<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1997
REGISTRATION NO. 333-30017
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SIGNATURE EYEWEAR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 3851 95-3876317
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL I.R.S. EMPLOYER
OF INCORPORATION OR 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. [_]
---------------
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 Description of Capital Stock
Registered............................
10. Interests of Named Experts and
Counsel............................... Experts
11. Information with Respect to the
Registrant
(a) Description of Business............. Prospectus Summary; Risk Factors;
The Company; Termination of S
Corporation; Use of Proceeds;
Management's Discussion and
Analysis of Results of Operations
and Financial Condition; Business
(b) Description of Property............. Business--Properties
(c) Legal Proceedings................... Business--Legal Proceedings
(d) Market Price, Dividends and Related
Stockholder Matters................. Outside Front Cover Page of
Prospectus; Risk Factors; Dividend
Policy; Management; Description of
Capital Stock; Shares Eligible for
Future Sale
(e) Financial Statements................ Financial Statements
(f) Selected Financial Data............. Selected Financial Data; Summary
Financial And Operating Data
(g) Supplementary Financial
Information......................... *
(h) Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... Management's Discussion and Analysis
of Results of Operations and
Financial Condition
(i) Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosures............... *
(j) Directors and Executive Officers.... Management
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
-------------------------------- ---------------------------------
<S> <C>
(k) Executive Compensation................. Management
(l) Security Ownership of Certain
Beneficial Owners and Management....... Principal and Selling Shareholders
(m) Certain Relationships and Related
Transactions........................... Certain Relationships and Related
Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
</TABLE>
- --------
* Omitted because the item is negative or inapplicable
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 31, 1997
1,800,000 SHARES
[LOGO OF SIGNATURE EYEWEAR, INC.]
COMMON STOCK
Of the 1,800,000 shares of Common Stock of Signature Eyewear, Inc.
("Signature" or the "Company") offered hereby (the "Offering"), 1,600,000
shares are being sold by the Company and 200,000 shares are being sold by
certain shareholders of the Company (the "Selling Shareholders"). See
"Principal and Selling Shareholders." The Company will not receive any proceeds
from the sale of shares by the Selling Shareholders. Prior to the Offering,
there has been no public market for the Common Stock. It is currently estimated
that the initial public offering price of the Common Stock will be between
$9.00 and $11.00 per share. For information relating to the factors considered
in determining the initial offering price to the public, see "Underwriting."
The Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol "SEYE."
SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK OFFERED BY THIS
PROSPECTUS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
- --------------------------------------------------------------------------------
Total (3).............. $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Does not include compensation to Fechtor, Detwiler & Co., Inc. and Van
Kasper & Company (the "Representatives") in the form of (i) an obligation
to reimburse the Representatives for expenses of up to $135,000; and (ii)
warrants to purchase up to 180,000 shares of Common Stock. The Company and
the Selling Shareholders have also agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $520,000.
(3) The Company and the Selling Shareholders have granted to the Underwriters a
30-day option to purchase up to an aggregate of 67,500 additional shares
from the Company and 202,500 additional shares from the Selling
Shareholders on the same terms and conditions set forth above solely to
cover over-allotments of shares, if any (the "Over-Allotment Option"). See
"Underwriting." If the Over-Allotment Option is exercised in full, the
total Price to Public will be $ , Underwriting Discounts and Commissions
will be $ , Proceeds to the Company will be $ , and Proceeds to the
Selling Shareholders will be $ .
-----------
The shares of Common Stock are offered by the several Underwriters named
herein on a "firm commitment" basis, subject to prior sale, when, as and if
issued by the Company, delivered to and accepted by the Underwriters and
subject to the right of the Underwriters to reject any order in whole or in
part and to certain other conditions. It is expected that delivery of the
certificates representing the Common Stock will be made against payment
therefor at the offices of Fechtor, Detwiler & Co., Inc., 225 Franklin Street,
Boston, MA 02110 on or about , 1997.
-----------
FECHTOR, DETWILER & CO., INC. VAN KASPER & COMPANY
THE DATE OF THIS PROSPECTUS IS 1997.
<PAGE>
[PICTURES]
INSIDE FRONT COVER:
Reversing out of solid back is the copy line in all caps "The Signature Brand
Names of Signature Eyewear".
INSIDE FRONT COVER TWO PAGE COLOR FOLD OUT:
Laura Ashley Eyewear lifestyle photograph depicting a woman wearing Laura
Ashley Eyewear, sitting up in her bed, reading the newspaper. The Laura Ashley
Eyewear logo is placed at the bottom of the image with the brand's trade
theme-line "The Premier Feminine Collection" resting just below the logo. At
the bottom of the page are the lines "Made by Signature Eyewear under license
from Laura Ashley" and "Laura Ashley Eyewear net sales were 73% of the
Company's net sales in the six months ended April 30, 1997."
Eddie Bauer Eyewear lifestyle photograph depicting a couple wearing Eddie
Bauer Eyewear. The Eddie Bauer Eyewear logo is at the bottom of the image. At
the bottom of the page are the lines "Sold by Signature Eyewear under license
from Eddie Bauer" and "Launch planned for the Spring of 1998. To date the
Company has had no revenues from Eddie Bauer Eyewear."
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company or any Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any of the securities offered hereby in any jurisdiction in which such
offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein is correct as of any time
subsequent to the date hereof or that there has been no change in the affairs
of the Company since that date.
Until , 1997 (25 days after commencement of the Offering) all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
The Company.............................................................. 14
Termination of S Corporation Status...................................... 14
Capitalization........................................................... 15
Use of Proceeds.......................................................... 15
Dilution................................................................. 16
Dividend Policy.......................................................... 16
Selected Financial Data.................................................. 17
Management's Discussion and Analysis of Results of Operations and
Financial Condition .................................................... 18
Business................................................................. 23
Management............................................................... 34
Certain Relationships and Related Transactions........................... 39
Principal and Selling Shareholders....................................... 40
Description of Capital Stock............................................. 41
Shares Eligible For Future Sale.......................................... 42
Underwriting............................................................. 43
Legal Matters............................................................ 44
Experts.................................................................. 44
Additional Information................................................... 44
Index to Financial Statements............................................ F-1
</TABLE>
----------------
"Laura Ashley" is a registered trademark of Laura Ashley Manufacturing B.V.
and Laura Ashley Limited (collectively, "Laura Ashley"), "Hart Schaffner &
Marx" is a registered trademark of Hart Schaffner & Marx ("Hart Schaffner &
Marx"), "Jean Nate" is a registered trademark of Revlon Consumer Products
Corporation ("Revlon"), and "Eddie Bauer" is a registered trademark of Eddie
Bauer, Inc. ("Eddie Bauer").
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," "Business" and the Financial Statements
and notes thereto, appearing elsewhere in this Prospectus. The statements which
are not historical facts contained in this Prospectus are forward-looking
statements that involve risks and uncertainties, including those described
under "Risk Factors." Prospective purchasers of the securities offered by this
Prospectus should carefully consider the "Risk Factors" section, as well as the
other information and data included in this Prospectus, before making an
investment in the securities offered hereby.
THE COMPANY
Signature designs, markets and distributes prescription eyeglass frames
primarily under exclusive licenses for Laura Ashley Eyewear, Hart Schaffner &
Marx Eyewear and Jean Nate Eyewear, as well as its own Camelot label. The Laura
Ashley Eyewear collection is one of the leading women's brand-name collections
in the United States. The Company attributes its success to its brand-name
development process and frame designs. The Company's brand-name development
process includes identifying a market niche, obtaining the rights to a
carefully selected brand name, producing a comprehensive marketing plan,
developing unique in-store displays, and creating innovative sales and
merchandising programs for independent optical retailers and retail chains.
Signature's in-house designers work with many respected frame manufacturers
throughout the world to develop high-quality, creative designs which are
consistent with each brand-name image.
In June 1997, Signature acquired the exclusive license to design and market
an Eddie Bauer Eyewear collection, which the Company plans to launch in the
Spring of 1998. The Company pursued the Eddie Bauer brand name, which had not
previously been licensed for prescription eyewear, for its widespread
recognition, outdoor heritage, casual styling and reputation for value and
quality. The Eddie Bauer Eyewear collection will offer men's and women's styles
and will be positioned in the medium-price segment of the brand-name
prescription eyewear market.
In 1996, domestic retail sales of all eyewear products were $14.6 billion,
and domestic retail sales of eyeglasses were $4.6 billion. Just over 60% of the
nation's entire population, and more than 90% of people over the age of 45,
needed corrective eyewear in 1996. The average age of the United States
population is expected to increase over the next 25 years due to the aging of
the "baby-boomers" who were born between 1946 and 1964. As more of the baby-
boomers exceed age 45, the Company believes sales of corrective eyewear should
increase.
Signature produces "turnkey" marketing, merchandising and sales promotion
programs to promote sales at each level in the distribution chain. For optical
retailers, the Company develops unique in-store displays, such as its Laura
Ashley Eyewear "store within a store" environments. For the sales
representatives who call on retail accounts, whether they are employed by
distributors or by Signature, the Company creates presentation materials,
marketing bulletins, motivational audio and video tapes and other sales tools
to facilitate professional presentations, and the Company offers attractive
incentive awards for reaching targeted sales levels. For its distributors who
sell to independent optical retailers, Signature provides its innovative
loyalty programs.
Under the loyalty programs, which generally last from six to ten months, each
participating retailer agrees to purchase a specified quantity of frames of new
styles released during the program period. Although a participating retailer
may cancel at any time, historically most have completed the program and
renewed their participation in ensuing years. These "automatic" sales programs
have facilitated the widespread placement of new styles in optical retail
stores, have increased the Company's leverage with its manufacturers due to the
large size of the Company's orders, and have assisted its inventory planning.
The Company's largest loyalty program is its Laura Ashley Loyal Partners
program, which at April 30, 1997 had over 4,750 participating retailers in the
United States (approximately 16% of all independent optical retailers in the
United States) as well as over 800 international participants.
4
<PAGE>
The Company contracts with overseas factories to manufacture the frames it
designs. Signature distributes its frames through distributors in the United
States and through exclusive distributors in foreign countries. In addition,
the Company sells directly through its own sales representatives to major
retail chains, including LensCrafters, Pearle Vision and Eyecare Centers of
America, and to independent optical retailers in California.
The Company's principal product line is Laura Ashley Eyewear, which was
launched in 1992. Signature designs frames and in-store displays which seek to
capture the distinctive, feminine image associated with Laura Ashley clothing
and home furnishings. Laura Ashley Eyewear styles are feminine and classic, and
are positioned in the medium to mid-high price range to reach a broad segment
of the women's eyewear market. The Company's net sales of Laura Ashley Eyewear
have increased from $2.2 million in fiscal 1992 to $21.1 million in fiscal
1996.
Capitalizing on Signature's customer relationships and the success of Laura
Ashley Eyewear, the Company launched Jean Nate Eyewear in March 1996 and Hart
Schaffner & Marx Eyewear in September 1996. Jean Nate Eyewear is targeted at
women seeking to pay an affordable price for high-quality frames which offer
unique designs, attention to detail and brand-name identification. Hart
Schaffner & Marx Eyewear is a mid-high priced line targeted at men desiring
quality, comfort and craftsmanship.
The Company's growth strategy includes: (i) continuing to increase the market
penetration of its existing lines of brand-name prescription eyewear; (ii)
launching Eddie Bauer Eyewear in the Spring of 1998; (iii) acquiring additional
exclusive brand-name licenses to market prescription eyeglass frames; (iv)
developing new product lines, which may include expanding the marketing of its
own Camelot collection; (v) expanding market penetration of its existing Laura
Ashley Sunwear line and acquiring additional exclusive brand-name licenses for
sunglass frames; and (vi) continuing to expand its international sales efforts.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 1,600,000 shares
Common Stock offered by the Selling 200,000 shares
Shareholders................................
Common Stock outstanding after the Offering.. 5,200,527 shares (1)
Use of proceeds from sale of Common Stock by To retire existing bank debt; to
the Company................................. launch Eddie Bauer Eyewear; and
for working capital and general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol................ SEYE
</TABLE>
- --------
(1) Excludes 600,000 shares of Common Stock available for issuance pursuant to
the Company's Stock Plan. See "Management--Stock Plan."
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Over-Allotment Option or the warrants (the "Representatives'
Warrants") granted to the Representatives to purchase up to 180,000 shares of
Common Stock at 120% of the initial public offering price, no grant of awards
under the Company's 1997 Stock Plan (the "Stock Plan"), the adjustment in 1997
of the outstanding shares of Common Stock to give effect to a 3.175-for-1 stock
split (the "Stock Split"), and the change of the status of the Company from an
S corporation to a C corporation for income tax purposes. See "Underwriting,"
"Management--Stock Plan" and "Termination of S Corporation Status."
5
<PAGE>
SUMMARY FINANCIAL DATA
Set forth below are summary data from the Company's statements of income and
balance sheets. The following data should be read in conjunction with the
Financial Statements and related notes and with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
----------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- ------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............... $9,185 $13,858 $20,051 $23,571 $28,280 $13,052 $16,038
Gross profit............ 3,383 6,929 10,385 12,582 16,349 7,427 9,406
Total operating
expenses............... 3,443 6,562 9,079 10,780 14,027(1) 6,033 7,508
Income (loss) from
operations............. (60) 367 1,306 1,802 2,322 1,394 1,898
Net income (loss)....... (131) 137 1,107 1,635 2,012 1,233 1,706
Pro forma net income
(2).................... 690 1,030 1,265 761 1,030
Pro forma net income per
share (2).............. 0.36 0.22 0.29
Pro forma common shares
outstanding............ 3,546,519 3,492,511 3,600,527
</TABLE>
<TABLE>
<CAPTION>
AT OCTOBER 31, AT APRIL 30, 1997
---------------------------------- ----------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(3)
------ ------ ------ ------ ------ ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets....... $3,261 $4,726 $4,676 $6,462 $8,989 $10,581 $19,137
Total assets......... 3,959 5,247 5,211 7,260 10,293 11,977 20,533
Current liabilities.. 3,151 3,792 3,490 4,602 7,207 9,280 4,105
Total liabilities.... 3,635 4,686 4,350 5,314 7,364 9,342 4,113
Stockholders'
equity.............. 324 561 861 1,946 2,929 2,635 16,360
</TABLE>
- --------
(1) Includes $300,000 in compensation expense recognized by the Company in
connection with the issuance of 108,016 shares of Common Stock to an
executive officer.
(2) The pro forma presentation reflects a provision for income taxes as if the
Company had always been a C corporation.
(3) As adjusted to reflect (i) the conversion of the Company from an S
corporation to a C corporation, (ii) the sale of 1,600,000 shares of Common
Stock offered by the Company by this Prospectus at an assumed initial
public offering price of $10.00 per share and the application of the net
proceeds from the sale and (iii) payment of a $635,000 dividend before the
closing of the Offering (the Company intends to pay additional dividends
before the closing of the Offering in an amount equal to the net income of
the Company from May 1, 1997 through the closing of the Offering). See
"Termination of S Corporation Status."
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following risk factors before
purchasing shares of Common Stock offered by this Prospectus.
SUBSTANTIAL DEPENDENCE UPON LAURA ASHLEY LICENSE
Net sales of Laura Ashley Eyewear accounted for 77.8%, 74.6% and 73.4% of
the Company's net sales in fiscal 1995, fiscal 1996 and for the six months
ended April 30, 1997, respectively. The Company manufactures Laura Ashley
Eyewear through an exclusive license with Laura Ashley entered into in 1991.
The Laura Ashley license terminates in 2001, but may be renewed by the Company
at least through January 2006 so long as the Company is not in breach of the
license agreement and meets certain minimum net sales requirements. Laura
Ashley may terminate the license before its term expires if (i) the Company
commits a material breach of the license agreement and fails to cure that
breach within 30 days after notice is given, (ii) the management or control of
the Company passes from Bernard Weiss and Julie Heldman to other parties whom
Laura Ashley may reasonably regard as unsuitable, (iii) the Company fails to
propose a selection of styles of eyewear which Laura Ashley in exercising good
faith is willing to approve for manufacture and distribution, (iv) the Company
fails to have net sales of Laura Ashley Eyewear sufficient to generate minimum
royalties in each of any two years, (v) the Company is unable to pay its debts
in the ordinary course of business or enters into liquidation, becomes
bankrupt or insolvent, or is placed in the control of a receiver or trustee,
or (vi) the Company in any year fails to spend a specified percentage of net
sales of Laura Ashley Eyewear on advertising and promotion. The termination of
the Laura Ashley Eyewear license would have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Products--Laura Ashley Eyewear."
APPROVAL REQUIREMENTS OF BRAND-NAME LICENSORS
The Company's business is predominantly based on its brand-name licensing
relationships. In addition to its licensing relationship with Laura Ashley,
the Company licenses the right to use proprietary marks from Hart Schaffner &
Marx, Revlon for its Jean Nate brand name, and Eddie Bauer. See "Business--
Products." Each of the Laura Ashley, Hart Schaffner & Marx, Jean Nate and
Eddie Bauer licenses requires mutual agreement of the parties for significant
matters. Each of these licensors has final approval over all eyeglass frames
and other products bearing the licensor's proprietary marks, and the frames
must meet the licensor's general design specifications and quality standards.
Consequently, each licensor may, in the exercise of its approval rights, delay
the distribution of eyeglass frames bearing its proprietary marks. The Company
expects that each future license it obtains will contain similar approval
provisions. Accordingly, there can be no assurance that the Company will be
able to continue to maintain good relationships with each licensor, or that
the Company will not be subject to delays resulting from disagreements with,
or an inability to obtain approvals from, its licensors. These delays could
materially and adversely affect the Company's business, operating results and
financial condition.
LIMITATIONS ON ABILITY TO DISTRIBUTE OTHER BRAND-NAME EYEGLASS FRAMES
Each of the Company's licenses limits the Company's right to market and sell
products with competing brand names. The Laura Ashley license prohibits the
Company from selling any range of designer eyewear that is similar to Laura
Ashley Eyewear in price and any of style, market position and market segment.
The Hart Schaffner & Marx license prohibits the Company from marketing and
selling another men's brand of eyeglass frames under a well-known fashion name
with a wholesale price in excess of $40. The Jean Nate license prohibits the
Company from manufacturing and selling eyeglass frames under any brand name
primarily known as a cosmetic, toiletry, fragrance or haircare trademark or
brand name. The Eddie Bauer license prohibits the Company from entering into
license agreements with companies which Eddie Bauer believes are its direct
competitors. The Company expects that each future license it obtains will
contain some limitations on competition within market segments. The Company's
growth, therefore, will be limited to capitalizing on its existing licenses in
the prescription eyeglass market, introducing eyeglass frames in other
segments of the prescription eyeglass market, and manufacturing and
distributing products other than prescription eyeglass frames such as
sunglasses. In addition, there can be no assurance that disagreements will not
arise between the Company and its licensors regarding whether certain brand-
name lines would be prohibited by their respective
7
<PAGE>
license agreements. Disagreements with licensors may adversely affect sales of
the Company's existing eyeglass frames or prevent the Company from introducing
new eyewear products in market segments the Company believes are not being
served by its existing products.
DEPENDENCE UPON CONTRACT MANUFACTURERS; FOREIGN TRADE REGULATION
The Company's frames are manufactured to its specifications by a number of
contract manufacturers located outside the United States, principally in
Japan, Hong Kong/China, France and Italy. The manufacture of high quality
metal frames is a labor-intensive process which can require over 200
production steps (including a large number of quality-control procedures) and
from 90 to 180 days of production time. These long lead times increase the
risk of overstocking, if the Company overestimates the demand for a new style,
or understocking, which can result in lost sales if the Company underestimates
demand for a new style. While a number of contract manufacturers exist
throughout the world, there can be no assurance that an interruption in the
manufacture of the Company's eyeglass frames will not occur. An interruption
occurring at one manufacturing site that requires the Company to change to a
different manufacturer could cause significant delays in the distribution of
the styles affected. This could cause the Company to miss delivery schedules
for these styles, which could materially and adversely affect the Company's
business, operating results and financial condition. See "Business--
Manufacturing."
In addition, the purchase of goods manufactured in foreign countries is
subject to a number of risks, including foreign exchange rate fluctuations,
economic disruptions, transportation delays and interruptions, increases in
tariffs and duties, changes in import and export controls and other changes in
governmental policies. For frames purchased other than from Hong Kong/China
manufacturers, the Company pays for its frames in the currency of the country
in which the manufacturer is located and thus the costs (in United States
dollars) of the frames vary based upon currency fluctuations. Increases and
decreases in costs (in United States dollars) resulting from currency
fluctuations generally do not affect the price at which the Company sells its
frames, and thus currency fluctuations can impact the Company's gross margin
and results of operations.
In fiscal 1996, approximately 40% of the Company's eyeglass frames were
manufactured by companies headquartered in Hong Kong that have manufacturing
facilities in China. Effective July 1, 1997, the exercise of sovereignty over
the British Crown Colony of Hong Kong was transferred from the United Kingdom
to China pursuant to a treaty between the two countries, and Hong Kong became
a part of China. Any political or economic disruptions in Hong Kong or China
may force the Company to manufacture its eyeglass frames in other countries
which could increase frame costs. The Company is uncertain as to the impact
that the change in government will have on its business operations in Hong
Kong. Further, China currently enjoys Most Favored Nation trading status with
the United States. Under the Trade Act of 1974, the President of the United
States is authorized, upon making specific findings, to waive certain
restrictions that would render China ineligible for Most Favored Nation
treatment. The President has waived these provisions every year since 1979.
China's Most Favored Nation status presently extends until July 1998. No
assurance can be given that China will continue to enjoy Most Favored Nation
status in the future. Any legislation or administrative action by the United
States government that revokes or places further conditions on China's Most
Favored Nation status, or otherwise limits imports of Chinese eyeglass frames
into the United States, could, if enacted, have a material adverse effect on
the Company's business, operating results and financial condition.
MANAGEMENT'S DISCRETION AS TO USE OF PROCEEDS
The Company's management will have broad discretion as to the application of
the net proceeds to the Company from the sale of Common Stock offered by the
Company by this Prospectus. The net proceeds to the Company are estimated to
be approximately $14.4 million. The Company expects to use approximately $7.5
million of the net proceeds to repay all bank debt existing at the closing of
the Offering, approximately $2.5 million to launch the Eddie Bauer Eyewear
line, and the balance for working capital and general corporate purposes. The
Company may change the allocation of these proceeds in response to
developments in the manufacturing and retail industries and changes in the
Company. See "Use of Proceeds."
8
<PAGE>
SUCCESSFUL LAUNCH OF EDDIE BAUER EYEWEAR
The Company intends to use approximately $2.5 million of the net proceeds
from the Offering to develop and introduce the Company's Eddie Bauer Eyewear
line. It is expected that certain members of the Company's management and of
its design and marketing teams will devote considerable time towards
introducing this new line. There can be no assurance that the Company will be
able to introduce Eddie Bauer Eyewear at the budgeted price or through the
Company's existing distribution channels, or that the introduction of Eddie
Bauer Eyewear will occur when planned. Furthermore, once Eddie Bauer Eyewear
is released, there can be no assurance of its acceptance by the market.
RELATIONSHIPS WITH DOMESTIC DISTRIBUTORS
The Company distributes its eyeglass frames to independent optical retailers
in the United States (other than California) largely through distributors who
sell competing lines of eyeglass frames. Although the Company believes that
its distributors currently devote a great deal of time and resources to
promoting the Company's products, there can be no assurance that these
distributors will continue to do so. The Company does not have written
agreements with its domestic distributors except for written understandings
not to resell or divert Laura Ashley Eyewear through unauthorized channels of
distribution, and not to expand the territories in which they sell the
Company's products without the Company's prior consent. Accordingly, the
Company's domestic distributors may spend an increased amount of effort and
resources marketing competing products, and may terminate their relationships
with the Company at any time without penalty. There can be no assurance that
the informal nature of the Company's relationships with its domestic
distributors will not lead to disagreements between the Company and its
distributors or between the distributors themselves, which could have a
material adverse impact on the Company's business, operating results and
financial condition. See "Business--Distribution."
INTERNATIONAL SALES
International sales accounted for approximately 9.0%, 8.8% and 9.5% of the
Company's net sales in fiscal 1995, fiscal 1996, and the six months ended
April 30, 1997, respectively. These sales were primarily in England, Canada,
Australia, New Zealand, France and the Netherlands. The Company's
international business is subject to numerous risks, including the need to
comply with export and import laws, changes in export or import controls,
tariffs and other regulatory requirements, the imposition of governmental
controls, political and economic instability, trade restrictions, the greater
difficulty of administering business overseas and general economic conditions.
Although the Company's international sales are principally in United States
dollars, sales to international customers may also be affected by changes in
demand resulting from fluctuations in interest and currency exchange rates.
There can be no assurance that these factors will not have a material adverse
effect on the Company's business, operating results and financial condition.
QUARTERLY AND SEASONAL FLUCTUATIONS
The Company's results of operations have fluctuated from quarter to quarter
and the Company expects these fluctuations to continue in the future.
Historically, the Company's net sales in the quarter ending January 31 (its
first quarter) have been lower than net sales in other fiscal quarters. The
Company attributes lower net sales in the first fiscal quarter in part to low
consumer demand for prescription eyeglasses during the holiday season and
year-end inventory adjustments by distributors and independent optical
retailers. A factor which may significantly influence results of operations in
a particular quarter is the introduction of a brand-name collection, which
results in disproportionate levels of selling expenses due to additional
advertising, promotions, catalogs and in-store displays. Introduction of a new
brand may also generate a temporary increase in sales due to initial stocking
by retailers. Other factors which can influence the Company's results of
operations include customer demand, the mix of distribution channels through
which the eyeglass frames are sold, the mix of eyeglass frames sold, product
returns, delays in shipment and general economic conditions. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Quarterly and Seasonal Fluctuations."
9
<PAGE>
PRODUCT RETURNS
The Company has a product return policy which it believes is standard in the
optical industry. Under that policy, the Company generally accepts returns of
non-discontinued product for credit, upon presentment and without charge.
According to the 1996 U.S. Optical Industry Handbook, the existence of this
policy in the optical business has led to some companies having return rates
as high as 20%. While the Company's product returns for fiscal 1995 and fiscal
1996 amounted to 11.6% and 12.1% of gross sales (sales before returns),
respectively, and while the Company maintains reserves for product returns
which it considers adequate, the possibility exists that the Company could
experience returns at a rate significantly exceeding its historical levels,
which could have a material adverse impact on the Company's business,
operating results and financial condition.
AVAILABILITY OF VISION CORRECTION ALTERNATIVES
The Company's future success could depend to a significant extent on the
availability and acceptance by the market of vision correction alternatives to
prescription eyeglasses, such as contact lenses and refractive (optical)
surgery. While the Company does not believe that contact lenses, refractive
surgery or other vision correction alternatives materially and adversely
impact its business at present, there can be no assurance that technological
advances in, or reductions in the cost of, vision correction alternatives will
not occur in the future, resulting in their more widespread use. Increased use
of vision correction alternatives could result in decreased use of the
Company's eyewear products, which would have a material adverse impact on the
Company's business, operating results and financial condition.
ACCEPTANCE OF EYEGLASS FRAMES; UNPREDICTABILITY OF DISCRETIONARY CONSUMER
SPENDING
The Company's success will depend to a significant extent on the market's
acceptance of the Company's brand-name eyeglass frames. If the Company is
unable to develop new, commercially successful styles to replace revenues from
older styles in the later stages of their life cycles, the Company's business,
operating results and financial condition could be materially and adversely
affected. The Company's future growth will depend in part upon the
effectiveness of the Company's marketing and sales efforts as well as the
availability and acceptance of other competing eyeglass frames released into
the market place at or near the same time, the availability of vision
correction alternatives, general economic conditions and other tangible and
intangible factors, all of which can change and cannot be predicted.
The Company's success also will depend to a significant extent upon a number
of factors relating to discretionary consumer spending, including the trend in
managed health care to allocate fewer dollars to the purchase of eyeglass
frames, and general economic conditions affecting disposable consumer income,
such as employment business conditions, interest rates and taxation. Any
significant adverse change in general economic conditions or uncertainties
regarding future economic prospects that adversely affect discretionary
consumer spending generally, and purchasers of prescription eyeglass frames
specifically, could have a material adverse effect on the Company's business,
operating results and financial condition.
COMPETITION
The markets for prescription eyewear are intensely competitive. There are
thousands of styles, including hundreds with brand names. At retail, the
Company's eyewear styles compete with styles that do and do not have brand
names, styles in the same price range, and styles with similar design
concepts. To obtain board space at an optical retailer, the Company competes
against many companies, both foreign and domestic, including Luxottica Group
S.p.A. (operating in the United States through a number of its subsidiaries),
Safilo Group S.p.A. (operating in the United States through a number of its
subsidiaries) and Marchon Eyewear, Inc. Signature's largest competitors have
significantly greater financial, technical, sales, manufacturing and other
resources than the Company. They also employ direct sales forces that are
significantly larger than the Company's, and are thus able to realize a higher
gross profit margin. At the distributor level, sales representatives often
carry many lines of eyewear, and the Company must vie for their attention. At
the major retail chains, the Company competes not only against other eyewear
suppliers, but also against the chains themselves, which license some of their
own
10
<PAGE>
brand names for design, manufacture and sale in their own stores. Luxottica,
one of the largest eyewear companies in the world, is vertically integrated in
that it manufactures frames, distributes them through direct sales forces in
the United States and throughout the world, and owns LensCrafters, one of the
largest United States retail optical chains.
The Company competes in its target markets through the quality of the brand
names it licenses, its marketing, merchandising and sales promotion programs,
the popularity of its frame designs, the reputation of its styles for quality,
and its pricing policies. There can be no assurance that the Company will be
able to compete successfully against current or future competitors or that
competitive pressures faced by the Company will not materially and adversely
affect its business, operating results and financial condition. See
"Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's success has and will continue to depend to a significant
extent upon its executive officers, including Bernard Weiss (Chief Executive
Officer), Julie Heldman (President), Michael Prince (Chief Financial Officer),
Robert Fried (Senior Vice President of Marketing) and Robert Zeichick (Vice
President of Advertising and Sales Promotion). The loss of the services of one
or more of these key employees could have a material adverse effect on the
Company. The Company has entered into employment agreements with each of Ms.
Heldman and Messrs. Weiss, Prince, Fried and Zeichick, all effective as of the
closing of the Offering, pursuant to which they have agreed to render services
to the Company until October 31, 2000. See "Management--Employment
Agreements." The Company maintains and is the sole beneficiary of "key person"
life insurance on Ms. Heldman and Messrs. Weiss, Prince, Fried and Zeichick in
the amount of $1,500,000 each. In the event of the death of an executive
officer, a portion of the proceeds of the applicable policy would be used to
pay the Company's obligation under the officer's employment agreement (see
"Management--Employment Agreements with Executive Officers"). There can be no
assurance that the remaining proceeds of these policies will be sufficient to
offset the loss to the Company due to the death of that executive officer. In
addition, the Company's future success will depend in large part upon its
ability to attract, retain and motivate personnel with a variety of creative,
technical and managerial skills. There can be no assurance that the Company
will be able to retain and motivate its personnel or attract additional
qualified members to its management staff. The inability to attract and retain
the necessary managerial personnel could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Management."
MANAGEMENT OF GROWTH
The Company has grown rapidly in recent years, with net sales increasing
from $9.2 million in fiscal 1992 to $28.3 million in fiscal 1996, and the
number of employees increasing from 41 at November 1, 1992 to 101 at April 30,
1997. The Company's growth has placed substantial burdens on its management
resources, and as a result of its growth, the Company has made additions to
its management team. Additionally, the Company plans to expand its operations
by introducing Eddie Bauer Eyewear in the Spring of 1998. The Company's
ability to manage its growth effectively will require it to continue to
improve its operational, financial and management information systems and
controls and to train, motivate and manage a larger number of employees. There
can be no assurance that the Company will be able to sustain its historic rate
of revenue growth, continue its profitable operations or manage future growth
successfully. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS
Immediately following the Offering, the directors and executive officers of
the Company will own approximately 59.0% of the Company's outstanding shares
(approximately 54.8% assuming the full exercise of the Over-Allotment Option).
As a result, the directors and executive officers will be able to control the
Company and its operations, including the approval of significant corporate
transactions and the election of at least a majority of the Company's Board of
Directors and thus the policies of the Company. The voting power of the
11
<PAGE>
directors and executive officers could also serve to discourage potential
acquirors from seeking to acquire control of the Company through the purchase
of the Common Stock, which might depress the price of the Common Stock. See
"Management," "Principal and Selling Shareholders" and "Description of Capital
Stock."
NO DIVIDENDS ANTICIPATED
After the consummation of the Offering, the Company does not currently
intend to declare or pay any cash dividends and intends to retain earnings, if
any, for the future operation and expansion of the Company's business. See
"Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
The proposed initial public offering price is substantially higher than the
book value per outstanding share of Common Stock. Specifically, investors will
sustain immediate dilution of $6.85 per share based on the net tangible book
value of the Company at April 30, 1997 of $0.73 per share. Investors in the
Offering therefore will bear a disproportionate part of the financial risk
associated with the Company's business while effective control will remain
with the Company's directors and executive officers. See "Dilution" and
"Principal and Selling Shareholders."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; ARBITRARY
DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for quotation on the Nasdaq
National Market, there can be no assurance that an active trading market for
the Common Stock will develop as a result of the Offering or, if a trading
market does develop, that it will continue. In the absence of such a market,
investors may be unable readily to liquidate their investment in the Common
Stock. The trading price of the Common Stock could be subject to wide
fluctuations in response to quarter to quarter variations in operating
results, news announcements relating to the Company's business (including new
product introductions by the Company or its competitors), changes in financial
estimates by securities analysts, the operating and stock price performance of
other companies that investors may deem comparable to the Company as well as
other developments affecting the Company or its competitors. In addition, the
market for equity securities in general has been volatile and the trading
price of the Common Stock could be subject to wide fluctuations in response to
general market trends, changes in general conditions in the economy, the
financial markets or the manufacturing or retail industries and other factors
which may be unrelated to the Company's performance. The public offering price
of the shares of Common Stock has been determined by negotiations between the
Company and the Representatives and does not necessarily bear any relationship
to the Company's book value, assets, past operating results, financial
condition or any other established criteria of value. There can be no
assurance that the shares offered by this Prospectus will trade at market
prices in excess of the initial public offering price. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing shareholders could adversely affect
the prevailing market price of the Common Stock and the Company's ability to
raise capital. Upon completion of the Offering, the Company will have
5,200,527 shares of Common Stock outstanding. Of those shares, the 1,800,000
shares of Common Stock offered by this Prospectus will be freely tradeable
without restriction or further registration under the Securities Act, unless
purchased by "affiliates" of the Company as that term is defined in Rule 144
("Rule 144") under the Securities Act of 1933, as amended (the "Securities
Act"). The remaining 3,400,527 shares of Common Stock outstanding are
"restricted securities," as that term is defined by Rule 144. Under lock-up
agreements with Fechtor, Detwiler & Co., Inc. ("Fechtor Detwiler"), each
existing shareholder has agreed that he or it will not, directly or
indirectly, sell, assign or otherwise transfer any shares of Common Stock
owned by him or it for a period of 360 days after the date of this Prospectus,
except with Fechtor Detwiler's prior written consent and except that each
shareholder may transfer up to 104,000 shares in the aggregate after 180 days
following the date of this Prospectus. Once the lock-up agreements expire, all
of the 3,400,527 shares of Common Stock will become eligible for immediate
sale, subject to compliance with the volume limitations of Rule 144 by holders
of 3,070,677 of these shares. See "Shares Eligible for Future Sale" and
"Underwriting."
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<PAGE>
The Company intends to file a registration statement under the Securities
Act to register the 600,000 shares of Common Stock authorized for issuance
pursuant to the Stock Plan. See "Management--Stock Plan." This registration
statement will become effective immediately upon filing.
The availability for sale, as well as actual sales, of currently outstanding
shares of Common Stock, and shares of Common Stock issuable pursuant to the
Stock Plan, may depress the prevailing market price for the Common Stock and
could adversely affect the terms upon which the Company would be able to
obtain additional equity financing.
POSSIBLE ANTI-TAKEOVER EFFECTS
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the shareholders. The Preferred Stock could be
issued with voting, liquidation, dividend and other rights superior to those
of the Common Stock. Following the Offering, no shares of Preferred Stock of
the Company will be outstanding, and the Company has no present intention to
issue any shares of Preferred Stock. However, the rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company, which may depress the market
value of the Common Stock. See "Description of Capital Stock--Preferred
Stock." In addition, each of the Laura Ashley, Hart Schaffner & Marx, Jean
Nate and Eddie Bauer licenses allows the licensor to terminate its license
upon certain events which under the license are deemed to result in a change
in control of the Company. See "--Substantial Dependence Upon Laura Ashley
License," and "Business--Products." The licensors' rights to terminate their
licenses upon a change in control of the Company could have the effect of
discouraging a third party from acquiring or attempting to acquire a
controlling portion of the outstanding voting stock of the Company and could
thereby depress the market value of the Common Stock.
ELIMINATION OF CUMULATIVE VOTING
The Articles of Incorporation of the Company provide that at such time as
the Company has 800 or more holders of its Common Stock as of the record date
of the Company's most recent annual meeting of shareholders, the cumulative
voting rights of shareholders will cease. This will have the effect of making
it more difficult for minority shareholders to obtain representation on the
Board of Directors.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements." All statements other
than statements of historical fact included in this Prospectus, including,
without limitation, the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Business," regarding the Company's strategies, plans,
objectives and expectations; the Company's ability to design, develop, import
and market eyewear products; the ability of the Company's eyewear products to
maintain commercial acceptance; the Company's ability to successfully
introduce new brands or products; the anticipated growth of its target
markets; its future operating results; and other matters are all forward-
looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable at this time, it
can give no assurance that those expectations will prove to be correct.
Important factors that could cause actual results to differ materially from
the Company's expectations are set forth in these "Risk Factors," as well as
elsewhere in this Prospectus. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these "Risk Factors."
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<PAGE>
THE COMPANY
The Company was incorporated in California in 1983 as USA Optical
Distributors, Inc. ("USA Optical"). USA Optical began as a distributor of
high-quality selections of brand-name eyeglass frames. Those frames were
designed and imported by other eyeglass frame manufacturers and suppliers,
purchased by USA Optical and sold directly to optical retailers. In 1986, USA
Optical began designing its own eyeglass frames and contracting with overseas
manufacturers for the manufacture of the frames.
In 1988, Bernard Weiss and Julie Heldman, principal shareholders and
directors of Signature and the Chief Executive Officer and President,
respectively, formed Optical Surplus, Inc. ("Optical Surplus"). Optical
Surplus acquires eyeglass frame close-outs and sells them at a discount
directly to optical retailers throughout the United States. Optical Surplus
was merged into USA Optical in 1991, and the Company's name was changed to
Signature Eyewear, Inc. shortly thereafter. USA Optical and Optical Surplus
are now divisions of Signature and complement the Company's primary business
of designing, marketing and distributing brand-name eyeglass frames.
The Company's executive offices are located at 498 North Oak Street,
Inglewood, California 90302, and its telephone number is (310) 330-2700.
TERMINATION OF S CORPORATION STATUS
The Company has been treated as an S Corporation since 1990. As a result,
through the date immediately preceding the termination of its S Corporation
status (the "Termination Date"), its earnings have been and will be taxed for
federal income tax purposes directly to the holders of the Common Stock,
rather than to the Company. Other than a tax imposed on S Corporations by the
State of California (currently 1.5% of taxable income), state income taxes on
earnings also have been the responsibility of the Company's shareholders. The
Termination Date will occur immediately before the closing of the Offering. On
the Termination Date, the Company will become subject to federal and state
corporate income taxes. See Note 1 of Notes to Financial Statements.
The Company paid an aggregate of $4,685,000 in dividends to its shareholders
from November 1, 1993 through April 30, 1997. These dividends were paid to the
shareholders to pay their income taxes and as a return of their investment.
Before the closing of the Offering, the Company intends to pay dividends to
the shareholders equal to $635,000 plus an amount equal to the Company's net
income from May 1, 1997 through the Termination Date.
Before the Offering, the Company and the shareholders at the time of the
Offering (the "Existing Shareholders") will enter into a tax indemnification
agreement (the "Tax Agreement"). The Tax Agreement is intended to assure that
taxes are borne by the Company on the one hand and the Existing Shareholders
on the other only to the extent that the parties received the related income.
The Tax Agreement generally provides that, if an adjustment is made to the
taxable income of the Company for a year in which it was treated as an S
Corporation, the Company will indemnify the Existing Shareholders and the
Existing Shareholders will indemnify the Company against any increase in the
indemnified party's income tax liability (including interest and penalties and
related costs and expenses) for any tax year to the extent the increase
results in a related decrease in the income tax liability of the indemnifying
party for that year. The Company will also indemnify the Existing Shareholders
for all taxes imposed upon them as the result of their receipt of an
indemnification payment under the Tax Agreement. Any payment made by the
Company to the Existing Shareholders under the Tax Agreement may be considered
by the Internal Revenue Service or state taxing authorities to be non-
deductible by the Company for income tax purposes.
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CAPITALIZATION
The following table sets forth the short term debt and the capitalization of
the Company at April 30, 1997 and as adjusted after giving effect to (i) the
sale of the 1,600,000 shares of Common Stock offered by the Company by this
Prospectus (at an assumed initial public offering price of $10.00 per share)
and application of the net proceeds from the sale (see "Use of Proceeds") and
(ii) the payment of a dividend equal to $635,000 before the closing of the
Offering. This does not include additional dividends to be paid by the Company
before the closing of the Offering in an amount equal to the net income of the
Company from May 1, 1997 through the Termination Date. See "Termination of S
Corporation Status."
<TABLE>
<CAPTION>
AT APRIL 30, 1997
------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt............................................. $5,167 $ 0
====== =======
Long-term debt, less current portion........................ 62 0
------ -------
Stockholders' equity:
Preferred Stock, $0.001 par value; 5,000,000 shares
authorized; no shares outstanding........................ 0 0
Common Stock, $0.001 par value; 30,000,000 shares
authorized; 3,600,527 shares outstanding; 5,200,527
shares outstanding as adjusted........................... 8 10
Paid-in capital........................................... 413 14,771
Retained earnings......................................... 2,214 1,579
------ -------
Total stockholders' equity.............................. 2,635 16,360
------ -------
Total capitalization.................................. $2,697 $16,360
====== =======
</TABLE>
USE OF PROCEEDS
The net proceeds to the Company from its sale of the 1,600,000 shares of
Common Stock offered by this Prospectus (at an assumed initial public offering
price of $10.00 per share), after deducting the estimated underwriting
discounts and offering expenses, are estimated to be approximately $14.4
million ($15.0 million if the Over-Allotment Option is exercised in full).
The Company expects to use approximately $7.5 million of the net proceeds to
repay all bank debt existing at the closing of the Offering. At April 30,
1997, the bank debt consisted of (i) $4,625,000 in loans under the Company's
revolving line of credit with interest rates ranging from 8.375% to 9.25%, and
(ii) three installment loans totaling $604,000, maturing at various times in
1997 and 1998 and bearing interest at a weighted average rate of 9.11% per
annum. Subsequent to April 30, 1997 and before the closing of the Offering,
the Company will borrow an additional amount equal to approximately $2,250,000
for working capital purposes and shareholder distributions. The Company
intends to use approximately $2.5 million of the net proceeds to launch the
Eddie Bauer Eyewear collection which the Company expects to release in the
Spring of 1998. The balance of the net proceeds will be used for working
capital and general corporate purposes.
The Company intends to maintain flexibility in the use of the proceeds of
the Offering (other than amounts to retire existing bank debt). The amounts
actually expended for each use of the proceeds, if any, are at the discretion
of the Company and may vary significantly depending upon a number of factors,
including requirements for launching new product lines, marketing, advertising
and working capital to support growth. Accordingly, management reserves the
right to reallocate the proceeds of the Offering as it deems appropriate. The
Company may also use a portion of the net proceeds to acquire businesses,
products or proprietary rights; however, the Company currently has no
commitments or agreements relating to any of these types of transactions other
than those disclosed in this Prospectus. Until the net proceeds of the
Offering are used, the Company intends to invest them in United States
government securities, short-term certificates of deposit, money market funds
or other short-term interest bearing investments.
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DILUTION
The net tangible book value of the Common Stock as of April 30, 1997 was
$2,635,000 or $0.73 per share. Net tangible book value per share is equal to
the total tangible assets of the Company, less total liabilities, divided by
the number of shares of Common Stock outstanding. After giving effect to the
sale of 1,600,000 shares of Common Stock offered by the Company by this
Prospectus and the application of the net proceeds from the sale (at an
assumed initial public offering price of $10.00 per share, after deducting (i)
the underwriting discount, and (ii) estimated offering expenses of $520,000),
the net tangible book value of the Company as of April 30, 1997 would have
been approximately $16,360,000 or $3.15 per share. This represents an
immediate increase in net tangible book value of $2.60 per share to the
Existing Shareholders and an immediate dilution of $6.85 per share to new
shareholders purchasing shares in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $10.00
Net tangible book value per share as of April 30, 1997.... $ 0.73
Decrease attributable to dividends (1).................... (0.18)
Increase per share attributable to new shareholders....... 2.60
------
Pro forma net tangible book value per share as of April 30,
1997
after the Offering........................................ 3.15
------
Dilution per share to new shareholders...................... $ 6.85
======
</TABLE>
- --------
(1) Based on a $635,000 dividend which will be paid before the closing of the
Offering. Does not include additional dividends which will be paid before
the closing of the Offering in an amount equal to the net income of the
Company from May 1, 1997 through the Termination Date. See "Termination of
S Corporation Status."
The following table summarizes, for Existing Shareholders and new investors,
a comparison of the number of shares of Common Stock acquired from the
Company, the percentage ownership of those shares, the total consideration,
the percentage of total consideration and the average price per share.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK ACQUIRED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders........... 3,600,527 69.2% $ 401,000 2.4% $ 0.11
New investors................... 1,600,000 30.8 16,000,000 97.6 $10.00
--------- ----- ----------- -----
5,200,527 100.0% $16,401,000 100.0%
========= ====== =========== ======
</TABLE>
The foregoing tables and calculations assume no exercise of the Over-
Allotment Option.
DIVIDEND POLICY
The Company does not currently intend to pay dividends on its Common Stock
following the Offering and plans to follow a policy of retaining earnings to
finance the growth of its business. Any future determination to pay dividends
will be at the discretion of the Company's Board of Directors and will depend
on the Company's results of operations, financial condition, contractual and
legal restrictions and other factors deemed relevant by the Board of Directors
at that time.
16
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company for
the periods and as of the dates indicated. The statement of income data for
each of the three years ended October 31, 1994, 1995 and 1996, and the balance
sheet data as of October 31, 1995 and 1996 are derived from the financial
statements and related notes audited by Altschuler, Melvoin and Glasser LLP,
independent public accountants, as set forth in their report included
elsewhere in this Prospectus. The statement of income data for the six-month
periods ended April 30, 1996 and 1997, and the balance sheet data as of April
30, 1997, are derived from unaudited financial statements of the Company
prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the Company's financial
position and results of operations. The results of operations for an interim
period are not necessarily indicative of results to be expected for a full
year. The following data should be read in conjunction with the Financial
Statements and related notes and with "Management's Discussion and Analysis of
Results of Operations and Financial Condition" appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED APRIL 30,
--------------------------- --------------------------
1994 1995 1996 1996 1997
------- ------- --------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............... $20,051 $23,571 $28,280 $13,052 $16,038
Cost of sales........... 9,666 10,989 11,931 5,625 6,632
------- ------- --------- ------------- -------------
Gross profit............ 10,385 12,582 16,349 7,427 9,406
------- ------- --------- ------------- -------------
Operating expenses:
Selling............... 5,855 6,510 8,328 3,682 4,701
General and
administrative....... 3,224 4,035 5,612(1) 2,302 2,807
Relocation expense.... 0 235 87 49 0
------- ------- --------- ------------- -------------
Total operating
expenses........... 9,079 10,780 14,027 6,033 7,508
------- ------- --------- ------------- -------------
Income from operations.. 1,306 1,802 2,322 1,394 1,898
Other expense, net...... (198) (166) (309) (160) (191)
------- ------- --------- ------------- -------------
Income before pro forma
provision for income
taxes.................. 1,108 1,636 2,013 1,234 1,707
Pro forma provision for
income taxes(2)........ 418 606 748 473 677
------- ------- --------- ------------- -------------
Pro forma net
income(2).............. $690 $1,030 $1,265 $761 $1,030
======= ======= ========= ============= =============
Pro forma net income per
share(2)............... $0.36 $0.22 $0.29
========= ============= =============
Pro forma common shares
outstanding............ 3,546,519 3,492,511 3,600,527
========= ============= =============
Supplementary pro forma
net income(3).......... $1,458 $1,176
========= =============
Supplementary pro forma
net income per
share(3)............... $0.37 $0.28
========= =============
Supplementary pro forma
common shares
outstanding(3)......... 3,892,847 4,126,448
========= =============
</TABLE>
<TABLE>
<CAPTION>
AT OCTOBER 31,
----------------- AT APRIL 30,
1995 1996 1997
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................................... $6,462 $8,989 $10,581
Total assets..................................... 7,260 10,293 11,977
Current liabilities.............................. 4,602 7,207 9,280
Total liabilities................................ 5,314 7,364 9,342
Stockholders' equity............................. 1,946 2,929 2,635
</TABLE>
- -------
(1) Includes $300,000 in compensation expense recognized by the Company in
connection with the issuance of 108,016 shares of Common Stock to an
executive officer.
(2) The pro forma presentation reflects a provision for income taxes as if the
Company had always been a C corporation.
(3) Supplementary net income and per share amounts are adjusted to reflect the
repayment of debt and related reduction of interest expense as if the debt
was repaid on November 1, 1995 and 1996. The number of shares required to
be issued, assuming a $10.00 price per share, have been added to the
number of common shares outstanding for the period.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis should be read in connection with the
Company's Financial Statements and the notes thereto and other financial
information included elsewhere in this Prospectus.
OVERVIEW
The Company derives revenues primarily through the sale of brand-name
eyeglass frames, including Laura Ashley Eyewear, Hart Schaffner & Marx Eyewear
and Jean Nate Eyewear. The Company also has a division which distributes
prescription eyeglass frames under the Company's own Camelot brand and a
division which sells brand-name close-outs at discounted prices. In June 1997,
the Company acquired an exclusive license from Eddie Bauer to market a
collection of men's and women's prescription eyewear under the Eddie Bauer
brand name. The Company anticipates spending approximately $2.5 million to
launch the Eddie Bauer Eyewear collection in the Spring of 1998.
The Company's revenues have grown from $9.2 million in fiscal 1992 to $28.3
million in fiscal 1996. Since 1993, the Laura Ashley Eyewear collection has
been the leading source of revenue for the Company. Net sales of Laura Ashley
Eyewear accounted for 77.8%, 74.6%, and 73.4% of the Company's net sales
during fiscal 1995, fiscal 1996, and the six months ended April 30, 1997,
respectively. While the Company continues to reduce its dependence on the
Laura Ashley Eyewear line through the development of other brand names and
additional product offerings, the Company expects this line to continue to be
the Company's leading source of revenue for the foreseeable future. See "Risk
Factors--Substantial Dependence Upon Laura Ashley License."
The Company's cost of sales consists primarily of payments to foreign
contract manufacturers who produce frames to the Company's specifications. The
complete development cycle for a new frame design typically takes
approximately twelve months from the initial design concept to the release.
Generally, at least six months are required to complete the initial
manufacturing process. For frames purchased other than from Hong Kong/China
manufacturers, the Company pays for its frames in the currency of the country
in which the manufacturer is located and thus the costs (in United States
dollars) of the frames vary based upon currency fluctuations. Increases and
decreases in costs (in United States dollars) resulting from currency
fluctuations generally do not affect the price at which the Company sells its
frames, and thus currency fluctuation can impact the Company's gross margin.
In 1994, the Company recognized that it was dependent on frame manufacturers
located in Japan. Starting in 1995, the Company implemented a program to
reduce that dependence by purchasing an increasing percentage of its frames
from manufacturers located in other countries, particularly in Hong Kong/China
and to a lesser extent in France and Italy. The use of Hong Kong/China
manufacturers has also reduced the Company's average frame cost, which has
increased the Company's gross margin.
EFFECT OF CHANGE IN FORM FROM AN S CORPORATION TO A C CORPORATION
As a result of the Offering, the Company will be required to change in form
from an S Corporation to a C Corporation, which will affect its operations and
financial condition by increasing the level of federal and state income taxes.
As such, the change in form will affect the net income and the cash flows of
the Company.
As an S Corporation, the Company's income, whether or not distributed, was
taxed at the shareholder level for federal and state income tax purposes. In
addition, for California franchise tax purposes, S Corporations were taxed at
2.5% of taxable income through 1993 and 1.5% of taxable income in 1994, 1995
and 1996, net of income tax credits under the Los Angeles Revitalization Zone
Act. Currently, the highest federal tax rate for C Corporations is 38%
(although the majority of the taxable income is taxed at 35%) and the
corporate tax rate in California is 9.3%. The pro forma provision for income
taxes in the statement of income data included elsewhere in this Prospectus
shows results as if the Company had always been a C Corporation and had
adopted Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes".
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected statements
of income data shown as a percentage of net sales. Pro forma operating results
reflect adjustments to the historical operating results for federal and state
income taxes as if the Company had been taxed as a C Corporation rather than
an S Corporation.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED OCTOBER 31, ENDED APRIL 30,
------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................... 48.2 46.6 42.2 43.1 41.3
------- ------- ------- ------- -------
Gross profit..................... 51.8 53.4 57.8 56.9 58.7
------- ------- ------- ------- -------
Operating expenses:
Selling........................ 29.2 27.6 29.4 28.2 29.3
General and administrative..... 16.1 17.1 19.9 17.6 17.5
Relocation expense............. 0 1.0 0.3 0.4 0
------- ------- ------- ------- -------
Total operating expenses..... 45.3 45.7 49.6 46.2 46.8
------- ------- ------- ------- -------
Income from operations........... 6.5 7.7 8.2 10.7 11.9
------- ------- ------- ------- -------
Other expense, net............... (1.0) (0.7) (1.1) (1.2) (1.2)
------- ------- ------- ------- -------
Income before pro forma provision
for income taxes................ 5.5 7.0 7.1 9.5 10.7
Pro forma provision for income
taxes........................... 2.1 2.6 2.6 3.6 4.2
------- ------- ------- ------- -------
Pro forma net income............. 3.4% 4.4% 4.5% 5.9% 6.5%
======= ======= ======= ======= =======
</TABLE>
Comparison of Six Months Ended April 30, 1997 to Six Months Ended April 30,
1996
Net Sales. Net sales increased by 23% from $13,052,000 in the six months
ended April 30, 1996 (the "1996 period") to $16,038,000 in the six months
ended April 30, 1997 (the "1997 period"). This increase in net sales was due
principally to an increase of $1,801,000 in net sales of Laura Ashley Eyewear
and net sales of $938,000 of Hart Schaffner & Marx Eyewear (which was
introduced in the fourth quarter of fiscal 1996). The increase in Laura Ashley
net sales was due principally to an increase in unit sales. Net sales also
increased as a result of the Company's decision in March 1996 to sell directly
to independent optical retailers in California through its own sales
representatives, rather than through a distributor, which resulted in a higher
sales price per frame.
Gross Profit. Gross profit increased from $7,427,000 in the 1996 period to
$9,406,000 in the 1997 period. This increase was due to an increase in net
sales and to an increase in the gross margin from 56.9% in the 1996 period to
58.7% in the 1997 period. This increase was due principally to lower average
frame costs resulting from the Company's continued shift to lower cost frame
manufacturers and to favorable currency fluctuations.
Operating Expenses. Operating expenses increased 24% from $6,033,000 in the
1996 period to $7,508,000 in the 1997 period, which included an increase of
$1,019,000 or 28% in selling expenses and an increase of $505,000 or 22% in
general and administrative expenses. The increase in selling expenses resulted
principally from a $226,000 increase in convention and trade show expenses, a
$214,000 increase in advertising expense and a $206,000 increase in royalty
expense. General and administrative expenses increased principally as a result
of a $372,000 increase in compensation expense, primarily due to an increase
in the number of employees (including a number of mid-level manager
employees).
Other Expense, Net. The $31,000 increase in other expenses in the 1997
period was due primarily to increased interest expense.
19
<PAGE>
Pro Forma Provision for Income Taxes. While an S Corporation, the Company's
income taxes primarily consisted of California state franchise taxes. On a pro
forma basis, income taxes would have been $473,000 and $677,000 in the 1996
period and the 1997 period, respectively.
Pro Forma Net Income. Pro forma net income increased from $761,000 in the
1996 period to $1,030,000 in the 1997 period due to the factors set forth
above.
Comparison of Fiscal Years 1994, 1995 and 1996
Net Sales. Net sales increased by 18% from $20,051,000 for fiscal 1994 to
$23,571,000 in fiscal 1995 and by 20% to $28,280,000 for fiscal 1996. The
increase in net sales from fiscal 1994 to fiscal 1995 was due to a 22%
increase in net sales of Laura Ashley Eyewear from $15,008,000 to $18,348,000.
The increase in net sales from fiscal 1995 to fiscal 1996 resulted primarily
from a 15% increase in net sales of Laura Ashley Eyewear to $21,109,000 and
net sales of $1,889,000 of Jean Nate Eyewear and Hart Schaffner & Marx
Eyewear, which were introduced by the Company in the second and fourth
quarters, respectively, of fiscal 1996. The increase in Laura Ashley Eyewear
net sales in both fiscal years was due principally to an increase in unit
sales and to a lesser extent to an increase in prices for selected frames.
Gross Profit. Gross profit was $10,385,000 in fiscal 1994, $12,582,000 in
fiscal 1995 and $16,349,000 in fiscal 1996. These increases in gross profit
were attributable to increases in net sales as well as improvements in the
gross margin, which increased from 51.8% in fiscal 1994, to 53.4% in fiscal
1995 and to 57.8% in fiscal 1996. During these years, the Company utilized
lower cost frame manufacturers for an increasing percentage of its frames,
which has resulted in lower average frame costs. This positive impact on gross
margin was offset in part in fiscal 1995 due to adverse currency fluctuations,
and was augmented in fiscal 1996 due to beneficial currency fluctuations.
Gross margin was also positively impacted in fiscal 1995 and fiscal 1996 by
increases in the average selling price of frames and by reductions in import
duties and tariffs.
Operating Expenses. Operating expenses were $9,079,000 in fiscal 1994,
$10,780,000 in fiscal 1995 and $14,027,000 in fiscal 1996. These increases
resulted primarily from higher selling and general and administrative expenses
commensurate with the Company's growth.
Selling expenses were $5,855,000 in fiscal 1994, $6,510,000 in fiscal 1995
and $8,328,000 in fiscal 1996, representing 29%, 28% and 29%, respectively, of
net sales for such periods. The 11% increase from fiscal 1994 to fiscal 1995
resulted principally from a $280,000 increase in expenses associated with
sales incentive programs, a $209,000 increase in royalty expense, a $182,000
increase in sales compensation expense and a $123,000 increase in in-store
display expenditures. These increases were offset in part by a decrease of
$446,000 in advertising expenses; the higher advertising expenses in 1994 were
due to a special consumer advertising campaign implemented in connection with
the Company's initial Laura Ashley Loyal Partners program. The 28% increase
from fiscal 1995 to fiscal 1996 was due primarily to a $494,000 increase in
advertising expenses and a $406,000 increase in in-store display expenditures,
due primarily to the introduction of the Jean Nate and Hart Schaffner & Marx
Eyewear lines in fiscal 1996. In addition, in fiscal 1996, royalty expenses
increased by $288,000, expenses associated with sales incentive programs
increased by $223,000 and convention and trade show expenses increased by
$155,000.
General and administrative expenses were $3,224,000 in fiscal 1994,
$4,035,000 in fiscal 1995 and $5,612,000 in fiscal 1996, representing 16%, 17%
and 20%, respectively, of net sales in these periods. The 25% increase from
fiscal 1994 to fiscal 1995 resulted principally from a $505,000 increase in
compensation expense. The 39% increase from fiscal 1995 to fiscal 1996
resulted principally from a $567,000 increase in salaries, a $385,000 increase
in employee bonuses, and compensation expense of $300,000 in connection with
the issuance of 108,016 shares of Common Stock to an executive officer.
The Company incurred expenses of $235,000 and $87,000 in fiscal 1995 and
fiscal 1996, respectively, in connection with the relocation of the Company's
corporate offices and warehouse.
20
<PAGE>
Other Expense, Net. Other expense, net, consisted principally of interest
expense. Interest expense was $201,000 in fiscal 1994, $201,000 in fiscal 1995
and $338,000 in fiscal 1996. The increase in fiscal 1996 was due, in part, to
the increase in borrowings of the bank's credit line as a result of (i) an
increase in accounts receivable resulting from higher sales, (ii) a higher
level of inventories that the Company maintained to support higher sales
levels and better customer service, (iii) capital expenditures relating to
improvements of the Company's facilities and the modernization of its computer
equipment; and (iv) larger S corporation distributions.
Pro Forma Provisions for Income Taxes (unaudited). On a pro forma basis,
income taxes would have been $418,000 in fiscal 1994, $606,000 in fiscal 1995
and $748,000 in fiscal 1996.
Pro Forma Net Income (unaudited). Pro forma net income was $690,000 in
fiscal 1994, $1,030,000 in fiscal 1995 and $1,265,000 in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has relied primarily on internally generated
funds, credit from suppliers and bank lines of credit to meet its liquidity
needs.
The Company has a credit agreement (the "Credit Agreement") with a
commercial bank which provides for the use of letters of credit, banker's
acceptances and loans in the aggregate amount of $7,935,417. The commitment
formula limits the amount available to the sum of 75% of eligible accounts
receivable and 40% of eligible inventory, with the inventory portion limited
to the lesser of $3,000,000 or the accounts receivable borrowing base. At the
Company's option, interest may be based on the London Interbank Offered Rate
("LIBOR") plus 2.25% or at the bank's prime rate plus .25%. At April 30, 1997,
interest rates ranged from 8.375% to 8.437% on a loan balance of $4,000,000
under the LIBOR option and 9.25% on the remaining balance of $625,000 under
the prime rate option. The Credit Agreement also governs three term loans,
which are due at various times in 1997 and 1998, bear interest at a weighted
average rate of 9.11% per annum, and had an aggregate outstanding principal
balance of $604,000 at April 30, 1997. The Credit Agreement (which expires in
May 1998) is secured by substantially all of the assets of the Company. The
Credit Agreement provides for certain limitations on capital expenditures and
requires the Company to satisfy certain financial tests, including the
maintenance of minimum tangible net worth.
The Company intends to repay the outstanding balance under the Credit
Agreement (estimated to be approximately $7.5 million at the closing of the
Offering) with a portion of the proceeds of the Offering. The increase in
borrowings since April 30, 1997 will be due to borrowings for working capital
and shareholder distributions.
As a result of the Company's treatment as an S Corporation for federal and
state income tax purposes, the Company historically has provided its
shareholders, through dividends, with funds for the payment of income taxes on
the earnings of the Company which have been included in the taxable income of
the shareholders. In addition, the Company has paid dividends to shareholders
to provide them with a return on their investment. The Company paid dividends
of $807,000, $550,000 and $1,328,000 for fiscal 1994, fiscal 1995 and fiscal
1996, respectively, and $2,000,000 in the first six months of fiscal 1997. The
Company also intends to pay the Existing Shareholders dividends equal to
$635,000 plus the amount of the Company's net income from May 1, 1997 through
the Termination Date. These dividends will be paid before the closing of the
Offering. The Company does not currently intend to pay dividends on its Common
Stock following the Offering and plans to follow a policy of retaining
earnings to finance the growth of its business.
Of the Company's accounts payable at October 31, 1996 and April 30, 1997,
$865,069 and $1,086,638, respectively, were payable in foreign currency. To
monitor risks associated with currency fluctuations, the Company on a weekly
basis assesses the volatility of certain foreign currencies and reviews the
amounts and expected payment dates of its purchase orders and accounts payable
in those currencies. Based on those factors,
21
<PAGE>
the Company may from time to time mitigate some portion of that risk by
purchasing forward commitments to deliver foreign currency to the Company. The
Company held forward commitments for foreign currencies in the amount of
$1,459,457 at October 31, 1996, and held no forward commitments at April 30,
1997.
The Company's bad debt write-offs were less than 0.2% of net sales for the
year ended October 31, 1996 and for the six months ended April 30, 1997. As
part of the Company's management of its working capital, the Company performs
most customer credit functions internally, including extensions of credit and
collections.
The Company believes that cash generated from operations, the net proceeds
received by the Company from this Offering, borrowings under its credit
facility, and credit from its suppliers will be sufficient to fund its working
capital requirements at least through fiscal 1998.
QUARTERLY AND SEASONAL FLUCTUATIONS
The Company's results of operations have fluctuated from quarter to quarter
and the Company expects these fluctuations to continue in the future.
Historically, the Company's net sales in its first fiscal quarter (the quarter
ending January 31) have been lower than net sales in other fiscal quarters.
The Company attributes lower net sales in the first fiscal quarter in part to
low consumer demand for prescription eyeglasses during the holiday season and
year-end inventory adjustments by distributors and independent optical
retailers. A factor which may significantly influence results of operations in
a particular quarter is the introduction of a new brand-name collection, which
results in disproportionate levels of selling expenses due to additional
advertising, promotions, catalogs and in-store displays. Introduction of a new
brand may also generate a temporary increase in sales due to initial stocking
by retailers. Other factors which can influence the Company's results of
operations include customer demand, the mix of distribution channels through
which the eyeglass frames are sold, the mix of eyeglass frames sold, product
returns, delays in shipment and general economic conditions. See "Risk
Factors--Quarterly and Seasonal Fluctuations."
The following table sets forth certain unaudited results of operations for
the ten fiscal quarters ended April 30, 1997. The unaudited information has
been prepared on the same basis as the audited financial statements appearing
elsewhere in this Prospectus and includes all normal recurring adjustments
which management considers necessary for a fair presentation of the financial
data shown. The operating results for any quarter are not necessarily
indicative of future period results.
<TABLE>
<CAPTION>
1995 1996 1997
---------------------------------- ---------------------------------- -----------------
JAN. 31 APRIL 30 JULY 31 OCT. 31 JAN. 31 APRIL 30 JULY 31 OCT. 31 JAN. 31 APRIL 30
------- -------- ------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $4,481 $6,309 $6,469 $6,312 $5,308 $7,744 $7,050 $8,178 $6,802 $9,236
Cost of sales................ 2,128 3,041 3,056 2,764 2,449 3,177 2,895 3,410 2,882 3,750
Gross profit................. 2,353 3,268 3,413 3,548 2,859 4,567 4,155 4,768 3,920 5,486
Operating expenses:
Selling..................... 1,056 1,682 1,853 1,919 1,472 2,209 2,055 2,592 2,021 2,680
General and administrative.. 782 970 1,057 1,226 969 1,334 1,554 1,755 1,364 1,443
Relocation expense.......... 0 34 65 136 30 19 17 21 0 0
Total operating expenses..... 1,838 2,686 2,975 3,281 2,471 3,562 3,626 4,368 3,385 4,123
Income from operations....... 515 582 438 267 388 1,005 529 400 535 1,363
Other expense, net........... (38) (44) (29) (55) (67) (92) (84) (66) (85) (106)
Income before pro forma
provision for income taxes.. 477 538 409 212 321 913 445 334 450 1,257
</TABLE>
INFLATION
The Company does not believe its business and operations have been
materially affected by inflation.
22
<PAGE>
BUSINESS
GENERAL
Signature designs, markets and distributes prescription eyeglass frames
primarily under exclusive licenses for Laura Ashley Eyewear, Hart Schaffner &
Marx Eyewear and Jean Nate Eyewear, as well as its own "Camelot" label. The
Laura Ashley Eyewear collection is one of the leading women's brand-name
collections in the United States. The Company attributes its success to its
brand-name development process and high quality, creative frame designs. The
Company's brand-name development process includes identifying a market niche,
obtaining the rights to a carefully selected brand name, producing a
comprehensive marketing plan, developing unique in-store displays and creating
innovative sales and merchandising programs for independent optical retailers
and retail chains. Signature's in-house designers work with many respected
frame manufacturers throughout the world to develop high-quality, creative
designs which are consistent with each brand-name image.
In June 1997, Signature acquired the exclusive license to design and market
an Eddie Bauer Eyewear collection, which the Company plans to launch in the
Spring of 1998. The Company pursued the Eddie Bauer brand name, which had not
previously been licensed for prescription eyewear, for its widespread
recognition, outdoor heritage, casual styling, and reputation for value and
quality. The Eddie Bauer Eyewear collection will offer men's and women's
styles and will be positioned in the medium-price segment of the brand-name
prescription market.
Signature produces "turnkey" marketing, merchandising and sales promotion
programs to promote sales at each level in the distribution chain. For optical
retailers, the Company develops unique in-store displays, such as its Laura
Ashley Eyewear "store within a store" environments. For the sales
representatives who call on retail accounts, whether they are employed by
distributors or by Signature, the Company creates presentation materials,
marketing bulletins, motivational audio and video tapes and other sales tools
to facilitate professional presentations, and the Company offers attractive
incentive awards for reaching targeted sales levels. For its distributors who
sell to independent optical retailers, Signature provides its innovative
loyalty programs.
Under the loyalty programs, which generally last from six to ten months,
each participating retailer agrees to purchase a specified quantity of frames
of new styles released during the program period. Although a participating
retailer may cancel at any time, historically most have completed the program
and renewed their participation in ensuing years. These "automatic" sales
programs have facilitated the widespread placement of new styles in optical
retail stores, have increased the Company's leverage with its manufacturers
due to the large size of the Company's orders, and have assisted its inventory
planning. The Company's largest loyalty program is its Laura Ashley Loyal
Partners program, which at April 30, 1997 had over 4,750 participating
retailers in the United States (approximately 16% of all independent optical
retailers in the United States) as well as over 800 international
participants.
The Company contracts with overseas factories to manufacture the frames it
designs. Signature distributes its frames through distributors in the United
States and through exclusive distributors in foreign countries. In addition,
the Company sells directly through its own sales representatives to major
retail chains, including LensCrafters, Pearle Vision and Eyecare Centers of
America, and to independent optical retailers in California.
The Company's principal product line is Laura Ashley Eyewear, which was
launched in 1992. Signature designs frames and in-store displays which seek to
capture the distinctive, feminine image associated with Laura Ashley clothing
and home furnishings. Laura Ashley Eyewear styles are feminine and classic,
and are positioned in the medium to mid-high price range to reach a broad
segment of the women's eyewear market. The Company's net sales of Laura Ashley
Eyewear have increased from $2.2 million in fiscal 1992 to $21.1 million in
fiscal 1996.
Capitalizing on Signature's customer relationships and the success of Laura
Ashley Eyewear, the Company launched Jean Nate Eyewear in March 1996 and Hart
Schaffner & Marx Eyewear in September 1996. Jean Nate Eyewear is targeted at
women seeking to pay an affordable price for high-quality frames which offer
unique designs, attention to detail and brand-name identification. Hart
Schaffner & Marx Eyewear is a mid-high priced line targeted at men requiring
quality, comfort and craftsmanship.
23
<PAGE>
INDUSTRY OVERVIEW(/1/)
Eyewear Consumers. Optical retail sales in the United States have increased
during the 1990s. Retail sales of all eyewear products increased from $11.4
billion in 1990 to $14.6 billion in 1996. Correspondingly, retail sales of
eyeglass frames increased from $3.87 billion in 1990 to $4.6 billion in 1996.
In 1996, approximately 159 million Americans, just over 60% of the nation's
population, needed some form of vision correction (either eyeglass frames with
corrective lenses or contact lenses). More than 90% of people over the age of
45 need corrective eyewear, many due to presbyopia, a condition which makes it
difficult to focus on nearby objects, such as small newspaper print. The table
below demonstrates how the number of people needing vision correction
increases with age.
AGE BREAKDOWN OF U.S. POPULATION NEEDING VISION CORRECTION
<TABLE>
<CAPTION>
AGE GROUP OF
1996 PURCHASERS AS % OF % OF AGE GROUP
POPULATION TOTAL PURCHASERS OF NEEDING VISION
AGE (IN MILLIONS) VISION CORRECTION CORRECTION
--- ------------- -------------------- ---------------
<S> <C> <C> <C>
0-14................... 58.0 5.7% 15.5%
15-24................... 35.9 11.5 51.0%
25-44................... 83.7 33.0 62.8%
45-64................... 53.7 32.0 95.0%
65 and up............... 33.9 19.8 93.1%
----- -----
Total................. 265.2 100.0%
===== =====
</TABLE>
The average age of the United States population is expected to increase over
the next 25 years, due to the aging of the "baby-boomers" who were born
between 1946 and 1964. As more of the baby-boomers exceed age 45, the Company
believes sales of corrective eyewear should increase.
Sales of eyewear are also increasing due to the evolution of eyewear into a
fashion accessory. Until the mid-1970s, eyeglass frames were viewed as medical
implements which were "dispensed" but never "sold." Because styling was not
emphasized, successful frames often remained popular for years, and sometimes
for decades. In the mid-1970s, experts from other industries introduced
designer names and consumer advertising to the optical industry, as well as
sweeping design changes. These changes resulted in increased consumer demand
for the new products. Although eyeglass frames are a fashion accessory for
many people, the styles are not subject to seasonal changes, and they change
less rapidly than styles in the apparel industry.
Competitive Vision Correction Methods. Currently, there are two methods of
correcting vision impairment which compete with prescription eyeglasses:
contact lenses and surgery. Although retail sales of contact lens remained
flat from 1995 through 1996 at $1.9 billion, their sales as a percentage of
total retail sales decreased from 13.5% in 1995 to 13.0% in 1996. The Company
believes that sales of contact lenses do not currently materially threaten
eyeglass frame sales because many people who wear contact lenses need a pair
of eyeglasses for night time and for the days when they decide not to wear
their lenses.
A number of surgical techniques have been developed to correct vision
problems such as myopia (nearsightedness), hyperopia (farsightedness) and
astigmatism. The Company does not believe that these techniques will
materially and adversely affect sales of prescription eyewear in the near
future. The Company believes that a number of people who have had successful
eye surgery may still need some form of corrective eyeglasses, and others may
need eyeglasses at a later date due to the onset of presbyopia.
- --------
(1) Unless otherwise noted, all the data in this Industry Overview section
relates to the eyewear market in the United States. The source for this
data is the 1997 U.S. Optical Industry Handbook published by Jobson
Publishing Corporation in May 1997.
24
<PAGE>
Optical Retail Outlets. Optical retailers consist of optometrists, opticians
and ophthalmologists. There are two main types of optical retailers:
independents (with one or two stores) and chains. Chains include national
optical retailers such as LensCrafters, Cole Vision Corp. and its subsidiary
Pearle Vision, and Eyecare Centers of America, and mass merchandisers such as
Wal-Mart and Price Club. In 1996, independent optical retailers had a 63.0%
market share, chains had a 35.5% market share, and others had a 1.5% market
share.
GROWTH STRATEGY
The Company intends to capitalize on the success of the Laura Ashley Eyewear
line by further diversifying into new lines, adding new products and expanding
its distribution. Specific elements of the Company's growth strategy include:
. Existing Brands. The Company intends to continue to create innovative
marketing, merchandising and sales promotion programs to increase the
market penetration of its existing lines of brand-name eyewear.
. Eddie Bauer Eyewear. The Company plans to launch Eddie Bauer Eyewear in
the Spring of 1998.
. Additional Brands. The Company will continue its efforts to acquire
exclusive brand-name licenses to market prescription eyeglass frames in
market niches in which the Company does not currently compete.
. New Product Lines. The Company intends to expand the marketing of its
own Camelot collection of frames and may develop one or more additional
brand-name lines of its own.
. Sunwear. The Company intends to expand the market penetration of its
existing Laura Ashley Sunwear line and may acquire additional exclusive
brand-name licenses for sunglass frames.
. International Sales. The Company plans to expand the international
markets into which it distributes its eyewear lines.
BRAND DEVELOPMENT
The Company attributes its success to its brand-name development process and
frame designs. The Company's brand-name development process includes
identifying a market niche, obtaining the rights to a carefully selected brand
name, producing a comprehensive marketing plan, designing frames consistent
with each brand image, developing unique in-store displays, and creating
innovative sales and merchandising programs for independent optical retailers
and retail chains.
Identifying a Market Niche and Obtaining the Rights to a Brand
Name. Signature's brand-name development process begins with identifying an
eyewear market niche. The Company characterizes a market niche by referring to
the target customer's gender and age (e.g., adult, child, teenage), the
niche's general image and styling (e.g., feminine, masculine, casual), its
price range, and the applicable channels of distribution. Once the Company
chooses a market niche, a brand name is identified which the Company believes
will appeal to the target customer in that niche. The Company believes that
for a brand name to have the potential for widespread sales in the optical
industry, the name must have strong, positive consumer awareness, a
distinctive personality and an image of enduring quality. Brands that are
aimed at narrower niches can also have optical industry impact (albeit
smaller), so long as consumer awareness exists within the targeted niche.
After the Company has determined that a targeted brand name is available,
the Company develops a preliminary marketing plan to present to the potential
licensor. The development process is a team effort which includes determining
the market position of the brand name outside the optical industry and the
availability of cross-marketing opportunities. The preliminary marketing plan
demonstrates the Company's (i) in-depth understanding of the potential
licensor's market position, (ii) innovative strategies for extending the
brand's image to the eyewear market, (iii) preliminary plans for
merchandising, advertising and sales promotion, and (iv) broad concepts for
frame design.
The Company then formally presents the preliminary marketing plan to the
potential licensor. The final steps in acquiring an exclusive eyewear license
for a brand name are receiving the licensor's approval and entering into a
license agreement.
25
<PAGE>
The Company's existing license agreements contain terms limiting the ability
of the Company to market competing brand names. See "Risk Factors--Limitations
on Ability to Distribute Other Brand-Name Eyeglass Frames."
Final Marketing Plan. Once the Company has acquired an exclusive eyewear
license for a brand name, it creates a final marketing plan. The final
marketing plan contains detailed concepts for frame designs, establishes the
brand's identity within the optical industry, and sets forth the first year's
merchandising, advertising and sales promotion plans. The Company's ongoing
focus on its marketing plans, including annual updates, provides a framework
for keeping the Company's marketing and sales strategies current with changes
in the eyewear industry and the licensor's marketing.
Frame Design and Quality. The Company's frames are designed by its in-house
design team, which consists of two designers and a management frame committee
which reviews each style. The designers work with many respected frame
manufacturers throughout the world to develop unique designs, and continue to
work closely at each stage of a style's development to assure quality. The
Company's frames generally require over 200 production steps to manufacture,
including hand soldering of bridges, fronts and endpieces. Some frames require
labor-intensive decorative features such as cloisonne color treatments, which
involve painting each frame by hand under a magnifying glass, using tiny
bristle brushes.
Quality Control. The Company uses only manufacturers capable of meeting
Signature's criteria for quality, delivery and attention to design detail.
Signature specifies the materials to be used in the frames, and examines
prototypes before committing to production. The Company places its initial
orders for each style at least six months before the style is released, and
requires the factory to deliver several advance shipments of samples. The
Company's quality committee examines every frame in the sample shipments. The
Company believes this process permits sufficient time to resolve problems with
a style's quality before its release date. The Company's quality committee
selectively examines frames in subsequent shipments to ensure ongoing quality
standards.
Limited Quantity of Style Releases. The Company has historically launched
each brand-name collection with only three styles. Further, although for each
brand the Company has many designs in different stages of development, it has
released no more than three styles per brand per month (each style generally
comes in two or three colors and one or two sizes). This strategy has
contrasted with many of the Company's competitors, who release many more
styles than Signature. The Company believes that its limited release strategy
helps to ensure focus on each new style. Further, the Company believes that
this strategy has resulted in larger orders per style, which has increased its
leverage with the contract manufacturers of its frames.
Marketing, Merchandising and Sales Programs. Signature produces "turnkey"
marketing, merchandising and sales promotion programs to promote sales at each
level in the distribution chain. For optical retailers, the Company develops
unique in-store displays, such as its Laura Ashley Eyewear "store within a
store" environments. For the sales representatives who call on retail
accounts, whether they are employed by distributors or by Signature, the
Company creates presentation materials, marketing bulletins, motivational
audio and video tapes and other sales tools to facilitate professional
presentations, and the Company offers attractive incentive awards for reaching
targeted sales levels. For its distributors who sell to independent optical
retailers, Signature provides its innovative loyalty programs.
Loyalty Programs. The Company attributes a significant portion of its
success with independent optical retailers in the United States to its loyalty
programs. Under these programs, which generally last from six to ten months,
each participating retailer agrees to purchase a specified quantity of frames
(generally three to six frames per month) of new styles released for that
brand during the program period. The Company's loyalty programs benefit the
Company, its distributors and participating retailers. The Company and its
distributors benefit from the automatic sales and the reorders they generate.
The distributors also benefit from the retailers' agreement not to change
distributors for that specific program. Retailers benefit from sales of new
styles, program-ending gifts, and from the special in-store merchandising
(often available first--or only--to participating retailers).
26
<PAGE>
Although a retailer may drop out of a loyalty program at any time without
penalty, historically most participating retailers have completed the program
and renewed their participation in ensuing years. The Company believes this is
principally because the frames have sold well and retailers have wanted to
earn the attractive incentive awards provided by the Company and its
distributors at the end of the program.
Signature's first loyalty program was the 1994 Laura Ashley Eyewear Loyal
Partners Program which had 2,494 participants. The 1997 Laura Ashley Loyal
Partners Program had approximately 4,750 United States participants and 800
international participants at April 30, 1997. Each United States participant
in the 1997 program has agreed to purchase a total of 39 Laura Ashley frames
in accordance with its distributor's release schedule. Approximately 16% of
the independent optical retailers in the United States are participating in
the 1997 Laura Ashley Loyal Partners Program.
The Company introduced its Hart Schaffner & Marx Eyewear collection in
September 1996 with a loyalty program. Over 1,200 independent optical
retailers participated in the program, each agreeing to purchase a total of 18
frames from the collection's first six styles.
PRODUCTS
The Company's principal products are eyeglass frames sold under the brand
names Laura Ashley Eyewear, Hart Schaffner & Marx Eyewear and Jean Nate
Eyewear. In June 1997, the Company acquired an exclusive license to design,
market and distribute eyeglass frames under the name Eddie Bauer Eyewear, and
the Company plans to release this line in the Spring of 1998. The Company also
has a division which distributes eyeglass frames under the Company's own
Camelot brand and a division which sells brand-name close-outs at discounted
prices.
The following table provides certain information about the market segments,
introduction dates and approximate retail prices of the Company's products.
<TABLE>
<CAPTION>
CUSTOMER INTRODUCTION APPROXIMATE
BRAND NAME / SEGMENT GENDER/AGE DATE RETAIL PRICES(1)
<S> <C> <C> <C>
Laura Ashley
Prescription Women March 1992 $125 - 180
Sunwear Women March 1993 $ 80 - 100
Children Girls June 1993 $ 80 - 100
-------------------------------------------------------------------------------
Jean Nate Women April 1996 $ 70 - 90
-------------------------------------------------------------------------------
Hart Schaffner & Marx Men September 1996 $140 - 170
-------------------------------------------------------------------------------
Eddie Bauer Men/Women Spring 1998(2) $100 - 135
-------------------------------------------------------------------------------
Signature's Camelot
Line Men/Women 1986 $ 70 - 130
Unisex 1987 $ 70 - 130
Boys/Girls 1987 $ 60 - 90
</TABLE>
(1) Retail prices are established by retailers, not the Company.
(2) Scheduled launch date.
Laura Ashley Eyewear
Signature's sales growth since 1992 has been primarily attributable to the
success of its Laura Ashley Eyewear collection. The Company's net sales of
Laura Ashley Eyewear have increased from $2.2 million in fiscal 1992 to $21.1
million in fiscal 1996.
Signature pursued Laura Ashley for its strong female following; its feminine
styling and image which are renowned worldwide; its 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.
The principal market segment for Laura Ashley Eyewear is women's
prescription eyewear, and each year since 1993 the Company has released
approximately 12 women's prescription eyewear styles. Net sales for those
styles were $16.5 million in fiscal 1995, $19.0 million in fiscal 1996, and
$10.4 million in the six months ended April 30, 1997.
Each Spring since 1993, the Company has released three Laura Ashley Sunwear
styles during its second fiscal quarter. These frames are delivered to optical
retailers with ready-to-wear non-prescription sunglass lenses containing
quality UV 400 protection. These lenses can be replaced with prescription
sunglass lenses if the customer desires. Net sales of Laura Ashley Sunwear
were $0.8 million in fiscal 1995, $0.9 million in fiscal 1996 and $0.8 million
in the six months ended April 30, 1997. In addition to Laura Ashley Sunwear,
almost all of the Company's styles can be fitted with sunglass lenses to make
them into sunwear.
Each Summer since 1993, Signature has released three Laura Ashley for Girls
styles, with their own specialized displays, targeting girls aged 7-13. This
collection is one of the few adult optical brand names to be marketed toward
girls in that age range. Because the frames are designed and produced in small
sizes, they are also purchased from time to time by petite women. Net sales of
Laura Ashley for Girls Eyewear were $1.1 million in fiscal 1995, $1.2 million
in fiscal 1996, and $0.55 million in the six months ended April 30, 1997.
Results for the first six months of fiscal 1997 did not include sales of the
Company's 1997 Laura Ashley for Girls styles, which were released in the third
quarter of fiscal 1997.
The Company has the exclusive right to market and sell Laura Ashley Eyewear
through a license with Laura Ashley entered into in May 1991. The license
covers a specified territory including the United States, Canada, the United
Kingdom, Australia, New Zealand, Colombia, France, Belgium and the
Netherlands. The Company also has a right of first refusal to distribute Laura
Ashley Eyewear in Mexico and all other European countries. The Laura Ashley
license terminates in 2001, but may be renewed by the Company at least through
January 2006 so long as the Company is not in breach of the license agreement
and generates the required amount of minimum net sales. Laura Ashley may
terminate the license before its term expires if (i) the Company commits a
material breach of the license agreement and fails to cure that breach within
30 days after notice is given, (ii) the management or control of the Company
passes from Bernard Weiss and Julie Heldman to other parties whom Laura Ashley
may reasonably regard as unsuitable, (iii) the Company fails to propose a
selection of styles of eyewear which Laura Ashley in exercising good faith is
willing to approve for manufacture and distribution, (iv) the Company fails to
have net sales of Laura Ashley Eyewear sufficient to generate minimum
royalties in each of any two years, (v) the Company is unable to pay its debts
in the ordinary course of business or enters into liquidation, becomes
bankrupt or insolvent, or is placed in the control of a receiver or trustee,
or (vi) the Company in any year fails to spend a specified percentage of net
sales of Laura Ashley Eyewear on advertising and promotion.
28
<PAGE>
Jean Nate Eyewear
In 1995, the Company identified an underdeveloped niche for feminine brand-
name eyeglass frames marketed in the mid-low price range (approximately $70 to
$90 at retail). To capitalize on this opportunity, the Company pursued and
obtained the eyewear license for Jean Nate, a brand name that is widely
recognized within the target niche for its women's fragrance and bath
products, especially its after-bath splash.
The Jean Nate Eyewear collection is targeted at women who are seeking to pay
an affordable price for quality brand-name frames which offer unique designs,
attention to details, features such as spring hinges that flex outwards and
spring back, and brand-name identification. Jean Nate Eyewear advertisements
have had an eyecatching "splash of water" theme, and most of the frames
incorporate sea shells in their design. Sales promotional tools for Jean Nate
Eyewear have included in-store displays and two-for-one specials.
The Company has the exclusive right to market and sell Jean Nate Eyewear in
the United States and Canada through a license with Revlon entered into in
June 1995. "Jean Nate" is a registered trademark of Revlon. The Jean Nate
license terminates in September 1998, but may be renewed by the Company for
two additional terms of three and four years, respectively, so long as the
Company is in compliance in all material respects with all of its terms and
conditions, including the minimum net sales requirements for the two years
preceding the renewal date. Revlon may terminate the license before its term
expires if (i) someone other than Bernard Weiss, Julie Heldman, Robert Fried
or Robert Zeichick acquires in excess of 50% of the Company's outstanding
voting securities; (ii) the Company sells or otherwise transfers substantially
all its assets used in the manufacture, promotion and distribution of eyeglass
frames, (iii) the Company does not generate the minimum net sales required by
the license for two consecutive years, (iv) the Company fails to pay royalties
and any other amounts when due, (v) the Company is unable to pay its debts as
they become due, enters into liquidation, makes an assignment for the benefit
of creditors, enters bankruptcy proceedings or ceases doing business as a
going concern, or (vi) the Company fails to perform its other obligations
under or otherwise breaches the license agreement and fails to cure that
breach within 30 days after notice is given.
Hart Schaffner & Marx Eyewear
Signature expanded its presence to the brand-name men's eyewear market in
fiscal 1996 when it acquired a license from Hart Schaffner & Marx, a
subsidiary of Hartmarx Corporation, a leading manufacturer of tailored
clothing. Hart Schaffner & Marx has an image of enduring quality, and is a
recognized name among men who purchase apparel in the medium to high price
range.
The Hart Schaffner & Marx Eyewear collection is targeted at men who are
somewhat conservative and interested in quality, comfort and craftsmanship.
The Company determined that men are generally concerned about both function
and fashion, so the frames contain features which enhance their durability--
the highest quality screws, nosepads and spring hinges--and come with a two-
year "no fault, worry-free" warranty. The collection is designed to fit a
broad spectrum of men, and selected styles have longer temples and larger
sizes than those generally available. Further, many of the styles integrate
Hart Schaffner & Marx fabric patterns into the frame designs.
The Company has the exclusive right to market and sell Hart Schaffner & Marx
Eyewear in the United States through a license with Hart Schaffner & Marx
entered into in January 1996. The license agreement provides that Hart
Schaffner & Marx may not grant to any third person the right to distribute
eyeglass and sunglass frames, lenses and other eyewear products under the Hart
Schaffner & Marx brand name in any country in the world without first offering
the Company the exclusive right to do so. As of the date of this Prospectus,
no Hart Schaffner & Marx Eyewear is sold anywhere outside of the United
States. The Hart Schaffner & Marx license terminates in June 1999, but may be
renewed for three-year terms by the Company in perpetuity provided the Company
is not in default under the license agreement. Hart Schaffner & Marx may
terminate its license with the Company before the expiration of its term if
(i) someone other than Bernard Weiss, Julie Heldman, Robert Fried or Robert
Zeichick acquires more than 50% of the Company's outstanding voting
securities, (ii) all of Ms. Heldman and Messrs. Weiss, Zeichick and Fried
cease to be involved in a significant manner in the exploitation of Hart
Schaffner & Marx Eyewear before June 30, 1999 and after the last of such four
persons
29
<PAGE>
ceases to be involved the Company fails within 90 days to submit a marketing
plan for Hart Schaffner & Marx Eyewear that is acceptable to Hart Schaffner &
Marx, (iii) the Company sells or otherwise transfers substantially all its
assets used in the manufacture, promotion and distribution of eyeglass frames,
(iv) the Company does not generate the minimum net sales required by the
license for two consecutive years, (v) the Company fails to perform its
material obligations under the license agreement and fails to cure that breach
within 30 days after notice is given, or (vi) after written notice in the
event any of the Company's representations and warranties are not correct in
any material respect.
Eddie Bauer Eyewear
In June 1997, the Company acquired the exclusive license from Eddie Bauer to
market Eddie Bauer Eyewear, a collection of men's and women's prescription
eyewear styles. Eddie Bauer, which was founded in 1920, is a subsidiary of
Spiegel, Inc. The Company pursued the Eddie Bauer name, which had not
previously been licensed for prescription eyewear, for its widespread name
recognition, outdoor heritage, casual styling, and reputation for value and
quality. Eddie Bauer currently has over 400 retail stores worldwide, and
annually distributes approximately 100 million Eddie Bauer merchandise
catalogs.
The Eddie Bauer Eyewear collection, which the Company expects to launch in
the Spring of 1998, will be aimed at a different market niche than any of the
Company's other brand names. The Company's marketing plan calls for the
coordination of the collection's frame designs and its marketing,
merchandising and sales promotion programs so that they capture the free
spirit of the Eddie Bauer casual lifestyle and its heritage of the great
outdoors. In keeping with Eddie Bauer's commitment to value, the collection
will consist of medium priced frames, a market-pricing niche which does not
currently have many brand-name competitors. The Company believes that its
purchasing power and its commitment to frame quality will result in the Eddie
Bauer Eyewear collection having higher quality and better features than other
brand-name collections currently targeting the same niche.
The Company has the exclusive worldwide right to market and sell Eddie Bauer
Eyewear through a license agreement with Eddie Bauer entered into in June
1997. Without the prior written consent of Eddie Bauer, however, the Company
may market and sell Eddie Bauer Eyewear only in the United States and in the
other countries specified in the license agreement, most notably Japan, the
United Kingdom, Germany, France, Australia and New Zealand. The license
agreement terminates in December 2002, but the Company may renew it for two
three-year terms provided the Company meets certain minimum net sales and
royalty requirements and is not in material default. Eddie Bauer may terminate
the license before the expiration of its term if (i) a person or entity
acquires more than 30% of the Company's outstanding voting securities, and
thereby becomes the largest shareholder and owns more shares than the Existing
Shareholders, or (ii) the Company commits a material breach of the license
agreement and fails to cure that breach within 30 days after notice is given.
Signature's Camelot Collection
From its inception in 1983 until 1986, the Company, then known as USA
Optical Distributors, Inc., sold only brand-name frames purchased from other
frame suppliers. To take advantage of the increased margins available to
importers, the Company in 1986 began designing its own styles for contract
manufacture overseas. Those styles became the Camelot collection, which
contains a broad range of high-quality men's, women's, unisex, girls' and
boys' styles.
To date, the Company has sold the Camelot collection only through USA
Optical, which is now a division of Signature. The Camelot collection's net
sales were $2,005,000 in fiscal 1995, $2,012,000 in fiscal 1996 and $1,007,000
for the six months ended April 30, 1997. USA Optical continues to sell frames
from other suppliers as part of its sales mix. USA Optical had total net sales
of $3,771,000 in fiscal 1995, $3,709,000 in fiscal 1996, and $1,775,000 for
the six months ended April 30, 1997.
Brand Name Close-Outs
Another Signature division, Optical Surplus, sells brand-name close-outs
(discontinued styles) at discounts. Optical Surplus has also served as a
useful outlet for selling the Company's overstocks of its own brand-name
products, as well as of its Camelot collection. Using Optical Surplus, the
Company is able to control the distribution of its overstocks without
disturbing the market. Optical Surplus had net sales of $1,075,000 in fiscal
1995, $1,153,000 in fiscal 1996, and $492,000 for the six months ended April
30, 1997.
30
<PAGE>
DISTRIBUTION
The Company distributes its products through its distributors in the United
States and through exclusive distributors in foreign countries; through its
own account managers to major optical retail chains, including LensCrafters,
Pearle Vision and Eyecare Centers of America; through its own direct sales
force, which sells directly to independent optical retailers in California;
and through telemarketing (USA Optical and Optical Surplus).
The following table sets forth the Company's net sales by distribution
channel for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------- SIX MONTHS ENDED
1994 1995 1996 APRIL 30, 1997
------ ------- ------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Domestic distributors............... $9,155 $10,792 $12,965 $6,995
Optical retail chains............... 4,593 5,798 7,120 4,593
Telemarketing(1).................... 4,809 4,846 4,862 2,268
International distributors.......... 1,494 2,135 2,486 1,330
Direct sales (California)(2)........ -- -- 847 852
</TABLE>
- --------
(1) USA Optical and Optical Surplus.
(2) The Company began selling directly to independent optical retailers in
California in March 1996.
Domestic Distributors. The Company believes that, to maximize sales of its
brand-name eyeglass frames, it must selectively limit its distributors to
those who (i) adhere to and implement the Company's marketing strategies, (ii)
distribute eyewear to optical retailers that market products consistent with
each brand's image and pricing strategy, and (iii) provide a high level of
customer service and technical expertise. Moreover, Signature's marketing
plans require a significant commitment of time, effort and money on the part
of the distributors. At April 30, 1997, the Company had 25 domestic
distributors. Signature believes that it has good working relationships with
all of its distributors.
Because its distributors sell frames supplied by more than one company, the
Company attempts to motivate the distributors' sales representatives to show
Signature's frames first. The Company provides them with various sales tools,
which have included automatic sales through its loyalty programs, and other
tools which are created and produced by the Company's in-house team, including
motivational audio tapes and videotapes, marketing bulletins and high impact
sales promotions. The Company also offers incentive awards, such as first-
class trips, for reaching targeted sales levels, 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.
32
<PAGE>
The Company is not required to pay for any of its frames prior to shipment.
Payment terms for the Company's products currently range from cash upon
shipment (with a 2% discount) to terms ranging from 60 to 90 days. For frames
purchased other than from Hong Kong manufacturers, the Company is obligated to
pay in the currency of the country in which the manufacturer is located. In
the case of frames purchased from manufacturers located in Hong Kong/China,
the currency is United States dollars. For almost all of the Company's other
frame purchases, its costs vary based on currency fluctuations, and it
generally cannot recover increased frame costs (in United States dollars) in
the selling price of the frames.
The purchase of goods manufactured in foreign countries is subject to a
number of risks. See "Risk Factors--Dependence Upon Contract Manufacturers;
Foreign Trade Regulation."
COMPETITION
The markets for prescription eyewear are intensely competitive. There are
thousands of frame styles, including hundreds with brand names. At retail, the
Company's eyewear styles compete with styles that do and do not have brand
names, styles in the same price range, and styles with similar design
concepts. To obtain board space at an optical retailer, the Company competes
against many companies, both foreign and domestic, including Luxottica Group
S.p.A. (operating in the United States through a number of its subsidiaries);
Safilo Group S.p.A. (operating in the United States through a number of its
subsidiaries); and Marchon Eyewear, Inc. Signature's largest competitors have
significantly greater financial, technical, sales, manufacturing and other
resources than the Company. They also employ direct sales forces that are
significantly larger than the Company's, and are thus able to realize a higher
gross profit margin. At the distributor level, sales representatives often
carry many lines of eyewear, and the Company must vie for their attention. At
the major retail chains, the Company competes not only against other eyewear
suppliers, but also against the chains themselves, which license some of their
own brand names for design, manufacture and sale in their own stores.
Luxottica, one of the largest eyewear companies in the world, is vertically
integrated, in that it manufactures frames, distributes them through direct
sales forces in the United States and throughout the world, and owns
LensCrafters, one of the largest United States retail optical chains.
The Company competes in its target markets through the quality of the brand
names it licenses, its marketing and merchandising, the popularity of its
frame designs, the reputation of its styles for quality, and its pricing
policies. See "Brand Development" and "Products".
BACKLOG
The Company generally ships eyeglass frames upon receipt of orders, and does
not operate with a material backlog.
EMPLOYEES
At April 30, 1997, the Company had 101 full-time employees, including 31 in
sales and marketing, 24 in customer service and support, 25 in warehouse
operations and shipping and 21 in general administration and finance. None of
the employees of the Company is covered by a collective bargaining agreement.
The Company considers its relationship with its employees to be good.
PROPERTIES
The Company leases a building of approximately 44,000 square feet in
Inglewood, California. The building is used as the Company's principal
executive offices and as a warehouse. The lease for this facility expires in
2005. The Company believes that its existing facility is well maintained and
in good operating condition and is adequate for the Company's level of
operations through October 31, 2000.
LEGAL PROCEEDINGS
The Company is not involved in any pending, nor is the Company aware of any
threatened, legal proceedings which the Company believes could reasonably be
expected to have a material adverse effect on the Company's business,
operating results or financial condition.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bernard Weiss (1)..... 59 Co-Chairman of the Board and Chief Executive Officer
Julie Heldman (1)..... 51 Co-Chairman of the Board and President
Michael Prince........ 48 Chief Financial Officer and Director
Robert Fried.......... 52 Senior Vice President, Marketing
Robert Zeichick....... 46 Vice President, Advertising and Sales Promotion
Daniel Warren......... 40 Director
</TABLE>
- --------
(1) Mr. Weiss and Ms. Heldman are married to each other.
Directors are elected at each annual meeting of shareholders and hold office
until the following annual meeting and their successors are duly elected and
qualified. The Bylaws of the Company presently provide that the number of
directors shall not be less than 4 nor more than 7, with the exact number to
be fixed from time to time by resolution of the Board of Directors. The
current number of directors is 4. Any vacancy on the Board of Directors,
including a vacancy resulting from an increase in the size of the Board of
Directors, may be filled by the remaining directors. In no case may the Board
of Directors decrease the number of directors or shorten the term of any
incumbent director.
Pursuant to the Underwriting Agreement, for a period of three years from the
consummation of the Offering, Fechtor Detwiler may designate one
representative to sit on the Company's Board of Directors. See "Underwriting."
Executive officers are appointed and serve at the discretion of the Board of
Directors, subject to applicable employment contracts.
BERNARD WEISS has served as Chief Executive Officer of the Company since
1983. Mr. Weiss served as Chairman of the Board from 1983 to 1988, and has
served as Co-Chairman of the Board since 1989. Mr. Weiss started in the
optical industry in 1975 as Vice President of Sales and Marketing for Optique
du Monde. From 1977 until he founded the Company in 1983, Mr. Weiss worked in
a variety of executive positions at companies in the optical industry. Mr.
Weiss has a degree in business administration from the University of
Pittsburgh.
JULIE HELDMAN has served as Co-Chairman of the Board since 1989 and
President of the Company since 1995. Ms. Heldman joined the Company in 1985
and since that time has served in various executive positions including Chief
Financial Officer and Executive Vice President of Operations. She held the
position of Chief Operating Officer from 1992 until she was appointed
President of the Company in 1995. Ms. Heldman graduated from Stanford
University in 1966 and has a law degree from UCLA Law School which she
obtained in 1981. Ms. Heldman worked as an attorney from 1981 until she joined
the Company in 1985.
MICHAEL PRINCE joined the Company in 1993 and has served as the Chief
Financial Officer and as a Director of the Company since March 1994. For more
than 14 years before joining the Company, Mr. Prince's principal occupation
was as a consultant with Prince & Co., a business consulting firm which he
owned. Mr. Prince has a degree in business administration from Babson College.
ROBERT FRIED has served as the Company's chief marketing executive since
joining the Company in 1990. In 1995, he was appointed Senior Vice President,
Marketing of the Company. Prior to joining the Company in 1990, Mr. Fried
served in various executive marketing positions at Motorola, Quasar
Electronics, Rockwell International, Starcraft Leisure Products, Marantz
Stereo Company, Nautilus Fitness, Inc. and Hansen Foods.
34
<PAGE>
Mr. Fried has a bachelors degree from Providence College and a masters degree
in marketing from Boston University.
ROBERT ZEICHICK has served as the Company's chief advertising and promotion
executive since joining the Company in November 1990. In 1995, he was
appointed Vice President, Advertising and Sales Promotion of the Company. From
1988 until joining the Company in 1990, Mr. Zeichick served as Vice President
of Advertising and Sales Promotion at Nautilus Fitness, Inc. and Hansen Foods.
Mr. Zeichick worked as an independent advertising consultant from 1984 until
1988 and worked on such brand names as Applause, Walt Disney Home Video and
Marantz. Mr. Zeichick has degrees in journalism and mass communications from
California State University.
DANIEL WARREN has served as a director of the Company since 1993. From
January 1996 until the present, Mr. Warren has been self-employed as a
consultant. From March 1992 until January 1996, Mr. Warren was Vice President
of Planning and Accounting of National Vision Associates, Ltd.
BOARD COMMITTEES
The Board of Directors intends to establish an Audit Committee and a
Compensation Committee following the closing of the Offering. The Audit
Committee's functions include recommending to the Board of Directors the
engagement of the Company's independent certified public accountants,
reviewing with those accountants the results of their audit of the financial
statements and determining the independence of the accountants. The
Compensation Committee reviews and makes recommendations about compensation
payable to the Company's executive officers and key employees and about the
Company's employee benefit plans. A majority of the members of the Audit and
Compensation Committees will consist of independent directors.
DIRECTOR COMPENSATION
Before the Offering, the Company has not paid fees to its directors.
Following the Offering, the Company intends to pay non-employee directors a
fee of $8,000 per year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not currently have a compensation committee. For the fiscal
year ended October 31, 1996, all decisions regarding executive compensation
were made by the Company's Board of Directors. No interlocking relationship
exists between any member of the Company's Compensation Committee and any
member of any other company's board of directors or compensation committee.
35
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
fiscal 1996 to the Chief Executive Officer and each of the four most highly
compensated executive officers of the Company (the "Named Executive Officers")
in that fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
--------------------------- -------------------- ------------
<S> <C> <C> <C>
Bernard Weiss, Chief Executive Officer..... $ 145,414 $ 0 $ 1,335(1)
Julie Heldman, President................... $ 161,700 $ 0 $ 5,542(1)
Michael Prince, Chief Financial Officer.... $ 157,345 $ 300,000 $ 300,000(2)
Robert Fried, Senior Vice President,
Marketing................................. $ 138,692 $ 50,000 $ 0
Robert Zeichick, Vice President,
Advertising and Sales Promotion........... $ 138,692 $ 50,000 $ 0
</TABLE>
- --------
(1) Consists of auto allowances.
(2) Represents the value in May 1996 (as determined by the Board of Directors)
of 108,016 shares of Common Stock issued to Mr. Prince in consideration of
services rendered to the Company.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
Bernard Weiss, Julie Heldman, Michael Prince, Robert Fried and Robert
Zeichick have each entered into an employment agreement with the Company to
take effect as of the closing of the Offering. Pursuant to those agreements,
these executive officers have agreed to render services until October 31,
2000, and will be entitled to salary at the following annual rates during the
term of their contracts (subject to increases from time to time approved by
the Board of Directors or Compensation Committee): Mr. Weiss--$190,000; Ms.
Heldman--$190,000; Mr. Prince--$175,000; Mr. Fried--$175,000; and Mr.
Zeichick--$160,000. Upon termination of employment by the Company without
cause or by an executive officer upon an adverse event, an executive officer
will continue to receive salary and benefits until the later to occur of
October 31, 2000 or one year following termination. The employment agreements
define an "adverse event" to include the occurrence of any of the following,
without the prior written consent of the executive officer: (i) the
executive's demotion as evidenced by the loss of the executive officer's
title, (ii) a significant diminution of the executive's on-going duties and
responsibilities, (iii) the relocation of the Company's principal executive
offices outside the Los Angeles Metropolitan area, or (iv) the Company
requiring executive to relocate to an office outside the Los Angeles
Metropolitan area for a period exceeding three months in any calendar year. If
employment terminates as a result of death, the executive officer's estate
will receive a payment equal to the aggregate amount of unpaid salary through
October 31, 2000. The payment will be made, if insured, upon receipt of the
proceeds of the key person life insurance maintained by the Company. Otherwise
the payment will be made over the term of the executive's employment
agreement. If employment terminates as a result of disability, the executive
officer will continue to receive salary and benefits through October 31, 2000,
offset by any government benefits and any benefits the employee receives under
disability insurance provided by the Company.
STOCK PLAN
The Company adopted a Stock Plan (the "Stock Plan") in May 1997. Each
executive officer, other employee, non-employee director or consultant of the
Company or any of its future subsidiaries is eligible to be considered for the
grant of awards under the Stock Plan. A maximum of 600,000 shares of Common
Stock may be issued pursuant to awards granted under the Stock Plan, subject
to certain adjustments to prevent dilution. Any shares of Common Stock subject
to an award which for any reason expires or terminates unexercised are again
available for issuance under the Stock Plan. The Plan terminates in 2007.
The Stock Plan will be administered by the Company's Board of Directors or
by a committee of two or more directors appointed by the Board of Directors
(the "Administrator"). Subject to the provisions of the Stock Plan, the
Administrator will have full and final authority to select the executives and
other employees to whom awards will be granted thereunder, to grant the awards
and to determine the terms and conditions of the awards and the number of
shares to be issued pursuant thereto.
36
<PAGE>
The Stock Plan authorizes the Administrator to enter into any type of
arrangement with an eligible employee that, by its terms, involves or might
involve the issuance of (i) shares of Common Stock, (ii) an option, warrant,
convertible security, stock appreciation right or similar right with an
exercise or conversion privilege at a price related to the Common Stock, or
(iii) any other security or benefit with a value derived from the value of the
Common Stock. No person may receive awards representing more than 25% of the
number of shares of Common Stock covered by the Stock Plan (150,000 shares).
Awards under the Stock Plan are not restricted to any specified form or
structure and may include arrangements such as sales, bonuses and other
transfers of stock, restricted stock, stock options, reload stock options,
stock purchase warrants, other rights to acquire stock or securities
convertible into or redeemable for stock, stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares. An award
may consist of one such arrangement or two or more such arrangements in tandem
or in the alternative. An award may provide for the issuance of Common Stock
for any lawful consideration, including services rendered or, to the extent
permitted by applicable state law, to be rendered.
An award under the Stock Plan may permit the recipient to pay all or part of
the purchase price of the shares or other property issuable pursuant to the
award, and/or to pay all or part of the recipient's tax withholding
obligations for that issuance, by delivering previously owned shares of
capital stock of the Company or other property, or by reducing the amount of
shares or other property otherwise issuable pursuant to the award. If an
option granted under the Stock Plan permits the recipient to pay for the
shares underlying the option with previously owned shares, the option may
grant the recipient the right to "pyramid" his or her previously owned shares,
i.e., to exercise the option in successive transactions, starting with a
relatively small number of shares and, by a series of exercises using shares
acquired from each transaction to pay the purchase price of the shares
acquired in the following transaction, to exercise the option for a larger
number of shares with no more investment than the original share or shares
delivered.
The Administrator may amend or terminate the Stock Plan at any time and in
any manner, subject to the following: (i) no recipient of any award may,
without his or her consent, be deprived of the award or of any of his or her
rights under or relating to the award as a result of the amendment or
termination; and (ii) if any rule or regulation promulgated by the Securities
and Exchange Commission (the "Commission"), the Internal Revenue Service or
any national securities exchange or quotation system upon which any of the
Company's securities are listed requires that the amendment be approved by the
Company's stockholders, then the amendment will not be effective until it has
been approved by the Company's shareholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation include a provision that eliminates
the personal liability of its directors to the Company and its shareholders
for monetary damages for breach of the directors' fiduciary duties in certain
circumstances. This limitation has no effect on a director's liability (i) for
acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law, (ii) for acts or omissions that a director believes
to be contrary to the best interests of the Company or its shareholders or
that involve the absence of good faith on the part of the director, (iii) for
any transaction from which a director derived an improper personal benefit,
(iv) for acts or omissions that show a reckless disregard for the director's
duty to the Company or its shareholders in circumstances in which the director
was aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of a serious injury to the Company or its
shareholders, (v) for acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
Company or its shareholders, (vi) under Section 310 of the California
Corporations Code (the "California Code") (concerning contracts or
transactions between the Company and a director) or (vii) under Section 316 of
the California Code (concerning directors' liability for improper dividends,
loans and guarantees). The provision does not extend to acts or omissions of a
director in his capacity as an officer. Further, the provision will not affect
the availability of injunctions and other equitable remedies available to the
Company's shareholders for any violation of a director's fiduciary duty to the
Company or its shareholders.
The Company's Articles of Incorporation also include an authorization for
the Company to indemnify its agents (as defined in Section 317 of the
California Code), through bylaw provisions, by agreement or otherwise,
37
<PAGE>
to the fullest extent permitted by law. Pursuant to this provision, the
Company's Bylaws provide for indemnification of the Company's directors,
officers and employees. In addition, the Company, at its discretion, may
indemnify persons whom the Company is not obligated to indemnify. The Bylaws
also allow the Company to enter into indemnity agreements with individual
directors, officers, employees and other agents. The Company has entered into
indemnification agreements designed to provide the maximum indemnification
permitted by law with all the directors and executive officers of the Company.
These agreements, together with the Company's Bylaws and Articles of
Incorporation, may require the Company, among other things, to indemnify these
directors and executive officers against certain liabilities that may arise by
reason of their status or service as directors or executive officers (other
than liabilities resulting from willful misconduct of a culpable nature), to
advance expenses to them as they are incurred, provided that they undertake to
repay the amount advanced if it is ultimately determined by a court that they
are not entitled to indemnification, and to obtain directors' and officers'
insurance if available on reasonable terms. The Company maintains directors'
and officers' liability insurance.
Section 317 of the California Code, the Company's Bylaws and the Company's
indemnification agreements with its directors and executive officers make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify those persons, under certain
circumstances, for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
38
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has been treated as an S Corporation since 1990. The Company
paid an aggregate of $4,685,000 in dividends to the Existing Shareholders from
November 1, 1993 through April 30, 1997. These dividends were paid to the
Existing Shareholders to pay their income taxes, and as a return on their
investment. The Company intends to pay to the Existing Shareholders dividends
equal to $635,000 plus the amount of the Company's net income from May 1, 1997
through the Termination Date. These dividends will be paid to the Existing
Shareholders before the closing of the Offering.
The Company and the Existing Shareholders have entered into a tax
indemnification agreement relating to their respective income tax liabilities.
See "Termination of S Corporation Status."
Until April 1997, Mr. Weiss and Ms. Heldman personally guaranteed the
Company's obligation under the loan from its commercial bank. Mr. Weiss and
Ms. Heldman have personally guaranteed the Company's performance under the
lease for its corporate offices and warehouse (the "Lease Guarantee"). The
Lease Guarantee has been suspended and shall remain suspended so long as the
Company's net worth equals or exceeds $1,500,000, and will terminate upon the
closing of the Offering.
Robert Fried and Robert Zeichick, executive officers of the Company, are
officers, directors and significant shareholders of Brandmark, Inc., a
corporation which has a license from Laura Ashley to produce timepieces
bearing the Laura Ashley trademark. In fiscal 1996, the Company purchased from
Brandmark, Inc. an aggregate of $362,000 of timepieces bearing the Laura
Ashley trademark. The Company, with the financial participation of its
distributors, gave these timepieces to its 1996 Laura Ashley Loyal Partners as
a promotional incentive. The Company did not make any purchases from
Brandmark, Inc. during the six months ended April 30, 1997; however, by the
end of fiscal 1997, the Company plans to purchase from Brandmark, Inc.
approximately $450,000 of Laura Ashley timepieces for its 1997 Laura Ashley
Loyal Partners. The activities of Mr. Fried and Mr. Zeichick with Brandmark,
Inc. have not interfered with their responsibilities as executive officers of
the Company.
In January 1995, the Company purchased from The Weiss Family Trust a limited
partnership interest in International Business Center, a California limited
partnership ("IBC"), which owns the premises formerly used by the Company as
its principal executive offices. Bernard Weiss and Julie Heldman, the Chief
Executive Officer and President, respectively, and Co-Chairmen of the Board of
the Company, are trustees of The Weiss Family Trust. The Company paid $75,000
for the limited partnership interest, an amount equal to the purchase price
originally paid by The Weiss Family Trust. The Company paid for the limited
partnership interest with a non-interest bearing promissory note which was
paid in full in January 1996.
In March 1993, the Company issued two subordinated notes (the "Subordinated
Notes"), each in the principal amount of $200,000, to Edward Weiner and Daniel
Warren in consideration of the cancellation of demand loans made by Messrs.
Weiner and Warren to the Company. Mr. Warren is a director of the Company and
Messrs. Weiner and Warren are significant shareholders of the Company. The
Subordinated Notes, which provided for an annual interest rate of 5.5%,
payable annually, were due on March 1, 1998. One of the Subordinated Notes was
repaid in April 1995 and the other was repaid in October 1996.
In June 1992, Mr. Weiss and Ms. Heldman loaned the Company $400,000. The
promissory note evidencing the loan provided for an annual interest rate equal
to one and one-half percent over the prime rate of Wells Fargo Bank, adjusted
annually, and was due on May 31, 1997. The loan was repaid in October 1996.
The Company believes that the transactions described above were on terms no
less favorable to the Company than could have been obtained in arm's length
transactions from unaffiliated third parties.
39
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 30, 1997, and as adjusted to reflect
the sale of 1,600,000 shares of Common Stock by the Company and the sale of
200,000 shares of Common Stock by the Selling Shareholders offered by this
Prospectus, for (i) each person who is known to the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, (ii) each of
the Company's directors, (iii) each of the Named Executive Officers, and (iv)
all directors and executive officers of the Company as a group. The address of
each person listed is in care of the Company, 498 North Oak Street, Inglewood,
California 90302, unless otherwise set forth below such person's name.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) AFTER THE OFFERING(1)(2)
---------------------------- ----------------------------
NUMBER OF
NUMBER OF PERCENT SHARES NUMBER OF PERCENT
NAME AND ADDRESS SHARES OF CLASS OFFERED(2) SHARES OF CLASS
---------------- --------------- ------------ ---------- --------------- ------------
<S> <C> <C> <C> <C> <C>
The Weiss Family Trust
(3).................... 2,393,543 66.5% 132,954 2,260,589 43.5%
Bernard Weiss (3)....... 2,393,543 66.5 132,954 2,260,589 43.5
Julie Heldman (3)....... 2,393,543 66.5 132,954 2,260,589 43.5
Edward Weiner (4)....... 349,250 9.7 19,400 329,850 6.3
600 Golden Harbor Drive
Boca Raton, Florida
33431
Daniel Warren........... 349,250 9.7 19,400 329,850 6.3
85 Old Stratton Chase
Atlanta, GA 30328
Robert Fried............ 200,234 5.6 11,123 189,111 3.6
Robert Zeichick......... 200,234 5.6 11,123 189,111 3.6
Michael Prince.......... 108,016 3.0 6,000 102,016 2.0
All of the directors and
executive officers as a
group (6 Persons)...... 3,251,277 90.3 180,600 3,070,677 59.0
</TABLE>
- --------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that deem shares to be beneficially
owned by any person who has or shares voting or investment power for those
shares. Unless otherwise indicated, the persons named in this table have
sole voting and sole investment power for all shares shown as beneficially
owned, subject to community property laws where applicable.
(2) Assumes no exercise of the Over-Allotment Option. If the Over-Allotment
Option is exercised in full, the Company will sell an additional 67,500
shares of Common Stock and the Selling Shareholders will sell an
additional 202,500 shares of Common Stock. In such event, upon the closing
of the Offering (i) The Weiss Family Trust will sell an aggregate of
267,571 shares and beneficially own 2,125,972 shares, or 40.4% of the
Company's outstanding Common Stock, (ii) Bernard Weiss will beneficially
own 2,125,972 shares, or 40.4% of the Company's outstanding Common Stock,
(iii) Julie Heldman will beneficially own 2,125,972 shares, or 40.4% of
the Company's outstanding Common Stock, (iv) Edward Weiner will sell an
aggregate of 39,042 shares and beneficially own 310,208 shares, or 5.9% of
the Company's outstanding Common Stock, (v) Daniel Warren will sell an
aggregate of 39,042 shares and beneficially own 310,208 shares, or 5.9% of
the Company's outstanding Common Stock, (vi) Robert Fried will sell an
aggregate of 22,385 shares and beneficially own 177,849 shares, or 3.4% of
the Company's outstanding Common Stock, (vii) Robert Zeichick will sell an
aggregate of 22,385 shares and beneficially own 177,849 shares, or 3.4% of
the Company's outstanding Common Stock, (viii) Michael Prince will sell an
aggregate of 12,075 shares and beneficially own 95,941 shares, or 1.8% of
the Company's outstanding Common Stock, and (ix) all directors and
executive officers as a group will beneficially own 2,887,819 shares, or
54.8% of the Company's outstanding Common Stock.
(3) Bernard Weiss and Julie Heldman are married. Mr. Weiss and Ms. Heldman are
co-trustees of The Weiss Family Trust, and have voting and investment
power for shares held by The Weiss Family Trust.
(4) Edward Weiner served as a director of the Company from March 1993 until
June 2, 1997.
40
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 30,000,000 shares of Common Stock, par
value $0.001 per share, and 5,000,000 shares of Preferred Stock, par value
$0.001 per share. At April 30, 1997, the Company had six holders of record of
the Common Stock. The following statements are brief summaries of certain
provisions relating to the Company's capital stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters on which the holders of Common Stock are entitled to
vote and have cumulative voting rights for the election of directors. The
right to cumulate votes will automatically cease as of the first record date
of the Company's annual meeting of shareholders where the Company has at least
800 holders of its equity securities (as determined under the California
General Corporation Law). The holders of Common Stock are entitled to receive
dividends ratably when, as and if declared by the Board of Directors out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled, subject
to the rights of holders of Preferred Stock issued by the Company, if any, to
share ratably in all assets remaining available for distribution to them after
payment of liabilities and after provision is made for each class of stock, if
any, having preference over the Common Stock.
The holders of Common Stock have no preemptive or conversion rights and they
are not subject to further calls or assessments by the Company. There are no
redemption or sinking fund provisions applicable to the Common Stock. The
outstanding shares of Common Stock are, and the shares of Common Stock
issuable pursuant to this Prospectus will be, when issued, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the authorized and
unissued Preferred Stock in one or more series with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without
shareholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights which adversely affect the voting power or
other rights of the holders of the Company's Common Stock. In the event of
issuance, the Preferred Stock could be utilized, under certain circumstances,
as a way of discouraging, delaying or preventing an acquisition or change in
control of the Company. The Company does not currently intend to issue any
shares of its Preferred Stock.
REGISTRATION RIGHTS
Pursuant to an agreement between the Company and the Existing Shareholders,
the Existing Shareholders have the right to include all shares of Common Stock
from time to time held by them in any registered public offering by the
Company for cash (subject to customary provisions regarding underwriter
cutbacks). The Board of Directors of the Company has the right to terminate
this agreement in its sole and absolute discretion in the event of any merger
or consolidation between the Company and another entity in which the Company
is not the surviving corporation.
TRANSFER AGENT
The Company's transfer agent and registrar for its Common Stock is American
Stock Transfer and Trust Company, 40 Wall Street, New York, New York 10005.
41
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before the Offering, there has been no public market for the Company's
Common Stock. Sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock.
Upon completion of the Offering, the Company will have outstanding an
aggregate of 5,200,527 shares of Common Stock, assuming no exercise of the
Over-Allotment Option. Of these shares, the 1,800,000 shares sold in the
Offering will be freely tradeable without restriction or further registration
under the Securities Act, unless held by "affiliates" of the Company, as that
term is defined in Rule 144 under the Securities Act. The remaining 3,400,527
shares of Common Stock held by the Existing Shareholders are "restricted"
securities within the meaning of Rule 144 under the Securities Act. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rule 144 promulgated under
the Securities Act, as summarized below.
Each Existing Shareholder has agreed not to sell, transfer, assign, or
otherwise dispose of, any beneficial interest in the Common Stock held by him
or her (except for transfers to and/or among their respective family members)
for a period of 360 days following the date of this Prospectus, except with
Fechtor Detwiler's prior written consent and except that each shareholder may
transfer up to 104,000 shares in the aggregate after 180 days following the
date of this Prospectus. As a result of these contractual restrictions, no
shares will be eligible for immediate sale on the effective date of the
Offering. All of the 3,400,527 shares will become eligible for sale upon
expiration of or earlier release from the lock-up provisions, subject to
compliance with the volume limitations of Rule 144 (summarized below) by
holders of 3,070,677 of these shares.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least one year but less than two
years, will be entitled to sell in any three-month period a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock (approximately 52,000 shares immediately after the Offering) or
(ii) the average weekly trading volume during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or person whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding the sale and who has
beneficially owned his or her shares for at least two years is entitled to
sell these shares pursuant to Rule 144(k) without regard to the limitations
described above.
The Company has reserved an aggregate of 600,000 shares of Common Stock for
issuance pursuant to the Stock Plan. The Company intends to file a
registration statement under the Securities Act to register the 600,000 shares
of Common Stock reserved for issuance under the Stock Plan. The registration
statement is expected to be filed following the date of this Prospectus and
will become effective immediately upon filing with the Securities and Exchange
Commission. Shares issued under the Stock Plan after the effective date of
such registration statement generally will be available for sale to the public
without restriction, except for shares issued to affiliates of the Company,
which will remain subject to the volume and manner of sale limitations of Rule
144 and the 360 day lock-up provisions. See "Underwriting."
42
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Fechtor,
Detwiler & Co., Inc. and Van Kasper & Company (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement (the "Underwriting Agreement"), to purchase from the Company and the
Selling Shareholders, and the Company and the Selling Shareholders have agreed
to sell to the Underwriters, the number of shares of Common Stock set forth
opposite the Underwriter's name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Fechtor, Detwiler & Co., Inc. .................................
Van Kasper & Company...........................................
---------
Total........................................................ 1,800,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and the Selling
Shareholders and their counsel and independent auditors. The nature of the
underwriting commitment is such that the Company is obligated to sell and the
Underwriters are obligated to purchase all, if any, of the shares of Common
Stock offered by this Prospectus.
The Company has been advised by the Underwriters that they propose initially
to offer the Common Stock to the public at the public offering price set forth
on the cover page of this Prospectus and to allow to certain dealers
concessions not in excess of $ per share of Common Stock. Such dealers may
re-allow a concession not in excess of $ per share of Common Stock to other
dealers. After the commencement of the Offering, the public offering price,
concession and reallowance may be changed by the Underwriters. The
Underwriters have advised the Company that they do not anticipate sales to
discretionary accounts by the Underwriters to exceed five percent of the total
number of shares of Common Stock offered by this Prospectus.
At the request of the Company, up to 150,000 shares of Common Stock offered
in the Offering will be reserved for sale to employees and others having a
business relationship with the Company. The price of these shares to these
persons will be the public offering price set forth on the cover page of this
Prospectus.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, the Exchange Act
and any other statute or at common law or otherwise under the laws of foreign
countries, arising out of or based upon any untrue statement of or failure to
state a material fact in any preliminary Prospectus, final Prospectus, the
Registration Statement of which this Prospectus is a part or in certain other
documents and to contribute to certain payments that the Underwriters may be
required to make. The Company has also agreed to reimburse the Underwriters
for their actual out-of-pocket expenses not to exceed $135,000 in the
aggregate, of which none has been paid to date.
The Company and the Selling Shareholders have granted to the Underwriters
the Over-Allotment Option, exercisable within 30 days after the date of this
Prospectus, to purchase up to an aggregate of 67,500 additional shares from
the Company and 202,500 additional shares from the Selling Shareholders at the
initial public offering price per share of Common Stock offered by this
Prospectus, less underwriting discounts. The option may be exercised only for
the purpose of covering over-allotments, if any, incurred in the sale of the
Common Stock offered by this Prospectus.
Pursuant to the Underwriting Agreement, the Company has granted Fechtor
Detwiler a right of first refusal to represent the Company in any subsequent
financing or other transaction for which the Company requires the services of
an investment banker or broker/dealer for a three-year period commencing upon
the consummation of the Offering.
43
<PAGE>
In connection with the Offering, the Company has agreed to sell to the
Representatives, for nominal consideration, the Representatives' Warrants to
purchase from the Company 180,000 shares of Common Stock which have been
registered in the Registration Statement of which this Prospectus is a part.
The Representatives' Warrants are initially exercisable at a price equal to
120% of the initial public offering price for a period of four years
commencing one year from the effective date of the Registration Statement. The
Representatives' Warrants contain anti-dilution provisions for, among others,
stock dividends, stock splits, mergers, sale of substantially all of the
Company's assets (but not the sale or issuance of Common Stock at a price
below the then current exercise price of the Representatives' Warrants).
Pursuant to the Underwriting Agreement, for a period of three years from the
consummation of the Offering, Fechtor Detwiler may designate one
representative to sit on the Board of Directors of the Company.
Before the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock has been
determined by negotiations between the Company and the Representatives and is
not necessarily related to the Company's asset value, net worth or other
established criteria of value. The factors considered in such negotiations, in
addition to prevailing market conditions, included the history of, and
prospects for, the industry in which the Company competes, an assessment of
the Company's management, the prospects of the Company, its capital structure
and certain other factors which were deemed relevant.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a
copy of each such agreement which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. See "Additional Information."
LEGAL MATTERS
Counsel for the Company, Troop Meisinger Steuber & Pasich, LLP, Los Angeles,
California, will render an opinion to the effect that the Common Stock offered
by the Selling Shareholders is, and the Common Stock offered by the Company
upon sale will be, duly and validly issued, fully paid and non-assessable.
Proskauer Rose LLP, Boca Raton, Florida, has acted as counsel to the
Underwriters in connection with certain legal matters relating to the
Offering.
EXPERTS
The financial statements of Signature Eyewear, Inc. at October 31, 1996 and
October 31, 1995, and for each of the three years in the period ended October
31, 1996 have been audited by Altschuler, Melvoin and Glasser LLP, independent
auditor, as set forth in their reports appearing elsewhere in this Prospectus
and Registration Statement, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement under the Securities Act for the
shares offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits included
with the Registration Statement. Statements contained in this Prospectus as to
the contents of any contract or any other document referred to are not
necessarily complete, and with respect to any contract or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such
statement is qualified in its entirety by this reference. For further
information about the Company and the shares offered by this Prospectus,
reference is hereby made to the Registration Statement and
44
<PAGE>
exhibits included with the Registration Statement. A copy of the Registration
Statement, including exhibits, may be inspected without charge at the
Securities and Exchange Commission's principal office in Washington, D.C., and
copies of all or any part thereof may be obtained from the Public Reference
Section of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of certain prescribed rates.
Upon consummation of the Offering, the Company will become subject to the
information requirements of the Exchange Act and, in accordance therewith,
will file reports and other information with the Securities and Exchange
Commission in accordance with its rules. These reports and other information
concerning the Company may be inspected and copied at the public reference
facilities referred to above as well as certain regional offices of the
Securities and Exchange Commission.
The Securities and Exchange Commission maintains a Web Site which contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Securities and Exchange Commission
(such as the Company) at http://www.sec.gov.
45
<PAGE>
SIGNATURE EYEWEAR, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheets at October 31, 1995 and 1996 and (Unaudited) April 30,
1997..................................................................... F-3
Statement of Income for the years ended October 31, 1994, 1995 and 1996
and (Unaudited) for the Six Months Ended April 30, 1996 and 1997......... F-4
Statement of Changes in Stockholders' Equity for the years ended October
31, 1994, 1995 and 1996 and (Unaudited) for the Six Months Ended April
30, 1997................................................................. F-5
Statement of Cash Flows for the years ended October 31, 1994, 1995 and
1996 and (Unaudited) for the Six Months Ended April 30, 1996 and 1997.... F-6
Notes to the Financial Statements......................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Signature Eyewear, Inc.
We have audited the accompanying balance sheets of SIGNATURE EYEWEAR, INC.
(an S corporation) as of October 31, 1995 and 1996, and the related statements
of income, changes in stockholders' equity and cash flows for each of the
three years in the period ended October 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Signature Eyewear, Inc. at
October 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended October 31, 1996, in
conformity with generally accepted accounting principles.
ALTSCHULER, MELVOIN AND GLASSER LLP
Los Angeles, California
January 15, 1997
F-2
<PAGE>
SIGNATURE EYEWEAR, INC.
BALANCE SHEETS
OCTOBER 31, 1995 AND 1996 AND UNAUDITED APRIL 30, 1997
<TABLE>
<CAPTION>
APRIL 30, 1997
-----------------------
PRO FORMA
1995 1996 ACTUAL (NOTE 1)
---------- ----------- ----------- -----------
UNAUDITED
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.......................... $ 28,724 $ 214,399 $ 59,673 $ 59,673
Accounts receivable, trade
(net of allowance for
doubtful accounts of $24,028
in 1995, $45,000 in 1996 and
$65,000 in 1997)............. 2,745,291 3,849,750 4,724,307 4,724,307
Inventories................... 3,627,951 4,635,928 5,338,000 5,338,000
Prepaid expenses and other
current assets............... 60,182 288,859 458,793 458,793
---------- ----------- ----------- -----------
6,462,148 8,988,936 10,580,773 10,580,773
---------- ----------- ----------- -----------
Property and Equipment (net of
accumulated depreciation and
amortization--Note 2).......... 599,461 1,040,374 1,132,822 1,132,822
---------- ----------- ----------- -----------
Other Assets:
Deferred charges (net of
amortization of $194,743 in
1995, $210,972 in 1996 and
$210,972 in 1997--Note 1).... 16,229 0 0 0
Deposits and other............ 181,985 263,747 263,747 263,747
---------- ----------- ----------- -----------
198,214 263,747 263,747 263,747
---------- ----------- ----------- -----------
$7,259,823 $10,293,057 $11,977,342 $11,977,342
========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable, trade....... $1,566,019 $ 2,571,945 $ 2,941,903 $ 2,941,903
Note payable, bank (Note 3)... 1,755,000 3,100,000 4,625,000 4,625,000
Current portion of long-term
debt (Note 4)................ 202,826 206,394 571,790 571,790
Accrued expenses and other
current liabilities.......... 1,078,767 1,328,698 1,140,992 1,140,992
Dividends payable............. 0 0 0 635,000
---------- ----------- ----------- -----------
4,602,612 7,207,037 9,279,685 9,914,685
---------- ----------- ----------- -----------
Long-term Debt (Note 4)......... 349,199 156,883 62,415 62,415
Notes Payable, Stockholders
(Note 7)....................... 362,500 0 0 0
---------- ----------- ----------- -----------
711,699 156,883 62,415 62,415
---------- ----------- ----------- -----------
Commitments (Note 5)
Stockholders' Equity (Note 6):
Preferred stock............... 0 0 0 0
Common stock (3,492,511 shares
issued and outstanding at
October 31, 1995 and
3,600,527 shares issued and
outstanding at October 31,
1996 and April 30, 1997)..... 7,500 7,732 7,732 7,732
Paid-in capital............... 113,261 413,029 413,029 1,912,341
Retained earnings............. 1,824,751 2,508,376 2,214,481 80,169
---------- ----------- ----------- -----------
1,945,512 2,929,137 2,635,242 2,000,242
---------- ----------- ----------- -----------
$7,259,823 $10,293,057 $11,977,342 $11,977,342
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
SIGNATURE EYEWEAR, INC.
STATEMENT OF INCOME
YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
UNAUDITED FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
UNAUDITED
<S> <C> <C> <C> <C> <C>
Net Sales............... $20,050,685 $23,570,513 $28,280,086 $13,052,354 $16,038,054
Cost of Sales........... 9,666,062 10,988,106 11,931,299 5,625,371 6,632,110
----------- ----------- ----------- ----------- -----------
Gross Profit............ 10,384,623 12,582,407 16,348,787 7,426,983 9,405,944
----------- ----------- ----------- ----------- -----------
Operating Expenses:
Selling............... 5,854,838 6,509,752 8,328,296 3,681,742 4,700,464
General and
administrative....... 3,223,909 4,035,432 5,611,874 2,302,726 2,807,433
Relocation expense ... 0 235,419 86,871 48,942 0
----------- ----------- ----------- ----------- -----------
9,078,747 10,780,603 14,027,041 6,033,410 7,507,897
----------- ----------- ----------- ----------- -----------
Income from Operations.. 1,305,876 1,801,804 2,321,746 1,393,573 1,898,047
----------- ----------- ----------- ----------- -----------
Other Income (Expense):
Interest expense...... (200,814) (201,196) (338,373) (166,612) (188,654)
Sundry income
(expense)............ 3,124 35,448 29,196 6,879 (2,488)
----------- ----------- ----------- ----------- -----------
(197,690) (165,748) (309,177) (159,733) (191,142)
----------- ----------- ----------- ----------- -----------
Income before State
Income Taxes........... 1,108,186 1,636,056 2,012,569 1,233,840 1,706,905
Provision for State
Income Taxes (Note 1).. 1,072 1,352 800 800 800
----------- ----------- ----------- ----------- -----------
Net Income.............. $ 1,107,114 $ 1,634,704 $ 2,011,769 $ 1,233,040 $ 1,706,105
=========== =========== =========== =========== ===========
Pro Forma Data
(unaudited):
Income before
provision for state
income taxes (from
above)............... $ 1,108,186 $ 1,636,056 $ 2,012,569 $ 1,233,840 $ 1,706,905
Income tax provision.. 418,000 606,000 748,000 473,000 677,000
----------- ----------- ----------- ----------- -----------
Net income............ $ 690,186 $ 1,030,056 $ 1,264,569 $ 760,840 $ 1,029,905
=========== =========== =========== =========== ===========
Net income per common
share................ $ 0.36 $ 0.22 $ 0.29
=========== =========== ===========
Common shares
outstanding ......... 3,546,519 3,492,511 3,600,527
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
SIGNATURE EYEWEAR, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
UNAUDITED FOR THE SIX MONTHS ENDED APRIL 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK
----------------
NO. OF
SHARES PAID-IN RETAINED
ISSUED AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, November 1, 1993
(Note 6)................. 3,492,511 $7,500 $113,261 $ 440,183 $ 560,944
Net Income................ 0 0 0 1,107,114 1,107,114
Dividends Paid............ 0 0 0 (807,250) (807,250)
--------- ------ -------- ----------- -----------
Balance, October 31,
1994..................... 3,492,511 7,500 113,261 740,047 860,808
Net Income................ 0 0 0 1,634,704 1,634,704
Dividends Paid............ 0 0 0 (550,000) (550,000)
--------- ------ -------- ----------- -----------
Balance, October 31,
1995..................... 3,492,511 7,500 113,261 1,824,751 1,945,512
Net Income................ 0 0 0 2,011,769 2,011,769
Issuance of Common Stock.. 108,016 232 299,768 0 300,000
Dividends Paid............ 0 0 0 (1,328,144) (1,328,144)
--------- ------ -------- ----------- -----------
Balance, October 31,
1996..................... 3,600,527 7,732 413,029 2,508,376 2,929,137
Net Income (unaudited).... 0 0 0 1,706,105 1,706,105
Dividends Paid
(unaudited).............. 0 0 0 (2,000,000) (2,000,000)
--------- ------ -------- ----------- -----------
Balance, April 30, 1997
(unaudited).............. 3,600,527 $7,732 $413,029 $ 2,214,481 $ 2,635,242
========= ====== ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
SIGNATURE EYEWEAR, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1994, 1995 AND 1996 AND
UNAUDITED FOR THE SIX MONTHS ENDED APRIL 30, 1996 AND 1997
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
UNAUDITED
<S> <C> <C> <C> <C> <C>
Cash Flows from
Operating Activities:
Net income............. $ 1,107,114 $ 1,634,704 $ 2,011,769 $ 1,233,040 $ 1,706,105
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
Depreciation and
amortization.......... 124,047 218,956 249,013 117,099 209,560
Provision for bad
debts................. 25,000 (26,952) 20,972 15,972 20,000
Stock compensation..... 0 0 300,000 0 0
Loss on abandonment of
property and
equipment............. 0 92,123 0 0 0
Changes in assets--
(increase) decrease:
Accounts receivable,
trade................ 155,767 (851,423) (1,125,431) (1,004,132) (894,557)
Inventories........... (46,647) (1,134,544) (1,007,977) (1,118,084) (702,072)
Prepaid expenses and
other assets......... 15,009 (142,549) (310,439) (309,197) (169,934)
Changes in
liabilities--increase
(decrease):
Accounts payable,
trade................ 223,076 79,003 1,005,926 (107,490) 369,958
Accrued expenses and
other liabilities.... 262,808 409,828 249,931 (56,989) (187,706)
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities............ 1,866,174 279,146 1,393,764 (1,229,781) 351,354
----------- ----------- ----------- ----------- -----------
Cash Flows from
Investing Activities:
Purchases of property
and equipment......... (128,478) (464,200) (655,074) (135,289) (302,008)
Net proceeds on sale of
equipment............. 3,583 0 0 0 0
----------- ----------- ----------- ----------- -----------
Net cash used in
investing activities.. (124,895) (464,200) (655,074) (135,289) (302,008)
----------- ----------- ----------- ----------- -----------
Cash Flows from
Financing Activities:
Borrowings on long-term
debt.................. 0 525,000 0 0 0
Borrowings on note
payable, bank......... 7,520,000 9,275,000 9,310,000 5,085,000 4,900,000
Repayments on note
payable, bank......... (8,100,000) (8,820,000) (7,965,000) (2,740,000) (3,375,000)
Principal payments on
long-term debt........ (41,775) (66,936) (207,371) (217,069) (229,072)
Principal payments on
notes payable,
stockholders.......... (200,000) (437,500) (362,500) 0 0
Proceeds from long-term
debt.................. 0 0 0 0 500,000
Dividends paid......... (807,250) (550,000) (1,328,144) (640,000) (2,000,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities............ (1,629,025) (74,436) (553,015) 1,487,931 (204,072)
----------- ----------- ----------- ----------- -----------
Net Increase (Decrease)
in Cash................ 112,254 (259,490) 185,675 122,861 (154,726)
Cash, Beginning of
Period................. 175,960 288,214 28,724 28,724 214,399
----------- ----------- ----------- ----------- -----------
Cash, End of Period..... $ 288,214 $ 28,724 $ 214,399 $ 151,585 $ 59,673
=========== =========== =========== =========== ===========
Supplemental
Disclosures of Cash
Flow Information:
Cash paid during the
period for:
Interest.............. $ 200,810 $ 193,044 $ 337,575 $ 159,932 $ 179,787
=========== =========== =========== =========== ===========
Income taxes.......... $ 1,072 $ 1,352 $ 800 $ 800 $ 800
=========== =========== =========== =========== ===========
Supplemental Schedule
of Noncash Investing
and Financing
Activities:
Purchase of equipment
financed by capital
lease obligation..... $ 0 $ 0 $ 18,623 $ 18,623 $ 0
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
SIGNATURE EYEWEAR, INC.
NOTES TO THE FINANCIAL STATEMENTS
OCTOBER 31, 1994, 1995 AND 1996 AND UNAUDITED APRIL 30, 1997
NOTE 1--NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES:
Signature Eyewear, Inc. (the "Company") designs, markets and distributes
prescription eyeglass frames throughout the United States and internationally.
Operations are conducted from leased premises in Inglewood, California.
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
A summary of significant accounting policies is as follows:
Inventories--Inventories (consisting of finished goods) are valued at the
lower of cost, determined on a first-in, first-out (FIFO) basis, or market.
Revenue Recognition--Revenue is recognized when merchandise is shipped and
invoiced. An allowance for estimated product returns is established based upon
actual historical return percentages multiplied by current period sales less
actual returns.
Depreciation and Amortization--Depreciation and amortization of property and
equipment are computed using the straight-line method over the useful economic
life of the assets.
Deferred Charges--Costs of product development incurred in connection with
establishing the Laura Ashley Eyewear line (Note 5) were amortized on the
straight-line basis over 39 months. The deferred charges were fully amortized
as of January 31, 1996. Provision for amortization charged to operations for
the years ended October 31, 1994, 1995 and 1996 amounted to $12,711, $64,914
and $16,229, respectively. Product development costs incurred subsequent to
the Laura Ashley Eyewear line have been charged as expenses when and as
incurred.
Income Taxes--Pursuant to its S corporation status under the Internal
Revenue Code, the Company is not subject to federal income taxes, and its
income is allocated and taxed to the stockholders' individual income tax
returns. Accordingly, no liability or provision for federal income taxes
attributable to S corporation operations is included in the accompanying
financial statements, nor are any deferred taxes provided for temporary
differences between tax and financial reporting. Provision for state income
taxes has been provided based upon the applicable state income tax rate, net
of income tax credits and deductions as provided under the provisions of the
Los Angeles Revitalization Zone.
The impact on the Company's financial position and results of operations had
the change in income tax status to a C corporation been effected as of April
30, 1997 would be to record a deferred tax asset and a deferred tax benefit in
the amount of approximately $100,000. Management estimates that this amount
will not materially differ at the actual S corporation termination date.
Financial Instruments--The Company's financial instruments, when valued
using market interest rates, would not be materially different from the
amounts presented in the financial statements.
Impairment of Assets--In November 1996, the Company adopted Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
The Statement establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles, and goodwill related to those
assets. There was no material effect on the financial statements from the
adoption of SFAS 121. Under provisions of the Statement, impairment losses are
F-7
<PAGE>
SIGNATURE EYEWEAR, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
recognized when expected future cash flows are less than the assets' carrying
value. Accordingly, when indicators of impairment are present, the Company
evaluates the carrying value of property, plant and equipment and intangibles
in relation to the operating performance and future undiscounted cash flows of
the underlying business. The Company adjusts the net book value of the
underlying assets if the sum of expected future cash flows is less than book
value.
Unaudited Pro Forma Net Income--The unaudited pro forma net income
represents the results of operations adjusted to reflect a provision for
income tax on historical income before provision for income taxes, which gives
effect to the change in the Company's income tax status to a C corporation
subsequent to the public sale of its common stock. The difference between the
pro forma income tax rates utilized and federal statutory rate of 35% relates
primarily to state income taxes (approximately 6%, net of federal tax
benefit).
Unaudited Pro Forma Net Income Per Share--Historical net income per common
share is not presented because it is not indicative of the ongoing entity.
Unaudited pro forma net income per common share has been computed by dividing
unaudited pro forma net income by the weighted average number of shares of
common stock outstanding during the period.
Unaudited Interim Financial Data--The interim financial data as of April 30,
1997 and for the six months ended April 30, 1996 and 1997 have been derived
from unaudited financial statements of the Company. Management believes the
Company's unaudited financial statements have been prepared on the same basis
as the audited financial statements and include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for such periods. Results for the
six months ended April 30, 1997 have not been audited and are not necessarily
indicative of results to be expected for the full fiscal year.
Unaudited Interim Pro Forma Balance Sheet--The interim unaudited pro forma
balance sheet as of April 30, 1997 has been adjusted to reflect dividends
payable of $635,000 and the reclassification of undistributed S corporation
earnings to paid-in capital upon termination of the S corporation election.
NOTE 2--PROPERTY AND EQUIPMENT:
Property and equipment (stated at cost) as of October 31, 1995 and 1996 and
April 30, 1997 consisted of the following:
<TABLE>
<CAPTION>
PERIODS OF APRIL 30,
DEPRECIATION 1995 1996 1997
------------- ---------- ---------- ----------
UNAUDITED
<S> <C> <C> <C> <C>
Office furniture and fixtures... 7 years $ 243,190 $ 372,368 $ 417,233
Computer equipment.............. 3 to 7 years 401,077 574,510 633,517
Software........................ 3 years 0 317,536 498,833
Vehicles........................ 7 years 162,744 153,141 153,141
Leasehold improvements.......... term of lease 146,582 164,685 178,880
Machinery and equipment held
under capitalized leases....... 5 years 102,411 137,857 140,438
---------- ---------- ----------
1,056,004 1,720,097 2,022,042
Less accumulated depreciation
and amortization (including
amortization on capitalized
leases of $66,578, $94,693 and
$103,769, respectively)........ 456,543 679,723 889,220
---------- ---------- ----------
Net book value.................. $ 599,461 $1,040,374 $1,132,822
========== ========== ==========
</TABLE>
F-8
<PAGE>
SIGNATURE EYEWEAR, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
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.
In April 1997, the Company executed an amendment to the Credit Agreement
(the "Amendment"), which expires in May 1998. The Amendment provides for an
increase in the total commitments to $6,760,417. In connection with the
Amendment, the interest rate option decreased to LIBOR plus 2.25% or the
Bank's prime rate plus .25%. The weighted average interest rate was 8.19% for
the six months ended April 30, 1997. Additionally, the Amendment provides that
the major stockholders of the Company no longer guarantee the credit facility.
Under the commitment formula, the Company had available for borrowing
approximately $701,000 as of April 30, 1997.
In June and July 1997, the Company executed two additional amendments to the
Credit Agreement. The amendments provide for an increase in the total
commitments to $7,935,417. The Amendments also provide for an increase in the
inventory portion of the borrowing base to the lesser of $3,000,000 or the
accounts receivable borrowing base (as defined), and the elimination of the
provision restricting the payment of dividends without the consent of the
Bank.
F-9
<PAGE>
SIGNATURE EYEWEAR, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT:
Long-term debt at October 31, 1995 and 1996 and April 30, 1997 consisted of
the following:
<TABLE>
<CAPTION>
APRIL 30,
1995 1996 1997
-------- -------- ----------
UNAUDITED
<S> <C> <C> <C>
Note payable, bank (secured by substantially all
the assets of the Company, payable in monthly
installments of $41,667, plus interest at the
Bank's prime rate plus .5% per annum)........... $ 0 $ 0 $375,000
Note payable, bank (secured by substantially all
the assets of the Company, payable in monthly
installments of $11,111, plus interest at 9.75%
per annum)...................................... 366,667 233,333 166,667
Note payable, Bank (secured by certain vehicles,
payable in monthly installments of $3,472, plus
interest at 8.75% per annum).................... 125,000 83,334 62,500
Liability for transportation equipment under a
purchase agreement (interest at 8.9%)........... 19,124 13,306 10,192
Liability for machinery and equipment under
various capitalized lease agreements (interest
rates ranging from approximately 12% to 21%).... 41,234 33,304 19,846
-------- -------- --------
552,025 363,277 634,205
Less current portion............................. 202,826 206,394 571,790
-------- -------- --------
Long-term portion................................ $349,199 $156,883 $ 62,415
======== ======== ========
</TABLE>
Future minimum payments as of October 31, 1996, under the aforementioned
long-term debt, are as follows:
<TABLE>
<CAPTION>
NOTES CAPITALIZED
PAYABLE PURCHASE LEASE
OCTOBER 31, BANK AGREEMENTS AGREEMENTS TOTAL
----------- -------- ---------- ------------ --------
<S> <C> <C> <C> <C>
1997............................. $175,000 $ 6,365 $27,883 $209,248
1998............................. 141,667 6,941 7,639 156,247
1999............................. 0 0 1,229 1,229
-------- ------- ------- --------
316,667 13,306 36,751 366,724
Less imputed interest thereon..... 0 0 3,447 3,447
-------- ------- ------- --------
$316,667 $13,306 $33,304 $363,277
======== ======= ======= ========
</TABLE>
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.
F-10
<PAGE>
SIGNATURE EYEWEAR, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments (excluding common area operating expenses,
property taxes, utilities and insurance) under the lease at October 31, 1996,
are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, AMOUNT
----------- ----------
<S> <C>
1997.......................................................... $ 269,000
1998.......................................................... 281,000
1999.......................................................... 293,000
2000.......................................................... 320,000
2001.......................................................... 348,000
Thereafter..................................................... 1,247,000
----------
$2,758,000
==========
</TABLE>
Total rent expense for the years ended October 31, 1994, 1995 and 1996 and
the six months ended April 30, 1996 and 1997 amounted to $210,074, $201,333,
$254,091, $116,936 and $143,312, respectively.
License Agreements--The Company has a license agreement with Laura Ashley
Manufacturing, B.V., which grants the Company certain rights to use the "Laura
Ashley" trademark in connection with the distribution, marketing and sale of
Laura Ashley eyewear products. The license period extends through January 31,
2001, with automatic one-year renewals thereafter through at least 2006,
provided that specified minimum sales are achieved.
The Company has a license agreement with Revlon Consumer Products
Corporation, which grants the Company certain rights to use the "Jean Nate"
trademark in connection with the distribution, marketing and sale of Jean Nate
eyewear products. The license period extends through September 30, 1998, with
automatic renewal terms (as defined) thereafter, provided that specified
minimum sales are achieved.
The Company has a license agreement with Hart Schaffner & Marx, which grants
the Company certain rights to use the "Hart Schaffner & Marx" trademark in
connection with the distribution, marketing and sale of Hart Schaffner & Marx
eyewear products. The license period extends through June 30, 1999, with
automatic three year renewal terms (as defined) thereafter, provided that
specified minimum sales are achieved.
Total minimum royalties under all of the Company's license agreements are as
follows:
<TABLE>
<CAPTION>
OCTOBER 31, AMOUNT
----------- ----------
<S> <C>
1997.......................................................... $ 812,500
1998.......................................................... 883,750
1999.......................................................... 898,750
2000.......................................................... 763,750
2001.......................................................... 195,000
----------
$3,553,750
==========
</TABLE>
Total royalty expense charged to operations for the years ended October 31,
1994, 1995 and 1996 and the six months ended April 30, 1996 and 1997 amounted
to $962,205, $1,171,091, $1,459,559, $641,961 and $848,393, respectively.
F-11
<PAGE>
SIGNATURE EYEWEAR, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--STOCKHOLDERS' EQUITY:
In July 1995, the Company's Articles of Incorporation were amended to
increase the total number of authorized shares of Common Stock, par value
$.001 per share, to 30,000,000, and to authorize the issuance of up to
5,000,000 shares of Preferred Stock, par value $.001 per share. Additionally,
in July 1995 an 800 to 1 split of the Company's Common Stock was effected. In
June 1997, a 3.175 to 1 split of the Company's Common Stock was effected. All
share and per share amounts included in the accompanying financial statements
and footnotes have been restated to reflect the stock splits.
The Board of Directors has the authority to issue the authorized and
unissued Preferred Stock in one or more series with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors, without shareholder approval. No shares of the Preferred Stock were
issued as of October 31, 1995 and 1996 and April 30, 1997.
NOTE 7--RELATED PARTY TRANSACTIONS:
Notes Payable, Stockholders--As of October 31, 1995, the following amounts
were due to stockholders of the Company:
<TABLE>
<S> <C>
Note payable (unsecured, interest at 5.5% per annum)................. $162,500
Notes payable (unsecured, interest at the Bank's prime rate plus 1.5%
per annum).......................................................... $200,000
--------
$362,500
========
</TABLE>
These amounts were repaid during fiscal 1996. Interest expense paid on the
notes payable to the stockholders amounted to $65,086, $46,579, $21,337,
$13,286 and $0 for the years ended October 31, 1994, 1995 and 1996 and the six
months ended April 30, 1996 and 1997, respectively.
Purchases from Related Party--Two executive officers, who are also
shareholders of the Company, are officers, directors and significant
shareholders of Brandmark, Inc., a corporation which has a license from Laura
Ashley to produce timepieces bearing the Laura Ashley trademark. In fiscal
1996, the Company purchased from Brandmark, Inc. an aggregate of $362,000 of
timepieces bearing the Laura Ashley trademark, which amount is included in
selling expenses for the year ended October 31, 1996.
Limited Partnership Investment--In January 1995, the Company purchased from
The Weiss Family Trust a limited partnership interest in a California limited
partnership which owns the premises formerly used by the Company as its
principal executive offices. Bernard Weiss and Julie Heldman, the Chief
Executive Officer and President, respectively, and Co-Chairmen of the Board of
the Company, are trustees of The Weiss Family Trust. The Company paid $75,000
for the limited partnership interest, an amount equal to the purchase price
originally paid by The Weiss Family Trust. The investment is included in the
deposits and other assets balance at October 31, 1995 and 1996 and April 30,
1997.
F-12
<PAGE>
INSIDE BACK COVER--TWO PAGE COLOR FOLD OUT:
Across the top of the gatefold is the headline "The Signature Marketing of
Signature Eyewear".
Across the gatefold is a collection of photographs of various marketing in-
store displays and trade show booths.
Across the bottom of the gatefold is a full left to right photograph of 18
Signature eyeglass frames.
<PAGE>
[PICTURES]
INSIDE BACK COVER
Jean Nate Eyewear lifestyle photograph of a woman wearing Jean Nate Eyewear
being "splashed" from below, up towards her face. At the bottom of the image
is the Jean Nate Eyewear logo with the phrase "Always make a splash" at the
bottom of the page and the lines "Jean Nate is used under license (C) 1997"
and "Jean Nate Eyewear net sales were 4% of the Company's net sales in the six
months ended April 30, 1997."
<PAGE>
[PICTURES]
OUTSIDE BACK COVER
Hart Schaffner & Marx Eyewear lifestyle photograph of a man wearing Hart
Schaffner & Marx Eyewear in front of a swimming pool. At the bottom of the
image is the Hart Schaffner & Marx logo and trade theme-line "For A Man's
Frame of Mind." At the bottom of the page are the lines "Hart Schaffner & Marx
Eyewear net sales were 6% of the Company's net sales in the six months ended
April 30, 1997" and "Made by Signature Eyewear under license from Hart
Schaffner & Marx."
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and distribution of the Securities being
registered, other than underwriting discounts. All the amounts shown are
estimates except the Securities and Exchange Commission registration fee and
the NASD filing fee.
<TABLE>
<S> <C>
Registration fee--Securities and Exchange Commission............ $ 7,620
NASD filing fee................................................. 3,015
Nasdaq National Market fee...................................... 30,532
Accounting fees and expenses.................................... 50,000
Legal fees and expenses (other than blue sky)................... 150,000
Blue sky fees and expenses, including legal fees................ 10,000
Representatives' expenses....................................... 135,000
Printing; stock certificates.................................... 125,000
Transfer agent and registrar fees............................... 2,500
Miscellaneous................................................... 6,333
--------
Total....................................................... $520,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation include a provision that
eliminates the personal liability of its directors to the Registrant and its
shareholders for monetary damages for breach of the directors' fiduciary
duties in certain circumstances. This limitation has no effect on a director's
liability (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director believes to be contrary to the best interests of the Registrant or
its shareholders or that involve the absence of good faith on the part of the
director, (iii) for any transaction from which a director derived an improper
personal benefit, (iv) for acts or omissions that show a reckless disregard
for the director's duty to the Registrant or its shareholders in circumstances
in which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of a serious injury to the
Registrant or its shareholders, (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the
director's duty to the Registrant or its shareholders, (vi) under Section 310
of the California Corporations Code (the "California Code") (concerning
contracts or transactions between the Registrant and a director) or (vii)
under Section 316 of the California Code (concerning directors' liability for
improper dividends, loans and guarantees). The provision does not extend to
acts or omissions of a director in his capacity as an officer. Further, the
provision will not affect the availability of injunctions and other equitable
remedies available to the Registrant's shareholders for any violation of a
director's fiduciary duty to the Registrant or its shareholders.
The Registrant's Articles of Incorporation also include an authorization for
the Registrant to indemnify its agents (as defined in Section 317 of the
California Code), through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this latter provision, the
Registrant's Bylaws provide for indemnification of the Registrant's directors,
officers and employees. In addition, the Registrant, at its discretion, may
provide indemnification to persons whom the Registrant is not obligated to
indemnify. The Bylaws also allow the Registrant to enter into indemnity
agreements with individual directors, officers, employees and other agents.
These indemnity agreements have been entered into with all directors and
provide the maximum indemnification permitted by law. These agreements,
together with the Registrant's Bylaws and Articles of Incorporation, may
require the Registrant, among other things, to indemnify such directors
against certain liabilities that may arise by reason of their status or
service as directors (other than liabilities resulting from willful misconduct
of a culpable nature), to advance expenses to them as they are incurred,
provided that they
II-1
<PAGE>
undertake to repay the amount advanced if it is ultimately determined by a
court that they are not entitled to indemnification, and to obtain directors'
and officers' insurance if available on reasonable terms.
The Company and certain of the Company's shareholders (the "Existing
Shareholders") plan to enter into a tax indemnification agreement (the "Tax
Agreement") relating to their respective income tax liabilities. Because the
Company will be fully subject to corporate income taxation after the
termination of the Company's S Corporation status, the reallocation of income
and deductions between the period during which the Company was treated as an S
Corporation and the period during which the Company will be subject to
corporate income taxation may increase the taxable income of one party while
decreasing that of another party. Accordingly, the Tax Agreement is intended
to assure that taxes are borne by the Company on the one hand and the Existing
Shareholders on the other only to the extent that such parties received the
related income. The Tax Agreement generally provides that, if an adjustment is
made to the taxable income of the Company for a year in which it was treated
as an S Corporation, the Company will indemnify the Existing Shareholders and
the Existing Shareholders will indemnify the Company against any increase in
the indemnified party's income tax liability (including interest and penalties
and related costs and expenses), with respect to any tax year to the extent
such increase results in a related decrease in the income tax liability of the
indemnifying party for that year. The Company will also indemnify the Existing
Shareholders for all taxes imposed upon them as the result of their receipt of
an indemnification payment under the Tax Agreement.
Section 317 of the California Code and the Registrant's Bylaws make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify such persons, under certain
circumstances, for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
Section 10 of the Underwriting Agreement filed as Exhibit 1.1 hereto sets
forth certain provisions with respect to the indemnification of certain
controlling persons, directors and officers against certain losses and
liabilities, including certain liabilities under the Securities Act.
The Registrant maintains director and officer liability insurance.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Proposed form of Underwriting Agreement....................... 1.1
Registrant's Restated Articles of Incorporation............... 3.1
Registrant's Amended and Restated Bylaws...................... 3.2
Registrant's Form of Indemnification Agreement................ 10.3
Tax Indemnification Agreement................................. 10.4
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In May 1996, the Company issued 108,016 shares of Common Stock to Michael
Prince, the Company's Chief Financial Officer, for services which had been
rendered by Mr. Prince valued by the Board of Directors at $300,000 ($2.78 per
share). The issuance of these shares was exempt from registration pursuant to
Section 4(2) of the Securities Act as a transaction not involving any public
offering.
II-2
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Representatives' Warrant.
3.1 Restated Articles of Incorporation of Registrant.#
3.2 Amended and Restated Bylaws of Registrant.#
4.1 Specimen Stock Certificate of Common Stock of Registrant.
5.1 Opinion and Consent of Troop Meisinger Steuber & Pasich, LLP*
10.1 1997 Stock Plan.#
10.2 Form of Registrant's Stock Option Agreement (Non-Statutory Stock
Option).#
10.3 Form of Indemnification Agreement for Directors and Officers.#
10.4 Tax Indemnification Agreement among Registrant and the Existing
Shareholders.*
10.5 License Agreement, dated May 28, 1991, between Laura Ashley
Manufacturing B.V. and Registrant, as amended.+#
10.6 Lease Agreement, dated March 23, 1995, between the Registrant and
Roxbury Property Management, and Guaranty of Lease, dated March 23,
1995, between Julie Heldman and Bernard Weiss and Roxbury Property
Management.#
10.7 Amended and Restated Accounts Receivable and Inventory Loan Agreement,
dated April 21, 1997, between Registrant and City National Bank,#
First Amendment to Amended and Restated Accounts Receivable and
Inventory Loan Agreement, dated June 26, 1997, between Registrant and
City National Bank, and Second Amendment to Amended and Restated
Accounts Receivable and Inventory Loan Agreement, dated July 23, 1997,
between Registrant and City National Bank.
10.8 Employment Agreement between the Registrant and Bernard Weiss.*
10.9 Employment Agreement between the Registrant and Julie Heldman.*
10.10 Employment Agreement between the Registrant and Michael Prince.*
10.11 Employment Agreement between the Registrant and Robert Fried.*
10.12 Employment Agreement between the Registrant and Robert Zeichick.*
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.
# Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise,
II-3
<PAGE>
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer of
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by a
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-1 AND HAS DULY CAUSED THIS AMENDMENT NO. 1
TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS ANGELES, STATE OF CALIFORNIA, ON
JULY 31, 1997.
Signature Eyewear, Inc.
/s/ Julie Heldman
By: _________________________________
JULIE HELDMAN, CO-CHAIRMAN OF THE
BOARD AND PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES STATED.
SIGNATURE TITLE DATE
Co-Chairman of the
* Board and Chief July 31, 1997
- ------------------------------------- Executive Officer
BERNARD WEISS
/s/ Julie Heldman Co-Chairman of the
- ------------------------------------- Board and President July 31, 1997
JULIE HELDMAN
Chief Financial
* Officer and July 31, 1997
- ------------------------------------- Director (Principal
MICHAEL PRINCE Financial and
Accounting Officer)
* Director July 31, 1997
- -------------------------------------
DANIEL WARREN
*By /s/ Julie Heldman
- -------------------------------------
his attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Representatives' Warrant.
3.1 Restated Articles of Incorporation of Registrant.#
3.2 Amended and Restated Bylaws of Registrant.#
4.1 Specimen Stock Certificate of Common Stock of Registrant.
5.1 Opinion and Consent of Troop Meisinger Steuber & Pasich, LLP*
10.1 1997 Stock Plan.#
10.2 Form of Registrant's Stock Option Agreement (Non-Statutory Stock
Option).#
10.3 Form of Indemnification Agreement for Directors and Officers.#
10.4 Tax Indemnification Agreement among Registrant and the Existing
Shareholders.*
10.5 License Agreement, dated May 28, 1991, between Laura Ashley
Manufacturing B.V. and Registrant, as amended.+#
10.6 Lease Agreement, dated March 23, 1995, between the Registrant and
Roxbury Property Management, and Guaranty of Lease, dated March 23,
1995, between Julie Heldman and Bernard Weiss and Roxbury Property
Management.#
10.7 Amended and Restated Accounts Receivable and Inventory Loan Agreement,
dated April 21, 1997, between Registrant and City National Bank,#
First Amendment to Amended and Restated Accounts Receivable and
Inventory Loan Agreement, dated June 26, 1997, between Registrant and
City National Bank, and Second Amendment to Amended and Restated
Accounts Receivable and Inventory Loan Agreement, dated July 23, 1997,
between Registrant and City National Bank.
10.8 Employment Agreement between the Registrant and Bernard Weiss.*
10.9 Employment Agreement between the Registrant and Julie Heldman.*
10.10 Employment Agreement between the Registrant and Michael Prince.*
10.11 Employment Agreement between the Registrant and Robert Fried.*
10.12 Employment Agreement between the Registrant and Robert Zeichick.*
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.
# Previously filed.
<PAGE>
1,800,000 SHARES OF COMMON STOCK*
SIGNATURE EYEWEAR, INC.
UNDERWRITING AGREEMENT
----------------------
August ___, 1997
FECHTOR, DETWILER & CO., INC.
VAN KASPER & COMPANY
C/o Fechtor, Detwiler & Co., Inc.
155 Federal Street
Boston, MA 02110
as Representatives of the several
Underwriters named in Schedule I
attached hereto.
Ladies and Gentlemen:
The undersigned, Signature Eyewear, Inc., a California corporation (the
"Company"), hereby confirms its agreement with you (the "Representatives") and
- -------- ---------------
the other underwriters named in Schedule I hereto (the Representatives and the
other underwriters being herein collectively referred to as the "Underwriters")
------------
as follows:
1. General. Subject to the terms and conditions stated herein, the
-------
Company proposes to issue and sell to the Underwriters 1,600,000 shares of
common stock, $.001 par value per share, of the Company (the "Common Stock"),
------------
and the stockholders of the Company named in Schedule II attached hereto (the
"Selling Stockholders") propose to sell to the Underwriters an aggregate of
- ---------------------
200,000 shares of the Common Stock. In addition, solely for the purpose of
covering over-allotments, if any, the Company and Selling Stockholders propose
to grant the Underwriters the option to purchase up to an additional 270,000
Shares. The Company also proposes to grant to the Representatives Warrants to
purchase 180,000 additional shares (the "Representatives' Warrants") of Common
Stock on the terms and for the purposes set forth in Section 4(g) hereof. The
aggregate 1,800,000 shares of the Common Stock to be sold by the Company and the
Selling Stockholders are herein called the "Firm Shares" and the aggregate
-----------
270,000 additional shares of the Common Stock to be sold by the Company and the
Selling
- -----------------------------
* PLUS AN OPTION TO PURCHASE FROM THE COMPANY AND SELLING STOCKHOLDERS UP TO
270,000 ADDITIONAL SHARES TO COVER OVER-ALLOTMENTS.
<PAGE>
Stockholders for the purpose of covering over-allotments, if any, are herein
called the "Additional Shares".The Firm Shares, the Additional Shares and the
-----------------
share of Common Stock issuable upon exercise of the Representatives' Warrants
are together called the "Shares".The Shares and the Common Stock are more fully
------
described in the Prospectus referred to below. Bernard Weiss and Julie Heldman,
whom are indirectly included within the Selling Stockholders, are sometimes
collectively referred to herein as the "Founding Stockholders".
2. Representations and Warranties of the Company. The Company and the
---------------------------------------------
Founding Stockholders, jointly and severally, represent and warrant to, and
agree with, the several Underwriters that:
(a) SEC Filing. The Company has filed with the Securities and
----------
Exchange Commission (the "Commission") a registration statement, and may have
----------
filed one or more amendments thereto, on Form S-1 (Registration No. 333-30017),
including in such registration statement and each such amendment a related
preliminary prospectus, for the registration of the Shares under the Securities
Act of 1933, as amended (the "Act"). As used in this Agreement, the term
---
"Registration Statement" means such registration statement, as amended, on file
- -----------------------
with the Commission at the time such registration statement becomes effective
under the Act (including the prospectus, financial statements, exhibits, and all
other documents filed as a part thereof), provided, however, that such
-----------------
registration statement, at the time it becomes effective under the Act, may omit
such information as is permitted to be omitted from such registration statement
when it becomes effective under the Act pursuant to Rule 430A of the General
Rules and Regulations of the Commission promulgated under the Act (the
"Regulations"), which information (the "Rule 430A Information") shall be deemed
- ------------ ---------------------
to be included in such registration statement when a final prospectus is filed
with the Commission in accordance with Rules 430A and 424(b)(1) or (4) of the
Regulations; the term "Preliminary Prospectus" means each Prospectus included in
----------------------
the Registration Statement, or any amendments thereto, before the Registration
Statement becomes effective under the Act, the form of prospectus omitting the
Rule 430A Information included in the Registration Statement when the
Registration Statement becomes effective under the Act, if applicable (the "Rule
----
430A Prospectus"), and any prospectus filed by the Company with your consent
- ---------------
pursuant to Rule 424(a) of the Regulations; and the term "Prospectus" means the
----------
final prospectus included as part of the Registration Statement in the form
first filed with the Commission pursuant to Rule 424(b)(1) or (4) of the
Regulations or, if no such filing is required, the final form of the prospectus
forming a part of the Registration Statement. For purposes of this Agreement,
all references to the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement to any of the foregoing, shall be
deemed to include the respective copies thereof filed with the Commission
pursuant to the Commission's Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
-----
(b) Completeness. When the Registration Statement becomes or
------------
became effective under the Act, and at all times subsequent thereto, to and
including the Closing Date (as defined in Section 4) and each Additional Closing
Date (as defined in Section 4), and during such longer period as the Prospectus
may be required to be delivered in connection with sales by the Underwriters or
a dealer, and during such longer period until any post-effective
2
<PAGE>
amendment thereto shall become effective under the Act, the Registration
Statement (and any post-effective amendment thereto) and the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment or supplement to the Registration Statement or the Prospectus)
will contain all statements which are required to be stated therein in
accordance with the Act and the Regulations, will comply with the Act and the
Regulations in all material respects, and will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading (or, in the
case of the Prospectus, will not include any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading), and no event will have occurred which should have been set forth in
an amendment or supplement to the Registration Statement or the Prospectus which
has not then been set forth in such an amendment or supplement; if a Rule 430A
Prospectus is contemplated at the time the Registration Statement becomes
effective under the Act, the Prospectus filed pursuant to Rules 430A and
424(b)(1) or (4) of the Regulations will contain all Rule 430A Information and
all statements which are required to be stated therein in accordance with the
Act or the Regulations, will comply with the Act and the Regulations in all
material respects, and will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and each Preliminary Prospectus, as of the date filed with the
Commission, contained all statements required to be stated therein in accordance
with the Act and the Regulations, complied with the Act and the Regulations in
all material respects, and did not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. No representation or warranty is made in this Section 2(b),
however, with respect to statements or omissions from the Registration Statement
or the Prospectus or any related Preliminary Prospectus or any amendment thereof
or supplement thereto made in reliance upon, and in conformity with, written
information furnished to the Company as stated in Section 9(d) with respect to
any Underwriter expressly for inclusion in the Registration Statement, the
Prospectus, or any related Preliminary Prospectus, or any amendment or
supplement thereto.
(c) Stop Orders. Neither the Commission nor the "blue sky" or
-----------
securities authority of any jurisdiction has issued an order (a "Stop Order")
----------
suspending the effectiveness of the Registration Statement, or preventing or
suspending the use of any Preliminary Prospectus, the Prospectus, the
Registration Statement, or any amendment or supplement thereto, or refusing to
permit the effectiveness of the Registration Statement, or suspending the
registration or qualification of the Shares, nor to the knowledge of the Company
has any of such authorities instituted or threatened to institute any
proceedings with respect to a Stop Order.
(d) Descriptions. Any contract, agreement, instrument, lease,
------------
license, certification or permit or other arrangement, whether written or oral,
required by the Act or the Regulations to be described in the Registration
Statement or the Prospectus has been properly described as required therein.
Any contract, agreement, instrument, lease, license, certification, permit or
other arrangement required to be filed as an exhibit to the Registration
Statement has been filed with the Commission as an exhibit to the Registration
Statement. The statements in the Registration Statement or the Prospectus
summarizing the provisions of laws, rules,
3
<PAGE>
regulations, contracts, leases and other arrangements, whether written or oral,
including, without limitation, the statements set forth under the captions "Risk
Factors -- Substantial Dependence Upon Laura Ashley License," "-- Approval
Requirements of Brand-Name Licensors," "--Limitations on Ability to Distribute
Other Brand-Name Eyeglass Frames," "--Relationships with Domestic
Distributions," "Business --Products," "Certain Relationships and Related
Transactions" and "Shares Eligible for Future Sale" are accurate in all material
respects and do not omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. To the Company's
knowledge, there are no proposed amendments or additions to any such provisions
of laws, rules, regulations, contracts, leases or other arrangements.
(e) Corporate Governance. The Company is a corporation duty
--------------------
organized, validly existing and in good standing under the laws of the state of
its incorporation, with full power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits of and
from, and declarations and filings with all federal, state, local and other
governmental authorities and all courts and other tribunals (collectively, the
"Consents"), to own, lease, license and use its properties and assets and to
- ---------
conduct its business in the manner described in the Prospectus, except where the
failure to obtain such Consents would not have a material adverse effect on the
Company. The Company is duly qualified to do business as a foreign corporation
and is in good standing in every jurisdiction in which its ownership, leasing,
licensing or use of property and assets or the conduct of its business makes
such qualification necessary, except where the failure to be so qualified would
not have a material adverse effect upon the Company.
(f) Capitalization. The authorized capital stock of the Company
--------------
consists of 30,000,000 shares of Common Stock, of which 3,600,527 shares are
outstanding, and 5,000,000 shares of Preferred Stock, $.001 par value, of which
there are no shares outstanding. Each outstanding share of capital stock of the
Company is validly authorized and issued, fully paid and non-assessable, without
any personal liability attaching to the ownership thereof, and has not been
issued and is not owned or held in violation of any preemptive or other similar
rights of stockholders. There is no commitment, plan or arrangement to issue,
and no outstanding option, warrant or other right calling for the issuance of,
any share of capital stock of the Company or any security or other instrument
which by its terms is convertible into, exercisable for, or exchangeable for
capital stock of the Company, except as described in the Prospectus. Except as
set forth in the Prospectus, there is outstanding no security or other
instrument which by its terms is convertible into, or exchangeable for, capital
stock of the Company. The certificates evidencing the Common Stock are in due
and proper form.
(g) Financial Statements. The financial statements of the Company
--------------------
(including the notes thereto and the supporting schedules) included in the
Registration Statement and the Prospectus (collectively, the "Financial
---------
Statements") fairly present, with respect to the Company, the financial
- ----------
position, the results of operations, the cash flows, and the other information
purported to be shown therein at the respective dates and for the respective
periods to which they apply. The Financial Statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved and are in accordance
4
<PAGE>
with the books and records of the Company. Altschuler, Melvoin and Glasser LLP,
the accountants ("Accountants") whose report on the audited financial statements
-----------
is filed with the Commission as a part of the Registration Statement, are, and
during the periods covered by their report(s) included in the Registration
Statement and the Prospectus were, independent certified public accountants with
respect to the Company within the meaning of the Act and the Regulations. No
other financial statements are required by Form S-1 or otherwise to be included
in the Registration Statement or the Prospectus. The assumptions used in
preparing the "As adjusted" financial information included in the Prospectus
under the caption "Capitalization" are reasonable. The selected and summary
financial and statistical data appearing in the Prospectus, including without
limitation, under the captions "Summary Financial Data", "Dilution" and
"Selected Financial Data" presents fairly the information purported to be shown
therein, on the basis stated in the Prospectus as of the dates and for the
periods indicated.
` (h) Litigation. Except as disclosed in the Prospectus, there is no
----------
litigation, arbitration, claim, governmental or other proceeding (formal or
informal) or investigation pending or, to the knowledge of the Company,
threatened, or any basis therefor known to the Company, with respect to the
Company or any of its operations, businesses, properties or assets. The Company
is not in violation of, or in default with respect to, any law, rule,
regulation, order, judgment or decree of any agency or body of the United States
or of any state, county or locality, except such as individually or in the
aggregate do not now have, and will not in the future have, a material adverse
effect upon the financial condition, operations, business, properties or assets
of the Company; nor is the Company required to take any action in order to avoid
any such violation or default of any order, judgment or decree.
(i) Properties. The Company has (i) good and marketable title in
----------
fee simple absolute to all real properties, and good title to all other material
properties and assets, which the Prospectus indicates are owned by it, free and
clear of all liens, claims, security interests, pledges, charges, encumbrances
and mortgages, except as described in the Prospectus, and (ii) valid, subsisting
and enforceable leases for the property described in the Prospectus as leased by
it. No real property owned, leased, licensed or used by the Company lies in an
area which is, or to the knowledge of the Company after due inquiry will be,
subject to zoning, use or building code restrictions which would prevent the
continued effective ownership, leasing, licensing or use of such real property
in the business of the Company as presently conducted or as the Prospectus
indicates it contemplates conducting.
(j) Compliance. Neither the Company nor, to the knowledge of the
----------
Company after due inquiry, any other party, is now or is expected to be in
violation or breach of, or in default with respect to, any material provision of
any material contract, agreement, instrument, lease, license, arrangement or
understanding to which the Company is a party or by which its properties or
assets may be bound, and each such contract, agreement, instrument, lease,
license, arrangement and understanding is in full force and effect and is the
legal, valid and binding obligation of the Company and is enforceable as to the
Company in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforceability of creditors' rights generally, by equitable principles and
applicable laws governing indemnification and contribution provisions. The
Company enjoys peaceful and
5
<PAGE>
undisturbed possession under all leases and licenses under which it is
operating. The Company is not a party to, nor bound by, any contract, agreement,
instrument, lease, license, arrangement or understanding, whether written or
oral, or subject to any charter or other restriction, which has had, or is
expected to have, individually or in the aggregate, a material adverse effect on
the financial condition, operations, business, properties, assets, liabilities
or future prospects of the Company (a "Material Adverse Effect"). The Company is
-----------------------
not in violation or breach of, or in default with respect to, any term of its
Articles of Incorporation or By-Laws.
(k) Trademarks, Licenses. All trademarks, trademark applications,
--------------------
trade names, service marks, copyrights, franchises, licenses, and other
intangible properties and assets (all of the foregoing being herein called
"Intangibles") that the Company owns or has pending, or under which it is
- ------------
licensed, which are material to its business are in good standing and, to the
knowledge of the Company after due inquiry, uncontested. There is no right
under any Intangible necessary to the business of the Company as presently
conducted or as the Prospectus indicates it contemplates conducting, except as
described in the Prospectus. To the knowledge of the Company, the Company has
not infringed, is not infringing, or has not received notice of infringement or
conflict with respect to asserted Intangibles of others. To the knowledge of
the Company, there is no infringement by others which has had, or is expected to
have, individually or in the aggregate, a Material Adverse Effect.
(l) Insurance. The Company is insured by insurers of recognized
---------
financial responsibility against such losses and risks and in such amounts as
are, in the opinion of the Company's management, customary and adequate for the
businesses in which it is engaged, including, but not limited to, general
liability insurance and insurance covering real and personal property owned or
leased by the Company against theft, damage, destruction, acts of vandalism and
all other risks customarily insured against by any company that is comparable to
the Company in terms of its financial condition, all of which insurance is in
full force and effect. The Company has no reason to believe that it will not be
able to renew existing insurance coverage with respect to the Company as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not now have,
individually or in the aggregate, a Material Adverse Effect.
(m) Contributions; Payments. Neither the Company nor any director,
-----------------------
officer, agent, employee or other person associated with, or acting on behalf
of, the Company has, directly or indirectly at any time since the inception of
the Company: used any Company funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from Company funds;
violated any provision of the Foreign Corrupt Practices Act of 1977 (the
"FCPA"), as amended; or made any unlawful payment. The Company's internal
----
accounting controls and procedures are sufficient to cause the Company to comply
in all respects with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the FCPA.
- -------------
(n) Corporate Authority. The Company has all requisite power and
-------------------
authority to execute, deliver and perform this Agreement and to consummate the
transactions contemplated
6
<PAGE>
hereby, including but not limited to, the power and authority to issue, sell and
deliver the Shares being delivered by the Company in accordance with and upon
the terms set forth in this Agreement. All necessary corporate proceedings of
the Company have been duly taken to authorize the execution, delivery, and
performance of this Agreement by the Company and to consummate the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company, is the legal, valid and binding obligation of the
Company and is enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting the enforceability of creditors' rights generally, by
equitable principles and applicable laws governing indemnification and
contribution provisions. No consent, authorization, approval, order,
registration, license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local or other governmental or regulatory
authority or any court or other tribunal is required for the execution, delivery
or performance by the Company of this Agreement or the consummation of the
transactions contemplated hereby (including the issuance, sale and delivery of
the Shares to be issued, sold and delivered by the Company), except filings
under the Act which have been or will be made before the Closing Date and such
consents consisting only of consents under "blue sky" or securities laws which
have been obtained at or prior to the date of this Agreement. No consent of any
party to any contract, agreement, instrument, lease, license, arrangement or
understanding to which the Company is a party, or to which any of its properties
or assets are subject, is required for the execution, delivery or performance of
this Agreement or the consummation of the transactions contemplated hereby
except such as have been obtained. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby will
not: (i) violate, result in a breach of any of the terms and provisions of,
conflict with, result in the creation or imposition of any lien, charge or
encumbrance upon any properties or assets of the Company pursuant to the terms
of, or, with or without the giving of notice of the passage of time or both,
entitle any party to terminate or call a default under, any contract, agreement,
instrument, lease, license, arrangement, or understanding to which the Company
is a party or by which its properties or assets may be bound; (ii) violate,
result in a breach of, or conflict with, any term of the Articles of
Incorporation or By-Laws of the Company; or (iii) violate, result in a breach
of, or conflict with, any law, rule, regulation, order, judgment or decree of
any court or any public, governmental or regulatory authority having
jurisdiction over the Company or any of its operations, businesses, properties
or assets.
(o) Issuance of Shares. The Shares are validly authorized and,
------------------
when issued, delivered and sold in accordance with this Agreement, will be
validly issued and outstanding, fully paid, and non-assessable, without any
personal liability attaching to the ownership thereof and will not have been
issued in violation of or subject to any preemptive or similar rights of
shareholders to subscribe for or to purchase such Shares. The Underwriters will
receive good and valid title to the Shares purchased from the Company, free and
clear of liens, claims, security interests, pledges, charges, encumbrances,
stockholders' agreements and voting trusts and other defects in title. The
Shares and the Common Stock conform to all statements relating thereto contained
in the Registration Statement or the Prospectus.
(p) Recent Events. Subsequent to the respective dates as of which
-------------
information is given in the Registration Statement and the Prospectus, and
except as may otherwise be
7
<PAGE>
properly described in the Prospectus, the Company has not (i) issued any
securities or incurred any liability or obligation, primary or contingent, for
borrowed money, (ii) entered into any transaction not in the ordinary course of
business, (iii) declared or paid any dividend on its capital stock, (iv)
experienced any adverse change or any development which is expected to have a
Material Adverse Effect, or (v) made any change in its capital stock or made any
issuance of options, warrants, convertible securities or other rights to
purchase the capital stock of the Company.
(q) Stabilization. Neither the Company nor any of its officers,
-------------
directors or affiliates (as defined in the Regulations), has taken or will take,
directly or indirectly, any action designed to stabilize or manipulate the price
of any security of the Company, or which has caused or resulted in, or which
might in the future reasonably be expected to cause or result in, stabilization
or manipulation of the price of any security of the Company or to facilitate the
sale or resale of any of the Shares.
(r) Lock-Up Agreements. The Company has obtained from each of its
------------------
directors and executive officers (as defined in the Regulations), and from each
other person who beneficially owns shares of Common Stock (or any security or
other instrument which by its terms is convertible into, exercisable for, or
exchangeable for, shares of Common Stock), his, her or its enforceable written
agreement, in form attached hereto as Appendix A (the "Lock-Up Agreement") that
---------- -----------------
he, she or it will not, for a period of one year after the date of the
Prospectus, without the prior written consent of Fechtor, Detwiler & Co., Inc.
("Fechtor Detwiler") indirectly, offer to sell, sell, hypothecate, contract to
----------------
sell, grant any option to purchase, or otherwise dispose of (collectively,
"transfer"), any shares of Common Stock beneficially owned as of the date such
lockup agreement is executed (including, without limitation, shares of Common
Stock which may be deemed to be beneficially owned in accordance with the Rules
and Regulations and shares of Common Stock which may be issued upon exercise of
a stock option or warrant) or any securities convertible into or exercisable or
exchangeable for such Common Stock except (i) pursuant to a bona fide gift to
any person or other entity which agrees in writing to be bound by this
restriction; (ii) in connection with a merger of the Company or a tender offer
made to all of the Company's stockholders for control of the then outstanding
shares of Common Stock; and (iii) after a period of 180 days from the date of
this Prospectus, in an amount not in excess of 104,000 shares of Common Stock in
the aggregate.
(s) Investment Company Act. The Company is not, and does not
----------------------
intend to conduct its business in a manner in which it would become, an
investment company as defined in Section 3(a) of the Investment Company Act of
1940, as amended (the "Investment Company Act").
----------------------
(t) Registration Rights. Except as described in the Prospectus, no
-------------------
person or entity has the right to require registration of shares of Common Stock
or other securities of the Company.
(u) Finders. Except as described in the Prospectus, the Company
-------
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.
8
<PAGE>
(v) Environmental Matters. The Company is (i) in compliance with
---------------------
any and all applicable federal, state and local environmental laws, rules,
regulations, treaties, statutes and codes promulgated by all governmental
authorities relating to the protection of human health and safety, the
environment or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) has received all permits, licenses or other
- --------------------
approvals required of it under applicable Environmental Laws to conduct its
business, and (iii) is in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance with Environmental
Laws, failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits, licenses or
approvals would not, individually or in the aggregate, have a Material Adverse
Effect. No action, proceeding, revocation proceeding, writ, injunction or claim
is pending or, to the Company's knowledge, threatened (nor, to the Company's
knowledge, is there any basis therefor) relating to the Environmental Laws or to
the Company's activities involving Hazardous Materials. "Hazardous Materials"
means any material or substance (i) that is prohibited or regulated by any
Environmental Law, or (ii) that has been designated or regulated by any
governmental authority as radioactive, toxic, hazardous or otherwise a danger to
health, reproduction or the environment. There has been no costs or liabilities,
to the Company's knowledge after due inquiry, associated with the effect of
Environmental Laws on the business, operations, properties or assets of the
Company that would, individually or in the aggregate, have a Material Adverse
Effect.
(w) NASD Affiliation. To the knowledge of the Company after due
----------------
inquiry, no officer, director or shareholder of the Company has any affiliation
or association with the National Association of Securities Dealers, Inc. (the
"NASD") or any member thereof, except as described in the Prospectus.
- -----
(x) Taxes. The Company has filed all necessary federal, state,
-----
local and foreign income, franchise and other tax returns and other reports
required to be filed and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been, or, to the knowledge of the Company might be,
asserted against the Company.
(y) Distribution of Prospectus. The Company has not distributed
--------------------------
and will not distribute any prospectus or other offering material in connection
with the offering and sale of the Shares, other than the Preliminary Prospectus
or the Prospectus or other materials permitted by the Act and the Regulations to
be distributed.
(z) Cuba. The Company confirms as of the date hereof that it is in
----
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of doing Business with Cuba, and the Company
- ---------------------------------------------------------
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes effective with the Commission or with the Florida
Department of Banking and Finance (the "Department"), whichever date is later,
----------
or if the information reported or incorporated by reference in the Prospectus,
if any, concerning the Company's business with Cuba or with any person or
affiliate located in Cuba changes in any
9
<PAGE>
material way, the Company will provide the Department notice of such business or
change, as appropriate, in a form acceptable to the Department.
(aa) Labor. The Company is not involved in any labor dispute or
-----
disturbance nor, to the knowledge of the Company, is any such dispute or
disturbance threatened; and the Company is not aware of any existing or imminent
labor disturbance by the employees of any of its principal suppliers,
manufacturers, customers or contractors which, in either case may reasonably be
expected to result in a Material Adverse Effect.
(bb) 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.
(cc) ERISA. Except as disclosed in the Prospectus, the Company does
-----
not maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a
"multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute
----- -----------
now, or at any time previously maintained or contributed, to a defined benefit
plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, which could subject the
Company to any tax penalty on prohibited transactions and which has not
adequately been corrected. Each ERISA Plan is in compliance with all material
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. The Company has not ever completely or partially
withdrawn from a "multiemployer plan."
3. Representations and Warranties of the Selling Stockholders. Each of
----------------------------------------------------------
the Selling Stockholders, severally and not jointly, represents and warrants to,
and agrees with, the several Underwriters and the Company that:
(a) Authority. All consents, approvals, authorizations and orders
---------
necessary for the execution and delivery by such Selling Stockholder of this
Agreement and the Power-of-Attorney (the "Power-of-Attorney") and the Custody
-----------------
Agreement (the "Custody Agreement") hereinafter referred to, and for the sale
-----------------
and delivery of the Shares to be sold by such Selling Stockholder hereunder,
have been obtained; and such Selling Stockholder has full right, power and
authority to enter into this Agreement, the Power-of-Attorney and the Custody
Agreement and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Stockholder hereunder.
10
<PAGE>
(b) Execution and Delivery. This Agreement, the Power-of-Attorney
----------------------
and the Custody Agreement have each been duly authorized, executed and delivered
by such Selling Stockholder and each such document constitutes a valid and
binding obligation of such Selling Stockholder in accordance with its terms.
(c) Consents. No consent, approval, authorization, order,
--------
registration or qualification of or with any court or governmental body is
required in connection with the sale of Shares by such Selling Stockholder or
the consummation by such Selling Stockholder of the transactions contemplated by
this Agreement, the Power-of-Attorney and the Custody Agreement, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, resignations, or qualification as may be required under the
state securities or "blue sky" laws or the by-laws and rules of the NASD in
connection with the purchase and distribution of the Shares by the Underwriters.
(d) No Conflict. The sale of the Shares to be sold by such Selling
-----------
Stockholder hereunder and the compliance by such Selling Stockholder with all
applicable provisions of this Agreement, the Power-of-Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach of violation of any of
the terms or provisions of, or constitute a default under, any statute, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which such Selling Stockholder is a party or to which such Selling
Stockholder is subject, nor will such action result in any violation of the
provisions of the charter documents or by-laws of such Selling Stockholder if
such Selling Stockholder is a corporation, the organization documents of such
Selling Stockholder if such Selling Stockholder is another form of entity or any
statute or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over such Selling Stockholder or the property of such
Selling Stockholder;
(e) Title to Shares. Such Selling Stockholder has, and immediately
---------------
prior to the Closing Date and each Additional Closing Date such Selling
Stockholder will have, good and valid title to the Shares to be sold by such
Selling Stockholder hereunder at the Closing Date or Additional Closing Date, as
the case may be, free and clear of all liens, claims, security interests,
pledges, charges, encumbrances, stockholders' agreements, voting trusts and
other defects in title; and, upon delivery of such Shares and payment therefor
pursuant hereto, good and valid title to such Shares, free and clear of all
liens, claims, security interests, pledges, charges, encumbrances, stockholders'
agreements, voting trusts and other defects in title will pass to each of the
several Underwriters;
(f) Stabilization. Neither such Selling Stockholder nor any of
-------------
such Selling Stockholder's affiliates (as defined in the Act and the Exchange
Act) has taken nor will take, directly or indirectly, any action designed to
stabilize or manipulate the price of any security of the Company, or which has
caused or resulted in, or which might in the future reasonably be expected to
cause or result in, stabilization or manipulation of the price of any security
of the Company or to facilitate the sale or resale of any of the Shares; and
11
<PAGE>
(g) No Omissions or Misstatements. To the extent that any
-----------------------------
statements or omissions made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto are made in
reliance upon and in conformity with written information furnished to the
Company by such Selling Stockholder expressly for use therein, such Preliminary
Prospectus and the Registration Statement did, and the Prospectus and any
further amendments or supplements to the Registration Statement and the
Prospectus will, when they become effective or are filed with the Commission, as
the case may be, conform in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act of
1982 with respect to the transactions herein contemplated, each of the Selling
Stockholders agrees to deliver to you prior to or on the Closing Date a properly
completed and executed United States Treasury Department Form W-8 or W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
Each of the Selling Stockholders represents and warrants that
certificates in negotiable form representing all of the Shares to be sold by
such Selling Stockholder have been placed in custody under a Custody Agreement,
in the form heretofore furnished to you, duly executed and delivered by such
Selling Stockholder, to ___________________, as custodian (the "Custodian"), and
---------
that such Selling Stockholder has duly executed and delivered a Power-of-
Attorney, in the form heretofore furnished to you, appointing ________________
or ___________, and each of them, as such Selling Stockholder's attorneys-in-
fact (the "Attorneys-in-Fact") with authority to execute and deliver this
-----------------
Agreement on behalf of such Selling Stockholder, to determine the purchase price
to be paid by the Underwriters to the Selling Stockholders as provided in
Section 4 hereof, to authorize the delivery of the Shares to be sold by such
Selling Stockholder hereunder and otherwise to act on behalf of such Selling
Stockholder in connection with the transactions contemplated by this Agreement
and the Custody Agreement.
Each of the Selling Stockholders specifically agrees that the Shares
represented by the certificates held in custody for such Selling Stockholder
under the Custody Agreement are subject to the interests of the Underwriters
hereunder, and that the arrangements made by such Selling Stockholder for such
custody, and the appointment by such Selling Stockholder of the Attorneys-in-
Fact by the Power-of-Attorney, are to that extent irrevocable. Each of the
Selling Stockholders specifically agrees that his or its obligations hereunder
shall not be terminated by operation of law, whether by the death or incapacity
of any individual Selling Stockholder or, in the case of an estate or trust, by
the death or incapacity of any executor or trustee or the termination of such
estate or trust, or in the case of a corporation or other entity, by the
dissolution of such corporation or other entity, or by the occurrence of any
other event. If any individual Selling Stockholder or any such executor or
trustee should die or become incapacitated, or if any such estate or trustee
should be terminated, or if any such partnership, corporation or other entity
should be dissolved, or if any other such event should occur, before the
delivery of the Shares hereunder, certificates representing the Shares shall be
delivered by or on behalf of
12
<PAGE>
the Selling Stockholders in accordance with the terms and conditions of this
Agreement and the Custody Agreements, and actions taken by the Attorneys-in-Fact
pursuant to the Powers-of-Attorney shall be as valid as if such death,
incapacity, termination, dissolution or other event had not occurred, regardless
of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall
have received notice of such death, incapacity, termination, dissolution or
other event.
4. Purchase, Sale, and Delivery of the Firm Shares, the Additional
----------------------------------------------------------------
Shares and the Representatives' Warrant.
- ---------------------------------------
(a) Firm Shares. On the basis of the representations, warranties,
-----------
covenants and agreements of the Company and the Selling Stockholders herein
contained, but subject to the terms and conditions herein set forth, the Company
and the Selling Stockholders agree to sell to the several Underwriters, and the
Underwriters agree to purchase from the Company and each of the Selling
Stockholders, the number of Firm Shares set forth opposite the respective names
of the Underwriters in column (2) of Schedule II hereto.
(b) Purchase Price. The purchase price per Firm Share to be paid
--------------
by the several Underwriters shall be $_______. The initial public offering price
per Firm Share shall be $______.
(c) Payment for Firm Shares. Payment for the Firm Shares by the
-----------------------
several Underwriters shall be made by wire transfer or by certified or official
bank checks in New York Clearing House funds (or similar next day funds) payable
to the order of the Company and each Selling Stockholder in the applicable
amount at the offices of ________________________________________________, or at
such other place as you shall determine and advise the Company by at least two
full days' notice in writing, upon delivery of the Firm Shares to you for the
respective accounts of the Underwriters (the "Closing"). Such delivery and
-------
payment shall be made at 10:00 A.M., Boston local time, on the fourth business
day following the Effective Date (as defined in Section 12), unless postponed in
accordance with the provisions of Section 10, or at such other time as shall be
agreed upon between you and the Company. The time and date of such delivery and
payment are herein called the "Closing Date".
------------
(d) Certificates. Certificates for the Firm Shares shall be
------------
registered in such name or names and in such authorized denominations as you may
request in writing at least two full business days prior to the Closing Date.
The Company and the Selling Stockholders shall permit you to examine and package
such certificates for delivery at least one full business day prior to the
Closing Date.
(e) Over-allotment Shares. The Company and the Selling
---------------------
Stockholders hereby grant to the several Underwriters the option to purchase all
or a portion of the Additional Shares solely to cover over-allotments, if any,
at the same purchase price per share to be paid by the several Underwriters to
the Selling Stockholders for the Firm Shares as provided for in this Section 4.
The Additional Shares shall be purchased by the several Underwriters from the
Company and the Selling Stockholders as provided herein. This option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
several Underwriters. This option
13
<PAGE>
may be exercised by the several Underwriters on the basis of the
representations, warranties, covenants and agreements of the Company and the
Selling Stockholders herein contained, but subject to the terms and conditions
herein set forth, at any time and from time to time on or before the thirtieth
day following the date on which the Registration Statement was declared
effective under the Act, by written notice from the Representatives to the
Company and the Selling Stockholders. Such notice shall set forth the aggregate
number of Additional Shares as to which the option is being exercised, the name
or names in which the certificates for the Additional Shares are to be
registered, the authorized denominations in which the Additional Shares are to
be issued, and the time and date, as determined by the Representatives, when
such Additional Shares are to be delivered (such time and date are herein called
the "Additional Closing Date"); provided, however, that the Additional Closing
----------------------- -----------------
Date shall not be earlier than the Closing Date nor earlier than the second
business day after the date on which the notice of the exercise of the option
shall have been given nor later than the eighth business day after the date on
which such notice shall have been given. If the over-allotment option is
exercised with respect to fewer than all of the Additional Shares, it shall be
exercised on a pro rata basis among the Company and the Selling Stockholders
based on the number of Additional Shares that the Company and each Selling
Stockholder intended to sell. The aggregate number of Additional Shares to be
sold by the Company and the Selling Stockholders to the Underwriters shall be
the number set forth in Schedule II.
(f) Payment for Additional Shares. Payment for the Additional
-----------------------------
Shares by the Underwriters shall be made by certified or official bank check in
New York Clearing House funds (or similar next day funds) payable to the order
of the Company and each Selling Stockholder at the offices of
_____________________________ __________________ or at such other place as you
shall determine and advise the Company by at least two full days' notice in
writing, upon delivery of the Additional Shares to you for the respective
accounts of the Underwriters.
(g) Representatives' Warrants. On the basis of the
-------------------------
representations, warranties and covenants herein contained, and subject to the
terms and conditions herein set forth, upon the Closing Date the Company will
sell to the Representatives, for a consideration of one mil ($.001) per warrant,
180,000 warrants. Each Warrant represents the right to purchase one (1) Share.
The Representatives' Warrants and all underlying securities shall be registered
in the Registration Statement. The exercise price of each Warrant is a price
equal to 120% of the offering price to the public. The Representatives' Warrants
shall be exercisable for a period of four years commencing one year after the
Closing Date, and shall contain appropriate anti-dilution provisions. Such anti-
dilution provisions shall include, without limitation, protection against
dilution in both price and percentage of the Company if there is (a) any
issuance of shares of common stock or other securities convertible into Common
Stock as a dividend or (b) a subdivision or combination of the outstanding
shares of Common Stock or other securities convertible into Common Stock as the
result of a merger, consolidation, spin-off or otherwise. The Representatives'
Warrants shall be in substantially the form filed as Exhibit 1.2 to the
Registration Statement.
14
<PAGE>
5. Offering. Upon your authorization of the release of the Firm Shares
--------
and on or after the date the Registration Statement is declared effective under
the Act, the several Underwriters propose to offer the Firm Shares to the public
at the initial public offering price as provided for in Section 4(a) (such price
being hereinafter called the "public offering price"). After the initial public
---------------------
offering, you may from time to time increase or decrease the public offering
price, in your sole discretion, by reason of changes in general market
conditions or otherwise.
6. Covenants of the Company. The Company covenants and agrees with the
------------------------
several Underwriters that:
(a) SEC Effectiveness. If the Registration Statement has not yet
-----------------
been declared effective under the Act, the Company will use its best efforts to
cause the Registration Statement to become effective under the Act as promptly
as possible. If the Registration Statement has become or becomes effective under
the Act with a form of prospectus omitting Rule 430A Information, or filing of
the Prospectus is otherwise required under Rule 424(b) of the Regulations, the
Company will file the Prospectus, properly completed, pursuant to Rule 424(b) of
the Regulations within the time period prescribed and will provide evidence
satisfactory to you of such timely filing.
(b) Stop Order. The Company will notify you immediately, and
----------
confirm such notice in writing, (i) when the Registration Statement and any
post-effective amendment thereto becomes effective under the Act, (ii) the
receipt of any comments from the Commission or the "blue sky" or securities
authority of any jurisdiction regarding the Registration Statement, any post-
effective amendment thereto, the Prospectus, or any amendment or supplement
thereto, (iii) of the filing with the Commission of any supplement to the
Prospectus, and (iv) the receipt of any notification with respect to a Stop
Order or the initiation or threatening of any proceeding with respect to a Stop
Order. The Company will use its best efforts to prevent the issuance of any Stop
Order and, if any Stop Order is issued, to obtain the lifting thereof as
promptly as possible.
(c) Compliance. During the time when a prospectus relating to the
----------
Shares is required to be delivered under the Act or the Regulations, the Company
will comply with all requirements imposed upon it by the Act, as now existing
and as hereafter amended, and by the Regulations, as from time to time in force,
so far as necessary to permit the continuance of sales of, or dealings in, the
Shares in accordance with the provisions hereof and the Prospectus. If, at any
time when a prospectus relating to the Shares is required to be delivered under
the Act or the Regulations, any event shall have occurred as a result of which,
in the reasonable opinion of counsel for the Company or counsel for the several
Underwriters, the Registration Statement or the Prospectus as then amended or
supplemented contains any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, or if, in the opinion of either of such
counsel, it is necessary at any time to amend or supplement the Registration
Statement or the Prospectus to comply with the Act or the Regulations, the
Company will immediately notify you and promptly prepare and file with the
Commission an appropriate amendment or supplement (in form and substance
15
<PAGE>
satisfactory to you) which will correct such statement or omission or which will
effect such compliance and will use its best efforts to have any such amendment
declared effective under the Act as soon as possible. After receipt of any such
notice, you agree to promptly refrain from making any further offers or sales of
the Common Stock pursuant to the Registration Statement until the Registration
Statement is appropriately amended or supplemented.
(d) Registration Statement; Prospectus. The Company will deliver
----------------------------------
without charge to each of the several Underwriters such number of copies of each
Preliminary Prospectus as may reasonably be requested by the Underwriters and,
as soon as the Registration Statement, or any amendment thereto, becomes
effective under the Act or a supplement is filed with the Commission, deliver
without charge to you two signed copies of the Registration Statement, including
exhibits, or such amendment thereto, as the case may be, and two copies of any
supplement thereto, and deliver without charge to each of the several
Underwriters such number of copies of the Prospectus, the Registration
Statement, and amendments and supplements thereto, if any, without exhibits, as
you may request. To the extent applicable, the copies of the Registration
Statement and each amendment thereto (including all exhibits filed therewith),
any Preliminary Prospectus or Prospectus (in each case, as amended or
supplemented) furnished to the Underwriters will be identical to the electronic
copies filed with the Commission pursuant to EDGAR except to the extent
permitted by Regulation S-T.
(e) State Qualification. The Company will endeavor in good faith,
-------------------
in cooperation with you, at or prior to the time the Registration Statement
becomes effective under the Act, to qualify the Shares, to the extent required,
for offering and sale under the "blue sky" or securities laws of such
jurisdictions as you may designate and maintain such qualification in effect for
so long as is required for the distribution of such Shares; provided, however,
-------- -------
that no such qualification shall be required in any jurisdiction where, as a
result thereof, the Company would be subject to service of general process or to
taxation as a foreign corporation doing business in such jurisdiction to which
it is not then subject. In each jurisdiction, where such qualification shall be
effected, the Company will, unless you agree in writing that such action is not
at the time necessary or advisable, file and make such statements or reports at
such times as are or may be required by the laws of such jurisdiction.
(f) Earnings Statement. The Company will make generally available
------------------
(within the meaning of Section 11(a) of the Act and the Regulations) to its
security holders and to you as soon as practicable, but not later than 45 days
after the end of its fiscal quarter in which the first anniversary date of the
effective date of the Registration Statement occurs under the Act, an earnings
statements (which need not be certified by independent certified public
accountants unless required by the Act or the Regulations, but which shall
satisfy the provisions of Section 11(a) of the Act and the Regulations) covering
a period of least twelve months beginning after the date on which the
Registration Statement was declared effective under the Act.
(g) Additional Sales. For a period of 180 days after the date of
----------------
the Prospectus, the Company will not, without your prior written consent,
directly or indirectly, register, offer, sell, offer to sell, contract to sell,
hypothecate, pledge or otherwise dispose of any shares of Common Stock (or any
security or other instrument which by its terms is convertible into,
16
<PAGE>
exercisable for, or changeable for shares of Common Stock), except for the grant
of stock options pursuant to the Company's Stock Option Plan and the issuance of
Common Stock upon the exercise of such options, as described in the Prospectus.
(h) Periodic Reports. For a period of five years after the date
----------------
the Registration Statement was declared effective under the Act, the Company
will furnish you, without charge, the following:
(i) within 90 days after the end of each fiscal year, three
copies of financial statements certified by independent certified public
accountants, including a balance sheet, statement of income and statement of
cash flows of the Company and its then existing subsidiaries, if any, with
supporting schedules, prepared in accordance with generally accepted accounting
principles, as at the end of such fiscal year and for the 12 months then ended,
which may be on a consolidated basis;
(ii) as soon as practicable after they have been sent to
stockholders of the Company or filed with the Commission or the Nasdaq National
Market System (or a similar market), three copies of each annual, quarterly and
interim financial and other report or communication sent by the Company to its
shareholders or filed with, or furnished to, the Commission or the Nasdaq
National Market System (or a similar market); to the extent applicable such
reports or documents shall be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T;
(iii) as soon as practicable, two copies of every press
release issued by the Company in respect of the Company or its affairs; and
(iv) such additional documents and information with respect
to the Company and its affairs, and the affairs of its subsidiaries, if any, as
you may from time to time reasonably request.
(i) Use of Proceeds. The Company will apply the net proceeds
---------------
received by it from the sale of the Shares in the manner set forth under the
caption "Use of Proceeds" in the Prospectus.
(j) Interim Financial Statements. The Company will furnish to
----------------------------
you as early as practicable prior to the Closing Date and the Additional Closing
Date, if any, as the case may be, but no less than two full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company which, if such interim financial statements are included in the
Registration Statement, shall have been reviewed by the Company's independent
certified public accountants, as stated in their letters to be furnished
pursuant to Section 8(h).
(k) Amendments to Registration Statement. The Company will not
------------------------------------
file any amendment or supplement to the Registration Statement or Prospectus at
any time, whether before or after the date on which the Registration Statement
was declared effective under the Act, unless such filing shall comply with the
Act and the Regulations in all material respects and unless you
17
<PAGE>
shall previously have been advised of such filing and furnished with a copy
thereof, and you and counsel for the Underwriters shall have approved such
filing. Until the later of (i) the completion by you of the distribution of the
Firm Shares and the Additional Shares (but in no event more than nine months
after the date on which the Registration Statement shall have been declared
effective under the Act), and (ii) 25 days after the date on which the
Registration Statement shall have been declared effective under the Act, the
Company will prepare and file with the Commission, promptly upon your request,
any amendments or supplements to the Registration Statement or the Prospectus
which, in your reasonable opinion, may be necessary or advisable in connection
with the distribution of the Firm Shares and the Additional Shares.
(l) Exchange Act Requirements. The Company will comply, in a
-------------------------
timely manner, with all registration, filing, and reporting requirements of the
Exchange Act, which may from time to time be applicable to the Company.
(m) Registration Statement Undertakings. The Company will comply
-----------------------------------
with all provisions of all undertakings contained in the Registration Statement.
(n) Publicity. Prior to the Closing Date or the Additional Closing
---------
Date, as the case may be, the Company will not issue any press release or other
communication, directly or indirectly, or hold any press conference with respect
to the Company, the financial condition, results of operations, business.
properties, assets or liabilities thereof, or this offering, without your prior
written consent, which consent will not be unreasonably withheld.
(o) Exchange Act Registration. The Company will file timely with
-------------------------
the Commission an appropriate form to register the Common Stock pursuant to
Section 12(b) or 12(g) under the Exchange Act.
(p) Form SR. The Company will file timely with the Commission
-------
accurate reports on Form SR in accordance with Rule 463 of the Regulations or
any successor provision.
(q) NASDAQ National Market. The Company will use its best efforts
----------------------
to complete and maintain, for a period of five (5) years from the effective date
of the Registration Statement, the listing of the Shares and the Common Stock
underlying the options issued under the stock option plans and the
Representatives' Warrants on the Nasdaq National Market System or upon another
national securities exchange.
(r) Closing Binders. The Company will deliver to you, without
---------------
charge, within a reasonable period after the Additional Closing Date or the
expiration of the period in which the Underwriters may exercise the over-
allotment option (but in no event later than six (6) months from the date of the
Prospectus), such bound volumes of the Registration Statement and all related
materials as you may reasonably request.
(s) Stock Transfer Information. For a period of three years after
--------------------------
the date on which the Registration Statement is declared effective under the
Act, the Company will provide
18
<PAGE>
to you, on a confidential basis and at its sole expense, copies of the Company's
daily transfer sheets, if so requested by you.
(t) Lock-Up Agreements. The Company will execute a letter
------------------
addressed to the transfer agent for the Company which instructs the transfer
agent to note stop transfer instructions with respect to all of the shares of
Common Stock which are subject to Lock-Up Agreements. Prior to or simultaneously
with the execution and delivery of this Agreement, the Company will obtain a
Lock-Up Agreement from each of the Company's stockholders, executive officers
and directors. 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.
(u) Other Matters. The Company will do and perform all things
-------------
reasonably required or necessary to be done and performed under this Agreement
by it prior to the Closing Date and the Additional Closing Date and to satisfy
all conditions precedent to the delivery of the Shares.
(v) Board of Directors. At its option, Fechtor Detwiler, following
------------------
the Closing Date and for a period of three (3) years thereafter, may designate a
representative to serve on the Company's Board of Directors, and the Company
will use its best efforts to cause such designee to be elected to the Board.
Alternatively, a representative of Fechtor Detwiler shall be entitled to notice
of, to attend as an observer, and to participate in the discussion (but not
vote) at all meetings of the Company's Board of Directors; provided, however,
that the Company may exclude such observer from portions of any meeting relating
to: (i) any matter between the Company and Fechtor Detwiler and (ii) any claim
or potential claim by any third party, or matter which may result in a claim or
potential claim by a third party, which is to be discussed with Company counsel
and with respect to which counsel advises the Board that the presence of such
observer could result in a loss of the attorney-client privilege. The Company
will reimburse Fechtor Detwiler's designee, whether a director or observer, for
all reasonable out-of-pocket travel, lodging, meal and ancillary expenses
incurred in attendance at any Board meeting.
(w) Employment Agreements. At the Closing Date, the Company will
---------------------
be a party to employment agreements with each of Bernard Weiss, Julie Heldman,
Michael Prince, Robert Fried and Robert Zeichick on terms that are satisfactory
to the Representatives.
(x) Future Transactions; Rights of First Refusal. Following the
--------------------------------------------
Closing Date and for a period of three (3) years thereafter, Fechtor Detwiler
shall have a right of first refusal to provide investment banking or brokerage
services with respect to: (i) any public or private offering of securities
(including without limitation, debt, equity and convertible instruments) of the
Company, (ii) any merger, reorganization, recapitalization, sale, license or
other disposition of all or substantially all of the assets of the Company or
any acquisition of assets or securities of another (other than in the ordinary
course of business) or similar type of transaction, or (iii) any other type of
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
19
<PAGE>
the proposed Covered Transaction, which notice shall describe in reasonable
detail the material terms of such Covered Transaction, including without
limitation, the proposed terms of compensation of Fechtor Detwiler for its
services with respect to the Covered Transaction. Fechtor Detwiler shall have
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 Fechtor Detwiler 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 Fechtor Detwiler, (ii) the terms of the proposed Covered
Transaction do not materially change from the terms described in the Company's
notice to Fechtor Detwiler, and (iii) both the engagement of any such other
investment banking or brokerage firm and the commencement of the Covered
Transaction occur within six (6) months of the date after which Fechtor Detwiler
elected not to participate in such Covered Transaction.
(y) Public Relations Firm. Following the Closing Date and for a
---------------------
period of (2) two years thereafter, the Company agrees to engage a financial
public relations firm that is reasonably acceptable to Fechtor Detwiler.
(z) Minimum Shareholder Equity. On the Closing Date, without
--------------------------
giving effect to the proceeds from the sale of the Shares, the Company shall
have Shareholders' Equity of at least Two Million Dollars ($2,000,000).
7. Payment of Expenses.
--------------------
(a) Expenses of the Offering. Whether or not the transactions
-------------------------
contemplated in this Agreement are consummated or this Agreement is terminated,
the Underwriters hereby agree with the Company that they will bear all of their
expenses incurred in connection with syndication and the Company hereby agrees
with the several Underwriters that it will pay all other costs and expenses
(other than fees of counsel for the Underwriters, except as provided in Section
12(e)) in connection with the sale of the Shares, including (a) the
preparation, printing, filing, distribution and mailing of the Registration
Statement, as originally filed and all amendments, and the Prospectus and the
printing, filing, distribution and mailing of this Agreement, any selected
dealers agreement and related documents, including the cost of all copies
thereof and of the Preliminary Prospectuses and of the Prospectus and. any
amendments or supplements thereto supplied to you in quantities as stated in
this Agreement, (b) the issuance, sale, transfer and delivery of the Shares,
including any transfer or other taxes payable thereon, (c) the qualification of
the Shares under state or foreign "blue sky"or securities laws, including the
costs of printing and mailing the preliminary and final "Blue Sky Survey" and
the fees of counsel for the Underwriters and its disbursements in connection
therewith, (d) the filing fees payable to the Commission, the NASD and the
jurisdictions in which such qualification is sought, (e) any fees relating to
the listing (and maintaining the listing) of the Shares on the Nasdaq National
Market System, (f) the fees of the transfer agent for the Shares, (g) the cost
of printing certificates representing the Shares, (h) the cost and charges of
any meetings with prospective investors in the Shares, and (i) all other costs
and expenses incident to the performance of the
20
<PAGE>
Company's obligations hereunder and not otherwise specifically provided for in
this Section. Notwithstanding the foregoing, the Company and the Underwriters
will bear their respective portions of all expenses associated with the "road
show."
(b) Underwriters' Expenses. Except as specifically provided in
----------------------
paragraph 7(a), the Company will reimburse the Underwriters for their
accountable expenses (including without limitation, the fees and expenses of
Underwriters' Counsel) incurred in connection with reviewing the Registration
Statement and the Prospectus and in otherwise investigating, preparing to market
or marketing the Shares; provided, however, that the Company's obligations under
this paragraph 7(b) shall not exceed $135,000 in the aggregate.
8. Conditions of Underwriters' Obligations. The obligations of the
---------------------------------------
several Underwriters to purchase and pay for the Shares, as provided herein,
shall be subject, in your discretion, to the continuing accuracy of the
representations and warranties of the Company and the Selling Stockholders
contained herein and in each certificate and document contemplated under this
Agreement to be delivered to you, as of the date hereof and as of the Closing
Date (or the Additional Closing Date, as the case may be), to the performance by
the Company and the Selling Stockholders of their respective obligations
hereunder, and to the following conditions:
(a) SEC Effectiveness. The Registration Statement shall have become
-----------------
effective under the Act, and no stop order suspending the effectiveness the
Registration Statement or any part thereof shall have issued and no proceeding
for that purpose shall have been initiated or threatened by the Commission.
(b) Opinion of Company Counsel. You shall have received, at no
--------------------------
cost to you, on the Closing Date and on any later Additional Closing Date, as
the case may be, the opinion of Troop Meisinger Steuber & Pasich, LLP, corporate
counsel to the Company, dated the Closing Date or such later Additional Closing
Date, in the form attached hereto on Appendix B addressed to the Underwriters.
----------
(c) Selling Stockholder Opinion. The Selling Stockholders shall
---------------------------
have furnished to you, the opinion of Troop Meisinger Steuber & Pasich, LLP
counsel for the Selling Stockholders, dated the Closing Date or such later
Additional Closing Date, in the form attached hereto on Appendix C, addressed to
----------
the Underwriter.
(d) Opinion of Underwriters' Counsel. You shall have received from
--------------------------------
Proskauer Rose LLP, Underwriters' Counsel, an opinion or opinions, dated the
Closing Date or on any later Additional Closing Date, as the case may be, in
form and substance reasonably satisfactory to you, with respect to the
sufficiency of all corporate proceedings undertaken by the Company and other
legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as it may have reasonably requested for the purpose
of enabling it to pass upon such matters.
(e) Other Documents. On or prior to the Closing Date and the
---------------
Additional Closing Date, as the case may be, you shall have been furnished such
additional information,
21
<PAGE>
documents, certificates and opinions as you may reasonably require for the
purpose of enabling you to review the matters referred to in Section 8(b) and in
order to evidence the accuracy, completeness, or satisfaction of any of the
representations, warranties, covenants, agreements, or conditions herein
contained, or as you may reasonably request.
(f) Conformity of Registration Statement. At the Closing Date or the
------------------------------------
Additional Closing Date, as the case may be, (i) the Registration Statement
and the Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Regulations, and in all material respects conform to the requirements
thereof, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, (ii) there shall have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, no material adverse change, or any development involving a
prospective material adverse change, in the business, properties, or condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt, or general affairs of the Company from that set forth in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and the Prospectus indicate might occur after the date on which the
Registration Statement becomes effective under the Act, and the Company shall
not have incurred any material liabilities or entered into any agreements not in
the ordinary course of business, other than as referred to in the Registration
Statement and the Prospectus, (iii) except as set forth in the Prospectus, no
litigation, arbitration, claim, governmental or other proceeding (formal or
informal), or investigation shall be pending, threatened, or in prospect (or any
basis therefor) with respect to the Company or any of its operations,
businesses, properties or assets which would be required to be set forth in the
Registration Statement, and (iv) the Common Stock shall have been approved for
listing on the Nasdaq National Market System.
(g) Officer's Certificate. At the Closing Date and the Additional
---------------------
Closing Date, as the case may be, you shall have received a certificate of the
Company, executed by the President and the Chief Financial Officer of the
Company, dated the Closing Date or such Additional Closing Date, as the case may
be, to the effect that, among other things, (i) the conditions set forth in
Sections 8(a) and 8(f) have been satisfied, (ii) as of the date of this
Agreement and as of the Closing Date or such Additional Closing Date, as the
case may be, the representations and warranties of the Company contained herein
were and are accurate and correct in all material respects, and (iii) as of the
Closing Date or such Additional Closing Date, as the case may be, the
obligations to be performed by the Company hereunder on or prior thereto have
been fully performed.
(h) Reasonable Satisfaction. All proceedings taken in connection
-----------------------
with the issuance, sale, transfer and delivery of the Shares shall be reasonably
satisfactory in form and substance to you and to counsel for the Underwriters.
(i) Accountant's Comfort Letter. At the time this Agreement is
---------------------------
executed and at the Closing Date and the Additional Closing Date, as the case
may be, you shall have received
22
<PAGE>
a letter from the Accountants dated the date of delivery, and addressed to the
Underwriters, and in form and substance satisfactory to you:
(i) confirming that they are, and during the period covered
by their report(s) included in the Registration Statement and the Prospectus
were, independent certified public accountants with respect to the Company
within the meaning of the Act and the Regulations and stating that the answer to
Item 13 of the Registration Statement is correct insofar as it relates to them;
(ii) stating that, in their opinion, the Financial Statements
of the Company included in the Registration Statement and Prospectus and covered
by their opinion therein comply in form in all material respects with the
applicable accounting requirements of the Act and the related published rules
and regulations;
(iii) stating that, on the basis of procedures (but not an
examination made in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes (and consents) of the stockholders and Board of Directors of
the Company and committees of such Board of Directors, inquiries to certain
officers and other employees of the Company responsible for financial and
accounting matters, and other specified procedures and inquiries to a date not
more than five (5) business days prior to the date of such letter, nothing has
come to their attention that cause them to believe that: (A) the unaudited
financial statements of the Company included in the Registration Statement and
Prospectus do not comply in form in all material respects with the applicable
accounting requirements of the Act and the Exchange Act and the related
published rules and regulations under the Act of the Exchange Act or are not
fairly presented in conformity with generally accepted accounting principles
(except to the extent that certain footnote disclosures regarding any interim
period may have been omitted in accordance with the applicable rules of the
Commission under the Exchange Act) applied on a basis consistent with that of
the audited financial statements appearing therein; (B) except as contemplated
by the Prospectus, there was any change in the capital stock or increase in
long-term debt of the Company or any decrease in the net current assets or
shareholders' equity of the Company as of the date of the latest available
monthly financial statements of the Company or as of a specified date not more
than five (5) business days prior to the date of such letter, each as compared
with the amounts shown in the March 31, 1997 balance sheet included in the
Registration Statement and Prospectus or any change or decrease (which shall be
set forth therein) which you, in your sole discretion, shall accept; or (C)
there was any decrease in net sales or any decrease in net income or net income
per share of Common Stock of the Company, during the period from March 31, 1997
to the date of the latest available monthly financial statements of the Company
or to a specified date not more than five business days prior to the date of
such letter, as compared with the corresponding period in 1996, other than as
properly described in the Registration Statement and the Prospectus or any
increase (which shall be set forth therein) which you, in your sole discretion,
shall accept; and
23
<PAGE>
(iv) stating that they have compared specific numerical data
and financial information pertaining to the Company set forth in the
Registration Statement, which have been specified by you prior to the date of
this Agreement, to the extent that such data and information may be derived from
the general accounting records of the Company, and excluding any questions
requiring an interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries and other appropriate procedures
(which procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
(j) NASD Matters. The NASD, upon review of the terms of the public
------------
offering of the Shares, shall not have objected to the Underwriters'
participation in such offering nor the terms of compensation of the
Representatives.
(k) Lock-Up Agreements. Prior to or on the Closing Date, the
------------------
Company shall have provided to you copies of the Lock-Up Agreements referred to
in Section 2(r).
Any certificate or other documents signed by any officer of the
Company and delivered to the Representatives or to counsel to the Underwriters
shall be deemed a representation and warranty by the Company hereunder to the
Underwriters as to the statements made therein. If any condition to the
Underwriters' obligations hereunder to be fulfilled by the Company prior to or
at the Closing Date or any Additional Closing Date, as the case may be, is not
so fulfilled, you may terminate this Agreement or, if you so elect, in writing
waive any such conditions which have not been fulfilled or extend the time for
their fulfillment.
9. Indemnification and Contribution.
--------------------------------
(a) By the Company and Founding Stockholders. The Company and the
----------------------------------------
Founding Stockholders, jointly and severally, agree to indemnify and hold
harmless each Underwriter, its officers, directors, partners, employees, agents
and counsel, and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any and all loss, liability, claim, damage and expense whatsoever (which shall
include, for all purposes of this Section 9, but not limited to, attorneys' fees
and any and all expense whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever whether or not in connection with any litigation in which an
indemnified party is a party and whether or not involving a third party claim
and any and all amounts paid in settlement of any claim or litigation), joint or
several, as to which they or any of them may be subject as and when incurred
arising out of, based upon, or in connection with (i) any untrue statement or
alleged untrue statement of a material fact or any omission or alleged
commission to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, contained in (A) the Registration Statement, any
Preliminary Prospectus, or the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto or (B) any application or
other document or communication (for purposes of this Section 9, collectively
called an "application") executed by, or on behalf of, the Company or based upon
-----------
written information furnished by, or on behalf of, the Company filed in any
24
<PAGE>
jurisdiction in order to qualify the Shares under the "blue sky" or securities
laws thereof or filed with the Commission or any securities exchange; unless
such statement or omission was made in reliance upon, and in conformity with,
written information furnished to the Company as stated in Section 9(b) by any
Underwriter through you expressly for inclusion in the Registration Statement,
any Preliminary Prospectus, or the Prospectus, or any amendment or supplement
thereto, or in any application, as the case may be, (ii) any breach of any
representation, warranty, covenant or agreement of the Company or the Founding
Stockholders contained in this Agreement, or (iii) any of the matters which were
the subject of the Letter of Intent dated March 7, 1997, between the Company and
Fechtor Detwiler. The foregoing agreement to indemnify shall be in addition to
any liability the Company may otherwise have, including liabilities arising
under this Agreement.
(b) By the Selling Stockholders. Each of the Selling Stockholders,
---------------------------
severally and not jointly, will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, in each case to the extent that such statement or omission arises
from or is based on information furnished by such Selling Stockholder for use in
connection therewith, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with the
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that (A) the Selling Stockholders shall not be
-------- -------
liable to any Underwriter under the indemnity agreement of this subsection (a)
with respect to any Preliminary Prospectus to the extent that any such loss,
claim, damage or liability of such Underwriter results from the fact that such
Underwriter sold Shares to a person as to whom it shall be established that
there was not sent or given, at or prior to the written confirmation of such
sale, a copy of the Prospectus or of the Prospectus as then amended or
supplemented in any case where such delivery is required by the Act if the
Company has previously furnished copies thereof in sufficient quantity to such
Underwriter and the loss, claim, damage or liability of such Underwriter results
from an untrue statement or omission of a material fact contained in the
Preliminary Prospectus which was identified in writing at such time to such
Underwriter and corrected in the Prospectus or in the Prospectus as amended or
supplemented, and (B) the liability of each Selling Stockholder under the
indemnity agreement in this Section 9(b) shall not exceed the product of (i) the
purchase price paid by the Underwriters for the Shares and (ii) the number of
Shares sold by such Selling Stockholder under this Agreement.
(c) Notification and Procedure. If any action is brought against
--------------------------
any Underwriter or any of its officers, directors, partners, employees, agents
or counsel, or any controlling persons of any Underwriter (an "indemnified
-----------
party") in respect of which indemnity may be sought against the Company or any
- -----
of the Selling Stockholders pursuant to the foregoing paragraphs, such
indemnified party or parties shall promptly notify the Company or such Selling
25
<PAGE>
Stockholder, as the case may be, in writing of the institution of such action
(but the failure to so notify, shall not relieve the Company or such Selling
Stockholders from any liability it may have other than pursuant to this Section
9) and the Company or such Selling Stockholders shall promptly assume the
defense of such action, including, without limitation, the employment of counsel
satisfactory to such indemnified party or parties and payment of expenses.
Notwithstanding the foregoing, such indemnified party or parties shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties, unless (i) the employment of such counsel shall have been authorized in
writing by the Company or such Selling Stockholder, as the case may be, in
connection with the defense of such action, (ii) the Company or such Selling
Stockholder, as the case may be, shall not have promptly employed counsel
satisfactory to such indemnified party or parties to have charge of the defense
of such action or within a reasonable time after notice of commencement of the
action, or (iii) the indemnified party or parties shall have reasonably
concluded that there are defenses available to it or them not available to the
Company or Selling Stockholders, which counsel for the Company or Selling
Stockholders would be precluded from asserting. Anything in this Section 9 to
the contrary notwithstanding, the Company or such Selling Stockholder, as the
case may be, shall not be liable for any settlement of any such claim or action
effected without its written consent, which consent shall not be unreasonably
withheld. The Company or such Selling Stockholder, as the case may be, shall
not, without the prior written consent of each indemnified party that is not
released as described in this sentence, settle or compromise any action, or
permit a default or consent to the entry of judgment or otherwise seek to
terminate any pending or threatened action, in respect of which indemnity may be
sought thereunder (whether or not any indemnified party is a party thereto),
unless such settlement, compromise, consent or termination includes an
unconditional release of each indemnified party from all liability in respect of
such action. The Company and each of the Selling Stockholders agrees promptly to
notify the Representatives of the commencement of any litigation or proceedings
against the Company, such Selling Stockholder or any of its officers or
directors in connection with the sale of the Shares, the Registration Statement,
any Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or any application.
(d) By the Underwriters. Each Underwriter, severally and not
-------------------
jointly, agrees to indemnify and hold harmless the Company, each Selling
Stockholder, each director of the Company, each officer of the Company who shall
have signed the Registration Statement, and each other person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnity from
the Company and Selling Stockholders to the several Underwriters in Section
9(a), but only with respect to statements or omissions, if any, made in the
Registration Statement, any Preliminary Prospectus, or the Prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto,
or in any application, in reliance upon, and in conformity with, written
information furnished to the Company with respect to the Underwriters through
you expressly for inclusion in the Registration Statement, any Preliminary
Prospectus, or the Prospectus, or any amendment or supplement thereto, or in any
application, as the case may be; provided, however, that any obligation of any
-------- -------
Underwriter to provide indemnity under the provisions of this Section 9(d) shall
not be in excess of the underwriting discount and commission applicable to the
Shares purchased by such Underwriter hereunder. For all purposes of this
26
<PAGE>
Agreement, the Company and the Selling Stockholders acknowledge that the
statements set forth in the second paragraph under the caption "Underwriting,"
as they relate to the selling concession and reallowance, constitute the only
information furnished in writing by, or on behalf of, any Underwriter expressly
for inclusion in the Registration Statement, any Preliminary Prospectus, or the
Prospectus, or any amendment or supplement thereto, or in any application, as
the case may be. If any action shall be brought against the Company, any selling
Stockholder or any other person so indemnified based on the Registration
Statement, any Preliminary Prospectus, or the Prospectus, or any amendment or
supplement thereto, or any application, and in respect of which indemnity may be
sought against any Underwriter pursuant to this Section 9(d), any Underwriter
shall have the rights and duties given to the Company or such Selling
Stockholder, and the Company or such Selling Stockholder and each other person
so indemnified shall have the rights and duties given to the indemnified
parties, by the provisions of Section 9(c).
(e) Contribution. To provide for just and equitable contribution,
------------
if (i) an indemnified party makes a claim for indemnification pursuant to
Section 9(a), 9(b) or 9(d) (subject to the limitations thereof) but it is found
in a final judicial determination, not subject to further appeal, that such
indemnification may not be enforced in such case, even though this Agreement
expressly provides for indemnification in such case or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange Act, or
otherwise, then the Company (including for this purpose any contribution made
by, or on behalf of, any director of the Company, any officer of the Company who
signed the Registration Statement, and any controlling person of the Company)
and the Selling Stockholders, as one entity and the Underwriters (including for
this purpose any contribution by, or on behalf of, an indemnified party ), as a
second entity, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, so that the
Underwriters are responsible for the proportion thereof equal to the percentage
which the underwriting discount per Share set forth on the cover of the
Prospectus represents of the initial public offering price per share set forth
on the cover page of the Prospectus and the Company is responsible for the
remaining portion; provided, however, that if applicable law does not permit
-------- -------
such allocation, then other relevant equitable considerations, such as the
relative fault of the Company, the Selling Stockholders and the Underwriters in
connection with the facts which resulted in such losses, liabilities, claims,
damages, and expenses shall also be considered. The relative fault, in the case
of an untrue statement, alleged untrue statement, omission, or alleged omission,
shall be determined by, among other things, whether such statement, alleged
statement, omission, or alleged omission, relates to information supplied by the
Company, the Selling Stockholders or by the Underwriters, and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Company, the Selling Stockholders and the Underwriters agree that it would be
unjust and inequitable if the respective obligations of the Company and the
Underwriters for contribution were determined by pro rata or per capita
allocation of the aggregate losses, liabilities, claims, damages and expenses
(even if the Underwriters and the other indemnified parties were treated as one
entity for such purpose) or by any other method of allocation that does not
reflect the equitable considerations referred to in this Section 9(e). No person
guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. For purposes of this Section 9(e), each
person, if any, who
27
<PAGE>
controls an Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act and each officer, director, partner, employee, agent,
and counsel of any Underwriter shall have the same rights to contribution as
such Underwriter and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed the Registration Statement, and
each director of the Company shall have same rights to contribution as the
Company, subject in each case to the provisions of this Section 9(e). Anything
in this Section 9(e) to the contrary notwithstanding, no party shall be liable
for contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 9(e) is intended to supersede any
right to contribution under the Act, the Exchange Act, or otherwise.
10. Default by an Underwriter.
-------------------------
(a) 10% or Less. If any Underwriter or Underwriters shall default
-----------
in its or their obligation to purchase Firm Shares or Additional Shares
hereunder, and if the Firm Shares or Additional Shares with respect to which
such default relates does not (after giving effect to arrangements, if any, made
by you pursuant to subsection (b) below) exceed in the aggregate 10% of the
number of shares of Firm Shares or Additional Shares, as the case may be, which
all Underwriters have agreed to purchase hereunder, then such shares of Firm
Shares or Additional Shares to which the default relates shall be purchased by
the non-defaulting Underwriters in proportion to their respective proportions by
which the number of Firm Shares set forth opposite their respective names in
Schedule I hereto bear to the aggregate number of shares of Firm Shares set
forth opposite the names of all the non-defaulting Underwriters.
(b) Greater than 10%. In the event that such default relates to
----------------
more than 10% of the Firm Shares or Additional Shares, as the case may be, you
may in your discretion arrange for yourself or for another party or parties
(including any non-defaulting Underwriter or Underwriters who so agree) to
purchase such Firm Shares or Additional Shares, as the case may be, to which
such default relates on the terms contained herein. In the event that within two
(2) business days after such a default you do not arrange for the purchase of
the Firm Shares or Additional Shares, as the case may be, to which such default
relates as provided in this Section 10, this Agreement or, in the case of a
default with respect to the Additional Shares, the obligations of the
Underwriters to purchase Additional Shares, shall thereupon terminate, without
liability on the part of the Company with respect thereto (except in each case
as provided in Section 7, 9 and 12 hereof) or the several Underwriters (except
as provided in Sections 9 and 12 hereof), but nothing in this Agreement shall
relieve a defaulting Underwriter or Underwriters of its or their liability, if
any, to the other several Underwriters, and the Company for damages occasioned
by its or their default hereunder.
(c) Closing Matters. In the event that the Firm Shares or
---------------
Additional Shares to which the default relates are to be purchased by the non-
defaulting Underwriters, or are to be purchased by another party or parties as
aforesaid, you or the Company shall have the right to postpone the Closing Date
or additional Closing Date, as the case may be, for a period, not exceeding five
(5) business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus or in any other
documents and
28
<PAGE>
arrangements, and the Company agrees to file promptly any amendment or
supplement to the Registration Statement or the Prospectus which, in the opinion
of Underwriters' counsel, may thereby be made necessary or advisable. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 10 with like effect as if it had originally been a party to
this Agreement with respect to such Firm Shares and the Additional Shares.
11. Representations and Agreements to Survive Delivery. All
--------------------------------------------------
representations, warranties, covenants and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants and agreements of the Underwriters and
the Company and the Selling Stockholders, including the agreements contained in
Section 6, the indemnity and contribution agreements contained in Section 9,
shall remain operative and in full force and effect regardless of any
investigation made by, or on behalf of, the Company or any person or entity
which is entitled to be indemnified under Section 9(d), and shall survive
delivery of the Firm Shares or the Additional Shares. In addition, the
provisions of Sections 7, 9, 11, 12, 13, 15 and 16 shall survive termination of
this Agreement, whether such termination occurs before or after the Closing Date
or any Additional Closing Date.
12. Effective Date of This Agreement and Termination Thereof.
--------------------------------------------------------
(a) Effective Date. This Agreement shall become effective upon the
--------------
later of (i) 9:30 A.M., [Boston] local time, on the first full business day
following the day on which the Registration Statement becomes effective under
the Act or (ii) the execution of this Agreement (the "Effective Date").
--------------
(b) Failure to Price. If the purchase price of the Firm Shares has
----------------
not been determined as provided for in Section 4 prior to 4:30 P.M., [Boston]
local time, on the fourth full business day after the date on which the
Registration Statement was declared effective under the Act, this Agreement may
be terminated at any time thereafter either by you or by the Company by giving
notice to the other unless before such termination the purchase price for the
Firm Shares has been so determined. If the purchase price of the Firm Shares
has not been determined prior to 4:30 P.M., Boston local time, on the tenth full
business day after the date on which the Registration Statement was declared
effective under the Act, this Agreement shall automatically terminate forthwith.
(c) Termination Events. In addition to the right to terminate this
------------------
Agreement pursuant to Section 8 hereof, you shall have the right to terminate
this Agreement at any time prior to the Closing Date or any Additional Closing
Date, as the case may be, by giving notice to the Company if (i) any domestic or
international event, act or occurrence has materially disrupted, or in your
opinion will in the immediate future materially disrupt, the securities markets;
or (ii) if there shall have been a general suspension of, or a general
limitation on prices for, trading in securities on the New York Stock Exchange,
the American Stock Exchange, the Nasdaq Stock Market or any regional stock
exchange or in the over-the-counter market; or (iii) if there shall have been an
outbreak or increase in the level of major hostilities or other national or
international calamity; or (iv) if a banking moratorium has been declared by a
state or federal
29
<PAGE>
authority; or (v) if a moratorium in foreign exchange trading by major
international banks or persons has been declared; or (vi) if there shall have
been a material interruption in the mail service or another means of
communications within the United States; or (vii) if the Company shall have
sustained a material or substantial loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether or
not such loss shall have been insured, will, in your opinion make it inadvisable
to proceed with the offering, sale or delivery of the Shares; or (viii) if any
material governmental restrictions shall have been imposed on trading in
securities in general, which restrictions are not in effect on the date hereof;
or (ix) if there shall be passed by the Congress of the United States or by any
state legislature any act or measure, or adopted by any governmental body or
authoritative accounting institute or board, or any governmental executive
orders, rules or regulations, which you believe are likely to have a material
adverse effect on the business, financial condition or financial statements of
the Company or the market for any of the Company's securities; or (x) if there
shall have been such change in the market for Company's securities or securities
in general or in political, financial or economic conditions as in your judgment
makes it inadvisable to proceed with the offering, sale and delivery of the Firm
Shares or the Additional Shares, as the case may be, on the terms contemplated
by the Prospectus; or (xi) the Company or any Selling Stockholder shall have
failed, refused or been unable to perform in any material respect any agreement
or covenant on its, his or her part to be performed hereunder, failed to satisfy
any condition required to be performed or satisfied by it, he or she, or
breached in any material respect any representation or warranty contained
herein; or (xii) if in your judgment any Material Adverse Effect shall have
occurred since the respective dates as of which information is given in the
Registration Statement or the Prospectus.
(d) Notice. If you elect to prevent this Agreement from becoming
------
effective, as provided in this Section 12, or to terminate this Agreement
pursuant to Section 8 or this Section 12, you shall notify the Company and the
Selling Stockholders promptly by telephone, telex, telegram or facsimile,
confirmed by letter. If, as so provided, the Company or the Selling
Stockholders elect to prevent this Agreement from becoming effective or to
terminate this Agreement, the Company or the Selling Stockholders, as the case
may be, shall notify you promptly by telephone, telex, telegram or facsimile,
confirmed by letter.
(e) Failure of Conditions. Anything in this Agreement to the
---------------------
contrary notwithstanding other than Section 12(f), the sole liability of the
Company to you, in addition to the obligations the Company assumed pursuant to
Section 7, if this Agreement shall not become effective by reason of: (i) an
election by you pursuant to Section 12(c)(xi), will be to reimburse the
Underwriters for such out-of-pocket expenses (including the fees and
disbursements of Underwriters' counsel and "blue sky" expenses) as shall have
been incurred by them in connection with this Agreement or the proposed offer,
sale and delivery of the Shares, or (ii) any other reason, will be to reimburse
the Underwriters for such out-of-pocket blue sky fees and expenses (including
the fees and disbursements of blue sky counsel) as shall have been incurred by
them. Upon demand the Company agrees to pay promptly the full amount due to you
under this paragraph.
30
<PAGE>
(f) Survival of Provisions. Notwithstanding any election hereunder
----------------------
or any termination of this Agreement, and whether or not this Agreement is
otherwise carried out, the provisions of Sections 7, 9, 11 and 13 shall not be
in any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
13. Notices. All communications hereunder, except as may be otherwise
-------
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
by letter, to Fechtor, Detwiler & Co., Inc., [155 Federal Street, Boston,
Massachusetts, Attention: Mr. Sheldon Fechtor,] with a copy to Proskauer Rose
LLP, 2255 Glades Road, Suite 340 West, Boca Raton, Florida 33431, Attention:
Christopher C. Wheeler and Donald E. Thompson, II, or, if sent to the Company or
any Selling Stockholder, shall be mailed, delivered, or telexed or telegraphed
and confirmed by letter, to Signature Eyewear, Inc., 498 N. Oak Street,
Inglewood, CA 09302, Attention: Michael Prince, with a copy to Troop Meisinger
Steuber & Pasich, LLP, 10940 Wilshire Boulevard, 8/th/ Floor, Los Angeles,
California 90024, Attention: Alan Spatz.
14. Parties. This Agreement shall inure solely to the benefit of, and
-------
shall be binding upon the several Underwriters, the Selling Stockholders and the
Company and the persons and entities referred to in Section 9 who are entitled
to indemnification or contribution, and their respective successors, legal
representatives and assigns (which shall not include any buyer, as such, of the
Shares), and no other person shall, have or be construed to have, any legal or
equitable right, remedy or claim under, or in respect of, or by virtue of this
Agreement or any provision herein contained. Notwithstanding anything contained
in this Agreement to the contrary, all of the obligations of the Underwriters
are several and not joint.
15. Partial Unenforceability. The invalidity or unenforceability of any
------------------------
Section, paragraph or provision of this Agreement shall not effect the validity
or enforceability of any other Section, paragraph or provision hereof. If any
Section, paragraph or provision of this Agreement is for any reason determined
to be invalid or unenforceable, there shall be deemed to be made such minor
changes (and only such minor changes) as is necessary to make it valid and
enforceable.
16. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of The Commonwealth of Massachusetts without
giving effect to be laws pertaining to conflicts of laws.
17. Submission to Jurisdiction. The Company and the Selling Stockholders
--------------------------
hereby irrevocably submit to the exclusive jurisdiction of any state or federal
court sitting in the County of Suffolk, The Commonwealth of Massachusetts in
connection with any action or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby or thereby. The Company each
hereby irrevocably waives any objection that it may now or hereafter have to the
laying of the venue of any such action or proceeding brought in any court and
any claim that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.
31
<PAGE>
18. General. This Agreement may be executed in one or more counterparts,
-------
each of which, when so executed and delivered, shall be deemed to be an
original, but all of which when taken together, shall constitute one and the
same document binding on all of the parties thereto. Transmission by telecopier
of an executed counterpart of this Agreement shall be deemed to constitute due
and sufficient delivery of such counterpart, provided that the party so
delivering such counterpart shall, promptly after such delivery, deliver the
original of such counterpart of this Agreement to the other party thereto.
[Signatures appear on following page]
32
<PAGE>
If the foregoing correctly sets forth the understanding between you, the
Selling Stockholders and the Company, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement between us.
Very truly yours,
SIGNATURE EYEWEAR, INC.
By:
---------------------------------------------
Julie Heldman, Co-Chairman of the Board
and President
SELLING STOCKHOLDERS
(named in Schedule II to this Agreement)
By:
---------------------------------------------
Attorney-in-Fact
Accepted as of the date first above written:
FECHTOR, DETWILER & CO., INC.
By:
-------------------------------------------
On behalf of itself and the
other several Underwriters
named in Schedule I hereto.
Boston, Massachusetts
33
<PAGE>
SCHEDULE I
NUMBER OF FIRM SHARES
NAME OF UNDERWRITER TO BE PURCHASED
- ------------------- --------------------------
Fechtor, Detwiler & Co., Inc.
Van Kasper & Company
---------
Total 1,800,000
=========
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
(1) (2) (3)
ADDITIONAL
SELLING STOCKHOLDERS FIRM SHARES SHARES
- -------------------- ----------- ----------
<S> <C> <C>
The Weiss Family 132,954 134,617
Trust*
Edward Weiner 19,400 19,642
Daniel Warren 19,400 19,642
Robert Fried 11,123 11,262
Robert Zeichick 11,123 11,262
Michael Prince 6,000 6,075
------- -------
200,000 202,500**
</TABLE>
_________________
* Including for purposes of the Lock-Up Agreements, Bernard L. Weiss and
Julie Heldman.
** An additional 67,500 Shares shall be purchased from, and sold by, the
Company.
<PAGE>
APPENDIX A
Public Offering of Common Stock
-------------------------------
____________, 1997
Fechtor Detwiler & Co., Inc.
2255 Glades Road, Suite 234-W
Boca Raton, FL 33431
Dear Sirs:
This letter agreement is being delivered to you in connection with
the proposed Underwriting Agreement (the "Underwriting Agreement") between
Signature Eyewear, Inc., a California corporation (the "Company"), certain
Selling Stockholders named therein and you as one of the Representatives of the
Underwriters named therein, relating to an underwritten public offering of
Common Stock, $0.001 par value ("Common Stock"), of the Company.
In order to induce you to enter into the Underwriting Agreement,
the undersigned agrees not to offer, sell, pledge, hypothecate or contract to
sell, grant any option to purchase or otherwise dispose of, directly or
indirectly (collectively, "transfer"), any shares of Common Stock beneficially
owned by the undersigned or any securities convertible into, or exchangeable
for, shares of Common Stock 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]
<PAGE>
APPENDIX B
Opinion of Corporate Counsel to the Company.
-------------------------------------------
[Note: Defined terms have the same meanings as ascribed to such
terms in the Underwriting Agreement.]
Troop Meisinger Steuber & Pasich, LLP shall opine to the effect that:
(A) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of California;
(B) The Company has the corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus;
(C) To the knowledge of such counsel, the Company does not own or
control, directly or indirectly, any corporation, association or other entity;
(D) The authorized capital stock of the Company consists of
30,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock, of
which there are outstanding no shares of Preferred Stock and [5,200,527] shares
of Common Stock (including the Company Firm Shares). The issued and outstanding
shares of the Company's capital stock have been duly authorized and validly
issued and are fully paid and nonassessable, and have not been issued in
violation of any preemptive right, co-sale right, registration right, right of
first refusal or other similar right known to such counsel;
(E) The Shares to be issued by the Company pursuant to the Agreement
and the Representatives' Warrant have been duly authorized and will be, upon
issuance and delivery against payment therefor in accordance with the terms
hereof, validly issued, fully paid and nonassessable, and, to the knowledge of
such counsel, the stockholders of the Company do not have any preemptive right,
co-sale right, registration right, right of first refusal or other similar
right, which rights have not previously been waived or complied with, in
connection with the purchase or sale of any of the Shares. Upon payment for and
delivery of the Shares in accordance with the terms of this Agreement, and
assuming that the Underwriters are acquiring the Shares in good faith and
without notice of any "adverse claim" (as such term is used in Section 8102 of
the Uniform Commercial Code as in effect in the State of California), the
Underwriters will receive title to the Shares purchased by them from the
Company, free and clear of any adverse claims;
<PAGE>
(F) The terms and provisions of the capital stock of the Company
conform to the description thereof contained in the Registration Statement and
the Prospectus, and the information in the Prospectus under the captions
"Description of Capital Stock" and "Shares Eligible for Future Sale", to the
extent that it constitutes matters of law or legal conclusions, has been
reviewed by such counsel and is a fair summary of such matters and conclusions,
and the form of certificate evidencing the Common Stock complies with the
applicable provisions of California law;
(G) The statements in the Registration Statement and the Prospectus
summarizing statutes, rules and regulations, including the California
Corporation Law and the description of the Articles of Incorporation and By-laws
are accurate and fairly and correctly present the information required to be
presented by the Act or the Rules and Regulations in all material respects; and
such counsel does not know of any statutes, rules or regulations required to be
described in the Registration Statement or the Prospectus that are not described
or referred to therein as required;
(H) The Company has full corporate power and authority to enter into
the Underwriting Agreement and to issue, sell and deliver to the Underwriters
the Company Firm Shares, the Additional Shares, and the Representatives'
Warrant, as the case may be, to be issued and sold by it thereunder;
(I) The Underwriting Agreement and the Representatives' Warrant have
been duly authorized by all necessary corporate action on the part of the
Company and have been duly executed and delivered by the Company and are valid
and binding agreements of the Company, enforceable in accordance with their
respective terms, except that rights to indemnity and contribution thereunder
may be limited by applicable laws or equitable principles and except as
enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(J) The Registration Statement has become effective under the Act
and, to such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement or suspending or preventing the use of the Prospectus
has been issued and no proceedings for that purpose have been instituted or are
pending or threatened under the Act; any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) of the Rules and Regulations has
been made in the manner and within the time period required by such Rule 424(b);
(K) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements, financial
data and supporting schedules included therein, as to which no opinion is
expressed) comply as to form in all material respects with the requirements of
the Act and the applicable Rules and Regulations and to such counsel's
knowledge, there are no agreements, contracts, leases or documents of a
character required to be described in, or filed as an exhibit to, the
Registration Statement which are not described or filed as required by the Act
and the applicable Rules and Regulations;
(L) The statements under the captions "Risk Factors -- Substantial
Dependence Upon Laura Ashley License," "-- Approval Requirements of Brand-Name
Licensors," "-- Limitations on Ability to Distribute Other Brand-Name Eyeglass
Frames," "Management -- Limitation of
B-2
<PAGE>
Liability and Indemnification Matters" (insofar as such statements relate to
indemnification under California law) and the statements set forth in the last
paragraph under each of "Business -- Products -- Laura Ashley Eyewear, Jean Nate
Eyewear, Hart Schaffner & Marx Eyewear and Eddie Bauer Eyewear" in the
Prospectus, insofar as such statements constitute a summary of documents
referred to therein or matters of law, are a fair summary and 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 the Agreement, the
Representatives' Warrant, and the consummation of the transactions therein
contemplated do not and will not (a) conflict with or result in a breach of any
of the terms or provisions of or, constitute a default under, the Articles of
Incorporation or By-laws of the Company, any agreement or document filed as an
exhibit to the Registration Statement (the "Material Contracts"), or any
California or Federal statute, rule or regulation applicable to the Company
(except that no opinion need to be expressed with respect to compliance with
federal and state securities laws) or (b) to the knowledge of such counsel,
result in the creation or imposition of any lien or encumbrance upon any of the
assets of the Company pursuant to the terms or provisions of, 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 Material
Contract or other agreement or instrument of the Company (including all license
agreements) identified by the Company for review in the attached Officer's
Certificate or (c) to the knowledge of such counsel, conflict with or result in
a violation or breach of, or constitute a default under, any applicable license,
authorization, approval, permit, judgment, franchise, order, writ or decree of
any court or governmental agency or body;
(N) The Company is not in violation of its Articles of Incorporation
or By-laws;
(O) To such counsel's knowledge, there are no pending or threatened
actions, suits, claims, proceedings or investigations that would limit, revoke,
cancel, suspend, or cause not to be renewed any existing license, certificate,
registration, approval or permit, known to such counsel, from any state,
federal, or regulatory authority that is material to the conduct of the business
of the Company as presently conducted, or that is of a character otherwise
required to be disclosed in the Registration Statement or the Prospectus under
the Act or the applicable Rules and Regulations which is not so disclosed;
(P) No transfer taxes are required to be paid in connection with the
sale or delivery to the Underwriters of the Company Firm Shares or the
Additional Shares;
(Q) The Company will not, upon consummation of the transactions
contemplated by this Agreement, be an "investment company, 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
B-3
<PAGE>
(R) The Shares issued and sold by the Company have been duly
approved for quotation by the Nasdaq National Market.
In addition, such counsel shall include a statement to the effect that
such counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, Underwriters' Counsel and
the independent public accountants of the Company, at 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.]
B-4
<PAGE>
APPENDIX C
Opinion of Counsel to the Selling Stockholders.
----------------------------------------------
[Note: Defined terms have the same meanings as ascribed to such
terms in the Underwriting Agreement.]
[Further Note: If desired, this opinion may be combined with
the opinion set forth in Appendix B]
Troop Meisinger Steuber & Pasich shall opine to the effect that:
1. The Agreement, the Power of Attorney, and the Custody Agreement
have been duly executed and delivered by or on behalf of each Selling
Stockholder; each Selling Stockholder has full legal right and authority to
sell, transfer and deliver in the manner provided in the Underwriting Agreement
the Selling Stockholder Shares being sold by such Selling Stockholder
thereunder; and the Agreement, the Power of Attorney and the Custody Agreement
constitute the legal, valid and binding agreement of each such Selling
Stockholder and are enforceable against each such Selling Stockholder in
accordance with their respective terms, except that rights to indemnity and
contribution thereunder may be limited by applicable law or equitable principles
and except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws thereof relating to or affecting creditors'
rights generally or by general equitable principles.
2. Upon delivery on behalf of each of the Selling Stockholders to
the Underwriters of certificates for the Selling Stockholder Shares being sold
hereunder by such Selling Stockholder against payment therefor as provided
herein, the Underwriters will acquire all the rights of such Selling Stockholder
to such Selling Stockholder Shares and will acquire such Selling Stockholder
Shares free and clear of any "adverse claim" (as such term is used in Section
8201 of the Uniform Commercial Code as in effect in the State of California),
assuming the Underwriters acquire such Selling Stockholder Shares in good faith
and without notice of any such "adverse claim".
3. No consent, approval, authorization or order of any federal or
California court or governmental agency or body is required for the consummation
by any Selling Stockholder of the transactions contemplated herein, except 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.
4. Neither the sale of the Selling Stockholder Shares being sold by
any Selling Stockholder nor the consummation of any other of the transactions
herein contemplated by any Selling Stockholder or the fulfillment of the terms
hereof by any Selling Stockholder will conflict with, result in a breach or
violation of, or constitute a default under any law or the terms of any
indenture or other agreement or instrument actually known to such counsel and to
which any Selling Stockholder is a party or bound, or any judgment, order or
decree actually known to such counsel
<PAGE>
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.
C-2
<PAGE>
THESE WARRANTS AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF CAN BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS. THESE WARRANTS AND SUCH SECURITIES MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT, UNLESS, IN THE OPINION OF COUNSEL TO THE COMPANY, SUCH REGISTRATION
IS NOT THEN REQUIRED.
SIGNATURE EYEWEAR, INC.
498 NORTH OAK STREET
INGLEWOOD, CA 90302
Warrant No. ______ ____________ Warrants
REPRESENTATIVES' WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
Date of Issuance: As of ____________, 1997
Expiration Date: As of ____________, 2002
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT, in consideration of the payment by the party named
immediately below (an "Underwriter," as defined in Section 1 hereof) of one mil
($.001) per Warrant, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged,
[_______________________________]
or 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"). These Warrants are part of an issuance of 180,000
Warrants as contemplated by that certain Underwriting Agreement dated as of
___________, 1997 between Fechtor, Detwiler & Co., Inc., Van Kasper & Company,
the Company and certain underwriters named on Schedule I thereto (the
"Agreement").
These Warrants are also subject to the following provisions:
<PAGE>
SECTION 1
CERTAIN DEFINITIONS
-------------------
As used herein, the following terms have the meanings set forth below:
"AGREEMENT" is the Underwriting Agreement dated as of August ___, 1997
among the Company and Fechtor, Detwiler & Co., Inc. and Van Kasper & Company, as
representatives of the several Underwriters.
"CERTIFICATE" means this Representatives' Warrant Certificate representing
the Warrants set forth on the face hereof.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's common stock, $.001 par value per share.
"DATE OF ISSUANCE" is the date set forth on the front page of these
Warrants, and the terms "date hereof," "date of these Warrants," and similar
expressions shall be deemed to refer to the Date of Issuance, as specified in
Section 12 of these Representatives' Warrants.
"EFFECTIVE DATE" means the date on which the Registration Statement is
declared effective by the Commission.
"EXERCISE PERIOD" means the period of time commencing at 12:01 A.M.,
Eastern Time, on the first anniversary date of the Effective Date and ending at
5:00 P.M., Eastern Time, on the fifth anniversary date of the Effective Date.
"MARKET PRICE" on any day means the last reported sale price on such day,
or, in case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or by Nasdaq, or, if the Common Stock is
not listed or admitted to trading on any national securities exchange or by
Nasdaq, the average closing bid price as furnished by the NASD through Nasdaq or
similar organization if Nasdaq is no longer reporting such information, or if
the Common Stock is not quoted on Nasdaq, as determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information then available to it. Should the Market Price be determined by the
Board of Directors of the Company pursuant to the last clause of the previous
sentence, such determination shall, absent manifest error, be binding upon the
Registered Holder.
"NASDAQ" means The Nasdaq National Market or the Nasdaq Small Cap Market,
as the case may be, or such other similar interdealer quotation system as may in
the future be used generally by members of the National Association of
Securities Dealers, Inc. ("NASD") for over-the-counter transactions in
securities.
"PERSON" means an individual, a partnership, a corporation, a trust, a
joint venture, an unincorporated organization, and a government or any
department or agency thereof.
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<PAGE>
"REGISTRATION STATEMENT" means the Company's registration statement on Form
S-1, File No. 333-30017, filed with the Commission.
"REPRESENTATIVES' WARRANTS" means the Warrants represented by this
Certificate and all other Representatives' Warrants issued as contemplated by
the Agreement, and all Warrants issued in exchange or substitution for such
Warrants or any such other Warrants pursuant to the terms hereof or thereof, as
the case may be.
"STOCK" means shares of the Common Stock issued or issuable upon exercise
of the Warrants represented by this Certificate or any other of the
Representatives' Warrants; provided that if there is a change such that the
--------
securities issuable upon exercise of a Warrant are issued by an entity other
than the Company, or there is a change in the class of securities so issuable,
then the term "Stock" will mean one share of the security issuable upon exercise
of the Representatives' Warrants if such security is issuable in shares, or will
mean the smallest unit in which such security is issuable if such security is
not issuable in shares.
"UNDERWRITER" or "UNDERWRITERS" means Fechtor, Detwiler & Co., Inc., Van
Kasper & Company, and such other broker-dealers participating as underwriters
with respect to the public offering of Common Stock as contemplated by the
Agreement.
"WARRANTS" mean the Warrants evidenced by this Representatives' Warrant
Certificate and all Warrants issued in exchange or substitution for such
Warrants pursuant to the terms hereof.
SECTION 2
TRANSFER RESTRICTIONS UNTIL EXERCISE PERIOD
-------------------------------------------
Until the commencement of the Exercise Period, the Registered Holder may
not sell, assign, transfer or hypothecate the Warrants, in whole or in part,
except: (i) to the officers and partners of any Underwriter; (ii) to selected
dealers, whether or not named in the Agreement, which participated in the
initial public offering pursuant to the Registration Statement, and their
officers or partners; and (iii) by operation of law.
SECTION 3
EXERCISE OF WARRANTS
--------------------
3.1 EXERCISE PERIOD. The Registered Holder may exercise the Warrants, in
---------------
whole or in part, at any time and from time to time, during the Exercise Period.
3.2 EXERCISE PROCEDURE
------------------
(a) The Warrants will be deemed to have been exercised at such time
as the Company has received all of the following items (the "Exercise Date"):
(i) a completed Exercise Agreement, as described below,
executed by the Person exercising all or part of the purchase rights represented
by this Certificate (the "Purchaser");
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<PAGE>
(ii) this Certificate (subject to delivery by the Company of a
new Certificate with respect to any unexercised portion, as provided in
Subsection 3.2(b));
(iii) if the Purchaser is not the Registered Holder, an
Assignment or Assignments in the form set forth as Exhibit II hereto, evidencing
the assignment of Warrants to the Purchaser of the Warrants to be exercised; and
(iv) except as provided in Section 3.3 below, a certified or
bank check or other certified funds payable to the Company in an amount equal to
the product of the Exercise Price multiplied by the number of shares of Stock
being purchased upon such exercise.
(b) Certificates for shares of Stock purchased upon exercise of
these Warrants will be delivered by the Company to the Purchaser within three
(3) business days after the Exercise Date. Unless these Warrants have expired or
all of the purchase rights represented hereby have been exercised, the Company
will prepare a new certificate evidencing such number of Warrants that have not
expired or been exercised. The Company will, within seven (7) business days
after the Exercise Date, deliver such new certificate to the Person designated
for delivery in the Exercise Agreement.
(c) The Stock issuable upon the exercise of these Warrants will be
deemed to have been issued to the Purchaser on the Exercise Date, and the
Purchaser will be deemed for all purposes to have become the record holder of
such Stock on the Exercise Date.
(d) The issuance of certificates for Common Stock upon exercise of
these Warrants will be made without charge to the Registered Holder or the
Purchaser for any issuance tax in respect thereof or any other cost incurred by
the Company in connection with such exercise and the related issuance of Stock;
provided, however that the Company shall not be required to pay any tax that may
be payable in respect of any transfer involved in the issuance and delivery of
any certificate or instrument in a name other than that of the Registered Holder
and the Company shall not be required to issue or deliver any such certificate
unless and until the Person or Persons requesting the issue thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
(e) The Company will not close its books for the transfer of these
Warrants or the Stock issued or issuable upon the exercise of these Warrants in
any manner that interferes with the timely exercise of these Warrants. The
Company will from time to time take all such action as may be necessary to
assure that the par value per share of the Stock is at all times equal to or
less than the Exercise Price.
3.3 EXERCISE BY SURRENDER OF WARRANTS. In addition to the method of
---------------------------------
payment set forth in Section 3.2 and in lieu of any cash payment required
thereunder, the Registered Holder shall have the right at any time and from time
to time subject to Section 3.1, and further subject to such Registered Holder
having a sufficient number of shares of Stock remaining to be purchased under
these Warrants so as to allow for the payment as provided for below, to exercise
these Warrants in whole or in part by surrendering hereof in the manner
specified in Section 3.2 as payment of the aggregate Exercise Price per share of
the Stock. The number of Warrants to be surrendered in payment of the aggregate
Exercise Price of the Stock for the Warrants to be exercised shall be determined
by multiplying the number of Warrants to be exercised by the Exercise Price, and
then dividing the product thereof by an amount equal to the Market Price per
share of Stock minus the Exercise Price. Solely for the purposes of this Section
3.3, Market Price shall be the average of the Market Price for the three (3)
trading days preceding the
4
<PAGE>
date on which the form of Exercise Agreement attached hereto is deemed to have
been sent to the Company pursuant to Section 15.3 hereof ("Notice Date").
3.4 EXERCISE AGREEMENT. The Exercise Agreement will be substantially in
------------------
the form set forth as Exhibit I hereto, except that if the Stock is not to be
issued in the name of the Registered Holder, the Exercise Agreement will also
state the name of the Person to whom the certificates or instrument for the
Stock is to be issued, and if the number of shares of Stock purchasable does not
include all of such securities purchasable hereunder, it will also state the
name of the Person to whom a new Certificate for the unexercised Warrants is to
be delivered.
3.5 FRACTIONAL SHARES OR WARRANTS. If a fractional share of Stock would,
-----------------------------
but for the provisions of Subsection 3.1, be issuable upon exercise of the
rights represented by these Warrants, the Company will, within twenty days after
the Exercise Date, deliver to the Purchaser a check payable to the Purchaser, in
lieu of such fractional share of Stock, in an amount equal to the Market Price
as of the close of business on the Exercise Date multiplied by the fractional
share of Stock.
SECTION 4
EXERCISE PRICE
--------------
4.1 GENERAL. The initial Exercise Price of these Warrants is set forth
-------
on the front page of this Certificate. In order to prevent dilution of the
rights granted under these Warrants, the initial Exercise Price will be subject
to adjustment from time to time pursuant to this Section 4.
4.2 SUBDIVISION OR COMBINATION OF COMMON STOCK; AND STOCK DIVIDENDS. If
---------------------------------------------------------------
the Company shall at any time after the date hereof (a) issue any shares of
Common Stock 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 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 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,
5
<PAGE>
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 shall thereafter (until another such adjustment) be
entitled to purchase, at the adjusted Exercise Price in effect on the date
purchase rights under these Warrants are exercised, the number of shares of
Stock, calculated to the nearest number of shares of Stock, determined by (a)
multiplying the number of shares of Stock purchasable hereunder immediately
prior to the adjustment of the Exercise Price by the Exercise Price in effect
immediately prior to such adjustment, and (b) dividing the product so obtained
by the adjusted Exercise Price in effect on the date of such exercise.
SECTION 6
EFFECT OF REORGANIZATION,
RECLASSIFICATION, CONSOLIDATION, MERGER, OR SALE
------------------------------------------------
If at any time while these Warrants are outstanding there shall be any
reorganization or reclassification of the capital stock of the Company (other
than a subdivision or combination of shares provided for in Subsection 4.2
hereof), any consolidation or merger of the Company with another corporation
(other than a consolidation or merger in which the Company is the surviving
entity and which does not result in any change in the Common Stock), or any sale
or other disposition by the Company of all or substantially all of its assets to
any other corporation, then the Registered Holder shall thereafter upon exercise
of these Warrants be entitled to receive the number of shares of capital stock
or other securities or property of the Company, or of the successor corporation
resulting from such consolidation or merger, as the case may be, to which the
Stock (and any other securities and property) of the Company, deliverable upon
the exercise of these Warrants, would have been entitled upon such
reorganization, reclassification of capital stock, consolidation, merger, sale,
or other disposition if such Warrants had been exercised immediately prior to
such reorganization, reclassification of capital stock, consolidation, merger,
sale, or other disposition. In any such case, appropriate adjustment (as
reasonably determined in good faith by the Board of Directors of the Company)
shall be made in the application of the provisions set forth in these Warrants
with respect to the rights and interests thereafter of the Registered Holder to
the end that the provisions set forth in this Certificate (including those
relating to adjustments of the Exercise Price and the number of shares and
warrants issuable upon the exercise of these Warrants) shall thereafter be
applicable, as near as reasonably may be, in relation to any shares or other
property thereafter deliverable upon the exercise hereof as if these Warrants
had been exercised immediately prior to such reorganization, reclassification of
capital stock, consolidation, merger, sale,
6
<PAGE>
or other disposition and the Registered Holder had carried out the terms of the
exchange as provided for by such reorganization, reclassification of capital
stock, consolidation, or merger. If in any such reorganization,
reclassification, consolidation, or merger, additional shares of Stock be issued
in exchange, conversion, substitution, or payment, in whole or in part, for or
of a security of the Company other than Stock deliverable from exercise of these
Warrants, any such issue shall be treated as an issue of Stock covered by the
provisions of Section 4. The Company shall not effect any such reorganization,
consolidation, or merger unless, upon or prior to the consummation thereof, the
successor corporation shall assume by written instrument the obligation to
deliver to the Registered Holder 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 these Warrants, 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 these Warrants shall
terminate upon the earlier of the expiration of the Exercise Period or nine (9)
months after the Company gives written notice to the Registered Holder that such
sale or other disposition has been consummated.
SECTION 7
NOTICE OF ADJUSTMENT
--------------------
Immediately upon any adjustment of the Exercise Price, or increase or
decrease in the number of shares of Stock purchasable upon exercise of these
Warrants, the Company will send written notice thereof to the Registered Holder,
stating the adjusted Exercise Price and the increased or decreased number of
shares of Stock purchasable upon exercise of these Warrants and setting forth in
reasonable detail the method of calculation for such adjustment and increase or
decrease. When appropriate, such notice may be given in advance and included as
part of any notice required to be given pursuant to Section 8 below.
SECTION 8
PRIOR NOTICE OF CERTAIN EVENTS
------------------------------
If at any time:
(a) the Company shall pay any dividend payable in stock upon its
Common Stock or make any distribution (other than cash dividends payable out of
earnings or earned surplus) to the holders of its Common Stock;
(b) the Company shall offer for subscription pro rata to the
--------
holders of its Common Stock any additional shares of stock of any class or any
other rights;
(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,
7
<PAGE>
then, in each such case, the Company shall give prior written notice, by hand
delivery or by first class mail, postage prepaid, addressed to the Registered
Holder at the address of such holder as shown on the books of the Company, of
the date on which (i) the books of the Company shall close or a record shall be
taken for such stock dividend, distribution, or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up shall take place, as the case may be. A copy of each
such notice shall be sent simultaneously to each transfer agent of the Common
Stock. Such notice shall also specify the date as of which the holders of Common
Stock of record shall participate in said dividend, distribution, or
subscription rights or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding up, as the case may be. Such written notice shall be given at least
twenty (20) days prior to the record date or the effective date, whichever is
earlier, of the subject action or other event.
SECTION 9
NEW PRO RATA PURCHASE RIGHTS
----------------------------
If at any time prior to the expiration of the Exercise Period the Company
grants, issues, or sells any Convertible Securities, options, or rights to
purchase stock, warrants, securities, or other property pro rata to the record
holders of Common Stock (the "Purchase Rights"), then the Registered Holder of
this Certificate 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 the Warrants had the Warrants 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 these Warrants such number of its authorized but unissued shares
of Common Stock as will be sufficient to permit the exercise in full of all
outstanding Representatives' Warrants and Purchase Rights, and the Company
covenants and agrees that, upon such issuance such shares of Common Stock will
be validly issued, fully paid, and nonassessable and not subject to the
preemptive right of any stockholder. As long as any Representatives' Warrants
shall be outstanding, the Company shall use its best efforts to cause all shares
of Stock issuable upon the exercise of the Warrants to be approved for listing
(subject to official notice of issuance) on all securities exchanges on which
the Common Stock issued to the public in connection herewith may then be listed
and/or quoted on Nasdaq.
8
<PAGE>
SECTION 11
NO STOCKHOLDER RIGHTS OR OBLIGATION
-----------------------------------
These Warrants will not entitle the 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 Certificate, in the absence of affirmative
action by the Registered Holder to purchase Stock, and no enumeration in this
Certificate of the rights or privileges of the Registered Holder, will give rise
to any obligation of such Registered Holder for the Exercise Price of Stock
acquirable by exercise hereof or as a stockholder of the Company.
SECTION 12
EXCHANGE AND REPLACEMENT
FOR DIFFERENT DENOMINATIONS
---------------------------
This Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the principal office of the Company, for new Certificates
of like tenor representing in the aggregate the purchase rights hereunder, and
each of such new Certificates, 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 Certificate and, in the case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it and reimbursement of all reasonable
expenses, and upon surrender and cancellation of this Certificate, if mutilated,
the Company will make and deliver a new Certificate of like tenor, in lieu
thereof. The date the Company initially issued these Warrants, which is set
forth on the front page hereof, will be deemed to be the "Date of Issuance" of
these Warrants and any Warrants exchanged or substituted therefor, regardless of
the number of times (and dates on which) new certificates representing the
unexpired and unexercised rights formerly represented by the Representatives'
Warrants are issued.
SECTION 13
TRANSFERABILITY
---------------
Subject to the transfer conditions referred to in Section 2 or in the
remaining provisions or this Section 13, these Warrants and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder,
upon surrender of this Certificate with a properly executed Assignment (in the
form of Exhibit II hereto) at the principal office of the Company located at 498
N. Oak Street, Inglewood, CA 09302. The Warrants and the Stock issued upon
exercise hereof may not be offered, sold, or transferred except in compliance
with the Securities Act of 1933, as amended (the "Act"), and any applicable
state securities laws; and then only against receipt of an agreement of the
Person to whom such offer or sale is made to comply with the provisions of this
Section 13 with respect to any resale or other disposition of such securities;
provided that no such agreement shall be required from any Person purchasing any
Warrants or any underlying security pursuant to a registration statement
effective under the Act. The Registered Holder agrees that, prior to the
disposition of any Stock purchased on the exercise hereof under circumstances
that might require registration of such Stock under the Act, or any similar
statute then in effect, the Registered Holder shall give written notice to the
Company, expressing
9
<PAGE>
his intention as to such disposition. Promptly upon receiving such notice, the
Company shall present a copy thereof to its securities counsel. If, in the
opinion of such counsel, the proposed disposition does not require registration
of such Stock under the Act, or any similar statute then in effect, the Company
shall, as promptly as practicable, notify the Registered Holder of such opinion,
whereupon the Registered Holder shall be entitled to dispose of such Stock in
accordance with the terms of the notice delivered by the Registered Holder to
the Company. The above agreement by the Registered Holder shall not be deemed to
limit or restrict in any respect the exercise of rights set forth in Section 14
hereof.
SECTION 14
REGISTRATION RIGHTS
-------------------
14.1 DEMAND RIGHTS. At any time during the Exercise Period, the
-------------
registered holders of Stock whose holdings thereof comprise a "majority" (as
hereinafter defined) of the shares of Stock purchasable upon the exercise of
outstanding Representatives' Warrants shall have the right (which right is in
addition to the registration rights under Section 14.2 hereof), exercisable by
written notice to the Company, to require the Company to prepare and file with
the Commission, on one occasion, a new registration statement under the Act (or,
in lieu thereof, a post-effective amendment or amendments to the Registration
Statement, if then permitted under the Act), covering all or any portion (as
designated by the registered holders) of the Warrant Securities (as hereinafter
defined) and to use its best efforts to obtain promptly and maintain the
effectiveness thereof for at least nine (9) months. For purposes hereof, the
term "Warrant Securities" shall mean the shares of Stock purchasable upon the
exercise of outstanding Warrants and outstanding shares of Stock from exercise
of Representatives' Warrants not previously sold pursuant to a registration
statement as contemplated by this Section 14. The Company covenants and agrees
to give written notice of any registration request under this Section 14.1 by
any Registered Holder to all other Registered Holders of the Warrant Securities
within ten (10) days from the date of receipt of any such registration request.
Registered holders electing to participate in any registration statement
pursuant to this Section 14.1 or Section 14.2 hereof, are referred to herein as
"Participating Holders".
14.2 "PIGGYBACK RIGHTS". In addition, if at any time during the
------------------
seven (7) years after the Effective Date, the Company shall prepare and file one
or more post-effective amendments to the Registration Statement, or new
registration statements under the Act, with respect to a public offering of
equity or debt securities of the Company, or of any such securities of the
Company held by its security holders, other than registration statements on
forms S-4 or S-8 (or their successor forms), the Company will include in any
such post-effective amendment such information as may be required to permit a
public offering of the Warrant Securities by the Participating Holders thereof
or their respective designees or transferees, or will include in any such new
registration statement such information as is required, and such number of
Warrant Securities held by the Participating Holders thereof or their respective
designees or transferees as may be requested by them, to permit a public
offering of the Warrant Securities so requested; provided, however, that in the
-------- -------
case of an underwritten offering, if, in the written opinion of the Company's
managing underwriter for such offering, the inclusion of the Warrant Securities
requested to be registered, when added to the securities being registered by the
Company or any other selling security holder(s), would exceed the maximum amount
of the Company's securities that can be marketed without otherwise materially
and adversely affecting the entire offering, then such managing underwriter may
exclude from such offering that portion of the Warrant Securities requested to
be so registered, so that the total number of securities to be registered is
within the maximum number of shares that, in the opinion of the managing
underwriter, may be marketed without otherwise materially and adversely affect
the entire offering, provided that at least a pro rata amount of the securities
that otherwise were proposed to be registered for other stockholders (but not
the Company and other than with respect to securities
10
<PAGE>
registered pursuant to demand registration rights if such securities are
otherwise included in the underwriting) is also excluded. In the event of such a
proposed registration, the Company shall furnish the then Registered Holders of
Warrant Securities with not less than twenty (20) days' written notice prior to
the proposed date of filing of such post-effective amendment or new registration
statement. Such notice shall continue to be given by the Company to Registered
Holders of Warrant Securities, with respect to subsequent registration
statements or post-effective amendments filed by the Company, until such time as
all of the Warrant Securities have been registered or may be sold without
registration under the Act or applicable state securities laws and regulations,
and without limitation as to volume, pursuant to Rule 144 of the Act. The
holders of Warrant Securities shall exercise the rights provided for in this
Subsection 14.2 by giving written notice to the Company, within fifteen (15)
days of receipt of the Company's notice of its intention to file a post-
effective amendment or new registration statement. In the event the offering
involves an underwritten offering of newly issued securities of the Company, the
Participating Holders shall also execute, and be a party to, the underwriting
agreement of the Company.
14.3 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
-----------------------------------------------------
connection with any registration under Section 14.1 or 14.2 hereof, the Company
covenants and agrees as follows:
(a) For any registration undertaken pursuant to Section 14.1
hereof, the Company shall use its best efforts to file a registration statement
within sixty (60) days of receipt of any demand therefor, shall use its best
efforts to have any registration statements declared effective at the earliest
possible time, and shall furnish each Participating Holder desiring to sell
Warrant Securities such number of prospectuses as shall reasonably be required;
provided, however, that the Company may at any time, delay the filing or delay
- -------- -------
or suspend the effectiveness of such demand or piggyback registration or,
without suspending such effectiveness, instruct the Participating 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 Participating Holder(s)
in writing by such counsel) that the Company would be required to disclose any
actions taken or proposed to be taken by the Company in good faith and for valid
business reasons, including without limitation, the acquisition or divestiture
of assets, 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 Participating Holder(s) with written
notice of such Suspension Period and the reasons therefor; and provided further,
-------- -------
that the Suspension Periods, in the aggregate, do not exceed sixty (60) days.
The Company shall provide such notice as soon as practicable and in any event
prior to the commencement of such a Suspension Period. 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. Provided the Participating
Holders(s) requesting registration shall have timely furnished the Company with
all information and taken such other actions as may be required by the Company
in order to effect such registration, if the Company shall willfully fail to
comply with the provisions of Section 14.3(a), the Company shall, in addition to
any other equitable or other relief available to the Participating Holder(s),
extend the Exercise Period by such number of days as shall equal the delay
caused by the Company's failure.
(b) The Company shall pay all costs (excluding fees and expenses of
the Registered Holder(s)' counsel and any underwriting or selling commissions or
other charges of any broker-dealer acting on behalf of the Participating
Holder(s)), fees and expenses in connection with all post-effective amendments
or new registration statements filed pursuant to Sections 14.1 and 14.2 hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses.
11
<PAGE>
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as is reasonably requested by the Participating Holder(s),
provided that the Company shall not be obligated to execute or file any general
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(d) Nothing contained in this Agreement shall be construed as
requiring the Registered Holder(s) to exercise the Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(e) The Company shall furnish to each Participating Holder a signed
counterpart, addressed to such Participating Holder, of (i) if such registration
includes an underwritten public offering, an opinion of counsel to the Company,
dated the effective date of such registration statement and an opinion dated the
date of the closing under the underwriting agreement, and (ii) a "cold comfort"
letter dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the agreement) signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
(f) The Company shall as soon as practicable after the effective
date of the registration statement, and in any event within fifteen (15) months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least twelve (12) consecutive months beginning after the effective date of the
registration statement.
(g) The Company shall deliver promptly to each Participating Holder
who shall have requested in writing the correspondence and memoranda described
below and to the managing underwriters, if any, copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with respect
to the registration statement and permit each Participating Holder and
underwriter to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration statement
as it deems reasonably necessary to comply with applicable securities laws or
rules of the NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such Participating Holder or underwriter
shall reasonably request.
(h) The Company agrees that until all the Warrant Securities have
been sold under a registration statement or pursuant to Rule 144 under the Act,
it shall keep current in filing all reports, statements and other materials
required to be filed with the Commission to permit Registered Holders of the
Warrant Securities to sell such securities under Rule 144.
(i) For purposes of this Agreement, the term "majority" in
reference to the Registered Holder(s) of Warrant Securities, shall mean in
excess of fifty percent (50%) of the then outstanding Warrant Securities that
(i) are not held by the Company, an affiliate (excluding any director
12
<PAGE>
who is also an affiliate of an Underwriter), officer, creditor, employee or
agent thereof or any of their respective affiliates, members of their family,
persons acting as nominees or in conjunction therewith, and (ii) have not been
resold to the public pursuant to a registration statement filed with the
Commission under the Act.
14.4 INDEMNIFICATION. The sellers of Warrant Securities issuable upon
---------------
exercise thereof shall be indemnified by the Company in the same manner as is
contained in Section 9(a)(c) and (e) of the Agreement between the Company and
the Underwriters, with respect to such post-effective amendments, additional
registration statements and prospectuses to the same extent as the Underwriters
are covered by indemnity agreements with respect to the Registration Statement,
and each seller of Warrant Securities shall indemnify the Company and any
Underwriter in the same manner as is contained in Section 9(b), (c) and (e) of
the Agreement to the same extent as the Company and Underwriters are covered by
the indemnity provisions of Section 9(b) of the Agreement.
14.5 SURVIVAL. The rights and obligations set forth in this Section 14
--------
shall survive the exercise and surrender of these Warrants.
SECTION 15
MISCELLANEOUS
-------------
15.1 ORIGINAL ISSUE TAXES. The Company will pay all United States,
--------------------
state and local (but not foreign) original issue taxes, if any, upon the
issuance of these Warrants or the Stock deliverable upon exercise hereof.
15.2 AMENDMENT AND WAIVER. Except as otherwise provided herein, the
--------------------
provisions of this Certificate may be amended, and the Company may take any
action herein prohibited or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders representing at least fifty percent (50%) of the
Representatives' Warrants outstanding at the time of such consent.
15.3 NOTICES. Any notices required to be sent to a Registered Holder
-------
or of any Common Stock purchased upon the exercise hereof will be delivered to
the address of such Registered Holder shown on the books of the Company. All
notices referred to herein will be delivered in person or sent by registered or
certified mail, postage prepaid, and will be deemed to have been given when so
delivered in person, by facsimile, overnight courier or on the third business
day following the date so sent by mail. Whether or not Fechtor, Detwiler shall
then be a Registered Holder, a copy of any notice sent to such a Registered
Holder shall be sent to it, in the manner provided above, at the following
address:
Fechtor, Detwiler & Co., Inc.
70 East 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 Certificate are inserted for convenience only
and do not constitute a part of these Representatives' Warrants. The
construction, validity, and interpretation of these Warrants will be governed by
the laws of the Commonwealth of Massachusetts, without giving effect to choice
of law or conflict of laws principles thereof.
IN WITNESS WHEREOF, the Company has caused this Certificate to be executed
and attested by its duly authorized officers under its corporate seal.
SIGNATURE EYEWEAR, INC.,
a California corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
[Corporate Seal]
Attest:
_____________________________
Name: _______________________
Title: ______________________
14
<PAGE>
EXHIBIT I
---------
EXERCISE AGREEMENT
------------------
To: Dated:
THE UNDERSIGNED Registered Holder, pursuant to the provisions set forth in
the within Representatives' Warrants, hereby exercises _________ of the Warrants
covered by such Warrants and herewith either makes full cash payment of
$______________ for such Common Stock or otherwise tenders that number of the
Warrants for cashless exercise as is permitted by Section 3.3 thereof, at the
Exercise Price provided by such Representatives' Warrants.
_____________________________________
(Signature)
______________________________________
(Print or type name)
______________________________________
(Address)
______________________________________
______________________________________
NOTICE: The signature on this Exercise Agreement must correspond with the
name as written upon the face of the within Certificate, or upon the Assignment
thereof if applicable, in every particular, without alteration, enlargement, or
any change whatsoever, and must be Medallion guaranteed by a bank, other than a
saving bank, having an office or correspondent in New York, New York, Boca Raton
or Miami, Florida, or Boston, Massachusetts, or by a firm having membership on a
registered national securities exchange and an notice in New York, New York,
Boca Raton or Miami, Florida, or Boston, Massachusetts.
SIGNATURE GUARANTEE
Authorized Signature: __________________________________________________________
Name of Bank or Firm: __________________________________________________________
Dated: _________________________________________________________________________
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
Certificate with respect to the number of Securities covered thereby set forth
below, unto the Assignee identified below, and does hereby irrevocably
constitute and appoint ___________________ ______________________________ to
effect such transfer of rights on the books of the Company, with full power of
substitution:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
No. of Shares
Name of Assignee Address of Assignee of Common Stock No. of Warrants
- ---------------- ------------------- --------------- ---------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
Dated:_______________________________ _________________________________
(Signature of Registered Holder)
_________________________________
(Print or type name)
NOTICE: The signature on this Assignment must correspond with the name as
written upon the face of the within Certificate, in every particular, without
alteration, enlargement, or any change whatsoever, and must be Medallion
guaranteed by a bank, other than a savings bank, having an office or
correspondent in New York, New York, Boca Raton or Miami, Florida, or Boston,
Massachusetts, or by a firm having membership on a registered national
securities exchange and an office in New York, New York, Boca Raton or Miami,
Florida, or Boston, Massachusetts.
SIGNATURE GUARANTEE
Authorized Signature: __________________________________________________________
Name of Bank or Firm: __________________________________________________________
Dated: _________________________________________________________________________
16
<PAGE>
EXHIBIT 4.1
SIGNATURE EYEWEAR, INC.
NUMBER SHARES
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF CALIFORNIA CUSIP 826918 10 4
This certifies that
is the record holder of
FULLY PAID AND NONASSECCABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
===============================SIGNATURE EYEWEAR, INC.==========================
transferable on the books of the Corporation by the holder hereof in person of
by duly authorized ttorney upon surrender of this certificate property endorsed.
This certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ Julie Heldman /s/ Bernard Weiss
CO-CHAIRMAN OF THE BOARD CO-CHAIRMAN OF THE BOARD
AND PRESIDENT AND CHIEF EXECUTIVE OFFICER
[SEAL OF SIGNATURE EYEWEAR, INC.]
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER AND TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
Exhibit 10.7
FIRST AMENDMENT TO AMENDED AND RESTATED ACCOUNTS RECEIVABLE
AND INVENTORY LOAN AGREEMENT
This First Amendment to Amended and Restated Accounts Receivable and
Inventory Loan Agreement is entered into as of June 26, 1997, by and between
Signature Eyewear, Inc., a California corporation ("Borrower") and City National
Bank, a national banking association ("CNB").
RECITALS
A. Borrower and CNB are parties to that certain Amended and Restated
Accounts Receivable and Inventory Loan Agreement dated as of April 21, 1997 (the
Amended and Restated Accounts Receivable and Inventory Loan Agreement, as
amended, hereinafter the "Loan Agreement").
B. Borrower and CNB desire to supplement and amend the Loan Agreement as
hereinafter set forth.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS. Capitalized terms used in this Amendment without definition
shall have the meanings set forth in the Loan Agreement.
2. AMENDMENTS. The Loan Agreement is amended as follows:
2.1 Section 1.26 is amended in its entirety to provide as follows:
"1.26 "LIBOR LOAN COMMITMENT" is $6,000,000.00."
2.2 Section 2.5.2 is amended in its entirety to provide as follows:
"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 no more than
$6,000,000.00 of LIBOR Loans outstanding at any one time under this
Agreement. Borrower may have Prime Loans and LIBOR Loans outstanding
simultaneously."
3. CONDITIONS PRECEDENT. This Amendment shall become effective upon the
fulfillment of all of the following conditions to CNB's satisfaction:
3.1 CNB shall have received this Amendment duly executed by Borrower.
4. EXISTING AGREEMENT. Except as expressly amended herein, the Loan Agreement
shall remain in full force and effect, and in all other respects is affirmed.
<PAGE>
5. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
6. GOVERNING LAW. This Amendment and the rights and obligations of the
parties hereto shall be construed in accordance with, and governed by the laws
of the State of California.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
"Borrower" SIGNATURE EYEWEAR, INC. a
California corporation
By: /s/ Julie Heldman
---------------------------------------
Julie Heldman, President/Secretary
"CNB" CITY NATIONAL BANK, a national
banking association
By: /s/ Kenneth Barton
--------------------------------------
Kenneth E. Barton, Vice President
2
<PAGE>
SECOND AMENDMENT TO AMENDED AND RESTATED ACCOUNTS
RECEIVABLE AND INVENTORY LOAN AGREEMENT
This Second Amendment to Amended and Restated Accounts Receivable and
Inventory Loan Agreement is entered into as of July 23, 1997, by and between
Signature Eyewear, Inc., a California corporation ("Borrower") and City National
Bank, a national banking association ("CNB").
RECITALS
A. Borrower and CNB are parties to that certain Amended and Restated
Accounts Receivable and Inventory Loan Agreement dated as of April 21, 1997, as
amended by that certain First Amendment to Amended and Restated Accounts
Receivable and Inventory Loan Agreement dated as of June 26, 1997 (the Amended
and Restated Accounts Receivable and Inventory Loan Agreement, as amended,
hereinafter the "Loan Agreement").
B. Borrower and CNB desire to supplement and amend the Loan Agreement as
hereinafter set forth.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS. Capitalized terms used in this Amendment without definition
shall have the meanings set forth in the Loan Agreement.
2. AMENDMENTS. The Loan Agreement is amended as follows:
2.1 Section 1.6 ("BORROWING BASE") is amended by deleting the number
"$2,000,000.00" from the last sentence and inserting in its place and stead the
number "$3,000,000.00".
2.2 Section 1.13 ("COMMITMENT") is amended by deleting the phrase and
number "Six Million Seven Hundred Sixty Thousand Four Hundred Seventeen Dollars
($6,760,417.00)" and inserting in its place and stead the phrase and number
"Seven Million Nine Hundred Thirty Five Thousand Four Hundred Seventeen Dollars
($7,935,417.00)".
2.3 Section 1.26 is amended in its entirety to provide as follows:
"1.26 "LIBOR LOAN COMMITMENT" is $7,500,000.00."
2.4 Section 1.36 ("REVOLVING CREDIT COMMITMENT") is amended by deleting
the phrase and number "SIX MILLION DOLLARS ($6,000,000.00)" and inserting in its
place and stead the phrase and number "SEVEN MILLION FIVE HUNDRED THOUSAND
DOLLARS ($7,500,000.00)".
2.5 Section 7.10 (DIVIDENDS AND PURCHASE OF STOCK) is deleted in its
entirety and the number is reserved.
<PAGE>
3. CONDITIONS PRECEDENT. This Amendment shall become effective upon the
fulfillment of all of the following conditions to CNB's satisfaction:
3.1 CNB shall have received this Amendment duly executed by Borrower.
4. EXISTING AGREEMENT. Except as expressly amended herein, the Loan Agreement
shall remain in full force and effect, and in all other respects is affirmed.
5. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
6. GOVERNING LAW. This Amendment and the rights and obligations of the
parties hereto shall be construed in accordance with, and governed by the laws
of the State of California.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
"Borrower" Signature Eyewear, Inc., a
California corporation
By: /s/ Julie Heldman
-------------------------------------
Julie Heldman, President/Secretary
"CNB" City National Bank, a national
banking association
By: /s/ Kenneth E. Barton
-------------------------------------
Kenneth E. Barton, Vice President
2
<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
July 29, 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> 14,027,041 7,507,897
<OTHER-EXPENSES> 309,177 191,142
<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>
