<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1997
REGISTRATION NO. 33-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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 ORGANIZATION) 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. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED (1) PER SHARE (2) PRICE (2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value................. 2,070,000 Shares $11.00 $22,770,000 $6,900
- -------------------------------------------------------------------------------------------------
Representatives'
Warrants(3)........... 180,000 Warrants -- -- --
- -------------------------------------------------------------------------------------------------
Common Stock, $0.001 par
value(4).............. 180,000 Shares $13.20 $ 2,376,000 $ 720
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 270,000 shares of Common Stock issuable upon exercise of an
option granted to the Underwriters to cover over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee under
Rule 457(a).
(3) To be sold to the Representatives of the Underwriters. Pursuant to Rule
457(g), no separate registration fee is required.
(4) Consists of shares issuable upon exercise of Representatives' Warrants.
---------------
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 Certain Relationships and Related
Transactions......................... 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 JUNE 25, 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."
Application has been made for approval of the Common Stock 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 (2)(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 $460,000.
(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., 155 Federal 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 is the line "Sold by Signature Eyewear under license
from Laura Ashley."
Eddie Bauer Eyewear lifestyle photograph depicting a couple wearing Eddie
Bauer Eyewear on a walk in the country. The Eddie Bauer Eyewear logo is at the
bottom of the image. At the bottom of the page is the line "Sold by Signature
Eyewear under license from Eddie Bauer."
2
<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."
Proposed 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 statement of income data and balance sheet data
relating to the Company. 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 10,545 13,940(1) 6,033 7,508
Income (loss) from
operations............. (60) 367 1,306 2,037 2,409 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 16,420
</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 will 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 upon the occurrence
of certain events, including (i) if the Company commits a material breach of
the license agreement and fails to cure that breach within 30 days after
notice is given, (ii) if 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) if 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, and (iv) if the Company
fails to have net sales of Laura Ashley Eyewear sufficient to generate minimum
royalties in each of any two years. 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 name brands. 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 will be transferred from the United
Kingdom to China pursuant to a treaty between the two countries, and Hong Kong
will become 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. The most recent waiver was granted on May 31, 1996, and extended
China's Most Favored Nation status until July 3, 1997. 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 $6.84 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 Company has applied for approval for inclusion of the Common
Stock 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" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934 (the "Exchange Act"). 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 14,831
Retained earnings......................................... 2,214 1,579
------ -------
Total stockholders' equity.............................. 2,635 16,420
------ -------
Total capitalization.................................. $2,697 $16,420
====== =======
</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. 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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<PAGE>
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 $460,000),
the net tangible book value of the Company as of April 30, 1997 would have
been approximately $16,420,000 or $3.16 per share. This represents an
immediate increase in net tangible book value of $2.61 per share to the
Existing Shareholders and an immediate dilution of $6.84 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....... 2.61
------
Pro forma net tangible book value per share as of April 30,
1997
after the Offering........................................ 3.16
------
Dilution per share to new shareholders...................... $ 6.84
======
</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. The ability of the Company to pay dividends will also be
affected by covenants under its bank credit facility, which prohibit the
Company from paying dividends after the Offering without the consent of its
bank.
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 3,679 4,701
General and
administrative....... 3,224 4,035 5,612(1) 2,354 2,807
------- ------- --------- ------------- -------------
Total operating
expenses........... 9,079 10,545 13,940 6,033 7,508
------- ------- --------- ------------- -------------
Income from operations.. 1,306 2,037 2,409 1,394 1,898
Other expense, net(2)... (198) (401) (396) (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........... 418 606 748 473 677
------- ------- --------- ------------- -------------
Pro forma net income.... $690 $1,030 $1,265 $761 $1,030
======= ======= ========= ============= =============
Pro forma net income per
share.................. $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,
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) Includes relocation expense of $235,000 and $87,000 for fiscal 1995 and
fiscal 1996, respectively.
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 statement
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 18.0 17.5
------- ------- ------- ------- -------
Total operating expenses..... 45.3 44.7 49.3 46.2 46.8
------- ------- ------- ------- -------
Income from operations........... 6.5 8.7 8.5 10.7 11.9
------- ------- ------- ------- -------
Other expense, net............... (1.0) (1.7) (1.4) (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
$1,022,000 or 28% in selling expenses and an increase of $453,000 or 19% 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,
$10,545,000 in fiscal 1995 and $13,940,000 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.
20
<PAGE>
Other Expense, Net. Other expense, net, consisted principally of interest
expense and relocation expenses. 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. 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 office and warehouse.
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 $6,760,417. 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 $2,000,000 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,
requires the Company to satisfy certain financial tests, including the
maintenance of minimum tangible net worth, and prohibits the payment of
dividends without the bank's prior written consent, except for dividends in
1997 in an amount equal to the net income of the Company during the period it
was an S corporation.
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.
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.
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.
21
<PAGE>
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 for the foreseeable future.
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 1,683 1,853 1,918 1,472 2,208 2,056 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
Total operating expenses..... 1,838 2,653 2,910 3,144 2,441 3,542 3,610 4,347 3,385 4,123
Income from operations....... 515 615 503 404 418 1,025 545 421 535 1,363
Other expense, net........... (38) (77) (94) (192) (9) (112) (100) (87) (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 1994 through 1996 at $1.9 billion, their sales as a percentage of
total retail sales decreased from 13.5% in 1994 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 opthamologists. 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 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 name brands. 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 any 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 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. As of April 1997, there were over 550 Laura Ashley
retail stores worldwide, many of which were located in finer shopping malls.
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 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.
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 upon the occurrence of certain
events, including (i) if the Company commits a material breach of the license
agreement and fails to cure that breach within 30 days after notice is given,
(ii) if 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) if 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, and (iv) if the Company fails to have net sales
of Laura Ashley Eyewear sufficient to generate minimum royalties in each of
any two years.
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.
28
<PAGE>
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. During the
past year, the Jean Nate Eyewear collection has experienced increasing sales
as its frames have begun to obtain spaces in optical chain stores.
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. 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 upon the occurrence of certain
events, most notably 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, or (iii) the Company does not generate the
minimum net sales required by the license for two consecutive years.
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 upon
the occurrence of certain events, most notably (i) if someone other than
Bernard Weiss, Julie Heldman, Robert Fried or Robert Zeichick acquires more
than 50% of the Company's outstanding voting securities, (ii) if all of Ms.
Heldman and Messrs. Weiss, Zeichick and Fried cease to be employed by the
Company before June 30, 1999 and certain conditions are not met, (iii) if the
Company sells or otherwise transfers substantially all its assets used in the
manufacture, promotion and distribution of eyeglass frames, or (iv) if the
Company does not generate the minimum net sales required by the license for
two consecutive years.
29
<PAGE>
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 collection, 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 upon the occurrence of certain
events, including the acquisition by a person or entity of more than 30% of
the Company's outstanding voting securities, who thereby becomes the largest
shareholder and owns more shares than the Existing Shareholders.
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 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, which promote long-term
relationships with customers.
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.
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<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.
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 intend to establish an Audit Committee and a
Compensation Committee as of 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.
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<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 and to terminate on October 31,
2000. Pursuant to those agreements, these executive officers will be entitled
to salary at the following annual rates during the term of their contracts:
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, an executive officer will continue to receive salary
and benefits until the later to occur of the end of the employment term or one
year following termination. 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 the employment term upon receipt of the
proceeds of the key person life insurance maintained by the Company. If
employment terminates as a result of disability, the executive officer will
continue to receive salary and benefits through the end of the employment
term, offset by any benefits the employee receives under disability insurance
provided by the Company and government benefits.
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.
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,
36
<PAGE>
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 with respect to such 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.
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<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.
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<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 U.S.
Stock Transfer Corporation, 1745 Gardena Avenue, Glendale, California 91204-
2991.
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, have rendered 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,
1995 1996 1997
---------- ----------- -----------
UNAUDITED
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................... $ 28,724 $ 214,399 $ 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
Inventories............................... 3,627,951 4,635,928 5,338,000
Prepaid expenses and other current
assets................................... 60,182 288,859 458,793
---------- ----------- -----------
6,462,148 8,988,936 10,580,773
---------- ----------- -----------
Property and Equipment (net of accumulated
depreciation and amortization--Note 2)..... 599,461 1,040,374 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
Deposits and other........................ 181,985 263,747 263,747
---------- ----------- -----------
198,214 263,747 263,747
---------- ----------- -----------
$7,259,823 $10,293,057 $11,977,342
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade................... $1,566,019 $ 2,571,945 $ 2,941,903
Note payable, bank (Note 3)............... 1,755,000 3,100,000 4,625,000
Current portion of long-term debt (Note
4)....................................... 202,826 206,394 571,790
Accrued expenses and other current
liabilities.............................. 1,078,767 1,328,698 1,140,992
---------- ----------- -----------
4,602,612 7,207,037 9,279,685
---------- ----------- -----------
Long-term Debt (Note 4)..................... 711,699 156,883 62,415
---------- ----------- -----------
Commitments (Note 5)
Stockholders' Equity (Note 6):
Preferred stock........................... 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
Paid-in capital........................... 113,261 413,029 413,029
Retained earnings......................... 1,824,751 2,508,376 2,214,481
---------- ----------- -----------
1,945,512 2,929,137 2,635,242
---------- ----------- -----------
$7,259,823 $10,293,057 $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 3,678,742 4,700,464
General and
administrative....... 3,223,909 4,035,432 5,611,874 2,354,668 2,807,433
----------- ----------- ----------- ----------- -----------
9,078,747 10,545,184 13,940,170 6,033,410 7,507,897
----------- ----------- ----------- ----------- -----------
Income from Operations.. 1,305,876 2,037,223 2,408,617 1,393,573 1,898,047
----------- ----------- ----------- ----------- -----------
Other Income (Expense):
Interest expense...... (200,814) (201,196) (338,373) (166,612) (188,654)
Relocation expense ... 0 (235,419) (86,871) 0 0
Sundry income
(expense)............ 3,124 35,448 29,196 6,879 (2,488)
----------- ----------- ----------- ----------- -----------
(197,690) (401,167) (396,048) (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 are valued at the lower of cost, determined on a
first-in, first-out (FIFO) basis, or market.
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.
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.
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.
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
F-7
<PAGE>
SIGNATURE EYEWEAR, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
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.
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>
APRIL 30,
1995 1996 1997
--------- ---------- ----------
UNAUDITED
<S> <C> <C> <C>
Office furniture and fixtures................. $ 243,190 $ 372,368 $ 417,233
Computer equipment............................ 401,077 574,510 633,517
Software...................................... 0 317,536 498,833
Vehicles...................................... 162,744 153,141 153,141
Leasehold improvements........................ 146,582 164,685 178,880
Machinery and equipment held under capitalized
leases....................................... 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-8
<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.
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
Note payable, stockholder (unsecured, interest at
5.5% per annum)................................. 162,500 0 0
Note payable, stockholders (unsecured, interest
at the Bank's prime rate plus 1.5% per annum)... 200,000 0 0
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
-------- -------- --------
914,525 363,277 634,205
Less current portion............................. 202,826 206,394 571,790
-------- -------- --------
Long-term portion................................ $711,699 $156,883 $ 62,415
======== ======== ========
</TABLE>
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.
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-9
<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, 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>
F-10
<PAGE>
SIGNATURE EYEWEAR, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-11
<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 line "Signature Eyewear, Inglewood, CA 90302. Jean
Nate is used under license (C) 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 is the line "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................................................. 2,786
Nasdaq National Market fee...................................... 30,532
Accounting fees and expenses.................................... 50,000
Legal fees and expenses (other than blue sky)................... 130,000
Blue sky fees and expenses, including legal fees................ 10,000
Representatives' expenses....................................... 135,000
Printing; stock certificates.................................... 85,000
Transfer agent and registrar fees............................... 2,500
Miscellaneous................................................... 6,562
--------
Total....................................................... $460,000
========
</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.
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.*
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>
- --------
* To be filed by Amendment.
+ Confidential treatment requested.
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 REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA, ON JUNE 18, 1997.
Signature Eyewear, Inc.
/s/ Julie Heldman
By: _________________________________
JULIE HELDMAN, CO-CHAIRMAN OF THE
BOARD AND PRESIDENT
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS JULIE
HELDMAN AND MICHAEL PRINCE, AND EACH OF THEM, AS HIS TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR HIM AND HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS (INCLUDING POST EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT AND A NEW REGISTRATION STATEMENT
FILED PURSUANT TO RULE 462(B) OF THE SECURITIES ACT OF 1933 AND TO FILE THE
SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH,
WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-
FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM
EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT
THE FOREGOING, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS, OR EITHER OF THEM, OR THEIR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO
BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES STATED.
SIGNATURE TITLE DATE
/s/ Bernard Weiss Co-Chairman of the June 18, 1997
- ------------------------------------- Board and Chief
BERNARD WEISS Executive Officer
/s/ Julie Heldman Co-Chairman of the June 18, 1997
- ------------------------------------- Board and President
JULIE HELDMAN
/s/ Michael Prince Chief Financial June 18, 1997
- ------------------------------------- Officer and
MICHAEL PRINCE Director (Principal
Financial and
Accounting Officer)
/s/ Daniel Warren Director June 18, 1997
- -------------------------------------
DANIEL WARREN
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.
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.*
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>
- --------
* To be filed by Amendment.
+ Confidential treatment requested.
<PAGE>
2,070,000 Shares
SIGNATURE EYEWEAR, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
August , 1997
Maurice R. Buchsbaum
Senior Managing Director, Corporate Finance
Fechtor, Detwiler & Co., Inc.
2255 Glades Road, Suite 234-W
Boca Raton, FL 33431
Van Kasper & Company
600 California Street, Suite 1700
San Francisco, CA 94108
Ladies and Gentlemen:
Signature Eyewear, Inc., a California corporation (the "Company"), proposes
to issue and sell 1,600,000 shares (the "Company Firm Shares") of its authorized
but unissued Common Stock, par value $0.001 per share (the "Common Stock"), and
200,000 shares from the selling stockholders identified on Schedule A attached
hereto (the "Selling Stockholders"), to Fechtor, Detwiler & Co., Inc. (the
"Representative"), Van Kasper & Company ("Van Kasper") and the other
underwriters named in Schedule B attached hereto (the Representative, Van Kasper
and the other underwriters being herein collectively the "Underwriters"). In
addition, solely for the purpose on covering overallotments, the Company and the
Selling Stockholders propose to grant to the Underwriters the option to purchase
up to an additional 270,000 shares of Common Stock (the "Overallotment Shares")
on the terms set forth in Section 3(c). The Company also proposes to grant to
the Representative a Warrant to purchase up to 180,000 additional shares (the
"Representative's Warrant") of Common Stock on the terms and for the purposes
set forth in Section 3(b). The Company Firm Shares, Selling Shareholder Shares,
Overallotment Shares and the shares of Common Stock issuable upon exercise of
the Representative's Warrant are hereinafter collectively referred to as the
"Shares."
The Company wishes to confirm as follows its agreements with you and the
other Underwriters in connection with the purchase of these Shares.
<PAGE>
1. REGISTRATION STATEMENT. A registration statement on Form S-1 (File No.
33-[ ]) including a prospectus relating to the Shares and each amendment
thereto has been prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission" or "SEC") thereunder, and has been filed with the
Commission. There have been delivered to you three signed copies of such
registration statement and amendments, together with three copies of each
exhibit filed therewith. Copies of such registration statement and amendments
(but without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested. If such
registration statement has not become effective, a further amendment to such
registration statement, including a form of final prospectus, necessary to
permit such registration statement to become effective will be filed promptly by
the Company with the Commission. If such registration statement has become
effective, a final prospectus containing all Rule 430A Information (as
hereinafter defined) will be filed by the Company with the Commission in
accordance with Rule 424(b) of the Rules and Regulations on or before the second
business day after the date hereof (or such earlier time as may be required by
the Rules and Regulations).
The term "Registration Statement" as used in this Agreement shall mean such
registration statement (including all exhibits and financial statements and all
documents incorporated by reference therein, if any) at the time such
registration statement becomes or became effective and, in the event any post-
effective amendment thereto becomes effective prior to the Closing Date (as
hereinafter defined), shall also mean such registration statement as so amended;
provided, however, that such term shall include all Rule 430A Information deemed
to be included in such registration statement at the time such registration
statement becomes effective as provided by Rule 430A of the Rules and
Regulations and shall also mean any registration statement filed pursuant to
Rule 462(b) of the Rules and Regulations with respect to the Shares. The term
"Preliminary Prospectus" shall mean any preliminary prospectus referred to in
the preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits Rule 430A
Information. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares in the form in which it is first filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no
filing pursuant to Rule 424 (b) of the Rules and Regulations is required, shall
mean the form of final prospectus included in the Registration Statement at the
time such registration statement becomes effective. The term "Rule 430A
Information" means information with respect to the Shares and the offering
thereof permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A of the Rules and Regulations.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLING STOCKHOLDERS.
The Company and the Selling Stockholders jointly and severally represent
and warrant for and agree with, the several Underwriters, as set forth below in
this Section 2.
(a) SEC Compliance. The Company has not received, and has no notice of,
--------------
any order of the Commission preventing or suspending the use of any Preliminary
Prospectus and, to the knowledge of the Company, the Commission has not
instituted proceedings for that
2
<PAGE>
purpose, and each Preliminary Prospectus, at the time of filing thereof,
conformed in all material respects to the requirements of the Act and the Rules
and Regulations. When the Registration Statement became or becomes, as the case
may be, effective (the "Effective Date") and at all times subsequent thereto up
to and at the Closing Date (as hereinafter defined), any later date on which
Overallotment Shares are to be purchased and when any post-effective amendment
to the Registration Statement becomes effective or any amendment or supplement
to the Prospectus is filed with the Commission, (i) the Registration Statement
and Prospectus, and each amendment or supplement thereto, will contain all
statements which are required to be stated therein by, and will comply with the
requirements of, the Act and the Rules and Regulations, and (ii) neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will include 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. The foregoing representations and warranties
in this section 2(a) do not apply to any statements or omissions made in
reliance on and in conformity with the information contained in the section of
the Prospectus entitled "Underwriting" [and the information in the last
paragraph on the front cover page of the Prospectus]. The Company has not
distributed any offering material in connection with the offering or sale of the
Shares other than the Registration Statement, the Preliminary Prospectus, the
Prospectus or any other materials, if any, permitted by the Act.
(b) Corporate Governance. The Company has been duly organized and is
--------------------
validly existing as a corporation in good standing under the laws of the State
of California, with full corporate power and authority to own, lease and operate
its properties and conduct its business as described in the Registration
Statement. The Company is duly qualified to do business as a foreign
corporation in good standing in each jurisdiction where the ownership or leasing
of its properties or the conduct of its business requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on the business, properties, assets, financial condition, results of operations
or prospects of the Company (as hereinafter defined) (a "Material Adverse
Effect"). The Company has no subsidiaries (as defined in the Rules and
Regulations). The Company does not own, directly or indirectly, any shares of
stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any firm, partnership, joint venture, association or
other entity. Complete and correct copies of the certificate of incorporation
and of the by-laws of the Company and all amendments thereto have been delivered
to the Representative, and except as set forth in the exhibits to the
Registration Statement no changes therein will be made subsequent to the date
hereof and prior to the Closing Date or, if later, the Additional Closing Date.
(c) Corporate Authority. The Company has full power and authority
-------------------
(corporate and otherwise) to enter into this Agreement and to perform the
transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Company and is a valid and binding agreement on
the part of the Company, enforceable against the Company in accordance with its
terms, except as rights to indemnity and contribution hereunder may be limited
by applicable laws or equitable principles and except as enforcement hereof may
be limited by applicable bankruptcy, insolvency, reorganization or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles. The Company is not in violation of its certificate of
incorporation or by-laws or in default in the performance or
3
<PAGE>
observance of any obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or other agreement or instrument to which the Company is a party or by
which it may be bound, or to which any of its property may be subject, except
for such defaults that would not result in a Material Adverse Effect; and the
performance of this Agreement by the Company and the consummation by the Company
of the transactions herein contemplated will not result in a breach or violation
of any of the terms and provisions of, or constitute a default under, (i) any
indenture, mortgage, deed of trust, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, or any lease, contract or other
agreement or instrument to which the Company is a party or by which its
properties are bound, or (ii) the certificate of incorporation or by-laws of the
Company, or (iii) any law, order, rule, regulation, writ, injunction or decree
of any court or governmental agency or body to which the Company or its assets
is subject. The Company is not required to obtain or make (as the case may be)
any consent, approval, authorization, order, designation or filing by or with
any court or regulatory, administrative or other governmental agency or body as
a requirement for the consummation by the Company of the transactions herein
contemplated, except such as may be required under the Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), state securities or blue
sky ("Blue Sky") laws or the rules and regulations of the National Association
of Securities Dealers, Inc. ("NASD").
(d) Litigation. There is not pending or, to the Company's knowledge,
----------
threatened, any action, suit, claim, proceeding or investigation against the
Company or any of its respective officers or directors or any of its respective
properties, assets or rights before any court or governmental agency or body or
otherwise which, singly or in the aggregate, might result in a Material Adverse
Effect or have a Material Adverse Effect on the Company's properties, assets or
rights, or prevent consummation of the transactions contemplated hereby. There
are no statutes, rules, regulations, agreements, contracts, leases or documents
that are required to be described in the Prospectus, or to be filed as exhibits
to the Registration Statement by the Act or by the Rules and Regulations that
have not been accurately described in all material respects in the Prospectus or
filed as exhibits to the Registration Statement.
(e) Capitalization. The authorized and outstanding capital stock of the
--------------
Company conforms in all material respects to the description thereof contained
in the Registration Statement and the Prospectus (and such description correctly
states the substance of the provisions of the instruments defining the capital
stock of the Company). All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, and were not issued in violation of any preemptive right,
resale right, right of first refusal or similar right.
(f) Issuance of Shares. The Shares to be sold by the Company have been
------------------
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable. The Shares conform to the description thereof
in the Prospectus. No preemptive right, co-sale right, right of first refusal
or other similar rights of securityholders exists with respect to any of the
Shares or the issue and sale thereof other than those that have been expressly
waived prior to the date
4
<PAGE>
hereof. No holder of securities of the Company has the right to cause the
Company to include such holder's securities in the Registration Statement. No
further approval or authorization of any security holder, the Board of Directors
or any duly appointed committee thereof or others is required for the issuance
and sale or transfer of the Shares by the Company, except as may be required
under the Act, the Exchange Act or under state securities or Blue Sky laws.
Except as disclosed in or contemplated by the Prospectus and the financial
statements of the Company, and the related notes thereto, included in the
Prospectus, the Company does not have outstanding any options or warrants to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The description of the Company's
stock option and other plans or arrangements, and the options or other rights
granted and exercised or exercisable thereunder, set forth in the Prospectus
accurately and fairly presents, in all material respects, the information
required to be shown with respect to such plans, arrangements, options and
rights.
(g) Financial Statements. Altschuler, Melvoin and Glasser LLP (the
--------------------
"Accountants"), who have examined the financial statements, together with the
related schedules and notes, of the Company filed with the Commission as a part
of the Registration Statement, which are included in the Prospectus, are
independent public accountants within the meaning of the Act and the Rules and
Regulations. The financial statements of the Company, together with the related
schedules and notes, forming part of the Registration Statement and the
Prospectus, fairly present the financial position and the results of Operations
of the Company at the respective dates and for the respective periods to which
they apply. All financial statements, together with the related schedules and
notes, filed with the Commission as part of the Registration Statement have been
prepared in accordance with generally accepted accounting principles as in
effect in the United States consistently applied throughout the periods involved
except as may be otherwise stated in the Registration Statement. The selected
and summary financial and statistical data included in the Registration
Statement present fairly the information shown therein and have been compiled on
a basis consistent with the financial statements presented therein. No other
financial statements or schedules are required by the Act or the Rules and
Regulations to be included in the Registration Statement.
(h) Recent Developments. Subsequent to the respective dates as of which
-------------------
information is given in the Registration Statement and the Prospectus, there has
not been (i) any Material Adverse Effect, (ii) any transaction which is material
to the Company, except transactions in the ordinary course of business, (iii)
any obligation, direct or contingent, which is material to the Company, incurred
by the Company, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the Company
or (v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company. The Company does not have any material contingent
obligation which is not disclosed in the Registration Statement.
(i) Property. The Company has good and marketable title to all properties
--------
and assets described in the Prospectus as owned by them, free and clear of any
pledge, lien, security interest, charge, encumbrance, claim, equitable interest,
or restriction, other than those, if any,
5
<PAGE>
disclosed in the Prospectus. The agreements to which the Company is a party
described in the Prospectus are valid agreements, enforceable against the
Company and the other party or parties thereto in accordance with its terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles, and, to the
Company's knowledge, the other contracting party or parties thereto are not in
material breach or default under any of such agreements, and the Company has
valid and enforceable leases for the properties described in the Prospectus as
leased by it, and such leases conform in all material respects to the
description thereof, if any, set forth in the Registration Statement.
(j) Compliance. The Company now holds and at the Closing Date and any
----------
later Additional Closing Date, as the case may be, will hold, all licenses,
certificates, approvals and permits from all state, United States, foreign and
other regulatory authorities that are material to the conduct of the business of
the Company as such business is currently conducted, except for such licenses,
certificates, approvals and permits the failure of which to hold would not have
a Material Adverse Effect, all of which are valid and in full force and effect,
and there is no proceeding pending or, to the knowledge of the Company,
threatened which may cause any such license, certificate, approval or permit to
be withdrawn, cancelled, suspended or not renewed. The Company is not in
violation of any law, order, rule, regulation, writ, injunction or decree of any
court or governmental agency or body. All of the descriptions in the
Registration Statement and Prospectus of the legal and governmental proceedings
or any foreign, state or local government body exercising comparable authority
are true, complete and accurate in all material respects.
(k) Taxes. The Company has filed on a timely basis all necessary federal,
-----
state and foreign income, franchise and other tax returns and has paid all taxes
shown thereon as due, and the Company has no knowledge of any tax deficiency
which has been or might be asserted against the Company which might have a
Material Adverse Effect. All material tax liabilities are adequately provided
for within the financial statements of the Company.
(l) Insurance. The Company maintains insurance of the types and in the
---------
amounts adequate for its business and consistent with insurance coverage
maintained by similar companies in similar businesses, including, but not
limited to, insurance covering product liability and real and personal property
owned or leased against theft, damage, destruction, acts of vandalism and all
other risks customarily insured against, all of which insurance is in full force
and effect.
(m) 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.
(n) Trademarks, Licenses. The Company owns or possesses adequate licenses
--------------------
or other rights to use all trademarks, trademark applications, service marks,
service mark
6
<PAGE>
applications, trade names, copyrights, manufacturing processes, formulae, trade
secrets, know-how, franchises, and other intangible property and assets
(collectively, "Intellectual Property") necessary to the conduct of its business
as conducted and as proposed to be conducted as described in the Prospectus.
The Company has no knowledge that it lacks or will be unable to obtain any
rights or licenses to use any of the Intellectual Property necessary to conduct
the business now conducted or proposed to be conducted by it as described in the
Prospectus, except as described in the Prospectus. The Prospectus fairly and
accurately describes the Company's rights with respect to the Intellectual
Property. The Company is not in breach or violation of any contract, agreement,
license or commitment with respect to Intellectual Property. The Company has
not received any notice of infringement or of conflict with rights or claims of
others with respect to any Intellectual Property. The Company is not aware of
any trademarks or copyrights of others which are infringed upon by products
referred to in the Prospectus. [Additional reps or modifications to follow based
upon completion of due diligence on trademark licenses].
(o) Investment Company Act. The Company is not and, upon the issuance and
----------------------
sale of the Shares as herein contemplated and the application of the net
proceeds therefrom as described in the Prospectus, will not be an "investment
company," or a "promoter" or "principal underwriter" for or an entity controlled
by a registered investment company, as such terms are defined in the Investment
Company Act of 1940, as amended.
(p) Finder's Fee. The Company has 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 other
than the underwriting discounts and commissions contemplated hereby, all of
which are accurately described in the Prospectus under the heading
"Underwriting".
(q) Contributions; Payments. Neither the Company nor any Selling
-----------------------
Stockholder has at any time during the last five years (i) made any unlawful
contribution to any candidate for foreign office, or failed to disclose any
contribution in violation of law, or (ii) made any payment to any foreign,
United States or state governmental officer or official, or other person charged
with similar public of quasi-public duties, other than payments required or
permitted by the laws of the United States.
(r) 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.
(s) Stabilization. Neither the Company nor any Selling Stockholder, nor,
-------------
to their knowledge, any of the Company's officers, directors or affiliates, has
taken and at the Closing Date and at any later Additional Closing Date or will
have taken, directly or indirectly,
7
<PAGE>
any action which has constituted, or might reasonably be expected to constitute,
the stabilization or manipulation of the price of sale or resale of the Shares.
(t) Registration Rights. There are no persons with registration rights or
-------------------
other similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the Act
other than the Selling Stockholders whose rights have been satisfied by
registering that number of Shares as is included in the Registration Statement.
(u) Doing Business with Cuba. The Company has complied with, and is and
------------------------
will be in compliance with, the provisions of that certain Florida Statute
relating to disclosure of doing business with Cuba, codified as Section 517.075
of the Florida Statutes and the rules and regulations thereunder (collectively,
the "Cuba Act") or is exempt therefrom.
(v) 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."
(w) Selling Stockholders. Each Selling Stockholder represents and warrants
--------------------
to, and agrees with, each Underwriter that:
(i) On the Closing Date or the Additional Closing Date as the case may be,
such Selling Stockholder will be the lawful owner of the Selling Stockholder
Shares to be sold by such Selling Stockholder hereunder and upon sale and
delivery of, and payment for, such Selling Stockholder Shares, as provided
herein, such Selling Stockholder will convey to the Underwriters good and valid
title to such Selling Stockholder Shares, free and clear of all liens,
restrictions, encumbrances, charges, equities and claims whatsoever.
(ii) Such Selling Stockholder nor any of such Selling Stockholder's
affiliates (as defined in the Act and Exchange Act) has or will take, directly
or indirectly, prior to the termination of this Agreement, any action designed
to stabilized 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, to facilitate the sale or resale of any of the Shares
which would be required to be disclosed pursuant to Item 701 of Regulation S-K.
8
<PAGE>
(iii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by such Selling
Stockholder of the transactions contemplated herein, except such as may have
been obtained under the Act and such as may be required under the Blue Sky law
of any jurisdiction in connection with the purchase and distribution of the
Selling Stockholder by the Underwriters and such other approvals as have been
obtained.
(iv) Neither the sale of the Selling Stockholder Shares being sold by such
Selling Stockholder nor the consummation of any other of the transactions herein
contemplated by such Selling Stockholder or the fulfillment of the terms hereof
by such 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 to which such Selling Stockholder is a party or bound,
or any judgment, order or decree applicable to such Selling Stockholder of any
court, regulatory body, administrative agency, governmental body or arbitrator
having jurisdiction over such Selling Stockholder.
(v) All information furnished or to be furnished to the Company by or on
behalf of such Selling Stockholder for use in connection with the preparation of
the Registration Statement and the Prospectus does not and will not include 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.
(vi) Except as may be set forth in the Prospectus, such Selling Stockholder
has 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.
(vii) Such Selling Stockholder is not prompted to sell Shares by any
material non-public information concerning the Company which is not included in
the Registration Statement.
3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) Company Firm Shares and Selling Stockholder Shares. On the basis of
--------------------------------------------------
the representations and warranties and subject to the terms and conditions
herein set forth, (i) the Company agrees to issue and sell the Company Firm
Shares to the several Underwriters, and the Underwriters, severally and not
jointly, agree to purchase from the Company the number of Shares set forth
opposite the respective names of the Underwriters in column (2) of Schedule B
hereto, and (ii) each of the Selling Stockholders agrees to sell the
Underwriters, and the Underwriters severally and not jointly agree to purchase
from the Selling Stockholders, the number of Shares set opposite the name of
such Selling Stockholder in Schedule A hereto; plus such additional number of
Overallotment Shares which the Underwriters may elect to purchase pursuant to
Section 3(c) hereof. The price at which the Shares shall be sold by the Company
and the Selling Stockholders, and purchased by the Underwriters shall be
[$_____________] per share.
9
<PAGE>
(b) Defaulting Underwriters. If for any reason one or more of the
-----------------------
Underwriters shall fail or refuse (otherwise than for a reason sufficient to
justify the termination of this Agreement under the provisions of Section 11
hereof) to purchase and pay for the number of Shares agreed to be purchased by
such Underwriter or Underwriters, the Company shall immediately give notice
thereof to you and the non-defaulting Underwriters shall have the right within
twenty-four (24) hours after such default to purchase, or procure one or more
other Underwriters to purchase, in such proportions as may be agreed upon
between you and such purchasing Underwriter or Underwriters and upon the terms
herein set forth, all or any part of the Shares which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such Shares
and portion, the number of Shares which each non-defaulting underwriter is
otherwise obligated to purchase under this Agreement shall be automatically
increased on a pro rata basis (as adjusted by you in such manner as you deem
advisable to avoid fractional shares) to absorb the remaining Shares and portion
which the defaulting Underwriter or Underwriters agreed to purchase; provided,
however, that the non-defaulting Underwriters shall not be obligated to purchase
the Shares and portion which the defaulting Underwriter or Underwriters agreed
to purchase if the aggregate number of such Shares exceeds 10% of the total
number of Shares which all Underwriters agreed to purchase hereunder. If the
total number of Shares which the defaulting Underwriter or Underwriters agreed
to purchase shall not be purchased or absorbed in accordance with the two
preceding sentences, the Company shall have the right, within the twenty-four
(24) hours next succeeding the 24-hour period referred to above, to make
arrangements with other underwriters or purchasers reasonably satisfactory to
you for purchase of such Shares and portion on the terms herein set forth. In
any such case, the Company shall have the right to postpone the Closing Date
determined as provided in Section 5 hereof for not more than seven (7) business
days after the date originally fixed as the Closing Date pursuant to said
Section 5 in order that any necessary changes in the Registration Statement, the
Prospectus or any other documents or arrangements may be made. If the aggregate
number of Shares which the defaulting Underwriter or Underwriters agreed to
purchase exceeds ten percent (10%) of the total number of Shares which all
Underwriters agreed to purchase hereunder, and if neither the non-defaulting
Underwriters nor the Company shall make arrangements within the 24-hour periods
stated above for the purchase of all the Shares which the defaulting Underwriter
or Underwriters agreed to purchase hereunder, this Agreement shall be terminated
without further act or deed and without any liability on the part of the Company
to any non-defaulting Underwriter nor of any non-defaulting Underwriter to the
Company. Nothing in this paragraph (b), and no action taken hereunder, shall
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
(c) Overallotment Shares. 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 (as defined below) or the Additional Closing
Date (as defined below), as the case may be, the Company and Selling
Stockholders will sell to the Underwriters the Overallotment Shares. The
Overallotment Shares are solely for the purpose of covering overallotments, if
any, in the sale of Shares. The Underwriters shall have the option to purchase
75% of the Overallotment Shares from the Selling Stockholders and 25% of the
Overallotment Shares from the Company; on the same terms as the other Shares
publicly offered. The option will be
10
<PAGE>
exercisable for a period of 30 days following the Closing Date (as defined
below). Delivery of certificates for the Overallotment Shares, and payment
therefor, shall be made as provided in Section 5 hereof.
(d) Representative's 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 (as defined below) the
Company will sell to the Representative, for a consideration of one mil ($.001)
per warrant, warrants to purchase an aggregate of One Hundred Eighty Thousand
(180,000) Shares (equivalent to ten percent (10%) of the common stock offered to
the public, exclusive of the exercise of any portion of the Overallotment
Shares). The Representative's Warrant and all underlying securities shall be
registered in the Registration Statement. Each Share under the Representative's
Warrant shall be exercisable at a price equal to 120% of the offering price to
the public. The Representative's Warrant shall be exercisable for a period of
four years commencing one year after the Closing Date (as defined below), 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 Representative's Warrant shall be set
forth in a Warrant Agreement in substantially the form filed as Exhibit 1.2 to
the Registration Statement.
4. OFFERING BY UNDERWRITERS.
(a) Pricing. The terms of the initial public offering of the Shares by the
-------
Underwriters shall be as set forth in the Prospectus. The Underwriters may from
time to time change the public offering price after the closing of the initial
public offering and increase or decrease the concessions and discounts to
dealers as it may determine.
(b) Disclosure of Underwriters. You, on behalf of the Underwriters,
--------------------------
represent and warrant that (i) the information set forth in the last paragraph
on the front cover page and paragraph ___ under the caption "Underwriting" in
the Registration Statement, any Preliminary Prospectus and the Prospectus
relating to the Shares (insofar as such information relates to the Underwriters)
constitutes the only information furnished by the Underwriters to the Company
for inclusion in the Registration Statement, any Preliminary Prospectus, and the
Prospectus, and that the statements made therein are correct and do not omit to
state any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were made
not misleading, and (ii) the Underwriters have not distributed and will not
distribute prior to the Closing Date (as defined below) or on any Additional
Closing Date (as defined below), as the case may be, any of offering material in
connection with the offering and sale of the shares other than the Preliminary
Prospectus, the Prospectus, the Registration Statement and other materials
permitted by the Act.
11
<PAGE>
5. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of Certificates. Delivery of certificates for the Firm Shares
------------------------
and the Overallotment Shares (if the option granted pursuant to Section 3(c)
hereof shall have been exercised not later than 1:00 p.m., New York time, on the
date at least two business days preceding the Closing Date), and payment
therefor, shall be made at the office of the Representative, 350 Park Avenue,
27/th/ Floor, New York, New York 10022 at 9:00 a.m., New York time, on the
fourth business day after the date of this Agreement, or at such time on such
other day, not later than seven full business days after such fourth business
day, as shall be agreed upon in writing by the Company and you (the "Closing
Date").
(b) Exercise of Overallotment Option. If the option granted pursuant to
--------------------------------
Section 3(c) hereof shall be exercised after 1:00 p.m., New York time, on the
date two business days preceding the Closing Date, and on or before the 30th day
after the date of Closing Date, delivery of certificates for the Overallotment
Shares, and payment therefor, shall be made at the office of the Representative,
350 Park Avenue, 27/th/ Floor, New York, New York 10022 at 9:00 a.m., New York
time, on the third business day after the exercise of such option (the
"Additional Closing Date").
(c) Payments. Payment for the Company Firm Shares purchased from the
--------
Company shall be made to the Company or its order by wire transfer of
immediately available funds to a bank account designated by the Company.
Payment for the Selling Stockholder Shares purchased from the Selling
Stockholders shall be made to the respective Selling Stockholder pursuant to
their reasonable instructions. Such payment shall be made upon delivery of
certificates for the Shares to you for the respective accounts of the several
Underwriters against receipt therefore signed by you. Certificates for the
Shares to be delivered to you shall be registered in such name or names and
shall be in such denominations as you may request at least three business days
before the Closing Date, in the case of Company Firm Shares, and at least two
business days prior to the Additional Closing Date. Such certificates will be
made available to the Underwriters for inspection, checking and packaging at a
location in New York, New York designated by the Representative not less than
one full business day prior to the Closing Date or, in the case of the
Overallotment Shares, by 3:00 p.m., New York time, on the business day preceding
the Additional Closing Date. Each Selling Stockholder will pay all applicable
stock transfer taxes, if any, involved in the transfer to the several
Underwriters of the Shares to be purchased by them from such Selling Stockholder
and the respective Underwriters will pay any additional stock transfer taxes
involved in further transfers.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later Additional Closing Date. Any
such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company and Selling
Stockholders covenant and agree as follows:
12
<PAGE>
(a) SEC Effectiveness. The Company will use its best efforts to cause the
-----------------
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; it will notify you, promptly after it
shall receive notice thereof, of the time when the Registration Statement or any
subsequent amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed. If the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 43OA(a), the Company will provide evidence satisfactory to
you that the Prospectus contains such information and has been filed, within the
time period prescribed, with the Commission pursuant to subparagraph (1) or (4)
of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective which
is declared effective by the Commission. If for any reason the filing of the
final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed. The Company will notify you promptly of any request by the
Commission for the amending or supplementing of the Registration Statement or
the Prospectus or for additional information. Promptly upon your request, it
will prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel to the
Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters. The Company
will promptly prepare and file with the Commission, and promptly notify you of
the filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. In case you are required to deliver a
prospectus within the nine-month period referred to in Section 10(a)(3) of the
Act in connection with the sale of the Shares, the Company will prepare promptly
upon request, but at the expense of you, such amendment or amendments to the
Registration Statement and such prospectus or prospectuses as may be necessary
to permit compliance with the requirements of Section 10(a)(3) of the Act. The
Company will file no amendment or supplement to the Registration Statement or
Prospectus that shall not previously have been submitted to you a reasonable
time prior to the proposed filing thereof or to which you shall reasonably
object in writing or which is not in compliance with the Act and Rules and
Regulations or the provisions of this Agreement.
(b) Stop Order. The Company will advise you, promptly after it shall have
----------
received notice or obtained knowledge thereof of the issuance of any stop order
by the Commission suspending the effectiveness of the Registration Statement or
the use of the Prospectus or of the initiation or threat of any proceeding for
that purpose; and the Company will promptly use its best efforts to prevent the
issuance of any such stop order or to obtain its withdrawal at the earliest
possible moment if such stop order should be issued.
13
<PAGE>
(c) State Qualification. The Company will cooperate with you in
-------------------
endeavoring to qualify the Shares for offering and sale under the securities
laws of such jurisdictions as you may designate and to continue such
qualifications in effect for so long as may be required for purposes of the
distribution of the Shares, except that the Company shall not be required in
connection therewith or as a condition thereof to qualify as a foreign
corporation, to execute a general consent to service of process in any
jurisdiction or to make any undertaking with respect to the conduct of its
business. In each jurisdiction in which the Shares shall have been qualified,
the Company will make and file such statements, reports and other documents in
each year as are or may be reasonably required by the laws of such jurisdiction
so as to continue such qualifications in effect for so long a period as you may
reasonably request for distribution of the Shares or as otherwise may be
required by law. The Company will promptly notify you of the receipt by the
Company of any notification with respect to the qualification of the Shares for
offering or sale in any jurisdiction or the initiation or threatening of any
proceedings for any such purpose.
(d) Registration Statement; Prospectus. The Company will furnish to you,
----------------------------------
as soon as available, copies of the Registration Statement (three of which will
be signed and which will include all exhibits), each Preliminary Prospectus, the
Prospectus and any amendments or supplements to such documents, including any
prospectus prepared to permit compliance with Section 10(a)(3) of the Act, all
in such quantities as you may from time to time reasonably request.
(e) Earnings Statement. The Company will make generally available to its
------------------
stockholders as soon as practicable, but in any event not later than the 45th
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and covering a twelve-month period beginning after the effective
date of the Registration Statement, and will advise you in writing when such
statement has been made available.
(f) Annual Reports. During a period of five years after the date hereof,
--------------
the Company, as soon as practicable after the end of each respective period,
will furnish to its stockholders annual reports (including financial statements
audited by independent certified public accountants) and will furnish to its
stockholders unaudited quarterly reports of operations for each of the first
three quarters of the fiscal year, and will, upon request, furnish to you and
the other several Underwriters hereunder (i) concurrently with making such
reports available to its stockholders, statements of operations of the Company
for each of the first three quarters in the form made available to the Company's
stockholders; (ii) concurrently with the furnishing thereof to its stockholders,
a balance sheet of the Company as of the end of such fiscal year, together with
statements of operations, of stockholders' equity and of cash flow of the
Company for such fiscal year, accompanied by a copy of the certificate or report
thereon of nationally recognized independent certified public accountants; (iii)
concurrently with the furnishing of such reports to its stockholders, copies of
all reports (financial or other) mailed to stockholders; (iv) as soon as they
are available, copies of all reports and financial statements furnished to or
filed with the
14
<PAGE>
Commission, any securities exchange or the Nasdaq National Market by the Company
(except for documents for which confidential treatment is requested); and (v)
every material press release and every material news item or article in respect
of the Company or its affairs which was generally released to stockholders or
prepared for general release by the Company. During such five-year period, if
the Company shall have any active subsidiaries, the foregoing financial
statements shall be on a consolidated basis to the extent that the accounts of
the Company are consolidated with any Subsidiaries, and shall be accompanied by
similar financial statements for any significant subsidiary that is not so
consolidated.
(g) Lock-Up Agreements. Prior to or simultaneously with the execution and
------------------
delivery of this Agreement, the Company will obtain a letter, in the form
attached hereto as Appendix A from each of the Company's stockholders, Officers
----------
and Directors listed on Schedule C to this Agreement providing that such person
----------
will not, for a period of one year after the date of the Prospectus, without the
prior written consent of the Representative, directly or 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) if 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 in the aggregate. Each
such person or entity shall also agree and consent to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of shares of
Common Stock held by such person or entity, except in compliance with the
foregoing restriction.
(h) Additional Registration Statements. The Company shall not, during the
----------------------------------
180 days following the effective date of the Registration Statement, except with
your prior written consent as Representative, file a registration statement
covering any of its shares of capital stock [except that one or more
registration statements on Form S-8 may be filed at any time following the
effective date of the Registration Statement.]
(i) Additional Sales of Selling Stockholder Shares. The Company shall not,
----------------------------------------------
during the 180 days following the effective date of the Registration Statement,
except with your prior written consent as Representative, issue, sell, offer or
agree to sell, grant, distribute or otherwise dispose of, directly or
indirectly, any shares of Common Stock, or any options, rights or warrants with
respect to shares of Common Stock, or any securities convertible into or
exchangeable for Common Stock, other than (i) the sale of Shares hereunder, (ii)
the grant of options or the issuance of shares of Common Stock under the
Company's stock option plans or stock purchase plan, as the case may be,
existing on the date hereof, (iii) the issuance of shares of Common Stock upon
exercise of the currently outstanding options or warrants described in the
Registration Statement.
15
<PAGE>
(j) Proceeds. The Company will apply the net proceeds from the sale of the
--------
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(k) Transfer Agent. The Company will maintain a Transfer Agent and, if
--------------
necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer Agent) for its Common Stock.
(l) NASDAQ National Market. The Company will use its best efforts to
-----------------------
maintain quotation of the Common Stock, including the Shares, on the Nasdaq
National Market and will file with the Nasdaq National Market all documents and
notices required of companies that have issued securities that are quoted
thereon.
(m) Investment Company Act. The Company is familiar with the Investment
----------------------
Company Act of 1940, as amended (the "Investment Company Act"), and the rules
and regulations thereunder, and has in the past conducted its affairs, and will
in the future conduct its affairs, in such a manner so as to ensure that the
Company was not and will not be an "investment company" within the meaning of
the Investment Company Act and the rules and regulations thereunder.
(n) Publicity. If at any time during the 180 day period after the
---------
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
reasonable opinion the market price of the Common Stock has been or is likely to
be materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, consult with you in good faith regarding the necessity of disseminating a
press release or other public statement responding to or commenting on such
rumor, publication or event and, if the Company in its reasonable judgment
determines that such a press release or other public statement is appropriate,
the substance of any press release or other public statement.
(o) Board of Directors. At its option, the Representative 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 the Representative 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 the Representative 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 the Representative'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.
16
<PAGE>
(p) Employment Agreements. Effective as of the Closing Date, the Company
---------------------
will enter into employment agreements with each of Bernard Weiss, Julie Heldman,
Michael Prince, Robert Fried and Robert Zeichick on terms that are satisfactory
to the Representative.
(q) Future Transactions; Rights of First Refusal. Following the Closing
--------------------------------------------
Date and for a period of three (3) years thereafter, the Representative 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
transaction for which the Company desires to engage the services of an
investment banker or brokerage 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
the Representative for its services with respect to the Covered Transaction.
The Representative shall have thirty (30) 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
the Representative does not elect to participate in the Covered Transaction,
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 the Representative, (ii)
the terms of the proposed Covered Transaction do not materially change from the
terms described in the Company's notice to the Representative, and (iii) both
the engagement of any such other investment banking or brokerage firm and the
commencement of the Covered Transaction occur within six (6) months of the date
after which the Representative elected not to participate in such Covered
Transaction.
(r) 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 the Representative.
(s) Minimum Shareholder Equity. On the Closing Date, without giving effect
--------------------------
to the proceeds from the sale of the Shares, the Company shall have Shareholder
Equity of at least Two Million Dollars ($2,000,000).
7. EXPENSES.
The Company agrees with each Underwriter that:
(a) Payment by Company. The Company will pay and bear all costs, fees and
------------------
expenses in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus and any amendments or supplements
thereto; the reproduction of this Agreement, the
17
<PAGE>
[Preliminary Blue Sky Memorandum and any Supplemental Blue Sky Memorandum] and
any instruments related to any of the foregoing; the issuance and delivery of
the Shares hereunder to the Underwriters, including transfer taxes (except as
may be otherwise provided in Section 5 hereof), if any; the cost of all stock
certificates representing the Shares and Transfer Agents' and Registrars' fees;
the fees and disbursements of corporate counsel for the Company; all fees and
other charges of the Company's independent public accountants; the cost of
furnishing to the Underwriters copies of the Registration Statement (including
appropriate exhibits), Preliminary Prospectuses and the Prospectus, and any
amendments or supplements to any of the foregoing; NASD filing fees and expenses
incident to securing any required review and the cost of qualifying the Shares
under the laws of such jurisdictions within the United States as you may
designate (including filing fees and fees and disbursements of the Underwriter's
Counsel in connection with such NASD filings and Blue Sky law qualifications);
listing application fees of the Nasdaq National Market; and all other expenses
directly incurred by the Company in connection with the performance of its
obligations hereunder.
(b) Obligation of Company. If the transactions contemplated hereby are not
---------------------
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, the Company
will, in addition to paying the expenses described in clause (a) above,
reimburse the Underwriters for all out-of-pocket expenses (including reasonable
fees and disbursements of Underwriters' Counsel) incurred by the Underwriters in
reviewing the Registration Statement and the Prospectus and in otherwise
investigating, preparing to market or marketing the Shares. The Company will
not in any event be liable to the Underwriters for any loss of anticipated
profits from the sale by them of the Shares.
(c) General. The provisions of paragraphs (a) and (b) of this Section are
-------
intended to relieve the Underwriters from the payment of the expenses and costs
which the Company hereby agrees to pay.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS.
The obligations of the several Underwriters to purchase and pay for the
Shares, as provided herein, shall be subject to the accuracy, as of the date
hereof and the Closing Date and any later Additional Closing Date, as the case
may be, of the representations and warranties of the Company herein, to the
performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) SEC Effectiveness. The Registration Statement shall have become
-----------------
effective not later than 9:00 a.m., New York time, on the date following the
date of this Agreement, or such later time or date as shall be consented to in
writing by you. If the filing of the Prospectus, or any supplement thereto, is
required pursuant to Rule 424(b) and Rule 430A of the Rules and Regulations, the
Prospectus shall have been filed in the manner and within the time period
required by Rule 424(b) and Rule 430A of the Rules and Regulations. No stop
order suspending the effectiveness of the Registration Statement shall have been
issued and no proceeding for that
18
<PAGE>
purpose shall have been initiated or, to the knowledge of the Company or any
Underwriter, threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the reasonable
satisfaction of Underwriter's Counsel.
(b) Underwriters' Counsel. All corporate proceedings and other legal
---------------------
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall be furnished with such papers and information as
they may reasonably have requested to enable them to pass upon the matters
referred to in this subsection.
(c) 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 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 Underwriter.
(d) Selling Stockholder Opinion. The Selling Stockholders shall have
---------------------------
furnished to you, the opinion of Troop, Meisinger, Steurber & Pasich, 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.
(e) Opinion of Underwriters' Counsel. You shall have received from
--------------------------------
Proskauer Rose Goetz & Mendelsohn 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.
(f) Accountant Update Letter. You shall have received on the Closing Date
------------------------
and on any later Additional Closing Date, as the case may be, a letter from the
Accountants addressed to the Company and the Underwriters, dated the Closing
Date or such later Additional Closing Date, as the case may be, confirming that
it is an independent certified public accountant with respect to the Company
within the meaning of the Act and the Rules and Regulations thereunder and based
upon the procedures described in its letter delivered to you concurrently with
the execution of this Agreement (herein called the "Original Letter"), but
carried out to a date not more than three days prior to the Closing Date or any
such later Additional Closing Date, as the case may be, (i) confirming that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later Additional Closing Date, as the case may be; and
(ii) setting forth any revisions and additions to the statements and conclusions
set forth in the Original Letter that are necessary to reflect any changes in
the facts described in the Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change, or any
19
<PAGE>
development involving a prospective change, in or affecting the business or
properties of the Company which, in your reasonable judgment, makes it
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. In addition, you shall have received from
the Accountants a letter addressed to the Company and made available to you for
the use of the Underwriters stating that its review of the Company's system of
internal accounting controls, to the extent it deemed necessary in establishing
the scope of its latest examination of the Company's financial statements, did
not disclose any weaknesses in internal controls that it considered to be
material weaknesses. All such letters shall be in a form reasonably
satisfactory to the Underwriters and its counsel.
(g) Certificate by Corporate Officer. You shall have received on the
--------------------------------
Closing Date and on any later Additional Closing Date, as the case may be, a
certificate of the President and the Chief Financial Officer of the Company,
dated the Closing Date or such later date, as applicable, to the effect that as
of such date (and you shall be satisfied that as of such date):
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or
any later Additional Closing Date, as the case may be; and the Company has
complied with all of the agreements and satisfied all of the conditions on
its part to be performed or satisfied at or prior to the Closing Date or
any later Additional Closing Date, as the case may be.
(ii) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of the Prospectus has been
issued, and no proceedings for that purpose have been instituted or are
pending or, to the best of their knowledge, threatened under the Act.
(iii) They have carefully reviewed the Registration Statement
and the Prospectus; and, when the Registration Statement became effective
and at all times subsequent thereto up to the delivery of such certificate,
the Registration Statement and the Prospectus and any amendments or
supplements thereto contained all statements and information required to be
included therein or necessary to make the statements therein not
misleading; and when the Registration Statement became effective, and at
all times subsequent thereto up to the delivery of such certificate, none
of the Registration Statement, the Prospectus or any amendment or
supplement thereto included any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus that has
not been so set forth.
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, there has not
been (A) any Material Adverse Effect, (B) any transaction which is material
to the Company, except transactions entered into in the ordinary course of
business, (C) any obligation, direct or contingent, incurred by the
Company, which is material to the Company, (D) any change in the
20
<PAGE>
capital stock or outstanding indebtedness of the Company which is material
to the Company (other than as contemplated and disclosed in the Prospectus)
or (E) any dividend or distribution of any kind declared, paid or made on
the capital stock of the Company.
(h) Other Certificates. The Company shall have furnished to you such
------------------
further certificates and documents as the Representative shall reasonably
request as to the accuracy of the representations and warranties of the Company,
as to the performance by the Company of its obligations hereunder and as to the
other conditions concurrent and precedent to the obligations of the Underwriters
hereunder.
(i) Selling Stockholder Certificates. Each Selling Stockholder shall
--------------------------------
have furnished to the Underwriters a certificate, signed by such Selling
Stockholder, dated the Closing Date, to the effect that the signer of such
certificate has carefully examined the Registration Statement, the Prospectus,
any supplement to the Prospectus and this Agreement and that the representations
and warranties of such Selling Stockholder in this Agreement are true and
correct in all material respects on and as of the Closing Date to the same
effect as if made on the Closing Date.
(j) NASDAQ National Market. The Shares shall have been approved for
----------------------
designation upon notice of issuance on the Nasdaq National Market.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
In case any of the conditions specified in this Section 8 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses,
including without limitation the fees and expenses of counsel to the
Underwriters, incident to the performance of the obligations of the Company
under this Agreement, and (ii) if this Agreement is terminated by you because of
any refusal, inability or failure on the part of the Company to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with any
provision hereof other than by reason of a default by the Underwriters, the
Company will reimburse the Underwriters upon demand for all out-of-pocket
expenses (including reasonable fees and disbursements of counsel) that shall
have been incurred by them in connection with the transactions contemplated
hereby.
9. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND SELLING STOCKHOLDERS.
The obligation of the Company and Selling Stockholders to deliver the Shares
shall be subject to the conditions that (a) the Registration Statement shall
have become effective and (b) no stop order
21
<PAGE>
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 9 shall not
be fulfilled, this Agreement may be terminated by the Company by giving notice
to you. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that in the event of any such termination the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement.
10. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification by Company and Selling Stockholders. The Company
---------------------------------------------------
and the Selling Stockholders, jointly and severally agree to indemnify and hold
harmless each Underwriter and each person (including each managing director,
director, partner, officer, employee or agent of any Underwriter or such person)
who controls any Underwriter within the meaning of Section 15 of the Act from
and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Act, the Exchange Act, or the common law or otherwise, and the Company
agrees to reimburse each such Underwriter and controlling person for any legal
or other out-of-pocket expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any 462(b)
registration statement) or any post-effective amendment thereto (including any
462(b) registration statement), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus or the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading or (iii) any of the matters which were the subject of the
Letter of Intent dated March 7, 1997 between the Company and the Representative;
provided, however, that (1) the indemnity agreements of the Company contained in
this paragraph (a) shall not apply to any such losses, claims, damages,
liabilities or expenses if such statement or omission is contained in the
section of the Prospectus entitled "Underwriting" (except with respect to the
____ paragraph thereof) or the last paragraph of text on the cover page of the
Prospectus, (2) the indemnity agreement contained in this paragraph (a) with
respect to any Preliminary Prospectus shall not inure to the benefit of the
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Shares which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Shares a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
(excluding
22
<PAGE>
any documents incorporated therein by reference) and the untrue statement or
omission of a material fact contained in such Preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as amended or supplemented)
unless the failure is the result of noncompliance by the Company with paragraph
(a) of Section 6 hereof. The indemnity agreement of the Company contained in
this paragraph (a) and the representations and warranties of the Company
contained in Section 2 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of any payment for the Shares.
(b) Selling Stockholders Indemnification. Each Selling Stockholder,
------------------------------------
severally and not jointly, agrees to indemnify and hold harmless the Company,
the Underwriters and each person (including each managing director, director,
partner, officer, employee or agent of the Company or any Underwriter or such
person) who controls the Company or any Underwriter within the meaning of
Section 15 of the Act, from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Act, the Exchange Act, or the common law or
otherwise and to reimburse each of them for any legal or other expenses
including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that in the cases of clauses (i) and (ii) above,
such statement or omission directly relates to information in the Section of
the Prospectus entitled "Selling Stockholders" or [include any other pertinent
sections or paragraphs regarding the Selling Stockholders]. The indemnity
agreement of the Selling Stockholders contained in this paragraph (b) shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any indemnified party and shall survive the delivery of
and payment for the Shares.
(c) Underwriter Indemnification. Each Underwriter severally agrees to
---------------------------
indemnify and hold harmless the Company, each Selling Stockholder, each other
Underwriter and each person (including each officer, director or employee
thereof) who controls the Company or any such other Underwriter within the
meaning of Section 15 of the Act, from and against any and all losses, claims,
damages or liabilities, joint or several, to which such indemnified parties or
any of them may become subject under the Act, the Exchange Act, or the common
law or otherwise and to reimburse each of them for any legal or other expenses
including, except as
23
<PAGE>
otherwise hereinafter provided, reasonable fees and disbursements of counsel
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any 462(b) registration statement) or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii) any
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that in the cases of clauses (i) and (ii) above, such statement or omission
directly relates to the Section of the Prospectus entitled "Underwriting"
(except for the [________] paragraph thereof) or the last paragraph on the cover
page of the Prospectus. The indemnity agreement of each Underwriter contained
in this paragraph (c) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified party
and shall survive the delivery of and payment for the Shares.
(d) Notification. Each party indemnified under the provision of
------------
paragraphs (a), (b) and (c) of this Section 10 agrees that, upon the service of
a summons or other initial legal process upon it in any action or suit
instituted against it or upon its receipt of written notification of the
commencement of any investigation or inquiry of, or proceeding against it, in
respect of which indemnity may be sought on account of any indemnity agreement
contained in such paragraphs, it will promptly give written notice (a "Notice")
of such service or notification to the party or parties from whom
indemnification may be sought hereunder. No indemnification provided for in
such paragraphs shall be available to any party who shall fail so to give the
Notice if the party to whom such Notice was not given was unaware of the action,
suit, investigation, inquiry or proceeding to which the Notice would have
related and was prejudiced by the failure to give the Notice. Any indemnifying
party shall be entitled at its own expense to participate in the defense of any
action, suit or proceeding against, or investigation or inquiry of, an
indemnified party. Any indemnifying party shall be entitled, if it so elects
within a reasonable time after receipt of the Notice by giving written notice
(the "Notice of Defense") to the indemnified party, to assume (alone or in
conjunction with any other indemnifying party or parties) the entire defense of
such action, suit, investigation, inquiry or proceeding, in which event such
defense shall be conducted, at the expense of the indemnifying party or parties,
by counsel chosen by such indemnifying party or parties and reasonably
satisfactory to the indemnified party or parties; provided, however, that (i) if
the indemnified party or parties reasonably determine that there may be a
conflict between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the
24
<PAGE>
defense to the extent reasonably determined by such counsel to be necessary to
protect the interests of the indemnified party or parties and (ii) in any event,
the indemnified party or parties shall be entitled, at its or their own expense
to have counsel chosen by such indemnified party or parties participate in, but
not conduct, the defense. It is understood that the indemnifying parties shall
not, in respect of the legal defenses of any indemnified party in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for (a) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Underwriters and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act, and (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through (d) of this Section 10 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(A) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the proviso to the preceding sentence and (B) the indemnifying party or
parties shall bear such other expenses as it or they have authorized to be
incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding. The
indemnifying party or parties shall not be liable for any settlement of any
proceeding effected without its or their written consent, provided such consent
has not been unreasonably withheld.
(e) Contribution. If the indemnification provided for in this Section
------------
10 is unavailable or insufficient to hold harmless an indemnified party under
paragraph (a), (b) or (c) of this Section 10, then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of the losses, claims,
damages or liabilities referred to in paragraph (a), (b) or (c) of this Section
10: (i) in such proportion as is appropriate to reflect the relative benefits
received by each indemnifying party from the offering of the Shares or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each indemnifying
party in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, or actions in respect thereof, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Selling Stockholders, on the one hand, and the
Underwriters, on the other, shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Shares received
by the Company and the Selling Stockholders and the total underwriting discount
received by the Underwriters, as set forth in the table on the cover page of the
Prospectus, bear to the aggregate public offering price of the Shares. Relative
fault shall be determined by reference to, among other things, whether the
25
<PAGE>
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by each
indemnifying party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparation to defend or defense against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter, No person guilty of fraudulent misrepresentation (within the
meaning of Section 11 (f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 10).
(f) Limits on Liability. The liability of each Selling Stockholder
-------------------
under such Selling Stockholder's representations and warranties contained in
Section 2(w) hereof and this Section 10(b) shall be limited to an amount equal
to the initial public offering price of the Selling Stockholder Shares sold by
such Selling Stockholder to the Underwriters. The liability of each Underwriter
hereunder shall be limited to an amount equal to the underwriting discount and
commission applicable to the Shares purchased by each such Underwriter from the
Company and the Selling Stockholders.
(g) Settlement. The Company will not, without the prior written
----------
consent of the Representative, settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not
Representative or any other Underwriter or any person who controls such
Representative or Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding) unless such settlement, compromise or consent includes an
unconditional release of such Representative and Underwriters and each such
controlling person from all liability arising out of such claim, action, suit or
proceeding.
26
<PAGE>
(h) Representation by Counsel. The parties to this Agreement hereby
-------------------------
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof, including
without limitation the provisions of this Section 10 and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 10 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Act and the Exchange Act.
11. TERMINATION. This Agreement may be terminated by you at any time on
or prior to the Closing Date or on or prior to any later Additional Closing
Date, as the case may be, by giving written notice to the Company (i) if the
Company shall have failed, refused or been unable, at or prior to the Closing
Date, or on or prior to any later Additional Closing Date, as the case may be,
to perform any agreement on its part to be performed, or because any other
condition of the Underwriters' obligations hereunder required to be fulfilled by
the Company is not fulfilled, or (ii) if trading on the New York Stock Exchange,
the American Stock Exchange or the Nasdaq National Market shall have been
suspended, or minimum or maximum prices for trading shall have been fixed, or
maximum ranges for prices for securities shall have been required on the New
York Stock Exchange, the American Stock Exchange or the Nasdaq National Market,
by such trading exchanges or by order of the Commission or any other
governmental authority having jurisdiction, or if a banking moratorium shall
have been declared by federal or New York authorities, or (iii) if the Company
shall have sustained a loss by strike, fire, flood, accident or other calamity
of such character as to have a Material Adverse Effect regardless of whether or
not such loss shall have been insured, or (iv) if there shall have been a
material adverse change in the general political or economic conditions or
financial markets in the United States as in the judgment of the Representative
makes it inadvisable or impracticable to proceed with the offering, sale and
delivery of the Shares, or (v) if there shall have occurred an outbreak, or
escalation of hostilities between the United States and any foreign power or of
any other insurrection or armed conflict involving the United States or other
national or international calamity, hostilities or crisis or the declaration by
the United States of a national emergency which, in the judgment of the
Representative, adversely affects the marketability of the Shares, or (vi) if
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there shall have occurred any Material Adverse
Effect or any development involving a prospective Material Adverse Effect,
whether or not arising in the ordinary course of business, or (vii) if any
foreign, federal or state statute, regulation, rule or order of any court or
other governmental authority shall have been enacted, published, decreed or
otherwise promulgated which in the judgment of the Representative materially and
adversely affects or will materially and adversely affect the business or
operations of the Company, or trading in the Common Stock shall have been
suspended, or (viii) there shall have occurred a material adverse decline in the
value of securities generally on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq National Market or (ix) action shall be taken by any
foreign, federal, state or local government or agency in respect of its monetary
or fiscal affairs which, in the judgment of the Representative, has a material
adverse effect on the securities markets in the United States. If this
Agreement shall be terminated in accordance with this Section 11, there shall be
no liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination (i)
27
<PAGE>
the Company agrees to indemnify and hold harmless the Underwriters from all
costs or expenses incident to the performance of the obligations of the Company
under this Agreement, including, without limitation, all costs and expenses
referred to in Section 7, 10 and 12 hereof and (ii) if such termination is
pursuant to clause (i) of this Section 11, the Company agrees to reimburse and
hold harmless the Underwriters from all costs or expenses incurred by the
Underwriters in connection with the proposed offering, including, without
limitation, Underwriters' Counsel fees and expenses and blue sky fees and
expenses.
If you elect to terminate this Agreement as provided in this Section 11,
the Company shall be notified promptly by you by telephone, telecopy or
telegram, confirmed by letter.
12. REIMBURSEMENT OF CERTAIN EXPENSES.
(a) Underwriter Expenses (General). In addition to its other
------------------------------
obligations under Section 10 of this Agreement, the Company agrees to reimburse
the Underwriters for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in paragraph (a) of
Section 10 of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 12 and the possibility that such payments might later be held to be
improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of its ability to effect any refund, when and if
due.
(b) Underwriter Expenses (Special). In addition to its other
------------------------------
obligations under Section 10 of this Agreement, the Underwriters hereby agree to
reimburse the Company for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in paragraph (b) of
Section 10 of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 12 and the possibility that such payments might later be held to be
improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the Company shall promptly refund it and (ii)
the Company shall provide to the Underwriters, upon request, reasonable
assurances of its ability to effect any refund, when and if due.
13. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, covenants and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants and agreements of the Underwriters, the
Company and the Selling Stockholders, including the indemnity and contribution
agreements contained in Section 10, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any indemnified person, or by or on behalf of the Company, the Selling
Stockholders, or any person or entity which is entitled to be
28
<PAGE>
indemnified under Section 10, and shall survive termination of this Agreement or
the delivery of the Shares to the several Underwriters. In addition, the
provisions of Sections 6, 7, 10, 11, 12, 13, 14, 15, 16, 17 and 18 shall survive
termination of this Agreement, whether such termination, whether such
termination occurs before or after the Closing Date or any Additional Closing
Date.
14. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of the Company, the Selling Stockholders and the several
Underwriters and, with respect to the provisions of Section 10 hereof, the
several parties (in addition to the Company, Selling Stockholders and the
several Underwriters) indemnified under the provisions of said Section 10, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Shares from any of the several Underwriters, other than any
purchasers whom participate in the underwriting syndicate for the public
offering.
15. NOTICES. Except as otherwise provided herein, all notices, requests,
consents and other communications required or permitted under this Agreement
shall be in writing (including telex, telecopy and telegraphic communication)
and shall be (as elected by the person giving such notice) hand delivered by
messenger or courier service, telecopied, telecommunicated, or mailed (airmail
if international) by registered or certified mail (postage prepaid), return
receipt requested, addressed to:
If to Company:
Signature Eyewear, Inc.
498 N. Oak Street
Inglewood, CA 90302
Attention: Bernard Weiss, Chief Executive Officer
Telephone: (310) 330-2700
Fax: (310) 330-2765
with a copy to:
Alan B. Spatz, Esq.
Troop Meisinger Steuber & Pasich, LLP
10940 Wilshire Boulevard
Los Angeles, California 90024-3902
Telephone: (310) 824-7000
Fax: (310) 443-7599
29
<PAGE>
and if to the Underwriters:
Maurice R. Buchsbaum
Senior Managing Director, Corporate Finance
Fechtor, Detwiler & Co., Inc.
2255 Glades Road, Suite 234-W
Boca Raton, Florida 33431
Telephone: (561) 998-1577
Fax: (561) 241-5877
with a copy to:
Christopher C. Wheeler, Esq.
Donald E. Thompson II, Esq.
Proskauer Rose Goetz & Mendelsohn LLP
2255 Glades Road, Suite 340-W
Boca Raton, Florida 33431
Telephone: (561) 241-7400
Fax: (561) 241-7145
or to such other address as any party may designate by notice complying with the
terms of this Section 15. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
16. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(i) any investigation made by or on behalf of any Underwriter or controlling
person thereof, or by or on behalf of the Company or the Company's respective
directors or officers, and (ii) delivery of and payment for the Shares under
this Agreement.
17. APPLICABLE LAW; ARBITRATION. This Agreement shall be governed by, and
construed in accordance with, the laws of The Commonwealth of Massachusetts.
Any dispute between the parties arising under or related to this letter shall be
resolved by binding arbitration conducted in Boston, Massachusetts in accordance
with the rules of commercial arbitration.
18. AUTHORITY OF REPRESENTATIVE. You will act as Representative of the
several Underwriters in all dealings with the Company under this Agreement, and
any action under or in respect of this Agreement taken by you as Representative
will be binding upon all of the Underwriters.
30
<PAGE>
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company,
the Selling Stockholders and the Underwriters in accordance with its terms.
Very truly yours,
SIGNATURE EYEWEAR, INC.
By:
-----------------------------
Bernard Weiss
Chief Executive Officer
Selling Stockholders:
----------------------------------
Bernard L. Weiss
----------------------------------
Julie Heldman
----------------------------------
Edward Weiner
----------------------------------
Daniel Warren
31
<PAGE>
Selling Stockholders Cont'd
-----------------------------------
Robert Fried
-----------------------------------
Robert Zeichick
-----------------------------------
Michael Prince
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
FECHTOR, DETWILER & CO., INC.
By:
----------------------------------
Name: Maurice R. Buchsbaum
Title: Senior Managing Director,
Corporate Finance
VAN KASPER & COMPANY
By:
------------------------------------
Name:
-----------------------------
Title:
-----------------------------
Each acting on behalf of the several
Underwriters, including themselves,
named on Schedule B hereto.
32
<PAGE>
SCHEDULE A
SELLING STOCKHOLDERS
Number of
Shares to be
Name Purchased
-------------------- -------------
Bernard L. Weiss
Julie Heldman
Edward Weiner
Daniel Warren
Robert Fried
Robert Zeichick
Michael Prince
____________
200,000
33
<PAGE>
SCHEDULE B
UNDERWRITERS
Number of Shares
Underwriter to be Purchased
----------- ---------------
Fechtor, Detwiler & Co., Inc.
Van Kasper & Company
34
<PAGE>
SCHEDULE C
Lock-Up Agreements
------------------
[List of all Directors, Officers and
Shareholders providing Lock-up Agreements]
Bernard L. Weiss
Julie Heldman
Edward Weiner
Daniel Warren
Robert Fried
Robert Zeichick
Michael Prince
35
<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 the Representative 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 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 in the aggregate, if such transfer is after
180 days following the effective date of the registration statement.
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]
36
<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; the Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to so qualify would not have a Material
Adverse Effect;
(C) 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 [5,470,531] shares of Common
Stock (including the Company Firm Shares [plus the number of Overallotment
Shares issued on the date hereof]). 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 this Agreement
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;
37
<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 caption
"Description of Capital Stock", to the extent that it constitutes matters of law
or legal conclusions, has been reviewed by such counsel and is correct, 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 certificate 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 or the Overallotment Shares, as the case may be, to be
issued and sold by it thereunder;
(I) The Underwriting Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been duly executed
and delivered by the Company and is a valid and binding agreement of the
Company, enforceable in accordance with its terms, except that rights to
indemnity and contribution hereunder may be limited by applicable laws or
equitable principles and except as enforcement hereof 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, all Preliminary Prospectuses, 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 "Shares Eligible for Future
Sale," and "Description of Capital Stock" in the Prospectus, insofar as such
statements constitute a summary of documents referred to therein or matters of
law, are accurate summaries and fairly and
38
<PAGE>
correctly present, in all material respects, the information called for with
respect to such documents and matters; provided that such counsel shall be
entitled to rely on representations of the Company with respect to certain
factual matters contained in such statements, and provided further that such
counsel shall state that nothing has come to the attention of such counsel which
leads them to believe that such representations are not true and correct in all
material respects;
(M) The execution, delivery and performance of this Agreement 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 certificate of incorporation or By-laws of the
Company, any agreement or document filed as an exhibit to the Registration
Statement, or any 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, or result in a breach or
violation of any of the terms or provisions of, or constitute a default or
result in the acceleration of any obligation under, any indenture, mortgage,
deed of trust, loan agreement, bond, debenture, note agreement, other evidence
of indebtedness, lease, contract or other agreement or instrument to which the
Company is a party or by which its property is bound 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 certificate of
incorporation or By-laws, and to the best of such counsel's knowledge, the
Company is not in breach of or default with respect to any provision of any
agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument by which it or any of its properties may be bound or
affected, except where such default would not have a Material Adverse Effect on
the Company and, to the best of such counsel's knowledge, the Company is in
compliance with all laws, rules, regulations, judgments, decrees, orders and
statutes of any court or jurisdiction to which it is subject, except where
noncompliance would not have a Material Adverse Effect on the Company;
(O) To such counsel's knowledge, there are no pending or threatened
actions, suits, claims, proceedings or investigations that, if successful, would
have a Material Adverse Effect or 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;
(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
Overallotment Shares;
39
<PAGE>
(Q) The Company will not, upon consummation of the transactions
contemplated by this Agreement, be an "investment company, or a "promoter" or
"principal underwriter" for, a "registered investment company," as such terms
are defined in the Investment Company Act of 1940, as amended; and
(R) The Shares issued and sold by the Company have been duly
designated 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 Representative, Underwriters' Counsel and
the independent public accountants of the Company, at 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
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.]
40
<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, Steurber & Pasich shall opine to the effect that:
(A) The Underwriting Agreement has been duly executed and delivered by
each Selling Stockholder and each Selling Stockholder, subject to paragraph (B)
immediately below, 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 hereunder, subject to
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting or relating to the enforcement of creditors' rights
generally and general equitable principles.
(B) Upon delivery on behalf of each of the Selling Stockholders to the
Underwrites 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
____ 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".
(C) No consent, approval, authorization or order of any federal or
state court or governmental agency or body is required for the consummation by
any Selling Stockholder of the transactions contemplated herein, except such as
may have been obtained under the Act and 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 such other approvals
(specified in such opinion) as have been obtained.
(D) 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 to be applicable to any Selling
Stockholder of any federal State court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over any Selling
Stockholder.
41
<PAGE>
EXHIBIT 1.2
THIS WARRANT 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. THIS WARRANT 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
REPRESENTATIVES' WARRANT
<TABLE>
- --------------------------------------------------------------------------------------------
<S> <C>
Date of Issuance: As of ____________, 1997 Right to Purchase 180,000 shares of
Expiration Date: As of ____________, 2002 Common Stock, as part of a Grant of Rights
to Purchase an Aggregate of 180,000 shares
of Common Stock (subject to adjustment)
- --------------------------------------------------------------------------------------------
</TABLE>
THIS CERTIFIES THAT, in consideration of the premises, 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 permitted transferees in accordance with Section 2 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"). This Representatives' Warrant is issued 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 B thereto (the "Agreement").
The amount and kind of securities purchasable pursuant to the rights
granted under this Representatives' Warrant and the purchase price for such
securities are subject to adjustment pursuant to the provisions contained in
this Representatives' Warrant. This Representatives' Warrant is also subject to
the following provisions:
<PAGE>
SECTION 1
Certain Definitions
-------------------
As used in this Representatives' Warrant, 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, as representative of the several
Underwriters.
"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 this
Representatives' Warrant, and the terms "date hereof," "date of this
Representatives' Warrant," and similar expressions shall be deemed to refer to
the Date of Issuance, as specified in Section 12 of this Representatives'
Warrant.
"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" means the last reported sale price, 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 quoted 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 Holders.
"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.
"REGISTRATION STATEMENT" means the Company's registration statement on Form
S-1, File No. 33-______, filed with the Commission.
2
<PAGE>
"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.
"STOCK" means shares of the Company's authorized but unissued Common Stock
issued or issuable upon exercise of this Representatives' Warrant or any other
of the Representatives' Warrants; provided that if there is a change such that
--------
the securities issuable upon exercise of an Representatives' 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' Warrant 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.
"REPRESENTATIVES' WARRANT" means this Representatives' Warrant and all
other Representatives' Warrants issued as contemplated by the Agreement, and all
Representatives' Warrants issued in exchange or substitution for this
Representatives' Warrant or any such other warrant pursuant to the terms hereof
or thereof, as the case may be.
SECTION 2
TRANSFER RESTRICTIONS UNTIL EXERCISE PERIOD
-------------------------------------------
Until the commencement of the Exercise Period, the Registered Holder may
not sell, assign, transfer or hypothecate this Representatives' Warrant, in
whole or in part, except: (i) to the officers, directors, employees, partners
and affiliates of any Underwriter; (ii) to selected dealers, whether or not
named in the Agreement, which participated in the initial public offering of the
Company's shares of Common Stock, and their officers, directors, employees,
partners and affiliates; and (iii) by operation of law.
SECTION 3
EXERCISE OR REPRESENTATIVES' WARRANT
------------------------------------
3.1 EXERCISE PERIOD. The Registered Holder may exercise this
---------------
Representatives' Warrant, in whole or in part, at any time and from time to
time, during the Exercise Period and the exercise hereof may be for such number
of shares of Stock as the Registered Holder may, in its sole discretion decide.
3.2 EXERCISE PROCEDURE
------------------
(a) This Representatives' Warrant 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
Representatives' Warrant (the "Purchaser");
(ii) this Representatives' Warrant (subject to delivery by the
Company of a new Representatives' Warrant with respect to any unexercised
portion, as provided in Subsection 3.2(b));
3
<PAGE>
(iii) if this Representatives' Warrant is not registered in the
name of the Purchaser, an Assignment or Assignments in the form set forth as
Exhibit II hereto, evidencing the assignment of this Representatives' Warrant to
the Person; 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 Common Stock purchased upon exercise of
this Representatives' Warrant will be delivered by the Company to the Purchaser
within three (3) business days after the Exercise Date. Unless this
Representatives' Warrant has expired or all of the purchase rights represented
hereby have been exercised, the Company will prepare a new Representatives'
Warrant representing the rights formerly represented by this Representatives'
Warrant that have not expired or been exercised. The Company will, within such
three-day period, deliver such new Representatives' Warrant to the Person
designated for delivery in the Exercise Agreement.
(c) The Common Stock issuable upon the exercise of this
Representatives' Warrant 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 Common Stock upon exercise of
this Representatives' Warrant 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 Common 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 of this Representatives' Warrant 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 this
Representatives' Warrant or the shares of Common Stock issued or issuable upon
the exercise of this Representatives' Warrant in any manner that interferes with
the timely exercise of this Representatives' Warrant. 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 unissued Common Stock acquirable upon exercise of this
Representatives' Warrant is at all times equal to or less than the Exercise
Price of the Common Stock (divided by such number of shares) then in effect.
3.3 EXERCISE BY SURRENDER OF WARRANT. 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 Common Stock remaining to be purchased
under this Representatives' Warrant so as to allow for the payment as provided
for below, to exercise this Representatives' Warrant 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 Common Stock. The number of Warrants
to be surrendered in payment of the aggregate Exercise Price of the Common Stock
for the Warrants to be exercised shall be determined by multiplying the number
of Warrants to be exercised by the Exercise Price per share of Common Stock, and
then dividing the product thereof by an amount equal
4
<PAGE>
to the Market Price per share of Common Stock minus the Exercise Price per share
of Common Stock. [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 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 of this Representatives' Warrant,
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
Representatives' Warrant for the unexercised portion of the rights hereunder 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 this Representatives' Warrant, 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 of such fractional share of Stock as of the close of business
on the Exercise Date.
SECTION 4
EXERCISE PRICE
--------------
4.1 GENERAL. The initial Exercise Price of this Representatives' Warrant
-------
is set forth on the front page of this Representatives' Warrant. In order to
prevent dilution of the rights granted under this Representatives' Warrant, the
initial Exercise Price will be subject to adjustment from time to time pursuant
to this Section 4.
4.2 SUBDIVISION OR COMBINATION OR COMMON STOCK; AND STOCK DIVIDENDS. If
---------------------------------------------------------------
the Company shall at any time after the date hereof (a) issue any shares of
Common Stock or any stock or other securities convertible into or exchangeable
for Common Stock (such convertible or exchangeable stock or securities being
herein called "Convertible Securities"), or any rights to purchase Common Stock
or Convertible Securities, 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 (plus any
Convertible Securities issued in connection therewith) 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 or Convertible
---
Securities, 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
5
<PAGE>
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.
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 of this Representatives' Warrant shall thereafter (until
another such adjustment) be entitled to purchase, at the adjusted Exercise Price
in effect on the date purchase rights under this Representatives' Warrant are
exercised, the number of shares of Common 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 this Representatives' Warrant is 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 of this
Representatives' Warrant shall thereafter upon exercise of this Representatives'
Warrant be entitled to receive the number of shares of capital stock or other
securities or property 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 this Representatives' Warrant, would have been entitled upon such
reorganization, reclassification of capital stock, consolidation, merger, sale,
or other disposition if this Representatives' Warrant 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 this Representatives' Warrant with respect to the rights and interests
thereafter of the Registered Holder of this Representatives' Warrant to the end
that the provisions set forth in this
6
<PAGE>
Representatives' Warrant (including those relating to adjustments of the
Exercise Price and the number of shares and warrants issuable upon the exercise
of this Representatives' Warrant) 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 this Representatives' Warrant had
been exercised immediately prior to such reorganization, reclassification of
capital stock, consolidation, merger, sale, or other disposition and the
Registered Holder hereof 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 Common Stock be issued in exchange, conversion,
substitution, or payment, in whole or in part, for or of a security of the
Company other than Common Stock deliverable from exercise of this
Representatives' Warrant, any such issue shall be treated as an issue of Common
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 hereof such shares
of stock or other securities, cash, or property as such Registered Holder shall
be entitled to purchase in accordance with the foregoing provisions.
Notwithstanding any other provisions of this Representatives' Warrant, 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 Representatives' Warrant 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 of this Representatives' Warrant that
such sale or other disposition has been consummated.
SECTION 7
NOTICE OF ADJUSTMENT
--------------------
Immediately upon any adjustment of the Exercise Price, or increase or
decrease in the number of shares of Common Stock purchasable upon exercise of
this Representatives' Warrant, the Company will send written notice thereof to
all Registered Holders, stating the adjusted Exercise Price and the increased or
decreased number of shares of Stock purchasable upon exercise of this
Representatives' Warrant 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 certified mail, postage
prepaid, addressed to the Registered Holder of this Representatives' Warrant 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 Company's
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 30
days prior to the record date or the effective date, whichever is earlier, of
the subject action or other event.
If any other event (not listed above) would require adjustment to the
Exercise Price, then the Company shall give prior written notice thereof (in
substance as set forth above) to the Registered Holder at its address and in the
manner provided in Section 15.3 hereof.
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 Options, Convertible Securities, or rights to
purchase stock, warrants, securities, or other property pro rata to the record
holders of Common Stock (the "Purchase Rights"), then the Registered Holder of
this Representatives' Warrant will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights that such
Registered Holder could have acquired if such Registered Holder had held the
number of shares of Stock acquirable upon exercise of this Representatives'
Warrant had this Representatives' Warrant been fully exercised immediately prior
to the date on which a record was taken for the grant, issuance, or sale of such
Purchase Rights, or, if no such record was taken, the date as or which the
record holders of Common Stock were determined for the grant, issuance, or sale
of such Purchase Rights.
SECTION 10
RESERVATION OF COMMON STOCK
---------------------------
The Company will at all times reserve and keep available for issuance upon
the exercise of the Representatives' 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
8
<PAGE>
stockholder. As long as this Representatives' Warrant shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of this Representatives' Warrant 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.
SECTION 11
NO STOCKHOLDER RIGHTS OR OBLIGATION
-----------------------------------
This Representatives' Warrant will not entitle the holder hereof to any
voting rights or other rights as a stockholder of the Company, except as
specifically provided in this Agreement. No provision of this Representatives'
Warrant, in the absence of affirmative action by the Registered Holder to
purchase Stock, and no enumeration in this Representatives' Warrant 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
---------------------------
The Representatives' Warrant is exchangeable, upon the surrender hereof by
the Registered Holder at the principal office of the Company, for new
Representatives' Warrants of like tenor representing in the aggregate the
purchase rights hereunder, and each of such new Representatives' Warrants, as
set forth on the front page hereof, will represent such portion of such rights
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 Representatives' Warrant 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 Warrant Certificate, if mutilated, the Company will make
and deliver a new Representatives' Warrant of like tenor, in lieu thereof. The
date the Company initially issued this Representatives' Warrant, which is set
forth on the front page hereof, will be deemed to be the "Date of Issuance" of
this Representatives' Warrant and any Representatives' Warrant 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 this Representatives' Warrant are issued.
SECTION 13
TRANSFERABILITY
---------------
Subject to the transfer conditions referred to in Section 2 or in the
remaining provisions or this Section 13, this Representatives' Warrant and all
rights hereunder are transferable, in whole or in part, without charge to the
Registered Holder, upon surrender of this Representatives' Warrant 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. This
Representatives' Warrant 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
9
<PAGE>
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
this Representatives' Warrant or any underlying security pursuant to a
registration statement effective under the Act. The Registered Holder of this
Representatives' Warrant 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 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 of this
Representatives' Warrant 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 and outstanding shares of Stock from exercise of an
Representatives' Warrant not previously sold pursuant to a registration
statement as contemplated by this Section 14 (collectively, the "Warrant
Securities") 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 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 and to use its best efforts to obtain promptly and
maintain the effectiveness thereof for at least nine (9) months. 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.
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, 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 Registered 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
Registered 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 the 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
10
<PAGE>
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
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 thirty (30) 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 twenty (20) days of receipt of the Company's notice of its
intention to file a post-effective amendment or new registration statement.
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) 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 Registered 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 or piggyback registration
or, without suspending such effectiveness, instruct the Registered Holder(s) not
to sell any securities included in such demand or piggyback registration, (i) if
the Company shall have determined upon the written advice of counsel
(confirmation of which notice shall be provided to the Registered 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, which disclosure would have a material adverse effect on the Company
or on such actions, or (ii) if required by law, to update the prospectus
relating to any such registration to include updated financial statements (a
"Suspension Period") by providing the Registered 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. In the event of a Suspension
Period, the nine-month effective period during which a demand registration is to
remain effective pursuant to Section 14.1 shall be tolled until the end of any
such Suspension Period.
(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 Registered
Holder(s)), 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. Provided the Registered 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 Registered Holder(s), extend
the Exercise Period by such number of days as shall equal the delay caused by
the Company's failure.
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 Registered 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 this Representatives' Warrant
prior to the initial filing of any registration statement or the effectiveness
thereof.
(e) The Company shall furnish to each Registered Holder participating
in an offering covered by a registration statement filed pursuant to this
Agreement a signed counterpart, addressed to such Registered Holder, of (i) an
opinion of counsel to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
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 Registered Holder
participating in the offering 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 Registered 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
Registered 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 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, officer, creditor,
12
<PAGE>
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 INDEMNIFICATION. The sellers of Warrant Securities shall be
---------------
indemnified by the Company in the same manner as is contained in Section
10(a)(d) and (e) of the Agreement, with respect to such post-effective
amendments, additional registration statements and prospectuses, to the same
extent as the Underwriters are covered by indemnity agreements under such
Sections from the Company with respect to the Registration Statement. Each
seller of Warrant Securities shall indemnify the Company and any Underwriter in
the same manner as is contained in Section 10(b), (d), (e) and (f) of the
Agreement, with respect to such post-effective amendments, additional
registration statements and prospectuses, to the same extent as the Company and
Underwriters are covered by the indemnity provisions under such Sections from
the Selling Stockholders (as defined in the Agreement) with respect to the
Registration Statement.
14.5 SURVIVAL. The rights and obligations set forth in this Section 14
--------
shall survive the exercise and surrender of this Representatives' Warrant.
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
this Representatives' Warrant or the Common Stock deliverable upon exercise
hereof.
15.2 AMENDMENT AND WAIVER. Except as otherwise provided herein, the
--------------------
provisions of the Representatives' Warrants 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 shares of
Common Stock obtainable upon the exercise of this Representatives' Warrant
outstanding at the time of such consent.
15.3 NOTICES. Any notices required to be sent to a Registered Holder of
-------
this Representatives' Warrant or of any Common Stock purchased upon the exercise
hereof will be delivered to the address of such Registered Holder shown on 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 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 each of them, in the manner provided above, at the
following address:
Fechtor, Detwiler & Co., Inc.
70 East 55/th/ Street, 24/th/ Floor
New York, NY 10022
(212) 888-0808 Telephone No.
(212) 888-8008 Fax No.
Attn:______________________________
and
13
<PAGE>
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 Goetz & Mendelsohn 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 Representatives' Warrant are inserted for
convenience only and do not constitute a part of this Representatives' Warrant.
The construction, validity, and interpretation of this Representatives' Warrant
will be governed by the laws of the Commonwealth of Massachusetts, without
giving effect to choice of law or conflict of laws principals thereof.
IN WITNESS WHEREOF, the Company has caused the Warrant 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:____________________
14
<PAGE>
EXHIBIT I
---------
EXERCISE AGREEMENT
------------------
To: Dated:
THE UNDERSIGNED Registered Holder, pursuant to the provisions set forth in
the within Representatives' Warrant, hereby subscribes for and purchases _______
shares of Common Stock covered by such Representatives' Warrant 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' Warrant.
________________________________
(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 Representatives' Warrant, 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:________________________________________________________________________
15
<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 Representatives' Warrant 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 Representatives' Warrant, 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:________________________________________________________________________
16
<PAGE>
EXHIBIT 3.1
RESTATED
ARTICLES OF INCORPORATION
OF
SIGNATURE EYEWEAR, INC.
The undersigned, Julie Heldman and Michael Prince, do hereby certify that:
1. They are the President and Chief Financial Officer, respectively, of
Signature Eyewear, Inc., a California corporation (the "Corporation").
2. The Articles of Incorporation of this Corporation are restated to read
as follows:
I.
The name of this Corporation is Signature Eyewear, Inc.
II.
The purpose of this Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law
of California other than the banking business, the trust company business,
or the practice of a profession permitted to be incorporated by the
California Corporations Code.
III.
(a) The liability of the directors of this Corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.
(b) This Corporation is authorized to provide for, whether by bylaw,
agreement or otherwise, the indemnification of agents (as defined in
Section 317 of the General Corporation Law of California) of this
Corporation in excess of that expressly permitted by such Section 317 for
those agents, for breach of duty to this Corporation and its shareholders
to the extent permissible under California law (as now or hereafter in
effect). In furtherance and not in limitation of the powers conferred by
statute:
(i) this Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of this
Corporation, or is serving at the request of this Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not this Corporation would
have the power to indemnify against such liability under the provisions of
law; and
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(ii) this Corporation may create a trust fund, grant a security
interest and/or use other means (including, without limitation, letters of
credit, surety bonds and/or other similar arrangements), as well as enter
into contracts providing indemnification to the fullest extent authorized
or permitted by law and including as part thereof provisions with respect
to any or all of the foregoing to ensure the payment of such amounts as may
become necessary to effect indemnification as provided therein, or
elsewhere.
No such bylaw, agreement or other form of indemnification shall be
interpreted as limiting in any manner the rights which such agents would
have to indemnification in the absence of such bylaw, agreement or other
form of indemnification.
(c) Any repeal or modification of the foregoing provisions of this Article
III by the shareholders of this Corporation shall not adversely affect any
right or protection of a director of this Corporation existing at the time
of such repeal or modification.
IV.
(a) This Corporation is authorized to issue 30,000,000 shares of Common
Stock, par value $.001 per share (hereinafter referred to as the "Common
Stock"), and 5,000,000 shares of Preferred Stock, par value $0.001 per
share (hereinafter referred to as the "Preferred Stock").
(b) Such Preferred Stock may be issued from time to time in one or more
series as shall be authorized by the Board of Directors of this
Corporation. The Board of Directors of this Corporation shall, prior to
the issuance of any such shares of any series of Preferred Stock, fix (i)
the number of shares of each such series of Preferred Stock and (ii) such
distinctive designation or title of each such series of Preferred Stock
with such rights, privileges, powers and preferences thereof.
(c) Upon the filing of this restatement of the Articles of Incorporation
of this Corporation, each outstanding share of Common Stock shall, without
any further action on the part of the Corporation, be split and converted
into 3.175 shares of Common Stock.
V.
Cumulative voting for the election of directors of this Corporation shall
be eliminated effective upon the date this Corporation becomes, and for as
long as this Corporation is, a "listed corporation" within the meaning of
Section 301.5 of the General Corporation Law of California.
3. The foregoing restatement of the Articles of Incorporation has been
duly approved by the Board of Directors of this Corporation.
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4. The foregoing restatement of the Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance with Section
902 of the General Corporation Law of California. The total number of
outstanding shares of this Corporation is 1,134,021 shares of Common Stock. The
number of shares voting in favor of the restatement equaled or exceeded the vote
required. The percentage vote required was more than 50% of the Common Stock.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Executed at Los Angeles, California, on June 6, 1997.
/s/ Julie Heldman
---------------------------------------
Julie Heldman, President
/s/ Michael Prince
---------------------------------------
Michael Prince, Chief Financial Officer
3
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AMENDED AND RESTATED BYLAWS
OF
SIGNATURE EYEWEAR, INC.
A CALIFORNIA CORPORATION
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
SIGNATURE EYEWEAR, INC.
A CALIFORNIA CORPORATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES............................................. 1
Section 1. PRINCIPAL EXECUTIVE OFFICE............................... 1
Section 2. OTHER OFFICES............................................ 1
ARTICLE II - SHAREHOLDERS MEETINGS........................................ 1
Section 1. PLACE OF MEETINGS........................................ 1
Section 2. ANNUAL MEETINGS.......................................... 1
Section 3. SPECIAL MEETINGS......................................... 1
Section 4. NOTICE AND REPORTS TO SHAREHOLDERS....................... 2
Section 5. QUORUM................................................... 3
Section 6. ADJOURNED MEETING AND NOTICE THEREOF..................... 3
Section 7. VOTING................................................... 3
Section 8. VALIDATION OF DEFECTIVELY CALLED OR NOTICED
MEETINGS................................................. 4
Section 9. ACTION WITHOUT MEETING................................... 5
Section 10. PROXIES.................................................. 6
Section 11. INSPECTORS OF ELECTION................................... 6
Section 12. RECORD DATE.............................................. 6
ARTICLE III - DIRECTORS................................................... 7
Section 1. POWERS................................................... 7
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 2. NUMBER AND QUALIFICATIONS................................ 8
Section 3. ELECTION AND TERM OF OFFICE.............................. 8
Section 4. VACANCIES................................................ 8
Section 5. PLACE OF MEETING......................................... 9
Section 6. REGULAR MEETINGS......................................... 9
Section 7. SPECIAL MEETINGS......................................... 9
Section 8. QUORUM AND REQUIRED VOTE................................. 10
Section 9. VALIDATION OF DEFECTIVELY CALLED OR NOTICED
MEETINGS................................................. 10
Section 10. ADJOURNMENT.............................................. 10
Section 11. ACTION WITHOUT MEETING................................... 10
Section 12. FEES AND COMPENSATION.................................... 10
Section 13. COMMITTEES............................................... 11
ARTICLE IV - OFFICERS..................................................... 11
Section 1. OFFICERS................................................. 11
Section 2. ELECTION OF OFFICERS..................................... 12
Section 3. SUBORDINATE OFFICERS..................................... 12
Section 4. REMOVAL AND RESIGNATION OF OFFICERS...................... 12
Section 5. VACANCIES IN OFFICES..................................... 12
Section 6. CHAIRMAN OF THE BOARD.................................... 12
Section 7. PRESIDENT................................................ 12
Section 8. VICE PRESIDENTS.......................................... 13
Section 9. SECRETARY................................................ 13
</TABLE>
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<TABLE>
<S> <C>
Section 10. CHIEF FINANCIAL OFFICER.................................. 13
ARTICLE V - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS.............................................. 14
Section 1. AGENTS, PROCEEDINGS AND EXPENSES......................... 14
Section 2. ACTIONS OTHER THAN BY THE CORPORATION.................... 14
Section 3. ACTIONS BY THE CORPORATION............................... 15
Section 4. SUCCESSFUL DEFENSE BY AGENT.............................. 15
Section 5. REQUIRED APPROVAL........................................ 15
Section 6. ADVANCE OF EXPENSES...................................... 16
Section 7. OTHER CONTRACTUAL RIGHTS................................. 16
Section 8. LIMITATIONS.............................................. 16
Section 9. INSURANCE................................................ 16
Section 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN........... 17
ARTICLE VI - RECORDS AND REPORTS.......................................... 17
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER............. 17
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS..................... 18
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE
RECORDS.................................................. 18
Section 4. INSPECTION BY DIRECTORS.................................. 18
Section 5. ANNUAL REPORT TO SHAREHOLDERS............................ 18
Section 6. FINANCIAL STATEMENTS..................................... 19
Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION.................. 20
Section 8. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS................ 20
</TABLE>
iii
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<TABLE>
<S> <C>
Section 9. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED........ 20
Section 10. CERTIFICATES FOR SHARES.................................. 20
Section 11. LOST CERTIFICATES........................................ 21
Section 12. REPRESENTATION OF SHARES OF OTHER CORPORATIONS........... 21
Section 13. STOCK PURCHASE PLANS..................................... 21
Section 14. CONSTRUCTION AND DEFINITIONS............................. 21
ARTICLE VII - AMENDMENT................................................... 21
Section 1. AMENDMENT BY SHAREHOLDERS................................ 21
Section 2. AMENDMENT BY DIRECTORS................................... 22
</TABLE>
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AMENDED AND RESTATED BYLAWS
Bylaws for the regulation, except
as otherwise provided by statute or
its Articles of Incorporation, of
Signature Eyewear, Inc.
(a California corporation)
ARTICLE I
CORPORATE OFFICES
Section 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive
office of the corporation is hereby fixed and located at:
498 North Oak Street
Inglewood, California 90302
The Board is hereby granted full power and authority to change the principal
executive office from one location to another. Any such change shall be noted
in the Bylaws opposite this Section, or this Section may be amended to state the
new location.
Section 2. OTHER OFFICES. Branch or subordinate business offices may
at any time be established by the Board at any place or places.
ARTICLE II
SHAREHOLDERS' MEETINGS
Section 1. PLACE OF MEETINGS. Meetings of the shareholders shall be
held at the principal executive office of the corporation, or at any other place
within or without the State of California as may from time to time be designated
for that purpose by the Board.
Section 2. ANNUAL MEETINGS. The annual meeting of shareholders shall
be held each year on a date and at a time designated by the Board. At the
annual meeting the shareholders shall elect directors, consider reports of the
affairs of the corporation, and transact any other proper business.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders
for the purpose of taking any action which the shareholders are permitted to
take under the General Corporation Law of the State of California (herein, as
the same may from time to time hereafter be amended, referred to as the "General
Corporation Law") may be called at any time by the
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Chairman or a Co-Chairman of the Board, the Chief Executive Officer or the
President, or by the Board, or by any Vice President, or by one or more
shareholders entitled to cast not less than 10 percent of the votes of the
meeting. Upon request in writing to the Chairman or a Co-Chairman of the Board,
Chief Executive Officer, President, Vice President or Secretary by any person
(other than the Board) entitled to call a special meeting of shareholders that a
special meeting be held for any proper purpose, the officer receiving the
request shall forthwith cause notice to be given to the shareholders entitled to
vote that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than 35 nor more than 60 days after the receipt of
the request. If the notice is not given within 20 days after receipt of the
request, the persons entitled to call the meeting may give the notice.
Section 4. NOTICE AND REPORTS TO SHAREHOLDERS. Written notice of
each meeting of shareholders, annual or special, shall be given to each
shareholder entitled to vote thereat, not less than 10 nor more than 60 days
before the date of the meeting. The notice of each such annual or special
meeting of shareholders shall state the place, the date, and the hour of the
meeting, and (1) in the case of a special meeting, the general nature of the
business to be transacted at the meeting (and no other business may be
transacted at the meeting), or (2) in the case of the annual meeting, those
matters which the Board, at the time of the mailing of the notice, intend to
present for action by the shareholders, and any proper matter may be presented
at the meeting for action, provided, however, that the notice shall specify the
general nature of a proposal, if any, to take action with respect to approval of
(i) a contract or other transaction with an interested director pursuant to
Section 310 of the General Corporation Law, (ii) amendment of the Articles of
Incorporation pursuant to Section 902 of the General Corporation Law, (iii) a
reorganization of the corporation pursuant to Section 1201 of the General
Corporation Law, (iv) voluntary dissolution of the corporation pursuant to
Section 1900 of the General Corporation Law or (v) a distribution in dissolution
other than in accordance with the rights of outstanding preferred shares, if
any, pursuant to Section 2007 of the General Corporation Law. The notice of any
meeting at which directors are to be elected shall include the names of nominees
intended at the time of the notice to be presented by management for election.
Notice of a shareholders' meeting or any report shall be given either
personally or by first-class mail (or in the case the corporation's outstanding
shares are held of record by 500 or more persons on the record date for the
shareholders' meeting, notice may be sent by third-class mail) or other means
of written communication, charges prepaid, addressed to such shareholder at the
address of such shareholder appearing on the books of the corporation or given
by the shareholder to the corporation for the purpose of notice. If no such
address appears on the corporation's books or is given, the notice or report
shall be deemed to have been given if sent to that shareholder by mail or other
means of written communication addressed to the place where the principal
executive office of the corporation is situated, or if published at least once
in some newspaper of general circulation in the county in which said principal
executive office is located. The notice or report shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
other means of written communication. An affidavit of mailing of any notice or
report in accordance with the provisions of this Section,
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<PAGE>
executed by the Secretary, Assistant Secretary or any transfer agent of the
corporation shall be prima facie evidence of the giving of the notice.
If any notice or any report addressed to the shareholder at the
address of that shareholder appearing on the books of the corporation is
returned to the corporation by the United States Postal Service marked to
indicate that the United States Postal Service is unable to deliver the notice
or report to the shareholder at such address, all future notices or reports
shall be deemed to have been duly given without further mailing if the same
shall be available for the shareholder upon written demand of the shareholder at
the principal executive office of the corporation for a period of one year from
the date of the giving of the notice or report to all other shareholders.
Section 5. QUORUM. A majority of the shares entitled to vote,
present in person or by proxy, shall constitute a quorum for the transaction of
business at any meeting of shareholders. Except as provided in the next
sentence, the affirmative vote of a majority of the shares represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless a vote of a greater number is required by
the General Corporation Law or the Articles of Incorporation of the Corporation
(the "Articles of Incorporation"). The shareholders present at a duly called or
held meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum.
Section 6. ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders'
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the vote of a majority of the shares present, either in
person or by proxy, but in the absence of a quorum no other business may be
transacted at such meeting, except as expressly provided in Section 5 of this
Article with respect to the right of the shareholders present at a duly called
or held meeting to continue to do business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.
When any shareholders' meeting, either annual or special, is adjourned
to another time and place, it shall not be necessary to give any notice of the
time and place of the adjourned meeting or of the business to be transacted
thereat, other than by announcement of the time and place thereof at the meeting
at which such adjournment is taken; provided, however, that if any such
shareholders' meeting is adjourned for 45 days or more, or if after adjournment
a new record date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given as in the case of an original meeting. At the adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.
Section 7. VOTING. The shareholders entitled to notice of any
meeting or to vote at any such meeting shall only be persons in whose names
shares stand on the stock records of the corporation on the record date
determined in accordance with Section 12 of this
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Article; provided, however, that if no such record date shall be fixed by the
Board, only persons in whose names shares stand on the stock records of the
corporation at the close of business on the business day next preceding the day
on which notice of the meeting is given or if such notice is waived, at the
close of business on the business day next preceding the day on which the
meeting of shareholders is held, shall be entitled to vote at such meeting, and
such day shall be the record date for such meeting.
Voting shall in all cases be subject to the provisions of Sections 702
through 704, inclusive, of the General Corporation Law (relating to voting of
shares held by fiduciaries, held in the name of a corporation, or held in joint
ownership).
The shareholders' vote may be viva voce or by ballot; provided,
---- ----
however, that all elections for directors must be by ballot upon demand made by
a shareholder at the meeting and before the voting begins.
Section 8. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each of the
persons entitled to vote, not present in person or by proxy, or who, although
present, has, at the beginning of the meeting, properly objected to the
transaction of any business because the meeting was not lawfully called or
convened or to particular matters of business legally required to be included in
the notice, but not so included, signs a written waiver of notice, or a consent
to the holding of such meeting, or an approval of the minutes thereof. The
waiver of notice or consent need not specify either the business to be
transacted or the purpose of any annual or special meeting of shareholders,
except that the waiver of notice or consent shall state the general nature of
the proposal of any action taken or proposed to be taken with respect to
approval of (i) a contract or other transaction with an interested director
pursuant to Section 310 of the General Corporation Law, (ii) amendment of the
Articles of Incorporation pursuant to Section 902 of the General Corporation
Law, (iii) a reorganization of the corporation pursuant to Section 1201 of the
General Corporation Law, (iv) voluntary dissolution of the corporation pursuant
to Section 1900 of the General Corporation Law, or (v) a distribution and
dissolution other than in accordance with the rights of outstanding preferred
shares, if any, pursuant to Section 2007 of the General Corporation Law. If
such statement is not included in such written waiver of notice or consent, then
any shareholder approval at the meeting, other than unanimous approval of those
entitled to vote, to any such matters shall be invalid. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at the meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, and except that attendance at a meeting is
not a waiver of any right to object to the consideration of any
4
<PAGE>
matter legally required to be included in the notice of meeting, but not so
included, if that objection is expressly made at the meeting and before any vote
is taken on such matter.
Section 9. ACTION WITHOUT MEETING. Any action which may be taken at
any annual or special meeting of shareholders may be taken without a meeting and
without prior notice, except as hereinafter set forth, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take that action at a meeting at which all shares entitled to
vote on that action were present and voted. Notwithstanding the foregoing,
directors may not be elected without a meeting by written consent except by
unanimous written consent of all shares entitled to vote for the election of
directors; provided, however, that a director may be elected at any time to fill
a vacancy on the Board (other than a vacancy created by the removal of a
director) that has not been filled by the directors, by the written consent of
the holders of a majority of the outstanding shares entitled to vote for the
election of directors. Any shareholder giving a written consent, or the
shareholder's proxy holder, or a transferee of the shares, or a personal
representative of the shareholder or their respective proxy holders, may revoke
the consent by a writing received by the Secretary of the corporation before
written consents of the number of shares required to authorize the proposed
action have been filed with the Secretary, but not thereafter. Such revocation
is effective upon its receipt by the Secretary of the corporation.
If the consents of all shareholders entitled to vote have not been
solicited in writing, or if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting to
those shareholders entitled to vote and who have not consented in writing to the
action authorized by such approval. Such notice shall be given, and shall be
deemed to have been given, in the same manner as provided in Section 4 of this
Article. In the case of approval of (i) contracts or transactions in which a
director has a direct or indirect financial interest, pursuant to Section 310 of
the General Corporation Law, (ii) indemnification of agents of the corporation
pursuant to Section 317 of the General Corporation Law, (iii) a reorganization
of the corporation pursuant to Section 1201 of the General Corporation Law, or
(iv) a distribution and dissolution other than in accordance with the rights of
outstanding.preferred shares pursuant to Section 2007 of the General Corporation
Law, the notice shall be given at least 10 days before the consummation of any
action authorized by such approval.
Unless, as provided in Section 12 of this Article, the Board has fixed
a record date for the determination of shareholders entitled to notice of and to
give such written consent, the record date for such determination shall be the
day on which the first written consent is given. All such written consents
shall be filed with the Secretary of the corporation and shall be maintained in
the corporate records.
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Section 10. PROXIES. Every person entitled to vote shares shall have
the right to do so either in person or by one or more persons authorized by a
written proxy executed by such shareholder or his duly authorized agent and
filed with the Secretary of the corporation. Any proxy duly executed which does
not state that it is irrevocable shall continue in full force and effect until
(i) an instrument revoking it is filed with the Secretary of the corporation or
a duly executed proxy bearing a later date is presented to the meeting prior to
the vote pursuant thereto, (ii) the person executing the proxy attends the
meeting and votes in person, or (iii) written notice of the death or incapacity
of the maker of such proxy is received by the corporation before the vote
pursuant thereto is counted; provided, however, that no proxy shall be valid
after the expiration of 11 months from the date of its execution, unless
otherwise provided in the proxy. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
705(e) and Section 705(f) of the General Corporation Law.
Section 11. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board may appoint any persons other than nominees for office
as inspectors of election to act at such meeting or any adjournment thereof. If
no inspectors of election are so appointed, the chairman of any such meeting
may, and on the request of any shareholder or his proxy shall, make such
appointment at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more shareholders or
proxies, the majority of shares present in person or by proxy shall determine
whether one or three inspectors are to be appointed. In case any person
appointed as inspector fails to appear or refuses to act, the vacancy may, and
on the request of any shareholder or a shareholder's proxy shall, be filled by
appointment by the Board in advance of the meeting, or at the meeting by the
chairman of the meeting.
The duties of such inspector shall be as prescribed by Section 707 of
the General Corporation Law and shall include: determining the number of shares
outstanding and voting power of each; the shares represented at the meeting; the
existence of a quorum; the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining when the polls shall close;
determining the result; and performing such acts as may be proper to conduct the
election or vote with fairness to all shareholders. If there are three
inspectors of election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all.
Section 12. RECORD DATE. The Board may fix, in advance, a record
date for the determination of the shareholders entitled to notice of any
meeting or to vote or entitled to give consent to corporate action in writing
without a meeting, to receive any report, to receive any dividend or
distributions or any allotment of rights, or to exercise rights in respect of
any other lawful action. The record date so fixed shall be not more than 60
days nor less than 10 days prior to the date of any meeting nor more than 60
days prior to any other event for the purposes of which it is fixed. When a
record date is so fixed, only shareholders of record at the close of business on
that date are entitled to notice of and to vote at any such meeting, to
6
<PAGE>
give consent without a meeting, to receive any report, to receive dividends,
distributions or allotments of rights, or to exercise the rights, as the case
may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the General
Corporation Law and any limitations in the Articles of Incorporation and these
Bylaws as to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate power shall be exercised by or under the direction of the
Board. The Board may delegate the management of the day-to-day operation of the
business of the corporation to a management company or other persons, provided
that the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the Board.
Without prejudice to such powers, but subject to the same limitation, it is
hereby expressly declared that the directors shall have the following powers in
addition to other powers enumerated in these Bylaws:
(a) To select and remove all officers, agents and employees of
the corporation; prescribe any powers and duties for them that are consistent
with law, with the Articles of Incorporation, and with these ByLaws; fix their
compensation; and require from them security for faithful service;
(b) To conduct, manage and control the affairs and business of
the corporation, and to make rules and regulations therefor consistent with law,
with the Articles of Incorporation and with these Bylaws;
(c) To change the principal executive office or the principal
business office in the State of California from one location to another; to fix
and locate from time to time one or more other offices of the corporation within
or without the State of California; to cause the corporation to be qualified to
do business and to conduct business in any other state, territory, dependency or
country; and to designate any place within or without the State of California
for the holding of any shareholders' meeting or meetings, including annual
meetings;
(d) To adopt, make and use a corporate seal; to prescribe the
forms and certificates of stock; and to alter the form of the seal and
certificates;
(e) To authorize the issuance of shares of stock of the
corporation from time to time, upon such terms and for such consideration as may
be lawful;
(f) To borrow money and incur indebtedness for the purposes of
the corporation, and to cause to be executed and delivered therefor, in the
corporate name,
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promissory notes, bonds, debentures, deeds of trust, mortgages, pledges,
hypothecations, and other evidences of debt and securities therefor.
Section 2. NUMBER AND QUALIFICATIONS. The number of directors
constituting the entire Board shall be not less than four (4) nor more than
seven (7) as fixed from time to time by a duly adopted resolution of the Board;
provided, however, that an amendment to the Articles or a Bylaw reducing the
number of directors to a number less than five cannot be adopted if the votes
cast against its adoption at a meeting or the shares not consenting to its
adoption in the case of action by written consent are equal to more than 16-2/3%
of the outstanding shares entitled to vote; and provided further that the number
of directors constituting the entire Board shall be four until otherwise fixed
by a duly adopted resolution of the Board.
Section 3. ELECTION AND TERM OF OFFICE. The directors shall be
elected at each annual meeting of the shareholders but if such annual meeting is
not held or the directors are not elected thereat, the directors may be elected
at a special meeting of shareholders held for that purpose. Each director shall
hold office until the next annual meeting and until a successor has been elected
and qualified.
Section 4. VACANCIES. A vacancy or vacancies in the Board shall be
deemed to exist in case of the death, resignation or removal of any director, or
if the authorized number of directors be increased, or if the shareholders fail,
at any annual or special meeting of shareholders at which any director or
directors are elected, to elect the full authorized number of directors to be
voted for at that meeting.
Any director may resign effective upon giving written notice to the
Chairman or a Co-Chairman of the Board, the Chief Executive Officer, the
President, the Secretary or the Board, unless the notice specifies a later date
for the effectiveness of such resignation. If the Board accepts the resignation
of a director tendered to take effect at a future time, the Board or the
shareholders shall have the power to elect a successor to take office when the
resignation is to become effective.
Vacancies in the Board (other than a vacancy created by the removal of
a director) may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director, and each director so elected
shall hold office until the next annual meeting and until such director's
successor has been elected; subject, however, to the right of any shareholder or
shareholders of the corporation holding at least 5% in the aggregate of the
outstanding voting shares of the corporation, in accordance with the provisions
of Section 305(c) of the General Corporation Law, to a special meeting to elect
the entire Board in the event that after the filling of any such vacancy by the
directors, the directors elected by the shareholders shall constitute less than
a majority of the directors then in office.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, and shall have the right,
to the exclusion of the directors, to fill any vacancy or vacancies created by
the removal of one or more directors. The
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election of any director or directors to fill a vacancy or vacancies created by
the removal of one or more directors shall require the affirmative vote of a
majority of the shares represented and voting at a duly held meeting at which a
quorum is present (which shares voting affirmatively also constitute at least a
majority of the required quorum) or the unanimous written consent of all shares
entitled to vote for the election of directors.
No reduction of the authorized number of directors shall have the
effect of removing any directors prior to the expiration of his term of office.
Subject to the provisions of Section 303(a) of the General Corporation
Law, any or all of the directors may be removed from office, without cause, if
such removal is approved by a vote of a majority of the outstanding shares
entitled to vote.
Section 5. PLACE OF MEETING. Regular and special meetings of the
Board shall be held at any place within or without the State of California which
has been designated from time to time by resolution of the Board or by written
consent of the members of the Board. In the absence of such designation,
regular meetings shall be held at the principal executive office of the
corporation.
Section 6. REGULAR MEETINGS. Immediately following each annual
meeting of shareholders, the Board shall hold a regular meeting at the place of
that annual meeting or at such other place as shall be fixed by the Board for
the purpose of organization, election of officers and the transaction of other
business.
Other regular meetings of the Board shall be held without call at such
time and place as the Board may from time to time deem appropriate; provided,
however, should the day fall upon a legal holiday, then said meeting shall be
held at the same time on the next day thereafter ensuing which is a full
business day. Call and notice of regular meetings of the Board are hereby
dispensed with.
Section 7. SPECIAL MEETINGS. Special meetings of the Board for any
purpose or purposes may be called at any time by the Chairman or a Co-Chairman
of the Board, the Chief Executive Officer, the President, any Vice President,
the Secretary or by any two directors.
Written notice of the time and place of special meetings shall be
delivered personally to each director or communicated to each director by
telephone or by telegraph or mail, charges prepaid, addressed to each director
at that director's address as it is shown on the records of the corporation or,
if it is not so shown on such records or is not readily ascertainable, at the
place at which the meetings of the directors are regularly held. In case such
notice is mailed, it shall be deposited in the United States mail in the place
in which the principal executive office of the corporation is located at least
four days prior to the time of the holding of the meeting. In case such notice
is delivered personally or by telephone or telegraph, it shall be delivered
personally or by telephone or to the telegraph company at least 48 hours
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before the time of the holding of the meeting. The notice need not specify the
place of the meeting, if the meeting is to be held at the principal executive
office of the corporation, or the purpose of the meeting.
Section 8. QUORUM AND REQUIRED VOTE. Presence of a majority of the
authorized number of directors at a meeting of the Board constitutes a quorum
for the transaction of business, except to adjourn as hereinafter provided.
Members of the Board may participate in a meeting through use of conference
telephone or similar communications equipment, and such members shall be
considered present in person, as long as all members participating in such
meeting can hear one another. Subject to the provisions of Section 5(a) of
Article V of these Bylaws, every act or decision done or made by a majority of
the directors present at a meeting duly held at which a quorum is present shall
be regarded as the act of the Board. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of a
director or directors, provided that any action taken is approved by at least a
majority of the required quorum for such meeting.
Section 9. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS. The
transactions of any meeting of the Board, however called and noticed or
wherever held, shall be as valid as though made or performed at a meeting duly
held after regular call and notice, if a quorum is present and if, either before
or after the meeting, each of the directors not present or who, though present,
has prior to the meeting or at its commencement protested the lack of proper
notice to such director, signs a written waiver of notice or a consent to
holding such meeting or approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Section 10. ADJOURNMENT. A majority of the directors present,
whether or not a quorum is present, may adjourn any meeting to another time and
place. Notice of the time and place of holding an adjourned meeting need not be
given to absent directors if the time and place is fixed at the meeting
adjourned; provided, however, that if the meeting is adjourned for more than 24
hours, notice of adjournment to another time or place shall be given prior to
the time of the adjourned meeting to the directors who are not present at the
time of the adjournment.
Section 11. ACTION WITHOUT MEETING. Any action by the Board may be
taken without a meeting if all members of the Board shall individually or
collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board and
shall have the same force and effect as a unanimous vote of the Board.
Section 12. FEES AND COMPENSATION. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
Board.
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Section 13. COMMITTEES. The Board may appoint one or more
committees, each consisting of two or more directors, and delegate to such
committees any of the authority of the Board except with respect to:
(a) The approval of any action for which the General Corporation
Law, the Articles of Incorporation or these Bylaws also require shareholders'
approval or approval of the outstanding shares;
(b) The filling of vacancies on the Board or on any committee;
(c) The fixing of compensation of the directors for serving on
the Board or on any committee;
(d) The amendment or repeal of Bylaws or the adoption of new
Bylaws;
(e) The amendment or repeal of any resolution of the Board which
by its express terms is not so amendable or repealable;
(f) A distribution to the shareholders of the corporation except
at a rate or in a periodic amount or within a price range determined by the
Board; or
(g) The appointment of other committees of the Board or the
members thereof.
Any such committee must be designated by resolution adopted by a
majority of the authorized number of directors and may be designated an
Executive Committee or by such other name as the Board shall specify. The
appointment of members and alternate members of any such committee shall require
the affirmative vote of a majority of the authorized number of directors. The
Board shall have the power to prescribe the manner in which proceedings of any
such committee shall be conducted. In the absence of any such prescription,
such committee shall have the power to prescribe the manner in which its
proceedings shall be conducted. Unless the Board or such committee shall
otherwise provide, the regular and special meetings and other actions of any
such committee shall be governed by the provisions of this Article applicable to
meetings and actions of the Board. Minutes shall be kept of each meeting of
each committee.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a
President, a Secretary and a Chief Financial Officer. The corporation may also
have, at the discretion of the Board, a Chief Executive Officer, a Chairman or
Co-Chairmen of the Board, one or more
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Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 3 of this Article. Any number of offices may be held by
the same person.
Section 2. ELECTION OF OFFICERS. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article, shall be chosen annually by the Board,
and each shall serve at the pleasure of the Board, subject to the rights, if
any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board may appoint, and may
empower the Chief Executive Officer or the President to appoint, such other
officers as the business of the corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in these Bylaws or as the Board may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Without prejudice to
the rights, if any, of an officer under any contract of employment, any officer
may be removed, either with or without cause, by the Board, at any regular or
special meeting of the Board, or, except in case of an officer chosen by the
Board, by any officer upon whom such power of removal may be conferred by the
Board.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; the acceptance of the
resignation shall not be necessary to make it effective. Any resignation is
without prejudice to the rights, if any, of the corporation under any contract
to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these Bylaws for regular election or appointment to
such office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman or a Co-Chairman of
the Board, or both, if such an officer or officers be elected, shall, if
present, preside at all meetings of the Board and exercise and perform such
other powers and duties as may be from time to time assigned to him or them by
the Board. If there is no President nor Chief Executive Officer, the Chairman
or a Co-Chairman of the Board, or both, shall in addition be Chief Executive
Officer of the corporation and shall have the powers and duties prescribed in
Section 7 of this Article.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board to the Chairman or a Co-Chairman of the Board, or
both, or the Chief Executive Officer, if there be such officers, the President
shall have general supervision,
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direction and control of the business and the officers of the corporation. The
President shall have such other powers and duties as may be prescribed by the
Board.
Section 8. VICE PRESIDENTS. In the absence or disability of the
President and the Chief Executive Officer, if any, the Vice Presidents, if any,
in order of their rank as fixed by the Board, shall perform all the duties of
the President, and when so acting shall have all the powers of, and be subject
to all the restrictions upon, the President. The Vice Presidents shall have
such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board, the Chief Executive Officer, the
President or the Chairman of the Board.
Section 9. SECRETARY. The Secretary shall keep, or cause to be kept,
at the principal executive office or such other place as the Board may direct, a
book of minutes of all meetings and actions of directors, committees of
directors, and shareholders, with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice given, the names of
those present at directors' meetings or committee meetings, the number of shares
present or represented at shareholders' meetings, and the proceedings.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the Board, a share register, or a
duplicate share register, showing the names of all shareholders and their
addresses, the number and classes of share held by each, the number and date of
certificates issued for the same, and the number and date of cancellation of
every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board required by the Bylaws or by law to be
given, and he shall keep the seal of the corporation, if one be adopted, in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board.
Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep and maintain, or cause to be kept and maintained, adequate and
correct books and records of accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, retained earnings and shares,
and shall send or cause to be sent to the shareholders of the corporation such
financial statements and reports as are bylaw or these Bylaws required to be
sent to them. The books of account shall at all reasonable times be open to
inspection by any director.
The Chief Financial Officer shall deposit all monies and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board. The Chief Financial Officer
shall disburse the funds of the corporation as may be ordered by the Board,
shall render to the Chief Executive Officer, the President and directors,
whenever they request it, an account of all transactions undertaken as Chief
Financial Officer
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and of the financial condition of the corporation, and shall have such other
powers and perform such other duties as may be prescribed by the Board.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purposes of
this Article, "agent" means any person who is or was a director, officer,
employee or other agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise,
or was a director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation; "proceeding" means
any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative, or investigative; and "expenses" includes, without
limitation, attorneys' fees and any expenses of establishing a right to
indemnification under Section 4 or Section 5(c) of this Article.
Section 2. ACTIONS OTHER THAN BY THE CORPORATION. The corporation
shall indemnify any person who was or is a party, or is threatened to be made a
party, to any proceeding (other than an action by or in the right of the
corporation to procure a judgment in its favor) by reason of the fact that such
person is or was an agent of the corporation, against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with such proceeding if that person acted in good faith and in a
manner that person reasonably believed to be in the best interests of the
corporation, and in the case of a criminal proceeding, had no reasonable cause
to believe the conduct of that person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
----
contendere or its equivalent shall not, of itself, create a presumption that the
- ----------
person did not act in good faith and in a manner which the person reasonably
believed to be in the best interests of the corporation or that the person had
reasonable cause to believe that the person's conduct was unlawful.
Section 3. ACTIONS BY THE CORPORATION. The corporation shall
indemnify any person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that that
person is or was an agent of the corporation, against expenses actually and
reasonably incurred by that person in connection with the defense or settlement
of that action if that person acted in good faith, in a manner that person
believed to be in the best interests of the corporation and its shareholders.
No indemnification shall be made under this Section 3 for any of the following:
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(a) In respect of any claim, issue or matter as to which that
person shall have been adjudged to be liable to the corporation in the
performance of that person's duty to the corporation and its shareholders,
unless and only to the extent that the court in which that proceeding is or was
pending shall determine upon application that, in view of all the circumstances
of the case, that person is fairly and reasonably entitled to indemnification
for expenses and then only to the extent that the court shall determine;
(b) Of amounts paid in settling or otherwise disposing of a
pending action, without court approval; or
(c) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
Section 4. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent
of the corporation has been successful on the merits in defense of any
proceeding referred to in Sections 2 or 3 of this Article, or in defense of any
claim, issue or matter therein, the agent shall be indemnified against expenses
actually and reasonably incurred by the agent in connection therewith.
Section 5. REQUIRED APPROVAL. Except as provided in Section 4 of
this Article, any indemnification under this Article shall be made by the
corporation only if authorized in the specific case on a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Sections 2 or 3 of this
Article, by any of the following:
(a) A majority vote of a quorum consisting of directors who are
not parties to the proceeding;
(b) If a quorum as described in Section 5(a) of this Article is
not obtainable, by independent legal counsel in a written opinion;
(c) Approval by the affirmative vote of a majority of the shares
of the corporation represented and voting at a duly held meeting at which a
quorum is present (which shares voting also constitute at least a majority of
the required quorum) or by the written consent of holders of a majority of the
outstanding shares entitled to vote. For this purpose, the shares owned by the
person to be indemnified shall not be considered outstanding or entitled to vote
thereon; or
(d) The court in which the proceeding is or was pending, on
application made by the corporation or the agent or the attorney or other person
rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by the
corporation.
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Section 6. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by the corporation before the final disposition of
the proceeding on receipt of an undertaking by or on behalf of the agent to
repay the amount of the advance if it shall be determined ultimately that the
agent is not entitled to be indemnified as authorized in this Article.
Section 7. OTHER CONTRACTUAL RIGHTS. The indemnification provided by
this Article shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office, to the extent such additional rights to indemnification are authorized
in the Articles of Incorporation of the corporation. The rights to indemnity
hereunder shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of the person. Nothing contained in this Article
shall affect any right to indemnification to which persons other than directors
and officers of the corporation or any subsidiary hereof may be entitled by
contract or otherwise.
Section 8. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Section 4 or Section 5(c), in any
circumstances where it appears:
(a) That it would be inconsistent with a provision of the
Articles of Incorporation, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other amounts were paid, which
prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 9. INSURANCE. The corporation shall, if so authorized by the
Board, purchase and maintain insurance on behalf of any agent of the corporation
or its subsidiaries selected by the Board in its authorization, or designated in
the policy of insurance so purchased, against such liabilities asserted against
or incurred by the agent (in his capacity as agent or arising out of his status
as such) as may be set forth in such authorization or in such policy of
insurance, in each case upon such terms and conditions, and subject to such
limitations, as the Board in its sole and absolute discretion determines to be
appropriate, its general authorization to purchase or maintain any policy of
insurance to conclusively establish that it has determined all of the terms,
conditions, and limitations set forth in the policy of insurance in the form so
purchased to be appropriate, and the power to purchase and maintain such
insurance shall exist regardless of whether the corporation would have the power
to indemnify the agent against the insured liabilities under the provision of
this Article. The fact that the corporation owns all or a portion of the shares
of the company issuing a policy of insurance shall not render this subdivision
inapplicable if either of the following conditions are satisfied:
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(a) the purchase and maintenance of the policy is authorized by
the Articles of Incorporation of the association and is limited to the extent
provided in subdivision (d) of Section 204 of the General Corporation Law;
(b) (1) the company issuing the insurance policy is organized,
licensed and operated in a manner that complies with the insurance laws and
regulations applicable to its jurisdiction of organization, (2) the company
issuing the policy provides procedures for processing claims that do not permit
the company to be subject to the direct control of the corporation, and (3) the
policy issued provides for some manner of risk sharing between the issuer and
purchaser of the policy, on one hand, and some unaffiliated person or persons,
on the other hand, such as by providing for more than one unaffiliated owner of
the company issuing the policy or by providing that a portion of the coverage
furnished will be obtained from some unaffiliated insurer or reinsurer.
Section 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN. The
provisions of this Article shall not apply to any proceeding against any
trustee, investment manager or other fiduciary of an employee benefit plan in
that person's capacity as such, even though that person may also be an agent of
the corporation as defined in Section 1 of this Article. Nothing contained in
this Article shall limit the power of the corporation, upon and in the event of
a determination of the Board to indemnify any trustee, investment manager or
other fiduciary of an employee benefit plan, and the corporation may thereupon
indemnify and purchase and maintain insurance on behalf of any such trustee,
investment manager or other fiduciary.
ARTICLE VI
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed and as determined by
resolution of the Board, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of shares held by each
shareholder.
A shareholder or shareholders of the corporation holding at least 5%
in the aggregate of the outstanding voting shares of the corporation may (i)
inspect and copy the records of shareholders' names and addresses and
shareholdings during usual business hours on five business days' prior written
demand on the corporation, and (ii) obtain from the transfer agent, if any, for
the corporation, on written demand and on the tender of such transfer agent's
usual charges for such list, a list of the shareholders' names and addresses,
who are entitled to vote for the election of directors, and their shareholdings,
as of the most recent record date for which the list has been compiled or as of
a date specified by the shareholder after the date of demand. This list shall
be made available to any such shareholder by the transfer agent on or
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before the later of 5 days after the demand is received or the date specified in
the demand as the date as of which the list is to be compiled. The record of
shareholders shall also be open to inspection on the written demand of any
shareholder or holder of a voting trust certificate, at any time during usual
business hours, for a purpose reasonably related to the holder's interests as a
shareholder or as the holder of a voting trust certificate. Any inspection and
copying under this Section 1 may be made in person or by an agent or attorney of
the shareholder or holder of a voting trust certificate making the demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation
shall keep at its principal executive office the original or a copy of the
Bylaws as amended to date, which shall be open to inspection by the shareholders
at all reasonable times during office hours. If the principal executive office
of the corporation is outside the State of California and the corporation has no
principal business office in this state, the Secretary shall, upon the written
request of any shareholder, furnish to that shareholder a copy of the Bylaws as
amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.
The accounting books and records and minutes of proceedings of the shareholders
and the Board and any committee or committees of the Board shall be kept at such
place or places designated by the Board or, in the absence of such designation,
at the principal executive office of the corporation. The minutes shall be kept
in written form and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection upon
the written demand of any shareholder or holder of a voting trust certificate,
at any reasonable time during usual business hours, for a purpose reasonably
related to the holder's interests as a shareholder or as the holder of a voting
trust certificate. The inspection may be made in person or by an agent or
attorney, and shall include the right to copy and make extracts. These rights
of inspection shall extend to the records of each subsidiary corporation of the
corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations. This inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts of documents.
Section 5. ANNUAL REPORT TO SHAREHOLDERS. Unless otherwise expressly
required by the General Corporation Law or by this Section 5, the annual report
to shareholders referred to in Section 1501 of the General Corporation Law is
hereby expressly waived and dispensed with; provided, that nothing herein set
forth shall be construed to prohibit or restrict the right of the Board to issue
such annual or other periodic reports to the shareholders of the corporation as
they may from time to time consider appropriate.
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In the event that the corporation shall have 100 or more shareholders
of record (determined as provided in Section 605 of the General Corporation Law)
at the close of any fiscal year of the corporation, the Board shall cause a
report to be sent to the shareholders not later than 120 days after the close of
said fiscal year, and each fiscal year thereafter ensuing. The report shall be
sent at least 15 days (or 35 days if sent by third-class mail as permitted by
Section 4 of Article II) before the annual meeting of shareholders to be held
during the next fiscal year in the manner specified in Section 4 of Article II
of these Bylaws for reports to shareholders of the corporation. The annual
report shall contain a balance sheet as of the end of the fiscal year and an
income statement and statement of changes in financial position for the fiscal
year, accompanied by any report of independent accountants or, if there is no
such report, the certificate of an authorized officer of the corporation that
the statements were prepared without audit from the books and records of the
corporation. The annual report shall also contain a brief description, as
required by Section 1501(b) of the General Corporation Law, of (i) any
transaction with interested officers, directors or shareholders during the
previous fiscal year; and (ii) any indemnification or advance made during the
fiscal year to any officer or director of the corporation.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial
statement and any income statement of the corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as of
the end of each such period, that has been prepared by the corporation shall be
kept on file in the principal executive office of the corporation for 12 months,
and each such statement shall be exhibited at all reasonable times to any
shareholder demanding an examination of any such statement or a copy shall be
mailed to any such shareholder.
If any shareholder or shareholders holding at least 5% of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than 30 days before the date of the request, and a balance sheet of
the corporation as of the end of that period, the Chief Financial Officer shall
cause that statement to be prepared, and shall deliver personally or mail that
statement or statements to the person making the request within 30 days after
the receipt of the request. If the corporation has not sent to the shareholders
its annual report for the last fiscal year, this report shall likewise be
delivered or mailed to the requesting shareholder or shareholders within 30 days
after the request.
If the corporation has not sent to the shareholders its annual report
for the last fiscal year, upon the written request of any shareholder made to
the corporation for an income statement for the fiscal year ended more than 120
days before the date of the request, the Chief Financial Officer shall cause
that statement to be prepared, together with a statement of change in financial
position and a balance sheet as of the end of that period and shall deliver
personally or mail all such statements to the person making the request within
30 days after receipt of the request.
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The corporation shall also, on the written request of any shareholder,
mail to the shareholder a copy of the last annual, semi-annual, or quarterly
income statement which it has prepared, and a balance sheet as of the end of
that period.
The quarterly income statements and balance sheet referred to in this
Section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION. The corporation
shall each year during the calendar month in which its Articles of Incorporation
were originally filed with the California Secretary of State, or at any time
during the immediately preceding 5 calendar months, file with the California
Secretary of State a statement on the prescribed form and in compliance with
Section 1502 of the General Corporation Law.
Section 8. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
drafts or other orders for payment of money, notes or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the Board.
Section 9. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
Board, except as otherwise provided in these Bylaw, may authorize any officer or
officers or agent or agents to enter into any contract or execute any instrument
in the name of and on behalf of the corporation, and this authority may be
general or confined to specific instances; and, subject to the provisions of
Section 313 of the General Corporation Law, unless so authorized or ratified by
the Board or within the agency power of an officer, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.
Section 10. CERTIFICATES FOR SHARES. A certificate or certificates
for shares of the capital stock of the corporation shall be issued to each
shareholder when any of the shares are fully paid, and the Board may authorize
the issuance of certificates for shares as partly paid provided that
certificates representing such shares shall state the amount of the
consideration to be paid for them and the amount paid. All certificates shall
be signed in the name of the corporation by the Chairman or a Co-Chairman of the
Board or the Chief Executive Officer or the President or Vice President and by
the Chief Financial Officer or an Assistant Treasurer or the Secretary or any
Assistant Secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed on a certificate
shall have ceased to be that officer, transfer agent or registrar before that
certificate is issued, it may be issued by the corporation
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with the same effect as if that person were an officer, transfer agent or
registrar at the date of issue.
Section 11. LOST CERTIFICATES. Except as provided in this Section
11, no new certificate for shares shall be issued to replace an old certificate
unless the latter is surrendered to the corporation and cancelled at the same
time. The Board may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of a replacement
certificate on such terms and conditions as the Board may require, including
provision for indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
Section 12. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
Chairman or a Co-Chairman of the Board, the Chief Executive Officer, the
President, any Vice President or any other person authorized by resolution of
the Board or by any of the foregoing designated officers, is authorized to vote
on behalf of the corporation any and all shares of any other corporation or
corporations, foreign or domestic, standing in the name of the corporation. The
authority granted to these officers to vote or represent on behalf of the
corporation any and all shares held by the corporation in any other corporation
or corporations may be exercised by any of these officers in person or by any
person authorized to do so by proxy duly executed by these officers.
Section 13. STOCK PURCHASE PLANS. The corporation may adopt and
carry out a stock purchase plan or agreement or stock option plan or agreement
providing for the issue and sale for such consideration as may be fixed of its
unissued shares, or of issued shares acquired or to be acquired, to one or more
of the employees or directors of the corporation or of a subsidiary or to a
trustee on their behalf and for the payment for such shares in installments or
at one time, and may provide for aiding any such persons in paying for such
shares by compensation for services rendered, promissory notes, or otherwise.
Section 14. CONSTRUCTION AND DEFINITIONS. Unless the context
requires otherwise, the general provisions, rules of construction, and
definitions in the General Corporation Law shall govern the construction of
these Bylaws. Without limiting the generality of this provision, the singular
number includes the plural, the plural number includes the singular, and the
term "person" includes both a corporation and a natural person.
ARTICLE VII
AMENDMENT
Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or
these Bylaws may be amended or repealed by the vote of holders of a majority of
the
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outstanding shares entitled to vote; provided, however, that if the Articles of
Incorporation set forth the number of authorized directors of the corporation,
then the authorized number of directors may be changed only by an amendment of
the Articles of Incorporation.
Section 2. AMENDMENT BY DIRECTORS. In addition to the rights of the
shareholders as provided in Section 1 of this Article VII, bylaws, other than a
bylaw or an amendment of a bylaw changing the authorized number of directors
(except to fix the authorized number of directors pursuant to a bylaw providing
for a variable number of directors), may be adopted, amended or repealed by the
board of directors.
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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 Plan shall be administered by the Board of Directors of the Company
(the "Board"), or a committee of the Board (the "Committee") whose members shall
serve at the pleasure of the Board. If administration is delegated to the
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan as may be
adopted from time to time by the Board.
The Board shall have all the powers vested in it by the terms of the Plan,
including exclusive authority (i) to select from among eligible directors,
officers, employees and consultants, those persons to be granted "Awards" (as
defined below) under the Plan; (ii) to determine the type, size and terms of
individual Awards (which need not be identical) to be made to each person
selected; (iii) to determine the time when Awards will be granted and to
establish objectives and conditions (including, without limitation, vesting and
performance conditions), if any, for earning Awards; (iv) to amend the terms or
conditions of any outstanding Award, subject to applicable legal restrictions
and to the consent of the other party to such Award; (v) 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; (vi) to authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan; and (vii) to make
any and all other determinations which it determines to be necessary or
advisable in the administration of the Plan. The Board shall have full power
and authority to administer and interpret the Plan and to adopt, amend and
revoke such rules, regulations, agreements, guidelines and instruments for the
administration of the Plan and for the conduct of its business as the Board
deems necessary or advisable. The Board's interpretation of the Plan, and all
actions taken and determinations made by the Board pursuant to the powers vested
in it hereunder, 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.
<PAGE>
3. PERSONS ELIGIBLE UNDER THE PLAN.
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 Awards under the Plan.
4. AWARDS.
(a) Common Stock and Derivative Security Awards. Awards authorized under
the Plan shall consist of any type of arrangement with a Participant that is not
inconsistent 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 shall determine is 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 adopt, amend or revoke from time to time
written policies implementing the Plan. Such 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 such 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 such 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 such Award to pay the
purchase price of the Common Stock or other property issuable pursuant to
such Award, or to pay such
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recipient's tax withholding obligation with respect to such issuance, in
whole or in part, by delivering previously owned shares of capital stock of
the Company (including "pyramiding") or other property, or by reducing the
number of shares of Common Stock or the amount of other property otherwise
issuable pursuant to such 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 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 with respect to such Award. In making such
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 that may be issued pursuant to all Awards under the Plan as set
forth in Section 5 hereof.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
The aggregate number of shares of Common Stock that may be issued or
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 an
aggregate of 600,000 shares of Common Stock, 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. Any shares of Common Stock subject to an Award which for any reason
expires or is terminated unexercised as to such 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 with respect to which the holder
thereof received no benefits of ownership, such as dividends; and (ii) the
number of shares of Common Stock which were otherwise issuable pursuant to
Awards granted under this Plan but which were
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withheld by the Company as payment of the purchase price of the Common Stock
issued pursuant to such Awards or as payment of the recipient's tax withholding
obligation with respect to such issuance.
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 all or a portion of a payment to that
Participant under the Plan, whether it is to be made in cash, shares of Common
Stock or a combination thereof, shall be deferred. Deferrals shall be for such
periods and upon such terms as the Board may determine in its sole discretion.
7. DILUTION AND OTHER ADJUSTMENT.
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 respect of such outstanding securities
as a class (other than cash dividends), then the Board may, but it shall not be
required to, make such equitable adjustments to the Plan and the Awards
thereunder (including, without limitation, appropriate and proportionate
adjustments in (i) the number and type of shares or other securities or cash or
other property that may be acquired pursuant to Incentive Stock Options and
other Awards theretofore granted under the Plan, (ii) the maximum number and
type of shares or other securities that may be issued pursuant to Incentive
Stock Options and other Awards thereafter granted under the Plan; and (iii) the
maximum number of securities with respect to which Awards may thereafter be
granted to any Participant in any fiscal year) as the Board in its sole
discretion determines appropriate, including any adjustments in the maximum
number of shares referred to in Section 5 of the Plan. Such adjustments shall
be conclusive and binding for all purposes of the Plan.
8. MISCELLANEOUS PROVISIONS.
(a) Definitions. As used herein, "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. Securities shall not be issued pursuant to
Awards unless the grant and issuance thereof shall comply with all relevant
provisions of law and the requirements of any securities exchange or quotation
system upon which any securities of the Company are listed, and shall be further
subject to approval of counsel for the Company with respect to such compliance.
Inability of the Company to obtain authority from any regulatory
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body having jurisdiction, which authority is determined by Company counsel to be
necessary to the lawful issuance and sale of any security or Award, shall
relieve the Company of any liability in respect of the nonissuance or sale of
such securities as to which requisite authority shall not have been obtained.
(c) Rights as Shareholder. A participant under the Plan shall have no
rights as a holder of Common Stock with respect to Awards hereunder, unless and
until certificates for shares of such stock are issued to the participant.
(d) Assignment or Transfer. Subject to the discretion of the Board, and
except with respect to Incentive Stock Options which are not transferable except
by will or the laws of descent and distribution, Awards under the Plan or any
rights or interests therein shall be assignable or transferable.
(e) Agreements. All Awards granted under the Plan shall be evidenced by
written agreements in such form and containing such terms and conditions (not
inconsistent with the Plan) as the Board shall from time to time adopt.
(f) Withholding Taxes. The Company shall have the right to deduct from all
Awards hereunder paid in cash any federal, state, local or foreign taxes
required by law to be withheld with respect to such awards and, with respect to
awards paid in stock, to require the payment (through withholding from the
participant's salary or otherwise) of any such taxes. The obligation of the
Company to make delivery of 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 hereunder shall be construed as giving any Participant any right to be
retained in the employ of the Company or any of its subsidiaries or 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 costs and expenses of administering the Plan
shall be borne by the Company and not charged to any Award nor 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 make any other
segregation of 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 with respect to any Awards theretofore 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 not
inconsistent with the terms of the Plan.
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(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 the Plan shall theretofore have been terminated
as above provided, the Plan (but not the awards theretofore granted under the
Plan) shall terminate on and no awards shall be granted after May 27, 2007.
10. 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
Common Stock of the Company.
11. GOVERNING LAW.
The Plan and any agreements entered into thereunder shall be construed and
governed by the laws of the State of California applicable to contracts made
within, and to be performed wholly within, such state, without regard to the
application of conflict of laws rules thereof.
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EXHIBIT 10.2
OPTION CERTIFICATE
(NON-STATUTORY STOCK OPTION)
THIS IS TO CERTIFY that Signature Eyewear, Inc., a California corporation
(the "COMPANY"), has granted to the person named below ("OPTIONEE") a non-
statutory stock option (the "OPTION") to purchase shares of the Company's Common
Stock (the "SHARES") under its 1997 Stock Plan and upon the terms and conditions
as follows:
Name of Optionee: ______________________________________
Address of Optionee: ______________________________________
______________________________________
______________________________________
Number of Shares: ______________________________________
Option Exercise Price: $__________________________ per share
Date of Grant:
__________________________ ___, 199__
Option Expiration Date: __________________________ ___, 200__
EXERCISE SCHEDULE: The Option shall become exercisable as follows:
SUMMARY OF OTHER TERMS: This Option is defined in the Stock Option
Agreement (Non-statutory Stock Option) (the "OPTION AGREEMENT") which is
attached to this Option Certificate (the "CERTIFICATE") as Annex I. This
Certificate summarizes certain of the provisions of the Option Agreement for
your information, but is not complete. Your rights are governed by the Option
Agreement, not by this summary. The Company strongly suggests that you
---
carefully review the full Option Agreement prior to signing this Certificate or
exercising the Option.
<PAGE>
Among the terms of the Option Agreement are the following:
EMPLOYMENT: The Option Agreement does not obligate the Company to retain
you for any period of time. Unless otherwise agreed in writing, the Company
-- -------
reserves the right to terminate any employee at any time, with or without cause.
See Section 5(d) of the Option Agreement.
TERMINATION OF EMPLOYMENT: While the Option terminates on the Option
Expiration Date, it will terminate earlier if you cease to be employed by the
Company. If your employment ends due to death or permanent disability, the
Option terminates six months after the date of death or disability, and is
exercisable during such six-month period as to the portion of the Option which
had vested prior to the date of death or disability. In all other cases, the
Option terminates 30 days after the date of termination of employment, and is
exercisable during such time period as to the portion of the Option which had
vested prior to the date of termination of employment; provided, however, if you
-------- -------
are terminated "for cause," the Option will terminate 5 days after the date of
termination of your employment and is exercisable during such time period as to
the portion of the Option which had vested prior to the date of termination of
employment. See Section 5 of the Option Agreement.
TRANSFER: The Option is personal to you, and cannot be sold, transferred,
assigned or otherwise disposed of to any other person, except on your death.
See Section 15(d) of the Option Agreement.
EXERCISE: You can exercise the Option (once it is exercisable), in whole
or in part, by delivering to the Company a Notice of Exercise identical to
Exhibit "A" attached to the Option Agreement, accompanied by payment of the
Exercise Price for the Shares to be purchased. The Company will then issue a
certificate to you for the Shares you have purchased. You are under no
obligation to exercise the Option. See Section 4 of the Option Agreement.
MARKET STAND-OFF: The Option provides that in connection with any
underwritten public offering by the Company, you may not sell or transfer any of
your Shares without the prior written consent of the Company or its underwriters
for a period of up to 180 days after the effective date of the offering. See
Section 6(a) of the Option Agreement.
ADJUSTMENTS UPON RECAPITALIZATION: The Option contains provisions which
affect your rights in the event of stock splits, stock dividends, mergers and
other major corporate reorganizations. See Section 7 of the Option Agreement.
WAIVER: By signing this Certificate, you will be agreeing to all of the
terms of the Option Agreement, including those not summarized in this
Certificate. You will waive your rights to options or stock which may otherwise
have been promised to you. See Section 8 of the Option Agreement.
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WITHHOLDING: The Company may require you to make any arrangements
necessary to insure the proper withholding of any amount of tax, if any,
required to be withheld by the Company as a result of the exercise of the
Option. See Section 13 of the Option Agreement.
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AGREEMENT
Signature Eyewear, Inc., a California corporation, and Optionee each hereby
agrees to be bound by all of the terms and conditions of the Stock Option
Agreement (Non-Statutory Stock Option) which is attached hereto as Annex I and
incorporated herein by this reference as if set forth in full in this document.
DATED:
-----------------------
SIGNATURE EYEWEAR, INC.
By:
-----------------------------------------
Its:
-----------------------------------------
OPTIONEE
----------------------------------------------
Name:
----------------------------------------------
(Please print your name exactly as you wish it
to appear on any stock certificates issued to
you upon exercise of the Option)
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<PAGE>
ANNEX I
STOCK OPTION AGREEMENT
(NON-STATUTORY STOCK OPTION)
This STOCK OPTION AGREEMENT (this "OPTION AGREEMENT") is made and entered
into as of the execution date of the Option Certificate to which it is attached
(the "CERTIFICATE") by and between Signature Eyewear, Inc., a California
corporation (the "COMPANY"), and the person named in the Certificate
("OPTIONEE").
Pursuant to the Signature Eyewear, Inc. 1997 Stock Plan (the "PLAN"), the
Board of Directors of the Company (the "BOARD") has authorized the grant to
Optionee of a non-statutory stock option to purchase shares of the Company's
Common Stock, par value $.001 per share (the "COMMON STOCK"), upon the terms and
subject to the conditions set forth in this Option Agreement and in the Plan.
The Company and Optionee agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to Optionee the right and option (the
"OPTION"), upon the terms and subject to the conditions set forth in this Option
Agreement and the Plan, to purchase all or any portion of that number of shares
of the Common Stock (the "SHARES") set forth in the Certificate at the Option
exercise price set forth in the Certificate (the "EXERCISE PRICE").
2. TERM OF OPTION.
The Option shall terminate and expire on the Option Expiration Date
set forth in the Certificate (the "EXPIRATION DATE"), unless sooner terminated
as provided herein. In no event shall the Option be exercisable after the
expiration of ten years from the date it was granted.
3. EXERCISE PERIOD.
(a) Subject to the provisions of Sections 3(b), 5 and 7(b) of this
Option Agreement, the Option shall become exercisable (in whole or in part) upon
and after the dates set forth under the caption "Exercise Schedule" in the
Certificate. The installments shall be cumulative; i.e., the Option may be
----
exercised, as to any or all Shares covered by an installment, at any time or
times after the installment first becomes exercisable and until the Option
Expiration Date or the termination of the Option.
<PAGE>
(b) Notwithstanding anything to the contrary contained in this Option
Agreement, the Option may not be exercised, in whole or in part, unless and
until any then-applicable requirements of all federal, state and local laws and
regulatory agencies shall have been fully complied with to the satisfaction of
the Company and its counsel.
4. EXERCISE OF OPTION.
There is no obligation to exercise the Option, in whole or in part.
The Option may be exercised, in whole or in part, only by delivery to the
Company of:
(a) written notice of exercise in form and substance identical to
Exhibit "A" attached to this Option Agreement stating the number of Shares then
being purchased (the "PURCHASED SHARES");
(b) payment of the Exercise Price of the Purchased Shares, either (1)
in cash, or (2) with the consent of the Board (which may be withheld in its
absolute discretion), by (i) delivery to the Company of other shares of Common
Stock with an aggregate Fair Market Value equal to the total Exercise Price of
the Purchased Shares, (ii) according to a deferred payment or other arrangement
(which may include without limiting the generality of the foregoing, the use of
other shares of Common Stock) with the person to whom the Option is granted or
to whom the Option is transferred pursuant to the terms of this Option
Agreement, or (iii) in any other form of legal consideration that may be
acceptable to the Board; and
(c) if requested by the Company, a letter of investment intent in such
form and containing such provisions as the Company may require.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be payable at the minimum rate of interest
necessary to avoid the imputation of interest, under the applicable provision of
the Internal Revenue Code of 1986, as amended (the "CODE"), and Treasury
Regulations.
Following receipt of the notice and payment referred to above, the
Company shall issue and deliver to Optionee a stock certificate or stock
certificates evidencing the Purchased Shares; provided, however, that the
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Company shall not be obligated to issue a fraction or fractions of a share of
its Common Stock, and may pay to Optionee, in cash or by check, the Fair Market
Value of any fraction or fractions of a share exercised by Optionee. "FAIR
MARKET VALUE" shall be determined as follows: (1) if the Common Stock is listed
on any established stock exchange or a national market system, including without
limitation the Nasdaq National Market, the Fair Market Value of a share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in the Common Stock) on the last
market trading day prior to the day of determination, as reported in the Wall
Street Journal or such other source as the Board deems reliable; (2) if the
Common Stock is quoted on the Nasdaq System (but not on the Nasdaq National
Market) or is regularly quoted by a recognized securities
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dealer but selling prices are not reported, the Fair Market Value of a share of
Common Stock shall be the mean between the bid and asked prices for the Common
Stock on the last market trading day prior to the day of determination, as
reported in the Wall Street Journal or such other source as the Board deems
reliable; and (3) in the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.
5. TERMINATION OF SERVICES.
(a) If Optionee shall cease to be an officer, director, consultant or
employee of the Company or any "Affiliate" of the Company (as that term is
defined in Rule 501(b) of the Rules and Regulations under the Securities Act of
1933, as amended (the "1933 ACT")) for any reason other than death or permanent
disability (a "TERMINATING EVENT"), Optionee shall have the right, subject to
the provisions of Section 5(c) below, to exercise the Option at any time
following such Terminating Event until the earlier to occur of (1) 30 days
following the date of such Terminating Event and (2) the Expiration Date. The
Option may be exercised following a Terminating Event only to the extent
exercisable as of the date of the Terminating Event. To the extent unexercised
at the end of the period referred to above, the Option shall terminate. The
Board, in its sole and absolute discretion, shall determine whether or not
authorized leaves of absence shall constitute termination of employment for
purposes of this Option Agreement.
(b) If, by reason of death or disability (a "SPECIAL TERMINATING
EVENT"), Optionee shall cease to be an officer, director, consultant or employee
of the Company or any Affiliate, then Optionee, Optionee's executors or
administrators or any person or persons acquiring the Option directly from
Optionee by bequest or inheritance, shall have the right to exercise the Option
at any time following such Special Terminating Event until the earlier to occur
of (1) six months following the date of such Special Terminating Event and (2)
the Expiration Date. The Option may be exercised following a Special
Terminating Event only to the extent exercisable at the date of the Special
Terminating Event. To the extent unexercised at the end of the period referred
to above, the Option shall terminate. For purposes of this Option Agreement,
"disability" shall mean total and permanent disability as defined in Section
22(e)(3) of the Code. Optionee shall not be considered permanently disabled
unless he furnishes proof of such disability in such form and manner, and at
such times, as the Board may from time to time require.
(c) If Optionee's employment shall be terminated "for cause" by the
Company or any Affiliate, Optionee shall have the right to exercise the Option
at any time following such Terminating Event until the earlier to occur of (1) 5
days following the date of such Terminating Event and (2) the Expiration Date.
For purposes of this Option Agreement, "for cause" shall mean:
(1) with respect to employees of the Company or any Affiliate the
following to the extent it results in substantial harm to the Company or any
Affiliate or could reasonably be expected to result in substantial harm to the
Company or any Affiliate:
3
<PAGE>
(i) the willful failure or refusal by Optionee to perform
his duties to the Company or any Affiliate; or
(ii) Optionee's willful disobedience of any orders or
directives of the Board of Directors of the Company or any Affiliate or any
officers thereof acting under the authority thereof or Optionee's deliberate
interference with the compliance by other employees of the Company or any
Affiliate with any such orders or directives; or
(iii) the willful failure or refusal of Optionee to abide by
or comply with the written policies, standard procedures or regulations of the
Company or any Affiliate; or
(iv) any willful or continued act or course of conduct by
Optionee which the Board in good faith determines might reasonably be expected
to have a material detrimental effect on the Company or any Affiliate or their
respective business, operations, affairs or financial position; or
(v) the committing by the Optionee of any fraud, theft,
embezzlement or other dishonest act against the Company or any Affiliate; or
(vi) the determination by the Board, in good faith and in
the exercise of reasonable discretion, that Optionee is not competent to perform
his duties of employment; and
(2) with respect to consultants, any material breach of their
consulting agreement with the Company or any Affiliate.
(d) Nothing in the Plan, the Certificate or this Option Agreement
shall confer upon Optionee any right to continue in the service and/or employ of
the Company or any Affiliate or shall affect the right of the Company or any
Affiliate to terminate the relationship or employment of Optionee, with or
without cause.
6. RESTRICTIONS ON PURCHASED SHARES.
(a) MARKET STAND-OFF.
(1) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the 1933 Act, including the Company's initial public offering,
Optionee shall not sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise dispose or transfer for value
or otherwise agree to engage in any of the foregoing transactions with respect
to any Purchased Shares without the prior written consent of the Company or its
underwriters, for such period of time from and after the effective date of such
registration statement as may be requested by the Company or such underwriters;
provided, however, that
- -------- -------
4
<PAGE>
in no event shall such period exceed 180 days. This Section 6(a)(1) shall only
remain in effect for the two-year period immediately following the effective
date of the Company's initial public offering and shall thereafter terminate and
cease to be in force or effect. Optionee agrees to execute and deliver to the
Company such further documents or instruments as the Company reasonably
determines to be necessary or appropriate to effect the provisions of this
Section 6(a).
(2) In the event of any stock dividend, stock split, recapitalization
or other transaction resulting in an adjustment under Section 7 hereof, then any
new, substituted or additional securities or other property which is by reason
of such transaction distributed with respect to or in exchange for the Purchased
Shares shall be immediately subject to the provisions of this Section 6(a), to
the same extent the Purchased Share are at such time covered by such provisions.
(3) In order to enforce the provisions of Section 6(a), the Company
may impose stop-transfer instructions with respect to the Purchased Shares until
the end of the applicable stand-off period.
(b) SECURITIES LAW RESTRICTIONS. In the event that the issuance of
the Purchased Shares shall not be registered under the 1933 Act, none of the
Purchased Shares shall be sold, transferred, assigned, pledged, hypothecated or
otherwise disposed of ("TRANSFERRED") (with or without consideration), and the
Company shall not be required to register any such sale, transfer, assignment,
pledge, hypothecation or other disposition ("TRANSFER") and the Company may
instruct its transfer agent not to register any such Transfer, unless and until
one of the following events shall have occurred:
(1) The Purchased Shares are Transferred pursuant to and in
conformity with (i) an effective registration statement filed with the
Securities and Exchange Commission (the "COMMISSION") pursuant to the 1933 Act,
and (ii) the qualification and/or registration requirements under any applicable
securities laws of any state of the United States; or
(2) Optionee has, prior to the Transfer of such Purchased Shares, and
if requested by the Company, provided all relevant information to the Company's
counsel so that upon the Company's request, the Company's counsel is able to,
and actually prepares and delivers to the Company a written opinion that the
proposed Transfer (i) is exempt from registration under the 1933 Act as then in
effect, and the Rules and Regulations of the Commission thereunder, and (ii) is
exempt from qualification and/or registration under any applicable state
securities laws. The Company shall bear all reasonable costs of preparing such
opinion.
(c) NONCOMPLYING TRANSFERS INVALID. Any attempted Transfer which is not in
full compliance with this Section 6 shall be null and void ab initio, and of no
---------
force or effect.
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<PAGE>
7. ADJUSTMENTS UPON RECAPITALIZATION.
(a) Subject to the provisions of Section 7(b), if any change is made
in the Common Stock, without receipt of consideration by the Company or its
shareholders (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company or its shareholders), the Option will be
appropriately adjusted in the class(es) and number of shares and price per share
of stock subject to the Option. Such adjustments shall be made by the Board,
the determination of which shall be final, binding and conclusive. The
conversion of any convertible securities of the Company shall not be treated as
a change "without the receipt of consideration by the Company or its
shareholders."
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the "surviving corporation" (as defined below); or (3)
a merger in which the Company is the surviving corporation but the shares of the
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then, at the sole discretion of the Board and to the extent
permitted by applicable law, the Option shall (i) terminate upon such event and
may be exercised prior thereto to the extent the Option is then exercisable or
(ii) continue in full force and effect and, if applicable, the surviving
corporation or an Affiliate of such surviving corporation shall assume the
Option and/or shall substitute a similar option or award in place of the Option.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, and its
determination shall be final, binding and conclusive.
(d) The provisions of this Section 7 are intended to be exclusive,
and Optionee shall have no other rights upon the occurrence of any of the events
described in this Section 7.
(e) The grant of the Option shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes in its capital or business structure, or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.
(f) The determination as to which party is a "surviving corporation"
in a merger or consolidation shall be made on the basis of the relative equity
interests of the shareholders in the corporation existing after the merger or
consolidation, as follows: If following any merger or consolidation the holders
of outstanding voting securities of the Company prior to the merger or
consolidation own equity securities possessing more than 50% of the voting power
of the corporation existing after the merger or consolidation, then for purposes
of the Option Agreement, the Company shall be the surviving corporation. In all
other cases, the Company shall not be the surviving corporation.
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<PAGE>
8. WAIVER OF RIGHTS TO PURCHASE STOCK.
By signing this Option Agreement, Optionee acknowledges and agrees
that neither the Company nor any other person or entity is under any obligation
to sell or transfer to Optionee any option or equity security of the Company,
other than the Shares subject to the Option and any other right or option to
purchase Common Stock which was previously granted in writing to Optionee by the
Board. By signing this Option Agreement, Optionee specifically waives all
rights which he or she may have had prior to the date of this Option Agreement
to receive any option or equity security of the Company.
9. INVESTMENT INTENT.
Optionee represents and agrees that if he or she exercises the Option
in whole or in part, and if at the time of such exercise the Plan and/or the
Purchased Shares have not been registered under the 1933 Act, he or she will
acquire the Shares upon such exercise for the purpose of investment and not with
a view to the distribution of such Shares, and that upon each exercise of the
Option he or she will furnish to the Company a written statement to such effect.
10. LEGEND ON STOCK CERTIFICATES.
Optionee agrees that all certificates representing the Purchased
Shares will be subject to such stock transfer orders and other restrictions (if
any) as the Company may deem advisable under the rules, regulations and other
requirements of the Commission, any stock exchange upon which the Common Stock
is then listed and any applicable federal or state securities laws, and the
Company may cause a legend or legends to be put on such certificates to make
appropriate reference to such restrictions.
11. NO RIGHTS AS SHAREHOLDER.
Except as provided in Section 7 of this Option Agreement, Optionee
shall have no rights as a shareholder with respect to the Shares until the date
of the issuance to Optionee of a stock certificate or stock certificates
evidencing such Shares. Except as may be provided in Section 7 of this Option
Agreement, no adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is issued.
12. MODIFICATION.
Subject to the terms and conditions and within the limitations of the
Plan, the Board (excluding the Optionee) may modify, extend or renew the Option
or accept the surrender of, and authorize the grant of a new option in
substitution for, the Option (to the extent not previously exercised). No
modification of the Option shall be made which, without the consent of Optionee,
would alter or impair any rights of the Optionee under the Option.
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<PAGE>
13. WITHHOLDING.
(a) The Company shall be entitled to require as a condition of
delivery of any Purchased Shares upon exercise of any Option that the Optionee
agree to remit, at the time of such delivery or at such later date as the
Company may determine, an amount sufficient to satisfy all federal, state and
local withholding tax requirements relating thereto, and Optionee agrees to take
such other action required by the Company to satisfy such withholding
requirements.
(b) With the consent of the Board (excluding the Optionee), and in
accordance with any rules and procedures from time to time adopted by the Board,
Optionee may elect to satisfy his or her obligations under Section 13(a) above
by (1) directing the Company to withhold a portion of the Shares otherwise
deliverable (or to tender back to the Company a portion of the Shares issued
where the Optionee (a "SECTION 16(b) RECIPIENT") is required to report the
ownership of the Shares pursuant to Section 16(a) of the Securities Exchange Act
of 1934, as amended, and has not made an election under Section 83(b) of the
Code (a "WITHHOLDING RIGHT")); or (2) tendering other shares of the Common Stock
of the Company which are already owned by Optionee which in all cases have a
Fair Market Value (as determined in accordance with the provisions of Section 4
hereof) on the date as of which the amount of tax to be withheld is determined
(the "TAX DATE") equal to the amount of taxes to be paid by such method.
(c) To exercise a Withholding Right, the Optionee must follow the
election procedures set forth below, together with such additional procedures
and conditions set forth in this Option Agreement or otherwise adopted by the
Board:
(1) the Optionee must deliver to the Company a written notice of
election (the "ELECTION") and specify whether all or a stated percentage of the
applicable taxes will be paid in accordance with Section 13(b) above and whether
the amount so paid shall be made in accordance with the "flat" withholding rates
for supplemental wages or as determined in accordance with Optionee's form W-4
(or comparable state or local form);
(2) unless disapproved by the Board (excluding the Optionee) as
provided in subsection (3) below, the Election once made will be irrevocable;
(3) no Election is valid unless the Board (excluding the
Optionee) has the right and power, in its sole discretion, with or without cause
or reason therefor, to consent to the Election, to refuse to consent to the
Election, or to disapprove the Election; and if the Board has not consented to
the Election on or prior to the Tax Date, the Election will be deemed approved;
and
(4) if the Optionee on the date of delivery of the Election to
the Company is a Section 16(b) Recipient, the following additional provisions
will apply:
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<PAGE>
(i) the Election cannot be made during the six calendar
month period commencing with the date of grant of the Withholding Right (even if
the Option to which such Withholding Right relates has been granted prior to
such date); and
(ii) the Election (and the exercise of the related Option)
must be made either during the period beginning on the third business day
following the date of release for publication of the quarterly or annual summary
statements of sales and earnings of the Company and ending on the 12th business
day following such date or at least six calendar months or more prior to the Tax
Date.
14. CHARACTER OF OPTION.
The Option is not intended to qualify as an "incentive stock option"
as that term is defined in Section 422 of the Code.
15. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Optionee shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Option
Agreement.
(b) NOTICES. All notices, requests, demands and other communications
under this Option Agreement shall be in writing and shall be given to the
parties hereto as follows:
(1) If to the Company, to:
Signature Eyewear, Inc.
498 North Oak Street
Inglewood, CA 90302
(2) If to Optionee, to the address set
forth on the Certificate,
or at such other address or addresses as may have been furnished by such either
party in writing to the other party hereto. Any such notice, request, demand or
other communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mail by first-class certified mail, return
receipt requested, postage prepaid, addressed as aforesaid, or (ii) if given by
any other means, when delivered at the address specified in this subsection (b).
(c) TRANSFER OF RIGHTS UNDER THIS OPTION AGREEMENT. The Company may
at any time transfer and assign its rights and delegate its obligations under
this Option Agreement to any other person, corporation, firm or entity,
including its officers, directors and stockholders, with or without
consideration.
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<PAGE>
(d) OPTION NON-TRANSFERABLE. Optionee may not Transfer the Option
except by will or the laws of descent and distribution, and the Option may be
exercised during the lifetime of Optionee only by Optionee or by his or her
guardian or legal representative in the case of a disability, and upon
Optionee's death only by his or her Estate or by any person who acquired the
Option by bequest or inheritance or by reason of the death of Optionee.
(e) SUCCESSORS AND ASSIGNS. Except to the extent specifically limited
by the terms and provisions of this Option Agreement, this Option Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors, assigns, heirs and personal representatives.
(f) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE, EXCEPT TO THE EXTENT
PREEMPTED BY FEDERAL LAW, WHICH SHALL TO THAT EXTENT GOVERN.
(g) INCORPORATION OF PLAN BY REFERENCE. This Option is granted
pursuant to the terms of the Plan, the terms of which are incorporated herein by
reference, and it is intended that this Option Agreement shall be interpreted in
a manner to comply therewith. Any provision of this Option Agreement
inconsistent with the Plan shall be superseded and governed by the Plan.
(h) A COMMITTEE. As provided in the Plan, the Board may delegate
administration of the Plan and this Option Agreement to a committee (the
"COMMITTEE"). If administration is delegated to a Committee, the Committee
shall have, in connection with the this Option Agreement, the powers theretofore
possessed by the Board (and references in this Option Agreement to the Board
shall thereafter be to the Committee).
(i) MISCELLANEOUS. Titles and captions contained in this Option
Agreement are inserted for convenience of reference only and do not constitute a
part of this Option Agreement for any other purpose. Except as specifically
provided herein, neither this Option Agreement nor any right pursuant hereto or
interest herein shall be assignable by any of the parties hereto without the
prior written consent of the other party hereto.
THE SIGNATURE PAGE TO THIS OPTION AGREEMENT CONSISTS OF THE LAST PAGE
OF THE CERTIFICATE.
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Exhibit "A"
NOTICE OF EXERCISE
(To be signed only upon exercise of the Option)
To: Signature Eyewear, Inc.
The undersigned, the holder of the enclosed Stock Option Agreement (Non-
Statutory Stock Option), hereby irrevocably elects to exercise the purchase
rights represented by the Option and to purchase thereunder _________ * shares
of Common Stock of Signature Eyewear, Inc. (the "COMPANY"), and herewith
encloses payment of $__________ and/or _________ shares of the Company's Common
Stock in full payment of the purchase price of such shares being purchased.
Dated:
-------------------------
---------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of the
Option)
---------------------------------------------
(Please Print Name)
---------------------------------------------
(Address)
* Insert here the number of Shares called for on the face of the Option
(or, in the case of a partial exercise, the number of Shares being exercised),
in either case without making any adjustment for additional Common Stock of the
Company, other securities or property which, pursuant to the adjustment
provisions of the Option, may be deliverable upon exercise.
<PAGE>
EXHIBIT 10.3
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is made as of this ____ day of
__________, 199_, by and between Signature Eyewear, Inc., a California
corporation (the "COMPANY"), and _________________________, a director and
officer of the Company ("INDEMNITEE").
R E C I T A L S
- - - - - - - -
A. The Company and Indemnitee recognize that the vagaries of public
policy and the interpretation of ambiguous statutes, regulations and court
opinions are too uncertain to provide the Company's officers, directors,
employees and other agents with adequate or reliable advance knowledge or
guidance with respect to the legal risks and potential liabilities to which they
may become personally exposed as a result of performing their duties in good
faith for the Company.
B. The Company and Indemnitee recognize that the cost of defending
against lawsuits resulting from the performance of their duties in good faith
for the Company, whether or not meritorious, is typically beyond the financial
resources of most officers, directors, employees and other agents of the
Company.
C. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting officers and directors to
expensive litigation risk at the same time that the availability and coverage of
liability insurance has been severely limited.
D. The Company and the Indemnitee recognize that the legal risks and
potential liabilities, and the very threat thereof, associated with lawsuits
filed against the officers, directors, employees and other agents of the
Company, and the resultant substantial time, expense, harassment, ridicule,
abuse and anxiety spent and endured in defending against such lawsuits bears no
reasonable or logical relationship to the amount of compensation received by the
Company's officers and directors, and thus poses a significant deterrent to and
results in increased reluctance on the part of experienced and capable
individuals to serve as officers or directors of the Company.
E. In order to induce and encourage highly experienced and capable
persons such as Indemnitee to serve as officers and/or directors of the Company
and to otherwise promote the desirable end that such persons will resist what
they consider unjustifiable lawsuits and claims made against them in connection
with the good faith performance of their duties to the Company, secure in the
knowledge that certain expenses, costs and liabilities incurred by them in their
defense of such litigation will be borne by the Company and that they will
receive the maximum protection against such risks and liabilities as may be
afforded by law, the Board of Directors of the Company (the "BOARD") has
determined, after due consideration and investiga tion of the terms and
provisions of this Agreement and the various other options available to the
<PAGE>
Company and Indemnitee in lieu hereof, that the following Agreement is not only
reasonable and prudent but necessary to promote and ensure the best interests of
the Company and the Company's shareholders.
F. The Company desires to have Indemnitee serve or continue to serve as
an officer and/or director of the Company, as the case may be, free from undue
concern for unpredictable, inappropriate or unreasonable legal risks and
personal liabilities by reason of his acting in good faith in the performance of
his duty to the Company; and Indemnitee desires to serve or continue to serve as
an officer or director of the Company; provided, and on the express condition,
that he is furnished with the indemnity set forth hereinafter.
G. The Company and Indemnitee desire that the indemnification rights
provided by this Agreement shall be supplemental to, and shall not supersede or
replace, any indemnification rights which may be provided by other sources,
including without limitation any indemnification which may be provided by the
Company pursuant to its bylaws, by contract or by applicable law.
A G R E E M E N T
- - - - - - - - -
The Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
-----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (collectively, "ACTION") (other than
an action by or in the right of the Company) by reason of the fact that
Indemnitee is or was a director, officer, employee or agent (collectively,
"AGENT") of the Company, or any subsidiary of the Company, by reason of any
action or inaction on the part of Indemnitee while an Agent or by reason of the
fact that Indemnitee is or was serving at the request of the Company as an Agent
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) and other amounts actually and
reasonably incurred by Indemnitee in connection with such Action if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in the
best interest of the Company or subsidiary (as applicable) and, with respect to
any criminal action or proceeding, had no reasonable cause to believe
Indemnitee's conduct was unlawful. The termination of any action by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
---- ----------
equivalent, shall not, of itself, create a presumption that Indemnitee did not
act in good faith and in a manner which Indemnitee reasonably believed to be in
the best interest of the Company, or with respect to any criminal action or
proceeding, had reasonable cause to believe that Indemnitee's conduct was
unlawful.
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<PAGE>
(b) Proceedings By or in the Right of the Company. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed Action by or in the right of the
Company or any subsidiary of the Company to procure a judgment in its favor by
reason of the fact that Indemnitee is or was an Agent of Company or any
subsidiary of the Company, by reason of any action or inaction on the part of
Indemnitee while an Agent, or by reason of the fact that Indemnitee is or was
serving at the request of the Company as an Agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) and, to the fullest extent permitted by law, amounts
paid in settlement, in each case to the extent actually and reasonably incurred
by Indemnitee in connection with the defense or settlement of such action or
suit in such circumstances and to the extent that indemnity is not expressly
prohibited by Section 317 of the California General Corporation Law as to the
indemnification by a corporation of its agents: (i) if Indemnitee acted in good
faith and in a manner Indemnitee reasonably believed to be in the best interests
of the Company and its shareholders; or (ii) to the extent that the action or
contemplated action seeks monetary damages for breach of Indemnitee's duties to
the Company and its shareholders, provided that no indemnification shall be made
for any acts or omissions or transactions for which a director may not be
relieved of liability pursuant to the exception to Section 204(a)(10) of the
California General Corporation Law. For purposes of this Section 1(b),
indemnification shall include, to the extent not prohibited by law,
indemnification against all judgments, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee in connection with such Action.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee has
-----------------------------
been successful on the merits or otherwise in defense of any Action referred to
in subsection (a) or (b) of this Section 1 or the defense of any claim, issue or
matter therein, Indemnitee shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by Indemnitee in connection
therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) Advancement of Expenses. The Company shall advance all reasonable
-----------------------
expenses actually incurred by Indemnitee in connection with the investigation,
defense, settlement or appeal of any Action referenced in Section 1 hereof (but
not amounts actually paid in settlement of any such action, suit or proceeding).
Indemnitee hereby undertakes to repay such amounts advanced only if, and to the
extent that, it shall ultimately be determined that Indemnitee is not entitled
to be indemnified by the Company as authorized hereby.
(b) Notice to Company by Indemnitee. Indemnitee shall, as a condition
-------------------------------
precedent to Indemnitee's right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any claim made against
Indemnitee for which such indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the executive offices of the Company. In addition,
Indemnitee shall give the Company such information and cooperation as it may
reasonably require and as shall be within Indemnitee's power.
3
<PAGE>
(c) Procedure. Any indemnification and advances provided for in
---------
Section 1 and this Section 2 shall be made no later than 45 days after receipt
of the written request of Indemnitee. If a claim under this Agreement is not
paid in full by the Company within 45 days after a written request for payment
therefor has first been received by the Company, Indemnitee may, but need not,
at any time thereafter bring an action against the Company to recover the unpaid
amount of the claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in connection with any
Action in advance of its final disposition) that Indemnitee has not met the
standards of conduct which make it permissible under the applicable law for the
Company to indemnify Indemnitee, but the burden of proving such defense shall be
on the Company and Indemnitee shall be entitled to receive interim payments of
expenses pursuant to subsection (a) of this Section 2 unless and until such
defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the intention of the parties that if the
Company contests Indemnitee's right to indemnification under this Agreement or
applicable law, the question of Indemnitee's right to indemnification shall be
for the court to decide, and neither the failure of the Company (including its
officers, Board, any committee or subgroup of its Board, independent legal
counsel or its shareholders) to have made a determination that indemnification
of Indemnitee is or is not proper in the circumstances because Indemnitee has or
has not met the applicable standard of conduct required by this Agreement or by
applicable law, nor an actual determination by the Company (including its
officers, Board, any committee or subgroup of its Board, independent legal
counsel or its shareholders) that Indemnitee has or has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of
------------------
a claim pursuant to Section 2(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
under Section 2(a) hereof to pay the expenses of any proceedings against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ separate counsel in any such proceeding at Indemnitee's expense;
and (ii) if (A) the employment of counsel by Indemnitee has been previously
authorized by the Company, (B) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company and Indemnitee in the
conduct of any such defense, or (C) the Company shall not, in fact, have
4
<PAGE>
employed counsel to assume the defense of such proceeding, then the fees and
expenses of Indemnitee's counsel shall be at the expense of the Company.
(f) Effect of Change in Law. Notwithstanding any other provision of
-----------------------
this Agreement, in the event of any change in any applicable law, statute or
rule which narrows the right of the Company to indemnify Indemnitee, such
change, to the extent not otherwise required by such law, statute or rule to be
applied to this Agreement, shall have no effect on this Agreement or the
parties' rights and obligations hereunder.
(g) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Articles of Incorporation, its Bylaws, any agreement, any
vote of shareholders or disinterested directors, applicable law, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee from any action taken or not taken
while serving in an indemnified capacity even though he may have ceased to serve
in such capacity at the time of any action, suit or other covered proceeding.
3. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any
Action, but not, however, for the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion of such expenses, judgements,
fines or penalties to which Indemnitee is entitled.
4. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal or state law, regulation or applicable public
policy may prohibit the Company from indemnifying Indemnitee under this
Agreement or otherwise. Indemnitee under stands and acknowledges that the
Company has undertaken or may be required in the future to undertake with the
Securities and Exchange Commission to submit the question of indemni fication to
a court in certain circumstances for a determination of the Company's right
under law or public policy to indemnify Indemnitee.
5. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to law,
regulation or court order, to perform its obligations under this Agreement shall
be severable as provided in this Section 5. If this Agreement or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the
full extent permitted by any applicable portion of this entire Agreement that
shall not have been invalidated, and the balance of this Agreement not so
invalidated shall be enforceable in accordance with its terms.
6. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
5
<PAGE>
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to Actions initiated or brought voluntarily by
Indemnitee and not by way of defense, but such indemnification or advancement of
expenses may be provided by the Company in specific cases if the Board has
approved the initiation or bringing of such suit;
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any Action initiated by Indemnitee to
enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceedings was not made in good faith or was frivolous; or
(c) No Duplication of Payments. To make any payment in connection
--------------------------
with any claim made against Indemnitee to the extent Indemnitee has otherwise
received payment (under any insurance policy, the Articles of Incorporation or
Bylaws of the Company, contract or otherwise) of the amounts otherwise
indemnifiable hereunder. If the Company makes any indemnification payment to
Indemnitee in connection with any claim made against Indemnitee and Indemnitee
has already received or thereafter receives payments in connection with the same
claim, then Indemnitee shall reimburse the Company in an amount equal to the
lesser of (i) the amount of the payment otherwise received by Indemnitee, and
(ii) the full amount of the indemnification payment made by the Company.
7. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "COMPANY" shall
include any successor, resulting, or surviving corporation of the Company.
(b) For purposes of this Agreement, references to "FINES" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as an Agent of the Company or any subsidiary of the Company
which imposes duties on, or involves services by, such Agent with respect to an
employee benefit plan, its participants, or beneficiaries; and if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan,
Indemnitee shall be deemed to have acted in a manner "in the best interest of
the Company" as referred to in this Agreement.
8. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
10. NOTICE. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.
All notices, requests, demands and other communications under this Agreement
shall be in writing and shall be deemed duly given (i) if delivered by hand and
receipted for by the party addressee, on the date
6
<PAGE>
of such receipt, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked if
addressed as provided for on the signature page of this Agreement, unless sooner
received, or as subsequently modified by written notice.
11. 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.
12. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consents to the jurisdiction of the court of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agrees that any action instituted under this
Agreement shall be brought only in the state courts of the State of California,
or in Federal courts located in such State.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SIGNATURE EYEWEAR,INC.
By: ______________________________
Its: _________________________
AGREED TO AND ACCEPTED:
INDEMNITEE:
_____________________________
(type name)
_____________________________
(signature)
_____________________________
_____________________________
(address)
7
<PAGE>
EXHIBIT 10.5
LICENSE AGREEMENT
LAURA ASHLEY MANUFACTURING B.V.
AND
USA OPTICAL DISTRIBUTORS, INC.
<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
<PAGE>
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.
9
<PAGE>
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
<PAGE>
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
11
<PAGE>
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
12
<PAGE>
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;
13
<PAGE>
(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
<PAGE>
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.
16
<PAGE>
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
17
<PAGE>
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. )
- ------------------------------
18
<PAGE>
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,
1
<PAGE>
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
<PAGE>
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. )
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(formerly known as
USA OPTICAL DISTRIBUTORS, INC.)
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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
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EXHIBIT 10.6
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -- MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("Basic Provisions").
1.1 PARTIES. This Lease ("Lease"), dated for reference purposes only,
March 23, 1995, is made by and between ROXBURY PROPERTY MANAGEMENT ("Lessor")
and SIGNATURE EYEWEAR, INC., a California corporation ("Lessee"), (collectively
the "Parties," or individually a "Party").
1.2(a) PREMISES. That certain portion of the building, including all
improvements therein or to be provided by lessor under the terms of this Lease,
commonly known by the street address of 498 Oak Street, located in the City of
Inglewood, County of Los Angeles, State of California, with zip code 90301, as
outlined on Exhibit A attached hereto ("Premises"). The "Building" is that
certain building containing the Premises and generally described as (describe
briefly the nature of the Building): An approximate 213,000 square foot
industrial building including approximately 330 automobile parking spaces of
which the Premises contained approximately 44,000 square feet. In addition to
Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee
shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7
below) as hereinafter specified, but shall not have any rights to the roof,
exterior walls or utility raceways of the Building or to any other buildings in
the Industrial Center. The Premises, the Building, the Common Areas, the land
upon which they are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "Industrial Center." (Also
see Paragraph 2.)
(b) PARKING: (See Addendum) unreserved vehicle parking spaces ("Unreserved
Parking Spaces"); and _____ reserved vehicle parking spaces ("Reserved Parking
Spaces"). (Also see Paragraph 2.6.)
1.3 TERM: 10 years and -0- months ("Original Term") commencing June 1,
1995 ("Commencement Date") and ending May 31, 2005 ("Expiration Date"). (Also
see Paragraph 3.)
1.4 EARLY POSSESSION: May 1, 1995 ("Early Possession Date"). (Also see
Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $(See Addendum) per month ("Base Rent"), payable on the
____ day of each month commencing _________________ (Also see Paragraph 4.)
[xx] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum _____, attached hereto.
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1.6(a) BASE RENT PAID UPON EXECUTION: $5,000 as Base Rent for the period
July 1, 1995 through July 31, 1995.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: 20.66%
("lessee's Share") as determined by [xx] prorata square footage
of the Premises as compared to the total square footage of the
Building.
1.7 SECURITY DEPOSIT: $100,000 ("Security Deposit"). (Also see Paragraph
5.) (See Addendum)
1.8 PERMITTED USE: The warehousing and distribution of optical and
similar type products and general office use for employees of Lessee ("Permitted
Use") (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "Insuring Party." (Also see Paragraph
9.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[xx] The Klabin Company represents Lessor exclusively ("Lessor's Broker");
[x ] Leonard & Ohren represents Lessee exclusively ("Lessee's Broker");
[ ] ___________________ represents both Lessor and Lessee ("Dual Agency") (also
see Paragraph 15).
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by Julie Heldman and Bernard Weiss ("Guarantor"). (Also see
Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or addenda
consisting of Paragraphs 49 through 70, and Exhibits "A" through --, all of
which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set
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forth in this Lease. Unless otherwise provided herein, any statement of square
footage set forth in this Lease, or that may have been used in calculating
rental and/or Common Area Operating Expenses, is an approximation which Lessor
and Lessee agree is reasonable and the rental and Lessee's Share (as defined in
Paragraph 1.6(b)) based thereon is not subject to revision whether or not the
actual square footage is more or less. (See Addendum).
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
---------
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system (including fire hoses and
hose cabinets), lighting, air conditioning and heating systems and loading
doors, if any, in the Premises, other than those constructed by Lessee, Windows,
skylights, walls, foundation, and exterior paving fencing, landscaping and
irrigation systems shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exits as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
sixty (60) days after the Commencement Date, correction of the non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
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warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non- compliance. Lessor makes no warranty that
the Permitted Use in Paragraph 1.8 is permitted for the Premises under
Applicable Laws (as defined in Paragraph 2.4).
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2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively "Applicable Laws") and the
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present and future suitability of the Premises for Lessee's intended use, (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease. (See Addendum).
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any no
compliance of the Premises with said warranties.
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than full-
size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
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(c) Lessor shall at the Commencement Date of this Lease, provide the
parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Central and Interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general non-
exclusive use of Lessor, Lessee and other lessees of the Industrial Center and
their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not
be responsible to Lessee for the non-compliance with said rules and regulations
by other lessees of the Industrial Center.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time. (See Addendum).
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas,
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loading and unloading areas, ingress, egress, direction of traffic, landscaped
areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To add additional buildings and improvement to the Common Areas;
(d) To use the Common Areas while engaged in making additional
improvement, repairs or alterations to the Industrial Center, or any portion
thereof, however, such work shall be performed so as to reasonably minimize
interference with Lessee's business; and
(e) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Industrial Center as Lessor may, in
the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however (including but not limited to the obligations and
to carry the insurance required by Paragraph 8) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term. Lessee's obligation to pay Lessee's share of Common
Area Operating Expenses shall commence on June 1, 1995.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said
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sixty (60) day period, cancel this Lease, in which event the parties shall be
discharged from all obligations hereunder; provided further, however, that if
such written notice of Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease hereunder shall terminate and be of
no further force or effect. Except as may be otherwise provided, and regardless
of when the Original Term actually commences, if possession is not tendered to
Lessee when required by this Lease and Lessee does not terminate this Lease, as
aforesaid, the period free of the obligation to pay Base Rent, if any, that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to the period during which the Lessee
would otherwise have enjoyed shall run from the date of delivery of possession
and continue for a period equal to the period during which the Lessee would have
otherwise enjoyed under the terms hereof, but minus any days of delay caused by
the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United Stated, without offset or deductions, or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the
terms hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions: (See Addendum).
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean, good
order and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
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(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security services.
(iv) Real property Taxes (as defined in Paragraph 10.2) to be
paid by Lessor for the Building and the Common Areas under Paragraph 10 hereof.
(v) The cost of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vi) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
(vii) Any other services to be provided by Lessor that are stated
elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be payable
by Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12 month period of the Lease
term, on the same day as the Base Rent
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is due hereunder. Lessor shall deliver to Lessee within sixty (60) days after
the expiration of each calendar year a reasonably detailed statement showing
Lessee's Share of the actual Common Area Operating Expenses incurred during the
preceding year. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year exceed Lessee's Share as indicated on said statement, Lessor
shall be credited the amount of such over-payment against Lessee's Share of
Common Area Operating Expenses next becoming due. If Lessee's payments under
this Paragraph 4.2(d) during said preceding year were less than Lessee's Share
as indicated on said statement, Lessee shall pay to Lessor the amount of the
deficiency within ten (10) days after delivery by Lessor to Lessee of said
statement. (See Addendum).
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Lessor shall not be required to keep all or
any part of the Security Deposit separate from its general accounts. Lessor
shall, at the expiration or earlier termination of the term hereof and after
Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease. (See
Addendum).
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the Permitted
Use set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit
the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
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(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the Improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall
within five (5) business days after such request give a written notification of
same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 HAZARDOUS SUBSTANCES. (See Addendum)
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (1) immediately injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory based on Hazardous Substances. Hazardous Substance shall include, but
not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products
or by-products thereof. Lessee shall not engage in any activity in or about he
Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Requirements (as defined in Paragraph 6.3). "REPORTABLE USE" shall
mean (i) the installation or use of any above or below ground storage tank, (ii)
the generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with, any
governmental authority, and (iii) the presence in, on or about the Premises of a
Hazardous Substance with respect to which any Applicable Laws require that a
notice be given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior
consent, but upon notice to Lessor and in compliance with all Applicable
Requirements, use any ordinary and customary materials reasonably required to be
used by Lessee in the normal course of the Permitted Use, so long as such use is
not Reportable Use and does not expose the Premises
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or neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to any Reportable Use of any
Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of, or exposure to, such Hazardous Substance including but
not limited to all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous
Substance to be spilled or released in, on, under or about the Premises
(including, without limitation, through the plumbing or sanitary sewer system).
(See Addendum).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
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6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, compliant or report pertaining to or involving
failure by lessee or the Premises to comply with any Applicable Requirements.
(See Addendum).
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDERS") shall have the right
to enter the Premises at any time in the case of any emergency, and otherwise at
reasonable times, and except in emergencies, upon prior written notice, for the
purpose of inspecting the condition of the Premises and for verifying compliance
by Lessee with this Lease and all Applicable Requirements (as defined in
Paragraph 6.3), and Lessor shall be entitled to employ experts and/or
consultants in connection therewith to advise Lessor with respect to Lessee's
activities, including but not limited to Lessee's installation, operation, use,
monitoring, maintenance, or removal of any Hazardous Substance on or from the
Premises. The costs and expenses of any such inspection shall be paid by the
party requesting same, unless a Default or Breach of this Lease by Lessee or a
violation of Applicable Requirements or a contamination, caused or materially
contributed to by Lessee, is found to exist or to be imminent, or unless the
inspection is requested or ordered by a governmental authority as the result of
any such existing or imminent violation or contamination. In such case, Lessee
shall upon request reimburse Lessor or Lessor's Lender, as the case may be, for
the costs and expenses of such inspections.
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7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraph 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, the elements or the age of such
portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities specifically serving the Premises, such
as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. (See Addendum).
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provision of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants,
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Restrictions and Building Code), 4.2 (Common Area Operating Expenses), 6 (Use),
7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation),
Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good
order, condition and repair the foundations, exterior walls, structural
condition of interior bearing walls, exterior roof, fire sprinkler and/or
standpipe and hose (if located in the Common Areas) or other automatic fire
extinguishing system including fire alarm and/or smoke detection systems and
equipment, fire hydrants, parking lots, walkways, parkways, driveways,
landscaping, fences, signs and utility systems serving the Common Areas and all
parts thereof, as well as providing the services for which there is a Common
Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated
to paint the exterior or interior surfaces of exterior walls nor shall Lessor be
obligated to maintain, repair or replace windows, doors or plate glass of the
Premises. Lessee expressly waives the benefit of any statute now or hereafter
in effect which would otherwise afford Lessee the right to make repairs at
Lessor's expense or to terminate this Lease because of Lessor's failure to keep
the Building, Industrial Center or Common Areas in good order, condition or
repair.
7.3 UTILITY INSTALLATION, TRADE FIXTURES, ALTERATIONS. (See Addendum)
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
is used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, heating, ventilating and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "TRADE FIXTURES" shall mean Lessee's machinery and equipment which can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements on the Premises which are
provided by Lessor under the terms of this Lease other than Utility
Installations or Trade Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY
INSTALLATIONS" are defined as Alterations and/or Utility Installations made by
Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee
shall not make nor cause to be made any Alterations or Utility Installations in,
on, under or about the Premises without Lessor's prior written consent. Lessee
may, however, make non-structural Alterations and/or Utility Installations to
the interior of the Premises (excluding the roof) without Lessor's consent but
upon notice to Lessor, so long as they are not visible from the outside of the
Premises, do not involve puncturing, relocating or removing the roof or any
existing walls, or changing or interfering with the fire sprinkler or fire
detection systems and the cumulative cost thereof during the term of this Lease
as extended does not exceed $10,000.
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(b) CONSENT. Any alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (1) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefore. Lessor may, (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal and
to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and
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Utility Installations (excluding communication systems) made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, clean and
free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY. (See Addendum).
8.1 PAYMENT OF PREMIUMS. The cost of the premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of the Lease shall be
prorated to coincide with the corresponding Commencement Date or Expiration
Date.
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8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "INSURED CONTRACT"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability insurance
described in Paragraph 8.2(a) above, in addition to and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature of age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available
and commercially appropriate, Lessor's policy or policies shall insure against
all risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any additional
costs resulting from debris removal
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and reasonable amounts of coverage for the enforcement of any ordinance or law
regulating the reconstruction or replacement of any undamaged sections of the
Building required to be demolished or removed by reason of the enforcement of
any building, zoning, safety or land use laws as the result of a covered loss,
but not including plate glass insurance. Said policy or policies shall also
contain an agreed valuation provision in lieu of any co-insurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force during
the term of this Lease a policy or policies in the name of Lessor, with loss
payable to Lessor and any Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that
in the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount int eh event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by lessee's
acts, omissions, use or occupancy of the Premises.
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party, Lessor
shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property. Trade Fixtures and Lessee Owned Alterations and
Utility Installations in, on, or about the Premises. Such insurance shall be
full replacement cost coverage
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with a deductible not to exceed $1,000 per occurrence. The proceeds from any
such insurance shall be used by Lessor for the replacement of personal property
and the restoration of Trade Fixtures and Lessee-Owned Alterations and Utility
Installations. Upon request from Lessor, Lessee shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least A, VIII or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not
do or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8, Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties or obligations under this Lease, Lessee shall indemnify, protect,
defend and hold harmless the Premises, Lessor and its agents, Lessor's master or
ground lessor, partners and Lenders, from and against any and all claims, loss
of rents and/or damages, costs, liens, judgments, penalties, loss of permits,
attorneys' and consultants' fees, expenses and/or liabilities arising out of, or
in connection with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any
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Default or Breach by Lessee in the performance in a timely manner of any
obligation on Lessee's part to be performed under this Lease. The foregoing
shall include, but not be limited to, the defense or pursuit of any claim or any
action or proceeding involved therein, and whether or not (in the case of claims
made against Lessor) litigated and/or reduced to judgment. In case any action
or proceeding be brought against Lessor by reason of any of the foregoing
matters, Lessee upon notice from Lessor shall defend the same at Lessee's
expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate
with Lessee in such defense. Lessor need not have first paid any such claim in
order to be so indemnified. (See Addendum).
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair costs of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned
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Alterations and Utility Installations and Trade Fixtures) immediately prior to
such damage or destruction. In addition, damage or destruction to the Building,
other than Lessee-Owned Alterations and Utility Installations and Trade Fixtures
of any lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any
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shortage in proceeds, in which case this Lease shall remain in full force and
effect. If Lessor does not receive such funds or assurance within such ten (10)
day period, and if Lessor does not so elect to restore and repair, then this
Lease shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right
to reimbursement from Lessor for any funds contributed by Lessee to repair any
such damage or destruction. Premises Partial Damage due to flood or earthquake
shall be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding
that there may be some insurance coverage, but the net proceeds of any such
insurance shall be made available for the repairs if made by either Party. (See
Addendum).
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect). Lessor may at Lessor's
option either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) given written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the time specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination. (See Addendum).
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
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9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5. (See Addendum).
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which lessee's use of the Premises is impaired. Except for abatement
of Base Rent, Common Area Operating Expenses and other charges, if any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
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receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "COMMENCE" as used in this paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first. (See Addendum).
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefore (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease. Lessee shall have the right within ten (10) days after
the receipt of such notice to give written notice to Lessor of Lessee's
commitment to pay for the excess costs of (a) investigation and remediation of
such Hazardous Substance Condition to the extent required by Applicable
Requirements, over (b) an amount equaL to twelve (12) times the then monthly
Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with
the funds required of Lessee or satisfactory assurance thereof within thirty
(30) days following said commitment by Lessee. In such event this Lease shall
continue in full force and effect, and Lessor shall proceed to make such
investigation and remediation as soon as reasonably possible after the required
funds are available. If Lessee does not give such notice and provide the
required funds or assurance thereof within the time period specified above, this
Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or
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destruction of the Premises and the Building with respect to the termination of
this Lease and hereby waive the provisions of any present or future statute to
the extent it is inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION. As used herein, the term "REAL PROPERTY
TAXES" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed upon the Industrial Center by any authority having the
direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage, or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Industrial Center or any portion thereof, Lessor's
right to rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy,
assessment or charge, or any increase therein, imposed by reason of events
occurring, or changes in Applicable Law taking effect, during the term of this
Lease, including but not limited to a change in the ownership of the Industrial
Center or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common. (See Addendum).
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional Improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
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10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center.
When possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. (See Addendum)
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of 50% or more
of the voting control of Lessee shall constitute a change in control for this
purpose.
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(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, transfer, leveraged
buy-out or otherwise), whether or not a formal assignment or hypothecation of
this Lease or Lessee's assets occurs, which results or will result in a
reduction of the Net Worth of Lessee, as hereinafter defined, by an amount equal
to or greater than twenty-five percent (25%) of such Net Worth of Lessee as it
was represented to Lessor at the time of full execution and delivery of this
Lease or at the time of the most recent assignment to which Lessor has
consented, or as it exists immediately prior to said transaction or transactions
constituting such reduction, at whichever time said Net Worth of Lessee was or
is greater, shall be considered an assignment of this Lease by Lessee to which
Lessor may reasonably withhold its consent. "NET WORTH OF LESSEE" for purposes
of this Lease shall be the net worth of Lessee (excluding any Guarantors)
established under generally accepted accounting principles consistently applied
and reflected on audited financial statements.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligation hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent
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assignment or subletting by Lessee or to any subsequent or successive assignment
or subletting by the assignee or sublessee. However, Lessor may consent to
subsequent subletting and assignments of the sublease or any amendments or
modifications thereto without notifying Lessee or anyone else liable under this
Lease or the sublease and without obtaining their consent, and such action shall
not relieve such persons from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any. Lessee shall pay to Lessor the
reasonable attorneys' fees incurred in processing such requests by Lessee.
Lessee agrees to provide Lessor with such other or additional information and
documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein.
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise
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provided in this Lease, receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of the foregoing provision or any other
assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such Sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
such sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a valid Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and
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costs in the preparation and service of a notice of Default, and that Lessor may
include the cost of such services and costs in said notice as rent due and
payable to cure said default. A "DEFAULT" by Lessee is defined as a failure by
Lessee to observe comply with or perform any of the terms, covenants, conditions
or rules applicable to Lessee under this Lease. A "BREACH" by Lessee is defined
as the occurrence of any one or more of the following Defaults, and, where a
grace period for cure after notice is specified herein, the failure by Lessee to
cure such default prior to the expiration of the applicable grace period, and
shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or
13.3:
(a) (See Addendum)
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent, Lessee's Share of Common Area
Operating Expenses, or any other monetary payment required to be made by Lessee
hereunder within 5 days after the date when due, the failure by Lessee to
provide Lessor with reasonable evidence of Insurance or surety bond required
under this Lease, or the failure of Lessee to fulfill any obligation under this
Lease which endangers or threatens life or property, where such failure
continues for a period of three (3) days following written notice thereof by or
on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Requirements per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37,
(v) the subordination or non-subordination of this Lease per Paragraph 30, (vi)
the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.1.. and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this lease, where any such failure continues for a period of 15 days following
written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraphs 40 hereof
that are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 31.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than
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thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach of this Lease by Lessee if Lessee commences such cure
within said thirty (30) day period and thereafter diligently prosecutes such
cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors:
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within 60 days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within 60 days, provided, however, in the event that any provision of
this Subparagraph 13.1(e) is contrary to any applicable law, such provision
shall be of no force or effect, and shall not affect the validity of the
remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee or
of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) (deleted), (ii) the termination of a Guarantor's liability with
respect to this Lease other than in accordance with the terms of such guaranty,
(iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing,
(iv) a Guarantor's refusal to honor the guaranty, or (v) a Guarantor's breach of
its guaranty obligation on an anticipatory breach basis, and Lessee's failure,
within sixth (60) days following written notice by or on behalf of Lessor to
Lessee of any such event, to provide Lessor with written alternative assurances
of security, which, when coupled with the then existing resources of Lessee,
equals or exceeds the combined financial resources of Lessee and the Guarantors
that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If after three checks given to Lessor
by Lessee shall
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not be honored by the bank upon which it is drawn, Lessor, at its own option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee (as
defined in Paragraph 13.1), with or without further notice of demand, and
without limiting Lessor in the exercise or any right or remedy which Lessor may
have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided, (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the
provisional remedy of unlawful detainer, Lessor shall have the right to recover
in such proceeding the unpaid rent and damages as are recoverable therein, or
Lessor may reserve the right to recover all or any part thereof in a separate
suit for such rent and/or damages. If a notice and grace period required under
Subparagraph 13.1(b), (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
Subparagraph 13.1(b), (c) or (d). In such case, the applicable grace period
under the unlawful detainer statue [sic] shall run
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concurrently after the one such statutory notice, and the failure of Lessee to
cure the Default within the greater of the two (2) such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling Lessor
to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951 4) after Lessee's Breach and
recover the rent as it becomes due, provided Lessee has the right to sublet or
assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
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13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 5% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's Default or Breach with respect to such overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies granted hereunder.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five (25%) of the portion of the
Common Areas designated for Lessee's parking, is taken by condemnation, Lessee
may, at Lessee's option, to be exercised in writing within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining,
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except that the Base Rent shall be reduced in the same proportion as the
rentable floor area of the Premises taken bears to the total rentable floor area
of the Premises. No reduction of Base Rent shall occur if the condemnation does
not apply to any portion of the Premises or Lessee's Reserved and Unreserved
Parking Spaces. Any award for the taking of all or any part of the Premises
under the power of eminent domain or any payment made under threat of the
exercise of such power shall be the property of Lessor, whether such award shall
be made as compensation for diminution of value of the leasehold or for the
taking of the fee, or as severance damages; provided, however, that Lessee shall
be entitled to any compensation, separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures and loss of goodwill
to the extent proven by Lessee. In the event that this Lease is not terminated
by reason of such condemnation, Lessor shall to the extent of its net severance
damages received, over and above Lessee's Share of the legal and other expenses
incurred by Lessor in the condemnation matter, repair any damage to the Premises
caused by such condemnation authority. Lessee shall be responsible for the
payment of any amount in excess of such net severance damages required to
complete such repair.
15. BROKERS' FEES.
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise agreed
in writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined
in Paragraph 39.1) granted under this Lease or any Option subsequently granted,
or (b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Broker(s) a fee in accordance with the schedule of said Broker(s) in effect
at the time of the execution of this Lease, unless otherwise agreed in Lessor's
separate agreement with the Brokers.
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its
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interest in any commission arising from this Lease and may enforce that right
directly against Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby,a nd that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within
ten (10) days after written notice from the other Party (the "REQUESTING PARTY")
execute, acknowledge and deliver to the Requesting party a statement in writing
in a form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including but not limited to Lessee's financial
statements for the past three (3) years but such requests may not be made more
than twice in any 12 month period. All such financial statements shall be
received by lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises. In the
event of a transfer of Lessor's title or interest in the Premises or in this
lease, Lessor shall deliver to the transferee or assignee (in cash or by credit)
any unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease
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thereafter to be performed by the Lessor. Subject to the foregoing, the
obligations and/or covenants in this Lease to be performed by the Lessor shall
be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest state chartered bank in the state in which
the Premises are located plus 3% per annum, but not exceeding the maximum rate
allowed by law, in addition to the potential late charge provided for in
Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that is has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party
beneficiary of the provisions of this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivering or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall
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constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If
sent by regular mail, the notice shall be deemed given forty-eight (48) hours
after the same if addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or Sunday or legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent
or similar act by Lessee, or be construed as the basis of an estoppel to enforce
the provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any Default or Breach by
Lessee of any provision hereof. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee had no right to retain possession of the
Premises or any part thereof beyond the
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expiration or earlier termination of this Lease. In the event that Lessee holds
over in violation of this Paragraph 26 then the Base Rent payable from and after
the time of the expiration or earlier termination of this Lease shall be
increased to two hundred percent (200%) of the Base Rent applicable during the
month immediately preceding such expiration or earlier termination. Nothing
contained herein shall be construed as a consent by Lessor to any holding over
by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, whenever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee and Lessor are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events
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occurring prior to acquisition of the ownership, (ii) be subject to any offsets
or defenses which Lessee might have against any prior lessor, or (iii) be bound
by prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that all Lessee's possession and this Lease, including any options to
extend the term hereof, will not be disturbed so long as Lessee is not in Breach
hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents, provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment, and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of valid notices of Default and
consultations in connection therewith, whether or not a legal action is
subsequently commenced in connection with such Default or resulting Breach.
Broker(s) shall be intended third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times upon prior written notice for the
purpose of showing the same to prospective purchasers, lenders, or lessees, and
making such alterations, repairs, improvements or additions to the Premises or
to the Building, as Lessor may reasonably deem necessary. Lessor may at any
time place on or about the Premises
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or Building any ordinary "For Sale" signs and Lessor may at any time during the
last one hundred eighty (180) days of the term hereof place on or about the
Premises any ordinary "For Lease" signs. All such activities of Lessor shall be
without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining wither to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises
or the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign
on the Premises by or for Lessee shall be subject to the provisions of Paragraph
7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request
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by Lessee for any Lessor consent pertaining to this Lease or the Premises,
including but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee to Lessor upon
receipt of an invoice and supporting documentation therefor. In addition to the
deposit described in Paragraph 12.2(e), Lessor may, as a condition to
considering any such request by Lessee, require that Lessee deposit with Lessor
an amount of money (in addition to the Security Deposit held under Paragraph 5)
reasonably calculated by Lessor to represent the cost Lessor will incur in
considering and responding to Lessee's request. Any unused portion of said
deposit shall be refunded to Lessee without interest. Lessor's consent to any
act, assignment of this Lease or subletting of the Premises by Lessee shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this lease, including but not limited to the obligation to provide
the Tenancy Statement and information required in Paragraph 16.
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor pursuant
to the requirements of paragraph 16.2, above, (c) a Tenancy Statement, or (d)
written confirmation that the guaranty is still in effect.
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38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS. (See Addendum)
39.1 DEFINITION. As used in this Lease, the work "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. No Option may be separated from
this Lease in any manner, by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any valid notice of Default under Paragraph 13.1
and continuing until the noticed Default is cured, or (ii) during the period of
time any monetary obligation due Lessor from Lessee is unpaid, or (iii) during
the time Lessee is in Breach of this Lease, or (iv) in the event that Lessor has
given to Lessee three (3) or more notices of separate valid Defaults under
Paragraph 13.1 during the twelve (12) month period immediately preceding the
exercise of this Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
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(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate valid Defaults under Paragraph 13.1
during any twelve (12) month period, whether nor not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATION. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and the Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises. Lessee,
its agents, and invitee and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not unreasonably
interfere with the access to or use of the Premises by Lessee. Lessee agrees to
sign any documents reasonably requested by Lessor to effectuate any such
easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
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44. AUTHORITY. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent and submission of same to Lessee or Lessor shall not be deemed an offer to
lease. This Lease is not intended to be binding until executed and delivered by
all Parties therein.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part. No such amendments requested by a lender
shall result in Lessee incurring any cost or expense unless Lessor agrees to
reimburse Lessee for such costs and expenses.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and severable
responsibility of all persons or entities named herein as such Lessor or Lessee.
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
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The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Los Angeles Executed at: Los Angeles
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on: April 7, 1995 on: April 7, 1995
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By LESSOR: By LESSEE:
ROXBURY PROPERTY MANAGEMENT SIGNATURE EYEWEAR, INC.
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By: /s/ Raymond Renta By: /s/ Julie Heldman
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Name Printed: Raymond Renta Name Printed: Julie Heldman
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Title: General Partner Title: Chief Operating Officer
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By: By:
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Name Printed: Name Printed:
-------------------- --------------------
Title: Title:
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Address: 2 Ketch Street, No. 107 Address: 498 Oak Street
------------------------- -------------------------
Marina del Ray, California 90292 Inglewood, California 90301
- ---------------------------------- ----------------------------------
Telephone: (310) 823-1009 Telephone: (310) 348-1100
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Facsimile: (310) 301-0909 Facsimile: (310) 471-8810
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BROKER: The Klabin Company BROKER: Leonard & Ohren
Executed at: Executed at:
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on: April 7, 1995 on: April 7, 1995
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By: /s/ F. Ronald Rader By: /s/ James B. Aldrich
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Name Printed: F. Ronald Rader Name Printed: James B. Aldrich
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Title: Executive Vice-President Title:
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Address: 6601 Center West Drive, Address: 4551 Glencoe Avenue,
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No. 300 No. 105
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Los Angeles, California 90045 Marina Del Rey, California 90292
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Telephone: (310) 337-7000 Telephone: (310) 301-4333
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Facsimile: (310) 337-0078 Facsimile: (310) 301-4334
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NOTE: These forms are often modified to meet changing requirements of law
and needs of the industry. Always write or call to make sure you are
utilizing the most current form. AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles, CA 90071. (213)
687-8777.
[(Printed vertically in the margin) (C) 1993 by American Industrial Real Estate
Association. All rights reserved. No part of these words may be reproduced in
any form without permission in writing.]
Initials:__________
__________
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ADDENDUM TO STANDARD INDUSTRIAL
MULTI-TENANT LEASE -- MODIFIED NET
This Addendum is between the Lessor and the Lessee as described in the
attached Lease and is entered into concurrently with the Lease. The
parenthetical number reference or references after each paragraph heading below
corresponds to the paragraph number in the attached Lease. Lessor and Lessee
further agree as follows:
49. PARKING [1.2(B) AND 2.6]. Lessee shall have the exclusive use of 73
Reserved Parking Spaces and 13 Unreserved Parking Spaces (for a total of 86) as
designated on attached Exhibit "A" at no additional cost. Lessee shall be
responsible that Lessee's employees, customers, vendors and invitees use only
such designated Reserved and/or Unreserved Parking Spaces. Lessor shall at all
times during the term of the Lease provide Lessee with a total of 86 parking
spaces and maintain such additional parking spaces for other tenants of the
Industrial Center in accordance with Applicable Laws.
50. BASE RENT [1.5]. Lessee shall pay Base Rent on a monthly basis to
Lessor in advance on the first day of each calendar month commencing June 1,
1995 as follows:
<TABLE>
<CAPTION>
DATE AMOUNT
---- ------
<S> <C>
June 1, 1995 $ -0-
July 1, 1995 5,000
August 1, 1995 7,500
September 1, 1995 10,000
October 1, 1995 12,500
November 1, 1995 14,000
Each month December 1, 1995
through May 1, 1996 19,000
Each month June 1, 1996
through May 1, 1997 22,000
Each month June 1, 1997
through May 1, 1998 23,000
Each month June 1, 1998
through May 1, 1999 24,000
Each month June 1, 1999
through May 1, 2000 25,000
Each month June 1, 2000
through May 1, 2005 29,000
</TABLE>
51. COMMON AREA
51.1 OPERATING EXPENSES [4.2(a)]. Lessor elects to have Lessee pay
Lessee's Share of Annual Common Area Operating Expenses on an estimated advance
basis concurrently with the payment of the monthly Base Rent commencing,
however, June 1,
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1995. The estimate for the first lease year (June 1, 1995 - May 31, 1996) is
based on $.08 per square foot per month or $3,520 per month. Lessor reserves
the right to change such estimate each following lease year (up or down)
throughout the term of the Lease based on both the actual Common Area Operating
Expenses for the prior lease year and Lessor's reasonable estimate of any
anticipated changes in the components of the common Area Operating Expenses for
the next lease year. If Lessor adds any improvements to the Common Areas as
described in paragraph 2.10(d) of the Lease, the costs of owning, operating,
repairing and maintaining such improvements shall not be included in Common Area
Operating Expenses unless consented to in writing by Lessee.
51.2 CHANGES [2.10]. Any changes to the Common Areas performed by
Lessor shall not result in Lessee's access to or use of the Premises being
unreasonably interfered with or prevented.
51.3 CAPITAL IMPROVEMENTS [4.2(a)]. Common Area Operating Expenses
shall not include any expenditures for capital type improvements or additions.
51.4 AUDIT [4.2]. Within 12 months following the end of each lease
year, but not more than once for each lease year, Lessee shall have the right,
by its accountants or representatives, to audit and inspect Lessor's records
relating to Common Area Operating Expenses for such lease year. Lessee shall
advise Lesser in writing of any requested changes in the Common Area Operating
Expenses for such lease year and provide Lessor with a detailed explanation for
such change. If Lessor and Lessee are unable to mutually agree as to such
change in Common Area Operating Expenses, then such dispute shall be submitted
and resolved by arbitration as follows:
51.4.1 PROCESS. Any Party may initiate the arbitration by
written notice to the other Party stating that such controversy is subject to
resolution in accordance with this Agreement; however, no such initiation may be
made before 15 days have elapsed from the time the dispute arises among the
Parties. The site of the arbitration shall be Los Angeles, California. The
rules of the American Arbitration Association ("AAA") for commercial
transactions shall apply, except as modified by this Lease, and the AAA shall
not supervise the arbitration or be paid fees.
51.4.2 SELECTION. The arbitration shall be conducted by one
arbitrator. Such arbitrator shall be a retired judge of the Los Angeles County,
California, Superior Court selected by mutual agreement between the Party
initiating the arbitration (the "Initiating Party") and the other Party (the
"Other Party"); provided that, if the Initiating Party and the Other Parties
cannot mutually agree upon the arbitrator within a period of 10 days from the
date the arbitration process is
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initiated, then the arbitrator shall be selected by the Presiding Judge of the
Los Angeles County Superior Court. In this regard, the Initiating Party and the
Other Party shall, on a timely basis, submit to the Presiding Judge, the names
of three retired judges and the arbitrator shall be selected from such names.
51.4.3 DISCOVERY. No interrogatories shall be permitted.
Depositions shall be permitted but no more than three for each party and no
single deposition shall extend for more than 7 hours during a one-day period.
Requests for production of documents shall be responded to (or objected to)
within 30 days. The arbitrator shall establish reasonable time periods for each
side in the dispute to provide a summary of the facts and statement of
contentions, a list of witnesses appearing at the hearing and a list of exhibits
to be presented at the hearing.
51.4.4 FINAL AWARD. The award of the arbitrator shall be final
and binding upon the Parties, without appeal; provided that a Party may seek
enforcement of the award by appropriate proceedings in a court of competent
jurisdiction.
51.4.5 RULES. Notwithstanding the rules of the AAA, the
arbitrator shall:
51.4.5.1 PROCEDURAL RULES. Establish the rules of procedure
to be applicable to the arbitration proceedings (including discovery subject to
the limitations set forth in this Section 15); however, no court reporter shall
be permitted;
51.4.5.2 FEES. Be entitled to require each of the
Initiating Party and the other Party to deposit an equal amount to be set off
against the expenses and fees of the arbitrator; and
51.4.5.3 ATTORNEYS FEES. Include in the award the amount of
the costs of arbitration and attorneys fees to be assessed against the party who
has lost the arbitration. If each Party has partly lost and partly won, the
arbitrator may divide the costs and fees between the Parties in accordance with
the arbitrator's best judgment or have each Party absorb their own respective
share of costs and their own personal attorneys' fees.
51.4.5.4 WAIVER. The resolution of all disputes between the
Parties by this arbitration process constitutes a waiver by each to a trial by
jury or judge of the dispute as well as any appeal of the decision of the
arbitrator.
51.5 MANAGEMENT FEES [4.2(a)(viii)]. The maximum amount of management
fees that shall be included in Common Area Operating Expenses is an amount equal
to 4% of the net rental
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income of the Industrial Center (defined as all base type rent received
exclusive of amounts for Common Area Operating Expenses and Real Property
Taxes).
51.6 REFUNDS [4.2(d)]. If after the expiration of the Lease it is
determined under paragraph 4.2(d) of the Lease that Lessee overpaid its share of
Common Area Operating Expenses for the last year of the Lease, then Lessor shall
refund such excess payment to Lessee within 30 days after the date of such
expiration.
52. SQUARE FOOTAGE OF PREMISES [2.1]. On or before May 15, 1995, Lessee
shall have the right to measure the square footage of the Premises. No
adjustment to the Base Rent or Lessee's Share of Common Area Operating Expenses
shall occur unless the square footage of the Premises is determined by Lessor
and Lessee as being less than 42,680 square feet or more than 45,320 square
feet.
53. ACCEPTANCE OF PREMISES [2.4]. As a supplement to subpart (b) of
paragraph 2.4 of the Lease, any investigation by Lessee of the Premises shall
not extinguish the representations of Lessor under paragraph 2.2 of the Lease or
waive the right of Lessee to rely on such representations. Notwithstanding
anything contained in the Lease or this Addendum, Lessor makes no representation
or warranty, express or implied, as to the right or ability of Lessee under
Applicable Laws to conduct or otherwise carry on its business at or from the
Premises. Lessor shall indemnify and hold Lessee harmless from any and all
expense, liability and responsibility for any conditions or deficiencies within
the Premises existing prior to the date possession of the Premises is delivered
to Lessee including structural, architectural or engineering deficiencies and
further including the existence of any Hazardous Substances and the cost of
removal of any such Hazardous Substances. Lessor, at Lessor's sole cost and
expense, shall be responsible to maintain the Building in which the Premises are
located in compliance with all Applicable Laws pertaining to seismic
requirements for the Building.
54. SECURITY DEPOSIT [1.7 and 5].
54.1 FORM. The Security Deposit shall consist of $30,000 cash and a
$70,000 irrevocable standby letter of credit (the "L/C") issued by City National
Bank ("Issuer") in favor of Lessor and substantially in the form of Exhibit 1 to
this Addendum. Lessee shall deliver the $30,000 cash portion and the original
of the L/C to Lessor upon Lessee's execution of the Lease. Within 30 days after
the expiration of the Lease, Lessor shall return the Security Deposit to Lessee,
with a full accounting of any deductions.
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54.2 DRAW ON L/C. Lessor shall be entitled to draw on the L/C upon
Lessor's presentation to the Issuer of a written certification (the
"Certification") signed by Raymond Renta or such other person as is the duly
authorized agent of Lessor (which authority and designation shall be established
by a written notice to Issuer signed by Raymond Renta and delivered to Issuer at
any time prior to a draw down of the L/C) stating the following:
54.2.1 DEFAULT. If the draw on the L/C is due to a Default of
a monetary obligation of Lessee or a default as described in either paragraph
54.2.2 or paragraph 54.2.3, below, then the Certification shall contain the
following:
(i) Lessee is in Default of one or more of its obligations
under the Lease;
(ii) Lessor has given Lessee notice of such Default(s) as
required by the Lease;
(iii) Lessee has not cured such Default(s) within the
period(s) of time permitted for cure under the Lease;
(iv) Lessor has given Lessee notice of Lessor' intent to
draw on the L/C as required by the Lease; and
(v) The amount of Lessor's draw presently is due and owing
Lessor under the Lease.
54.2.2 FAILURE TO RENEW. The initial term of the L/C shall be
for 12 months commencing June 1, 1995 and expiring on May 31, 1996. On or
before May 1, 1996 and on each following May 1st throughout the Original Term
and the term of the Option (if exercised), Lessee shall deliver to Lessor a
replacement L/C on the exact same terms as the original L/C with a term of 12
months from the June 1st date immediately following the May 1st date such
replacement L/C is to be delivered to Lessor. Lessor shall deliver to Lessee
the L/C being replaced concurrently with Lessor's receipt of the replacement
L/C. If Lessee fails to timely deliver a replacement L/C, then Lessor shall be
entitled to draw down the entire amount of the L/C upon delivery to Issuer of
the Certification as described in paragraph 54.2.1.
54.2.3 FAILURE TO RESTORE. If Lessor makes a proper draw on
the L/C, Lessor shall so notify Lessee in writing and advise Lessee of the
amount of the draw. If Lessee fails within 10 business days after such
notification to cause the L/C to be restored to $70,000 (either by means of a
replacement L/C or an endorsement by the Issuer on the existing L/c), then
Lessor shall be entitled to draw down the entire amount of the L/C upon
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delivery to Issuer of the Certification as described in paragraph 54.2.1, above.
54.3 NOTIFICATION REQUIREMENTS. As a matter of agreement between
Lessor and Lessee, and with which the Issuer need not be concerned, Lessor
agrees that it shall not draw on the L/C pursuant to paragraph 54.2.1 above
until Lessor first has utilized the cash portion of the Security Deposit and has
provided Lessee with not less than three business days prior written notice of
Lessor's intent to draw on the L/C. Such notice shall specify in reasonable
detail the Default(s) on which Lessor is basing its right to draw on the L/C.
Lessor shall serve such notice on Lessee at the Premises and concurrently shall
provide a copy of such notice to Alan Spatz, Esq., Hill Wynne Troop and
Meisinger, 10940 Wilshire Boulevard, Los Angeles, California 90024. If such
notice is personally served on Lessee and Mr. Spatz, such notice shall be deemed
received upon delivery. If such notice is served on Lessee and Mr. Spatz by
Federal Express, such notice shall be deemed received two business days after
the date such notice is delivered to Federal Express.
54.4 IMPROPER DRAW DOWN. If Lessor draws on the L/C in violation of
any of the terms and conditions of the Lease (including this Paragraph 54),
Lessor and Lessee agree that it will be extremely difficult to determine the
amount of damage that Lessee will sustain, including financial damage and damage
to Lessee's credit and reputation. Accordingly, if Lessor draws on the L/C in
violation of such terms and conditions, Lessee shall only be entitled to
liquidated damages ("Liquidated Damages") in an amount equal to the sum of (i)
5% of the amount of the improper draw, and (ii) Lessee's actual out-of-pocket
costs in reinstating the L/C to its former amount, which costs may include
charges by the Issuer, reasonable attorneys' fees' and similar or related items.
Lessor and Lessee agree that the amount of the Liquidated Damages is a
reasonable estimate of the damage Lessee will suffer in the event of an improper
draw on the L/C. If Lessor does not satisfy its obligation to pay the Liquidated
Damages amount within 10 days after such amount is determined and Lessor is
advised in writing of the amount so determined, Lessee may offset the amount of
the Liquidated Damages against its rental obligations under the Lease.
55. HAZARDOUS SUBSTANCES [6.2]. Lessor represents to Lessee that Lessor
has no current actual knowledge of the existence of any Hazardous Substances in
the Premises or below the surface of the Premises. Lessor further represents to
Lessee that no storage tanks exist below the surface of the Premises or the
Industrial Center. Lessee acknowledges that Lessor has conducted no testing or
investigations for Hazardous Substances. Lessor shall indemnify, defend and hold
Lessee free and harmless from and against all damages, liabilities, judgments,
costs,
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claims, liens, expenses, penalties, permits and reasonable attorneys and
consultants fees actually incurred by Lessee which arise out of or are in
connection with the existence of Hazardous Substances in or beneath the Premises
prior to the date of delivery of possession of the Premises to Lessee. The
Parties shall each comply with the provisions of California Health & Safety Code
(S) 25359.7 regarding notification of and obligations for Hazardous Substances
at the Industrial Center including the Premises.
56. LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS [6.3]. As a
modification to paragraph 6.3 of the Lease, lessee shall not be obligated to pay
for any improvements or additions to the Premises required by Applicable
Requirements pertaining to buildings in general. For example, if Applicable
Requirements require new sprinkler systems in all industrial buildings over
100,000 square feet, Lessee shall not be responsible to comply with such
Applicable Requirements. However, if Applicable Requirements require a
specialized type of sprinkler system for companies dealing with Lessee's
products, then Lessee would be responsible to install such type of sprinkler
system.
57. LESSOR'S OBLIGATIONS TO MAINTAIN AND REPAIR PREMISES [7.2]. As a
supplement to Lessor's obligations under paragraph 7.2 of the Lease, Lessor
shall be obligated to paint the exterior of the Building containing the Premises
from time to time as shall be reasonably determined by Lessor and repair any
puncture holes caused to the exterior of the walls of the Premises. All costs
and expenses incurred by Lessor for such painting shall be part of Common Area
Operating Expenses unless any of such costs and expenses are paid for by
insurance maintained by Lessor. Prior to June 1, 1995, Lessor shall (i) hire a
contractor for HVAC systems with the qualifications as described in paragraph
7.1(b) of the Lease to inspect the HVAC systems servicing the Premises (the
"Premises HVAC System"), (ii) obtain a written report describing all work
necessary to place the Premises HVAC System in ordinary working condition, and
(iii) cause all work in such written report to be performed to the Premises HVAC
System. During the term of the Lease (as may be extended by the Lease), Lessor
shall be solely responsible to pay for all repairs and replacements to the
Premises HVAC System (other than as a result of the negligent or intentional act
or omission of Lessee or Lessee's employees, contractors, customers or invitees
and other than as provided below); however, any aspect of the Premises HVAC
System for which Lessor makes a capital type repair or replacement shall, from
and after the date such repair or replacement is completed, be the sole
responsibility of Lessee to repair, maintain and replace (regardless whether
such future repair, maintenance or replacement is of a capital type
expenditure). All replacements with respect to the Premises HVAC System shall
be with new parts or equipment. Commencing June 1, 1996 and continuing
throughout the remainder of the term of the
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Lease (as may be extended pursuant to the Option), Lessee shall be solely
responsible for the repair and maintenance of a non-capital type nature of the
Premises HVAC System. Commencing June 1, 1995, Lessee shall be solely
responsible to pay for and maintain a contract for the Premises HVAC System as
described in paragraph 7.1(b) of the Lease.
58. UTILITY INSTALLATIONS AND ALTERATIONS [7.3]. To the extent any work
performed by Lessee to the Premises requires Lessee to obtain a lien free and
completion bond or surety bond pursuant to paragraph 7.3(b) or (c) of the Lease,
Lessee may provide substitute cash type collateral in form reasonably acceptable
to Lessor. All lighting fixtures either in the Premises at the time possession
of the Premises is delivered to Lessee or subsequently installed by Lessor or
Lessee shall remain in the Premises and be deemed owned by, and the sole
property of, Lessor.
59. INSURANCE [8].
59.1 TYPE OF INSURANCE [8.2(a)]. If Lessee is unable to obtain the
insurance policy described in paragraph 8.2(a) of the Lease with a deletion of
the "intra-insured exclusion" or with an inclusion of the "Amendment of the
Pollution Exclusion", then such requirements shall, to the extent unobtainable,
be deleted from the Lease. As a substitute for the "Amendment of the Pollution
Exclusion", Lessee may obtain, or if such Amendment is unobtainable Lessee shall
obtain, an endorsement entitled "Pollution Liability Coverage Extension (CGO
4221185).
59.2 TYPE OF INSURERS [8.5]. The requirements for insurance companies
described in paragraph 8.5 of the Lease shall be insurance companies "licensed
and admitted to do business in the State of California.
59.3 WAIVER OF SUBROGATION [8.6]. The requirement for the Parties to
obtain waivers of subrogation under paragraph 8.6 of the Lease is conditioned on
the cost of such waiver not being a material additional charge.
60. EXEMPTION FROM LESSOR OF LIABILITY [8.8]. The exemption of Lessor from
liability under paragraph 8.8 of the Lease shall exclude matters directly
resulting from the negligent or intentional act or omission of Lessor or a
breach by Lessor of any of Lessor's obligations under the Lease.
61. INSURED LOSS [9.2]. As a modification to paragraph 9.2 of the Lease,
to the extent the insurance proceeds are inadequate to fully restore the
Premises due to any unique nature of the Premises, Lessor shall nonetheless use
its reasonable best efforts to restore the Premises to its prior condition (and
the unique feature may be deleted or modified) with the available
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insurance proceeds (unless Lessee elects to fund the deficiency, in which event
the unique aspects shall be restored to the extent possible under Applicable
Laws).
62. UNINSURED LOSS [9.3]. As a modification to paragraph 9.3 of the Lease,
Lessor shall not have the right to terminate the Lease for an uninsured Premises
Partial Damage the repair cost of which is $29,000 or less of the then
Replacement Cost of the Premises (excluding Lessee-Owned Alterations and Utility
Installations and Trade Fixtures).
63. DAMAGE NEAR END OF TERM [9.5]. As a supplement to paragraph 9.5 of the
Lease, the references to Lessee providing Lessor with any shortage of insurance
proceeds covers only those situations set forth in paragraph 9 of the Lease
requiring Lessee to provide such funds as a condition to Lessor performing such
restoration work.
64. RESTORATION OF PREMISES [9,6(b)]. As a supplement to paragraph 9.6(b)
of the Lease, if such restoration work is not substantially completed within 270
days from the date such work is commenced (i.e. actual construction), then
within 30 days following the expiration of such 270 day period, Lessee shall
have the right to terminate this Lease upon written notice to Lessor so long as
such termination notice is given before such work is substantially completed.
Substantial completion shall mean completion except for "punch list" type items.
65. REAL PROPERTY TAXES [10]. During the first 6 years of the Original
Term of the Lease, the term Real Property Taxes shall not include any increases
in Real Property Taxes as a result of a "change in ownership" of all or any
portion of the Industrial Center. After the expiration of such first 6 years,
Real Property Taxes shall include all increases in Real Property Taxes as a
result of a "change in ownership" of all or any portion of the Industrial Center
including any such increases which are the result of a "change in ownership"
occurring during the first 6 years of the Original Term of the Lease; however,
Lessee shall not be obligated to pay any retroactive or unpaid accumulated Real
Property Taxes based on any such "change in ownership" for any time period prior
to the expiration date of the sixth lease year.
66. LESSEE AFFILIATE [12,1]. As a modification to paragraph 12.1 of the
Lease, Lessee may assign or sublet Lessee's interest in the Lease, without
Lessor's prior consent, to any corporation or other entity which controls, is
controlled by or is under common control with Lessee, or to any corporation or
other entity resulting from the merger with Lessee, so long as the requirements
of paragraph 12.1 (b) and (c) and paragraph 12.2 are fully satisfied or
maintained. However, as a specific modification to Paragraph 12.1(b) of the
Lease, if Lessee (or any
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successor of Lessee by merger or acquisition) becomes a publicly-traded company
on any recognized stock exchange (e.g., New York, American, Pacific, NASDAQ), no
transfer of voting stock of Lessee shall constitute either a change in control
of Lessee or an assignment or sublease requiring Lessor's consent. Furthermore,
all payment or other consideration received by lessee as a result of or in
connection with any assignment or subletting of all or any portion of Lessee's
interest in the Lease in excess of the rental obligation of Lessee under this
Lease shall be shared between Lessor and Lessee on a 50/50 basis; provided,
however, Lessee shall be entitled to recoup from such excess before any such
sharing arrangement, 100% of all direct out-of-pocket expenses actually incurred
by Lessee with respect to such assignment or sublease. The Net Worth
requirements of paragraph 12.1(c) shall be deemed satisfied so long as the Net
Worth of Lessee after completion of any transaction described in paragraph
12.1(c) is equal to or greater than $1,500,000.
67. VACATING OR ABANDONING PREMISES [13.1(a)]. Lessee shall not be in
Default or Breach of the Lease for failing to continue to operate its business
at the Premises or in continuing to occupy the Premises so long as Lessee
performs all obligations of Lessee under the Lease. However, if Lessee's
vacating the Premises increases the insurance premiums for the insurance
maintained by Lessor for the Industrial Center, then Lessee shall pay 100% of
such increased costs.
68. OPTION GRANT [39]. Lessor grants to Lessee one option (the "Option")
to extend the term of this Lease for five additional years.
68.1 OPTION EXERCISE. Lessee shall exercise the option, if at all, by
written notice to Lessor no earlier than one year prior to the expiration of the
Original Term of this Lease and no later than 6 months prior to the expiration
of the Original Term of this Lease. Time is of the essence with respect to the
exercise of the option.
68.2 OPTION REQUIREMENTS. All provisions of paragraph 39 of the Lease
(entitled "Options") shall be applicable to the exercise by Lessee of the
option.
68.3 OPTION LEASE PROVISIONS. All provisions of this Lease shall
continue in full force and effect during the five year extension period covered
by the Option except that the monthly Base Rent on the commencement date of such
extension period shall be equal to 95% of the then fair rental value of the
Premises as mutually agreed upon by Lessor and Lessee. If they are unable to
agree upon such fair rental value within 30 days after the exercise of the
Option, then such fair rental value shall be determined by an appraisal,
however, the monthly Base Rent for the first month of such extension period
shall in no
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event be less than the monthly Base Rent for the immediately preceding month.
Such appraisal shall be by two appraisers, one of whom shall be selected by
Lessor and the other by Lessee. Each such appraiser shall be selected within 10
days from the expiration of the 30 day mutual determination period and shall be
by an appraiser experienced in determining industrial rents for comparable
multi-tenant industrial buildings in the general vicinity of the Building. If
either Lessor or Lessee does not select such appraiser within said 10 day
period, the fair rental value established by the appraiser selected by the other
shall be binding on both Lessor or Lessee. If the higher appraisal is within
10% of the lower appraisal, then the fair rental value of the Premises shall be
the average of the two appraisals. If they are more than 10% apart, then the
two appraisers shall, within 10 days after the date of the second appraisal,
appoint a third, similarly qualified appraiser. The appraisal of such third
appraiser shall be averaged with the closest appraisal of the prior two
appraisers to determine the fair rental value of the Premises and if both such
appraisers are equally as close, the appraisal of such third appraiser shall be
determinative of the fair rental value of the Premises. If such two appraisers
are unable to agree on such third appraiser within the specified time period,
then Lessor and Lessee parties shall apply to the American Arbitration
Association requesting it to appoint a third such appraiser and such decision of
the American Arbitration Association as to the selection of a third such
appraiser shall be binding on the Lessor or Lessee. The cost of such selection
shall be borne equally by Lessor and Lessee as shall be the cost of such third
appraiser.
69. LESSOR'S IMPROVEMENTS TO PREMISES. Prior to delivery of possession of
the Premises to Lessee (unless otherwise stated), Lessor, at Lessor's sole cost
and expense, shall complete the following work to the Premises:
69.1 ADA. Lessor shall perform such work to the Premises so as to
bring the Premises in its existing form into compliance with the applicable
provisions of the Americans with Disabilities Act at the time of Lessee's
occupancy of the Premises. Any work to the Premises performed by Lessee after
Lessee takes occupancy of the Premises which causes or requires any additional
compliance with such Act shall be at the sole cost and expense of Lessee.
69.2 NEW WALL. Lessor shall construct a new demising wall along the
entire westerly boundary of the Premises as identified in attached Exhibit "A"
(the "New Wall"). The New Wall shall extend from the floor to the ceiling of
the Premises and shall be constructed with building standard type materials
including 5/8" drywall on both the east and west sides of the New Wall. The New
Wall shall be painted to match the color of the easterly demising wall of the
Premises. The construction of the
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New Wall shall be performed in a good and workmanlike manner and in compliance
with all applicable laws, ordinances and codes.
69.3 SECOND FLOOR EXITS. Lessor shall either close off or modify the
existing easterly and westerly staircases leading from the second floor of the
Premises to the first floor of the Premises so as to comply with all applicable
laws, ordinances and codes regarding safety exits.
69.4 EXTERIOR REPAIRS. Lessor shall repair all holes in the exterior
walls of the Premises as well as any broken windows.
69.5 ROOF. Lessor shall, prior to June 1, 1995, install a new roof to
the Premises with specifications acceptable solely to Lessor. All costs and
expenses associated with the repair and maintenance of such new roof shall be
part of Common Area Operating Expenses.
70. GENERAL PROVISIONS. This Addendum is incorporated into and made a part
of the Lease. All references to the Lease shall include this Addendum. Any
inconsistency, variance or difference between the provisions of the Lease and
the provisions of this Addendum shall result in the provisions of this Addendum
controlling. All capitalized terms not defined in this Addendum shall have the
same meaning as set forth in the Lease. No provision of the Lease or this
Addendum shall be interpreted for or against a Party as a result of such
provision being drafted by such Party or such Party's legal counsel. Lessor and
Lessee may sometimes be individually referred to as a "Party" or collectively as
the "Parties". The term "include" shall not be limiting and shall be deemed to
include the concept of "including but not limited to".
Roxbury Property Management
By: /s/ Raymond Renta
------------------------
Raymond Renta,
General Partner
"Lessor"
Signature Eyewear, Inc.
By: /s/ Julie Heldman
------------------------
Julie Heldman
Chief Operating Officer
"Lessee"
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EXHIBIT "1"
TO
ADDENDUM TO STANDARD INDUSTRIAL
MULTI-TENANT LEASE -- MODIFIED NET
This Exhibit will be attached to the Lease after the date the Lease is executed
by Lessor and Lessee and the non-attachment of this Exhibit as of the date of
such execution shall not affect the validity of the Lease. The Letter of Credit
shall contain provisions similar to provisions contained in the attached
application for the Letter of Credit.
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GUARANTY OF LEASE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
WHEREAS ROXBURY PROPERTY MANAGEMENT hereinafter referred to as "Lessor" and
Signature Eyewear, Inc. hereinafter referred to as "Lessee" are about to execute
a document entitled "Lease" dated March 23, 1995 concerning the premises
commonly known as 498 Oak Street, Inglewood, California 90301 (the "Premises")
wherein Lessor will lease the premises to Lessee and
WHEREAS Julie Heldman and Bernard Weiss hereinafter referred to as
"Guarantors" have a financial interest in Lessee, and
WHEREAS Lessor would not execute the Lease if Guarantors did not execute
and deliver to Lessor this Guarantee of Lease.
NOW THEREFORE, for and in consideration of the execution of the foregoing
Lease by Lessor and as a material inducement to Lessor to execute said Lease,
Guarantors hereby jointly, severally, unconditionally and irrevocably guarantee
the prompt payment by Lessee of all rentals and all other sums payable by Lessee
under said Lease and the faithful and prompt performance by Lessee of each and
every one of the terms conditions and covenants of said Lease to be kept and
performed by Lessee.
It is specifically agreed and understood that the terms of the foregoing
Lease may be altered, affected, modified or changed by agreement between Lessor
and Lessee, or by a course of conduct, and said Lease may be assigned by Lessor
or any assignee of Lessor without consent or notice to Guarantors and that this
Guaranty shall thereupon and thereafter guarantee the performance of said Lease
as so changed, modified altered or assigned.
This Guaranty shall not be released, modified or affected by failure or
delay on the part of Lessor to enforce any of the rights or remedies of the
Lessor under said Lease, whether pursuant to the terms thereof or at law or in
equity.
No notice of default need be given to Guarantors, it being specifically
agreed and understood that the guarantee of the undersigned is a continuing
guarantee under which Lessor may proceed forthwith and immediately against
Lessee or against Guarantors following any breach or default by Lessee or for
the enforcement of any rights which Lessor may have as against Lessee pursuant
to or under the terms of the within Lease or at law or in equity.
Lessor shall have the right to proceed against Guarantors hereunder
following any breach or default by Lessee without first
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proceeding against Lessee and without previous notice to or demand upon either
Lessee or Guarantors.
Guarantors hereby waive (a) notice of acceptance of this Guaranty (b)
demand of payment, presentation and protest, (c) all right to assert or plead
any statute of limitations as to or relating to this Guaranty and the Lease, (d)
any right to require the Lessor to proceed against the Lessee or any other
guarantor or any other person or entity liable to Lessor, (e) (deleted), (f) any
right to require Lessor to proceed under any other remedy Lessor may have before
proceeding against Guarantors, (g) any right of subrogation.
Guarantors do hereby subrogate all existing or future indebtedness of
Lessee to Guarantors to the obligations owed to Lessor under the Lease and this
Guaranty.
Any married woman who signs this Guaranty expressly agrees that recourse
may be had against her separate property for all of her obligations hereunder.
The obligations of Lessee under the Lease to execute and deliver estoppel
statements and financial statements, as therein provided, shall be deemed to
also require the Guarantors hereunder to do and provide the same relative to
Guarantors.
The term "Lessor" whenever hereinabove used refers to and means the Lessor
in the foregoing Lease specifically named and also any assignee of said Lessor,
whether by outright assignment or by assignment for security, and also any
successor to the interest of said Lessor or of any assignee in such Lease or any
part thereof, whether by assignment or otherwise. So long as the Lessor's
interest in or to the leased premises or the rents, issues and profits
therefrom, or in, to or under said Lease, are subject to any mortgage or deed of
trust or assignment for security, no acquisition by Guarantors of the Lessor's
interest in the leased premises or under said Lease shall affect the continuing
obligation of Guarantors under this Guaranty which shall nevertheless continue
in full force and effect for the benefit of the mortgagee, beneficiary, trustee
or assignee under such mortgage, deed of trust or assignment, of any purchase at
sale by judicial foreclosure or under private power of sale, and of the
successors and assigns of any such mortgagee, beneficiary, trustee, assignee or
purchaser.
The term "Lessee" whenever hereinabove used refers to and means the Lessee
in the foregoing Lease specifically named and also any assignee or sublessee of
said Lease and also any successor to the interests of said Lessee, assignee or
sublessee of such Lease or any part thereof whether by assignment, sublease or
otherwise.
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In the event any action be brought by said Lessor against Guarantors
hereunder to enforce the obligation of Guarantors hereunder, the unsuccessful
party in such action shall pay to the prevailing party therein a reasonable
attorney's fee which shall be fixed by the court.
See attached "ADDENDUM TO GUARANTY OF LEASE" which is fully incorporated into
this Guaranty.
If this Form has been filled in it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by the
real estate broker or its agents or employees as to the legal sufficiency, legal
effect, or tax consequences of this Form or the transaction relating thereto.
Executed at Los Angeles /s/ Julie Heldman
--------------------- ------------------------------
Julie Heldman
On April 7, 1995
-------------
Address /s/ Bernard Weiss
------------------------- ------------------------------
Bernard Weiss
"GUARANTORS"
Copyright 1977 - American Industrial Real Estate Association.
All rights reserved. No part of these works may be reproduced in any form
without permission in writing.
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ADDENDUM TO GUARANTY OF LEASE
This Addendum is being entered into by Guarantors for the express benefit
of Lessor in connection with the Lease and is entered into concurrently with the
attached Guaranty of Lease ("Guaranty"). Guarantors further jointly and
severally agree as follows:
1. SUSPENSION. The obligations of Guarantors under the Guaranty shall be
suspended during such periods ("Suspension Periods"), if any, that the "net
worth" of Lessee equals or exceeds $1,500,000. Net worth shall be determined in
accordance with generally accepted accounting principles and demonstrated by
Lessee's annual audited financial statements certified by an independent
certified public accounting firm, except that during 1995, such net worth may be
established by a six month review statement prepared by Lessee's independent
certified public accounting firm. If a Default or Breach by Lessee under the
Lease occurs during a Suspension Period, Guarantors shall have no liability to
Lessor under the Guaranty with respect to such Default or Breach.
2. LIABILITY AMOUNT. During the period from June 1, 1995, and ending on
May 31, 2000, the maximum collective liability of Guarantors under the Guaranty
shall be $200,000 (plus any reasonable attorneys' fees and related costs and
expenses Lessor incurs in enforcing the Guaranty against Guarantors, or either
of them). During the two-year period beginning June 1, 2000, and ending May 31,
2002, the maximum collective liability of Guarantors under the Guaranty shall be
$100,000 (plus any reasonable attorneys' fees and related costs and expenses
Lessor incurs in enforcing the Guaranty against Guarantors, or either of them).
3. TERMINATION. If no Default or Breach by Lessee exists under the Lease
on June 1, 2002, the Guaranty shall terminate and be of no further force or
effect as to any Default or Breach occurring after June 1, 2002. If at any time
during the term of the Lease Lessee (or any successor of Lessee by merger or
acquisition) becomes a publicly-traded company on any recognized stock exchange
(e.g., New York, American, Pacific, NASDAQ), the Guaranty shall terminate and be
of no further force or effect as to any Default or Breach occurring after such
event.
4. SECURITY DEPOSIT. Guarantors shall have the rights provided under
civil Code Section 2849 with respect to the Security Deposit of Lessee under the
Lease. However, if at any time during the term of the Lease Lessor uses any of
the Security Deposit to cure in part or in total a Default or Breach by Lessee
and Lessee fails to restore all or such portion of the Security Deposit as
required by the Lease, Guarantors shall be required to make such restoration.
For example, if Lessee Defaults in the
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payment of Base Rent to the extent of $50,000, Lessor will use $50,000 of the
Security Deposit to cure such Default, however, if Lessee fails to pay to Lessor
$50,000 to restore the amount of the Security Deposit so applied, than a new
Default will have occurred and Guarantors will be obligated to make such
restoration payment.
5. GENERAL PROVISIONS. This Addendum is incorporated into and made a part
of the Guaranty. Any inconsistency, variance or difference between the
provisions of the Guaranty and the provisions of this Addendum shall result in
the provisions of this Addendum controlling. All capitalized terms not defined
in this Addendum shall have the same meaning as set forth in either the Guaranty
or the Lease. No provision of the Guaranty or this Addendum shall be interpreted
for or against Lessor, Lessee or Guarantors as a result of such provision being
drafted by such person or entities or such persons or entities' legal counsel.
/s/ Julie Heldman
-----------------------------
Julie Heldman
/s/ Bernard Weiss
-----------------------------
Bernard Weiss
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EXHIBIT 10.7
AMENDED AND RESTATED ACCOUNTS RECEIVABLE AND INVENTORY LOAN AGREEMENT
This Agreement ("Agreement") is entered into as of April 21, 1997, by and
between SIGNATURE EYEWEAR, INC., a California corporation ("Borrower"), and CITY
NATIONAL BANK, a national banking association ("CNB") and supersedes and
replaces in its entirety that certain Amended and Restated Accounts Receivable
and Inventory Loan Agreement dated as of April 22, 1996, as amended from time to
time, between Borrower and CNB.
1. DEFINITIONS. As used in this Agreement, these terms have the following
meanings:
1.1 "ACCOUNT" or "ACCOUNTS" means any right to payment for goods sold or
leased or for services rendered which is not evidenced by an instrument or
chattel paper from any Person, whether now existing or hereafter arising or
acquired, whether or not it has been earned by performance.
1.2 "ACCOUNT DEBTOR" means the Person obligated on an Account.
1.3 "AFFILIATE" means any Person directly or indirectly controlling,
controlled by, or under common control with Borrower, and includes any employee
stock ownership plan of Borrower or an Affiliate. "Control" (including with
correlative meaning, the terms "controlling," "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities, by
contract or otherwise.
1.4 "BANKER'S ACCEPTANCE COMMITMENT" is $1,500,000.00.
1.5 "BORROWER'S LOAN ACCOUNT" means the statement of daily balances on the
books of CNB in which will be recorded Revolving Credit Loans made by CNB to
Borrower, payments made on such loans, and other appropriate debits and credits
as provided by this Agreement. CNB will provide a statement of account for
Borrower's Loan Account at least once each month on a date established by CNB,
which statement will be accepted by and conclusively binding upon Borrower
unless it notifies CNB in writing to the contrary, within five (5) days of
receipt of such statement, or ten (10) days after sending of such statement if
Borrower does not notify CNB of its non-receipt of the statement. Statements
regarding other credit extended to Borrower will be provided separately.
1.6 "BORROWING BASE" will be in an amount, determined by CNB, equal to the
sum of.'
1.6.1 Seventy five percent (75%) of the Eligible Accounts ("Accounts
Advance Rate "); provided, however, the Accounts Advance Rate shall be reduced
by five percent (5.0%) for each increment of five percent (5.0%) that dilution
exceeds twelve percent (12%); and
1.6.2 Forty percent (40%) of the Eligible Inventory ("Inventory
Borrowing Base");
In no event will (a) the Inventory Borrowing Base exceed the lesser of (i)
$2,000,000.00 or (ii) the Accounts Borrowing Base or (b) the Borrowing Base
exceed the Revolving Credit Commitment.
1.7 "BORROWING BASE CERTIFICATE" means the certificate, in form and
satisfactory to CNB, executed by Borrower to evidence the Borrowing Base.
1.8 "BUSINESS DAY" means a day that CNB's Head Office is open and
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conducts a substantial portion of its business.
1.9 "CASH FLOW FROM OPERATIONS" will be determined on a consolidated basis
for Borrower and the Subsidiaries and means the sum of (a) net income after
taxes and before extraordinary items in accordance with GAAP, plus (b)
amortization of intangible assets, plus (c) interest expense, plus (d)
depreciation, each of such items computed on an annualized basis.
1.10 "CODE" means the Uniform Commercial Code of California except where
the Uniform Commercial Code of another state governs the perfection of a
security interest in Collateral located in that state.
1.11 "COLLATERAL" means all property securing the Obligations, as described
in Section 8.
1.12 "COMMERCIAL LETTERS OF CREDIT" means letters of credit issued
pursuant to this Agreement and in response to Borrower's submission of an
Irrevocable Letter of Credit Application and Security Agreement.
1.13 "COMMITMENT" means CNB's commitment to make the Loans, issue Letters
of Credit and create Banker's Acceptances in the aggregate principal amount
outstanding at any one time of up to Six Million Seven Hundred Sixty Thousand
Four Hundred Seventeen Dollars ($6,760,417.00).
1.14 "DEBT" means, at any date, the aggregate amount of, without
duplication, (a) all obligations of Borrower or any Subsidiary for borrowed
money, or reimbursement for open letters of credit and banker's acceptances, (b)
all obligations of Borrower or any Subsidiary evidenced by bonds, debentures,
notes or other similar instruments, (c) all obligations of Borrower or any
Subsidiary to pay the deferred purchase price of property or services, (d) all
capitalized lease obligations of Borrower or any Subsidiary, (e) all obligations
or liabilities of others secured by a lien on any asset of Borrower or any
Subsidiary, whether or not such obligation or liability is assumed, (f) all
obligations guaranteed by Borrower or any Subsidiary, (g) all obligations,
direct or indirect, for letters of credit, and (h) any other obligations or
liabilities which are required by GAAP to be shown as liabilities on the balance
sheet of Borrower or any Subsidiary.
1.15 "DEBT SERVICE" means (a) the aggregate amount of Current Maturity of
Long-Term Debt plus (b) all interest incurred on borrowed money, computed on an
annualized basis. "Current Maturity of Long-Term Debt" means that portion of
Borrower's consolidated long-term liabilities, determined in accordance with
GAAP, which will, by the terms thereof, become due and payable within one (1)
year following the date of the balance sheet upon which such calculations are
based.
1.16 "DILUTION" will be determined at the end of each month by CNB for the
preceding twelve-month period by dividing total reductions, excluding cash
collections of Accounts, by gross sales which gave rise to the Accounts for such
twelve-month period.
1.17 "ELIGIBLE ACCOUNT" means an Account of Borrower:
1.17.1 Upon which Borrower's right to receive payment is absolute and
not contingent upon the fulfillment of any condition;
1.17.2 Against which is asserted no defense, counterclaim, discount or
set-off, whether well-founded or otherwise;
1.17.3 That is a true and correct statement of a bona fide
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indebtedness incurred in the amount of the Account for goods sold or leased and
delivered to, or for services rendered to and accepted by, the Account Debtor;
1.17.4 That is owned by Borrower free and clear of all liens,
encumbrances, charges, interests and rights of others, except the security
interests granted to CNB;
1.17.5 That does not arise from a sale or lease to or for services
rendered to an employee, stockholder, director, Subsidiary or Affiliate of
Borrower or any entity in which any employee, stockholder, director, Subsidiary
or Affiliate of Borrower has any interest;
1.17.6 That is not the obligation of an Account Debtor that is the
federal government unless perfected under the Federal Assignment of Claims Act
of 1940, as amended;
1.17.7 That is not the obligation of an Account Debtor located in a
foreign country, except Canada, unless the obligation is insured by foreign
credit insurance satisfactory to CNB or through a letter of credit negotiated
through CNB with drawing documents in order;
1.17.8 That is due and payable not more than sixty (60) days from the
original invoice date unless otherwise agreed to in writing by CNB;
1.17.9 As to which not more than ninety (90)) days has elapsed since
the original invoice date;
1.17.10 As to which the Account Debtor has not:
(i) died, suspended business, made a general assignment for
the benefit of creditors, become the subject of a petition under the
Bankruptcy Code or consented to or applied for the appointment of a
receiver, trustee, custodian or liquidator for itself or any of its
property;
(ii) become more than sixty (60) days past due, under the
original terms of sale, with respect to 20% or more of the amounts owed by
such Account Debtor to Borrower;
(iii) had its check in payment of an Account returned unpaid;
or
(iv) become or appear to have become unable, in the opinion
of CNB, to pay the Account in accord with its terms;
1.17.11 That does not, when added to all other Accounts that are
obligations of the Account Debtor to Borrower, result in a total sum that
exceeds twenty percent (20%) of the total balance then due on all Accounts; and
1.17.12 That is not an obligation owed by the Account Debtor which
is evidenced by chattel paper or an instrument as those terms are defined in the
Code.
1.18 "ELIGIBLE INVENTORY" means Inventory, excluding work-in-process, raw
materials, packing materials and supplies, which (a) is owned by Borrower free
and clear of all liens, encumbrances and rights of others, except the security
interests granted to CNB; (b) is permanently located in the United States of
America and in the physical possession of Borrower; and (c) is not, in CNB's
opinion, obsolete, unsalable, damaged, unfit for further processing or otherwise
unacceptable to CNB. Eligible Inventory will be valued, in the case
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of finished goods, at the lower of cost or market in accordance with GAAP and,
in the case of raw materials, at the lower of Borrower's cost, market, or CNB's
independent determination of the resale value of raw materials in such
quantities and on such terms as CNB deems appropriate.
1.19 "EUROCURRENCY RESERVE REQUIREMENT" means the aggregate (without
duplication) of the rates (expressed as a decimal) of reserves (including,
without limitation, any basic, marginal, supplemental, or emergency reserves)
that are required to be maintained by banks during the Interest Period under any
regulations of the Board of Governors of the Federal Reserve System, or any
other governmental authority having jurisdiction with respect thereto,
applicable to funding based on so-called "Eurocurrency Liabilities", including
Regulation D (12 CFR 224).
1.20 "GAAP" means generally accepted accounting principles, consistently
applied.
1.21 "INVENTORY" means goods held for sale or lease in the ordinary course
of business, work in process and any and all raw materials used in connection
with the foregoing.
1.22 "INTEREST PERIOD" means the period commencing on the date the LIBOR
Loan is made (including the date a Prime Loan is converted to a LIBOR Loan, or a
LIBOR Loan is renewed as a LIBOR Loan, which, in the latter case, will be the
last day of the expiring Interest Period) and ending one (1), two (2), three
(3), or six (6) months thereafter, as selected by the Borrower; provided,
however, (a) any Interest Period that would end on a day not a Business Day,
will extend to the next Business Day; and (b) no Interest Period may extend
beyond the Termination Date.
1.23 "LETTERS OF CREDIT" means Commercial Letters of Credit up to the sum
of $1,500,000.00 and Standby Letters of Credit up to the sum of $100,000.00.
1.24 "LETTERS OF CREDIT COMMITMENT" is $1,600,000.00.
1.25 "LETTER OF GUARANTEE" means the issuance by CNB of its letter of
indemnity, bill of lading bond or release to carriers of merchandise shipped to
Borrower and consigned to CNB to induce release of the merchandise by the
carrier to Borrower in advance of receipt of documents required by the carrier
to release the merchandise.
1.26 "LIBOR LOAN COMMITMENT" is $4,000,000.00.
1.27 "LIBOR BASE RATE" means the British Banker's Association definition of
the London InterBank Offered Rates as made available by Telerate Monitor on
Telerate Screen 3750, or such other information service available to CNB, for
the applicable Interest Period for the LIBOR Loan selected by Borrower and as
quoted by CNB on the Business Day Borrower requests a LIBOR Loan.
1.28 "LIBOR INTEREST RATE" means the rate per year (rounded upward to the
next one-sixteenth (1/16th) of one percent (0.0625%), if necessary) determined
by CNB to be the quotient of (a) the LIBOR Base Rate divided by (b) one minus
the Eurocurrency Reserve Requirement for the Interest Period; which is expressed
by the following formula:
LIBOR Base Rate
-------------------------
1 - Eurocurrency Reserve Requirement
1.29 "LIBOR LOAN" means any Loan tied to the LIBOR Interest Rate.
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1.30 "LOAN" or "LOANS" means the loans extended by CNB to Borrower
pursuant to Section 2.
1.31 "LOAN DOCUMENTS" means, individually and collectively, this Agreement,
any note, guaranty, security or pledge agreement, financing statement and all
other contracts, instruments, addenda and documents executed in connection with
or related to extensions of credit under this Agreement.
1.32 "OBLIGATIONS" means all present and future liabilities and obligations
of Borrower to CNB hereunder and all other liabilities and obligations of
Borrower to CNB of every kind, now existing or hereafter owing matured or
unmatured, direct or indirect, absolute or contingent, joint or several,
including any extensions and renewals thereof and substitutions therefor.
1.33 "PERSON" means any individual or entity.
1.34 "POTENTIAL EVENT OF DEFAULT" means any condition that with the giving
of notice or passage of time or both would, unless cured or waived, become an
Event of Default.
1.35 "PRIME RATE" means the rate most recently announced by CNB at its
principal office in Beverly Hills California as its "Prime Rate." Any change in
the interest rate resulting from a change in the Prime Rate will become
effective on the day on which each change in the Prime Rate is announced by CNB.
1.36 "REVOLVING CREDIT COMMITMENT" means CNB's commitment to make the
Revolving Credit Loans in the aggregate principal amount at any one time of up
to Six Million Dollars ($6,000,000.00).
1.37 "STANDBY LETTERS OF CREDIT" means standby letters of credit issued
pursuant to this Agreement and in response to Borrower's submission of an
Irrevocable Standby Letter of Credit Application and Letter of Credit Agree
ment.
1.38 "SUBORDINATED DEBT" means Debt of Borrower or any Subsidiary, the
repayment of which is subordinated, on terms satisfactory to CNB, to the
Obligations.
1.39 "SUBSIDIARY" means any corporation, the majority of whose voting
shares are at any time owned, directly or indirectly, by Borrower and/or by one
or more Subsidiaries.
1.40 "TANGIBLE NET WORTH" means the total of all assets appearing on a
balance sheet prepared in accordance with GAAP for Borrower and the Subsidiaries
on a consolidated basis, minus (a) all intangible assets, including, without
limitation, unamortized debt discount, Affiliate, employee, officer and
stockholder receivables or advances, goodwill, research and development costs,
patents, trademarks, the excess of purchase price over underlying values of
acquired companies, any covenants not to compete, deferred charges, copyrights,
franchises and appraisal surplus; minus (b) the amount, if any, at which shares
of stock of a non-wholly owned Subsidiary appear on the asset side of Borrower's
consolidated balance sheet, as determined in accordance with GAAP; minus (c) all
obligations which are required by GAAP to be classified as a liability on the
consolidated balance sheet of Borrower and the Subsidiaries; minus (d) minority
interests; and minus (e) deferred income and reserves not otherwise classified
as a liability on the consolidated balance sheet of Borrower and the
Subsidiaries.
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1.41 "TERMINATION DATE" means May 31, 1998, unless the term of this
Agreement is renewed by CNB for an additional period under Section 3, or such
earlier termination date under Section 9.3 upon the occurrence of an Event of
Default. Upon any renewal, the Termination Date will be the renewed maturity
date determined by CNB.
1.42 "TOTAL SENIOR LIABILITIES" means, as of any date of determination, the
amount of all liabilities that should be reflected as a liability on a
consolidated balance sheet of Borrower and the Subsidiaries prepared in
accordance with GAAP, less Subordinated Debt.
2. THE CREDIT.
2.1 REVOLVING CREDIT LOAN. Subject to the terms of this Agreement, CNB
agrees to make loans ("Revolving Credit Loans") to Borrower, from the date of
this Agreement up to but not including the Termination Date, at such times as
Borrower may request, up to the amount of the Borrowing Base. The Revolving
Credit Loans may be repaid and reborrowed at any time up to the Termination
Date; provided, however, that the aggregate unpaid principal amount of
outstanding Revolving Credit Loans will at no time exceed the Borrowing Base.
2.1.1 INTEREST. The Revolving Credit Loans will bear interest
from disbursement until due (whether at stated maturity, by acceleration or
otherwise) at a rate equal to, at Borrower's option, either (a) for a LIBOR
Revolving Loan, the LIBOR Interest Rate plus two and one quarter of one percent
(2.25%) per year, or (b) for a Prime Revolving Loan, the fluctuating Prime Rate
plus one quarter of one percent (0.25%) per year. Interest on the Revolving
Credit Loans and other charges incurred under this Agreement will be payable (a)
if a Prime Revolving Loan, monthly in arrears, on the first day of each month
for the previous month, commencing on the first such date following
disbursement; (b) if a LIBOR Revolving Loan, (i) at the same time as interest
payments are due on Prime Revolving Loans, and (ii) upon any prepayment of any
LIBOR Revolving Loan (to the extent accrued on the amount prepaid); (c) on the
date a Prime Revolving Loan is converted to a LIBOR Revolving Loan; and (d) at
the Termination Date. A Revolving Credit Loan fled to the LIBOR Interest Rate
is called a "LIBOR Revolving Loan," and a Revolving Credit Loan tied to the
Prime Rate is called a "Prime Revolving Loan". A Revolving Loan will be a Prime
Revolving Loan any time it is not a LIBOR Revolving Loan.
2.1.2 PAYMENT FOR AMOUNTS EXCEEDING BORROWING BASE. Borrower
will, immediately upon demand, repay the amount by which the unpaid principal
amount of Borrower's Loan Account exceeds the amount CNB has agreed to lend
under Section 2.1. The portion of the Revolving Credit Loans exceeding the
Borrowing Base will bear additional interest of three percent (3.0%) per year
over the rate set forth in Section 2.1.1 for Prime Loans.
2.2 LETTER OF CREDIT AND BANKER'S ACCEPTANCE FACILITY. CNB will, at the
request of Borrower any time up to the Termination Date, issue Letters of Credit
and create Banker's Acceptances, in connection with drawings thereunder, for the
account of Borrower. The aggregate face amount of outstanding Letters of Credit
at any time will not exceed the lesser of (a) the Letter of Credit Commitment or
(b) the Borrowing Base less outstanding Revolving Credit Loans and Banker's
Acceptances. The aggregate face amount of outstanding Banker's Acceptances at
any time will not exceed the lesser of (a) the Banker's Acceptance Commitment or
(b) the Borrowing Base less Revolving Credit Loans and Letters of Credit
outstanding.
2.2.1 ISSUANCE OF LETTERS OF CREDIT. Commercial Letters of Credit
will be issued to finance the import of merchandise in accordance with an
Irrevocable Letter of Credit Application and Security Agreement submitted by
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Borrower and incorporated herein by this reference, subject to the terms of this
Agreement in the event of any conflict herewith. Standby Letters of Credit will
be issued in accordance with an Irrevocable Standby Letter of Credit Application
and Letter of Credit Agreement submitted by Borrower and incorporated herein by
this reference, subject to the terms of this Agreement in the event of any
conflict herewith. Letters of Credit will be issued on the normal documentation
used by CNB from time to time in accord with the Uniform Customs and Practices
for Documentary Credits (1993 Revision) International Chamber of Commerce
Publication No. 500. Commercial Letters of Credit will expire no more than 60
days after issuance. Unless CNB otherwise agrees in writing, no Standby Letter
of Credit may expire after the Termination Date. Standard CNB fees and charges
will apply to the issuance of Letters of Credit.
2.2.2 CREATION OF BANKER'S ACCEPTANCES. Banker's Acceptances will
be created in response to Borrower's request or the acceptance by CNB of a draft
drawn against a Letter of Credit not payable at sight, on the normal
documentation used by CNB, and will mature within 120 days. Creation of
Banker's Acceptances will be subject to standard CNB fees and charges plus, if
applicable, a payment equal to the CNB Banker's Acceptance Discount Rate plus
three and one eighths of one percent (3.125%). There will be no obligation to
accept drafts which would:
(A) not be eligible for discount by a Federal Reserve Bank;
(B) become a liability subject to reserve requirements
trader any regulation of the Board of Governors of the
Federal Reserve System; or
(C) cause CNB to violate any lending limit imposed upon CNB
by any law, regulation or administrative order.
2.2.3 REIMBURSEMENT FOR FUNDING LETTER OF CREDIT. Any sight
drawing under a Letter of Credit will be deemed to be an irrevocable request for
a Revolving Credit Loan under this "Agreement. Borrower's obligation to
reimburse CNB may also be satisfied by charging Borrower's demand deposit
account if requested by Borrower. drawings under Letters of Credit which axe
not payable at sight will be deemed to be requests for the creation of Banker's
Acceptances hereunder. CNB's obligation under this Subsection to make a
Revolving Credit Loan or create a Banker's Acceptance will exist irrespective of
the existence of any Potential Event of Default or Event of Default.
2.2.4 REIMBURSEMENT FOR PAYMENT OF BANKER'S ACCEPTANCES. The
creation of a Banker's Acceptance will be deemed to be an irrevocable request
for a Revolving Credit Loan made at the maturity date of the Banker's
Acceptance. Borrower's obligation to pay such accepted draft may, at Borrower's
request, be satisfied by charging Borrower's demand deposit account. CNB's
obligation under this Subsection to make a Revolving Credit Loan will exist
irrespective of the existence of any Potential Event of Default or Event of
Default.
2.3 EXISTING TERM LOANS. The following existing Term Loans will be
governed by this Agreement, including but not limited to the provisions of
Section 3.2:
<TABLE>
<CAPTION>
DESCRIPTION DATE ORIGINAL PRINCIPAL AMOUNT
<S> <C> <C>
Note #24492 12/13/96 $500,000.00
Note #95503 06/19/95 $400,000.00
Note #95504 09/19/95 $125,000.00
</TABLE>
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2.4 LETTERS OF GUARANTEE FACILITY. Subject to the terms of this
Agreement and upon the written application of Borrower, CNB will issue up to,
but not including the Termination Date, Letters of Guarantee in an aggregate
amount outstanding at any one time not to exceed One Million Five Hundred
Thousand Dollars ($1,500,000.00) for the account of Borrower.
2.4.1 ISSUANCE OF LETTERS OF GUARANTEE. Letters of Guarantee will
be issued in accordance with all Application for Letter of Guarantee submitted
by Borrower and incorporated herein by reference, subject to the terms of this
Agreement in the event of any conflict herewith. Letters of Guarantee will be
issued on normal documentation used by or acceptable to CNB from time to time.
Standard CNB charges will apply to the issuance of Letters of Guarantee.
2.4.2 REIMBURSEMENT FOR FUNDING LETTER OF GUARANTEE. Any payment
by CNB under a Letter of Guarantee will be deemed to be an irrevocable request
for a Revolving Credit Loan under this Agreement. Borrower's obligation to
reimburse CNB may also be satisfied by charging Borrower's demand deposit
account if requested by Borrower. CNB's obligation under this Subsection to
make a Revolving Credit Loan will exist irrespective of the existence of any
Potential Event of Default or Event of Default.
2.5 LIBOR LOAN TERMS AND CONDITIONS
2.5.1 PROCEDURE FOR LIBOR LOANS. Borrower may request that a
Revolving Credit Loan be a LIBOR Loan (including conversion of a Prime Revolving
Loan to a LIBOR Revolving Loan, or continuation of a LIBOR Revolving Loan as a
LIBOR Revolving Loan upon the expiration of the Interest Period). Borrower's
request will be irrevocable, will be made to CNB using the "Notice of Borrowing"
form attached hereto as Exhibit "A," no earlier than two (2) Business Days
before and no later than 1:00 p.m. Pacific Time on the day the LIBOR Loan is to
be made. If Borrower fails to select a LIBOR Loan in accordance herewith, the
Loan will be a Prime Loan, and any outstanding LIBOR Loan will be deemed a Prime
Loan upon expiration of the Interest Period.
2.5.2 AVAILABILITY OF LIBOR LOANS. Notwithstanding anything
herein to the contrary, each LIBOR Loan must be in the minimum amount of
$500,000.00 and increments of $100,000.00. Borrower may have Prime Loan and
LIBOR Loan outstanding simultaneously.
2.5.3 PREPAYMENT OF PRINCIPAL. Borrower may not make a
partial principal prepayment on a LIBOR Loan. Borrower may prepay the full
outstanding principal balance on a LIBOR Loan prior to the end of the Interest
Period, provided, however, that such prepayment is accompanied by a fee ("LIBOR
Prepayment Fee") equal to the amount, if any, by which (a) the additional
interest which would have been earned by CNB had the LIBOR Loan not been prepaid
exceeds (b) the interest which would have been recoverable by CNB by placing the
amount of the LIBOR Loan on deposit in the LIBOR market for a period starting on
the date on which it was prepaid and ending on the last day of the applicable
Interest Period. CNB's calculation of the LIBOR Prepayment Fee will be deemed
conclusive absent manifest error.
2.5.4 SUSPENSION OF LIBOR LOANS. If CNB, on any Business
Day, is unable to determine the LIBOR Base Rate applicable for a new, continued,
or converted LIBOR Loan for any reason, or any law, regulation, or governmental
order, rule or determination, makes it unlawful for CNB to make a LIBOR Loan,
Borrower's right to select LIBOR Loan will be suspended until CNB is again able
to determine the LIBOR Base Rate or make LIBOR Loans, as the case may be.
During such suspension, new Loans, outstanding Prime Loans, and LIBOR Loans
whose Interest Periods terminate may only be Prime Loans.
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2.6 OPTIONAL PREPAYMENTS. Subject to the provisions of Section 2.4.3,
Borrower will have the right to prepay any Term Loan provided that (a) each
partial payment will be in an amount equal to the amount of the normal monthly
payment or an integral multiple thereof (b) on each prepayment, Borrower will
pay the accrued interest on the prepaid principal, to the date of such
prepayment, and (c) all prepayments will be applied to principal installments in
the inverse order of their maturities.
2.7 DEFAULT INTEREST RATE. From and after written notice by CNB to
Borrower of the occurrence of an Event of Default (and without constituting a
waiver of such Event of Default), the Loans and any other amounts due CNB
hereunder (and interest to the extent permitted by law) will bear additional
interest at a fluctuating rate equal to five percent (5.0%) per year higher than
the interest rate as determined in Sections 2.1.1 and 2.1.3, until the Event of
Default has been cured; provided, however, for purposes of this Section, a LIBOR
Loan will be treated as a Prime Loan upon the termination of the Interest
Period. All interest provided for in this Section will be compounded monthly
and payable on demand.
2.8 PAYMENTS. All payments will be in United States Dollars and in
immediately available funds. Interest will accrue daily and will be computed on
the basis of a 360-day year, actual days elapsed. All payments of principal,
interest, fees and other charges incurred under this Agreement will be made by
charging, and Borrower hereby authorizes CNB to charge, Borrower's demand
deposit account or Borrower's Loan Account. Borrower also authorizes CNB to
charge to Borrower's demand deposit account or Borrower's Loan Account any
payment credited against the Obligations which is dishonored by the drawee or
maker thereof.
3. TERM AND TERMINATION.
3.1 ESTABLISHMENT OF TERMINATION DATE. The term of this Agreement will
begin as of the date hereof and continue until the Termination Date, unless the
term is renewed for an additional period by CNB giving Borrower prior written
notice, in which event the Termination Date will mean the renewed maturity date
set forth in such notice. Notwithstanding the foregoing, CNB may, at its
option, terminate this Agreement pursuant to Section 9.3; the date of any such
termination will become the Termination Date as that term is used in this
Agreement.
3.2 OBLIGATIONS UPON THE TERMINATION DATE. Borrower will, upon the
Termination Date:
3.2.1 Repay the amount of the balance due as set forth in
Borrower's Loan Account plus any accrued interest, fees and charges;
3.2.2 Pay CNB cash in the aggregate face amount of the Letters of
Credit outstanding to be held as cash collateral for Borrower's obligation to
reimburse CNB upon the funding of such Letters of Credit;
3.2.3 Pay CNB cash in the aggregate face amount of the Banker's
Acceptances outstanding to be held by CNB to make payment under the drafts which
have been accepted; and
3.2.4 Pay the amounts due on all other Obligations owing to CNB.
In this connection and notwithstanding anything to the contrary contained in the
instruments evidencing such Obligations, the Termination Date hereunder will
constitute the maturity date of such other Obligations.
3.3 SURVIVAL OF RIGHTS. Any termination of this Agreement will not
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affect the fights, liabilities and obligations of the parties with respect to
any Obligations outstanding on the date of such termination. Until all
Obligations have been fully repaid, CNB will retain its security interest in all
existing Collateral and Collateral arising thereafter, and Borrower will
continue to assign all Accounts to CNB and to immediately turn over to CNB, in
kind, all collections received on the Accounts.
4. CONDITIONS PRECEDENT.
4.1 EXTENSION OF CREDIT. The obligation of CNB to make any Loan or other
extension of credit hereunder is subject to CNB's receipt of each of the
following, in form and substance satisfactory to CNB, and duly executed as
required by CNB:
4.1.1 All Loan Documents required by CNB, including but not
limited to this Agreement and any guaranties required hereunder;
4.1.2 (a) a copy of Borrower's Articles of Incorporation; (b) a
Resolution of Borrower's Board of Directors approving and authorizing the
execution, delivery and performance of this Agreement and any other documents
required pursuant to this Agreement, certified by Borrower's corporate
secretary;, and, (c) a copy of the last certificate fried on behalf of Borrower
containing the information required by California Corporations Code Section
1502(a) or Section 2117(a), as applicable;
4.1.3 (a) executed copies (and acknowledgement copies to the
extent reasonably available) of financing statements (Form UCC-1) duly filed
under the Code in all such jurisdictions as may be necessary or, in CNB's
opinion, desirable to perfect CNB's security interests created under this
Agreement; and (b) evidence that all filings, recordings and other actions that
are necessary or advisable, in CNB's opinion, to establish, preserve and perfect
CNB's security interests and liens as legal, valid and enforceable first
security interests and liens in the Collateral have been effected;
4.1.4 Evidence that the insurance required by Section 6.5 hereof
is in effect; and
4.1.5 A complete list of claims made against Borrower together
with an opinion of Borrower's counsel with respect to such claims, that the
representations contained in Section 5 are true and correct as of the date of
this Agreement.
4.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The obligation of CNB to make
any Loan or other extension of credit hereunder will be subject to the
fulfillment of each of the following conditions to CNB's satisfaction:
4.2.1 The representations and warranties of Borrower set forth in
Section 5 will be true and correct on the date of the making of each Loan or
other extension of credit with the same effect as though such representations
and warranties had been made on and as of such date;
4.2.2 No Guarantor will have revoked his, her or its guaranty and
no such guaranty will have become otherwise unenforceable with respect to future
advances;
4.2.3 No holder of Subordinated Debt will be in violation of his,
her or its Subordination Agreement executed in favor of CNB, and such
Subordination Agreement is enforceable with respect to future advances;
4.2.4 There will be in full force and effect in favor of CNB a
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legal, valid and enforceable first security interest in, and a valid and binding
first lien on the Collateral; and CNB will have received evidence, in form and
substance acceptable to CNB, that all filings, recordings and other actions that
are necessary or advisable, in the opinion of CNB, in order to establish,
protect, preserve and perfect CNB's security interests and liens as legal, valid
and enforceable first security interests and liens in the Collateral have been
effected;
4.2.5 There will have occurred no Event of Default or Potential
Event of Default; and
4.2.6 All other documents and legal matters in connection with the
transactions described in this Agreement will be satisfactory in form and
substance to CNB.
5. REPRESENTATIONS AND WARRANTIES. Borrower makes the following
representations and warranties, which will survive the making and repayment of
the Loans and other extensions of credit:
5.1 CORPORATE EXISTENCE, POWER AND AUTHORIZATION. Borrower and each
Subsidiary is duly organized, validly existing and in good standing under the
laws of the state of its organization, and is duly qualified to conduct business
in each jurisdiction in which its business is conducted. The execution,
delivery and performance of all Loan Documents executed by Borrower are within
Borrower's powers and have been duly authorized by the Board of Directors of
Borrower and do not require any consent or approval of the stockholders of
Borrower.
5.2 BINDING AGREEMENT. The Loan Documents constitute the valid and
legally binding obligations of Borrower, enforceable against Borrower in
accordance with their terms.
5.3 ANCILLARY DOCUMENTS. To the extent that any security agreement,
subordination agreement or guaranty is required to be executed by a Subsidiary
or Affiliate, the representations and warranties set forth in Sections 5.1 and
5.2 are also true and correct with respect to such Subsidiary and Affiliate and
such document.
5.4 OTHER AGREEMENTS. The execution and performance of the Loan Documents
will not violate any provision of law or regulation (including, without
limitation, Regulations X and U of the Federal Reserve Board) or any order of
any governmental authority, court or arbitration board or the Articles of
Incorporation or Bylaws of Borrower, or result in the breach of or a default
under any provisions of any agreement to which Borrower is a party.
5.5 LITIGATION. There is no litigation, tax claim, investigation or
proceeding pending, threatened against or affecting Borrower, any Subsidiary or
Guarantor, or any of their respective properties which, if adversely determined,
would have a material adverse effect on the business, operation or condition,
financial or otherwise, of Borrower or any Subsidiary or Guarantor.
5.6 FINANCIAL CONDITION. The most recent financial statements of Borrower
and each Guarantor, if any, copies of which have been delivered to CNB, have
been prepared in accordance with GAAP and are true, complete and correct and
fairly present the financial condition of Borrower, its Subsidiaries and each
Guarantor, including operating results, as of the accounting period referenced
therein. There has been no material adverse change in the financial condition
or business of Borrower or any Subsidiary or Guarantor since the date of such
financial statements. Neither Borrower nor any Subsidiary or Guarantor has any
material Liabilities for taxes or long-term
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leases or commitments, except as disclosed in the financial statements.
5.7 NO VIOLATIONS. Borrower is not, nor is any Subsidiary, in violation
of any law, ordinance, rule or regulation to which it or any of its properties
is subject.
5.8 COLLATERAL. Borrower owns and has possession of and has the right and
power to grant a security interest in the Collateral, and the Collateral is
genuine and free from liens, adverse Claims, set-offs, defaults, prepayments,
defenses and encumbrances except those in favor of CNB. No bills of lading,
warehouse receipts or other documents or instruments of rifle are outstanding
with respect to the Collateral or any portion of the Collateral, in favor of a
Person other than Borrower. The office where Borrower keeps its records
concerning all Accounts and where it keeps the bulk of its Inventory is 498
North Oak Street, Inglewood, California 90302.
5.9 ERISA. Borrower is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974
("ERISA"). No "Reportable Event" (as defined in ERISA and the regulations
issued thereunder [other than a "Reportable Event" not subject to the provision
for thirty (30) day notice to the Pension Benefit Guaranty Corporation ("PBGC")
under such regulations]) has occurred with respect to any benefit plan of
Borrower nor are there any unfunded vested liabilities under any benefit plan of
Borrower. Borrower has met its minimum funding requirements under ERISA with
respect to each of its plans and has not incurred any material liability to the
PBGC in connection with any such plan.
5.10 CONSENTS. No consent, license, permit, or authorization of, exemption
by, notice or report to, or registration, filing or declaration with, any
governmental authority or agency is required in connection with the execution,
delivery and performance by Borrower of this Agreement or the transactions
contemplated hereby.
5.11 USE OF PROCEEDS. The proceeds of the Revolving Credit Loans will be
used by Borrower solely for working capital purposes in the normal course of
business.
5.12 REGULATION U. Borrower is not engaged principally, or as one of its
principal activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations U or X of
the Federal Reserve Board). No part of the proceeds of the Loans will be used
by Borrower to purchase or carry any such margin stock or to extend credit to
others for the purpose of purchasing or carrying such margin stock.
5.13 ENVIRONMENTAL MATTERS.
5.13.1 The operations of Borrower and each Subsidiary comply in all
material respects with all applicable federal, state and local environmental,
health and safety statutes, regulations and ordinances and fully comply with all
terms of all required permits and licenses.
5.13.2 Borrower and each Subsidiary have received no notices of
threatened or pending governmental or private civil, criminal or administrative
proceeding regarding any environmental or health and safety statute, regulation
or ordinance and have not been subject to any federal, state or local
investigations, inspections or orders regarding any environmental or health and
safety statute, regulation or ordinance.
5.13.3 Neither Borrower nor any Subsidiary knows of any facts or
conditions which may exist which may subject Borrower or any Subsidiary to
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liability or contingent liability and neither Borrower nor any Subsidiary is
presently liable or contingently liable for any removal, remedial, response or
other costs or damages in connection with any release into the environment of
toxic or hazardous substances or waste included on any federal, state or local
hazardous chemical or substance lists under any federal, state or local statute,
regulation or ordinance.
5.13.4 Borrower will, at all times, indemnify and hold CNB (which
for purposes of this Section and Section 10.8 includes CNB's parent company and
subsidiaries and all of their respective shareholders, directors, officers,
employees, agents, representatives, successors, attorneys and assigns) harmless
from and against any liabilities, claims, demands, causes of action, losses,
damages, expenses (including without limitation reasonable attorneys' fees
[which attorneys may be employees of CNB, or may be outside counsel]), costs,
settlements, judgments or recoveries (collectively, "Claims") directly or
indirectly arising out of or attributable to the use, generation, manufacture,
production, storage, release, threatened release, discharge, disposal or
presence of a hazardous substance on, under, or about Borrower's property or
operations or property leased to or used by Borrower. For these purposes, the
term "hazardous substances" means any substance which is or becomes designated
as "hazardous" or "toxic" under any Federal, state, or local law. This indemnity
will survive the Termination Date and the repayment of all Obligations of
Borrower to CNB.
6. AFFIRMATIVE COVENANTS. Borrower agrees that until payment in full of all
Obligations, Borrower will comply with the following covenants:
6.1 COLLATERAL.
6.1.1 Borrower will, on demand of CNB, make available to CNB,
shipping and delivery receipts evidencing the shipment of the goods which gave
rise to an Account; completion certificates or other proof of the satisfactory
performance of services which gave rise to an Account; a copy of the invoice for
each Account; and Borrower's copy of any written contract or order from which an
Account arose. Unless previously requested by Borrower in writing to return
such documents, CNB will be authorized to destroy any such documentation six (6)
months after its receipt by CNB;
6.1.2 Borrower will advise CNB within ten (10) days whenever an
Account Debtor refuses to retain, or returns, any goods from the sale of which
an Account arose, and will comply with any instructions which CNB may give
regarding the sale or other disposition of such returns;
6.1.3 Borrower will give CNB, upon request, specific assignments
of Accounts after they come into existence, and schedules of Accounts, the form
and content of such assignments and schedules to be satisfactory to CNB; but,
despite this provision for express assignments to CNB, CNB will have a
continuing security interest in all Accounts irrespective of whether some
Accounts are omitted from such assignments or whether any assignments are ever
given; and Borrower will execute and deliver to CNB any instrument, document,
financing statement, assignment or other writing which CNB may deem necessary or
desirable to carry out on the terms of this Agreement, to perfect CNB's security
interest in the Accounts, and any other Collateral for the Obligations, or to
enable CNB to enforce its security interest in any of the foregoing;,
6.1.4 Borrower will maintain, in accord with sound accounting
practices, accurate records and books of account showing, among other things,
all Inventory and Accounts, the proceeds of the sale or other disposition
thereof and the collections therefrom. Borrower will not change the accounting
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method used to determine Borrower's Inventory cost without CNB's prior written
approval. Borrower will permit representative(s) of CNB, at any reasonable
time, to inspect, audit, examine and make extracts or copies from all books,
records and other data relating to the Collateral, to inspect any of Borrower's
properties and to confirm balances due on Accounts by direct inquiry to Account
Debtors, and will give CNB, promptly upon request, all information regarding the
business or finances of Borrower;
6.1.5 Borrower will, if requested by CNB, mark its records
concerning its Inventory and Accounts in a manner satisfactory to CNB to show
CNB's security interest therein;
6.1.6 Borrower will, if requested by CNB, provide CNB with a
current physical count of its Inventory in the manner specified by CNB;
6.1.7 Borrower will endorse to the order of and deliver to CNB any
negotiable instrument accepted by Borrower in lieu of payment in accord with the
original terms of sale;
6.1.8 Borrower will pay CNB, upon demand, the cost, including, but
not limited to reasonable attorneys' fees and expenses (which counsel may be CNB
employees) expended or incurred by CNB (or allocable to CNB's in-house counsel)
in the collection or enforcement of any Accounts or other Collateral if CNB
itself undertakes such collection or enforcement, together with all taxes,
charges and expenses of every kind or description paid or incurred by CNB under
or with respect to loans hereunder or any Collateral therefor and Borrower
authorizes CNB to charge the same to any deposit account of Borrower or
Borrower's Loan Account maintained with CNB;
6.1.9 Borrower will promptly notify CNB of any occurrence or
discovery of any event which would cause or has caused a previously Eligible
Account to become ineligible; and
6.1.10 Borrower will maintain the tangible Collateral in good
condition and promptly notify CNB of any event causing loss or reduction of
value of Collateral and the amount of such loss or reduction.
6.2 FINANCIAL STATEMENTS. Borrower will furnish to CNB on a continuing
basis:
6.2.1 Within forty-five (45) days after the end of each quarterly
accounting period of each fiscal year, a financial statement internally
prepared, consisting of not less than a balance sheet and income statement,
prepared in accordance with GAAP and accompanied by the following:. (a)
supporting schedules of costs of goods sold, operating expenses and other income
and expense items, and (b) Borrower's certification as to whether any event has
occurred which constitutes an Event of Default or Potential Event of Default,
and if so, stating the facts with respect thereto.
6.2.2 Within one hundred twenty (120) days after the close of
Borrower's fiscal year, a copy of the annual audit report for Borrower and the
Subsidiaries, including therein a balance sheet, income statement,
reconciliation of net worth and statement of cash flows, with notes thereto, the
balance sheet, income statement and statement of cash flows to be audited by a
certified public accountant acceptable to CNB, certified by such accountant to
have been prepared in accordance with GAAP and accompanied by the following:.
(a) supporting schedules of costs of goods sold, operating expenses and other
income and expense items, and Co) Borrower's certification as to whether any
event has occurred which constitutes an Event of Default or Potential Event of
Default, and if so, stating the facts with respect thereto;
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and
6.2.3 Within fifteen (15) days of filing, a copy of the Federal
Income Tax Return of Borrower and each Guarantor, if any.
6.3 COLLATERAL REPORTS. Borrower will supply the following collateral
reports, together with such additional information, reports and/or statements as
CNB may reasonably request, within fifteen (15) days after the end of each
month:
6.3.1 A listing and aging by invoice date of all accounts
receivable and accounts payable (together with a current list of the names,
addresses, sales and payment terms, and detail of outstanding balances due by
invoice date from all Account Debtors);
6.3.2 A reconciliation of such aging with the previous aging
delivered to CNB and CNB account records;
6.3.3 A listing of all Inventory, setting out types, locations and
dollar value, which dollar value is in conformity with GAAP, in form acceptable
to CNB; and
6.3.4 A Borrowing Base Certificate.
6.4 TAXES AND PREMIUMS. Borrower will, and will cause each Subsidiary to,
pay and discharge all taxes, assessments, governmental charges, and real and
personal taxes including, but not limited to, federal and state income taxes,
employee withholding taxes and payroll taxes, and all premiums for insurance
required hereunder, prior to the date upon which penalties are attached thereto.
CNB may pay, for the account of Borrower, any of the foregoing which Borrower
fails to pay; any such amounts will be debited to Borrower's Loan Account and
will be paid by Borrower to CNB, with interest thereon at the rate stated in
Section 2.1.1 (exclusive of LIBOR Loans), upon demand.
6.5 INSURANCE.
6.5.1 Borrower will, and will cause each Subsidiary to, (a) keep
its Inventory, equipment and any other tangible personal property which is
Collateral insured for the benefit of CNB under a standard mortgagee protection
clause (to whom any loss will be payable) in such amounts, by such companies and
against such risks as may be satisfactory to CNB; (b) pay the cost of all such
insurance; and (c) deliver certificates evidencing such insurance to CNB (and
copies of policies if requested); and Borrower hereby assigns to CNB all right
to receive proceeds of such insurance, and agrees to direct any insurer to pay
all proceeds directly to CNB, and authorizes CNB to endorse Borrower's name to
any draft or check for such proceeds;
6.5.2 In addition to the insurance required above, Borrower will,
and will cause each Subsidiary to, maintain insurance of the types and in
amounts customarily carried in its lines of business, including, but not limited
to, fire, public liability, property damage, business interruption and worker's
compensation, such insurance to be carried with companies and in amounts
satisfactory to CNB, and deliver to CNB, upon request, schedules setting forth
all insurance then in effect; and
6.5.3 If Borrower fails to provide and maintain the policies of
insurance required hereunder, CNB may, but is not obligated to, procure such
insurance, and Borrower will pay all premiums thereon promptly upon demand by
CNB, together with interest thereon at the rate set forth in Section 2.1.1
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hereof (exclusive of LIBOR Loans) from the date of expenditure until
reimbursement by Borrower.
6.6 NOTICE. Borrower will promptly advise CNB in writing of (a) the
opening of any new, or the dosing of any existing, places of business, each
location at which Inventory or equipment is or will be kept, and any change of
Borrower's name, trade name or other name under which it does business or of any
such new or additional name; (b) the occurrence of any Event of Default or
Potential Event of Default; (c) any litigation pending or threatened where the
amount or amounts in controversy exceed $100,000.00; (d) any unpaid taxes which
are more than fifteen (15) days delinquent; and (e) any other matter which might
materially or adversely affect Borrower's or any Subsidiary's or Guarantor's
financial condition, property or business.
6.7 FAIR LABOR STANDARDS ACT. Borrower will, and will cause each
Subsidiary to, comply with the requirements of, and all regulations promulgated
under, the Fair Labor Standards Act.
6.8 CORPORATE EXISTENCE. Borrower will, and will cause each Subsidiary
to, maintain its corporate existence and all of its rights, privileges and
franchises necessary or desirable in the normal course of its business.
6.9 COMPLIANCE WITH LAW. Borrower will, and will cause each Subsidiary
to, comply with all requirements of all applicable laws, rules, regulations
(including, but not limited to, ERISA with respect to each of their benefit
plans, and all environmental and hazardous materials laws), orders of any
governmental agency and all material agreements to which they are a party.
6.10 FINANCIAL TESTS. Borrower will maintain at all times:
6.10.1 Tangible Net Worth plus Subordinated Debt of not less than
$2,400,000.00 as of April 30, 1997, and $2,750,000.00 thereafter;
6.10.2 A ratio of Total Senior Liabilities to Tangible Net Worth
plus Subordinated Debt of not more than (a) 3.55 to 1 as of April 30, 1997 and
(b) 3.0 to 1 thereafter;
6.10.3 A ratio of Cash Flow from Operations to Debt Service of not
less than 1.5 to 1; and
6.10.4 Net income after taxes of greater than zero per fiscal
quarter.
7. NEGATIVE COVENANTS. Borrower agrees that until payment in full of all the
Obligations, Borrower will not, nor will it permit any Subsidiary to, do any of
the following, without CNB's prior written consent:
7.1 BORROWING. Create, incur, assume or permit to exist any Debt except
(a) Debt to CNB, (b) Subordinated Debt, and (c) trade Debt in the ordinary
course of Borrower's business and (d) purchase money debt in an aggregate amount
not to exceed $200,000.00 per Borrower's fiscal year incurred in connection with
the acquisition of capital assets (including capitalized lease expenditures).
7.2 SALE OF ASSETS. Sell, lease or otherwise dispose of any of Borrower's
or any Subsidiary's assets, other than merchandise Inventory and equipment in
the ordinary course of business.
7.3 LOANS. Make loans or advances to any Person, except credit extended
to employees or to customers
16
<PAGE>
in the ordinary course of business.
7.4 CONTINGENT LIABILITIES. Assume, guarantee, endorse, contingently
agree to purchase or otherwise become liable for the obligation of any Person,
including Borrower, a Subsidiary or Affiliate, except (a) by the endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business, and (b) contingent liabilities in favor of CNB.
7.5 INVESTMENTS. Purchase or acquire the obligations or stock of, or any
other interest in, any partnership, joint venture or corporation, except (a)
direct obligations of the United States of America; or Co) investments in
certificates of deposit issued by, and other deposits with, commercial banks
organized under the United States or a State thereof having capital of at least
One Hundred Million Dollars ($100,000,000.00).
7.6 MORTGAGES, LIENS, ETC. Mortgage, pledge, hypothecate, grant or
contract to grant any security interest of any kind in any property or assets,
to anyone except CNB.
7.7 INVOLUNTARY LIENS. Permit any involuntary liens to arise with respect
to any property or assets including but not limited to those arising from the
levy of a writ of attachment or execution, or the levy of any state or federal
tax lien which lien will not be removed within a period of thirty (30) days.
7.8 SALE AND LEASEBACK. Enter into any sale-leaseback transaction.
7.9 MERGERS AND ACQUISITIONS. Enter into any merger or consolidation, or
acquire all or substantially all the assets of any Person, except a Subsidiary
may be merged into or consolidated with another Subsidiary or with Borrower.
7.10 DIVIDENDS AND PURCHASE OF STOCK. Redeem or repurchase stock or
partnership interests, declare or pay any dividends or make any distribution,
whether of capital, income or otherwise, and whether in cash or other property,
except that any Subsidiary may declare distributions to Borrower; provided,
however, if Borrower for the 1997 fiscal year continues as a Sub-Chapter S
corporation under the federal or state income tax laws, distributions may be
made to Borrower's shareholders in an aggregate maximum amount equal to
Borrower's net income before tax during fiscal year 1997 and 1998. If Borrower,
in subsequent fiscal years, continues as a Sub-Chapter S corporation,
distribution may be made to Borrower's shareholders in an aggregate maximum
amount per year equal to fifty percent (50%) of Borrower's net income after tax
for that fiscal year.
7.11 EVENT OF DEFAULT. Permit a default to occur under any document or
instrument evidencing Debt incurred under any indenture, agreement or other
instrument under which such Debt may be issued, or any event to occur under any
of the foregoing which would permit any holder of the Debt outstanding
thereunder to declare the same due and payable before its stated maturity,
whether or not such acceleration occurs or such default be waived.
8. SECURITY AGREEMENT.
8.1 GRANT OF SECURITY INTEREST. To secure all Obligations hereunder as
well as all other Obligations to CNB, Borrower hereby grants and transfers to
CNB a continuing security interest in the following property whether now owned
or hereafter acquired:
8.1.1 All of Borrower's Inventory;,
17
<PAGE>
8.1.2 All of Borrower's Accounts;
8.1.3 All of Borrower's general intangibles as that term is
defined in the Code;
8.1.4 All of Borrower's equipment, as that term is defined in the
Code;
8.1.5 All of Borrower's interest in any patents (now existing or
pending), copyrights, trade names, trademarks and service marks useful to the
operation of Borrower's business;
8.1.6 All notes, drafts, acceptances, instruments, documents of
title, policies and certificates of insurance, chattel paper, guaranties and
securities now or hereafter received by Borrower or in which Borrower has or
acquires an interest;
8.1.7 All cash and noncash proceeds of the foregoing property,
including, without limitation, proceeds of policies of fire, credit or other
insurance;
8.1.8 All of Borrower's books and records pertaining to any of the
Collateral described in this Section 8.1; and
8.1.9 Any other Collateral which CNB and Borrower may designate as
additional security from time to time by separate instruments.
8.2 NOTIFICATION OF ACCOUNT DEBTORS. CNB will have the fight to notify
any Account Debtor to make payments directly to CNB, take control of the cash
and noncash proceeds of any Account, and settle any Account, which fight CNB may
exercise at any time whether or not an Event of Default has occurred or whether
Borrower was theretofore making collections thereon. Until CNB elects to
exercise such right, Borrower is authorized on behalf of CNB to collect and
enforce the Accounts. Immediately upon CNB's request, Borrower will deliver to
CNB for application in accord with this Agreement, all checks, drafts, cash and
other remittances in payment or on account of payment of its Accounts on the
banking day following the receipt thereof, and in precisely the form received,
except for the endorsement of Borrower where necessary to permit collection of
the items, which endorsement Borrower hereby agrees to make. Pending such
delivery, Borrower will not commingle any such checks, cash, drafts and other
remittances with any of its other funds or property, but will hold them separate
and apart therefrom expressly in trust for CNB. All such remittances will be
accompanied by such statements and reports of collections and adjustments as CNB
may specify.
8.3 ATTORNEY-IN-FACT. CNB or any of its officers is hereby irrevocably
made the true and lawful attorney for Borrower with full power of substitution
to do the following: (a) endorse the name of Borrower upon any and all checks,
drafts, money orders and other instruments for the payment of moneys which are
payable to Borrower and constitute collections on Accounts; (b) execute in the
name of Borrower any schedules, assignments, instruments, documents and
statements which Borrower is obligated to give CNB hereunder: (c) receive, open
and dispose of all mail addressed to Borrower; (d) notify the Post Office
authorities to change the address for delivery of mail addressed to Borrower to
such address as CNB will designate; and (e) do such other acts in the name of
Borrower which CNB may deem necessary or desirable to enforce any Account or
other Collateral. The powers granted CNB hereunder are solely to protect its
interests in the Collateral and will not impose any duty upon CNB to exercise
any such powers.
18
<PAGE>
9. EVENTS OF DEFAULT AND PROCEEDINGS UPON DEFAULT.
9.1 EVENTS OF DEFAULT. After expiration of any applicable cure period set
forth in Section 9.2, the following will constitute Events of Default under this
Agreement:
9.1.1 Borrower fails to pay when due any installment of principal
or interest or any other amount payable under this Agreement, including but not
limited to amounts payable under Section 2.1.2;
9.1.2 Any Person, or any Subsidiary of any Person, which is a
party to any Loan Document fails to perform or observe any of the terms,
provisions, covenants, agreements or obligations;
9.1.3 Any financial statement, representation or warranty made or
furnished by Borrower or any Subsidiary or Guarantor in connection with the Loan
Documents proves to be in any material respect incorrect;
9.1.4 The entry of an order for relief or the filing of an
involuntary petition with respect to Borrower or any Subsidiary or Guarantor
under the UNITED STATES BANKRUPTCY CODE; the appointment of a receiver, trustee,
custodian or liquidator of or for any part of the assets or property of Borrower
or any Subsidiary or Guarantor; or Borrower or any Subsidiary or Guarantor makes
a general assignment for the benefit of creditors;
9.1.5 CNB's security interest in or lien on any portion of the
Collateral becomes impaired or otherwise unenforceable;
9.1.6 Any Person obtains an order or decree in any court of
competent jurisdiction enjoining or prohibiting Borrower or CNB from performing
this Agreement, and such proceedings are not dismissed or such decree is not
vacated within ten (10) days after the granting thereof;
9.1.7 Borrower or any Subsidiary neglects, fails or refuses to
keep in full force and effect any governmental permit, license or approval which
is necessary to the operation of its business;
9.1.8 All or substantially all of the property of Borrower or any
Guarantor or Subsidiary is condemned, seized or otherwise appropriated;
9.1.9 The occurrence of (a) a Reportable Event (as defined in
ERISA) which CNB determines in good faith constitutes grounds for the
institution of proceedings to terminate any pension plan by the PBGC, (b) an
appointment of a trustee to administer any pension plan of Borrower, or (c) any
other event or condition which might constitute grounds under ERISA for the
involuntary termination of any pension plan of Borrower, where such event set
forth in (a), (b) or (c) results in a significant monetary liability to
Borrower;
9.1.10 Bernard Weiss and Julie Heldman together no longer control
at least fifty one percent (51%) of the stock of Borrower except under the
conditions of an initial public offering;
9.1.11 Any obligee of Subordinated Debt fails to comply with the
provisions of the documents evidencing such Subordinated Debt or any
Subordination Agreement;
9.1.12 Any Guarantor dies, becomes incapacitated, or revokes his or
its Guaranty, or such Guaranty becomes otherwise unenforceable with respect to
future advances; or
19
<PAGE>
9.1.13 The Termination Date is not extended.
9.2 NOTICE OF DEFAULT AND CURE OF POTENTIAL EVENTS OF DEFAULT. Except
with respect to the Events of Default specified in Sections 9.1.1, 9.1.4 or
9.1.5 above, and subject to the provisions of Section 9.4, CNB will give
Borrower at least ten (10) days' written notice of any event which constitutes,
or with the lapse of time would become, an Event of Default, during which time
Borrower will be entitled to cure same.
9.3 CNB'S REMEDIES. Upon the occurrence of an Event of Default, at the
sole and exclusive option of CNB, and upon written notice to Borrower, CNB may
(a) declare the principal of and accrued interest on the Loans immediately due
and payable in full, whereupon the same will immediately become due and payable;
(b) terminate this Agreement as to any future liability or obligation of CNB,
but without affecting CNB's rights and security interest in the Collat eral and
without affecting the Obligations owing by Borrower to CNB; and/or (c) exercise
its rights and remedies under the Loan Documents and all rights and remedies of
a secured party under the Code and other applicable laws with respect to the
Collateral.
9.4 ADDITIONAL REMEDIES. Notwithstanding any other provision of this
Agreement, upon the occurrence of any event, action or inaction by Borrower, or
if any action or inaction is threatened which CNB reasonably believes will
materially affect the value of the Collateral, CNB may take such legal actions
as it deems necessary to protect the Collateral, including, but not limited to,
seeking injunctive relief and the appointment of a receiver, whether an Event of
Default or Potential Event of Default has occurred under this Agreement.
10. MISCELLANEOUS.
10.1 REIMBURSEMENT OF COSTS AND EXPENSES. Borrower will reimburse CNB for
all costs and expenses relating to this Agreement including, but not limited to,
filing, recording or search fees, audit or verification fees, appraisals of the
Collateral and other out-of-pocket expenses, and reasonable attorneys' fees and
expenses expended or incurred by CNB (or allocable to CNB's in-house counsel) in
documenting or administering the Loan Documents or collecting any sum which
becomes due CNB under the Loan Documents, irrespective of whether suit is filed,
or in the protection, perfection, preservation or enforcement of any and all
rights of CNB in connection with the Loan Documents, including, without
limitation, the fees and costs incurred in any out-of-court work-out or a
bankruptcy or reorganization proceeding.
10.2 DISPUTE RESOLUTION.
10.2.1 MANDATORY ARBITRATION. At the request of CNB or Borrower,
any dispute, claim or controversy of any kind (whether in contract or tort,
statutory or common law, legal or equitable) now existing or hereafter arising
between CNB and Borrower and in any way arising out of, pertaining to or in
connection with: (1) this Agreement, and/or any renewals, extensions, or
amendments thereto; (2) any of the Loan Documents; (3) any violation of this
Agreement or the Loan Documents; (4) all past, present and future loans; (5) any
incidents, omissions, acts, practices or occurrences arising out of or related
to this Agreement or the Loan Documents causing injury to either party whereby
the other party or its agents, employees or representatives may be liable, in
whole or in part, or (6) any aspect of the present or future relationships of
the parties, will be resolved through final and binding arbitration conducted at
a location determined by the arbitrator in Los Angeles, California, and
administered by the .American Arbitration Association ("AAA") in accordance with
the California Arbitration Act (Title 9, CALIFORNIA CODE OF CIVIL PROCEDURE
Section 1280 ET. SEQ.) and the then existing Commercial
20
<PAGE>
Rules of the AAA. Judgment upon any award rendered by the arbitrator(s) may be
entered in any state or federal courts having jurisdiction thereof.
10.2.2 REAL PROPERTY COLLATERAL. Notwithstanding the provisions of
Section 10.2.1, no controversy or claim will be submitted to arbitration without
the consent of all the parties if, at the time of the proposed submission, such
controversy or claim arises from or relates to an obligation owed to CNB which
is secured in whole or in part by real property collateral. If all parties do
not consent to submission of such a controversy or claim to arbitration, the
controversy or claim will be determined as provided in Section 10.2.3.
10.2.3 JUDICIAL REFERENCE. At the request of any party, a
controversy or claim which is not submitted to arbitration as provided and
limited in Sections 10.2.1 and 10.2.2 will be determined by a reference in
accordance with CALIFORNIA CODE OF CIVIL PROCEDURE Sections 638 ET. SEQ. If such
an election is made, the parties will designate to the court a referee or
referees selected under the auspices of the AAA in the same manner as
arbitrators are selected in AAA-sponsored proceedings. The presiding referee of
the panel, or the referee if there is a single referee, will be an active
attorney or retired judge. Judgment upon the award rendered by such referee or
referees will be entered in the court in which such proceeding was commenced in
accordance with CALIFORNIA CODE OF CIVIL PROCEDURE Sections 644 and 645.
10.2.4 PROVISIONAL REMEDIES, SELF HELP AND FORECLOSURE. No
provision of this Agreement will limit the right of any party to: (1) foreclose
against any real property collateral by the exercise of a power of sale under a
deed of trust, mortgage or other security agreement or instrument, or applicable
law, (2) exercise any rights or remedies as a secured party against any personal
property collateral pursuant to the terms of a security agreement or pledge
agreement, or applicable law, (3) exercise serf help remedies such as setoff, or
(4) obtain provisional or ancillary remedies such as injunctive relief or the
appointment of a receiver from a court having jurisdiction before, during or
after the pendency of any arbitration or referral. The institution and
maintenance of an action for judicial relief or pursuit of provisional or
ancillary remedies, or exercise of self help remedies will not constitute a
waiver of the right of any party, including the plaintiff, to submit any dispute
to arbitration or judicial reference.
10.2.5 POWERS AND QUALIFICATIONS OF ARBITRATORS. The arbitrator(s)
will give effect to statutes of limitation, waiver and estoppel and other
affirmative defenses in determining any claim. Any controversy concerning
whether an issue is arbitratable will be determined by the arbitrator(s). The
laws of the State of California will govern. The arbitration award may include
equitable and declaratory relief. All arbitrator(s) selected will be required
to be a practicing attorney or retired judge licensed to practice law in the
State of California and will be required to be experienced and knowledgeable in
the substantive laws applicable to the subject matter of the controversy or
claim at issue.
10.2.6 DISCOVERY. The provisions of CALIFORNIA CODE OF CIVIL
PROCEDURE Section 1283.05 or its successor section(s) are incorporated herein
and made a part of this Agreement. Depositions may be taken and discovery may
be obtained in any arbitration under this Agreement in accordance with said
section(s).
10.2.7 MISCELLANEOUS. The arbitrator(s) will determine which is
the prevailing party and will include in the award that party's reasonable
attorneys' fees and costs (including allocated costs of in-house legal counsel).
Each party agrees to keep all controversies and claims and the
21
<PAGE>
arbitration proceedings strictly confidential, except for disclosures of
information required in the ordinary course of business of the parties or by
applicable law or regulation.
10.3 CUMULATIVE RIGHTS AND NO WAIVER. All rights and remedies granted to
CNB under the Loan Documents are cumulative and no one such right or remedy is
exclusive of any other. No failure or delay on the part of CNB in exercising any
right or remedy will operate as a waiver thereof, and no single or partial
exercise or waiver by CNB of any such right or remedy will preclude any further
exercise thereof or the exercise of any other right or remedy.
10.4 APPLICABLE LAW. This Agreement will be governed by California law.
10.5 LIEN AND RIGHT OF SET-OFF. Borrower grants to CNB a continuing lien
for all Obligations of Borrower to CNB upon any and all moneys, securities and
other property of Borrower and the proceeds thereof, now or hereafter held or
received by or in transit to CNB from or for Borrower, whether for safekeeping,
custody, pledge, transmission, collection or otherwise, and also upon any and
all deposits (general or special) and credits of Borrower with, and any and all
claims of Borrower against, CNB at any time existing. Upon the occurrence of
any Event of Default, CNB is hereby authorized at any time and from time to
time, without notice to Borrower or any other Person to setoff, appropriate and
apply any or all items hereinabove referred to against all Obligations of
Borrower whether under this Agreement or otherwise, and whether now existing or
hereafter arising.
10.6 NOTICES. Any notice required or permitted under any Loan Document
will be given in writing and will be deemed to have been given when personally
delivered or when sent by the U.S. mail, postage prepaid, certified, return
receipt requested, properly addressed. For the purposes hereof, the addresses
of the parties will, until further notice given as herein provided, be as
follows:
CNB: City National Bank
13191 Crossroads Parkway North
City of Industry, California 91746
Attention: Account Manager
with copy to: City National Bank, Legal Department
400 North Roxbury Drive, Fifth Floor
Beverly Hills, California 90210-5021
Attention: Managing Counsel, Credit Unit
Borrower: Signature Eyewear, Inc.
498 North Oak Street
Inglewood, California 90302
Attention: Julie Heldman, President
10.7 ASSIGNMENTS. The provisions of this Agreement are hereby made
applicable to and will inure to the benefit of CNB's successors and assigns and
Borrower's successors and assigns; provided, however, that Borrower may not
assign or transfer its rights or obligations under this Agreement without the
prior written consent of CNB.
10.8 INDEMNIFICATION. Borrower will, at all times, defend and indemnify
and hold CNB harmless from and against any and all Claims (as that term is
defined in Section 5.13.4) arising out of or resulting from (a) any breach of
the representations, warranties, agreements or covenants made by Borrower
herein; (b) any suit or proceeding of any kind or nature whatsoever against CNB
arising from or connected with the transactions contemplated by this Agreement,
22
<PAGE>
the Loan Documents or any of the rights and properties assigned to CNB
hereunder; and/or (c) any suit or proceeding that CNB may deem necessary or
advisable to institute, in the name of CNB, Borrower or both, against any other
Person, for any reason whatsoever to protect the rights of CNB hereunder or
under any of the documents, instruments or agreements executed or to be executed
pursuant hereto, including attorneys' fees and court costs and all other costs
and expenses incurred by CNB (or allocable to CNB's in-house counsel), all of
which will be charged to and paid by Borrower and will be secured by the
Collateral. Any obligation or liability of Borrower to CNB under this Section
will survive the Termination Date and the repayment of all Loans and other
extensions of credit and the payment or performance of all other Obligations of
Borrower to CNB.
10.9 COMPLETE AGREEMENT. This Agreement, together with other Loan
Documents, constitutes the entire agreement of the parties and supersedes any
prior or contemporaneous oral or written agreements or understandings, if any,
which are merged into this Agreement. This Agreement may be amended only in a
writing signed by Borrower and CNB.
10.10 HEADINGS. Section headings in this Agreement are included for
convenience of reference only and do not constitute a part of the Agreement for
any purpose.
10.11 ACCOUNTING TERMS. Except as otherwise stated in this Agreement,
all accounting terms and financial covenants and information will be construed
in conformity with, and all financial data required to be submitted will be
prepared in conformity with, GAAP as in effect on the date hereof.
10.12 SEVERABILITY. Any provision of the Loan Documents which is
prohibited or unenforceable in any jurisdiction, will be, only as to such
jurisdiction, ineffective to the extent of such prohibition or unenforceability,
but all the remaining provisions of the Loan Documents will remain valid.
10.13 COUNTERPARTS. This Agreement may be signed in any number of
counterparts which, when taken together, will constitute but one agreement.
10.14 JOINT AND SEVERAL. Should more than one Person sign this
Agreement, the obligations of each signer will be joint and several.
IN WITNESS WHEREOF, CNB and Borrower have caused this Agreement to be
executed as of the date first specified at the beginning of this Agreement.
Signature Eyewear, Inc., a
California corporation
By: /s/ Julie Heldman
----------------------------------
Julie Heldman, President
City National Bank, a national
banking association
By: /s/ Kenneth E. Barton
----------------------------------
Kenneth E. Barton, Vice President
23
<PAGE>
EXHIBIT A
NOTICE OF BORROWING
This Notice of Borrowing ("Notice") is executed and delivered by SIGNATURE
EYEWEAR, INC., a California. corporation ("Borrower"), to CITY NATIONAL BANK, a
national banking association ("CNB"), pursuant to Accounts Receivable and
Inventory Loan Agreement "(Agreement") entered into by Borrower and CNB as of
April 21, 1997 (Agreement). Terms not defined herein will have the meanings
defined in the Agreement.
1. REQUEST FOR A REVOLVING CREDIT LOAN. Borrower requests a Revolving Credit
Loan as follows:
1.1 Interest Selection- State "LIBOR" or "Prime": ____________________
1.2 Principal Amount of Loan: $______________________ [IF LIBOR LOAN,
MINIMUM OF $500,000]
1.3 LIBOR Loan- Effective Date of Interest Period:_____________________,
19___
1.4 LIBOR Loan - Interest Period: __________ one (1), two (2), three (3),
or six (6) month(s) [up to 180 days only]
2. CONVERSION TO LIBOR LOAN. Borrower requests conversion of the outstanding
Prime Loan to a LIBOR Loan.
2.1 Effective Date of Conversion:_____________________, 19__
2.2 Principal Amount of Conversion: $________________ [MINIMUM OF
$500,000]
2.3 Interest Period:________ one (1), two (2), three (3), or six (6)
month(s) [up to 180 days only]
3. RENEWAL OF LIBOR LOAN. Borrower requests renewing an outstanding LIBOR
Loan as follows:
3.1 Principal Amount of Renewal of LIBOR Loan: $_______________ [MINIMUM
OF $500,000] (Amount of LIBOR Loan not renewed as a LIBOR Loan will be
a Prime Loan)
3.2 Date of Renewal:___________________,19___ [LAST DATE OF CURRENT
INTEREST PERIOD]
3.3 Interest Period:______________ 1 (one), two (2), three (3), or six (6)
month(s) [up to 180 days only]
4. CONVERSION TO PRIME LOAN. A LIBOR Loan will automatically convert to a
Prime Loan at the end of an Interest Period if CNB fails to timely receive a
Notice for an outstanding LIBOR Loan.
5. WARRANTY. In connection with the action requested herein, Borrower hereby
represents and warrants to CNB that, as of the date of such request, no Event of
Default has occurred and is continuing.
24
<PAGE>
This Notice is executed on ______________,19___ by an authorized officer of
Borrower, on behalf of Borrower.
"Borrower" Signature Eyewear, Inc., a
California corporation
By:
---------------------------------
Its:
--------------------------------
25
<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
June 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS OF SIGNATURE EYEWEAR, INC. FOR THE YEAR ENDED OCTOBER 31,
1996 AND UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED APRIL 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> OCT-31-1996 OCT-31-1997
<PERIOD-START> NOV-01-1995 NOV-01-1996
<PERIOD-END> OCT-31-1996 APR-30-1997
<CASH> 214,399 59,673
<SECURITIES> 0 0
<RECEIVABLES> 3,894,750 4,789,307
<ALLOWANCES> 45,000 65,000
<INVENTORY> 4,635,928 5,338,000
<CURRENT-ASSETS> 8,988,936 10,580,773
<PP&E> 1,720,097 2,022,042
<DEPRECIATION> 679,723 889,220
<TOTAL-ASSETS> 10,293,057 11,977,342
<CURRENT-LIABILITIES> 7,207,037 9,279,685
<BONDS> 0 0
0 0
0 0
<COMMON> 7,732 7,732
<OTHER-SE> 2,921,405 2,627,510
<TOTAL-LIABILITY-AND-EQUITY> 10,293,057 11,977,342
<SALES> 28,280,086 16,038,054
<TOTAL-REVENUES> 28,280,086 16,038,054
<CGS> 11,931,299 6,632,110
<TOTAL-COSTS> 13,940,170 7,507,897
<OTHER-EXPENSES> 396,048 191,142
<LOSS-PROVISION> 20,972 20,000
<INTEREST-EXPENSE> 338,373 188,654
<INCOME-PRETAX> 2,012,569 1,706,905
<INCOME-TAX> 800 800
<INCOME-CONTINUING> 2,011,769 1,706,105
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,011,769 1,706,105
<EPS-PRIMARY> .567 .474
<EPS-DILUTED> .567 .474
</TABLE>
<PAGE>
EXHIBIT 99.1
SIGNATURE EYEWEAR, INC.
INDEX TO SCHEDULE
Page
----
Independent Auditors' Report on Schedules ............................... S-2
Schedule II - Valuation and Qualifying Accounts at October 31, 1995
and 1996 and (Unaudited) April 30, 1997 ................................. S-3
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Board of Directors and Stockholders
Signature Eyewear, Inc.
In connection with our audit of the financial statements of SIGNATURE EYEWEAR,
INC. (an S corporation) referred to in our report dated January 15, 1997, which
is included in the Prospectus constituting Part I of this Registration
Statement, we have also audited Schedule II as of October 31, 1995 and 1996. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
ALTSCHULER, MELVOIN AND GLASSER LLP
Los Angeles, California
January 15, 1997
S-2
<PAGE>
SIGNATURE EYEWEAR, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
OCTOBER 31, 1995 AND 1996 AND UNAUDITED APRIL 30, 1997
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------
-------------------------------------------------
Balance Additions Deductions Balance
at charged to from at end
beginning costs and Allowance of year
DESCRIPTION of year expenses
- -----------
-------------------------------------------------
<S> <C> <C> <C> <C>
Year ended October 31, 1995:
Allowances deducted from related
balance sheet accounts:
Accounts receivable $ 50,980 $ -- $ 26,952 $ 24,028
========== ========== ========== =========
Year ended October 31, 1996:
Allowances deducted from related
balance sheet accounts:
Accounts receivable $ 24,028 $ 20,972 $ -- $ 45,000
========== ========== ========== =========
Period ended April 30, 1997:
Allowances deducted from related
balance sheet accounts:
Accounts receivable $ 45,000 $ 20,000 $ -- $ 65,000
========== ========== ========== =========
</TABLE>
S-3
