4.4 Approval of a Product shall be evidenced by the authorized officers of the
Licensor and Licensee initialing that item when it is newly included
therein; PROVIDED THAT, without prejudice to the Licensor's absolute right
to approve the quality of any Product sold by the Licensee as elsewhere
herein provided, the Licensor's approval of any style as a Product shall be
deemed to have been granted if the Licensor fails to respond to the
Licensee's request therefor:
(a) in the case of styles submitted with the Marketing Plan, within TWENTY
(20) business days of receiving that request;
(b) in the case of styles submitted at other times during the Contract
Year, within FIFTEEN (15) business days of receiving that request.
4
<PAGE>
4.5 Products shall be of the best quality materials and consistent both with
the highest standards of craft and skill associated with the reputation of
the Licensor as designer, manufacturer and retailer of high quality fashion
goods.
4.6 Prior to commissioning production in commercial quantities of any Product
the Licensee shall:
(a) procure that the Licensor shall, if it so chooses, have the right to
inspect the places of proposed manufacture of such Product for the
purpose of ascertaining that the Licensor's quality standards are
being met, and
(b) submit free of charge at least three samples of each such Product to
the Licensor for approval. No Product shall be sold by the Licensee
in the absence of such approval. All Products thereafter offered for
sale shall correspond with the approved sample.
4.7 No item which fails to meet the quality standards set forth in sub-clause
4.2 shall be sold as a Product. The Licensee shall procure that its
suppliers are held to the same requirement.
4.8 The Licensee shall ensure that all Products shall conform with all laws and
regulations applicable thereto in the Territory.
5. SALES AND PROMOTION
5.1 The Licensee shall use its best efforts to promote and extend the sale of
Products throughout the Territory to all potential Approved Outlets.
5.2 The Licensee shall secure and maintain the distribution of adequate stocks
of Products to (and only to) Approved Outlets such that the Products may be
made readily and continuously available to customers.
5.3 The Licensor hereby places the Licensee on notice that it may inspect such
Approved Outlets at any time throughout the Contract Term to assure itself
that the provisions of this Clause are being complied with. If the
Licensor notifies the Licensee that an outlet at which Products are sold
does not (in the absolute discretion of the Licensor) meet the standards of
an Approved Outlet, the Licensee shall procure that sales of Products at
such outlets be discontinued at the earliest possible opportunity.
5.4 Products shall not be exported or sold by the Licensee for re-sale outside
the Territory.
5.5 All advertising and promotional materials and activities relating to the
Products shall require the Licensor's prior approval and all advertising
and promotional proposals for
5
<PAGE>
the Products shall accordingly be submitted by the Licensee to the Licensor
for prior approval. In respect of proposals by the Licensee for
promotional materials and activities which have been contemplated by the
Marketing Plan for the period to which they relate, the Licensor shall
respond as quickly as practicable and in any event within FIFTEEN (15)
business days from receipt of the same, in default of which response the
Licensor's approval shall be deemed to have been granted.
5.6 The Licensor and its Affiliates in the Territory may purchase Products from
the Licensee at the lower of
(a) Licensee's standard wholesale price, including customary trade
discounts and advertising allowances, or
(b) the lowest wholesale price at which the Licensee sells equivalent
quantities of Products to its customers in the Territory, on at least
net THIRTY (30) day terms.
6. MARKETING
Marketing Plans
---------------
6.1 The Licensee shall, in consultation with the Licensor, prepare and propose
to the Licensor a Marketing Plan in respect of each Contract Year.
6.2 The Marketing Plan shall summarize all market information relevant to the
period to which it relates including (without limitation):
(a) a description of the Products to be sold, together with proposals for
categories and for designs of Products, and including proposed sources
of supply;
(b) the number and identity of prospective customer accounts;
(c) suggested wholesale price points for the Products;
(d) the anticipated volume expected to be sold of each of the Products;
(e) an analysis of competitors' Products by price band;
(f) proposals for the interpretation of the Laura Ashley brand image in
terms of advertising concepts and point of sale and other promotional
materials;
(g) proposed advertising and promotional activities and expenditures for
the Products; and
6
<PAGE>
(h) proposed methods of sales and distribution.
6.3 To the extent practicable, the Licensee shall, upon submission of the
Marketing Plan, provide the Licensor with three (3) samples of each Product
which is described in the Marketing Plan and which is being submitted for
approval.
6.4 The Marketing Plan for the First Contract Year shall be proposed to the
Licensor by the Licensee no later than 31st July 1991. The Licensor shall
respond to such proposal no later than 31st August 1991. Subsequent
Marketing Plans shall be submitted to the Licensor for approval no later
than SIX (6) months in advance of the commencement of the Contract Year to
which they relate.
Approval by Licensor
--------------------
6.5 No Marketing Plan shall be implemented unless and until the written
approval of the Licensor has been obtained, provided that if the Licensor
fails to respond to the proposal for a Marketing Plan referred to in sub-
clause 6.4 within TWENTY (20) business days after receipt thereof, the Plan
shall be deemed approved as submitted.
6.6 The Licensee shall spend no less than CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION of its annual
Net Sales of Products on advertising and promotional activities for the
Products in the Territory.
Additional Products
-------------------
6.7 The Parties recognize a request by the Licensee to sell sunglasses bearing
the Trademarks, either under this Agreement or a separate agreement.
Accordingly the Licensor agrees to enter into good faith discussions with
the Licensee within ONE HUNDRED AND EIGHTY (180) days from the Commencement
Date, with a view to accommodating the Licensee's proposal. The Licensor
further agrees that, until such period has expired, it will not approach
other potential distributors for sunglasses in the Territory, provided that
such restriction shall not in any event endure beyond a period of ONE
HUNDRED AND EIGHTY (180) days from the Commencement Date. If the Licensor
and the Licensee do not enter into an agreement for the Licensee to sell
sunglasses bearing the Trademarks, whether pursuant to this or another
agreement, and the Licensor enters into an agreement with a third party to
sell sunglasses bearing the Trademarks in the Territory, the Licensor shall
hold that third party to the same standards as the Licensee under this
Agreement with respect to quality, styling and Approved Outlets.
7
<PAGE>
7. MARKET REPORT
Within two months of the end of each Contract Year the Licensee shall
submit to the Licensor a written report giving a full resume of sales and
promotional activities and expenditures during the Year.
8. TRADEMARKS AND COPYRIGHT
8.1 The Licensee acknowledges that the Trademarks and the goodwill attaching
thereto are and shall remain the property of the Licensor.
8.2 The Licensee shall not promote or sell Products except in conjunction with
Trademarks and shall not use Trademarks or Selected Designs except in
relation to Products in a manner approved by the Licensor.
8.3 All labels, packaging, display, and promotional and advertising materials
relating to the Products and their promotion and sale shall bear an
acknowledgement as to the proprietorship of the Trademarks and the license
granted to the Licensee as follows:
"Sold by USA Optical under license from Laura Ashley"
8.4 Wherever Selected Designs are used on packaging (and elsewhere as the
Licensor may require or approve) the Licensee shall affix or apply a notice
acknowledging the Licensor's copyright ownership as follows:
"(C) Laura Ashley 19 [date* of design]"
8.5 Save as provided in sub-clause 8.3 and except as otherwise agreed in
writing, there shall be no use of the Licensee's name or trademarks on the
Products or on any labels, packaging, display or advertising materials
related to the Products.
8.6 All rights arising from the use by the Licensee of the Trademarks shall
enure to the benefit of the Licensor. This license shall operate solely as
a permission for the Licensee to use the Trademarks and Selected Designs in
the manner herein specified and shall not be deemed to confer on the
Licensee any proprietary right in the Trademarks or Selected Designs, nor
shall the Licensee acquire any registered design, registered trademark or
other industrial property rights relating thereto.
8.7 If the Licensee becomes aware of any infringements of the Trademarks or
copyrights in the Selected Designs, or any act of unfair competition or any
trademark application in the Territory which in any way may impair the
value or validity of the Trademarks, or the other rights granted by the
Licensor hereunder, the Licensee will promptly notify the Licensor of that
event. The Licensor undertakes that it will respond to such notification
8
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by taking such steps as it may deem reasonably necessary to protect the
Licensee's rights hereunder, it being understood that the institution and
conduct of any litigation which ensues, the selection of counsel and the
settlement of the litigation and claims affecting the Trademarks or
Selected Designs shall be entirely within the discretion of the Licensor,
under the Licensor's control and at the Licensor's expense. Should legal
action against a third party be deemed necessary or desirable by the
Licensor, the Licensee will, if requested by the Licensor, cooperate with
the Licensor in rendering appropriate assistance in instituting and
prosecuting such legal action, provided that the reasonable expenses which
the Licensee thereby incurs and the other costs and expenses of such legal
action, including legal fees, shall be borne by the Licensor.
8.8 During the Contract Term, or upon the termination of this Agreement for any
reason, the Licensee shall, upon request of the Licensor, execute such
documents as the Licensor may reasonably require, including registered user
agreements, to reflect the Licensor's ownership of the Trademarks. The
Licensee hereby grants to the Licensor a power of attorney coupled with an
interest to execute such agreements as Licensee's attorney-in-fact. The
Licensor shall promptly provide the Licensee with copies of any such
agreements.
8.9 The Licensor represents to the Licensee:
(a) that it is the owner of the Trademarks and of the copyrights in all
the Selected Designs;
(b) that it has the sole and exclusive right to deal with the same and to
enter into license agreements therefor;
(c) that none of the Trademarks or the Selected Designs infringes any
trademark, service mark, trade name, copyright design or work of any
other party.
9. ROYALTY
9.1 In consideration for the rights herein granted (and subject to the payments
of Minimum Royalty herein contained), the Licensee shall pay to the
Licensor a royalty at such rate as, after deduction of any withholding or
other taxes (if any) imposed within the Territory and required to be
deducted by the Licensee, shall amount to CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION of the Net
Sales of all Products sold by the Licensee.
9.2 The Royalty shall be determined and paid in respect of each Contract Year
quarter ending on 30th April, 31st July, 31st October and 31st January
during the Contract Term.
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9.3 In respect of each Contract Year, the amount of Royalty payable to the
Licensor shall in no event be less than the Minimum Royalty quoted below:
Contract Year US $
------------- ----
1991/93 CONFIDENTIAL INFORMATION
1993/94 OMITTED AND FILED SEPARATELY
1994/95 WITH THE SECURITIES AND
1995/96 EXCHANGE COMMISSION
Minimum Royalty shall be appropriately pro-rated for any period during the
Contract Term that is less than a full Contract Year.
9.4 the Minimum Royalty shall be payable as follows:
9.4.1 with respect to the Contract Year 1991/93
(a) on the CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION, a first CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION installment of CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION;
(b) within CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION of the end of each of the
last CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION, further installments each
of CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION;
9.4.2 with respect to each subsequent Contract Year, within CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION of the end of each CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION, a sum equivalent to CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
attributable to such CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION;
10
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provided that, in each Contract Year, any excess of actual Royalty paid per
quarter over the applicable installment of Minimum Royalty shall be carried
forward and credited against subsequent installments of Minimum Royalty
payable in respect of such Contract Year.
9.5 Except as provided in subclauses 13.4 and 13.5, failure to pay the Minimum
Royalty as provided in sub-clause 9.4 shall constitute a material breach of
this Agreement within the meaning of sub-clause 13.2(a).
9.6 Royalty payments pursuant to sub-clause 9.7 shall credit the Licensee with
amounts of Minimum Royalty, and Minimum Royalty payments pursuant to sub-
clause 9.4.2 shall credit the Licensee with amounts of Royalty paid during
the Contract Year in excess of the Minimum Royalty.
9.7 Payment of Royalty in respect of each quarter shall be effected within
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION of the end thereof, and payment shall be
accompanied by a report from the Licensee showing the names of customers to
whom the Licensee sold Products during the period, and a precise
computation of Net Sales upon which the Royalty payment was based,
including the quantity, description and value of Products sold by the
Licensee during the quarter, and any deductions for returns, discounts,
allowances granted to customers, or bad debts.
9.8 The Licensee shall keep adequate and accurate records in sufficient detail
to enable the Royalty to be readily determined and shall, upon the
Licensor's request, permit such records to be examined by the Licensor's
representative at any time during normal business hours to verify Royalty
reports and payments. In the event that such examination reveals an
understatement of Royalty due to the Licensor in excess of FOUR PER CENT
(4%), the Licensee shall be liable for costs of the Licensor's audit and
the incidental expenses incurred in connection with the audit. Those costs
and expenses shall be separate from and in addition to the Royalties owed
to the Licensor.
9.9 Unless otherwise specified by the Licensor, all payments due by the
Licensee to the Licensor hereunder shall be computed and paid in US
dollars.
9.10 All overdue amounts shall bear interest at the rate of ONE PER CENT (1%)
per month.
9.11 Until further notice from Licensor, all sums due to the Licensor hereunder
shall be paid in US dollars by international wire transfer to the following
account:
ABN Bank
Vijzelstraat 68-78
Amsterdam 1000 AK
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The Netherlands
Account Name: Laura Ashley Manufacturing B.V.
Account No.:54 02 74 348
Swift Code: ABN ANL 2A
10. CONFIDENTIALITY
Any information acquired by one Party (the "First Party") in the course of
this Agreement regarding the affairs and business of the other Party (the
"Second Party") and its Affiliates shall, during the Contract Term and for
TEN (10) years thereafter, be treated by it as confidential and shall not
be disclosed without the prior consent of the Second Party, whether such
information is disclosed to the Second Party by the First Party or
otherwise obtained by the First Party as a result of its association with
Second Party except to the extent either required to be divulged in the
performance of this Agreement or that such information falls within the
public domain. Information to be treated as confidential under this
Agreement shall include, without limitation, the Parties' customer lists,
unpublished designs, marketing and business plans, telemarketing and other
unique sales techniques, and sources of supply.
11. LIABILITY, INDEMNITY AND INSURANCE
11.1 The Licensor and the Licensee each acknowledges and represents to the other
that it is not a joint venturer, partner or co-venturer with the other and
that neither party shall incur any liability on behalf of the other party
or purport to pledge the credit of the other party or accept any order or
obligation to be binding upon the other party.
11.2 The Licensee shall indemnify and hold the Licensor, its Affiliates and
their respective officers and directors, harmless from all claims, suits,
demands, actions, losses, damages and costs, including reasonable legal
fees and court costs, which the Licensor may incur or suffer by reason of
any acts or omissions of the Licensee in connection with the importation,
distribution, marketing or sale of the Products, including, but not limited
to
(a) any manufacturing defect in a Product;
(b) the Licensee's manufacture, distribution or sale of the Products; or
(c) the labelling, packaging or advertising of the Products in violation
of any applicable federal, state or local law or regulation.
11.3 So long as this Agreement remains in effect and for a period of not less
than THREE (3) years thereafter, the Licensee agrees at its expense to
carry product liability insurance
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with respect to the Products with limits of liability of not less than ONE
MILLION US DOLLARS (US$1,000,000) per accident and ONE MILLION US DOLLARS
(US$1,000,000) per person and to name the Licensor and its Affiliates and
their respective officers, employees and directors, as a party insured
under such insurance policy (with a waiver of subrogation in favor of the
Licensor). Prior to offering any of the Products for sale and within TEN
(10) days of a request by the Licensor, the Licensee shall furnish the
Licensor a certificate of insurance evidencing that the policy with the
minimum of coverage limits set forth in the preceding sentence is in full
force and effect.
12. COMPETITION
The Licensee undertakes that it will not without the prior consent of the
Licensor, throughout the Contract Term and for a period of SIX (6) months
thereafter, engage directly or indirectly in the Territory in the
importation, distribution, promotion or sale (either on its own account or
for or on behalf of any other party) of any range of ladies' designer
eyewear that is similar to the Products in price and any of (i) style, (ii)
market position and (iii) market segment, nor engage in activities which
would prejudice the performance of its obligations under this Agreement,
provided that the Parties acknowledge that:
(a) the wholesale distribution of ladies' and men's designer eyewear as
currently carried on by the Licensee; and
(b) the importation, distribution, promotion and sale of the lines of
ladies designer eyewear set forth in Schedule III
do not constitute prejudicial activities.
13. DURATION
13.1 The Contract Term shall commence on the Commencement Date and shall
continue, unless terminated earlier according to sub-clause 13.2, until
31st January 1996.
13.2 Either party may terminate this Agreement at any time by giving the other
party notice to that effect, stating the precise reasons therefor,
effective on the date when notice is given or any subsequent date specified
in the notice, in any of the following events:
(a) any material breach by the other party for which effective remedial
action has not been undertaken within THIRTY (30) days after notice is
given specifying the breach and requiring remedy of the same;
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(b) if the other party shall be unable to pay its debts in the ordinary
course of business or shall enter into liquidation (otherwise than for
reason of corporate amalgamation or reconstruction) or shall become
bankrupt or insolvent, or shall be placed in the control of a receiver
or trustee, whether compulsorily or voluntarily.
13.3 Without prejudice to the foregoing, the Licensor shall have the right to
terminate this Agreement as in the manner aforesaid in the following
events:
(a) the Licensee fails in respect of each of any two Contract Years to
generate and pay to the Licensor amounts by way of Royalty which
exceed the Minimum Royalty relative to such Year;
(b) the Licensee fails to propose a selection of styles of eyewear and/or
accessories which the Licensor is willing to approve as Products after
consideration in good faith and having regard to the nature of the
target market and the particular requirements of the Product customer;
(c) the Licensee fails in any Contract Year to spend more than
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION of annual Net Sales on advertising
and promotional activities as contemplated by sub-clause 6.6;
(d) the management and/or control of the Licensee passes from the present
managers, shareholders, owners or controllers to other parties whom
the Licensor may reasonably regard as unsuitable.
13.4 Without prejudice to the foregoing, any acts or omissions by the Licensor
resulting in one or more of the following events shall be deemed a material
breach of this Agreement by the Licensor:
(a) a third-party licensee of sunglasses bearing the Trademarks, as
contemplated by sub-clause 6.7, is not held to the same standards as
the Licensee under this Agreement with respect to quality, styling or
Approved Outlets, and as a result the value of the Trademarks is
significantly impaired;
(b) any claim or litigation referred to in sub-clause 8.7 is not pursued
with sufficient rigor, resulting in significant impairment to the
value or validity of the Trademarks.
13.5 In the event of a material breach under sub-clause 13.4, the Licensee shall
have the right to withhold all Minimum Royalty and Royalty payments until
such time as the material breach has been remedied, at which time all such
Minimum Royalty and Royalty
14
<PAGE>
payments shall be due and payable. No withholding of Minimum Royalty or
Royalty payment under this sub-clause 13.5 shall constitute a material
breach of this Agreement.
14. CONSEQUENCES OF TERMINATION
On termination of this Agreement (other than a termination pursuant to sub-
clause 3.3):
14.1 the Licensee shall promptly pay to the Licensor all amounts due by way of
Royalty or otherwise to the date of termination (which shall be deemed to
be the end of the calendar quarter in which it falls);
14.2 the Licensee shall make no further use of the Trademarks or Selected
Designs (subject to sub-clause 14.3);
14.3 the Licensor will, except where termination based on material breach was
occasioned by the Licensor by reason of the Licensee's gross misconduct,
permit the Licensee to dispose of any stock then in hand within up to SIX
(6) months following the date of termination subject to payment of Royalty
in respect of such sales as provided in Clause 9; and
14.4 the Licensor shall be given a right of first refusal to purchase stocks of
Products on the terms, subject to the conditions, and at a price, no less
favorable than the terms conditions and price offered to third party
purchasers.
15. EXPENSES
The expenses incurred by the Licensee in performance of this Agreement,
including all travel and out-of-pocket expenses, shall be solely for its
own account.
16. AGREEMENT PERSONAL
This Agreement is personal to the Parties and may not be assigned or sub-
contracted by either party without the consent of the other.
17. DISPUTES
17.1 Any controversy arising out of or relating to this Agreement shall be
submitted to and decided by arbitration only in the City of New York,
pursuant to the Rules then outstanding of the American Arbitration
Association. Unless the parties agree otherwise, there shall be three
arbitrators in the arbitration proceedings. Each party shall choose one
arbitrator, and the two arbitrators chosen shall choose a third arbitrator.
The New York State laws of evidence at trial, and of discovery in civil
matters, shall apply to the arbitration proceedings. The arbitrators
sitting in any controversy shall have no power
15
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to alter or modify any provision of this Agreement or to render any award
which, by its terms, effects any such alteration or modification. The
parties consent to the jurisdiction of the Supreme Court of the State of
New York for all purposes in connection with this agreement to arbitrate,
and the parties consent that such Court may take the necessary proceedings
for the confirmation or disaffirmance of any award and may enter judgment
thereon. Any process, notice of motion or other application to said Court
or to a Justice thereof may be served within or without the territorial
jurisdiction of said Court, by registered or certified mail, return receipt
requested, or by personal service, or in such other manner as is
permissible under the Rules of said Court, provided a reasonable time for
appearance, not less than TEN (10) business days, is allowed. In the event
of a dispute or controversy arising under this Agreement, the prevailing
party shall have the right to recover its reasonable attorney's fees and
costs.
17.2 This Agreement shall be governed by, and interpreted in accordance with,
the laws of the State of New York.
18. PURCHASE OF SELECTED DESIGNS
The Licensee may purchase materials bearing Selected Designs from the
Licensor or its Affiliates at the lower of
(a) the Licensor's or its Affiliates' standard wholesale price, including
customary trade discounts, or
(b) the lowest wholesale price at which the Licensor or its Affiliates
sell such materials to its customers, on at least net THIRTY (30) day
terms, provided that the Licensee's purchase orders relate to similar
quantities of the Selected Designs, to the extent that such materials
may be reasonably required by the Licensee for the production of
Products or for the purposes of marketing or promoting the Products
hereunder.
19. GENERAL PROVISIONS
Entire Understanding
--------------------
19.1 This Agreement (including the Marketing Plans and other documents to be
agreed to pursuant this Agreement) constitutes the sole agreement between
the Parties.
Modifications
-------------
19.2 This Agreement may not be modified otherwise than by written instrument
signed by both Parties.
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Communications
--------------
19.3 Every notice or other communication under this Agreement shall be in
writing delivered personally, by telex, or by facsimile addressed to the
relevant Party, with its address set out below, or to any telex or
facsimile number published as belonging to it (or such other address, telex
or facsimile number as is notified in the manner herein provided by one
Party to the other). Every notice or other communication shall be deemed
to have been received, in the case of a telex message or facsimile
transmission, at the time of dispatch or transmission, and in the case of a
letter when delivered personally.
19.4 In proving the giving of a notice hereunder it shall be sufficient to prove
that the notice was left or that the telex bears the correct answerback of
the Party to whom the notice was sent, or that the sender's original
facsimile has printed on it or attached to it a proper automated
endorsement to the effect that it was received by or at the facsimile
number of the Party to whom the facsimile was sent.
Communications to the Licensor:
------------------------------
Laura Ashley Manufacturing B.V.
Luchthavenweg 24
5507 AZ
The Netherlands
For the Attention of the Managing Director
with copy to:
Laura Ashley Holdings plc
150 Bath Road
Maidenhead
Berkshire
SL6 4YS
United Kingdom
For the Attention of the Company Secretary
Communications to the Licensee:
------------------------------
USA Optical Distributors, Inc.
419A South Hindry Avenue
Inglewood
CA 90301
United States of America
For the Attention of the President
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Severability
------------
19.5 The provisions contained in this Agreement are considered reasonable by the
Parties, but if any such provision is found to be invalid or unenforceable
but would be valid if some part thereof were deleted or the scope of
application reduced, such provision shall apply with such modifications as
may be necessary to render it valid or enforceable. In any event the
balance of this Agreement shall remain in effect.
IN WITNESS WHEREOF the Parties hereto have caused this Agreement to be executed
by their duly authorized representatives the day and year first above written.
SIGNED by A.M.S. ) /s/ A.M.S.
----------------------------- -------------------------------
for and on behalf of )
LAURA ASHLEY MANUFACTURING B.V. )
- -------------------------------
SIGNED by Bernard Weiss ) /s/ Bernard Weiss
------------------------ --------------------------------
for and on behalf of )
USA OPTICAL DISTRIBUTORS, INC. )
- ------------------------------
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SCHEDULE I
PRODUCTS
[Agreed styles to be described]
19
<PAGE>
SCHEDULE II
TRADEMARKS
LAURA ASHLEY
[Trademark Graphic]
20
<PAGE>
SCHEDULE III
LINES OF LADIES DESIGNER EYEWEAR
WHICH DO NOT CONSTITUTE PREJUDICIAL ACTIVITIES
WIMBLEDON
CALIFORNIA ATTITUDES
GENERIKA
CAMELOT
21
<PAGE>
AMENDING AGREEMENT
THIS AGREEMENT is made the 2nd day of August, 1993.
BETWEEN
1. LAURA ASHLEY MANUFACTURING B.V. a company incorporated in the
-------------------------------
Netherlands and having its principal place of business at Luchthavenweg 24, 5507
SK Veldhoven, The Netherlands (hereinafter called "the Licensor") of the one
part; and
2. SIGNATURE EYEWEAR, INC., (formerly known as USA OPTICAL DISTRIBUTORS,
-----------------------
INC.), a company incorporated in the State of California having its principal
office at 460 South Hindry Avenue, Inglewood, CA 90301, U.S.A. (hereinafter
called "the Licensee") of the second part; and
3. LAURA ASHLEY LIMITED, a company incorporated in England and having its
--------------------
registered office at 150 Bath Road, Maidenhead, Berkshire, England (hereinafter
called "the Additional Licensor") of the third part.
WHEREAS:
1. The Licensor and the Licensee entered into a License Agreement dated
28 May, 1991 (the "License Agreement") granting the Licensee certain rights to
use the Trademarks in connection with the importation, distribution, marketing
and sales of Products; and
2. The Licensor and the Licensee desire to amend the License Agreement as
set forth herein; and
3. The Additional Licensor is the owner of the Trademarks in the United
Kingdom, and the Licensor is the owner of the Trademarks in territories outside
the United Kingdom.
IT IS THEREFORE AGREED AND DECLARED AS FOLLOWS:
1. Except as otherwise set forth in this Agreement, all defined terms shall
have the same meaning as set forth in the License Agreement.
2. Sub-clause 1.15 is hereby deleted, and the following substituted in its
place:
"1.15 "Products" means such ophthalmic frames for prescription eyeglasses,
sunglasses, eyeglass cases and other accessories and
related items,
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all of which are intended for sale bearing the
Trademark, which are listed in Schedule I to this
Agreement, as amended from time to time;"
3. Sub-clause 1.18 is hereby deleted, and the following substituted in its
place:
"1.18 "Territory" means the United States of America (including its
territories and possessions) and Canada, as well as the
following countries added as of the date of this
Amending Agreement, subject to the restrictions set
forth in sub-clauses 3,1.2 and 3.1.3 below: Mexico, New
Zealand, Australia, South Africa, the United Kingdom,
and every other country in Europe (individually, an
"Additional Country");"
4. Clause 3.1 is hereby deleted, and the following is substituted in its
place:
"3.1.1 The Commencement Date of this Agreement was 19 September, 1991. As
of February 1, 1993, the Licensor and the Additional Licensor (in
respect of the United Kingdom) hereby grant to the Licensee exclusive
rights, subject to sub-clauses 3.1.2 and 3.1.3 below, throughout the
Contract Term
(a) to use the Trademarks on or in connection with the importation,
distribution, marketing and sale of Products, and
(b) to apply Selected Designs to packaging or promotional materials
for the Products
in the Territory upon the terms and conditions of this Agreement;
3.1.2 Until January 31, 1994, the Licensee shall have the exclusive right
to present a marketing plan relating to the Licensee's marketing and
sales of Products in any country outside the United States or Canada
(an "Additional Country Marketing Plan"). The Licensor's approval of
the Licensee's Additional Country Marketing Plan for any specific
country, as presented to the Licensor, shall be a condition precedent
to the Licensee's sales of Products in that country. If the Licensor
fails to respond to any such Additional Country Marketing Plan within
30 days after receipt thereof, that Additional Country Marketing shall
be deemed approved as submitted.
If the Licensor has not approved an Additional Country Marketing Plan
for any specific Additional Country after 31 January, 1994 (or, in the
case of an Additional Country Marketing Plan presented during January
1994, 30 days after Licensor's receipt thereof), then the Licensee
shall no longer have the exclusive
2
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right to present to the Licensor an Additional Country Marketing Plan
for that Additional Country. Instead, the Licensee shall have the
right of first refusal to sell Products in any such country, in
accordance with sub-clause 3.1.3 below.
3.1.3. Under the right of first refusal granted in sub-clause 3.1.2, on or
after 1 February, 1994, the Licensor shall have the right to grant to
a third party the exclusive right to sell Products in any specified
Additional Country for which the Licensor has not already approved a
plan by Licensee to sell Products, subject to the terms of this
subclause 3.1.3. In the event that the Licensor grants such a right
to a third party, the definition of the term "Territory" under sub-
clause 1.18 of this Agreement shall be amended to reflect that grant.
The procedures for granting such a right are as follows.
If, on or after 1 February, 1994, the Licensor receives an Additional
Country Marketing Plan from a third party, the Licensor shall deliver
a written notice (the "Licensor's Notice") to the Licensee specifying
the following material terms of the offer: the amount of any advance
payment, the amount of minimum royalty payable, the territory covered
by the offer, the length of the proposed license, and the commencement
date of the proposed license. The Licensor shall not be required to
deliver to the Licensee any information with respect to any other term
of the third party's offer. The Licensor's Notice shall further state
(a) that the third party licensee shall be held to the same standards
as the Licensee under this Agreement with respect to quality, styling
and Approved Outlets, and (b) that the third party licensee shall not
be permitted to use the marketing materials or the eyeglass frame
styles developed by the Licensee pursuant to this Agreement.
The Licensee shall have 30 days to respond to the Licensor's Notice.
If the Licensee does not respond to the Licensor's Notice within 30
days, then the Licensor shall have the right to grant an exclusive
license to the third party, under the terms set forth in the
Licensor's Notice (the "Third Party License"). If the Licensee
responds to the Licensor's Notice within that 30 day period,
delivering an Additional Country Marketing Plan for the territory
specified in the notice, and specifying terms that do not exceed the
-------------
third party's offer in all material respects (the "Licensee's
Notice"), then the Licensor shall have the right to determine in the
Licensor's sole discretion whether to grant the exclusive right to
sell Products in that Additional Country to the Licensee or the third
party, or to refrain from granting that right at that time. If the
Licensee's Notice specifies terms that exceed the third party's offer
------
in all material respects, then the Licensor shall not have the right
to grant the exclusive right to sell Products in that Additional
Country to the third party at that time, but may, in its discretion,
(a) grant that right to the Licensee, (b) solicit from the third party
an offer which matches or exceeds the Licensee's offer in all material
respects, or (c) refrain from granting that right at that time. If
Licensor elects to solicit such an offer
3
<PAGE>
from the third party, and then within a reasonable period of time
obtains from the third party an offer which matches or exceeds the
Licensee's offer in all material respects, the Licensor shall have the
right to grant the exclusive right to sell Products in that Additional
Country to the third party.
In determining whether or not the Licensee's offer matches or exceeds
the third party's offer, the Licensor shall examine the Licensee's
past performance in countries outside the United States and Canada,
taking into consideration the Licensee's decisions, after consultation
with Licensor, to grow slowly in order to ensure success.
The Licensee's right of first refusal relating to the territory
covered by the Licensor's Notice shall terminate once the Licensor and
the third party have entered into the Third Party License. If the
Third Party License is terminated for any reason, the Licensor shall
notify the Licensee within a reasonable period of time of such
termination, and the Licensee shall have the right to make an offer to
have the exclusive license for the territory previously covered by the
Third Party License, but shall no longer have a right of first refusal
related to that territory.
Any disputes arising out of or otherwise related to the right of first
refusal granted under sub-clauses 3.1.2 and 3.1.3 of this Agreement
shall be submitted to arbitration pursuant to the rules of the
American Arbitration Association."
5. The portion of Clause 8 in quotation marks is hereby deleted, and the
following substituted in its place:
"Sold by Signature Eyewear under license from Laura Ashley"
6. Clause 9.3 is hereby deleted, and the following substituted in its place:
"9.3 The Amount of Royalty in U.S. dollars payable for each Contract Year
for each Category defined in sub-clause 13.1.4 shall in no event be
less than the Minimum Royalty amount for that Category as set forth
below:
4
<PAGE>
Minimum Minimum Minimum
------- ------- -------
Royalty Royalty Royalty
------- ------- -------
for for for
--- --- ---
USA & Additional Non-
----- ---------- ----
Canada Countries Optical Total
------ ---------- ------- -----
Contract Optional Optical Sunwear Minimum
- -------- -------- ------- ------- -------
Year Sales Sales Sales Royalty
- ---- ----- ----- ----- -------
INITIAL TERM:
1993/94 CONFIDENTIAL INFORMATION OMITTED
1994/95 AND FILED SEPARATELY WITH THE
1995/96 SECURITIES AND EXCHANGE COMMISSION
FIRST RENEWAL TERM
1996/97
1997/98 CONFIDENTIAL INFORMATION OMITTED
1998/99 AND FILED SEPARATELY WITH THE
1999/00 SECURITIES AND EXCHANGE COMMISSION
2000/01
ADDITIONAL RENEWAL TERMS
2001/02
2002/03 CONFIDENTIAL INFORMATION OMITTED
2003/04 AND FILED SEPARATELY WITH THE
2004/05 SECURITIES AND EXCHANGE COMMISSION
2005/06
7. Clause 13.1 is hereby deleted, and the following substituted in its place:
"13.1.1 The Contract Term commenced 19 September, 1991, and shall, unless
terminated earlier in accordance with sub-clauses 13.2, 13.3 or
13.4(b) below, remain in effect for an initial term ending on 31
January, 1996 (the "Initial Term"). The Contract Term is subject
to a first automatic renewal term of five Contract Years (the
"First Renewal Term"), as set forth in sub-clause 13.1.2, and
additional one-year renewal terms (individually, an "Additional
Renewal Term"), as set forth in sub-clause 13.1.3 below.
13.1.2 Subject to sub-clauses 13.2 and 13.4(b), on February 1, 1996 the
Contract Term shall be automatically renewed for the First
Renewal Term for all
5
<PAGE>
Categories (as defined in sub-clause 13.1.4), provided that the
amount of Royalty payable to the Licensor for each of the final
two Contract Years of the Initial Term for each such Category is
equal to or greater than the Minimum Royalty for that Category
during those Contract Years, as set forth in sub-clause 9.3
above.
The Licensor shall have the right, for a period of 90 days after
31 January, 1996, to terminate the Licensee's rights with respect
to any Category defined under sub-clause 13.1.4 above if the
Licensee fails in respect of any two Contract Years to have
sufficient Net Sales to generate Royalty amounts which equal or
exceed the Minimum Royalty for that Category and those Contract
Years; if the Licensor does not exercise such right to terminate
the Licensee's rights within the 90 day period, the Licensor's
right to terminate shall be deemed to be waived.
13.1.3 Subject to sub-clauses 13.2 and 13.4(b), on February 1, 2001, and
on February 1 of each succeeding year, the Contract Term shall be
automatically renewed for an Additional Renewal Term, for all
Categories (as defined in sub-clause 13.1.4), provided that the
amount of Royalty payable to the Licensor for each of the
previous two Contract Years for each Category is equal to or
greater than the Minimum Royalty for that Category during those
Contract Years, as set forth in sub-clause 9.3 above.
The Licensor shall have the right, for a period of 90 days after
31 January of any Additional Renewal Term Contract Year, to
terminate the Licensee's rights with respect to any Category
defined under sub-clause 13.1.4 above if the Licensee fails, in
respect of the two Contract Years then ended, to have sufficient
Net Sales to generate Royalty amounts which equal or exceed the
Minimum Royalty for that Category and those Contract Years;
provided that, if the Licensor does not exercise such right to
terminate the Licensee's rights within the 90 day period, the
Licensor's right to terminate shall be deemed to be waived.
13.1.4 For the purposes of determining the Minimum Royalty payable under
this Agreement, the following categories (the "Categories") have
the meanings set forth below:
"USA & Canada Optical Sales" means sales of Products in the
United States of America (including its territories and
possessions) and Canada which are made to stores specializing in
ophthalmic frames for prescription eyeglasses, whether those
sales are made directly to such stores or through distributors
which specialize in selling to such stores.
6
<PAGE>
"Additional Countries Optical Sales" means sales of Products in
all other countries within the Territory other than the United
States and Canada which are made to stores specializing in
ophthalmic frames for prescription eyeglasses, whether those
sales are made directly to such stores or through distributors
which specialize in selling to such stores.
"Non-Optical Sunwear Sales" means sales of sunglasses which are
Products made to stores which do not specialize in ophthalmic
------
frames for prescription eyeglasses, whether those sales are made
directly to such stores or through distributors which specialize
in selling to such stores."
8. Sub-clause 13.2 is hereby amended (a) to be known hereafter as sub-clause
13.2.1, and (b) to add the following sub-clause 13.2.2:
"13.2.2 The Licensor shall have the right, for a period of 90 days after
any Contract Year, to terminate the Licensee's rights with
respect to any Category defined under sub-clause 13.1.4 above if
the Licensee fails in respect of any two Contract Years to have
sufficient Net Sales to generate Royalty amounts which equal or
exceed the Minimum Royalty for that Category and those Contract
Years; provided that, if the Licensor does not exercise such
right to terminate the Licensee's rights within a 90 day period
after the end of any Contract Year, that right shall be deemed to
be waived.
9. Sub-clause 13.4(a) is hereby deleted, and the following substituted in its
place:
(a) a third-party licensee which obtains the license to sell eyeglass
frames bearing the Trademarks, in any of the Categories, as
contemplated by sub-clauses 13.1.2, 13.1.3 and 13.1.4 above, is not
held to the same standards as the Licensee under this Agreement with
respect to quality, styling or Approved Outlets, and as a result the
value of the Trademarks is significantly impaired;"
10. The portion of Clause 19.4 entitled "Communications to the Licensee" is
hereby deleted, and the following is substituted in its place:
"Communications to the Licensee:
------------------------------
Signature Eyewear, Inc.
460 South Hindry Ave.
Inglewood, CA 90301
United States of America
For the Attention of the President
7
<PAGE>
Communications to the Additional Licensor:
-----------------------------------------
Laura Ashley Limited
150 Bath Road
Maidenhead, Berkshire
England
For the Attention of the Company Secretary"
11. Clause 6.7 and sub-clause 13.3(a) are hereby deleted.
12. Except as otherwise stated herein, all remaining clauses of the License
Agreement shall remain in full force and effect, provided that all
references to the Licensor therein shall be deemed to include the
Additional Licensor where applicable.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
by their duly authorized representatives the day and year first above written.
SIGNED by ) /s/
-----------------
for and on behalf of )
LAURA ASHLEY MANUFACTURING B.V. )
- ----------------------------------
SIGNED by ) /s/
-----------------
for and on behalf of )
LAURA ASHLEY LIMITED )
- ----------------------------------
SIGNED by ) /s/ Julie Heldman
-----------------
for and on behalf of )
SIGNATURE EYEWEAR, INC. )
- -----------------------
(formerly known as
USA OPTICAL DISTRIBUTORS, INC.)
8
<PAGE>
SCHEDULE I
PRODUCTS
The following are the styles of eyeglass frames approved by Licensor, as of
April 30, 1993.
1. Laura Ashley eyeglass frames for women:
ANNE
ARABELLA
DIANA
ELIZABETH
EMMA
HEATHER
ISABELLE
JAINE
JOY
JULIET
KATE
KATHRYN
ROSALIND
SOMERSET
TESS
2. Laura Ashley sunglasses:
SUN 101
SUN 102
SUN 103
3. Laura Ashley for Girls eyeglasses:
AMY
JULIE
LILY
<PAGE>
EXHIBIT 10.8
SIGNATURE EYEWEAR, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (this "AGREEMENT") is made and entered into as of
the 26th day of August, 1997 by and between Signature Eyewear, Inc., a
California corporation (the "COMPANY"), and Bernard Weiss ("EMPLOYEE").
1. ENGAGEMENT AND RESPONSIBILITIES
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby employs Employee as an officer of the Company,
with the title of Co-Chairman of the Board and Chief Executive Officer.
Employee hereby accepts such employment.
(b) Employee's duties and responsibilities shall be those incident to the
position(s) described in Section 1(a) as set forth in the Bylaws of the Company
and those which are normally and customarily vested in such office(s) of a
corporation. In addition, Employee's duties shall include those duties and
services for the Company and its affiliates as the Board shall, in its sole and
absolute discretion, from time to time reasonably direct which are not
inconsistent with Employee's positions described in Section 1(a).
(c) Employee agrees to devote all of Employee's business time, energy and
efforts to the business of the Company and will use Employee's best efforts and
abilities faithfully and diligently to promote the Company's business interests.
For so long as Employee is employed by the Company, Employee shall not, directly
or indirectly, either as an employee, employer, consultant, agent, investor,
principal, partner, stockholder (except as the holder of less than 1% of the
issued and outstanding stock of a publicly held corporation), corporate officer
or director, or in any other individual or representative capacity, engage or
participate in any business that is in competition in any manner whatsoever with
the business of the Company Group, as such businesses are now or hereafter
conducted. Notwithstanding the foregoing prohibitions but provided such
services or investments do not violate any applicable law, regulation or order,
or interfere in any way with the faithful and diligent performance by Employee
of the services to the Company otherwise required or contemplated by this
Agreement, the Company expressly acknowledges that Employee may:
(i) make and manage personal business investments of Employee's
choice without consulting the Board; and
(ii) serve in any capacity with any civic, educational, charitable or
trade organization without consulting the Board.
2. DEFINITIONS
"ADVERSE EVENT" with respect to Employee shall be the occurrence of any one
or more of the following, without the prior written consent of Employee:
<PAGE>
(a) a demotion of Employee as evidenced by a loss of an executive officer
title unless (i) in connection therewith Employee shall have received one or
more titles of equal or senior rank; and/or (ii) Employee shall continue to hold
one or more officer titles of equal or senior rank to the title lost; or
(b) a significant diminution of Employee's on-going duties and
responsibilities with the Company; or
(c) the relocation of the Company's principal executive offices outside
the Los Angeles Metropolitan area; or
(d) the Company requiring Employee to relocate to an office outside the
Los Angeles Metropolitan area for a period exceeding three months in any
calendar year as a condition to continued employment.
"BOARD" shall mean the Board of Directors of the Company.
"COMPANY GROUP" shall mean the Company and each Person which the Company
directly or indirectly Controls.
"CONTROL" shall mean, with respect to any Person, (i) the beneficial
ownership of more than 50% of the outstanding voting securities of such Person,
or (ii) the power, directly or indirectly, by proxy, voting trust or otherwise,
to elect a majority of the outstanding directors, trustees or other managing
persons of such Person.
"DISABILITY," with respect to Employee, shall mean that, for physical or
mental reasons, Employee is unable to perform the essential functions of
Employee's duties under this Agreement for 90 consecutive days, or 180 days
during any one twelve month period, as determined by a medical doctor selected
by written agreement of the Company and Employee; provided, however, that if the
-------- -------
Company and Employee cannot agree on the selection of a medical doctor, each of
them will select a medical doctor and the two medical doctors will select a
third medical doctor which third medical doctor will determine whether Employee
has a disability. The determination of the medical doctor selected will be
binding on both parties. Employee must submit to a reasonable number of
examinations by the medical doctor making the determination of disability and
Employee hereby authorizes the disclosure and release to Employee of such
determination and all supporting medical records. If Employee is not legally
competent, Employee's legal guardian or duly authorized attorney-in-fact will
act in Employee's stead for the purposes of submitting Employee to the
examinations, and providing the authorization of disclosure.
"EFFECTIVE DATE" shall have the meaning set forth in Section 10 of this
Agreement.
"EMPLOYEE HANDBOOK" shall mean the Company's Employee Handbook, as from
time to time in effect.
"FOR CAUSE" shall mean, in the context of a basis for termination of
Employee's employment with the Company, that:
2
<PAGE>
(a) Employee materially breaches any material obligation, duty or
agreement under this Agreement, which breach is not cured or corrected within 30
days of written notice thereof from the Company; provided further, that the
----------------
Employee shall be entitled to only one such notice with respect to such specific
acts or omissions (or substantially similar conduct); or
(b) Employee is convicted of, or pleads guilty or nolo contendere to any
charge of, theft, fraud, crime involving moral turpitude, or felony under
federal or applicable state law; or
(c) Employee commits continued and repeated substantive violations of
specific written directions of the Board, which directions are consistent with
this Agreement and Employee's position and title(s), or continued and repeated
substantive failure to perform Employee's duties; provided that no discharge
--------
shall be deemed For Cause under this subsection (c) unless Employee first
receives written notice from the Board advising Employee of the specific acts or
omissions alleged to constitute violations of written directions or a material
failure to perform Employee's duties, and such violations or material failure
continue after Employee shall have had a reasonable opportunity to correct the
acts or omissions so complained of; and provided further, that the Employee
----------------
shall be entitled to only one such notice with respect to such specific acts or
omissions (or substantially similar conduct).
"PERSON" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, governmental authority or other entity.
3. COMPENSATION AND BENEFITS
(a) Salary. The Company shall pay Employee a base salary at an annual rate
------
of not less than $190,000 during the term of Employee's employment pursuant to
this Agreement. The base salary shall be reviewed annually for increase by the
Board (or a committee of the Board) (provided, however, that the Company shall
-------- -------
be under no obligation to increase such base salary). The base salary shall be
payable in installments in the same manner and at the same times the Company
pays base salaries to other executive officers of the Company, but in no event
less frequently than equal monthly installments.
(b) Bonus. Employee shall be entitled to any bonuses the Board (or a
-----
committee of the Board) in its sole discretion from time to time authorizes.
(c) Expense Reimbursement. Employee shall be entitled to reimbursement
---------------------
from the Company for the reasonable costs and expenses which Employee incurs in
connection with the performance of Employee's duties and obligations under this
Agreement in a manner consistent with the Company's practices and policies
therefor.
(d) Employee Benefit Plans. Employee shall be entitled to participate in
----------------------
any pension, savings and group term life, medical, dental, disability, and other
group benefit plans which the Company makes available to its employees
generally.
(e) Vacation. Employee shall be entitled to five weeks paid vacation each
--------
year which shall accrue in accordance with, and be subject to limitations under,
the Employee Handbook.
3
<PAGE>
(f) Disability. In the event of any disability or illness of Employee, if
----------
Employee shall receive payments as a result of such disability or illness under
any disability plan maintained by the Company or from any government agency, the
Company shall be entitled to deduct the amount of such payments received from
base salary payable to Employee during the period of such illness and/or
disability.
(g) Withholding. The Company may deduct from any compensation payable to
-----------
Employee (including payments made pursuant to Section 5 of this Agreement in
connection with or following termination of employment) amounts it believes are
required to be withheld under federal and state law, including applicable
federal, state and/or local income tax withholding, old-age and survivors' and
other social security payments, state disability and other insurance premiums
and payments.
4. TERM OF EMPLOYMENT
Employee's employment pursuant to this Agreement shall commence on the
Effective Date and shall terminate on the earliest to occur of the following:
(a) upon the date set forth in a written notice of termination from
Employee to the Company (which date shall be after October 31, 2000 and at least
30 days after the delivery of that notice); provided, however, that in the event
-----------------
Employee delivers such notice to the Company, the Company shall have the right
to accelerate such termination by written notice thereof to Employee (and such
termination by the Company shall be deemed to be a termination of employment
pursuant to this Section 4(a), and not a termination pursuant to Section 4(d) or
4(e) hereof);
(b) upon written notice of termination from Employee to the Company within
60 days following an Adverse Event;
(c) upon the death of Employee;
(d) upon delivery to Employee of written notice of termination by the
Company if Employee shall suffer a Disability;
(e) upon delivery to Employee of written notice of termination by the
Company For Cause; or
(f) upon delivery to Employee of written notice of termination by the
Company without cause.
5. SEVERANCE COMPENSATION
(a) If Employee's employment is terminated pursuant to Section 4(c)
(death) prior to October 31, 2000:
(i) if the Company then maintains key person life insurance with
respect to Employee, the Company shall pay to Employee's estate an amount equal
to the amount of salary
4
<PAGE>
which Employee would have earned from termination of employment through October
31, 2000 at the rate in effect at the date of termination, which payment shall
be due within 10 days following the date the Company receives the proceeds of
any key person insurance maintained by the Company with respect to Employee; if
the Company does not then maintain key person life insurance with respect to
Employee, the Company shall pay to Employee's estate the salary which Employee
would have earned from termination of employment through October 31, 2000 at the
rate in effect at the date of termination and at the times the salary would have
become payable; and
(ii) until October 31, 2000, the Company shall provide to Employee's
immediate family medical and dental benefits to the same extent it provides
those benefits to the immediate families of its executive officers generally
(or, if the Company is unable to include such persons in its then existing
medical and dental plans, the Company will provide as nearly as practicable
comparable benefits at a cost to the Company not to exceed $25,000 each year for
all those persons).
(b) If Employee's employment is terminated pursuant to Section 4(d)
(Disability) prior to October 31, 2000, until October 31, 2000:
(i) the Company shall continue to pay to Employee salary at the rate
in effect at the date of termination of employment; provided, however, that the
-------- -------
Company may offset against such payments any benefits the Employee receives from
any disability plan maintained by the Company and any government benefits; and
(ii) the Company shall continue to provide to Employee and Employee's
immediate family medical and dental benefits to the same extent it provides
those benefits to its executive officers and their immediate families generally
(or, if the Company is unable to include such persons in its then existing
medical and dental plans, the Company will provide as nearly as practicable
comparable benefits at a cost to the Company not to exceed $25,000 each year for
all those persons).
(c) If Employee's employment is terminated pursuant to Section 4(a) (by
Employee) or pursuant to Section 4(d) (by the Company For Cause), Employee's
salary and other benefits shall cease as of the date of termination.
(d) If Employee's employment is terminated pursuant to Section 4(e) (by
the Company without cause) or pursuant to Section 4(b) (by Employee upon the
occurrence of an Adverse Event), until the later to occur of October 31, 2000 or
one year following the date of termination:
(i) the Company shall continue to pay to Employee salary at the rate
in effect at the date of termination of employment; and
(ii) the Company shall continue to provide to Employee and Employee's
immediate family medical, disability and dental benefits to the same extent it
provides those benefits to its executive officers and their immediate families
generally.
5
<PAGE>
(e) If Employee's employment is terminated by the Company pursuant to
Section 4(d) (For Cause), and subject to applicable law and regulations, the
Company shall be entitled to offset against any payments due Employee any loss
or damage which the Company shall suffer as a result of the acts or omissions of
Employee giving rise to termination under Section 4(d).
(f) Employee acknowledges that the Company has the right to terminate
Employee's employment without cause and that such termination shall not be a
breach of this Agreement or any other express or implied agreement between the
Company and Employee. Accordingly, in the event of such termination, Employee
shall be entitled only to those benefits specifically provided in this Section
5, and shall not have any other rights to any compensation or damages from the
Company for breach of contract or otherwise.
(g) Employee acknowledges that in the event of termination of Employee's
employment for any reason, Employee shall not be entitled to any severance or
other compensation from the Company except as specifically provided in this
Section 5. Without limitation on the generality of the foregoing, this Section
supersedes any plan or policy of the Company which provides for severance to its
officers or employees, and Employee shall not be entitled to any benefits under
any such plan or policy.
6. COVENANT NOT TO SOLICIT
Employee agrees not to directly or indirectly, either alone or by action in
concert with others: (a) induce or attempt to influence any employee of any
member of the Company Group to engage in any activity in which Employee is
prohibited from engaging by Section 1(c) of this Agreement or to terminate his
or her employment with any member of the Company Group; or (b) induce or attempt
to induce any customer, supplier, licensee or other business relationship of any
member of the Company Group to cease or reduce its business with any member of
the Company Group, or in any way interfere with the relationship between any
such supplier, licensee or business relationship and any member of the Company
Group, or (c) solicit business from any of the Company's customers, all during
the following periods: (i) until the later to occur of Employee's termination
or October 31, 2000 if Employee's employment is terminated pursuant to Section
4(a) or 4(d); or (ii) until the later to occur of October 31, 2000 or one year
following the date of termination of employment if Employee's employment is
terminated pursuant to Section 4(b) (by Employee upon the occurrence of an
Adverse Event), or Section 4(e) (by the Company for Cause), or Section 4(f) (by
the Company without cause).
7. CONFIDENTIALITY
Employee agrees not to disclose or use at any time (whether during or after
Employee's employment with the Company) for Employee's own benefit or purposes
or the benefit or purposes of any other Person any trade secrets, information,
data, or other confidential information relating to customers, development
programs, costs, marketing, trading, investment, sales activities, promotion,
credit and financial data, financial methods, plans, or the business and affairs
of the Company Group generally, provided that the foregoing shall not apply to
--------
information which is not unique to the Company Group or which is generally known
to the industry or the public other than as a result of Employee's breach of
this covenant.
6
<PAGE>
8. RESOLUTION OF DISPUTES
(a) Except as provided in Section 8(b) below, any controversy or claim
between the Company and Employee relating to Employee's employment with the
Company, including but not limited to those arising out of or relating to this
Agreement or any agreements or instruments relating hereto or delivered in
connection herewith and any claim based on or arising from an alleged tort,
shall at the request of any party be determined by arbitration. The arbitration
shall be conducted in Los Angeles, California, in accordance with the United
States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA"). The parties shall have the right to review and
approve a panel of prospective arbitrators supplied by AAA, but the arbitration
shall be conducted by a single arbitrator selected from the approved panel by
AAA or by stipulation of the parties. The arbitrator(s) shall give effect to
statutes of limitation in determining any claim. Any controversy concerning
whether an issue is arbitrable shall be determined by the arbitrator(s). The
arbitrator(s) shall be entitled to order specific performance of the obligations
imposed by this Agreement. Judgment upon the arbitration award may be entered in
any court having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
(b) Section 8(a) of this Agreement does not prohibit a party from seeking
and obtaining injunctive relief pending the outcome of arbitration. Moreover,
Employee acknowledges that the injury that would be suffered by the Company as a
result of a breach or threatened breach of Sections 1(c), 6 or 7 would be
irreparable and that an award of monetary damages to the Company for such breach
would be an inadequate remedy. Consequently, the Company will have the right, in
addition to any other rights it may have, to obtain injunctive relief to
restrain any breach or threatened breach or otherwise to specifically enforce
such provisions.
(c) Pending the outcome of any arbitration, the Company shall continue
payment of all amounts which Employee has a reasonable basis to claim Employee
is entitled to under this Agreement.
9. MISCELLANEOUS
(a) Notices. All notices, requests, demands and other communications
-------
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission or
by United States first class, registered or certified mail, addressed to the
following addresses:
7
<PAGE>
(i) If to the Company, to:
Signature Eyewear, Inc.
498 North Oak Street
Inglewood, California 90302
Attn: Board of Directors
(ii) If to Employee, to:
Employee's address as set forth on the books
and records of the Company
Any Notice, other than a Notice sent by registered or certified mail, shall be
effective when received; a Notice sent by registered or certified mail, postage
prepaid return receipt requested, shall be effective on the earlier of when
received or the third day following deposit in the United States mails (or on
the seventh day if sent to or from an address outside the United States). Any
party may from time to time change its address for further Notices hereunder by
giving notice to the other party in the manner prescribed in this Section.
(b) Entire Agreement. This Agreement contains the sole and entire
----------------
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein. No representations,
oral or otherwise, express or implied, other than those contained in this
Agreement have been relied upon by any party to this Agreement.
(c) Severability. In the event that any provision or portion of this
------------
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
(d) Governing Law. This Agreement has been made and entered into in the
-------------
State of California and shall be construed in accordance with the laws of the
State of California.
(e) Captions. The various captions of this Agreement are for reference
--------
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(g) Attorneys' Fees. If any action or proceeding is brought to enforce or
---------------
interpret any provision of this Agreement, the prevailing party shall be
entitled to recover as an element of its costs, and not its damages, its
reasonable attorneys' fees, costs and expenses. The prevailing party is the
party who is entitled to recover its costs in the action or proceeding. A party
not entitled to recover its costs may not recover attorneys' fees. No sum for
attorneys' fees shall be
8
<PAGE>
counted in calculating the amount of a judgment for purposes of determining
whether a party is entitled to recover its costs or attorneys' fees.
10. EFFECTIVE DATE
This Agreement shall become effective upon the closing of the Company's
initial public offering pursuant to a registration statement filed by the
Company with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "EFFECTIVE DATE"). If the closing of the Company's
initial public offering is not completed by October 31, 1997, this Agreement
shall never become effective.
Signature Eyewear, Inc.,
a California corporation
By: /s/ Julie Heldman
----------------------------------
Julie Heldman
Its: Co-Chairman of the Board and
President
/s/ Bernard Weiss
----------------------------------------
Bernard Weiss
9
<PAGE>
EXHIBIT 10.9
SIGNATURE EYEWEAR, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (this "AGREEMENT") is made and entered into as of
the 26th day of August, 1997 by and between Signature Eyewear, Inc., a
California corporation (the "COMPANY"), and Julie Heldman ("EMPLOYEE").
1. ENGAGEMENT AND RESPONSIBILITIES
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby employs Employee as an officer of the Company,
with the title of Co-Chairman of the Board and President. Employee hereby
accepts such employment.
(b) Employee's duties and responsibilities shall be those incident to the
position(s) described in Section 1(a) as set forth in the Bylaws of the Company
and those which are normally and customarily vested in such office(s) of a
corporation. In addition, Employee's duties shall include those duties and
services for the Company and its affiliates as the Board shall, in its sole and
absolute discretion, from time to time reasonably direct which are not
inconsistent with Employee's positions described in Section 1(a).
(c) Employee agrees to devote all of Employee's business time, energy and
efforts to the business of the Company and will use Employee's best efforts and
abilities faithfully and diligently to promote the Company's business interests.
For so long as Employee is employed by the Company, Employee shall not, directly
or indirectly, either as an employee, employer, consultant, agent, investor,
principal, partner, stockholder (except as the holder of less than 1% of the
issued and outstanding stock of a publicly held corporation), corporate officer
or director, or in any other individual or representative capacity, engage or
participate in any business that is in competition in any manner whatsoever with
the business of the Company Group, as such businesses are now or hereafter
conducted. Notwithstanding the foregoing prohibitions but provided such
services or investments do not violate any applicable law, regulation or order,
or interfere in any way with the faithful and diligent performance by Employee
of the services to the Company otherwise required or contemplated by this
Agreement, the Company expressly acknowledges that Employee may:
(i) make and manage personal business investments of Employee's choice
without consulting the Board; and
(ii) serve in any capacity with any civic, educational, charitable or
trade organization without consulting the Board.
2. DEFINITIONS
"ADVERSE EVENT" with respect to Employee shall be the occurrence of any one
or more of the following, without the prior written consent of Employee:
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<PAGE>
(a) a demotion of Employee as evidenced by a loss of an executive officer
title unless (i) in connection therewith Employee shall have received one or
more titles of equal or senior rank; and/or (ii) Employee shall continue to hold
one or more officer titles of equal or senior rank to the title lost; or
(b) a significant diminution of Employee's on-going duties and
responsibilities with the Company; or
(c) the relocation of the Company's principal executive offices outside the
Los Angeles Metropolitan area; or
(d) the Company requiring Employee to relocate to an office outside the Los
Angeles Metropolitan area for a period exceeding three months in any calendar
year as a condition to continued employment.
"BOARD" shall mean the Board of Directors of the Company.
"COMPANY GROUP" shall mean the Company and each Person which the Company
directly or indirectly Controls.
"CONTROL" shall mean, with respect to any Person, (i) the beneficial
ownership of more than 50% of the outstanding voting securities of such Person,
or (ii) the power, directly or indirectly, by proxy, voting trust or otherwise,
to elect a majority of the outstanding directors, trustees or other managing
persons of such Person.
"DISABILITY," with respect to Employee, shall mean that, for physical or
mental reasons, Employee is unable to perform the essential functions of
Employee's duties under this Agreement for 90 consecutive days, or 180 days
during any one twelve month period, as determined by a medical doctor selected
by written agreement of the Company and Employee; provided, however, that if the
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Company and Employee cannot agree on the selection of a medical doctor, each of
them will select a medical doctor and the two medical doctors will select a
third medical doctor which third medical doctor will determine whether Employee
has a disability. The determination of the medical doctor selected will be
binding on both parties. Employee must submit to a reasonable number of
examinations by the medical doctor making the determination of disability and
Employee hereby authorizes the disclosure and release to Employee of such
determination and all supporting medical records. If Employee is not legally
competent, Employee's legal guardian or duly authorized attorney-in-fact will
act in Employee's stead for the purposes of submitting Employee to the
examinations, and providing the authorization of disclosure.
"EFFECTIVE DATE" shall have the meaning set forth in Section 10 of this
Agreement.
"EMPLOYEE HANDBOOK" shall mean the Company's Employee Handbook, as from
time to time in effect.
"FOR CAUSE" shall mean, in the context of a basis for termination of
Employee's employment with the Company, that:
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(a) Employee materially breaches any material obligation, duty or agreement
under this Agreement, which breach is not cured or corrected within 30 days of
written notice thereof from the Company; provided further, that the Employee
----------------
shall be entitled to only one such notice with respect to such specific acts or
omissions (or substantially similar conduct); or
(b) Employee is convicted of, or pleads guilty or nolo contendere to any
charge of, theft, fraud, crime involving moral turpitude, or felony under
federal or applicable state law; or
(c) Employee commits continued and repeated substantive violations of
specific written directions of the Board, which directions are consistent with
this Agreement and Employee's position and title(s), or continued and repeated
substantive failure to perform Employee's duties; provided that no discharge
--------
shall be deemed For Cause under this subsection (c) unless Employee first
receives written notice from the Board advising Employee of the specific acts or
omissions alleged to constitute violations of written directions or a material
failure to perform Employee's duties, and such violations or material failure
continue after Employee shall have had a reasonable opportunity to correct the
acts or omissions so complained of; and provided further, that the Employee
----------------
shall be entitled to only one such notice with respect to such specific acts or
omissions (or substantially similar conduct).
"PERSON" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, governmental authority or other entity.
3. COMPENSATION AND BENEFITS
(a) Salary. The Company shall pay Employee a base salary at an annual rate
------
of not less than $190,000 during the term of Employee's employment pursuant to
this Agreement. The base salary shall be reviewed annually for increase by the
Board (or a committee of the Board) (provided, however, that the Company shall
-------- -------
be under no obligation to increase such base salary). The base salary shall be
payable in installments in the same manner and at the same times the Company
pays base salaries to other executive officers of the Company, but in no event
less frequently than equal monthly installments.
(b) Bonus. Employee shall be entitled to any bonuses the Board (or a
-----
committee of the Board) in its sole discretion from time to time authorizes.
(c) Expense Reimbursement. Employee shall be entitled to reimbursement from
---------------------
the Company for the reasonable costs and expenses which Employee incurs in
connection with the performance of Employee's duties and obligations under this
Agreement in a manner consistent with the Company's practices and policies
therefor.
(d) Employee Benefit Plans. Employee shall be entitled to participate in
----------------------
any pension, savings and group term life, medical, dental, disability, and other
group benefit plans which the Company makes available to its employees
generally.
(e) Vacation. Employee shall be entitled to five weeks paid vacation each
--------
year which shall accrue in accordance with, and be subject to limitations under,
the Employee Handbook.
3
<PAGE>
(f) Disability. In the event of any disability or illness of Employee, if
----------
Employee shall receive payments as a result of such disability or illness under
any disability plan maintained by the Company or from any government agency, the
Company shall be entitled to deduct the amount of such payments received from
base salary payable to Employee during the period of such illness and/or
disability.
(g) Withholding. The Company may deduct from any compensation payable to
-----------
Employee (including payments made pursuant to Section 5 of this Agreement in
connection with or following termination of employment) amounts it believes are
required to be withheld under federal and state law, including applicable
federal, state and/or local income tax withholding, old-age and survivors' and
other social security payments, state disability and other insurance premiums
and payments.
4. TERM OF EMPLOYMENT
Employee's employment pursuant to this Agreement shall commence on the
Effective Date and shall terminate on the earliest to occur of the following:
(a) upon the date set forth in a written notice of termination from
Employee to the Company (which date shall be after October 31, 2000 and at least
30 days after the delivery of that notice); provided, however, that in the event
-----------------
Employee delivers such notice to the Company, the Company shall have the right
to accelerate such termination by written notice thereof to Employee (and such
termination by the Company shall be deemed to be a termination of employment
pursuant to this Section 4(a), and not a termination pursuant to Section 4(d) or
4(e) hereof);
(b) upon written notice of termination from Employee to the Company within
60 days following an Adverse Event;
(c) upon the death of Employee;
(d) upon delivery to Employee of written notice of termination by the
Company if Employee shall suffer a Disability;
(e) upon delivery to Employee of written notice of termination by the
Company For Cause; or
(f) upon delivery to Employee of written notice of termination by the
Company without cause.
5. SEVERANCE COMPENSATION
(a) If Employee's employment is terminated pursuant to Section 4(c) (death)
prior to October 31, 2000:
(i) if the Company then maintains key person life insurance with
respect to Employee, the Company shall pay to Employee's estate an amount equal
to the amount of salary
4
<PAGE>
which Employee would have earned from termination of employment through October
31, 2000 at the rate in effect at the date of termination, which payment shall
be due within 10 days following the date the Company receives the proceeds of
any key person insurance maintained by the Company with respect to Employee; if
the Company does not then maintain key person life insurance with respect to
Employee, the Company shall pay to Employee's estate the salary which Employee
would have earned from termination of employment through October 31, 2000 at the
rate in effect at the date of termination and at the times the salary would have
become payable; and
(ii) until October 31, 2000, the Company shall provide to Employee's
immediate family medical and dental benefits to the same extent it provides
those benefits to the immediate families of its executive officers generally
(or, if the Company is unable to include such persons in its then existing
medical and dental plans, the Company will provide as nearly as practicable
comparable benefits at a cost to the Company not to exceed $25,000 each year for
all those persons).
(b) If Employee's employment is terminated pursuant to Section 4(d)
(Disability) prior to October 31, 2000, until October 31, 2000:
(i) the Company shall continue to pay to Employee salary at the rate in
effect at the date of termination of employment; provided, however, that the
-------- -------
Company may offset against such payments any benefits the Employee receives from
any disability plan maintained by the Company and any government benefits; and
(ii) the Company shall continue to provide to Employee and Employee's
immediate family medical and dental benefits to the same extent it provides
those benefits to its executive officers and their immediate families generally
(or, if the Company is unable to include such persons in its then existing
medical and dental plans, the Company will provide as nearly as practicable
comparable benefits at a cost to the Company not to exceed $25,000 each year for
all those persons).
(c) If Employee's employment is terminated pursuant to Section 4(a) (by
Employee) or pursuant to Section 4(d) (by the Company For Cause), Employee's
salary and other benefits shall cease as of the date of termination.
(d) If Employee's employment is terminated pursuant to Section 4(e) (by the
Company without cause) or pursuant to Section 4(b) (by Employee upon the
occurrence of an Adverse Event), until the later to occur of October 31, 2000 or
one year following the date of termination:
(i) the Company shall continue to pay to Employee salary at the rate in
effect at the date of termination of employment; and
(ii) the Company shall continue to provide to Employee and Employee's
immediate family medical, disability and dental benefits to the same extent it
provides those benefits to its executive officers and their immediate families
generally.
5
<PAGE>
(e) If Employee's employment is terminated by the Company pursuant to
Section 4(d) (For Cause), and subject to applicable law and regulations, the
Company shall be entitled to offset against any payments due Employee any loss
or damage which the Company shall suffer as a result of the acts or omissions of
Employee giving rise to termination under Section 4(d).
(f) Employee acknowledges that the Company has the right to terminate
Employee's employment without cause and that such termination shall not be a
breach of this Agreement or any other express or implied agreement between the
Company and Employee. Accordingly, in the event of such termination, Employee
shall be entitled only to those benefits specifically provided in this Section
5, and shall not have any other rights to any compensation or damages from the
Company for breach of contract or otherwise.
(g) Employee acknowledges that in the event of termination of Employee's
employment for any reason, Employee shall not be entitled to any severance or
other compensation from the Company except as specifically provided in this
Section 5. Without limitation on the generality of the foregoing, this Section
supersedes any plan or policy of the Company which provides for severance to its
officers or employees, and Employee shall not be entitled to any benefits under
any such plan or policy.
6. COVENANT NOT TO SOLICIT
Employee agrees not to directly or indirectly, either alone or by action in
concert with others: (a) induce or attempt to influence any employee of any
member of the Company Group to engage in any activity in which Employee is
prohibited from engaging by Section 1(c) of this Agreement or to terminate his
or her employment with any member of the Company Group; or (b) induce or attempt
to induce any customer, supplier, licensee or other business relationship of any
member of the Company Group to cease or reduce its business with any member of
the Company Group, or in any way interfere with the relationship between any
such supplier, licensee or business relationship and any member of the Company
Group, or (c) solicit business from any of the Company's customers, all during
the following periods: (i) until the later to occur of Employee's termination
or October 31, 2000 if Employee's employment is terminated pursuant to Section
4(a) or 4(d); or (ii) until the later to occur of October 31, 2000 or one year
following the date of termination of employment if Employee's employment is
terminated pursuant to Section 4(b) (by Employee upon the occurrence of an
Adverse Event), or Section 4(e) (by the Company for Cause), or Section 4 (f) (by
the Company without cause).
7. CONFIDENTIALITY
Employee agrees not to disclose or use at any time (whether during or after
Employee's employment with the Company) for Employee's own benefit or purposes
or the benefit or purposes of any other Person any trade secrets, information,
data, or other confidential information relating to customers, development
programs, costs, marketing, trading, investment, sales activities, promotion,
credit and financial data, financial methods, plans, or the business and affairs
of the Company Group generally, provided that the foregoing shall not apply to
--------
information which is not unique to the Company Group or which is generally known
to the industry or the public other than as a result of Employee's breach of
this covenant.
6
<PAGE>
8. RESOLUTION OF DISPUTES
(a) Except as provided in Section 8(b) below, any controversy or claim
between the Company and Employee relating to Employee's employment with the
Company, including but not limited to those arising out of or relating to this
Agreement or any agreements or instruments relating hereto or delivered in
connection herewith and any claim based on or arising from an alleged tort,
shall at the request of any party be determined by arbitration. The arbitration
shall be conducted in Los Angeles, California, in accordance with the United
States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA"). The parties shall have the right to review and
approve a panel of prospective arbitrators supplied by AAA, but the arbitration
shall be conducted by a single arbitrator selected from the approved panel by
AAA or by stipulation of the parties. The arbitrator(s) shall give effect to
statutes of limitation in determining any claim. Any controversy concerning
whether an issue is arbitrable shall be determined by the arbitrator(s). The
arbitrator(s) shall be entitled to order specific performance of the obligations
imposed by this Agreement. Judgment upon the arbitration award may be entered in
any court having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
(b) Section 8(a) of this Agreement does not prohibit a party from seeking
and obtaining injunctive relief pending the outcome of arbitration. Moreover,
Employee acknowledges that the injury that would be suffered by the Company as a
result of a breach or threatened breach of Sections 1(c), 6 or 7 would be
irreparable and that an award of monetary damages to the Company for such
breach would be an inadequate remedy. Consequently, the Company will have the
right, in addition to any other rights it may have, to obtain injunctive relief
to restrain any breach or threatened breach or otherwise to specifically enforce
such provisions.
(c) Pending the outcome of any arbitration, the Company shall continue
payment of all amounts which Employee has a reasonable basis to claim Employee
is entitled to under this Agreement.
9. MISCELLANEOUS
(a) Notices. All notices, requests, demands and other communications
-------
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission or
by United States first class, registered or certified mail, addressed to the
following addresses:
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<PAGE>
(i) If to the Company, to:
Signature Eyewear, Inc.
498 North Oak Street
Inglewood, California 90302
Attn: Board of Directors
(ii) If to Employee, to:
Employee's address as set forth on the books
and records of the Company
Any Notice, other than a Notice sent by registered or certified mail, shall be
effective when received; a Notice sent by registered or certified mail, postage
prepaid return receipt requested, shall be effective on the earlier of when
received or the third day following deposit in the United States mails (or on
the seventh day if sent to or from an address outside the United States). Any
party may from time to time change its address for further Notices hereunder by
giving notice to the other party in the manner prescribed in this Section.
(b) Entire Agreement. This Agreement contains the sole and entire
----------------
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein. No representations,
oral or otherwise, express or implied, other than those contained in this
Agreement have been relied upon by any party to this Agreement.
(c) Severability. In the event that any provision or portion of this
------------
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
(d) Governing Law. This Agreement has been made and entered into in the
-------------
State of California and shall be construed in accordance with the laws of the
State of California.
(e) Captions. The various captions of this Agreement are for reference
--------
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(g) Attorneys' Fees. If any action or proceeding is brought to enforce or
---------------
interpret any provision of this Agreement, the prevailing party shall be
entitled to recover as an element of its costs, and not its damages, its
reasonable attorneys' fees, costs and expenses. The prevailing party is the
party who is entitled to recover its costs in the action or proceeding. A party
not entitled to recover its costs may not recover attorneys' fees. No sum for
attorneys' fees shall be
8
<PAGE>
counted in calculating the amount of a judgment for purposes of determining
whether a party is entitled to recover its costs or attorneys' fees.
10. EFFECTIVE DATE
This Agreement shall become effective upon the closing of the Company's
initial public offering pursuant to a registration statement filed by the
Company with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "EFFECTIVE DATE"). If the closing of the Company's
initial public offering is not completed by October 31, 1997, this Agreement
shall never become effective.
Signature Eyewear, Inc.,
a California corporation
By: /s/ Bernard Weiss
----------------------------------
Bernard Weiss
Its: Co-Chairman of the Board and
Chief Executive Officer
/s/ Julie Heldman
---------------------------------------
Julie Heldman
9
<PAGE>
EXHIBIT 10.10
SIGNATURE EYEWEAR, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (this "AGREEMENT") is made and entered into as of
the 26th day of August, 1997 by and between Signature Eyewear, Inc., a
California corporation (the "COMPANY"), and Michael Prince ("EMPLOYEE").
1. ENGAGEMENT AND RESPONSIBILITIES
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby employs Employee as an officer of the Company,
with the title of Chief Financial Officer. Employee hereby accepts such
employment.
(b) Employee's duties and responsibilities shall be those incident to the
position(s) described in Section 1(a) as set forth in the Bylaws of the Company
and those which are normally and customarily vested in such office(s) of a
corporation. In addition, Employee's duties shall include those duties and
services for the Company and its affiliates as the Chief Executive Officer or
President of the Company shall, in such officers' sole and absolute discretion,
from time to time reasonably direct which are not inconsistent with Employee's
positions described in Section 1(a).
(c) Employee agrees to devote all of Employee's business time, energy and
efforts to the business of the Company and will use Employee's best efforts and
abilities faithfully and diligently to promote the Company's business interests.
For so long as Employee is employed by the Company, Employee shall not, directly
or indirectly, either as an employee, employer, consultant, agent, investor,
principal, partner, stockholder (except as the holder of less than 1% of the
issued and outstanding stock of a publicly held corporation), corporate officer
or director, or in any other individual or representative capacity, engage or
participate in any business that is in competition in any manner whatsoever with
the business of the Company Group, as such businesses are now or hereafter
conducted. Notwithstanding the foregoing prohibitions but provided such
services or investments do not violate any applicable law, regulation or order,
or interfere in any way with the faithful and diligent performance by Employee
of the services to the Company otherwise required or contemplated by this
Agreement, the Company expressly acknowledges that Employee may:
(i) make and manage personal business investments of Employee's
choice without consulting the Chief Executive Officer or President;
(ii) serve in any capacity with any civic, educational, charitable or
trade organization without consulting with the Chief Executive Officer or
President; and
(iii) provide services to Prince & Co. at a level not to exceed the
level of services provided by Employee to this company during the one year
period preceding the date of this Agreement without consulting with the Chief
Executive Officer or President.
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<PAGE>
2. DEFINITIONS
"ADVERSE EVENT" with respect to Employee shall be the occurrence of any one
or more of the following, without the prior written consent of Employee:
(a) a demotion of Employee as evidenced by a loss of an executive officer
title unless (i) in connection therewith Employee shall have received one or
more titles of equal or senior rank; and/or (ii) Employee shall continue to hold
one or more officer titles of equal or senior rank to the title lost; or
(b) a significant diminution of Employee's on-going duties and
responsibilities with the Company; or
(c) the relocation of the Company's principal executive offices outside the
Los Angeles Metropolitan area; or
(d) the Company requiring Employee to relocate to an office outside the Los
Angeles Metropolitan area for a period exceeding three months in any calendar
year as a condition to continued employment.
"BOARD" shall mean the Board of Directors of the Company.
"COMPANY GROUP" shall mean the Company and each Person which the Company
directly or indirectly Controls.
"CONTROL" shall mean, with respect to any Person, (i) the beneficial
ownership of more than 50% of the outstanding voting securities of such Person,
or (ii) the power, directly or indirectly, by proxy, voting trust or otherwise,
to elect a majority of the outstanding directors, trustees or other managing
persons of such Person.
"DISABILITY," with respect to Employee, shall mean that, for physical or
mental reasons, Employee is unable to perform the essential functions of
Employee's duties under this Agreement for 90 consecutive days, or 180 days
during any one twelve month period, as determined by a medical doctor selected
by written agreement of the Company and Employee; provided, however, that if the
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Company and Employee cannot agree on the selection of a medical doctor, each of
them will select a medical doctor and the two medical doctors will select a
third medical doctor which third medical doctor will determine whether Employee
has a disability. The determination of the medical doctor selected will be
binding on both parties. Employee must submit to a reasonable number of
examinations by the medical doctor making the determination of disability and
Employee hereby authorizes the disclosure and release to Employee of such
determination and all supporting medical records. If Employee is not legally
competent, Employee's legal guardian or duly authorized attorney-in-fact will
act in Employee's stead for the purposes of submitting Employee to the
examinations, and providing the authorization of disclosure.
"EFFECTIVE DATE" shall have the meaning set forth in Section 10 of this
Agreement.
2
<PAGE>
"EMPLOYEE HANDBOOK" shall mean the Company's Employee Handbook, as from
time to time in effect.
"FOR CAUSE" shall mean, in the context of a basis for termination of
Employee's employment with the Company, that:
(a) Employee materially breaches any material obligation, duty or agreement
under this Agreement, which breach is not cured or corrected within 30 days of
written notice thereof from the Company; provided further, that the Employee
----------------
shall be entitled to only one such notice with respect to such specific acts or
omissions (or substantially similar conduct); or
(b) Employee is convicted of, or pleads guilty or nolo contendere to any
charge of, theft, fraud, crime involving moral turpitude, or felony under
federal or applicable state law; or
(c) Employee commits continued and repeated substantive violations of
specific written directions of the Chief Executive Officer or President of the
Company, which directions are consistent with this Agreement and Employee's
position and title(s), or continued and repeated substantive failure to perform
Employee's duties; provided that no discharge shall be deemed For Cause under
--------
this subsection (c) unless Employee first receives written notice from the Chief
Executive Officer or President of the Company advising Employee of the specific
acts or omissions alleged to constitute violations of written directions or a
material failure to perform Employee's duties, and such violations or material
failure continue after Employee shall have had a reasonable opportunity to
correct the acts or omissions so complained of; and provided further, that the
----------------
Employee shall be entitled to only one such notice with respect to such specific
acts or omissions (or substantially similar conduct).
"PERSON" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, governmental authority or other entity.
3. COMPENSATION AND BENEFITS
(a) Salary. The Company shall pay Employee a base salary at an annual rate
------
of not less than $175,000 during the term of Employee's employment pursuant to
this Agreement. The base salary shall be reviewed annually for increase by the
Board (or a committee of the Board) (provided, however, that the Company shall
-------- -------
be under no obligation to increase such base salary). The base salary shall be
payable in installments in the same manner and at the same times the Company
pays base salaries to other executive officers of the Company, but in no event
less frequently than equal monthly installments.
(b) Bonus. Employee shall be entitled to any bonuses the Board (or a
-----
committee of the Board) in its sole discretion from time to time authorizes.
(c) Expense Reimbursement. Employee shall be entitled to reimbursement from
---------------------
the Company for the reasonable costs and expenses which Employee incurs in
connection with the performance of Employee's duties and obligations under this
Agreement in a manner consistent with the Company's practices and policies
therefor.
3
<PAGE>
(d) Employee Benefit Plans. Employee shall be entitled to participate in
----------------------
any pension, savings and group term life, medical, dental, disability, and other
group benefit plans which the Company makes available to its employees
generally.
(e) Vacation. Employee shall be entitled to five weeks paid vacation each
--------
year which shall accrue in accordance with, and be subject to limitations under,
the Employee Handbook.
(f) Disability. In the event of any disability or illness of Employee, if
----------
Employee shall receive payments as a result of such disability or illness under
any disability plan maintained by the Company or from any government agency, the
Company shall be entitled to deduct the amount of such payments received from
base salary payable to Employee during the period of such illness and/or
disability.
(g) Withholding. The Company may deduct from any compensation payable to
-----------
Employee (including payments made pursuant to Section 5 of this Agreement in
connection with or following termination of employment) amounts it believes are
required to be withheld under federal and state law, including applicable
federal, state and/or local income tax withholding, old-age and survivors' and
other social security payments, state disability and other insurance premiums
and payments.
4. TERM OF EMPLOYMENT
Employee's employment pursuant to this Agreement shall commence on the
Effective Date and shall terminate on the earliest to occur of the following:
(a) upon the date set forth in a written notice of termination from
Employee to the Company (which date shall be after October 31, 2000 and at least
30 days after the delivery of that notice); provided, however, that in the event
-----------------
Employee delivers such notice to the Company, the Company shall have the right
to accelerate such termination by written notice thereof to Employee (and such
termination by the Company shall be deemed to be a termination of employment
pursuant to this Section 4(a), and not a termination pursuant to Section 4(d) or
4(e) hereof);
(b) upon written notice of termination from Employee to the Company within
60 days following an Adverse Event;
(c) upon the death of Employee;
(d) upon delivery to Employee of written notice of termination by the
Company if Employee shall suffer a Disability;
(e) upon delivery to Employee of written notice of termination by the
Company For Cause; or
(f) upon delivery to Employee of written notice of termination by the
Company without cause.
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<PAGE>
5. SEVERANCE COMPENSATION
(a) If Employee's employment is terminated pursuant to Section 4(c) (death)
prior to October 31, 2000:
(i) if the Company then maintains key person life insurance with
respect to Employee, the Company shall pay to Employee's estate an amount equal
to the amount of salary which Employee would have earned from termination of
employment through October 31, 2000 at the rate in effect at the date of
termination, which payment shall be due within 10 days following the date the
Company receives the proceeds of any key person insurance maintained by the
Company with respect to Employee; if the Company does not then maintain key
person life insurance with respect to Employee, the Company shall pay to
Employee's estate the salary which Employee would have earned from termination
of employment through October 31, 2000 at the rate in effect at the date of
termination and at the times the salary would have become payable; and
(ii) until October 31, 2000, the Company shall provide to Employee's
immediate family medical and dental benefits to the same extent it provides
those benefits to the immediate families of its executive officers generally
(or, if the Company is unable to include such persons in its then existing
medical and dental plans, the Company will provide as nearly as practicable
comparable benefits at a cost to the Company not to exceed $25,000 each year for
all those persons).
(b) If Employee's employment is terminated pursuant to Section 4(d)
(Disability) prior to October 31, 2000, until October 31, 2000:
(i) the Company shall continue to pay to Employee salary at the rate
in effect at the date of termination of employment; provided, however, that the
-------- -------
Company may offset against such payments any benefits the Employee receives from
any disability plan maintained by the Company and any government benefits; and
(ii) the Company shall continue to provide to Employee and Employee's
immediate family medical and dental benefits to the same extent it provides
those benefits to its executive officers and their immediate families generally
(or, if the Company is unable to include such persons in its then existing
medical and dental plans, the Company will provide as nearly as practicable
comparable benefits at a cost to the Company not to exceed $25,000 each year for
all those persons).
(c) If Employee's employment is terminated pursuant to Section 4(a) (by
Employee) or pursuant to Section 4(d) (by the Company For Cause), Employee's
salary and other benefits shall cease as of the date of termination.
(d) If Employee's employment is terminated pursuant to Section 4(e) (by the
Company without cause) or pursuant to Section 4(b) (by Employee upon the
occurrence of an Adverse Event), until the later to occur of October 31, 2000 or
one year following the date of termination:
5
<PAGE>
(i) the Company shall continue to pay to Employee salary at the rate
in effect at the date of termination of employment; and
(ii) the Company shall continue to provide to Employee and Employee's
immediate family medical, disability and dental benefits to the same extent it
provides those benefits to its executive officers and their immediate families
generally.
(e) If Employee's employment is terminated by the Company pursuant to
Section 4(d) (For Cause), and subject to applicable law and regulations, the
Company shall be entitled to offset against any payments due Employee any loss
or damage which the Company shall suffer as a result of the acts or omissions of
Employee giving rise to termination under Section 4(d).
(f) Employee acknowledges that the Company has the right to terminate
Employee's employment without cause and that such termination shall not be a
breach of this Agreement or any other express or implied agreement between the
Company and Employee. Accordingly, in the event of such termination, Employee
shall be entitled only to those benefits specifically provided in this Section
5, and shall not have any other rights to any compensation or damages from the
Company for breach of contract or otherwise.
(g) Employee acknowledges that in the event of termination of Employee's
employment for any reason, Employee shall not be entitled to any severance or
other compensation from the Company except as specifically provided in this
Section 5. Without limitation on the generality of the foregoing, this Section
supersedes any plan or policy of the Company which provides for severance to its
officers or employees, and Employee shall not be entitled to any benefits under
any such plan or policy.
6. COVENANT NOT TO SOLICIT
Employee agrees not to directly or indirectly, either alone or by action in
concert with others: (a) induce or attempt to influence any employee of any
member of the Company Group to engage in any activity in which Employee is
prohibited from engaging by Section 1(c) of this Agreement or to terminate his
or her employment with any member of the Company Group; or (b) induce or attempt
to induce any customer, supplier, licensee or other business relationship of any
member of the Company Group to cease or reduce its business with any member of
the Company Group, or in any way interfere with the relationship between any
such supplier, licensee or business relationship and any member of the Company
Group, or (c) solicit business from any of the Company's customers, all during
the following periods: (i) until the later to occur of Employee's termination
or October 31, 2000 if Employee's employment is terminated pursuant to Section
4(a) or 4(d); or (ii) until the later to occur of October 31, 2000 or one year
following the date of termination of employment if Employee's employment is
terminated pursuant to Section 4(b) (by Employee upon the occurrence of an
Adverse Event), or Section 4(e) (by the Company for Cause), or Section 4 (f) (by
the Company without cause).
7. CONFIDENTIALITY
Employee agrees not to disclose or use at any time (whether during or after
Employee's employment with the Company) for Employee's own benefit or purposes
or the benefit or
6
<PAGE>
purposes of any other Person any trade secrets, information, data, or other
confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, financial methods, plans, or the business and affairs of the
Company Group generally, provided that the foregoing shall not apply to
--------
information which is not unique to the Company Group or which is generally known
to the industry or the public other than as a result of Employee's breach of
this covenant.
8. RESOLUTION OF DISPUTES
(a) Except as provided in Section 8(b) below, any controversy or claim
between the Company and Employee relating to Employee's employment with the
Company, including but not limited to those arising out of or relating to this
Agreement or any agreements or instruments relating hereto or delivered in
connection herewith and any claim based on or arising from an alleged tort,
shall at the request of any party be determined by arbitration. The arbitration
shall be conducted in Los Angeles, California, in accordance with the United
States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA"). The parties shall have the right to review and
approve a panel of prospective arbitrators supplied by AAA, but the arbitration
shall be conducted by a single arbitrator selected from the approved panel by
AAA or by stipulation of the parties. The arbitrator(s) shall give effect to
statutes of limitation in determining any claim. Any controversy concerning
whether an issue is arbitrable shall be determined by the arbitrator(s). The
arbitrator(s) shall be entitled to order specific performance of the obligations
imposed by this Agreement. Judgment upon the arbitration award may be entered in
any court having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
(b) Section 8(a) of this Agreement does not prohibit a party from seeking
and obtaining injunctive relief pending the outcome of arbitration. Moreover,
Employee acknowledges that the injury that would be suffered by the Company as a
result of a breach or threatened breach of Sections 1(c), 6 or 7 would be
irreparable and that an award of monetary damages to the Company for such
breach would be an inadequate remedy. Consequently, the Company will have the
right, in addition to any other rights it may have, to obtain injunctive relief
to restrain any breach or threatened breach or otherwise to specifically enforce
such provisions.
(c) Pending the outcome of any arbitration, the Company shall continue
payment of all amounts which Employee has a reasonable basis to claim Employee
is entitled to under this Agreement.
9. MISCELLANEOUS
(a) Notices. All notices, requests, demands and other communications
-------
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission or
by United States first class, registered or certified mail, addressed to the
following addresses:
7
<PAGE>
(i) If to the Company, to:
Signature Eyewear, Inc.
498 North Oak Street
Inglewood, California 90302
Attn: President
(ii) If to Employee, to:
Employee's address as set forth on the books
and records of the Company
Any Notice, other than a Notice sent by registered or certified mail, shall be
effective when received; a Notice sent by registered or certified mail, postage
prepaid return receipt requested, shall be effective on the earlier of when
received or the third day following deposit in the United States mails (or on
the seventh day if sent to or from an address outside the United States). Any
party may from time to time change its address for further Notices hereunder by
giving notice to the other party in the manner prescribed in this Section.
(b) Entire Agreement. This Agreement contains the sole and entire
----------------
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein. No representations,
oral or otherwise, express or implied, other than those contained in this
Agreement have been relied upon by any party to this Agreement.
(c) Severability. In the event that any provision or portion of this
------------
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
(d) Governing Law. This Agreement has been made and entered into in the
-------------
State of California and shall be construed in accordance with the laws of the
State of California.
(e) Captions. The various captions of this Agreement are for reference
--------
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(g) Attorneys' Fees. If any action or proceeding is brought to enforce or
---------------
interpret any provision of this Agreement, the prevailing party shall be
entitled to recover as an element of its costs, and not its damages, its
reasonable attorneys' fees, costs and expenses. The prevailing party is the
party who is entitled to recover its costs in the action or proceeding. A party
not entitled to recover its costs may not recover attorneys' fees. No sum for
attorneys' fees shall be
8
<PAGE>
counted in calculating the amount of a judgment for purposes of determining
whether a party is entitled to recover its costs or attorneys' fees.
10. EFFECTIVE DATE
This Agreement shall become effective upon the closing of the Company's
initial public offering pursuant to a registration statement filed by the
Company with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "EFFECTIVE DATE"). If the closing of the Company's
initial public offering is not completed by October 31, 1997, this Agreement
shall never become effective.
Signature Eyewear, Inc.,
a California corporation
By: /s/ Julie Heldman
----------------------------------
Julie Heldman
Its: Co-Chairman of the Board and
President
/s/ Michael Prince
-------------------------------------------
Michael Prince
9
<PAGE>
EXHIBIT 10.11
SIGNATURE EYEWEAR, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (this "AGREEMENT") is made and entered into as of
the 26th day of August, 1997 by and between Signature Eyewear, Inc., a
California corporation (the "COMPANY"), and Robert Fried ("EMPLOYEE").
1. ENGAGEMENT AND RESPONSIBILITIES
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby employs Employee as an officer of the Company,
with the title of Senior Vice President, Marketing. Employee hereby accepts
such employment.
(b) Employee's duties and responsibilities shall be those incident to the
position(s) described in Section 1(a) as set forth in the Bylaws of the Company
and those which are normally and customarily vested in such office(s) of a
corporation. In addition, Employee's duties shall include those duties and
services for the Company and its affiliates as the Chief Executive Officer or
President of the Company shall, in such officers' sole and absolute discretion,
from time to time reasonably direct which are not inconsistent with Employee's
positions described in Section 1(a).
(c) Employee agrees to devote all of Employee's business time, energy and
efforts to the business of the Company and will use Employee's best efforts and
abilities faithfully and diligently to promote the Company's business interests.
For so long as Employee is employed by the Company, Employee shall not, directly
or indirectly, either as an employee, employer, consultant, agent, investor,
principal, partner, stockholder (except as the holder of less than 1% of the
issued and outstanding stock of a publicly held corporation), corporate officer
or director, or in any other individual or representative capacity, engage or
participate in any business that is in competition in any manner whatsoever with
the business of the Company Group, as such businesses are now or hereafter
conducted. Notwithstanding the foregoing prohibitions but provided such
services or investments do not violate any applicable law, regulation or order,
or interfere in any way with the faithful and diligent performance by Employee
of the services to the Company otherwise required or contemplated by this
Agreement, the Company expressly acknowledges that Employee may:
(i) make and manage personal business investments of Employee's
choice without consulting with the Chief Executive Officer or President;
(ii) serve in any capacity with any civic, educational, charitable
or trade organization without consulting with the Chief Executive Officer or
President; and
(iii) provide services to Brandmark, Inc. and Planet Products, Inc.
at a level not to exceed the level of services provided by Employee to these
companies during the one year period preceding the date of this Agreement
without consulting with the Chief Executive Officer or President.
<PAGE>
2. DEFINITIONS
"ADVERSE EVENT" with respect to Employee shall be the occurrence of any one
or more of the following, without the prior written consent of Employee:
(a) a demotion of Employee as evidenced by a loss of an executive
officer title unless (i) in connection therewith Employee shall have received
one or more titles of equal or senior rank; and/or (ii) Employee shall continue
to hold one or more officer titles of equal or senior rank to the title lost; or
(b) a significant diminution of Employee's on-going duties and
responsibilities with the Company; or
(c) the relocation of the Company's principal executive offices
outside the Los Angeles Metropolitan area; or
(d) the Company requiring Employee to relocate to an office
outside the Los Angeles Metropolitan area for a period exceeding three months in
any calendar year as a condition to continued employment.
"BOARD" shall mean the Board of Directors of the Company.
"COMPANY GROUP" shall mean the Company and each Person which the Company
directly or indirectly Controls.
"CONTROL" shall mean, with respect to any Person, (i) the beneficial
ownership of more than 50% of the outstanding voting securities of such Person,
or (ii) the power, directly or indirectly, by proxy, voting trust or otherwise,
to elect a majority of the outstanding directors, trustees or other managing
persons of such Person.
"DISABILITY," with respect to Employee, shall mean that, for physical or
mental reasons, Employee is unable to perform the essential functions of
Employee's duties under this Agreement for 90 consecutive days, or 180 days
during any one twelve month period, as determined by a medical doctor selected
by written agreement of the Company and Employee; provided, however, that if the
-------- -------
Company and Employee cannot agree on the selection of a medical doctor, each of
them will select a medical doctor and the two medical doctors will select a
third medical doctor which third medical doctor will determine whether Employee
has a disability. The determination of the medical doctor selected will be
binding on both parties. Employee must submit to a reasonable number of
examinations by the medical doctor making the determination of disability and
Employee hereby authorizes the disclosure and release to Employee of such
determination and all supporting medical records. If Employee is not legally
competent, Employee's legal guardian or duly authorized attorney-in-fact will
act in Employee's stead for the purposes of submitting Employee to the
examinations, and providing the authorization of disclosure.
"EFFECTIVE DATE" shall have the meaning set forth in Section 10 of this
Agreement.
2
<PAGE>
"EMPLOYEE HANDBOOK" shall mean the Company's Employee Handbook, as from
time to time in effect.
"FOR CAUSE" shall mean, in the context of a basis for termination of
Employee's employment with the Company, that:
(a) Employee materially breaches any material obligation, duty or
agreement under this Agreement, which breach is not cured or corrected within 30
days of written notice thereof from the Company; provided further, that the
----------------
Employee shall be entitled to only one such notice with respect to such specific
acts or omissions (or substantially similar conduct); or
(b) Employee is convicted of, or pleads guilty or nolo contendere
to any charge of, theft, fraud, crime involving moral turpitude, or felony under
federal or applicable state law; or
(c) Employee commits continued and repeated substantive
violations of specific written directions of the Chief Executive Officer or
President of the Company, which directions are consistent with this Agreement
and Employee's position and title(s), or continued and repeated substantive
failure to perform Employee's duties; provided that no discharge shall be deemed
--------
For Cause under this subsection (c) unless Employee first receives written
notice from the Chief Executive Officer or President of the Company advising
Employee of the specific acts or omissions alleged to constitute violations of
written directions or a material failure to perform Employee's duties, and such
violations or material failure continue after Employee shall have had a
reasonable opportunity to correct the acts or omissions so complained of; and
provided further, that the Employee shall be entitled to only one such notice
- ----------------
with respect to such specific acts or omissions (or substantially similar
conduct).
"PERSON" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, governmental authority or other entity.
3. COMPENSATION AND BENEFITS
(a) Salary. The Company shall pay Employee a base salary at an annual
------
rate of not less than $175,000 during the term of Employee's employment pursuant
to this Agreement. The base salary shall be reviewed annually for increase by
the Board (or a committee of the Board) (provided, however, that the Company
-------- -------
shall be under no obligation to increase such base salary). The base salary
shall be payable in installments in the same manner and at the same times the
Company pays base salaries to other executive officers of the Company, but in no
event less frequently than equal monthly installments.
(b) Bonus. Employee shall be entitled to any bonuses the Board (or a
-----
committee of the Board) in its sole discretion from time to time authorizes.
(c) Expense Reimbursement. Employee shall be entitled to reimbursement
---------------------
from the Company for the reasonable costs and expenses which Employee incurs in
connection with the performance of Employee's duties and obligations under this
Agreement in a manner consistent with the Company's practices and policies
therefor.
3
<PAGE>
(d) Employee Benefit Plans. Employee shall be entitled to participate in
----------------------
any pension, savings and group term life, medical, dental, disability, and other
group benefit plans which the Company makes available to its employees
generally.
(e) Vacation. Employee shall be entitled to five weeks paid vacation each
--------
year which shall accrue in accordance with, and be subject to limitations under,
the Employee Handbook.
(f) Disability. In the event of any disability or illness of Employee, if
----------
Employee shall receive payments as a result of such disability or illness under
any disability plan maintained by the Company or from any government agency, the
Company shall be entitled to deduct the amount of such payments received from
base salary payable to Employee during the period of such illness and/or
disability.
(g) Withholding. The Company may deduct from any compensation payable to
-----------
Employee (including payments made pursuant to Section 5 of this Agreement in
connection with or following termination of employment) amounts it believes are
required to be withheld under federal and state law, including applicable
federal, state and/or local income tax withholding, old-age and survivors' and
other social security payments, state disability and other insurance premiums
and payments.
4. TERM OF EMPLOYMENT
Employee's employment pursuant to this Agreement shall commence on the
Effective Date and shall terminate on the earliest to occur of the following:
(a) upon the date set forth in a written notice of termination from
Employee to the Company (which date shall be after October 31, 2000 and at least
30 days after the delivery of that notice); provided, however, that in the event
-----------------
Employee delivers such notice to the Company, the Company shall have the right
to accelerate such termination by written notice thereof to Employee (and such
termination by the Company shall be deemed to be a termination of employment
pursuant to this Section 4(a), and not a termination pursuant to Section 4(d) or
4(e) hereof);
(b) upon written notice of termination from Employee to the Company
within 60 days following an Adverse Event;
(c) upon the death of Employee;
(d) upon delivery to Employee of written notice of termination by the
Company if Employee shall suffer a Disability;
(e) upon delivery to Employee of written notice of termination by the
Company For Cause; or
(f) upon delivery to Employee of written notice of termination by the
Company without cause.
4
<PAGE>
5. SEVERANCE COMPENSATION
(a) If Employee's employment is terminated pursuant to Section 4(c)
(death) prior to October 31, 2000:
(i) if the Company then maintains key person life insurance with
respect to Employee, the Company shall pay to Employee's estate an amount equal
to the amount of salary which Employee would have earned from termination of
employment through October 31, 2000 at the rate in effect at the date of
termination, which payment shall be due within 10 days following the date the
Company receives the proceeds of any key person insurance maintained by the
Company with respect to Employee; if the Company does not then maintain key
person life insurance with respect to Employee, the Company shall pay to
Employee's estate the salary which Employee would have earned from termination
of employment through October 31, 2000 at the rate in effect at the date of
termination and at the times the salary would have become payable; and
(ii) until October 31, 2000, the Company shall provide to
Employee's immediate family medical and dental benefits to the same extent it
provides those benefits to the immediate families of its executive officers
generally (or, if the Company is unable to include such persons in its then
existing medical and dental plans, the Company will provide as nearly as
practicable comparable benefits at a cost to the Company not to exceed $25,000
each year for all those persons).
(b) If Employee's employment is terminated pursuant to Section 4(d)
(Disability) prior to October 31, 2000, until October 31, 2000:
(i) the Company shall continue to pay to Employee salary at the
rate in effect at the date of termination of employment; provided, however, that
-------- -------
the Company may offset against such payments any benefits the Employee receives
from any disability plan maintained by the Company and any government benefits;
and
(ii) the Company shall continue to provide to Employee and
Employee's immediate family medical and dental benefits to the same extent it
provides those benefits to its executive officers and their immediate families
generally (or, if the Company is unable to include such persons in its then
existing medical and dental plans, the Company will provide as nearly as
practicable comparable benefits at a cost to the Company not to exceed $25,000
each year for all those persons).
(c) If Employee's employment is terminated pursuant to Section 4(a) (by
Employee) or pursuant to Section 4(d) (by the Company For Cause), Employee's
salary and other benefits shall cease as of the date of termination.
(d) If Employee's employment is terminated pursuant to Section 4(e) (by
the Company without cause) or pursuant to Section 4(b) (by Employee upon the
occurrence of an Adverse Event), until the later to occur of October 31, 2000 or
one year following the date of termination:
5
<PAGE>
(i) the Company shall continue to pay to Employee salary at the
rate in effect at the date of termination of employment; and
(ii) the Company shall continue to provide to Employee and
Employee's immediate family medical, disability and dental benefits to the same
extent it provides those benefits to its executive officers and their immediate
families generally.
(e) If Employee's employment is terminated by the Company
pursuant to Section 4(d) (For Cause), and subject to applicable law and
regulations, the Company shall be entitled to offset against any payments due
Employee any loss or damage which the Company shall suffer as a result of the
acts or omissions of Employee giving rise to termination under Section 4(d).
(f) Employee acknowledges that the Company has the right to
terminate Employee's employment without cause and that such termination shall
not be a breach of this Agreement or any other express or implied agreement
between the Company and Employee. Accordingly, in the event of such termination,
Employee shall be entitled only to those benefits specifically provided in this
Section 5, and shall not have any other rights to any compensation or damages
from the Company for breach of contract or otherwise.
(g) Employee acknowledges that in the event of termination of
Employee's employment for any reason, Employee shall not be entitled to any
severance or other compensation from the Company except as specifically provided
in this Section 5. Without limitation on the generality of the foregoing, this
Section supersedes any plan or policy of the Company which provides for
severance to its officers or employees, and Employee shall not be entitled to
any benefits under any such plan or policy.
6. COVENANT NOT TO SOLICIT
Employee agrees not to directly or indirectly, either alone or by action in
concert with others: (a) induce or attempt to influence any employee of any
member of the Company Group to engage in any activity in which Employee is
prohibited from engaging by Section 1(c) of this Agreement or to terminate his
or her employment with any member of the Company Group; or (b) induce or attempt
to induce any customer, supplier, licensee or other business relationship of any
member of the Company Group to cease or reduce its business with any member of
the Company Group, or in any way interfere with the relationship between any
such supplier, licensee or business relationship and any member of the Company
Group, or (c) solicit business from any of the Company's customers, all during
the following periods: (i) until the later to occur of Employee's termination
or October 31, 2000 if Employee's employment is terminated pursuant to Section
4(a) or 4(d); or (ii) until the later to occur of October 31, 2000 or one year
following the date of termination of employment if Employee's employment is
terminated pursuant to Section 4(b) (by Employee upon the occurrence of an
Adverse Event), or Section 4(e) (by the Company for Cause), or Section 4 (f) (by
the Company without cause).
7. CONFIDENTIALITY
Employee agrees not to disclose or use at any time (whether during or after
Employee's employment with the Company) for Employee's own benefit or purposes
or the benefit or
6
<PAGE>
purposes of any other Person any trade secrets, information, data, or other
confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, financial methods, plans, or the business and affairs of the
Company Group generally, provided that the foregoing shall not apply to
--------
information which is not unique to the Company Group or which is generally known
to the industry or the public other than as a result of Employee's breach of
this covenant.
8. RESOLUTION OF DISPUTES
(a) Except as provided in Section 8(b) below, any controversy or claim
between the Company and Employee relating to Employee's employment with the
Company, including but not limited to those arising out of or relating to this
Agreement or any agreements or instruments relating hereto or delivered in
connection herewith and any claim based on or arising from an alleged tort,
shall at the request of any party be determined by arbitration. The arbitration
shall be conducted in Los Angeles, California, in accordance with the United
States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA"). The parties shall have the right to review and
approve a panel of prospective arbitrators supplied by AAA, but the arbitration
shall be conducted by a single arbitrator selected from the approved panel by
AAA or by stipulation of the parties. The arbitrator(s) shall give effect to
statutes of limitation in determining any claim. Any controversy concerning
whether an issue is arbitrable shall be determined by the arbitrator(s). The
arbitrator(s) shall be entitled to order specific performance of the obligations
imposed by this Agreement. Judgment upon the arbitration award may be entered in
any court having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
(b) Section 8(a) of this Agreement does not prohibit a party from seeking
and obtaining injunctive relief pending the outcome of arbitration. Moreover,
Employee acknowledges that the injury that would be suffered by the Company as a
result of a breach or threatened breach of Sections 1(c), 6 or 7 would be
irreparable and that an award of monetary damages to the Company for such
breach would be an inadequate remedy. Consequently, the Company will have the
right, in addition to any other rights it may have, to obtain injunctive relief
to restrain any breach or threatened breach or otherwise to specifically enforce
such provisions.
(c) Pending the outcome of any arbitration, the Company shall continue
payment of all amounts which Employee has a reasonable basis to claim Employee
is entitled to under this Agreement.
9. MISCELLANEOUS
(a) Notices. All notices, requests, demands and other communications
-------
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission or
by United States first class, registered or certified mail, addressed to the
following addresses:
7
<PAGE>
(i) If to the Company, to:
Signature Eyewear, Inc.
498 North Oak Street
Inglewood, California 90302
Attn: President
(ii) If to Employee, to:
Employee's address as set forth on the books
and records of the Company
Any Notice, other than a Notice sent by registered or certified mail, shall be
effective when received; a Notice sent by registered or certified mail, postage
prepaid return receipt requested, shall be effective on the earlier of when
received or the third day following deposit in the United States mails (or on
the seventh day if sent to or from an address outside the United States). Any
party may from time to time change its address for further Notices hereunder by
giving notice to the other party in the manner prescribed in this Section.
(b) Entire Agreement. This Agreement contains the sole and entire
----------------
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein. No representations,
oral or otherwise, express or implied, other than those contained in this
Agreement have been relied upon by any party to this Agreement.
(c) Severability. In the event that any provision or portion of this
------------
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
(d) Governing Law. This Agreement has been made and entered into in the
-------------
State of California and shall be construed in accordance with the laws of the
State of California.
(e) Captions. The various captions of this Agreement are for reference
--------
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(g) Attorneys' Fees. If any action or proceeding is brought to enforce or
---------------
interpret any provision of this Agreement, the prevailing party shall be
entitled to recover as an element of its costs, and not its damages, its
reasonable attorneys' fees, costs and expenses. The prevailing party is the
party who is entitled to recover its costs in the action or proceeding. A party
not entitled to recover its costs may not recover attorneys' fees. No sum for
attorneys' fees shall be
8
<PAGE>
counted in calculating the amount of a judgment for purposes of determining
whether a party is entitled to recover its costs or attorneys' fees.
10. EFFECTIVE DATE
This Agreement shall become effective upon the closing of the Company's
initial public offering pursuant to a registration statement filed by the
Company with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "EFFECTIVE DATE"). If the closing of the Company's
initial public offering is not completed by October 31, 1997, this Agreement
shall never become effective.
Signature Eyewear, Inc.,
a California corporation
By: /s/ Julie Heldman
-----------------------------------
Julie Heldman
Its: Co-Chairman of the Board and
President
/s/ Robert Fried
-----------------------------------------
Robert Fried
8
<PAGE>
EXHIBIT 10.12
SIGNATURE EYEWEAR, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (this "AGREEMENT") is made and entered into as of
the 26th day of August, 1997 by and between Signature Eyewear, Inc., a
California corporation (the "COMPANY"), and Robert Zeichick ("EMPLOYEE").
1. ENGAGEMENT AND RESPONSIBILITIES
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby employs Employee as an officer of the Company,
with the title of Vice President, Advertising and Sales Promotion. Employee
hereby accepts such employment.
(b) Employee's duties and responsibilities shall be those incident to the
position(s) described in Section 1(a) as set forth in the Bylaws of the Company
and those which are normally and customarily vested in such office(s) of a
corporation. In addition, Employee's duties shall include those duties and
services for the Company and its affiliates as the Chief Executive Officer or
President of the Company shall, in such officers' sole and absolute discretion,
from time to time reasonably direct which are not inconsistent with Employee's
positions described in Section 1(a).
(c) Employee agrees to devote all of Employee's business time, energy and
efforts to the business of the Company and will use Employee's best efforts and
abilities faithfully and diligently to promote the Company's business interests.
For so long as Employee is employed by the Company, Employee shall not, directly
or indirectly, either as an employee, employer, consultant, agent, investor,
principal, partner, stockholder (except as the holder of less than 1% of the
issued and outstanding stock of a publicly held corporation), corporate officer
or director, or in any other individual or representative capacity, engage or
participate in any business that is in competition in any manner whatsoever with
the business of the Company Group, as such businesses are now or hereafter
conducted. Notwithstanding the foregoing prohibitions but provided such
services or investments do not violate any applicable law, regulation or order,
or interfere in any way with the faithful and diligent performance by Employee
of the services to the Company otherwise required or contemplated by this
Agreement, the Company expressly acknowledges that Employee may:
(i) make and manage personal business investments of Employee's
choice without consulting the Chief Executive Officer or President;
(ii) serve in any capacity with any civic, educational, charitable or
trade organization without consulting with the Chief Executive Officer or
President; and
(iii) provide services to Brandmark, Inc. and Planet Products, Inc. at
a level not to exceed the level of services provided by Employee to these
companies during the one year period preceding the date of this Agreement
without consulting with the Chief Executive Officer or President.
<PAGE>
2. DEFINITIONS
"ADVERSE EVENT" with respect to Employee shall be the occurrence of any one
or more of the following, without the prior written consent of Employee:
(a) a demotion of Employee as evidenced by a loss of an executive officer
title unless (i) in connection therewith Employee shall have received one or
more titles of equal or senior rank; and/or (ii) Employee shall continue to hold
one or more officer titles of equal or senior rank to the title lost; or
(b) a significant diminution of Employee's on-going duties and
responsibilities with the Company; or
(c) the relocation of the Company's principal executive offices outside
the Los Angeles Metropolitan area; or
(d) the Company requiring Employee to relocate to an office outside the
Los Angeles Metropolitan area for a period exceeding three months in any
calendar year as a condition to continued employment.
"BOARD" shall mean the Board of Directors of the Company.
"COMPANY GROUP" shall mean the Company and each Person which the Company
directly or indirectly Controls.
"CONTROL" shall mean, with respect to any Person, (i) the beneficial
ownership of more than 50% of the outstanding voting securities of such Person,
or (ii) the power, directly or indirectly, by proxy, voting trust or otherwise,
to elect a majority of the outstanding directors, trustees or other managing
persons of such Person.
"DISABILITY," with respect to Employee, shall mean that, for physical or
mental reasons, Employee is unable to perform the essential functions of
Employee's duties under this Agreement for 90 consecutive days, or 180 days
during any one twelve month period, as determined by a medical doctor selected
by written agreement of the Company and Employee; provided, however, that if the
-------- -------
Company and Employee cannot agree on the selection of a medical doctor, each of
them will select a medical doctor and the two medical doctors will select a
third medical doctor which third medical doctor will determine whether Employee
has a disability. The determination of the medical doctor selected will be
binding on both parties. Employee must submit to a reasonable number of
examinations by the medical doctor making the determination of disability and
Employee hereby authorizes the disclosure and release to Employee of such
determination and all supporting medical records. If Employee is not legally
competent, Employee's legal guardian or duly authorized attorney-in-fact will
act in Employee's stead for the purposes of submitting Employee to the
examinations, and providing the authorization of disclosure.
"EFFECTIVE DATE" shall have the meaning set forth in Section 10 of this
Agreement.
2
<PAGE>
"EMPLOYEE HANDBOOK" shall mean the Company's Employee Handbook, as from
time to time in effect.
"FOR CAUSE" shall mean, in the context of a basis for termination of
Employee's employment with the Company, that:
(a) Employee materially breaches any material obligation, duty or
agreement under this Agreement, which breach is not cured or corrected within 30
days of written notice thereof from the Company; provided further, that the
----------------
Employee shall be entitled to only one such notice with respect to such specific
acts or omissions (or substantially similar conduct); or
(b) Employee is convicted of, or pleads guilty or nolo contendere to any
charge of, theft, fraud, crime involving moral turpitude, or felony under
federal or applicable state law; or
(c) Employee commits continued and repeated substantive violations of
specific written directions of the Chief Executive Officer or President of the
Company, which directions are consistent with this Agreement and Employee's
position and title(s), or continued and repeated substantive failure to perform
Employee's duties; provided that no discharge shall be deemed For Cause under
--------
this subsection (c) unless Employee first receives written notice from the Chief
Executive Officer or President of the Company advising Employee of the specific
acts or omissions alleged to constitute violations of written directions or a
material failure to perform Employee's duties, and such violations or material
failure continue after Employee shall have had a reasonable opportunity to
correct the acts or omissions so complained of; and provided further, that the
----------------
Employee shall be entitled to only one such notice with respect to such specific
acts or omissions (or substantially similar conduct).
"PERSON" shall mean an individual or a partnership, corporation, trust,
association, limited liability company, governmental authority or other entity.
3. COMPENSATION AND BENEFITS
(a) Salary. The Company shall pay Employee a base salary at an annual rate
------
of not less than $160,000 during the term of Employee's employment pursuant to
this Agreement. The base salary shall be reviewed annually for increase by the
Board (or a committee of the Board) (provided, however, that the Company shall
-------- -------
be under no obligation to increase such base salary). The base salary shall be
payable in installments in the same manner and at the same times the Company
pays base salaries to other executive officers of the Company, but in no event
less frequently than equal monthly installments.
(b) Bonus. Employee shall be entitled to any bonuses the Board (or a
-----
committee of the Board) in its sole discretion from time to time authorizes.
(c) Expense Reimbursement. Employee shall be entitled to reimbursement
---------------------
from the Company for the reasonable costs and expenses which Employee incurs in
connection with the performance of Employee's duties and obligations under this
Agreement in a manner consistent with the Company's practices and policies
therefor.
3
<PAGE>
(d) Employee Benefit Plans. Employee shall be entitled to participate in
----------------------
any pension, savings and group term life, medical, dental, disability, and other
group benefit plans which the Company makes available to its employees
generally.
(e) Vacation. Employee shall be entitled to five weeks paid vacation each
--------
year which shall accrue in accordance with, and be subject to limitations under,
the Employee Handbook.
(f) Disability. In the event of any disability or illness of Employee, if
----------
Employee shall receive payments as a result of such disability or illness under
any disability plan maintained by the Company or from any government agency, the
Company shall be entitled to deduct the amount of such payments received from
base salary payable to Employee during the period of such illness and/or
disability.
(g) Withholding. The Company may deduct from any compensation payable to
-----------
Employee (including payments made pursuant to Section 5 of this Agreement in
connection with or following termination of employment) amounts it believes are
required to be withheld under federal and state law, including applicable
federal, state and/or local income tax withholding, old-age and survivors' and
other social security payments, state disability and other insurance premiums
and payments.
4. TERM OF EMPLOYMENT
Employee's employment pursuant to this Agreement shall commence on the
Effective Date and shall terminate on the earliest to occur of the following:
(a) upon the date set forth in a written notice of termination from
Employee to the Company (which date shall be after October 31, 2000 and at least
30 days after the delivery of that notice); provided, however, that in the event
-----------------
Employee delivers such notice to the Company, the Company shall have the right
to accelerate such termination by written notice thereof to Employee (and such
termination by the Company shall be deemed to be a termination of employment
pursuant to this Section 4(a), and not a termination pursuant to Section 4(d) or
4(e) hereof);
(b) upon written notice of termination from Employee to the Company within
60 days following an Adverse Event;
(c) upon the death of Employee;
(d) upon delivery to Employee of written notice of termination by the
Company if Employee shall suffer a Disability;
(e) upon delivery to Employee of written notice of termination by the
Company For Cause; or
(f) upon delivery to Employee of written notice of termination by the
Company without cause.
4
<PAGE>
5. SEVERANCE COMPENSATION
(a) If Employee's employment is terminated pursuant to Section 4(c)
(death) prior to October 31, 2000:
(i) if the Company then maintains key person life insurance with
respect to Employee, the Company shall pay to Employee's estate an amount equal
to the amount of salary which Employee would have earned from termination of
employment through October 31, 2000 at the rate in effect at the date of
termination, which payment shall be due within 10 days following the date the
Company receives the proceeds of any key person insurance maintained by the
Company with respect to Employee; if the Company does not then maintain key
person life insurance with respect to Employee, the Company shall pay to
Employee's estate the salary which Employee would have earned from termination
of employment through October 31, 2000 at the rate in effect at the date of
termination and at the times the salary would have become payable; and
(ii) until October 31, 2000, the Company shall provide to Employee's
immediate family medical and dental benefits to the same extent it provides
those benefits to the immediate families of its executive officers generally
(or, if the Company is unable to include such persons in its then existing
medical and dental plans, the Company will provide as nearly as practicable
comparable benefits at a cost to the Company not to exceed $25,000 each year for
all those persons).
(b) If Employee's employment is terminated pursuant to Section 4(d)
(Disability) prior to October 31, 2000, until October 31, 2000:
(i) the Company shall continue to pay to Employee salary at the rate
in effect at the date of termination of employment; provided, however, that the
-------- -------
Company may offset against such payments any benefits the Employee receives from
any disability plan maintained by the Company and any government benefits; and
(ii) the Company shall continue to provide to Employee and Employee's
immediate family medical and dental benefits to the same extent it provides
those benefits to its executive officers and their immediate families generally
(or, if the Company is unable to include such persons in its then existing
medical and dental plans, the Company will provide as nearly as practicable
comparable benefits at a cost to the Company not to exceed $25,000 each year for
all those persons).
(c) If Employee's employment is terminated pursuant to Section 4(a) (by
Employee) or pursuant to Section 4(d) (by the Company For Cause), Employee's
salary and other benefits shall cease as of the date of termination.
(d) If Employee's employment is terminated pursuant to Section 4(e) (by
the Company without cause) or pursuant to Section 4(b) (by Employee upon the
occurrence of an Adverse Event), until the later to occur of October 31, 2000 or
one year following the date of termination:
5
<PAGE>
(i) the Company shall continue to pay to Employee salary at the rate
in effect at the date of termination of employment; and
(ii) the Company shall continue to provide to Employee and Employee's
immediate family medical, disability and dental benefits to the same extent it
provides those benefits to its executive officers and their immediate families
generally.
(e) If Employee's employment is terminated by the Company pursuant to
Section 4(d) (For Cause), and subject to applicable law and regulations, the
Company shall be entitled to offset against any payments due Employee any loss
or damage which the Company shall suffer as a result of the acts or omissions of
Employee giving rise to termination under Section 4(d).
(f) Employee acknowledges that the Company has the right to terminate
Employee's employment without cause and that such termination shall not be a
breach of this Agreement or any other express or implied agreement between the
Company and Employee. Accordingly, in the event of such termination, Employee
shall be entitled only to those benefits specifically provided in this Section
5, and shall not have any other rights to any compensation or damages from the
Company for breach of contract or otherwise.
(g) Employee acknowledges that in the event of termination of Employee's
employment for any reason, Employee shall not be entitled to any severance or
other compensation from the Company except as specifically provided in this
Section 5. Without limitation on the generality of the foregoing, this Section
supersedes any plan or policy of the Company which provides for severance to its
officers or employees, and Employee shall not be entitled to any benefits under
any such plan or policy.
6. COVENANT NOT TO SOLICIT
Employee agrees not to directly or indirectly, either alone or by action in
concert with others: (a) induce or attempt to influence any employee of any
member of the Company Group to engage in any activity in which Employee is
prohibited from engaging by Section 1(c) of this Agreement or to terminate his
or her employment with any member of the Company Group; or (b) induce or attempt
to induce any customer, supplier, licensee or other business relationship of any
member of the Company Group to cease or reduce its business with any member of
the Company Group, or in any way interfere with the relationship between any
such supplier, licensee or business relationship and any member of the Company
Group, or (c) solicit business from any of the Company's customers, all during
the following periods: (i) until the later to occur of Employee's termination
or October 31, 2000 if Employee's employment is terminated pursuant to Section
4(a) or 4(d); or (ii) until the later to occur of October 31, 2000 or one year
following the date of termination of employment if Employee's employment is
terminated pursuant to Section 4(b) (by Employee upon the occurrence of an
Adverse Event), or Section 4(e) (by the Company for Cause), or Section 4 (f) (by
the Company without cause).
7. CONFIDENTIALITY
Employee agrees not to disclose or use at any time (whether during or after
Employee's employment with the Company) for Employee's own benefit or purposes
or the benefit or
6
<PAGE>
purposes of any other Person any trade secrets, information, data, or other
confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, financial methods, plans, or the business and affairs of the
Company Group generally, provided that the foregoing shall not apply to
--------
information which is not unique to the Company Group or which is generally known
to the industry or the public other than as a result of Employee's breach of
this covenant.
8. RESOLUTION OF DISPUTES
(a) Except as provided in Section 8(b) below, any controversy or claim
between the Company and Employee relating to Employee's employment with the
Company, including but not limited to those arising out of or relating to this
Agreement or any agreements or instruments relating hereto or delivered in
connection herewith and any claim based on or arising from an alleged tort,
shall at the request of any party be determined by arbitration. The arbitration
shall be conducted in Los Angeles, California, in accordance with the United
States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA"). The parties shall have the right to review and
approve a panel of prospective arbitrators supplied by AAA, but the arbitration
shall be conducted by a single arbitrator selected from the approved panel by
AAA or by stipulation of the parties. The arbitrator(s) shall give effect to
statutes of limitation in determining any claim. Any controversy concerning
whether an issue is arbitrable shall be determined by the arbitrator(s). The
arbitrator(s) shall be entitled to order specific performance of the obligations
imposed by this Agreement. Judgment upon the arbitration award may be entered in
any court having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
(b) Section 8(a) of this Agreement does not prohibit a party from seeking
and obtaining injunctive relief pending the outcome of arbitration. Moreover,
Employee acknowledges that the injury that would be suffered by the Company as a
result of a breach or threatened breach of Sections 1(c), 6 or 7 would be
irreparable and that an award of monetary damages to the Company for such
breach would be an inadequate remedy. Consequently, the Company will have the
right, in addition to any other rights it may have, to obtain injunctive relief
to restrain any breach or threatened breach or otherwise to specifically enforce
such provisions.
(c) Pending the outcome of any arbitration, the Company shall continue
payment of all amounts which Employee has a reasonable basis to claim Employee
is entitled to under this Agreement.
9. MISCELLANEOUS
(a) Notices. All notices, requests, demands and other communications
-------
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission or
by United States first class, registered or certified mail, addressed to the
following addresses:
7
<PAGE>
(i) If to the Company, to:
Signature Eyewear, Inc.
498 North Oak Street
Inglewood, California 90302
Attn: President
(ii) If to Employee, to:
Employee's address as set forth on the books
and records of the Company
Any Notice, other than a Notice sent by registered or certified mail, shall be
effective when received; a Notice sent by registered or certified mail, postage
prepaid return receipt requested, shall be effective on the earlier of when
received or the third day following deposit in the United States mails (or on
the seventh day if sent to or from an address outside the United States). Any
party may from time to time change its address for further Notices hereunder by
giving notice to the other party in the manner prescribed in this Section.
(b) Entire Agreement. This Agreement contains the sole and entire
----------------
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein. No representations,
oral or otherwise, express or implied, other than those contained in this
Agreement have been relied upon by any party to this Agreement.
(c) Severability. In the event that any provision or portion of this
------------
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
(d) Governing Law. This Agreement has been made and entered into in the
-------------
State of California and shall be construed in accordance with the laws of the
State of California.
(e) Captions. The various captions of this Agreement are for reference
--------
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(g) Attorneys' Fees. If any action or proceeding is brought to enforce or
---------------
interpret any provision of this Agreement, the prevailing party shall be
entitled to recover as an element of its costs, and not its damages, its
reasonable attorneys' fees, costs and expenses. The prevailing party is the
party who is entitled to recover its costs in the action or proceeding. A party
not entitled to recover its costs may not recover attorneys' fees. No sum for
attorneys' fees shall be
8
<PAGE>
counted in calculating the amount of a judgment for purposes of determining
whether a party is entitled to recover its costs or attorneys' fees.
10. EFFECTIVE DATE
This Agreement shall become effective upon the closing of the Company's
initial public offering pursuant to a registration statement filed by the
Company with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "EFFECTIVE DATE"). If the closing of the Company's
initial public offering is not completed by October 31, 1997, this Agreement
shall never become effective.
Signature Eyewear, Inc.,
a California corporation
By: /s/ Julie Heldman
----------------------------------
Julie Heldman
Its: Co-Chairman of the Board and
President
/s/ Robert Zeichick
----------------------------------------
Robert Zeichick
9
<PAGE>
Exhibit 10.13
LICENSE AGREEMENT
Dated January 12, 1996
Between
Hart Schaffner & Marx
("Licensor")
and
Signature Eyewear, Inc.
("Licensee")
Certain portions of this agreement have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a request
for an order granting confidential treatment pursuant to Rule 406 of the General
Rules and Regulations under the Securities Act of 1933.
<PAGE>
EXHIBIT 10.13
SIGNATURE EYEWEAR, INC.
HART SCHAFFNER & MARX
LICENSE AGREEMENT
This License Agreement (this "AGREEMENT") is made and entered into as of
the 12th day of January, 1996 by and between Hart Schaffner & Marx, a New York
corporation ("LICENSOR"), and Signature Eyewear, Inc., a California corporation
("LICENSEE"), with reference to the following facts:
A. Licensor has represented to Licensee that it is the record and
beneficial owner of all right, title and interest in and to the Licensed Mark
(as defined below).
B. On the terms and subject to the conditions of this Agreement, Licensor
desires to license to Licensee, and Licensee desires to license from Licensor,
the right to use the Licensed Mark in connection with the Exploitation (as
defined below) of Merchandise (as defined below).
NOW THEREFORE, in consideration of the foregoing premises and mutual
covenants and agreements hereinafter set forth, Licensor and Licensee agree as
follows:
1. DEFINITIONS.
For purposes of this Agreement, the following capitalized terms shall have
the meanings set forth below:
"ACQUIROR" shall mean a Person or group of Persons acting in concert, but
shall not include Bernard Weiss, Julie Heldman, Robert Fried and/or Robert
Zeichick (each of whom is a stockholder of Licensee as of the date of this
Agreement), or any Affiliate of any of such Persons.
"AFFILIATE" of any Person shall mean a Person that, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with such Person. "CONTROL," for purposes of this definition
means the possession, direct or indirect, of the power to cause the direction of
the management and policies of the Person, whether through the ownership of
voting securities, by contract or otherwise. The term "AFFILIATE" shall
include, with respect to any Person, a trust of which such Person is a trustee
and such Person and members of his or her immediate family are the
beneficiaries.
"CHANGE OF CONTROL" with respect to Licensee shall be deemed to occur if:
(i) an Acquiror owns at least 50% of the outstanding voting securities of
Licensee; or (ii) Licensee
1
<PAGE>
Transfers to an Acquiror all or substantially all of its assets involved in the
Exploitation of Merchandise.
"CHANGE OF CONTROL NOTICE" shall mean a written notice to Licensor of a
proposed or completed Change of Control and which explains with reasonable
specificity the nature and extent of the Change of Control and the anticipated
effect of the Change of Control on the License.
"CLAIM" shall mean any claim, demand, action, suit or proceeding.
"CLOSE-OUT SALES" shall mean Net Sales from the sale of Licensed
Merchandise consisting of eyeglass and sunglass frames at a sales price equal to
or less than 100% of the cost to Licensee of such Licensed Merchandise. The
cost of Licensed Merchandise shall include direct manufacturing costs and taxes,
freight and insurance in the delivery of such Licensed Merchandise to Licensee
at its principal executive offices or warehouse facility.
"CONTRACT QUARTER" shall mean a three-month period ending on the last day
of the third, sixth, ninth and twelfth full calendar months of a Contract Year
(and fifteenth and eighteenth calendar months with respect to the First Contract
Year).
"CONTRACT YEAR" shall mean one of the following periods: (i) the period
commencing January 1, 1996 and ending June 30, 1997 (the "FIRST CONTRACT YEAR");
and (ii) each subsequent twelve-month period during the Term.
"COSTS" shall mean out-of-pocket costs and expenses including without
limitation attorneys' fees and disbursements and court costs.
"EXPLOIT" shall mean manufacture, advertise, market, merchandise, promote,
publicize, use, market or distribute, and "EXPLOITATION" shall have a
correlative meaning.
"HIGH-END MERCHANDISE" shall mean Merchandise of excellent quality marketed
under the trademark of a well-known fashion name (including, without limitation,
Liz Claiborne, Polo (Ralph Lauren), Calvin Klein, Giorgio Armani and Perry
Ellis) with a wholesale price (as published in the Frames Book Price Guide or
similar publication) in excess of $40 (adjusted for inflation and general
changes in the pricing of Merchandise of this type) and marketed and sold other
than through a "mass-merchandiser" or "warehouse club."
"LICENSE" shall mean the exclusive right to use the Licensed Mark in the
Exploitation of Merchandise in the Territory during the Term.
"LICENSEE INDEMNIFIED PARTY" shall mean Licensee, each Affiliate of
Licensee, each director, officer, employee, shareholder and agent of Licensee or
an Affiliate of Licensee, and their respective heirs, successors and assigns.
2
<PAGE>
"LICENSED MARK" shall mean the marks set forth in Exhibit "A" to this
Agreement.
"LICENSED MERCHANDISE" shall mean Merchandise that contains the Licensed
Mark.
"LICENSOR INDEMNIFIED PARTY" shall mean Licensor, each Affiliate of
Licensor, each director, officer, employee, shareholder and agent of Licensor or
an Affiliate of Licensor, and their respective heirs, successors and assigns.
"LOSSES" shall mean losses, liabilities, damages, fines, penalties and
judgements.
"MERCHANDISE" shall mean ophthalmic eyeglasses, spectacles, eyeglass and
sunglass cases, eyeglass and sunglass chains, eyeglass and sunglass cords,
eyeglass and sunglass frames and eyeglass and sunglass lenses.
"MINIMUM NET SALES" for any period shall mean the amount identified as the
minimum Net Sales for such period in Exhibit "B" to this Agreement.
"MINIMUM ROYALTY" shall mean the minimum royalty payable by Licensee to
Licensor each Contract Year as set forth in Exhibit "B" to this Agreement.
"NATIONAL ADVERTISING" shall mean advertising through national television
or radio networks, cable television stations with national or regional
distribution, nationally circulated newspapers and magazines, and substantially
concurrent advertising on radio or in a series of regional or metropolitan
newspapers or other magazines which, when taken as a whole, would be
substantially equivalent to advertising on national television or national radio
or in a national newspaper or magazine.
"NET SALES" during any period shall mean (a) the sum of the sales prices of
all Licensed Merchandise invoiced to customers during such period, less (b) the
----
sum of the sales prices previously included in Net Sales for Licensed
Merchandise returned by customers during such period, less (c) the sum of all
----
accounts which have become Uncollectible Accounts during the period (or a prior
period, if no deduction for such accounts was taken during such prior period)
plus (d) the sum of all amounts received by Licensee from customers during such
- ----
period which were previously deducted from Net Sales as Uncollectible Accounts
pursuant to subparagraph (c) above. The sales price invoiced to customers shall
not be deemed to include amounts invoiced for sales, use, excise or other taxes,
freight, insurance, trade discounts and/or co-op advertising allowances. It is
understood that Licensee may from time to time deliver Licensed Merchandise on
consignment, and that such Licensed Merchandise is not invoiced to customers
until the end of the consignment period (assuming such Merchandise is purchased
by the customers).
"PACKAGING" with respect to Merchandise shall mean labels, packaging,
containers and displays utilized with such Merchandise.
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<PAGE>
"PERSON" shall mean any individual, corporation, association, partnership
or limited liability company, trust or other entity.
"PROMOTIONAL SALES" shall mean Net Sales from the sale of Licensed
Merchandise not consisting of eyeglass or sunglass frames at a sales cost equal
to or less than 100% of the cost to Licensee of such Licensed Merchandise. The
cost of Licensed Merchandise shall include direct manufacturing costs and taxes,
freight and insurance in the delivery of such Licensed Merchandise to Licensee
at its principal executive offices or warehouse facility.
"TERM" shall mean the duration of the License, as determined pursuant to
Section 3 hereof.
"TERRITORY" shall mean (i) the United States of America and its possessions
and (ii) each Additional Country added pursuant to Section 2(d) of this
Agreement.
"TRANSFER" shall mean to sell, assign and/or transfer.
"UNCOLLECTIBLE ACCOUNT" shall mean an account or accounts with a customer
or group of related or affiliated customers with an aggregate unpaid balance
which exceeds $CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION and either: (a) one or more unpaid invoices
have been outstanding for more than one year but not more than two years or (b)
Licensee reasonably determines that such account will not be paid due to the
customer's bankruptcy or insolvency or public statements that it will be unable
to pay its debts when due.
2. LICENSE GRANT.
(a) Licensor hereby grants the License to Licensee, and Licensee hereby
accepts the License, on the terms and subject to the conditions of this
Agreement.
(b) The License is exclusive. During the Term, Licensor agrees not to
grant to any Person the right to use the Licensed Mark in connection with the
Exploitation of Merchandise anywhere in the world (whether or not part of the
Territory). Notwithstanding the foregoing, after June 30, 1997, Licensor may
from time to time notify Licensee in writing that it desires to expand the
Territory to include an Additional Country, which notice shall contain a
representation that the Exploitation of the Licensed Merchandise in such
Additional Country would not violate the rights of any Person. If within 30
days following the receipt of such notice, Licensee advises Licensor that it
does not wish to include the Additional Country in the Territory and this
determination is not based upon sound business reasons reasonably acceptable to
Licensor, Licensor may at any time within six months following that date, grant
a license to another Person to use the Licensed Mark in connection with the
Exploitation of the Merchandise in such Additional Country; provided, however,
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that such license contains appropriate safeguards and other protections which
prohibit the use of the Licensed Mark in the Exploitation of Merchandise outside
such Additional Country and give the Licensor the right to terminate the
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license if such prohibitions are violated (and Licensor agrees to terminate the
license in such event). Promptly following the grant of any such license,
Licensor shall notify Licensee of the grant of the license, the name of the
licensee and the territory covered by the license.
(c) Licensor reserves the right to Exploit and to grant to other Persons
the right to Exploit the Licensed Mark on any products other than Merchandise.
(d) Licensee may from time to time request in writing to expand the
Territory after June 30, 1997 to include one or more additional countries or
jurisdictions (each, an "ADDITIONAL COUNTRY"). Upon receipt of any such written
request, Licensor shall notify Licensee whether or not, to the best of
Licensor's knowledge, the Exploitation of the Licensed Merchandise in the
Additional Country would violate the rights of any Person. If Licensor notifies
Licensee that, to the best of Licensor's knowledge, such Exploitation would not
violate any such Person's rights: (i) Licensee shall prepare and provide to
Licensor a marketing overview with respect to the marketing, sale and
distribution of the Licensed Merchandise in the Additional Country, including a
profile of potential distributors, the financial condition of such Persons and
two years of sales forecasts; and (ii) Licensor shall promptly take all
necessary actions that may be required to permit Licensee to use the Licensed
Mark in the Exploitation of Merchandise in the Additional Country and to
prohibit other Persons, to the extent possible under applicable law and
regulations, from using the Licensed Mark in the Exploitation of Merchandise in
the Additional Country, including, without limitation, effecting the trademark
registration of the Licensed Mark in the Additional Country (such latter actions
to be referred to as "PROTECTIVE ACTIONS"). Licensor shall either approve the
marketing overview or provide written comments setting forth its objections to
the marketing overview within 20 days of receipt of the marketing overview. The
failure of Licensor to provide written comments setting forth objections to the
marketing overview within such 20-day period shall be deemed to be approval of
the marketing overview. If Licensor does not approve the marketing overview,
Licensee may modify the marketing overview in response to Licensor's comments,
and the parties shall attempt to develop a marketing overview mutually
satisfactory to Licensor and Licensee. Upon approval of a marketing overview,
and upon notice from Licensor to Licensee that all Protective Actions have been
taken, the Additional Country shall be included in the Territory, and the terms
and conditions of this Agreement shall forthwith become applicable to Licensee's
use of the Licensed Mark in connection with the Exploitation of Licensed
Merchandise in such Additional Country.
(e) Licensee acknowledges and agrees that Licensor shall not be obligated
to agree to expand the Territory to include any Additional Country, such
determination to be within the sole and absolute discretion of Licensor.
3. TERM.
(a) The Term shall commence on the date of this Agreement and shall
terminate on the last day of the third Contract Year unless extended from time
to time pursuant to Section 3(b) or 3(c) of this Agreement.
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(b) Licensee shall have the right to extend the Term for an additional
period of three Contract Years by giving Licensor written notice thereof not
later than 30 days prior to the end of the third Contract Year.
(c) If Licensee shall have extended the Term pursuant to Section 3(b),
Licensee shall thereafter have the continuing right to extend the Term for
successive periods of three years by written notice to Licensor not later than
120 days prior to the end of any extended Term. For each such extended Term:
(i) the Minimum Net Sales shall be an amount equal to: (A) CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION% multiplied by (B) the sum of the Net Sales for the two Contract
Years immediately preceding the date the extension notice is delivered by
Licensor; and (ii) the Minimum Royalty shall be CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION% multiplied by
Minimum Net Sales. Neither the Minimum Royalty nor the Minimum Net Sales for
any extended Term shall be less than the Minimum Royalty or Minimum Net Sales
for the sixth Contract Year (as set forth in Exhibit B to this Agreement).
4. LICENSED MERCHANDISE AND QUALITY CONTROL.
(a) The designs, specifications, colors, materials, styles and quality
standards of all Licensed Merchandise and Packaging therefor shall be subject to
the written approval of Licensor.
(b) Licensee shall submit to Licensor a production sample or prototype (a
"PROTOTYPE") of each item of Licensed Merchandise and/or Packaging which
Licensee proposes to use in the Exploitation of Licensed Merchandise. Licensor
shall promptly review each such Prototype and notify Licensee that it either
approves or objects to such Prototype, which notice shall specify the objection
or objections in reasonable detail. The failure of Licensor to object to such
Prototype within 15 days of receipt thereof shall be deemed approval of such
Prototype. Following approval of the Prototype (an "APPROVED PROTOTYPE"),
Licensee may commence to Exploit the related Licensed Merchandise and/or
Packaging.
(c) Each item of Licensed Merchandise and/or Packaging Exploited by
Licensee shall be identical in all material respects to the Approved Prototype
thereof, including, without limitation, materials, color, workmanship, design,
dimension, styling and quality.
(d) Upon obtaining commercial production of any item of Licensed
Merchandise and/or Packaging, Licensee shall send to Licensor a production
sample of each stock keeping unit ("SKU") of such Licensed Merchandise and/or
Packaging.
5. MARKETING, SALES AND ADVERTISING.
(a) (i) As soon as practicable following execution of this Agreement,
Licensee shall submit to Licensor for its approval a marketing plan for the
Licensed Merchandise in the
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United States, including marketing overview and analysis, projected positioning,
distribution, merchandising, packaging and suggested retail pricing of the
Licensed Merchandise. Licensor shall promptly review such marketing plan and
shall notify Licensee that it either approves or objects to such plan, which
notice shall specify the objection or objections in reasonable detail. Licensor
and Licensee shall communicate with respect to such objections and shall develop
a mutually acceptable marketing plan. Licensee shall thereafter submit a
revised marketing plan which Licensor shall review. At such time as a mutually
acceptable marketing plan is completed, Licensor shall notify Licensee of its
approval of the plan. If Licensor fails to notify Licensee of its approval or
objections to the marketing plan within 30 days following submission of the
initial marketing plan, or 15 days following submission of any revised marketing
plan, such marketing plan shall be deemed approved by Licensor.
(ii) The distribution strategy of the marketing plan developed and
approved pursuant to the foregoing Section 5(a)(i) shall provide that, in each
of the first two Contract Years Licensee will target projected Net Sales of
Licensed Merchandise to the two largest volume of the national chain eyewear
retailers (presently, Lenscrafters and Pearle Vision) ("SUBJECT SALES") so as
not to exceed 10% and 15%, respectively (the "APPLICABLE PERCENTAGE"), of Net
Sales ("SUBJECT SALES PERCENTAGE") during such periods (or such greater
percentages to which Licensor may agree). In furtherance of this covenant, such
marketing plan shall include projections for Subject Sales and Net Sales, and
describe anticipated marketing efforts with respect to each type of such Sales.
Each Royalty Report (as defined below) for the first two Contract Years shall
specify the amount of Subject Sales during the quarter covered by the Report and
shall compare the projected and actual Subject Sales Percentages with
explanations of any material variances. If the Subject Sales Percentage
materially exceeds the Applicable Percentage in a manner not contemplated by the
marketing plan, Licensee shall confer with Licensor to discuss the reasons for
the variance and shall make suggestions and proposals for marketing changes
which could result in the Subject Sales Percentage not exceeding the Applicable
Percentage for such Contract Year. Licensor may make alternative suggestions
and proposals and Licensee shall consider any proposal of Licensor in good
faith. Licensee shall not be required to refuse reorders from any retailer for
styles of Licensed Merchandise previously sold by Licensee to such retailer in
an effort to correct the variance. Notwithstanding anything to the contrary set
forth in this Agreement, Licensor acknowledges and agrees that it shall not be a
breach or default under this Agreement if the Subject Sales Percentage exceeds
the Applicable Percentage; however, Licensee acknowledges and agrees that it
shall be a breach and default if it does not confer with Licensor as
contemplated by this Section 5(a)(ii).
(b) All Licensed Merchandise will bear at least one mark or display with
the Licensed Mark in form approved by Licensor.
(c) Licensee agrees that without the prior written consent of Licensor it
will not, during the Term, market and sell another men's line of High-End
Merchandise.
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(d) If during the Term Licensee determines to Exploit a men's line of
Merchandise which Licensee believes would not be High-End Merchandise, Licensee
shall give written notice thereof to Licensor. Licensor shall promptly notify
Licensee in writing of whether or not it concurs with Licensee's belief that
such line of Merchandise would not be High-End Merchandise. If Licensor fails
to so notify Licensee within 30 days of delivery of Licensee's notice, it shall
be deemed that such line of Merchandise would not be High-End Merchandise.
(e) To preserve the prestige of the Licensed Mark and to enhance consumer
recognition of the Licensed Mark as reflecting the quality and image established
by Licensor, the parties contemplate that the Licensed Merchandise will be sold
to consumers by numerous retailers which market goods and merchandise generally
comparable in image and quality of design, materials and workmanship with the
image and quality of Licensor. In furtherance of such purpose, Licensee agrees
to sell Licensed Merchandise only to retailers which market and sell high-end
goods and merchandise commensurate with the quality and image of the Licensed
Mark or to distributors which agree in writing to sell Licensed Merchandise only
to similar retailers. Licensee shall not sell Licensed Merchandise to any
retailer which is principally known as a "mass merchandiser" (for example,
Walmart or K-Mart) or to any "warehouse club" (such as Price/Costco).
(f) Licensee shall not sell Licensed Merchandise directly to the public
through catalogues, television or otherwise without the prior written approval
of Licensor.
(g) Licensee shall not use or publish any promotional programs or
advertising unless such programs or advertising have been approved by Licensor.
Licensee shall submit to Licensor all promotional programs and advertising for
the Licensed Merchandise proposed to be conducted or published by Licensee.
Licensor shall promptly review such programs and advertising and notify Licensee
that it either approves such programs and advertising or objects to such
programs and advertising, which notice shall specify in detail the basis of the
objection. The failure of Licensor to notify Licensee of its approval or
objection to such programs or advertising within 10 days from receipt thereof
shall be deemed to be approval by Licensee.
6. ROYALTIES.
(a) Within 45 days following the end of each Contract Quarter (starting
with the Contract Quarter beginning July 1, 1996) during each Contract Year,
Licensee shall pay to Licensor a royalty in an amount equal to: (i) the greater
of: (A) the Minimum Royalty which became due since the beginning of that
Contract Year and (B) the sum of (I) CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION% multiplied by all Net
Sales during that Contract Year, excluding (x) all Promotional Sales during that
Contract Year and (y) Close-Out Sales during that Contract Year up to an amount
equal to CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION% of the Net Sales for that Contract Year and
(II) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION% of
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Close-Out Sales during that Contract Year up to an amount equal to CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION% of the Net Sales during that Contract Year, less (ii) all royalty
payments previously made relating to Net Sales during that Contract Year. The
Minimum Royalty shall be deemed to accrue on a quarterly basis (starting with
the Contract Quarter beginning July 1, 1996) in an amount equal to one-fourth of
the Minimum Royalty for the applicable Contract Year.
(b) If the License shall terminate other than on the last day of a Contract
Year, the Minimum Royalty for such Contract Year shall be an amount equal to the
Minimum Royalty for such Contract Year as set forth in Exhibit "B" to this
Agreement or as calculated pursuant to Section 3(c) hereof multiplied by a
fraction, the numerator of which shall be the number of days in such Contract
Year to and including the date of termination of the License and the denominator
of which shall be 365.
(c) The royalty payment for each period shall be accompanied by a report (a
"ROYALTY REPORT") of Licensee executed by the chief financial officer or other
duly authorized officer of Licensee. Each Royalty Report shall set forth the
Net Sales for such period and a computation of the royalty for such period. The
first Royalty Report shall be furnished to Licensor within 45 days after the end
of the Contract Quarter beginning July 1, 1996, and shall be furnished
thereafter for each Contract Quarter during the Term, regardless of whether or
not Licensee has Net Sales during such Contract Quarter.
(d) Licensee shall maintain true and accurate books and records from which
Net Sales for any period can be determined, which books and records shall be
maintained until the earlier to occur of: (i) the third year following the
Contract Year in which such Net Sales were received, and (ii) two years
following the termination or expiration of the License. Licensor shall have the
right from time to time to inspect such books and records during normal business
hours upon reasonable prior notice to Licensee for the purpose of auditing the
Royalty Reports. Licensor shall be entitled to make copies, at its expense, of
any such books and records.
7. REPRESENTATIONS AND WARRANTIES OF LICENSEE.
Licensee represents and warrants the following to Licensor:
(a) Licensee is a corporation duly organized, validly existing and in good
standing under the laws of the State of California.
(b) Licensee has corporate power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement. The execution
and delivery of this Agreement by Licensee have been duly and validly authorized
by all necessary corporate action. This Agreement has been duly authorized,
executed and delivered by Licensee and constitutes a valid and binding
obligation of Licensee, enforceable against Licensee in accordance with its
terms, except that (i) such enforcement may be limited by bankruptcy,
insolvency,
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reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditor's rights and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and the discretion of the court in which any proceeding therefor may be
brought.
(c) The execution, delivery and performance of this Agreement by Licensee
will not (i) violate any provision of the Articles of Incorporation or Bylaws of
Licensee, (ii) violate, or be in conflict with, or constitute a default of or
termination event (or an event which, with notice or lapse of time or both,
would constitute a default or a termination event) under, any agreement to which
Licensee is a party, or (iii) violate any applicable statute or law or any
judgment, decree, order, regulation or rule of any court or governmental
authority binding on Licensee.
(d) No consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority or other Person is
required in connection with the execution, delivery and performance of this
Agreement by Licensee.
(e) Licensee has provided to Licensor a copy of its audited financial
statements for the fiscal year ended October 31, 1994 (the "LICENSEE FINANCIAL
STATEMENTS"). The Licensee Financial Statements have been prepared from the
books and records of Licensee in accordance with generally accepted accounting
principles, consistently applied, and present fairly in all material respects,
the financial condition of Licensee at October 31, 1994 and the results of
operations and cash flows for Licensee for each of the two years in the period
ended October 31, 1994. Since the date of the Licensee Financial Statements,
there has not been any material adverse change in the business, operations,
financial condition, assets or liabilities of Licensee.
(f) Licensee represents that it has no knowledge of a third party use or
claim to the Licensed Mark.
8. REPRESENTATIONS AND WARRANTIES OF LICENSOR.
Licensor represents and warrants the following to Licensee:
(a) Licensor is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York.
(b) Licensor has corporate power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement. The execution
and delivery of this Agreement by Licensor have been duly and validly authorized
by all necessary corporate action. This Agreement has been duly authorized,
executed and delivered by Licensor and constitutes a valid and binding
obligation of Licensor, enforceable against Licensor in accordance with its
terms, except that (i) such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditor's rights and (ii) the remedy of specific performance
and injunctive and other forms of equitable
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relief may be subject to equitable defenses and the discretion of the court in
which any proceeding therefor may be brought.
(c) The execution, delivery and performance of this Agreement by Licensor
will not (i) violate any provision of the Articles of Incorporation or Bylaws of
Licensor, (ii) violate, or be in conflict with, or constitute a default of or
termination event (or an event which, with notice or lapse of time or both,
would constitute a default or a termination event) under, any agreement to which
Licensor is a party, or (iii) violate any applicable statute or law or any
judgment, decree, order, regulation or rule of any court or governmental
authority binding on Licensor.
(d) No consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority or other Person is
required in connection with the execution, delivery and performance of this
Agreement by Licensor.
(e) Licensor is the sole and exclusive owner (legal and beneficial) of the
Licensed Mark with respect to Merchandise anywhere in the Territory and to the
goodwill attached to the Licensed Mark. Licensor has the sole and exclusive
right to use the Licensed Mark as a trademark in connection with the
Exploitation of Merchandise anywhere in the Territory and, to its knowledge
anywhere else in the world. Licensor has not Transferred to any Person the
right to use the Licensed Mark in connection with the Exploitation of
Merchandise anywhere in the world. The use of the Licensed Mark by the Licensee
in the manner contemplated by this Agreement will not subject Licensee or any
Licensee Indemnified Party to any liability (including without limitation,
damages and/or injunctive or other equitable relief) for unfair competition or
infringement of statutory or common law trademark, trade name, intellectual
property or similar rights of other Persons.
9. INDEMNIFICATION.
(a) Licensor agrees to indemnify and hold harmless each Licensee
Indemnified Party against any and all Losses and Costs which such Indemnified
Party may suffer, incur, become liable for or be compelled to pay in any Claim
arising from (i) unfair competition or infringement or alleged infringement of
statutory or common law trademark, trade name or other intellectual property
rights of others through the use of the Licensed Mark by Licensee as
contemplated by this Agreement, and/or (ii) the breach by Licensor of any of its
representations, warranties or agreements in this Agreement. Licensee shall
give Licensor written notice of each such Claim promptly following its receipt
thereof; provided, however, that the failure to give prompt written notice shall
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not relieve Licensor of its obligations under this Section 9 except to the
extent such failure shall prejudice Licensor in its defense of such Claim.
Licensor shall have the right to undertake and to control the defense and
settlement of such Claim through counsel of its own choosing; provided, however,
-------- -------
that Licensor shall not engage counsel which has a preexisting conflict of
interest with Licensee unless Licensee agrees to waive such conflict of
interest. Licensee shall cooperate with Licensor in the investigation and
defense of any such Claim. Licensee shall have the right to participate in (but
not to control) any such defense through counsel of its choice, but at
Licensee's expense. Licensor shall have the right to settle
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any Claim if such settlement involves only the payment of money (and Licensor
shall make such payment) and/or such settlement only involves the prohibition of
Licensee from the Exploitation of the License in all or any portion of the
Territory, provided, however, if such settlement would prohibit Licensee from
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Exploitation of the License in all or any portion of the Territory (the
"EXCLUDED TERRITORY"), Licensee shall be compensated by Licensor for all Costs
which Licensee shall have incurred or become obligated to pay in connection with
the Exploitation of the License in such portion of the Territory, including
without limitation reimbursement of general and administrative costs associated
with the development of the marketing plan or overview for such portion of the
Territory and the start-up and implementation of the marketing plan or overview.
To determine the portion of Licensee's total Costs attributable to the Excluded
Territory, the following factors shall be taken into account: (i) the length of
time that Licensed Merchandise was Exploited in the Excluded Territory versus
the length of time such Exploitation was prohibited; and (ii) the value to
Licensee of the Excluded Territory, as determined by examining the percentage of
overall Net Sales attributable to previous Net Sales in the Excluded Territory,
or if Exploitation of the License never began in the Excluded Territory, by
reference to the percentage of overall sales of Laura Ashley frames in the
Excluded Territory to overall sales of Laura Ashley frames. If Licensor fails
or refuses to undertake the defense of any such Claim within a reasonable period
after notice from Licensee, a Licensee Indemnified Party shall be entitled to
defend such Claim through counsel of its choice, and all Costs incurred by such
Licensee Indemnified Party in the investigation, defense and settlement of such
Claim shall be paid by Licensor upon submission of invoices, but not later than
75 days thereafter.
(b) Licensee agrees to indemnify and hold harmless each Licensor
Indemnified Party against any and all Losses and Costs which such Licensor
Indemnified Party may suffer, incur, become liable for or be compelled to pay in
any Claim (other than a Claim by a Licensee Indemnified Party) arising from (i)
unfair competition or the infringement or alleged infringement of statutory or
common law, trademark, trade name or other intellectual property rights of other
Persons by reason of the use of the Licensed Mark in the Exploitation of the
Merchandise in a jurisdiction or country not within the Territory or (ii) the
breach by Licensee of any of its representations, warranties or agreements in
this Agreement or (iii) the Exploitation of Licensed Merchandise by Licensee,
including but not limited to product liability or product design but not
including any matter for which Licensor is obligated to indemnify Licensee
pursuant to Section 9(a) of this Agreement (including, without limitation, that
such Exploitation constitutes unfair competition or the infringement or alleged
infringement of statutory or common law, trademark, trade name or other
intellectual property rights of other Persons by reason of the use of the
Licensed Mark in the Exploitation of the Merchandise in a jurisdiction or
country within the Territory). Licensor shall give Licensee written notice of
any such Claim promptly following its receipt thereof, provided, however, that
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the failure to give prompt written notice shall not relieve Licensee of its
obligations under this Section 9, except to the extent such failure shall
prejudice Licensee in its defense of such Claim. Licensee shall have the right
to undertake and to control the defense and settlement of such Claim through
counsel of its own choosing; provided, however, that Licensee shall not engage
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counsel which has a preexisting conflict of interest with Licensor unless
Licensor agrees to waive such conflict of interest.
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Licensee shall have the right to settle such Claim unless such settlement would
affect the value, reputation or prestige of the Licensed Mark. Licensor will
cooperate with Licensee in the investigation and defense of any such Claim.
Licensor shall have the right to participate in (but not to control) any such
defense through counsel of its own choice, but at Licensor's own expense. If
Licensee fails or refuses to undertake the defense of any such Claim within a
reasonable period after notice from Licensee, each Licensor Indemnified Party
shall be entitled to defend such Claim through counsel of its choice, and all
Costs incurred by such Licensor Indemnified Party in the investigation, defense
and settlement of such Claim shall be paid by Licensee upon submission of
invoices, but not later than 75 days thereafter.
(c) Notwithstanding anything in Section 9(a) to the contrary, Licensor
shall not be obligated to indemnify any Losses incurred by Licensee resulting
from the failure of Licensee to suspend as promptly as practicable the
Exploitation of the Licensed Merchandise in such portion of the Territory or in
such manner as is specified in a written notice from Licensor requesting such
suspension on the basis that such Exploitation may infringe upon the statutory
or common law trademark, trade name or other intellectual property rights of
other Persons. Under no circumstance shall this Section 9(c) be deemed to
relieve Licensor from its indemnity obligation with respect to Exploitation by
Licensee prior to such time.
(d) In the event that Licensee suspends the Exploitation of Licensed
Merchandise at the direction of Licensor in any portion of the Territory as a
result of any pending Claim for unfair competition or infringement, the Minimum
Net Sales and Minimum Royalty during any period in which such suspension occurs
shall be reduced by an amount agreed to by Licensor and Licensee to reflect the
potential loss of Net Sales to Licensee relative to overall Net Sales,
considering: (i) actual or projected Net Sales in the portion of the Territory
in which Exploitation is suspended relative to actual or projected Net Sales in
the Territory overall; and (ii) the length of time in which Exploitation is
suspended.
10. INSURANCE.
Licensee agrees that during the Term it shall maintain comprehensive
general liability insurance which includes, among other thing, product
liability, personal injury and advertising insurance which provides primary
insurance protection to Licensor of at least $1,000,000 per occurrence and
$5,000,000 in the aggregate. Licensee shall have Licensor named as an
additional insured on such policy and shall provide to Licensor a certificate of
such insurance from the insurance carrier which provides that such insurance
policy includes a waiver of subrogation in favor of Licensor, its parent and
affiliated companies and any director, officer, employee or agent of any of them
and that such insurance policy may not be materially changed or cancelled
without at least 30 days' prior written notice to Licensor.
11. PROTECTION OF TRADEMARK.
If Licensor becomes aware of any infringement, imitation or other act
(including act of unfair competition) by any Person inconsistent with the
Licensor's ownership of, and Licensee's
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Exploitation of, the Licensed Mark (collectively, an "INFRINGEMENT"), Licensor
shall, at its sole cost and expense, use its best efforts to stop such
Infringement as promptly as practicable. Licensee shall cooperate with Licensor
in such action and, if requested by Licensor, shall join with Licensor as a
party to any legal action therefor brought by Licensor. If Licensor cannot
obtain the prompt voluntary cooperation of such infringing party by written
demand, Licensor shall promptly bring legal proceeding to obtain injunctive or
similar relief to prevent such infringement. The prosecution of such
Infringement shall be undertaken by and under the control of Licensor. If such
Infringement adversely affects sales of Licensed Merchandise by Licensee,
Licensor and Licensee shall in good faith negotiate a reduction of the Minimum
Net Sales and Minimum Royalty.
12. TERMINATION.
(a) The License may be terminated prior to the end of the Term as follows:
(i) Licensor may terminate the License by written notice to Licensee
if Net Sales for two consecutive Contract Years are less than the Minimum Net
Sales required for such Contract Years; provided, however, that such termination
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notice must be given within 30 days following receipt of the Royalty Report for
the last quarter of such second Contract Year;
(ii) Either party may terminate the License by giving written notice
of termination to the other party on the basis that such other party has failed
to perform in any material respect any of its material obligations or agreements
under this Agreement and such other party has failed to cure such default to the
other's reasonable satisfaction within 30 days after delivery of written notice
of default from such other party;
(iii) Either party may terminate the License immediately by giving
written notice of termination to the other party in the event any of the
representations or warranties of the other party under this Agreement are not
true and correct in any material respect;
(iv) At least 20 days prior to the completion of any proposed Change
of Control of Licensee, Licensee shall send a Change of Control Notice to
Licensor, who may terminate the License by written notice (the "TERMINATION
NOTICE") to Licensee within 20 days after Licensor receives a Change of Control
Notice, provided, however that at Licensee's request in the Change of Control
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Notice, Licensor has first reviewed and considered all of the information
provided by Licensee in connection with the circumstances of the proposed Change
of Control. In connection with any such review, Licensor agrees that it will
consider, in good faith, the following factors, based on information made
available to it by Licensee: the Acquiror's commitment to promoting the
Licensed Mark in a manner which enhances its integrity and prestige; the
Acquiror's character and reputation; the Acquiror's previous history of
enhancing other licensed trademarks and/or its commitment to continue the
Exploitation of Merchandise in the manner previously approved by Licensor under
this Agreement; and the financial condition of the Acquiror. Licensee
acknowledges, however, that the final decision regarding a Termination Notice is
in the discretion of Licensor. Any termination shall be
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effective only upon the later to occur of the Change of Control and the date
specified in the Termination Notice; provided, however, that the License shall
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not be terminated if such Change of Control shall not occur. If Licensor does
not exercise its right to terminate the License within 20 day period, Licensor
shall not have the right to terminate the License as a result of such Change of
Control. In the event that Licensor learns of a completed Change of Control for
which Licensor did not receive a Change of Control Notice, Licensor may
terminate the License forthwith by written notice to Licensee; and
(v) Licensee may terminate the License by giving written notice of
termination to Licensor if, during any Contract Year, Licensor does not expend
any funds for National Advertising of the Licensed Mark;
(b) Upon expiration of the Term or termination of the License prior
thereto, Licensee shall discontinue all use of the Licensed Mark, except as
provided in Section 12(c).
(c) Notwithstanding expiration or termination of the License, Licensee
shall have the right for six months following such expiration or termination to
use the Licensed Mark in the Exploitation of Merchandise which (i) Licensee has
on hand as inventory as of the date of expiration or termination, (ii) Licensee
takes as a return, repurchases or otherwise acquires from customers following
expiration or termination, or (iii) is in the process of being manufactured or
for which Licensee has placed binding orders for manufacture as of expiration or
termination. By way of example, and not by limitation, if Licensee is then
using a third party manufacturer to manufacture Merchandise to be marketed with
the Licensed Mark within the six-month period following the expiration or
termination of the License, Licensee shall have the right to advertise, market,
sell and distribute such Merchandise which Licensee shall be obligated to
purchase from such manufacturer as of the date of expiration or termination.
(d) The expiration or termination of the License shall not: (i) terminate
the rights or obligations of the parties under Sections 9, 12(c) or 13 of this
Agreement; or (ii) relieve either party from liability for any breach occurring
prior to such termination.
13. CONFIDENTIALITY.
(a) In connection with this Agreement, each party will be provided, and
will have access to, certain Confidential Information of the other party. Each
party acknowledges and understands that the other party's Confidential
Information is a valuable asset and property of such other party, and that such
other party could suffer irreparable harm from the disclosure of all or any of
such Information to other Persons. Accordingly, each party agrees, on behalf of
itself and its directors, officers, employees, agents and advisors
(collectively, "REPRESENTATIVES"), (i) to hold all of such other party's
Confidential Information in strict confidence, (ii) not to disclose any of such
Information to third parties without the specific prior written consent of such
other party, and (iii) not to use any such Information except for purposes
reasonably related to the performance of its obligations and the protection of
its rights under this Agreement. Each party shall be responsible for, and shall
indemnify and hold the other party
15
<PAGE>
harmless from, any Losses and Costs incurred or suffered by such other party
arising or resulting from the breach of these covenants by such party or any of
its Representatives.
(b) "CONFIDENTIAL INFORMATION" includes confidential and/or proprietary
information such as business plans, marketing plans, financial statements and
data, contracts, customers, know-how, designs, operating methods, employees and
ownership information. "Confidential Information" of a party does not include
information which (i) becomes generally available to the public other than as a
result of disclosure by the other party or its Representatives; or (ii) was
available to the other party on a non-confidential basis prior to its disclosure
to the other party; or (iii) was obtained from a third party not subject to an
obligation of confidentiality.
(c) If a party or any of its Representatives is legally required (by oral
questions, interrogatories, requests for information or documents, subpoena,
civil investigative demand or similar process) to disclose any Confidential
Information of the other party, such party shall promptly notify the other party
of such requirements so that the other party may seek an appropriate protective
order or other appropriate remedy and/or waive compliance with the provisions of
this Agreement. If such protective order or other remedy is not obtained, or
that party grants a waiver hereunder, such other party or its Representative may
furnish that portion (and only that portion) of the Confidential Information
which such party or its Representative is legally compelled to disclose. In no
event shall a party or any of its Representatives oppose any action by the other
party to obtain an appropriate protective order or other reliable assurance that
confidential treatment will be accorded the Confidential Information.
14. BANKRUPTCY.
If either party becomes a debtor as that term is defined under Title 11 of
the United States Code, this Agreement will be deemed an executory contract
under Section 365 thereof.
15. MISCELLANEOUS.
(a) NOTICES. All notices, requests and other communications (collectively,
"NOTICES") given pursuant to this Agreement shall be in writing, and shall be
sent by facsimile transmission, overnight courier, or other manner, postage
prepaid, addressed to the party at the address or facsimile transmission number
set forth below; provided, however, that any notice of default or termination of
-------- -------
the License, any notice pursuant to Section 3 or any notice to suspend use of
the Licensed Mark or any Termination of Key Employees Notice in accordance with
Section 15(j) shall be sent by registered or certified mail, postage prepaid,
return receipt requested:
(i) If to Licensor, to:
Hart Schaffner & Marx
101 N. Wacker Drive, 22nd Floor
Chicago, Illinois 60606
16
<PAGE>
Attn: President
Telefax No.: (312) 444-2674
With a copy to:
Hartmarx International
101 N. Wacker Drive
23rd Floor
Chicago, Illinois 60606
Telefax No.: 312/984-6155
(ii) If to Licensee, to
Signature Eyewear, Inc.
498 North Oak Street
Inglewood, California 90302
Attn: President and Chief Financial Officer
Telefax No.: (310) 330-2765
Any Notice shall be effective when received; provided that any Notice sent by
registered or certified mail return receipt requested, to the address of the
other party, shall be effective four days following deposit in the United States
mails. Either party (or Hartmarx International) may from time to time change
its address for further Notices hereunder by giving notice to the other party in
the manner prescribed in this Section.
(b) ENTIRE AGREEMENT. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein. No representations,
oral or otherwise, express or implied, other than those contained in this
Agreement have been relied upon by any party to this Agreement.
(c) SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the parties to this Agreement and their respective successors, heirs
and personal representatives.
(d) GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of New York.
(e) SEVERABILITY. Whenever possible each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be or become prohibited or invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
17
<PAGE>
(f) CAPTIONS. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(h) ATTORNEYS' FEES. If any action or proceeding is brought to enforce or
interpret any provision of this Agreement, the prevailing party shall be
entitled to recover as an element of its costs, and not its damages, reasonable
attorneys' fees to be fixed by the court. The prevailing party is the party who
is entitled to recover the costs of its action or proceeding, whether or not
such action or proceeding proceeds to final judgment. A party not entitled to
recover its costs of suit may not recover attorneys' fees. No sum for
attorneys' fees shall be counted in calculating the amount of a judgment for
purposes of determining whether a party is entitled to recover its costs or
attorneys' fees.
(i) TRANSFER. Licensee may not Transfer the License except with the prior
written approval of Licensor, which approval may be withheld for any reason;
provided, however, that Licensee may: (i) Transfer the License as part of the
- -------- -------
Transfer of all or substantially all of the assets of Licensee related to
Exploitation of Merchandise provided that Licensee has sent a Change of Control
Notice to Licensor, if required, under Section 12(a)(iv) and that Licensor has
not terminated the License pursuant to and in accordance with Section 12(a)(iv)
following receipt of a Change of Control Notice from Licensee; and/or (ii)
Transfer the License by operation of law as a result of a merger, consolidation
or other reorganization of Licensee or the change in operating form of Licensee
(such as a change from corporation to partnership or limited liability company),
provided that such merger, consolidation, reorganization or change in operating
form does not result in a Change of Control or, if such merger, consolidation,
reorganization or change in operating form does result in a Change of Control,
that Licensee has sent a Change of Control Notice to Licensor pursuant to
Section 12(a)(iv) and that Licensor has not terminated the License in accordance
with such Section. No Transfer of the License shall have effect unless the
transferee expressly assumes all of Licensee's duties and obligations under this
Agreement, whereupon, except as provided in the following sentence, Licensee
shall be released from all obligations thereafter arising under this Agreement
(but not obligations arising prior to such assignment). Licensee shall not be
released from its obligations under this Agreement in the event of a Transfer
permitted by this Section 15(i) but which does involve a Change of Control or
otherwise require the approval of the Licensor. Licensee may grant a security
interest in the License in connection with obtaining a loan or financing, but
the License and this Agreement shall automatically terminate, without notice,
upon any attempt by the holder of any such security interest to foreclose on the
License.
(j) TERMINATION OF KEY EMPLOYEES. Licensee agrees to send to Licensor a
written notice (the "TERMINATION OF KEY EMPLOYEES NOTICE") if, during the first
three Contract Years, all of the following cease to be involved in a significant
manner in the Exploitation of Merchandise: Bernard Weiss, Julie Heldman, Robert
Fried and Robert Zeichick (the "KEY
18
<PAGE>
EMPLOYEES"). The Termination of Key Employees Notice shall set forth the dates
on which the employment of each Key Employee was terminated. Not later than 90
days after the latest termination date set forth in the Termination of Key
Employees Notice, Licensee shall submit to Licensor for its approval a marketing
plan for the Licensed Merchandise in the Territory. That marketing plan shall
set forth the names and qualifications of the persons who shall perform the jobs
related to the Exploitation of Licensed Merchandise previously performed by the
Key Employees, and shall include marketing overview and analysis, projected
positioning, distribution, merchandising, packaging and suggested retail pricing
of the Licensed Merchandise. Licensor shall promptly review such marketing plan
and shall notify Licensee that it either approves or objects to such plan, which
notice shall specify the objection or objections in reasonable detail. Licensor
and Licensee shall communicate with respect to such objections and shall attempt
to develop a mutually acceptable marketing plan. Licensee shall thereafter
submit a revised marketing plan which Licensor shall review. At such time as
the revised marketing plan is completed, Licensor shall notify Licensee of its
approval of or objection to the plan. If Licensor fails to notify Licensee of
its approval or objections to the marketing plan within 90 days following
submission of the initial marketing plan, or 30 days following submission of any
revised marketing plan, such marketing plan shall be deemed approved by
Licensor. If Licensor's reasonable objections are not corrected to Licensor's
reasonable satisfaction, and a mutually acceptable plan is not agreed to within
180 days from the date of the Termination of Key Employees Notice, Licensor may,
within 30 days following such date, terminate the License by written notice to
Licensee.
IN WITNESS WHEREOF, this Agreement has been made and entered into as of the date
and year first above written.
HART SCHAFFNER & MARX
By /s/ Kenneth Hoffman
--------------------------------------------
Its President/Chief Executive Officer
---------------------------------------
SIGNATURE EYEWEAR, INC.
By /s/ Julie Heldman
----------------------------------------------
Its President
----------------------------------------------
19
<PAGE>
SIGNATURE EYEWEAR, INC.
HART SCHAFFNER & MARX
Exhibit "A" to License Agreement
LICENSED MARK
HART
SCHAFFNER
& MARX
[LOGO]
<PAGE>
SIGNATURE EYEWEAR, INC.
HART SCHAFFNER & MARX
Exhibit "B" to License Agreement
Minimum Net Sales:
<TABLE>
<CAPTION>
Contract Year Minimum Net Sales
- ------------- --------------------------------------------
<C> <S>
1 $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
2 $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
3 $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
4 $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
5 $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
6 $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
</TABLE>
<PAGE>
Minimum Royalty:
<TABLE>
<CAPTION>
Contract Year Minimum Royalty
- ------------- --------------------------------------------
<C> <S>
1 $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
2 $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
3 $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
4 $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
5 $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
6 $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
</TABLE>
<PAGE>
Exhibit 10.14
LICENSE AGREEMENT
Dated June 2, 1995
Between
Revlon Consumer Products Corporation
("Licensor")
and
Signature Eyewear, Inc.
("Licensee")
Certain portions of this agreement have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for an order
granting confidential treatment pursuant to Rule 406 of the General Rules and
Regulations under the Securities Act of 1933.
<PAGE>
EXHIBIT 10.14
LICENSE AGREEMENT
THIS AGREEMENT, made and entered into as of June 2, 1995 by and
between REVLON CONSUMER PRODUCTS CORPORATION, a Delaware corporation, and/or its
designated affiliate, with its principal offices at 625 Madison Avenue, New
York, New York 10022 (hereinafter referred to as "Licensor"), and SIGNATURE
EYEWEAR, INC., a California corporation, with its principal offices at 498 North
Oak Street, Inglewood, CA 90301 (hereinafter referred to as "Licensee").
WITNESSETH:
WHEREAS Licensee desires to obtain a license to use the Licensed Mark
(as defined below) in connection with the manufacture, merchandising, promotion,
advertising, sale and distribution of Merchandise (as defined below), and
Licensor is willing to grant such license subject to all the terms of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, Licensor and Licensee agree as follows:
1. Definitions
-----------
The following definitions shall be applicable
throughout this Agreement:
A. The term "Licensed Mark" shall mean the trademark "JEAN NATE," in
the form set forth on Schedule 1A, and any simulations or variations thereof,
all in the form approved in writing by Licensor for use by Licensee hereunder.
B. The term "Licensed Merchandise" shall mean Merchandise (as that
term is defined in Section 1.C below) that is approved by Licensor in accordance
with Section 4 hereof and sold or promoted by Licensee under the Licensed Mark.
C. The term "Merchandise" shall mean those categories of goods listed
in Exhibit A attached hereto.
D. The term "Prototype" shall mean any and all styles or samples of
Licensed Merchandise together with the respective Packaging (as hereinafter
defined), except that the "Final Prototype" shall mean the actual final sample
of each style of Licensed Merchandise with the respective Packaging which has
been approved by Licensor and from which the first commercial production thereof
will be made.
E. The term "Territory" shall mean the United States of America and
Canada, and any other countries of the world which may become part of the
Territory pursuant to Section 2G of this Agreement.
F. The term "Net Sales" shall mean the total invoiced price of the
Licensed Merchandise shipped by Licensee to its customers other than Licensor
and its Affiliates (" Gross
<PAGE>
Sales") less (i) federal, state and local sales, use and excise taxes, freight
and insurance (if separately stated), customary trade discounts and allowances
if actually granted including co-op advertising allowances to the extent such
allowances are directly deducted off invoice (which total deduction for such co-
op advertising allowances shall not exceed CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION% of Gross Sales),
(ii) actual returns, and (iii) all Specified Bad Debts. The term "Specified Bad
Debt" shall mean a debt in an amount in excess of $CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION owed to
Licensee by one of its customers and/or such customer's Affiliates arising from
the sale of Licensed Merchandise to such customer and its Affiliates and with
respect to which such customer and/or its Affiliates shall take or become
subject to any of the actions or proceedings described in Section 12 D of this
Agreement, as if such customer and its Affiliates had been described therein as
opposed to a party to this Agreement. If any Specified Bad Debt is subtracted
from Net Sales and thereafter Licensee recovers all or some portion of such
Specified Bad Debt, the amount of such recovery shall be added to Net Sales
during the quarter in which such recovery is received.
G. "Affiliate" of any Person shall mean a Person that, directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with such Person. "Control" means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise.
H. "Acquiror" means a Person or a group of persons acting in concert
but excluding a stockholder of Licensee as of the date of this Agreement, any
Affiliate of such stockholder, or any member of the immediate family of such
stockholder.
I. "Change of Control" shall be deemed to occur if: (i) an Acquiror
acquires in excess of 50% of the outstanding voting securities of Licensee (or
any successor corporation or entity by reason of merger, consolidation or other
reorganization of Licensee); or (ii) Licensee sells, transfers and/or assigns
all or substantially all of its assets involved in the Exploitation of eyeglass
frames (including frames for sunglasses) and related accessories; or (iii) the
transfer and assignment of Licensee's rights under this Agreement to a third
party as part of a foreclosure of a security interest in such rights.
J. "Change of Control Notice" shall mean a written notice to Licensor
of a proposed or completed Change of Control.
K. "Exploit" shall mean manufacture, advertise, merchandise, promote,
publicize, sell, use, market and distribute.
L. "Proper Purpose" shall mean: (i) the Acquiror is a competitor of
Licensor or any Affiliate of Licensor; or (ii) Licensor has a reasonable basis
to believe that the Acquiror lacks the capability adequately to market or
distribute the Licensed Merchandise or otherwise to maintain the prestige and
reputation of the Licensed Mark, based on past or current activities of the
Acquiror.
2
<PAGE>
M. The term "Term" shall mean the duration of this Agreement, as set
forth in Section 3 and 12 below, and shall include any renewal period as
described therein.
N. "Person" shall mean individual, corporation, partnership, limited
liability company, trust or other entity.
2. License Grant
-------------
A. Licensor hereby grants to Licensee an exclusive license the
"License" throughout the world during the Term to use the Licensed Mark as a
trademark in connection with the Exploitation of Licensed Merchandise, subject
to all the terms and conditions of this Agreement; provided, however, that
Licensee may Exploit the License during the Term only in the Territory.
B. Licensee accepts said grant, and agrees to use its reasonable best
efforts to Exploit the License granted herein including, without limitation,
maintaining a sales force sufficient to provide effective distribution of the
Licensed Merchandise, and complying with Licensor's advertising, marketing,
merchandising, sales and anti-counterfeiting programs; provided, however, that
"reasonable best efforts" shall not require Licensee to spend more in connection
with advertising and promotion than required pursuant to Section 5C of this
Agreement and provided further, however, that Licensor's sole remedy with
respect to the failure of Licensee to achieve any specified sales levels shall
be to terminate this Agreement in accordance with Section 12A of this Agreement
for failure to achieve minimum Net Sales. Licensee shall at all times act in a
manner consistent with good business practices and the terms and conditions of
this Agreement. Licensee further agrees not to Exploit either directly or by or
through any of its Affiliates or by or through any officer, director or
shareholder of Licensee or any of its Affiliates, any Merchandise under any
other trademark or brand name primarily known as a cosmetic, toiletry, fragrance
or haircare trademark or brandname unless such trademark or brandname is one
licensed to Licensee by Licensor pursuant to a written agreement.
C. Licensee may use the Licensed Mark only in connection with the
Exploitation of Licensed Merchandise. No license is granted hereunder to Exploit
the Licensed Mark for any purpose other than upon or in connection with the
Licensed Merchandise. No license is granted hereunder to Exploit the Licensed
Merchandise in combination sales with other merchandise or as premiums,
promotional items or giveaways, or for disposal under or in connection with any
similar methods of merchandising except as approved in advance by Licensor on a
case by case basis.
D. Licensor reserves all rights at any time during the Term and
thereafter to use and grant to third parties the right to use the Licensed Mark
in any geographical area on products other than Merchandise. During the Term,
Licensor shall not grant to any third party the right to use the Licensed Mark
in connection with Exploitation of Merchandise. Without limiting the generality
of the foregoing, Licensor agrees not to grant to any third party or parties the
right to use the Licensed Mark in connection with the Exploitation of
Merchandise in any country not included within the Territory. Licensor has
advised Licensee that because of the decentralized nature of the operations of
Licensor, the potential exists that promotional
3
<PAGE>
Merchandise including the Licensed Mark may be sold by Licensor during the Term
in conjunction with a promotion of Licensor's regular product line under the
Licensed Mark. Licensee agrees that such sales shall not be deemed a violation
of this Agreement provided that: (i) Licensor's Licensing Division has made
reasonable efforts in advance to advise appropriate individuals within Licensor
that during the Term Licensee has the exclusive right to Exploit the Licensed
Mark in connection with the Merchandise; (ii) such sale of Merchandise with the
Licensed Mark is part of a local promotion of Licensor's regular product line
and has not been authorized or approved by Licensor's Licensing Division; and
(iii) upon Licensor's Licensing Division becoming aware of such program Licensor
uses its best efforts to terminate such program, or to narrow the scope of the
program to minimize the amount of Merchandise containing the Licensed Mark being
distributed in connection with the program.
E. Nothing herein is intended to restrict or otherwise prohibit
Licensor from manufacturing, merchandising, promoting, advertising, selling,
sublicensing or distributing products of the type or description identified as
Merchandise hereunder under any trademark or trade name other than the Licensed
Mark, and Licensor reserves all rights at any time during the Term and
thereafter to do so.
F. Licensee may not sell, assign, transfer or sublicense ("Transfer")
to an Acquiror any of the rights granted to Licensee under this Agreement except
with the prior written approval of Licensor, which approval may be withheld only
for a Proper Purpose. For purposes of this Section 2F, the term "Transfer" shall
not be deemed to include: (i) the sale, assignment or transfer by Licensee of
all of its rights under this Agreement as part of the sale, transfer and/or
assignment of all or substantially all of the assets of Licensee involved in the
Exploitation of eyeglass frames (including frames for sunglasses) and related
accessories; (ii) assignments or transfers by operation of law as a result of a
merger, consolidation or other reorganization of Licensee or the change in the
operating form of Licensee (such as a change from corporation to partnership or
limit liability company); and (iii) the grant of a security interest in its
rights under this Agreement in connection with obtaining a loan or other
financing. In such cases, Licensor may terminate this Agreement for a Proper
Purpose pursuant to Section 12.E hereof.
G. Licensee may from time to time request in writing to expand the
Territory to include an additional country (the "Additional Country"). Upon
receipt of any such written request, Licensor shall promptly determine and
advise Licensee whether or not the grant of the right to Exploit the Licensed
Merchandise in the Additional Country would violate the rights of any Person
(other than Persons claiming its rights through Licensor). If Licensor
determines that such grant would not violate any such Person's rights: (i)
Licensee shall prepare and provide to Licensor a marketing plan with respect to
the distribution of the License Merchandise in the Additional Country and (ii)
Licensor shall take all necessary actions as may be required to permit Licensee
to Exploit the Licensed Mark in connection with Merchandise in such Additional
Country and to prohibit other Persons from Exploiting the Licensed Mark in
connection with Merchandise in the Additional Territory, including, without
limitation, the registration of the Licensed Mark in the Additional Country
(such latter actions to be referred to as "Protective Actions"); provided,
however, the Licensor shall not be obligated to institute litigation or
opposition proceedings or to purchase the rights of any third party which
purports to have the lawful right to prevent the Licensee from Exploiting the
Licensed Mark in connection with the
4
<PAGE>
Merchandise in the Additional Country. Licensor shall provide its written
comments on, or its approval of, the marketing plan for any Additional Country
within 20 days of receipt; the failure to provide written comments within 20
days shall be deemed to be approval of the marketing plan. If Licensor does not
approve the marketing plan, Licensee may modify the marketing plan in response
to Licensor's comments, and the parties shall attempt to develop a marketing
plan mutually satisfactory to Licensor and Licensee. Upon approval of a
marketing plan, and upon notice from Licensor to Licensee that all Protective
Actions have been taken, the Additional Country shall be included in the
Territory hereof, and the terms and conditions of this Agreement shall forthwith
become applicable to Licensee's use of the Licensed Mark in such Country.
3. Term
----
A. This Agreement shall become effective as of the date first above
written, and shall terminate on September 30, 1997 (the "Initial Term") unless
terminated prior thereto in accordance with he terms and conditions hereof.
B. Licensee shall have the option to renew this Agreement for an
additional three (3) year period (the "First Renewal Term") by giving Licensor
written notice at least ninety (90) days prior to the end of the Initial Term;
provided that Licensee is in compliance in all material respects with all
material terms and conditions of this Agreement including without limitation the
Minimum Net Sales requirements for the two (2) preceding License Years.
C. If Licensee elects to renew this Agreement for the First Renewal
Term pursuant to Section 3.B, Licensee shall have the option to renew this
Agreement for an additional four (4) year period (the "Second Renewal Term") by
giving Licensor written notice at least ninety (90) days prior to the end of the
First Renewal Term; provided that Licensee is in compliance in all material
respects with all material terms and conditions of this Agreement including
without limitation the Minimum Net Sales requirements for the prior two (2)
preceding License Years.
D. If Licensee elects to renew this Agreement for the First Renewal
Term or the Second Renewal Term, such renewal shall be deemed effective unless
Licensor gives written notice that such renewal is not effective because
Licensee shall not be in compliance in all material respects with all material
terms and conditions of this Agreement, which notice must be given within 60
days of receipt of the renewal notice and must specify the nature of such non-
compliance.
4. Licensed Merchandise and Quality Control
----------------------------------------
A. Licensee agrees that Licensed Merchandise will be designed,
manufactured, advertised, promoted, publicized, distributed and sold only in a
manner which is consistent with industry safety standards and with the quality
and design commensurate with the prestige and reputation of the Licensed Mark.
B. Licensor shall provide reasonable assistance to Licensee
concerning, inter alia, the design direction and quality guidelines for the
----- ----
Licensed Merchandise, provided that
5
<PAGE>
Licensor's travel expenses for on-site consultation requested by Licensee shall
be at the expense of Licensee.
C. Licensee must obtain the prior written approval of Licensor for
all designs, specifications, colors, materials, contract manufacturers and
quality standards of all Merchandise and components thereof intended to be sold
as Licensed Merchandise, including any labels, instructions, packaging,
containers and displays (said labels, instructions, packaging, containers and
displays hereinafter collectively "Packaging") intended to be utilized in
connection with the Licensed Merchandise. With respect to obtaining of such
approvals by Licensee, the following shall apply:
(i) As soon as practicable following the execution of this Agreement,
Licensee shall submit to Licensor for its approval a marketing
plan for the Licensed Merchandise, including a market overview
and analysis, projected positioning, distribution, merchandising,
packaging and suggested retail pricing of the Licensed
Merchandise, and such other related information as Licensor may
request. Licensor shall provide its written comments on, or its
approval of, the marketing plan within twenty (20) days of
receipt, and Licensee shall resubmit the marketing plan in
response to any comments of Licensor.
(ii) In connection with the submission of the marketing plan
contemplated by Section 4C(i), Licensee shall provide Licensor
for its reasonable approval with a list of contract manufacturers
initially proposed for production of the Licensed Merchandise and
Packaging, and thereafter from time to time during the Term any
additional manufacturers which might be used as well as
information regarding such manufacturers as reasonably requested
by Licensor. Licensor shall notify Licensee in writing of any
objections to such manufacturers within ten (10) days.
(iii) With respect to the initial line of Merchandise proposed by
Licensee to be sold as Licensed Merchandise, and thereafter from
time to time during the Term with respect to any additional items
of Merchandise proposed by Licensee to be sold as Licensed
Merchandise, Licensee may submit to Licensor design proposals of
the Licensed Merchandise and Packaging, including specifications
and explanations of any applicable governmental or other
standards and unique benefits of each of the products in
sufficient detail to allow Licensor to evaluate the potential of
the proposal.
(iv) During the ten (10) days following submission of the design
proposals of the Licensed Merchandise and Packaging proposed,
Licensor will review the proposals and Licensee will provide its
full assistance and cooperation to Licensor in such review,
including making available a qualified person(s) appointed by
Licensee to meet with Licensor and assist Licensor in its review.
Not later than the end of such ten (10) days period, Licensor
shall notify Licensee of which, if any, of the design proposals,
or Packaging Licensor has approved and Licensor shall provide
Licensee
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<PAGE>
with objections, if any, to any aspect of the design proposals or
Packaging which it deems objectionable.
(v) Licensee shall submit to Licensor, free of charge, two Prototypes
of each item of Licensed Merchandise and Packaging. Within ten
(10) days of its receipt of Prototypes and Packaging, Licensor
shall notify Licensee of any objections to such Prototypes or
Packaging. In the event Licensor objects to any aspect of any
Prototype or Packaging, Licensor shall state the particulars of
such objections in writing and shall further set forth Licensor's
suggested modifications in order to remove such objections.
Licensee shall be entitled to resubmit a correct sample of the
Prototype or Packaging for approval. Licensee shall not
manufacture, use or sell any Merchandise or use any Packaging
under the Licensed Mark without having received the prior written
approval of Licensor pursuant to this Section 4.C.
(vi) With respect to an item properly submitted by Licensee to
Licensor for approval pursuant to Subsections 4.C.(ii) through
(v) above, in the event that Licensor fails to respond to
Licensee concerning such item within the ten-day period required
therein for approvals, Licensor's approval of such submitted item
shall be deemed given.
(vii) The initial line of Licensed Merchandise shall be in commercial
distribution not later than May 31, 1996.
D. The Licensed Merchandise and Packaging manufactured, sold,
advertised or promoted by Licensee shall be substantially identical in all
respects, including, without limitation, materials, color, workmanship, designs,
dimensions, performance, styling, quality and specifications to the Final
Prototype and Packaging approved by Licensor in accordance herewith. Immediately
upon commencement of commercial production of any Licensed Merchandise and
Packaging, Licensee shall send Licensor a production sample of each stock
keeping unit (an "SKU") of the Licensed Merchandise and Packaging. If, in
Licensor's judgment (which judgment shall be reasonable in connection with
technical matters but may be the sole judgement of Licensor for other matters),
the production sample is not substantially identical to the Final Prototype and
Packaging approved by Licensor in accordance herewith (hereinafter
"Nonconforming"), Licensor shall promptly notify Licensee and shall specify in
which respects the sample is Nonconforming with the Final Prototype and
Packaging approved by Licensor. Upon receipt of such notice, Licensee shall
immediately stop production of the Nonconforming Licensed Merchandise and
Packaging until a production sample is submitted to Licensor which Licensor
determines is substantially identical in all respects to the Final Prototype and
Packaging approved by Licensor. Any Licensed Merchandise and Packaging which is
Nonconforming shall be destroyed at Licensee's sole cost and expense unless
Licensor expressly approves in writing some other use of such Licensed
Merchandise and Packaging.
E. If Licensor determines in its judgment (which judgment shall be
reasonable in connection with technical matters but may be sole judgment of
Licensor for other matters), that the materials, color, workmanship, design,
dimensions, performance, styling, quality or
7
<PAGE>
specifications of any Licensed Merchandise or Packaging at any time are
Nonconforming, Licensor shall have the right to withdraw its approval of such
Licensed Merchandise and Packaging at any time. Upon receipt of written notice
from Licensor of its election to withdraw such approval which shall list the
specific Merchandise or Packaging and specify in what respects it is
Nonconforming, Licensee shall immediately cease the use of the Licensed Mark in
connection with the promotion, advertising, sale, manufacture, distribution and
use of such Nonconforming Licensed Merchandise and Packaging. Notice of such
election by Licensor to withdraw approval shall not relieve Licensee from its
obligation to pay royalties on sales of such Licensed Merchandise made by
Licensee to the date of disapproval or thereafter if and to the extent
permitted.
F. Licensor also may require Licensee to remove from commercial
distribution, at Licensee's expense, any Licensed Merchandise which is
Nonconforming. In the event Licensee fails promptly to take all reasonable steps
to effect such removal, Licensor may purchase at Licensee's expense any Licensed
Merchandise found in the marketplace which in Licensor's sole judgment is
Nonconforming.
G. For purposes of monitoring quality, Licensee agrees to provide
Licensor, free of charge, at least one sample of each SKU of Licensed
Merchandise and related Packaging at regular intervals, upon request, but at
least annually and upon any material change in the SKU or manufacturer
throughout the Term.
H. Licensee will comply in all material respects with all
laws,rules, regulations and requirements of any governmental or administrative
body (including, without limitation, the Consumer Product Safety Commission),
which may be applicable to the manufacture, advertising, merchandising,
packaging, publicity, promotion, sale, distribution, shipment, import and export
of the Licensed Merchandise and its componentry except to the extent that such
failure to so comply (i) would not have a material adverse effect upon the
ability of Licensee to Exploit the License or upon the prestige and reputation
of the Licensed Mark, and (ii) would not subject Licensor or its Affiliates to
potential liabilities.
I. Licensor and its duly authorized representatives, accompanied by
Licensee, shall have the right, during normal business hours and upon reasonable
notice, during the Term to inspect all manufacturing facilities utilized by
Licensee (and, to the extent Licensee is authorized, its contractors and
suppliers to the extent Licensee may use the same) and to examine all processes
and records relating to the manufacturing, packaging, warehousing and
distribution of the Licensed Merchandise and Packaging including, without
limitation, the right to make such tests and inspections as it shall deem
necessary to insure the quality of the Licensed Merchandise and Packaging.
Licensees shall take all necessary steps requested by Licensor to correct any
deficiencies that might affect the quality of the Licensed Merchandise and/or
Packaging.
J. Licensee agrees to use its best efforts to safeguard the prestige
of the Licensed Mark for the benefit of Licensor. Licensee shall not market any
of the Licensed Merchandise as irregulars, except as approved in advance by
Licensor in writing on a case-by-case basis.
8
<PAGE>
K. All Licensed Merchandise will bear at least one label or display
with the Licensed Mark in a form approved by Licensor in advance in accordance
with Section 4.C hereof and will bear no label or display of the Licensed Mark
unless previously approved by Licensor.
L. To preserve the prestige of the Licensed Mark, and to make
available to customers a wide range of products bearing the Licensed Mark at
each retail outlet, the Licensed Merchandise shall be sold by Licensee only to
the same retail outlets to which Licensor sells its products under the Licensed
Mark and to other reputable optical retailers, wholesalers and distributors, and
subject to Licensor's prior written approval, which approval shall not be
unreasonably withheld and shall be deemed given if Licensor fails to respond to
Licensee within ten (10) days of Licensor's receipt of Licensee's written
approval request, to such other wholesalers, distributors, and retail outlets
with positioning and image consistent with the retail outlets where Licensor's
products under the Licensed Mark are sold. Licensee will not, directly or
indirectly, sell Licensed Merchandise to customers, or establish any branch or
maintain any distribution depot in respect of the Licensed Merchandise, outside
of the Territory. In addition, the following shall apply with respect to
distribution of the Licensed Merchandise:
(i) Licensee shall submit to Licensor, in connection with submission
of the marketing plan contemplated by Section 4C(i), for approval
a list of all major retail customers (including all retail
chains) to whom it proposes to sell the Licensed Merchandise, and
upon Licensor's request from time to time, the entire list of
Licensee's retail customers for review and approval;
(ii) Licensee shall not sell or distribute any Licensed Merchandise to
jobbers, diverters or any other entity which does not sell to
consumers at retail exclusively.
(iii) Licensee shall have the right to appoint distributors to sell
and distribute Licensed Merchandise within the Territory, subject
to Licensee obtaining Licensor's prior written approval of each
such distributor and the form and terms of Licensee's
distribution agreement with each such approved distributor.
(iv) In connection with submission of the marketing plan contemplated
by Section 4(c)(i), Licensee shall provide to Licensor for
Licensor's approval a list of all sales representatives,
distributors and sales agents, if any, which Licensee intends to
use to distribute the Licensed Merchandise;
(v) Licensee shall not sell the Licensed Merchandise directly to the
public in retail stores, catalogues, television or otherwise
unless, and then only to the extent that, such sale has been
previously approved in writing by Licensor;
(vi) Licensee shall not use the Licensed Merchandise as giveaways,
prizes or premiums, including retail promotional programs
("purchase with
9
<PAGE>
purchase" and "gift with purchase" promotions) unless, and only
to the extent that, such retail promotional programs have
received the prior written approval of Licensor;
(vii) Licensee shall not sell Licensed Merchandise to any Affiliate
of Licensee or any of Licensee's or such Affiliate's directors,
officers, employees or any entity in which any such director,
officer or employee is an officer, director, shareholder, partner
or principal, without the prior written approval of Licensor;
provided, however, that Licensee may sell limited quantities of
Licensed Merchandise to employees of Licensee and its Affiliates
for their personal use.
(viii) Licensee shall immediately stop selling Licensed Merchandise
to any customer of which Licensor, having approved said customer,
subsequently disapproves because of any material change in its
business or methods of conducting its business; provided,
however, that this shall not prevent Licensee from selling
Licensed Merchandise pursuant to binding commitments in existence
as of the date of such disapproval, which commitments may not
lawfully be terminated by Licensee.
(ix) Licensor shall have the right to approve all aspects of the
competitive positioning of the Licensed Merchandise.
M. During the Term and thereafter, Licensee shall not use, nor
license or otherwise permit the use of any specification, design, logo or
pattern which either incorporates the Licensed Mark or which has acquired
secondary meaning associating it with the Licensed Mark in connection with the
sale of Licensed Merchandise, to make products for sale under any trademark,
including Licensee's own trademarks, other than the Licensed Mark. Licensee's
obligations hereunder shall survive termination or expiration of this Agreement.
N. At Licensor's request, and upon reasonable prior notice, Licensee
shall sell to Licensor Merchandise at no more than the lower of Licensee's best
price to the trade or 110% of Licensee's actual cost plus freight, duties,
insurance and taxes for use by Licensor in promotions for or with respect to
Licensor's or its Affiliates' products. In addition, Licensee shall provide to
Licensor, free of charge, reasonable quantities of each item of Licensed
Merchandise and its related Packaging for public relations purposes, and one
sample of each item for display purposes at Licensor's headquarters.
5. Public Relations, Advertising and Promotion
-------------------------------------------
A. Licensee shall submit to Licensor for its prior written approval
any and all public relations and promotional programs to be conducted by
Licensee for the Licensed Merchandise. Licensee shall also submit to Licensor
any and all written public statements, press releases and responses to press
inquiries which specifically identify Licensor and/or the Licensed Mark and
include any description of either (other than a statement which merely
identifies that Licensee has a product line under the name of the Licensed Mark
and/or statements regarding revenues or sales of Merchandise by Licensee).
Licensee may not make any such written public
10
<PAGE>
statement, press release or response to press inquiry without the prior consent
of Licensor (which may be written or oral); provided, however, that
notwithstanding Licensor's objection, Licensee may make such disclosure if
Licensee is advised by counsel that such disclosure is required by applicable
law or regulation, provided that Licensee shall attempt to respond to any
objections of Licensor and make such changes as may be permitted under
applicable law. Licensor shall use its best efforts to respond to any such
request for consent as promptly as practicable, but in no event later than two
(2) business days after receipt of the request (and such consents shall be
deemed given if no objection is received within such two-business day period).
B. Licensee acknowledges that Licensor shall have complete control
over the creative content and themes of all advertising of Licensed Merchandise
and, to the extent Licensee desires to use an agency for creation of
advertising, Licensor shall have the right to approve in advance the proposed
advertising agency to be used by Licensee for the creation of all advertising.
Without limitation of the foregoing, Licensor shall have the right to approve in
advance any and all advertising, marketing, promotion, or public relations
programs to be conducted by Licensee, including, without limitation, the
materials, themes, talent, spokespersons, media, standards, policies and uses of
such materials and programs, for the Licensed Merchandise and all trade
materials, business cards, invoices, stationery and other printed matter
prepared by or for Licensee for use in connection with the Licensed Merchandise
and Licensed Mark. Licensee shall submit to Licensor for its prior written
approval copies of all of the foregoing, which approval shall be deemed given if
Licensor fails to approve or disapprove Licensee's materials submitted for
approval within ten (10) days of receipt of same by Licensor.
C. At least once each year, Licensee will submit for Licensor's
approval a presentation detailing Licensee's plans to market, promote and
advertise the Licensed Merchandise and a complete business plan, including
marketing, advertising and sales plans detailing sales, advertising and
promotional programs and expenditures for each quarter. Licensee agrees to spend
at least CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION Dollars ($CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION) during the
first License Year, and during each subsequent License Year Licensee agrees to
spend at least CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION percent (CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION%) of the Minimum
Net Sales for the subject License Year, on consumer and trade advertising (not
including co-operative advertising allowances and packaging) or selling
sheets/brochures to the trade, point of purchase materials and trade shows in
connection with the Licensed Merchandise pursuant to the approved advertising
plan. Licensee shall submit to Licensor a written quarterly report documenting
such advertising and promotion expenditures, including copies of all ads and
tear sheets. Such report shall be submitted simultaneously with the Royalty
Report required in Section 6.C below.
D. Upon Licensee's request, Licensor shall use its best efforts to
sell Licensee reasonable quantities of Licensor's toiletry products sold under
the Licensed Mark at a price lower than Licensor's wholesale price for such
products for use solely in connection with
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<PAGE>
Licensee's promotions of the Licensed Merchandise that may be approved by
Licensor from time to time.
6. Royalty Payments
----------------
A. Licensee shall pay Licensor a royalty at the rates set forth on
Exhibit B (the "Earned Royalty"); provided, however, that in no event shall the
-------- -------
royalty paid be less than the Minimum Royalties set forth on Exhibit B (the
"Minimum Royalty"). For purposes of this Agreement, a "License Year" shall be
defined as the twelve (12) month period commencing October 1 of each year and
ending September 30 of the same year; provided, however, that the first License
Year hereunder shall commence on the date hereof and end on September 30, 1996.
B. Within thirty (30) days following the close of each calendar
quarter, Licensee shall pay to Licensor an amount equal to: (i) the greater of
(A) the applicable portion of the Minimum Royalty for such License Year payable
through the end of such calendar quarter or (B) the Earned Royalty from the
commencement of such License Year through the end of such calendar quarter; less
(ii) the amount of royalty payments made by Licensee to Licensor with respect to
the prior calendar quarters of such License Year.
C. Each royalty payment shall be accompanied by a statement signed
and certified by the Chief Financial Officer of Licensee. Each such accounting
statement shall be in such form as Licensor may specify and shall show the total
Gross Sales of Licensed Merchandise made during the preceding quarter by product
code, the amount of deductions (each separately stated) from total Gross Sales,
and a computation of the amount of Net Sales and the Earned Royalty payable
hereunder in respect of such Net Sales for such period (the "Royalty Report").
Such Royalty Report shall be furnished to Licensor whether or not any Earned
Royalty payments are payable over and above the Minimum Royalty required by
Section 6.A for such period. The first Royalty Report due under this Agreement
shall be for the quarter ending September 30, 1995. Upon request by Licensor,
Licensee shall submit computer printouts substantiating the reported
information, in addition to a summary by customer and product code and other
supporting documentation. Receipt or acceptance by Licensor of any Royalty
Report furnished, or of any sums paid by Licensee, shall not preclude Licensor
from questioning their correctness for so long as Licensee shall be required to
maintain records with respect to the matters covered by such Report pursuant to
Section 8; provided, however, that Royalty Reports submitted by Licensee shall
be binding on Licensee in the event of any termination based on a breach by
Licensee arising out of any such payment or any such Royalty Report.
D. In the event of termination of this Agreement, the greater of the
Earned Royalty or the applicable portion of the Minimum Royalty shall be payable
within thirty (30) days after such termination for the portion of the calendar
quarter up to the date of such termination. In the event Licensee exercises its
option pursuant to Section 13.B hereof to extend the license herein granted for
purposes of liquidating its inventory of Licensed Merchandise, Licensee shall
pay all royalties with the accompanying Royalty Report quarterly within thirty
(30) days following the close of each calendar quarter during the extension
period following termination.
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<PAGE>
E. As soon as practicable, but not later than one hundred and twenty
(120) days after the end of each of Licensee's fiscal years (which fiscal year
ends October 31) during the Term, and within one hundred and twenty (120) days
after the close of Licensee's fiscal year following the expiration or
termination of the Term, Licensee shall submit to Licensor a representation
letter of Licensee's Chief Financial Officer using the form attached hereto as
Exhibit C. Within 15 days following completion of its audited financial
statements each year, Licensee shall submit to Licenser a copy of such audited
financial statements.
F. All royalty payments and accounting statements are to be directed
as provided in Section 17.B, below.
G. Licensee will bear (and the royalty payable to Licensor herewith
shall be without reduction for) all taxes, duties and other governmental charges
in the Territory relating to or arising under this Agreement, including without
limitation, any withholding taxes, any stamp or documentary taxes or duties,
turnover, sales or use taxes, value added taxes, excise taxes, customs or
exchange control duties or any other charges relating to or on any royalty
payable by Licensee to Licensor, except that Licensor shall be responsible for
any tax imposed on Licensor's income by the United States or any state thereof.
H. All royalty payments shall accrue upon the sale of the Licensed
Merchandise regardless of the time of collection by Licensee. For purposes of
this Agreement, Licensed Merchandise shall be considered "sold" upon the date of
invoicing. It is understood that "consignment" sales are not invoiced until the
end of the consignment period.
I. Royalty payments shall be based on U.S. dollar calculations and
paid by Licensee in U.S. dollars. Exchange rates used to convert local currency
sales to U.S. dollars shall be the month and exchange rates of New York banks as
published in the Wall Street Journal.
-------------------
J. If any foreign governmental entity restricts or prohibits, by
exchange controls or otherwise, the payment by Licensee to Licensor of any sums
due to Licensor hereunder, Licensee shall, notwithstanding any such restriction,
pay to Licensor in the United States any and all such sums due Licensor by
licensee hereunder in U.S. dollars, as and when due in accordance with the terms
hereof; provided, however, that if such foreign funds are blocked by a
-------- -------
governmental entity for a significant period of time, Licensor may, on a case by
case basis, if feasible, arrange for Licensee's payment directly to Licensor's
local affiliate of royalties based on Licensee's Net Sales in the foreign
country in that country's local currency.
7. Use of Licensed Mark
--------------------
A. Licensee agrees that it will use and display the Licensed mark
only on such items and in such form and manner as is specifically approved by
Licensor in writing, which approval or disapproval by Licensor shall be given by
Licensor within ten (10) days of Licensor's receipt of Licensee's submission,
failing which Licensor's approval of the items submitted shall be deemed given.
Once an item has been approved by Licensor, Licensee shall have no obligation to
resubmit the same item prior to each subsequent use; provided, that Licensor may
at any time and from time to time during the Term, in its sole discretion,
change
13
<PAGE>
its advertising and promotional theme and content and provide Licensee with
written notice that it shall not after the period covered by its then approved
marketing plan use any such previously approved materials to the extent not
entirely consistent with any such revised theme and content; and provided
further, that Licensee will use its reasonable best efforts to make such changes
more quickly if possible. The Licensed Mark shall be physically affixed and
displayed on each item of Licensed Merchandise manufactured or sold by Licensee
pursuant to this Agreement. Any labels and tags bearing the Licensed Mark placed
on the Licensed Merchandise shall comply in all material respects with all
applicable statutes, rules and regulations promulgated by any governmental
agency, including such designations as may be required or permitted to indicate
the proprietary nature of the Licensed Mark.
B. Licensee will not use the Licensed Mark as a corporate name or as
a trade name, in whole or in part, or in such a way as, in Licensor's sole
judgment, may give the impression that the Licensed Mark is the property of
Licensee. No name or names shall be cojoined or used by Licensee in connection
with the Licensed Mark in or on any advertising, publicity, trade or promotional
material or Packaging utilized by Licensee in connection with the Licensed
Merchandise except and only to the extent that such is specifically required by
law to indicate the source of manufacture or distribution of the Licensed
Merchandise. Licensee shall not use any name which, in Licensor's sole judgment,
may be confusingly similar to the Licensed Mark on Merchandise or otherwise,
during the Term or thereafter.
C. Licensee acknowledges that the Licensed Mark has acquired
valuable goodwill with the public and that any products bearing the Licensed
Mark have acquired a reputation of high quality, prestige and style. Licensee
acknowledges that Licensor has represented to it that Licensor is the owner of
all right, title and interest in and to the Licensed Mark in any and all forms
or embodiments thereof, and is also the owner of the goodwill attached to the
Licensed Mark including that which arises from the sale of Licensed Merchandise
hereunder. All use by Licensee of the Licensed Mark shall be deemed to have been
made by and for the benefit of Licensor for the purposes of securing and
maintaining trademark rights, applications and/or registrations, and all uses of
the Licensed Mark by Licensee, or by any sublicensee or assignee, and any
goodwill arising therefrom, shall inure to the sole and exclusive benefit of
Licensor.
D. Licensee hereby assigns to Licensor any rights to the Licensed
Mark which may, by operation of law or otherwise, vest in Licensee as a
consequence of Licensee's activities under this Agreement, and any goodwill
arising therefrom, which shall in any event inure to the sole and exclusive
benefit of Licensor. Licensee will not, at any time, do or suffer to be done,
any act or thing which will, in any way, impair or adversely affect the
ownership or the rights of Licensor in or to the Licensed Mark or its
reputation, and Licensee will make no applications nor seek any registration or
ownership rights in or to the Licensed Mark in the Territory or elsewhere.
E. Except as the parties may otherwise agree in writing, all right,
title and interest in and to the unique designs incorporating the Licensed Mark
or a logo or pattern which has acquired a secondary meaning associating it with
the Licensed Mark shall be the sole property of Licensor, and any tools, dies or
molds shall be the sole property of Licensee, subject to the restrictions on
their use set forth in Section 4.M, which restrictions shall survive
14
<PAGE>
termination or expiration of this Agreement. Upon the termination or expiration
hereof, Licensor shall have the right to purchase all or any part of the tools,
dies and molds owned by Licensee used to produce unique designs of Licensed
Merchandise incorporating the Licensed Mark or a logo or pattern which has
acquired a secondary meaning associating it with the Licensed Mark, at a price
based upon the cost of such items to Licensee, depreciated on a straight-line
basis over a period of five (5) years. In order to effectuate the vesting of
such proprietary rights, the parties agree to execute appropriate documents,
assigning to the other party whatever rights that party may have in accordance
with the foregoing. However, in no event, during the Term or thereafter, shall
Licensee claim, or acquire, whether by operation of law or otherwise, any right,
title, or interest in or to the Licensed Mark. Licensee shall not manufacture,
advertise, merchandise, promote, sell or distribute any of the Licensed
Merchandise created for Licensor hereunder under any name other than the
Licensed Mark; provided, however, that subject to Section 4.M above, Licensee
-------- -------
may manufacture, advertise, merchandise, promote, sell or distribute under
another brand name any Merchandise sold under the Licensed Mark which does not
bear a unique design incorporating the Licensed Mark or a logo or pattern which
has acquired a secondary meaning associating it with the Licensed Mark, provided
all Packaging incorporating the Licensed Mark are completely removed.
F. Licensee acknowledges that only Licensor may file or prosecute
trademark applications to register the Licensed Mark. Licensee will cooperate
with Licensor in connection with the filing and prosecution by Licensor of any
such applications, and the maintenance or renewal of any trademark registration
for the Licensed Mark, and will supply Licensor with Merchandise bearing the
Licensed Mark, including samples, Packaging and other uses of the Licensed Mark,
as may reasonably be requested by Licensor in connection herewith. Licensee
shall execute all documents, including, but not limited to, registered user
agreements and any cancellations thereof, which Licensor may request in order to
obtain or maintain a registration or to establish or to maintain Licensor's
ownership of the Licensed Mark. Licensor will pay all costs and fees incurred by
it (or by Licensee, if Licensee incurs such expenses at the request of
Licensor), in connection with filing for, obtaining, maintaining or renewing any
trademark registration of the Licensed Mark. The rights and obligations under
this Section 7.F shall survive termination or expiration of this Agreement.
G. Licensee agrees and undertakes to use the Licensed Mark strictly
in compliance with any and all applicable trademark and other laws and to use
such legends, markings or notices in connection therewith as are required by law
or otherwise reasonably required by Licensor to protect its rights. Upon
expiration or termination of this Agreement for any reason whatsoever, Licensee
will execute and file any and all documents reasonably required by Licensor
regarding the Licensed Mark which Licensor shall require. Licensor shall bear
all expenses reasonably incurred in preparing and recording any such documents.
H. Licensee agrees not (i) to challenge the validity of or
Licensor's ownership of the Licensed Mark or any application for registration
thereof, or any trademark registration thereof, in any jurisdiction or (ii) to
contest the fact that Licensee's rights under this Agreement terminate upon
termination or expiration of this Agreement. The provisions of this Section 7.H
shall survive termination or expiration of this Agreement.
15
<PAGE>
I. Licensee shall promptly notify Licensor of any infringement,
imitation or act inconsistent with Licensor's ownership of the Licensed Mark by
third parties, or any act of unfair competition by third parties relating to the
Licensed Mark (collectively, an "Infringement"), wherever and whenever such
Infringement shall come to Licensee's attention. After receipt of such notice
from Licensee if the Infringement has occurred or is occurring in the United
States or Canada, Licensor shall, at its cost and expense, use its best efforts
to stop such Infringement. Licensee shall fully cooperate with Licensor in such
action and, if requested by Licensor, shall join with Licensor as a party in any
such action brought by Licensor. Any recovery as a result of such action shall
belong solely to Licensor. If the Infringement has occurred or is incurring in
any Additional Country included in the Territory other than the United States or
Canada, Licensor shall send correspondence demanding that the Infringement
cease, but may in its sole discretion decide whether to bring a legal action to
stop such Infringement. All such actions shall be at the cost and expense of
Licensor. If Licensor does not take legal or other action to stop such
Infringement in any Additional Country included in the Territory, Licensee may,
at its cost and expense (including all attorney fees and expenses), take such
action; provided, however, that notwithstanding the foregoing, Licensee shall
not, without the consent of Licensor, settle or compromise any claim or consent
to the entry of any judgment which settlement, compromise or judgment would
affect Licensor or the value, reputation or prestige of the Licensed Mark. In
either circumstance, Licensee and Licensor shall fully cooperate with the other,
and shall join with the other as party to any such action, if necessary. Any
recovery as a result of such action shall belong to the party bringing such
action.
J. Licensee shall not at any time use the Licensed Mark or the
Licensed Merchandise, or any material utilizing or reproducing the Licensed Mark
or Licensed Merchandise, in a manner that could derogate the value, reputation
or goodwill associated with the Licensed Mark.
K. To the extent Licensee employs any contract manufacturers in
connection with this Agreement, Licensee shall obtain from each of said contract
manufacturers as a condition to using them for any manufacturing of or with
respect to Licensed Merchandise or Packaging, a binding written agreement signed
by each such contract manufacturer in form and substance as set forth on Exhibit
D, attached hereto. A copy of said written commitment signed by each of said
contract manufacturers shall be delivered to Licensor within thirty (30) days of
the signing of such document by such contract manufacturer. In no event,
however, shall the use of any contract manufacturer(s) absolve or excuse
Licensee from any of its responsibilities to Licensor under this Agreement. If
at any time Licensor provides reasonably satisfactory evidence to Licensee that
any contract manufacturer which Licensee intends to use, has used or is using in
connection with this Agreement has taken or may take any action inconsistent
with Licensor's absolute ownership of the Licensed Mark, Licensee shall
immediately cease using and shall not thereafter use said contract manufacturer
in connection with this Agreement and take commercially reasonable efforts to
secure the return of all tools, dies and molds, if any, in the possession of
such contract manufacturer used or usable in connection with the manufacture of
Licensed Merchandise or Packaging.
8. Books and Records
-----------------
16
<PAGE>
Licensee shall maintain, at its main offices, true and accurate books
and records, in accordance with generally accepted accounting principles,
containing all particulars which may be necessary for the purpose of verifying
compliance with the terms and conditions hereof and for determining Net Sales,
Royalties, Advertising and Promotional expenditures and all amounts payable to
Licensor hereunder, which books and records shall be separate and distinct from
those relating to Licensee's businesses other than the sale of Licensed
Merchandise. Licensee shall be obligated to maintain books and records for any
particular License Year for five years following such License Year or two years
following the termination or expiration of this Agreement, whichever is less.
Licensee shall make such books and records available to Licensor and its
designated representatives during regular business hours and upon reasonable
notice during the period in which Licensee is obligated to maintain such books
and records, for the purpose of auditing Licensee's reports, accounting
statements and royalty payments hereunder. Licensor shall be entitled to make
copies, at its expense, of any such records. Without limitation of Licensor's
rights under Section 12, if Licensor uncovers an error in the royalty due to
Licensor, Licensee agrees to pay immediately all sums due (with interest at the
prime rate plus 3% if such error exceeds the greater of $25,000 or five percent
(5%) of the amount of the royalty shown on any statement prepared by Licensee
hereunder), and if such error exceeds the greater of $25,000 or five percent
(5%) of the amount of the royalty shown on any statement prepared by Licensee
hereunder, Licensee will at the same time reimburse Licensor for its reasonable
costs of conducting such audit.
9. Representations and Warranties of Licensee
------------------------------------------
A. Organization. Licensee is a corporation duly organized and
------------
validly existing under the laws of the State of California.
B. Authority Relative to this Agreement. Licensee has full corporate
------------------------------------
power and authority to execute, perform and deliver this Agreement. The
execution and delivery of this Agreement has been duly and validly authorized by
all necessary corporate action, and no other corporate proceedings on the part
of Licensee are necessary to authorize this Agreement. This Agreement has been
duly and validly executed and delivered by Licensee and constitutes a valid and
binding agreement of Licensee, enforceable in accordance with its terms, except
that (i) such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
C. No Violation. The execution, performance and delivery of this
------------
Agreement by Licensee will not (i) violate any provision of the Articles of
Incorporation and By Laws of Licensee, (ii) violate, or be in conflict with, or
constitute a default or termination event (or an event which, with notice or
lapse of time or both, would constitute a default or a termination event) under,
any agreement or commitment to which Licensee is a party, or (iii) violate any
applicable statute or law or any judgment, decree, order, regulation or rule of
any court or governmental authority binding on Licensee.
D. Consents and Approvals. No consent, approval or authorization of,
----------------------
or declaration, filing or registration with, any governmental or regulatory
authority is required in
17
<PAGE>
connection with the execution, delivery and performance of this Agreement by
Licensee. No consent of any person is necessary for the execution, performance
or delivery of this Agreement by Licensee, including, without limitation,
consents from parties to loans, contracts, leases or other agreements to which
Licensee is a party other than Laura Ashley Manufacturing, B.V., which consent
has been obtained by Licensee prior to its execution of this Agreement.
E. Licensee's Financial and Other Information. Attached as Schedule
------------------------------------------
9E is a true and complete copy of Licensee's audited balance sheet at October
31, 1994, and its audited statement of operations for the year then ended (the
"Financial Statements") which Licensee acknowledges is being relied upon by
Licensor in Licensor's entering into this Agreement. The Financial Statements
present fairly, in accordance with generally accepted accounting principles, the
business, operations, financial condition, assets and liabilities of the
Licensee for the periods covered thereby. Since the date of Financial Statements
there has not been any material adverse change in the business, operations,
financial condition, assets, liabilities or prospects of Licensee. Licensee has
informed Licensor of all material facts and has not omitted to state any
material fact about its business, operations, financial condition, assets,
liabilities and prospects which Licensor might reasonably be expected to require
knowledge of in making its decision to enter into this Agreement.
F. Products Liability and Other Litigation and Claims. Schedule 9F
--------------------------------------------------
set forth a true and complete listing of (i) all warranty and products liability
claims, actions and proceedings relating to the manufacture, distribution or
sale by Licensee of any and all products which are similar to the Merchandise
for the past five calendar years; and (ii) all other claims, actions and
proceedings which are pending or, to Licensee's knowledge, threatened which, if
adversely determined, could have a material adverse effect on Licensee's
business, operations, financial condition or the performance of its obligations
hereunder.
10. Representation and Warranties of Licensor
-----------------------------------------
A. Organization. Licensor is a corporation duly organized and
------------
validly existing under the laws of the State of Delaware.
B. Authority Relative to this Agreement. Licensor has full corporate
------------------------------------
power and authority to execute, perform and deliver this Agreement. The
execution and delivery of this Agreement has been duly and validly authorized by
all necessary corporate action, and no other corporate proceedings on the part
of Licensor are necessary to authorize this Agreement. This Agreement has been
duly and validly executed and delivered by Licensor and constitutes a valid and
binding agreement of Licensor, enforceable in accordance with its terms, except
that (i) such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
C. No Violation. The execution, performance and delivery of this
------------
Agreement by Licensor will not (i) violate any provision of the Certificate of
Incorporation or By Laws of Licensor (ii) violate, or be in conflict with, or
constitute a default or termination event (or an event which, with notice or
lapse of time or both, would constitute a default or a termination
18
<PAGE>
event) under, any agreement or commitment to which Licensor is a party, or (iii)
violate any applicable statute or law or any judgment, decree, order, regulation
or rule of any court or governmental authority binding on Licensor.
D. Consents and Approvals. No consent, approval or authorization of,
----------------------
or declaration, filing or registration with, any governmental or regulatory
authority is required in connection with the execution, delivery and performance
of this Agreement by Licensor. No consent of any person is necessary for the
execution, performance or delivery of this Agreement by Licensor, including,
without limitation, consents from parties to loans, contracts, leases or other
agreements to which Licensor is a party.
E. Ownership of Licensed Mark. Licensor is the sole and exclusive
--------------------------
owner (legal and beneficial) of the Licensed Mark in any and all forms and
embodiments thereof with respect to beauty care products, cosmetic goods and
Merchandise in the Territory and all goodwill attached to the Licensed Mark;
Licensor has the sole and exclusive right to use the Licensed Mark as a
trademark or otherwise in connection with the Exploitation of Merchandise in the
Territory and has not sold, transferred, assigned or granted to any third party
the right to use the Licensed Mark in connection with the Exploitation of
Merchandise anywhere in the world; the use of the Licensed Mark by the Licensee
in the manner contemplated by this Agreement will not subject Licensee or any of
its shareholders, officers, directors, employees and agents (collectively
"Licensee Indemnified Parties") to any liability (including, without limitation,
damages and/or injunctive or other equitable relief) for infringement of
statutory or common law trademark, trade name or similar rights of third
parties; and to the knowledge of Licensor, the Exploitation of the Licensed Mark
by Licensee as contemplated by this Agreement in any Additional Country included
in the Territory pursuant to Section 2G would not subject any Licensee
Indemnified Party to any liability (including damages or injunctive or other
equitable relief) for infringement of statutory or common law trademark, trade
name or similar rights of third parties.
11. Indemnification and Insurance
-----------------------------
A. Licensor hereby agrees to indemnify and hold harmless Licensee,
its Affiliates and each of their respective shareholders, officers, directors,
employees and agents against any and all liability, claims, causes of action,
suits, damages and expenses (including reasonable attorneys' fees), for which
they or any of them may become liable or may incur or be compelled to pay in any
action or claim against them or any of them arising from (a) infringement of
statutory or common law trademark or trade name rights of others through the use
of the Licensed Mark by Licensee as contemplated by this Agreement, or (b) the
breach by Licensor of any of its representations, warranties or agreements in
this Agreement, provided that Licensee: (i) gives Licensor written notice of
each such action or claim promptly following its receipt thereof, (ii) gives
Licensor the opportunity to undertake and to control the defense and settlement
of such claim through counsel of its own choosing, and (iii) fully cooperates
with Licensor in the investigation, defense and settlement of any such claim
provided, however, that if any such settlement would prohibit Licensee from
Exploitation of the License in all or any portion of the Territory, Licensee
shall be reasonably compensated by Licensor for costs and expenditures which
Licensee shall have incurred or become obligated to pay in connection with the
Exploitation of the License in such portion of the Territory. Licensee shall
have the right to
19
<PAGE>
participate in (but not to control) any such defense through counsel of its
choice, but at Licensee's expense. If Licensor fails or refuses to undertake the
defense of any such claim within a reasonable period after notice from Licensee,
Licensee shall be entitled to defend such claim through counsel of its choice,
and all actual costs and expenses (including reasonable attorneys' fees) which
are incurred by Licensee in the investigation, defense and settlement of such
claim, as well as any damages ultimately awarded against Licensee which are
indemnifiable hereunder, shall be the sole obligation of Licensor.
B. Licensee agrees to indemnify and hold harmless Licensor, its
Affiliates and each of their respective shareholders, officers, directors,
employees and agents against any and all liability, claims, causes of action,
suits, damages and expenses for which they or any of them may become liable or
may incur or be compelled to pay in any action or claim against them or any of
them by any Persons other than Licensor for or by reason of (a) the infringement
of design rights, patents, trade secret rights or rights to any intellectual
property of third Persons as a result of the manufacture, warehousing,
marketing, promotion, publicity, advertising, sale or distribution of Licensed
Merchandise by Licensee or any of its agents, representatives, contractors or
sublicensees (other than by reason of use of the Licensed Mark as contemplated
by this Agreement), (b) any acts, whether of omission or commission, that may be
committed or suffered by Licensee or any of its agents, representatives,
contractors or sublicensees in breach of this Agreement, (c) any liability
(including, without limitation, any personal injury or property damage) arising
out of the manufacture, warehousing, marketing, promotion, publicity, sale,
advertising, or distribution of or the use by any professional or consumer of,
Licensed Merchandise, or any violation of any warranty, representation or
agreement made by Licensee or any of its agents, representatives, contractors or
sublicensees with respect to the Licensed Merchandise, or (d) the breach by
Licensee of any of its representations, warranties or covenants in this
Agreement. Licensor shall give Licensee written notice of any such claim
promptly following its receipt thereof. Licensee shall have the opportunity to
undertake and to control the defense and settlement thereof through attorneys
selected by Licensee after notice to and consultation with Licensor and good
faith negotiations regarding alternative counsel if Licensor has reasonable
objections to Licensee's choice of counsel. Notwithstanding the foregoing,
Licensee shall not, without the consent of Licensor, settle or compromise any
claim or consent to the entry of any judgment which settlement, compromise or
judgment would affect Licensor or the value, reputation or prestige of the
Licensed Mark. Licensor will cooperate with Licensee in the investigation,
defense and settlement of any such claim and shall have the right to participate
in (but not to control) any such defense through counsel of its own choice, but
at Licensor's own expense. If Licensee elects not to undertake the defense of
any such claim, it will be responsible for reimbursing Licensor for any expenses
incurred by Licensor, including but not limited to reasonable attorneys',
accountants', and other experts' fees and expenses in the investigation, defense
and settlement of such claim and in enforcing its rights pursuant to this
Section 11.B, in addition to any damages and penalties ultimately awarded
against Licensor.
C. Without limiting the indemnification provided in Section 11.B
above and in addition to it, Licensee agrees to carry and maintain, throughout
the Term (including all renewal terms, if any) and for five years thereafter,
with an insurance carrier authorized to do business in the State of California
and having a rating of A VI or better according to Best's Insurance Reports, a
broad form Comprehensive General Liability Insurance Policy or, if such policy
is not reasonably available, such other policy as would provide substantially
the same
20
<PAGE>
protection to Licensee and Licensor written on occurrence basis covering
Licensee's activities with respect to the Licensed Merchandise which includes
but is not limited to coverage for contractual liability, premises operations,
products liability, personal injury and advertising injury liability and broad
form property damage liability, which shall provide protection to Licensor of at
least One Million Dollars ($1,000,000) per occurrence and in the aggregate.
Licensee shall have Licensor named as an additional insured on such policies.
Licensee shall, within thirty (30) days after the date hereof, provide to
Licensor a certificate of such insurance from the insurance carrier which sets
forth the scope of coverage and the limits of liability stated above without any
provision for deductibles or self-insured retentions, and further provides that
the policies may not be materially changed or cancelled without at least thirty
(30) days' prior written notice to Licensor. Prior to any such cancellation,
Licensee shall provide Licensor with a certificate of insurance evidencing that
a new insurance policy with the same coverage and terms described above will be
in place prior to such termination. Upon reasonable request by Licensor during
the Term, Licensee shall deliver to Licensor evidence in form and substance
reasonably satisfactory to Licensor, of the maintenance and renewal of the
required insurance, including without limitation, renewal certificates and
copies of those portions of policies, riders and endorsements pertaining to this
Agreement. Any insurance policy purchased by or carried by Licensor or any of
its Affiliates shall not be required to contribute in case of any loss by any
Person, including Licensor or Licensee and their Affiliates, relating to the
Licensed Merchandise and either the certificate of insurance to be provided
hereunder or an endorsement to such policy shall state the same.
12. Termination
-----------
Notwithstanding the terms and conditions of Section 3 hereof, this
Agreement may be terminated in accordance with the following provisions:
A. Within fifteen (15) days following the receipt by Licensor of
either of the statements required to be furnished by Licensee pursuant to
Sections 6.C and 6.E hereof with respect to a License Year, Licensor shall have
the right to terminate this Agreement if Net Sales for two (2) consecutive
License Years are less than the Minimum Net Sales required for the respective
Merchandise set forth in Exhibit B for said License Years.
B. Licensor may terminate this Agreement immediately by giving
notice in writing to Licensee in the event Licensee fails to make payment of
royalties and any other amounts due hereunder as and when due, and fails to cure
such default within three (3) working days after delivery of written notice of
such default by Licensor.
C. Except as otherwise expressly provided in Sections 12 A, B, D, or
E, either party may terminate this Agreement immediately by giving notice in
writing to the other party in the event the other party fails to perform its
obligations hereunder (including, without limitation, the obligations to submit
timely its quarterly reports; to obtain prior approvals of inter alia products,
----- ----
advertising and promotions, as required hereby; to distribute only through
approved distribution channels; to maintain adequate insurance and to use only
as expressly permitted hereunder the Licensed Mark) or otherwise breaches any of
its covenants, representations or warranties as set forth in this Agreement and
such party fails to cure such
21
<PAGE>
default to the other's reasonable satisfaction within thirty (30) days after
delivery of written notice of such default from the other party.
D. If either party shall make an assignment for the benefit of
creditors, or shall generally not pay its debts as they become due, or shall
file a petition commencing a voluntary case under the Bankruptcy Reform Act of
1978, 11 U.S.C. Section 101 et seq., as amended or any successor thereto (the
"Bankruptcy Code"), or shall be adjudicated an insolvent, or shall file any
petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief under any
present or future statute, law or regulations, or shall file any answer
admitting or shall fail to deny the material allegations of such petition filed
against it for such relief, or consent to the filing of any such petition or
shall seek or consent to or acquiesce in the appointment of any agent, trustee,
receiver, custodian, liquidator or similar officer for it or of all or any
substantial part of its assets or properties, or its directors or majority
stockholders shall take any action authorizing any of the foregoing or looking
to its dissolution or liquidation, or it shall cease doing business as a going
concern, or an order for relief shall be entered against it under any chapter of
the Bankruptcy Code, or if, within sixty (60) days after the filing of any
petition or the commencement of any proceeding against either party seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under the Bankruptcy Code or any other present or future
statute, law or regulation, such proceeding shall not have been dismissed, or a
decree or order of a court having competent jurisdiction shall have been entered
approving as properly filed any such petition, or if, within sixty (60) days
after the appointment, without the consent or acquiescence of such party, of any
agent, trustee, receiver, custodian, liquidator or similar officer for it or of
all or any substantial part of its properties, such appointment shall not have
been vacated this Agreement shall automatically, without notice or any further
act or deed of any party, terminate and be of no further force or effect, except
that any and all liabilities and obligations of the parties at the time
outstanding under or in connection with this Agreement shall automatically,
without notice or any creditors act or deed of any party, become due and
payable.
E. In the event of a Change of Control of Licensee, Licensor may
terminate this Agreement for a Proper Purpose by written notice (a "Termination
Notice") to Licensee within 20 days of the date Licensor receives a Change of
Control Notice. Such termination shall be effective upon the later to occur of
the Change of Control or the date specified in the Termination Notice; provided
that if such Change of Control Notice shall be given prior to the Change of
Control, this Agreement shall not be terminated if such Change of Control shall
not occur. If Licensor does not exercise its right to terminate this Agreement
within such 20-day period, Licensor shall not have the right to terminate this
Agreement as a result of such Change of Control.
13. Effect of Expiration or Termination
-----------------------------------
A. Except to the extent provided in Section 13.B hereof, upon the
expiration or termination of this Agreement for any reason, neither Licensee nor
its receivers, representatives, agents, successors or assigns shall have any
right to exploit or in any way use the Licensed Mark. Except to the extent
provided in Section 13.B hereof, upon such expiration or termination of this
Agreement, Licensee shall forthwith discontinue all use of the Licensed
22
<PAGE>
Mark and shall not thereafter use the Licensed Mark or any variation or
simulation thereof, or any mark which in Licensor's sole judgment is or may be
confusingly similar thereto, and Licensee hereby irrevocably releases and
disclaims any right or interest in or to the Licensed Mark. Within thirty (30)
days of the expiration or termination of this Agreement, Licensee shall provide
Licensor with an accurate schedule of all work in process and finished inventory
(hereinafter the "Inventory") of Licensed Merchandise which is on hand as of the
close of business on the date of such expiration or termination.
B. If, upon the expiration or termination of this Agreement (other
than pursuant to Section 12 B or by Licensor pursuant to Section 12 C hereof),
Licensee shall have on hand any Inventory of the Licensed Merchandise, Licensee
may continue to use the Licensed Mark solely in connection with the Exploitation
of the Inventory of Licensed Merchandise for a period of up to six (6) months
following the expiration or termination of this Agreement. During such six (6)
month period, Licensee shall be obligated to continue to pay Licensor the Earned
Royalty provided for in Section 6.A (but there shall be no Minimum Royalty). If
Licensee elects to continue to use the Licensed Mark as provided under this
paragraph, it shall notify Licensor of its election at least thirty (30) days
prior to the expiration or termination of this Agreement. Such notice shall
include a complete and accurate schedule of Inventory of Licensed Merchandise
which is projected to be on hand as of the close of business on the date of such
expiration or termination and shall reflect Licensee's actual cost of each such
item to be calculated in accordance with generally accepted accounting
principles ("Licensee's Standard Cost").
C. Notwithstanding the foregoing, or Licensee's desire to use the
Licensed Mark as provided in Section 13.B above, Licensor shall have the
overriding option, exercisable by written notice to Licensee within thirty (30)
days after its receipt from Licensee of the complete Inventory schedule as
provided in Section 13.A or 13.B, to purchase any or all of the Inventory,
subject to outstanding non-cancelable purchase orders, for an amount equal to
Licensee's Standard Cost of the Inventory and freight, taxes, duties and
insurance, which sum may be offset against amounts then owing to Licensor
hereunder. In the event that Licensor notifies Licensee of its desire to
purchase the Inventory on hand, such notice shall apply only to the Inventory
remaining in Licensee's possession or control on the date said notice is
received by Licensee. Licensee shall deliver the Inventory as directed by
Licensor, and Licensor shall purchase only such Inventory received in marketable
condition (and shall return all Inventory not accepted).
D. Upon the expiration or termination of this Agreement or, if
applicable, upon the expiration of the period provided for in Section 13.B
hereof, Licensee shall, at its own expense, either destroy or remove the
Licensed Mark from all Inventory, Packaging, advertising and promotional
materials bearing the Licensed Mark or prepared for use in connection with the
Licensed Merchandise.
E. In order to enable Licensor to maintain continuity of sale of
Merchandise within the Territory, during and after the expiration of any period
provided in Section 13.B, Licensor may manufacture, advertise, promote, sell and
distribute Merchandise directly or through others, and grant licenses to third
parties with respect to the Merchandise and the Licensed Mark.
23
<PAGE>
14. [Intentionally omitted]
15. Confidentiality
---------------
A. In connection with the performance of this Agreement, Licensor
and Licensee will have access to certain confidential and proprietary
information of the other party, including, but not limited to, business and
marketing plans, proposed advertising, designs, sales records, financial data
and manufacturer's know-how, and also including the business terms of this
Agreement. Recognizing that such information represents valuable assets and
property of the disclosing party, and the harm that may befall such party if any
of such information is disclosed, the recipient agrees to hold all such
information in strict confidence and not to use or otherwise disclose any such
information to third parties without having received the prior written consent
of the disclosing party and a written agreement from such third party to
maintain such information in strict confidence. The obligation of
confidentiality created herein shall survive the expiration or termination of
this Agreement.
B. The obligations of confidentiality created herein shall cease to
apply:
(i) to information which comes into the public domain, provided it
did not come into the public domain through the unauthorized
acts of the receiving party;
(ii) to information which was in the receiving party's possession
prior to its disclosure, or was later disclosed to the receiving
party by a third party who is lawfully in possession of such
and, to the receiving party's knowledge, was under no obligation
to keep such information confidential;
(iii) to information which, in the opinion of the receiving party's
counsel, is required to be disclosed by law,but only to the
extent so required and only upon prior written notice to the
other party hereto; and
(iv) to information of Licensee which Licensor may be required to
disclose in order to enforce its rights under this Agreement.
C. Licensee shall have no right of access to any information
proprietary to Licensor including any formula, pattern, compilation, program,
device, method, technique, or process (collectively, "Trade Secrets") and waives
any and all rights to access to such Trade Secrets in the course of litigation
or otherwise, except for the Trade Secrets related to the Licensed Merchandise
and/or the rights of Licensee under this Agreement.
16. Bankruptcy
----------
A. Notwithstanding the provisions of Section 12.D, in the event
that it is determined by any court or bankruptcy trustee that this Agreement may
be assumed or assigned in connection with a case commenced by or against either
party under the Bankruptcy Code, Licensor and Licensee hereby acknowledge that
adequate assurance of future performance under
24
<PAGE>
this Agreement (within the meaning of the Bankruptcy Code) shall include, inter
alia, adequate assurance:
(i) that any and all royalty payments and other consideration
due from Licensee to Licensor under or pursuant to this
Agreement shall be duly and timely paid and shall not
decline from the levels specified in this Agreement;
(ii) that the assumption or assignment of this Agreement will not
result in the breach by either party of any provision in any
other license, contract, or agreement relating to the
Licensed Mark or otherwise;
(iii) that any person or entity that assumes this Agreement or
to which this Agreement is assigned shall fully and
faithfully assume, observe and comply with all of the
covenants, requirements and restrictions provided for under
this Agreement and that termination rights for breach of
this Agreement shall continue to apply without change; and
(iv) that the value of the Licensed Mark to Licensor shall not be
materially diminished by reason of the assumption or
assignment of this Agreement.
B. Any person or entity to which this Agreement is assigned pursuant
to the provisions of the Bankruptcy Code shall be deemed without further act or
deed to have assumed all of the obligations arising under this Agreement on and
after the date of such assignment. Any such assignees shall upon demand execute
and deliver to Licensor or Licensee, as the case may be, an instrument
confirming such assumption.
17. Miscellaneous
-------------
A. Each of the parties hereby represents and warrants to the other
that it has not employed or dealt with any broker or finder in connection with
this Agreement or the transactions contemplated hereby.
B. All notice required or permitted by this Agreement to be given to
a party shall be in writing and shall be deemed to be duly given if hand
delivered or sent by overnight courier or mailed by certified or registered
mail, return receipt requested, provided a copy is sent by telefax with
confirmation of receipt at sender's telefax as follows:
If to Licensor:
625 Madison Avenue
New York, New York 10022
Attention: President - Licensing Division
Telefax No.: (212) 527-5544
25
<PAGE>
With a Copy to:
625 Madison Avenue
New York, New York 10022
Attention: Senior Vice President and General Counsel
Telefax No.: (212) 527-5693
If to Licensee:
498 North Oak Street
Inglewood, CA 90301
Attention: Chief Financial Officer and President
Telefax No.: (310) 417-8810
Either party may change the address to which such notice and
communications shall be sent by written notice to the other party, provided that
any notice of change of address shall be effective only upon receipt.
C. This Agreement (including Schedules and Exhibits) sets forth the
entire agreement and understanding between the parties hereto relating in any
way to the use of the Licensed Mark on the Licensed Merchandise, and to any
other subject matter contained herein and merges all prior discussions between
them. Neither party shall be bound by any definition, condition, warranty or
representation other than as expressly stated in this Agreement, and this
Agreement may not be amended or modified except by a written instrument signed
by the party against whom such modification or amendment is to be enforced.
D. In any review or consultation conducted by or on behalf of
Licensor hereunder, Licensor is acting in an advisory capacity only, and shall
have no responsibility for the operation of Licensee's business or its
manufacturing, distribution, sales or facilities used in connection therewith,
whether upon the recommendation of Licensor or otherwise.
E. All time limits stated in this Agreement are of the essence to
this Agreement.
F. Nothing herein contained shall be construed to constitute the
parties hereto as partners or as joint venturers, or either as an employee or
agent of the other.
G. This Agreement shall be deemed to be a contract made under the
laws of the State of New York and shall be governed by and construed in
accordance with the laws of such State, without regard to that State's rules on
conflicts of law.
H. The headings in this Agreement are for the convenience of the
parties only and shall not affect the meaning or interpretation of this
Agreement or any provisions thereof.
I. No waiver by either party, whether expressed or implied, of any
provision of this Agreement, or of any breach or default, shall constitute a
continuing waiver of such provision or a waiver of any other provision of this
Agreement. Acceptance of payments by Licensor shall not be deemed a waiver of
any violation of, or default in, any of the provisions of this Agreement by
Licensee.
26
<PAGE>
J. Except as otherwise provided herein, this Agreement shall be
binding upon and inure to the benefit of the parties, theft successors and
permitted assigns.
IN WITNESS WHEREOF, Licensee and Revlon Consumer Products Corporation
for itself and/or on behalf of its designated affiliate have duly executed this
Agreement as of the date and year first above written.
REVLON CONSUMER PRODUCTS CORPORATION
By: /s/ Lynn Krominga
--------------------------------
Name: Lynn Krominga
-------------------------------
Title: President - Licensing Division
-------------------------------
SIGNATURE EYEWEAR, INC.
By: /s/ Julie Heldman
---------------------------------
Name: Julie Heldman
--------------------------------
Title: President
-------------------------------
27
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
A..................................... Licensed Merchandise
B..................................... Royalty Rates
Minimum Royalties and
Minimum Net Sales
C..................................... Licensee's CFO
Representation Letter
D..................................... Licensee's Contract
Manufacturer's Agreement
</TABLE>
28
<PAGE>
EXHIBIT A
MERCHANDISE
-----------
Eyeglass frames (including frames for sunglasses) and related accessories.
29
<PAGE>
EXHIBIT B
ROYALTY RATES
-------------
First License Year: CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION% of Net Sales up to $CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION% of Net Sales from $CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION to
$CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION% of Net Sales greater than
$CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
Second License Year: CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION% of Net Sales up to $CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION% of Net Sales greater than
$CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
30
<PAGE>
Each License Year thereafter: CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION% of Net Sales
MINIMUM ROYALTIES
-----------------
Each License Year: Minimum Net Sales for the subject License Year
multiplied by the appropriate royalty rate set
forth above for the Minimum Net Sales amount.
MINIMUM NET SALES
-----------------
First License Year: CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
Second License Year: $CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
Third License Year: $CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
Each License Year thereafter: CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION% of prior License Year's actual Net
Sales or prior License Year's Minimum Net Sales
plus CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION%, whichever is greater; provided,
however, that in no event shall Minimum Net Sales
for the subject License Year exceed $CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
31
<PAGE>
EXHIBIT C
CFO REPRESENTATION LETTER
-------------------------
I, __________________, Chief Financial Officer of Signature Eyewear, Inc.
("Licensee"), hereby certify to the truth and accuracy of the following
representations:
After a review of the quarterly Royalty Reports furnished by Licensee to
Revlon Consumer Products Corporation for the year ended _____________,
________________, as well as Licensee's related books of account and other
records, I believe (i) that such quarterly Royalty Reports have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with Licensee's audited financial statements, except to the extent
deviations from generally accepted accounting principles are required pursuant
to the Agreement (ii) that such Royalty Reports are accurate and (iii) that such
Royalty Reports are in accordance with the License Agreement.
________________________________
Chief Financial Officer
Signature Eyewear, Inc.
Date: __________________________
32
<PAGE>
EXHIBIT D
CONTRACT MANUFACTURER AGREEMENT
-------------------------------
____________, 1995
[Manufacturer]
- -------------------
- -------------------
- -------------------
Dear _______________:
As we have discussed with you, ____________________ ("Licensee") has entered
into a license agreement (the "License Agreement") with Revlon Consumer Products
Corporation ("Revlon") granting to Licensee the right to use the "Jean Nate"
label, trademark and logo ("Licensed Mark") in conjunction with the following
merchandise (the "Merchandise") for resale to retailers designated by Revlon:
____________________________. We anticipate that your services will be used by
Licensee in manufacturing Merchandise and/or related packaging under this
program. In consideration of Revlon's approval of the manufacture by you of any
Merchandise or related packaging to be sold or promoted by Licensee under the
Licensed Mark (hereafter referred to as the "Licensed Merchandise") pursuant to
an agreement between you and Licensee (the "Manufacturing Agreement"), it is
essential that you understand and agree to the following:
1. You acknowledge that Revlon has advised us that it is the absolute owner of
all right, title and interest in and to the Licensed Mark.
2. You now and forever disclaim any and all right or claim in or to the
Licensed Mark.
3. You agree to perform your obligations in a manner consistent with
Licensee's responsibilities under the License Agreement, to respect,
preserve and protect the Licensed Mark and Revlon's absolute ownership of
the Licensed Mark.
4. You agree that your right to manufacture Licensed Merchandise is in all
respects subject to the terms and conditions in the License Agreement,
including, but not limited to, the termination provisions and restrictions
on the use of the Licensed Mark. You shall sell Licensed Merchandise only
to Licensee. You agree that your manufacture of Licensed Merchandise shall
give you no right to use the Licensed Mark or to use or sell Licensed
Merchandise that bears the Licensed Mark or was created especially for use
in connection with the Licensed Mark beyond the earlier of the expiration
or termination of the License Agreement or the expiration or termination of
the Manufacturing Agreement. You agree not to use any information or
knowhow that you may obtain in connection with your manufacture of Licensed
Merchandise in the manufacture of products except pursuant to the
Manufacturing Agreement. If Licensee's right to use the Licensed Mark
expires or terminates, you agree to make no claim against Revlon for any
reason.
33
<PAGE>
5. You further agree and acknowledge that any use by you or your agents,
employees or subcontractors inconsistent with the terms of this agreement
or the License Agreement will subject you to all remedies at law or equity
available to Revlon and/or Licensee including, but not limited to,
injunctive relief, damages, costs and attorneys' fees.
6. You further agree that the provisions of this agreement shall take
precedence over and supersede any other agreements between us which may
conflict with the terms stated herein.
7. This agreement shall be governed by and construed in accordance with the
laws of the State of New York, without reference to conflicts of laws
principles.
Please acknowledge your acceptance of the above terms by signing below and
returning one fully executed original to my attention.
Sincerely,
[Licensee]
By: _____________________________
Acknowledged and Agreed: Title:____________________________
[Manufacturer]
By:______________________________
Title:___________________________
Date:____________________________
Approved:
Revlon Consumer Products Corporation
By:______________________________
Title:___________________________
Date:____________________________
34
<PAGE>
LIST OF SCHEDULES
1A.............................. Licensed Mark
9E.............................. Licensed Audited Financial Statements
9F.............................. Litigation and Claims against Licensee
relating to Merchandise or otherwise affecting
License
35
<PAGE>
SCHEDULE 1A
Licensed Mark
36
<PAGE>
SCHEDULE 9E
[TO BE PROVIDED]
37
<PAGE>
SCHEDULE 9F
None.
38
<PAGE>
FIRST AMENDMENT TO LICENSE AGREEMENT
This FIRST AMENDMENT dated as of May 29, 1997 amends the License Agreement dated
as of June 2, 1995 by and between REVLON CONSUMER PRODUCTS CORPORATION and/or
its designated affiliate ("Licensor") and SIGNATURE EYEWEAR, INC. ("Licensee")
(the "Agreement"). Unless otherwise stated herein, all capitalized terms
utilized herein shall be as defined in the Agreement.
WHEREAS, REVLON (SUISSE) S.A. ("Revlon Suisse), an affiliate of REVLON CONSUMER
PRODUCTS CORPORATION ("Revlon"), is the record owner of the Licensed Mark in
Canada and other countries of the world which may become part of the Territory
during the Term pursuant to Section 2.G of the Agreement, and hereinafter shall
also be named as the Licensor with respect to the grant of rights under the
Agreement to Licensee; and
WHEREAS, the parties hereto desire to extend the Initial Term for an additional
year in accordance with the terms and conditions herein;
NOW THEREFORE, in consideration of the premises and the mutual covenants set
forth herein, Licensor and Licensee agree as follows:
1. Section 3.A. of the Agreement shall be amended to read as follows: "This
Agreement shall become effective as of the date first above written, and
shall terminate on September 30, 1998, unless terminated prior thereto in
accordance with the terms and conditions of the Agreement."
The year ending September 30, 1998 shall be referred to as the "Third License
Year".
2. Exhibit B to the Agreement shall be amended by the modification of the
Royalty Rates and Minimum Net Sales for such License Years as follows:
"Amended Exhibit B
-----------------
Royalty Rates
-------------
Third License Year: CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION% of Net Sales
up to U.S. $CONFIDENTIAL
INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION
Each License Year CONFIDENTIAL INFORMATION
thereafter (if any): OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION% of Net Sales
<PAGE>
Minimum Net Sales
-----------------
Third License Year: $CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION
Fourth License Year $CONFIDENTIAL INFORMATION OMITTED
(if any): AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION
Each License Year CONFIDENTIAL INFORMATION OMITTED
thereafter (if any): AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE
COMMISSION% of prior License Year's actual
Net Sales or prior License Year's Minimum Net
Sales plus CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE
COMMISSION percent (CONFIDENTIAL
INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION%), whichever is
greater; provided, however, that in no event shall
Minimum Net Sales for the subject License Year
exceed $CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE
COMMISSION.
3. The parties agree the Licensee's Net Sales of Licensed Merchandise to Cole
National Corporation and Pearle Vision, Inc. during the Third License Year
shall not be credited against Licensee's Minimum Net Sales obligation.
4. For the purposes of Sections 2.A, 11.A(b), 15 and 16 of the Agreement, the
term "Licensor" shall mean Revlon and Revlon Suisse. Revlon and Revlon
Suisse jointly and severally represent and warrant that Revlon Suisse is
the record owner of the Licensed Mark in any and all forms and embodiments
thereof with respect to beauty care products, cosmetic goods and
Merchandise in Canada and Australia (collectively, the "Other
Territories"), and all goodwill attached to the Licensed Mark in the Other
Territories. Revlon Suisse has the sole and exclusive right to use the
Licensed Mark as a trademark or otherwise in connection with the
Exploitation of Merchandise in the Other Territories and has not sold,
transferred, assigned or granted to any third party the right to use the
Licensed Mark in connection with the Exploitation of Merchandise anywhere
in the world; and the Exploitation of the Licensed Mark by Licensee as
contemplated by this Agreement in any Other Territory would not subject any
Licensee Indemnified Party to
2
<PAGE>
any liability (including damages or injunctive or equitable relief) for
infringement of statutory or common law trademark, tradename or similar
rights of third parties.
5. Except as otherwise set forth herein, all terms and conditions of the
Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of
the date first written above.
REVLON CONSUMER PRODUCTS REVLON (SUISSE) S.A.
CORPORATION
By: /s/ Lynn Krominga By: /s/
------------------------------ --------------------------------
Lynn Krominga
President/Licensing Division Title: Authorized Representative
-----------------------------
SIGNATURE EYEWEAR, INC.
By: /s/ Michael Prince
------------------------------
Title: Chief Financial Officer
---------------------------
3
<PAGE>
Exhibit 10.15
LICENSE AGREEMENT
Dated June 24, 1997
Between
Eddie Bauer, Inc.
("Licensor")
and
Signature Eyewear, Inc.
("Licensee")
Certain portions of this agreement have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for an order
granting confidential treatment pursuant to Rule 406 of the General Rules and
Regulations under the Securities Act of 1933.
<PAGE>
EXHIBIT 10.15
LICENSE AGREEMENT
THIS AGREEMENT is effective as of the 24th day of June, 1997, by and
between Eddie Bauer, Inc, a Delaware corporation, with a principal place of
business at 15010 N.E. 36th Street, Redmond, Washington 98052, U.S.A.
("Licensor") and Signature Eyewear, Inc., a California corporation, with a
principal place of business at 498 N. Oak Street, Inglewood, California 90302
("Licensee").
In consideration of the mutual covenants herein contained, the parties
agree as follows:
1. Definitions.
For purposes of this Agreement, the following capitalized terms shall have
the meanings set forth below:
"Claim" shall mean any claim, demand, action, suit or proceeding.
"Contract Quarter" shall mean a three-month period ending on the last day
of the third, sixth, ninth and twelfth full calendar months of a Contract Year.
"Contract Year" shall mean a period from January 1 to December 31. The
first Contract Year is 1998.
"Exploit" shall mean manufacture, advertise, market, merchandise, promote,
publicize, sell, use, market or distribute, and "Exploitation" shall have a
correlative meaning.
"License" shall mean the exclusive right to use the Licensed Mark in the
Exploitation of Products throughout the world during the Term.
"Licensed Mark" shall mean "Eddie Bauer". The Licensed Mark may be used
only in the form set forth in Exhibit "B" to this Agreement, and such other form
as may be approved from time to time by Licensor.
"Licensed Products" shall mean Products containing the Licensed Mark.
"Minimum Net Sales" in any Contract Year shall mean the amount specified as
the Minimum Net Sales as set forth in Exhibit "C" to this Agreement.
"Minimum Royalty" shall mean the guaranteed minimum annual royalty payable
by Licensee to Licensor each Contract Year as set forth in Exhibit "C" to this
Agreement.
"Net Sales" during any period shall mean (a) the sum of the sales prices of
all Licensed Products (net of invoiced discounts) invoiced to customers during
such period, less (b) the sum of the sales prices previously included in Net
Sales for Licensed Products returned by customers
<PAGE>
during such period less (c) the sum of all accounts which have become
Uncollectible Accounts during the period (or a prior period, if no deduction for
such accounts was taken during such prior period), plus (d) the sum of all
amounts received by Licensee from customers during such period which were
previously deducted from Net Sales as Uncollectible Accounts pursuant to
subparagraph (c) above. It is understood that: (i) Licensee may from time to
time deliver Licensed Products on consignment, and that such Licensed Products
are not invoiced to customers until the end of the consignment period (assuming
such Products are purchased by the customers); (ii) Net Sales do not include
revenues from sales or distributions of point of purchase displays; (iii) Net
Sales do not include amounts invoiced for sales, use, excise or other taxes, or
freight, insurance or co-op advertising allowances; and (iv) Net Sales do not
include revenue generated by the sale of cases, chains and cords to the customer
which are not sold by the customer for retail sale. Net Sales do include revenue
generated by the sale of cases, chains and cords to the customer which are sold
by the customer at retail.
"Person" shall mean any individual, corporation, association, partnership,
or limited liability company, trust or other entity.
"Products" shall have the meaning set forth in Exhibit "A".
"Shareholders" shall mean Bernard Weiss, Julie Heldman, Robert Fried,
Robert Zeicheck, Michael Prince, Daniel Warren and Edward Weiner, who are all of
the shareholders of Licensee as of the date of this Agreement.
"Sunwear" shall mean ready-to-wear sunglasses, sunglass cases, chains and
cords.
"Term" shall mean the duration of the License, as determined pursuant to
Section 3 hereof.
"Territory" shall mean the countries and jurisdictions identified in
Exhibit "E" to this Agreement and such other countries or jurisdictions as
Licensor and Licensee may from time to time agree (which agreement shall be
evidenced by an amended Exhibit "E").
"Transfer" shall mean to sell, assign and/or transfer.
"Uncollectible Account" shall mean an account in an amount in excess of
$CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION and which either: (a) one or more unpaid invoices have been
outstanding for more than one year or (b) the customer is excused from paying
its debt to Licensee by the entry of an order in a bankruptcy case filed by or
against such customer.
2
<PAGE>
2. Grant of License.
2.1 Licensor hereby grants the License to Licensee, and Licensee hereby
accepts the License. Licensee acknowledges and agrees that it may Exploit the
Licensed Mark only in the Territory.
2.2 Licensee shall not have the right to sub-license, share, convey,
transfer, assign or encumber the License to any Person without the written
consent of Licensor.
2.3 Licensee acknowledges and agrees that the License is applicable only
to Products. Licensor reserves the right to Exploit and to grant to other
Persons the right to Exploit the Licensed Mark on any products other than
Products. Nothing in this Agreement shall preclude Licensor from using the
Licensed Mark in connection with the sale by Licensor of any type of Sunwear.
3. Term.
3.1 The License shall be in effect from the date first written above to
December 31, 2002, or such later date as may be determined in accordance with
Section 3.2, if not sooner terminated pursuant to the terms of this License.
3.2 If not earlier terminated, Licensee may renew this License for two
consecutive three-year terms upon written notice of intent to renew no sooner
than 150 days and no later than 90 days prior to the expiration of the Term, or
any extension thereof. Provided, however, that at Licensor's option, the License
-------- -------
shall not be renewed if: (i) Licensee is in material breach of this Agreement:
and (ii) within 30 days of receipt of such renewal notice, Licensor notifies
Licensee in writing that it elects not to permit renewal of the License as a
result of such material breach (which notice specifies in reasonable detail the
nature of such breach); and (iii) Licensee fails to cure and correct such breach
within 30 days of receipt of such notice. Any such renewal shall be on the same
terms as this License, however, during any renewal period Licensee shall pay a
royalty of CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION% of all net sales made directly to customers
and CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION% of all Net Sales made to distributors, and shall be
subject to Paragraph 3.7 below.
3.3 This Agreement may be terminated by the non-breaching party due to a
material breach of any of the terms or provisions of this Agreement, provided
written notice of such material breach is given to the breaching party and the
breaching party fails to cure such breach within thirty (30) days of receipt of
such notice.
3.4 Termination of this Agreement shall not relieve any of the parties of
its then outstanding and unfulfilled obligations or liabilities under this
Agreement, including without limiting the generality of the foregoing, any
obligation related to the payment of royalties to
3
<PAGE>
Licensor. On the effective date of the termination of this Agreement, all rights
of the Licensee under this Agreement shall terminate and Licensee shall cease to
use the trademarks, trade names and symbols of the Licensor, except that for a
period of twelve (12) months from the effective date of termination Licensee may
continue to sell stock on hand or which has been ordered prior to termination.
3.5 Upon the effective date of termination of this Agreement, Licensee
shall assign to Licensor any and all right in the Licensed Marks which were used
in connection with the sale of the Products or which may have accrued by
Agreement, operation or otherwise and shall not thereafter use the Licensed
Marks, "Eddie" and/or "Bauer" or a confusingly similar word or mark as a
trademark or otherwise. On termination of this Agreement for whatever reasons,
Licensee shall consent, and agrees to execute such documents to evidence such
consent, to the cancellation of any registration of Licensee as a registered
user or licensee of any trademarks incorporating "Eddie" and/or "Bauer".
3.6 Licensor may terminate the License by written notice to Licensee
within 30 days of a Change of Control, unless Licensor shall have approved the
Change of Control. Licensor shall be deemed to have approved a Change of Control
if Licensor shall have received a written notice of a proposed Change of
Control, and shall have approved such proposed Change of Control in writing or
shall have failed to deliver notice of disapproval within 20 days of receipt of
such written notice of the proposed Change of Control. A "Change of Control"
with respect to Licensee shall be deemed to occur if any Person (other than an
underwriter in a public offering or a parent corporation of Licensee formed
after the date hereof) acquires at least 30% of the outstanding voting
securities of Licensee (or, if applicable, the parent corporation of Licensee)
and is the largest shareholder of Licensee (or, if applicable, the parent
corporation of Licensee). For this purpose, the Shareholders (and any family
trust, under which a Shareholder, or a member of a Shareholder's immediate
family, is a beneficiary, to which a Shareholder's shares have been transferred)
shall be deemed to be one shareholder.
3.7 Any failure by Licensee to generate the Minimum Net Sales for the
Contract Year ending December 31, 2000, or any Contract Year thereafter, shall
not constitute a material breach under Paragraph 3.2 of this Agreement. However,
Licensor shall have the right to renegotiate the Minimum Net Sales and the
Minimum Royalty (a) for the first three-year renewal term, if Net Sales for the
-------------------------------------
Contract Year ending December 31, 2000, and Net Sales for either of the two
subsequent Contract Years, are less than the Minimum Net Sales, or (b) for the
-------
second three-year term, if Net Sales for any two Contract Years of the first
- ----------------------
three-year renewal term shall be less than the Minimum Net Sales. Licensor may
exercise its right to renegotiate upon written notice to Licensee delivered not
more than 30 days after receiving Licensee's renewal notice under Section 4.2.
In the event the parties do not agree upon renegotiated terms by the end of the
then current Term after having exercised good faith, Licensor may refuse to
renew the Term or terminate the License.
4
<PAGE>
4. Royalty Payment
4.1 Within 30 days following the end of each Contract Quarter (starting
with the Contract Quarter in which this License is executed) during each
Contract Year, Licensee shall pay to Licensor in United States dollars as a
royalty an amount equal to the greater of: (a) the Minimum Royalty or (b) an
amount equal to the actual royalty as determined by the formula set forth in
Exhibit C, less any Minimum Royalty accrued and paid for the Contract Year. For
purposes of this Agreement, the Minimum Royalty for any Contract Year shall be
deemed to accrue in four equal quarterly installments as of the last day of each
Contract Quarter for such Year. Such payments shall deduct any amount required
by the U.S. Internal Revenue Code.
4.2 Account statements of Net Sales shall be presented to Licensor within
30 days following the last day of each Contract Quarter, commencing the Contract
Quarter in which Licensee first has Net Sales. The royalty payment in the case
of sales in foreign currency will be determined in such currency and paid at the
exchange rate current on the date the invoice is paid. Any payment not made when
due shall bear interest from the date that such payment was payable until paid
at a rate equal to the lesser of (i) corporate base rate announced by Harris
Bank in Chicago, Illinois plus two percent (2%) per annum, or (ii) the maximum
amount permitted by law.
4.3 Licensee shall keep separate records pertaining to each frame style of
the Licensed Products sold by Licensee. Account statements for each Contract
Year shall be reviewed by Licensee's certified public accountant and such
accountant shall deliver a statement in the form of Exhibit F on or before March
31 of the year succeeding the Contract Year for which the statement is given.
Any costs thereof are to be borne by Licensee. Licensor has the right, upon
reasonable notice, to audit the books and records of Licensee in connection with
Licensee's sale of the Licensed Products at least once per Contract Year but no
more than once in a six month period. Licensee shall make such books and records
available to Licensor upon such reasonable notice. The cost of such audit shall
be borne by Licensor.
4.4 Where tax at source, such as withholding tax, is payable by Licensee
under the taxation laws of any country within the Territory, a sum equivalent to
such tax payable shall be paid to Licensor at the same time as the royalty
payments hereunder, unless Licensor receives documentation sufficient for
Licensor to recover any taxes deducted. A sum equal to any withholding tax which
has been paid by Licensee to Licensor which is subsequently recovered by
Licensor will be paid by Licensor to Licensee after such tax has been recovered.
Insofar as it is possible under the relevant double tax conventions or
treaties for Licensor to obtain an exemption from the withholding of tax at
source, Licensor shall be entitled to apply to the appropriate taxation
authority in the country concerned for the relevant certificate of exemption.
Licensee shall use its best efforts to assist Licensor in applying for such
exemption.
5
<PAGE>
If royalty payments hereunder are subject to turnover or sales taxes
(for example, value added tax) in a country within the Territory or in the
country of residence of Licensor and Licensor is liable for paying such tax, a
sum equal to the tax shall be paid to Licensor by Licensee at the same time as
the royalty payment in order to compensate for such taxes. If such laws relating
to these taxes provide that payments in respect of same shall not be paid
directly to Licensor, then such sum equal to the tax shall be paid to the
competent taxation authority by Licensee on behalf of Licensor.
4.5 It is understood that under no circumstances shall Licensee be
responsible for, or be obligated to reimburse Licensor for, federal, state or
local income taxes, in any taxing jurisdiction, payable by Licensor with respect
to royalties.
5. Licensor's Warranties and Representations.
5.1 Licensor is the sole and exclusive owner (legal and beneficial) of the
Licensed Mark in any and all forms and embodiments thereof with respect to
Products anywhere in the world and to the goodwill attached the Licensed Mark.
Licensor has the sole and exclusive right to use the Licensed Mark as a
trademark or otherwise in connection with the Exploitation of Products anywhere
in the World. Licensor has not Transferred to any Person the right to use the
Licensed Mark in connection with the Exploitation by third parties of Products
anywhere in the world. Upon Licensee's request, Licensor shall furnish
registrations of or documents evidencing the rights of the Licensor in the
Licensed Mark at Licensee's cost and expense.
5.2 Licensor warrants that Licensee's use of the Licensed Mark in the
Exploitation of Licensed Products will not infringe any copyright, trademark,
trade name, trade secret, know-how or license right of any Person. Licensor
agrees to indemnify, reimburse and hold Licensee harmless from and against (i)
Claims of any Person alleging infringement of any intellectual property right,
unfair competition or unauthorized use, relating to the use of the Licensed
Mark, and (ii) any damages, losses, judgements, settlements, liabilities, costs
or expenses, including reasonable attorney fees, paid or incurred by Licensee in
connection with such Claims. This indemnity shall survive the term of this
Agreement.
6. Licensee's Warranties and Representations.
6.1 Licensee warrants that it will not enter into any license agreement or
other arrangement similar to this Agreement for Products during the Term with
any of the following competitors of Licensor: Lands End, R.E.I., J. Crew, LL
Bean, Patagonia, The Gap, Abercrombie & Fitch, or any other entity which
Licensor reasonably designates by written notice to Licensee, at any time during
the Term, to be a competitor of Licensor with a business similar to the current
business of Licensor and/or the foregoing entities.
6.2 Licensee warrants that it will budget and spend for advertising,
merchandising and marketing (including point of purchase displays and sales
incentives) of the Licensed Products in U.S. dollars at least $CONFIDENTIAL
INFORMATION OMITTED AND FILED
6
<PAGE>
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION prior to the end of the
first Contract Year and $CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION during the second Contract Year.
Licensee's advertising and marketing budget for each additional Contract Year
will be as the parties shall agree but not less than $CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
7. Confidentiality.
7.1 In connection with this Agreement, each party will be provided, and
will have access to, certain Confidential Information of the other party. Each
party acknowledges and understands that the other party's Confidential
Information is a valuable asset and property of such other party, and that such
other party could suffer irreparable harm from the disclosure of all or any of
such Confidential Information to other Persons. Accordingly, each party agrees,
on behalf of itself and its directors, officers, employees, agents and advisors
(collectively, "Representatives"), except as required by law, (i) to hold all of
such other party's Confidential Information in strict confidence and to treat
such other party's Confidential Information with at least the same degree of
protection afforded its own confidential information, (ii) not to disclose any
of such Information to third parties without the specific prior written consent
of such other party, and (iii) not to use any such Confidential Information
except for purposes absolutely necessary to the performance of its obligations
and the protection of its rights under this Agreement. Each party shall be
responsible for, and shall indemnify and hold the other party harmless from, any
losses, costs, expenses and damages incurred or suffered by such other party
arising or resulting from the breach of these covenants by such party or any of
its Representatives.
7.2 "Confidential Information" includes confidential and/or proprietary
information such as business plans, marketing plans, projections, financial
statements and data, contracts, customers, know-how, designs, operating methods,
employees and ownership information.
"Confidential Information" does not include information which (i) is
or becomes generally available to the public other than as a result of
disclosure by the other party or its Representatives; or (ii) was available to
the other party on a non-confidential basis prior to its disclosure to the other
party as evidenced by documents in the other party's files; (iii) is obtained
from third parties not subject to a similar duty to maintain such information as
confidential.
7.3 If a party or any of its Representatives is legally required to
disclose any Confidential Information of the other party (other than such
Confidential Information subject to Section 7.5 below), such party shall
promptly notify the other party of such requirements so that the other party may
seek an appropriate protective order or other appropriate remedy and/or waive
compliance with the provisions of this Agreement. If such protective order or
other remedy is not obtained, or that a party grants a waiver hereunder, such
other party or its Representatives may furnish that portion (and only that
portion) of the Confidential Information
7
<PAGE>
which such party or its Representative is legally compelled to disclose, and
such party shall use its best efforts to obtain reliable assurance that
confidential treatment will be accorded any Confidential Information so
furnished. In no event shall a party or any of its Representatives oppose any
action by the other party to obtain an appropriate protective order or other
reliable assurance that confidential treatment will be accorded the Confidential
Information.
7.4 No party may issue a press release regarding this Agreement or the
subject matter hereof without the prior consent of the other party.
7.5 Licensee has advised Licensor that it intends, in the immediate
future, to file a registration statement with the Securities and Exchange
Commission ("SEC") to issue and sell capital stock in an underwritten public
offering. In connection with such registration statement, and thereafter
assuming Licensee becomes a "public company" subject to disclosure and reporting
obligations under federal and state securities laws, Licensee may be required to
disclose the License and information regarding the License, including sales of
Licensed Products. Except as provided below, the parties agree not to disclose,
and to maintain as confidential, the royalty rate, the Minimum Royalty, Minimum
Net Sales requirements and the amount of royalties paid under this Agreement
(the "Non-Public License Information"). In this regard, if Licensee believes it
is required by law, based upon the advice of counsel, to file a copy of this
License with the SEC, Licensee shall request and make every reasonable effort to
obtain confidentiality of the Non-Public License Information for the initial
term, and shall thereafter request and make every reasonable effort to obtain an
extension of the confidentiality order for any renewal term of the License and
for the period subsequent to termination or expiration of the Term or renewal
term. However, Licensor acknowledges and agrees that Licensee shall not be in
breach of this Agreement as a result of the filing of this Agreement if the SEC
does not issue a confidentiality order regarding the Non-Public License
Information (or any portion thereof) so long as Licensee makes every reasonable
effort to obtain the confidentiality order.
7.6 Neither Licensor nor Licensee may provide the License Agreement to any
third party or disclose the terms and conditions of the License Agreement to any
third party except: (a) if legally required pursuant to subpoena or legal
process, in which event the provisions of Section 7.3 shall apply; (b) to
persons providing or proposing to provide debt or equity financing, underwriters
and/or broker dealers arranging or proposing to arrange for debt and/or equity
financing, or potential acquirers, provided, in each case, that such person is
under a confidentiality obligation with respect to such information; and, (c)
pursuant to Section 7.5.
8. Licensee's Responsibilities.
8.1 Licensee will procure and maintain during the Term and for one year
thereafter Comprehensive General Liability Insurance with limits not less than
$5,000,000 for personal injury per occurrence and $1,000,000 for property damage
per occurrence, and Professional Liability Insurance (Errors and Omissions),
including but not limited to coverage for optical related services and
contractual liability specifically covering the indemnity of this Agreement.
8
<PAGE>
All Insurance shall be with a company reasonably acceptable to
Licensor with a "Best" rating of at least "A-VII." All liability insurance
policies shall name Licensor as an additional insured and shall include a
severability of interest clause with respect to claims, demands, suits,
judgments, costs, charges, and expenses arising out of, or in connection with
any loss, damage, or injury resulting from the negligence or other fault of
Licensee, its agents, representatives, employees and subcontractors. Licensee
shall furnish Licensor with a certificate of insurance showing that such
insurance is in effect. The policies will include a clause stating that the
insurance will not be canceled or reduced without at least thirty (30) days
prior written notice to Licensor. If any policy is so canceled, Licensor may
terminate this Agreement on 24 hours notice.
8.2 Licensee agrees to protect, defend, hold harmless and indemnify
Licensor, from and against any and all expenses, claims, actions, liabilities,
reasonable attorney's fees, litigation costs and expenses, damages, and losses
of any kind whatsoever (including without limitation of the foregoing,
accidental death of, or injury to, persons or damage to property, claims of
infringement of intellectual property rights, including copyrights, trademark,
trade dress and/or patent claims), actually or allegedly suffered by any person,
persons, product, customers or property arising in any way out of, or incidental
to, the Licensed Products or this License, provided, however, that this
indemnification shall not extend to claims against Licensor which, if made
against Licensee, would obligate Licensor to indemnify and defend Licensee
pursuant to Section 5.2 of this License. Licensee shall promptly notify Licensor
of any suit or threat of suit as to which Licensor or Licensee may have
obligations under this License and be given reasonable opportunity to defend the
same. Licensee shall cooperate with Licensor with regard to the defense of any
such suit or threatened suit and Licensor shall have authority to settle or
otherwise dispose of any such suit or threatened suits, and to appeal any
judgement which may be entered. In addition, if Licensee is advised or otherwise
learns that another party is infringing upon Licensor's intellectual property
rights, Licensee will immediately advise Licensor by written notice. This
indemnity shall survive the term of this Agreement.
8.3 All costs and expenses associated with the design, manufacture,
development, advertising, marketing and interactive media of Licensed Products
shall be the responsibility of Licensee, including but not limited to the
marketing and distribution of Licensed Products through any catalog of the
Licensor.
8.4 Licensee will extend and offer all of Licensor's employees and
dependents of employees a discount of not less than CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION% off
the suggested retail purchase price of all Licensed Products.
8.5 Licensee will appoint and identify an exclusive Brand Manager for all
Products. The duties of the Brand Manager shall include those set forth in
Exhibit D.
8.6 The content and presentation of all designs, advertising, marketing,
and promotional materials for the Licensed Products, and the use of the Licensed
Mark with
9
<PAGE>
Licensed Products and such materials shall be subject to the prior written
approval of Licensor, which approval shall not be unreasonably withheld.
Licensor will advise Licensee of its objections to any original materials within
(10) ten business days of receipt thereof, and objections to any revised
materials will be submitted by Licensor within five (5) days of receipt thereof.
Failure to object within the specified time periods shall be deemed approval.
Licensee will send to Licensor one (1) copy of the line sheets and one (1)
sample of each style of Licensed Products, promotional materials and advertising
which features or references the Licensed Products or any variation of
Licensor's name or mark. No materials will be distributed which have not been
approved by Licensor.
8.7 Licensee agrees to extend to its customers of Licensed Products a high
level of guarantee and service and to use its best efforts to utilize the
highest level of quality and technology, consistent with the cost and wholesale
price of the Licensed Products, in the design and manufacturing process of
Products which is available in the Product industry.
8.8 Licensee agrees to assume liability and to reimburse Licensor for all
costs associated with Licensed Products which may be returned for any reason
directly to Licensor, and its channels of distribution.
8.9 Licensor will work with Licensee to develop merchandising and
incentive programs. Licensor will sell its goods to Licensee for that purpose on
either a cost-plus or best price basis. Licensee will bear all costs and
expenses relating to these programs.
8.10 Licensor shall register the Licensed Mark for use in connection with
Products in each country in which Licensee markets and sells Licensed Products
at the sole cost and expense of Licensee. Licensee shall notify Licensor of each
country in which it intends to market and sell the Licensed Products
sufficiently in advance for timely registration. Licensee shall not be obligated
to pay for registration of the Licensed Mark in any country with respect to
which it reasonably determines that the benefits would not justify the costs of
registration; provided, however, that Licensee shall inform Licensor of such
determination. If Licensor advises Licensee that it disagrees with Licensee's
determination, Licensee shall either pay for registration or not sell or
distribute (and/or cause not to be distributed by its customers) in such
country.
8.11 If Licensee becomes aware of any infringement by any Person of the
Licensed Mark with respect to Products in the Territory, Licensee shall, at its
cost and expense, attempt by written demand to obtain the prompt voluntary
cooperation of such infringing party to cease such infringement. If such written
demand does not cause such infringing party to cease such infringement, Licensee
shall:
a. With respect to the United States and its territories and
possessions and those foreign countries where gross annual sales are
greater than $500,000.00, advise Licensor, and the parties shall
jointly commence and prosecute to conclusion by final judgment or
settlement, an action to stop the infringement
10
<PAGE>
unless both parties agree not to prosecute such action. All costs and
expenses of any such action shall be borne 75% by Licensee and 25% by
Licensor;
b. With respect to those countries where gross annual sales are less
than $500,000.00, advise Licensor, and the parties shall mutually
agree upon whether to jointly commence (and prosecute to conclusion by
final judgment or settlement) an action to stop the infringement. All
costs and expenses of any such action shall be borne 75% by Licensee
and 25% by Licensor. In the event the parties cannot agree, either
party may prosecute such an action at its sole cost and expense. The
other party shall cooperate in the prosecution of such action at no
cost.
9. General Provisions
9.1 Upon request with reasonable notice, at any time during normal
business hours, Licensor shall have the right to inspect all suppliers and
manufacturers of Licensed Products to verify that Licensor's business and
product standards are being observed. Licensee agrees to use the Licensed Mark
only with Products which, at a minimum, have been manufactured in accordance
with the same or better standards used on similar products made for Licensor and
consistent with the image of products offered through Licensor's catalogs and
stores.
9.2 Licensee agrees that all Licensed Products shall meet or exceed all
legally applicable laws, standards, regulations and guidelines in jurisdictions
where sold.
9.3 Labeling on all Licensed Products shall comply with Licensor's
specifications, and the laws, rules and regulations (including FTC rules and
regulations) of the jurisdictions where the Licensed Products are sold. Any
additional labeling or changes (if not required by law) must be approved by
Licensor.
9.4 Each party shall immediately inform the other party of any information
pertaining to claims of rights of third parties pertaining to the Licensed Mark
and its use in the Territory.
9.5 This Agreement shall be governed by the laws of the State of
Washington and of the federal laws of the U.S.A.
9.6 This Agreement represents the complete agreement of the parties and
replaces any prior agreement concerning the Licensed Mark, and the parties agree
that they have not executed this Agreement based upon any promise,
representation or warranty not expressly set forth in this Agreement.
9.7 No amendment or modification hereof shall be effective unless agreed
to in writing by the party against whom enforcement is sought.
11
<PAGE>
9.8 Nothing in this Agreement shall be construed to or cause either party
to be deemed the agent or representative of the other party. Neither party shall
so hold itself out nor shall either party be liable or bound by any act or
omission of the other party.
9.9 Failure of either party at any time to enforce any provision of this
Agreement shall not affect the right of that party to seek or require full
performance, nor shall the waiver by either party of a breach hereunder be
construed to be a waiver of any further or similar breach of any other or the
same provision.
9.10 Licensor requires and Licensee warrants that all Licensed Products
shall be manufactured and/or produced in accordance with all applicable laws,
rules and regulations in the country where the Licensed Products are
manufactured, including, but not limited to, such laws, rules and regulations
related to minimum age of employment, minimum wages, forced labor, safety,
sanitation, building codes and working conditions. Licensee shall adopt a
program to ensure that each manufacturing facility and/or other vendor or
subcontractor (collectively "Manufacturer") complies with the aforesaid. At a
minimum, such program shall include a physical inspection of each Manufacturer
and an interview with the owner and/or senior management of Manufacturer prior
to the first performance of any work on the Licensed Products. A written report
of the inspection signed by Licensee and setting forth the scope of the
inspection and the results thereof shall be provided to Licensor as a condition
precedent to Licensee's right to sell the Licensed Products produced by such
manufacturer. Such inspections, together with a written report, shall be
required at least once annually thereafter during the Term and any subsequent
term, to ensure compliance. In the event Licensee fails to implement such a
program, Licensor may, at its option, terminate the License and/or require
Licensee to terminate its relationship with Manufacturer. In the event that it
is determined by Licensor, or any other entity, whether or not a party to this
License, and upon notice to Licensee, that a Manufacturer does not meet
applicable laws, rules and/or regulations, Licensee shall demand such
Manufacturer to come into compliance with such laws, rules and/or regulations
within the sooner of 30 days of notice of such noncompliance or the time period
required by the local governing body. In the event that such Manufacturer fails
to comply, Licensee shall terminate its relationship with such Manufacturer,
upon request of Licensor. In the event that Licensee fails to terminate its
relationship with such Manufacturer, Licensor may, at its option, terminate this
License. In no event shall Licensee or any Manufacturer utilize forced labor or
establish a minimum age of employment below the age of completion of compulsory
education in the applicable country.
12
<PAGE>
9.11 All notices required under this Agreement shall be addressed and
delivered as follows:
To Licensor: Eddie Bauer, Inc.
15010 N.E. 36th Street
Redmond, WA 98052
Attn: Don Perinchief, Director of Licensing
Mailing Address:
P.O. Box 97000
Redmond, WA 98073
With Copy to: Spiegel, Inc.
Legal Dept.
3500 Lacey Road
Downers Grove, Illinois 60515
To Licensee: Signature Eyewear, Inc.
498 N. Oak Street
Inglewood, CA 90302
Attn: Chief Financial Officer
EDDIE BAUER, INC.
Licensor
By: /s/
------------------------------------
Title: Exec. V.P., CFO
---------------------------
Date: 6/23/97
-------------------------------
SIGNATURE EYEWEAR, INC.
Licensee
By: /s/ Julie Heldman
-------------------------------
Title: President
-------------------------------
Date: 6/24/97
-------------------------------
13
<PAGE>
EXHIBIT "A"
PRODUCTS
As used in the License Agreement the term "Products" means Eyewear Frames,
Eyeglasses, Eyeglass cases, chains and cords, all manufactured for use with
prescription lenses including prescription sunglass lenses. Products does not
include Sunwear.
This Exhibit is incorporated by reference in the License Agreement under date of
June 24, 1997.
Approved:
By: /s/
-----------------------------------
By: /s/ Julie Heldman
-------------------------------
<PAGE>
EXHIBIT "B"
FORM OF LICENSED MARK
The Licensed Mark shall be the following as used in connection with prescription
eyewear:
. Eddie Bauer, Inc.
. Eddie Bauer
. Eddie Bauer since 1920
. [LOGO] See Attached Exhibit B-1
. [LOGO] See Attached Exhibit B-1
This Exhibit is incorporated by reference in the License Agreement under date of
June 24, 1997.
Approved:
By: /s/
-----------------------------------
By: /s/ Julie Heldman
-------------------------------
<PAGE>
EXHIBIT "C"
ROYALTY SCHEDULE
The following royalty rate shall apply to the License Agreement during the
initial Term:
<TABLE>
<CAPTION>
Annual Net Sales Royalty Rate
- --------------------------------- -------------------------------------------
<S> <C>
0 to $CONFIDENTIAL INFORMATION CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND WITH THE SECURITIES AND
EXCHANGE COMMISSION EXCHANGE COMMISSION% of total Net
Sales (Net Sales as defined in the License
Agreement)
$CONFIDENTIAL INFORMATION CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND WITH THE SECURITIES AND
EXCHANGE COMMISSION and above EXCHANGE COMMISSION% of total Net
Sales
</TABLE>
An additional CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION% of Total Net Sales shall be paid on all
sales made directly to Distributors.
In the event of renewal of the License Agreement after the initial term,
the Royalty shall be as set forth in the License Agreement for the Renewal Term.
Minimum Royalty Schedule
- ------------------------
There shall be minimum Royalty as follows for the Term, including any Renewal
Terms as follows:
<TABLE>
<CAPTION>
Contract Year Minimum Net Sales Minimum Royalty
=========================================================================
<S> <C> <C>
1997 $CONFIDENTIAL $CONFIDENTIAL
INFORMATION INFORMATION OMITTED
OMITTED AND FILED AND FILED SEPARATELY
SEPARATELY WITH THE WITH THE SECURITIES AND
SECURITIES AND EXCHANGE EXCHANGE COMMISSION
COMMISSION
1998 $CONFIDENTIAL $CONFIDENTIAL
INFORMATION INFORMATION OMITTED
OMITTED AND FILED AND FILED SEPARATELY
SEPARATELY WITH THE WITH THE SECURITIES AND
SECURITIES AND EXCHANGE EXCHANGE COMMISSION
COMMISSION
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
1999 $CONFIDENTIAL $CONFIDENTIAL
INFORMATION INFORMATION OMITTED
OMITTED AND FILED AND FILED SEPARATELY
SEPARATELY WITH THE WITH THE SECURITIES AND
SECURITIES AND EXCHANGE EXCHANGE COMMISSION
COMMISSION
2000 and each $CONFIDENTIAL $CONFIDENTIAL
Contract Year INFORMATION INFORMATION OMITTED
thereafter OMITTED AND FILED AND FILED SEPARATELY
(INCLUDING ANY SEPARATELY WITH THE WITH THE SECURITIES AND
RENEWAL SECURITIES AND EXCHANGE EXCHANGE COMMISSION
TERMS) COMMISSION
</TABLE>
Licensee agrees to pay Licensor $CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION upon License Agreement
signing, which shall be applied against the first royalties (minimum or actual)
accruing in 1998.
This Exhibit is incorporated by reference in the License Agreement under
date of June 24, 1997.
Approved:
By: /s/
------------------------------------
By: /s/ Julie Heldman
------------------------------------
<PAGE>
EXHIBIT "D"
BRAND MANAGER JOB DESCRIPTION
This Exhibit is incorporated by reference in the License Agreement under date of
See "Attachment to Exhibit D"
Approved:
By: /s/
-----------------------------------
By: /s/ Julie Heldman
-------------------------------
<PAGE>
ATTACHMENT TO EXHIBIT "D"
EDDIE BAUER EYEWEAR BRAND JOB DESCRIPTION
I. MAIN RESPONSIBILITY
To actively coordinate the business of Eddie Bauer Eyewear frames, in close
cooperation with the executives of each respective department, including
product inventory, sales, customer service, marketing, finance, and
merchandising.
II. ADDITIONAL DUTIES AND RESPONSIBILITIES
PRODUCT MANUFACTURING
. Work with the import department to confirm frame quantities, colors,
and sizing per the consensus of the design team.
. Review frame purchase orders to ensure frame spec information has been
relayed to the factories as specified.
. Upon delivery of the frames from the factory - work with the design
team to ensure that frames match original (signed-off) specs,
including size, color, materials, etc.
PRODUCT INVENTORY
. Confirm product delivery from factories along with the import
department to ensure prompt and on time delivery.
. Monitor on-going product inventory levels to ensure sufficient
inventory levels for rollout shipments.
. Frame analysis - determine which styles/skills are selling.
. Weekly meeting with Import Manager to overview the entire Eddie Bauer
frame inventory to decide reorders.
. Update the import department on any accounts rolling out product
different from the actual frame release date.
MARKETING
. Ensure that customer requests for marketing materials are delivered on
time per the customer's specifications.
. Confirm that sales program support materials are produced and
delivered on time.
. Hand-carry all marketing projects through the internal approval
process.
. Prepare frames for photo shoot.
. Approve, identify and hand label all Eddie Bauer photography.
. Gather all information necessary to produce marketing support
material, including program participation guidelines and copy.
<PAGE>
. Initiate all job orders.
. Update price book, source directory, and quarterly frames book to
ensure product information is correct and all distributors are listed.
. Review WIP sheet to ensure marketing jobs are on time and updated on a
weekly basis.
. Send Signature sales reps all updated marketing materials as it
becomes available.
. Maintain new product spec sheets.
CUSTOMER SERVICE
. Ensure all related information is relayed to customer service, so that
it is known and available to anyone inquiring.
. Compile distributor rollout orders from Signature sales reps for
customer service to process.
. Ensure computer information is current, updated, and accurate.
. Work with department manager on product allocation
. Input price schedules and levels of new product.
. Maintain all various International, California direct, chains, and
distributor price lists and order forms.
. Ensure rollout orders are to warehouse on time per scheduled release
date.
. Keep Signature reps informed of any account issues or concerns.
WAREHOUSE
. Review P.O.P. inventory to ensure availability on current product.
. Ensure rollout shipment numbers are accurate for kit packout.
. Review product for quality control when necessary.
. Update frame release scheduling.
. Have monthly calendar meeting to schedule upcoming warehouse events.
. Execute off site and inventory adjustment requests.
FINANCE
. Review monthly sales by style and sku to determine "best seller".
. Resolve issues with credits, returns, etc.
. Advise when rollout shipping and billing is completed.
. gather special information as needed by finance.
<PAGE>
EXHIBIT "E"
TERRITORY
Asia
-Indonesia
-Japan
-Malaysia
Australia
-Australia
-New Zealand
Europe
-Austria
-Belgium
-Denmark
-France
-Germany
-The Netherlands
-Norway
-Sweden
-United Kingdom
North America
-Canada
-United States and its territories and possessions
South America
-Brazil
-Columbia
This Exhibit is incorporated by reference in the License Agreement under date of
June 24, 1997.
Approved:
By: /s/
------------------------------------
By: /s/ Julie Heldman
-------------------------------
<PAGE>
EXHIBIT F
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Signature Eyewear, Inc.
We have audited, in accordance with generally accepted auditing standards, the
balance sheet of SIGNATURE EYEWEAR, INC. as of October 31, 1997, and the related
statements of income, changes in stockholders' equity and cash flows for the
year then ended, and have issued our report thereon dated January XX, 1998.
In connection with our audit, we have read the sales journals recording sales of
the Licensed Products and nothing came to our attention that caused us to
believe that the Company failed to comply with the royalty fee provision of the
license agreement dated June XX, 1997 with Eddie Bauer, Inc. However, our audit
was not directed primarily toward obtaining knowledge of such noncompliance.
This report is intended solely for the information and use of the board of
directors and management of Signature Eyewear, Inc. and Eddie Bauer, Inc. and
should not be used for any other purpose.
Los Angeles, California
January XX, 1998
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF ALTSCHULER, MELVOIN AND GLASSER LLP]
To the Board of Directors and Stockholders
Signature Eyewear, Inc.
We have issued our report dated January 15, 1997, accompanying the financial
statements of Signature Eyewear, Inc. contained in the Registration Statement
and Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts".
/s/ Altschuler, Melvoin and Glasser LLP
Los Angeles, California
August 28, 1997
