SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
Form 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 23, 1999
SIGNATURE EYEWEAR, INC.
(Exact Name of Registrant as Specified in Charter)
California 0-23001 95-3876317
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
498 North Oak Street
Inglewood, California 90302
(Address of Principal Executive Offices)
(310) 330-2700
(Registrant's Telephone Number)
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Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The financial statements of California Design Studio, Inc. and
Subsidiary are filed hereiwth as Exhibit 99.1.
(b) PRO FORMA FINANCIAL INFORMATION.
The pro forma financial information is filed herewith as
Exhibit 99.2.
(c) EXHIBITS.
2.1 Asset Purchase Agreement, dated as of June 11, 1999, as
amended by the letter agreement, dated June 23, 1999, by
and among Registrant, California Design Studio, Inc.,
the other parties identified on Exhibit A to the Asset
Purchase Agreement and Carlos Alberto Khantzis.(1)
23.1 Consent of Altschuler, Melvoin and Glasser LLP.
99.1 Financial Statements of California Design Studio, Inc.
and Subsidiary.
99.2 Pro Forma Financial Information.
___________________
(1) The Company agrees to furnish to the Commission upon request a copy of
any omitted schedule.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SIGNATURE EYEWEAR, INC.
By: /S/ MICHAEL PRINCE
---------------------------------------
Michael Prince, Chief Financial Officer
Dated: September 3, 1999
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EXHIBIT INDEX
EXHIBITS
2.1 Asset Purchase Agreement, dated as of June 11, 1999, as amended by the
letter agreement, dated June 23, 1999, by and among Registrant, California
Design Studio, Inc., the other parties identified on Exhibit A to the
Asset Purchase Agreement and Carlos Alberto Khantzis.
23.1 Consent of Altschuler, Melvoin and Glasser LLP.
99.1 Financial Statements of California Design Studio, Inc.
and Subsidiary.
99.2 Pro Forma Financial Information.
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Exhibit 2.1
ASSET PURCHASE AGREEMENT
Dated as of June 11, 1999
By and Among
SIGNATURE EYEWEAR, INC.
("COMPANY"),
CALIFORNIA DESIGN STUDIO, INC.
("SELLER")
THE OTHER SELLER PARTIES SIGNATORY HERETO
("SELLER PARTIES")
And
CARLOS ALBERTO KHANTZIS
("KHANTZIS")
==============================================================================
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TABLE OF CONTENTS
PAGE
1. DEFINITIONS..............................................................1
(A) CERTAIN DEFINITIONS...............................................1
(B) OTHER DEFINITIONS.................................................7
2. SALE AND PURCHASE OF ASSETS..............................................8
(A) TRANSFER OF ASSETS................................................8
(B) EXCLUDED ASSETS...................................................9
(C) DELIVERY OF POSSESSION OF ASSETS.................................10
(D) RIGHT OF ENDORSEMENT.............................................10
(E) CONSENT TO ASSIGNMENT............................................10
3. ASSUMED LIABILITIES.....................................................11
(A) ASSUMED LIABILITIES..............................................11
(B) LIABILITIES NOT ASSUMED..........................................12
(C) RIGHT OF SET OFF.................................................13
(D) RIGHT OF ENFORCEMENT AND SETTLEMENT..............................13
4. PURCHASE PRICE..........................................................14
5. CLOSING AND DELIVERIES..................................................14
(A) THE CLOSING......................................................14
(B) DELIVERIES BY THE COMPANY AT THE CLOSING.........................14
(C) DELIVERIES BY SELLER PARTIES AND KHANTZIS AT THE CLOSING.........14
(D) DETERMINATION OF SUPPLEMENTAL CASH PAYMENT.......................15
(E) FURTHER ASSURANCES...............................................15
6. REPRESENTATIONS AND WARRANTIES OF SELLER AND KHANTZIS...................15
(A) ORGANIZATION, STANDING AND CORPORATE POWER; CAPITALIZATION.......16
(B) AUTHORITY; ENFORCEABILITY; EFFECT OF AGREEMENT...................16
(C) ASSETS...........................................................16
(D) ACCOUNTS RECEIVABLE; INVENTORY...................................17
(E) ASSUMED CONTRACTS................................................17
(F) INTELLECTUAL PROPERTY............................................18
(G) SUBSIDIARIES.....................................................19
(H) FINANCIAL STATEMENTS.............................................19
(I) ABSENCE OF CERTAIN CHANGES AND EVENTS............................19
(J) LITIGATION AND PROCEEDINGS.......................................20
(K) BROKERS..........................................................20
(L) CREDITOR ISSUES..................................................20
(M) NO CONSENTS REQUIRED.............................................20
(N) ENVIRONMENTAL COMPLIANCE MATTERS.................................20
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(O) MATERIAL MISSTATEMENTS AND OMISSIONS.............................21
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................21
(A) ORGANIZATION, STANDING AND CORPORATE POWER.......................21
(B) AUTHORITY; ENFORCEABILITY; EFFECT OF AGREEMENT...................21
(C) BROKERS..........................................................22
(D) NO CONSENTS REQUIRED.............................................22
(E) FINANCIAL STATEMENTS.............................................22
8. CONDUCT AND TRANSACTIONS PRIOR TO CLOSING...............................22
(A) CONDUCT OF BUSINESS..............................................22
(B) INSPECTION OF RECORDS............................................24
(C) ACQUISITION PROPOSALS............................................24
(D) OTHER AGREEMENTS.................................................24
(E) BEST EFFORTS.....................................................24
9. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY............................24
(A) REPRESENTATIONS AND WARRANTIES...................................24
(B) PERFORMANCE......................................................25
(C) TRANSFER OF ASSETS...............................................25
(D) MOULIN AGREEMENT.................................................25
(E) RELEASE OF LIENS.................................................25
(F) CONSENTS.........................................................25
(G) OTHER AGREEMENTS.................................................25
(H) OPINION LETTER...................................................25
(I) OTHER MATTERS....................................................25
(J) 5THAVENUE........................................................25
10. CONDITIONS TO THE OBLIGATIONS OF THE SELLER PARTIES...................26
(A) REPRESENTATIONS AND WARRANTIES...................................26
(B) PERFORMANCE......................................................26
(C) ASSUMPTION OF LIABILITIES........................................26
(D) OTHER AGREEMENTS.................................................26
(E) PAYMENT OF BANK LOAN AMOUNT......................................26
(F) OPINION LETTER...................................................26
(G) MOULIN RELEASE...................................................26
(H) OTHER MATTERS....................................................26
11. FURTHER AGREEMENTS OF THE PARTIES.....................................27
(A) FURTHER AGREEMENTS OF THE SELLER PARTIES.........................27
(B) PURCHASE PRICE ALLOCATION........................................27
(C) 8K FINANCIAL STATEMENTS.........................................27
(D) CONFIDENTIALITY..................................................27
(E) EXPENSES.........................................................28
(F) ACCESS TO BOOKS AND RECORDS; COPIES..............................28
(G) EMPLOYEES........................................................29
(H) USE OF NAME......................................................29
(I) PAYMENT OF CERTAIN ASSUMED LIABILITIES...........................30
(J) BELGIUM LITIGATION...............................................30
(K) BEBE LICENSE AGREEMENT...........................................30
(L) TERMINATION OF CERTAIN LITIGATION................................30
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12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY.................30
(A) SURVIVAL OF REPRESENTATIONS AND WARRANTIES.......................30
(B) INDEMNIFICATION BY SELLER AND KHANTZIS...........................31
(C) INDEMNIFICATION BY THE COMPANY...................................32
(D) LIMITATIONS ON INDEMNIFICATION...................................33
(E) NOTICE OF CLAIM..................................................33
(F) DIRECT CLAIMS....................................................34
(G) THIRD PARTY CLAIMS...............................................34
(H) RIGHT OF SET OFF.................................................35
13. TAXES.................................................................35
(A) PAYMENT OF TAXES, FILING OF RETURNS..............................35
(B) SALES TAXES......................................................36
14. NONCOMPETITION........................................................36
(A) COVENANT NOT TO COMPETE..........................................36
(B) SERVICES TO MOULIN...............................................36
(C) NONCOMPETITION PAYMENT...........................................37
(D) REMEDIES.........................................................37
(E) MODIFICATION.....................................................37
15. TERMINATION...........................................................37
(A) TERMINATION BY MUTUAL CONSENT....................................37
(B) TERMINATION BY THE COMPANY.......................................37
(C) TERMINATION BY SELLER............................................38
16. MISCELLANEOUS.........................................................38
(A) NOTICES..........................................................38
(B) ENTIRE AGREEMENT.................................................39
(C) ASSIGNMENT.......................................................39
(D) WAIVER AND AMENDMENT.............................................39
(E) GOVERNING LAW....................................................39
(F) SEVERABILITY.....................................................39
(G) CAPTIONS.........................................................40
(H) COUNTERPARTS.....................................................40
(I) COSTS AND ATTORNEYS'FEES.........................................40
(J) RIGHTS CUMULATIVE................................................40
(K) JUDICIAL INTERPRETATION..........................................40
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(L) FORCE MAJEURE....................................................40
(M) DISPUTE RESOLUTION...............................................40
INDEX OF APPENDICES
EXHIBITS:
Exhibit A - Additional Seller Parties
Exhibit B - Form of Consulting Agreement
Exhibit C-1 - Form of Lease Agreement
Exhibit C-2 - Form of Lease Agreement
Exhibit D - Form of Note
Exhibit E - Form of Security Agreement
Exhibit F - Form of Bill of Sale
SCHEDULES:
Schedule 2(a)(ii) - Bank Accounts
Schedule 2(a)(iii) - Tangible Personal Property
Schedule 2(a)(ix) - Assumed Contracts
Schedule 2(b)(vii) - Excluded Documents
Schedule 2(b)(viii) - Excluded Contracts
Schedule 2(b)(xi) - Excluded Assets
Schedule 3(a)(v) - Additional Assumed Liabilities
Schedule 6(d)(ii) - Accounts Receivable
Schedule 6(h)(i) - Accounting Practices and Procedures
Schedule 11(b) - Purchase Price Allocation
Schedule 11(g) - Employees
Seller Disclosure Schedule
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into
as of the 11th day of June, 1999, by and between SIGNATURE EYEWEAR, INC., a
California corporation (the "COMPANY"), CALIFORNIA DESIGN STUDIO, INC., a
California corporation ("SELLER"), the other parties identified on EXHIBIT A to
this Agreement (together with Seller, the "SELLER PARTIES" and each a "SELLER
PARTY"), and CARLOS ALBERTO KHANTZIS ("KHANTZIS").
R E C I T A L S
A. On the terms and subject to the conditions set forth in this Agreement,
the Seller Parties desire to sell to the Company, and the Company desires to
purchase from the Seller Parties, certain assets of the Seller Parties.
B. Effective as of the closing of this Agreement, the Company desires to
engage Khantzis as a consultant to the Company and to lease from Khantzis
certain real property.
A G R E E M E N T
NOW, THEREFORE, with reference to the foregoing facts, the parties agree
as follows:
1. DEFINITIONS.
(a) CERTAIN DEFINITIONS. All terms defined in this Agreement shall
have the defined meanings when used in this Agreement or in any agreement, note,
certificate, report or other document made or delivered pursuant to this
Agreement, unless otherwise defined or the context otherwise requires. The
following terms shall have the following meanings:
"ACTION" means any litigation, action, suit, proceeding, arbitration
or claim before any court or Governmental Authority, or investigation by any
Governmental Authority.
"AFFILIATE" shall mean, with respect to any specified Person, (i)
any other Person who, directly or indirectly, owns or controls, is under common
ownership or control with, or is owned or controlled by, such specified Person,
(ii) any other Person who is a director, officer, partner or trustee of the
specified Person or a Person described in clause (i) of this definition or any
spouse of the specified Person or any such other Person, (iii) any relative of
the specified Person or any other Person described in clause (ii) of this
definition, or (iv) any Person of which the specified Person and/or any one or
more of the Persons specified in clause (i),(ii) or (iii) of this definition,
individually or in the aggregate, beneficially own 10% or more of any class of
voting securities or otherwise have a substantial beneficial interest.
"AGOURA PREMISES" shall mean the premises located at 5341 Derry
Avenue, Building D, Agoura Hills, California 91301.
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"ANNUAL FINANCIAL STATEMENTS" shall mean the unaudited consolidated
balance sheets of Seller as at April 30, 1998 and 1997, the related statements
of income and retained earnings and cash flows for the fiscal years then ended,
including the notes (and schedules) to these financial statements, reviewed by
Seller's independent certified public accountant.
"BANK LOAN AMOUNT" shall mean the aggregate amount of all
outstanding Indebtedness owed by Seller to Manufacturers Bank as of the Closing
Date and constituting a part of the Assumed Liabilities.
"BEBE LICENSE AGREEMENT" shall mean that certain License
Agreement, dated as of May 1, 1998, between bebe stores, inc. and Seller.
"BELGIUM EMPLOYMENT TERMINATION BENEFITS" shall mean the aggregate
amount of all employee indemnity payments payable by Seller under Belgium law to
persons who are employed by Seller in Belgium on the Closing Date and which
result from the termination by Seller of these employees at the Closing in
connection with the transactions contemplated by this Agreement.
"BELGIUM LITIGATION" shall mean the proposed legal action to be
filed by Seller in Belgium against Stephan Nijs, a former independent contractor
of Seller working in Belgium, to cause Stephan Nijs to stop using and transfer
to the Company (or otherwise relinquish) the Internet domain name registration
that includes the words "Dakota Smith."
"BELGIUM PREMISES" shall mean the premises located at Industrial
Park, 21B-4400, Flemalle (Liege), Belgium.
"BEST EFFORTS" shall mean the efforts that a prudent Person desirous
of achieving a result would use in similar circumstances to ensure that the
result is achieved as expeditiously as practicable under the circumstances;
PROVIDED, HOWEVER, that an obligation to use Best Efforts under this Agreement
does not require the Person subject to that obligation to (i) take actions that
would result in a material adverse change in the benefits to such Person under
this Agreement or the transactions contemplated by this Agreement, (ii) make any
significant cash payments or (iii) incur any significant liability or
obligation.
"BEST KNOWLEDGE" with respect to any Person shall mean and include
(i) actual knowledge of the Person, including, the actual knowledge of any of
the officers or directors of such Person, and (ii) that knowledge which a
prudent businessperson could have obtained in the management of his business
after making due inquiry, and after exercising due diligence, with respect
thereto.
"BUSINESS" means the prescription eyeglass frame business of the
Seller Parties including, without limitation, the Assets and the Assumed
Liabilities.
"BUSINESS CONDITION" of any Person shall mean the financial
condition, results of operations, business, properties or prospects of such
Person.
"CANADA PREMISES" shall mean the premises located at 8641 Keele
Street, Concord, Ontario, Canada L4K123.
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"CHARTER DOCUMENTS" shall mean (i) the Certificate or Articles of
Incorporation, Certificate or Articles of Formation or similar corporate charter
or other instrument of organization and (ii) the Bylaws, operating agreement or
similar instrument.
"CONSULTING AGREEMENT" shall mean the consulting agreement between
the Company and Khantzis in the form of EXHIBIT B to this Agreement,
appropriately completed as indicated in EXHIBIT B.
"CONTRACT" shall mean any written or oral note, bond, debenture,
mortgage, license, agreement, commitment, contract or understanding.
"COPYRIGHTS" shall mean all United States and foreign copyrights,
whether or not registered.
"CURRENT BALANCE SHEET" shall mean the unaudited consolidated
balance sheet of Seller as at April 30, 1999 included in the Current Financial
Statements.
"CURRENT FINANCIAL STATEMENTS" shall mean the unaudited consolidated
balance sheet of Seller as at April 30, 1999 and the related consolidated
statements of income and retained earnings for the twelve months then ended.
"DAKOTA CANADA" shall mean Dakota Smith Canada, Ltd., a Canadian
corporation.
"EMPLOYEE BONUS AMOUNT" shall mean an amount equal to (i) $200,000
LESS (ii) the aggregate amount of all bonuses distributed by any Seller Party to
its employees during the period from April 30, 1999 until the Closing Date. For
purposes of clarification, the term "bonuses" as used in (ii) of the preceding
sentence shall not include normal payroll obligations (such as wages, salary,
vacation, commissions, sick pay, bonuses paid in the ordinary course of business
which are calculated based on sales of product specials, and percentage bonuses
paid in the ordinary course of business which are calculated based on sales of
products by sales representatives) nor severance payments distributed by Seller
in the ordinary course of business.
"ENVIRONMENTAL LAWS" shall mean all present statutes, regulations,
rules, ordinances, codes, licenses, permits, orders, approvals, plans,
authorizations, concessions, franchises, and similar items, of all Governmental
Authorities and all applicable judicial, administrative, and regulatory decrees,
judgments, and orders relating to Hazardous Substances or the protection of the
environment in any respect, including, without limitation: (i) all requirements,
including, without limitation, those pertaining to notification, warning,
reporting, licensing, permitting, investigation, and remediation of Hazardous
Substances; (ii) all requirements pertaining to the protection of employees or
the public from exposure to Hazardous Substances or injuries or harm associated
therewith; and (iii) the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. ss.9601 eT Seq.), the Resource Conservation and
Recovery Act (49 U.S.C. ss.6901 eT Seq.), the Hazardous Materials Transportation
Act (49 U.S.C. ss.1801 et SEQ.), the Clean Air Act (42 U.S.C. ss.7401 et Seq.),
the Occupational Safety and Health Act (29 U.S.C. ss.600 eT Seq.), the
Porter-Cologne Water Quality Control Act (California Water Code ss. 13000 eT
Seq.), the California Hazardous Waste Control Law (Division 20, Chapter 6.5 of
the California Health and Safety Code, ss. 25100 eT Seq.), the Safe Drinking
Water
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and Toxic Enforcement Act of 1986 (Division 20, Chapter 6.6 of the California
Health and Safety Code, ss. 25249.5 eT Seq.), the Carpenter-Presley-Tanner
Hazardous Substance Account Act (California Health & Safety Code ss. 25300 eT
Seq.), the Hazardous Materials Release Response Plans and Inventory (Division
20, Chapter 6.95 of the California Health and Safety Code, ss. 25500 eT Seq.)
and all similar federal, state, local and municipal laws.
"EQUITY SECURITIES" of any Person shall mean the capital stock of
such Person and/or any Stock Equivalents of such Person.
"EXPLOIT" shall mean manufacture, advertise, license, market,
merchandise, promote, publicize, sell, use, market, supply or distribute, and
"EXPLOITATION" and "EXPLOITED" shall have a correlative meaning.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any
state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"HAZARDOUS SUBSTANCE" means those substances defined as hazardous
substances in 42 U.S.C. ss. 9601(14) and all other substances defined as
hazardous under other applicable Laws.
"INDEBTEDNESS" means, with respect to any Person, (i) any liability,
contingent or otherwise, (a) for borrowed money, capitalized lease obligations,
purchase money obligations or other obligations relating to the deferred
purchase price of assets or property or (b) evidenced by a note, bond,
debenture, letter of credit or similar instrument given in connection with the
acquisition, other than in the ordinary course of business, of any property,
assets, securities or otherwise, including indebtedness created or arising under
conditional sale or other title retention agreements (even though the rights and
remedies of the seller or lender under the agreements in the event of default
are limited to repossession or sale of the property), (ii) any liability of
others described in the preceding clause which such Person has guaranteed or
which otherwise is its legal liability, (iii) all indebtedness referred to above
secured by (or for which the holder of the indebtedness has an existing right,
contingent or otherwise, to be secured by), any Lien upon the property of such
Person, whether or not the obligations secured thereby have been assumed, and
(iv) any amendment, renewal, extension or refunding of any liability referred to
in clauses (i), (ii) and (iii) above; PROVIDED, HOWEVER, that Indebtedness does
not include any trade payables of any Person incurred in the ordinary course of
business.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at the date of all unconditional obligations as described above and the
maximum amount of any contingent obligations at the date.
"IP" shall mean Patents, Trademarks, Copyrights, Know-How and other
rights and property commonly referred to as intellectual property, and rights or
licenses to use the same, and any and all applications therefor.
"KNOW-HOW" shall mean all lab journals, inventions, trade secrets,
know-how (including, without limitation, proprietary know-how and use and
application know-how),
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product designs, manufacturing, engineering and other drawings, technology,
other intangibles, technical information, safety information, engineering data
and design and engineering specifications, research records, market surveys,
promotional literature, supplier lists, similar data and formulas and processes.
"LAW" shall mean any federal, state or local statute, law, rule,
regulation, ordinance, order, code, policy or rule of common law, in effect as
of the date hereof and as amended, and any judicial or administrative
interpretation thereof by a Governmental Authority or otherwise, including any
judicial or administrative order, consent, decree or judgment.
"LEASE AGREEMENTS" shall mean the lease agreements between the
Company and Khantzis for the Westlake Premises in the form of EXHIBIT C-1 and
EXHIBIT C-2 to this Agreement, appropriately completed as indicated in EXHIBIT
C-1 and EXHIBIT C-2.
"LIEN" shall mean any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security agreement or
preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction to evidence
any of the foregoing).
"MOULIN" shall mean Moulin Optical Manufactory Limited of 4/F
Kenning Industrial Building, 19 Wang Hoy Road, Kowloon Bay, Hong Kong.
"MOULIN AGREEMENT" shall mean that certain Letter Agreement, dated
June 10, 1999, by and between Moulin and the Company.
"MOULIN DEBT" shall mean the amount of trade payables owed by Seller
to Moulin.
"MOULIN RELEASE" shall mean that certain Release Agreement, dated
May 25, 1999, by and between Moulin and Seller.
"NEW YORK PREMISES" shall mean the premises located at 392 Fifth
Avenue, Suite # 403, New York, New York 10018.
"NOTE" shall mean the promissory note of the Company in the form of
EXHIBIT D to this Agreement, appropriately completed as indicated in EXHIBIT D.
"PATENTS" shall mean all patents (including all reissues, divisions,
continuations, continuations in part and extensions thereof), patent
applications and patent disclosures docketed and all other patent rights.
"PERSON" shall mean an individual or a partnership, corporation,
trust, association, limited liability company, Governmental Authority or other
entity.
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"PREMISES" shall mean collectively the Belgium Premises, the
Agoura Premises, the Canada Premises, the Westlake Premises and the New York
Premises.
"PREPAID EXPENSE AMOUNT" shall mean the aggregate amount of prepaid
state franchise or income taxes, prepaid federal income taxes and prepaid
insurance of the Seller Parties as of the Closing Date.
"SECURITY AGREEMENT" shall mean the security agreement between the
Company and Seller in the form of EXHIBIT E to this Agreement, appropriately
completed as indicated in EXHIBIT E.
"SELLER IP" shall mean all IP that each Seller Party owns, licenses
and/or uses, other than the names California Design Studios and Lucky Friday.
"STOCK EQUIVALENTS" of any Person shall mean options, warrants,
calls, rights, commitments, convertible securities and other securities pursuant
to which the holder, directly or indirectly, has the right to acquire (with or
without additional consideration) capital stock or equity of such Person.
"SUBSIDIARY" of any Person shall mean any entity of which securities
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are owned
directly or indirectly by such Person.
"SUPPLEMENTAL CASH PAYMENT" shall mean an amount equal to (i) the
sales and other transfer taxes attributable to, arising out of or resulting from
the sale of the Assets, PLUS (ii) all payroll taxes payable by the Seller
Parties with respect to wages accrued in the ordinary course of business during
the last payroll period of the Seller Parties which commenced prior to the
Closing Date (which period shall not exceed 15 days) with respect to all
employees of the Seller Parties, PLUS (iii) the amount of accrued vacation, sick
pay and Belgium Employment Termination Benefits payable by the Seller Parties as
of the Closing Date to all current employees of the Seller Parties who are not
Transferred Employees, other than accrued vacation and sick pay not reflected on
the Current Balance Sheet or arising other than in the ordinary course of
business and consistent with prudent business practice since the date of the
Current Balance Sheet, LESS (iv) the Prepaid Expense Amount. The Supplemental
Cash Payment shall be determined in accordance with Section 5(d) of this
Agreement.
"TRADEMARKS" shall mean all trademark, service mark and trade name
rights (including all registrations of trademarks and of other marks, all
registrations of trade names, labels and other trade rights and applications for
any of the foregoing) and all associated goodwill symbolized thereby or
connected therewith.
"TRANSFER" shall mean sell, assign, transfer, pledge, grant a
security interest in, or otherwise dispose of, with or without consideration,
and "TRANSFERRED" shall have a correlative meaning.
"WESTLAKE PREMISES" shall mean the premises located at 31280 Oak
Crest Drive, Suite #1, Westlake Village, California 91361.
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(b) OTHER DEFINITIONS. The following terms shall have the meanings given the
terms in the Sections set forth below:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Accounting Principles............................. 6(h)(i)
Accounts Receivable............................... 2(a)(v)
Arbitrator........................................ 16(m)
Assets............................................ 2(a)
Associated Costs.................................. 3(c)
Assumed Contracts................................. 2(a)(ix)
Assumed Liabilities............................... 3(a)
Bebe.............................................. 8(f)
Claim............................................. 12(e)
Claim Notice...................................... 12(e)
Closing........................................... 5(a)
Closing Date...................................... 5(a)
Closing Statement................................. 5(d)(ii)
Collectable Accounts Receivable................... 6(d)(i)
Company Financial Statements...................... 7(e)
Company Indemnified Party......................... 12(b)
Company Indemnified Parties....................... 12(b)
Damages........................................... 12(b)
Direct Claim...................................... 12(e)
Employees......................................... 11(g)(i)
Estimated Supplemental Cash Payment............... 5(d)(i)
Exchange Act...................................... 11(c)
Excluded Assets................................... 2(b)
Excluded Contracts................................ 2(b)(viii)
Excluded Liabilities.............................. 3(b)
Indemnification Basket............................ 12(d)(i)
Indemnification Cap............................... 12(d)(ii)
Indemnified Party................................. 12(e)
Indemnifying Party................................ 12(e)
Inventory......................................... 2(a)(iv)
Jurisdictions..................................... 6(f)(ii)
Noncompetition Payment............................ 14(b)
Notices........................................... 16(a)
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Permits........................................... 2(a)(xi)
Permitted Liens................................... 6(c)(i)
Provider.......................................... 16(m)
Purchase Price.................................... 4
Records........................................... 11(f)
Seller Disclosure Letter.......................... 6
Seller Indemnified Parties........................ 12(c)
Seller Indemnified Party.......................... 12(c)
Software.......................................... 2(a)(viii)
Subject Payments.................................. 12(h)(i)
Tangible Personal Property........................ 2(a)(iii)
Third Party Claim................................. 12(e)
Transferred Employees............................. 11(g)(ii)
Unpaid Liability.................................. 3(c)
</TABLE>
2. SALE AND PURCHASE OF ASSETS.
(a) TRANSFER OF ASSETS. On the terms and subject to the conditions of
this Agreement, and except as otherwise provided in Section 2(b), at the
Closing, each Seller Party shall sell, assign, transfer, convey and deliver to
the Company, and the Company shall purchase from each Seller Party, all of the
Seller Party's right, title and interest in, under and to all of the assets,
properties and rights constituting or used in the Business of every kind, nature
and description and the goodwill of and relating to the Business (the "ASSETS"),
including, but not limited to, the following:
(i) the leasehold interest and leasehold improvements of Seller
in the Belgium Premises, and the leasehold interest and leasehold improvements
of Dakota Canada in the Canada Premises;
(ii) all cash and cash equivalents, and all accounts maintained
by the Seller Parties at any bank or other financial institution, including,
without limitation, all accounts identified on SCHEDULE 2(A)(II);
(iii) all furniture, fixtures, machinery, equipment, vehicles and
other personal property and all related warranties including, without
limitation, all such items listed on SCHEDULE 2(A)(III) (the "TANGIBLE PERSONAL
Property");
(iv) all inventory, including raw materials, work-in-process,
finished goods, samples and supplies (collectively, the "INVENTORY") and any
rights with respect to any rebates or similar payments with respect to purchases
of the Inventory;
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(v) all accounts, notes or other receivables (collectively, the
"ACCOUNTS RECEIVABLE");
(vi) all prepaid expenses and deposits relating to the Business
or the Assets except for prepaid state income or franchise taxes, prepaid
federal incomes taxes and prepaid insurance;
(vii) all Seller IP;
(viii) all computer databases and software owned by, or licensed
to, each Seller Party which relate to the Business ("SOFTWARE");
(ix) all Contracts identified on SCHEDULE 2(A)(IX) (the "ASSUMED
CONTRACTS");
(x) all customer lists, files and documents (including credit
information) relating to customers, and other business and financial records,
files, books and documents held by each Seller Party relating to the Business,
but excluding all corporate minute books, stock records and other documents of
each Seller Party that are not reasonably of use to the Company in the conduct
of the Business;
(xi) all governmental franchises, licenses, approvals,
authorizations and permits (collectively, "PERMITS") that are held or used by
each Seller Party in connection with the Business, the Assets, the Belgium
Premises, the Canada Premises or the Westlake Premises, but excluding any
Permits held by Khantzis with respect to the Westlake Premises not necessary or
appropriate for the Company to continue to operate the Business after the
Closing Date; and
(xii) all other assets of the Business (except the Excluded
Assets), wherever located, tangible or intangible.
(b) EXCLUDED ASSETS. The parties to this Agreement expressly
understand and agree that the Assets shall not include, and no Seller Party is
under this Agreement selling, assigning, transferring or conveying to the
Company, the following assets (the "EXCLUDED ASSETS"):
(i) the leasehold interest and leasehold improvements of Seller
in the Westlake Premises, the Agoura Premises and the New York Premises;
(ii) all rights of Seller as sublessor of any portion of the
Westlake Premises or New York Premises;
(iii) prepaid state franchise or income taxes, prepaid federal
income taxes and prepaid insurance;
(iv) all insurance policies maintained by or on behalf of any
Seller Party;
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(v) any right, title or interest of any Seller Party in any
refunds or credits of income and sales taxes receivable after the Closing;
(vi) all rights of any Seller Party under this Agreement or any
agreement entered into in connection with this Agreement or the transactions
contemplated hereby;
(vii) the corporate minute books, stock records and other
documents of any Seller Party that are not reasonably of use to the Company in
the conduct of the Business, including, without limitation, those documents or
other items identified on SCHEDULE 2(B)(VII);
(viii) all rights of any Seller Party under any Contract (the
"EXCLUDED CONTRACTS") not identified as an "Assumed Contract", including,
without limitation, Contracts which are identified as "Excluded Contracts" on
SCHEDULE 2(B)(VIII);
(ix) all Permits held by Khantzis with respect to the Westlake
Premises not necessary or appropriate for the Company to continue to operate the
Business after the Closing Date;
(x) all Equity Securities of any Person owned of record or
beneficially by any Seller Party; and
(xi) the assets identified on SCHEDULE 2(B)(XI).
(c) DELIVERY OF POSSESSION OF ASSETS. At the Closing, each Seller
Party shall, at the Seller Party's expense, deliver possession of the Assets
being transferred by the Seller Party to the Company at locations designated by
the Company. If at any time after the Closing Date any Seller Party comes into
possession of any Asset, such Seller Party shall promptly notify the Company and
promptly deliver possession of the Asset to the Company at locations designated
by the Company.
(d) RIGHT OF ENDORSEMENT. After the Closing Date, the Company shall
have the absolute and unconditional right and authority to endorse, without
recourse, the name of each Seller Party on any check or any other evidence of
indebtedness received by the Company on account of any of the Assets, and Seller
and each other Seller Party as requested by the Company shall deliver to the
Company at the Closing a letter of instruction executed by Seller and such other
Seller Parties sufficient to permit the Company to deposit such checks or other
evidences of indebtedness in bank accounts in the name of the Company. With
respect to all bank and other financial institution accounts of the Seller
Parties included in the Assets and acquired by the Company at the Closing, the
Company agrees within 90 days following the Closing Date to change the name in
which such accounts are held to a name that does not include California Design
Studio or Lucky Friday.
(e) CONSENT TO ASSIGNMENT. This Agreement shall not constitute an
agreement to assign any interest in any Contract or Permit or any claim, right
or benefit arising thereunder or resulting therefrom, if an attempted assignment
thereof without the consent required or necessary of a third party would
constitute a breach or violation thereof or affect adversely the rights of the
Company or any Seller Party thereunder. If a consent of a third party which is
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required in order to assign any interest is not obtained prior to the Closing
Date, or if an attempted assignment would be ineffective or would adversely
affect the ability of any Seller Party to convey its interest to the Company,
Seller and such other Seller Party shall cooperate with the Company in any
lawful arrangement to provide that the Company shall receive the Seller Party's
entire interest in the benefits under any such Contract or Permit, including,
without limitation, enforcement for the benefit of the Company of any and all
rights of the Seller Party against any other party thereto arising out of the
breach or cancellation thereof by such party or otherwise; PROVIDED, HOWEVER,
that nothing contained in this Section 2(e) shall affect the liability, if any,
of Seller pursuant to this Agreement for failing to have disclosed the need for
such consent or approval; and provided, FURTHER, that nothing contained in this
Section 2(e) shall obligate the Company to waive the satisfaction of the
conditions precedent set forth in Section 9 of this Agreement, including, but
not limited to, Section 9(f) of this Agreement.
3. ASSUMED LIABILITIES.
(a) ASSUMED LIABILITIES. Subject to the provisions of this Agreement,
the Company agrees that upon transfer of the Assets on the Closing Date, it
shall assume, pay, satisfy, discharge, perform and fulfill, to the extent not
paid, satisfied, performed, discharged or fulfilled by Seller on or before the
Closing Date, only the following liabilities and obligations of the Seller
Parties (the "ASSUMED LIABILITIES"), and none other:
(i) (A) all accounts payable and accrued expenses of Seller
included in the accounts titled "Accounts Payable" and "Accrued Expenses" in the
Current Balance Sheet, (B) accounts payable and accrued expenses of Seller
incurred in the ordinary course of business and consistent with prudent business
practice since the date of the Current Balance Sheet, (C) Moulin Debt in
existence on the date of this Agreement and (D) Moulin Debt incurred in the
ordinary course of business and consistent with prudent business practice since
the date of this Agreement;
(ii) all Indebtedness of Seller arising out of the Business and
included in the Current Balance Sheet, and Indebtedness of Seller incurred in
the ordinary course of business and consistent with prudent business practice
since the date of the Current Balance Sheet;
(iii) the executory obligations of each Seller Party to be
performed on or after the Closing Date under the Assumed Contracts being
transferred hereunder, excluding any obligations or liabilities arising from any
breach or default thereunder or noncompliance therewith by any Seller Party on
or before the Closing Date;
(iv) all obligations of the Seller Parties for the payment of
accrued vacation, sick pay and Belgium Employment Termination Benefits to all
Transferred Employees, other than accrued vacation and sick pay not reflected on
the Current Balance Sheet or arising other than in the ordinary course of
business and consistent with prudent business practice since the date of the
Current Balance Sheet; and
(v) any liabilities or obligations of Seller with respect to the
matters identified on SCHEDULE 3(A)(V).
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It is not the intention of either the Company or any Seller Party
that the assumption by the Company of the Assumed Liabilities shall in any way
enlarge the rights of third Persons under any agreements or arrangements with
the Company or any Seller Party. Nothing contained in this Agreement shall in
any way prevent the Company from contesting in good faith any of the Assumed
Liabilities; PROVIDED no such contest shall relieve the Company of its
obligations under this Agreement to any Seller Party with respect thereto.
(b) LIABILITIES NOT ASSUMED. The Company shall not and does not
assume any liabilities, obligations or commitments of any Seller Party of any
kind, known or unknown, contingent or otherwise, of whatsoever kind or nature,
not specifically included within the Assumed Liabilities, and the same shall
remain the sole responsibility of such Seller Party (which liabilities,
obligations and commitments are referred to in this Agreement as the "EXCLUDED
LIABILITIES"). The Excluded Liabilities include, without limitation, the
following liabilities that are expressly excluded from the liabilities and
obligations being assumed by the Company pursuant to Section 3(a):
(i) any Moulin Debt incurred after the date of this Agreement
other than in the ordinary course of business and consistent with prudent
business practice;
(ii) any liabilities or obligations of any Seller Party for the
fees and expenses of its counsel, accountants and other professionals and all
other expenses incurred by the Seller Party (including broker's fees) incident
to the negotiation, preparation and execution of this Agreement and the
performance by the Seller Party of its obligations hereunder;
(iii) any liabilities or obligations arising out of or related to
local, state, federal or foreign income taxes or assessments, including, without
limitation, any such taxes arising by virtue of the transactions contemplated by
this Agreement;
(iv) all sales taxes, including, without limitation, sales and
other transfer taxes (including penalties and interest) attributable to, arising
out of or resulting from the sale of the Assets, which taxes shall be borne
solely by the Seller Party selling the Assets;
(v) any liability or obligations of any Seller Party for any
product liability or similar claim for injury to persons or property with
respect to products sold or delivered BEFORE the Closing Date;
(vi) any liabilities or obligations attributable to, arising out
of or resulting from any distributions by any Seller Party to its shareholders;
(vii) except as specifically set forth in Section 3(a)(iv), any
liabilities or obligations of any Seller Party with respect to employee
compensation or employee benefits of any nature, including accrued wages and
vacation, owed to any of such Seller Party's employees or former employees or
their beneficiaries that arise out of the employment relationship between such
Seller Party and any of its employees or former employees or the termination of
that relationship;
(viii) any payroll taxes payable by any Seller Party; and
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(ix) any liabilities or obligations of any Seller Party under any
Excluded Contract.
(c) RIGHT OF SET OFF.
(i) If any Seller Party fails to make any payment with respect to
any of the Excluded Liabilities related to the Business and outstanding at the
Closing (each, an "UNPAID LIABILITY"), the Company may elect to pay such Unpaid
Liability, and any other costs and charges, if any, associated with the Unpaid
Liability (the "ASSOCIATED COSTS"), if the Company determines, in its reasonable
discretion, that such payment is necessary or desirable to allow the Business to
continue on an uninterrupted basis; provided, however, that the Company shall
have provided Seller with not less than 10 days' prior written notice of its
intent to pay the Unpaid Liability and/or Associated Costs, and Seller shall
have failed to pay the Unpaid Liability and/or Associated Costs and/or that,
with respect to any Unpaid Liability other than an Unpaid Liability associated
with the normal operating costs of the Business (including, without limitation,
accounts payable, payroll taxes, etc.), Seller notifies the Company in writing
within such 10 day period that Seller intends to defend or contest the Unpaid
Liability, and Seller fails to discharge said Unpaid Liability within 10 days
after the Unpaid Liability is reduced to a final judgment or otherwise becomes a
Lien on any assets of the Company or the Business. Subject to subsections (ii)
and (iii) of this Section 3(c), if the Company pays any Unpaid Liability or
Associated Costs, the Company shall have the right to offset the amount of such
Unpaid Liability and/or Associated Costs against amounts owing Seller under the
Note, which offset shall be applied in the manner provided in Section 12(h)(iii)
of this Agreement.
(ii) If Seller contests the Company's right to offset the amount
of such Unpaid Liability and/or Associated Costs, and it is determined by a
court of competent jurisdiction that the Company was not reasonable in
determining that payment of such amounts by the Company was necessary or
desirable to allow the Business to continue on an uninterrupted basis, then,
subject to the Company's right to indemnification for such amounts pursuant to
Section 12 hereof, the amount offset by the Company shall be paid to Seller
following such determination.
(iii) If any Unpaid Liability or Associated Costs consist of
Damages for which the Company would be entitled to indemnification under Section
12(b), then the Company's right to offset the amount of any Unpaid Liability
and/or Associated Costs pursuant Section 3(c)(i) shall be subject to the
limitations on indemnification set forth in Section 12(d) to the extent that,
except as provided in Section 12(d)(iii), no offset may be made by the Company
until the Indemnification Basket has been met or if the Indemnification Cap has
been exceeded.
(d) RIGHT OF ENFORCEMENT AND SETTLEMENT. From and after the Closing
Date, the Company shall have complete control over the payment, settlement or
other disposition of the Assumed Liabilities and the right to commence, conduct
and control all negotiations and proceedings with respect thereto. Seller shall
notify the Company promptly of any claim made with respect to any Assumed
Liability, and no Seller Party shall, except with the Company's prior written
consent, which consent arbitrarily may be withheld by the Company, voluntarily
make any payment of, settle or offer to settle, or consent to any compromise or
admit liability with respect to, any Assumed Liability. Each Seller Party shall
cooperate with the Company in
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any reasonable manner requested by the Company in connection with any
negotiations or proceedings involving any Assumed Liabilities.
4. PURCHASE PRICE.
The purchase price to be paid by the Company for the Assets (the
"PURCHASE PRICE") shall consist of: (a) $800,000; PLUS (b) the Note; PLUS (c)
the Supplemental Cash Payment; PLUS (d) the assumption by the Company on the
Closing Date of the Assumed Liabilities.
5. CLOSING AND DELIVERIES.
(a) THE CLOSING. The closing of the purchase and sale of the Assets
and the assumption of the Assumed Liabilities pursuant to Sections 2 and 3 of
this Agreement (the "CLOSING") shall take place as soon as practicable following
the time all of the conditions to Closing set forth in Sections 9 and 10 of this
Agreement are satisfied or waived (by the party entitled to waive the same), at
the offices of Troop Steuber Pasich Reddick & Tobey, LLP, 2029 Century Park
East, Twenty-Fourth Floor, Los Angeles, California, or at such other place or
time as the parties to this Agreement shall mutually agree upon in writing. The
date of the Closing is referred to in this Agreement as the "CLOSING DATE".
(b) DELIVERIES BY THE COMPANY AT THE CLOSING. At the Closing, the
Company shall deliver to Seller:
(i) $800,000 by delivery of a cashiers check or by wire transfer
to an account designated by Seller;
(ii) the Estimated Supplemental Cash Payment by delivery of a
cashiers check or by wire transfer to an account designated by Seller;
(iii) the Note and the Security Agreement;
(iv) such documents and instruments as Seller may reasonably
request to evidence the assumption by the Company of the Assumed Liabilities;
and
(v) such documents and instruments as Seller may reasonably
request to evidence the satisfaction of all conditions precedent set forth in
Section 10 of this Agreement.
(c) DELIVERIES BY SELLER PARTIES AND KHANTZIS AT THE CLOSING. At the
Closing, Seller and/or Khantzis shall deliver or cause to be delivered to the
Company:
(i) such bills of sale, endorsements, assignments, and other good
and sufficient instruments of conveyance, transfer and assignment, including
without limitation, a Bill of Sale in the form of EXHIBIT F to this Agreement,
as shall be necessary to vest in the Company good title in and to the Assets
free and clear of any and all Liens (other than Permitted Liens); and
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(ii) such documents and instruments as the Company may reasonably
request to evidence the satisfaction of all conditions precedent set forth in
Section 9 of this Agreement.
(d) DETERMINATION OF SUPPLEMENTAL CASH PAYMENT. The Supplemental Cash
Payment shall be determined as provided in this Section 5(d).
(i) ESTIMATED SUPPLEMENTAL CASH PAYMENT. On the day immediately
prior to the Closing Date, Khantzis shall cause the chief financial officer of
Seller to certify in writing to the Company a reasonable and good faith estimate
of the Supplemental Cash Payment (the "ESTIMATED SUPPLEMENTAL CASH PAYMENT"),
setting forth in reasonable detail the calculation thereof which shall include,
at a minimum, the amount of each component comprising the Estimated Supplemental
Cash Payment. In support of such certification, each Seller Party shall deliver
to the Company such supporting documentation as reasonably requested by the
Company to enable it to verify that the Estimated Supplemental Cash Payment
certified by Seller is a good faith estimate of the Supplemental Cash Payment
immediately prior to the Closing Date. At the Closing, the Company shall deliver
to Seller the Estimated Supplemental Cash Payment.
(ii) CLOSING DATE STATEMENT. As soon as practicable, but in any
event within 30 calendar days, following the Closing, Khantzis shall cause
Seller to deliver to the Company a statement of the Supplemental Cash Payment as
of the Closing (the "CLOSING STATEMENT") certified by Seller's chief financial
officer as fairly presenting such amount as of the Closing, setting forth in
reasonable detail the calculation thereof which shall include, at a minimum, the
amount of each component comprising the Supplemental Cash Payment. In support of
such certification, each Seller shall deliver to the Company such supporting
documentation as reasonably requested by the Company to enable it to verify that
the Supplemental Cash Payment certified by Seller is a good faith estimate of
the Supplemental Cash Payment as of the Closing. The Company may dispute the
determination of the Supplemental Cash Payment as set forth on the Closing
Statement, in which event the parties agree to cooperate to resolve any
differences.
(iii) ADJUSTMENT TO ESTIMATED SUPPLEMENTAL CASH PAYMENT. If the
amount of the Supplemental Cash Payment as reflected on the Closing Statement is
greater than the amount of the Estimated Supplemental Cash Payment, then the
Company shall promptly pay to Seller the amount of such excess. If the amount of
the Supplemental Cash Payment as reflected on the Closing Statement is less than
the amount of the Estimated Supplemental Cash Payment, then Seller shall
promptly pay to the Company the amount of such difference.
(e) FURTHER ASSURANCES. At the Closing, each party to this Agreement
shall deliver or cause to be delivered, as appropriate, such further
certificates, consents and other documents as may be necessary to carry out the
terms of this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF SELLER AND KHANTZIS.
Except as set forth in the disclosure letter delivered by Seller and
Khantzis to the Company concurrently with the execution and delivery of this
Agreement, which letter shall
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refer to the relevant Sections of this Agreement (the "SELLER DISCLOSURE
LETTER"), Seller and Khantzis, jointly and severally, represent and warrant to
the Company as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER; CAPITALIZATION. Each
Seller Party is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has all
requisite corporate power and corporate authority to own, lease and operate its
properties and assets and to carry on its business as now being conducted.
Complete and correct copies of the Charter Documents of each Seller Party have
been delivered to the Company or its attorneys. All of the Equity Securities of
Seller are owned of record and beneficially by Khantzis, and all of the Equity
Securities of each Seller Party other than Seller are owned of record and
beneficially by Seller.
(b) AUTHORITY; ENFORCEABILITY; EFFECT OF AGREEMENT.
(i) Each Seller Party has full corporate power and corporate
authority to enter into, execute and deliver this Agreement and perform its
obligations hereunder. Khantzis has the requisite capacity to enter into,
execute and deliver this Agreement and perform his obligations hereunder. This
Agreement has been duly authorized by all necessary corporate action of each
Seller Party, including, without limitation, the authorization and approval by
Khantzis. This Agreement has been duly executed and delivered by each Seller
Party and Khantzis and, assuming this Agreement is duly executed and delivered
by the Company, constitutes a valid and legally binding obligation of each
Seller Party and Khantzis enforceable against each Seller Party and Khantzis in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
relating to or affecting creditors' rights generally, or the availability of
equitable remedies.
(ii) The execution and delivery by each Seller Party and Khantzis
of this Agreement do not, and compliance by each Seller Party and Khantzis with
the provisions of this Agreement will not, (A) conflict with or result in a
breach or default under any of the terms, conditions or provisions of any
Contract to which any Seller Party or Khantzis is a party or otherwise bound, or
to which any property or asset of any Seller Party or Khantzis is subject; (B)
violate any Law applicable to any Seller Party or Khantzis; or (C) result in the
creation or imposition of any Lien on any asset of any Seller Party or Khantzis.
(c) ASSETS.
(i) Except for Liens set forth on the Seller Disclosure Letter
(which Liens are identified on the Seller Disclosure Letter as Liens that will
either be released at the Closing or will continue in existence after the
Closing), each Seller Party has good and marketable title to all of the Assets
of the Seller Party being transferred hereunder free and clear of all Liens,
other than (A) Liens for current taxes not yet delinquent; (B) restrictions
imposed by Law; and (C) easements and restrictions which are neither
individually nor in the aggregate material to the Seller Party. The Liens
identified in clauses (A) through (C) of the immediately preceding sentence, and
Liens identified on the Seller Disclosure Letter as Liens that will continue in
existence after the Closing, are collectively referred to herein as the
"PERMITTED LIENS". At the Closing, the Company shall receive good and marketable
title to the Assets, free and clear of all Liens other than Permitted Liens.
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(ii) The Assets consist of all of the properties and assets used
or usable in the conduct of the Business, including, but not limited to, all of
the properties and assets reflected on the Current Balance Sheet, other than (A)
assets sold or transferred in the ordinary course of business and consistent
with prudent business practice since the date of the Current Balance Sheet, and
(B) the Excluded Assets. Each item of material Tangible Personal Property is in
good operating condition and repair, ordinary wear and tear excepted, for the
requirements of the Business as currently conducted.
(d) ACCOUNTS RECEIVABLE; INVENTORY.
(i) The Seller Disclosure Letter sets forth a true and complete
schedule of the Accounts Receivable of each Seller Party as of the date of the
Current Balance Sheet, setting forth a description of the Accounts Receivable
including the names of the account debtors, the balance amount and aging as of
the date indicated therein. The Accounts Receivable, whether reflected on the
Current Balance Sheet or subsequently created on or before the Closing Date, and
all books, records and documents relating to such Accounts Receivable, are
genuine and accurate and arose in the ordinary course of business consistent
with past practice. Except for returns, warranty returns, and returns for
exchange in the ordinary course of business and consistent with past practice,
the Accounts Receivable are not subject to any defense, counterclaim or offset.
As soon as practicable after the date hereof and prior to the Closing, Seller
agrees to provide to the Company a schedule of the addresses of each account
debtor identified in the Seller Disclosure Letter.
(ii) Of the aggregate amount of Accounts Receivable set forth on
SCHEDULE 6(D)(II) (the "Collectable Accounts Receivable"), $177,237 is fully
collectable within 365 days of the Closing Date; PROVIDED, that in determining
whether any Collectable Account Receivable has been collected, any payments
received by the Company from the applicable account debtor after the Closing
Date shall be applied first to the oldest amount owed by such account debtor to
the Company. Since the date of the Current Balance Sheet, there have not been
any write-offs as uncollectable of any Accounts Receivable.
(iii) The Inventory of each Seller Party, whether reflected on
the Current Balance Sheet or subsequently created on or before the Closing Date,
is genuine. The Inventory is reflected on the Current Balance Sheet, and on
Seller's books and records, in each case in accordance with the Accounting
Principles.
(e) ASSUMED CONTRACTS. True and correct copies of each Assumed
Contract so identified on SCHEDULE 2(A)(IX), including all amendments and
modifications thereof and waivers thereunder, have been delivered to the Company
or its counsel. The Assumed Contracts constitute all Contracts pursuant to which
any Seller Party receives income or revenues. Each Assumed Contract is in full
force and effect, is the valid and binding obligation of each Seller Party a
party thereto and, to the best knowledge of Seller and Khantzis, is the valid
and binding obligation of each other party to the Assumed Contract. Each Seller
Party has performed all of the obligations required to be performed by it to
date under each Assumed Contract, and no Seller Party is in breach of or default
under any Assumed Contract. To the best knowledge of Seller, each other party to
each Assumed Contract has performed all of the obligations required
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to be performed by it to date under the Assumed Contract and is not in breach of
or in default under the Assumed Contract, and no event has occurred or
circumstance exists which, with notice or lapse of time or both, would
constitute a breach of or default under any Assumed Contract.
(f) INTELLECTUAL PROPERTY.
(i) The Seller Disclosure Letter contains a true and complete
list of all Patents, Trademarks and registered Copyrights of each Seller Party
and the basis of the right of each Seller Party to use such Patents, Trademarks
and Copyrights . The Seller IP constitutes all IP that is required to enable
each Seller Party to conduct its business as now conducted. Each Seller Party
has provided commercially reasonable safeguards and security for the protection
and confidentiality of the Seller IP. No Seller Party has received any written
notice of infringement or other written complaint to the effect that any Seller
Party or any of its Affiliates has violated or infringed the IP or any other
proprietary rights of others. No Seller Party nor any of its Affiliates has
wrongfully Exploited any IP owned or licensed by any Person for which any Seller
Party could suffer any Damages, and no Seller Party nor any Person employed by
or affiliated with any Seller Party has violated any confidential relationship
which such Person may have had with any third party for which any Seller Party
could suffer any Damages. Each Seller Party has full right and authority to
utilize the Seller IP of such Seller Party, including, without limitation, the
processes, systems and techniques presently used by it in the design,
development, manufacture, marketing, sale and distribution of its present
products, and all rights to any such IP developed by any employee or consultant
of any Seller Party have been duly and validly assigned to such Seller Party or
to Seller. No royalties, honoraria, damages or fees are payable by any Seller
Party to other Persons by reason of the ownership or use by any Seller Party of
any Seller IP. No Affiliate of any Seller Party (other than another Seller
Party) owns or holds, directly or indirectly, any interests in any Seller IP. To
Seller's and Khantzis' best knowledge, no Person has interfered with, infringed
upon, misappropriated, or otherwise violated any IP right of any Seller Party.
No Seller Party has Transferred to any Person (other than another Seller Party)
any right to Exploit any Seller IP.
(ii) The Seller Disclosure Letter sets forth a list of all
countries, states or other jurisdictions in which each Trademark owned by each
Seller Party is registered or in which registration applications are pending
(the "JURISDICTIONS"), the date(s) of registration (or application), the
class(es) of registration and the name of the Person in which each Trademark is
registered. The Seller Party identified on the Seller Disclosure Letter is the
sole and exclusive owner (legal and beneficial) of the Trademarks identified on
the Seller Disclosure Letter in any and all forms and embodiments thereof in
each Jurisdiction, and to the goodwill attached to the Trademark in each
Jurisdiction, in the class or classes identified on the Seller Disclosure Letter
with respect to such Jurisdiction. To the best knowledge of Seller and Khantzis,
no Person other than a Seller Party is using any Trademark of any Seller Party
anywhere else in the world in connection with the Exploitation of prescription
eyeglass frames. No Seller Party has Transferred to any Person (other than
another Seller Party) the right to use any Trademark in connection with the
Exploitation of products anywhere in the world. The use by each Seller Party
and/or the Company of each Trademark for Exploitation in the registered classes
will not infringe any IP right of any Person in any Jurisdiction in which such
Trademark is registered, and nothing has come to the attention of Seller or
Khantzis that the use by each Seller Party
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and/or the Company of each Trademark for Exploitation in the registered classes
will infringe any IP right of any Person anywhere else in the world.
(g) SUBSIDIARIES. Except as set forth on the Seller Disclosure Letter,
Seller does not own, directly or indirectly, any shares of stock or any other
financial interest or investment (equity or debt) in any Person, and is not
subject to any agreement, obligation or commitment to make such investment.
Except as set forth on the Seller Disclosure Letter, the Business has been
conducted solely by the Seller Parties in their own name, and not through any
other Subsidiary or Affiliate of any Seller Party, or any other Person.
(h) FINANCIAL STATEMENTS.
(i) Seller has delivered the Annual Financial Statements and the
Current Financial Statements to the Company. SCHEDULE 6(H)(I) describes in
reasonable detail the accounting principles, procedures and practices followed
by Seller in preparing the Annual Financial Statements and the Current Financial
Statements (the "ACCOUNTING PRINCIPLES") with respect to the following financial
statement categories: principles of consolidation; accounts receivable; accounts
payable; inventories; depreciation and amortization; revenue recognition; and
reserves. The Annual Financial Statements fairly present the financial position
and results of operations of the Seller Parties as at the dates of and for the
periods set forth in the Annual Financial Statements in accordance with the
Accounting Principles. The Current Financial Statements have been prepared in
accordance with the Accounting Principles, consistent with the Annual Financial
Statements, and fairly present the financial position and results of operations
of the Seller Parties as at and for the twelve months ended April 30, 1999, and
are not subject to year-end adjustments except for normal year-end adjustments
that may be required in the ordinary course of business.
(ii) As of the date of this Agreement, no Seller Party has any
liabilities or obligations, either accrued, absolute, contingent or otherwise,
which have not been reflected on the Current Balance Sheet, other than
non-monetary obligations under statutes and regulations and other liabilities
and obligations which were incurred in the ordinary course of business and
consistent with prudent business practice since the date of the Current Balance
Sheet and which are not material in the aggregate to the Business Condition of
the Seller Party. The Current Balance Sheet reflects adequate reserves for all
material losses.
(i) ABSENCE OF CERTAIN CHANGES AND EVENTS. Since October 31, 1998,
except for this Agreement and changes contemplated by this Agreement, each
Seller Party has conducted its business only in the ordinary course of business
and there has not been any:
(i) purchase, redemption, retirement or other acquisition by any
Seller Party of any Equity Securities of the Seller Party;
(ii) declaration or payment of any dividend or other distribution
or payment to any shareholder of any Seller Party in respect of any Equity
Securities of the Seller Party;
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(iii) increase by any Seller Party in the compensation payable or
to become payable by the Seller Party to Khantzis or to any director, officer or
employee of the Seller Party being paid $35,000 or more;
(iv) payment of any bonus, pension, retirement or insurance
payment or arrangement to or with, or advance or loan of any money to, any
Person, or entry into any employment, severance, loan or similar Contract with
any Person, except for (x) payments of bonuses of not more than an aggregate of
$200,000 to employees of Seller and (y) employment agreements entered into in
the ordinary course of business with Persons who are not executive officers of
the Company and who do not receive, on an annualized basis, base compensation in
excess of $50,000;
(v) incurrence by any Seller Party of any Indebtedness or trade
payables other than (A) the Employee Bonus Amount, and (B) Indebtedness and
trade payables incurred by the Seller Party in the ordinary course of business;
or
(vi) sale, transfer or lease of any assets to, or entry into any
agreement or arrangement with, Khantzis or any officer, director or shareholder
of any Seller Party (other than payment of salaries to officers in the ordinary
course of business and consistent with past practice) or any of their respective
Affiliates.
(j) LITIGATION AND PROCEEDINGS. There is no pending or, to the
best knowledge of Seller and Khantzis, threatened Action (or basis for any
Action) to which any Seller Party is a party or involving any of the Assets, and
no Seller Party is subject to any judgment, order, writ, injunction, decree or
regulatory directive or agreement.
(k) BROKERS. No Seller Party nor Khantzis has retained or
otherwise engaged or employed any broker, finder or any other person, or paid or
agreed to pay any fee or commission to any agent, broker, finder or other
person, for or on account of acting as a finder or broker in connection with
this Agreement or the transactions contemplated hereby.
(l) CREDITOR ISSUES. The transfer of the Assets to the Company is not
being made with the actual intent to hinder, delay or defraud any creditor of
any Seller Party. Each Seller Party believes it is receiving reasonably
equivalent value in exchange for the transfer of the Assets. No Seller Party is
insolvent nor will become insolvent as a result of the transactions contemplated
by this Agreement.
(m) NO CONSENTS REQUIRED. There are no approvals, authorizations,
consents, orders or other actions of, or filings with, any Person that are
required to be obtained or made by any Seller Party in connection with the
execution of, and the consummation of the transactions contemplated under, this
Agreement, including, without limitation, the effective transfer to the Company
of the Assets, including the Assumed Contracts.
(n) ENVIRONMENTAL COMPLIANCE MATTERS. (i) The Premises constitute all
of the real property used or occupied by any Seller Party or any of their
respective Subsidiaries; (ii) Seller and Khantzis have inspected the Premises
and have no reason to believe that there may be Hazardous Substances
incorporated in or deposited, stored or buried at or upon the Premises; (iii) to
the best knowledge of Seller and Khantzis, the Premises have never been used as
a waste
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disposal site or a storage site for petroleum products or chemicals; (iv) to the
best knowledge of Seller and Khantzis, no existing structures on the Premises
contain asbestos; (v) to the best knowledge of Seller and Khantzis, there are
not now any underground storage tanks on the Premises; (vi) no Seller Party nor
any Subsidiary of any Seller Party has allowed, with the knowledge or consent of
the Seller Party or the Subsidiary, any Person occupying the Premises to bring
Hazardous Substances onto the Premises or to process or store any Hazardous
Substances on the Premises and, to the best knowledge of Seller and Khantzis, no
Hazardous Substance has been released into the environment by any Seller Party
or any Subsidiary of any Seller Party that may present an imminent and
substantial endangerment to human health; (vii) neither Seller nor Khantzis is
aware of any complaints on file or matters pending in any federal or state
environmental protection offices involving any allegation of Hazardous
Substances on the Premises; and (viii) neither Seller nor Khantzis has received
notice from any environmental board, agency or authority requiring the removal
of any Hazardous Substances or other alleged harmful materials or wastes, or
advising of any pending or contemplated search or investigation of the Premises
or any portion of the Premises with respect the removal of any Hazardous
Substances or other alleged harmful materials or wastes.
(o) MATERIAL MISSTATEMENTS AND OMISSIONS. No representations and
warranties by any Seller Party or Khantzis in this Agreement, nor any exhibit,
schedule or certificate furnished by any Seller Party or Khantzis to the Company
pursuant to this Agreement, contains or will contain any untrue statement of
material fact or omits or will omit to state any material fact necessary to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Seller as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and corporate
authority to own, lease and operate its properties and assets and to carry on
its business as now being conducted.
(b) AUTHORITY; ENFORCEABILITY; EFFECT OF AGREEMENT.
(i) The Company has full corporate power and corporate authority
to enter into, execute and deliver this Agreement and perform its obligations
hereunder. This Agreement has been duly authorized by all necessary corporate
action of the Company. This Agreement has been duly executed and delivered by
the Company and constitutes a valid and legally binding obligation of the
Company and is enforceable against the Company in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting creditors'
rights generally, or the availability of equitable remedies.
(ii) The execution and delivery by the Company of this Agreement
do not, and compliance by the Company with the provisions hereof will not, (A)
conflict with or result in a breach or default under any of the terms,
conditions or provisions of any Contract to
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which the Company is a party or otherwise bound, or to which any asset or
property of the Company is subject; or (B) violate any Law applicable to the
Company; or (C) result in the creation or imposition of any Lien on any asset of
the Company.
(c) BROKERS. The Company has not retained or otherwise engaged or
employed any broker, finder or any other person, or paid or agreed to pay any
fee or commission to any agent, broker, finder or other person, for or on
account of acting as a finder or broker in connection with this Agreement or the
transactions contemplated hereby.
(d) NO CONSENTS REQUIRED. There are no approvals, authorizations,
consents, orders or other actions of, or filings with, any Person that are
required to be obtained or made by the Company in connection with the execution
of, and the consummation of the transactions contemplated under, this Agreement,
including, without limitation, the effective payment to Seller of the Purchase
Price for the Assets.
(e) FINANCIAL STATEMENTS. The Company's audited balance sheet as of
October 31, 1998 and 1997, and the audited statements of income, stockholders'
equity and cash flows for the years ended October 31, 1998, 1997 and 1996, are
included in the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1998, as filed with the Securities and Exchange Commission (the
"COMPANY FINANCIAL STATEMENTS"). The Company Financial Statements fairly present
the financial position and results of operations of the Company as at the dates
of and for the periods set forth in the Company Financial Statements in
accordance with GAAP.
8. CONDUCT AND TRANSACTIONS PRIOR TO CLOSING.
(a) CONDUCT OF BUSINESS. From the date of this Agreement until the
Closing, except as contemplated by this Agreement or with the prior written
consent of the Company, each Seller Party agrees, and Khantzis agrees to cause
each Seller Party:
(i) to conduct its operations according to its ordinary and usual
course of business;
(ii) not to Transfer any Assets, except any Inventory in the
ordinary course of business at the customary prices for such inventory, without
discount except for customary discounts given in the ordinary course of business
and consistent with prudent business practice;
(iii) not to amend, modify or terminate, or grant any waiver of
any right under, any material Assumed Contract, and not to make any payment
under any Assumed Contract which is not required to be made strictly in
accordance with the terms of the Assumed Contract;
(iv) to comply with all of its obligations and duties under any
Assumed Contract and not to create or permit to exist any default or event of
default on behalf of the Seller Party under any Assumed Contract, or any event
or circumstance which, with lapse of time or notice, or both, would constitute a
default under an Assumed Contract;
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(v) to use its Best Efforts to preserve intact its business
organization and goodwill, keep available the services of its officers and
employees and maintain satisfactory relationships with those Persons having
business relationships with the Seller Party;
(vi) to duly comply with all Laws applicable to the Seller Party
and to the conduct of the Business;
(vii) not to make or agree to make any capital expenditures;
(viii) not to incur any fixed or contingent obligation or enter into any
Contract or other transaction or arrangement relating to the Business or the
Assets which (i) may not be terminated by Seller on 30 days' notice or less
without cost or liability, (ii) which is not in the ordinary course of the
business, and (iii) which is not transferable or assignable to the Company;
(ix) to maintain the Tangible Personal Property in a good
condition and state of repair;
(x) not to commit any act or omit to do any act which would be or
result in a breach of any of its obligations, duties, agreements or
representations under any Contract to which it is a party or to which it enters
into subsequent to the date of this Agreement which would have a material effect
on the Business Condition of the Seller Party;
(xi) to bear the risk of loss or damage to the Assets on and
prior to the Closing Date, and maintain all properties necessary for the conduct
of the Business, whether owned or leased, in substantially the same condition as
they now are, normal wear and tear excepted; and, if any Asset is damaged on or
prior to the Closing Date by any casualty, Seller shall give the Company
immediate written notice of such damage, and, if such damage or destruction is
material, shall afford the Company, in its sole and absolute discretion, the
right to cancel, terminate or delay the Closing under this Agreement; PROVIDED,
HOWEVER, if the Company does not elect to cancel, terminate or delay the
Closing, Seller shall, at the Company's election, either (i) restore such asset
to its condition prior to such damage, or (ii) if the Company elects not to
require Seller to restore such asset to its prior condition, or if the same is
for any other reason not so restored to the reasonable satisfaction of the
Company prior to the Closing Date, the Company shall have the right to elect to
credit against the Purchase Price the value allocated to such Asset on SCHEDULE
11(B) to this Agreement or, if a specific value is not allocated to such Asset,
the replacement cost of such asset (determined as the price at which a
substantially similar item could then be purchased plus all applicable taxes and
shipping, installation and related costs), LESS any insurance proceeds received
by the Company with respect to such Asset;
(xii) to maintain the books, records and accounts of the Seller
Party in the usual, regular and ordinary manner, on a basis consistent with
prior periods;
(xiii) not to enter into any Contract of any kind or nature with
Moulin or any Affiliate of the Seller Party;
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(xiv) not to enter into any transaction or perform any act which
would make any of the representations, warranties or agreements contained in
this Agreement false or misleading in any material respect if made again
immediately after such transaction or act; and
(xv) not to take any affirmative action or fail to take any
action within its control that is likely to cause any of the changes or events
listed in Section 6(i) to occur.
(b) INSPECTION OF RECORDS. Between the date of this Agreement and the
Closing, each Seller Party shall allow the duly authorized officers, attorneys,
accountants and other representatives of the Company access at all reasonable
times to the records and files, correspondence, audits and properties, as well
as to all information in each case relating the business and affairs of the
Seller Party.
(c) ACQUISITION PROPOSALS. During the period from the date of this
Agreement and extending through the earlier of termination of this Agreement or
the Closing, each Seller Party and Khantzis agrees that (i) no Seller Party nor
Khantzis shall, and each Seller Party shall direct and cause its officers,
directors, employees, agents and representatives (including, without limitation,
any investment banker, attorney or accountant) not to, initiate, solicit,
intentionally encourage or accept the submission of any proposal or offer with
respect to a merger, acquisition, sale, consolidation or similar transaction
involving all or any significant portion of the Assets or any Equity Securities
of any Seller Party (any such proposal or offer being hereinafter referred to as
an "ACQUISITION PROPOSAL") or engage in any negotiations or discussions
concerning, or provide any confidential information or data to, any Person
relating to an Acquisition Proposal, and (ii) each Seller Party and Khantzis
will notify the Company immediately if any Acquisition Proposal is received by
any Seller Party and/or Khantzis or any negotiations or discussions relating to
a potential Acquisition Proposal are sought to be initiated or continued with
any Seller Party and/or Khantzis.
(d) OTHER AGREEMENTS. Khantzis and the Company agree to enter into the
Consulting Agreement and the Lease Agreements at the Closing.
(e) BEST EFFORTS. Between the date of this Agreement and the Closing,
each of the parties to this Agreement will use its or his Best Efforts to cause
the conditions to the obligations of the other parties set forth in Sections 9
or 10 of this Agreement, as the case may be, to be satisfied.
9. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.
The obligation of the Company to complete the purchase of the Assets
and to take the other actions required to be taken by the Company at the Closing
is subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by the Company in writing, in
whole or in part):
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Seller and Khantzis (contained in this Agreement, any exhibit or schedule
hereto, or any certificate, instrument or other writing delivered to the Company
or its representatives by Seller or Khantzis, or any of their respective
representatives) shall be true and correct on the Closing Date with the same
force and effect as though made on and as of the Closing Date (I.E., with
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respect to a representation that a state of facts exists on or as of the
date hereof, it is a condition that such state of facts exists in all material
respects on or as of the Closing Date, and with respect to a representation that
a state of facts has or has not changed between a date prior to the date hereof
and the date hereof, it is a condition that such state of facts has or has not
changed between such prior date and the Closing Date), except as affected by
transactions contemplated hereby and thereby and except that any such
representation or warranty made as of a specified date (other than the date of
this Agreement) shall only need to have been true on and as of such date;
(b) PERFORMANCE. Each Seller Party and Khantzis shall have performed
all obligations and complied with all covenants required by this Agreement to be
performed or complied with by the Seller Party and/or Khantzis on or prior to
the Closing Date;
(c) TRANSFER OF ASSETS. The Company shall have received good and
marketable title to the Assets, free and clear of all Liens (other than Liens
created by the Company and the Permitted Liens);
(d) MOULIN AGREEMENT. The Moulin Agreement shall be in full force and
effect, and Moulin shall not have threatened to terminate the Moulin Agreement
or fail to perform its obligations thereunder;
(e) RELEASE OF LIENS. Each Seller Party shall have delivered to the
Company any required releases and/or termination statements, releasing all
security interests in favor of any third party in or to any of the Assets except
those which are in connection with the Assumed Liabilities and Permitted Liens;
(f) CONSENTS. Each Seller Party shall have delivered to the Company
all consents of third parties necessary for the unconditional transfer of the
Assets and the unconditional consummation of the transactions contemplated
hereby;
(g) OTHER AGREEMENTS. Khantzis shall have executed and delivered to
the Company the Consulting Agreement and the Lease Agreements;
(h) OPINION LETTER. The Company shall have received from McKenna &
Cuneo, L.L.P., Los Angeles, California, counsel to Seller and Khantzis, a
written opinion, dated as of the Closing Date and addressed to the Company, in
form and substance satisfactory to the Company;
(i) OTHER MATTERS. All corporate and other proceedings and actions
taken in connection with this Agreement and all agreements, instruments and
documents mentioned in this Agreement or incident to any such transactions shall
be reasonably satisfactory in form and substance to the Company and its counsel;
and
(j) 5TH AVENUE. Kobra International, Ltd., T/A Nicole Miller shall
have consented to or approved of The 5th Avenue Channel, Inc. acting as a
distributor of Nicole Miller products pursuant to the April 1999 distribution
agreement with Seller.
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10. CONDITIONS TO THE OBLIGATIONS OF THE SELLER PARTIES.
The obligation of each Seller Party to complete the sale of the
Assets and to take the other actions required to be taken by the Seller Party at
the Closing is subject to the satisfaction, at or prior to the Closing, of each
of the following conditions (any of which may be waived by Seller in writing, in
whole or in part):
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company (contained in this Agreement, any exhibit or schedule hereto, or
any certificate, instrument or other writing delivered to any Seller Party or
its representatives by the Company, or any of its representatives) shall be true
and correct on the Closing Date with the same force and effect as though made on
and as of the Closing Date (I.E., with respect to a representation that a state
of facts exists on or as of the date hereof, it is a condition that such state
of facts exists in all material respects on or as of the Closing Date, and with
respect to a representation that a state of facts has or has not changed between
a date prior to the date hereof and the date hereof, it is a condition that such
state of facts has or has not changed between such prior date and the Closing
Date), except as affected by transactions contemplated hereby and thereby and
except that any such representation or warranty made as of a specified date
(other than the date of this Agreement) shall only need to have been true on and
as of such date;
(b) PERFORMANCE. The Company shall have performed all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by the Company on or prior to the Closing Date;
(c) ASSUMPTION OF LIABILITIES. The Company shall have assumed the
Assumed Liabilities in a manner reasonably satisfactory in form and substance to
Seller and its counsel;
(d) OTHER AGREEMENTS. The Company shall have executed and delivered to
Khantzis the Consulting Agreement and the Lease Agreements;
(e) PAYMENT OF BANK LOAN AMOUNT. The Company shall have paid to
Manufacturers Bank the Bank Loan Amount;
(f) OPINION LETTER. Seller shall have received from Troop Steuber
Pasich Reddick & Tobey, LLP, Los Angeles, California, counsel to the Company, a
written opinion, dated as of the Closing Date and addressed to Seller, in form
and substance satisfactory to Seller;
(g) MOULIN RELEASE. The Moulin Release shall be in full force and
effect, and Moulin shall not have threatened to terminate the Moulin Release or
fail to perform its obligations thereunder; and
(h) OTHER MATTERS. All corporate and other proceedings and actions
taken in connection with this Agreement and all agreements, instruments and
documents mentioned in this Agreement or incident to any such transactions shall
be reasonably satisfactory in form and substance to Seller and its counsel.
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11. FURTHER AGREEMENTS OF THE PARTIES.
(a) FURTHER AGREEMENTS OF THE SELLER PARTIES. Each Seller Party shall
upon the request of the Company from time to time execute and deliver to the
Company such further bills of sales, endorsements and other good and sufficient
instruments of title, conveyance, transfer and assignment as may be necessary or
desirable in order to vest in the Company, free and clear of all Liens (other
than Permitted Liens and Assumed Liabilities), all right, title and interest in
and to any and all of the Assets.
(b) PURCHASE PRICE ALLOCATION. Each Seller Party and the Company agree
to cooperate in good faith to determine on or prior to the Closing Date the
manner in which the Purchase Price shall be allocated among the Assets, which
determination shall be set forth on SCHEDULE 11(B) and initialed by the parties
hereto at the Closing (the "PURCHASE PRICE ALLOCATION"). The Company and each
Seller Party shall file and cause to be filed all tax returns, and execute such
other documents as may be required by any taxing authority, in a manner
consistent with the Purchase Price Allocation, and shall refrain, and cause
their Affiliates to refrain, from taking any position inconsistent with such
Purchase Price Allocation with any taxing authority unless, and then only to the
extent, required to do so by a taxing authority. Each Seller Party agrees to
cooperate with the Company to minimize the amount of sales taxes and payroll
taxes payable by any Seller Party to the extent such amounts comprise a
component of the Supplemental Cash Payment.
(c) 8-K FINANCIAL STATEMENTS. Seller shall promptly provide, at the
Company's expense, such assistance reasonably requested by the Company to enable
it to prepare financial statements and PRO FORMA financial statements sufficient
to permit the Company to fully, completely and timely comply with the Company's
obligations to file financial statements relating to the Business under and
pursuant to Item 7 of Form 8-K under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") and Rule 3-05 of Regulation S-X of the General
Rules and Regulations under the Exchange Act.
(d) CONFIDENTIALITY.
(i) The Company, each Seller Party and Khantzis hereby
acknowledge to and agree with the other that any and all information which has
been disclosed by one to the other, its directors, employees, consultants,
agents and, if applicable, shareholders during the discussions and negotiations
leading to the execution of this Agreement, and all information to be disclosed
by one to the other, its directors, employees, consultants and agents and, if
applicable, shareholders, during the period commencing on the date of execution
of this Agreement through the Closing or termination of this Agreement, shall
constitute confidential information and trade secrets of the disclosing party,
and as such are secret, confidential and unique and constitute the exclusive
trade secrets and property of such party. Such information has been made known
and available to the other party and its respective employees, consultants and
agents strictly in connection with the negotiation and execution of this
Agreement and the consummation of the transactions provided for herein. Each
party hereby acknowledges and agrees that any use or disclosure of any such
confidential information or trade secrets, other than pursuant to this
Agreement, would be wrongful and would cause irreparable injury to the other.
Accordingly, each party hereby expressly agrees, for itself and on behalf of its
shareholders and
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directors, if any, and its principal officers, managers, employees, agents,
consultants and representatives, that it and they will not at any time prior to
the Closing or at any time thereafter, use or disclose, other than in accordance
with the terms and provisions of this Agreement, any of such confidential
information or trade secrets; PROVIDED, HOWEVER, that no provision of this
Section 11(d) shall in any manner whatsoever prevent or inhibit the Company from
using or disclosing any such confidential information relating to the Business
or the Assets in any manner the Company shall deem fit from and after the
Closing. In addition, each Seller Party agrees, for the Seller Party, the Seller
Party's Affiliates, officers, managers, employees, agents, consultants and
representatives, that it will not at any time from and after the Closing Date
use or disclose any such confidential information which either (i) concerns the
Company or its respective business or operations or (ii) relates to the Business
or is included in the Assets.
(ii) Notwithstanding anything contained in this Section 11(d) to
the contrary, any of the Company, Khantzis or any Seller Party may use or
disclose such confidential information or secrets of the other without
restriction if such information or secrets (i) were or are available to such
party on a non-confidential basis from a source other than the other party, or
(ii) were or become generally available to the public (other than as a result of
an impermissible disclosure by such party or its Affiliates); PROVIDED, that if
either party is requested or required (by oral question, interrogatories,
requests for information or documents, subpoena or similar process) to disclose
any of such information or secrets of the other, such disclosure be made without
liability hereunder (although notice of such request or requirement shall be
given to the other party so that, if practicable, the other party may seek a
protective order against such disclosure).
(iii) Each party acknowledges that, in the event of a violation
by the other of the terms and provisions of this Section 11(d), the remedies at
law would not be adequate; and accordingly, in such event such party may proceed
to protect and enforce its rights under this Section 11(d) by a suit in equity
for specific performance and temporary, preliminary and permanent injunctive
relief from violation of any of the provisions of this Section 11(d) from any
court of competent jurisdiction without the necessity of proving the amount of
any actual damages to the party resulting from the breach.
(e) EXPENSES. The Seller Parties collectively shall pay no more than
$10,000 of the liabilities and obligations of the Seller Parties and Khantzis
for the fees and expenses of their counsel, accountants and other professionals
(including broker's fees) incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby. The Company shall have the
right to offset against the Purchase Price any amount of expenses in excess of
$10,000 paid by Seller or any other Seller Party or which any Seller Party is
obligated to pay. The Company shall pay its own expenses incurred in connection
with this Agreement.
(f) ACCESS TO BOOKS AND RECORDS; COPIES.
(i) The Company and each Seller Party shall grant to each other
access to the books, records, papers and documents relating to the business of
the Seller Party (i) in the case of the Company, included in the Assets, and
(ii) in the case of each Seller Party, not included in the Assets which relate
to the operation of the business of the Seller Party (the "RECORDS"). Such
access shall be given upon the reasonable request of the requesting party
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during normal business hours and upon reasonable prior notice. Each party shall
maintain the Records in its possession for a period of three years from and
after the Closing Date, and each shall deliver to the other such of the Records
as it may hereafter desire to dispose of or destroy whether prior to or
following the aforementioned three year period.
(ii) Seller shall have the right to make copies of Software and
Records included in the Assets prior to the Closing and up to 30 days thereafter
and to retain such copies following the Closing Date for the limited purpose of
addressing any foreign, federal or state tax related matters, including, without
limitation, to the extent necessary or appropriate to respond to or contest any
tax audit, determination or assessment of Khantzis or any Seller Party.
(g) EMPLOYEES.
(i) SCHEDULE 11(G) lists the name, job title, current base salary
or hourly wage, date of hire and social security number of employees actively
employed by the Seller Parties including individuals on short-term disability
who were so employed immediately before their disability (collectively, the
"Employees"). As to any individual on short-term disability, SCHEDULE 11(G)
indicates the reason for such absence and the date the individual is reasonably
expected to return to active employment. SCHEDULE 11(G) also indicates the
accumulated vacation and sick pay accrued for each Employee as of the date of
this Agreement, and Seller's good faith estimate of the accumulated vacation and
sick pay to be accrued for each Employee as of the Closing Date.
(ii) Effective as of the Closing Date, the Seller Parties shall
terminate those Employees selected by the Company and acceptable to Seller.
Effective as of the Closing Date, the Company shall offer employment to the
Employees selected by the Company and terminated by the Seller Parties on such
terms and conditions as the Company shall determine. All employees to whom the
Company offers employment and who accept such employment are herein referred to
as the "TRANSFERRED EMPLOYEES." Nothing in this Section 11(g) shall limit the
Company's authority to terminate the employment of any Transferred Employee at
any time for whatever reason.
(iii) Except to the extent specifically assumed by the Company
pursuant to Section 3(a), each Seller Party shall be solely responsible for any
liability, claim or expense (including reasonable attorneys' fees) with respect
to employee compensation or employee benefits of any nature owed to any of the
Seller Party's employees or former employees or their beneficiaries that arise
out of the employment relationship between such Seller Party and any of its
employees or former employees or the termination of that relationship and Seller
shall indemnify and hold the Company harmless to the extent the Company incurs
any such liability, claim or expense.
(h) USE OF NAME. Each Seller Party agrees that from and after the
Closing Date, the Company shall have the right, as between the Company and the
Seller Parties, to the exclusive use of the names "Dakota Smith", "Nukes" and
"Koko" in any and all capacities, including as part of the Company's names and
in the Company's business dealings, and the Seller Parties agree not to use in
any manner, as a corporate or dba name or otherwise, any name which is or might
be confused with "Dakota Smith", "Nukes" or "Koko". Notwithstanding the
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foregoing, each Seller Party with a corporate name that includes the words
"Dakota Smith" may continue to use such corporate name for a period of 30 days
following the Closing Date; PROVIDED each such party agrees to promptly file
such documents and take such other actions following the Closing Date that are
necessary to change its corporate name as soon as practicable following the
Closing Date.
(i) PAYMENT OF CERTAIN ASSUMED LIABILITIES. Other than the Moulin
Debt, the Company agrees to pay, satisfy and/or discharge all accounts payable,
accrued expenses and Indebtedness included in the Assumed Liabilities within 120
days following the Closing Date.
(j) BELGIUM LITIGATION. Seller agrees to use its Best Efforts to cause
Stephan Nijs to stop using and transfer to the Company (or otherwise relinquish)
the Internet domain name registration that includes the words "Dakota Smith" to
the Company's reasonable satisfaction within 180 days following the Closing
Date. If Seller does not resolve the Belgium Litigation to the Company's
reasonable satisfaction within such 180 day period, and the Company determines,
in its reasonable discretion, that Seller is not using its Best Efforts to
resolve the Belgium Litigation in an expeditious manner, then the Company may,
at its option, assume Seller's rights and obligations with respect to the
Belgium Litigation, and Seller agrees to assign its rights and obligations with
respect to the Belgium Litigation to the Company if so requested and take all
other actions reasonably requested by the Company in connection therewith. If
the Company assumes Seller's rights and obligations with respect to the Belgium
Litigation as provided in this Section 11(j), Seller shall indemnify and hold
the Company harmless with respect to any costs, liability, claim or expense
(including court costs and reasonable fees and disbursements of counsel)
incurred in connection with, arising out of, resulting from or incident to the
Belgium Litigation.
(k) BEBE LICENSE AGREEMENT. Seller agrees to use its reasonable
efforts to obtain the consent of bebe stores, inc. ("BEBE") to the assignment by
Seller to the Company of the Bebe License Agreement. Notwithstanding anything
contained in this Agreement to the contrary, if bebe consents to the assignment
of the Bebe License Agreement to the Company on terms acceptable to the Company,
then the Bebe License Agreement shall thereafter be deemed an Assumed Contract
within the meaning of this Agreement and shall constitute part of the Assets and
Assumed Liabilities transferred to and assumed by the Company at the Closing,
and the parties shall amend this Agreement and any schedules or exhibits
delivered herewith to the extent necessary to reflect the inclusion of the Bebe
License Agreement as an Assumed Contract.
(l) TERMINATION OF CERTAIN LITIGATION. As soon as practicable
following the Closing Date, each Seller Party agrees to terminate all pending
litigation brought by any Seller Party against any Person relating to the return
of product samples by such Persons.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in this Agreement or made in any document delivered pursuant
to this Agreement by or on behalf of any party shall survive the execution and
delivery of this Agreement and the Closing, regardless of notice of or any
investigation or right of investigation made prior to or after the date of this
Agreement by or on behalf of any party, and shall terminate
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and expire two years following the Closing Date after which date they shall be
of no further force or effect.
(b) INDEMNIFICATION BY SELLER AND KHANTZIS. Seller and Khantzis shall,
jointly and severally, indemnify, save and hold harmless the Company and each of
its officers, directors, employees, agents and affiliates, and each of their
successors and assigns (individually, a "COMPANY INDEMNIFIED PARTY" and
collectively, the "COMPANY INDEMNIFIED PARTIES") from and against any and all
costs, losses, claims, liabilities, fines, penalties, consequential damages
(other than lost profits), and expenses (including interest which may be imposed
in connection therewith and court costs and reasonable fees and disbursements of
counsel) ("DAMAGES") incurred in connection with, arising out of, resulting from
or incident to:
(i) all liabilities of or claims against the Company Indemnified
Parties of any nature, whether accrued, absolute, contingent or otherwise,
arising out of the Assets or the Business attributable to any state of facts
existing or any event occurring at or prior to the Closing (whether known or
unknown to Seller, Khantzis or the Company), to the extent not included in the
Assumed Liabilities;
(ii) all liabilities of or claims against the Company Indemnified
Parties of any nature, whether accrued, absolute, contingent or otherwise,
attributable to any state of facts existing or any event occurring after the
Closing Date (whether known or unknown to Seller, Khantzis or the Company) to
the extent arising out of the operation by any Seller Party of its business from
and after the Closing Date;
(iii) any breach of, or any inaccuracy in any of, the
representations or warranties made by Seller or Khantzis in this Agreement, any
exhibit or schedule to this Agreement or any certificate, instrument or writing
delivered in connection with this Agreement or in connection with any exhibit or
schedule to this Agreement;
(iv) any default in any agreements made by Seller or Khantzis in
this Agreement, any exhibit or schedule to this Agreement or any certificate,
instrument or writing delivered in connection with this Agreement or in
connection with any exhibit or schedule to this Agreement;
(v) any taxes of any kind whatsoever, or expenses, interest or
penalties relating thereto, which arise out of or result from the transactions
contemplated by this Agreement, other than sales and other transfer taxes
attributable to, arising out of or resulting from the sale of the Assets and
taxes relating to the conduct of the business of the Company from and after the
Closing Date;
(vi) any attempt (whether or not successful) by any Person to
cause or require a Company Indemnified Party to pay or discharge any debt,
obligation, liability or commitment of any Seller Party not assumed by the
Company pursuant to this Agreement;
(vii) all liabilities of or claims against the Company
Indemnified Parties of any nature, whether accrued, absolute, contingent or
otherwise, arising under any Environmental Laws and relating to the ownership by
the Company of any of the Assets or the
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occupation by the Company of the Premises, other than liabilities or claims that
result from actions taken by the Company after the Closing Date;
(viii) any Action, compromise, settlement, assessment or judgment
arising out of or incidental to any of the matters indemnified against in this
Section 12(b); PROVIDED, HOWEVER, that Seller shall not be obligated to
indemnify a Company Indemnified Party and hold it or him harmless under this
Section 12(b) with respect to any settlement of a claim to which Seller has not
consented, which consent shall not unreasonably be withheld. If, by reason of
the claim of any third Person relating to any of the matters subject to
indemnification under this Section 12(b), a lien, attachment, garnishment or
execution is placed upon any of the property or assets of any Company
Indemnified Party, Seller shall also, promptly upon demand, furnish an indemnity
bond satisfactory to the Company Indemnified Party to obtain the prompt release
of such lien, attachment, garnishment or execution; or
(ix) all liabilities of or claims against the Company Indemnified
Parties of any nature, whether accrued, absolute, contingent or otherwise,
relating to any employee, sales representative or independent contractor of any
Seller Party whose relationship with the Seller Party was terminated prior to
the date hereof and not as a result of the transactions contemplated hereby,
including, without limitation, any claims with respect to Stephan Nijs or David
Roenen.
(c) INDEMNIFICATION BY THE COMPANY. The Company shall indemnify, save
and hold harmless each Seller Party and Khantzis, and each Seller Party's
officers, directors, employees, agents and affiliates, and each of their
successors and assigns (individually, a "SELLER INDEMNIFIED PARTY" and
collectively, the "SELLER INDEMNIFIED PARTIES") from and against any and all
Damages incurred in connection with, arising out of, resulting from or incident
to:
(i) all liabilities of or claims against the Seller Indemnified
Parties of any nature, whether accrued, absolute, contingent or otherwise,
arising out of the Assumed Liabilities;
(ii) any breach of, or any inaccuracy in any of, the
representations or warranties made by the Company in this Agreement, any exhibit
or schedule to this Agreement or any certificate, instrument or writing
delivered in connection with this Agreement or in connection with any exhibit or
schedule to this Agreement;
(iii) any default in any agreements made by the Company in this
Agreement, any exhibit or schedule to this Agreement or any certificate,
instrument or writing delivered in connection with this Agreement or in
connection with any exhibit or schedule to this Agreement;
(iv) any attempt (whether or not successful) by any Person to
cause or require a Seller Indemnified Party to pay or discharge any debt,
obligation, liability or commitment of any Seller Party assumed by the Company
pursuant to this Agreement; or
(v) any Action, compromise, settlement, assessment or judgment
arising out of or incidental to any of the matters indemnified against in this
Section 12(c);
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PROVIDED, HOWEVER, that the Company shall not be obligated to indemnify a Seller
Indemnified Party and hold it or him harmless under this Section 12(c) with
respect to any settlement of a claim to which the Company has not consented,
which consent shall not unreasonably be withheld. If, by reason of the claim of
any third Person relating to any of the matters subject to indemnification under
this Section 12(c), a lien, attachment, garnishment or execution is placed upon
any of the property or assets of any Seller Indemnified Party, the Company shall
also, promptly upon demand, furnish an indemnity bond satisfactory to the Seller
Indemnified Party to obtain the prompt release of such lien, attachment,
garnishment or execution. execution.
(d) LIMITATIONS ON INDEMNIFICATION.
(i) Neither the Company Indemnified Parties nor the Seller
Indemnified Parties shall be entitled to recover under Sections 12(b) or 12(c)
unless: (A) a Claim for Damages has been delivered to the Indemnifying Party on
or prior to the second anniversary of the Closing; and (B) the aggregate amount
of indemnifiable Damages incurred by the Company Indemnified Parties on the one
hand and the Seller Indemnified Parties on the other hand exceeds $250,000 (the
"INDEMNIFICATION BASKET"), at which time such claim for indemnification may be
made for the aggregate amount of all indemnifiable Damages exceeding the
Indemnification Basket.
(ii) Except as provided in Section 12(d)(iii), in no event shall
the Company Indemnified Parties be entitled to recover an amount hereunder with
respect to all Damages in excess of $3,000,000 (the "INDEMNIFICATION CAP").
(iii) Notwithstanding anything to the contrary herein contained,
the limitations contained in Section 12(d)(i) and (ii) shall not apply to
indemnification obligations under Sections 12(b) and (c) for: (A) breach of any
covenant, agreement or other obligation of any Indemnifying Party contained
herein or related hereto, including, without limitation, the Note, the Security
Agreement, the Consulting Agreement, the Lease Agreements, the assumption by the
Company of the Assumed Liabilities, and the covenants contained in Section 14
hereof (other than representations and warranties); or (B) fraud by an
Indemnifying Party in connection with this Agreement and the transactions
contemplated by this Agreement. Any recovery under or in connection with the
circumstances described in the immediately preceding sentence shall not be taken
into account in determining whether the Indemnification Cap limitation set forth
in Section 12(d)(ii) has been reached.
(e) NOTICE OF CLAIM. If a claim for Damages (a "CLAIM") is to be made
by a party entitled to indemnification hereunder (an "INDEMNIFIED PARTY")
against the indemnifying party (the "INDEMNIFYING PARTY"), the Indemnified Party
shall give written notice (a "CLAIM NOTICE") to the Indemnifying Party, which
notice shall specify whether the Claim arises as a result of a claim by a person
against the Indemnified Party (a "THIRD PARTY CLAIM") or whether the Claim does
not so arise (a "DIRECT CLAIM"), and shall also specify (to the extent that the
information is available) the factual basis for the Claim and the amount of the
Damages, if known. If the Claim is a Third Party Claim, the Indemnified Party
shall provide the Claim Notice as soon as practicable after such party becomes
aware of any fact, condition or event which may give rise to Damages for which
indemnification may be sought under Sections 12(b) or (c). If any lawsuit or
enforcement action is filed against any Indemnified Party, written notice
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thereof shall be given to the Indemnifying Party as promptly as practicable (and
in any event within 15 calendar days after the service of the citation or
summons). The failure of any Indemnified Party to give timely notice hereunder
shall not affect rights to indemnification hereunder, except to the extent that
the Indemnifying Party has been damaged by such failure.
(f) DIRECT CLAIMS. With respect to any Direct Claim, following receipt
of the Claim Notice from the Indemnified Party, the Indemnifying Party shall
have 30 days to make such investigation of the Claim as is considered necessary
or desirable. For the purpose of such investigation, the Indemnified Party shall
make available to the Indemnifying Party sufficient information to substantiate
the Claim, together with all such other non-privileged information as the
Indemnifying Party may reasonably request. If both parties agree at or prior to
the expiration of such 30-day period (or any mutually agreed upon extension
thereof) to the validity and amount of such Claim, the Indemnifying Party shall
immediately pay to the Indemnified Party the full agreed upon amount of the
Claim. If the parties have not so agreed to the validity and/or amount of the
Claim, then the parties shall proceed in the manner set forth in the following
sentence. If the Closing shall have occurred under this Agreement, the matter
shall be resolved pursuant to the arbitration provisions contained in Section
16(m); and if the Closing shall not have occurred under this Agreement, the
Indemnified Party may bring an action against the Indemnifying Party in any
court located in Los Angeles, California.
(g) THIRD PARTY CLAIMS. With respect to a Third Party Claim, if after
receipt of the Claim Notice the Indemnifying Party acknowledges in writing to
the Indemnified Party that the Indemnifying Party shall be obligated under the
terms of its indemnity hereunder in connection with such lawsuit or action, the
Indemnifying Party shall be entitled, if it so elects at its own cost, risk and
expense, (i) to take control of the defense and investigation of such lawsuit or
action, (ii) to employ and engage attorneys of its own choice, but, in any
event, reasonably acceptable to the Indemnified Party, to handle and defend the
same unless the named parties to such action or proceeding (including any
impleaded parties) include both the Indemnifying Party and the Indemnified Party
and the Indemnified Party has been advised in writing by counsel that there may
be one or more legal defenses available to such Indemnified Party that are
different from or additional to those available to the Indemnifying Party, in
which event the Indemnified Party shall be entitled, at the Indemnifying Party's
cost, risk and expense, to separate counsel of its own choosing, and (iii) to
compromise or settle such lawsuit or action, which compromise or settlement
shall be made only with the written consent of the Indemnified Party, such
consent not to be unreasonably withheld.
If the Indemnifying Party fails to assume the defense of such
Claim within 30 calendar days after receipt of the Claim Notice, the indemnified
party against which such Claim has been asserted will (upon delivering notice to
such effect to the Indemnifying Party) have the right to undertake, at the
Indemnifying Party's cost and expense, the defense, compromise or settlement of
such Claim on behalf of and for the account and risk of the Indemnifying Party.
If the Indemnified Party assumes the defense of the Claim, the Indemnified Party
will keep the Indemnifying Party reasonably informed of the progress of any such
defense, compromise or settlement. The Indemnifying Party shall be liable for
any settlement of any action effected pursuant to and in accordance with this
Section 12(g) and for any final judgment (subject to any right of appeal) and
the Indemnifying Party agrees to indemnify and hold harmless an Indemnified
Party from and against any Damages by reason of such settlement or
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judgment. If there is a dispute as to the indemnification obligations of any
party under this Section 12(g), then the parties shall proceed in the manner set
forth in the following sentence. If the Closing shall have occurred under this
Agreement, the matter shall be resolved pursuant to the arbitration provisions
contained in Section 16(m); and if the Closing shall not have occurred under
this Agreement, the Indemnified Party may bring an action against the
Indemnifying Party in any court located in Los Angeles, California
(h) RIGHT OF SET OFF.
(i) Seller hereby recognizes, acknowledges and agrees that,
notwithstanding anything to the contrary contained in this Agreement, and in
addition to any other remedy which is otherwise available at law, in equity, by
statute or otherwise, if at the time of any payment or payments (the "SUBJECT
PAYMENTS") payable by the Company to Seller under the Note there has been a
determination that there is any amount due and payable to the Company by Seller
or Khantzis, as the case may be, pursuant to the indemnification provisions of
this Section 12, the amount otherwise payable to Seller by the Company under the
Note may be applied by the Company in whole or in part to the extent necessary
to offset in whole or in part such amount due and payable to the Company, which
offset shall be applied in the manner provided in Section 12(h)(iii) below.
Notwithstanding the foregoing, if Seller or Khantzis, as the case may be,
disputes its or his obligation to pay to the Company any indemnification
amounts, then the Company's rights of offset as provided in this Section
12(h)(i) shall be subject to the dispute resolution procedures set forth in
Section 16(m).
(ii) Seller and Khantzis hereby recognize, acknowledge and agree
that, if at the time of any Subject Payment payable by the Company to Seller or
Khantzis under the Note, a third-party claim has been asserted against the
Company based on, arising from or otherwise related to any matter with respect
to which the Company is entitled to be indemnified by Seller or Khantzis
hereunder and such Third Party Claim has not been finally resolved, a portion of
the Subject Payments payable to Seller by the Company sufficient to satisfy such
Third Party Claim shall be withheld by the Company, and upon determination of
the claim, the amounts so withheld shall be distributed by the Company to the
appropriate party pursuant to the terms of such final determination. Withholding
of the Subject Payments as aforesaid shall constitute complete performance of
the Company's obligations to Seller with respect to the Subject Payments under
the terms of the Note.
(iii) Any amounts to be offset by the Company against amounts
owed by the Company to Seller shall be applied (A) first, against the next
installment of interest due on the Note, and (B) second, against all remaining
payments of principal due on the Note in equal amounts at the time of their
schedule payment dates (i.e., the total remaining portion of the amount to be
offset shall be divided by the total number of installments of principal
remaining to be paid on the Note, and the result shall be offset against each
remaining installment of principal).
13. TAXES.
(a) PAYMENT OF TAXES, FILING OF RETURNS. Each Seller Party shall
remain liable for the filing of all tax returns and reports and for the payment
of all foreign, federal, state and
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local taxes (other than payroll taxes to the extent expressly included as part
of the Assumed Liabilities) of the Seller Party relating to the operation of the
business of the Seller Party or to the Assets for any period ending on or prior
to the Closing Date, and for the payment of all taxes attributable to or
relating to the consummation of the transactions contemplated herein and shall
indemnify and hold the Company harmless from and against all liability in
connection therewith.
(b) SALES TAXES. Seller shall bear all responsibility for sales, use,
value added or other similar taxes, if any, arising out of the consummation of
the transactions herein provided for and shall be liable for the filing of all
necessary tax returns and reports with respect to such taxes.
14. NONCOMPETITION.
(a) COVENANT NOT TO COMPETE. For a period of two years from the
Closing Date, Khantzis will not, directly or indirectly, whether individually or
as a member, officer, director, investor, stockholder, employee or consultant of
any Person, (i) engage, anywhere in the United States of America, Hong Kong,
China or Belgium, in a business which competes with any line of business engaged
in by the Company of which Khantzis is aware upon the date of this Agreement, or
(ii) induce or attempt to induce (A) any employee of the Company to leave the
employ of the Company or in any way interfere adversely with the relationship
between any such employee and the Company, (B) any employee of the Company to
work for, render services or provide advice to or supply confidential business
information or trade secrets of the Company to any third person, firm or
corporation, or (C) any customer, supplier, licensee, licensor or other business
relation of the Company to cease doing business with the Company or in any way
interfere with the relationship between any such customer, supplier, licensee,
licensor or other business relation and the Company. The ownership by Khantzis
of four percent or less of the outstanding capital stock of any corporation
engaged in any business which competes with any line of business engaged in by
the Company, where the capital stock of the corporation is listed on a national
securities exchange or actively quoted on the Nasdaq National Market or Nasdaq
SmallCap Market, shall not be deemed a violation by Khantzis of this Section 14,
PROVIDED that Khantzis is not an officer, director or employee of, or a
consultant to, such corporation.
(b) SERVICES TO MOULIN. Notwithstanding Section 14(a) and subject to
the conditions set forth in this Section 14(b), after six months from the
Closing Date, Khantzis shall have the right to provide design and product
development services to Moulin, and to otherwise provide consulting services to
Moulin related exclusively to the design and development of eyewear and
sunglasses products. The Company understands and acknowledges that Moulin
designs and produces eyewear and sunglasses products for companies that may be
competitors or customers of the Company, and that the performance by Khantzis of
services to Moulin in accordance with the terms of this Section 14(b) shall not
constitute a breach by Khantzis of Section 14(a) of this Agreement. Khantzis
agrees that his right to provide the services to Moulin described in this
Section 14(b) shall be subject to, and conditional upon, the following:
(i) Effective upon the Closing and for a period of two years
thereafter, Khantzis hereby grants to the Company a right of first refusal on
all eyewear and sunglasses products and/or components designed by Khantzis; and
Khantzis agrees that prior to entering into any employment or consulting
arrangement with Moulin as provided in this
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Section 14(b), Khantzis shall obtain Moulin's written acknowledgement and
agreement that any services provided by Khantzis to Moulin shall be subject to
the Company's right of first refusal as set forth in this subsection (i).
(c) NONCOMPETITION PAYMENT. As consideration for the agreement of
Khantzis set forth in this Section 14, the Company shall pay to Khantzis
$600,000 (the "NONCOMPETITION PAYMENT"), which payment shall be paid by the
Company to Khantzis as follows:
(i) $300,000 shall be paid to Khantzis on the Closing Date; and
(ii) $300,000 shall be payable in four equal quarterly
installments of $75,000 each, commencing on the last day of the first full
calendar quarter following the first anniversary of the date of this Agreement.
If the Company fails to make any payment provided in this Section 14(b)
within five business days following written demand therefor, Khantzis shall have
the right to accelerate the payment of the Noncompetition Payment and to declare
the Noncompetition Payment immediately due and payable.
(d) REMEDIES. In the event of a breach by Khantzis of any of his
agreements contained in this Section 14, the Company's obligation to continue
paying the Noncompetition Payment shall cease. Khantzis acknowledges and agrees
that, in the event of a violation by Khantzis of the terms and provisions of
this Section 14, the remedies at law would not be adequate; and accordingly, in
such event the Company may proceed to protect and enforce its rights under this
Section 14 by a suit in equity for specific performance and temporary,
preliminary and permanent injunctive relief from violation of any of the
provisions of this Section 14 from any court of competent jurisdiction without
the necessity of proving the amount of any actual damages to the Company
resulting from the breach.
(e) MODIFICATION. If for any reason there should be a determination by
a court of competent jurisdiction that the provisions of this Section 14 are too
broad or unreasonable and therefore unenforceable, the provisions of this
Section 14 shall be deemed modified, and fully enforceable as so modified, to
the extent that the court would find them to be fair, reasonable and enforceable
under the circumstances.
15. TERMINATION.
(a) TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at
any time prior to the Closing by the mutual agreement, in writing, of each of
the parties to this Agreement.
(b) TERMINATION BY THE COMPANY. The Company may (but shall not be
obligated to) terminate this Agreement prior to the Closing by giving written
notice to Seller if:
(i) there has been a material violation or breach by any Seller
Party or Khantzis of any agreement, covenant, representation or warranty
contained in this Agreement, which violation or breach shall not have been cured
or corrected within 5 days after receipt of notice thereof;
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(ii) the Closing does not occur on or prior to July 10, 1999, or
such later date as may be agreed to in writing by the parties; or
(iii) any of the conditions in Section 9 have not been satisfied
as of the Closing or if the Company is made aware and determines in its
reasonable discretion that any condition will not be satisfied as of the Closing
(other than through the failure of the Company to comply with its obligations
under this Agreement) and the Company has not expressly waived such condition in
writing on or before the Closing.
(c) TERMINATION BY SELLER. Seller may (but shall not be obligated to)
terminate this Agreement on behalf of itself or any other Seller Party prior to
the Closing by giving written notice to the Company if:
(i) there has been a material violation or breach by the Company
of any agreement, covenant, representation or warranty contained in this
Agreement, which violation or breach shall not have been cured or corrected
within 5 days after receipt of notice thereof;
(ii) the Closing does not occur on or prior to July 10, 1999, or
such later date as may be agreed to in writing by the parties; or
(iii) any of the conditions in Section 10 have not been satisfied
as of the Closing or if Seller is made aware and determines in its reasonable
discretion that any condition will not be satisfied as of the Closing (other
than through the failure of any Seller Party or Khantzis to comply with its or
his obligations under this Agreement) and Seller or any other Seller Party has
not expressly waived such condition in writing on or before the Closing.
In the event of such termination, no party shall have any obligation
or liability to any other in respect to this Agreement, except for any breach of
contract occurring prior to such termination, or except as may be provided in
Section 11(d) of this Agreement.
16. MISCELLANEOUS.
(a) NOTICES. All notices, requests, demands and other communications
(collectively, "NOTICES") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service, courier, facsimile transmission
(which must be confirmed) or by United States first class, registered or
certified mail, postage prepaid, to the following addresses:
(i) if to the Company, to:
Signature Eyewear, Inc.
498 North Oak Street
Inglewood, California 90302
Facsimile No. (310) 330-2770
Attn: President
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(ii) if to Khantzis or any Seller Party, to:
Carlos Alberto Khantzis
4737 Galendo Street
Woodland Hills, California 91364
Facsimile No. (818) 879-7485
Any Notice, other than a Notice sent by registered or certified mail, shall be
effective when received; a Notice sent by registered or certified mail, postage
prepaid return receipt requested, shall be effective on the earlier of when
received or the third day following deposit in the United States mails. Any
party may from time to time change its address for further Notices hereunder by
giving notice to the other parties in the manner prescribed in this Section.
(b) ENTIRE AGREEMENT. This Agreement contains the sole and entire
agreement and understanding of the parties with respect to the entire subject
matter of this Agreement, and any and all prior discussions, negotiations,
commitments and understandings, whether oral or otherwise, related to the
subject matter of this Agreement are hereby merged herein.
(c) ASSIGNMENT. No party may assign this Agreement, and any attempted
or purported assignment or any delegation of any party's duties or obligations
arising under this Agreement to any third party or entity shall be deemed to be
null and void, and shall constitute a material breach by such party of its
duties and obligations under this Agreement; PROVIDED that the Company may
assign its rights to purchase all or any portion of the Assets to a wholly owned
subsidiary, and may cause a wholly owned subsidiary to assume all or any portion
of the Assumed Liabilities; PROVIDED, HOWEVER, such assumption shall not cause a
novation of the Company's obligations to assume all of the Assumed Liabilities.
This Agreement shall inure to the benefit of and be binding upon any successors
of each party by way of merger or consolidation.
(d) WAIVER AND AMENDMENT. No provision of this Agreement may be waived
unless in writing signed by all the parties to this Agreement, and waiver of any
one provision of this Agreement shall not be deemed to be a waiver of any other
provision. This Agreement may be amended only by a written agreement executed by
all of the parties to this Agreement.
(e) GOVERNING LAW. This Agreement has been made and entered into in
the State of California and shall be construed in accordance with the laws of
the State of California without giving effect to the principles of conflicts of
law thereof.
(f) SEVERABILITY. Whenever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
Page 39
<PAGE>
(g) CAPTIONS. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(h) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(i) COSTS AND ATTORNEYS' FEES. If any action, suit, arbitration or
other proceeding is instituted to remedy, prevent or obtain relief from a
default in the performance by any party to this Agreement of its obligations
under this Agreement, the prevailing party shall recover all of such party's
attorneys' fees incurred in each and every such action, suit, arbitration or
other proceeding, including any and all appeals or petitions therefrom. As used
in this Section, attorneys' fees shall be deemed to mean the full and actual
costs of any legal services actually performed in connection with the matters
involved calculated on the basis of the usual fee charged by the attorney
performing such services and shall not be limited to "reasonable attorneys'
fees" as defined in any statute or rule of court.
(j) RIGHTS CUMULATIVE. No right granted to the parties under this
Agreement on default or breach is intended to be in full or complete
satisfaction of any damages arising out of such default or breach, and each and
every right under this Agreement, or under any other document or instrument
delivered hereunder, or allowed by law or equity, shall be cumulative and may be
exercised from time to time.
(k) JUDICIAL INTERPRETATION. Should any provision of this Agreement
require judicial interpretation, it is agreed that a court interpreting or
construing the same shall not apply a presumption that the terms hereof shall be
more strictly construed against any Person by reason of the rule of construction
that a document is to be construed more strictly against the Person who itself
or through its agent prepared the same, it being agreed that all parties have
participated in the preparation of this Agreement.
(l) FORCE MAJEURE. If any party to this Agreement is delayed in the
performance of any of its obligations under this Agreement or is prevented from
performing any such obligations due to causes or events beyond its control,
including, without limitation, acts of God, fire, flood, earthquake, strike or
other labor problem, injunction or other legal restraint, present or future law,
governmental order, rule or regulation, then such delay or nonperformance shall
be excused and the time for performance thereof shall be extended to include the
period of such delay or nonperformance.
(m) DISPUTE RESOLUTION. Except for specific performance and other
equitable relief provided for in Sections 11(d) and 14(c) of this Agreement, if
any controversy or claim arising out of this Agreement cannot be settled by the
parties, the controversy or claim shall be submitted to and settled by
arbitration as hereinafter provided. The parties shall endeavor to agree upon a
single arbitrator (the "ARBITRATOR") who shall be a retired judge provided by
JAMS/ENDISPUTE or equivalent organization (the "PROVIDER") and who shall then
try all issues, whether of fact or law, and report a finding or judgment
thereon. If the parties are unable to agree upon the Arbitrator, each party
shall provide the names of five retired judges from the
Page 40
<PAGE>
Provider; then each party shall choose one of the names from the list proposed
by the other, and from those two names the Arbitrator shall be selected by the
flip of a coin. Prior to commencement of the arbitration proceedings, the
Arbitrator shall make a full disclosure to the parties of any prior engagement
by any of the parties, or their attorneys or law firms. Any such prior
engagement shall be grounds for disqualification of the Arbitrator, and upon any
such disqualification a substitute Arbitrator shall be selected as provided
herein. The arbitration proceedings shall be governed by the following:
(i) All hearings and other proceedings shall be in Los Angeles
County unless the parties shall mutually agree in writing to an alternative
location;
(ii) The Arbitrator shall follow and apply California law;
(iii) The California Rules of Evidence shall apply to all
proceedings;
(iv) Discovery shall be limited to two depositions for each party
and document production as allowed at the discretion of the Arbitrator within
the rules of Section 1283.05 of the California Code of Civil Procedure;
(v) The time for rendering a decision after hearing shall be in
accordance with the published practices of the Provider; (vi) Provisional
remedies shall be available to the parties to the arbitration in accordance with
Section 1281.8 of the California Code of Civil Procedure; and
(vii) The Company and the Seller shall initially bear the
arbitration fees equally; PROVIDED, HOWEVER, the prevailing party shall be
entitled to recover its contribution for such fees as an item of recoverable
costs in addition to all other costs.
[SIGNATURES COMMENCE ON FOLLOWING PAGE]
Page 41
<PAGE>
IN WITNESS WHEREOF, this Agreement has been made and entered into as of
the date and year first above written.
SIGNATURE EYEWEAR, INC.
a California corporation
By: /s/ JULIE HELDMAN
--------------------------------
Julie Heldman
Its: President
CALIFORNIA DESIGN STUDIO, INC.
a California corporation
By: /s/ CARLOS ALBERTO KHANTZIS
--------------------------------
Carlos Alberto Khantzis
Its: Chief Executive Officer and
President
DAKOTA SMITH USA, INC.
a California corporation
By: /s/ CARLOS ALBERTO KHANTZIS
--------------------------------
Carlos Alberto Khantzis
Its: President
LUCKY FRIDAY, INC.
a California corporation
By: /s/ CARLOS ALBERTO KHANTZIS
--------------------------------
Carlos Alberto Khantzis
Its: President
DAKOTA SMITH CANADA, LTD.
a Canada corporation
By: /s/ CARLOS ALBERTO KHANTZIS
--------------------------------
Carlos Alberto Khantzis
Its: President
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
Page 42
<PAGE>
[SIGNATURES CONTINUED]
DAKOTA SMITH ARGENTINA, LTD.
an Argentina corporation
By: /s/ CARLOS ALBERTO KHANTZIS
---------------------------------
Carlos Alberto Khantzis
Its: President
CALIFORNIA DESIGN STUDIO, LTD.
a U.S. Virgin Islands corporation
By: /s/ CARLOS ALBERTO KHANTZIS
--------------------------------
Carlos Alberto Khantzis
Its: President
/s/ CARLOS ALBERTO KHANTZIS
-----------------------------------
Carlos Alberto Khantzis
Page 43
<PAGE>
EXHIBIT A
TO
ASSET PURCHASE AGREEMENT
Dated as of June 11, 1999
ADDITIONAL SELLER PARTIES
1. Dakota Smith USA, Inc., a California corporation.
2. Lucky Friday, Inc., a California corporation.
3. Dakota Smith Canada, Ltd., a Canada corporation.
4. Dakota Smith Argentina, Ltd., an Argentina corporation.
5. California Design Studio, Ltd., a U.S. Virgin Islands corporation.
<PAGE>
SIGNATURE EYEWEAR, INC.
498 NORTH OAK STREET
INGLEWOOD, CALIFORNIA 90302
June 23, 1999
Seller Parties
c/o California Design Studio, Inc.
31280 Oak Crest Drive
Westlake Village, California 91361
Carlos Alberto Khantzis
c/o California Design Studio, Inc.
31280 Oak Crest Drive
Westlake Village, California 91361
Re: ASSET PURCHASE AGREEMENT
Gentlemen:
Reference is made to that certain Asset Purchase Agreement (the "PURCHASE
AGREEMENT"), dated as of June 11, 1999, by and among Signature Eyewear, Inc., a
California corporation (the "COMPANY"), California Design Studio, Inc., a
California corporation ("SELLER"), the other parties identified on EXHIBIT A to
the Purchase Agreement (together with Seller, the "SELLER PARTIES" and each a
"SELLER PARTY"), and Carlos Alberto Khantzis ("KHANTZIS"). All capitalized terms
used herein and not defined herein shall have the meanings given such terms in
the Purchase Agreement.
1. WAIVER OF CLOSING CONDITIONS. Section 9(f) of the Purchase Agreement
provides that it is a condition to the Company's obligation to complete the
purchase of the Assets and to take the other actions required to be taken by the
Company at the Closing that each Seller Party shall have delivered to the
Company all consents of third parties necessary for the unconditional transfer
of the Assets and the unconditional consummation of the transactions
contemplated by the Purchase Agreement. The Seller Parties have informed the
Company that they have not obtained all such third party consents as of the date
hereof, and have requested that the Company waive such conditions and close the
Purchase Agreement concurrently with the execution and delivery of this letter
agreement. The identity and status of such third party consents are identified
on EXHIBIT A to this letter agreement.
The Company hereby waives the Seller Parties' obligation to obtain the
third party consents and agreements identified on EXHIBIT A, and agrees to close
the Purchase Agreement without the Seller Parties first obtaining such consents,
with the understanding that Seller and Khantzis, for itself and himself and for
the other Seller Parties, each agrees, as soon as practicable following the
Closing Date, to obtain such third party consents and to take all such actions
reasonably requested by the Company in order to vest in the Company all right,
title and interest in and to any and all of the Assets with respect to which
such third party consents relate.
<PAGE>
2. SUPPLEMENTAL CASH PAYMENT. Section 5(b) of the Purchase Agreement
provides for the payment by the Company to Seller at the Closing of the
Estimated Supplemental Cash Payment, as such amount is determined in accordance
with Section 5(d) of the Purchase Agreement. Seller hereby waives the Company's
obligation to deliver the Estimated Supplemental Cash Payment to Seller at the
Closing, and agrees that the Company will deliver the Supplemental Cash Payment
to Seller in accordance with Section 5(d)(ii) and (iii) of the Purchase
Agreement.
3. PURCHASE PRICE ALLOCATION. Section 11(b) of the Purchase Agreement
provides that the Seller Parties and the Company shall determine the Purchase
Price Allocation on or prior to the Closing Date. The Company and the Seller
Parties agree to waive this obligation to determine the Purchase Price
Allocation prior to the Closing Date, and agree to cooperate in good faith to
determine the Purchase Price Allocation as soon as practicable following the
Closing Date but in no event later than 30 days following the Closing Date.
4. ASSUMED LIABILITIES. The parties hereby agree to amend the Purchase
Agreement to exclude from the Assets to be acquired by the Company at the
Closing the phone equipment located at the Westlake Premises. In furtherance of
the foregoing, the Purchase Agreement is hereby amended to exclude from Assumed
Contract to be acquired, and to exclude from the Assumed Liabilities to be
assumed, by the Company at the Closing, that certain Lease Agreement No.
6558758-002, dated July 29, 1998, including lease Addendum dated October 21,
1998, between NTFC Capital Corporation and California Design Studio, Inc. (the
"NTFC LEASE").
In consideration of Seller's agreement to exclude the phone equipment and
the NTFC Lease from the Assets and the Assumed Liabilities, the Company agrees
to pay to Seller $9,000, which amount will be included in the Supplemental Cash
Payment to be paid to Seller as provided in the Purchase Agreement.
Page 2
<PAGE>
Please acknowledge your agreement to the terms and conditions set forth in
this letter agreement by signing below.
Very truly yours,
SIGNATURE EYEWEAR, INC.,
a California corporation
By: /S/ JULIE HELDMAN
---------------------------------
Julie Heldman
Its: President
Acknowledged and agreed to
this 23rd day of June, 1999:
CALIFORNIA DESIGN STUDIO, INC.,
a California corporation
By: /s/ CARLOS ALBERTO KHANTZIS
-------------------------------------
Carlos Alberto Khantzis
Its: Chief Executive Officer and President
DAKOTA SMITH USA, INC.,
a California corporation
By: /s/ CARLOS ALBERTO KHANTZIS
------------------------------------
Carlos Alberto Khantzis
Its: President
LUCKY FRIDAY, INC.,
a California corporation
By: /s/ CARLOS ALBERTO KHANTZIS
------------------------------------
Carlos Alberto Khantzis
Its: President
DAKOTA SMITH CANADA, LTD.,
a Canada corporation
By: /s/ CARLOS ALBERTO KHANTZIS
------------------------------------
Carlos Alberto Khantzis
Its: President
[SIGNATURES CONTINED ON FOLLOWING PAGE]
Page 3
<PAGE>
[SIGNATURES CONTINUED]
DAKOTA SMITH ARGENTINA, LTD.,
an Argentina corporation
By: /s/ CARLOS ALBERTO KHANTZIS
-------------------------------------
Carlos Alberto Khantzis
Its: President
CALIFORNIA DESIGN STUDIO, LTD.,
a U.S. Virgin Islands corporation
By: /s/ CARLOS ALBERTO KHANTZIS
-------------------------------------
Carlos Alberto Khantzis
Its: President
/s/ CARLOS ALBERTO KHANTZIS
- ----------------------------------------
Carlos Alberto Khantzis
<PAGE>
EXHIBIT A
TO
LETTER AGREEMENT
Dated as of June 23, 1999
WAIVER OF CLOSING CONDITIONS
LEASE/AGREEMENT ASSIGMENTS
o AT&T data line/long distance services - Letter request submitted to AT&T
o Canada Real Property - Forms submitted
o GE Capital (Canada Photo Copier) - Forms submitted
BANK ACCOUNTS
o Lippo Bank Accounts - Closure of accounts in process
(818202079 & 8188012441)
o Belgium Bank Accounts - Request for new signature
cards in process
o Toronto Dominion Bank - Waiting on creation of
Signature Subsidiary
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement of
Signature Eyewear, Inc. on Form S-8 (File No. 33-48109) of our report dated July
21, 1999, on our audit of the financial statements of California Design Studio,
Inc. and Subsidiary as of April 30, 1999 and for the year then ended, which
report is incorporated by reference in this Form 8K.
/s/ Altschuler, Melvoin & Glasser LLP
Los Angeles, California
September 2, 1999
Exhibit 99.1
CALIFORNIA DESIGN STUDIO, INC. AND SUBSIDIARY
INDEPENDENT AUDITORS' REPORT AND
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED APRIL 30, 1999
<PAGE>
CALIFORNIA DESIGN STUDIO, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
INDEPENDENT AUDITORS' REPORT 2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet, April 30, 1999 (Exhibit A) 3
Consolidated Statement of Operations, Year Ended
April 30, 1999 (Exhibit B) 4
Consolidated Statement of Retained Earnings
(Accumulated Deficit), Year Ended April 30, 1999
(Exhibit C) 5
Consolidated Statement of Cash Flows, Year Ended
April 30, 1999 (Exhibit D) 6 - 7
Notes to the Consolidated Financial Statements 8 - 14
Page 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder
California Design Studio, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of CALIFORNIA DESIGN
STUDIO, INC. AND SUBSIDIARY as of April 30, 1999 and the related consolidated
statements of operations, retained earnings (accumulated deficit) and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
California Design Studio, Inc. and Subsidiary as of April 30, 1999 and the
consolidated results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
As further described in Note 7, the April 30, 1998 consolidated retained
earnings (accumulated deficit) balance has been restated to reflect the
correction of errors in previously reported items.
/s/ Altschuler, Melvoin & Glasser LLP
Los Angeles, California
July 21, 1999
Page 2
<PAGE>
Exhibit A
<TABLE>
CALIFORNIA DESIGN STUDIO, INC. AND SUBSIDIARY
Consolidated Balance Sheet
April 30, 1999
<CAPTION>
Assets
<S> <C>
Current Assets (Note 3):
Cash and cash equivalents (Note 1) $ 79,879
Accounts receivable, trade (net of allowance
for doubtful accounts of $199,378) 1,174,064
Inventories (Note 1) 1,665,414
Deferred tax asset (Note 5) 86,000
Prepaid expenses and other current assets
(Note 4) 171,366
------------
3,176,723
------------
Property and Equipment (net of accumulated
depreciation and amortization--Note 2) 757,140
------------
Other Assets:
Advances to shareholder (Note 8) 157,403
Deposits and other assets 287,212
------------
444,615
------------
$ 4,378,478
============
Liabilities and Stockholder's Equity (Deficit)
Current Liabilities:
Accounts payable, trade
$ 4,612,264
Loan payable, bank (Note 3) 297,880
Capitalized lease obligations, current
portion (Note 6) 50,948
Accrued expenses and other current liabilities
(Note 6) 448,764
------------
5,409,856
Long-term Liabilities:
Capitalized lease obligations, net of current portion
(Note 6) 84,062
------------
5,493,918
Commitments and Contingencies (Note 6)
Stockholder's Equity (Deficit):
Common stock (1,000 no par value shares
authorized, issued and outstanding) 560,000
Accumulated deficit (Note 7) (1,675,440)
------------
(1,115,440)
------------
$ 4,378,478
============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 3
<PAGE>
Exhibit B
<TABLE>
<CAPTION>
CALIFORNIA DESIGN STUDIO, INC. AND SUBSIDIARY
Consolidated Statement of Operations
Year Ended April 30, 1999
<S> <C>
Net Sales $ 8,031,860
Cost of Sales 3,678,971
------------
Gross Profit 4,352,889
------------
Operating Expenses:
Selling 2,562,376
General and administrative 3,157,676
------------
5,720,052
------------
Loss from Operations (1,367,163)
------------
Other Income (Expense):
Sundry income 31,263
Interest expense ( 64,045)
------------
( 32,782)
------------
Loss before Income Taxes (1,399,945)
Provision for Income Taxes (Note 5) 800
------------
Net Loss $(1,400,745)
============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 4
<PAGE>
Exhibit C
<TABLE>
<CAPTION>
CALIFORNIA DESIGN STUDIO, INC. AND SUBSIDIARY
Consolidated Statement of Retained Earnings (Accumulated Deficit)
Year Ended April 30, 1999
<S> <C>
Retained Earnings, As Originally Reported, May 1, 1998 $ 645,416
Prior Period Adjustment (Note 7) ( 920,111)
-------------
Accumulated Deficit, As Restated, May 1, 1998 ( 274,695)
Net Loss ( 1,400,745)
-------------
Accumulated Deficit, April 30, 1999 $( 1,675,440)
=============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 5
<PAGE>
Exhibit D
<TABLE>
<CAPTION>
CALIFORNIA DESIGN STUDIO, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
Year Ended April 30, 1999
<S> <C>
Cash Flows from Operating Activities:
Net loss $( 1,400,745)
-------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 219,411
Increase in provision for bad debts 120,608
Increase in inventory valuation reserve 174,073
Loss on disposition of property and
equipment 6,630
Changes in assets--(increase) decrease:
Accounts receivable, trade 1,233,823
Inventories 586,472
Prepaid expenses and other current assets ( 40,530)
Deposits and other assets ( 112,922)
Changes in liabilities--increase (decrease):
Accounts payable, trade ( 635,648)
Income taxes payable ( 28,424)
Accrued expenses and other liabilities 77,702
-------------
Net cash provided by operating activities 200,450
-------------
Cash Flows from Investing Activities:
Acquisition of property and equipment ( 67,553)
Reduction of advances to shareholder 95,845
Payment of deferred sale-related professional fees ( 12,323)
-------------
Net cash provided by investing activities 15,969
Cash Flows from Financing Activities:
Net reduction in loan payable, bank ( 79,641)
Principal payments of capital lease obligations ( 70,957)
-------------
Net cash used in financing activities ( 150,598)
-------------
Net Increase in Cash and Cash Equivalents 65,821
Cash and Cash Equivalents, Beginning of Year 14,058
-------------
Cash and Cash Equivalents, End of Year $ 79,879
=============
</TABLE>
Page 6
<PAGE>
Exhibit D, Continued
<TABLE>
<CAPTION>
CALIFORNIA DESIGN STUDIO, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
Year Ended April 30, 1999
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year for:
<S> <C>
Interest $ 64,045
=============
Income taxes $ 29,775
=============
Supplemental Schedule of Noncash Operating and Financing
Activities:
Incurrence of deferred sale-related professional fees
on account $ 26,564
=============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 7
<PAGE>
CALIFORNIA DESIGN STUDIO, INC. AND SUBSIDIARY
Notes to the Consolidated Financial Statements
April 30, 1999
NOTE 1--NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
California Design Studio, Inc. and Subsidiary (the "Company") designs, markets
and distributes prescription eyeglass frames throughout the United States and
internationally. Operations are conducted from leased premises in Westlake
Village, California, and locations in Canada and Belgium.
A summary of significant accounting policies is as follows:
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements present the accounts of the Company, including its division in
Belgium, and Dakota Smith Canada, Ltd. (a Canadian corporation), its
wholly-owned subsidiary. Four other wholly-owned subsidiaries are presently
inactive. Material intercompany transactions and balances have been
eliminated in consolidation.
USE OF ESTIMATES--In preparing consolidated financial statements in
conformity with generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of, and
disclosures concerning, assets and liabilities at the date of the
consolidated financial statements, as well as the reported amounts of, and
disclosures concerning, revenue and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates
include reserves for inventory valuation, potentially uncollectible
accounts receivable, claims pending with former personnel and the future
realization of deferred tax benefits.
INVENTORIES--Inventories (consisting primarily of eyeglass frames) are
valued at the lower of cost, determined on a first-in, first-out (FIFO)
basis, or market. Substantially all product is purchased from one vendor.
The Company has established valuation reserves for obsolescence and lower
of cost or market totaling $470,379 at April 30, 1999.
REVENUE RECOGNITION--Revenue is recognized when merchandise is shipped. A
reserve for future product returns is established based on the estimated
percentage of frames which will be deemed obsolete upon return and sold for
an amount below cost.
Sales for the year ended April 30, 1999 originated 82% from the U.S., 6%
from Canada and 12% from Belgium. Accounts receivable balances at April 30,
1999 approximate the same proportions.
DEPRECIATION AND AMORTIZATION--Depreciation of property and equipment is
computed using the straight-line method over the estimated useful economic
lives of the assets. Depreciation for tax reporting purposes is computed
using statutory methods over the cost recovery periods prescribed in the
Internal Revenue Code. Amortization of trademarks is provided over a
20-year period on a straight-line basis.
INCOME TAXES--Deferred income taxes are provided for temporary differences
between the basis of the Company's assets and liabilities for financial
reporting and for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
ADVERTISING EXPENSE--Advertising expense of approximately $139,000 was
charged to expense as incurred for the year ended April 30, 1999.
Page 8
<PAGE>
NOTE 1--NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
CASH EQUIVALENTS--The Company considers all highly liquid debt instruments
with an original maturity of three months or less to be cash equivalents.
TRANSLATION OF FOREIGN CURRENCY--The U.S. dollar is the functional
currency for the Company's foreign operations and, as such, financial data
recorded in local currencies have been remeasured into U.S. dollars at the
current rate for monetary assets and liabilities and at the historical
foreign currency exchange rates for nonmonetary assets and liabilities.
Income and expense items are remeasured at average exchange rates during
the year. Any resulting gain or loss is reported in earnings.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment (stated at cost) at April 30, 1999 consisted of the
following:
<TABLE>
<CAPTION>
Periods of
Depreciation and
Amortization Amount
------------ ------
<S> <C> <C>
Office furniture and fixtures 5 years $ 104,692
Office equipment and software 3-5 years 216,848
Machinery and equipment 5 years 70,132
Trade show equipment 5 years 255,486
Leasehold improvements Term of lease 423,132
Machinery and equipment held under capital
lease obligations 5 years 239,421
-----------
1,309,711
Less accumulated depreciation (including
accumulated amortization on capitalized
leases of $80,177) 552,571
-----------
Net book value $ 757,140
===========
</TABLE>
Depreciation and amortization charged to operations for the year ended
April 30, 1999 amounted to $219,411 (including amortization of machinery
and equipment held under capital lease obligations of $41,984).
NOTE 3--LOAN PAYABLE, BANK
At April 30, 1999, the Company had available, pursuant to a Loan and
Security Agreement (the "Credit Agreement") with its commercial bank (the
"Bank"), the use of a line of credit. Interest under the Credit Agreement
is based on the prime rate plus .75%. At April 30, 1999, the Company had
outstanding borrowings under the Credit Agreement of $297,880, secured by
substantially all the current assets of the Company and guaranteed by the
sole shareholder.
Page 9
<PAGE>
NOTE 3--LOAN PAYABLE, BANK, CONTINUED
The Credit Agreement contains various covenants including requirements for
the maintenance of minimum tangible net worth (as defined) and certain
financial ratios. The Company was not in compliance with certain covenants
at April 30, 1999. In connection with the sale of substantially all of the
Company's assets, as described in Note 4, the entire outstanding balance of
the line of credit was repaid and the Credit Agreement with the Bank was
terminated.
NOTE 4--SUBSEQUENT EVENTS: DISPOSITION OF ASSETS
On June 23, 1999, the Company sold substantially all of its assets to
Signature Eyewear, Inc. ("SEI") pursuant to an asset sale agreement, dated
June 11, 1999, which was entered into with SEI and the sole shareholder.
The total consideration for the assets was approximately $7,680,000, which
consisted of:
$800,000 in cash;
pay-off of the loan payable to the Bank in the approximate amount of
$600,000;
a promissory note in the principal amount of $1,250,000; and
the assumption by SEI of approximately $5,030,000 of the Company's
liabilities.
The promissory note provides for monthly payments of $17,042, with the
entire unpaid principal balance and then-unpaid interest due on June 23,
2002.
In connection with the sale, the sole shareholder entered into a covenant
not to compete with SEI for two years and a consulting agreement with SEI
for three years. The Company incurred $38,887 of deferred costs, consisting
primarily of professional fees, which are included in prepaid expenses and
other current assets at April 30, 1999. In addition, all accrued vacation
and sick leave, approximating $41,000 at April 30, 1999, was paid in full
at June 23, 1999.
NOTE 5--INCOME TAXES
At April 30, 1999, the Company's net deferred tax asset consisted of the
following:
<TABLE>
<CAPTION>
<S> <C>
Allowance for doubtful accounts $ 68,000
Inventory valuation reserves 160,000
Net operating loss carryforward 339,000
Accrual for estimated employment-related
claims 39,000
Less valuation allowance ( 520,000)
-----------
$ 86,000
===========
</TABLE>
The Company has paid federal and state income taxes totaling approximately
$103,000 in the prior three years, of which it is estimated approximately
$86,000 is recoverable from the application of net operating loss
carrybacks. The remaining carryforwards, totaling approximately $1,000,000
at April 30, 1999, will expire in the years 2012 through 2014.
Page 10
<PAGE>
NOTE 5--INCOME TAXES, CONTINUED
A reconciliation of the provision for income taxes and the amount computed
by applying the federal statutory rate to income before income tax expense
is as follows:
<TABLE>
<CAPTION>
<S> <C>
Computed income tax benefit at federal statutory
rate $( 476,000)
Reduction of benefit resulting from:
Foreign losses which produce no income tax
benefits 135,800
Valuation allowance reduction of deferred
income tax benefits 341,000
----------
Provision for income tax expense $ 800
==========
</TABLE>
The valuation allowance is based on management's best estimate of the
future realization of tax benefits.
The April 30, 1998 income tax returns had been filed prior to the Company's
discovery of the changes described in Note 7. These and prior income tax
returns have not been examined by the applicable tax authorities and are
subject to such examination in the future.
NOTE 6--COMMITMENTS
Operating Leases--The Company maintains its offices and warehouse at leased
facilities in Westlake Village, California, under an operating lease with
the sole shareholder which expires on December 31, 2011. The lease
agreement provides for minimum monthly base rental payments of $23,200
presently, including all operating, tax and insurance costs, with a CPI
adjustment at January 1, 2002. The lease agreement provides for an annual
operating expense adjustment based on the annual percentage increase in the
operating, tax and insurance costs.
The Company guarantees repayment of the shareholder's mortgage on the
leased premises. The mortgage note has an outstanding balance of
approximately $2,300,000 at April 30, 1999. The note is payable in monthly
installments of $17,645, including interest at 7.93% per annum through July
2013, when all the remaining principal and then-outstanding interest is
due.
The Company has entered into an agreement to sublease a portion of the
property to an unrelated party for $15,300 per month (increasing during the
sublease) through February 2004.
The Company leases warehouse space in Agoura, California, under an
operating lease that provides for monthly lease payments of $2,178 through
August 1999 and office space in New York City for a sales office under an
operating lease that provides for monthly lease payments of $1,600 and is
currently on a month-to-month basis.
Page 11
<PAGE>
NOTE 6--COMMITMENTS, CONTINUED
Future minimum lease payments, net of sublease income, as of April 30, 1999
are as follows:
<TABLE>
<CAPTION>
Sublease
April 30 Gross Rent Income Net Rent
<S> <C> <C> <C>
2000 $ 287,110 $ 173,700 $ 113,410
2001 278,400 174,600 103,800
2002 278,400 196,200 82,200
2003 278,400 201,600 76,800
2004 278,400 171,000 107,400
Thereafter 2,134,400 0 2,134,400
------------- ----------- ------------
$ 3,535,110 $ 917,100 $ 2,618,010
============= =========== ============
</TABLE>
Total rent expense for the year ended April 30, 1999, paid primarily to the
shareholder, amounted to approximately $295,000.
CAPITAL LEASE OBLIGATIONS--The Company leases certain equipment under
agreements classified as capital lease obligations which are included in
property and equipment at the net present value of the future minimum
payments. The capitalized cost and accumulated amortization at April 30,
1999 related to such equipment were as follows:
<TABLE>
<CAPTION>
<S> <C>
Capitalized cost $ 239,421
Less accumulated amortization 80,177
---------
Capitalized cost, net $ 159,244
=========
</TABLE>
Future minimum payments under capital leases as of April 30, 1999 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
April 30, 2000 $ 63,555
April 30, 2001 53,777
April 30, 2002 38,903
---------
Total future minimum lease payments 156,235
Less amount representing interest 21,225
---------
Present value of net minimum capital lease
payments 135,010
Less current portion 50,948
---------
Long-term portion $ 84,062
=========
</TABLE>
LITIGATION--Accrued expenses include $115,000 for estimated
employment-related claims pending with former personnel of the Belgium
division. The exact amounts and timing for settlement of those claims
cannot presently be determined.
Page 12
<PAGE>
NOTE 6--COMMITMENTS, CONTINUED
License Agreements--The Company has a license agreement with Kobra
International, Ltd. which grants the Company certain rights to use "Nicole
Miller" trademarks in connection with the design, distribution, marketing
and sale of Nicole Miller eyewear products. The territory covered under the
agreement is world-wide and the agreement is valid for a term up to and
including March 31, 2003. The agreement provides for the payment of certain
minimum royalty payments based on net sales for each agreement year. Kobra
International, Ltd. has the right to approve design specification of
products bearing the licensed trademark.
On May 1, 1998, the Company entered into a license agreement with Bebe
Stores, Inc. for the design, distribution, marketing and sale of eyewear
products under the "Bebe" trademark. The agreement covers the United States
of America, Argentina, Canada, Belgium, France, Germany, the United Kingdom
and their territories and possessions. The Company may distribute and sell
outside the territories noted above by obtaining prior written approval
from Bebe Stores, Inc. The agreement is valid for a term up to and
including February 28, 2002 and provides for the payment of certain minimum
royalty payments based on net sales for each agreement year. Bebe Stores,
Inc. has the right to approve design specification of products bearing the
licensed trademark.
Annual future minimum royalty payments under the Company's license
agreements are as follows:
<TABLE>
<CAPTION>
April 30 Amount
<S> <C>
2000 $ 300,000
2001 338,000
2002 368,000
2003 200,000
-----------
$ 1,206,000
===========
</TABLE>
Total royalty expense charged to operations for the year ended April 30,
1999 was approximately $165,500.
Page 13
<PAGE>
NOTE 7--RESTATEMENT OF APRIL 30, 1998 RETAINED EARNINGS (ACCUMULATED DEFICIT)
During the year ended April 30, 1999, the Company determined that various
previously reported items contained errors. The April 30, 1998 consolidated
balance sheet has been restated to account for these errors. The effect of
these errors on the results of operations for the year ended April 30, 1998
has not been determined. The restatement resulted in a decrease of April
30, 1998 retained earnings (accumulated deficit) as follows:
<TABLE>
<CAPTION>
<S> <C>
Retained earnings, as previously reported, April 30, 1998 $ 645,416
Reduction of April 30, 1998 accounts
receivable to reflect returns on hand for
which credit memos had not yet been issued
and to eliminate finance charges accrued
but not expected to be collected ( 81,603)
Reduction of April 30, 1998 inventory for
recalculation of capitalized freight and
duty and to establish reserves for
obsolescence and lower of cost or market
estimates (853,852)
Record previously unrecorded deferred tax
benefit 83,015
Other miscellaneous adjustments, net ( 67,671)
----------
Retained earnings (accumulated deficit), as restated,
April 30, 1998 $(274,695)
==========
</TABLE>
NOTE 8--ADVANCES FROM SHAREHOLDER
The Company has made unsecured, noninterest-bearing advances to its sole
shareholder. As of April 30, 1999, the balance outstanding amounted to
$157,403. These advances have no scheduled repayment terms; repayments
totaling approximately $96,000 were collected during the year ended April
30, 1999.
Page 14
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma data presented in the unaudited pro forma combined
financial statements are included in order to illustrate the effect on Signature
Eyewear, Inc.'s ("Signature" or the "Company") financial statements of the
acquisition by Signature of substantially all of the assets of California Design
Studio, Inc. ("CDS") on June 23, 1999.
The unaudited pro forma combined balance sheet data at April 30, 1999
presents adjustments as if Signature had acquired CDS at such date.
The unaudited pro forma combined statement of operations data for the
six-month period ended April 30, 1999 and the year ended October 31, 1998
present adjustments to show the effect of the acquisition as if the acquisition
had occurred at the beginning of the period ended October 31, 1998.
In the opinion of management, all adjustments have been made that are
necessary to present fairly the pro forma data.
The unaudited pro forma financial statements should be read in
conjunction with Signature's Consolidated Financial Statements and the Notes
thereto, and the Financial Statements and the Notes thereto of CDS appearing
elsewhere. The unaudited pro forma combined statement of operations data are not
necessarily indicative of the results that would have been reported had such
events actually occurred on the date specified, nor are they indicative of
Signature's future results.
Page 1
<PAGE>
<TABLE>
SIGNATURE EYEWEAR, INC.
Pro Forma Combined Balance Sheet
As of April 30, 1999
<CAPTION>
HISTORICAL
----------------------------------
PRO FORMA COMBINED
SIGNATURE CDS ADJUSTMENTS PRO FORMA
--------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,842,647 $ 79,879 $ (1,400,000) (1) $ 4,522,526
Accounts receivable, net 7,401,061 1,174,064 8,575,125
Inventories 9,669,177 1,665,414 (789,770) (1,3) 10,544,821
Other current assets 1,990,167 168,245 2,158,412
--------------- --------------- ------------------ ---------------
24,903,052 3,087,602 (2,189,770) 25,800,884
--------------- --------------- ------------------ ---------------
Property, Plant & Equipment, Net 1,487,862 432,607 (237,199) (1,3) 1,683,270
--------------- --------------- ------------------ ---------------
Cost in Excess of Net Assets Acquired - - 4,942,790 (1) 4,942,790
--------------- --------------- ------------------ ---------------
Other Assets 132,862 287,901 - 420,763
--------------- --------------- ------------------ ---------------
$26,523,776 $ 3,808,110 $ 2,515,821 $32,847,707
=============== =============== ================== ===============
Current Liabilities:
Accounts payable, trade $ 3,769,725 $ 4,553,275 $ (705,604) (1) $ 4,833,140
(3,297,092) (2)
512,836 (1)
Accrued expenses and other current liabilities 2,208,216 308,199 288,994 (1) 2,805,409
Loan payable, bank 297,880 (297,880) (1) -
Current portion of long-term debt 104,167 50,948 1,250,000 (1) 276,115
(1,129,000) (2)
--------------- --------------- ------------------ ---------------
6,082,108 5,210,302 (3,377,746) 7,914,664
Long-term Liabilities 395,833 65,283 3,297,092 (2) 4,887,208
1,129,000 (2)
--------------- --------------- ------------------ ---------------
6,477,941 5,275,585 1,048,346 12,801,872
--------------- --------------- ------------------ ---------------
Stockholders' Equity:
Common stock 9,216 9,216
Paid-in capital 14,390,009 14,390,009
Retained earnings (Accumulated deficit) 5,646,610 5,646,610
Owner's equity - (1,467,475) 1,467,475 (1) -
--------------- --------------- ------------------ ---------------
20,045,835 (1,467,475) 1,467,475 20,045,835
--------------- --------------- ------------------ ---------------
$26,523,776 $ 3,808,110 $ 2,515,821 $32,847,707
=============== =============== ================== ===============
</TABLE>
Page 2
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
The historical deficit in owner's equity of CDS as reported in the April 30,
1999 CDS financial statements is reconciled with the historical CDS deficit
reported in the accompanying pro forma combined balance sheet as follows:
<TABLE>
<CAPTION>
<S> <C>
Deficit in owner's equity as reported in
the CDS April 30, 1999 financial
statements ($1,115,440)
CDS net assets not acquired in the transaction ( 352,035)
--------------
Deficit in CDS owner's equity as reported in
the historical pro forma balance sheet ($1,467,475)
============
</TABLE>
Key to Pro Forma Adjustments:
(1) Reflects the Company's purchase of CDS for an aggregate $7,723,931 as
follows:
<TABLE>
<CAPTION>
<S> <C>
Cash consideration at closing paid to seller $1,102,120
Cash consideration at closing paid to retire seller's
bank debt 297,880
----------
1,400,000
Transaction costs 288,994
Note issued to the seller 1,250,000
Seller's liabilities assumed 5,275,585
Less seller's bank debt retired at closing ( 297,880)
Present value discount recorded on long term maturities
of vendor obligation ( 705,604)
Liabilities incurred to effect the transaction 512,836
----------
$7,723,931
==========
</TABLE>
The total consideration is allocated as follows (the final purchase
price allocation will be based upon a determination of the fair values
of the net assets acquired):
<TABLE>
<CAPTION>
<S> <C>
Historical cost of net assets acquired $3,808,110
Reduction in cost of assets based on purchase
price allocation (1,026,969)
Cost in excess of net assets acquired, including
transaction costs 4,942,790
----------
$7,723,931
==========
</TABLE>
(2) Reflects adjustments for noncurrent maturities of obligations to the
seller and a vendor.
Page 3
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET,
CONTINUED
Key to Pro Forma Adjustments, continued:
(3) Reflects adjustments for the allocation of the purchase price to
inventories and property and equipment.
Page 4
<PAGE>
Signature Eyewear, Inc.
Pro Forma Combined Income Statement
For the Six Months Ended April 30, 1999
<TABLE>
<CAPTION>
Historical
-------------------------------------
Pro Forma Combined
Signature CDS Adjustments Pro Forma
----------------- ------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
Net Sales $ 21,461,640 $ 3,459,556 $24,921,196
Cost of Sales 9,004,305 1,584,640 10,588,945
----------------- ------------------ ---------------- -----------------
Gross Profit 12,457,335 1,874,916 - 14,332,251
----------------- ------------------ ---------------- -----------------
Operating Expenses:
Selling 7,028,911 1,103,690 8,132,601
General and Administrative 4,221,064 1,360,103 $ (65,036)(6) 5,341,523
(424,608)(3)
250,000 (1)
----------------- ------------------ ---------------- -----------------
11,249,975 2,463,793 (239,644) 13,474,124
----------------- ------------------ ---------------- -----------------
Income (Loss) from Operations 1,207,360 (588,877) 239,644 858,127
----------------- ------------------ ---------------- -----------------
Other Income (Expense):
Interest expense 66,628 (27,586) (129,033)(4) (89,991)
Amortization of acquisition costs (123,570)(2) (123,570)
Sundry income 6,212 13,466 (33,164)(3) (13,486)
----------------- ------------------ ---------------- -----------------
72,840 (14,120) (285,767) (227,047)
----------------- ------------------ ---------------- -----------------
Income (Loss) before Income Taxes 1,280,200 (602,997) (46,123) 631,080
Provision (Benefit) for Income Taxes 495,000 - (260,000)(5) 235,000
----------------- ------------------ ---------------- -----------------
.
Net Income (Loss) $ 785,200 $ (602,997) $ 213,877 $ 396,080
================= ================== ================ =================
Earnings per share, Basic and Diluted $ 0.15 $ 0.08
================= =================
Weighted average number of common shares 5,095,836 5,095,836
================= =================
</TABLE>
Page 5
<PAGE>
Signature Eyewear, Inc.
Pro Forma Combined Income Statement
For the Twelve Months Ended October 31, 1998
<TABLE>
<CAPTION>
Historical
-------------------------------------
Pro Forma Combined
Signature CDS Adjustments Pro Forma
----------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Net Sales $ 40,891,882 $ 10,377,103 $51,268,985
Cost of Sales 16,549,083 5,004,533 21,553,616
----------------- ------------------ ---------------- ----------------
Gross Profit 24,342,799 5,372,570 - 29,715,369
----------------- ------------------ ---------------- ----------------
Operating Expenses:
Selling 13,077,719 2,723,990 15,801,709
General and Administrative 7,059,431 3,356,837 $ (164,907)(6) 9,854,120
(897,241)(3)
500,000 (1)
----------------- ------------------ ---------------- ----------------
20,137,150 6,080,827 (562,148) 25,655,829
----------------- ------------------ ---------------- ----------------
Income (Loss) from Operations 4,205,649 (708,257) 562,148 4,059,540
----------------- ------------------ ---------------- ----------------
Other Income (Expense):
Interest expense (8,227) (85,688) (272,393)(4) (366,308)
Amortization of acquisition costs (247,140)(2) (247,140)
Sundry income 411,183 44,536 (43,836)(3) 411,883
----------------- ------------------ ---------------- ----------------
402,956 (41,152) (563,369) (201,565)
----------------- ------------------ ---------------- ----------------
Income (Loss) before Income Taxes 4,608,605 (749,409) (1,221) 3,857,975
Provision (Benefit) for Income Taxes 1,859,000 - (300,000)(5) 1,559,000
----------------- ------------------ ---------------- ----------------
Net Income (Loss) $ 2,749,605 $ (749,409) $ 298,779 $ 2,298,975
================= ================== ================ ================
Earnings per share, Basic and Diluted $ 0.52 $ 0.44
================= ================
Weighted average number of common shares 5,254,156 5,254,156
================= ================
</TABLE>
Page 6
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(1) Reflects adjustments for consulting and noncompete payments as if the
transaction had taken place on November 1, 1997.
(2) Amortization is based upon a preliminary allocation of purchase price
consideration as follows:
<TABLE>
<CAPTION>
<S> <C>
Cost in excess of net assets acquired, including
transaction costs, amortized over 20 years $4,942,790
==========
</TABLE>
Actual amortization may differ, depending on the final allocation of
the total purchase price consideration.
(3) Reflects the elimination of certain of CDS's expenses in accordance
with Signature's business plan to integrate the acquisition, as
follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal year ended October 31, 1998:
Officer salaries $407,000
Rent expense, for excess facilities 218,000
Other administrative expenses 191,000
Other personnel expenses 81,241
----------
897,241
Sublease income from excess facilities ( 43,836)
----------
$853,405
==========
Six-month period ended April 30, 1999
Officer salaries $161,000
Rent expense, for excess facilities 128,000
Other administrative expenses 75,000
Other personnel expenses 60,608
----------
424,608
Sublease income from excess facilities ( 33,164)
----------
$391,444
===========
(4) Reflects adjustments for an increase in interest expense for the
acquisition financing and a reduction in interest expense for the
repayment of certain indebtedness.
(5) Reflects the expected 40% income tax benefit attributed to the CDS net
loss, adjusted by the income tax effect of the other pro forma
adjustments.
Page 7
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(6) Reflects a reduction in depreciation expense based on the allocation
of the purchase price, over the expected 2.5-year remaining useful
life of property and equipment (expense reductions totaling $164,907
and $65,036 for the fiscal periods ended October 31, 1998 and April
30, 1999, respectively).
Page 8
</TABLE>
