<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1997.
REGISTRATION STATEMENT 333-31343
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
AMBASSADOR EYEWEAR GROUP, INC.
(Name of Small Business Issuer in Its Charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 5040 23-2807063
(State or Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
3600 MARSHALL LANE
BENSALEM, PENNSYLVANIA 19020
(800) 523-4675
(Address and Telephone Number of Principal Executive Offices)
3600 MARSHALL LANE
BENSALEM, PENNSYLVANIA 19020
(Address of Principal Place of Business or Intended Principal Place of Business)
MR. BARRY BUDILOV
PRESIDENT AND CHIEF EXECUTIVE OFFICER
3600 MARSHALL LANE
BENSALEM, PENNSYLVANIA 19020
(800) 523-4675
(Name, Address and Telephone Number of Agent for Service)
------------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
JEFFREY A. BAUMEL, ESQ. ROBERT H. COHEN, ESQ.
Crummy, Del Deo, Dolan, Griffinger & Vecchione Morrison Cohen Singer & Weinstein, LLP
One Riverfront Plaza 750 Lexington Avenue
Newark, New Jersey 07102 New York, NY 10022
(201) 596-4500 (212) 735-8600
</TABLE>
--------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
--------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION DATED NOVEMBER 17, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THOSE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO BUY NOR SHALL THERE
BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION
OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
2,000,000 SHARES
AMBASSADOR EYEWEAR GROUP, INC.
COMMON STOCK
------------------
Ambassador Eyewear Group, Inc., a Delaware corporation ("Ambassador" or the
"Company"), hereby offers 2,000,000 shares (the "Shares") of Common Stock, par
value $.01 per share (the "Common Stock"). It is currently contemplated that the
initial public offering price of the Common Stock will be $5.00 per Share. See
"Underwriting" for the factors to be considered in the determination of the
initial public offering price of the Shares.
Prior to this offering (the "Offering"), there has been no public market for
the Shares and there can be no assurance that an active market will develop.
Application has been made for listing of the Shares for quotation on the Nasdaq
National Market under the symbol "SPEX," subject to notice of issuance.
SEE "RISK FACTORS" LOCATED ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS(1) PROCEEDS TO COMPANY (2)
<S> <C> <C> <C>
Per Share................... $ $ $
Total (3)................... $ $ $
</TABLE>
(1) Does not include additional consideration to be received by Hampshire
Securities Corporation (the "Underwriter") in the form of (a) a 3%
non-accountable expense allowance and (b) warrants to purchase up to an
aggregate of 200,000 Shares (the "Underwriter's Warrants"). The Company has
agreed to indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company of
$625,000, not including the Underwriter's non-accountable expense allowance,
assuming no exercise of the Underwriter's over-allotment option.
(3) The Company has granted the Underwriter a 45-day option to purchase up to an
additional 300,000 Shares, on the same terms and conditions as set forth
herein, solely to cover over-allotments, if any. If the Underwriter
exercises such option in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The Shares are being offered by the Underwriter, subject to prior sale,
when, as and if delivered to, and accepted by it, and subject to its right to
reject orders in whole or in part and to certain other conditions. It is
expected that delivery of certificates will be made against payment therefor at
the offices of Hampshire Securities Corporation on or about , 1997.
------------------------
HAMPSHIRE SECURITIES CORPORATION
----------------
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SHARES, INCLUDING
PURCHASES OF THE SHARES TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE SHARES
TO COVER SOME OR ALL OF A SHORT POSITION IN THE SHARES MAINTAINED BY THE
UNDERWRITER AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
This Prospectus refers to various registered trademarks that are owned by
parties other than the Company.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN
THIS PROSPECTUS ASSUMES THAT THE UNDERWRITER'S OVER-ALLOTMENT OPTION IS NOT
EXERCISED AND REFLECTS A 1,166 2/3-FOR-ONE STOCK SPLIT EFFECTED AS OF JUNE 30,
1997. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER "RISK FACTORS."
THE COMPANY
The Company designs, sources, markets and distributes high quality
prescription eyeglass frames and non-prescription sunglasses to department and
specialty stores, optical chains and eyewear boutiques throughout the United
States. The Company also provides integrated marketing, merchandising materials
and consulting support to assist its customers in the sales of the Company's
eyewear products. The Company distributes its eyewear products to a broad and
substantial customer base including Wal-Mart, K-Mart, National Vision Associates
and U.S. Vision, as well as many regional chain stores and local outlets. The
Company has established relationships with various fashion designers, fashion
celebrities and marketing organizations including Kathy Ireland, Halston, and
the John Lennon Estate and highly recognizable consumer products brands such as
Playskool, Nintendo and international jewelry designer Kenneth Jay Lane. The
Company intends to continue to identify and license trade names and trademarks
from various high profile brand sources in an effort to target and capture
additional segments of the eyewear market.
The Company utilizes a diverse team of freelance experienced fashion eyewear
designers to work with fashion houses, celebrities, manufacturers and
experienced members of the optical industry to design eyewear styles that convey
fashion, elegance and sophistication. The Company's eyeglass frames and
sunglasses are manufactured at a variety of independent factories throughout the
world. The Company distributes products through independent sales
representatives situated throughout the world and intends to increase the size
of its dedicated sales force, expand its sales and marketing capabilities and
develop additional alliances with fashion designers and licensors.
In 1996, approximately 60% of the nation's population used some form of
corrective eyewear. Retail sales of eyewear products totaled $14.6 billion in
1996, up from $13.8 billion in 1995, representing a 5.8% increase. Furthermore,
it is generally accepted that vision deteriorates with age. As the American
population ages, demand for corrective eyewear will continue to grow at a rapid
rate. In addition, the growing medical and public concern with respect to
exposure to harmful sun rays has led to an increase in the sale of sunglasses,
reaching $2.95 billion in 1996, representing an 8% increase from 1995.
The Company's business strategy is to become a leading source of eyewear
distribution in the United States and globally. The Company intends to focus on
(i) growth through the acquisitions of businesses and companies that will
complement its business; (ii) the continued development of relationships with
distributors throughout the world; and (iii) expanding its products base by
seeking and negotiating licenses with high fashion and highly recognizable brand
names and licensors. In particular, the Company intends to increase its sales of
sunglasses by increasing substantially the size of its sunglass product line and
its sunglass distribution network. The Company has accomplished a great deal of
its growth through the acquisition of other eyewear distributors that are
similarly situated. In June 1996, the Company acquired substantially all of the
assets of Windsor Optical, Inc. ("Windsor") and in February 1997, the Company
acquired substantially all of the assets of Renaissance Eyewear Group
("Renaissance") from the secured creditor of Renaissance, thereby increasing
substantially its sales base and available resources. The Company also assumed
certain liabilities of Windsor. Renaissance had total sales of approximately $14
million during its fiscal year ended October 31, 1996 of which approximately
$2.5 million were sunglass products during such period. Through the acquisition
of substantially all of the assets of Renaissance and the establishment of
licensing arrangements and employment agreements as a result of such
acquisition, the Company not only expanded its sales base, but also its product
lines to include additional designer product lines and sunglasses. The Company
intends to continue to seek strategic acquisitions as a method of expanding its
market size and product lines.
<PAGE>
The Company was incorporated in Delaware in May 1995 as Diplomat Ambassador
Inc. when it acquired the business of Chanuk, Inc. ("Chanuk"), a Pennsylvania
corporation. On July 10, 1997, the Company changed its name to Ambassador
Eyewear Group, Inc. The principal executive offices of the Company are located
at 3600 Marshall Lane, Bensalem, Pennsylvania 19020, and its telephone number is
(800) 523-4675.
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock Offered............... 2,000,000 shares(1)
Shares of Common Stock to be Outstanding
after the Offering......................... 5,500,000 shares (1)(2)
Use of Proceeds.............................. The Company intends to use the estimated net
proceeds from the Offering of $8,075,000
($9,380,000 if the Underwriter's
over-allotment option is exercised in full)
for (i) reduction of debt; (ii) expansion of
sales and marketing activities; (iii)
purchase of inventory; and (iv) general
corporate purposes, including working capital
and to finance potential acquisitions. See
"Use of Proceeds."
Risk Factors................................. Investment in the Common Stock offered hereby
involves a high degree of risk as well as
immediate and substantial dilution. See "Risk
Factors" and "Dilution".
Proposed Nasdaq National Market Symbol....... "SPEX"
</TABLE>
- ------------------------
(1) Assumes no exercise of the Underwriter's over-allotment option with respect
to Shares that would be offered by the Company.
(2) Excludes (i) 499,333 Shares issuable upon exercise of outstanding options,
(ii) 200,000 Shares issuable upon exercise of the Underwriter's Warrants and
(iii) 118,100 shares of Series A Cumulative Redeemable Preferred Stock
("Series A Preferred Stock"). See "Certain Relationships and Related Party
Transactions," "Description of Securities" and "Underwriting."
2
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table presents summary historical, pro forma and pro forma as
adjusted financial data for the Company. This information should be read in
conjunction with "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
notes thereto each included elsewhere herein.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 10, 1995 PRO FORMA SIX MONTHS ENDED
(INCEPTION) YEAR ENDED SEPTEMBER 30,
THROUGH MARCH YEAR ENDED MARCH 31, 1997 ------------------------------
31, 1996 MARCH 31, 1997 (1) 1996 1997
-------------- -------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATIONS
DATA:
Net Sales................. $ 11,005 $ 16,455 $ 29,129 $ 8,030 $ 12,542
Gross profit.............. 4,179 7,903 14,038 3,490 6,849
Selling, general and
administrative
expenses................ 4,258 6,145 12,727 2,881 5,772(3)
Income (loss) from
operations.............. (79) 1,758 1,311 609 1,077
Net income (loss)......... (299) 680 136 194 306
Net income (loss) per
share................... (.08) .18 .04 .05 .08
Weighted average number of
shares outstanding
(2)..................... 3,838,000 3,838,000 3,838,000 3,838,000 3,838,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------
PRO FORMA
AS ADJUSTED
ACTUAL (4)
--------- --------------
<S> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital...................................................................... $ 1,587 $ 9,812
Total assets......................................................................... 22,395 24,809
Non-current notes payable--stockholders/officers..................................... 1,181 0
Long-term debt....................................................................... 325 325
Series A Cumulative Redeemable Preferred Stock....................................... 0 1,181
Total liabilities.................................................................... 22,047 16,386
Stockholders' equity................................................................. 348 8,423
</TABLE>
- ------------------------
(1) The pro forma unaudited condensed statement of operations reflects the
acquisitions of substantially all of the assets of Windsor and Renaissance
and the assumption of certain debt of Windsor as if such transactions had
occurred on April 1, 1996. The information contained herein should be read
in conjunction with the pro forma condensed statement of operations and the
notes thereto, the financial statements of the Company and of Renaissance
and the related notes thereto and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," each included elsewhere
in this Prospectus. The pro forma condensed statement of operations for the
year ended March 31, 1997 gives effect to the operations for each of the
Company, Renaissance and Windsor as if the acquisitions of substantially all
of the assets of Renaissance and Windsor had occurred on April 1, 1996, but
do not reflect the anticipated efficiencies of scale or other cost reduction
measures being implemented by the Company, the success of which cannot be
assured. However, no assurance can be given that any such efficiencies will
be achieved. The pro forma condensed statement of operations is presented
for informational purposes only, and is not necessarily indicative of what
the actual results of operations would have been had the transactions
occurred at April 1, 1996, nor do they purport to indicate the results of
future operations.
(2) See Note B(8) to the Company's Financial Statements.
(3) Includes approximately $766,000 relating to redundant costs of operating
Renaissance in a separate facility through July 1997, consisting primarily
of duplicate overhead and pesonnel expenses incurred prior to the
consolidation of the Company's operations into one location as well as
actual costs related to the relocation.
(4) Adjusted to reflect the sale of the Shares offered by the Company hereby at
an assumed initial public offering price of $5.00 per Share and the
repayment of $5,470,000 of debt with the proceeds therefrom. Gives effect to
the conversion of $1.18 million of indebtedness to two principal
stockholders into 118,100 shares of Series A Cumulative Redeemable Preferred
Stock on the effective date of this Offering. See "Use of Proceeds" and
"Capitalization."
3
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OFFERED HEREBY.
RISKS RELATED TO SUBSTANTIAL INVENTORY, ACCOUNTS RECEIVABLE BALANCES AND
SUBSTANTIAL INDEBTEDNESS. As of September 30, 1997, the Company had an
inventory of approximately $11.9 million consisting principally of eyeglass
frames and sunglasses held at its warehouse for distribution and accounts
receivable valued at approximately $8.6 million. The market for eyewear and
accessories is subject to the risk of changing consumer trends. In order to be
able to promptly fill orders from distributors, the Company maintains
substantial inventories. In the event that a significant number of models or
accessories do not achieve widespread consumer acceptance, the Company may be
required to take significant price markdowns, which could have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company's balance sheet as of September 30, 1997 reflects a
reserve against accounts receivable of approximately $1.9 million which includes
approximately $365,000 to cover returns of goods sold. If the reserve is
insufficient to cover the Company's accounts receivable or if returns exceed the
amounts reserved for, the Company would be required to recognize additional
expenses in the future to the extent of such amounts. The Company has, from time
to time, experienced cash flow shortfalls and has been required to borrow
substantial amounts from banks. The Company had total liabilities of
approximately $22.0 million at September 30, 1997, approximately $19.7 million
of which are current. Of such debt, approximately $12.5 million is payable to
CoreStates Bank (the "Bank") pursuant to the Company's revolving line of credit.
During the year ended March 31, 1997, and the six months ended September 30,
1997 the Company incurred $738,000 and $640,000, respectively, in net interest
expenses. The credit line is secured by substantially all of the assets of the
Company. The credit facility is represented by demand notes payable to the Bank
under which the Bank may demand repayment at any time. The Company intends to
reduce outstanding borrowings from the Bank by approximately $5.0 million from
the proceeds of this Offering. Nevertheless, if the Bank were to demand
repayment of the entire outstanding borrowings under the facility, the Company
would be required to identify alternative financing to satisfy its repayment
obligation of which there can be no assurance. If it is unsuccessful in so
identifying such financing the Company may be required to cease operations. The
loan agreement with the Bank also contains provisions which restrict certain
activities of the Company, including the declaration of dividends and also
provides for other conditions for default, including the continuing
participation of Rudy A. Slucker, the Chairman of the Board of Directors and
Barry Budilov, the President and Chief Executive Officer, in their current
management positions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Financial Statements.
CONTINUING LOSSES FROM RENAISSANCE OPERATIONS; POTENTIAL CLAIMS RELATING TO
PURCHASE OF ASSETS. The Company acquired substantially all of the assets of
Renaissance in February 1997 and only recently coordinated the integration of
the assets relating to the business of Renaissance into the business of the
Company. Renaissance has experienced substantial and increased losses in recent
years. For the Renaissance fiscal years ended October 31, 1996 and 1995,
Renaissance had net losses of approximately $5.6 million and $200,000,
respectively. In addition, net sales for Renaissance declined to approximately
$14.1 million in the Renaissance fiscal year 1996 from approximately $17.4
million in the Renaissance fiscal year 1995. No assurance can be given that net
sales of products relating to product lines acquired from Renaissance will not
continue to decline. There can be no assurance that the Company will be able to
integrate successfully the assets of Renaissance into the Company's operations
or that Renaissance's operations will not continue to adversely affect the
results of operations of the Company. In connection with the acquisition of
substantially all of the assets of Renaissance from the secured creditor of
Renaissance upon a default by Renaissance of its loan to such creditor, no
liabilities of Renaissance were contractually assumed by the Company. A number
of creditors of Renaissance have instituted collection actions in court against
Renaissance for amounts due to them from Renaissance. The Company is not a party
to any of these actions. To the extent that any creditors of Renaissance seek
recourse against the
4
<PAGE>
Company as the purchaser of substantially all of the assets of Renaissance, the
Company may incur substantial expenses in connection with defending any such
actions. Furthermore, to the extent that creditors are successful in asserting
any claims against the Company as a successor to the business of Renaissance or
challenge the acquisition from the secured creditor, the Company could be
responsible for substantial liabilities and its financial position could be
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Financial Statements.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH, IMPLEMENTATION OF GROWTH
STRATEGY AND POTENTIAL INABILITY TO SUCCESSFULLY INTEGRATE ACQUISITIONS. The
successful implementation of the Company's expansion strategy will be dependent
on, among other things, the continued growth of the designer eyewear and premium
sunglass markets; the Company's ability to develop and introduce new products to
consumers and the marketplace; the Company's ability to identify and obtain
additional licenses for currently popular styles on a timely basis and on
favorable terms; the Company's ability to identify potential acquisition
prospects; the establishment of additional distribution arrangements; the hiring
and retaining of additional marketing, creative and other personnel; and the
successful management of such growth (including monitoring operations,
controlling costs and maintaining effective quality, inventory and service
controls). As the Company continues to grow, there will be additional demands on
the Company's financial, technical and administrative resources. The failure to
maintain and improve such resources or the occurrence of unexpected difficulties
relating to the Company's expansion strategy, could have a material adverse
effect on the Company's business. There can be no assurance that the Company
will be able to implement successfully its business strategy or otherwise expand
its operations. The complete integration and consolidation into the Company of
the product lines acquired upon the acquisition of the assets of Renaissance as
well as any future corporate acquisitions and new product licensing arrangements
will require substantial management, financial and other resources, and could
pose significant pressure on the financial condition and operating results of
the Company. There can be no assurance that the Company's resources will be
sufficient to accomplish such integration, or that the Company will not
experience difficulties with customers, personnel or others. In addition,
although the Company believes that its acquisitions and licensing arrangements
will enhance its competitive position and business prospects, there can be no
assurance that such benefits will be realized or that the combination of the
Company with other companies will be successful. Although the Company regularly
evaluates possible acquisition opportunities, the Company is not a party to any
agreements, commitments, arrangements or understanding with respect to any such
acquisition and there can be no assurance that any such acquisition will be
effected. See "Use of Proceeds" and "Business--Strategy."
DEPENDENCE ON MAJOR CUSTOMERS. The Company's sales to its five largest
customers represented approximately 62% of its sales in fiscal 1996,
approximately 51% in fiscal 1997 (30% on a pro forma basis during fiscal 1997
giving effect to the acquisitions of substantially all of the assets of Windsor
and Renaissance) and approximately 47% during the six months ended September 30,
1997. Sales to the Company's top customer, Wal-Mart, accounted for approximately
51% of the Company's sales in 1996, approximately 35% of its sales in fiscal
1997 (20% on a pro forma basis during fiscal 1997 giving effect to the
acquisitions of substantially all of the assets of Windsor and Renaissance) and
approximately 37% for the fiscal year ended September 30, 1997. The Company
anticipates that sales to its top five customers will continue to account for a
significant percentage of its sales. The Company has no long term commitments or
contracts with any of its customers. The loss or decreased sales from one or
more of these customers and in particular, Wal-Mart, would have a material
adverse effect on the Company's financial condition. The inability of any of the
Company's customers to satisfy any of their obligations to the Company at any
time or on a timely basis could have a material adverse effect on the financial
condition of the Company. See "Business--Marketing and Advertising."
DEPENDENCE ON LICENSES AND SIGNIFICANT CONTINUING ROYALTY OBLIGATIONS AND
ACQUISITION COSTS. Sales of eyewear under license agreements represented
approximately 35% and 30% of the pro forma sales of the Company and Renaissance
combined sales for fiscal 1996 and 1997, respectively and 35% for the six
5
<PAGE>
months ended September 30, 1997. The Company's license agreements generally
require the Company to satisfy minimum purchase requirements or to make annual
royalty payments and advertising expenditures and maintain quality control and
retail distribution commensurate with the licensor's image. Accordingly, certain
licensors are entitled to receive payment from the Company whether or not
specified minimum levels of annual sales for licensed products are met. For the
years ending March 31, 1998 and 1999, the annual aggregate royalty obligations
of the Company under current license agreements will exceed $969,000 and
582,750, respectively, even if the Company were to generate no sales under the
agreements. The license agreements also generally provide that the licensor has
the right to approve products sold pursuant to the license and to terminate the
license if the Company does not satisfy its contractual obligations in any
material respect. Management believes that the value of its licenses depends to
a great extent upon the Company's ability to anticipate, gauge and respond to
changing consumer tastes and the popularity of certain fashion trends and
styles. The agreements licensing to the Company the rights to use certain
trademarks and trade names will terminate between 1997 and 2000. The Company's
successful efforts in developing licensed products and other factors may result
in increased royalty requirements to the Company for renewals. Although the
Company has no reason to believe it will not be able to renew its licenses upon
their respective expiration dates on favorable terms, the loss of one or more of
the licenses, or the decline in popularity of certain trade names, could have a
material adverse effect on the Company's financial condition. The Company's
obligations under employment agreements and consulting agreements with members
of management and its Board of Directors aggregate approximately $500,000 for
the year ending March 31, 1998. In addition, payments under notes,
non-competition and other agreements relating to the acquisition of
substantially all of the assets of Chanuk, Windsor and Renaissance, will
aggregate approximately an additional $348,000 for each of the years ending
March 31, 1998 and March 31, 1999. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Financial Statements.
DEPENDENCE ON OFFERING PROCEEDS TO IMPLEMENT PROPOSED EXPANSION; NEED FOR
ADDITIONAL FINANCING. The Company intends to continue to expand by identifying
and acquiring the businesses or assets of companies with product lines and
distribution channels that are complementary to those of the Company. The
Company is dependent on the proceeds of this Offering or other financing to
implement its proposed expansion. Although the Company anticipates that the
proceeds of this Offering will be sufficient to meet its cash needs for at least
the next 12 months, in the event that the Company's plans change, its
assumptions change or prove to be inaccurate or the proceeds of this Offering
and future cash flow proves to be insufficient to fund the Company's expansion
plans (due to unanticipated expenses, delays, problems, difficulties or
otherwise), the Company would be required to seek additional financing sooner
than anticipated or curtail its expansion activities. The Company may determine,
depending upon the opportunities available to it, to seek additional debt or
equity financing to fund the cost of continuing expansion. To the extent the
Company finances an acquisition with a combination of cash and equity
securities, any such issuance of equity securities would result in dilution to
the interests of the Company's stockholders. Additionally, to the extent that
the Company incurs indebtedness or issues debt securities in connection with any
acquisition, the Company will be subject to risks associated with incurring
substantial indebtedness, including the risks that interest rates may fluctuate
and cash flow may be insufficient to pay principal and interest on any such
indebtedness. Other than its bank line of credit, the Company has no current
arrangements with respect to, or sources of, additional financing, and it is not
anticipated that existing stockholders will provide any portion of the Company's
future financing requirements. There can be no assurance that additional
financing will be available to the Company on favorable terms, if at all. See
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Certain Relationships and Related Party
Transactions."
CONSUMER PREFERENCES AND INDUSTRY TRENDS. The fashion eyewear industry is
characterized by frequent introduction of new products and services, and is
subject to changing consumer preferences and industry trends, which may
adversely affect the Company's ability to plan for future design, development
and marketing of its products and services. The Company's success will depend on
the Company's ability to
6
<PAGE>
anticipate and respond to these and other factors affecting the industry.
Moreover, if a downturn occurs in the economy, the fashion industry including
fashion eyewear, may be particularly vulnerable. There can be no assurance that
the Company will be able to anticipate and respond quickly and effectively to
changing consumer preferences and industry trends or that competitors will not
develop and commercialize new products that render the Company's products and
services obsolete or less marketable. See "Business-- Industry Background" and
"--Competition."
DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS. The Company is currently
dependent on a limited number of third-party manufacturers for all of its supply
of eyewear. The Company does not have an agreement with any of such
manufacturers and purchases eyewear pursuant to purchase orders placed from time
to time in the ordinary course of business. The Company is substantially
dependent on the ability of its manufacturers to provide adequate inventories of
quality eyewear on a timely basis and on favorable terms. The Company's
manufacturers also produce eyewear for certain of the Company's competitors, as
well as other large customers, and there can be no assurance that such
manufacturers will have sufficient production capacity to satisfy the Company's
inventory or scheduling requirements during any period of sustained demand, or
that the Company will not be subject to the risk of price fluctuations and
periodic delays. Although the Company believes that its relationship with its
manufacturers is satisfactory and that numerous alternative sources for its
eyewear are currently available, the loss of services of such manufacturers or
substantial price increases imposed by such manufacturers, in the absence of
readily available alternative sources of supply, would have a material adverse
effect on the Company. See "Business--Sources of Supply."
RISKS RELATING TO THE USE OF FOREIGN SUPPLIERS. The Company imports
substantially all of its frames from foreign suppliers located in Taiwan, Korea,
Japan, Germany and Italy, and, therefore, its prices for and supply of those
frames may be adversely affected by changing economic conditions
internationally. The Company may also be subject to other risks associated with
its international relationships, including tariff regulations and requirements
for export licenses, unexpected changes in regulatory requirements, potentially
adverse tax consequences, economic and political instability, restrictions on
repatriation of earnings and the burdens of complying with a wide variety of
foreign laws. In addition, the laws of certain countries may not protect the
Company's products and intellectual property rights to the same extent as do the
laws of the United States. There can be no assurance that such factors will not
have a material adverse effect on the Company's future sales or licenses and,
consequently, on the Company's business and operations as a whole.
USE OF PROCEEDS TO REPAY DEBT; BROAD DISCRETION IN APPLICATION OF PROCEEDS;
BENEFITS TO INSIDERS. Approximately $5,000,000 (62%) will be used for the
repayment of bank indebtedness by reducing the Company's debt under its line of
credit and $1,305,000 (16%) of the estimated net proceeds of this offering have
been allocated to working capital and general corporate purposes. Accordingly,
the Company will have broad discretion as to the application of the proceeds of
the offering and capital available under its line of credit. Approximately
$470,000 (6%) of the proceeds will be used to repay indebtedness to Rudy
Slucker, the Company's Chairman of the Board of Directors, incurred by the
Company from February 1997 to November 10, 1997 to assist the Company in
financing its costs relating to the acquisition of substantially all of the
assets of Renaissance and the integration of the business of Renaissance into
the business of the Company. In addition, since Rudy Slucker, the Chairman of
the Board of the Company, and Barry Budilov, the President and Chief Executive
Officer of the Company, have each guaranteed up to $1.1 million of such debt,
the likelihood of a default and a call on their guarantee is reduced to the
extent of the reduction in the amount of the debt. In addition, Messers. Slucker
and Budilov have agreed to increase their personal guarantees by $375,000 each
if the Company fails to complete a public offering by February 1998.
Accordingly, upon the completion of this Offering, the personal obligations of
Messrs. Slucker and Budilov will be reduced further. Finally, the Company's
obligations under existing or contingent employment agreements and consulting
agreements with members of management and its
7
<PAGE>
Board of Directors, including Messrs. Slucker and Budilov, aggregate
approximately $630,000 (8%) over the next 18 months. See "Use of Proceeds."
HIGHLY COMPETITIVE MARKET. The prescription and non-prescription eyewear
markets are highly competitive. The major competitive factors in the eyewear
market include, but are not limited to, fashion trends, brand recognition,
method of distribution, the number and range of products offered, an increase in
contact lens users and the increase acceptance of laser surgery as a viable
method to correct or assist poor vision. The Company competes with a number of
established companies, including Luxotica, Safilo, Marchon, and Bausch & Lomb,
which collectively control a substantial portion of the premium market segment,
other large companies and with several companies having smaller but significant
market shares. Several of these companies have substantially greater resources
and better name recognition than the Company and sell their products through
broader and more diverse distribution channels. In addition, several of these
competitors have their own manufacturing facilities. The Company could also face
competition from new competitors, including established branded consumer
products companies, such as Nike, Inc., that also have greater financial and
other resources than the Company. In addition, as the Company expands
internationally, it will face substantial competition from companies that have
already established their products in international markets and consequently
have significantly more experience in those markets than the Company. In
addition, to retain and increase its market share, the Company must continue to
be competitive in the areas of quality and performance, technology, obtaining
attractive licenses, customer service and price of which there can be no
assurance. See "Business--Competition."
DEPENDENCE ON NEW PRODUCT INTRODUCTIONS, TRADEMARKS AND TRADE NAMES.
Although a substantial portion of the Company's product lines are designed to be
"traditional" designs, that are not necessarily subject to changing fashion
trends, the eyewear industry is nevertheless subject to continuing broader as
well as often subtle shifts in consumer taste and preferences. The Company
offers in excess of 700 eyewear styles at any one time and may introduce 100 new
styles in any given year. The sustainability of the Company's growth will
depend, in part, on its continued ability to develop, identify and introduce
innovative designs and products and on the acceptance of such designs and
products by consumers. Innovative designs are often not successful and
successful product designs can be displaced by other product designs introduced
by competitors that shift market preferences in their favor. Sunglasses are
particularly subject to shifting consumer tastes and may have relatively short
life cycles, thereby requiring the Company to introduce new products more
frequently. In addition, competitors may follow the Company's introduction of
successful products with similar product offerings, thereby decreasing the
Company's market share. If the Company misjudges the market for a particular
product, particularly its sunwear line of products, the Company's sales may be
adversely affected and it may be faced with excess inventories. As a result of
these and other factors, there can be no assurance that the Company will
successfully maintain or increase its market share. In addition, the Company
owns and has obtained licenses to various domestic and international trademarks
related to its products and business. These licenses expire at various times
over the next four years. The loss of one or more of the trademarks could have a
material adverse effect on the Company's financial condition. Further, if the
Company had to defend against any litigation proceedings, suits or claims
relating to its intellectual property rights or to its intellectual property or
institute any action to protect such rights, the Company's involvement in such
action could have a material adverse effect on the Company's financial
condition.
DEPENDENCE UPON KEY PERSONNEL AND CONSULTANTS. The Company is dependent on
certain of its executive officers , including Barry Budilov, the Company's
President and Chief Executive Officer, and Rudy Slucker, the Company's Chairman
of the Board. The Company intends to obtain and become the beneficiary of key
person life insurance policies in the face amount of $1,000,000 on the lives of
each of Mr. Budilov and Mr. Slucker. The loss of the services of such persons,
or an inability to attract, retain and motivate additional highly skilled
management personnel, could materially adversely effect the Company's business
and prospects. There can be no assurance that the Company will be able to retain
its existing personnel or attract and retain additional qualified employees. Mr.
Slucker is employed on a full time basis
8
<PAGE>
by another corporation and provides limited amounts of consulting services to
the Company's business, on an as needed basis. See "Management."
SEASONALITY. The Company believes that its business is subject to seasonal
trends, resulting in higher sales of prescription eyewear during the spring and
fall and higher sales of sunglass products during the spring. Accordingly, sales
and results of operations for the months may fluctuate from month to month
throughout the year and quarterly results may not always be indicative of the
entire year.
CONTROL OF THE COMPANY BY OFFICERS AND DIRECTORS. Immediately following
this Offering, Rudy Slucker and Barry Budilov will beneficially own an aggregate
of approximately 65% of the outstanding shares of the Company's Common Stock. As
a result, such persons, acting together, have the ability to exercise control
over all matters requiring stockholder approval. In addition, the Company's
credit facility includes a provision that requires the continuing involvement
and control of the Company by current management as a condition to the
continuing availability of the credit. The concentration of ownership could
delay or prevent a change in control of the Company. See "Management" and
"Principal Stockholders."
DILUTION. Purchasers of the Shares offered hereby will suffer an immediate
and substantial dilution of $3.48 per Share from the initial public offering
price (assuming an initial public offering price of $5.00 per Share). In
addition, investors purchasing Shares in the Offering will incur additional
dilution to the extent that stock options are exercised. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, the
Company will have 5,500,000 shares of Common Stock outstanding, as well as
options and warrants to purchase an additional 699,333 shares of Common Stock
(including the Underwriter's Warrants). The 2,000,000 Shares sold in the
Offering will be freely tradable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"). The
3,500,000 shares of Common Stock owned by existing stockholders are deemed to be
"restricted securities," as that term is defined in Rule 144 promulgated under
the Securities Act, in that such shares were issued in a private transaction not
involving a public offering. All of the 3,500,000 shares of Common Stock held by
existing stockholders will be eligible for sale under Rule 144 ninety days after
the Offering. The Company and each of the Company's directors, officers and
shareholders have agreed not to offer, assign, issue, sell, hypothecate or
otherwise dispose of any shares of Common Stock or any securities exercisable
for or convertible into shares of Common Stock for a period of 18 months after
the date of this Prospectus without the prior, written consent of the
Underwriter. No prediction can be made as to the effect, if any, that sales of
securities or the availability of securities for sale will have on the market
price of the Shares prevailing from time to time. The holders of the
Underwriter's Warrants will have certain demand and "piggy back" registration
rights with respect to such warrants and the shares of Common Stock underlying
such warrants commencing one year after the date hereof. If the Underwriter
should exercise its registration rights to effect a distribution of the
Underwriter's Warrants or the Warrant Shares, the Underwriter, prior to and
during such distribution, will be unable to make a market in the Company's
securities, which may therefore be limited. If the Underwriter ceases making a
market in the Common Stock, the Company could lose the ability to list the
Common Stock on the Nasdaq National Market because of such market's requirement
of at least two market makers, the market and market prices for the Common Stock
may be materially adversely affected, and holders thereof may be unable to sell
or otherwise dispose of shares of Common Stock. See "Shares Eligible For Future
Sale" and "Underwriting."
NO PRIOR MARKET; DETERMINATION OF OFFERING PRICE. Prior to the Offering,
there has been no public market for the Company's Common Stock. Although the
Company is seeking listing of the Common Stock on the Nasdaq National Market,
there can be no assurance that such application will be approved or that an
active public market will develop. The initial public offering price will be
determined by negotiation between the Company and the Underwriter. There can be
no assurance that the initial public offering price will correspond to the price
at which the Common Stock will trade in the public after the Offering or that
9
<PAGE>
an active trading market for the Common Stock will develop and continue after
the Offering. See "Underwriting."
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Common Stock
may be highly volatile. Factors such as fluctuations in the Company's operating
results, announcements of new products by the Company or its competitors,
developments with respect to trademarks or proprietary rights, changes in stock
market analyst recommendations regarding the Company, other companies selling
similar products and general market conditions may have a significant effect on
the market price of the Common Stock. In addition, the stock market has
periodically experienced significant price and volume fluctuations unrelated to
operating performance of particular companies. These broad market fluctuations
may adversely affect the market price of the Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Underwriting."
ABSENCE OF DIVIDENDS. The Company's current policy is to retain earnings
for use in its business and, accordingly, the Company does not intend to pay
cash dividends on its Shares in the foreseeable future. Furthermore, the
Company's credit facility with CoreStates Bank restricts the payment of cash
dividends while amounts are outstanding under the facility. See "Dividend
Policy."
ELIMINATION OF LIABILITY FOR DIRECTORS. The Company's Articles of
Incorporation limit the liability of a director of the Company to the Company
and its stockholders for monetary damages for breach of fiduciary duty to the
fullest extent permitted by the Delaware General Corporate Law ("DGCL"). The
DGCL permits elimination of a director's personal liability for monetary damages
for breach of fiduciary duty, except (i) for breach of the director's duty of
loyalty to a company or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
(iii) for acts specified in Section 174, DGCL and (iv) for transactions in which
the director directly or indirectly derived an improper personal benefit. As a
result of such provisions, the rights of Company stockholders to recover
monetary damages from directors of the Company for certain breaches of
directors' fiduciary duties may be significantly limited. See
"Management--Indemnification of Directors and Executive Officers and Limitation
of Liability."
BLANK CHECK PREFERRED STOCK; POSSIBLE ANTI-TAKEOVER EFFECTS; ISSUANCE OF
SERIES A PREFERRED STOCK. The Company's Articles of Incorporation authorizes
the Board of Directors to issue up to 1,000,000 shares of Preferred Stock, $.01
par value per share. The Preferred Stock may be issued in one or more series,
the terms of which may be determined at the time of issuance by the Board of
Directors, without further action by stockholders, and may include, among other
things, voting rights (including the right to vote as a series on particular
matters), preferences as to dividends and liquidation, conversion and redemption
rights, and sinking fund provisions. The issuance of any such preferred stock
could materially adversely affect the rights of holders of Common Stock and,
therefore, could reduce the value of the Common Stock. In addition, specific
rights granted to future holders of preferred stock could be used to restrict
the Company's ability to merge with, or sell its assets to a third party,
thereby preserving control of the Company's existing stockholders. The issuance
of the preferred stock may, in some circumstances, deter or discourage takeover
attempts and other changes in control of the Company, including takeovers and
changes in control which some holders of the Common Stock may deem to be in
their best interests and in the best interest of the Company, by making it more
difficult for a person who has gained a substantial equity interest in the
Company to obtain voting control or to exercise control effectively thereby
preserving control of the Company by the current controlling stockholders. On
the effective date of this Offering, certain debt payable to the Company's two
principal stockholders of the Company will be converted into an aggregate of
118,100 shares of Series A Preferred Stock. See "Description of Securities."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered by the
Company hereby are estimated to be $8,075,000 (or $9,380,000 if the
Underwriter's over-allotment option is exercised in full), based on an assumed
initial public offering price of $5.00 per share and after deducting the
estimated underwriting discounts and offering expenses payable by the Company.
The Company intends to use the net proceeds from the Offering over the next 18
months for (i) reduction of approximately $5,000,000 (62% of net proceeds) of
the Company's bank debt and repayment of approximately $470,000 (6% of net
proceeds) of indebtedness to Rudy A Slucker, the Chairman of the Board of
Directors of the Company; (ii) expansion of sales and marketing activities
(approximately $800,000, 10% of net proceeds); (iii) purchase of inventory
(approximately $500,000, 6% of net proceeds); and (iv) general corporate
purposes, including working capital and to finance potential acquisitions
($1,305,000, 16% of net proceeds). A portion of the Company's working capital
will be used to satisfy the Company's obligations under employment agreements
and consulting agreements with members of management and its Board of Directors
which aggregate approximately $630,000 (7.8% of net proceeds) over the next 18
months. Any proceeds from the exercise of the Underwriter's over-allotment
option will be added to working capital and to finance potential acquisitions.
The debt that is being repaid from the proceeds of this Offering is
comprised of (i) $5,000,000 of principal, interest and fees to CoreStates Bank
which reflects a portion of the amounts outstanding to such bank and (ii)
$470,000 to Rudy A. Slucker, the Chairman of the Board of Directors of the
Company. The CoreStates Bank debt is pursuant to a demand note that bears
interest at an annual rate equal to the prime rate (8.5% at September 30, 1997).
The debt to Mr. Slucker was incurred between February 4, 1997 and November 10,
1997 to assist the Company in financing its costs relating to the acquisition of
substantially all of the assets of Renaissance and the integration of the
business of Renaissance into the Company. The loan is repayable upon demand and
bears interest at the rate of 8% per annum. The cash used by the Company from
its loan facilities has been used by the Company to fund working capital,
including, among other things, to pay salaries of management to pay for costs
associated with moving the Company's facilities, and to pay interest to the
Company's principal stockholders on outstanding debt. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Relationships and Related Party Transactions."
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of this Offering based upon the Company's currently
contemplated operations, business plans, as well as current economic and
industry conditions, and is subject to reapportionment among the categories
listed above or to new categories in response to, among other things, changes in
the Company's plans, unanticipated future revenues and expenditures, and
unanticipated industry conditions. The amount and timing of expenditures will
vary depending on a number of factors, including, without limitation, the
results of operations and changing industry conditions. To the extent deemed
appropriate by management, the Company may acquire fully developed products or
businesses that are complementary to the Company's operations and which, in the
opinion of management, facilitate the growth of the Company and enhance the
market penetration or reputation of its products. To the extent that the Company
identifies any such opportunities, an acquisition may involve the expenditure of
significant cash or the issuance of Common Stock. Any expenditure of cash will
reduce the amount of cash available for working capital or marketing and
advertising activities. Although the Company has been engaged in discussions
with a number of potential candidates, the Company currently has no commitments,
understandings or arrangements with respect to any such acquisition. The
Company's current corporate policy would not prohibit any such transactions
between the Company and any business or company in which management or any
affiliate or associate of any member of management have an ownership interest,
but would require that the terms of any such transaction be on terms no less
favorable to the Company as those that could be obtained from an independent
third party.
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<PAGE>
Pending application of the net proceeds, the Company intends to invest the
net proceeds in short-term investment grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and presently does not intend to do so in the foreseeable future.
Management intends to retain all available earnings to finance and expand its
business. Declaration of dividends in the future will be at the discretion of
the Board of Directors and will depend on the Company's future earnings, capital
requirements, financial position, contractual restrictions, and other factors
deemed relevant by the Company's Board of Directors. The Company's loan
agreement with CoreStates Bank contains restrictions on the payment of
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
12
<PAGE>
CAPITALIZATION
The following table sets forth the actual short-term debt and capitalization
of the Company at September 30, 1997 and pro forma as adjusted to give effect to
the sale of the Shares offered hereby at an assumed initial public offering
price of $5.00 per Share, the repayment of $5,470,000 of debt with the proceeds
therefrom and the conversion of $1.18 million of debt into 118,100 shares of
Series A Cumulative Redeemable Preferred Stock as of the effective date of this
Offering. See "Use of Proceeds" and "Capitalization." This table should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------
<S> <C> <C>
PRO FORMA AS
ACTUAL ADJUSTED
---------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Short-term debt........................................................................ $ 13,154 $ 7,684
---------- -------------
---------- -------------
Long-term debt......................................................................... 325 325
Non-current notes payable--stockholders/officer........................................ 1,181 0
Series A 5% Cumulative Redeemable Preferred Stock (liquidation preference of $10 per --
share); 0 shares authorized, 118,100 shares authorized, issued and outstanding, pro
forma................................................................................ 1,181
Stockholders' equity:
Preferred Stock, $.01 per value; 1,000,000 shares authorized(1)...................... -- --
Common stock, $.01 par value; 20,000,000 shares authorized; 3,500,000 shares 35
outstanding 5,500,000 shares issued and outstanding
as adjusted (2).................................................................... 55
Additional paid-in capital........................................................... 187 8,242
Unearned portion of compensatory stock options....................................... (165) (165)
Retained earnings.................................................................... 291 291
---------- -------------
Total stockholders' equity......................................................... 348 8,423
---------- -------------
Total capitalization............................................................. $ 1,854 $ 9,929
---------- -------------
---------- -------------
</TABLE>
- ------------------------
(1) 118,100 shares of Preferred Stock have been designated as Series A
Cumulative Redeemable Preferred Stock.
(2) Excludes (i) 499,333 shares of Common Stock issuable upon exercise of
outstanding options, and (ii) 200,000 shares of Common Stock issuable upon
exercise of the Underwriter's Warrants. See "Certain Relationships and
Related Party Transactions" and "Underwriting."
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<PAGE>
DILUTION
At September 30, 1997, the negative net tangible book value of the Company
was approximately $76,000, or $(.02) per Share. "Net tangible book value per
share" represents the amount of total tangible assets of the Company less total
liabilities of the Company, divided by the number of shares of Common Stock then
outstanding. "Dilution per share" represents the difference between the price to
be paid by new investors and the net tangible book value per Share after the
Offering. After giving effect to the receipt of the net proceeds from the sale
by the Company of the Shares offered hereby at an assumed initial public
offering price of $5.00 per share, the pro forma as adjusted net tangible book
value of the Company at September 30, 1997 would have been approximately
$8,340,000, or $1.52 per Share. This represents an immediate increase in net
tangible book value of $1.54 per share to existing stockholders and an immediate
dilution of $3.48 per share of Common Stock to new stockholders purchasing
Shares offered hereby at an assumed initial offering price of $5.00 per Share,
as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price......................... $ 5.00
Pro forma net tangible book value per share at September 30,
1997...................................................... $ (.02)
Increase per share attributable to sale of Shares in the
Offering.................................................. $ 1.54
---------
Pro forma as adjusted net tangible book value per share after
the Offering................................................ $ 1.52
---------
Dilution to new investors this Offering....................... $ 3.48
---------
---------
</TABLE>
The following table summarizes on a pro forma basis as of September 30, 1997
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by the
existing stockholders and by new investors purchasing Shares in the Offering at
an assumed initial offering price of $5.00 per Share (before deducting the
estimated underwriting discount and offering expenses payable by the Company).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.................................. 3,500,000 63.64% $ 1,000 .01% $ .0003
New Investors.......................................... 2,000,000 36.36% 10,000,000 99.99% $ 5.00
---------- --------- ------------- ---------
Total.................................................. 5,500,000 100.00% $ 10,001,000 100.00%
---------- --------- ------------- ---------
---------- --------- ------------- ---------
</TABLE>
The foregoing computations assume no exercise of the Underwriter's
over-allotment option or any outstanding stock options. See "Capitalization" and
"Underwriting."
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW. The Company designs, markets, sources and distributes high
quality prescription eyeglass frames and non-prescription sunglasses to
department and specialty stores, optical chains and eyewear boutiques throughout
the United States and the world. On May 3, 1995 (inception), the Company was
organized and on May 10, 1995, acquired substantially all of the assets and
assumed certain of the liabilities of Chanuk. Chanuk was engaged in
substantially the same business as the Company and a majority stockholder of
Chanuk is the mother-in-law of the President of the Company. The Company has
expanded through the acquisition of other companies in related and complementary
businesses and through the increase of its sales base. On June 26, 1996 the
Company acquired substantially all of the assets and assumed certain of the
liabilities of Windsor and on February 26, 1997, the Company acquired from a
bank substantially all of the assets of Renaissance. The bank had foreclosed on
Renaissance upon default of its loan agreement. In connection with the
acquisition, the Company paid the bank $3,446,000. The Company also entered into
a consulting agreement with the former owner of Renaissance which provided for
annual aggregate payments of $200,000 per year for five years. In addition,
under a consulting agreement, the Company granted the former owner of
Renaissance options to purchase 180,833 shares of Common Stock of the Company
for $3.00 per share. Following the acquisition, the Company paid an aggregate of
approximately $400,000 to various creditors of Renaissance deemed to be
necessary to preserve the value of the acquired assets.
The results of operations for the Company for the period from inception to
March 31, 1996 ("Fiscal 1996") gives effect to the operations of the Company
independent of Windsor and Renaissance. The operations of the Company for the
year ended March 31, 1997 include the results of operations of the Company
during such period, including nine months of operations attributable to the
operations of Windsor as well as approximately one month of operations of
Renaissance. The pro forma condensed statement of operations for the year ended
March 31, 1997 gives effect to the operations for each of the Company,
Renaissance and Windsor as if the acquisitions of substantially all of the
assets of Renaissance and Windsor had occurred on April 1, 1996. However, the
operations of Renaissance give effect to its conduct as a stand-alone business
and do not reflect the anticipated efficiencies of scale or other cost reduction
measures being implemented by the Company. However, no assurance can be given
that any such efficiencies will be achieved. The discussion of the liquidity and
capital resources of the Company at March 31, 1997, includes information with
respect to the Company that gives effect to both the acquisition of Renaissance
and Windsor since the respective acquisitions occurred prior to such date.
YEAR ENDED MARCH 31, 1997 ("FISCAL 1997") COMPARED TO FISCAL 1996. Net
sales for Fiscal 1997 were approximately $16.5 million as compared to
approximately $11.0 million for Fiscal 1996. The increase in sales was
attributable to the addition of the product lines and sales resulting from the
acquisition of Windsor in June 1996 as well as to increases in sales of existing
product lines of the Company. In addition, Fiscal 1996 reflects approximately
one less month of operations than Fiscal 1997.
Cost of sales for Fiscal 1997 were approximately $8.6 million (approximately
52% of net sales) as compared to approximately $6.8 million for Fiscal 1996
(approximately 62% of net sales) for Fiscal 1996. Cost of sales includes the
purchase price for eyeglass frames, in addition to the costs of the Company of
importing such frames. Cost of sales decreased from 1997 to 1996 as a percentage
of net sales because the Company was able to identify lower cost sources of
manufacturing as its sales volume increased and established efficiencies of
scale in connection with the distribution and maintenance of its inventories.
Selling, general and administrative expenses, consisting of advertising,
marketing, accounting and salaries of officers, increased from approximately
$4.3 million (approximately 39% of net sales) for Fiscal 1996 to approximately
$6.1 million (approximately 37% of net sales) for Fiscal 1997. Selling, general
and administrative expenses increased in aggregate dollar amounts reflecting
increased sales and marketing costs and increased administrative costs relating
to the acquisition of substantially all of the assets of
15
<PAGE>
Windsor and Renaissance and the increase in accounting and overhead expense
relating to the introduction of new product lines.
Income from operations increased from a loss of approximately $79,000
(approximately .7% of net sales) for Fiscal 1996 to income of approximately $1.8
million (approximately 10.7% of net sales) during Fiscal 1997, reflecting the
increased sales by the Company from its pre-existing base of customers as well
as the addition of the Windsor operations and a decrease in cost of sales.
Interest expense increased from approximately $474,000 for Fiscal 1996 to
approximately $742,000 during Fiscal 1997, reflecting the increased borrowing by
the Company both to finance the acquisition of Windsor, to finance the growth of
the Company's operations and to finance the increase in the Company's inventory
necessary to allow the Company to provide improved delivery capabilities for its
increase in customer base.
SIX MONTHS ENDED SEPTEMBER 30, 1997 ("1997 SIX MONTHS") COMPARED TO SIX
MONTHS ENDED SEPTEMBER 30, 1996 ("1996 SIX MONTHS"). Net sales for the 1997 six
months were approximately $12.5 million as compared to approximately $8.0
million for the 1996 six months. The increase in sales was attributable to the
addition of the product lines and sales resulting from the acquisition of
Windsor in June 1996 and Renaissance in February 1997, as well as to increases
in sales of existing product lines of the Company.
Cost of sales for the 1997 six months were approximately $5.7 million
(approximately 45% of net sales) as compared to approximately $4.5 million for
the 1996 six months (approximately 57% of net sales). Cost of sales includes the
purchase price for eyeglass frames, in addition to the costs to the Company of
importing such frames. Cost of sales decreased in 1997 compared to 1996 as a
percentage of net sales because the Company was able to identify lower cost
sources of manufacturing as its sales volume increased and established
efficiencies of scale in connection with the distribution and maintenance of its
inventories.
Selling, general and administrative expenses, consisting principally of
advertising, marketing, accounting and salaries of officers, increased from
approximately $2.9 million (approximately 36% of net sales) for the 1996 six
months to approximately $5.8 million (approximately 46% of net sales) for the
1997 six months. Selling, general and administrative expenses increased as a
result of increased sales and marketing costs and increased administrative costs
relating to the acquisition of substantially all of the assets of Windsor and
Renaissance and the increase in accounting and overhead expense relating to the
introduction of new product lines. Selling, general and administrative expenses
during the 1997 six months includes approximately $766,000 relating to redundant
costs of operating Renaissance in a separate facility through July 1997,
consisting primarily of duplicate overhead and personnel expenses incurred prior
to the consolidation of the Company's operations into one location as well as
actual costs related to the relocation. The Company expects that, in future
quarters, with the addition of Renaissance, its selling, general and
administrative expenses will decline as a percentage of net sales as it achieves
increased efficiencies of scale.
Income from operations increased from approximately $609,000 (approximately
7.6% of net sales) for the 1996 six months to approximately $1.1 million
(approximately 9% of net sales) during the 1997 six months, reflecting the
increased sales by the Company from its pre-existing base of customers as well
as the addition of the Windsor and Renaissance operations and a decrease in cost
of sales partially offset by an increase in overhead costs.
Interest expense increased from approximately $266,000 for the 1996 six
months to approximately $640,000 during the 1997 six months, reflecting the
increased borrowing by the Company both to finance the acquisition of Windsor
and Renaissance, to finance the growth of the Company's operations and to
finance the increase in the Company's inventory necessary to allow the Company
to provide improved delivery capabilities for its increase in customer base.
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LIQUIDITY AND CAPITAL RESOURCES. At September 30, 1997, the Company had
working capital of approximately $1.6 million. The Company's total current
assets at September 30, 1997 of approximately $21.3 million includes accounts
receivable of approximately $8.6 million and inventories of approximately $11.9
million. The Company's accounts receivable reflects an allowance for doubtful
accounts of approximately $1.9 million. The Company's inventories consist
principally of eyeglass frames and sunglasses held at its warehouse for
distribution. The market for eyewear and accessories is subject to the risk of
changing consumer trends. In order to be able to promptly fill orders from
distributors, the Company maintains a significant level of inventory. In the
event that a significant number of particular models or accessories does not
achieve widespread consumer acceptance, the Company may be required to take
significant price markdowns, which could have a material adverse effect on the
business results of operations and financial condition of the Company. However,
the Company believes that current reserves adequately reflect the Company's
exposure for reduction in the value of its inventory and does not anticipate any
material write-downs of inventory in the near future.
The Company's current liabilities as of September 30, 1997 include
approximately $12.4 million relating to its revolving line of credit with
CoreStates Bank. The Company has used its line of credit to fund its continuing
operations, to fund its increased inventory and to fund the acquisitions of
Windsor and Renaissance. The revolving line of credit expires annually on June
1st and is automatically renewed for one year periods providing for a maximum
borrowing amount of $12 million. Indebtedness under the line accrues interest at
the prime rate (8.5% at September 30, 1997) and is collateralized by
substantially all of the assets of the Company. Rudy Slucker, the Chairman of
the Board of Directors of the Company, and Barry Budilov, the President of the
Company, have each provided personal guarantees for the line of credit for up to
$1.1 million of such debt. In addition, Messrs. Slucker and Budilov have agreed
to increase their present guarantees by $375,000 each if the Company fails to
complete a public offering by February 1998. Accordingly, upon the completion of
this Offering, the personal obligations of Messrs. Slucker and Budilov will be
reduced further. At September 30, 1997, approximately $12.5 million was
outstanding under the credit facility. In November 1997, the facility was
increased to $13 million. The Company intends to repay approximately $5 million
of this debt from the proceeds of this Offering, including a transaction fee of
$100,000 which relates to the acquisition of Renaissance, which is payable to
CoreStates Bank upon the closing of this Offering. The Company has also borrowed
an aggregate of $470,000 from Rudy A. Slucker from February 4, 1997 through
November 10, 1997 to assist the Company in financing its costs relating to the
acquisition of substantially all of the assets of Renaissance and the
integration of the business of Renaissance into that of the Company. The loan is
payable on demand with interest at the rate of 8% per annum. The Company will
repay the debt upon the closing of the Offering.
At September 30, 1997, the Company's current liabilities also include
approximately $4.8 million of accounts payable and $1.1 million accrued
expenses, payable in the ordinary course of its business. The Company's
long-term debt includes approximately $268,000 of indebtedness in connection
with the acquisition of Windsor, approximately $788,000 of net deferred credit,
representing the excess value of net assets of Renaissance acquired over cost.
This amount is being amortized over a period of five years from the date of
acquisition.
As of the effective date of this Offering, an aggregate of approximately
$1.18 million in principal and interest, payable to Mr. Slucker and Mr. Budilov
will be converted from promissory notes to 118,100 shares of Series A Cumulative
Redeemable Preferred Stock ("Series A Preferred Stock"). The Series A Preferred
Stock yields dividends at the rate of 5% per annum and will be redeemable at the
option of the holder three years from the effective date of this Offering
subject to restrictions contained in the Company's loan agreement with
CoreStates Bank. If the Company has earnings equal to or in excess of $.60 per
share for the year ending March 31, 1999 or $.75 per share for the year ending
March 31, 2000, the Series A Preferred Stock may be redeemed at the option of
the holder commencing on March 31, 1999 or March 31, 2000, respectively. The
Series A Preferred Stock will be non-voting. The Company's revolving line of
credit with CoreStates Bank contains restrictions on the redemption of
securities of the Company to the extent
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that amounts remain outstanding under the line of credit. In addition, the
revolving line of credit restricts the payment of dividends to stockholders and
provides for a variety of conditions of default, including the continuing
participation of Rudy A. Slucker and Barry Budilov in their current management
positions.
Sales of eyewear under license agreements represented approximately 35% and
30% of the pro forma sales of the Company and Renaissance for fiscal 1996 and
1997, respectively. The Company's license agreements generally require the
Company to satisfy minimum purchase requirements or to make annual royalty
payments and advertising expenditures and maintain quality control and retail
distribution commensurate with the licensor's image. Accordingly, certain
licensors are entitled to receive payment from the Company whether or not
specified minimum levels of annual sales for licensed products are met. For the
year ending March 31, 1998 and 1999, the annual aggregate commission obligations
of the Company under current license agreements will exceed $969,000 and
$583,000 respectively even if the Company were to generate no sales under the
agreements.
As of September 30, 1997, the Company's obligations under existing and
proposed employment agreements and consulting agreements with members of
management and its Board of Directors aggregate approximately $630,000 over the
next 18 months. In addition, payments under notes, non-competition and other
agreements relating to the acquisition of substantially all of the assets of
Chanuk, Windsor and Renaissance, will aggregate approximately an additional
$375,000 for the years ending March 31, 1998 and March 31, 1999.
The Company currently leases office, warehouse and showroom facilities and
equipment under operating leases, which expire at various times through the year
2002. Future minimum lease payments under non-cancelable leases at September 30,
1997 aggregate approximately $2.2 million through the year 2002.
The Company leased its prior principal offices in Philadelphia, Pennsylvania
under a lease that expires in the year 2000. Monthly rental payments under such
lease are approximately $11,000. The Company has since moved to an alternative
location in Pennsylvania for its management, inventory and distribution
operations for which it pays a base annual rent of approximately $300,000 per
year. The Company does not intend to use its Philadelphia facility and is
seeking to sublet the facility. If the Company sublets the facility for less
than the full rental amount, if at all, the Company will be required to
recognize a charge to the extent of any shortfall.
In connection with the acquisitions of substantially all of the assets of
Renaissance in 1997, the Company satisfied certain obligations of that business
to particular creditors, the cooperation of which was deemed to be necessary to
continue conducting business. In connection with the acquisition of
substantially all of the assets of Renaissance, no liabilities of Renaissance
were contractually assumed by the Company. The Company has been provided with
estimates indicating that the net liabilities of Renaissance exceeded $3.0
million at the time the Company acquired the assets. A number of creditors of
Renaissance have instituted collection actions in court against Renaissance for
amounts due to them from Rennaissance. The Company is not a party to any of
these actions, and has no knowledge of the amounts involved in such proceedings.
To the extent that any creditors of Renaissance seek recourse against the
Company as the purchaser of substantially all of the assets of Renaissance, the
Company may incur substantial expenses in connection with defending any such
actions. Furthermore, to the extent that creditors are successful in asserting
any claims against the Company as a successor to Renaissance or challenge the
acquisition from the secured creditor, the Company could be responsible for
substantial liabilities and its financial position could be adversely affected.
PRO FORMA RESULTS OF OPERATIONS FOR THE COMPANY AND RENAISSANCE. The pro
forma unaudited condensed statement of operations for the Company reflects the
acquisitions of Windsor and Renaissance as if such transactions had occurred on
April 1, 1996. Pro forma net sales were approximately $29.1 million for Fiscal
1997, reflecting net sales for the Company of approximately $16.5 million, net
sales for Renaissance for the eleven months ended February 28, 1997 of
approximately $11.7 million and net sales
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for Windsor for the three months ended June 30, 1996 (being the period during
which Windsor's sales were not included in those of the Company) of
approximately $1.0 million. Cost of sales for Renaissance for the eleven months
ended February 28, 1997 were approximately $6.1 million (approximately 52% of
net sales), resulting in a gross profit of approximately $5.6 million
(approximately 48% of net sales). However, selling, general and administrative
expenses for Renaissance were approximately $6.5 million for the eleven months
(approximately 56% of net sales), resulting in a loss from operations for
Renaissance of approximately $900,000. On a pro forma basis, $332,000 of
expenses for the Company are eliminated to reflect the acquisition of Windsor
and Renaissance as if they had taken place on April 1, 1996. Income from
operations on a pro forma basis are approximately $1,311,000, resulting in a pro
forma income before taxes of approximately $205,000.
SEASONALITY. The Company believes that its business is subject to seasonal
trends, resulting in higher sales of prescription eyewear during the spring and
fall and higher sales of sunglass products during the spring. Accordingly, sales
and results of operations may fluctuate from month to month throughout the year
and quarterly results may not always be indicative of the entire year.
INFLATION. Management believes that there has been no significant impact on
the Company's operations as a result of inflation.
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BUSINESS
OVERVIEW
The Company designs, sources, markets and distributes high quality
prescription eyeglass frames and non-prescription sunglasses to department and
specialty stores, optical chains and eyewear boutiques throughout the United
States and the world. The Company also provides integrated marketing,
merchandising materials and consulting support to its distributors and sales
force in the sale of the Company's eyewear products. The Company distributes its
eyewear products to a broad and substantial customer base including Wal-Mart,
K-Mart, National Vision Associates and U.S. Vision as well as many regional
chain stores and local outlets. The Company has established relationships with
various fashion designers, fashion celebrities and marketing organizations
including Kathy Ireland, Halston and the John Lennon Estate, and highly
recognizable consumer products brands such as Playskool, Nintendo and
international jewelry designer Kenneth Jay Lane. The Company intends to continue
to identify and license trade names and trademarks from various high profile
brand sources in an effort to target and capture additional segments of the
eyewear markets. As used in this Prospectus, the term "sources" means that the
Company retains third parties to manufacture products to the Company's
specifications.
The Company utilizes a diverse team of freelance experienced fashion eyewear
designers to work with fashion houses, celebrities, manufacturers and
experienced members of the optical industry to design eyewear styles that convey
fashion, elegance and sophistication. The Company's eyeglass frames and
sunglasses are manufactured at a variety of independent factories throughout the
world. The Company distributes products through independent sales
representatives situated throughout the world and intends to increase the size
of its dedicated sales force, expand its sales and marketing capabilities and
develop additional alliances with fashion designers and licensors.
INDUSTRY BACKGROUND
In 1996 approximately 60% of the nation's population, used some form of
corrective eyewear. Retail sales of eyewear products totaled $14.6 billion in
1996. According to a recent study, this represents a 6% increase over $13.8
billion that was spent in 1995, when actual sales increased by 7% over 1994. The
market for corrective eyewear has grown steadily over the past five years and
the demographic trends of an aging population are expected to generate increased
demand for corrective eyewear and optical services in the immediate future.
Industry sources attribute growing retail sales of eyewear to the industry's
success in generating consumer interest in fashion eyewear. It has been reported
that American consumers are showing a distinct preference for high fashion and
high performance in eyewear frame styles. Frames accounted for $5.5 billion in
retail sales in 1996, up 7% over $5.1 billion in 1995. The average retail price
for frames also increased by about two dollars to nearly $59 in 1996. This
accounted for about 39% of an average sale of $150 for a complete set of
eyewear. It is reported that designers and brand names are leading the growth in
sales of eyewear. It has been estimated that 41% of all frame sales in 1996 were
designer/branded/licensed products, an increase of 1% from 1995. In addition,
premium materials are also being embraced by consumers, including light weight
stainless steel and titanium eyeglass frames. Metal frames are estimated to
account for 61% of all frames sold in 1996. It is estimated that in 1986,
plastic frames accounted for over two-thirds of all frames sold.
The Company believes that since the mid-1980s the sunglass market has
experienced significant growth driven primarily by the expansion of the
premium-priced sunglass market segment. According to a 1996 sunwear survey in
the United States, retail sales of sun related eyewear grew to $2.95 billion in
1996, up 8% over 1995. The premium priced sunglass segment accounts for
approximately 53% of such sales.
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STRATEGY
The Company's business strategy for growth focuses on maintaining and
expanding its competitive position in the markets it currently serves and
establishing competitive market positions in other geographic areas, primarily
within the United States and to a lesser extent globally. The principal elements
of the Company's strategy include:
- TARGET MID RANGE PRICE CONSUMERS. The Company has specifically targeted
and developed the market segment for high-quality designer eyewear sold at
retail price points below those of "designer" eyewear of comparable
quality. The Company identified in the early 1990's the potential that
mass market discount stores such as Wal-Mart and K-Mart had for marketing
eyewear and established its important supply relationships when such
retailers were only first entering the eyewear market. The Company
distributes eyewear and related products that are comparable in fashion
and quality to any product in the market and yet generally lower in cost.
- TARGET ADDITIONAL DISTRIBUTORS, COORDINATE AND MANAGE DISTRIBUTION. The
Company is pursuing additional relationships with distributors throughout
the world and globally. The Company believes that by continually
establishing such relationships, it will be able to increase its share of
the eyewear market in the United States as well as abroad. Currently, the
Company distributes its products through a coordinated network of Company
employed and independent sales representatives. The Company maintains
strict control over its sales network employing a substantial percentage
of its sales representatives on a full-time basis, and by monitoring
pricing policy and participating in advertising and promotional
activities.
- PURSUE ACQUISITIONS TO INCREASE PENETRATION IN EXISTING AND NEW
MARKETS. The Company seeks to increase its penetration in new and existing
markets by acquiring businesses and product lines that are complementary
to that of the Company. The Company expects to pursue selective
acquisitions of customer bases or businesses, companies that complement
the Company's current operations or expand its services or network
capabilities. The Company believes that such acquisitions, investments and
strategic alliances are an important means of increasing sales volume.
Through the acquisition of substantially all of the assets of Windsor in
1996, the Company acquired 8 new lines of eyewear including licenses for
Kenneth Jay Lane and John Lennon. Through the acquisition of substantially
all of the assets of Renaissance, the Company significantly enhanced its
sunglass product lines as well as its channels of distributions for
sunglass products. In addition, following the acquisition, the Company
negotiated licenses to use additional trade names, including Oscar de la
Renta and Nintendo. Renaissance had sales of approximately $14 million for
the year ended October 31, 1996 and distributed 5 different lines of
eyeglass frames and sunglasses. The Company intends to continue to expand
its sales of sunglasses by increasing its sales and efforts and
identifying and acquiring additional sunwear product lines.
PRODUCTS
The Company offers hundreds of models of prescription eyeglass frames and
sunglasses in a wide range of styles under the Kathy Ireland, Halston,
Playskool, Menrad, Atrio, John Lennon, Kenneth Jay Lane, Harve Bernard, Sarah
Coventry, Nintendo, Georgio de Marco trademarks and trade names and under the
Company's proprietary Phoenix, Da Vinci, Tarelli, Details, Landolfi trademarks
and/or trade names. The Company's prescription eyeglass frames and sunglasses,
which are characterized by high quality and design and are often intricately
detailed, are affordable, and are priced less than "designer" eyewear of
comparable quality sold by other manufacturers. The Company's products generally
are sold at retail price points between $80 and $150, while the Company believes
that eyewear of comparable quality sold by other distributors is generally sold
at retail price points between $130 and $300. The following describes certain of
the Company's more important licensing and distribution arrangements:
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KATHY IRELAND. The Company, in association with Kathy Ireland, has designed
a line of eyeglass frames and sunglasses for men and women. Kathy Ireland,
actress, model, and executive in the combined industries of fitness and fashion,
continues to run her businesses with the same integrity and success that first
launched her Signature collections. She directs every aspect of her products
including design, self testing and production. The styles, sold exclusively by
the Company, are designed to be stylish, contemporary and casual. The eyeglasses
are designed using a variety of materials, including the latest metal alloys and
plastic colorations. All are available in either ophthalmic or sun styles.
Shapes include cat-eye, rectangles, ovals and "preppie-designs." The Company has
entered into a four year exclusive (sunglasses, eyeglasses, readers and
ophthalmic frames and accessories) and non-exclusive agreement with Kathy
Ireland, Inc. under which the Company has been granted a worldwide license to
use certain licensed products. In addition, Ms. Ireland has agreed to endorse
the Company's line of eyeglasses and provide limited marketing assistance
including attending various marketing events. The Agreement expires on January
30, 2000. The Agreement provides for guaranteed minimum royalties to Kathy
Ireland for the term of the Agreement. The Company is required to pay a royalty
fee based on net sales.
HALSTON. Halston is a world renowned designer of sophisticated and elegant
fashion. Halston eyewear is designed for men and women and is intended to serve
the moderate to upper price market. Each frame is airbrushed with a lacquer to
provide a stylish long-lasting finish. The Company entered into a Supply
Agreement with Styl-Rite Optical Mfg. Co. ("Styl-Rite") under which the Company
has been granted a right to purchase from Styl-Rite certain ophthalmic frames
bearing the Halston trademark for resale to retail outlets and specialty shops.
The Agreement expires on December 31, 1998. The Company has an option to renew
the agreement for an additional three year period provided that it meets certain
minimum purchase requirements and that Styl-Rite renews its license agreement
with Halston Investments, Ltd., the successor-in-interest by assignment from
Halston Trademarks, Inc., owner of the "Halston" trademark.
PLAYSKOOL. The Company has developed a children's line of eyewear that is
marketed under the Playskool brand name. Playskool is one of the most recognized
names in children's products and denotes the largest number of frames in the
industry exclusively to children. The Playskool styles are designed in
consultation with pediatric specialists to insure proper fit for a child's face
and comfort for a child's unique requirements. The frames are designed with fun
colors and light designs, include spring hinges and silicon nosepads to maintain
fit and hypo-allergenic coatings. Frames carry an unconditional guarantee. The
Company has entered into a non-exclusive license agreement with Playskool under
which the Company has been granted a license to use certain licensed products in
the United States. The Agreement expires on December 31, 1998 pursuant to the
second renewal term. The renewal of the agreement is at the discretion of the
licensor. The Agreement provides for guaranteed minimum royalties to the
licensor for the term of the Agreement. The Company is required to pay a royalty
fee based on net sales.
NINTENDO. The Nintendo Eyewear collection is intended to be a functional
children to teen line of eyeglass frames and to be fashionable with quality
features such as dual action spring hinges and double lacquer coatings to add
strength and durability. Nintendo is one of the largest video game companies in
the world and its products are in millions of households in the United States.
The Nintendo Eyewear collection is targeted to the six to fourteen year old age
group, mirroring Nintendo's most heavily penetrated market. The Company entered
into a merchandise license agreement with Nintendo of America, Inc. under which
the Company has been granted a non-exclusive license to manufacture and sell
prescription eyewear, sunglasses and non-prescription sunglasses in the United
States, Canada, Mexico, Panama, and Guatemala. The Agreement expires on December
31, 2000. The Company has an option to renew this Agreement. The Agreement
provides for guaranteed minimum royalties to the licensor for the term of the
agreement. The Company is also required to pay a royalty fee based on net sales.
THE MENRAD GRUPPE. The Company's high end lines of eyewear, including its
Menrad, Atrio and Jaguar line are manufactured by the Menrad Gruppe, a 100
year-old prestigious German manufacturer of
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high-quality precision metal eyeglass frames. The Menrad line of eyeglasses are
intended to exhibit superb anatomical fit, comfort, optical precision and
durability. Menrad frames are made with rare and fine precious metals. The base
metal in many of their frames are nickel-free and every frame is coated with a
plastic film that insures complete protection from metal induced allergies, also
insuring the added benefit of scratch and corrosion resistance. The Menrad
eyewear, which includes sunglasses, is marketed under the Atrio and Menrad
names. The Company distributes these products on a non-exclusive basis. The
Company is subject to certain minimum purchase requirements. The Company is not
required to pay a royalty in connection with its use of the trademarks.
JOHN LENNON. John Lennon's round, wire framed glasses became an
unmistakable part of his image and a symbol for the mystical and innovative
creativity of his time. The frames vary from high-end to moderate-priced lenses
and include designs for adults, men and women. The Company is negotiating for a
renewal of its distribution agreement with Eagle Eyewear, Inc., to be the
exclusive distributor of adult optical frames and adult sunglasses in the United
States and Canada. The Company would order and purchase John Lennon products
solely from Eagle Eyewear, Inc. Further, Eagle Eyewear, Inc. would retain final
approval of the use of John Lennon's name or likeness by the Company. The
Company would be subject to certain minimum purchase requirements. The Company
is required to pay a royalty fee on a weekly basis. The Company distributes John
Lennon frames on a non-exclusive basis.
KENNETH JAY LANE. Kenneth Jay Lane is a world famous designer of costume
jewelry. The Company's Kenneth Jay Lane collection was designed to emulate his
elegant, luxurious design. The collection features unique metal trims, temples,
bridges and colors with colored stones and pearls integrated into the frame
design to achieve a high-fashion appearance. The sunwear collection includes
frames adorned with colored stones and gold and silver points intended to
emulate Kenneth Jay Lane's jewelry designs. The license to Kenneth Jay Lane was
acquired at the time of the Windsor acquisition under a license agreement
between Windsor and Kenneth Jay Lane, under which the Company has acquired an
exclusive right to use the Kenneth Jay Lane name in the United States, Canada,
Puerto Rico, the Caribbean Islands, Central America and Mexico. The Agreement
was renewed in September 1997. The Agreement provided for guaranteed minimum
royalties to the licensor and for the payment by the Company of a royalty fee
based on net sales. In addition, the Company was required to spend a certain
percentage of net sales for advertising and promotional purposes.
HARVE BENARD LTD. Harve Benard is an upscale women's clothing designer that
has had a significant name brand recognition for many years. The Harve Benard
eyewear collection is designed to be sophisticated yet practical, designed in a
glamorous, wearable, daytime look. The frame styles feature timeless fashion in
a finely crafted product. The license to Harve Benard was acquired at the time
of the Chanuk acquisition under a license agreement between Chanuk and Harve
Benard Ltd. under which the Company has acquired an exclusive license to use the
Harve Benard mark in connection with the manufacture, distribution and sale of
men's and women's sunglasses and ophthalmic spectacle frames in the United
States and Canada. The Agreement expires on December 31, 1998. The Company has
an option to renew this agreement after the expiration date. The Agreement
provides for guaranteed minimum royalties to the licensor for the term of the
Agreement. The Company is required to pay a royalty fee based on net sales.
SARAH COVENTRY. The Company believes that the Sarah Coventry label
represents classic feminine styling with mass appeal. Sarah Coventry products
appear in national advertising in consumer magazines like Redbook and Glamour.
Targeted to the value conscious customer, the Sarah Coventry eyewear collection
is intended to offer a quality image at an excellent value. The Company has
entered into two separate exclusive license agreements with Lifestyle Brands,
Ltd., owner of the Sarah Coventry trade name, under which the Company has been
granted a license to manufacture and sell sunglasses, sunglass cases,
accessories, ophthalmic frames, and cases under the Sarah Coventry trade name.
The agreements expire on June 30, 1998. With respect to the license related to
sunglasses, sunglass cases and related accessories, such license shall renew
automatically for an additional three year term if the Company
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achieves certain minimum net sales. Both agreements provide for guaranteed
minimum royalties to the licensor for the term of the agreements. The Company is
required to pay a royalty fee based on net sales.
FLEX SPECS. Flex Specs are flexible eyeglass frames with a mechanism at the
temple hinge that maintains constraint and strong pressure on the eyeglass
frame. In addition, the Flex-Specs frame has no screws at the hinge. The Company
has licensed exclusively the right to distribute Flex-Specs eyeglass frames in
the United States.
OTHER BRANDS. The Company has also entered into license agreements with
other brand names that provide for the payment of guaranteed minimum royalties
to licensors and additional royalty fees. Additionally, the Company has arranged
for the manufacture of a variety of proprietary brands, including agreements
with Tarelli Eyewear and Landolfi, Phoenix and DaVinci, intended to provide
European styling at moderate prices to its consumers.
MARKETING AND ADVERTISING
The Company markets its eyewear products primarily to independent retailers,
mass merchandisers, chain stores, department stores and international
distributors. The Company's sales efforts include the direct channels of a
dedicated sales force and telephone sales. The Company advertises primarily
through print trade journals and the distribution of catalogs. The Company
intends to expand its print advertising to include consumer oriented media. In
addition, through promotions, the Company assists the retailers in enhanced
distribution of the Company's products to consumers. Promotional incentives to
sell-through the Company's eyewear plus cooperative advertising to the retailers
clientele will generate additional distribution for the Company.
CHAIN STORES, DEPARTMENT STORES AND MASS MERCHANDISERS. Chain stores and
superstores have begun to be a factor in the market share of eyewear. In 1995,
chain stores and superstores comprise 18% of the retail market or $2.5 billion.
Further, according to Jobson Optical Group Data Base, in 1995, the top 100 chain
stores held over 29% of the retail market. A substantial majority of the
Company's sales during fiscal 1996 included sales to customers in this category.
INDEPENDENT RETAILERS. Independent optical shops and eyecare professionals,
including franchises comprised over 60% of the retail eyewear market during
1996. The Company employs direct sales efforts to identify and market to
independent retailers this market through a dual sales force, promoting distinct
product lines. Although this constitutes a large part of the eyeglass market,
this category accounts for a lesser part of the Company's sales during fiscal
1996 included sales to customers in this category.
INTERNATIONAL DISTRIBUTORS. The Company believes that substantial sales
opportunities may be exploited outside of the United States. Although the
Company has limited sales abroad it intends to expand its international business
to markets outside the United States. Sales during fiscal 1996 to customers in
this category were not material, although the Company has identified foreign
sales as a source of possible expansion.
The Company's sales to its five largest customers represented over 62% of
its sales in fiscal 1996 and 51% in 1997 (30% on a pro forma basis giving effect
to the acquisitions of the assets of Windsor and Renaissance) and approximately
47% for the six months ended September 30, 1997. Sales to the Company's top
customer, Wal-Mart accounted for approximately 51%, of the Company's sales in
1996 and approximately 35%, of its sales in 1997 (20% on a pro forma basis
giving effect to the acquisitions of the assets of Windsor and Renaissance) and
approximately 37% for the six months ended September 30, 1997. The Company
anticipates that sales to its top five customers will continue to account for a
significant percentage of its sales. The Company has no long term commitments or
contracts with any of its customers. The loss or decreased sales from one or
more of these customers and in particular, Wal-Mart, would have a material
adverse effect on the Company's financial condition. The inability of any of the
Company's significant customers to satisfy any of their bills at any time or on
a timely basis for any reason could have a material adverse effect on the
financial condition of the Company.
24
<PAGE>
The Company makes use of a dedicated and independent sales force of an
aggregate of approximately 30 sales representatives. This direct sales force
targets small, medium, and large-sized retailers from high-end boutiques to
discount frame outlets. The sales force is equipped to provide sales training,
support, and management consulting to the retailer. In addition, sales
representatives are equipped to assist with retail window displays, designer
boutique creating, and eyewear promotions.
The Company also employs telephone sales methods which consist of a
telemarketing program developed by the Company that will enable small accounts
and remote location accounts to gain access to the Company's variety of products
and services. Monthly contacts by phone representatives assist these key
accounts in the selection and distribution of products. The Company plans to
expand its telesale organization to include six additional employees on a
part-time basis.
National trade shows and international conventions have become the sounding
boards for the global eyewear industry. New products are launched and designers
showcase their creations and themselves during these events. The Company plans
to exhibit its products to an increasing number of distributors, retailers, and
consumers worldwide. The four most popular shows occur annually and include
Silmo in Paris, Mido in Milan, and Vision Expo in New York and California.
The Company develops point of purchase materials that feature the Company's
products and brands which are provided to individual retail accounts. Original
display materials are periodically constructed throughout each year to help
design boutique atmospheres within the retail accounts and properly display the
Company's products in the account's showroom and window display. Some of these
products include actual record albums to display the John Lennon Collection,
Playskool figurines and toys to complement the children's line, designer
scarves, hats and accessories to cross-merchandise designer eyewear. The Company
believes that advertising a designer's eyewear adjacent to other products also
created by the designer is a valuable method for creating name recognition and
demand for the Company's product.
SOURCES OF SUPPLY
The Company arranges for the production of its products with primarily
foreign suppliers on a purchase order basis on standard commercial terms,
secured in each case by the Company's general credit. At the present time, the
Company secures its supplies in three ways. First, the Company enters into
arrangements with certain suppliers whereby the Company provides such suppliers
with, among other things, specifications, materials and designs pursuant to
which certain products requested by the Company are made. Second, the Company
enters into arrangements with certain suppliers whereby such specifications and
designs are provided to the Company who then has the option of having products
made pursuant to such specifications and designs. Finally, the Company enters
into arrangements whereby certain finished products are presented to the Company
who then chooses from such selections presented. These arrangements have worked
well for the Company and the Company intends to continue such relationships in
the future.
The Company imports substantially all of its frames from international
suppliers located in Taiwan, Korea, Italy, Germany and Japan, and, therefore,
its prices for and supply of those frames may be adversely affected by changing
economic conditions in foreign countries and fluctuations in currency exchange
rates. The Company may also be subject to other risks associated with
international operations, including tariff regulations and requirements for
export licenses, unexpected changes in regulatory requirements, receivable
requirements, difficulties in managing international operations, potentially
adverse tax consequences, economic and political instability, restrictions on
repatriation of earnings and the burdens of complying with a wide variety of
foreign laws. In addition, the laws of certain countries may not protect the
Company's products and intellectual property rights to the same extent as do the
laws of the United States. There can be no assurance that such factors will not
have a material adverse effect on the Company's future international sales or
licenses and, consequently, on the Company's business and operations as a whole.
25
<PAGE>
COMPETITION
The eyewear industry is highly competitive and fragmented. The Company
competes with different companies in different markets. The prescription and
non-prescription eyewear markets are highly competitive. The Company competes
with a number of established companies, including Luxotica, Safilo, Marchon and
Bausch & Lomb Incorporated, which together control a substantial portion of the
premium market. In the sunglass area, the Company competes with a variety of
competitors with substantially greater financial and other resources than the
Company including, Bausch & Lomb, the manufacturer of Ray-Ban sunglasses, Oakley
and Gangoyles. All of these companies have substantially greater resources and
better name recognition than the Company and sell their products through broader
and more diverse distribution channels. In addition, several of these
competitors have their own manufacturing facilities. The Company could also face
competition from new competitors, including established branded consumer
products companies, such as Nike, Inc., that also have greater financial and
other resources than the Company. In addition, as the Company expands
internationally, it will face substantial competition from companies that have
already established their products in international markets and consequently
have significantly more experience in those markets than the Company. The
Company also faces competition from the expanded use of contact lenses and
expanding laser surgery to correct vision. The major competitive factors in the
eyewear market include fashion trends, brand recognition, method of distribution
and the number and range of products offered. In addition, to retain and
increase its market share, the Company must continue to be competitive in the
areas of price, quality and performance, technology, intellectual property
protection and customer service.
LICENSES AND TRADEMARKS
The Company owns and has obtained licenses to various domestic and
international trademarks related to its products and business. These licenses
expire at various times over the next four years. While these trademarks in the
aggregate are important to the Company's competitive position, no single
trademark or license thereof is material to the Company. The trade names
Halston, Kathy Ireland, Playskool and others and certain trademarks are owned by
various entities and licensed to the Company for limited purposes on a royalty
basis.
EMPLOYEES
At September 30, 1997, the Company had 74 full-time employees and one
part-time employees. Approximately 26 of such employees are engaged in
administrative positions, six in sales management, seven in management and 36
provide warehouse and distribution support. The Company considers its relations
with its employees to be good. None of the Company's employees are represented
by labor unions. See "Legal Proceedings."
PROPERTY
In September 1995, the Company leased its former principal offices occupying
30,000 square feet in Philadelphia, Pennsylvania, which were used to house all
the Company's management, inventory and distribution operations. Pursuant to the
lease relating to such facility, the Company is obligated to make monthly rental
payments of approximately $11,000. Such lease expires in 2000. In July 1997, the
Company moved to a new location in Bensalem, Pennsylvania, for its management,
inventory and distribution operations. The new facility has 64,000 square feet.
The Company has entered into a new lease expiring August 2002, under which
annual base rent is approximately $300,000 per year through December 1997.
Thereafter, the rent would be approximately $25,000 per month. The Company will
seek to sublease the Philadelphia facility, although no assurance can be given
that it will be successful in such effort.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
26
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --------- ------------------------------------------
<S> <C> <C>
Rudy A. Slucker........................... 47 Chairman of the Board of Directors
Barry Budilov............................. 42 President, Chief Executive Officer and
Director
Kenneth B. Kitnick........................ 35 Executive Vice President
Raymond Green............................. 35 Treasurer
Jay Rice(1)............................... 45 Director
Jeffrey Seiken(1)......................... 44 Director
</TABLE>
- ------------------------
(1) Member of the Compensation and Audit Committee.
In connection with the Offering, the Company intends to increase the size of
the Board of Directors by the end of 1997 to accommodate two additional
directors who will not be officers or employees of the Company.
The business experience of each of the executive officers and directors is
set forth below.
RUDY A. SLUCKER has served as Chairman of the Board of Directors of the
Company since May 1995. Mr. Slucker also serves on a full time basis as Chairman
of the Board of Directors, President and Chief Executive Officer of the TearDrop
Golf Company, a Nasdaq-listed company which position he has held since September
1996 and of the Tommy Armour Golf Company, a wholly-owned subsidiary of TearDrop
Golf Company since November 10, 1997. Mr. Slucker was the Chief Executive
Officer of the Atlas Group of Companies, Inc. ("Atlas"), which imported and
marketed hardware and consumer products, from 1978 until 1990, when it was sold.
Since 1990, Mr. Slucker has been a venture capital investor. He currently serves
on the board of directors and/or is a principal stockholder of the following
companies: Major League Fitness, a chain of fitness centers associated with
Major League Baseball through a licensing agreement; and Babylon Enterprises and
Beacon Concessions, which, together, currently own and operate the Beacon
Theater in Manhattan. Mr. Slucker graduated from the University of Cincinnati
with a Bachelors Degree in 1971.
BARRY BUDILOV has been President and Chief Executive Officer of the Company
since inception. From 1989 to 1995, Mr. Budilov served as the President of
Chanuk, the predecessor of the Company. Mr. Budilov is a certified public
accountant. Prior thereto and since 1987, Mr. Budilov served as Chief Financial
Officer of Eco-Med, Inc, which was sold in 1989 to Avicare, Inc., a
publicly-traded company. Prior thereto and since 1980, Mr. Budilov served as a
Vice President for Metro Equity, Inc., a management consulting firm that managed
investments in the nursing home, retail and wholesale goods industries and the
real estate industries. For 1977 through 1980, Mr. Budilov was employed by
Touche Ross & Company, as a certified public accountant. Mr. Budilov graduated
magna cum laude from George Washington University with a Bachelor's Degree in
accounting in 1977.
KENNETH B. KITNICK has served as Executive Vice President of the Company
since June 1996. Prior to that he spent sixteen years in the optical industry as
Vice President and Chief Operating Officer of Windsor which imported and
marketed eyewear products. Mr. Kitnick graduated from Franklin & Marshall
College with a Bachelor's Degree in mathematics in 1983.
RAYMOND GREEN has served as Treasurer of the Company since the Company's
inception in 1995. From 1992 to 1994 he served as the controller for The Backe
Group, Inc., a holding company in the communications field. Prior thereto and
since 1990, he was the Controller for Water-Jel Technologies, Inc., a public
manufacturing company. Prior thereto and since 1987, he was employed as a staff
accountant for Abo, Uris
27
<PAGE>
& Altenburger, a CPA firm. Mr. Green graduated from Iona College in 1983 with a
Bachelor's Degree in finance.
JAY RICE has been the managing partner with the law firm of Nagel Rice &
Dreifuss since 1983. He served as a member of the advisory board to Summit Bank
from 1989 to 1991. Since 1990, he has served as a trustee and is now the
President of the Jewish Community Housing Corp. and has been the President of
the Board of Trustees of the United Jewish Federation of Metrowest since 1995.
Prior to joining the law firm, Mr. Rice served as a law clerk to the Honorable
Baruch S. Seidman of the New Jersey Superior Court, Appellate Division from 1977
to 1978. Mr. Rice has authored several articles and has served as a lecturer.
Mr. Rice is a member of the Essex County Bar Association, the New Jersey State
Bar Association (serving as Chairman of the Equity Jurisprudence Committee from
1989 to 1991) and the American Bar Association. Mr. Rice received his Juris
Doctorate from Rutgers University in 1977.
JEFFREY SEIKEN is presently practicing in his own law firm. From 1988
through 1996, Mr. Seiken was a partner with Rush & Seiken. He was one of the
initial founders and investors in American Health Care, a corporation which
began in 1988. American Health Care provides nursing home care to elderly
individuals with facilities in New Jersey, Alabama, Indiana and Oregon. In
addition, Mr. Seiken has also been involved in real estate development since
1985. Mr. Seiken has also served as a member of the Whitemarsh Township,
Pennsylvania Sewer Authority and the Whitemarsh Township Planning Commission.
The Underwriter has the right to appoint an observer to attend all meetings
of the Board of Directors. The observer will have no right to vote on any
matters before the Board. See "Underwriting--Observer to the Board of
Directors."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has appointed two committees: the
Audit Committee and the Compensation Committee. The members of both the Audit
Committee and Compensation Committee consist of Jeffrey Seiken and Jay Rice. The
Audit Committee periodically reviews the Company's auditing practices and
procedures, makes recommendations to management or to the Board of Directors as
to any changes to such practices and procedures deemed necessary from time to
time to comply with applicable auditing rules, regulations and practices, and
recommends independent auditors for the Company to be elected by the
stockholders. The Compensation Committee meets periodically to make
recommendations to the Board of Directors concerning the compensation and
benefits payable to the Company's executive officers and other senior
executives. The Company reimburses directors for their out-of-pocket expenses
incurred in attending Board and Committee meetings.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company intends to enter into an employment agreement with Barry
Budilov, effective on the effective date of this Offering, pursuant to which he
will serve on a full-time basis as President and Chief Executive Officer of the
Company for a period of three years. The agreement will provide for an annual
base salary of $200,000. The agreement will also contain a confidentiality
provision and a provision prohibiting Mr. Budilov from competing with the
Company for a period of one year subsequent to termination of employment.
The Company intends to enter into a consulting agreement with Rudy Slucker,
effective on the effective date of this Offering, pursuant to which he will
serve as Chairman of the Board of the Company for a period of three years. The
agreement will provide for an annual consulting fee of $100,000. Mr. Slucker is
not required to devote any minimum amount of time to the affairs of the Company
and is the subject of an employment agreement with another company. The
agreement will also contain a confidentiality provision and a provision
prohibiting Mr. Slucker from competing with the Company for a period of one year
subsequent to termination of employment.
28
<PAGE>
Upon consummation of the Acquisition of substantially all of the assets of
Windsor, the Company entered into an employment agreement with Kenneth Kitnick
who became the Executive Vice President of the Company and a consulting
agreement with Jay Kitnick, Kenneth Kitnick's father. The employment agreement
with Kenneth Kitnick became effective on June 26, 1996, pursuant to which he is
serving on a full-time basis as a Vice President of the Company for a period of
four years. The agreement provides for an initial base salary of $105,000 and
provides for annual minimum increases through the year 2000 to a maximum of
$120,000. The Agreement has been amended, as of June 30, 1997, to provide for
the grant as of the date of the Agreement to Kenneth Kitnick of options to
purchase 151,667 shares of Common Stock for $1.50 per share for five years. The
agreement contains a non-compete provision which prohibits Kenneth Kitnick from
directly or indirectly competing with the Company for a period of one year upon
termination. For a description of the Consulting Agreement with Jay Kitnick, see
"Certain Relationships and Related Party Transactions."
The Company has entered into a five-year consulting agreement with Edward
Kauz which became effective on February 27, 1997. The agreement provides for
aggregate annual payments to Mr. Kauz of $200,000 subject to certain conditions
set forth in a supplemental agreement, dated February 27. In addition, under an
amendment to the consulting agreement dated as of June 30, 1997, Mr. Kauz agreed
to waive his right to serve as Vice Chairman of the Board of Directors and was
granted on February 27, 1997 a five-year option to purchase 180,833 shares of
Common Stock for five years for $3.00 per share.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
As permitted by the Delaware General Corporation Law (the "DGCL"), the
Certificate of Incorporation includes a provision that eliminates personal
liability for its directors for monetary damages for breach of fiduciary duty as
a director except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law;
(iii) under Section 174 of the DGCL; and (iv) for any transaction from which the
director derived an improper personal benefit.
As permitted by Section 145 of the DGCL, the By-Laws provide that (i) the
Company is required to indemnify its directors and officers to the fullest
extent permitted by the DGCL; (ii) the Company may indemnify other persons as
set forth in the DGCL; (iii) rights conferred in the By-Laws are not exclusive;
and (iv) the Company is authorized to enter into indemnification agreements with
its directors, officers, employees and agents. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted for directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions or otherwise, the Company has been advised that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore, unenforceable.
The Company, intends to apply for, and expects to obtain, directors and
officers liability insurance with an annual aggregate coverage limit of
$2,000,000.
DIRECTOR COMPENSATION
At present no separate cash compensation or fees are payable to directors of
the Company, other than reimbursement of expenses incurred in connection with
attending meetings. The Company expects, however, that new non-employee
directors not otherwise affiliated with the Company or its stockholders will be
paid $500 per meeting and reimbursement for reasonable out-of-pocket costs for
attending meetings.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company for services rendered in all capacities for named executive officers of
the Company who received compensation in excess of $100,000 during the period
from inception to March 31, 1996 and the year ended March 31, 1997.
29
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION SECURITIES
FISCAL --------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#)
- --------------------------------------------------------- ----------- ---------- --------------- -------------------
<S> <C> <C> <C> <C>
Rudy A. Slucker, Chairman of the Board................... 1997(1) $ 260,000 0 0
1996(2) $ 172,000 0 54,833
Barry Budilov, President and Chief Executive Officer..... 1997(1) $ 250,000 0 0
1996(2) $ 169,900 0 54,833
</TABLE>
- ------------------------
(1) Messrs. Slucker and Budilov will be compensated at annual rates of $100,000
and $200,000, respectively, under agreements that are effective as of the
effective date of this offering.
(2) Fiscal 1996 consisted of approximately 11 months.
No options were deemed to be granted to the Chief Executive Officer or other
named executive officers of the Company during the period from April 1, 1996
through March 31, 1997.
No stock options were exercised by the Chief Executive Officer or other
named executive officers of the Company. The following table sets forth certain
information regarding unexercised options held by the Chief Executive Officer
and other named executive officers of the Company at March 31, 1997.
AGGREGATED OPTION EXERCISES THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE- MONEY OPTIONS AT
OPTIONS AT MARCH 31, 1997 MARCH 31, 1997($)(1)
---------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------------------------------- ---------------------------- -------------------------
<S> <C> <C>
Rudy Slucker............................................ 54,833/0 $ 260,456/0
Barry Budilov........................................... 54,833/0 $ 260,456/0
</TABLE>
- ------------------------
(1) Assuming a value of $5 per share.
STOCK OPTION PLAN
On November 12, 1997, the Board of Directors and the stockholders of the
Company adopted the 1997 Employee Stock Option Plan ("Plan") and reserved
150,000 shares of Common Stock for issuance thereunder. The Plan provides for
the granting to employees (including employees who are also directors and
officers) of options intended to qualify as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended
("Code"), and for the granting of nonstatutory stock options to employees and
consultants. The Plan is currently administered by the entire Board of Directors
of the Company.
The exercise price per share of incentive stock options granted under the
Plan must be at least equal to the fair market value of the Common Stock on the
date of grant. In addition, in accordance with the Underwriting Agreement
relating to this Offering, the Company has agreed not to grant any options under
the Plan with an exercise price per shares less than the initial public offering
price of the Common Stock. With respect to any participant who owns shares
representing more than 10% of the voting power of all classes of the Company's
outstanding capital stock, the exercise price of any incentive or nonstatutory
stock option must be equal to at least 110% of the fair market value on the
grant date, and the maximum term of the option must not exceed five years. The
terms of all other options granted under the Plan may not exceed ten years. Upon
a merger of the Company, the options outstanding under the Plan will terminate
unless assumed or substituted by the successor corporation. To date, no options
have been granted under the Plan.
30
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On May 3, 1995, the Company was formed by Rudy A. Slucker, the Company's
current Chairman of the Board of Directors, and Barry Budilov, the current
President and Chief Executive Officer of the Company, at which time each of Mr.
Slucker and Budilov were issued 1,750,000 shares of Common Stock for $.0003 per
share and, as of such date, were each granted options to acquire 54,833 shares
of Common Stock for $.25 per share.
On May 10, 1995, the Company acquired from Chanuk the predecessor to the
Company substantially all of the assets of Chanuk valued at approximately $6
million and assumed an aggregate of approximately $5.7 million of liabilities of
the business of Chanuk. The Company acquired Chanuk for approximately $700,000,
which amount was determined by negotiation between the shareholders of Chanuk
and the Company based primarily on the perceived net asset value of Chanuk at
the time. The assumed liabilities included indebtedness of Chanuk to Mr. Slucker
of approximately $508,000. In addition, Daniel Messinger, an uncle of Mr.
Budilov's wife, was repaid $250,000 in debt from the proceeds of the sale.
Chanuk, a company engaged in the wholesale sale and distribution of eyewear, was
a company owned approximately 10% by a partnership controlled by Rudy A. Slucker
and 74% by the mother-in-law of Barry Budilov. Chanuk was incorporated in
Pennsylvania on December 3, 1965 and commenced its eyewear business in 1980. The
above $700,000 purchase price was represented by the issuance by Messrs. Budilov
and Slucker of promissory notes in the principle amount of $343,500 each to
Chanuk.
In consideration of the issuance of promissory notes to Chanuk, the Company
issued promissory notes for $343,500 to each of Rudy A. Slucker and Barry
Budilov. In addition, on May 8, 1995, the $508,000 in debt previously owed from
Chanuk to Mr. Slucker was assumed by the Company and took the form of a
promissory note. All three obligations are represented by demand promissory
notes that bear interest at 8% per annum. On the effective date of this
Offering, the remaining balance of $1,181,000 of such debt will be converted
into 118,100 shares of Series A Preferred Stock.
Upon consummation of the acquisition of Chanuk, in May 1995, the Company
entered into a Consulting Agreement with Chanuk. The agreement became effective
on May 10, 1995 and terminates on May 9, 2005. Pursuant to the agreement, two
prior officers of Chanuk who are relatives of Mr. Budilov's wife, provided
advisory and consulting services to the Company on behalf of Chanuk, for which
Chanuk received the sum of $26,000 per year, which was to be payable over a ten
year period in installments of $500 per week. The time and effort devoted to the
Company on a weekly basis did not exceed five hours per week. The Company also
entered into a consulting agreement with Central City Optical, Inc. ("Central
City"), a company owned by Daniel Messinger pursuant to the same terms as set
forth above, which agreement will continue in effect. In addition, in November
1997, Chanuk assigned its rights and obligations under its consulting agreement
to Central City. Mr. Messinger provides consulting services to the Company on
behalf of Central City.
In June 1996, the Company acquired substantially all of the assets of
Windsor (the "Windsor Acquisition"). In connection with the Windsor Acquisition,
the Company acquired trademark licenses with Kenneth Jay Lane and John Lennon,
among others. The aggregate consideration for the Windsor Acquisition was
$550,000, including $100,000 in cash and two promissory notes, payable to
Windsor, in the aggregate principal amount of $450,000. Kenneth Kitnick, who
subsequently became an officer of the Company was an officer and principal
shareholder of Windsor.
Upon consummation of the Windsor Acquisition, the Company entered into an
employment agreement with Kenneth Kitnick and a consulting agreement with Jay
Kitnick. Jay Kitnick is the father of Kenneth Kitnick. The three-year consulting
agreement with Jay Kitnick which provides for 36 monthly payments of $6,944
commencing on June 20, 2004. The agreement contains a non-compete provision
prohibiting Jay Kitnick from directly or indirectly competing with the Company
for a period of three years from June 26, 1996. See "Management--Executive
Compensation"
In February 1997, the Company acquired from Summit Bank (the "Bank"),
pursuant to a Collateral Sale Agreement (the "Renaissance Acquisition"),
substantially all of the assets of Renaissance. The Bank had acquired the assets
of Renaissance in a foreclosure proceeding instituted by the Bank. The aggregate
31
<PAGE>
consideration paid to the Bank for Renaissance was $3,446,000. Edward Kauz, who
had a right to become a Vice Chairman of the Board of the Company was an
officer, principal stockholder and significant shareholder of a debtor to
Renaissance.
Mr. Kauz remains the sole stockholder of Renaissance. At the time that the
Company acquired the assets of Renaissance, a company 50% owned by Mr. Kauz,
owed Renaissance $2.8 million which receivable has been written down to no value
at the time of the acquisition of Renaissance. The Company has entered into a
five-year consulting agreement with Edward Kauz which became effective on
February 27, 1997. The agreement provides for aggregate payments to Mr. Kauz of
$200,000 subject to certain conditions set forth in a supplemental agreement,
dated February 27, 1997. In addition, under an amendment to such agreement dated
as of June 30, 1997, Mr. Kauz waived his right to serve as Vice Chairman of the
Board of Directors and was granted as of February 27, 1997 a five-year option to
purchase 180,833 shares of Common Stock for five years for $3.00 per share.
In connection with the revolving loan facility from CoreStates Bank to the
Company, each of Rudy Slucker and Barry Budilov, and their respective spouses,
have provided personal guarantees of no more than $1.1 million each, securing
the Company's indebtedness which amounts may be increased by $375,000 in
February 1998, under certain circumstances.
From February 4, 1997 through November 10, 1997, in connection with, and to
assist the Company in financing its costs related to the acquisition of
substantially all of the assets of Renaissance and the integration of the
business of Renaissance into the business of the Company, Rudy A. Slucker loaned
the Company $470,000, payable upon demand with interest at 8% per annum. This
loan will be repaid from the proceeds of this Offering.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of September 30, 1997, and
as adjusted to reflect the sale of the Shares offered hereby, by (i) each of the
Company's directors and executive officers; (ii) each person who is known to the
Company to own beneficially more than 5% of the Company's shares of Common Stock
and (iii) all directors and executive officers of the Company as a group. Unless
otherwise indicated, the persons named in this table have sole voting and
investment power with respect to the shares of Common Stock shown as
beneficially owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
-------------------- ----------------------
NAME Number Percent Number Percent
- ----------------------------------------------- --------- --------- --------- -----------
<S> <C> <C> <C> <C>
Rudy Slucker(1)(2)............................. 1,804,833 50.77% 1,804,833 32.49%
Barry Budilov(2)............................... 1,804,833 50.77% 1,804,833 32.49%
Kenneth Kitnick(3)............................. 151,667 4.15% 151,667 2.68%
Jay Rice....................................... 0 0
Jeffrey Seiken................................. 0 0
All directors and executive officers as a group
(6 persons)(1)(2)(3)......................... 3,761,333 100.00% 3,761,333 65.29%
</TABLE>
- ------------------------
(1) Includes 94,680 shares of Common Stock held in the names of Mr. Slucker's
wife and two children over which Mr. Slucker disclaims beneficial ownership.
(2) Includes options to acquire 54,833 shares of Common Stock. Does not include
an aggregate of 118,100 shares of Series A Preferred Stock that is not
convertible into Common Stock. See "Description of Securities."
(3) Consists of options to acquire 151,667 shares of Common Stock of the
Company.
32
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company is 21,000,000 consisting of
20,000,000 shares of Common Stock, $.01 par value and 1,000,000 shares of
Preferred Stock, $.01 par value. As of the date of this Prospectus, 3,500,000
shares of Common Stock are outstanding and held of record by five stockholders.
Upon the completion of this Offering there will be 5,500,000 shares of Common
Stock outstanding (5,800,000 if the Underwriter's over-allotment option is
exercised in full).
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of Preferred Stock without further stockholder approval. The
Preferred Stock may be divided into such classes or series as the Board of
Directors may determine by resolution. The Board of Directors is authorized to
determine and fix the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock , including
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices and liquidation preferences and to fix the number of shares of
any series of Preferred Stock and the designation of any such series of
Preferred Stock. Currently no Preferred Stock is outstanding.
As of the effective date of this offering, $1,181,000 of indebtedness of the
Company to its two principal stockholders, Rudy A. Slucker, the Company's
Chairman of the Board of Directors and Barry Budilov, the Company's President,
will be converted into 118,100 shares of Series A Preferred Stock at a
conversion rate of $10 per share. Each holder of Series A Preferred Stock will
be entitled to receive dividends at an annual rate of $.50 per share on a
cumulative basis. The shares of Series A Preferred Stock are not convertible
into shares of the Company's Common Stock, and will not be entitled to vote on
any matters.
The shares of Series A Preferred Stock may be redeemed , commencing three
years from the effective date of this Offering, for $10 per share subject to
adjustment upon the occurrence of certain events, such as dividends or a stock
split. Further, the holders of such Series A Preferred Stock may require the
redemption of the shares of Series A Preferred Stock commencing March 31, 1999
provided, that the net income for the Company for the year ending March 31, 1999
or March 31, 2000 exceeds $.60 and $.75 per share, respectively.
In the event of any liquidation, dissolution or winding up of the Company
(each, a "Liquidation"), holders of Series A Preferred Stock will be entitled to
receive a liquidation preference of $10 per share plus all declared but unpaid
dividends on such shares. After the payment of all liquidation preferences, any
remaining assets or property distributable upon a Liquidation will be divided
pro rata among the holders of Common Stock and Preferred Stock on an
as-converted basis. In the event the assets of the Company are insufficient to
pay the full preferential amounts to all holders of Preferred Stock, the assets
of the Company shall be distributed ratably among such holders in proportion to
the product of the liquidation preference for each such share and the number of
shares held by such holder.
COMMON STOCK
The holders of the shares of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. Subject
to preferences that may be applicable to any outstanding shares of Preferred
Stock, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of the funds
legally available for the payment of dividends. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, subject to the
liquidation preferences of Preferred Stock, the holders of Common Stock are
entitled to receive any declared and unpaid dividends, in addition to being
entitled to share ratably in all assets remaining after payment of liabilities
and liquidation preferences of any then outstanding shares of Preferred Stock.
Holders of Common Stock have no preemptive rights to convert their Common Stock
33
<PAGE>
into any other securities. There are no redemption or sinking fund provisions
applicable to the Common Stock.
All outstanding shares of Common Stock have been duly authorized and validly
issued and are fully paid and non-assessable, and the shares of Common Stock
issued upon completion of this Offering have been duly authorized and, when
issued, will be fully paid and nonassessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent registrar for the Shares is the American Stock Transfer &
Trust Company, 40 Wall Street, New York, New York 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the shares of
Common Stock of the Company, and no predictions can be made as to the effect, if
any, that market sales of Shares or the availability of such Shares will have on
the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect prevailing market price of the Common Stock and
the ability of the Company to raise capital through a sale of equity securities.
Upon the closing of the Offering, the Company will have 5,500,000 (5,800,000
if the underwriter over allotment option is exercised in full) shares of Common
Stock outstanding. Of those shares, the 2,000,000 Shares sold in the Offering
(2,300,000 Shares if the Underwriter's over-allotment option is exercised in
full) will be freely tradable without restriction, except as to affiliates of
the Company, or further registration under the Securities Act. The remaining
Shares held by existing shareholders are "restricted securities" within the
meaning of Rule 144 promulgated under the Securities Act and may not be sold in
the absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption contained in Rule 144. Rule
701 under the Securities Act provides that the shares of Common Stock acquired
on the exercise of options granted under a written compensatory plan of the
Company or contract with the Company prior to the date of this Prospectus may be
resold by persons, other than Affiliates, beginning 90 days after the date of
this Prospectus, subject only to the manner of sale provisions of Rule 144, and
by Affiliates under Rule 144 without compliance with its one-year minimum
holding period, subject to certain limitations. There are 499,333 shares of
Common Stock issuable upon the exercise of outstanding options (the "Option
Shares"). Beginning 90 days after the date of the Prospectus, all of the Option
Shares would be eligible for sale in reliance on Rule 701.
In general, under Rule 144(e), as currently in effect, a stockholder (or
shareholders whose shares are aggregated), including an affiliate, who has
beneficially owned for at least one year shares of Common Stock that are treated
as "restricted securities," would be entitled to sell publicly, within any
three-month period, up to the greater of 1% of the then outstanding shares of
Common Stock (55,000 shares immediately after the completion of this offering)
or the average weekly reported trading volume in the Common Stock during the
four calendar weeks preceding the date on which notice of sale is given,
provided certain requirements are satisfied. In addition, affiliates of the
Company must comply with additional requirements of Rule 144 in order to sell
shares of Common Stock (including shares acquired by affiliates in this
Offering). Under Rule 144, a stockholder deemed not to have been an affiliate of
the Company at any time during the 90 days preceding a sale by him, and who has
beneficially owned for at least two years shares of Common Stock that are
treated as "restricted securities," would be entitled to sell those shares
without regard to the foregoing requirements. Since all outstanding shares of
Common Stock have been held for at least one year and are not subject to the
above described restriction on sale, they will be eligible for immediate sale
without restriction in the public market.
34
<PAGE>
The holders of the Underwriter's Warrants will also have certain demand and
incidental registration rights with respect to the Underwriter's Warrants and
the 200,000 Warrant Shares commencing after the date of this Prospectus.
The Company and each of its directors, officers and stockholders have agreed
with the Underwriter that they will not offer, assign, issue, sell, hypothecate
or otherwise dispose of any Shares or any securities exercisable for or
convertible into shares of Common Stock for a period of 18 months after the date
of this Prospectus without the prior, written consent of the Underwriter. See
"Underwriting."
UNDERWRITING
GENERAL
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to Hampshire
Securities Corporation (the "Underwriter"), and the Underwriter has agreed to
the purchase from the Company, on a firm commitment basis, the 2,000,000 Shares
offered hereby.
A copy of the Underwriting Agreement has been filed as an exhibit to this
Registration Statement, to which reference is hereby made. The Underwriting
Agreement provides that the obligations of the Underwriter are subject to
certain conditions. The Underwriter shall be obligated to purchase all of the
Shares (other than those covered by the Underwriter's over-allotment option
described below), if any are purchased.
The Underwriter has advised the Company that it proposes to offer the Shares
to the public at the initial public offering price set forth on the cover page
of this Prospectus and that it may allow to certain dealers who are members of
the National Association of Securities Dealers, Inc. (the "NASD") and to certain
foreign dealers, concessions not in excess of $ per Share of which
amount a sum not in excess of $ per Share may in turn be reallowed by
such dealers to other dealers who are members of the NASD and to certain foreign
dealers. After the initial public offering, the offering price, discount and
reallowance may be changed by the Underwriter.
The Company has agreed to pay the Underwriter an expense allowance, on a
non-accountable basis, equal to 3% of the gross proceeds derived from the sale
of 2,000,000 Shares offered hereby (or 2,300,000 Shares if the Underwriter's
over-allotment option is exercised in full). The Company has paid an advance on
such allowance of $35,000. The Company has also agreed to pay certain of the
Underwriter's expenses in connection with the Offering, including expenses in
connection with qualifying the Shares offered hereby for sale under the laws of
such states as the Underwriter may designate and the placement of tombstone
advertisements.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments that the Underwriter may be required to make in respect
thereof.
The Company and each of its officers, directors and stockholders have agreed
not to offer, assign, issue, sell, hypothecate or otherwise dispose of any
Shares or securities exercisable for or convertible into Shares ("Securities")
for a period of 18 months from the date of the Prospectus without the prior,
written consent of the Underwriter.
Prior to the Offering, there has been no public trading market for the
Common Stock. The initial public offering price for the Shares will be
determined by negotiations between the Company and the Underwriter. Among the
factors to be considered in such negotiations will be prevailing market
conditions, the results of the operations of the Company in recent periods, the
market capitalization and stages of development of the Company, estimates of the
business potential of the Company, the present state of the Company's management
team and other factors deemed relevant.
35
<PAGE>
The Underwriter has advised the Company that it does not intend to confirm
sales of the Shares offered hereby to any account over which it exercises
discretionary authority.
The Company has granted the Underwriter an option, exercisable during the
45-day period commencing on the date of this Prospectus, to purchase at the
public offering price per Share less the underwriting discounts and commissions,
up to 300,000 shares of Common Stock for the sole purpose of covering over-
allotments, if any. After the commencement of the Offering, the Underwriter may
confirm sales of shares of Common Stock subject to this over-allotment option.
Purchases of shares of Common Stock upon exercise of the over-allotment option
will result in the realization of additional compensation by the Underwriter.
In connection with the Offering, the Underwriter and certain selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Shares. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase
shares of Common Stock for the purpose of stabilizing its market price. The
Underwriter also may create a short position for the account of the Underwriter
by selling more shares of Common Stock in connection with the Offering than it
is committed to purchase from the Company and in such case may purchase shares
of Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriter may also cover all or a
portion of such short position, up to 300,000 shares of Common Stock, by
exercising the Underwriter's over-allotment option referred to above. In
addition, the Underwriter may impose "penalty bids" whereby it may reclaim from
a dealer participating in the Offering the selling concessions with respect to
shares of Common Stock that are distributed in the Offering but subsequently
purchased for the account of the Underwriter in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Shares at a level above that which might otherwise prevail in the
open market. None of the transactions described in this paragraph is required,
and, if they are undertaken, they may be discounted at any time.
In connection with the Offering, the Company has agreed to sell to the
Underwriter, for the par value of the underlying shares, the Underwriter's
Warrants to purchase 200,000 Shares. The Underwriter's Warrants are exercisable
for four years, commencing one year from the date of this Prospectus, at a price
per share (the "Exercise Price") equal to 110% of the public offering price per
Share. The Underwriter's Warrants may not be sold, transferred, assigned,
pledged or hypothecated for 12 months from the date of this Prospectus, except
to members of the selling group and to officers and partners of the Underwriter
or members of the selling group. The Underwriter's Warrants contain
anti-dilution provisions providing for adjustment of the Exercise Price and
number of shares issuable on exercise of the Underwriter's Warrants, upon the
occurrence of certain events, including stock dividends, stock splits and
recapitalizations. The holders of the Underwriter's Warrants have no voting,
dividend or other rights as stockholders of the Company with respect to the
shares of Common Stock underlying the Underwriter's Warrants, except to the
extent the Underwriter's Warrants shall have been exercised.
The Company has agreed that at the request of the holders of the majority of
the Underwriter's Warrants and Warrant Shares (and on no more than one
occasion), the Company will file a registration statement under the Securities
Act for an offering of the Underwriter's Warrants and the Warrant Shares during
the four-year period beginning on the first anniversary of the date of the
Prospectus, and the Company has agreed to use its best efforts to cause such
registration statement to be declared effective under the Securities Act at the
Company's expense (subject to certain limitations). In addition, the Company has
agreed to give advance notice to holders of the Underwriter's Warrants and
Warrant Shares of its intention to file a registration statement, and in one
such case, holders of the Underwriter's Warrants and the Warrant Shares will
have the right to require the Company to include the Underwriter's Warrants and
the Warrant Shares in such registration statement at the Company's expense
(subject to certain limitations).
36
<PAGE>
The Company has granted the Underwriter a right of first refusal to act as
the Company's investment banker with respect to future financings or any merger,
acquisition or disposition of assets of the Company for a period of two years
from the date of this Prospectus.
OBSERVER TO THE BOARD OF DIRECTORS
In connection with the Offering, the Company has agreed that, until the
third anniversary of the date of this Prospectus, the Underwriter may appoint an
observer to attend all meetings of the Company's Board of Directors. The
observer will not have any right to vote at any meeting, will not be counted in
determining a quorom and will, presumably, not have any duties to shareholders
of the Company. The observer has the right to receive notice of all meetings of
the Board of Directors and to attend such meetings. The observer will be
entitled to reimbursement of reasonable and accountable out-of-pocket expenses
for attendance at those meetings. In addition, the observer will be entitled to
indemnification, to the same extent as the Company's independent directors.
LEGAL MATTERS
The validity of the shares of Common Stock will be passed upon by Crummy,
Del Deo, Dolan, Griffinger & Vecchione, a Professional Corporation, Newark, New
Jersey. Certain legal matters in connection with this Offering will be passed
upon for the Underwriter by Morrison Cohen Singer & Weinstein, LLP, New York,
New York.
EXPERTS
The financial statements of the Company as at March 31, 1997 and for the
period from May 3, 1995 (Inception) to March 31, 1996 and for the year ended
March 31, 1997, and the financial statements of Renaissance as at October 31,
1996 and for the year then ended, appearing in this Prospectus and Registration
Statement have been audited by Richard A. Eisner & Company, LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of Renaissance for the year ended October 31, 1995,
appearing in this Prospectus and Registration Statement have been audited by
J.H. Cohn LLP, independent public accountants, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission, a Registration Statement on Form
SB-2 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Shares offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company and
the Shares offered hereby, reference is made to the Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to herein are not necessarily complete and, where
such contract or other document is filed as an exhibit to the Registration
Statement, each such statement is qualified in all respects by the provisions in
such exhibit, to which reference is hereby made. Copies of the Registration
Statement may be inspected without charge at the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 or at the
Regional Offices of the Commission located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60604 and Seven World Trade Center, 13th
Floor, New York, New York 10048. Copies of all or any portion of the
Registration Statement
37
<PAGE>
can be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of certain fees prescribed by
the Commission.
Prior to the date of this Prospectus, the Company was not subject to the
information requirements of the Exchange Act. Upon the effectiveness of the
Registration Statement, the Company will be subject to certain of the
informational requirements of the Exchange Act and, in accordance therewith,
will file periodic reports and other information with the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of the reports and
information so filed can be obtained from the Public Reference Section of the
Commission upon payment of certain fees prescribed by the Commission.
The Commission maintains a Web site that contains reports, proxy statements
and other information regarding registrants that file electronically with the
Commission. The address of the Commission's Web site is http://www.sec.gov.
38
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRO FORMA:
Pro Forma Unaudited Condensed Statement of Operations for the Year Ended March 31,
1997............................................................................. F-2
HISTORICAL:
AMBASSADOR EYEWEAR GROUP, INC.
Report of Independent Auditors..................................................... F-3
Balance Sheet as at March 31, 1997 and September 30, 1997 (unaudited).............. F-4
Statements of Operations for the Period from May 3, 1995 (Inception) through March
31, 1996, for the Year Ended March 31, 1997 and for the six-month periods
(unaudited) ended September 30, 1996 and 1997.................................... F-5
Statements of Changes in Stockholders' Equity for the Period from May 3, 1995
(Inception) through March 31, 1996, for the Year Ended March 31, 1997 and for the
six months ended September 30, 1997 (unaudited).................................. F-6
Statements of Cash Flows for the Period from May 3, 1995 (Inception) through March
31, 1996, for the Year Ended March 31, 1997 and for the six-month periods
(unaudited) ended September 30, 1996 and 1997.................................... F-7
Notes to Financial Statements...................................................... F-8
RENAISSANCE EYEWEAR, INC.
Report of Independent Auditors..................................................... F-20
Report of Independent Public Accountants........................................... F-21
Statement of Assets, Liabilities and Capital Deficiency Preceding the Bank Taking
Possession of the Assets as at October 31, 1996.................................. F-22
Statements of Operations Preceding the Bank Taking Possession of the Assets for the
Years Ended October 31, 1995 and October 31, 1996................................ F-23
Statements of Changes in Stockholders' Equity (Capital Deficiency) for the Years
Ended October 31, 1995 and October 31, 1996...................................... F-24
Statements of Cash Flows Preceding the Bank Taking Possession of the Assets for the
Years ended October 31, 1995 and October 31, 1996................................ F-25
Notes to Financial Statements...................................................... F-26
</TABLE>
F-1
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
PRO FORMA UNAUDITED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
The following pro forma unaudited condensed statement of operations reflects
the acquisitions of Windsor Optical, Inc. ("Windsor") and Renaissance Eyewear
Inc. ("Renaissance") as if such transactions had occurred on April 1, 1996. The
acquisitions have been accounted for as purchases in accordance with Accounting
Principles Board Opinion No. 16. In the opinion of management of the Company,
all adjustments necessary to present fairly such pro forma statements of
operations have been made.
This pro forma condensed statement of operations should be read in
conjunction with the notes thereto, the financial statements of the Company and
of Renaissance and the related notes thereto and with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," each included
elsewhere in this Prospectus. The pro forma condensed statement of operations is
presented for informational purposes only and is not necessarily indicative of
what the actual results of operations would have been had the transactions
occurred at April 1, 1996, nor do they purport to indicate the results of future
operations.
The Ambassador column presents results of operations of Ambassador for the
full year ended March 31, 1997 which includes the operations of Windsor and
Renaissance from their respective dates of acquisition, June 26, 1996 and
February 26, 1997. The Windsor and Renaissance columns present respectively,
their separate unaudited results of operations for the portion of the year ended
March 31, 1997 prior to their dates of acquisition.
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------
<S> <C> <C> <C> <C> <C>
RENAISSANCE WINDSOR PRO FORMA
AMBASSADOR ELEVEN MONTHS THREE MONTHS RESULTS
YEAR ENDED ENDED ENDED YEAR ENDED
MARCH 31, FEBRUARY 28, JUNE 30, PRO FORMA MARCH 31,
1997 1997 1996 ADJUSTMENTS 1997
------------- -------------- ----------------- ----------- -----------
Net sales................................. $ 16,455 $ 11,705 $ 969 $ 29,129
Cost of sales............................. 8,552 6,060 479 15,091
------------- -------------- ----- -----------
Gross profit.............................. 7,903 5,645 490 14,038
Selling, general and administrative
expenses................................ 6,145 6,522 392 $ (332)(A) 12,727
------------- -------------- ----- ----------- -----------
Income (loss) from operations............. 1,758 (877) 98 332 1,311
Interest expense (net).................... 738 337 23 8(A) 1,106
Writedown in connection with bank taking
possession of assets.................... 7,054 (7,054)(B) -0-
------------- -------------- ----- ----------- -----------
Income (loss) before taxes................ 1,020 (8,268) 75 7,378 205
Income tax expense (benefit).............. 340 (475) 25 179(A) 69
------------- -------------- ----- ----------- -----------
NET INCOME (LOSS)......................... $ 680 $ (7,793) $ 50 $ 7,199 $ 136
------------- -------------- ----- ----------- -----------
------------- -------------- ----- ----------- -----------
Earnings per share (C).................... $ .18 $ .04
------------- -----------
------------- -----------
Weighted average shares outstanding....... 3,838 3,838
------------- -----------
------------- -----------
</TABLE>
- ------------------------
Notes:
(A) Expense adjustments (for depreciation and amortization of deferred credit)
for the period ended March 31, 1997 to reflect the acquisitions as if they
had taken place April 1, 1996 and the related tax effect.
(B) Elimination of loss resulting from bank taking possession of and selling all
of the assets of Renaissance. The bank took possession of assets with a book
value of $10,500 in connection with a default on bank debt of $3,446.
(C) Pursuant to the Commission's Staff Accounting Bulletin common share
equivalents issued at prices below the anticipated public offering price
during the twelve months preceding the proposed initial filing date have
been included in the calculation as if they were outstanding for the entire
period presented using the treasury stock method.
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Ambassador Eyewear Group, Inc.
Bensalem, Pennsylvania
We have audited the accompanying balance sheet of Ambassador Eyewear Group,
Inc. as at March 31, 1997 and the related statements of operations, changes in
stockholders' equity and cash flows for the period from May 3, 1995 (inception)
through March 31, 1996 and for the year ended March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements enumerated above present fairly, in
all material respects, the financial position of Ambassador Eyewear Group, Inc.
at March 31, 1997 and the results of its operations and its cash flows for the
period from May 3, 1995 (inception) through March 31, 1996 and for the year
ended March 31, 1997 in conformity with generally accepted accounting
principles.
Richard A. Eisner & Company, LLP
New York, New York
June 12, 1997
With respect to
Notes F and H[1]
June 30, 1997
F-3
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
------------- -------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash............................................................................. $ 75,000 $ 116,000
Accounts receivable, less allowance for returns and doubtful accounts of
$2,394,000 and $1,862,000...................................................... 7,403,000 8,562,000
Inventories...................................................................... 11,508,000 11,894,000
Prepaid expenses................................................................. 175,000 142,000
Deferred taxes................................................................... 586,000 516,000
Other current assets............................................................. 4,000 25,000
------------- -------------
Total current assets........................................................... 19,751,000 21,255,000
Fixed assets, net of accumulated depreciation of $276,000 and $389,000............. 744,000 668,000
Deferred financing cost............................................................ 119,000 83,000
Deferred offering costs............................................................ 341,000
Other assets....................................................................... 42,000 48,000
------------- -------------
TOTAL........................................................................ $ 20,656,000 $ 22,395,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--banks............................................................. $ 12,098,000 $ 12,490,000
Notes payable--stockholders/officers............................................. 280,000 495,000
Current portion of long-term debt................................................ 96,000 100,000
Accounts payable................................................................. 4,242,000 4,831,000
Accrued expenses................................................................. 808,000 1,094,000
Income taxes payable............................................................. 544,000 589,000
Current portion of capital leases payable........................................ 69,000 69,000
------------- -------------
Total current liabilities...................................................... 18,137,000 19,668,000
Consulting payable................................................................. 29,000 50,000
Long-term debt, less current portion............................................... 319,000 268,000
Notes payable--stockholders/officers............................................... 1,181,000 1,181,000
Capital leases payable, less current portion....................................... 90,000 57,000
Deferred taxes..................................................................... 41,000 35,000
Deferred credit, net............................................................... 836,000 788,000
------------- -------------
Total liabilities.............................................................. 20,633,000 22,047,000
------------- -------------
Commitments, contingencies and other matters
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized 1,000,000 shares; none
issued
Common stock, par value $.01 per share; authorized 10,000,000 shares; issued and
outstanding 3,500,000 shares................................................... 35,000 35,000
Additional paid-in capital....................................................... 187,000 187,000
Unearned portion of compensatory stock options................................... (184,000) (165,000)
Retained earnings (accumulated deficit).......................................... (15,000) 291,000
------------- -------------
Total stockholders' equity..................................................... 23,000 348,000
------------- -------------
TOTAL........................................................................ $ 20,656,000 $ 22,395,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-4
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 3, 1995
(INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
MARCH 31, MARCH 31, ----------------------------
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Net sales........................................... $ 11,005,000 $ 16,455,000 $ 8,030,000 $ 12,542,000
Cost of sales....................................... 6,826,000 8,552,000 4,540,000 5,693,000
------------- ------------- ------------- -------------
Gross profit........................................ 4,179,000 7,903,000 3,490,000 6,849,000
Selling, general and administrative expenses........ 4,258,000 6,145,000 2,881,000 5,772,000
------------- ------------- ------------- -------------
Income (loss) from operations....................... (79,000) 1,758,000 609,000 1,077,000
Interest income..................................... 4,000 4,000
Interest (expense).................................. (474,000) (742,000) (266,000) (640,000)
------------- ------------- ------------- -------------
Income (loss) before provision for income taxes..... (553,000) 1,020,000 347,000 437,000
Income tax provision (benefit)...................... (254,000) 340,000 153,000 131,000
------------- ------------- ------------- -------------
NET INCOME (LOSS)................................... $ (299,000) $ 680,000 $ 194,000 $ 306,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income (loss) per share......................... $ (.08) $ .18 $ .05 $ .08
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of common shares
outstanding....................................... 3,838,000 3,838,000 3,838,000 3,838,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-5
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNEARNED
COMMON STOCK PORTION OF
-------------------------- ADDITIONAL COMPENSATORY RETAINED TOTAL
NUMBER OF PAID-IN STOCK EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL OPTIONS (DEFICIT) EQUITY
------------ ------------ ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock............... 3,500,000 $ 35,000 $ (34,000) $ 1,000
Acquisition of Chanuk.................. (362,000) (362,000)
Net loss for the period May 3, 1995
(inception) through March 31, 1996... (299,000) (299,000)
Balance--March 31, 1996................ 3,500,000 35,000 (695,000) (660,000)
Fair value of options granted.......... $ 187,000 $ (184,000) 3,000
Net income for the year................ 680,000 680,000
------------ ------------ ---------- ------------- ----------- ------------
Balance--March 31, 1997................ 3,500,000 $ 35,000 $ 187,000 $ (184,000) $ (15,000) $ 23,000
Amortization of unearned portion of
compensatory stock options........... 19,000 19,000
Net income for the six months.......... 306,000 306,000
------------ ------------ ---------- ------------- ----------- ------------
BALANCE--SEPTEMBER 30, 1997
(unaudited).......................... $ 3,500,000 $ 35,000 $ 187,000 $ (165,000) $ 291,000 $ 348,000
------------ ------------ ---------- ------------- ----------- ------------
------------ ------------ ---------- ------------- ----------- ------------
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-6
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 3, 1995
(INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
MARCH 31, MARCH 31, --------------------------
1996 1997 1996 1997
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)........................................... $ (299,000) $ 680,000 $ 194,000 $ 306,000
Adjustments to reconcile net income (loss) to net cash (used
in) operating activities:
Depreciation............................................ 110,000 175,000 77,000 100,000
Amortization of deferred financing costs................ 127,000 71,000 36,000
Amortization of deferred credit......................... (8,000) (48,000)
Deferred taxes.......................................... (372,000) 173,000 (91,000) 64,000
Compensatory stock option............................... 3,000 19,000
Loss on disposal of assets.............................. 94,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............ 57,000 (3,992,000) (1,462,000) (1,159,000)
(Increase) in inventories............................. (1,550,000) (1,364,000) (66,000) (386,000)
(Increase) decrease in prepaid expenses............... 222,000 98,000 (48,000) 33,000
(Increase) decrease in other assets................... (153,000) 173,000 (326,000) (27,000)
Increase in accounts payable.......................... 28,000 252,000 589,000
Increase in consulting payable........................ 29,000 21,000
Increase in accrued expenses.......................... 302,000 106,000 365,000 95,000
Increase in income taxes payable...................... 119,000 425,000 214,000 45,000
----------- ----------- ----------- -------------
Net cash (used in) operating activities............. (1,365,000) (3,525,000) (1,095,000) (218,000)
----------- ----------- ----------- -------------
Cash flows from investing activities:
Fixed asset acquisitions.................................... (199,000) (136,000) (67,000) (118,000)
Cash obtained through acquisitions.......................... 2,000 59,000 59,000
Deferred financing costs acquired........................... (127,000) (34,000)
Proceeds from insurance claim............................... 30,000
----------- ----------- ----------- -------------
Net cash (used in) investing activities............. (294,000) (77,000) (42,000) (118,000)
----------- ----------- ----------- -------------
Cash flows from financing activities:
Net borrowings from bank--line of credit.................... 1,667,000 3,675,000 1,135,000 392,000
Payments of financing costs................................. (190,000)
Payments of registration costs.............................. (150,000)
Proceeds from stockholder/officer........................... 15,000 265,000 73,000 245,000
Payments of notes payable--stockholders/officer............. (13,000) (30,000)
Payments of notes payable--Windsor.......................... (35,000) (26,000) (47,000)
Payments on capital leases.................................. (48,000) (14,000) (33,000)
----------- ----------- ----------- -------------
Net cash provided by financing activities........... 1,669,000 3,667,000 1,168,000 186,000
----------- ----------- ----------- -------------
NET INCREASE IN CASH.......................................... 10,000 65,000 31,000 41,000
Cash--beginning of period..................................... -0 - 10,000 -0 - 75,000
----------- ----------- ----------- -------------
CASH--END OF PERIOD........................................... $ 10,000 $ 75,000 $ 31,000 $ 116,000
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Supplementary cash flow information:
Income taxes paid........................................... $ 88,000 $ 88,000
Interest paid............................................... $ 300,000 629,000 $ 244,000 447,000
Supplementary schedule of noncash investing and financing
activities:
Deferred financing fee.................................... 100,000
Acquisitions (see Note C)
Accrued offering costs.................................... 191,000
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-7
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO DATA AS OF SEPTEMBER 30, 1997 AND FOR THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997)
(NOTE A)--THE COMPANY AND BASIS OF PRESENTATION:
Ambassador Eyewear Group, Inc. (the "Company", formerly Diplomat Ambassador,
Inc.), designs, markets and distributes prescription eyeglass frames and
nonprescription sunglasses to department and specialty stores, optical chains
and eyewear boutiques worldwide. On May 3, 1995 the Company was organized and on
May 10, 1995, acquired substantially all of the assets and assumed certain of
the liabilities of Chanuk Inc. ("Chanuk") and became the business successor. On
June 26, 1996 the Company acquired substantially all of the assets and assumed
certain of the liabilities of Windsor Optical, Inc. ("Windsor"). On February 26,
1997 the Company acquired from a bank substantially all of the assets of
Renaissance Eyewear Inc. ("Renaissance") and incurred certain other obligations
(see Note C and K [7]).
The Company imports substantially all of its frames and nonprescription
sunglasses from a limited number of international suppliers, principally in the
Far East.
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[2] INVENTORIES:
Inventories, consisting principally of eyeglass frames and sunglasses, are
stated at the lower of cost or market. Cost is determined by the first-in,
first-out method.
[3] FIXED ASSETS:
Fixed assets, including assets held under capital leases, are stated at cost
and depreciation is computed by the straight line method over the estimated
useful lives of 5 to 10 years. Leasehold improvements are stated at cost and are
amortized over the shorter of the lease term or the estimated useful lives of
the related assets.
[4] AMORTIZATION OF INTANGIBLE ASSETS:
Deferred financing costs are being amortized on a straight line basis over
the remaining term of the revolving credit facility. (See Note E[1]).
Accumulated amortization was $71,000 and $107,000, respectively at March 31,
1997 and September 30, 1997.
[5] DEFERRED CREDIT:
The deferred credit represents the excess value of net assets of Renaissance
acquired over cost, which is being amortized over a period of five years.
Accumulated amortization was $8,000 and $56,000, respectively at March 31, 1997
and September 30, 1997.
[6] INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires the use of the liability method of accounting for income taxes. The
Company reports on a calendar year end for income tax purposes.
F-8
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF SEPTEMBER 30, 1997 AND FOR THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997)
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
[7] REVENUE RECOGNITION:
Revenue is recognized when merchandise is shipped to customers. The Company
accrues a sales return allowance in accordance with its return policy for
estimated returns of inventory subsequent to the balance sheet date that relate
to sales prior to the balance sheet date. Estimated sales returns are provided
for and at March 31, 1997 and September 30, 1997 the allowance for returns was
$555,000 and $365,000, respectively.
[8] NET INCOME PER SHARE:
Net income per share is computed using the weighted average number of shares
outstanding during the period. The effect of outstanding options is computed, if
dilutive, using the treasury stock method. In accordance with Securities and
Exchange Commission requirements, the common shares and options issued during
the twelve-month period prior to the filing of the proposed initial public
offering at a price below the anticipated initial public offering price ($5.00
per share) have been included in the calculation as if they were outstanding for
all periods prior to the offering using the treasury stock method.
[9] CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of accounts receivable. The
Company extends credit to a substantial number of its customers and performs
ongoing credit evaluations of the customers' financial condition while requiring
no collateral.
[10] FAIR VALUES OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires the Company to disclose estimated fair
values for its financial instruments. The carrying amounts reported in the
balance sheet for cash, accounts receivable, accounts payable and accrued
expenses approximate fair value because of the short maturity period of those
instruments. In addition the carrying amounts reported for notes payable
approximate fair value based on recent market rates of interest for similar
instruments.
[11] STOCK-BASED COMPENSATION:
During the year ended March 31, 1997 the Company adopted Statement of
Financial Accounting Standards Board No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The provisions of SFAS No. 123 allow companies
to either expense the estimated fair value of stock options or other awards
granted to employees or to continue to follow the intrinsic value method set
forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") but disclose the pro forma effects on net income
(loss) had the fair value of the options been expensed. The Company has elected
to continue to apply APB No.25 to its stock-based compensation awards to
employees and will disclose pro forma net income and net income per share in
accordance with SFAS No. 123. Accordingly, the Company accounts for the
difference between the exercise price of compensatory stock options and the
F-9
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF SEPTEMBER 30, 1997 AND FOR THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997)
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
fair value of the stock as "Unearned Compensatory Stock Options," which the
Company charges to operations over the vesting period.
[12] FOREIGN CURRENCY TRANSACTIONS:
Foreign currency transaction gain and losses are recognized as incurred.
During the period from May 3, 1995 (inception) through March 31, 1996, the year
ended March 31, 1997 and the six months ended September 30, 1997 gains/losses
were not material.
[13] ADVERTISING:
The costs of advertising are expensed when incurred or the first time the
advertising takes place. Advertising expense for the period from May 3, 1995
(inception) through March 31, 1996, for the year ended March 31, 1997 and the
six months ended September 30, 1997 was approximately $155,000, $277,000 and
$116,000, respectively.
[14] RECENT ACCOUNTING PRONOUNCEMENTS:
SFAS No. 128, "Earnings Per Share" ("EPS"), is effective for both interim
and annual periods ending after December 15, 1997. SFAS No. 128 supersedes APB
No. 15 and specifies the computation, presentation and disclosure requirement
for basic and diluted EPS. The Company has determined that the adoption of this
new standard will not have a material effect on EPS for all periods presented.
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure", No. 130, "Reporting Comprehensive Income", and No. 131, "Disclosure
about Segments of an Enterprise and Related Information". The Company believes
that the above pronouncements will not have a significant effect on the
information presented in the financial statements.
[15] UNAUDITED INTERIM FINANCIAL STATEMENTS:
In the opinion of management, the unaudited financial statements include all
adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the Company's financial position at September 30, 1997 and
results of operations and cash flows for the six-month periods ended September
30, 1997 and 1996. The financial statements as of September 30, 1997 and for the
six months ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending March 31, 1998.
(NOTE C)--ACQUISITIONS:
[1] ACQUISITION OF CHANUK:
In May 1995 the Company acquired substantially all of the assets and assumed
certain of the liabilities of Chanuk, an eyewear distributor and a predecessor
entity. The majority stockholder (74 percent) of Chanuk is the mother-in-law of
one of the Company's 50% stockholders. Such 50% stockholder is the President and
Chief Executive Officer of the Company and was the President of Chanuk. The
Company's
F-10
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF SEPTEMBER 30, 1997 AND FOR THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997)
(NOTE C)--ACQUISITIONS: (CONTINUED)
other 50% stockholder owned a minority interest (approximately 10%) in Chanuk.
The Company became the business successor to Chanuk and the transaction is
considered a recapitalization rather than a business combination. The
acquisition was recorded at Chanuk's historical cost basis which approximates
fair value. The Company issued two notes payable aggregating $687,000, for the
value of the net assets acquired, to its two stockholders as consideration for a
note issued by the stockholders to Chanuk for the same amount (see Note F). The
excess ($362,000) of the notes payable over the historical basis of the net
assets acquired has been accounted for as a reduction of stockholders' equity.
The cost was recorded as follows:
<TABLE>
<S> <C>
Cash............................................................ $ 2,000
Accounts receivable, net........................................ 2,089,000
Inventory....................................................... 2,995,000
Prepaid expenses & other assets................................. 442,000
Fixed assets.................................................... 468,000
Note payable--bank.............................................. (2,288,000)
Accounts payable................................................ (2,875,000)
Loans payable--stockholders..................................... (508,000)
Deficit......................................................... 362,000
----------
Notes payable--stockholders..................................... $ 687,000
----------
----------
</TABLE>
[2] ACQUISITION OF WINDSOR:
In June 1996 the Company acquired substantially all of the assets and
assumed certain of the liabilities of Windsor, an eyewear distributor. In
addition, the Company paid $100,000 cash and issued two notes payable to Windsor
aggregating $450,000. This acquisition was treated for accounting purposes as a
purchase. Accordingly, the various assets acquired and liabilities assumed were
recorded at their respective estimated fair values as of the date of
acquisition. The cost of the acquisition was allocated as follows:
<TABLE>
<S> <C>
Cash............................................................ $ 59,000
Accounts receivable, net........................................ 448,000
Inventory....................................................... 1,937,000
Fixed assets.................................................... 45,000
Other assets.................................................... 66,000
Loan payable--bank (including $100,000 borrowed in connection
with the purchase)............................................ (1,022,000)
Accounts payable................................................ (1,083,000)
----------
Notes payable--Windsor.......................................... $ 450,000
----------
----------
</TABLE>
The Company entered into a three year employment agreement with one of the
principal stockholders of Windsor, who is currently an officer of the Company
(see Note K[2]). The Company also granted options to purchase 151,667 shares of
common stock at $1.50 per share to this individual. In addition the Company
entered into a consulting agreement with another principal stockholder of
Windsor (see Note K[3]).
F-11
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF SEPTEMBER 30, 1997 AND FOR THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997)
(NOTE C)--ACQUISITIONS: (CONTINUED)
[3] ACQUISITION OF THE ASSETS OF RENAISSANCE:
In February 1997 the Company purchased substantially all of the assets of
Renaissance, an eyewear distributor, from Summit Bank after Summit Bank had
passively foreclosed on Renaissance upon default of its loan agreement. The
Company also satisfied certain obligations aggregating $400,000 and entered into
a noncompete agreement and a consulting agreement with the former owner of
Renaissance which provide for annual aggregate payments of $200,000 per year for
five years (see Note K[3]). In addition the Company granted the former owner
options to purchase 180,833 shares of common stock at $3 per share. The Company
valued the option at $187,000 representing the fair value at date of grant which
is being charged to operations over five years. The excess of the fair value of
the net assets acquired over the purchase price was first applied as a reduction
of noncurrent assets and the remaining balance is treated for accounting
purposes as a deferred credit. The cost of the acquisition was allocated as
follows:
<TABLE>
<S> <C>
Accounts receivable, net........................................ $ 975,000
Inventory....................................................... 3,662,000
Prepaid expenses................................................ 53,000
Note payable--bank.............................................. (3,446,000)
Deferred credit................................................. (844,000)
Accrued expenses................................................ (400,000)
</TABLE>
The Company's financial statements include the operations of the acquired
entities from the respective dates of such acquisitions.
[4] PRO FORMA RESULTS OF OPERATIONS:
The following unaudited pro forma summary of results of operations has been
prepared as if each of the acquisitions had occurred on May 3, 1995 (inception)
after giving effect to all purchase price adjustments and the elimination of
nonrecurring items:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 3, 1995
(INCEPTION) YEAR ENDED
TO MARCH 31, MARCH 31,
PRO FORMA 1996 1997
- --------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Net revenue.................................................... $ 28,172,000 $ 29,129,000
Net income (loss).............................................. (475,000) 136,000
Net income (loss) per share.................................... $ (.12) $ .04
</TABLE>
The pro forma results do not purport to be indicative of the results that
would have actually been achieved if the respective acquisitions had taken place
as of May 3, 1995 (inception) or of results which may occur in the future.
F-12
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF SEPTEMBER 30, 1997 AND FOR THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997)
(NOTE D)--FIXED ASSETS:
Fixed assets are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
------------ -------------
<S> <C> <C>
Furniture, fixtures and displays................................. $ 232,000 $ 262,000
Equipment........................................................ 636,000 676,000
Leasehold improvements........................................... 152,000 119,000
------------ -------------
Total........................................................ 1,022,000 1,057,000
Accumulated depreciation......................................... 276,000 (389,000)
------------ -------------
Balance...................................................... $ 744,000 $ 668,000
------------ -------------
------------ -------------
</TABLE>
(NOTE E)--BANK LOANS AND LONG-TERM DEBT:
[1] BANK LOANS:
The Company has entered into a revolving line of credit agreement with a
bank which expires annually on June 1, is automatically renewed for one year and
provides for borrowings of up to a maximum of $12,000,000 based on specified
percentages, described in the agreement, of eligible accounts receivable and
inventories. Borrowings under the agreement bear interest at the prime rate
(8.5% at March 31, 1997 and September 30, 1997). The credit facility is
collateralized by substantially all of the assets of the Company. During the six
months ended September 30, 1997 the Company entered into an overadvance line of
credit of $500,000 pursuant to an agreement which is due on the earlier of
December 31, 1997 or the closing of the proposed public offering. $2.2 million
under the revolving line of credit is guaranteed by the stockholders/officers of
the Company. At March 31, 1997 and September 30, 1997 $11,998,000 and
$12,390,000, respectively was outstanding under the credit facility.
Upon the closing of the Company's anticipated initial public offering, a fee
of $100,000 will be due to the bank. This fee was recorded as a deferred
financing cost and is being amortized over the remaining term of the credit
facility.
[2] LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER
MARCH 31, 30,
1997 1997
--------- -----------
<S> <C> <C>
Notes payable--Windsor(a)............................ $ 415,000 $ 368,000
Less amounts due within one year..................... 96,000 100,000
--------- -----------
Amounts due after one year........................... $ 319,000 $ 268,000
--------- -----------
--------- -----------
</TABLE>
(a) In connection with the acquisition of Windsor in June 1996, the Company
issued two notes aggregating $450,000 to Windsor which bear interest at the rate
of 7% per annum. The notes are payable in aggregate monthly installments of
principal and interest of approximately $10,000 through January 2000 and
approximately $5,000 thereafter through July 2003.
F-13
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF SEPTEMBER 30, 1997 AND FOR THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997)
(NOTE E)--BANK LOANS AND LONG-TERM DEBT: (CONTINUED)
Long-term debt is payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
- ----------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 96,000
1999.............................................................................. 103,000
2000.............................................................................. 58,000
2001.............................................................................. 45,000
2002.............................................................................. 48,000
Thereafter........................................................................ 65,000
----------
TOTAL......................................................................... $ 415,000
----------
----------
</TABLE>
(NOTE F)--NOTES PAYABLE--STOCKHOLDERS/OFFICER:
In connection with the acquisition of Chanuk in May 1995 the Company assumed
a note payable to a stockholder/officer of the Company in the amount of
$508,000. The note bears interest at the rate of 8% per annum and is payable on
demand. At March 31, 1997 and September 30, 1997 the balance due on the note was
$495,000.
Two stockholders/officers personally satisfied a portion of the purchase
price and the Company issued notes payable of $343,000 to each of the officers
for such amounts. The notes payable bear interest at a rate of 8% per annum and
are due on demand but no later than January 1, 2000 and are subordinate to the
bank debt. At March 31, 1997 and September 30, 1997 the balance on these notes
aggregated $686,000.
The foregoing demand notes are subject to an agreement entered into by the
Company as of June 30, 1997 to convert principal balances outstanding into
redeemable cumulative preferred stock on the effective date of the initial
public offering. Accordingly, the notes have been classified as long-term at
March 31, 1997 and September 30, 1997.
In February 1997, stockholders/officers loaned the Company $280,000 in
connection with the acquisition of substantially all of the assets of
Renaissance. The loan is payable on demand and bears interest at the rate of 8%
per annum. During the six months ended September 30, 1997 the Company repaid
$30,000 of this loan and borrowed an additional $245,000 under the same terms.
(NOTE G)--CAPITAL LEASES PAYABLE:
The Company leases equipment under various agreements with terms of 32 to 60
months and accounts for these leases as capital leases. Equipment purchases
under these leases for the period from May 3, 1995 (inception) through March 31,
1996, for the year ended March 31, 1997 and for the six months ended September
30, 1997 were $189,000, $51,000 and $0, respectively. The net book value of
equipment held under capital leases was approximately $183,000 and $143,000,
respectively at March 31, 1997 and September 30, 1997.
F-14
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF SEPTEMBER 30, 1997 AND FOR THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997)
(NOTE G)--CAPITAL LEASES PAYABLE: (CONTINUED)
Future lease payments as of March 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
- ----------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 91,000
1999.............................................................................. 69,000
2000.............................................................................. 29,000
2001.............................................................................. 5,000
----------
Total......................................................................... 194,000
Less amounts representing interest................................................ 35,000
----------
Present value of future lease payments............................................ 159,000
Less amount due within one year................................................... 69,000
----------
Amounts due after one year........................................................ $ 90,000
----------
----------
</TABLE>
(NOTE H)--STOCKHOLDERS' EQUITY:
[1] COMMON STOCK:
In May 1995 the Company issued 1,500 shares of its common stock to each of
its two stockholders, both of whom are officers of the Company.
In June 1997 the Company effected a 1,166.67 for 1 stock split. The
financial statements give retroactive effect to this transaction as if it
occurred on May 3, 1995 (inception).
In June 1997 the Company amended its certificate of incorporation to
increase the authorized capital stock to 11,000,000 shares, of which 10,000,000
are common stock and 1,000,000 preferred stock. The accompanying financial
statements reflect this increase retroactively.
[2] STOCK OPTIONS:
The Company applies APB 25 in accounting for stock-based compensation to
employees and, accordingly, recognizes compensation expense for the difference
between the fair value of the underlying common stock and the exercise price of
the option at the date of grant. The effect of applying SFAS No. 123 on fiscal
1996 and 1997 pro forma net income (loss) is not necessarily representative of
the effects on reported net income (loss) for future years due to, among other
things, (1) the vesting period of the stock options and (2) the fair value of
additional stock options that may be granted in future years. Had compensation
cost for the Company's stock options granted to employees been determined based
upon the fair value at the grant date consistent with the methodology prescribed
under SFAS No. 123, the Company's net income (loss) and net income (loss) per
share would have been approximately (i) $(302,000) and $(.08) for the period May
3, 1995 (inception) through March 31, 1996 and (ii) $661,000 and $.17 for the
year ended March 31, 1997. The weighted average fair value of the options
granted during fiscal 1996 and 1997 are estimated at $.09 and $.80,
respectively, on the date of grant using the Black-Scholes option-pricing model
with the following assumptions: dividend yield of 0%, volatility of 30%, risk-
free interest rate of 6.74%, and expected life of four years.
F-15
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO DATA AS OF SEPTEMBER 30, 1997 AND FOR THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997)
(NOTE H)--STOCKHOLDERS' EQUITY: (CONTINUED)
THE FOLLOWING TABLE SUMMARIZES INFORMATION ABOUT STOCK OPTIONS OUTSTANDING
AT MARCH 31, 1997 AND SEPTEMBER 30, 1997 (ALL EXERCISABLE):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE AVERAGE
EXERCISE NUMBER REMAINING CONTRACTUAL EXERCISE
PRICE OUTSTANDING LIFE (IN YEARS) PRICE
- -------------------------------------- ----------- ------------------------- -----------
<S> <C> <C> <C>
$ .25................................. 166,833 2 $ .25
1.50................................. 151,667 3 1.50
3.00................................. 180,833 5 3.00
-----------
Total................................. 499,333 1.63
-----------
-----------
</TABLE>
(NOTE I)--PROPOSED PUBLIC OFFERING:
The Company has signed a letter of intent with an underwriter with respect
to a proposed public offering of the Company's securities. There is no assurance
that such offering will be consummated. In connection therewith, the Company
anticipates incurring substantial costs, which, if the offering is not
consummated, will be charged to expense.
(NOTE J)--INCOME TAXES:
The provisions for federal and state income taxes for the period from May 3,
1995 (inception) through March 31, 1996, for the year ended March 31, 1997 and
for the six-month periods ended September 30, 1996 and 1997 are comprised of the
following:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 3, 1995
(INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
MARCH 31, MARCH 31, ----------------------
1996 1997 1996 1997
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Current:
Federal.................................. $ 75,000 $ 325,000 $ 155,000 $ 43,000
State.................................... 43,000 188,000 89,000 24,000
----------- ----------- ---------- ----------
118,000 513,000 244,000 67,000
----------- ----------- ---------- ----------
Deferred:
Federal.................................. (238,000) (111,000) (58,000) 41,000
State.................................... (134,000) (62,000) (33,000) 23,000
----------- ----------- ---------- ----------
(372,000) (173,000) (91,000) 64,000
----------- ----------- ---------- ----------
Total.............................. $(254,000) $ 340,000 $ 153,000 $ 131,000
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
F-16
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF SEPTEMBER 30, 1997 AND FOR THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997)
(NOTE J)--INCOME TAXES: (CONTINUED)
The deferred tax asset of $586,000 and liability of $41,000 at March 31,
1997 and the deferred tax asset of $516,000 and liability of $35,000 at
September 30, 1997 represent the anticipated future tax consequences
attributable to temporary differences between the basis of assets and
liabilities for financial and tax reporting purposes and consists of the
following components:
<TABLE>
<CAPTION>
MARCH 31, 1997 SEPTEMBER 30, 1997
----------------------- -----------------------
CURRENT NONCURRENT CURRENT NONCURRENT
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Accounts receivable........................ $ 283,000 $ 205,000
Inventory valuation........................ 252,000 252,000
Depreciation............................... $ (41,000) $ (35,000)
Accounts payable........................... 12,000 22,000
Other...................................... 39,000 37,000
---------- ----------- ---------- -----------
Total.............................. $ 586,000 $ (41,000) $ 516,000 $ (35,000)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
Expected tax expense based on the statutory rate is reconciled with actual
tax expense as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 3, 1995 SIX MONTHS ENDED
(INCEPTION)
THROUGH YEAR ENDED SEPTEMBER 30,
MARCH 31, MARCH 31, --------------------
1996 1997 1996 1997
--------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Federal statutory rate............................. 34.0% 34.0% 34.0% 34.0%
State income tax, net of federal benefit........... 10.8% 8.1% 10.7% 7.1%
Recognition of liability for tax purposes.......... (8.6)% (11.0)%
Other.............................................. 1.1% (.2)% (.6)% (.1)%
--- --- --- ---------
Effective tax rate................................. 45.9 % 33.3 % 44.1% 30.0%
--- --- --- ---------
--- --- --- ---------
</TABLE>
(NOTE K)--COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
[1] OPERATING LEASES:
The Company currently leases office, warehouse, showroom facilities and
equipment under operating leases, which expire at various times through 2002.
F-17
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF SEPTEMBER 30, 1997 AND FOR THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997)
(NOTE K)--COMMITMENTS, CONTINGENCIES AND OTHER MATTERS: (CONTINUED)
Future minimum lease payments under noncancelable leases at March 31, 1997
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
- ----------------------------------------------------------------------------------
<S> <C>
1998........................................................................ $ 231,000
1999........................................................................ 150,000
2000........................................................................ 150,000
2001........................................................................ 47,000
2002........................................................................ 13,000
Thereafter.................................................................. 3,000
----------
Total................................................................... $ 594,000
----------
----------
</TABLE>
During the six months ended September 30, 1997 the company entered into a
lease and moved to a new facility. The lease agreement provides for aggregate
minimum rental payments of approximately $1.6 million through December 2002. In
connection therewith the Company wrote off certain assets which will no longer
be utilized, resulting in a charge to operations of $79,000 during the six
months ended September 30, 1997.
Rent expense for the period from May 3, 1995 (inception) through March 31,
1996, for the year ended March 31, 1997 and for the six months ended September
30, 1997 was approximately $76,000, $140,000 and $148,000, respectively.
[2] EMPLOYMENT AGREEMENTS:
The Company has entered into an employment agreement with the
President/Chief Executive Officer which provides for an annual salary of
$175,000. The Agreement was amended by oral agreement to increase the annual
salary to $250,000. The agreement shall continue so long as the President
remains a stockholder of the Company, unless the agreement is terminated as
defined in the agreement. The Company has an employment agreement with one of
the former principal stockholders of Windsor. The employment agreement provides
for annual salaries ranging from $105,000 to $120,000 through the year 2000 and
a minimum bonus of 5% of the bonuses granted to the principal stockholders of
the Company and annual base salary as follows:
[3] CONSULTING AND NONCOMPETE AGREEMENTS:
The Company has entered into an agreement with an affiliate of one of the
officers/stockholders to provide consulting, advisory and other supportive
services for an annual fee of $208,000. In March 1997 the agreement was orally
amended to increase payments to $5,000 per week. The agreement shall continue as
long as the officer remains a stockholder of the Company, unless the agreement
is terminated as defined in the agreement.
In May 1995 in connection with the Chanuk acquisition the Company entered
into two separate ten year consulting agreements to provide consulting, advisory
and support services to the Company for $500 per week each.
In connection with the acquisition of Renaissance the Company entered into a
noncompete agreement and consulting agreement with the stockholder of
Renaissance which provide for annual aggregate payments of $200,000 per year
through February 2002.
F-18
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF SEPTEMBER 30, 1997 AND FOR THE
SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997)
(NOTE K)--COMMITMENTS, CONTINGENCIES AND OTHER MATTERS: (CONTINUED)
In addition the Company entered into a three year consulting agreement,
which began in June 1996, with a principal stockholder of Windsor which provides
for 36 monthly payments of $6,944 commencing June 2004. The Company has present
valued the payments and has recorded an expense of approximately $29,000 and a
corresponding liability for the year ended March 31, 1997.
[4] MAJOR CUSTOMER:
One major customer accounted for approximately 51%, 35% and 37% of net sales
for the period May 3, 1995 (inception) through March 31, 1996, for the year
ended March 31, 1997 and for the six months ended September 30, 1997,
respectively.
[5] ROYALTY AND LICENSING AGREEMENTS:
The Company has entered into various license agreements which provide for
the payment of royalties ranging from 6% to 8% of net selling price of products
sold, as defined.
The Company is obligated under these agreements to make future minimum
payments as follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
- --------------------------------------------------------------------------------
<S> <C>
1998...................................................................... $ 944,000
1999...................................................................... 528,000
2000...................................................................... 269,000
2001...................................................................... 97,000
------------
Total................................................................. $ 1,838,000
------------
------------
</TABLE>
[6] LETTERS OF CREDIT:
At March 31, 1997 and September 30, 1997 the Company had outstanding
irrevocable letters of credit in the amount of $52,000 and $100,000,
respectively.
[7] SUCCESSOR LIABILITIES:
In connection with the acquisition of all of the assets of Renaissance in
February 1997 no liabilities of Renaissance were assumed by the Company. To the
extent that any creditors of Renaissance seek recourse against the Company as
the purchaser of substantially all of the asssets of Renaissance, the Company
may incur substantial expenses in connection with defending any such actions.
Additionally, to the extent that creditors are successful on asserting any
claims against the Company as successor to Renaissance, the Company would be
required to charge its operations.
F-19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Renaissance Eyewear, Inc.
Cranford, NJ
We have audited the accompanying statement of assets, liabilities and
capital deficiency of Renaissance Eyewear, Inc. (the "Company") as at October
31, 1996 and the related statements of operations, changes in capital deficiency
and cash flows all preceding the bank taking possession of the assets (Note A)
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in
all material respects, the financial position of Renaissance Eyewear, Inc. at
October 31, 1996 and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
As discussed in Notes A and K to the financial statements, the Company
defaulted on its bank loan. In February 1997, the bank took possession of all of
the Company's assets.
Richard A. Eisner & Company, LLP
New York, New York
June 12, 1997
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Renaissance Eyewear, Inc.
We have audited the accompanying combined statements of operations, changes
in stockholders' equity and cash flows of Renaissance Eyewear, Inc. and
Affiliate for the year ended October 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 combined financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Renaissance Eyewear, Inc. and Affiliate for the year ended October 31,
1995, in conformity with generally accepted accounting principles.
/s/ J. H. COHN LLP
--------------------------------------
J. H. Cohn LLP
Roseland, New Jersey
December 22, 1995
F-21
<PAGE>
RENAISSANCE EYEWEAR, INC.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL DEFICIENCY
PRECEDING THE BANK TAKING POSSESSION OF THE ASSETS
(NOTE A)
AS AT OCTOBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 8,000
Accounts receivable, net of allowance for returns and doubtful accounts of
$967,000.................................................................... 2,268,000
Other receivables............................................................. 87,000
Inventories................................................................... 3,705,000
Prepaid expenses.............................................................. 90,000
----------
Total current assets...................................................... 6,158,000
Other assets.................................................................... 273,000
----------
TOTAL..................................................................... $6,431,000
----------
----------
LIABILITIES AND CAPITAL DEFICIENCY
Current liabilities:
Loan payable--bank............................................................ $2,663,000
Long-term debt................................................................ 638,000
Accounts payable and accrued expenses......................................... 3,597,000
Bank acceptances payable...................................................... 219,000
Due to related party.......................................................... 180,000
----------
Total current liabilities................................................. 7,297,000
----------
Commitments and contingencies
Capital deficiency:
Preferred stock, $1,000 par value, nonvoting; 5,000 shares authorized;
1,970.915 shares issued..................................................... 1,971,000
Common stock, no par value; 15,000 shares authorized, issued and
outstanding................................................................. 81,000
Additional paid-in capital.................................................... 2,124,000
(Accumulated deficit)......................................................... (4,844,000)
Treasury stock, 198 shares of preferred stock at cost......................... (198,000)
----------
Total capital deficiency.................................................. (866,000)
----------
TOTAL..................................................................... $6,431,000
----------
----------
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-22
<PAGE>
RENAISSANCE EYEWEAR, INC.
STATEMENTS OF OPERATIONS
PRECEDING THE BANK TAKING POSSESSION OF THE ASSETS
(NOTE A)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
----------------------------
<S> <C> <C>
1996 1995
------------- -------------
Revenue:
Net sales........................................................................ $ 14,097,000 $ 17,382,000
Other income, including interest................................................. 469,000 446,000
------------- -------------
Total.......................................................................... 14,566,000 17,828,000
------------- -------------
Costs and expenses:
Cost of sales.................................................................... 7,497,000 8,162,000
Selling expenses................................................................. 5,541,000 6,773,000
General and administrative expenses.............................................. 3,018,000 2,946,000
Interest expense................................................................. 478,000 523,000
------------- -------------
Total.......................................................................... 16,534,000 18,404,000
------------- -------------
Loss from operations before write off of receivable from affiliate, impairment of
fixed assets and income tax benefit.............................................. (1,968,000) (576,000)
Income tax (benefit)............................................................... (19,000) (389,000)
Write off of uncollectible receivable from affiliate............................... 2,810,000
Loss on Impairment of fixed assets................................................. 876,000
------------- -------------
NET LOSS........................................................................... $ (5,635,000) $ (187,000)
------------- -------------
------------- -------------
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-23
<PAGE>
RENAISSANCE EYEWEAR, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
PRECEDING THE BANK TAKING POSSESSION OF THE ASSETS
(NOTE A)
<TABLE>
<CAPTION>
PROFESSIONAL
RENAISSANCE EYEWEAR, INC. TECHNOLOGY
------------------------------------ CONSULTANTS ADDITIONAL RETAINED
PREFERRED COMMON TREASURY COMMON PAID-IN EARNINGS
STOCK STOCK STOCK STOCK CAPITAL (DEFICIT) TOTAL
------------ --------- ----------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--November 1, 1994... $ 1,971,000 $ 81,000 $ (167,000) $ 1,000 $ 2,124,000 $ 977,000 $ 4,987,000
Purchase of treasury
stock..................... -- -- (15,000) -- -- -- (15,000)
Dissolution of affiliate.... -- -- -- (1,000) -- 1,000 -0 -
Net loss.................... -- -- -- -- -- (187,000) (187,000)
------------ --------- ----------- ----------- ------------ ------------- -------------
Balance--October 31, 1995... 1,971,000 81,000 (182,000) -0 - 2,124,000 791,000 4,785,000
Purchase of treasury
stock..................... -- -- (16,000) -- -- -- (16,000)
Net loss.................... -- -- -- -- -- (5,635,000) (5,635,000)
------------ --------- ----------- ----------- ------------ ------------- -------------
BALANCE-- OCTOBER 31, 1996.. $ 1,971,000 $ 81,000 $ (198,000) $ -0 - $ 2,124,000 $ (4,844,000) $ (866,000)
------------ --------- ----------- ----------- ------------ ------------- -------------
------------ --------- ----------- ----------- ------------ ------------- -------------
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-24
<PAGE>
RENAISSANCE EYEWEAR, INC.
STATEMENTS OF CASH FLOWS
PRECEDING THE BANK TAKING POSSESSION OF THE ASSETS
(NOTE A)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
----------------------------
<S> <C> <C>
1996 1995
------------- -------------
Cash flows from operating activities:
Net loss.......................................................................... $ (5,635,000) $ (187,000)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization................................................. 216,000 241,000
Provision for bad debts....................................................... 770,000 239,000
Write off of affiliate receivable............................................. 2,810,000
Loss on impairment of fixed assets............................................ 876,000
Gain on sale of fixed assets.................................................. (72,000)
Deferred income taxes......................................................... 134,000 (120,000)
Changes in operating assets and liabilities:
Accounts receivable......................................................... 1,068,000 (980,000)
Inventories................................................................. 809,000 (22,000)
Prepaid expenses and other current assets................................... 273,000 230,000
Due from related parties.................................................... (486,000) (381,000)
Other assets................................................................ 3,000 (2,000)
Bank acceptances payable.................................................... (99,000)
Accounts payable and accrued expenses....................................... 641,000 940,000
Income taxes payable........................................................ (150,000) (195,000)
------------- -------------
Net cash provided by (used in) operating activities....................... 1,257,000 (336,000)
------------- -------------
Cash flows from investing activities:
Proceeds from sale of fixed assets................................................ 72,000
Capital expenditures.............................................................. (5,000) (26,000)
------------- -------------
Net cash provided by (used in) investing activities....................... 67,000 (26,000)
------------- -------------
Cash flows from financing activities:
Net (payments) proceeds under line of credit agreement............................ (457,000) 943,000
Proceeds of long-term debt........................................................ 1,250,000
Payments of long-term debt........................................................ (853,000) (1,824,000)
Purchase of preferred stock for treasury.......................................... (16,000) (15,000)
------------- -------------
Net cash (used in) provided by financing activities....................... (1,326,000) 354,000
------------- -------------
NET DECREASE IN CASH................................................................ (2,000) (8,000)
Cash--beginning of year............................................................. 10,000 18,000
------------- -------------
CASH--END OF YEAR................................................................... $ 8,000 $ 10,000
------------- -------------
------------- -------------
Supplementary disclosures of cash flow information:
Interest paid................................................................... $ 442,000 $ 495,000
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-25
<PAGE>
RENAISSANCE EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE A)--THE COMPANY:
Renaissance Eyewear, Inc. (the "Company") markets and distributes
prescription eyeglass frames and nonprescription sunglasses to department and
specialty stores, optical chains and eyewear boutiques worldwide.
In February 1997, the Company defaulted on its credit facility and the bank
took possession of all of the Company's assets, which were acquired from the
bank by a third party, Ambassador Eyewear Group, Inc. ("Ambassador"). In
connection therewith, Ambassador paid off the remaining balance due under bank's
credit facility. As a result, the Company has no assets remaining with which to
pay its creditors (see Note K). The Company's current operations are limited to
leasing its employees to and being reimbursed for expenses by Ambassador.
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] Concentrations of credit risk:
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and trade accounts receivable. The
Company maintains its cash in bank deposit accounts which, at times, may exceed
federally insured limits. Concentrations of credit risk with respect to trade
receivables, other than trade receivables from an affiliate, are limited due to
the large number of customers comprising the Company's customer base and their
dispersion across different geographic areas. In addition, the Company routinely
assesses the financial strength of its customers.
[2] Inventories:
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
[3] Depreciation and amortization:
Provision is made for depreciation and amortization of equipment and
improvements principally on the straight-line method over the estimated useful
lives of the related assets as follows:
<TABLE>
<CAPTION>
RANGE OF
ESTIMATED
CATEGORY USEFUL LIVES
- -------------------------------------------------------------------------------- ------------
<S> <C>
Machinery and equipment......................................................... 5-10 years
Furniture and fixtures.......................................................... 5-10 years
Vehicles........................................................................ 3 years
Leasehold improvements.......................................................... 3-15 years
</TABLE>
[4] Advertising:
The Company expenses the cost of advertising and promotions as incurred.
Advertising costs charged to operations amounted to $397,000 and $550,000 in
1996 and 1995, respectively.
[5] Reclassifications:
Certain accounts in the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
F-26
<PAGE>
RENAISSANCE EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
[6] Income taxes:
The Company applies Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes", which requires deferred income tax assets
and liabilities to be computed for differences between the financial statement
and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
[7] Long lived assets:
The Company has adopted the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" in
1996. SFAS 121 requires impairment losses to be recorded on long-lived assets
(i.e. property and equipment and patent and trademarks) used in operations when
impairment indicators are present and undiscounted cash flows estimated to be
generated by those assets are less than the asset's carrying amount. Based on
current circumstances, the adoption of SFAS 121 has a material effect on the
Company's financial statements for the year ended October 31, 1996.
[8] Use of estimates in the preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(NOTE C)--INVENTORIES:
Inventories consist of the following at October 31, 1996:
<TABLE>
<S> <C>
Raw material.................................................... $ 99,000
Work in process................................................. 37,000
Finished goods.................................................. 3,569,000
---------
Total..................................................... $3,705,000
---------
---------
</TABLE>
(NOTE D)--NOTE PAYABLE--BANK:
At October 31, 1996, the Company has a $5,295,000 credit facility with a
bank which, in addition to the term loans discussed in Note E, provides for a
revolving line of credit. Borrowings under the facility bear interest at rates
ranging from 1% to 1 3/4% over the prime rate, are collateralized by
substantially all of the Company's assets and are personally guaranteed by the
principal stockholder. Subsequent to October 31, 1996 the Company defaulted on
this credit facility (see Notes A and K).
F-27
<PAGE>
RENAISSANCE EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE E)--LONG-TERM DEBT:
Long-term debt consists of the following at October 31, 1996:
<TABLE>
<S> <C>
Bank term loans (see Note D):
Payable in monthly installments of $35,000 plus
interest through January 31, 1997........................... $ 535,000
Payable in monthly installments of $4,416 plus
interest through January 31, 1997........................... 53,000
Payable in monthly installments of $4,167 plus
interest through January 31, 1997........................... 17,000
Mortgage--payable in monthly installments through July 2006 with
interest at 9%. Secured by a condominium held for sale (included
in other assets) with a book value of $65,323................... 33,000
---------
Current maturities................................................ $ 638,000
---------
---------
</TABLE>
The minimum payment on notes required to be made through October 31, 1997 is
approximately $605,000.
An investment in real estate, which acted as security on the mortgage was
sold in January 1997 and the remaining debt was paid off at that time.
Therefore, the amount due during the year ending October 31, 1997 only includes
payments on the mortgage through the date of the sale.
(NOTE F)--INCOME TAXES:
The income tax (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
--------------------------
<S> <C> <C>
1996 1995
------------- -----------
Current:
Federal....................................................... $ (1,635,000) $ (270,000)
State......................................................... (192,000)
------------- -----------
(1,827,000) (270,000)
------------- -----------
Deferred:
Federal....................................................... 1,601,000 (92,000)
State......................................................... 207,000 (27,000)
------------- -----------
1,808,000 (119,000)
------------- -----------
Total....................................................... $ (19,000) $ (389,000)
------------- -----------
------------- -----------
</TABLE>
At October 31, 1996 the Company has available net operating loss
carryforwards to reduce future federal and state taxable income of approximately
$6,246,000 and $7,812,000, respectively, which expire in various amounts through
2011.
Deferred tax assets result primarily from allowances for bad debts that are
not deductible for tax purposes until losses are identified and written off,
certain costs which are capitalized to inventory for tax
F-28
<PAGE>
RENAISSANCE EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE F)--INCOME TAXES: (CONTINUED)
purposes and become deductible when the inventory is sold and federal and state
net operating loss carryforwards ("NOL's"). Deferred tax liabilities result from
certain expense items (primarily rent) being treated differently for financial
and tax reporting purposes. A valuation allowance which increased by
approximately $2,253,000 during the year ended October 31, 1996, has been
established for the full amount of the deferred tax assets which would otherwise
have been recorded due to management's uncertainty regarding the Company's
ability to generate taxable income in future periods. The Company's deferred tax
assets (liabilities) at October 31, 1996 consist of the following:
<TABLE>
<CAPTION>
CURRENT NONCURRENT TOTAL
----------- ------------ -------------
<S> <C> <C> <C>
Allowance for bad debts............................. $ 372,000 $ 372,000
Inventory capitalized............................... 120,000 120,000
Depreciation........................................ $ 108,000 108,000
NOL's............................................... 2,468,000 2,468,000
Other............................................... (100,000) (100,000)
----------- ------------ -------------
$ 392,000 $ 2,576,000 2,968,000
----------- ------------
----------- ------------
Valuation allowance................................. (2,968,000)
-------------
$ -0 -
-------------
-------------
</TABLE>
The difference between the statutory federal income tax rate and the
effective income tax rate based on net loss before taxes stated in the statement
of operations for the year ended October 31, 1996 is due to (i) state income tax
benefit net of federal expense, (ii) an income tax refund and (iii) an increase
in the valuation allowance on deferred tax assets.
(NOTE G)--PREFERRED STOCK:
The Company's cumulative preferred stock has a minimum dividend rate of 9%
and a maximum rate of 16%. Dividends of approximately $2,069,000 were in arrears
on the preferred stock at October 31, 1996. These dividends are payable in cash
or by the issuance of additional shares of preferred stock having a par value
equal to the amount of the dividends declared. Such dividends are payable at the
sole discretion of the Board of Directors or upon the liquidation of the
Company.
(NOTE H)--BENEFIT PLANS:
[1] Profit sharing plan:
Prior to June 30, 1995, the Company maintained a qualified employee stock
ownership plan ("ESOP") covering all eligible salaried and hourly employees.
Annual contributions were determined by the Board of Directors and made in the
form of the Company's preferred stock. No contribution was made during 1996 and
1995.
Upon an employee's death or retirement at age 65, the Company is required to
redeem, at par value, all of the shares of preferred stock previously issued to
the employee. During 1996 and 1995, 15.79 and 15.08 shares of preferred stock,
respectively, were redeemed by the Company and are being held in the treasury.
F-29
<PAGE>
RENAISSANCE EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE H)--BENEFIT PLANS: (CONTINUED)
Effective July 1, 1995, the Board of Directors approved the restatement of
the ESOP to a profit sharing plan. Annual contributions by the Company are made
at the discretion of the Board of Directors. No contributions were made during
fiscal 1996.
[2] 401(k) plan:
The Company has a 401(k) plan for the benefit of substantially all
employees. Annual contributions are made at the discretion of the Board of
Directors. The Company did not make a contribution to the 401(k) plan for the
years ended October 31, 1996 and October 31, 1995.
(NOTE I)--RELATED PARTY TRANSACTIONS:
Transactions with a Canadian entity, which is 50% owned by the principal
stockholder of the Company, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
----------------------
<S> <C> <C>
1996 1995
---------- ----------
Sales to.............................................................. $ 248,000 $ 449,000
Management fees charged to............................................ 75,000 75,000
</TABLE>
At October 31, 1996 and October 31, 1995, amounts due related party consist
of a note payable to the wife of the principal stockholder, which was originally
due on demand, but has been subordinated to the bank debt described in Notes D
and E. Interest on the note (9% per annum) amounted to $16,000 in 1996 and 1995.
In addition, the Company leases various facilities from its sole stockholder
(see Note J).
(NOTE J)--COMMITMENTS AND CONTINGENCIES:
[1] Leases:
The Company leases various office facilities from the sole stockholder under
noncancelable operating leases expiring through 2004. Rent expense amounted to
approximately $249,000 in both 1996 and 1995.
The Company also leased a showroom under a noncancelable operating lease
which expired in July 1996. The Company entered into a new showroom lease
effective July 1996. This lease expires in July 1999. Rent expense amounted to
approximately $24,000 and $25,000 in 1996 and 1995, respectively.
F-30
<PAGE>
RENAISSANCE EYEWEAR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(NOTE J)--COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Minimum future lease payments under noncancelable operating leases in years
subsequent to October 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING PRINCIPAL NEW YORK
OCTOBER 31, STOCKHOLDER SHOWROOM TOTAL
- ------------------------------------------------------ ------------ ----------- ------------
<S> <C> <C> <C>
1997.................................................. $ 177,000 $ 11,000 $ 188,000
1988.................................................. 231,000 21,000 252,000
1999.................................................. 223,000 16,000 239,000
2000.................................................. 215,000 215,000
2001.................................................. 207,000 207,000
Thereafter............................................ 537,000 537,000
------------ ----------- ------------
Total........................................... $ 1,590,000 $ 48,000 $ 1,638,000
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
The future minimum lease payments have been adjusted to reflect Ambassador's
assumption of various operating leases effective March 1, 1997.
[2] Royalties:
The Company has entered into various royalty agreements with licensers,
expiring through 1998, which require royalty payments based on sales volume.
Royalties charged to operations amounted to $530,000 and $644,000 in 1996 and
1995, respectively. The minimum royalty payment due under these agreements in
the year ending October 31, 1997 is $100,000.
The minimum royalty payment disclosed above has been adjusted to reflect
payments due through February 28, 1997. Subsequent to this date, Ambassador will
continue to make payments on any continuing license agreements.
[3] Letters of credit:
At October 31, 1996, the Company is contingently liable for letters of
credit aggregating $80,000 to be used for future inventory purchases.
(NOTE K)--SUBSEQUENT EVENTS:
As described in Note A, in February 1997 the Company defaulted on its bank
loan and the bank seized all of the Company's assets, which were acquired from
the bank by Ambassador, who paid off the remaining balance of the bank loan.
The following proforma unaudited summary financial information gives effect
to the bank taking possession of the Company's assets as if it had occurred on
October 31, 1996:
<TABLE>
<S> <C>
Total assets.................................................... $ -0 -
----------
----------
Total liabilities............................................... $4,634,000
Capital deficiency.............................................. (4,634,000)
----------
Total liabilities and capital deficiency........................ $ -0 -
----------
----------
</TABLE>
F-31
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY
SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON ASKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 4
Use of Proceeds................................. 11
Dividend Policy................................. 12
Capitalization.................................. 13
Dilution........................................ 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 15
Business........................................ 20
Management...................................... 27
Certain Relationships and Related Party
Transactions.................................. 31
Principal Stockholders.......................... 32
Description of Securities....................... 33
Shares Eligible for Future Sale................. 34
Underwriting.................................... 35
Legal Matters................................... 37
Experts......................................... 37
Available Information........................... 37
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
AFFECTING TRANSACTIONS IN THE SHARES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,000,000 SHARES
AMBASSADOR EYEWEAR
GROUP, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
HAMPSHIRE SECURITIES
CORPORATION
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL grants corporations the power to indemnify
directors, officers, employees and agents in accordance with the provisions
thereof. Article 17 of the Registrant's By-Laws provides, in effect, that the
Registrant shall indemnify any and all of its directors and officers to the
fullest extent permitted by the DGCL, as the same may be amended. The
indemnification so provided is expressly not exclusive of any other rights to
which those seeking indemnification may be entitled and shall inure to the
benefit of the heirs, executors and administrators of such persons.
Section 102(b)(7) of the DGCL grants corporations the power to eliminate a
director's personal liability for monetary damages to the corporation or its
stockholders for breach of fiduciary duty as a director, except in circumstances
involving a breach of director's duty to loyalty to the corporation or its
stockholders, acts or omissions not in good faith or which involve intentional
misconduct or knowing violations of the law, self-dealing or the unlawful
payment of dividends or repurchase of stock. Section 10 of the Registrant's
Certificate of Incorporation provides, in effect, that personal liability of a
director of the Registrant shall be eliminated to the fullest extent permitted
by the DGCL, as the same may be amended.
Reference is hereby made to Section 10 of the Amended and Restated
Certificate of Incorporation of the Company, Section 7 of the By-Laws and the
Underwriting Agreement regarding relevant indemnification provisions described
above and elsewhere herein.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the fees and expenses to be incurred in
connection with the issuance and distribution of the shares of Common Stock, par
value $.01 per share, offered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 4,582
NASD Filing Fee................................................... $ 2,012
NASDAQ Listing Fee................................................ $ 5,000
Blue Sky Fees and Expenses........................................ $ 35,000
Legal Fees and Expenses........................................... $ 150,000
Accounting Fees................................................... $ 275,000
Printing and Engraving Costs...................................... $ 100,000
Transfer Agent Fees............................................... $ 7,500
Miscellaneous Expenses............................................ $ 45,906
---------
TOTAL....................................................... $ 625,000
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth all sales of unregistered securities by the
Registrant within the past three years.
<TABLE>
<CAPTION>
AGGREGATE
NATURE OF CLASS OF OFFERING
TRANSACTION AND DATE PURCHASERS SECURITIES SOLD PRICE PRICE PER SHARE
- -------------------------------- ------------------ ------------------ ------------- ---------------
<C> <S> <C> <C> <C>
Initial Capitalization May 1995 Rudy Slucker and 3,500,000 shares $ 1,000 $ .0003
Barry Budilov of Common Stock
</TABLE>
<TABLE>
<CAPTION>
SHARES NUMBER OF SHARES PRICE PER
OPTIONEE ISSUANCE DATE EXERCISABLE EXERCISABLE SHARE
- ---------------------------------------------- ---------------- ----------------- ----------------- -----------
<S> <C> <C> <C> <C>
Barry Budilov................................. May 1995 5 year option 54,833 $ .25
Kenneth Butchin............................... May 1995 5 year option 57,167 $ .25
Rudy Slucker.................................. May 1995 5 year option 54,833 $ .25
Edward Kauz................................... February 1997 5 year option 180,833 $ 3.00
Kenneth Kitnick............................... June 1997 5 year option 151,667 $ 1.50
</TABLE>
The Company relied on Section 4(2) of the Securities Act in connection with
the initial capitalization of the Company and the sale of shares of Common Stock
to two officers and Directors of the Company, as a transaction by the issuer not
involving a public offering. The Company relied upon Section 4(2) of the
Securities Act or under Rule 701 under the Securities Act in connection with the
grant of options. No underwriters or sales agents were involved nor any
commissions paid in connection with any of the above transactions.
II-2
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 ** Amended and Restated Certificate of Incorporation.
3.1a Amendment to Amended and Restated Certificate of Incorporation.
3.2 ** By-Laws.
3.3 * Certificate of Designation.
4.3 * Specimen Common Stock Certificate.
5.1 * Opinion of Crummy, Del Deo, Dolan, Griffinger & Vecchione.
10.1 ** Asset Sale Agreement dated June 26, 1996 by and among the Company, Windsor Optical, Inc. and Jay
Kitnick and Kenneth Kitnick.
10.2 ** Possession Agreement dated February 26, 1997 by and among Summit Bank, Edward Kauz and Barbara Kauz
and Renaissance Eyewear, Inc.
10.3 ** Collateral Sale Agreement dated February 26, 1997 by and between the Company and Summit Bank.
10.4 Form of Underwriter's Warrant to Purchase Common Stock of the Company.
10.5 * Employment Agreement between the Company and Barry Budilov.
10.6 * Consulting Agreement between the Company and Rudy A. Slucker.
10.7 ** Employment Agreement dated June 26, 1996 between the Company and Kenneth Kitnick.
10.8 ** Employment Agreement dated February 27, 1997 between the Company and Edward Kauz.
10.9 ** Supplemental Employment Agreement dated February 27, 1997 between the Company and Edward Kauz.
10.10** Consulting Agreement dated June 26, 1996 between the Company and Jay Kitnick.
10.11** Consulting Agreement dated May 9, 1995 between the Company and Chanuk, Inc.
10.12** Promissory Note payable to Windsor Optical, Inc. dated June 26, 1996 in the principal amount of
$150,000.
10.13** Promissory Note payable to Windsor Optical, Inc. dated June 26, 1996 in the principal amount of
$300,000.
10.14** Loan Agreement dated June 7, 1996 between the Company and CoreStates Bank, N.A.
10.15** First Amendment to Loan Agreement dated February 25, 1997.
10.16** Second Rider to Guaranty dated February 25, 1997 amending and restating Rider to Guaranty dated
June 7, 1996 executed by Barry Budilov and Carole Budilov in favor of CoreStates Bank, N.A.
10.17** Second Rider to Guaranty dated February 25, 1997 amending and restating Rider to guaranty dated
June 7, 1996 executed by Rudy A. Slucker and Linda Slucker in favor of CoreStates Bank, N.A.
10.18** Second Rider to Subordination Agreement dated February 25, 1997.
10.19** Demand Note payable to CoreStates Bank, N.A. dated February 25, 1997 in the principal amount of
$12,000,000.
10.20+** Product License Agreement dated June 14, 1995 between the Company and Lifestyle Brands, Ltd.
(sunglasses, sunglass cases and accessories).
10.21+** Product License Agreement dated June 14, 1995 between the Company and Lifestyle Brands, Ltd.
(opthalmic frames and cases).
10.22+** License Agreement dated January 1, 1992 between Diplomat Optical Company and Playskool.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
<C> <S>
10.23+** License Agreement dated January 1, 1992 between Chanuk Inc. d/b/a Diplomat Optical Company and
Harve Bernard Ltd.
10.24+ License Agreement dated April 10, 1989 between Renaissance Eyewear Inc. and Nintendo of America
Inc.
10.25 [Intentionally Omitted]
10.26 [Intentionally Omitted]
10.27+ License Agreement dated April 1, 1994 between Windsor Optical, Inc. and Kenneth Jay Lane, Inc.
10.28+ License Agreement dated August 24, 1995 by and among Kathy Ireland, Inc., the Sterling/ Winters Co.
and Diplomat Ambassador Eyewear Group.
10.29+** License Agreement dated January 1, 1993 between Jones Investment Co., Inc. and Diplomat Ambassador
Eyewear Group
10.30+ Supply Agreement dated November 18, 1996 between StylRite Optical Mfg. Co., Inc. and the Company.
10.31+ Merchandise License Agreement dated February 21, 1997 between Nintendo of America, Inc. and the
Company.
10.32+ Amendment dated November 1995 to License Agreement dated January 1, 1992 between Diplomat Optical
Company and Playskool.
10.33* Form of Lock-up Agreement.
10.34+ License Renewal Agreement, dated September 22, 1997, between the Company and Kenneth Jay Lane, Inc.
10.35 1997 Stock Option Plan
10.36 Lease, dated July 10, 1997, between the Company and 3600 Meadow Lane Partnership
10.37* Stock Option Agreement between the Company and Barry Budilov.
10.38* Stock Option Agreement between the Company and Rudy Slucker.
10.39* Stock Option Agreement between the Company and Kenneth Butchin.
10.40* Stock Option Agreement between the Company and Edward Kauz.
10.41* Stock Option Agreement between the Company and Kenneth Kitnick.
23.1 * Consent of Crummy, Del Deo, Dolan, Griffinger & Vecchione, P.C. (included in Exhibit 5.1).
23.2 Consent of Richard A. Eisner & Company, LLP
23.3 Consent of J. H. Cohn LLP
24.1 Power of Attorney (Page II-5)
27 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
+ Portions of these Exhibits have been omitted and have been filed separately
with the Secretary of the Commission pursuant to Registrant's Application
Requesting Confidential Treatment under Rule 406 of the Securities Act.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters,
at the Closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
II-4
<PAGE>
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
treat the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act as part of this Registration Statement as
of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of Prospectus as a new
Registration Statement for the securities offered in the Registration
Statement and that offering of such securities at the time as the bona fide
offering thereof.
II-5
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, in the
City of Philadelphia, State of Pennsylvania, on November 14, 1997.
AMBASSADOR EYEWEAR GROUP, INC.
By: /s/ BARRY BUDILOV
------------------------------------------
Barry Budilov
President and Chief Executive Officer
In accordance with the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates stated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<C> <S> <C>
*
------------------------------------------- Chairman of the Board November 14, 1997
Rudy A. Slucker
/s/ BARRY BUDILOV President, Chief Executive
------------------------------------------- Officer and Director (Principal November 14, 1997
Barry Budilov Executive Officer)
/s/ RAYMOND GREEN
------------------------------------------- Treasurer and Principal Financial November 14, 1997
Raymond Green and Accounting Officer
*
------------------------------------------- Director November 14, 1997
Jay Rice
*
------------------------------------------- Director November 14, 1997
Jeffrey Seiken
*/s/ BARRY BUDILOV
- -------------------------------------------
Barry Budilov, November 14, 1997
as attorney-in-fact
</TABLE>
II-6
<PAGE>
Exhibit 1.1
2,000,000 SHARES OF COMMON STOCK
AMBASSADOR EYEWEAR GROUP, INC.
UNDERWRITING AGREEMENT
_____________, 1997
Hampshire Securities Corporation
As Representative of the several
Underwriters named in Schedule I
attached hereto
640 Fifth Avenue, 17th Floor
New York, New York 10019
Gentlemen:
The undersigned, Ambassador Eyewear Group, Inc., a Delaware corporation
(the "Company"), hereby confirms its agreement with Hampshire Securities
Corporation (individually, "Hampshire," and, as representative (the
"Representative") of the several underwriters named in Schedule I hereto (the
Representative and the underwriters are collectively referred to as the
"Underwriters"), and the Underwriters as follows:
1. INTRODUCTION.
(a) The Company proposes to issue and sell to the Underwriters an
aggregate of 2,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of the Company. Such shares of Common Stock are hereinafter
referred to as the "Firm Stock."
<PAGE>
(b) Solely for the purpose of covering over-allotments, if any, the
Company proposes to grant to Hampshire, individually and not as Representative,
an option (the " Over-allotment Option") to purchase from it, in the aggregate,
up to an additional 300,000 shares of Common Stock at the public offering price
less the underwriting discount. Such shares of Common Stock are hereinafter
referred to as the " Additional Stock." The Firm Stock and the Additional Stock
are hereinafter referred to as the " Stock."
(c) The Company proposes to sell to Hampshire, individually and not
as Representative, 200,000 warrants (the " Representative's Warrants") to
purchase up to an aggregate of 200,000 shares of Common Stock (the "Warrant
Shares") for a purchase price of $.001 per Representative's Warrant, or an
aggregate purchase price of $200.00. The Representative's Warrants shall be
substantially in the form filed as an exhibit to the Registration Statement (as
hereinafter defined). The Representative's Warrants and the Warrant Shares are
hereinafter referred to collectively as the "Representative's Securities." The
Stock and the Representative's Securities are hereinafter referred to
collectively as the "Securities."
2. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to, and agrees with, the
several Underwriters that:
(1) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form SB-2
(Registration No. 333-_______), and may have filed one or more amendments
thereto and a Rule 462(b) Registration Statement (as hereinafter defined) in
accordance with Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), including in the Registration Statement and each such
-2-
<PAGE>
amendment a related preliminary prospectus, for the registration of the
Securities under the Securities Act. As used in this Agreement, the term
"Registration Statement" shall refer to such registration statement referred to
in the first sentence of this Section 2(a)(1), as amended, on file with the
Commission at the time the Registration Statement is declared by the Commission
to be effective under the Securities Act (including the prospectus, financial
statements, and exhibits filed as a part thereof, PROVIDED, HOWEVER, that the
Registration Statement, at the time it is declared by the Commission to be
effective under the Securities Act, may omit such information as is permitted to
be omitted from the Registration Statement when it becomes effective under the
Securities Act pursuant to Rule 430A of the General Rules and Regulations of the
Commission under the Securities Act (the "Regulations"), which information (the
"Rule 430A Information") shall be deemed to be included in the Registration
Statement when a final prospectus is filed with the Commission in accordance
with Rules 430A and 424(b)(1) or (4) of the Regulations and includes any Rule
462(b) Registration Statement); the term "Preliminary Prospectus" shall refer to
each prospectus included in the Registration Statement, or any amendments
thereto, before the Registration Statement is declared by the Commission to be
effective under the Securities Act, the form of prospectus omitting Rule 430A
Information included in the Registration Statement when the Registration
Statement becomes effective under the Securities Act, if applicable (the "Rule
430A Prospectus"), and any prospectus filed by the Company with the consent of
the Representative pursuant to Rule 424(a) of the Regulations; and the term
"Prospectus" shall refer to the final prospectus forming a part of the
Registration Statement in the form first filed with the Commission pursuant to
Rule 424(b)(1) or (4) of the Regulations or, if no such filing is required, the
form of final prospectus forming a part of the Registration Statement. As used
in this
-3-
<PAGE>
Agreement, the term "Rule 462(b) Registration Statement" means the Registration
Statement and any amendments thereto filed pursuant to Rule 462(b) of the
Regulations relating to the offering covered by the initial Registration
Statement.
(2) When the Registration Statement becomes effective under the
Securities Act, and at all times subsequent thereto up to and including the
Closing Date (as defined in Section 3(a) hereof) and each Additional Closing
Date (as defined in Section 3(b) hereof), and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriters or a dealer, and during such longer period until any post-effective
amendment thereto shall become effective under the Securities Act, the
Registration Statement (and any post-effective amendment thereto) and the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment or supplement to the Registration Statement or the
Prospectus) will contain all statements which are required to be stated therein
in accordance with the Securities Act and the Regulations, will comply with the
Securities Act and the Regulations, and will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and no event will
have occurred which should have been set forth in an amendment or supplement to
the Registration Statement or the Prospectus which has not then been set forth
in such an amendment or supplement; if a Rule 430A Prospectus is included in the
Registration Statement at the time it is declared by the Commission to be
effective under the Securities Act, the Prospectus filed pursuant to Rules 430A
and 424(b)(1) or (4) of the Regulations will contain all Rule 430A Information
and all statements which are required to be stated therein in accordance with
the Securities Act or the Regulations, will comply with the Securities Act and
the Regulations,
-4-
<PAGE>
and will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; and each Preliminary Prospectus, as of the
date filed with the Commission, contained all statements required to be stated
therein in accordance with the Securities Act and the Regulations, complied with
the Securities Act and the Regulations, and did not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; except that
no representation or warranty is made in this Section 2(a)(2) with respect to
statements or omissions made in reliance upon, and in conformity with, written
information furnished to the Company as stated in Section 8(b) with respect to
any Underwriter by, or on behalf of, such Underwriter through the Representative
expressly for inclusion in the Registration Statement, any Preliminary
Prospectus, or the Prospectus, or any amendment or supplement thereto.
(3) Neither the Commission nor the "blue sky" or securities
authority of any jurisdiction has issued an order (a "Stop Order") suspending
the effectiveness of, or preventing or suspending the use of, the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, refusing to permit the effectiveness of the Registration
Statement, or suspending the registration or qualification of the Securities nor
has any of such authorities instituted or threatened to institute any
proceedings with respect to a Stop Order.
(4) Any contract, agreement, instrument, lease, or license
required to be described in the Registration Statement or the Prospectus has
been properly described therein. Any contract, agreement, instrument, lease, or
license required to be filed as an exhibit to the
-5-
<PAGE>
Registration Statement has been filed with the Commission as an exhibit to the
Registration Statement.
(5) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits of and
from, and declarations and filings with, all federal, state, local, and other
governmental authorities and all courts and other tribunals, to own, lease,
license, and use its properties and assets and to conduct its business in the
manner described in the Prospectus. The Company is duly qualified to do
business as a foreign corporation and is in good standing as such in every
jurisdiction in which its ownership, leasing, licensing, or use of property and
assets or the conduct of its business makes such qualification necessary, except
where the failure to so qualify will not have a material adverse effect on the
Company's business, properties, or financial condition on a consolidated basis.
(6) The authorized capital stock of the Company consists of (i)
10,000,000 shares of Common Stock, of which 3,500,000 shares are outstanding,
(ii) 1,000,000 shares of Blank Check Preferred Stock, par value $.01 per share,
none of which are outstanding and (iii) 118,100 shares of Series A Cumulative
Redeemable Preferred Stock, of which 118,100 are outstanding. Each outstanding
share of Common Stock is validly authorized and issued, fully paid, and
nonassessable, without any personal liability attaching to the ownership
thereof, has not been issued and is not owned or held in violation of any
preemptive or similar rights of stockholders. There is no commitment, plan, or
arrangement to issue, and no outstanding option, warrant, or other right calling
for the issuance of, any share of capital stock of the Company or any
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security or other instrument which by its terms is convertible into, or
exercisable or exchangeable for, capital stock of the Company, except as may be
properly described in the Prospectus. There is outstanding no security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, capital stock of the Company, except as may be properly
described in the Prospectus. The certificates evidencing the Common Stock are
in due and proper form.
(7) The consolidated financial statements of the Company
included in the Registration Statement and the Prospectus fairly present, with
respect to the Company, the financial position, the results of operations, the
cash flows, and the other information purported to be shown therein at the
respective dates and for the respective periods to which they apply. Such
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (except to the extent that certain
footnote disclosures regarding any stub period may have been omitted in
accordance with the applicable rules of the Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) consistently applied
throughout the periods involved, are correct and complete in all material
respects, and are in accordance with the books and records of the Company.
Richard A. Eisner & Company, LLP, the accountants whose report on the audited
consolidated financial statements is filed with the Commission as a part of the
Registration Statement, are, and during the periods covered by their reports
included in the Registration Statement and the Prospectus were, independent
certified public accountants with respect to the Company within the meaning of
the Securities Act and the Regulations. J. H. Cohn LLP, the accountants whose
report on the audited consolidated financial statements is filed with the
Commission as a part of the Registration Statement, were, during the periods
covered by their reports included in the Registration Statement and
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the Prospectus, independent certified public accountants with respect to
Renaissance Eyewear, Inc., a company acquired by the Company in February 1997,
within the meaning of the Securities Act and the Regulations. No other
financial statements are required by Form SB-2 or otherwise to be included in
the Registration Statement or the Prospectus. There has at no time been a
material adverse change in the financial condition, results of operations,
business, properties, assets, liabilities, or future prospects of the Company on
a consolidated basis from the latest information set forth in the Registration
Statement or the Prospectus, except as may be properly described in the
Prospectus.
(8) There is no litigation, arbitration, claim, governmental or
other proceeding (formal or informal), or investigation pending, threatened, or,
to the best knowledge of the Company, in prospect (or any basis therefor) with
respect to the Company, or any of its operations, businesses, properties, or
assets, except as may be properly described in the Prospectus or such as
individually or in the aggregate do not now have, and will not in the future
have, a material adverse effect upon the operations, business, properties, or
assets of the Company. To the best knowledge of the Company, it is not in
violation of, or in default with respect to, any law, rule, regulation, order,
judgment, or decree, except as may be properly described in the Prospectus or
such as in the aggregate do not now have, and will not in the future have, a
material adverse effect upon the operations, business, properties, or assets of
the Company; nor is the Company currently required to take any action in order
to avoid any such violation or default.
(9) The Company has good and marketable title to all properties
and assets which the Prospectus indicates are owned by it, free and clear of all
liens, security interests, pledges, charges, encumbrances, and mortgages, except
as may be properly described in the
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Prospectus or as are not material to the Company. No real property owned,
leased, licensed, or used by the Company lies in an area which is, or to the
knowledge of the Company will be, subject to zoning, use, or building code
restrictions which would prohibit, and no state of facts relating to the actions
or inaction of another person or entity or his or its ownership, leasing,
licensing, or use of any real or personal property exists or will exist which
would prevent, the continued effective ownership, leasing, licensing, or use of
such real property in the business of the Company, each as presently conducted
or as the Prospectus indicates it contemplates conducting, except as may be
properly described in the Prospectus.
(10) Neither the Company nor, to the knowledge of the Company,
any other party, is now, or is expected by the Company to be, in violation or
breach of, or in default with respect to, any provision of any contract,
agreement, instrument, lease, license, arrangement, or understanding which is
material to the Company, and each such contract, agreement, instrument, lease,
license, arrangement, and understanding is in full force and effect and is the
legal, valid, and binding obligation of the parties thereto and is enforceable
as to them in accordance with its respective terms. The Company enjoys peaceful
and undisturbed possession under all leases and licenses under which it is
operating. Except as described in the Prospectus, the Company is not a party
to, or bound by, any contract, agreement, instrument, lease, license,
arrangement, or understanding, or subject to any charter or other restriction,
which has had, or may in the future have, a material adverse effect on the
financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company. The Company is not in violation
or breach of, or in default with respect to, any term of its respective
certificate of incorporation (or other charter document) or by-laws.
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(11) The Company owns or possesses adequate rights to use all
patents, patent rights, inventions, trade secrets, licenses, know-how,
proprietary techniques, including processes and substances, trademarks, service
marks, trade names, and copyrights described or referred to in the Prospectus as
owned or used by it or which are necessary for the conduct of its business as
currently conducted as described in the Prospectus and, to the best knowledge of
the Company, its business as contemplated as described in the Prospectus. To
the best knowledge of the Company, all such patents, patent rights, licenses,
trademarks, service marks, and copyrights are (i) valid and enforceable, (ii)
not being infringed by any third parties which infringement could, singly or in
the aggregate, materially and adversely affect the business, properties,
operations, condition (financial or otherwise), results of operations, income,
or business prospects of the Company, as presently being conducted or as
proposed to be conducted as described in the Prospectus, and (iii) are
uncontested by any third party. The Company has no knowledge of, nor has it
received any notice of, infringement of, or conflict with, asserted rights of
others with respect to any patents, patent rights, inventions, trade secrets,
licenses, know-how, proprietary techniques, including processes and substances,
trademarks, service marks, trade names, or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling, or finding could
materially and adversely affect the business, properties, operations, condition
(financial or otherwise), results of operations, income, or business prospects
of the Company, as presently being conducted or as proposed to be conducted as
described in the Prospectus.
(12) Neither the Company nor, to the best knowledge of the
Company, any director, officer, agent, employee, or other person associated
with, or acting on behalf of, the Company has, directly or indirectly (i) used
any corporate funds for unlawful contributions, gifts,
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entertainment, or other unlawful expenses relating to political activity; (ii)
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; (iii) violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended; or (iv) made any bribe, rebate, payoff, influence
payment, kickback, or other unlawful payment. The Company's internal accounting
controls and procedures are sufficient to cause the Company to comply in all
respects with the Foreign Corrupt Practices Act of 1977, as amended.
(13) The Company has all requisite power and authority to
execute, deliver, and perform each of this Agreement and the Representative's
Warrants. All necessary corporate proceedings of the Company have been duly
taken to authorize the execution, delivery, and performance by the Company of
this Agreement and the Representative's Warrants. This Agreement has been duly
authorized, executed, and delivered by the Company, is the legal, valid, and
binding obligation of the Company. The Representative's Warrants have been
duly authorized by the Company and, when executed and delivered by the Company,
will be legal, valid, and binding obligations of the Company, each enforceable
as to the Company in accordance with its terms. No consent, authorization,
approval, order, license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local, or other governmental authority or any
court or other tribunal is required by the Company for the execution, delivery,
or performance by the Company of this Agreement or the Representative's
Warrants, except filings under the Securities Act which have been or will be
made before the Closing Date, and consents consisting only of consents under
"blue sky" or securities laws which have been obtained at or prior to the date
of this Agreement. No consent of any party to any contract, agreement,
instrument, lease, license,
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arrangement, or understanding to which the Company is a party, or to which any
of its properties or assets are subject, is required for the execution,
delivery, or performance of this Agreement and the Representative's Warrants;
and the execution, delivery, and performance of this Agreement and the
Representative's Warrants will not violate, result in a breach of, conflict
with, result in the creation or imposition of any lien, charge, or encumbrance
upon any properties or assets of the Company pursuant to the terms of, or, with
or without the giving of notice or the passage of time or both, entitle any
party to terminate or call a default under, any such contract, agreement,
instrument, lease, license, arrangement, or understanding, or violate, result in
a breach of, or conflict with any term of the certificate of incorporation (or
other charter document) or by-laws of the Company, or violate, result in a
breach of, or conflict with, any law, rule, regulation, order, judgment, or
decree binding on the Company or to which any of its operations, businesses,
properties, or assets are subject.
(14) The Firm Stock is validly authorized and, when issued and
delivered in accordance with this Agreement, will be validly issued, fully paid,
and nonassessable, without any personal liability attaching to the ownership
thereof, and will not be issued in violation of any preemptive or similar rights
of stockholders, and the Underwriters will receive good title to the shares of
Firm Stock purchased by them, respectively, free and clear of all liens,
security interests, pledges, charges, encumbrances, stockholders' agreements,
and voting trusts. The Additional Stock is validly authorized and, when issued
in accordance with the terms hereof, will be validly issued, fully paid, and
nonassessable, without any personal liability attaching to the ownership
thereof, and will not be issued in violation of any preemptive or similar rights
of stockholders. The
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Additional Stock has been duly and validly reserved for issuance. The Stock
conforms to all statements relating thereto contained in the Registration
Statement and the Prospectus.
(15) The Warrant Shares are validly authorized and has been duly
and validly reserved for issuance and, when issued and delivered upon exercise
of the Representative's Warrants in accordance with the terms thereof, will be
validly issued, fully paid, and nonassessable, without any personal liability
attaching to the ownership thereof, and will not be issued in violation of any
preemptive or similar rights of stockholders; and the holders of the
Representative's Warrants will receive good title to the Warrant Shares free
and clear of all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts. The Representative's Securities
conform to all statements relating thereto contained in the Registration
Statement and the Prospectus.
(16) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except as may
otherwise be properly described in the Prospectus, the Company has not (i)
issued any securities or incurred any material liability or material obligation,
primary or contingent, for borrowed money, (ii) entered into any material
transaction not in the ordinary course of business, (iii) declared or paid any
dividend on its capital stock or (iv) experienced any adverse changes or any
development which may materially adversely effect the condition (financial or
otherwise), net assets or stockholders' equity, results of operations, business,
key personnel, assets, or properties of the Company and the Subsidiaries taken
as a whole.
(17) Neither the Company nor any of its officers, directors, or
affiliates (as defined in the Regulations), has taken or will take, directly or
indirectly, prior to the termination
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of the offering contemplated by this Agreement, any action designed to stabilize
or manipulate the price of any security of the Company, or which has caused or
resulted in, or which might in the future reasonably be expected to cause or
result in, stabilization or manipulation of the price of any security of the
Company, to facilitate the sale or resale of any of the Firm Stock or the
Additional Stock.
(18) The Company has obtained from each of its directors,
officers, and stockholders a written agreement, in form and substance
satisfactory to counsel for the Underwriters, that, for a period of eighteen
(18) months from the date on which the Registration Statement is declared by the
Commission to be effective under the Securities Act, he, she, or it will not,
without the prior written consent of the Representative, publicly offer, pledge,
sell, hypothecate, contract to sell, grant any option for the sale of, or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
security or other instrument which by its terms is convertible into, or
exercisable or exchangeable for, shares of Common Stock or other securities of
the Company, including, without limitation, any shares of Common Stock issuable
pursuant to the terms of any employee stock options; PROVIDED, HOWEVER, that
such persons may offer, sell, contract to sell, grant an option for the sale of,
or otherwise dispose of all or any part of his, her, or its shares of Common
Stock or other such security or instrument of the Company during such period if
such transaction is private in nature and the transferee of such shares of
Common Stock or other securities or instruments agrees, prior to such
transaction, to be bound by all of the provisions of such agreement.
(19) The Company is not, and does not intend to conduct its
business in a manner in which it would be required to register as, an
"investment company" as defined in the
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Investment Company Act of 1940, as amended (the "Investment Company Act"), and
the rules and regulations promulgated thereunder.
(20) No person or entity has the right to require registration of
shares of Common Stock or other securities of the Company because of the filing
or effectiveness of the Registration Statement, which right has not been waived.
(21) Except as may be set forth in the Prospectus, the Company
has not incurred any liability for a fee, commission, or other compensation on
account of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
(22) Neither the Company, nor any of their respective affiliates,
is presently doing business with the government of Cuba or with any person or
affiliate located in Cuba. If, at any time after the date on which the
Registration Statement is declared by the Commission to be effective under the
Securities Act or with the Florida Department of Banking and Finance (the
"Florida Department"), whichever is later, and prior to the end of the period
referred to in the first clause of Section 2(a)(2) hereof, the Company and any
Subsidiary commences engaging in business with the government of Cuba or with
any person or affiliate located in Cuba, the Company will so inform the Florida
Department within 90 days after such commencement of business in Cuba, and,
during the period referred to in Section 2(a)(2) hereof, will inform the Florida
Department within 90 days after any change occurs with respect to previously
reported information.
(23) No officer, director, or stockholder of the Company has any
affiliation or association with the National Association of Securities Dealers,
Inc. (the "NASD") or any member thereof.
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(24) Except as disclosed in the Prospectus, the Company has filed
all necessary federal, state, local, and foreign income and franchise tax
returns and other reports required to be filed and has paid all taxes shown as
due thereon; and there is no tax deficiency which has been, or, to the knowledge
of the Company, might be, asserted against the Company.
(25) To the best knowledge of the Company, none of the activities
or business of the Company is in violation of, or will cause the Company to
violate, any law, rule, regulation, or order of the United States, any state,
county, or locality, or of any agency or body of the United States or of any
state, county, or locality, the violation of which would have a material adverse
effect upon the condition (financial or otherwise), business, property,
prospective results of operations, or net worth of the Company.
(26) The Common Stock has been approved for quotation on the
Nasdaq National Market.
3. PURCHASE, SALE, AND DELIVERY OF THE STOCK AND THE REPRESENTATIVE'S
WARRANTS.
(a) On the basis of the representations, warranties, covenants, and
agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to the
Underwriters and the Underwriters, severally and not jointly, agree to purchase
from the Company, the numbers of shares of Firm Stock set forth opposite the
respective names of the Underwriters in Schedule I hereto.
The purchase price per share of the Firm Stock to be paid by the
several Underwriters shall be $4.50. The initial public offering price per
share of the Firm Stock shall be $5.00.
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Payment for the Firm Stock by the Underwriters shall be made by
certified or official bank check in New York Clearing House (next day) funds or
by electronic wire transfer of next day funds, payable to the order of the
Company, at the offices of Hampshire , 640 Fifth Avenue, 17th Floor, New York,
New York 10019, or at such other place in the New York City metropolitan area as
the Representative shall determine and advise the Company by at least two (2)
full days' notice in writing, upon delivery of the Firm Stock to the
Representative for the respective accounts of the Underwriters. Such delivery
and payment shall be made at 9:00 a.m., New York City local time, on the third
(3rd) business day following the Time of the initial public offering, as
defined in Section 11(a) hereof (unless such time and date is postponed in
accordance with the provisions of Section 9(c) hereof), or at such other time as
shall be agreed upon between the Representative and the Company. The time and
date of such delivery and payment are hereinafter referred to as the "Closing
Date."
Certificates representing the Firm Stock shall be registered in such
name or names and in such authorized denominations as the Representative may
request in writing at least two full business days prior to the Closing Date.
The Company shall permit the Representative to examine and package such
certificates for delivery at least one (1) full business day prior to the
Closing Date.
The Company hereby grants to Hampshire the Company
Over-allotment Option to purchase up to 300,000 shares of Common Stock, as may
be necessary to cover over-allotments, at the same purchase price per share to
be paid by the several Underwriters to the Company for the Firm Stock as
provided for in this Section 3 hereof. The Over-allotment Option may be
exercised only to cover over-allotments in the sale of shares by Hampshire. The
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Over-allotment Option may be exercised by Hampshire on the basis of the
representations, warranties, covenants, and agreements of the Company herein
contained, but subject to the terms and conditions herein set forth, at any time
and from time to time on or before the forty-fifth (45th) day following the date
on which the Registration Statement becomes effective under the Securities Act,
by written notice by Hampshire to the Company and Custodian. Such notice shall
set forth the aggregate number of shares of Additional Stock as to which the
Over-allotment Option is being exercised, the name or names in which the
certificates representing the Additional Stock are to be registered, the
authorized denominations in which the Additional Stock is to be registered, and
the time and date, as determined by Hampshire, when such shares of Additional
Stock are to be delivered (each such time and date are hereinafter referred to
as an "Additional Closing Date"); PROVIDED, HOWEVER, that no Additional Closing
Date shall be earlier than the Closing Date nor earlier than the second (2nd)
business day after the date on which the notice of the exercise of the
Over-allotment Option shall have been given nor later than the eighth (8th)
business day after the date on which such notice shall have been given.
In the event the Company declares or pays a dividend or a distribution
on the Common Stock, whether in the form of cash, shares of Common Stock, or
other consideration, prior to the Additional Closing Date, such dividend or
distribution shall also be paid on the Additional Stock on the later of the
Additional Closing Date or the date on which such dividend or distribution is
payable.
Payment for the shares of Additional Stock by Hampshire shall be made
by certified or official bank check in New York Clearing House (next day) funds
or by electronic wire transfer of next day funds payable to the order of the
Custodian and the Company (pro rata as described
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above) at the offices of Hampshire Securities Corporation, 640 Fifth Avenue,
17th Floor, New York, New York 10019, or at such other place in the New York
City metropolitan area as Hampshire shall determine and advise the Company by at
least two (2) full days' notice in writing, upon delivery of the shares of
Additional Stock to Hampshire for its account.
Certificates for the shares of Additional Stock shall be registered in
such name or names and in such authorized denominations as Hampshire may request
in writing at least two (2) full business days prior to the Additional Closing
Date with respect thereto. The Company shall permit Hampshire to examine and
package such certificates for delivery at least one (1) full business day prior
to the Additional Closing Date with respect thereto.
(c) The Company hereby agrees to issue and sell to Hampshire and/or
its designees on the Closing Date the Representative's Warrants to purchase the
Warrant Shares for an aggregate purchase price of $200.00.
(d) During the four-year (4) period commencing one (1) year from the
effective date of the Registration Statement, the Company will agree to use its
best efforts to register the Representative's Warrants and the Warrant Shares
when and if requested by the Representative. These best efforts shall include
the preparation and filing of one (1) demand registration statement with respect
to the Warrant Shares during such four-year (4) period and maintaining the
effectiveness thereof, for nine (9) months or such shorter period as may be
required for the sale of the Warrant Shares in the open market, at the Company's
sole expense (other than underwriter or selling broker costs), including "blue
sky" fees and expenses. The Company agrees that for the period starting at the
beginning of the second (2nd) year and concluding at the end of the seventh
(7th) year after the effective date of the Registration Statement, the Company
will
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notify all holders of the Representative's Warrants and Warrant Shares of the
Company's intention to engage in another public offering of the Company's
securities (whether by the Company or by any security holder of the Company),
and, if requested by the Representative, include any Representative's Warrants
and Warrant Shares in such offering at the Company's sole expense and maintain
the effectiveness thereof for at least twelve (12) months.
Delivery and payment for the Representative's Warrants shall be made
on the Closing Date. The Company shall deliver to Hampshire, upon payment
therefor, certificates representing the Representative's Warrants in the name
or names and in such authorized denominations as Hampshire may request. The
Representative's Warrants shall be exercisable for a period of four years
commencing one year from the date on which the Registration Statement was
declared effective under the Securities Act at an initial exercise price per
Warrant Share equal to $5.50.
(d) It is understood that the Hampshire may (but shall not be
obligated to) make any and all the payments required pursuant to this Section 3
on behalf of any Underwriters whose check or checks shall not have been received
by the Representative at the time of delivery of the Stock to be purchased by
such Underwriter or Underwriters. Any such payment by the Representative shall
not relieve any such Underwriter or Underwriters of any of its or their
obligations hereunder.
4. OFFERING. The Underwriters are to make a public offering of the Firm
Stock as soon, on or after the date on which the Registration Statement becomes
effective under the Securities Act, as the Representative deems it advisable so
to do. The Firm Stock is to be initially offered to the public at the initial
public offering price as provided for in Section 3(a) (such price being
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hereinafter referred to as the "public offering price"). After the initial
public offering, the Representative may from time to time increase or decrease
the public offering price, in the sole discretion of the Representative, by
reason of changes in general market conditions or otherwise.
5. COVENANTS.
(a) The Company covenants that it will:
(1) use its best efforts to cause at least two (2) persons to be
elected to the Company's Board of Directors who are deemed to be independent of
the Company's Management.
(2) use its best efforts to cause the Registration Statement to
become effective under the Securities Act as promptly as possible and notify the
Representative and counsel to the Underwriters immediately, and confirm such
notice in writing, (i) when the Registration Statement and any post-effective
amendment thereto become effective under the Securities Act, (ii) of the receipt
of any comments from the Commission or the "blue sky" or securities authority of
any jurisdiction regarding the Registration Statement, any post-effective
amendment thereto, the Prospectus, or any amendment or supplement thereto,
(iii) of the filing with the Commission of any supplement to the Prospectus, and
(iv) of the receipt of any notification with respect to a Stop Order or the
initiation or threatening of any proceeding with respect to a Stop Order. The
Company will use its best efforts to prevent the issuance of any Stop Order and,
if any Stop Order is issued, to obtain the lifting thereof as promptly as
possible. If the Registration Statement has become or becomes effective under
the Securities Act with a form of prospectus omitting Rule 430A Information, or
filing of the Prospectus with the Commission is otherwise required under Rule
424(b) of the Regulations, the Company will file with the Commission the
Prospectus, properly
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completed, pursuant to Rule 424(b) of the Regulations within the time period
prescribed and will provide evidence satisfactory to the Representative of such
timely filing.
(3) during the time when a prospectus relating to the Firm
Stock or the Additional Stock is required to be delivered hereunder or under the
Securities Act or the Regulations, comply with all requirements imposed upon it
by the Securities Act, as now existing and as hereafter amended, and by the
Regulations, as from time to time in force, so far as necessary to permit the
continuance of sales of, or dealings in, the Stock in accordance with the
provisions hereof and the Prospectus. If, at any time when a prospectus
relating to the Firm Stock or the Additional Stock is required to be delivered
hereunder or under the Securities Act or the Regulations, any event shall have
occurred as a result of which, in the reasonable opinion of counsel for the
Company or counsel for the Underwriters, the Registration Statement or the
Prospectus as then amended or supplemented contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, or if, in the
opinion of either of such counsel, it is necessary at any time to amend or
supplement the Registration Statement or the Prospectus to comply with the
Securities Act or the Regulations, the Company will notify immediately the
Representative and promptly prepare and file with the Commission an appropriate
amendment or supplement (in form and substance satisfactory to the
Representative and counsel to the Underwriters) which will correct such
statement or omission or which will effect such compliance and will use its best
efforts to have any such amendment declared effective under the Securities Act
as soon as possible.
(4) deliver without charge to each of the several Underwriters
such number of copies of each Preliminary Prospectus as may reasonably be
requested by the
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Underwriters and, as soon as the Registration Statement, or any amendment
thereto, becomes effective under the Securities Act or a supplement is filed
with the Commission, deliver without charge to the Representative two signed
copies of the Registration Statement, including exhibits, or such amendment
thereto, as the case may be, and two copies of any supplement thereto, and
deliver without charge to each of the several Underwriters such number of copies
of the Prospectus, the Registration Statement, and amendments and supplements
thereto, if any, without exhibits, as the Representative may request for the
purposes contemplated by the Securities Act.
(5) endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective under the Securities Act, to qualify the Securities for offering and
sale under the "blue sky" or securities laws of such jurisdictions as may be
designated by the Representative; PROVIDED, HOWEVER, that no such qualification
shall be required in any jurisdiction where, as a result thereof, the Company
would be subject to service of general process or to taxation as a foreign
corporation doing business in such jurisdiction to which it is not then subject.
In each jurisdiction where such qualification shall be effected, the Company
will, unless the Representative agrees in writing that such action is not at the
time necessary or advisable, file and make such statements or reports at such
times as are or may be required by the laws of such jurisdiction.
(6) make generally available, within the meaning of Section
11(a) of the Securities Act and the Regulations, to its security holders as soon
as practicable, but not later than ________________, an earnings statement,
which need not be certified by independent certified public accountants unless
required by the Securities Act or the Regulations, but which shall satisfy the
provisions of Section 11(a) of the Securities Act and the Regulations, covering
a
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period of at least twelve (12) months beginning after the date on which the
Registration Statement was declared effective under the Securities Act.
(7) for the two-year (2) period commencing on the effective
date of the Registration Statement, the Company and all of its stockholders
owning at least five percent (5%) of the shares of the Company's Common Stock
either currently or immediately preceding the date of the offering, shall grant
the Representative the right of first refusal (on terms at least as favorable as
can be obtained from other sources) to act as lead manager, placement agent, or
investment banker with respect to any proposed underwritten public distribution
or private placement of the Company's securities or any merger, acquisition, or
disposition of assets of the Company, if the Company uses a lead manager,
placement agent or investment banker or person performing such functions for a
fee. The Representative will advise the Company promptly (but in no event later
than seven (7) days following the submission to the Representative in writing of
any such proposed transaction(s)) of its election to exercise said right. If
any such proposal is not accepted by the Representative, but later modified, the
Company will resubmit such proposal to the Representative. Should the
Representative elect, at any time, not to exercise said right, this will not
affect preferential rights for future finances.
(8) for a period of five (5) years after the date on which the
Registration Statement was declared effective under the Securities Act furnish
you, without charge, the following:
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(i) within ninety (90) days after the end of each fiscal
year, one (1) copy of financial statements certified by independent certified
public accountants, including a balance sheet, statement of income, and
statement of changes in cash flows of the Company and its then existing
subsidiaries, if any, with supporting schedules, prepared in accordance with
generally accepted accounting principles, as at the end of such fiscal year and
for the twelve (12) months then ended, which may be on a consolidated basis;
(ii) as soon as practicable after they have been sent to
stockholders of the Company or filed with, or furnished to, the Commission or
the NASD, one (1) copy of each annual and interim financial and other report or
communication sent by the Company to its stockholders or filed with, or
furnished to, the Commission or the NASD;
(iii) as soon as practicable, one (1) copy of every press
release and every material news item and article in respect of the Company or
its affairs which was released by the Company; and
(iv) such additional documents and information with respect
to the Company and its affairs, as the Representative may from time to time
reasonably request; PROVIDED, HOWEVER, that such additional documents and
information shall be received by the Representative on a confidential basis,
unless otherwise disclosed to the public, and shall not be used in violation of
the federal securities laws and the rules and regulations promulgated
thereunder.
(9) apply the net proceeds received by the Company from the
offering contemplated by this Agreement in the manner set forth under the
heading "Use of Proceeds" in the Prospectus.
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(10) furnish to the Representative as early as practicable prior
to the Closing Date and each Additional Closing Date, if any, as the case may
be, but not less than two (2) full business days prior thereto, a copy of the
latest available unaudited interim financial statements of the Company which
have been read by the Company's independent certified public accountants, as
stated in their letters to be furnished pursuant to Section 7(f) hereof.
(11) file no amendment or supplement to the Registration
Statement or Prospectus at any time, whether before or after the date on which
the Registration Statement was declared effective under the Securities Act,
unless such filing shall comply with the Securities Act and the Regulations and
unless the Representative shall previously have been advised of such filing and
furnished with a copy thereof, and the Representative shall have approved such
filing in writing. Until the later of (i) the completion by the Underwriters of
the distribution of the Stock (but in no event more than nine (9) months after
the date on which the Registration Statement shall have been declared effective
under the Securities Act) and (ii) twenty-five (25) days after the date on
which the Registration Statement shall have been declared effective under the
Securities Act, the Company will prepare and file with the Commission, promptly
upon the Representative's request, any amendments or supplements to the
Registration Statement or the Prospectus which, in the sole opinion of the
Representative, may be necessary or advisable in connection with the
distribution of the Stock.
(12) file timely with the Commission an appropriate form to
register the Common Stock, including the Stock, pursuant to Section 12(g) of the
Exchange Act and comply with all registration, filing, and reporting
requirements of the Exchange Act, which may from time to time be applicable to
the Company.
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(13) comply with all provisions of all undertakings contained in
the Registration Statement.
(14) prior to the later of (A) five (5) years after which the
Registration Statement was declared effective under the Securities Act and (B)
any Additional Closing Date, issue no press release or other communication,
directly or indirectly, and hold no press conference with respect to the
Company, the financial condition, results of operations, business, properties,
assets, liabilities of any the Company or any Subsidiary, or this offering,
without the prior written consent of the Representative.
(15) make all filings required to maintain the inclusion of the
Common Stock on the Nasdaq National Market for a least four (4) years from the
date of this Agreement.
(16) on the Closing Date, sell to the Hampshire, individually
and not as Representative of the several Underwriters, at the price of $.001 per
warrant, the Representative's Warrants to purchase the Warrant Shares, which
such warrants shall be substantially in the form set forth as an exhibit to the
Registration Statement.
(17) until expiration of the Representative's Warrants, keep
reserved sufficient shares of Common Stock for issuance upon exercise of the
Representative's Warrants.
(18) deliver to the Representative, without charge, within a
reasonable period after the last Additional Closing Date or the expiration of
the period during which the Representative may exercise the Over-allotment
Option, five (5) sets of bound volumes of the Registration Statement and all
related materials to the individuals designated by the Representative or counsel
to the Underwriters.
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(19) for a period of three years after the effective date on
which the Registration Statement is declared effective under the Securities Act,
provide, at its sole expense, to the Representative copies of the Company's
daily transfer sheets, if so requested by the Representative.
(20) maintain key-person life insurance payable to the Company
on the lives of each of Mr. Barry Budilov, President and Chief Executive
Officer of the Company, and Rudy Slucker, the Chairman of the Board of the
Company, in the amount of at least $1,000,000, for the period of time equal to
the longer of three (3) years from the date on which the Registration Statement
becomes effective under the Securities Act and the term of the employment
agreement between the Company and such officer.
(21) For a period of three (3) years from the date on which the
Registration Statement becomes effective under the Securities Act, the
Representative shall have the right to appoint a designee as an observer of the
Company's Board of Directors. Such observer will have the right to attend all
meetings of the Board of Directors. Such observer shall be entitled to receive
reimbursement for all out-of-pocket expenses incurred in attending such
meetings, at the standards applied to the Company's officers and directors,
including, but not limited to, food, lodging, transportation, and to the extent
any fees are paid to independent directors for attending meetings, such
attendance fees shall be paid by the Company to the observer. The
Representative shall be given notice of such meetings at the same time and in
the same manner as directors of the Company are informed. The Representative
and such observer shall be indemnified to the same extent as the other
directors. The Company will purchase Directors & Officers insurance in an
amount of not less than $2,000,000, PROVIDED, HOWEVER, that the Company shall
not
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be required to pay more than $50,000 per year in order to maintain such
insurance, and if insurance in such amount is not available at such cost, the
Company shall purchase that amount of such insurance which is available at a
cost of $50,000 per year. The Company will use its best efforts to extend the
coverage of such insurance to the observer.
(22) not effect a change in its accounting firm for a period of
two (2) years from the effective date of the Registration Statement without the
prior written consent of the Representative, except no consent is required if
the new firm is a "big six" firm.
(23) retain the services of American Stock Transfer and Trust
Company as the Company's transfer agent for the Securities, which such
retainment shall not be changed without the prior written consent of the
Representative.
6. PAYMENT OF EXPENSES. The Company hereby agrees to pay all expenses
(other than fees of counsel for the Underwriters, except as provided in Section
6(c)) in connection with (a) the preparation, printing, filing, distribution,
and mailing of the Registration Statement and the Prospectus and the printing,
filing, distribution, and mailing of this Agreement and the Master Agreement
Among Underwriters, any Master Selected Dealer Agreement and related documents,
including the cost of all copies thereof and of the Preliminary Prospectuses and
of the Prospectus and any amendments or supplements thereto supplied to the
Underwriters in quantities as hereinabove stated; (b) the issuance, sale,
transfer, and delivery (as applicable) of the Securities, including any transfer
or other taxes payable thereon; (c) the qualification of the Securities under
state or foreign "blue sky" or securities laws, including the costs of printing
and mailing the preliminary and final "Blue Sky Survey" and the fees of counsel
for the Underwriters of $25,000 ($35,000 if Nasdaq National Market listing is
not obtained) plus disbursements in connection
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therewith, payable as follows: (i) $10,000 of the fee upon the engagement by
Hampshire, (ii) $10,000 of the fee upon the filing of the Registration Statement
and (iii) the balance of the fee on the Closing Date; (d) the filing fees
payable to the Commission, the NASD, and the jurisdictions in which such
qualification is sought; (e) any fees relating to the listing of the Common
Stock on the Nasdaq National Market and any other stock market or exchange; (f)
the cost of printing certificates representing the shares of Common Stock; (g)
the fees of the transfer agent for the Common Stock, (h) the cost of publication
of "tombstone" advertisements with respect to offerings, not to exceed $25,000;
and (i) a non-accountable expense allowance equal to three percent (3%) of the
gross proceeds of the sale of the Firm Stock and the Additional Stock (less
amounts, if any, previously paid to the Representative by the Company in respect
of such non-accountable expense allowance) to the Representative on the Closing
Date. Notwithstanding the foregoing, if the offering contemplated hereby should
be terminated, the Company agrees to pay the Representative only the
out-of-pocket expenses incurred by the Underwriters in connection with this
Agreement or the proposed offer, sale, and delivery of the Securities.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Firm Stock and the Additional
Stock, as provided herein, and the obligation of Hampshire to purchase and pay
for the Representative's Warrants, each as provided herein, shall be subject,
in the discretion of the Representative, to the continuing accuracy of the
representations and warranties of the Company contained herein and in each
certificate and document contemplated under this Agreement to be delivered to
the Underwriters, as of the date hereof and as of the Closing Date (or any
Additional Closing Date, as the case may
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be), to the performance by the Company of its obligations hereunder, and to the
following conditions:
(a) The Registration Statement shall have become effective under the
Securities Act not later than 6:00 P.M., New York City local time, on the date
of this Agreement or such later date and time as shall be consented to in
writing by the Representative; on or prior to the Closing Date, or any
Additional Closing Date, as the case may be, no Stop Order shall have been
issued and no proceeding shall have been initiated or threatened with respect to
a Stop Order; and any request by the Commission for additional information shall
have been complied with by the Company to the reasonable satisfaction of counsel
for the Underwriters. If required, the Prospectus shall have been filed with
the Commission in the manner and within the time period required by Rule 424(b)
under the Securities Act.
(b) (1) At the Closing Date and any Additional Closing Date, as the
case may be, the Underwriters shall have received the opinion of Crummy, Del
Deo, Dolan, Griffinger & Vecchione, P.C., counsel for the Company, dated the
date of delivery, addressed to the Underwriters, and in form and scope
satisfactory to counsel for the Underwriters, with reproduced copies or signed
counterparts thereof for each of the Underwriters, to the effect that:
(i) the Company is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority, and all necessary consents,
authorizations, approvals, orders, licenses, certificates, and permits of and
from, and declarations and filings with, all federal, state, local, and other
governmental authorities and all courts and other tribunals, to own, lease,
license, and use its properties and assets and to conduct its business in the
manner described in the Prospectus. The
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Company is duly qualified to do business as a foreign corporation and is in good
standing as such in every jurisdiction in which its ownership, leasing,
licensing, or use of property and assets or the conduct of its business makes
such qualification necessary;
(ii) the authorized capital stock of the Company consists of
(i) 10,000,000 shares of Common Stock, of which 3,500,000 shares are
outstanding, (ii) 1,000,000 shares of Preferred Stock, par value $.01 per share,
none of which is outstanding, and (iii) 118,100 shares of Series A Cumulative
Redeemable Preferred Stock, of which 118,100 is outstanding. Except as
otherwise disclosed in the Prospectus, each outstanding share of capital stock
of the Company is free and clear of all liens, security interests, pledges,
charges, encumbrances, stockholders' agreements, and voting trusts. Except as
disclosed in the Prospectus, each outstanding share of Common Stock is validly
authorized and issued, fully paid, and nonassessable, without any personal
liability attaching to the ownership thereof, has not been issued and is not
owned or held in violation of any preemptive or similar rights of stockholders.
To the knowledge of such counsel, there is no commitment, plan, or arrangement
to issue, and no outstanding option, warrant, or other right calling for the
issuance of, any share of capital stock of the Company or any security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, capital stock of the Company except as may be properly
described in the Prospectus. There is outstanding no security or other
instrument which by its terms is convertible into, or exercisable or
exchangeable for, capital stock of the Company. The certificates evidencing the
Common Stock are in due and proper form;
(iii) to the knowledge of such counsel, there is no
litigation, arbitration, claim, governmental or other proceeding (formal or
informal), or investigation pending,
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threatened, or in prospect (or any basis therefor) with respect to the Company
or any of its operations, businesses, properties, or assets, except as may be
properly described in the Prospectus or such as individually or in the aggregate
do not now have, and will not in the future have, a material adverse effect upon
the operations, business, properties, or assets of the Company. To the
knowledge of such counsel, the Company is not in violation of, or in default
with respect to, any law, rule, regulation, order, judgment, or decree, except
as may be properly described in the Prospectus or such as in the aggregate do
not now have and will not in the future have a material adverse effect upon the
operations, business, properties, or assets of the Company; nor is the Company
required to take any action in order to avoid any such violation or default;
(iv) to the knowledge of such counsel, neither the Company
nor any other party is now, or is expected by the Company to be, in violation or
breach of, or in default with respect to, any provision of any contract,
agreement, instrument, lease, license, arrangement, or understanding which is
material to the Company, and, to the knowledge of such counsel, each such
contract, agreement, instrument, lease, license, arrangement, or understanding
is in full force and effect and is the valid, legal, and binding obligation of
the parties thereto and is enforceable in accordance with its terms;
(v) the Company is not in violation or breach of, or in
default with respect to, any term of its respective certificate of incorporation
(or other charter document) or by-laws;
(vi) the Company has all requisite power and authority to
execute, deliver, and perform this Agreement and the Representative's Warrants.
All necessary corporate proceedings of the Company have been taken to authorize
the execution, delivery, and performance
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by the Company of this Agreement and the Representative's Warrants. This
Agreement has been duly authorized, executed, and delivered by the Company, is
the legal, valid, and binding obligation of the Company, and, subject to
applicable bankruptcy, insolvency, and other laws affecting the enforceability
of creditors' rights generally, is enforceable as to the Company in accordance
with its terms. The Representative's Warrants have been duly authorized by the
Company and, when executed and delivered by the Company, will be legal, valid,
and binding obligations of the Company, each enforceable as to the Company in
accordance with its terms. No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with, any federal,
state, local, or other governmental authority or any court or other tribunal is
required by the Company for the execution, delivery, or performance by the
Company of this Agreement or the Representative's Warrants, except filings
under the Securities Act which have been made prior to the Closing Date or
Additional Closing Date, as the case may be, and consents consisting only of
consents under "blue sky" or securities laws, which have been obtained. No
consent of any party to any contract, agreement, instrument, lease, license,
arrangement, or understanding known to such counsel to which the Company is a
party, or to which any of its properties or assets are subject, is required for
the execution, delivery, or performance of this Agreement and the
Representative's Warrants; and the execution, delivery, and performance of this
Agreement and the Representative's Warrants will not violate, result in a
breach of, conflict with, result in the creation or imposition of any lien,
charge, or encumbrance upon any properties or assets of the Company pursuant to
the terms of, or, with or without the giving of notice or the passage of time or
both, entitle any party to terminate or call a default under, any such contract,
agreement, instrument, lease, license, arrangement, or understanding known to
such counsel, violate
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or result in a breach of, or conflict with any term of the certificate of
incorporation (or other charter document) or by-laws of the Company, or violate,
result in a breach of, or conflict with any law, rule, regulation, order,
judgment, or decree binding on the Company to which any of its operations,
businesses, properties, or assets are subject;
(vii) each share of Firm Stock to be delivered on the
Closing Date is validly authorized and, when issued and delivered in accordance
with the terms hereof, will be validly issued, fully paid, and nonassessable,
without any personal liability attaching to the ownership thereof, and will not
be issued in violation of any preemptive or similar rights of stockholders.
Each share of Additional Stock to be delivered on the Closing Date or any
Additional Closing Date, as applicable, is validly authorized and, when issued
and delivered in accordance with the terms hereof, will be validly issued, fully
paid, and nonassessable, without any personal liability attaching to the
ownership thereof, and will not issued in violation of any preemptive or similar
rights of stockholders. The Underwriters will receive good title to the shares
of Firm Stock and Additional Stock purchased by them, respectively, free and
clear of all liens, security interests, pledges, charges, encumbrances,
stockholders' agreements, and voting trusts. The Additional Stock has been
duly and validly reserved for issuance. The Stock conforms to all statements
relating thereto contained in the Registration Statement or the Prospectus;
(viii) the Warrant Shares are validly authorized and has
been duly and validly reserved for issuance pursuant to the terms of the
Representative's Warrants. The Representative's Warrants have been duly and
validly issued and delivered. The Warrant Shares, when issued and delivered in
accordance with the Representative's Warrants, will be validly issued, fully
paid, and nonassessable, without any personal liability attaching to the
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ownership thereof, and will not have been issued in violation of any preemptive
rights of stockholders. The Representative, and any other holders of the
Representative's Warrants, will receive good title to the securities purchased
by them upon exercise of the Representative's Warrants, free and clear of all
liens, security interests, pledges, charges, encumbrances, stockholders'
agreements, and voting trusts. The Representative's Securities conform to all
statements relating thereto contained in the Registration Statement or the
Prospectus;
(ix) to the knowledge of such counsel, each contract,
agreement, instrument, lease, or license required to be described in the
Registration Statement or the Prospectus has been properly described therein,
and each contract, agreement, instrument, lease, or license required to be filed
as an exhibit to the Registration Statement has been filed with the Commission
as an exhibit to the Registration Statement;
(x) insofar as statements in the Prospectus purport to
summarize the status of litigation or the provisions of laws, rules,
regulations, orders, judgments, decrees, contracts, agreements, instruments,
leases, or licenses, such statements have been prepared or reviewed by such
counsel and accurately reflect the status of such litigation and provisions
purported to be summarized and are correct in all respects;
(xi) the Company is not an "investment company" as defined
in the Investment Company Act and the rules and regulations thereunder and, if
the Company conducts its business as set forth in the Prospectus, will not
become an "investment company", and will not be required to be registered under
the Investment Company Act;
(xii) to the knowledge of such counsel, no person or entity
has the right to require registration of shares of Common Stock or other
securities of the Company because
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of the filing or effectiveness of the Registration Statement, except by entities
which have waived such rights as described in the Registration Statement and the
Prospectus;
(xiii) there is no stamp duty, value-added tax or any
similar tax or duty, payable by or on behalf of the Underwriters or the Company
in Hong Kong in connection with the authorization, issuance, sale and delivery
of the Securities to the Underwriters in the manner contemplated by this
Agreement; and
(xiv) the Registration Statement has become effective under
the Securities Act, the Prospectus has been filed in accordance with Rule 424(b)
of the Regulations, including the applicable time periods set forth therein, or
such filing is not required. To the knowledge of such counsel, no Stop Order
has been issued and no proceeding for that purpose has been instituted or
threatened. On the basis of the participation of such counsel in conferences at
which the contents of the Registration Statement and the Prospectus and related
matters were discussed, but without independent verification by such counsel of
the accuracy, completeness, or fairness of the statements contained in the
Registration Statement, the Prospectus, or any amendment or supplement thereto,
such counsel have no knowledge that (other than financial statements and other
financial data and schedules which are or should be contained therein, as to
which such counsel need express no opinion): (A) the Registration Statement, any
Rule 430A Prospectus, and the Prospectus, and any amendment or supplement
thereto, does not appear on its face to comply as to form in all material
respects with the requirements of the Securities Act and the Regulations;
(B) any of the Registration Statement, any Rule 430A Prospectus, or the
Prospectus, or any amendment or supplement thereto, contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the
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statements therein not misleading; or (C) since the date of effectiveness under
the Securities Act of the Registration Statement, any event has occurred which
should have been set forth in an amendment or supplement to the Registration
Statement or the Prospectus which has not been set forth in such an amendment or
supplement.
In rendering such opinion, counsel for the Company may rely (A) as to
matters involving the application of laws other than the laws of the United
States and the laws of the State of Delaware, to the extent counsel for the
Company deems proper and to the extent specified in such opinion, upon an
opinion or opinions (in form and substance satisfactory to counsel for the
Underwriters) of other counsel, acceptable to counsel for the Underwriters,
familiar with the applicable laws, in which case the opinion of counsel for the
Company shall state that the opinion or opinions of such other counsel are
satisfactory in scope, form, and substance to counsel for the Company and that
reliance thereon by counsel for the Company and the Underwriters is reasonable;
(B) as to matters of fact, to the extent they deem proper, on certificates of
responsible officers of the Company; and (C) to the extent they deem proper,
upon written statements or certificates of officers of departments of various
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company; provided that copies of any such opinions,
certificates, or statements shall be annexed as exhibits to the opinion of
counsel for the Company.
(c) On or prior to the Closing Date and any Additional Closing Date,
as the case may be, the Underwriters shall have been furnished such information,
documents, certificates, and opinions as they may reasonably require for the
purpose of enabling them to review the matters referred to in Section 7(b), and
in order to evidence the accuracy, completeness, or satisfaction of
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any of the representations, warranties, covenants, agreements, or conditions
herein contained, or as the Representative may reasonably request.
(d) At the Closing Date or any Additional Closing Date, as the case
may be, (i) the Registration Statement and the Prospectus and any amendments or
supplements thereto shall contain all statements which are required to be stated
therein in accordance with the Securities Act and the Regulations, and in all
material respects conform to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) there shall have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, no material adverse change, or any development involving a
prospective material adverse change, in the business, properties, or condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt, or general affairs of the Company from that set forth in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and Prospectus indicate might occur after the date on which the
Registration Statement becomes effective under the Securities Act, and the
Company shall not have incurred any material liabilities or entered into any
agreements not in the ordinary course of business other than as referred to in
the Registration Statement and Prospectus, (iii) except as set forth in the
Prospectus, no litigation, arbitration, claim, governmental or other proceeding
(formal or informal), or investigation shall be pending, threatened, or in
prospect (or any basis therefor) with respect to the Company or any of its
operations, businesses, properties, or assets which would be required to be set
forth in the Registration Statement, wherein an unfavorable decision, ruling, or
finding would
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materially adversely affect the business, property, condition (financial or
otherwise), results of operations, or general affairs of the Company and (iv)
the Stock be quoted upon the Nasdaq National Market.
(e) At the Closing Date and any Additional Closing Date, as the case
may be, the Representative shall have received a certificate of the chief
executive officer, the chief financial officer, and the chief accounting officer
of the Company, dated the Closing Date or such Additional Closing Date, as the
case may be, to the effect, among other things, that (i) the conditions set
forth in Sections 7(a) and 7(d) have been satisfied, (ii) as of the date of this
Agreement and as of the Closing Date or such Additional Closing Date, as the
case may be, the representations and warranties of the Company contained herein
were and are accurate and correct in all materials respects, and (iii) as of the
Closing Date or such Additional Closing Date, as the case may be, the
obligations to be performed by the Company hereunder on or prior to such time
have been fully performed.
(f) At the time this Agreement is executed and at the Closing Date
and any Additional Closing Date, as the case may be, the Representative shall
have received a letter, addressed to the Underwriters, and in form and substance
satisfactory to the Representative, with reproduced copies or signed
counterparts thereof for each of the Underwriters, from Richard A. Eisner &
Company, LLP, independent certified public accountants for the Company, dated
the date of delivery:
(i) confirming that they are, and during the period covered by
their report(s) included in the Registration Statement and the Prospectus were,
independent certified public accountants with respect to the Company within the
meaning of the Securities Act and the
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published Regulations and stating that the answer to Items 10 and 13 of the
Registration Statement is correct insofar as it relates to them;
(ii) stating that, in their opinion, the financial statements and
schedules of the Company included in the Registration Statement examined by them
comply in form in all material respects with the applicable accounting
requirements of the Securities Act and the related published rules and
regulations;
(iii) stating that, on the basis of procedures (but not an
examination made in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited interim financial
statements of the Company (with an indication of the date of the latest
available unaudited interim financial statements), a reading of the latest
available minutes of the stockholders and Boards of Directors of the Company and
committees of such Board of Directors, inquiries to certain officers and other
employees of the Company responsible for financial and accounting matters, and
other specified procedures and inquiries, nothing has come to their attention
that caused them to believe that: (A) the unaudited financial statements and
schedules of the Company included in the Registration Statement and Prospectus
do not comply in form in all material respects with the applicable accounting
requirements of the Securities Act and the Exchange Act and the related
published rules and regulations under the Securities Act or the Exchange Act or
are not fairly presented in conformity with generally accepted accounting
principles (except to the extent that certain footnote disclosures regarding any
stub period may have been omitted in accordance with the applicable rules of the
Commission under the Exchange Act) applied on a basis consistent with that of
the audited financial statements appearing therein; (B) there was any change in
the capital stock or long-term debt of the Company or any decrease in the
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net current assets or stockholders' equity of the Company as of the date of the
latest available monthly financial statements of the Company as of a specified
date not more than five (5) business days prior to the date of such letter, each
as compared with the amounts shown in the September 30, 1997 and March 31,
1997 balance sheets included in the Registration Statement and Prospectus, other
than as properly described in the Registration Statement and Prospectus or any
change or decrease (which shall be set forth therein) which, in the sole
discretion of the Representative, the Representative shall accept, or (C) there
was any decrease in net sales, net earnings, or net earnings per share of Common
Stock during the period from September 30, 1997 and March 31, 1997 and to
the date of the latest available monthly financial statements of the Company or
to a specified date not more than five (5) business days prior to the date of
such letter, each as compared with the corresponding period in 1997, other than
as properly described in the Registration Statement and Prospectus or any
decrease (which shall be set forth therein) which, the sole discretion of the
Representative, the Representative shall accept; and
(iv) stating that they have compared specific numerical data and
financial information pertaining to the Company set forth in the Registration
Statement, which have been specified by the Representative prior to the date of
this Agreement, to the extent that such data and information may be derived from
the general accounting records of the Company, and excluding any questions
requiring an interpretation by legal counsel, with the results obtained from the
application of specified readings, inquiries, and other appropriate procedures
(which procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
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(g) All proceedings taken in connection with the issuance, sale,
transfer, and delivery of the Securities shall be satisfactory in form and
substance to the Representative and to counsel for the Underwriters, and the
Underwriters shall have received from such counsel for the Underwriters the
opinion, dated as of the Closing Date and the Additional Closing Date, as the
case may be, with respect to such of the matters set forth under Section 7(b),
and with respect to such other related matters, as the Representative may
reasonably request.
(h) The NASD, upon review of the terms of the public offering of the
Stock shall not have objected to the Underwriters' participation in such
offering.
(i) Prior to or on the Closing Date, the Company shall have entered
into the Representative's Warrants with the Representative.
(j) Prior to or on the Closing Date, the Company shall have provided
to the Representative copies of the agreements referred to in Section 2(a)(18).
Any certificate or other document signed by any officer of the Company and
delivered to the Representative or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company hereunder to the
Underwriters as to the statements made therein. If any condition to the
Underwriters' obligations hereunder to be fulfilled prior to or at the Closing
Date or any Additional Closing Date, as the case may be, is not so fulfilled,
the Representative may, on behalf of the several Underwriters, terminate this
Agreement or, if the Representative so elects, in writing waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
8. INDEMNIFICATION AND CONTRIBUTION.
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(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Underwriter, its officers, directors, partners,
employees, agents, counsel and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act, against any and all loss, liability, claim, damage,
and expense whatsoever (which shall include, for all purposes of this Section 8,
but not be limited to, attorneys' fees and any and all expense whatsoever
incurred in investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever and any and all amounts paid in
settlement of any claim or litigation) as and when incurred arising out of,
based upon, or in connection with, (i) any untrue statement or alleged untrue
statement of a material fact contained in (A) the Registration Statement, any
Preliminary Prospectus, or the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto or (B) any application or
other document or communication (for purposes of this Section 8, collectively
referred to as an "application") executed by, or on behalf of, the Company or
based upon written information furnished by, or on behalf of, the Company filed
in any jurisdiction in order to qualify the Securities under the "blue sky" or
securities laws thereof or filed with the Commission or any securities exchange;
or any omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon, and in conformity
with, written information furnished to the Company as stated in Section 8(b)
with respect to any Underwriter by, or on behalf of such Underwriter through the
Representative , expressly for inclusion in the Registration Statement, any
Preliminary Prospectus, or the Prospectus, or any amendment or supplement
thereto, or in any application, as the case may be, or (ii) any breach of any
representation, warranty,
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covenant, or agreement of the Company contained in this Agreement. The
foregoing agreement to indemnify shall be in addition to any liability the
Company may otherwise have, including liabilities arising under this Agreement.
If any action is brought against an Underwriter or any of its respective
officers, directors, partners, employees, agents, counsel or any controlling
persons of an Underwriter (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability it may have other than pursuant to this Section 8(a))
and the Company shall promptly assume the defense of such action, including,
without limitation, the employment of counsel satisfactory to such indemnified
party or parties and payment of expenses. Such indemnified party or parties
shall have the right to employ its or their own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such counsel shall have
been authorized in writing by the Company in connection with the defense of such
action or the Company shall not have promptly employed counsel satisfactory to
such indemnified party or parties to have charge of the defense of such action
or such indemnified party or parties shall have concluded that there may be one
or more legal defenses available to it or them or to other indemnified parties
which are different from, or in addition to, those available to the Company, in
any of which events such fees and expenses shall be borne by the Company, and
the Company shall not have the right to direct the defense of such action on
behalf of the indemnified party or parties. Anything in this paragraph to the
contrary notwithstanding, the Company shall not be liable for any settlement of
any such claim or action
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effected without its written consent, which consent shall not be unreasonably
withheld. The Company shall not, without the prior written consent of each
indemnified party that is not released as described in this sentence, settle or
compromise any action, or permit a default or consent to the entry of judgment
or otherwise seek to terminate any pending or threatened action, in respect of
which indemnity may be sought hereunder (whether or not any indemnified party is
a party thereto), unless such settlement, compromise, consent, or termination
includes an unconditional release of each indemnified party from all liability
in respect of such action. The Company agrees promptly to notify the
Underwriters of the commencement of any litigation or proceedings against the
Company or any of its officers or directors in connection with the sale of the
Securities, the Registration Statement, any Preliminary Prospectus, or the
Prospectus, or any amendment or supplement thereto, or any application.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each director of the Company, each officer of the Company who
shall have signed the Registration Statement, and each other person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity
from the Company to the several Underwriters in Section 8(a), but only with
respect to statements or omissions, if any, made in the Registration Statement,
any Preliminary Prospectus, or the Prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or in any application, in
reliance upon, and in conformity with, written information furnished to the
Company as stated in this Section 8(b) with respect to any Underwriter by, or on
behalf of, such Underwriter through the Representative expressly for inclusion
in the Registration Statement, any Preliminary Prospectus, or the Prospectus, or
any
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amendment or supplement thereto, or on any application, as the case may be;
PROVIDED, HOWEVER, that the obligation of each Underwriter to provide indemnity
under the provisions of this Section 8(b) shall be limited to the amount which
represents the product of (i) the number of shares of Stock underwritten by such
Underwriter hereunder and the (ii) the underwriting discount per share of Common
Stock set forth on the cover page of the Prospectus. For all purposes of this
Agreement, the amounts of the selling concession and reallowance and the name of
each of the Underwriters, and the number of shares of Firm Stock purchased by
each of the Underwriters set forth in the Prospectus constitute the only
information furnished in writing by, or on behalf of, such Underwriter expressly
for inclusion in the Registration Statement, any Preliminary Prospectus, or the
Prospectus (as from time to time amended or supplemented), or any amendment or
supplement thereto, or in any application, as the case may be. If any action
shall be brought against the Company or any other person so indemnified based on
the Registration Statement, any Preliminary Prospectus, or the Prospectus, or
any amendment or supplement thereto, or in any application, and in respect of
which indemnity may be sought against any Underwriter pursuant to this Section
8(b), such Underwriter shall have the rights and duties given to the Company,
and the Company and each other person so indemnified shall have the rights and
duties given to the indemnified parties, by the provisions of Section 8(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Sections 8(a)
and 8(b) (subject to the limitations thereof) but it is found in a final
judicial determination, not subject to further appeal, that such indemnification
may not be enforced in such case, even though this Agreement expressly provides
for indemnification in such case or (ii) any indemnified or indemnifying party
seeks contribution
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under the Securities Act, the Exchange Act, or otherwise, then the Company
(including for this purpose any contribution made by, or on behalf of, any
director of the Company, any officer of the Company who signed the Registration
Statement, and any controlling person of the Company), as one entity, and the
Underwriters (including for this purpose any contribution by, or on behalf of,
an indemnified party) as a second entity, shall contribute to the losses,
liabilities, claims, damages, and expenses whatsoever to which either one of
them may be subject, so that the Underwriters, in the aggregate, are responsible
for the proportion thereof equal to the percentage which the underwriting
discount per share of Common Stock set forth on the cover page of the Prospectus
represents of the initial public offering price per share of Common Stock set
forth on the cover page of the Prospectus and the Company is responsible for
the remaining portion; PROVIDED, HOWEVER, that if applicable law does not permit
such allocation, then other relevant equitable considerations such as the
relative fault of the Company and the Underwriters in connection with the facts
which resulted in such losses, liabilities, claims, damages, and expenses shall
also be considered. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission, or alleged omission, shall be determined by,
among other things, whether such statement, alleged statement, omission, or
alleged omission relates to information supplied by the Company or by the
Underwriters, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement, alleged
statement, omission, or alleged omission. The Company and the Underwriters
agree that it would be unjust and inequitable if the respective obligations of
the Company and the Underwriters for contribution were determined by pro rata or
per capita allocation of the aggregate losses, liabilities, claims, damages, and
expenses (even if the Underwriters and the other indemnified parties were
treated as
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one entity for such purpose) or by any other method of allocation that does not
reflect the equitable considerations referred to in this Section 8(c). No
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation. For purposes of this
Section 8(c), each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act
and each officer, director, partner, employee, agent, and counsel of any
Underwriter shall have the same rights to contribution as such Underwriter and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20(a) of the Exchange Act, each officer of the
Company who shall have signed the Registration Statement and each director of
the Company shall have the same rights to contribution as the Company, subject
in each case to the provisions of this Section 8(c). Anything in this Section
8(c) to the contrary notwithstanding, no party shall be liable for contribution
with respect to the settlement of any claim or action effected without its
written consent. This Section 8(c) is intended to supersede any right to
contribution under the Securities Act, the Exchange Act, or otherwise.
9. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default in its or their
obligation to purchase Firm Stock or Additional Stock hereunder, and if the
number of shares of Firm Stock or Additional Stock to which the defaults of all
Underwriters in the aggregate relate does not exceed 10% of the number of shares
of Firm Stock or Additional Stock, as the case may be, which all Underwriters
have agreed to purchase hereunder, then such shares of Firm Stock or Additional
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Stock to which such defaults relate shall be purchased by the non-defaulting
Underwriters in proportion to their respective commitments hereunder.
(b) If such defaults exceed in the aggregate 10% of the number of
shares of Firm Stock or Additional Stock, as the case may be, which all
Underwriters have agreed to purchase hereunder, the Representative may, in its
discretion, arrange to purchase itself or for another party or parties to
purchase such shares of Firm Stock or Additional Stock, as the case may be, to
which such default relates on the terms contained herein. If the Representative
does not arrange for the purchase of such shares of Firm Stock or Additional
Stock, as the case may be, within one (1) business day after the occurrence of
defaults relating to in excess of 10% of the Firm Stock or the Additional Stock,
as the case may be, then the Company shall be entitled to a further period of
one (1) business day within which to procure another party or parties
satisfactory to the Representative to purchase such shares of Firm Stock or
Additional Stock, as the case may be, on such terms. If the Representative or
the Company does not arrange for the purchase of the shares of Firm Stock or
Additional Stock, as the case may be, to which such defaults relate as provided
in this Section 9(b), this Agreement may be terminated by the Representative or
by the Company or the Representative , in each case without liability on the
part of the Company (except that the provisions of Sections 5(a)(1), 6, 8, 10,
and 13 shall survive such termination) or the several Underwriters, but nothing
in this Agreement shall relieve a defaulting Underwriter of its liability, if
any, to the other several Underwriters and to the Company for any damages
occasioned by its default hereunder.
(c) If the shares of Firm Stock or Additional Stock to which such
defaults relate are to be purchased by the non-defaulting Underwriters, or are
to be purchased by another party or
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parties as aforesaid, the Representative or the Company or the Representative
shall have the right to postpone the Closing Date or the Additional Closing
Date, as the case may be, for a reasonable period but not in any event more than
seven (7) business days in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus or in any other
documents and arrangements with respect to the Firm Stock or the Additional
Stock, and the Company agrees to prepare and file promptly any amendment or
supplement to the Registration Statement or the Prospectus which in the opinion
of counsel for the Underwriters may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 9 as if such party had originally been a party to this
Agreement and had been allocated the number of shares of Firm Stock and
Additional Stock actually purchased by it as a result of its original commitment
to purchase Firm Stock and Additional Stock and its purchase of shares of Firm
Stock or Additional Stock pursuant to this Section 9.
10. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties, covenants, and agreements contained in this
Agreement shall be deemed to be representations, warranties, covenants, and
agreements at the Closing Date and any Additional Closing Date, and such
representations, warranties, covenants, and agreements of the Underwriters, and
the Company, including the indemnity and contribution agreements contained in
Section 8, shall remain operative and in full force and effect regardless of any
investigation made by, or on behalf of any Underwriter or any indemnified
person, or by, or on behalf of, the Company or any person or entity which is
entitled to be indemnified under Section 8(b), and shall survive termination of
this Agreement or the delivery of the Firm Stock and the Additional Stock, if
any, to the several Underwriters. In addition, the provisions of Sections
5(a)(1), 6, 8, 10, 11, and 13
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shall survive termination of this Agreement, whether such termination occurs
before or after the Closing Date or any Additional Closing Date.
Notwithstanding anything in the second sentence of Section 6 hereof to the
contrary, and in addition to the obligations assumed by the Company pursuant to
the first sentence of Section 6 hereof, if the offering should be terminated,
the Company shall be liable to the Underwriters only for out-of-pocket expenses
incurred by the Underwriters in connection with this Agreement or the proposed,
offer, sale, and delivery of the Securities.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a) This Agreement shall become effective at 9:30 a.m., New York
City local time, on the first (1st) full business day following the day on which
the Registration Statement becomes effective under the Securities Act or at the
Time of the initial public offering by the Underwriters of the Firm Stock,
whichever is earlier. The "Time" of the initial public offering shall mean the
time, after the Registration Statement becomes effective under the Securities
Act, of the release by the Representative for publication of the first newspaper
advertisement which is subsequently published relating to the Firm Stock or the
time, after the Registration Statement becomes effective under the Securities
Act, when the Firm Stock is first released by the Representative for offering by
the Underwriters or dealers by letter or telegram, whichever shall first occur.
The Representative or the Company may prevent this Agreement from becoming
effective without liability of any party to any other party, except as noted
below in this Section 11, by giving the notice indicated in Section 11(d) before
the time this Agreement becomes effective under the Securities Act.
(b) If the purchase price of the Firm Stock has not been determined
as provided for in Section 3 prior to 4:30 p.m., New York City local time, on
the fifth (5th) full business day
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after the date on which the Registration Statement becomes was declared
effective under the Securities Act, this Agreement may be terminated at any time
thereafter either by the Representative or by the Company by giving notice to
the other unless before such termination the purchase price for the Firm Stock
has been so determined. If the purchase price of the Firm Stock has not been so
determined prior to 4:30 p.m., New York City local time, on the tenth (10th)
full business day after the date on which the Registration Statement was
declared effective under the Securities Act, this Agreement shall automatically
terminate forthwith.
(c) In addition to the right to terminate this Agreement pursuant to
Sections 7 and 9 hereof, the Representative shall have the right to terminate
this Agreement at any time prior to the Closing Date or any Additional Closing
Date, as the case may be, by giving notice to the Company, and, if exercised,
the Over-allotment Option, at any time prior to any Additional Closing Date (i)
if any domestic or international event, act, or occurrence has materially and
adversely disrupted, or, in the opinion of the Representative, will in the
immediate future materially and adversely disrupt, the securities markets; or
(ii) if there shall have been a general suspension of, or a general limitation
on prices for, trading in securities on the New York Stock Exchange or the
American Stock Exchange or in the over-the-counter market; or (iii) if there
shall have been an outbreak or increase in the level of major hostilities or
other national or international calamity; or (iv) if a banking moratorium has
been declared by a state or federal authority; or (v) if a moratorium in foreign
exchange trading by major international banks or persons has been declared; or
(vi) if there shall have been a material interruption in the mail service or
other means of communication within the United States; or (vii) if the Company
shall have sustained a material or substantial loss by fire, flood, accident,
hurricane, earthquake, theft, sabotage, or other calamity or malicious act,
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whether or not such loss shall have been insured, or from any labor dispute or
court or government action, order, or decree, which will, in the opinion of the
Representative, make it inadvisable to proceed with the offering, sale, or
delivery of the Firm Stock or the Additional Stock, as the case may be; or
(viii) if any material governmental restrictions shall have been imposed on
trading in securities in general, which restrictions are not in effect on the
date hereof; or (ix) if there shall be passed by the Congress of the United
States or by any state legislature any act or measure, or adopted by any
governmental body or authoritative accounting institute or board, or any
governmental executive, any orders, rules, or regulations, which the
Representative believes likely to have a material adverse effect on the
business, financial condition, or financial statements of the Company or the
market for the Common Stock; or (x) if there shall have been such material and
adverse change in the market for the Company's securities or securities in
general or in political, financial, or economic conditions as in the judgment of
the Representative makes it inadvisable to proceed with the offering, sale, and
delivery of the Firm Stock or the Additional Stock, as the case may be, on the
terms contemplated by the Prospectus.
(d) If the Representative elects to prevent this Agreement from
becoming effective, as provided in this Section 11, or to terminate this
Agreement pursuant to Section 7 of this Agreement or this Section 10, the
Representative shall notify the Company promptly by telephone, telex, or
telegram, confirmed by letter. If, as so provided, the Company elects to
prevent this Agreement from becoming effective or to terminate this Agreement,
the Company shall notify the Representative promptly by telephone, telex, or
telegram, confirmed by letter.
(e) Anything in this Agreement to the contrary notwithstanding other
than Section 11(f), if this Agreement shall not become effective by reason of an
election pursuant to this
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Section 11 or if this Agreement shall terminate or shall otherwise not be
carried out within the time specified herein by reason of any failure on the
part of the Company to perform any covenant or agreement or satisfy any
condition of this Agreement by it to be performed or satisfied, the sole
liability of the Company to the several Underwriters, in addition to the
obligations the Company assumed pursuant to the first sentence of Section 6,
will be to reimburse the several Underwriters for such out-of-pocket expenses
(including the fees and disbursements of their counsel) as shall have been
incurred by them in connection with this Agreement or the proposed offer, sale,
and delivery of the Securities, and, upon demand, the Company agrees to pay
promptly the full amount thereof to the Representative for the respective
accounts of the Underwriters. Anything in this Agreement to the contrary
notwithstanding other than Section 11(f), if this Agreement shall not be carried
out within the time specified herein for any reason other than the failure on
the part of the Company to perform any covenant or agreement or satisfy any
condition of this Agreement by it to be performed or satisfied, the Company
shall have no liability to the several Underwriters other than for obligations
assumed by the Company pursuant to Section 6.
(f) Notwithstanding any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Sections 5(a)(1), 6, 8, 10, and 13 shall not be in any way
affected by such election or termination or failure to carry out the terms of
this Agreement or any part hereof. Notwithstanding anything in the second
sentence of Section 6 hereof to the contrary, and in addition to the obligations
assumed by the Company pursuant to the first sentence of Section 6 hereof, if
the offering should be terminated, the Company shall be liable to the several
Underwriters only for out-of-pocket expenses incurred
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by the several Underwriters in connection with this Agreement or the proposed,
offer, sale, and delivery of the Securities.
12. NOTICES. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
by letter, to such Underwriter, c/o Hampshire Securities Corporation, 640 Fifth
Avenue, 17th Floor, New York, New York 10019, Attention: Mr. Richard K. Abbe,
Managing Director, with a copy to Morrison Cohen Singer & Weinstein, LLP, 750
Lexington Avenue, New York, New York 10022, Attention: Robert H. Cohen, Esq.; or
if sent to the Company , shall be mailed, delivered, or telexed or telegraphed
and confirmed by letter, to the Company, Ambassador Eyewear Group, Inc., 3600
Marshall Lane, Bensalem, Pennsylvania 19020, Attention: Barry Budilov,
President, with a copy to Crummy, Del Deo, Dolan, Griffinger & Vecchione, P.C.,
One Riverfront Plaza, Newark, New Jersey, 07102, Attention: Jeffrey A. Baumel,
Esq. All notices hereunder shall be effective upon receipt by the party to
which it is addressed.
13. PARTIES. Hampshire represents that it is authorized to act as
Representative on behalf of the several Underwriters named in Schedule I hereto,
and the Company shall be entitled to act and rely on any request, notice,
consent, waiver, or agreement purportedly given on behalf of the Underwriters
when the same shall have been given by Hampshire on such behalf. This Agreement
shall inure solely to the benefit of, and shall be binding upon, the several
Underwriters and the Company and the persons and entities referred to in Section
8 who are entitled to indemnification or contribution, and their respective
successors, legal representatives, and assigns (which shall not include any
buyer, as such, of the Firm Stock or the Additional Stock), and no
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other person shall have, or be construed to have, any legal or equitable right,
remedy, or claim under, in respect of, or by virtue of this Agreement or any
provision herein contained. Notwithstanding anything contained in this
Agreement to the contrary, all of the obligations of the Underwriters hereunder
are several and not joint.
14. CONSTRUCTION. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
conflict of laws. Time is of the essence in this Agreement.
15. CONSENT TO JURISDICTION. The Company irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such State in connection with any action or proceeding arising out
of, or relating to, this Agreement, any document or instrument delivered
pursuant to, in connection with, or simultaneously with this Agreement, or a
breach of this Agreement or any such document or instrument. In any such action
or proceeding, the Company waives personal service of any summons, complaint, or
other process and agrees that service thereof may be made in accordance with
Section 12. Within thirty (30) days after such service, or such other time as
may be mutually agreed upon in writing by the attorneys for the parties to such
action or proceeding, the Company shall appear or answer such summons,
complaint, or other process. Should the Company fail to appear or answer within
such thirty-day (30) period or such extended period, as the case may be, the
Company shall be deemed in default and judgment may be entered against the
Company for the amount as demanded in any summons, complaint, or other process
so served.
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If the foregoing correctly sets forth the understandings among the
Representative and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
AMBASSADOR EYEWEAR GROUP, INC.
By:
--------------------------------
Name:
Title:
Accepted as of the date first above
written in New York, New York
HAMPSHIRE SECURITIES CORPORATION*
By:
---------------------------------------
Richard K. Abbe, Managing Director
*On behalf of itself and the other several
Underwriters named in Schedule I hereto.
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Exhibit 3.1(a)
CERTIFICATE OF AMENDMENT
TO THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AMBASSADOR EYEWEAR GROUP, INC.
Pursuant to the provisions of Sections 242 of the Delaware Corporation
Law, the undersigned corporation executes the following Certificate of Amendment
to its Amended and Restated Certificate of Incorporation:
1. The name of the corporation is Ambassador Eyewear Group, Inc. (the
"Corporation").
2. The Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on May 3, 1995, and amended and
restated on July 10, 1997.
3. The following amendment to the Corporation's Amended and Restated
Certificate of Incorporation was approved by unanimous written consent of the
directors of the Corporation, and thereafter duly adopted by unanimous written
consent of all of the shareholders of the Corporation, dated as of November
13th, 1997:
RESOLVED, that Article FOURTH of the Corporation's Amended and Restated
Certificate of Incorporation be amended in its entirety to read as follows:
"FOURTH: CAPITAL STOCK
The aggregate number of shares of all classes of capital stock which
the Corporation shall have the authority to issue is Twenty One million
(21,000,000), of which Twenty million (20,000,000) shall be common stock,
par value $.01 per share (the "Common Stock"), and One million (1,000,000)
shall be preferred stock, par value $.01 per share (the "Preferred Stock").
Shares of Preferred Stock may be issued in one or more series. The
number of shares included in any series of Preferred Stock and the full or
limited voting rights, if any, the cumulative or non-cumulative dividend
rights, if any, the conversion, redemption or sinking funds rights, if any
and the priorities, preferences and relative, participating, optional and
other special rights, if any, in respect of the Preferred Stock, any series
of Preferred Stock, or any rights pertaining thereto, and the
qualification, limitations or restrictions on the Preferred Stock, any
series of Preferred Stock or any rights pertaining thereto, shall be those
set forth in the resolution or resolutions providing for the issuance of
the Preferred Stock or such series of Preferred Stock adopted at anytime
and from time to time by the affirmative vote of a majority of the total
number of directors which the Corporation would have if there were no
vacancies on the Board of Directors of the Corporation (the "Board") at the
time of the vote (the
<PAGE>
"Whole Board") on such resolution or resolutions and filed with the
Secretary of State of the State of Delaware. The Board is hereby expressly
vested with authority, to the full extent now or hereafter provided by the
Law, to adopt any such resolution or resolutions."
4. The total number of shares entitled to vote on the amendment was
3,500,000.
5. The number of shares voting for the amendment was 3,500,000 and no
shares were voted against the amendment.
The effective date of this Amendment to the Corporation's Amended and
Restated Certificate of Incorporation shall be upon filing.
Dated the 13th day of November, 1997.
AMBASSADOR EYEWEAR GROUP, INC.
By: /s/ Barry Budilov
----------------------------
Name: Barry Budilov
Title: President
<PAGE>
STOCK PURCHASE WARRANT
To Purchase Common Stock of
AMBASSADOR EYEWEAR GROUP, INC.
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Void after 5:00 p.m. New York Time, on , 2002.
Warrant to Purchase Shares of Common Stock.
WARRANT TO PURCHASE COMMON STOCK
OF
AMBASSADOR EYEWEAR GROUP, INC.
This is to Certify That, FOR VALUE RECEIVED, Hampshire Securities
Corporation, or assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from Ambassador Eyewear Group, Inc., a Delaware
corporation ("Company"), 200,000 fully paid, validly issued and nonassessable
shares of Common Stock, par value $.01 per share, of the Company ("Common
Stock") at a price of $ per share at any time or from time to time during
the period from , 1997 to ,
2002, but not later than 5:00 p.m. New York City Time, on ,
2002. The number of shares of Common Stock to be received upon the exercise of
this Warrant and the price to be paid for each share of Common Stock may be
adjusted from time to time as hereinafter set forth. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares" and the exercise price of
a share of Common Stock in effect at any time and as adjusted from time to time
is hereinafter sometimes referred to as the "Exercise Price". This Warrant,
together with warrants of like tenor, constituting in the aggregate warrants
(the "Warrants") to purchase 200,000 shares of Common Stock, was originally
issued pursuant to an underwriting agreement between the Company and Hampshire
Securities Corporation ("Hampshire"), in connection with a public offering
through Hampshire of 2,000,000 shares of Common Stock, in consideration of
$200.00 received for the Warrants.
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time or from time to time on or after , 1997 and until
_________ 2002, subject to the provisions of Section (j)(2) hereof; PROVIDED,
HOWEVER, that (i) if either such day is a day on which banking institutions in
the State of New York are authorized by law to close, then on the next
succeeding day which shall not be such a day, and (ii) in the event of any
merger, consolidation or sale of substantially all the assets of the Company as
an entirety, resulting in any distribution to the Company's stockholders, prior
to _________, 2002, the Holder shall have the right to exercise this Warrant
commencing at such time through , 2002 into the kind and amount of
shares of Common Stock and other securities and property (including cash)
receivable by a holder of the number of shares of Common Stock into which this
Warrant might have been exercisable immediately prior thereto. This Warrant may
be exercised by presentation and surrender hereof to the Company at its
principal office, or at the office of its stock transfer agent, if any, with the
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Purchase Form annexed hereto duly executed and accompanied by payment of the
Exercise Price for the number of Warrant Shares specified in such form. As soon
as practicable after each such exercise of the warrants, but not later than
seven (7) days from the date of such exercise, the Company shall issue and
deliver to the Holder a certificate or certificate for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the rights of the Holder thereof to purchase the balance of
the Warrant Shares purchasable thereunder. Upon receipt by the Company of this
Warrant at its office, or by the stock transfer agent of the Company at its
office, in proper form for exercise, the Holder shall be deemed to be the holder
of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books or the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Holder.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a National Securities Exchange
or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ system, the current market value shall be
the last reported sale price of the Common Stock on such exchange or
system on the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average closing
bid and asked prices for such day on such exchange or system; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current market value shall be the mean of the
last reported bid and asked prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the
exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount, not less than book value
thereof as at the end of the most recent fiscal year of the Company
ending prior to the date of the exercise of the Warrant, determined in
such reasonable manner as may be prescribed by the Board of Directors
of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender
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hereof to the Company or at the office of its stock transfer agent, if any, for
other warrants of different denominations entitling the Holder thereof to
purchase in the aggregate the same number of shares of Common Stock purchasable
hereunder. This Warrant is not transferable (other than by will or pursuant to
the laws of descent and distribution), and may not be assigned or hypothecated,
for a period of 12 months from ________, 1997, except to and among the officers
of Hampshire except as provided under Subsection (a)(ii) hereof. Upon surrender
of this Warrant to the Company at its principal office or at the office of its
stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant in the name of the assignee
named in such instrument of assignment and this Warrant shall promptly be
canceled. This Warrant may be divided or combined with other warrants which
carry the same rights upon presentation hereof at the principal office of the
Company or at the office of its stock transfer agent, if any, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(l) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date
of such subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to
such action, and the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event listed above
shall occur.
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(2) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock) at a price (the "Subscription Price")
(or having a conversion price per share) less than the current market
price of the Common Stock (as defined in Subsection (8) below) on the
record date mentioned below, or less than the Exercise Price on such
record date, the Exercise Price shall be adjusted so that the same
shall equal the lower of (i) the price determined by multiplying the
Exercise Price in effect immediately prior to the date of such
issuance by a fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common Stock
which the aggregate offering price of the total number of shares of
Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at such current
market price per share of the Common Stock, and the denominator of
which shall be the sum of the number of shares of Common Stock
outstanding on such record date and the number of additional shares of
Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible) or (ii) in the
event the Subscription Price is equal to or higher than the current
market price but is less than the Exercise Price, the price determined
by multiplying the Exercise Price in effect immediately prior to the
date of issuance by a fraction, the numerator of which shall be the
sum of the number of shares outstanding on the record date mentioned
below and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock
so offered (or the aggregate conversion price of the convertible
securities so offered) would purchase at the Exercise Price in effect
immediately prior to the date of such issuance, and the denominator of
which shall be the sum of the number of shares of Common Stock
outstanding on the record date mentioned below and the number of
additional shares of Common Stock offered for subscription or purchase
(or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively whenever such rights or
warrants are issued and shall become effective immediately after the
record date for the determination of Stockholders entitled to receive
such rights or warrants; and to the extent that shares of Common Stock
are not delivered (or securities convertible into Common Stock are not
delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would
then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of delivery of only the
number of shares of Common Stock (or securities convertible into
Common Stock) actually delivered.
(3) In case the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding
cash dividends or distributions and dividends or distributions
referred to in Subsection (1) above) or subscription rights or
warrants (excluding those referred to in Subsection (2) above), then
in each such case the Exercise Price in effect thereafter shall be
determined by
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multiplying the Exercise Price in effect immediately prior thereto by
a fraction, the numerator of which shall be the total number of shares
of Common Stock outstanding multiplied by the current market price per
share of Common Stock (as defined in Subsection (8) below), less the
fair market value (as determined by the Company's Board of Directors)
of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and the denominator of which shall be the total
number of shares of Common Stock outstanding multiplied by such
current market price per share of Common Stock. Such adjustment shall
be made successively whenever such a record date is fixed. Such
adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date for the
determination of Stockholders entitled to receive such distribution.
(4) In case the Company shall issue shares of its Common Stock,
excluding shares issued (i) in any of the transactions described in
Subsection (1) above, (ii) upon exercise of options granted to the
Company's employees under a plan or plans adopted by the Company's
Board of Directors and approved by its Stockholders, if such shares
would otherwise be included in this Subsection (4), (but only to the
extent that the aggregate number of shares excluded hereby and issued
after the date hereof, shall not exceed 5% of the Company's Common
Stock outstanding at the time of any issuance), (iii) upon exercise of
options and warrants outstanding at _________, 2002, and this Warrant
and (iv) to Stockholders of any corporation which merges into the
Company in proportion to their stock holdings of such corporation
immediately prior to such merger, upon such merger, or issued in a
bona fide public offering pursuant to a firm commitment underwriting,
but only if no adjustment is required pursuant to any other specific
subsection of this Section (f) (without regard to Subsection (9)
below) with respect to the transaction giving rise to such rights, for
a consideration per share (the "Offering Price") less than the current
market price per share (as defined in Subsection (8) below) on the
date the Company fixes the offering price of such additional shares or
less than the Exercise Price, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the lower of (i) the
price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, the numerator of which shall
be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares and the
number of shares of Common Stock which the aggregate consideration
received, determined as provided in Subsection (7) below, for the
issuance of such additional shares would purchase at such current
market price per share of Common Stock, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares or (ii) in the event the
Offering Price is equal to or higher than the current market price per
share but less than the Exercise Price, the price determined by
multiplying the Exercise Price in effect immediately prior to the date
of issuance by a fraction, the numerator of which shall be the number
of shares of
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Common Stock outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock which the
aggregate consideration received (determined as provided in subsection
(7) below) for the issuance of such additional shares would purchase
at the Exercise Price in effect immediately prior to the date of such
issuance, and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively whenever
such an issuance is made.
(5) In case the Company shall issue any securities convertible into or
exchangeable for its Common Stock, excluding securities issued in
transactions described in Subsections (2) and (3) above, for a
consideration per share of Common Stock (the "Conversion Price")
initially deliverable upon conversion or exchange of such securities
(determined as provided in Subsection (7) below) less than the current
market price per share (as defined in Subsection (8) below) in effect
immediately prior to the issuance of such securities, or less than the
Exercise Price, the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the lower of (i) the price
determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior
to the issuance of such securities and the number of shares of Common
Stock which the aggregate consideration received (determined as
provided in Subsection (7) below) for such securities would purchase
at such current market price per share of Common Stock, and the
denominator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to such issuance and the
maximum number of shares of Common Stock of the Company deliverable
upon conversion of or in exchange for such securities at the initial
conversion or exchange price or rate or (ii) in the event the
Conversion Price is equal to or higher than the current market price
per share but less than the Exercise Price, the price determined by
multiplying the Exercise Price in effect immediately prior to the date
of issuance by a fraction, the numerator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior to
the issuance of such securities and the number of shares of Common
Stock which the aggregate consideration received (determined as
provided in subsection (7) below) for such securities would purchase
at the Exercise Price in effect immediately prior to the date of such
issuance, and the denominator of which shall be the sum of the number
of shares of Common Stock outstanding immediately prior to the
issuance of such securities and the maximum number of shares of Common
Stock of the Company deliverable upon conversion on or in exchange for
such securities at the initial conversion or exchange price or rate.
Such adjustment shall be made successively whenever such an issuance
is made.
(6) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to Subsections (1), (2), (3), (4) and (5) above,
the number of Shares
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purchased upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Shares initially issuable upon
exercise of this Warrant by the Exercise Price in effect on the date
hereof and dividing the product so obtained by the Exercise Price, as
adjusted.
(7) For purposes of any computation respecting consideration received
pursuant to Subsections (4) and (5) above, the following shall apply:
(A) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided
that in no case shall any deduction be made for any commissions,
discounts or other expenses incurred by the Company for any
underwriting of the issue or otherwise in connection therewith;
(B) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Company
(irrespective of the accounting treatment thereof), whose
determination shall be conclusive; and
(C) in the case of the issuance of securities convertible into or
exchangeable for shares of Common Stock, the aggregate consideration
received therefor shall be deemed to be the consideration received by
the Company for the issuance of such securities plus the additional
minimum consideration, if any, to be received by the Company upon the
conversion or exchange thereof (the consideration in each case to be
determined in the same manner as provided in clauses (A) and (B) of
this Subsection (7)).
(8) For the purpose of any computation under Subsections (2), (3), (4)
and (5) above, the current market price per share of Common Stock at any
date shall be deemed to be the lower of (i) the average of the daily
closing prices for 30 consecutive business days before such date or (ii)
the closing price on the business day immediately preceding such date. The
closing price for each day shall be the last sale price regular way or, in
case no such reported sale takes place on such day, the average of the last
reported bid and asked prices regular way, in either case on the principal
national securities exchange on which the Common Stock is admitted to
trading or listed, or if not listed or admitted to trading on such
exchange, the average of the highest reported bid and lowest reported asked
prices as reported by NASDAQ, or other similar organization if NASDAQ is no
longer reporting such information, or if not so available, the fair market
price as determined by the Board of Directors.
(9) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents
($.05) in such price; PROVIDED, HOWEVER, that any adjustments which by
reason of this Subsection (9) are not required to be
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made shall be carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations under this
Section (f) shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Anything in this Section (f)
to the contrary notwithstanding, the Company shall be entitled, but shall
not be required, to make such changes in the Exercise Price, in addition to
those required by this Section (f), as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in
shares of Common Stock, or any subdivision, reclassification or combination
of Common Stock, hereafter made by the Company shall not result in any
federal income tax liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants).
(10) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly but no later than 10 days after any request for such
an adjustment by the Holder, cause a notice setting forth the adjusted
Exercise Price and adjusted number of Shares issuable upon exercise of each
Warrant, and, if requested, information describing the transactions giving
rise to such adjustments, to be mailed to the Holders at their last
addresses appearing in the Warrant Register, and shall cause a certified
copy thereof to be mailed to its transfer agent, if any. In the event the
Company does not provide the Holder with such notice and information within
10 days of a request by the Holder, then notwithstanding the provisions of
this Section (f), the Exercise Price shall be immediately adjusted to equal
the lowest Offering Price, Subscription Price or Conversion Price, as
applicable, since the date of this Warrant, and the number of shares of
Common Stock issuable upon exercise of this Warrant shall be adjusted
accordingly. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by
this Section (f), and a certificate signed by such firm shall be conclusive
evidence of the correctness of such adjustment.
(11) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (1) above, the Holder of this Warrant thereafter
shall become entitled to receive any shares of the Company, other than
Common Stock, thereafter the number of such other shares so receivable upon
exercise of this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Subsections (1) to
(9), inclusive, above.
(12) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares issuable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as
required by the provisions of the foregoing Section, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office and with its stock transfer agent, if any, an
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officer's certificate showing the adjusted Exercise Price determined as herein
provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other facts as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder or
any holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least 15 days prior the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Stock or other securities shall
receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant, or in case of any sale, lease or conveyance to another corporation or
the property of the Company as an entirety), the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance.
Any such provision shall allow for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
In the event that in connection with any such
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capital reorganization or reclassification, consolidation, merger, sale or
conveyance, additional shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part, for a security of the
Company other than Common Stock, any such issue shall be treated as an issue of
Common Stock covered by the provisions of Subsection (1) of Section (f) hereof.
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(l) The Company shall advise the Holder of this Warrant or of the
Warrant Shares or any then holder of Warrants or Warrant Shares (such
persons being collectively referred to herein as "holders") by written
notice at least four weeks prior to the filing of any post-effective
amendment to the Company's Registration Statement No. 333-______ on Form
SB-2 ("Registration Statement"), declared effective by the Securities and
Exchange Commission on or of any new registration statement or
post-effective amendment thereto under the Securities Act of 1933, as
amended (the "Act"), covering securities of the Company and will for a
period of six years, commencing one year from the effective date of the
Registration Statement, upon the request of any such holder, include in any
such post-effective amendment or registration statement such information as
may be required to permit a public offering of the Warrants or the Warrant
Shares and maintain the effectiveness thereof for at least 12 months. The
Company shall supply prospectuses and other documents as the Holder may
request in order to facilitate the public sale or other disposition of the
Warrants or Warrant Shares, qualify the Warrants and the Warrant Shares for
sale in such states as any such holder designates and do any and all other
acts and things which may be necessary or desirable to enable such Holders
to consummate the public sale or other disposition of the Warrants or
Warrant Shares, and furnish indemnification in the manner as set forth in
Subsection (3)(C) of this Section (j). Such holders shall furnish
information and indemnification as set forth in Subsection (3)(C) of this
Section (j), except that the maximum amount which may be recovered from the
Holder shall be limited to the amount of proceeds received by the Holder
from the sale of the Warrants or Warrant Shares.
(2) If any majority holder (as defined in Subsection (4) of this
Section (j) below) shall give notice to the Company at any time during the
four year period commencing one year from the effective date of the
Registration Statement to the effect that such holder contemplates (i) the
transfer of all or any part of his or its Warrants and/or Warrant Shares,
or (ii) the exercise and/or conversion of all or any part of his or its
Warrants and the transfer of all or any part of the Warrants and/or Warrant
Shares under such circumstances that a public offering (within the meaning
of the Act) of Warrants and/or Warrant Shares will be involved, and desires
to register under the Act, the Warrants and/or the Warrant Shares, then the
Company shall, within two weeks after receipt of such notice, file a
post-effective amendment to the Registration Statement or a new
registration statement pursuant to the Act, to the end that the Warrants
and/or Warrant Shares may be sold under the Act as promptly as practicable
thereafter and the Company will use its best efforts to cause such
registration to become effective and continue to be effective (current)
(including the taking of such steps as are necessary to obtain the removal
of any stop order) for a period of nine months or until
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the holder has advised that all of the Warrants and/or Warrant Shares have
been sold; provided that such holder shall furnish the Company with
appropriate information (relating to the intentions of such holders) in
connection therewith as the Company shall reasonably request in writing.
In the event the registration statement is not declared effective under the
Act prior to , 2002, the Company shall extend the expiration
date of the Warrants to a date not less than 90 days after the effective
date of such registration statement. The holder may, at its option, request
the registration of the Warrants and/or Warrant Shares in a registration
statement made by the Company as contemplated by Subsection (1) of this
Section (j) or in connection with a request made pursuant to Subsection (2)
of this Section (j) prior to the acquisition of the Warrant Shares upon
exercise of the Warrants and even though the holder has not given notice of
exercise of the Warrants. The holder may thereafter at its option, exercise
the Warrants at any time or from time to time subsequent to the
effectiveness under the Act of the registration statement in which the
Warrant Shares were included.
(3) The following provision of this Section (j) shall also be
applicable:
(A) Within ten days after receiving any such notice pursuant to
Subsection (2) of this Section (j), the Company shall give notice to the other
holders of Warrants and Warrant Shares, advising that the Company is proceeding
with such post-effective amendment or registration statement and offering to
include therein Warrants and/or Warrant Shares of such other holders, provided
that they shall furnish the Company with such appropriate information (relating
to the intentions of such holders) in connection therewith as the Company shall
reasonably request in writing. Following the effective date of such
post-effective amendment or registration, the Company shall upon the request of
any owner of Warrants and/or Warrant Shares forthwith supply such a number of
prospectuses meeting the requirements of the Act, as shall be requested by such
owner to permit such holder to make a public offering of all Warrants and/or
Warrant Shares from time to time offered or sold to such holder, provided that
such holder shall from time to time furnish the Company with such appropriate
information (relating to the intentions of such holder) in connection therewith
as the Company shall request in writing. The Company shall also use its best
efforts to qualify the Warrant Shares for sale in such states as such majority
holder shall designate.
(B) The Company shall bear the entire cost and expense oL any
registration of securities initiated by it under Subsection (1) of this Section
(j) notwithstanding that Warrants and/or Warrant Shares subject to this Warrant
may be included in any such registration. The Company shall also comply with one
request for registration made by the majority holder pursuant to Subsection (2)
of this Section (j) at its own expense and without charge to any holder of any
Warrants and/or Warrant Shares; and the Company shall comply with one additional
request made by the majority holder pursuant to Subsection (2) of this Section (
j ) at the sole expense of such majority holder. Any holder whose Warrants
and/or Warrant Shares are included in any such registration statement pursuant
to this Section shall, however, bear the fees of his own counsel and any
registration fees, transfer taxes or underwriting discounts or commissions
applicable to the Warrant Shares sold by him pursuant thereto.
12
<PAGE>
(C) The Company shall indemnify and hold harmless each such
holder and each underwriter, within the meaning of the Act, who may purchase
from or sell for any such holder any Warrants and/or Warrant Shares from and
against any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any post-effective amendment thereto or any
registration statement under the Act or any prospectus included therein required
to be filed or furnished by reason of this Section (j) or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or alleged untrue statement or omission or alleged omission
based upon information furnished or required to be furnished in writing to the
Company by such holder or underwriter expressly for use therein, which
indemnification shall include each person, if any, who controls any such
underwriter within the meaning of such Act; PROVIDED, HOWEVER, that the Company
shall not be obliged so to indemnify any such underwriter or controlling person
unless such underwriter shall at the same time indemnify the Company, its
directors, each officer signing the related registration statement and each
person, if any, who controls the Company within the meaning of such Act, from
and against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement or any prospectus required to be filed or furnished by
reason of this Section (3) or caused by any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or alleged untrue statement or omission based
upon information furnished in writing to the Company by any such underwriter
expressly for use therein.
(D) Neither the giving of any notice by any such majority holder
nor the making of any request for prospectuses shall impose any upon such
majority holder or owner making such request any obligation to sell any Warrants
and/or Warrant Shares, or exercise any Warrants.
(4) The term "majority holder" as used in this Section (j) shall
include any owner or combination of owners of Warrants or Warrant Shares in any
combination if the holdings of the aggregate amount of:
(i) the Warrants held by him or among them, plus
(ii) the Warrants which he or they would be holding if the
Warrants for the Warrant Shares owned by him or among
them had not been exercised,
would constitute a majority of the Warrants originally issued.
13
<PAGE>
The Company's agreements with respect to Warrants or Warrant Shares in this
Section (j) shall continue in effect regardless of the exercise and surrender of
this Warrant.
AMBASSADOR EYEWEAR GROUP, INC.
By
-----------------------------------
Name:
Title:
[SEAL]
Dated: , 1997
Attest:
- -----------------------------------
Secretary
14
<PAGE>
PURCHASE FORM
Dated ______, ____
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _______ shares of Common Stock and hereby
makes payment of $_____________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name
------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------------------------------------
Signature
---------------------------------------------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED, ___________________hereby sells, assigns and
transfers unto
Name
--------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address
-----------------------------------------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent of
___________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint _________________ Attorney, to transfer
the same on the books of the Company with full power of substitution in the
premises.
Date
----------,----
Signature
-----------------------------------------------------------
15
<PAGE>
Exhibit 10.24
LICENSE AGREEMENT
AGREEMENT effective as of the 10th day of April ________ 1989 by and between
Nintendo of America Inc., 4820-150th Avenue N.E., Redmond, WA 98052
(hereinafter referred to as "Licensor") and
Renaissance Eyewear, Inc. (hereinafter referred to as "Licensee").
1059 King George Road
Fords, NJ 08863
WITNESSETH:
WHEREAS, Licensor owns or is authorized to grant, for the purposes of this
Agreement, the rights in and to the names; titles; characters; including their
likenesses and visual and auditory representations; symbols; designs;
copyrights; trademarks; artwork; and elements embodied in or derived from the
property as described in Schedule A, annexed hereto (all of the foregoing
hereinafter referred to as "the Property"); and
WHEREAS, Licensee desires to obtain from Licensor the right to use the
Property on and in connection with the manufacture, sale, distribution and
promotion of the articles described below;
NOW, THEREFORE, in consideration of the mutual promises and undertakings herein
contained, it is hereby agreed:
1. GRANTS OF LICENSE.
(a) Articles. Licensor hereby grant to Licensee for the term of this
Agreement and subject to its conditions, the right, license and privilege to use
the Property solely on and in connection with the manufacture, sale,
distribution, and promotion of the articles listed in Schedule B, annexed
hereto.
(b) Territory. The license hereby granted extends to the territory
described in Schedule C, annexed hereto (hereinafter referred to as "the
Territory").
(c) Term. Unless sooner terminated in accordance with the provisions
hereof, the initial term of the license hereby granted and the renewal terms, if
any to be provided hereunder, shall extend for the periods set forth in Schedule
D, annexed hereto.
2. TERMS OF PAYMENT
(a) Rate. Licensee agrees to pay to the Licensor as its royalty a sum
equal to the percentage set forth in Schedule E, annexed hereto, of all net
sales by Licensee or any of its affiliated, associated or subsidiary companies
of the articles covered by this Agreement. The term "net sales" shall mean gross
sales less trade quantity discounts and actual returns only, and no deduction
shall be made for cash or other discounts or uncollectible accounts. No costs
incurred in the manufacture, sale, distribution or promotion of the articles or
in the payment by Licensee of taxes of any nature shall be deducted from any
royalty payable by Licensee.
(b) Minimum Royalties. Licensee agrees to pay to Licensor a minimum
royalty consisting of an advance payment to be applied against a minimum
guarantee in the initial term hereof and in any renewal term hereunder, in the
amounts and in the manner specified in Schedule F, annexed hereto. No part of
any such minimum royalty shall in any event be repayable to Licensee. Royalty
payments which exceed the initial term's minimum royalty or any renewal term's
minimum royalty shall not be credited toward the next succeeding term's minimum
royalty.
(c) Periodic Statements. Within thirty (30) days after the close of the
calendar quarter in which the initial shipment of articles covered by this
Agreement is made, and thereafter within thirty (30) days after the close of
each calendar quarter, Licensee shall furnish to Licensor, in a form to be
supplied by Licensor, or in the absence thereof, in a form acceptable to
Licensor, complete and accurate statements certified to be accurate by Licensee
showing the number, description, gross sales price, itemized deductions from
gross sales price, and net sales price of each and every article covered by this
Agreement sold by Licensee or any of its affiliated, associated or subsidiary
companies, and any returns made during the period, together with a computation
of the royalties payable thereon. Such statements shall be furnished to Licensor
whether or not any of the articles have been sold during said period. All
information shall be shown separately for each country within the Territory.
Licensee agrees that royalty reports will indicate clearly (by name of character
or similar description) the articles sold and will be given in sufficient detail
to enable Licensor to separate royalties by article. It is understood that
timely rendering of all statements required hereunder is essential under the
terms of this Agreement, and failure to render such statements in a timely
fashion shall deemed to be a breach of the Agreement immediately after the
deadline has gone by, regardless of whether or not Licensor gives Licensee any
notice to this effect.
(d) Royalty Payments. Licensee shall remit the royalties due in excess in
any previously paid advance sum for each calendar quarter within 30 days after
the close of each calendar quarter, and payment shall be made with the statement
rendered for that quarter. Payment shall be use in U.S. funds. The receipt or
acceptance by Licensor of any of the statements hereunder, or any royalties paid
hereunder, or the cashing of any royalty check paid hereunder, shall not
preclude Licensor from questioning the correctness thereof at any time, and in
the event that any inconsistencies or mistakes are discovered in such statements
or payments, they shall immediately be rectified and the appropriate payment
made by Licensee.
(e) Records and Audits. Licensee shall keep and maintain complete and
accurate records of the transactions underlying the accounting statements to be
furnished hereunder, and shall allow representatives of Licensor during office
hours and at reasonable intervals to inspect and make extracts or copies of such
records for the purpose of ascertaining the correctness of such statements. If
any such examination and audit shall disclose any deficiency of five per cent
(5%) or more, Licensee shall pay, in addition to such deficiency, the cost of
such examination and audit. Upon demand of Licensor, Licensee shall at its own
expense furnish to Licensor a detailed statement by an independent certified
public accountant showing the number, description, gross sales price, itemized
deductions from gross sales price and net sales price of the articles covered by
this Agreement distributed and/or sold by Licesee to the date of Licensor's
demand. All books of account and records shall be kept available for at least
five (5) years after the termination of this license.
(f) See adendum below*
3. EXCLUSIVITY.
Nothing in this Agreement shall be construed to prevent Licensor from
granting any other licenses for the use of the property or from using the
Property in any manner whatsoever, but Licensor agrees that, except as provided
in Paragraph 14(x) hereof, it will grant no other licenses for the Territory to
which this license extends effective during the term of this license, for the
use of the Property in connection with the articles as described in Schedule B
covered by this Agreement.
4. LICENSOR'S RIGHTS
Licensee recognizes all of Licensor's rights and interest in and to the
property, and that all use of trademarks and trade dress licensed hereunder
inures to the benefit of Licensor or its grantor(s). No right, title, or
interest, except the license interest granted by Paragraph 1 hereof, is
transferred by this Agreement to Licensee. Licensee agrees that it shall not
claim any title to or right to use the Property except pursuant to this
Agreement, and it shall not at any time attack or challenge the right of
Licensor or its grantor(s) in and to the Property, regardless of the nature or
basis or forum of such attack or challenge, and regardless of whether it relates
to title or validity. Licensee hereby agrees that at the termination or
expiration of this Agreement Licensee will be deemed to have assigned,
transferred and conveyed to Licensor or its grantor(s) all trademarks, service
marks, trade dress, copyrights, equities, good will, titles or other rights in
and to the Property which may have been obtained by Licensee or which may have
vested in Licensee as a result of its activities under this Agreement, and that
Licensee will execute any instruments requested by Licensor to accomplish or
confirm the foregoing. No consideration other than the mutual covenants and
considerations of this Agreement shall be necessary for any such assignment,
transfer or conveyance.
*(1) Payments to Licensor's Agent. Notwithstanding any provisions of this
Agreement to the contrary, until otherwise instructed in writing by
Licensor, all payments of royalties hereunder including advance payments
and minimum guarantees, shall be made payable to Leisure Concepts, Inc.,
which is hereby designated as Licensor's Agent for the purpose of receipt
of such payments, and transmitted to the Agent at its address, namely,
1414 Avenue of the Americas, New York, NY 10019
<PAGE>
5. ADVERTISING.
(a) Licensee agrees not to offer for sale, advertise or publicize any of
the articles licensed hereunder on television or in any other medium without the
prior written approval of Licensor, which approval shall not be unreasonably
withheld. All advertising and promotional materials including, but not limited
to, artwork, displays, and copy, shall be submitted by Licensee to Licensor for
Licensor's written approval prior to the use of any such advertising or
promotional materials.
(b) Licensors shall have the right to use the Property and Licensee's name
so as to give the Property, Licensee, Licensor, Licensor's grantor(s) and any
television series or any production in any medium, which may be based upon the
Property, full and favorable prominence and publicity. Neither Licensor nor its
grantor(s), however, shall be under any obligation whatsoever to broadcast or
to continue broadcasting or exhibiting any television program or film or
production or use the Property or any person, character, symbol, design or
likeness or visual representation thereof in any medium.
6. QUALITY OF MERCHANDISE.
(a) Licensee agrees that the article covered by this Agreement at all
times shall be of high standard and of such style, appearance and quality as to
protect and enhance the Property and the good will pertaining thereto, shall
meet Licensor's reasonable quality standards and specifications, and shall be
manufactured, sold distributed and promoted in accordance with all applicable
Federal, State and local laws. Before selling or distributing any of the
articles, Licensee shall furnish to Licensor free of cost, for its written
approval, the following in the order listed: (i) sketches; (ii) finished artwork
and final proofs; (iii) pre-production samples or strikeoffs; (iv) finished
products, including packaged samples; (v) all other finished cartons, labels,
containers and packing and wrapping material. The quality and style of such
articles as well as of any carton, label, container or packing or wrapping
material shall be subject to the approval of Licensor. After samples have been
approved pursuant to this paragraph, Licensee shall not depart therefrom in any
material respect without Licensor's prior written consent, and Licensor shall
not withdraw its approval of the approved samples. Before Licensee has commenced
selling any such articles hereunder, Licensee shall furnish to Licensor without
cost to Licensor two (2) samples of each such article, together with any
cartons, labels, containers, and packing and wrapping material used in
connection therewith and subsequently thirty (30) post-productions samples of
each such article. Thereafter, Licensor may request, from time to time,
individual random samples of each article and its related material as
hereinbefore described, being manufactured and sold by licensee hereunder.
(b) It is understood the Licensor shall have the right to take samples at
random from production runs twice a year but that, if quality problems are
encountered as a result of the examination of samples, Licensor shall have the
right to take such samples more frequently in an effort to assure that proper
quality control has been established. Licensor shall also have the right to have
its representatives visit the plant or plants where the articles covered by this
license are made and where the containers, packing material and the like are
printed or produced in order to determine whether or not proper quality controls
are being exercised.
7. LABELING
Licensee shall cause to appear on or within each article sold by it under
this license and on or within all advertising, promotional or display material
and on all cartons, containers, packaging, wrappers, labels, tags, and other
printed material employing the Property the copyright notice and license as
specified in Schedule G, annexed hereto, or other notice or notices as may
reasonably be specified by Licensor. Licensee shall cause to appear on all
articles sold by it under this license and on all advertising, promotional and
display material, and on all cartons, containers, packing, wrappers, labels,
tags and other printed material used on or in connection with articles employing
the Property, appropriate trademarks or service mark notices, approved by
licensor, which, in case of goods sold in the United States under registered
trademarks and service marks, shall be "o" or "Registered in the United States
Patent and Trademark Office" or "Reg. U.S. Pat. & Tm. Off." Each and every tag,
label, carton, container, wrapping, and packaging containing any such notice and
all advertising, promotional or display material bearing the Property shall be
submitted by Licensee to Licensor for its written approval prior to use by
Licensee. Approval by Licensor shall not constitute waiver of Licensor's rights
or Licensee's duties under any provision of this Agreement.
8. APPROVALS BY LICENSOR.
With respect to all written approvals by Licensors required under
paragraphs 5 (a), 6 (a), and 7 of this Agreement, each item submitted by
Licensee shall be deemed approved if Licensee has not received the written
disapproval of Licensor of the item in question within ten (10) days after its
receipt by Licensor. See Adendum below.
9. LICENSOR'S WARRANTY AND INDEMNIFICATION BY LICENSOR.
(a) Except as expressly set forth herein, Licensor represents and warrants
that it holds all such rights and interest in the Property as are required to
permit Licensor to enter into this Agreement and expressly warrants that
Licensor is authorized to enter into this Agreement. Licensor hereby indemnifies
Licensee and undertakes to hold it harmless against any action brought against
Licensee with respect solely to any claim or suit that Licensor is not possessed
of such right, title and interest in the Property as to be entitled to grant
this license to Licensee, provided that prompt notice is given to Licensor of
any such claim or suit and provided, further, that Licensor shall have the
option to undertake and conduct the defense of any suit so brought and no
settlement of any such claim or suit shall be made without the prior written
consent of Licensor. Licensee agrees to cooperate fully with Licensor in any
such action. The representations, warranties and undertakings of this paragraph
shall not be applicable (i) in respect of any claim or action made or brought by
Licensee or any other licensee of the Property from Licensor, or (ii) with
respect to the NES product and packaging trade dress.
(b) Licensee agrees that it shall give Licensor thirty (30) days notice to
correct any alleged breach by Licensor and Licensee further agrees that it will
not commence any action against Licensor or any other licensees of the property
without giving Licensor thirty (30) days prior notice of such suit, nor will it
in any such action seek preliminary injunctive relief or a temporary restraining
order against use of the Property without giving Licensor five (5) days notice
of motion. It is expressly agreed that a breach of the terms of this
subparagraph shall be adequate grounds for termination of this license, which
termination shall be effective forthwith upon Licensor's mailing a notice
thereof to Licensee by registered or certified mail, return receipt requested.
10. PROTECTION OF LICENSOR'S RIGHTS.
Licensee agrees to assist Licensor to the extent necessary to protect
Licensor's rights to the Property. Licensor or its grantor(s) may commence or
prosecute any claims or suits in their own name or in the name of Licensee or
join Licensee as a party thereto. Licensee shall notify Licensor in writing of
any infringements or imitations of the Property on articles similar to those
covered by this Agreement which may come to Licensee's attention, and Licensor
shall have the sole right to determine whether or not any action shall be taken
on account of any such infringements or imitations. Licensee shall not institute
any suit or take any actions on account of any such infringements or imitations
without first obtaining the written consent of the Licensor to do so.
11. REGISTRATION.
Licensee agrees to cooperate fully and in good faith with Licensor in
securing and preserving Licensor's and its grantor(s)' rights in and to the
Property. If there has been no previous registration of the Property, Licensee
shall, at Licensor's request and expense, register all copyrights, trademarks or
service marks in the appropriate class in the name of Licensor or its grantor(s)
or, if Licensor so requests, in Licensee's own name.
(1) Addendum to Paragraph 8. Provided that (i) at the time of each such
submission Licensee gives oral advise of same to Licensor's Licensing
Manager whose name and phone number will be supplied to Licensee, and (ii)
all submissions hereunder shall be made by certified mail, return receipt
requested, or any other method providing verifiable proof of receipt by
Licensor of the item in question.
<PAGE>
18. DISPOSAL OF STOCK UPON TERMINATION OR EXPIRATION.
After termination or expiration of the license under the provisions
hereof, Licensee, except as otherwise provided in this Agreement, may dispose of
articles covered by this Agreement which are on hand or in process at the time
notice of termination is received or upon the expiration date, whatever the case
may be, for a period of one hundred (100) and eighty (80) days thereafter, on a
nonexclusive basis, provided advance and royalty payments are up-to-date for the
current period and statements are furnished for that period in accordance with
Paragraph 2. All applicable royalties shall be paid on articles sold during the
sell-off period within twenty(20) days following the expiration of the sell-off
period. Notwithstanding anything to the contrary herein, Licensee shall not
manufacture, sell or dispose of any articles covered by this license after its
expiration or its termination based on the failure of Licensee to affix notice
of copyright, trademark or service mark registration or any other notice to the
articles, cartons, containers, or packing or wrapping material or advertising,
promotional or display material, or because of the departure by Licensee from
the quality and style approved by Licensor hereunder.
19. EFFECT OF TERMINATION OR EXPIRATION.
Upon and after the expiration or termination of this license, all rights
granted to Licensee hereunder shall forthwith revert to Licensor, who shall be
free to license others to use the Property in connection with the manufacture,
sale, distribution and promotion of the articles covered hereby, and Licensee
will refrain from further use of the Property or any further reference to it,
direct or indirect, or anything deemed by Licensor to be similar to the Property
in connection with the manufacture, sale, distribution or promotion of
Licensee's products, except as provided in Paragraph 18. It shall not be a
violation of any right of Licensee if Licensor should at any time during the
term hereof enter into negotiations with another to license use of the Property
in respect of the articles listed in Schedule B hereof within the Territory,
provided that it is contemplated that such prospective license shall commence
after termination of this license.
20. LICENSOR'S REMEDIES.
(a) Licensee acknowledges that its failure to commence in good faith to
offer to sell and to manufacture and distribute in substantial quantities the
articles listed in Schedule B within the period specified in Paragraph 14, and
to continue during the term hereof diligently and continuously to offer to sell
and to manufacture and distribute the articles covered by this Agreement or any
class or category thereof will result in immediate and irreparable damage to
Licensor.
(b) Licensee acknowledges that its failure (except as otherwise provided
herein) to cease the manufacture, sale, distribution or promotion of the
articles covered by this Agreement or any class or category thereof at the
termination or expiration of this Agreement or any portion thereof will result
in immediate and irreparable damage to Licensor and to the rights of any
subsequent licensee. Licensee acknowledges and admits that there is no adequate
remedy at law for such failure, Licensor shall be entitled to equitable relief
by way of temporary and permanent injunctions and such other and further relief
as any court of competent jurisdiction may deem just and proper.
21. NOTICES
All notices and statements required under this Agreement shall be in
writing addressed to the parties at the addresses above, unless notification of
a change of address is given in writing. The date of mailing shall be deemed the
date the notice or statement is given. All notices shall be sent by certified
mail, return receipt requested.
22. RELATIONSHIP BETWEEN THE PARTIES
Licensee shall not represent itself as the agent or legal representative
of Licensor for any purpose whatsoever, and shall have no right to create or
assume any obligation of any kind, express or implied, for or on behalf of
Licensor in any way whatsoever. This Agreement shall not create or be deemed to
create any agency, partnership or joint venture between the parties.
23. NO ASSIGNMENT OR SUBLICENSE.
This Agreement shall not be assigned or sublicensed by Licensee except
with the prior written consent of Licensor, not to be unreasonably withheld and
shall not be assigned by operation of law. Any assignment or sublicense in
violation of the preceding sentence shall be null and void. This Agreement may
be assigned by Licensor without any consent. Subject to such restriction and to
the restrictions against assignment by operations of law provided above, this
Agreement shall be binding upon and inure to the benefit of the parties, their
successors and assigns.
24. ENTIRE AGREEMENT.
This Agreement is intended by the parties as a final and complete
expression of their agreement, and supersedes any and all prior and
contemporaneous agreements and understandings relating to it.
25. MODIFICATION AND WAIVER.
This Agreement may not be modified and none of its terms may be waived,
except in writing signed by both parties. The failure of either party to
enforce, or delay by either party in enforcing, any of its rights shall not be
deemed a continuing waiver or a modification of this Agreement.
26. SEPARABILITY.
If any part of this Agreement shall be declared invalid or unenforceable
by a court of competent jurisdiction, it shall not affect the validity of the
balance of this Agreement, provided, however, that if any provision of this
Agreement pertaining to the payment of monies to Licensor shall be declared
invalid or unenforceable, Licensor shall have the right, at its option, to
terminate this Agreement upon giving not less than ten (10) days' written notice
to Licensee.
27. PARAGRAPH HEADINGS.
The headings of the paragraphs are for convenience only and in no way
limit or affect the provisions hereof.
28. GOVERNING LAWS.
This Agreement shall be governed by and interpreted in accordance with the
law of the State of New York applicable to agreements entered into and to be
performed wholly in New York.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year first above written.
Nintendo of America Inc.
("Licensor")
By:
------------------------------
Title:
Renaissance Eyewear, Inc.
("Licensee")
By: /s/ Edward Kauz
------------------------------
Title: President
<PAGE>
Schedules Annexed to the License Agreement dated as of April 10,
1989, between
Nintendo of America Inc. ("Licensor") and
Renaissance Eyewear, Inc. ("Licensee").
Schedule A: The Property. Nintendo, Nintendo Entertainment
System, NES, R.O.B., Zapper, Super
Mario Bros., Mario Bros., The Legend
of Zelda, Donkey Kong, Metroid,
Punch-Out!!, the NES product and
packaging trade dress and Nintendo
Power*
Schedule B: The Articles. Prescription eyewear and sunglasses;
non-prescription sunglasses;
prescription sports goggles;
protective eyewear; and video ray
protective glasses, all such Articles
for children and adults. Licensor
reserves the right to license to
others the rights to use the Property
in connection with ski goggles and
video game glasses.
Schedule C: The Territory. U.S., its territories and possessions
and Canada
Schedule D: Term.
Initial Term: April 10, 1989 through December 31,
1991
Renewal Term(s): Licensee shall have the option to renew this
Agreement upon the same terms and conditions for two consecutive two year terms,
each such option exerciseable by written notice to Licensor to such effect at
least thirty days (30) prior to the end of the then current term, provided that
(i) Licensee is not in breach of this Agreement and (ii) earned royalties paid
or due to be paid by Licensee in the initial term equal at least $ and
each renewal term equals at least $ . In the event of such exercise said
written notice shall be accompanied by the requisite advance payment for the
renewal term in question as provided in Schedule F below.
Schedule E: Royalty Rate(s) % of domestic net sales
Schedule F: Minimum Royalty.
Initial Term
Advance Payment (due upon signing): $
Minimum Guarantee (due by end of the term): $
Renewal Term
Advance Payment (due on first day): $
Minimum Guarantee (due by end of the term): $
Schedule G: Copyright notice. (C) 1989 Nintendo of America Inc.
Officially Licensed By Nintendo Of
America Inc.
The foregoing licensing notice is intended to be applicable not only to
the licensed trademarks, but also to the licensed trade dress and any
licensed copyrights, for instance, game characters, utilized by the
Licensee.
Schedule H: Marketing Date. (January 1st) 1990
* When using the Nintendo Power trademark, Licensees shall also place
on the Articles, or if impractical, on the package labels or hang
tags associated with the Articles the following : "To subscribe to
Nintendo Power(TM) Magazine call 1-800-521-0900."
<PAGE>
[Letterhead of LCI]
March 27, 1992
Ms. Barbara Kauz
Renaissance Eyewear
1059 King George Rd.
Fords, NJ 08863
Dear Ms. Kauz:
This has reference to the Nintendo license agreement between Nintendo of
America Inc. ("Licensor") and Renaissance Eyewear ("Licensee") dated April
10,1989, covering the Nintendo Property (hereinafter "the License Agreement").
The License Agreement is amended as follows.
1. Schedule D: term, Initial Term, is revised to read as follows:
"April 10, 1989 through December 31, 1993"
2. Schedule E: Royalty Rate, is revised to read as follows:
" % ( % royalty paid quarterly and % royalty to be applied to
promotional/advertising reserve. All reserve expenditures are to be
supported by receipts. Any unused portion of the reserve is to be paid to
Licensor by December 31, 1993.)
3. Schedule F: Minimum Royalty, Initial term, is revised to read as follows:
"Advance Payment: $ to be paid as follows: $ paid
12/31/91; $ to be paid by 3/15/92; to
be paid by 4/15/92.
Minimum Guarantee (due by end of the term): $ "
Except as herein provided all terms and conditions of the License
Agreement remain in full force and effect. Please indicate your agreement with
the foregoing by signing where specified below and by returning all three copies
of this amendment to MichelleAnn Craig at the address above. A fully executed
copy will be returned to you in due course.
Accepted and Agreed to: Very truly yours,
Renaissance Eyewear Nintendo of America Inc.
("Licensee") ("Licensor")
By: /s/ Edward Kauz By: /s/ Howard Lincoln
--------------------------- ----------------------------------
Howard Lincoln, Sr. Vice President
<PAGE>
[Letterhead of LCI]
July 22, 1992
Ms. Barbara Kauz
Renaissance Eyewear
1059 King George Rd.
Fords, NJ 08863
Dear Ms. Kauz:
This has reference to the Nintendo license agreement between Nintendo of
America Inc. ("Licensor") and Renaissance Eyewear ("Licensee") dated April
10,1989, covering the Nintendo Property (hereinafter "the License Agreement").
The License Agreement is amended as follows.
1. It is understood and agreed that the following is added to Schedule C:
Territory:
"Mexico, Panama, Guatemala, Costa Rica, Honduras, El Salvador, Belize,
Venezuela, Colombia, Ecuador, Chile, Argentina, Paraguay, Uruguay, Peru,
Trinidad, Barbados, Jamaica, Bermuda, Grenada, Dominican Republic, St. Maarten,
Guadeloupe, Martinique, Curacao, Antigua, Bahamas, St. Lucia, British Virgin
Islands"
2. For the addition of the above mentioned territories, Schedule F: Minimum
Royalty, Initial Term, Minimum Guarantee (due by the end of the term) is
increased by $ thereby resulting in a Minimum Guarantee total of $ .
Except as herein provided all terms and conditions of the License
Agreement remain in full force and effect. Please indicate your agreement with
the foregoing by signing where specified below and by returning all three copies
of this amendment to MichelleAnn Craig at the address above. A fully executed
copy will return to you in due course.
Accepted and Agreed to: Very truly yours,
Renaissance Eyewear Nintendo of America Inc.
("Licensee") ("Licensor")
By: By:
--------------------------- ----------------------------------
Howard Lincoln, Sr. Vice President
<PAGE>
Exhibit 10.27
AGREEMENT dated as of April 1, 1994 between KENNETH JAY LANE, INC.,
a New York corporation with offices at 20 West 37th Street, New York, New York
(hereinafter referred to as "Licensor"), and WINDSOR OPTICAL, INC., a Delaware
corporation with offices at 625 Hollywood Avenue, Cherry Hill, New Jersey 08002
(hereinafter referred to as "Licensee").
W I T N E S S E T H:
In consideration of the mutual covenants and the undertakings
hereinafter set forth, Licensor and Licensee do hereby respectively grant,
covenant, and agree as follows:
1. (a) Licensor hereby grants to Licensee, on the terms and conditions
hereinafter set forth, an exclusive license (the "License"), limited to the
territory of the United States and its territorial possessions, Canada, Puerto
Rico, the Caribbean Islands, Central America and Mexico (hereinafter referred to
as the "Territory"), to use the mark "KENNETH JAY LANE" (hereinafter referred to
as the "Licensed Mark") in connection with the manufacture, distribution, and
sale solely of prescription eyeglass frames and sunglasses, designed or approved
by Licensor pursuant to this Agreement (hereinafter referred to as the
"Articles").
(b) Notwithstanding the License granted in paragraph 1(a), (i)
Licensor retains the right to use and to grant to others the right to use the
Licensed Mark (A) in the Territory and elsewhere on and in connection with all
product types not included in the Articles and (B) in any area of the world
other
<PAGE>
than the Territory on or in connection with all product types whether or not
included in the Articles, and (ii) Licensee is aware of and hereby acknowledges
that (A) Licensor has entered and may enter into licenses and other agreements
with various persons for the use of the Licensed Mark and other trademarks of
Licensor in the Territory and elsewhere in connection with articles other than
the Articles, and (B) the License granted herein to Licensee will not conflict
with such licenses and agreements and Licensee will take no action that would
lead to a conflict with such licenses and agreements.
(c) Neither Articles nor any modifications or adaptations thereof
may be manufactured, distributed, or sold by Licensee under any mark other than
the Licensed Mark. Licensor reserves all rights to the Licensed Mark, except as
specifically granted herein to Licensee, and Licensor may exercise such rights
at any time. Licensee acknowledges that it has been granted no rights to any
other trademarks owned or used by Licensor or to the name or likeness of Mr.
Kenneth Jay Lane (except as otherwise Permitted by this Agreement) and that such
other trademarks may be used by Licensor and by such third parties to which
Licensor has granted or may grant the right to use such trademarks.
(d) Licensee shall use its best efforts to (i) exploit the License
throughout the Territory and (ii) manufacture and sell the maximum quantity of
Articles therein. Licensee agrees not to export Articles from the Territory and
not to sell to any
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third party which it believes, or has a reasonable basis to believe, intends to
export Articles from the Territory.
(e) During each Annual Period, Licensee shall spend for promotional
materials and national trade advertising of the Articles and the Licensed Mark
no less than percent ( %) of Net Sales (as defined herein). Licensee shall
submit, by facsimile if necessary, proposed advertisements for Licensor's
approval, including specific details as to the contents, budget, timing, and
media placement of such advertisements, at least 45 days in advance of the
insertion order date, and must receive written approval from Licensor before
proceeding with such advertisements. If Licensor fails to respond to such
request within 15 days after receipt of such request, the proposed advertisement
shall be deemed approved. After any advertisement has been provided or approved
by Licensor, Licensee shall not depart in any respect from the contents, budget,
timing, and media placement specified and approved by Licensor, without the
prior written approval of Licensor by mail or facsimile. If Licensor fails to
give written approval of the contents, the budget, the timing, or the media
placement of any advertisement submitted by Licensee, such advertisement shall
not be used in any manner. All advertisements shall be subject to the
restrictions contained in paragraph 6(c) of this Agreement. Licensee
acknowledges that Licensor's approval or disapproval of any advertising
proposals may be based, without limitation, solely on Licensor's subjective
aesthetic standards.
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Notwithstanding the foregoing provisions of this paragraph 1(e),
Licensee may supply advertising "slicks", the contents of which have been
approved by Licensor in the manner set forth above, to retail optical stores and
retail optical departments which sell the Articles for use in local advertising;
provided, however, that Licensee shall take all steps necessary to insure that
such retail optical stores and departments utilizing such slicks shall not place
any advertising based upon such slicks next to or in conjunction with any other
advertisement of such store or department. An advertising "slick" for purposes
of this paragraph 1(e) means camera-ready copy depicting the Articles and/or the
Licensor which has been approved by Licensor and prepared in such a way that
additional print may be overlaid in places provided therefor prior to actual
publication or placement in any advertising media.
(f) The "Annual Period" shall be from July 1 to the next succeeding
June 30, except that the first Annual Period shall be from the date of this
Agreement to June 30, 1995 and the last Annual Period shall be from the last
July 1 during the Agreement to the termination date of the Agreement.
(g) Licensee agrees that neither Licensee nor its affiliates will
advertise, promote, or otherwise use the Licensed Mark with any trademark, name,
personal endorsement or other identification of any other designer or celebrity
or in connection with the merchandise of any other designer or celebrity.
Notwithstanding the foregoing, nothing contained herein shall prohibit
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<PAGE>
Licensee from promoting Articles in a catalog containing merchandise of another
designer or celebrity.
(h) Licensee agrees that neither Licensee nor its affiliates will
use the name, trademark, personal endorsement or other identification of any
other designer or celebrity in the Territory in connection with any product type
included in the definition of Articles during the term of this Agreement.
2. (a) The term of this Agreement shall be for the period commencing on
the date of this Agreement and ending June 30, 1997.
(b) Licensor reserves the right at its option to enter into
agreements with third parties prior to the termination of this Agreement
pursuant to which such third parties may manufacture, and, subsequent to the
expiration of this Agreement, distribute and sell Articles in the Territory,
subject to Licensee's limited right to sell and dispose of inventory after
expiration or termination of this Agreement pursuant to Section 12(b).
3. (a) Licensee's first collections under this Agreement shall be a Fall
line which is expected to be shown to Licensee's customers for Fall, 1994.
(b) Prior to beginning the production of any item, Licensee shall
submit concepts, materials, sketches, colorations, and samples to Licensor from
which Licensor may select those of which Licensor approves for use in connection
with that collection of Articles. No such concept, material, sketch, coloration,
or
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<PAGE>
sample may be used by Licensee in connection with the Articles unless Licensor
shall have approved in writing such use. Licensor may, at Licensee's request
(but is not required to) submit concepts, materials, sketches, colorations, and
samples to Licensee for use in connection with collections of Articles. No
design submitted or approved by Licensor and used in a collection may be used
again in a subsequent collection or in any other line of Licensee without the
written approval of Licensor. Licensee agrees promptly to reimburse Licensor for
any such items submitted. Licensee will reimburse Licensor and Licensor's
employees for any out-of-pocket expenses incurred at Licensee's request, whether
for travel or otherwise. All travel by Mr. Kenneth Jay Lane pursuant to this
Agreement at Licensee's request shall be first-class. All concepts, materials,
sketches, colorations, and samples either provided or approved by Licensor shall
be kept confidential prior to use by Licensee and may be used by Licensee solely
in connection with the manufacture, distribution, and sale of the Articles in
the Territory pursuant to this Agreement. Licensee will be responsible for the
production of the Articles and samples thereof and will bear all costs in
connection therewith. Licensor may use and permit others to use such concepts,
materials, sketches, colorations, and samples in any manner she desires,
provided that such use does not conflict with any rights granted Licensee
hereunder.
(c) No later than one month prior to the initial delivery to
Licensee's distributors of each collection of Articles,
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<PAGE>
Licensee shall make available to Licensor in New York City for its inspection,
free of any charge, the entire collection of Articles consisting of one sample
of each separate Article together with its tags, labels, and packaging.
(d) In providing any information hereunder Licensor is acting in an
advisory capacity only and Licensor shall have no responsibility for the
operation or production of the manufacturing, distribution, advertising, or
sales facilities contemplated under this Agreement or for any decisions that may
be made in connection therewith, whether upon the recommendation of Licensor or
otherwise.
4. (a) Licensee agrees that the design, contents, workmanship, and all
other characteristics of the Articles shall at all times be of the highest
quality, consistent with the prestige and reputation which Licensor and the
Licensed Mark have developed heretofore, and the Articles shall be distributed
and sold with packaging and sales promotion materials appropriate to maintain
such quality image. All Articles will be manufactured, sold, labeled, packaged,
distributed, and advertised in accordance with all applicable laws and
regulations. Licensor shall have the right to approve the styles, designs,
packaging, contents, workmanship, and quality of all Articles to insure that
Articles manufactured, sold, or distributed hereunder are consistent with the
quality standards set forth herein. At Licensor's request, Licensee will deliver
to Licensor or make available to Licensor in New York City free of any cost to
Licensor then current production samples of
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<PAGE>
Articles produced hereunder so that Licensor may assure itself of the
maintenance of the quality standards Set forth herein. After production,
Licensee will also furnish Licensor with one item of each style of the Articles.
Licensee agrees that all Articles to be sold hereunder will be at least equal in
quality to the samples delivered or made available to Licensor and approved by
Licensor. Licensor and its duly authorized representatives shall have the right
to examine Articles in the process of being manufactured and to inspect all
facilities utilized by Licensee in connection with the manufacture of Articles.
(b) All Articles will bear the Licensed Mark. The form of each
label, inscription or marking must be approved by Licensor in writing. If
Licensor has not responded within 15 days of receipt of a request for approval,
the item shall be deemed approved.
(c) Licensee will use and display the Licensed Mark only in such
form and manner as is specifically approved in writing by Licensor. Licensee
will cause to appear on all Articles produced hereunder, on their tags, labels,
final sale packaging, and the like, on all advertising and promotional material
used in connection therewith, and on all materials on or in connection with
which the Licensed Mark appears, including without limitation business cards,
invoices, order forms, and stationery, such legends, markings, and notices as
may reasonably be necessary in order to give appropriate notice of any
copyright, trademark, trade name, or other rights therein or pertaining thereto,
or as Licensor
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<PAGE>
may reasonably request. At least 45 days before using or releasing any such
material, Licensee shall submit to Licensor, for its approval, proposed
advertising and promotional copy, all printed material, and finished art work
for tags, labels, final sale packaging, and the like.
(d) After any sample, copy, art work, or other material has been
approved, Licensee shall not depart therefrom in any respect without the prior
written approval of Licensor. If Licensor disapproves any sample Article or any
sample tag, label, package, or the like, such shall not be used in any manner in
connection with the Licensed Mark or as an Article hereunder.
(e) Licensee acknowledges that Licensor's approval or disapproval
pursuant to paragraphs 3 and 4 may be based, without limitation, solely on
Licensor's subjective aesthetic standards, which shall be exercised in good
faith. If Licensor does not respond to any request for approval within 15 days
of receipt of such request, the item shall be deemed approved.
5. (a) (i) In consideration of the License granted and the services
to be performed by Licensor hereunder, Licensee shall,
subject to the terms and provisions hereof, pay to
Licensor, for each Annual Period, a guaranteed minimum
fee (the "Guaranteed Minimum Fee") as follows:
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<PAGE>
Annual Period Guaranteed Minimum Fee
First $
Second $
Third $
(ii) The Guaranteed Minimum Fee for each respective Annual
Period shall be paid in four equal quarterly
installments on the first day of each July, October,
January and April during such Annual Period, except that
during the first Annual Period the Guaranteed Minimum
Fee shall be paid as follows: $ on the date of this
Agreement, and $ on each of October 1, 1994,
January 1, 1995, and April 1, 1995. Notwithstanding the
foregoing, no amount shall be payable by Licensee to
Licensor in payment of the Guaranteed Minimum Fee for
any Annual Period if the amount of Guaranteed Minimum
Fee and Percentage Fee (as hereinafter defined)
theretofore paid Licensor for such Annual Period equals
or exceeds the total Guaranteed Minimum Fee for such
Annual Period.
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<PAGE>
(iii) The Guaranteed Minimum Fee payments for each Annual
Period shall be credited only against Percentage Fee
payments for the same Annual Period as provided for in
paragraph 5(b).
(iv) In the event of the termination of this Agreement
pursuant to paragraph 12, all amounts due in payment of
Guaranteed Minimum Fees or the balance of the then
current term shall immediately, without notice or
demand, become due and payable.
(b) (i) In consideration of the License granted and the services
to be performed by Licensor hereunder, Licensee shall
pay to Licensor a percentage fee (the "Percentage Fee")
based upon Net Sales of all Articles during each Annual
Period. For purposes of this Agreement, "Net Sales"
shall be deemed to mean the invoiced amount of Articles
sold by Licensee or any of its affiliates, less actual
trade discounts, returns, and charges for customs duty,
freight, and sales taxes, if any. No deduction shall be
made for other discounts,
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<PAGE>
advertising, or other costs incurred by Licensee.
(ii) The Percentage Fee that Licensee shall pay to Licensor
for each Annual Period shall be an amount equal to (a)
percent ( %) of Net Sales other than to QVC
Network ("QVC") and (b) percent ( %) of Net
Sales to QVC, during such Annual Period.
(iii) Licensee shall deliver to Licensor within 30 days
following the end of each three month period (other than
the last three month period) during each Annual Period,
a statement signed by an executive officer of Licensee
and certified as accurate, indicating by month and by
style number the amount of Net Sales during such three
month period. Each such statement shall also indicate in
detail, separately for each jurisdiction in the
Territory, the number, description, invoice price, and
the total amount of gross sales of all Articles shipped
during the period covered, the amount of actual trade
discounts, returns, and charges for
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<PAGE>
customs duty, freight, and sales taxes which may be
deducted therefrom, a computation of the amount of the
Percentage Fee payable hereunder in respect of such Net
Sales for such period, and also the amount and details
of the advertising and promotional expenses relating to
the Articles and the Licensed Mark incurred during such
period. Such statements shall be furnished to Licensor
whether or not any Articles have been sold during the
period for which such statement is due. All monetary
amounts shall be expressed in United States Dollars. In
the event Licensee makes any sales denominated in a
foreign currency, the Percentage Fee shall be expressed
both in such foreign currency and in United States
Dollars, the latter on the basis of the average buying
rate and selling rate of the foreign currency to United
States Dollars in effect in the capital city of such
country on the last banking day of such quarter.
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<PAGE>
(iv) Licensee shall deliver to Licensor within 60 days
following the end of each Annual Period, a report
certified by an executive officer of Licensee covering
such Annual Period and containing the same information
required to be contained in the statements referred to
in paragraph 5(b) (iii).
(v) The Percentage Fee shall be paid quarterly for each
Annual Period. The Percentage Fee for each three month
period (other than the last three month period) during
each Annual Period shall be paid simultaneously with the
delivery of the statement referred to in paragraph 5(b)
(iii) relating to such three month period during such
Annual Period, and the Percentage Fee for the last three
month period of each Annual Period shall be paid
simultaneously with the delivery of the report referred
to in paragraph 5(b) (iv) relating to such Annual
Period. The Percentage Fee for each such three month
period shall be computed on the basis of Net Sales from
the beginning of such Annual Period
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<PAGE>
through the last day of the most recent three month
period, with a credit for the Guaranteed Minimum Fee and
for the Percentage Fee theretofore paid to Licensor for
such Annual Period.
(vi) In no event shall any payment of Percentage Fee for any
Annual Period in excess of payments of Guaranteed
Minimum Fee for the same Annual Period be credited
against the Guaranteed Minimum Fee due to Licensor for
any other Annual period.
(c) All payments made hereunder by Licensee to Licensor shall be
made in New York City, New York, in United States Dollars. Licensee shall not be
relieved of its obligation to make payments required hereunder as heretobefore
provided notwithstanding any circumstances which make it impossible for Licensor
or Licensee to take payments out of any jurisdiction in the Territory. In the
event that Licensee shall be prevented by any law, decree, or regulation of any
governmental authority within the Territory from transmitting any payment
hereunder at the time and in the manner provided herein Licensee shall, not
later than the date on which such transmittal is required to be made hereunder,
deposit the full amount thereof to the credit of Licensor in such bank or
depository as Licensor shall specify and furnish evidence of such deposit to
Licensor. Licensee shall apply at its sole expense for
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<PAGE>
all export or currency licenses, and shall take all other actions which may be
necessary or expedient to facilitate the prompt receipt by Licensor of all
payments hereunder in the manner and at the times provided herein.
(d) Licensee shall compute and pay on behalf of Licensor all taxes,
if any, which any foreign jurisdiction may impose on Licensor with respect to
the amounts paid to Licensor by Licensee other than personal income taxes, if
any. The amount of such taxes paid by Licensee shall be deducted from each
payment of the Percentage Fee. Licensee shall furnish Licensor with an official
receipt promptly after each such payment of taxes. In the event such taxes are
not paid when due, all resulting penalties and interest imposed on Licensor
shall be borne by Licensee.
6. Licensee shall prepare and maintain, in accordance with generally
accepted accounting principles consistently applied, complete and accurate books
of account and records (including without limitation the originals or copies of
documents supporting entries in the books of account) covering all transactions
relating to the License hereby granted, including transactions relating to
fulfillment by Licensee of its advertising obligations set forth in Section
1(e). Licensor and its duly authorized representatives shall have the right,
during regular business hours and upon reasonable notice, to examine such books
of account and records and all other documents and materials in the possession
or under the control of Licensee with respect to the subject matter and the
terms of this Agreement and Licensor shall have free and full
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<PAGE>
access thereto for such purposes and for the purpose of making extracts
therefrom. All such books of account, records, and documents shall be kept
available by Licensee for at least three years after the Annual Period to which
they relate.
7. (a) If, as a result of any examination of Licensee's books and records,
it is shown that Licensee's fee payments for any period were less than the
amount which should have been paid for such period by an amount equal to at
least five percent of the fee actually paid during such period, Licensee
promptly shall reimburse Licensor for the cost of such examination and Licensor
shall have the right to terminate this Agreement immediately upon written
notice.
(b) All payments required to be made to eliminate any discrepancy as
revealed by any examination of Licensee's books and records shall be made
promptly upon demand.
8. (a) Licensee agrees that no name or names shall be used in connection
with the Licensed Mark in any advertising, publicity, labeling, packaging, or
printed matter of any kind utilized by Licensee in connection with the Articles
except as Licensor may, from time to time, consent in writing. Licensee agrees
to use its best efforts to prevent the unauthorized use of the Licensed Mark and
of any derivatives thereof. Licensee agrees not to use the Licensed Mark or the
name or likeness of Mr. Kenneth Jay Lane or any derivative thereof in its
corporate name or business name or, unless approved by Licensor in writing, on
its business stationery, purchase orders, invoices, or letterhead.
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(b) Licensee acknowledges that Licensor is the owner of all right,
title, and interest in and to the Licensed Mark throughout the world in any form
or embodiment thereof and is also the owner of the goodwill attached or which
shall become attached to the Licensed Mark. Sales by Licensee shall be deemed to
have been made by Licensor for purposes of trademark registration and all uses
of the Licensed Mark by Licensee shall inure to the benefit of Licensor.
Licensee shall not do or suffer to be done any act or thing which will in any
way adversely affect any rights of Licensor in and to the Licensed Mark or any
registrations thereof or which, directly or indirectly, will reduce the value of
the Licensed Mark or detract from its reputation.
(c) Licensee shall timely execute any documents, including
Registered User agreements and applications to record the Licensee as a
Registered User, to confirm Licensor's ownership of all rights in and to the
Licensed Mark in the Territory and the respective rights of Licensor and
Licensee pursuant to this Agreement. Licensee will cooperate with Licensor, in
connection with the filing and prosecution by Licensor of applications in
Licensor's name to register the Licensed Mark for Articles in the Territory and
the maintenance and renewal of such registrations as may issue. Licensee will
reimburse Licensor for any and all costs incurred in connection with
applications to register the Licensed Mark for Articles in any jurisdiction in
the Territory and the maintenance and renewal of such registrations as may
issue.
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<PAGE>
(d) Licensee will use the Licensed Mark in the Territory strictly in
compliance with applicable legal requirements and will use such markings in
connection therewith as may be required.
(e) Licensee will never challenge Licensor's ownership of or the
validity of the Licensed Mark or any application for registration thereof, or
any trademark registrations thereof, or any rights of Licensor therein.
(f) Any copyright which may be created in any sketch, design, print,
package, label, tag, or the like designed or approved by Licensor will be the
property of Licensor. Licensee will not, at any time, do or suffer to be done
any act or thing which may adversely affect any rights of Licensor in such
sketches, designs, prints, packages, labels, tags, and the like and will, at
Licensor's request, do all things reasonably required by Licensor to preserve
and protect said rights. Licensee shall have the full right to use during the
term of this Agreement any sketch, design, print, package, label, tag or the
like designed or approved by Licensor in connection with this Agreement.
(g) Licensee acknowledges that the Licensed Mark has acquired a
valuable secondary meaning and goodwill with the public, and that products
bearing the Licensed Mark have acquired a reputation of highest quality and
style. Accordingly, notwithstanding any provision in this Agreement to the
contrary, Licensee undertakes and agrees not to use the Licensed Mark in any
manner whatsoever which, directly or indirectly, would derogate or detract
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from its or Licensor's repute, including but not limited to selling the Articles
to discount department and chain stores. Licensee recognizes that the
undertaking on its part set forth in this paragraph represents a major
inducement and consideration for Licensor to enter into this Agreement and will
consult with Licensor regarding its plans for marketing and distributing
Articles.
(h) Licensee acknowledges that Licensor has made no representation
or warranty that Licensor has enforceable legal rights in and to the Licensed
Mark in any jurisdiction other than the United States. In the event that
Licensor does not have such rights in any foreign jurisdiction or jurisdictions
such event shall not be deemed to be a breach or default under this Agreement.
9. In the event that Licensee learns of any infringement or imitation of
the Licensed Mark or of any use by any person of a trademark similar to the
Licensed Mark, it shall promptly notify Licensor thereof in writing and if, in
Licensee's reasonable opinion, such infringement, imitation, or use also
constitutes an infringement of the rights herein granted to Licensee, Licensee
shall specifically so state in its notice. In such latter case, if appropriate
action is not taken by Licensor within 20 days after the date of its receipt of
such notice from Licensee, Licensee shall have the right to prosecute such
trademark infringer but in such event Licensee will keep Licensor advised in
advance of its intentions in such action, will consult with Licensor with
respect thereto, and will not settle such action without Licensor's written
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approval (which approval may not be unreasonably withheld). If, however,
Licensor does take such action, Licensor shall permit Licensee to join such
action as an additional plaintiff. In either case, Licensor and Licensee agree
to cooperate fully with the party conducting the action. Any recovery obtained
against the third-party infringer shall be applied first against the legal fees
incurred in connection with such action and shall then be allocated between
Licensor and Licensee in the same proportion as the judgment or decision, as the
case may be, allocates damages or the award; if such judgment or decision fails
to make such allocation, such shall be determined by mutual agreement or by
arbitration in New York City in accordance with and pursuant to the then
existing rules of the American Arbitration Association.
10. (a) Licensee does hereby indemnify and agrees to save and hold
Licensor, its officers, directors, shareholders, employees and agents harmless
of and from any and all liability, claims, causes of action, suits, losses,
damages, and expenses (including, but not limited to, reasonable attorneys' fees
and expenses) for which they or any of them may become liable or may incur or be
compelled to pay in any action or claim (including, but not limited to, any
action or claim relating to products liability) against them or any of them, for
or by reason of any acts, whether of omission or commission, that may be
committed or suffered by Licensee or any of its officers, directors, affiliates,
agents, or employees in connection with Licensee's performance of this Agreement
or in connection with the manufacture, distribution,
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sale, or promotion of the Articles. The indemnitees shall give Licensee prompt
written notice of any such action or claim and Licensee may then, in its sole
discretion, take such action as it deems advisable to defend such action or
claim on behalf of the indemnitees. In the event appropriate action is not taken
by Licensee within 20 days of its receipt of notice from the indemnitees, the
indemnitees shall have the right to defend such action or claim, but no
settlement thereof may be made without the approval of Licensee (which approval
may not be unreasonably withheld). In any case, the indemnitees and Licensee
shall keep each other fully advised of all developments and shall cooperate
fully with each other in all respects in connection with any such defense as is
made.
(b) Licensee shall procure and maintain at its own expense in full
force and effect at all times during which Articles are being sold, with a
responsible insurance carrier acceptable to Licensor, a public liability
insurance policy including products liability coverage with respect to the
Articles and contractual coverage relating to this Agreement, with a limit of
liability of not less than $ (United States). Such insurance policy
shall be written for the benefit of Licensee and Licensor, and shall provide for
at least 30 days' prior written notice to Licensor and Licensee of the
cancellation or modification thereof. Such insurance may be obtained by Licensee
in conjunction with a policy of insurance which covers products other than the
Articles. Licensee shall deliver to Licensor, promptly upon issuance of same,
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a full and complete copy of such insurance policy and of all renewals thereof.
Nothing contained in this paragraph 10(b) shall be deemed to limit, in any way,
the indemnification provisions of paragraph 10(a).
11. (a) If Licensee shall fail to pay any amount due hereunder, (i)
Licensee agrees to pay interest, at a rate equal to the lesser of (A)
percent per annum over the prime rate being charged in New York City by Chemical
Bank as of the close of business on the date the payment first becomes due and
(B) the highest rate then permitted by law, on such amount remaining unpaid from
time to time from and including the date such amount becomes due until the date
such amount is paid in full and (ii) if such default shall continue uncured for
a period of ten days after written notice thereof ("Notice of Default") has been
given by Licensor, Licensor shall have the right to terminate this Agreement,
which termination may be automatic, at the option of Licensor, upon notice
thereof in the Notice of Default or in any subsequent notice to Licensee. If
Licensee shall otherwise fail to perform any of the terms, conditions,
agreements, or covenants in this Agreement on its part to be performed and such
default shall, although capable of being cured, continue uncured for a period of
15 days after a Notice of Default has been given by Licensor, Licensor may, at
its sole election, terminate this Agreement, which termination may be automatic
upon notice thereof in the Notice of Default or in any subsequent notice to
Licensee. If any such default is incapable of being cured by Licensee, Licensor
shall
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have the right to terminate the Agreement with immediate effect upon delivery of
written notice to Licensee. Licensee agrees that in the event of any default
under this paragraph 11(a) or in the event of a breach by Licensee of any other
provision of this Agreement, Licensee shall be responsible for all costs,
including without limitation legal fees and expenses, incurred by Licensor as a
result thereof. Nothing in this paragraph 12(a) shall be deemed to waive
Licensor's right to obtain damages for any default by Licensee, whether cured or
uncured.
(b) In the event Licensee files a petition for an order of relief
under any bankruptcy law, or if a petition for an order of relief is filed
against it and is not discharged or dismissed within 60 days thereafter, or if
it becomes insolvent, or makes an assignment for the benefit of its creditors,
or files a petition or otherwise seeks relief under or pursuant to any
bankruptcy, insolvency, or reorganization statute or proceeding, or if it
discontinues its business, or if a custodian, receiver, or trustee is appointed
for it or a substantial portion of its business or assets, Licensor may, at its
sole election, terminate this Agreement by written notice effective 60 days
after such filing or such other aforementioned event.
(c) No assignee for the benefit of creditors, custodian, receiver,
trustee in bankruptcy, sheriff, or any other officer of the court or official
charged with taking over custody of Licensee's assets or business shall have any
right to continue this Agreement or to exploit or in any way use the Licensed
Mark if
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Licensor exercises its right of termination pursuant to paragraph 10(b).
(d) Notwithstanding the provisions of paragraph 11(c), in the event
that, pursuant to any bankruptcy law, a trustee of Licensee (hereinafter
referred to as the "Trustee") or Licensee as debtor in possession is permitted
to assume this Agreement and does so and, thereafter, desires to assign this
Agreement to a third party, which assignment (i) satisfies the requirements of
such bankruptcy law, (ii) is to a party that has established a reputation for
producing products of the same type as the Articles and of a quality that is at
least equal to the quality of Articles produced by Licensee and consistent with
the standards set forth in this Agreement for Articles, (iii) is to a party that
can demonstrate its financial ability to perform the obligations of Licensee
pursuant to this Agreement, and (iv) provides that any payments in excess of the
amounts set forth hereunder be paid only to Licensor, the Trustee, or Licensee,
as the case may be, shall notify Licensor of the terms of such proposed
assignment in writing. The giving of such notice shall be deemed to constitute
an offer to Licensor to have this Agreement assigned to it or to its designee
for the consideration, or its equivalent in money, and upon such terms, as are
specified in the notice. The aforesaid offer may be accepted only by written
notice given to the Trustee or Licensee, as the case may be, by Licensor within
15 days of Licensor's receipt of the notice from such party. If Licensor fails
to give its notice to such party within the said 15 days, such party may
complete the
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assignment referred to in its notice, but only if such assignment is to the
entity named in the notice and for the consideration and upon the terms
specified therein. Nothing contained herein shall be deemed to preclude or
impair any rights which Licensor may have as a creditor in any proceeding or
shall be deemed to be a consent to any assignment.
(e) Notwithstanding any termination in accordance with the
foregoing, Licensor shall have and hereby reserves all the rights and remedies
which it has, or which are granted to it by operation of law, with respect to
the collection of fees payable by Licensee pursuant to this Agreement, with
respect to damages for breach of this Agreement by Licensee, with respect to the
recovery from Licensee of all costs incurred by Licensor as a result of any
breach of this Agreement by Licensee, including without limitation all legal
fees and expenses, and to enjoin the unlawful and unauthorized use of the
Licensed Mark.
12. (a) On the expiration or termination of this Agreement for any reason
whatsoever, all the rights of Licensee hereunder shall forthwith terminate and
automatically revert to Licensor and Licensee shall forthwith discontinue all
use of the Licensed Mark and shall no longer have the right to use the Licensed
Mark or any variation or simulation thereof. Licensee shall thereupon deliver to
Licensor, free of charge, all labels, tags, and other material in its possession
with the Licensed Mark thereon and Licensee shall cause stencils, sketches, and
other design materials not in its possession to be destroyed or rendered
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unusable. Licensee agrees not to reproduce or adapt any of such stencils,
sketches, or other design materials for use on merchandise subsequent to the
termination of this Agreement.
(b) Notwithstanding the provisions of paragraph 12(a), in the event
of the expiration or termination of this Agreement other than by Licensor in
accordance with paragraph 11, Licensee shall be permitted, for an additional
period of six months, on a non-exclusive basis, to sell and dispose of its
inventory of Articles from the collections prepared during the final year of
this Agreement (but no other Articles) on hand on the date of such termination
or expiration, subject to an accounting for and the payment of the Percentage
Fee on sales during such additional period and subject to the other terms and
conditions of this Agreement. Such accounting and payment shall be due within 30
days after the last day of such six-month period.
13. Licensor and Licensee each represents and warrants to the other that
the negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on directly between them in such a manner as not to
give rise to any valid claims against either of them for a brokerage commission,
finder's fee or other like payment, except for any payments which may be due to
Mort Gordon Enterprises, Inc. Licensee agrees to indemnify Licensor against any
and all liabilities (including, without limitation, reasonable attorneys' fees
and disbursements paid or incurred in connection with any such liabilities) for
any brokerage or finder's fees or other commissions or fees that may be asserted
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against Licensor by reason of any actions of Licensee or on Licensee's behalf in
connection with or as a result of this Agreement or the transactions
contemplated hereby, except for any payments that may be due to Mort Gordon
Enterprises, Inc.
14. (a) Licensee represents and warrants that it has full right, power,
and authority to enter into this Agreement.
(b) Licensee has delivered to Licensor the audited balance sheet of
Licensee as of 12/31/92 and related statement of income for the year then ended.
Licensee represents and warrants that such statements present fairly the
information purported to be shown therein, have been prepared in accordance with
generally accepted accounting principles, are correct and complete, and are in
accordance with the books and records of Licensee. Licensee further represents
that since the end of Licensee's last fiscal year there has at no time been a
material adverse change in the financial condition of Licensee and there is no
fact known to Licensee which materially adversely affects or in the future may
materially adversely affect the financial condition or business of Licensee.
15. All reports, approvals, notices and statements required or permitted
by this Agreement to be given to a party shall be in writing and shall be deemed
to be duly given if personally delivered or mailed by certified or registered
mail, return receipt requested, to Licensor at its address as set forth on page
1, and to Licensee at the address set forth on page 1 of this Agreement (or at
such other address as a party may specify by
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notice to the other).
16. Neither this Agreement nor the License or other rights granted
hereunder may be assigned, sublicensed, or transferred by Licensee, except as
specifically provided in paragraph 11(d), and any attempted violative
assignment, sublicense, or transfer, whether voluntary or by operation of law,
shall be void and of no force or effect. A change of control of Licensee or a
transfer of all or a controlling portion of the stock of Licensee shall be
deemed to be an assignment of this Agreement. Except as otherwise provided
herein, this Agreement shall inure to the benefit of and shall be binding upon
the parties and their respective successors and assigns.
17. This Agreement contains the entire understands ing and agreement
between the parties hereto with respect to the subject matter hereof, supersedes
all prior oral and written understandings and agreements relating thereto, and
may not be modified, discharged, or terminated orally.
18. Nothing herein contained shall be construed to constitute the parties
hereto as partners or as joint venturers, or either as agent of the other, and
neither party shall have any power or authority to assume or create any
obligation or responsibility whatsoever, express or implied, on behalf of or in
the name
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of the other, to bind the other in any manner, or to make any representation,
warranty, or commitment on behalf of the other.
19. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to principles of
conflict of laws. However, any and all disputes, controversies, and claims
arising out of or relating to this Agreement and pertaining to Licensor's
ownership of or the validity in any country of the Licensed Mark or any
registration thereof or any application for registration thereof shall be
governed by and construed in accordance with the trademark laws and related
laws, statutes, rules, and regulations of such country unless there are no laws,
statutes, rules, or regulations in such country dispositive of such disputes,
controversies, and claims, in which case any and all such disputes,
controversies, and claims shall be governed by and construed in accordance with
the federal trademark laws and related laws, statutes, rules, and regulations of
the United States unless there are no federal laws, statutes, rules, or
regulations of the United States dispositive of such disputes, controversies,
and claims, in which case any and all such disputes, controversies, and claims
shall be governed by and construed in accordance with the laws of the State of
New York, without giving effect to principles of conflict of laws.
20. Any waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to
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insist upon strict adherence to any term of this Agreement on one or more
occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement. Any waiver must be in writing.
21. If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
22. This Agreement may be executed in counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
instrument.
23. Since a breach of the provisions of this Agreement by Licensee could
not adequately be compensated by money damages, Licensor shall be entitled, in
addition to any other right or remedy available to it, to an injunction
restraining such breach or a threatened breach and to specific performance of
any such provision of this Agreement, and in either case no bond or other
security shall be required in connection therewith, and Licensee hereby consents
to the issuance of such injunction and to the ordering of specific performance.
24. At any time and from time to time, each party agrees, without further
consideration, to take such actions and to execute and deliver such documents as
may be reasonably necessary to effectuate the purposes of this Agreement.
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25. Licensee hereby irrevocably consents to the jurisdiction of the courts
of the State of New York and of any federal court located in such State in
connection with any action or proceeding arising out of or relating to this
Agreement (other than as contemplated by the last sentence of paragraph 10), any
document or instrument delivered pursuant to, in connection with, or
simultaneously with this Agreement, or a breach of this Agreement or any such
document or instrument. Within 30 days after such service, or such other time as
may be mutually agreed upon in writing by the attorneys for the parties to such
action or proceeding, Licensee shall appear or answer such summons, complaint,
or other process. Should Licensee so served fail to appear or answer within such
30-day period or such extended period, as the case may be, Licensee shall be
deemed in default and judgment may be entered by Licensor against Licensee for
the amount as demanded in any summons, complaint, or other process so served.
26. Licensee agrees to obtain, at its expense, any and all required
approvals of this Agreement or any of the transactions contemplated hereby by
any government in the Territory outside of the United States or any agencies or
subdivisions thereof.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement the day and year first above written.
WINDSOR OPTICAL, INC.
By: /s/ Jay J. Kitnick
--------------------------------
Name: Jay J. Kitnick
Title: President
KENNETH JAY LANE, INC.
By: /s/ Kenneth Lane
--------------------------------
Name: Kenneth Lane
Title:
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Exhibit 10.28
ENDORSEMENT AGREEMENT
This Endorsement Agreement ("Agreement") is made and entered into as
of August 24, 1995, by and among the following parties:
(a) Kathy Ireland, Inc. ("KI Inc."), furnishing the services
of Kathy Ireland ("KI"), c/o The Sterling/Winters Co., 1900 Avenue of the
Stars, Suite #1640, Los Angeles, California 90067;
(b) The Sterling/Winters Co. ("SW"), 1900 Avenue of the Stars,
Suite #1640, Los Angeles, California 90067; and
(c) Diplomat Ambassador Eyewear Group ("Diplomat"), 1010 Arch
Street, 3rd Floor, Philadelphia, Pennsylvania 19107.
1. Recitals.
(a) Whereas Diplomat has created a new product line to be
known as "Kathy Ireland Eyewear" ("KI Eyewear");
(b) Whereas Diplomat estimates on a non-binding basis that
wholesale sales of KI Eyewear will reach $ during the first License
Year, $ during the 2nd License Year, $ during the 3rd License
Year, and $ during the 4th License Year (as those License Years are
defined in subparagraph 3.(b) of this Agreement);
(c) Whereas Diplomat desires to obtain the right to use the
name, likeness and endorsement of KI in connection with the advertisement,
promotion and sale of KI Eyewear; and
(d) Whereas KI, Inc. has the authority to grant the right to
use KI's name, likeness and endorsement to Diplomat in connection with the
advertisement, promotion and sale of KI Eyewear and desires to do so;
(e) NOW THEREFORE, for and in consideration of the mutual
promises and conditions contained in this Agreement, the parties hereby agree as
follows.
2. Grant of License.
(a) Products. Upon the terms and conditions set forth in this
Agreement, KI, Inc. hereby grants to Diplomat and Diplomat hereby accepts the
right, license and privilege of utilizing KI's name and likeness solely upon and
in connection with the manufacture, sale and distribution of the following
products:
(1) sunglasses, eyeglasses, readers and ophthalmic
frames;
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(2) optical cases, optical eye chains, eye pins, and
lens cleaning kits sold only in optical retailers; and
(3) such other optical accessories as the parties shall
agree.
(b) Territory. The license hereby granted extends worldwide.
(c) Term. The term of the license hereby granted shall
commence August 1, 1995 and continue until January 30, 2000, unless sooner
terminated in the manner provided in the immediately succeeding sentence or as
otherwise provided in this Agreement. Notwithstanding the foregoing, if the
management of Kmart stores elects not to carry KI eyewear prior to the end of
the first license year (January 30, 1997), then either party shall have the
right to terminate this Agreement as of such date.
3. Terms of Payment.
(a) Rate. Diplomat agrees to pay KI, Inc. as royalty a sum
equal to % of the net wholesale volume of the products covered by this
Agreement by Diplomat and its affiliated, associated, or subsidiary companies.
The term "net wholesale volume" shall mean gross sales to all customers; less
returns, trade discounts and cash discounts; but no deduction shall be made for
other discounts or uncollectible accounts. No costs incurred in the manufacture,
sale, distribution, or exploitation of the products covered by this Agreement
shall be deducted from any royalty payable by Diplomat.
(b) Minimum Royalties. Diplomat agrees to pay KI, Inc. the
minimum royalties set forth below as a minimum guarantee against royalties to be
paid to KI, Inc. under subparagraph 3.(a), above:
(1) 1st License Year (8/1/95 - 1/30/97): $
(2) 2nd License Year (2/1/97 - 1/30/98): $
(3) 3rd License Year (2/1/98 - 1/30/99): $
(4) 4th License Year (2/1/99 - 1/30/2000): $
The minimum royalty for the 1st License Year shall be paid as follows: $
upon the signing of the Deal Memo dated August 24, 1995, the balance of $
to be paid in six (6) equal, consecutive, monthly installments of $
commencing with the month in which this Agreement is signed. No part of the
minimum royalty for the first License Year shall in any event be repayable to
Diplomat. The minimum royalty for the 2nd, 3rd and 4th License Years shall be
made in four equal installments payable on February 1st, May 1st, August 1st and
November 1st of each such License Year. Notwithstanding the foregoing, if
royalties paid by Diplomat to KI, Inc. on net
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wholesale volume for any particular License Year under subparagraph 3(a) of this
Agreement should exceed the minimum royalties remaining to be paid for that same
License Year under this subparagraph 3(b), then no further payments of minimum
royalties for such License Year shall be required under this subparagraph 3(b).
(c) Periodic Statements. Within thirty (30) days after the
initial shipment of the products covered by this Agreement, and promptly on the
15th of each calendar month thereafter, Diplomat shall furnish to KI, Inc.
complete and accurate statements certified to be accurate by Diplomat showing
the number, description and gross sales price, itemized deductions from gross
sales price, and net sales price of the products covered by this Agreement
distributed and/or sold by Diplomat during the preceding calendar month,
together with any returns made during the preceding calendar month. Such
statements shall be furnished to KI, Inc. whether or not any of the products
have been sold during the preceding calendar month.
(d) Royalty Payments. Royalties in excess of the minimum
royalty shall be due on the 25th day of the month following the calendar month
in which they are earned, and payment shall accompany the statements furnished
pursuant to subparagraph (c), above. The receipt or acceptance by KI, Inc. of
any of the statements furnished pursuant to this Agreement, or of any royalties
paid hereunder, or the cashing of any royalty checks paid hereunder, shall not
preclude KI, Inc. from questioning the correctness of such statements or
payments, provided all such questions are raised with Diplomat within two years
of the date of KI Inc's receipt of the statement or payment in question. In the
event any inconsistencies or mistakes are discovered in such statements or
payments, they shall immediately be rectified and the appropriate payments made
by Diplomat.
4. Exclusivity.
The license hereby granted shall be exclusive as to the products
described in subparagraphs 2.(a)(1) and (2) of this Agreement, but nonexclusive
as to all other products covered by this Agreement. Nothing in this Agreement
shall be construed to prevent KI, Inc. from granting any other licenses for the
use of KI's name or likeness, or from utilizing KI's name and likeness in any
manner whatsoever, except that KI, Inc. agrees that except as provided herein it
will grant no other licenses for the territory to which this license extends for
the use of KI's name and likeness in connection with the sale of the products
described in subparagraphs 2.(a)(1) and (2) of this Agreement effective during
the term of this Agreement.
5. Personal Endorsement and Appearances.
(a) Endorsement. KI, Inc. agrees that KI shall endorse KI
Eyewear and that KI will use her best efforts to wear KI Eyewear whenever
reasonably possible and appropriate, with KI to have sole, unfettered discretion
as to where and when to wear KI Eyewear.
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(b) USA Appearance. KI will make one (1) personal appearance
per License Year during the period of this Agreement on behalf of Diplomat at
the Vision Expo in New York, New York, subject to the terms of this paragraph.
Such appearance shall be for the purpose of signing autographs, shall last for a
period of up to three (3) hours, and shall be subject to KI's schedule and
availability. Diplomat, at its own expense, shall provide KI with a hair and
make-up assistant of KI's choosing for each personal or media appearance
required under this Agreement.
(c) Travel. Travel expenses of KI in connection with all
scheduled personal appearances under this Agreement, as well the travel expenses
of KI's child, the child's nanny, KI's hair and make-up assistant of KI's
choosing, and two (2) additional traveling companions of KI's choosing
(collectively referred to as KI's "entourage"), shall be provided by Diplomat.
KI and the members of her entourage shall travel via first class air and
portal-to-portal limousine ground transportation. In addition, KI and the
members of her entourage shall be lodged in first class hotel accommodations and
all of them shall be reimbursed for all meals and other incidental expenses in
connection with such appearances. All the above travel expenses of KI and the
members of her entourage shall be billed directly to Diplomat. For purposes of
this paragraph (c), the term "travel expenses" shall include
(d) Photo Sessions. KI will participate in up to two (2) photo
sessions per License Year during the period of this Agreement on behalf of
Diplomat at a mutually acceptable time and place. The photo sessions shall be
scheduled at KI's convenience upon not less than two (2) weeks prior notice, and
shall be subject to KI's preexisting personal and professional commitments. The
photo sessions shall be up to two (2) consecutive days in duration, each day to
consist of no more than eight (8) working hours. The photo shoots shall be
produced by SW, approved in writing by Diplomat (which approval shall not be
unreasonably withheld), and all images produced from the photo sessions shall be
the property of SW. The parties agree that all images from the photo sessions
shall be retouched at the expense of Diplomat. In recognition of SW's expenses
in connection with the above photo sessions, Diplomat shall pay SW the sum of
$ per day for each day (or partial day) of such photo sessions. It is
understood by the parties that such sum shall include all expenses required to
provide Diplomat with positive film (excluding travel expenses of KI, as set
forth in this Agreement), and that such sum contemplates a typical location for
such photo sessions. If a more elaborate set-up for such photo sessions is
required, and such set-up is mutually agreed to by the parties, then the above
sum shall be increased to such amount as the parties shall agree. The above sum
shall not include retouching images.
(e) Videotapes. KI will participate in the production of up to
one (1) product information/sales video per License Year during the period of
this Agreement on behalf of Diplomat at a mutually acceptable time and place.
The video production sessions shall be scheduled at KI's convenience upon not
less than two (2) weeks prior notice, and shall be subject to KI's preexisting
personal and professional commitments. The video production sessions shall be up
to two (2) consecutive days
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in duration, each day to consist of no more than eight (8) working hours. The
video production sessions shall be produced by SW, approved in writing by
Diplomat (which approval shall not be unreasonably withheld), and all images
produced from the video production sessions shall be the property of SW. In
recognition of SW's expenses in connection with such video production sessions,
Diplomat shall pay SW a sum per day for each day (or partial day) of such
sessions, such sum to be agreed upon by the parties. It is understood by the
parties that such sum shall include all expenses required to provide Diplomat
with an acceptable video (excluding travel expenses of KI, as set forth in this
Agreement).
(f) Scope of License. The license granted to Diplomat in
subparagraph 2(a) of this Agreement shall include the right to use the photos
and videotapes referred to in subparagraphs 5(d) and 5(e) of this Agreement in
connection with the marketing, distribution and sale of the products described
in subparagraph 2(a) of this Agreement, subject to the prior approval of KI,
Inc.
6. Good Will, Etc.
Diplomat recognizes the great value of the good will associated with
KI's name and acknowledges that (a) KI's name, and all rights and good will
pertaining to KI's name, belong exclusively to KI, Inc. and (b) that KI's name
has a secondary meaning in the mind of the public.
7. KI, Inc.'s Title and Protection of KI. Inc.'s Rights.
(a) Diplomat agrees that it will not at any time during the
term of this Agreement or thereafter attack (i) KI, Inc.'s title to, or rights
in and to, KI's name or (ii) the validity of this license. KI, Inc. hereby
indemnifies Diplomat and undertakes to hold it harmless against only those
claims or suits (i) arising solely out of the authorized use of KI's name by
Diplomat in accordance with this Agreement and (ii) brought by those persons or
entities to whom KI, Inc. has licensed the use of KI's name and likeness. Prompt
notice shall be given by Diplomat to KI, Inc. of any such claim or suit. In
addition, KI, Inc. shall have the option to undertake and conduct the defense of
any suit so brought and no settlement of any such claim or suit shall be made
without the prior written consent of KI, Inc.
(b) Diplomat shall notify KI, Inc. in writing of any
infringements or imitations by others of KI's name on products similar to those
covered by this Agreement that may come to Diplomat's attention, and KI, Inc.
shall have the sole right to determine whether or not any action shall be taken
in connection with such infringements or imitations. Diplomat shall not
institute any suit or take any action in connection with any such infringements
or imitations without first obtaining the written consent of KI, Inc.
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8. Indemnification by Licensee and Product Liability Insurance.
Diplomat hereby indemnifies KI, Inc. and KI, undertakes to defend
KI, Inc. and KI against, and hold KI, Inc. and KI harmless from, any claims,
suits, loss and damage (including attorneys' fees and costs) arising out of (a)
any allegedly unauthorized use of any patent, process, idea, method, or device
by Diplomat in connection with the products covered by this Agreement, (b) any
alleged defects in the products covered by this Agreement, and (c) any other
alleged action by Diplomat. Diplomat agrees that it will obtain, at its own
expense, product liability insurance from a recognized insurance company which
is qualified to do business in the State of California providing adequate
protection (at least in the amount of $ ) for KI, Inc., KI and Diplomat
against any claims, suits, loss or damage arising out of any alleged defects in
the products. As proof of such insurance, a fully paid certificate of insurance
naming KI, Inc. and KI as an insured party will be submitted to KI, Inc. by
Diplomat for KI, Inc.'s prior approval before any product is distributed or
sold, and at the latest within thirty (30) days after the date first written
above. Any proposed change in certificates of insurance shall be submitted to
KI, Inc. for its prior approval. KI, Inc. shall be entitled to a copy of the
then prevailing certificate of insurance, which shall be furnished KI, Inc. by
Diplomat. As used in the first 2 sentences of this paragraph 6, "KI, Inc." shall
also include the officers, directors, agents, and employees of the KI, Inc., or
any of its subsidiaries or affiliates.
9. Quality of Merchandise.
Diplomat agrees that the products covered by this Agreement
shall be of such style, appearance and quality as to be adequate and suited to
their exploitation to the best advantage, protection and enhancement of KI's
name and the good will pertaining to such name. Diplomat further agrees that (a)
such products will be manufactured, sold and distributed in accordance with all
applicable Federal, State and local laws, (b) that the policy of sale,
distribution, and/or exploitation by Diplomat shall be to the best advantage of
KI, Inc. and KI, and (c) that the latter policy shall in no manner reflect
adversely upon the good name of KI and KI, Inc. To this end, Diplomat shall,
before selling or distributing any of the products, furnish to KI, Inc. for its
approval, free of cost, a reasonable number of samples of each product and the
cartons, containers, packing and wrapping material for such products. The
quality and style of such products, as well as of any carton, container or
packing or wrapping material, shall be subject to the approval of KI, Inc.,
which shall not be unreasonably withheld or delayed. Failure to reject any
product, carton, container, or packing or wrapping within 15 days of receipt of
such item or items by KI, Inc. shall be deemed an acceptance of the quality and
style of such item or items. After samples have been approved pursuant to this
paragraph, Diplomat shall not depart therefrom in any material respect without
KI, Inc.'s prior written consent. From time to time after Diplomat has commenced
selling the products, and upon KI, Inc.'s written request, Diplomat shall
furnish without cost to KI, Inc. not more than ten (10) additional random
samples of each product being manufactured and sold by Diplomat under this
Agreement, together with any containers and packing and wrapping material used
in connection with such products.
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10. Labeling.
(a) Diplomat agrees that it will cause to appear on or within
each product sold by it under this license and on or within all
advertising, promotional, or display material bearing KI's name (i) the
notice "Copyright (c) (year) ______" and any other notice desired by KI,
Inc and (ii) where such product, advertising, promotional, or display
material bears a trademark or service mark, appropriate statutory notice
of registration or application for registration thereof. In the event that
any product is marketed in a carton, container, packing or wrapping
material bearing KI's name, such notice shall also appear upon the said
carton, container, packing or wrapping material. Each and every tag,
label, imprint, or other device containing any such notice and all
advertising, promotional or display material bearing KI's name shall be
submitted by Diplomat to KI, Inc. for its written approval prior to use by
Diplomat. Approval by KI, Inc. shall not constitute waiver of KI, Inc.'s
rights or Diplomat's duties under any provision of this Agreement.
(b) Diplomat agrees to cooperate fully and in good faith with
KI, Inc., at the expense of KI, Inc., for the purpose of securing and
preserving KI, Inc.'s (or any grantor of KI, Inc.'s) rights in and to KI's
name. It is agreed that nothing contained in this Agreement shall be
construed as an assignment or grant to Diplomat of any right, title or
interest in or to KI's name, it being understood that all rights relating
thereto are reserved by KI, Inc., except for the license hereunder to
Diplomat of the right to use and utilize KI's name only as specifically
and expressly provided in this Agreement. Diplomat hereby agrees that at
the termination or expiration of this Agreement Diplomat will be deemed to
have assigned, transferred and conveyed to KI, Inc. any trade rights,
equities, good will, titles or other rights in and to KI's name which may
have been obtained by Diplomat or which may have vested in Diplomat in
pursuance of any endeavors covered by this Agreement, and that Diplomat
will execute any instruments requested by KI, Inc. to accomplish or
confirm the foregoing. Any such assignment, transfer, or conveyance shall
be without consideration other than the mutual covenants and
considerations of this Agreement.
(c) Diplomat hereby agrees that its every use of KI's name
shall inure to the benefit of KI, Inc. and that Diplomat shall not at any
time acquire any rights in KI's name by virtue of any use it may make of
such name.
11. Promotional Material.
(a) In all cases where Diplomat desires artwork to be created
involving products that are the subject of this license, the cost of such
artwork and the time for the production thereof shall be borne by
Diplomat. All artwork and designs involving KI's name, or any reproduction
thereof, shall, notwithstanding their invention or use by Diplomat, be and
remain the
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property of SW, and SW shall be entitled to use the same and to license
the use of the same by others.
(b) KI, Inc. shall have the right, but shall not be under any
obligation, to use KI's name and/or the name of Diplomat so as to give
KI's name, KI, Inc., or KI, Inc.'s programs full and favorable prominence
and publicity. KI, Inc. shall not be under any obligation whatsoever to
use KI's name, or any person, character, symbol, design, likeness, or
visual representation thereof in any radio or television program.
(c) Diplomat agrees not to offer for sale, advertise, or
publicize any of the products licensed hereunder on radio or television
without the prior written approval of KI, Inc., which approval KI, Inc.
may grant or withhold in its unfettered discretion.
12. Distribution.
(a) Diplomat agrees that during the term of this license it
will diligently and continuously manufacture, distribute and sell the
products covered by this Agreement and that it will make and maintain
adequate arrangements for the distribution of the products.
(b) Diplomat agrees that it will sell and distribute the
products covered by this Agreement (i) to jobbers, wholesalers and
distributors for sale and distribution to retail stores and merchants, and
(ii) to retail stores and merchants for sale and distribution direct to
the public. Diplomat shall not, without the prior written consent of KI,
Inc., sell or distribute such products to jobbers, wholesalers,
distributors, retail stores, or merchants whose sales or distribution are
or will be made for publicity or promotional tie-in purposes, combination
sales, premiums, give-aways, or similar methods of merchandising. In the
event any sale is made at a special price to any of Diplomat's
subsidiaries or to any other person, firm or corporation related in any
manner to Diplomat or its officers, directors or major stockholders, there
shall be a royalty paid on such sales based upon the price generally
charged the trade by Diplomat.
(c) Diplomat agrees to sell to KI, Inc. such quantities of the
products at as low a rate and on as good terms as Diplomat sells similar
quantities of the products to the general trade.
13. Records.
Diplomat agrees to keep accurate books of account and records
covering all transactions relating to the license hereby granted. KI, Inc. and
its duly-authorized representatives shall have the right, upon reasonable notice
and at reasonable hours of the day, to visit the offices of Diplomat one time
each calendar quarter for the purpose of examining said books of account and
records, and all other documents and materials in the possession or under the
control of Diplomat, with respect to the
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subject matter and terms of this Agreement, and shall have free and full access
thereto for said purposes and for the purpose of making extracts therefrom. Upon
demand of KI, Inc., Diplomat shall furnish to KI, Inc. a detailed statement by
an independent certified public accountant showing the number, description,
gross sales price, itemized deductions from gross sales price and net sales
price of the products covered by this Agreement distributed and/or sold by
Diplomat to the date of KI, Inc.'s demand. The cost of preparing such statement
shall be borne by KI, Inc. However, notwithstanding the foregoing, if the
prepared statement indicates that KI, Inc., received less than all royalties
payable to it under this Agreement, and the differential between the royalties
received and those payable amounts to more than % of the royalties received,
then the cost of such statement shall be borne by Diplomat. In the event books
of account and records shall be kept available for at least two (2) years after
the termination of this license.
14. Bankruptcy, Violation, Etc.
(a) If Diplomat shall not have commenced in good faith to
manufacture or distribute in commercial quantities sunglasses and
ophthalmic frames using KI's name within three months after the date of
this Agreement, or if at any time thereafter in any six calendar month
period Diplomat fails to sell or distribute sunglasses or ophthalmic
frames, or any other product described in subparagraph 2(a) of this
Agreement, KI Inc. may give notice of such failure with respect to any
such product which has not been so manufactured or distributed during the
six calendar month period. In the event that Diplomat does not commence
selling such product in commercial quantities within 90 days after such
notice, such notice shall be deemed to be a termination of this License
with respect to such product.
(b) If Diplomat files a petition in bankruptcy, or is
adjudicated a bankrupt, or if a petition in bankruptcy is filed against
Diplomat, or if it becomes insolvent, or it makes an assignment for the
benefit of its creditors or an arrangement pursuant to any bankruptcy law,
or if Diplomat discontinues its business, or if a receiver is appointed
for it or its business, the license hereby granted shall automatically
terminate forthwith without any notice whatsoever being necessary. In the
event this license is so terminated, Diplomat, its receivers,
representatives, trustees, agents, administrators, successors and/or
assigns shall have no right to sell, exploit or in any way deal with or in
any of the products covered by this Agreement, or any carton, container,
packing or wrapping material, advertising, promotional or display material
pertaining thereto, except with and under the special consent and
instructions of KI, Inc. in writing, which they shall be obligated to
follow.
(c) If Diplomat shall violate any of its other material
obligations under the terms of this Agreement, KI, Inc. shall have the
right to terminate the license hereby granted upon twenty (20) days'
notice in writing, and such notice of termination shall become effective
unless Diplomat shall
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completely remedy the violation within the twenty-day period and satisfy
KI, Inc. that such violation has been remedied.
(d) Termination of the license under the provisions of this
paragraph 14 shall be without prejudice to any rights which KI, Inc. may
otherwise have against Diplomat. Upon the termination of this license,
notwithstanding anything to the contrary herein, all royalties on sales
theretofore made shall become immediately due and payable and no minimum
royalties shall be repayable.
15. Final Statement Upon Termination or Expiration.
Sixty (60) days before the expiration of this license and, in the
event of its termination, ten (10) days after receipt of notice of termination
or the happening of the event which terminates this Agreement where no notice is
required, a statement showing the number and description of products covered by
this Agreement on hand or in process shall be furnished by Diplomat to KI, Inc.
KI, Inc. shall have the right to take a physical inventory to ascertain or
verify such inventory and statement and refusal by Diplomat to submit to such
physical inventory by KI, Inc. shall forfeit Diplomat's right to dispose of such
inventory, KI, Inc. retaining all other legal and equitable rights KI, Inc. may
have under the circumstances.
16. Disposal of Stock Upon Termination or Expiration.
Upon and after the termination of the license, and except as
otherwise provided in this Agreement, Diplomat may dispose of products covered
by this Agreement which are on hand, or in process at the time notice of
termination is received, for a period of one hundred and twenty (120) days after
notice of termination, provided advances and royalties with respect to that
period are paid and statements are furnished for that period in accordance with
paragraph 3. Notwithstanding anything to the contrary herein, Diplomat shall not
manufacture, sell or dispose of any products covered by this license after (a)
the expiration of the license, or (b) the termination of the license based on
(i) the failure of Diplomat to affix notice of copyright, trademark or service
mark registration or any other notice to the products, cartons, containers, or
packing or wrapping material or advertising, promotional or display material, or
(ii) because of the departure by Diplomat from the quality and style approved by
KI, Inc. pursuant to paragraph 9.
17. Effect of Termination or Expiration.
Upon and after the expiration or termination of this license, all
rights granted to Diplomat hereunder shall forthwith revert to KI, Inc., who
shall be free to license others to use KI's name in connection with the
manufacture, sale and distribution of the products covered hereby, and Diplomat
will refrain from further use of KI's name or any further reference to it,
direct or indirect, or anything deemed by KI, Inc. to be similar to the KI's
name, in connection with the manufacture, sale or distribution of Diplomat's
products, except as provided in paragraph 17.
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18. KI, Inc.'s Remedies.
(a) Diplomat acknowledges that (except as otherwise provided
herein) its failure to commence in good faith to manufacture and
distribute in commercial quantities any one or more of the products listed
in subparagraph 2(a) within three (3) months of the date of this Agreement
and to continue during the term hereof to diligently and continuously
manufacture, distribute and sell the products covered by this Agreement,
or any class or category thereof, will result in immediate damages to KI,
Inc.
(b) Diplomat also acknowledges that (except as otherwise
provided herein) its failure to cease the manufacture, sale or
distribution of the products covered by this Agreement, or any class or
category thereof, at the termination or expiration of this Agreement will
result in immediate and irremediable damage to KI, Inc. and to the rights
of any subsequent licensee. Diplomat acknowledges and admits that there is
no adequate remedy at law for such failure to cease manufacture, sale or
distribution, and Diplomat agrees that in the event of such failure KI,
Inc. shall be entitled to equitable relief by way of temporary and
permanent injunctions and such other further relief as any court with
jurisdiction may deem just and proper.
(c) Resort to any remedies herein shall not be construed as a
waiver of any other rights and remedies to which KI, Inc. is entitled
under this Agreement or otherwise.
19. Excuse for Nonperformance.
Diplomat shall be released from its obligations hereunder and this
license shall terminate in the event that governmental regulations or other
causes arising out of a state of national emergency, war, or causes beyond the
control of the parties render performance impossible and one party so informs
the other in writing of such causes and its desire to be so released. In such
events, all royalties on sales theretofore made shall become immediately due and
payable and no minimum royalties shall be repayable.
20. No Joint Venture.
Nothing herein contained shall be construed to place the parties in
the relationship of partners or joint venturers, and Diplomat shall have no
power to obligate or bind KI, Inc. in any manner whatsoever.
21. No Assignment or Sublicense by Diplomat.
This Agreement and all rights and duties hereunder are personal to
Diplomat and shall not, without the written consent of KI, Inc., be assigned,
mortgaged, sublicensed or otherwise encumbered by Diplomat or by operation of
law.
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KI, Inc. may assign its rights hereunder, but shall furnish written
notice of such assignment to Diplomat.
22. No Waiver, Etc.
None of the terms of this Agreement can be waived or modified except
by an express Agreement in writing signed by both parties. There are no
representations, promises, warranties, covenants or undertakings other than
those contained in this Agreement, which represents the entire understanding of
the parties. The failure of either party hereto to enforce, or the delay by
either party in enforcing, any of its rights under this Agreement shall not be
deemed a continuing waiver or a modification thereof and either party may,
within the time provided by applicable law, commence appropriate legal
proceedings to enforce any or all of such rights. No person, firm, group or
corporation (whether included in KI's name or otherwise) other than Diplomat and
KI, Inc. shall be deemed to have acquired any rights by reason of anything
contained in this Agreement, except as provided in paragraphs 8 and 22.
23. Additional Endorsers. If, during the term of this Agreement,
Diplomat should utilize the services of any other person to endorse its
products, and the public image of such person is so inconsistent with that of KI
as to risk damaging the good will of KI's name should KI, Inc. continue to do
business with Diplomat, then KI, Inc. shall have the right to terminate this
Agreement, subject to the remedial and other provisions of paragraph 14 of this
Agreement.
24. Miscellaneous Provisions.
(a) Authority. KI, Inc. has the full right, power, legal
capacity and authority to enter into this Agreement on behalf of KI, to
carry out its terms, and to grant Diplomat the rights, licenses and
privileges granted in this Agreement.
(b) Merger. This Agreement supersedes any and all prior
written or oral agreements between the parties.
(c) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without
regard to conflict of law principles.
(d) Attorneys' Fees. The prevailing party in any proceeding
brought to enforce any provision of this Agreement shall be entitled to
recover the reasonable fees and costs of its counsel, plus all other costs
of such proceeding.
(e) Notices. All notices and statements to be given, payments
to be made and materials to be submitted under this Agreement shall be
given, made and submitted via certified or registered mail, postage
prepaid, return
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receipt requested, at the addresses of the parties, as set forth above,
unless notification of a change of address is given in writing, and the
date of mailing shall be deemed the date the notice or statement is given.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first set forth above.
/s/ Kathy Ireland
---------------------------------
KATHY IRELAND, Individually
KATHY IRELAND, INC.
By /s/ Kathy Ireland
---------------------------------
KATHY IRELAND, President
THE STERLING/WINTERS CO.
By /s/ Jason Winters
---------------------------------
JASON WINTERS
DIPLOMAT AMBASSADOR EYEWEAR GROUP
By /s/ Barry Budilov
---------------------------------
BARRY BUDILOV, President
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ADDENDUM TO ENDORSEMENT AGREEMENT
This addendum to the Endorsement Agreement between Kathy Ireland, Inc.,
Diplomat Ambassador Eyewear Group, and The Sterling/Winters Company entered into
as of August 24, 1995 now includes the following provision:
Diplomat Ambassador Eyewear Group agrees to comply with the laws and
regulations of any state or territory in which they manufacture or have
sub-contracted any Kathy Ireland product, especially pertaining to labor and
safety issues.
Diplomat Ambassador Eyewear Group agrees to comply with any reasonable
requests from Kathy Ireland, Inc. concerning labor and safety resolutions.
DIPLOMAT AMBASSADOR EYEWEAR GROUP
3/4/97 By /s/ Barry Budilov
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Dated BARRY BUDILOV, President
KATHY IRELAND, INC.
3/18/97 By /s/ Kathy M Ireland
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Dated KATHY IRELAND, President
THE STERLING/WINTERS CO.
3/21/97 By /s/ Jason Winters
- ------- ---------------------------------
Dated JASON WINTERS
<PAGE>
Exhibit 10.30
SUPPLY AGREEMENT
This Supply Agreement (the "Agreement") is entered into this 18 day of
November, 1996, (the "Effective Date") by and between Styl-Rite Optical Mfg.
Co., Inc., a Florida corporation ("Styl-Rite") and Diplomat-Ambassador, Inc., a
Delaware corporation ("Ambassador").
The following recitals are true and constitute the basis for this
Agreement:
A. Styl-Rite is engaged in manufacturing and distributing eyeglass
frames to wholesalers and retail optical outlets;
B. Styl-Rite has an exclusive license to use the Halston trademark in
connection with manufacturing, advertising, merchandising,
promoting, publicizing, selling and distributing ophthalmic frames;
C. Ambassador is a wholesaler engaged in distributing eyewear to retail
optical outlets and specialty shops; and
D. Ambassador desires to purchase from Styl-Rite and Styl-Rite desires
to sell to Ambassador, ophthalmic frames bearing the Halston
trademark for resale by Ambassador to retail outlet, and specialty
shops.
NOW THEREFORE, in consideration of the foregoing recitals, the mutual
covenant contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE I. TERM
1.1 Term of Agreement. The initial term of this Agreement and Styl-Rite's and
Ambassador's respective obligations hereunder will begin on the Effective
Date and terminate on December 31, l998 (the "Initial Term"). Ambassador
shall have the option to renew this Agreement for an additional three (3)
year term (the "Subsequent Term") by providing Styl-Rite with its written
notice of renewal not less than one hundred twenty (120) days prior to the
expiration of the Initial Term; provided that Styl-Rite has exercised its
option to renew the License Agreement dated July 1, 1995, (the "License
Agreement") by and between Styl-Rite and Halston Investments, Ltd., the
successor-in-interest by assignment from Halston Trademarks, Inc., the
owner of the "Halston" trademark ("Halston"); provided further that
Ambassador has purchased from Styl-Rite the minimum number of units set
forth in Article 5.2 and Ambassador is otherwise in compliance with all
the material terms and conditions of this Agreement. This Agreement may
also be terminated prior to the expiration of the Initial Term or the
Subsequent Term in accordance with the terms of this Agreement.
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ARTICLE II. PURCHASES GENERALLY
2.1 Purchase and Sale Obligations.
2.1.1 Current Halston Eyewear Products. On the terms and subject to the
conditions set forth in this Agreement, Ambassador agrees to purchase from
Styl-Rite and Styl-Rite agrees to sell to Ambassador, ophthalmic frames, metal
or plastic, bearing the Halston trademark ("Halston Frames") in the quantities
specified in Ambassador's purchase orders delivered or transmitted to Styl-Rite
from time to time. All purchase orders submitted by Ambassador shall be in the
form of Exhibit "A" attached hereto. The parties agree the terms of this
Agreement shall govern and control if there is any inconsistency between the
terms of this Agreement and any purchase orders for Halston Frames submitted by
Ambassador. Unless otherwise agreed to in writing, all purchases of Halston
Frames hereunder shall be FOB Styl-Rite's place of business and Ambassador shall
pay all freight charges, local state and federal excise taxes, and the risk of
loss shall be with Ambassador from Styl-Rite's place of business. Ambassador
agrees that all orders for plastic Halston Frames will be filled by Styl-Rite
and may not be sourced from any other manufacturer or supplier.
2.1.2. Alternatively Sourced Metal Frames.
A. Approval of Prototypes. Prior to submitting any purchase orders to Styl-Rite
for a metal ophthalmic frame not included on Styl-Rite's then current product
list of Halston Frames (each an "Alternatively Sourced Frame"), Ambassador shall
submit a model or sample of the ophthalmic frame requested by Ambassador (each a
"Prototype"), including any wrapping labels, packaging or containers intended to
be used by Ambassador in connection with the distribution and sale of
Alternatively Sourced Frames, to Styl-Rite for approval. Prior to ordering any
Alternatively Sourced Frame for the first time, Ambassador shall submit to
Styl-Rite for approval two (2) copies of a Prototype of each different
Alternatively Sourced Frame which Ambassador would like to order from Styl-Rite
along with the proposed packaging. All Prototypes shall be sent by overnight
delivery to Styl-Rite, Attention: President, at the address set forth on the
signature page of this Agreement. Styl-Rite shall, pursuant to the terms of the
License Agreement, submit to Halston all Prototypes for approval by Halston.
Styl-Rite shall notify Ambassador as soon as practicable of Halston's approval
or disapproval of the Prototype. If Halston objects to a Prototype, Styl-Rite
shall, in addition to specifically describing those objections, set forth in
such notice any modifications to the Prototype which Styl-Rite deems are
necessary for the Prototype to be accepted as a Halston Frame. This approval
process shall be repeated until such time as the Prototype has been approved by
Halston or the parties agree that the Prototype will not be manufactured and
sold as a Halston Frame. Styl-Rite will not accept any purchase order for
Alternatively Sourced Frames from Ambassador without having received the prior
approval of each Prototype by Halston. Further, all communications by Ambassador
regarding Prototype and purchases of either Halston Frames or Alternatively
Sourced Frames hereunder shall be directed to Styl-Rite.
B. Purchase Orders. Halston's approval of each Prototype, Ambassador may, in its
sole discretion, request that Styl-Rite either (i) import the Alternatively
Sourced Frame directly from an overseas supplier identified by Ambassador (the
"Third Party Supplier"), (ii) import the Alternatively Sourced Frame from
Styl-Rite's own overseas supplier or (iii) manufacture the Alternatively Sourced
Frames if Styl-Rite has the capability to manufacture that type of frame. All
purchase orders for Alternatively Sourced Frames shall be in the form of Exhibit
"A" attached hereto. The parties agree the terms of this Agreement shall govern
and control if there is any inconsistency between the terms of this Agreement
and any purchase order for Alternatively Sourced Frames submitted by Ambassador.
Unless otherwise agreed to in writing, all purchases of Alternatively Sourced
Frames hereunder shall be FOB Styl-Rite's place of business or the Third
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Party Supplier's place of business in the event Ambassador requests that
Styl-Rite arrange to have the Alternatively Sourced Frames dropped shipped to
Ambassador. In either case, it shall be Ambassador's responsibility to pay all
freight charges, local state and federal excise taxes, and the risk of loss
shall be with Ambassador from Styl-Rite's or the Third Party Supplier's place of
business, as the case may be. Styl-Rite shall not process any purchase order for
Alternatively Sourced Frames unless Ambassador has complied with the terms of
Article 4.3.2 hereof. Upon the request of Styl-Rite, Ambassador agrees to
provide Styl-Rite with a reasonable number of samples of each style of
Alternatively Sourced Frame which is dropped shipped by the Third Party Supplier
to insure the Alternatively Sourced Frames an being manufactured in accordance
with the Prototypes approved by Halston. If, in the sole reasonable discretion
of Styl-Rite, the Alternatively Sourced Frames are not being manufactured in
accordance with the Prototypes, Styl-Rite shall notify Ambassador in writing of
such discrepancies and Ambassador shall promptly arrange to have the necessary
repairs and/or modifications made to the Alternatively Sourced Frames so that
those frames conform to the Prototypes.
2.2 Additional Product Lines. The terms of this Agreement may, upon the mutual
consent of Styl-Rite and Ambassador, be amended to provide for the purchase and
sale of other designer frames manufactured or sourced by Styl-Rite.
ARTICLE III. SALE AND DISTRIBUTION OF FRAMES
3.1 Sale and Distribution of Frames by Ambassador. Subject to the terms and
provisions of this Agreement, Styl-Rite hereby grants Ambassador and Ambassador
hereby accepts the exclusive right to distribute the Halston Frames and
Alternatively Sourced Frames at retail to the department stores and other
specialty shops listed on Exhibit "B" attached hereto. Ambassador shall not sell
any Halston Frames or Alternatively Sourced Frames to any department store or
other specialty shop not listed on Exhibit "B" without the prior written consent
of Styl-Rite, which consent will not be unreasonably withheld or delayed.
Further, Ambassador shall not sell any Halston Frames or Alternatively Sourced
Frames to any wholesalers, diverters or any other entities without the prior
written consent of Styl-Rite. Ambassador shall not market any Halston Frames or
Alternatively Sourced Frames as seconds or irregulars, unless the Halston mark
is removed from the Halston Frames and the Alternatively Sourced Frames or
unless Styl-Rite specifically authorizes Ambassador to sell such seconds or
irregulars with the Halston mark affixed thereto.
From time to time, Styl-Rite and Ambassador shall negotiate in good faith to
reach a mutually satisfactory agreement concerning additional department stores
and specialty shops to be included on Exhibit "B." Until this Agreement expires
or is terminated, Styl-Rite shall not, without the prior written consent of
Ambassador, sell or distribute any Halston Frames or Alternatively Sourced
Frames to any department store or other specialty shop listed on Exhibit "B"
from time to time.
ARTICLE IV. PURCHASE PRICE
4.1 Purchase Price for Halston Frames. The price to be charged Ambassador for
Halston Frames shall be Styl-Rite's list price less %. With respect to Halston
Frames to be provided as samples to Ambassador's sales representatives, the
Purchase price shall be Styl-Rite's list price less %.
4.2 Purchase Price for Alternatively Sourced Frames. The price to be charged
Ambassador for Alternatively Sourced Frames shall be Styl-Rite's Cost, as
defined below, plus %. The term Styl-Rite's Cost as used herein shall mean
Styl-Rite's landed cost (i.e. the price at which Styl-Rite purchases
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Alternatively Sourced Frames from a Third Party Supplier, less freight,
handling, taxes and other costs attributable to the shipment or receipt by
Styl-Rite of the Alternatively Sourced Frames).
4.3 Payment Terms.
4.3.1 Halston Frames. Any sum due Styl-Rite for the purchase of Halston Frames
shall be due and payable by Ambassador within {sixty (60)} days of its receipt
of an invoice from Styl-Rite. Any sum due Styl-Rite hereunder for Halston Frames
that is not paid when due shall thereafter bear interest until paid at
percent ( %) per annum.
4.3.2 Alternatively Sourced Frames. Any sum due Styl-Rite for the purchase of
Alternatively Sourced Frames, including any deposits that may be required by a
Third Party Supplier at the time Styl-Rite places an order for Alternatively
Sourced Frames, shall be due and payable by Ambassador in immediately available
funds at least one business day prior to the date on which such amounts are due
and payable by Styl-Rite to the Third Party Supplier.
4.4 Minimum Amount of Purchases. If the total aggregate number of units of
Halston Frames and Alternatively Sourced Frames purchased by Ambassador during
the Initial Term of this Agreement is not greater than or equal to the minimum
number of units set forth below during the periods set forth therein, Styl-Rite
may terminate this Agreement in accordance with Article 5.1 hereof; provided,
however, that Styl-Rite has timely supplied Ambassador with Halston Frames and
Alternatively Sourced Frames in accordance with Styl-Rite's ordinary course of
business and consistent with past business practices between the parties. In the
event this Agreement is renewed for the Subsequent Term, Styl-Rite and
Ambassador will, within 10 business days of receiving Ambassador's written
notice of renewal, negotiate in good faith to determine the minimum number of
units during each annual period of the Subsequent Term; provided, however, that
the minimum number of units during each annual period of the Subsequent Term
shall not be less than the minimum number of units for the last annual period of
the Initial Term.
----------------------------------------------------
Period Minimum Units
Purchased
----------------------------------------------------
January 1, 1997-December 31, 1998
----------------------------------------------------
January 1, 1999-December 31, 1999
----------------------------------------------------
ARTICLE V. TERMINATION
5.1 Termination for Cause. If either party materially defaults in the
performance of any of its obligations (except for a default by Ambassador in its
obligation to pay Styl-Rite) under this Agreement, which default shall not be
substantially cured within 60 days after written notice is given to the
defaulting party specifying the default, then the party not in default, by
giving written notice to the defaulting party, may terminate this Agreement as
of a date specified in the notice of termination. Ambassador will pay Styl-Rite
for all outstanding invoices as of the date of termination.
5.2 Termination for Nonpayment. If Ambassador default in the payment when due of
any amount due to Styl-Rite hereunder and does not cure such default within
thirty (30) days after written notice thereof is
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given to Ambassador, then Styl-Rite may terminate this Agreement as of a date
specified in such notice of termination.
5.3 Termination for Insolvency. Subject to the provisions of Title 11, United
States Code, if either parry becomes or is declared insolvent or bankrupt, is
the subject of any proceedings relating to its liquidation, insolvency or for
the appointment of a receiver or similar officer for it, makes an assignment for
the benefit of all or substantially all of its creditors, or enters into an
agreement for the composition, extension, or readjustment of all or
substantially all of its obligations, then this Agreement shall terminate.
5.4 Termination of License Agreement. If at any time during the Initial Term or
the Subsequent Term, Styl-Rite's License Agreement with Halston is terminated
for any reason, this Agreement shall terminate as of the same date. Ambassador
will pay Styl-Rite for all outstanding invoices as of the date of termination.
ARTICLE VI CONFIDENTIALITY
6.1 Confidentiality. Except as otherwise provided in this Agreement, Styl-Rite
and Ambassador each agree that all information communicated to it by the other
or the other's affiliates, whether before or after the Effective Date, including
without limitation the terms of this Agreement, will be received in strict
confidence, will be used only for purposes of this Agreement, and will not,
without the prior Written consent of the other party, which consent shall not be
unreasonably withheld, be disclosed by the recipient party, its agents,
subcontractors or employees in any manner whatsoever other than to inform the
parties respective lender(s) for purposes of complying with the terms of any
loan agreement. Each party agrees to use the same means it uses to protect its
own confidential information, but in any event not less than reasonable means,
to prevent the disclosure of such information to outside parties. However,
neither party shall be prevented from disclosing information which belongs to
such party or is (a) already known by the recipient party without an obligation
of confidentiality other than pursuant to this Agreement; (b) publicly known or
becomes publicly known through no unauthorized act of the recipient party; (c)
rightfully received from a third party; (d) independently developed without use
of the other party's confidential information; (e) disclosed without similar
restrictions to a third party by the party owning the confidential information;
(f) approved by the other party for disclosure; or (g) required to be disclosed
pursuant to a requirement of a governmental agency or law if the disclosing
party provides the other party with notice of this requirement prior to
disclosure. The provisions of this Article will survive the expiration or
termination of this Agreement for any reason.
ARTICLE VII. REPRESENTATIONS, WARRANTIES, INDEMNITIES AND LIABILITY
7.1 Representations of Styl-Rite. Styl-Rite represents and warrants to
Ambassador that Styl-Rite possesses all requisite authority and power to conduct
its business and execute, deliver, and comply with the terms of this Agreement,
which has been duly authorized and approved by all necessary corporate action
and for which no approval or consent of any person or entity is required which
has not been obtained. Further, Styl-Rite represents and warrants to Ambassador
that (i) the License Agreement is in full force and effect in accordance with,
and subject to, all of the terms, covenants, conditions and agreements contained
therein; and (ii) until this Agreement expires or is terminated, Styl-Rite will
not, without Ambassador's prior written consent, sell or distribute Halston
Frames or Alternatively Sourced Frames to the department stores and specialty
shops listed on Exhibit "B" from time to time.
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7.2 Representations of Ambassador. Ambassador represents and warrants to
Styl-Rite that Ambassador possesses all requisite authority and power to conduct
its business and execute, deliver, and comply with the terms of this Agreement,
which has been duly authorized and approved by all necessary corporate action
and for which no approval or consent of any person or entity is required which
has not been obtained. Further, Ambassador represents and warrants to Styl-Rite
that Ambassador will not sell any Halston Frames or Alternatively Sourced
Frames, without Styl-Rite's prior written consent, other than to department
stores or specialty shops approved by Styl-Rite. Ambassador acknowledges the
Halston Frames and the Alternatively Sourced Frames bearing the Halston mark has
acquired a reputation of quality, prestige and style. Ambassador acknowledges
Halston is the owner of all right, title and interest in and to the Halston mark
in any and all forms in which it is used on Halston Frames and Alternatively
Sourced Frames, and is also the owner of the goodwill associated with the
Halston mark, including the goodwill associated with the sale of Halston Frames
and Alternatively Sourced Frames under this Agreement. Ambassador represents and
warrants to Styl-Rite that Ambassador shall not (i) contact Halston directly for
any reason during the term of this Agreement, (iii) negotiate with Halston to
obtain a license to use the Halston trademark for a period of one (1) year from
the expiration or termination date of the License Agreement and (iii) at any
time knowingly, do or cause to be done, any act which will, either directly or
indirectly, impair the rights of Halston in and to the Halston mark.
7.3 Warranty and Disclaimer. Styl-Rite warrants that all Halston Frames are
manufactured in conformance with standards generally applicable in the optical
industry and are merchantable for their intended use. Except as set forth
herein, Styl-Rite makes no other representations or warranties, either express
or implied, regarding the Halston Frames and, notwithstanding the foregoing
makes no representations or warranties, either express or implied, regarding the
Alternatively Sourced Frames. Ambassador shall make no warranties or
representations with respect to the Halston frames or the Alternatively Sourced
Frames, except as expressly authorized in writing by Styl-Rite. Styl-Rite's
liability for damages for breach of the foregoing warranties shall be limited,
at Styl-Rite's option, to the replacement of any nonconforming Halston Frames or
the return for credit by Ambassador of any nonconforming Halston Frame,
including any reasonable shipping and handling costs incurred by Ambassador.
Styl-Rites liability for any nonconforming products is expressly limited to the
foregoing remedies and Styl-Rite shall in no event be liable for any incidental
or consequential damages. Ambassador shall promptly inspect each shipment of
Halston Frames delivered to Ambassador to determine whether they conform to the
specifications set forth in Ambassador's purchase order. The failure by
Ambassador to notify Styl-Rite of any nonconforming products within twenty (20)
days after the delivery of each shipment of Halston Frames shall be deemed a
waiver by Ambassador of any such claims.
7.4 Indemnification of Styl-Rite. Ambassador agrees to indemnify, defend and
hold Styl-Rite harmless, from any all damages, liabilities, costs, and expenses,
including without limitation, reasonable attorneys' fees and expenses, arising
out of, under or in connection with any claim, demand, charge, action, cause of
action or other proceeding relating to the conduct of Ambassador's business,
including without limitation, the acquisition and use by Ambassador of the
Halston Frames and the Alternatively Sourced Frames to be provided by Styl-Rite
under this Agreement and for or by reason of the infringement of another's
trademark as a result of Ambassador's unauthorized use of the Halston mark.
7.5 Indemnification of Ambassador. Styl-Rite agrees to indemnify, defend and
hold Ambassador harmless, from any and all damages, liabilities, costs, and
expenses, including without limitation, reasonable attorneys' fees and expenses,
arising out of, under or in connection with any claim, demand, charge, action,
cause of action or other proceeding relating to any product liability claim
based on a defect in manufacturing
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the Halston Frames or any claim brought by any third party that the manufacture,
design, use marketing or sale of the Halston Frames or the Alternatively Sourced
Frames infringe any patent or trademark, except to the extent such damages
result from the negligence, recklessness, willful misconduct or any unauthorized
acts of the party asserting the claim or seeking indemnification.
7.6 Limitation of Liability of Styl-Rite. In the event Styl-Rite shall be held
liable to Ambassador, for any matter arising out of, under, or in connection
with this Agreement, whether based on an action or claim in contract, equity,
negligence, intended conduct, tort or otherwise, the amount of damages
recoverable against Styl-Rite for all events, acts or omissions shall not exceed
an amount equal to the entire principal obligation of Ambassador for the payment
of the purchase price for the Halston Frames and the Alternatively Sourced
Frames during the Initial term and the Subsequent Term; provided, however, that
this limitation on damages shall not apply to any product liability claim
asserted by any third party. In no event will the measure of damages payable by
Styl-Rite include, nor will Styl-Rite be liable for, any amounts for loss of
income, profit or savings or indirect, incidental, consequential, or punitive
damages of any party, including third parties. The provisions of this Article
will survive the termination of this Agreement for any reason.
7.7 Limitation of Liability of Ambassador. In no event will the measure of
damages payable by Ambassador include, nor will Ambassador be liable for, any
amounts for loss of income, profit or savings or indirect, incidental,
consequential, or punitive damages of any party, including third parties. The
provisions of this Article will survive the termination of this Agreement for
any reason.
7.8 Contractual Statute of Limitations. No claim and demand for arbitration or
cause of action which arose out of an event or events which occurred more than
two (2) years prior to the filing of a demand for arbitration or suit alleging a
claim or cause of action may be asserted by either party against the other
party; provided, however, that the foregoing contractual statute of limitations
shall not apply to any unknown claims or causes of action which are not
discovered until the expiration of more than two (2) years from the date on
which such event or events occurred. Each of those claims shall be subject to
the then applicable statute of limitations.
7.9 Acknowledgment. Styl-Rite and Ambassador each acknowledge that the
limitations and exclusions contained in this Article have been the subject of
active and complete negotiation between the parties and represent the parties'
agreement based upon the level of risk to Styl-Rite and Ambassador associated
with their respective obligations under this Agreement and the payments to be
made to Styl-Rite under this Agreement.
ARTICLE VIII. DISPUTE RESOLUTION
8.1 Cooperative Resolution of Disputes. During the course of the relationship
provided for in this Agreement, disputes, controversies or claims may arise
between the parties. To minimize the expense to and impact on each party of
formally resolving such disputes, controversies and claims, the parties will
meet regularly to review the performance of each party of its obligations under
this Agreement. If the parties are unable to resolve a dispute, controversy or
claim through this performance review process, upon the written request of
either party, each party will appoint a representative whose task it will be to
meet for the purpose of resolving the dispute, controversy or claim and
negotiate a resolution in good faith, without the necessity of any formal
proceeding relating thereto. No formal proceedings for the resolution of such
dispute, controversy or claim may be commenced until either or both of the
appointed representatives conclude in good faith that amicable resolution
through continued negotiation of the matter is not likely. Except where
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clearly prevented by the area in dispute or as provided herein, both parties
agree to continue performing their respective obligations under this Agreement
while the dispute is being resolved unless and until such obligations are
terminated or expire in accordance with the provisions hereof.
8.2 Arbitration for use when Cooperative Resolution Fails. Any dispute,
controversy or claim arising out of or related to this Agreement, or the
creation, validity, interpretation, breach or termination of this Agreement,
that the parties are unable to resolve through informal discussions or
negotiations pursuant to Article 8.1, will be submitted to binding arbitration
before a panel of three arbitrators in Philadelphia, Pennsylvania, in the event
Styl-Rite requests that any dispute, controversy or claim be submitted to
arbitration during either the Initial Term or the Subsequent term and in
Glendora, New Jersey, in the event Ambassador requests that any dispute,
controversy or claim be submitted to arbitration during either the Initial Term
or the Subsequent Term. Either party may demand arbitration in writing, by
serving on the other party a statement of the dispute, controversy or claim, and
the facts relating or giving rise thereto, in reasonable detail, and the name of
the arbitrator selected by it.
Other than those matters involving injunctive relief as a remedy, or any action
necessary to enforce the award of the arbitrators, the provisions of this
Article are a complete defense to any suit, action or other proceeding
instituted in any court or before any administrative tribunal with respect to
any dispute, controversy or claim arising out of or related to this Agreement or
the creation, validity, interpretation, breach or termination of this Agreement.
The provisions of this Article will survive the expiration or termination of
this Agreement for any reason. Nothing in this Article prevents the parties from
exercising the termination rights set forth in this Agreement.
Unless Styl-Rite is bringing an action under this Article for nonpayment by
Ambassador, Styl-Rite will continue to supply the Styl-Rite Frames, and
Ambassador shall continue to make payments to Styl-Rite, in accordance with this
Agreement, during the arbitration proceedings.
8.3 Injunctive Relief. Notwithstanding the provisions of Article 8.1 and 8.2,
Styl-Rite and Ambassador agree that either party may obtain a temporary
restraining order or preliminary injunction pending the resolution of any
dispute between the parties pursuant to either Article 8.1 or 8.2 hereof, if
they are otherwise entitled thereto under applicable law.
ARTICLE IX. MISCELLANEOUS
9.1 Binding Nature and Assignment. This Agreement shall be binding on the
parties hereto and their respective successors and permitted assignees. Neither
this Agreement, any part hereof, nor any right or obligation hereunder may be
assigned by any party hereto without the prior written consent of the other
party hereto (and any attempts to do so will be void).
9.2 Notices. Any notice, request or demand from one party to another under this
Agreement must be in writing (which may be by facsimile transmission) to be
effective and shall be deemed to have been given on the day actually delivered
or, if mailed, on the third business day after it is enclosed in an envelope,
addressed to the party to be notified at the address stated below, properly
stamped, sealed, and deposited in the appropriate official postal service. Until
changed by notice pursuant hereto, the address and facsimile number for each
party for purposes hereof is as shown on the signature pages(s) of this
Agreement. Any writing which may be mailed pursuant to the foregoing may also be
delivered by hand or telecopier and shall
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<PAGE>
be effective when received by the addressee. Either party may from time to time
specify as its address for purposes of this Agreement any other address upon
giving prior written notice thereof to the other party.
9.3 Counterparts. This Agreement may be executed in several counterparts, all of
which taken together shall constitute one single agreement between the parties
hereto.
9.4 Headings. The Article and Article headings are for reference and convenience
only and shall not enter into the interpretation hereof.
9.5 Approvals and Similar Actions. Where agreement, approval, acceptance,
consent or similar action by either party is required by any provision of this
Agreement, such action shall not be unreasonably delayed or withheld.
9.6 Force Majeure. Each party shall be excused from performance hereunder (other
than performance of obligations to make payment) for any period and to the
extent that it is prevented from performing pursuant hereto, in whole or in
part, as a result of delays caused by the other or third parties or an act of
God, war, civil disturbance, court order, labor dispute, or other case beyond
its reasonable control, including failures or fluctuations in electrical power,
heat, light, air conditioning or telecommunications equipment, and such
nonperformance shall not be a default hereunder or a ground for termination
hereof.
9.7 Waiver. No delay or omission by either party hereto to exercise any right or
power hereunder shall impair such right or power or be construed to be waiver
thereof. A waiver by either of the parties hereto of any of the covenants to be
performed by the other or any breach thereof shall not be construed to be a
waiver of any succeeding breach thereof or of any other covenant herein
contained. All remedies provided for in this Agreement shall be cumulative and
in addition to and not in lieu of any other remedies available to either party
at law, in equity or otherwise.
9.8 No Third Party Beneficiary. Nothing in this Agreement may be relied upon or
shall benefit any party other than the parties hereto.
9.9 Entire Agreement. This Agreement, including any schedules referred to herein
and attached hereto, each of which is incorporated in this Agreement for all
purposes, constitutes the entire agreement between the parties with respect to
the subject matter of this Agreement and there are no representations,
understandings or agreements relating to this Agreement which are not fully
expressed herein. No amendment, modification, waiver or discharge hereof shall
be valid unless in writing and signed by an authorized representative or the
party against which such amendment, modification, waiver or discharge is sought
to be enforced.
9.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to choice of
law provisions, statutes, regulations or principles of this or any other
jurisdiction.
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IN WITNESS WHEREOF, Styl-Rite and Ambassador have each caused this
Agreement to be signed and delivered by its duly authorized officer as of
the date set forth above.
STYL-RITE OPTICAL MFG. CO., INC. DIPLOMAT-AMBASSADOR, INC.
By: /s/ Anthony Bartolotta By: /s/ Barry Budilov
--------------------------- -----------------------
Anthony Bartolotta Barry Budilov
Address: 3850 Northwest 35th Avenue Address: 1010 Arch Street, 3rd Floor
Miami, Florida 33142 Philadelphia, Pennsylvania
19107-3015
Facsimile: (305) 634-0731 Facsimile: (215) 925-0204
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EXHIBIT B
A & M Optical (aka Vision Masters) J & J Wholesale
Berris Optical Lenscrafters
Bizer Enterprises Midwest Vision
Budget Optical National Vision Associates
Cambridge Eye Doctors New Wave Optiks
Central City Optical New West
Cigna Health Plan Optical Outlets
Cohen's Fashion Optical Philadelphia Vision Centers
Diversified Ophthalmic Price Costco
Dr. Hollis Vision World Price Costco Canada
East Portland Optical Schaeffer Eye Center
Eye Care Centers of America Shawnee Optical
Eye Gallery (aka P.D. Plastics) South Florida Vision Centers
Eyeland Optical Sterling Vision/Site for Sore Eyes
Express Scripts Texas State Optical
Frame-n-Lens Total Optics
Frame-n-Lens Club Division Upscale Marketing
K-Mart Vision Land
Kaiser Permanente Vision Plaza
W.A. Jones
Wal-Mart
2949 Optical
/s/ Barry Budilov /s/ Anthony Bartolotta, Pres.
- ------------------------------- ----------------------------------
AMBASSADOR EYEWEAR GROUP STYL-RITE OPTICS
Barry Budilov Anthony Bartolotta
<PAGE>
Exhibit 10.31
Date: February 21, 1997 INITIAL TERM: January 1, 1998 - December 31, 2000
(C)1993 Nintendo
Nintendo
Merchandise License Agreement
THIS MERCHANDISE LICENSE AGREEMENT by and between Nintendo of America
Inc., 4820 150th Avenue NE, Redmond, WA 98052 (hereafter referred to as
"Licensor") and Ambassador Eyewear Group, 1010 Arch Street, 3rd Floor,
Philadelphia, PA 19107 (hereinafter referred to as "Licensee") is made as of the
latest date signed by the parties.
THIS WILL CONFIRM OUR AGREEMENT AS FOLLOWS:
1. GRANT OF LICENSE: Subject to the terms and conditions of this Agreement,
Licensor grants to Licensee for the Term (defined herein), the license to use
the trademarks, copyrights, characters, designs, and likenesses described in
Schedule A (collectively called the "Property"), to be used solely in connection
with the manufacture, distribution, promotion, advertisement and sale of the
article(s) described in Schedule B (herein called the "Licensed Products"). This
license does not constitute and may not be used so as to imply the endorsement
of the Licensed Product by Licensor. This license granted herein is
non-exclusive; nothing herein shall be construed so as to prevent Licensor from
granting any other licenses for the Property or from using the Property in any
matter whatsoever. Notwithstanding the preceding sentence and subject to
Paragraph 7, during the Term and for the Territory of this Agreement, Licensor
shall not enter into a license agreement with a third party for a licensed
product using the Properties for the categories listed in Schedule B.
2. TERRITORY: Licensee shall be entitled to use the license granted hereunder
only in the territory described in Schedule C (called the "Territory"). If the
territory includes one or more countries in the European Community, the Licensee
agrees as follows (i) that it will not seek customers outside the Territory for
the Licensed Products; (ii) that it will not establish outside the Territory any
branch for the sale of the Licensed Products; and (iii) that it will not
maintain outside the Territory any distribution depot for the Licensed Products;
nothing in this sentence shall be deemed to prevent the Licensee from fulfilling
orders for the Licensed Products received from unsolicited customers located in
countries of the European Community outside the Territory.
3. LICENSE PERIOD: The license granted hereunder shall be effective and
terminate as of the dates specified in Schedule D (the "Term"), unless sooner
terminated on renewed in accordance with the terms and conditions hereof.
4. PAYMENT:
(a) Rate. Licensee shall pay to Licensor as its royalty a sum equal to the
percentages set forth in Schedule E of all Net Sales (defined below) of the
Licensed Products by Licensee or any of its affiliated, associated or subsidiary
companies. The term "Net Sales" shall mean the gross amount of sales of Licensed
Products at the invoiced selling price, net normal and reasonable cash and
quantity discounts and returns for credit. No deduction shall be made for
uncollectible accounts or for costs incurred in manufacturing, selling,
distributing, advertising (including cooperative allowances).
(b) Minimum Royalties. Licensee shall pay to Licensor a minimum royalty
consisting of an advance payment to be applied against a minimum guarantee for
the Term, and in any renewal term ("Renewal Term") hereunder, in the amounts and
at the time specified in Schedule F. No part of any such minimum royalty shall
in any event be payable to Licensee. Royalty payments which exceed the Term's
minimum royalty or any Renewal Term's minimum royalty shall not be credited
toward the next succeeding term's minimum royalty.
(c) Periodic Statements. Within thirty (30) days after the end of the
calendar quarter in which the initial shipment of Licensed Products is made, and
thereafter within thirty (30) days after the end of each calendar quarter,
Licensee shall furnish to Licensor (in a form to be supplied by Licensor, or in
the absence thereof, in a form acceptable to Licensor) complete and accurate
statements certified by Licensee showing the number,
Nintendo Merchandise License Agreement Page 1
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description, gross sales price, itemized deductions from gross sales price, and
net sales price of each Licensed Product sold by Licensee or any of its
affiliated, associated or subsidiary companies, and any returns made during the
period, together with a computation of the royalties due. Licensee shall provide
such statements to Licensor whether or not any of the Licensed Products have
been sold during said period. All information shall be shown separately for each
country within the Territory. Licensee agrees that royalty reports will indicate
clearly (by name or character or similar description) the Licensed Products sold
and will be given in sufficient detail to enable Licensor to separate royalties
by Licensed Products. It is understood that timely rendering of all statements
required hereunder is essential under the terms of this Agreement.
(d) Royalty Payments. Licensee shall remit the royalties due in excess of
any previously paid advance sum for each calendar quarter within thirty (30)
days after the end of each calendar quarter, and payment shall be made with the
statement rendered for that quarter. Payment shall be in the currency set forth
in Schedule I. The receipt or acceptance by Licensor of any of the statements
hereunder, or any royalties paid hereunder, or the cashing of any royalty check
paid hereunder, shall not preclude Licensor from questioning the correctness
thereof at any time. In the event that any inconsistencies or mistakes are
discovered in such statements or payments, they shall immediately be rectified
and the appropriate payment made by Licensee.
(e) Records and Audits. At its principal place of business, Licensee shall
keep and maintain accurate records of the transactions underlying the statements
to be furnished hereunder. Licensee shall allow representatives of Licensor
during office hours, upon reasonable notice and at reasonable intervals (not to
exceed two times per calendar year), to audit and make copies of such records
for the purpose of ascertaining the correctness of such statements. If any such
audit shall disclose any deficiency of percent ( %) or more, Licensee shall
pay, in addition to such deficiency, the actual and reasonable cost of such
audit. Upon demand of Licensor, not to exceed two times per calendar year,
Licensee shall at its own expense furnish to Licensor a detailed statement
signed and verified by Licensee's chief financial officer showing the number,
description, gross sales price, itemized deductions from gross sales price and
net sales price of the Licensed Products covered by this Agreement distributed
and/or sold by Licensee (and any of its affiliated, associated, or subsidiary
companies) up to the date of Licensor's demand. All books of account and records
shall be kept available for at least three (3) years after the termination or
expiration of this Agreement.
(f) Payments. Until otherwise instructed in writing by Licensor, all
payments of royalties hereunder including advance payments and minimum
guarantees, shall be made payable to "Agent", as defined in Schedule J.
5. LICENSED PRODUCTS, QUALITY AND APPROVALS:
(a) General Quality. Licensee agrees that the Licensed Products shall: (i)
be of high standard and of such style, appearance and quality so as to protect
and enhance the Property and the good will pertaining thereto; (ii) meet
Licensor's quality standards and specifications, and (iii) be manufactured,
sold, distributed, advertised, and promoted in accordance with all applicable
laws.
(b) Preapproval of Licensed Products & Related Materials. Before
distributing, selling, advertising, or promoting any of the Licensed Products,
Licensee shall furnish to Licensor, free of cost, for its written approval, the
following in the order listed: (i) sketches; (ii) finished artwork and final
proofs; (iii) pre-production samples or strike-offs; (iv) the number of
post-production samples of each Licensed Product as set forth in Schedule K; and
(v) all other finished cartons, labels, containers, packing and wrapping
material, and similar materials upon which the Property appears (collectively
the "Related Materials"). The Licensed Products and the Related Materials are
subject to the written approval of Licensor.
(c) Packaging/Components. Licensor shall have the right to approve how the
Property is packaged in assortments, and shall have the right to approve which
components of the Property shall be included in combination with other
components of the Property.
(d) Additional Samples. In addition to the samples provided to Licensor
pursuant to Paragraph 5(b), Licensor may request, from time to time, up to
twelve (12) samples per year, individual random samples of each Licensed Product
and the Related Materials.
Nintendo Merchandise License Agreement Page 2
<PAGE>
(e) Notices. Licensee shall cause to appear on or within each Licensed
Product and all Related Materials the notice set forth in Schedule G, or other
notice specified by Licensor.
(f) Advertising, Promotional and Display Materials. Before finalizing,
using or distributing any advertising, promotional, display or other similar
materials bearing the Property, Licensee shall furnish same to Licensor for its
written approval.
(g) Approvals. With respect to all approvals by Licensor required under
this Paragraph 5, each item submitted by Licensee shall be deemed disapproved if
Licensee has not received the written approval of Licensor of the item in
question within ten (10) days after its submission by Licensee to Licensor.
Nothing herein, however, shall be deemed to obligate Licensor to respond to any
such submission within the ten (10) day period.
6. ARTWORK AND OWNERSHIP OF PROPERTY:
(a) Artwork. Licensor shall provide to Licensee, free of charge, one set
of camera-ready black and white artwork (depicting some, but not necessarily
all, of the Property) that Licensor generally makes available to its merchandise
licensees. All artwork and related material involving the Property,
notwithstanding their invention, creation, or use by Licensee, shall be and
remain the property of Licensor, and Licensor shall be entitled to use the same
and to license the use of same by others without restriction.
(b) Ownership of Property. Licensee recognizes all of Licensor's rights
and interests in and to the Property, and that all use of the Property licensed
hereunder inures to the benefit of Licensor or its grantor(s). No right, title,
or interest, except the license interest granted by Paragraph 1 hereof, is
transferred by this Agreement. At the termination or expiration of this
Agreement, Licensee will be deemed to have assigned, transferred and conveyed to
Licensor or its grantor(s) all trademarks, service marks, trade dress,
copyrights, equities, good will, titles or other rights in and to the Property
which may have been obtained by Licensee or which may have vested in Licensee as
a result of its activities under this Agreement, and that Licensee will, at
Licensor's expense in connection with the preparation thereof, execute any
instruments reasonably requested by Licensor to confirm the foregoing. No
consideration other than the mutual covenants and consideration of this
Agreement shall be necessary for any such assignment, transfer or conveyance.
Licensor shall acquire no right, title or interest in or to any trademarks owned
by Licensee and used by Licensee in connection with the Property, which rights
shall be and remain those of Licensee.
7. DISTRIBUTION:
(a) Marketing Date. Licensee shall diligently and continuously
manufacture, sell, distribute, advertise, and promote the Licensed Products
during the Term, and shall make and maintain adequate arrangements for the
distribution of the Licensed Products. Licensee shall offer the Licensed
Products for sale in substantial quantities by the marketing date specified in
Schedule H, with delivery within a reasonable time thereafter, including at
least one of the Licensed Products in each of the categories listed in Schedule
B. If, at any time thereafter, Licensee for a period of three (3) consecutive
months has failed to sell any of the Licensed Products (or any class or category
of the Licensed Products) covered hereunder, Licensor, in addition to all other
remedies available to it hereunder, may terminate this license with respect to
such Licensed Products or class or category thereof which have not been so sold
during such period by giving written notice of termination to such effect to
Licensee, which shall become effective thirty (30) days thereafter.
(b) Sale/Distribution. With regard to the sale and distribution of the
Licensed Products covered by this Agreement, Licensee agrees as follows:
(i) Licensee shall sell and distribute the Licensed Products
outright and not on an approval, consignment, or guaranteed sale or
return basis;
(ii) Licensee shall sell and distribute the Licensed Products
to jobbers, wholesalers, distributors, retail stores, and merchants
for sale or distribution directly to the public and may also sell to
catalog companies and home shopping networks;
Nintendo Merchandise License Agreement Page 3
<PAGE>
(iii) Except with the prior written consent of Licensor,
Licensee shall not directly or indirectly sell or distribute the
Licensed Products for Promotional Purposes (defined below).
Licensor specifically reserves the right unto itself to use,
manufacture, sell, and/or directly or indirectly distribute, or
license third parties to use, manufacture, sell, and/or distribute,
products similar to or the same as the Licensed Products, which may
use all, some, or none of the Property, for Promotional Purposes.
Promotional Purposes shall be defined to include any of the
following, regardless of whether the product(s) is given away free
or a fee is charged to the end consumer: promotions including
on-pack promotions, in-pack promotions, instant win games, tours or
exhibitions; and any other premium or promotion; any giveaway; any
sweepstakes or contest; any mail order; any movie, video, or show,
or record-related promotion, premium, or publicity; or any other
similar type of publicity. Licensee specifically acknowledges that
Licensor may exercise its rights contained in this paragraph
concurrently with the rights exercised to Licensee under this
Agreement.
(iv) Except with the prior written consent of Licensor,
Licensee will not use, or knowingly permit the use of, the Licensed
Product as a Premium (defined herein). The term "Premium" includes,
but is not limited to, free or self-liquidating items offered to the
public in conjunction with the sale or promotion of a product or
service, including traffic building or continuity visits by the
consumer/customer, or any similar scheme or device, the prime intent
of which is to use the Licensed Product(s) in such a way as to
promote, publicize and/or sell the products, services, or business
image of the third party company or manufacturer. "Premium" also
includes distribution of the Licensed Products for retail sale
through distribution channels offering earned discounts or "bonus"
points based upon the extent of usage of the offeror's product or
service.
(v) In the event any sale is made at a special price to any of
Licensee's subsidiaries or to any other person, firm or corporation
related in any manner to Licensee, or its officers, directors, or
major stockholders, there shall be a royalty paid on such sales
based upon the price generally charged the trade by Licensee.
(c) Suggested Retail Price. Licensee agrees to keep Licensor, at
Licensor's request, advised of the wholesale and suggested retail prices at
which Licensee sells the Licensed Products covered hereunder.
(d) Sales to Licensor. Licensee agrees to sell to Licensor such reasonable
quantities of the Licensed Products as Licensor shall request at as low a rate
and on as good terms as Licensee sells similar quantities of the Licensed
Products to the general trade.
8. LICENSOR'S WARRANTY: Licensor represents and warrants that, to the best of
its knowledge, it holds all such rights and interest in the Property as are
required to permit Licensor to enter into this Agreement and expressly warrants
that Licensor is authorized to enter into this Agreement. With respect to any
claim or suit that Licensor is not possessed of such right, title, and interest
in the Property as to be entitled to grant this license to Licensee, Licensor
shall have the option to undertake and conduct the defense of any suit so
brought and no settlement of any such claim or suit shall be made without the
prior written consent of Licensor. Licensee agrees to cooperate fully with
Licensor in any such action.
9. PROTECTION OF LICENSOR'S RIGHTS: Licensee agrees to assist Licensor, at
Licensor's sole cost and expense, to the extent reasonably necessary to protect
Licensor's rights to the Property. Licensor or its grantor(s) may commence or
prosecute any claims or suits in their own name or, subject to Licensee's
consent, not to be unreasonably withheld, in the name of Licensee or join
Licensee as a party thereto. Licensee shall promptly notify Licensor in writing
of any infringements or imitations of the Property on Licensed Products similar
to those covered by this Agreement which may come to Licensee's attention, and
Licensor shall have the sole right to determine whether or not any action shall
be taken on account of any such infringements or imitations. Licensee shall not
institute any suit or take any actions on account of any such infringements or
imitations without first obtaining the written consent of the Licensor.
Nintendo Merchandise License Agreement Page 4
<PAGE>
10. INDEMNIFICATION BY LICENSEE: Licensee shall indemnify Licensor and shall
defend Licensor against, and hold Licensor harmless from, all claims,
liabilities, suits, losses, damages, and expenses (including reasonable
attorneys' fees) brought by a third party against Licensor arising out of or
relating to:
(a) any alleged or actual unauthorized use of any intellectual property
right (including, but without limitation, any copyright, patent, trademark, or
other intellectual property right) by Licensee in connection with the Licensed
Products (except for claims that the Property infringes any copyright, patent,
or trademark), or
(b) any alleged or actual defect in the Licensed Products (including, but
without limitation, any claim or product liability); or
(c) any alleged or actual act or omission by Licensee or Licensee's agents
or employees (whether wrongful, negligent, or otherwise) in connection with the
Licensed Products or this Agreement.
As used in this paragraph, "Licensor" shall also include the grantor(s),
officers, directors, agents, and employees of Licensor, its subsidiaries, and
affiliates. This indemnity shall survive the termination or expiration of this
Agreement.
11. INSURANCE:
(a) Type of Insurance/Amount. During the Term and any Renewal Term,
Licensee shall obtain and maintain, at its own expense comprehensive general
liability insurance (including products' liability insurance), from an insurance
company reasonably acceptable to Licensor, providing adequate protection for
Licensee against any claims, liabilities, suits, losses, damages and expenses
arising out of or relating to the circumstances set forth in Paragraph 10, in
the amount of U.S. (U.S. $ ) or the
maximum amount available in the Territory, whichever is lower, per incident or
occurrence, with a reasonable deductible. If General Civil Insurance is solely
available in the Territory, during the Term and any Renewal Term, Licensee shall
obtain and maintain, at its own expense, a General Civil Insurance Policy in
accordance with the conditions specified in this subparagraph; provided,
however, if such General Civil Insurance does not include products' liability
coverage and products' liability coverage thereafter becomes available in the
Territory, Licensee shall immediately obtain such products liability coverage
through the remainder of the Term and any Renewal Term. Such insurance shall
remain in full force during the Term, any Renewal Term, and for a period of
three (3) years thereafter.
(b) Certificate/Additional Insured. Simultaneously with the execution of
this Agreement, and thereafter as requested by Licensor, Licensee shall provide
Licensor and Agent with a certificate of insurance (the original or a
translation of which must be provided in English) evidencing such insurance.
Licensor and Agent shall be named as additional insureds on such insurance
coverage; provided, however, such requirement may be waived by Licensor if
Licensee submits a written opinion of Licensee's attorney or insurance agent
that such additional insured coverage is not available as a matter of law or
local practice.
12. DEFAULT AND TERMINATION: If a petition in bankruptcy is filed by or against
Licensee, or if Licensee becomes insolvent, or makes an assignment for the
benefit of its creditors or an arrangement pursuant to any bankruptcy law, or if
Licensee discontinues its business or if a receiver is appointed for it or its
business, to the fullest extent permitted by law at the time of the occurrence,
the license hereby granted shall automatically terminate forthwith without any
notice whatsoever being necessary. In the event this license is so terminated,
Licensee, its receivers, representatives, trustees, agents, administrators,
successors, and/or assigns shall have no right to sell, exploit, or in any way
deal with or in any Licensed Products or any Related Material.
13. BREACH: If Licensee breaches any covenant or fails to perform any of its
obligations under the terms of this Agreement, Licensor shall have the right to
terminate the license hereby granted upon thirty (30) days' notice in writing,
except as otherwise provided herein, and except that with regard to any failure
or breach relating to copyright, trademark or service mark notices, monetary
payments or royalty statements, the notification period shall be fifteen (15)
days, and such termination shall become effective automatically (without any
obligation to serve any notice of termination or to accomplish any formality or
undertake any court proceeding) unless Licensee shall take reasonable steps to
completely remedy the failure or breach within either the fifteen (15) or thirty
(30) day period as appropriate. Termination of the license under the provisions
of this paragraph shall be without prejudice to any
Nintendo Merchandise License Agreement Page 5
<PAGE>
rights which Licensor may otherwise have against Licensee. Upon termination of
this license, all royalties on sales theretofore made shall become immediately
due and payable; no advances against royalties shall be repayable; and the
balance of any minimum royalty shall be immediately due and payable.
Furthermore, in the event that litigation of any nature with respect to the
performance by Licensee or Licensor of its obligations hereunder is initiated,
then and in such event, the prevailing party's costs and expenses, including
reasonable attorneys' fees, shall be reimbursed promptly by the non-prevailing
party to the prevailing party.
14. FINAL STATEMENT UPON TERMINATION OR EXPIRATION: Sixty (60) days before the
expiration of this license and, in the event of its termination, ten (10) days
after receipt of notice of termination or the happening of the event which
terminates this Agreement where no such notice is required, a statement showing
the number and description of Licensed Products covered by this Agreement on
hand or in process shall be furnished by Licensee to Licensor. Licensor shall
have the right to take a physical inventory to ascertain or verify such
inventory and statement, and refusal by Licensee to submit to such physical
inventory by Licensor shall forfeit Licensee's right to dispose of such
inventory, Licensor retaining all other legal and equitable rights Licensor may
have in the circumstances.
15. DISPOSAL OF STOCK UPON TERMINATION OR EXPIRATION: After termination or
expiration of this Agreement, except as otherwise provided herein, Licensee may
dispose of Licensed Products covered by this Agreement which are on hand or in
process at the time notice of termination is received or upon the expiration
date, for the sell-off period set forth in Schedule L on a non-exclusive basis,
provided Licensee is not in breach or otherwise in default under this Agreement.
All applicable royalties shall be paid on Licensed Products sold during the
sell-off period within twenty (20) days following the expiration of the sell-off
period. Notwithstanding anything to the contrary herein, Licensee shall not
manufacture, sell, or dispose of any Licensed Products covered by this license
after its expiration or its termination based on the failure of Licensee to
comply with Paragraph 5.
16. EFFECT OF TERMINATION OR EXPIRATION: Upon and after the expiration or
termination of this license, all rights granted to Licensee hereunder shall
forthwith revert to Licensor, and Licensee will refrain from further use of the
Property or any further reference to it, direct or indirect, or anything deemed
by Licensor to be similar to the Property in connection with the manufacture,
sale, distribution, or promotion of Licensee's products, except as provided in
Paragraph 15.
17. LICENSOR'S REMEDIES: Licensee acknowledges that its failure (except as
otherwise provided herein) to cease the manufacture, sale, distribution,
advertising, or promotion of the Licensed Products covered by this Agreement or
any class or category thereof at the termination or expiration of this Agreement
or any portion thereof may result in immediate and irreparable damage to
Licensor and to the rights of any subsequent licensee. Licensee acknowledges and
admits that there is no adequate remedy at law for such failure to cease
manufacture, sale, distribution, advertising, or promotion, and Licensee agrees
that in the event of such failure, Licensor shall be entitled to equitable
relief by way of temporary and permanent injunctions and such other and further
relief as any court of competent jurisdiction may deem just and proper.
18. NOTICES: All notices and statements required under this Agreement shall be
in writing addressed to the parties at the addresses above, unless notification
of a change of address is given in writing. The date of mailing shall be deemed
the date the notice or statement is given.
19. RELATIONSHIP BETWEEN THE PARTIES: Neither party shall represent itself as
the agent or legal representative of the other party for any purpose whatsoever,
and neither party shall have the right to create or assume any obligation of any
kind, express or implied, for or on behalf of the other party in any way
whatsoever. This Agreement shall not create or be deemed to create any agency,
partnership, or joint venture between the parties.
20. NO ASSIGNMENT OR SUBLICENSE: This Agreement shall not be assigned or
sublicensed by Licensee, except with the prior written consent of Licensor,
which consent shall not be unreasonably withheld, and shall not be assigned by
operation of law. Any assignment or sublicense in violation of the preceding
sentence shall be null and void. This Agreement may be assigned by Licensor upon
written notice to Licensee but without any consent, provided, however, that any
such assignment shall not release the Licensor from its obligations to the
Licensee under this Agreement. Subject to such restriction and to the
restriction against assignment by operation of law
Nintendo Merchandise License Agreement Page 6
<PAGE>
provided above, this Agreement shall be binding upon and inure to the benefit
of the parties, their successors and assigns. Nothing herein shall be deemed to
prevent Licensee from causing the Licensed Products to be manufactured by other
parties, subject to the terms and conditions of this Agreement. If any
manufacturing of the Licensed Products shall be conducted outside the Territory,
Licensee shall advise Licensor in advance of the name, address and manufacturing
location and any third party subcontractors shall sign the "Manufacturer's
Agreement" set forth in Exhibit A annexed hereto.
21. FORCE MAJEURE: The inability of Licensee to commence or complete its
obligations hereunder by the dates herein required resulting from delays caused
by strikes, picketing, insurrection, acts of God, war, emergencies, shortages,
or unavailability of materials, limitations imposed by exchange control
regulations or foreign investments regulations, or other causes beyond
Licensee's reasonable control, shall excuse performance during the continuation
thereof and extend the period for the performance of the obligations for the
period equal to the period(s) of any such delay(s). Notwithstanding the
foregoing, in the event performance by Licensee is suspended for three (3)
consecutive months in accordance with this Paragraph 21, then Licensor may, by
written notice to Licensee, elect to terminate this Agreement.
22. ENTIRE AGREEMENT: This Agreement is intended by the parties as a final and
complete expression of their agreement, and supersedes any and all prior and
contemporaneous agreements and understandings relating to it.
23. MODIFICATION AND WAIVER: This Agreement may not be modified and none of its
terms may be waived, except in writing signed by both parties. The failure of
either party to enforce, or the delay by either party in enforcing, any of its
rights shall not be deemed a continuing waiver or a modification of this
Agreement.
24. SEPARABILITY: If any part of this Agreement shall be declared invalid or
unenforceable by a court of competent jurisdiction, it shall not affect the
validity of the balance of this Agreement, provided, however, that if any
provision of this Agreement pertaining to the payment of monies to Licensor
shall be declared invalid or unenforceable, Licensor shall have the right, at
its option, to terminate this Agreement upon giving not less than ten (10) days'
written notice to Licensee.
25. PARAGRAPH HEADINGS: The headings of the paragraphs are for convenience only
and in no way limit or affect the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year first above written.
LICENSOR: LICENSEE:
NINTENDO OF AMERICA INC.
By: Leisure Concepts, Inc.
Merchandising Licensing Agent Ambassador Eyewear Group
By /s/ [Illegible] By /s/ [Illegible]
--------------------------- ----------------------------
Al Kahn, Chief Executive officer or Its President
Joe Garrity, Chief Financial Officer
Date_____________________ Date 2/28/97
Nintendo Merchandise License Agreement Page 7
<PAGE>
Nintendo
Merchandise License Agreement
SCHEDULE PAGE
Schedules Annexed to the License Agreement dated as of February 21, 1997,
between Nintendo of America Inc. ("Licensor") and Ambassador Eyewear Group
("Licensee").
Schedule A: The Property: The following trademarks and characters and artwork
associated with the listed video game/story or audiovisual work of the same
name: Nintendo, Nintendo 64, N64, Nintendo Sports, Game Boy, Game Boy Pocket,
Super Mario 64, Super Mario Kart, Donkey Kong Country
Schedule B: Licensed Products: License for prescription eyewear and sunglasses;
non-prescription sunglasses featuring
polycarbonate lenses.
Schedule C: Territory: "U.S., its territories and possessions, Canada,
Mexico, Panama, Guatemala, Costa Rica, Honduras,
El Salvador, Belize, Venezuela, Colombia,
Ecuador, Chile, Argentina, Paraguay, Uruguay,
Peru, Trinidad, Barbados, Jamaica, Bermuda,
Grenada, Dominican Republic, St. Maarten,
Guadaloupe, Martinique, Curacao, Antigua,
Bahamas, St. Lucia, British Virgin Islands and
France."
Schedule D: Term: January 1, 1998 through December 31, 2000
Renewal Term: Licensee shall have the option to renew this
Agreement upon the same terms and conditions for one three year term, such
option exercisable by written notice to Licensor to such effect at least thirty
(30) days prior to the end of the Term, provided that (i) Licensee is not in
breach of this agreement and (ii) during the Term, royalties paid or due to be
paid by Licensee equal at least $ . In the event of such exercise, said
written notice shall be accompanied by the requisite advance payment for the
Renewal Term as provided in Schedule F below.
Schedule E: Royalty Rate: % of the in territory net sales price
Schedule F: Minimum Royalty during the Term:
Advance Payment: $ ($ due on or before
December 31, 1998; $ due on or
before December 31, 1999; $ due
on or before December 31, 2000)
All yearly advances due are to be paid
in equal quarterly installments.
Minimum Guarantee (due by end of the term): $
Nintendo Merchandise License Agreement Page 8
<PAGE>
Nintendo
Merchandise License Agreement
SCHEDULE PAGE
Minimum Royalty during the Renewal Term:
Advance Payment (due on first day): $
Minimum Guarantee (due by end of the term): $
Schedule G: Notice: (TM) & (C) [year of first use] Nintendo. All Rights
Reserved.
Schedule H: Marketing Date: January 1, 1998
Schedule I: Currency: U.S. Dollars
Schedule J: Agent's Name and Address:
Leisure Concepts, Inc.
1414 Avenue of the Americas, 6th Floor
New York, New York 10019
Schedule K: Number of Samples of Each Licensed Product: 12
Schedule L: Sell-Off Period: 180 Days
Contract #2683
Nintendo Merchandise License Agreement Page 9
<PAGE>
Exhibit 10.32
MEMORANDUM OF AMENDMENT
This is an Amendment to that certain License Agreement dated January 1,
1992, as previously amended, between HASBRO TOY GROUP, a division of Hasbro,
Inc., with its principal place of business at 1027 Newport Avenue, Pawtucket,
Rhode Island 02862-1059 ("Licensor") and Diplomat Optical Company, to which
DIPLOMAT-AMBASSADOR, INC., is successor-in-interest, with its principal place of
business at 4211 Van Kirk Street, Philadelphia, Pennsylvania 19135 ("Licensee").
RECITALS:
A. Pursuant to the License Agreement, Licensor granted a license to
Licensee to manufacture, distribute, promote and sell certain products, sold in
association with the trademark "PLAYSKOOL." Capitalized terms used in this
Agreement and not otherwise defined shall have the meanings given to such terms
in the License Agreement
B. Licensor and Licensee desire to modify and amend the License Agreement.
AGREEMENT:
In consideration of the mutual covenants and agreements in the License
Agreement and this Amendment the parties agree as follows:
1. The Term of the License Agreement is hereby renewed for an
additional three-year period commencing January 1, 1996 and
continuing through December 31, 1998 ("Second Renewal Term").
2. The Royalty Rate for the Second Renewal Term is % of Net Sales.
3. Licensee guarantees that, for sales of the Licensed Articles during
the Second Renewal Term referenced above, Licensee shall pay
Licensor not less than United States Dollars ($ ) payable
as follows:
$ due by December 15, 1996
$ due by December 15, 1997
$ due by December 15, 1998.
4. If Licensee's sales exceed United States Dollars
($ ) during the Second Renewal Term, and all other terms
and conditions of the License Agreement are satisfied, Licensee may
renew the Term of the License Agreement for an additional two-year
period commencing January 1, 1999 and continuing through December
31, 2000 ("Third Renewal
Word Processing Document No. 672-A3. JHM/DDM. Drafted 11/8/95. (C) 1995 Hasbro,
Inc. All rights reserved. This document shall not be deemed an offer and shall
not be binding unless signed by all parties.
<PAGE>
Term"). The Royalty Rate for the Third Renewal Term will be % and the
Guarantee will be United States Dollars ($ ) payable as follows:
$ due by December 15, 1999
$ due by December 15, 2000.
5. Except as specifically modified or amended by this Agreement, all of
the terms and conditions of the License Agreement are unmodified and
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands this ____
day of November, 1995.
HASBRO TOY GROUP, DIPLOMAT-AMBASSADOR, INC.
a division of Hasbro, Inc.
By: /s/ S. Hartley By: /s/ Barry Budilov
--------------------------- ---------------------------------
Title: General Manager Title: President
2
<PAGE>
LICENSE RENEWAL AGREEMENT
-------------------------
AGREEMENT dated as of this 22nd day of September, 1997 between KENNETH
JAY LANE, INC. ("Licensor"), a New York corporation with offices at 20 West
37th Street, New York, New York 10018 and DIPLOMAT AMBASSADOR, INC. d/b/a
Ambassador Eyewear Group ("Licensee"), a Delaware corporation and assignee of
Windsor Optical Inc. with offices at 3600 Marshall Lane, Bensalem,
Pennsylvania 19020.
W I T N E S S E T H:
--------------------
WHEREAS, Licensor and Windsor Optical Inc. ("Windsor") entered into a
license agreement dated as of April 1, 1994 as amended subsequently thereto
(the "License Agreement"), pursuant to which Licensor granted to Windsor an
exclusion license to use the mark "KENNETH JAY LANE", as more particularly
described in the License Agreement, for an initial term to expire on
September 30, 1997;
WHEREAS, Licensor heretofore consented to the assignment of the License
Agreement by Windsor to Licensee in June 1996; and
WHEREAS, Licensor and Licensee desire to renew and amend the License
Agreement in the manner hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledge, the parties covenant and agree
as follows:
<PAGE>
1. All capitalized terms used herein have the same meaning that are
ascribed to them in the License Agreement, unless otherwise indicated herein.
2. The "Annual Period" defined in Section 1(f) of the License Agreement
is hereby amended to read as follows:
(f) The "Annual Period" shall be from October 1 to the next
succeeding September 30, except that the last Annual Period
shall be from the last October 1 during the Agreement to the
termination date of the Agreement.
3. Section 2 (a) of the License Agreement is hereby amended to read as
follows:
(a) The term of this Agreement shall be for the period commencing
on the date of this Agreement and ending September 30, 2000.
4. The "Guaranteed Minimum Fee" defined in Section 5(a)(i) for each
Annual Period is hereby amended to read as follows:
Annual Period Guaranteed Minimum Fee
------------- ----------------------
Fourth $[ ]
Fifth $[ ]
Sixth $[ ]
5. The first sentence of Section 5(a)(ii) is hereby deleted in its
entirety and amended to read as follows:
The Guaranteed Minimum Fee for each respective Annual Period shall
be paid in four equal quarterly installments on the first day of
each October, January, April and July during such Annual Period.
6. Licensor hereby warrants and represents that as of the date hereof,
Licensee is not in default in the performance of any of its obligations under
the License Agreement.
<PAGE>
7. Except as otherwise expressly provided by this Agreement, the
License Agreement shall continue, as hereby extended and as modified herein,
pursuant to all the terms, covenants, provisions and conditions of the License
Agreement and each and every such covenant, provision and condition of the
License Agreement is hereby continued, ratified and continued.
IN WITNESS WHEREOF, Licensor and Licensee have respectively executed this
Amendment as of the day and year first above written.
KENNETH JAY LANE, INC.
By: /s/ Kenneth Jay Lane
--------------------
Name:
Title:
DIPLOMAT AMBASSADOR
By: /s/ Barry Krantz
--------------------
Barry, Krantz, President
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
1997 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the Ambassador Eyewear Group, Inc. Stock Option Plan (the
"Plan") is to provide an additional incentive to directors, key employees,
independent contractors, agents and consultants of Ambassador Eyewear Group,
Inc. (the "Company") to aid in attracting and retaining directors, employees,
independent contractors, agents and consultants of outstanding ability, and to
align their interests with those of shareholders.
SECTION 2. DEFINITIONS
Unless the context clearly indicates otherwise, the following terms, when
used in this Plan, shall have the meanings set forth in this Section 2.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986 and the rules and
regulations thereunder, as it or they may be amended from time to time.
(c) "COMMITTEE" shall mean the full Board, Compensation Committee of the
Board or such other committee as may be designated by the Board. If less than
the full Board, the Committee shall consist of two or more members of the Board
who are not eligible to participate in the Plan, and who otherwise are
"non-employee directors" under Rule 16b-3.
(d) "DATE OF EXERCISE" shall mean the earlier of the date on which written
notice of exercise, together with payment in full, is received at the office of
the Secretary of the Company or the date on which such notice and payment are
mailed to the Secretary of the Company at its principal office by certified or
registered mail.
(e) "DIRECTOR" shall mean a member of the Board of Directors.
(f) "EMPLOYEE" shall mean any employee or any officer of the Company or
any of its Subsidiaries, or any other person, who is an independent contractor,
agent or consultant of the Company or any of its Subsidiaries, and excluding any
director of the Company who is not otherwise an employee of the Company. For
the purposes of any provision of this Plan relating to Incentive Stock Options,
the term "Employee" shall be limited to mean any employee (as that term is
defined under Code Section 3401(c)) or officer of the Company or any of its
Subsidiaries, but not any person who is merely an independent contractor, agent
or consultant of the Company or any of its subsidiaries.
(g) "FAIR MARKET VALUE" of the Stock means, for all purposes of the Plan
unless otherwise provided (i) the mean between the high and low sales prices of
the Stock as reported on the National Market System or Small Cap Market of the
National Association of Securities Dealers, Inc., Automated Quotation System, or
any similar system of automated dissemination of quotations of securities prices
then in common use, if so quoted, or (ii) if not quoted as described in clause
(i), the mean between the
<PAGE>
high bid and low asked quotations for the Stock as reported by a the National
Quotation Bureau Incorporated or such other source as the Committee shall
determine, or (iii) if the Stock is listed or admitted for trading on any
national securities exchange, the mean between the high and low sales price, or
the closing bid price if no sale occurred, of the Stock on the principal
securities exchange on which the Stock is listed. In the event that the method
for determining the Fair Market Value of the Stock provided for above shall
either be not applicable or not be practical, in the opinion of the Committee,
then the Fair Market Value shall be determined by such other reasonable method
as the Committee, in its discretion, shall select and apply.
(h) "GRANTEE" shall mean an Employee granted a Stock Option.
(i) "GRANTING DATE" shall mean the date on which the Committee authorizes
the issuance of a Stock Option for a specified number of shares of Stock to a
specified Employee.
(j) "INCENTIVE STOCK OPTION" shall mean a Stock Option granted under the
Plan which is properly qualified under the provisions of Section 422 of the
Code.
(k) "NONSTATUTORY STOCK OPTION" shall mean a Stock Option granted within
the Plan which is not an Incentive Stock Option or otherwise qualified under
similar tax provisions.
(l) "RULE 16B-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
or any rule in replacement thereof.
(m) "STOCK" shall mean the Common Stock, par value $.01 per share, of the
Company.
(n) "STOCK OPTION" shall mean an Incentive Stock Option or Nonstatutory
Stock Option granted pursuant to the Plan to purchase shares of Stock.
SECTION 3. SHARES OF STOCK SUBJECT TO THE PLAN
The Company shall 150,000 shares of Stock for issuance upon the exercise of
Stock Options granted pursuant to this Plan. Shares delivered under the Plan
may be authorized and unissued shares or issued shares held by the Company in
its treasury. If any Stock Options expire or terminate without having been
exercised, the shares of Stock covered by such Stock Option shall become
available again for the grant of Stock Options hereunder. Similarly, if any
Stock Options are surrendered for cash pursuant to the provisions of Section 7,
the shares of Stock covered by such Stock Options shall also become available
again for the grant of Stock Options hereunder. Shares of Stock covered by
Stock Options surrendered for Stock pursuant to Section 7, however, shall not
become available again for the grant of Stock Options hereunder.
SECTION 4. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Committee. Subject to the
express provisions of the Plan, the Committee shall have authority to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating to it,
to determine the terms and provisions of Stock Option grants, and to make all
other determinations necessary or advisable for the administration of the Plan.
2
<PAGE>
(b) It is intended that the Plan and any transaction hereunder meet all of
the requirements of Rule 16b-3 promulgated by the Securities and Exchange
Commission, as such rule is currently in effect or as hereafter modified or
amended, and all other applicable laws. If any provision of the Plan or any
transaction would disqualify the Plan or such transaction under, or would not
comply with, Rule 16b-3 or other applicable laws, such provision or transaction
shall be construed or deemed amended to conform to Rule 16b-3 or such other
applicable laws or otherwise shall be deemed to be null and void, in each case
to the extent permitted by law and deemed advisable by the Committee.
(c) Any controversy or claim arising out of or related to this Plan shall
be determined unilaterally by and at the sole discretion of the Committee.
SECTION 5. GRANTING OF STOCK OPTIONS
(a) Directors, Key Employees, independent contractors, agents and
consultants to the Company shall be eligible to receive Stock Options under the
Plan. Only Employees shall be eligible to receive Incentive Stock Options under
the Plan.
(b) The option price of each share of Stock subject to an Incentive Stock
Option shall be at least 100% of the Fair Market Value of a share of the Stock
on the Granting Date.
(c) The option price of each share of Stock subject to a Nonstatutory
Stock Option shall be 100% of the Fair Market Value of a share of the Stock on
the Granting Date, or such other price either greater than or less than the Fair
Market Value (but in no event less than the par value of the Stock) as the
Committee shall determine appropriate to the purposes of the Plan and to the
Company's total compensation program.
(d) The Committee shall determine and designate from time to time those
persons who are to be granted Stock Options and whether the particular Stock
Options are to be Incentive Stock Options or Nonstatutory Stock Options, and
shall also specify the number of shares covered by and the option price per
share of each Stock Option. Each Stock Option granted under the Plan shall be
clearly identified as to its status as a Nonstatutory Stock Option or an
Incentive Stock Option.
(e) The aggregate Fair Market Value (determined at the time the Stock
Option is granted) of the Stock with respect to which Incentive Stock Options
are exercisable for the first time by any individual during any calendar year
(under all plans of the individual's employer corporation) shall not exceed
$100,000.
(f) A Stock Option shall be exercisable during such period or periods and
in such installments as shall be fixed by the Committee at the time the Stock
Option is granted or in any amendment thereto; but each Stock Option shall
expire not later than ten years from the Granting Date.
(g) The Committee shall have the authority to grant both transferable
Stock Options and nontransferable Stock Options, and to amend outstanding
nontransferable Stock Options to provide for transferability. Each
nontransferable Stock Option intended to qualify under Rule 16b-3 or otherwise
shall provide by its terms that it is not transferable otherwise than by will or
the laws of descent and distribution or, except in the case of Incentive Stock
Options, pursuant to a "qualified domestic relations order" as defined by the
Code, and is exercisable, during the Grantee's lifetime, only by the Grantee.
Each transferable Stock Option may provide for such limitations on
transferability and exercisability as
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the Committee may designate at the time a Stock Option is granted or is
otherwise amended to provide for transferability.
(h) Stock Options may be granted to an Employee or Director who has
previously received Stock Options or other options whether such prior Stock
Options or other options are still outstanding, have previously been exercised
or surrendered in whole or in part, or are canceled in connection with the
issuance of new Stock Options.
(i) Notwithstanding the foregoing, the option price of an Incentive Stock
Option in the case of a Grantee who owns more than ten percent of the total
combined voting power of all classes of stock of the Company or any of its
Subsidiaries, will not be less than one-hundred-ten percent (110%) of the Fair
Market Value of the Stock at the Granting date and in the case of such a
Grantee, the Incentive Stock Option may be exercised no more than five years
after the Granting Date.
SECTION 6. EXERCISE OF STOCK OPTIONS
(a) Except as provided in Section 7, no Incentive Stock Option may be
exercised at any time unless the Grantee has been an Employee at all times
during the period beginning on the Granting Date and ending on the day 3 months
before the date of such exercise.
(b) The Grantee shall pay the option price in full on the Date of Exercise
of a Stock Option in cash, by check, or by delivery of full shares of Stock of
the Company, duly endorsed for transfer to the Company with signature
guaranteed, or by any combination thereof. Stock will be accepted at its Fair
Market Value on the Date of Exercise.
(c) Subject to the approval of the Committee, or of such person to whom
the Committee may delegate such authority ("its designee"), and subject further
to the applicable regulations of any governmental authority, the Company may
loan to the Grantee a sum equal to an amount which is not in excess of 100% of
the purchase price of the shares of Stock acquired upon exercise of a Stock
Option, such loan to be evidenced by the execution and delivery of a promissory
note. Interest shall be paid on the unpaid balance of the promissory note at
such times and at such rate as shall be determined by the Committee or its
designee. Such promissory note shall be secured by the pledge to the Company of
shares of Stock having an aggregate purchase price on the date of purchase equal
to or greater than the amount of such note. A Grantee shall have, as to such
pledged shares of Stock, all rights of ownership including the right to vote
such shares of Stock and to receive dividends paid on such shares of Stock,
subject to the security interest of the Company. Such shares of Stock shall not
be released by the Company from the pledge unless the proportionate amount of
the note secured thereby has been repaid to the Company; provided, however that
shares of Stock subject to a pledge may be used to pay all or part of the
purchase price of any other option granted hereunder or under any other stock
incentive plan of the Company under the terms of which the purchase price of an
option may be paid by the surrender of shares of Stock, subject to the terms and
conditions of this Plan relating to the surrender of shares of Stock in payment
of the exercise price of an option. In such event, that number of the newly
purchased shares of Stock equal to the shares of Stock previously pledged shall
be immediately pledged as substitute security for the pre-existing debt of the
Grantee to the Company, and thereupon shall be subject to the provisions hereof
relating to pledged shares of Stock. All notes executed hereunder shall be
payable at such times and in such amounts and shall contain such other terms as
shall be specified by the Committee or its designee or stated in the option
agreement; provided, however, that such terms shall conform to requirements
contained in any applicable regulations which are issued by any governmental
authority.
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SECTION 7. TERMINATION OF EMPLOYMENT
Except as otherwise provided by the Committee at the time an Incentive
Stock Option is granted or any amendment thereto, if a Grantee ceases to be an
Employee then:
(a) if termination of employment is voluntary or involuntary without
cause, the Grantee may exercise each Stock Option held by the Grantee within
three months after such termination (but not after the expiration date of the
Stock Option) to the extent of the number of shares subject to the Stock Option
which are purchasable pursuant to its terms at the date of termination;
(b) if termination is for cause, all Stock Options held by the Grantee
shall be canceled as of the date of termination;
(c) subject to the provisions of Section 7(d), if termination is (i) by
reason of retirement at a time when the Grantee is entitled to the current
receipt of benefits under any retirement plan maintained by the Company, or (ii)
by reason of disability, each Stock Option held by the Grantee may be exercised
by the Grantee at any time (but not after the expiration date of the Stock
Option) (within one year of termination in the case of Incentive Stock Options)
to the extent of the number of shares subject to the Stock Option which were
purchasable pursuant to its terms at the date of termination;
(d) if termination is by reason of the death of the Grantee, or if the
Grantee dies after retirement or disability as referred to in Section 7(c), each
Stock Option held by the Grantee may be exercised by the Grantee's estate, or by
any person who acquires the right to exercise the Stock Option by reason of the
Grantee's death, at any time within a period of three years after death (but not
after the expiration date of the Stock Option) to the extent of the total number
of shares subject to the Stock Option which were purchasable pursuant to its
terms at the date of termination; or
(e) if the Grantee should die within three months after voluntary
termination of employment or involuntary termination without cause, as
contemplated in Section 7(a), each Stock Option held by the Grantee may be
exercised by the Grantee's estate, or by any person who acquires the right to
exercise by reason of the Grantee's death, at any time within a period of one
year after death (but not after the expiration date of the Stock Option) to the
extent of the number of shares subject to the Stock Option which were
purchasable pursuant to its terms at the date of termination.
SECTION 8. DIRECTOR PARTICIPATION
Except as otherwise provided by the Committee, at the time the Stock
Option, or any amendment thereto, is granted to a Director:
(a) if the Grantee shall cease to be a Director for reasons other than
death, each Stock Option held by the Grantee may be exercised at any time within
three months of the date that the Grantee ceased to be a Director (but not after
the expiration date of the Stock Option) to the extent of the number of shares
subject to the Stock Option which were purchasable pursuant to its terms at date
the Grantee ceased being a Director;
(b) if the Grantee shall cease to be a Director by reason of the death of
the Grantee, each Stock Option held by the Grantee may be exercised by the
Grantee's estate, or by any person who acquires the right to exercise the Stock
Option by reason of the Grantee's death, at any time within a
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period of three years after death (but not after the expiration date of the
Stock Option) to the extent of the total number of shares subject to the Stock
Option which were purchasable pursuant to its terms at the date the Grantee
ceased being a Director.
SECTION 9. ADJUSTMENTS
In the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split or other change in the corporate
structure or capitalization affecting the Stock, there shall be an appropriate
adjustment made by the Committee in the number and kind of shares that may be
granted in the aggregate and to Grantees under the Plan, the number and kind of
shares subject to each outstanding Stock Option and the option prices.
SECTION 10. GENERAL PROVISIONS
(a) Each Stock Option shall be evidenced by a written instrument
containing such terms and conditions, not inconsistent with this Plan, as the
Committee shall approve.
(b) The granting of a Stock Option in any year shall not give the Grantee
any right to similar grants in future years. The granting of a Stock Option in
any year shall not give the Grantee any right to be retained in the employ of
the Company or interfere in any way with the right of the Company to terminate
an Employee's employment at any time.
(c) The Company shall have the right to deduct from any payment or
distribution under the Plan any federal, state or local taxes of any kind
required by law to be withheld with respect to such payments or to take such
other action as may be necessary to satisfy all obligations for the payment of
such taxes. In case distributions are made in shares of Stock, the Company
shall have the right to retain the value of sufficient shares of Stock to equal
the amount of tax to be withheld for such distributions or require a recipient
to pay the Company for any such taxes required to be withheld on such terms and
conditions prescribed by the Committee.
(d) No Grantee shall have any of the rights of a shareholder by reason of
a Stock Option until it is exercised.
(e) This Plan shall be construed and enforced in accordance with the laws
of the State of Delaware (without regard to the legislative or judicial conflict
of laws rules of any state), except to the extent superseded by federal law.
SECTION 11. AMENDMENT AND TERMINATION
(a) The Plan shall terminate on June 5, 2007 and no Stock Option shall be
granted hereunder after that date, provided that the Board may terminate the
Plan at any time prior thereto.
(b) The Board may amend the Plan at any time without notice, provided
however, that the Board may not, without prior approval by the shareholders, (i)
increase the maximum number of shares of Stock for which Stock Options may be
granted, (ii) materially increase the benefits accruing to participants under
the Plan or (iii) materially modify the requirements as to eligibility for
participation in the Plan.
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(c) No termination or amendment of the Plan may, without the consent of a
Grantee to whom a Stock Option shall theretofore have been granted, adversely
affect the rights of such Grantee under such Stock Option.
SECTION 12. EFFECTIVE DATE AND SHAREHOLDERS' APPROVAL
The Plan shall become effective as of June 6, 1997.
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REFERENCE PAGE
BUILDING: 3600 Marshall Lane, Bensalem, PA
LANDLORD: 3600 Meadow Lane Partnership
LANDLORD'S ADDRESS: c/o The Flynn Company
1621 Wood Street
Philadelphia, PA 19103
TENANT: AMBASSADOR EYEWEAR GROUP
TENANT'S ADDRESS: 3600 Marshall Lane, Bensalem, PA
LEASE EXECUTION DATE: July 10, 1997
PREMISES: 64,040 s.f. outlined in red on
6.1304 acres outlined in green on
Exhibit "A"
USE: Office Distribution
PREMISES RENTABLE AREA: 64,040 s.f.
COMMENCEMENT DATE: August 1, 1997 See Addendum
TERMINATION DATE: December 31, 2002
TERM OF LEASE: Five (5) years and six (6) months
ANNUAL BASE RENT: (see note below) $236,948.00 ($3.70/s.f.)
REAL ESTATE TAXES: $ 51,872.40 ($.81/s.f.)
ESTIMATED BUILDING OPERATING EXPENSES:
Insurance $.09 /s.f.
------------
Landscaping and
Snow Removal ____________/s.f.
Maintenance ____________/s.f.
Common Area Electric ____________/s.f.
Water & Sewer ____________/s.f.
Other ____________/s.f.
Total/S.F. $.09 /s.f.
------------
TOTAL OPERATING EXPENSES: $5,763.60
ANNUAL TOTAL RENT: $294,584.00
MONTHLY INSTALLMENT OF RENT: $24,548.67
SECURITY DEPOSIT: $24,548.67 (one month's rent)
TENANT'S PROPORTIONATE SHARE: 100%
REAL ESTATE BROKER DUE COMMISSION: The Flynn Company and
Mallin & Pancelli
SEE ADDENDUM ATTACHED HERETO.
The Reference Page information is incorporated into and made a part
of the Lease. In the event of any conflict between any Reference
Page information and the Lease, the Lease shall control. The Lease
includes Exhibits A through B all of which are made a part hereof.
NOTE: Effective as set forth in the Addendum, the Annual Base Rent shall
be Two Hundred Sixty-two Thousand Five Hundred Sixty-four Dollars
($262,564.00), or Four and 10/100 Dollars ($4.10) per square foot.
LANDLORD: TENANT:
3600 MEADOW LANE PARTNERSHIP AMBASSADOR EYEWEAR GROUP
By: /s/ Kevin Flynn By: /s/ Barry Budilov
------------------------- ----------------------------
Kevin Flynn Barry Budilov
Title: Gen. Partner Title: President
---------------------- -------------------------
Dated: 10 July, 1997 Dated: 7/10/97
---------------------- -------------------------
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TABLE OF CONTENTS
ARTICLE PAGE
REFERENCE PAGE ................................................... ii
1 USE AND RESTRICTIONS ON USE ...................................... 1
2 TERM ............................................................. 1
3 RENT ............................................................. 1
4 REAL ESTATE TAXES ................................................ 2
5 SECURITY DEPOSIT ................................................. 2
6 ALTERATIONS ...................................................... 3
7 TENANT'S REPAIRS ................................................. 3
8 LANDLORD'S REPAIRS ............................................... 4
9 SIGNS ............................................................ 4
10 LIENS ............................................................ 4
11 ASSIGNMENT AND SUBLETTING ........................................ 5
12 INDEMNIFICATION .................................................. 5
13 INSURANCE ........................................................ 6
14 WAIVER OF SUBROGATION ............................................ 6
15 SERVICES AND UTILITIES ........................................... 6
16 HOLDING OVER ..................................................... 6
17 SUBORDINATION .................................................... 7
18 RULES AND REGULATIONS ............................................ 7
19 REENTRY BY LANDLORD .............................................. 7
20 DEFAULT .......................................................... 7
21 REMEDIES ......................................................... 8
22 QUIET ENJOYMENT .................................................. 9
23 DAMAGE BY FIRE, ETC. ............................................. 9
24 EMINENT DOMAIN ................................................... 11
25 SALE BY LANDLORD ................................................. 11
26 ESTOPPEL CERTIFICATE ............................................. 11
27 SURRENDER OF PREMISES ............................................ 11
28 NOTICES .......................................................... 12
29 TAXES PAYABLE BY TENANT .......................................... 12
30 DEFINED TERMS AND HEADINGS ....................................... 12
31 CONFESSION OF JUDGEMENT .......................................... 13
32 ENFORCEABILITY ................................................... 13
33 COMMISSIONS ...................................................... 13
34 TIME AND APPLICABLE LAW .......................................... 13
35 PARKING .......................................................... 13
36 SUCCESSORS AND ASSIGNS ........................................... 13
37 ENTIRE AGREEMENT ................................................. 13
38 EXAMINATION NOT OPTION ........................................... 14
39 RECORDATION ...................................................... 14
40 LIMITATION OF LANDLORD'S LIABILITY ............................... 14
EXHIBIT A -- PREMISES
EXHIBIT B -- LANDLORD'S AND TENANT'S ALTERATIONS
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LEASE
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
the Premises set forth and described on the Reference Page. The Reference Page,
including all terms defined thereon, is hereby incorporated as part of this
Lease.
1. USE AND RESTRICTIONS ON USE.
The Premises shall be continuously used and occupied by Tenant, but only
for the purpose listed on the Reference Page and for such other lawful purposes
as may be incidental thereto, all to the extent permitted by applicable zoning
regulations. Tenant shall at its own cost and expense obtain any and all
licenses and permits necessary for any such use. Tenant shall comply with all
governmental laws, ordinances and regulations applicable to the use of the
Premises and its occupancy thereof, and shall promptly comply with all
governmental orders and directives for the correction, prevention and abatement
of any violations or nuisances in or upon, or connected with, the Premises, all
at Tenant's sole expense. If, as a result of any change in the governmental
laws, ordinances and regulations, the Premises must be altered to lawfully
accommodate Tenant's use and occupancy thereof, such alterations shall be made
only with the consent of Landlord, but the entire cost thereof shall be borne by
Tenant; provided, that, the necessity of Landlord's consent shall in no way
create any liability against Landlord for failure of Tenant to comply, or alter
the Premises to comply, with such laws, ordinances and regulations. Tenant shall
not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or
vibrations to emanate from the Premises, nor take any other action which would
constitute a nuisance or permit any use which would adversely affect the
reputation of the Building. Without Landlord's prior written consent, Tenant
shall not receive, store or otherwise handle any product, material or
merchandise which is explosive or highly flammable. Tenant will not permit the
Premises to be used for any purpose (including, without limitation, the storage
of merchandise) in any manner which would render the insurance thereon void or
increase the insurance rate thereof, and Tenant shall immediately cease and
desist from such use, paying all cost and expense resulting from such improper
use.
2. TERM.
The term of this Lease shall be as indicated on the Reference Page (unless
sooner terminated as herein provided). Landlord shall deliver possession of
the Premises on the Commencement Date.
In the event Landlord shall permit Tenant to occupy the Premises prior to
the Commencement Date, such occupancy shall be subject to all the provisions of
this Lease. Said early possession shall not advance the Termination Date.
3. RENT.
Tenant agrees to pay the Landlord the Annual Rent by paying the Monthly
Installment of Rent on or before the first day of each full calendar month
during the Term, except that the first month's rent shall be paid upon the
execution hereof. Rent for any period during the Term which is
less than one full month shall be a prorated portion of the Monthly Installment
of Rent based upon a 30 day month. Said rent shall be paid to Landlord, without
deduction or offset unless expressly permitted by this Lease and without notice
or demand at the Landlord's address, as set forth on the Reference Page, or to
such other person or at such other place as Landlord may from time to time
designate in writing.
Tenant recognizes that late payment of any rent or other sum due hereunder
will result in administrative expense to Landlord, the extent of which
additional expense is extremely
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<PAGE>
difficult and economically impractical to ascertain. Subject to the terms of the
Addendum, Tenant therefore agrees that if rent or any other sum is due and
payable pursuant to this Lease; and when such amount remaines due and unpaid
ten days after said amount is due, such amount shall be increased by a late
charge in an amount equal to $500.00. The amount of the late charge to be paid
by Tenant shall be reassessed and added to Tenant's obligation for each
successive monthly period until paid. The provisions of this Article in no way
relieve Tenant of the obligation to pay rent or other payments on or before the
date on which they are due, nor do the terms of this Article in any way affect
Landlord's remedies pursuant to Article 21 of this Lease in the event said rent
or other payment is unpaid after the date due.
No security or guarantee which may now or hereafter be furnished to
Landlord for the payment of rent or the performance of Tenant's other
obligations under this Lease shall in any way constitute a bar to the recovery
of the Premises or defense to any action in unlawful detainer or to any other
action which Landlord may bring for a breach of any of the terms, covenants or
conditions of this Lease.
4. REAL ESTATE TAXES.
Tenant agrees to pay when due (with a copy of the receipt sent to
Landlord) all real estate taxes, assessments and governmental charges of any
kind and nature whatsoever (hereinafter collectively referred to as "Taxes")
lawfully levied against the Building, the real property on which it is situated
and the grounds, parking area, driveways and alleys around the Building. Taxes
shall include the following by way of illustration, but not limitation: real
estate taxes; any other such taxes, charges and assessments which are levied
with respect to the Building, and any improvements, fixtures and equipment and
all other property of Landlord, real or personal, located in the Building and
used in connection with the operation of the Building and the land upon which
they are situated including any payments to any ground lessor in reimbursement
of tax payments made by such lessor; fees or assessments for any governmental
services to the Building; service payments in lieu of taxes; dues or assessments
payable to any property owners association due to Landlord's ownership of the
Building; water and sewer charges; and any gross receipts tax and/or any tax
which shall be levied in addition to or in lieu of real estate, possessory
interest or personal property taxes. Any payment to be made pursuant to this
Article with respect to the real estate tax year in which the Lease commences or
terminates shall be prorated.
5. SECURITY DEPOSIT.
Tenant has deposited with Landlord the Security Deposit. Said sum shall be
held by Landlord as security for the faithful performance by Tenant of all the
terms, covenants and conditions of this Lease to be kept and performed by Tenant
and not as an advance rental deposit or as a measure of Landlord's damage in
case of Tenant's default. If Tenant defaults with respect to any provision of
this Lease beyond any applicable cure period, Landlord may use any part of this
Security Deposit for the payment of any rent or any other sum in default, or for
the payment of any amount which Landlord may spend or become obligated to spend
by reason of Tenant's default, or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default. If any portion
is so used, Tenant shall within ten days after written demand thereto deposit
with Landlord an amount sufficient to restore the Security Deposit to its
original amount and Tenant's failure to do so shall be a material breach of this
Lease. Landlord shall not be required to keep this Security Deposit separate
from the general funds, and Tenant shall not be entitled to interest on such
deposit. If Tenant shall fully and faithfully perform every provision of this
Lease to be performed by it, the Security Deposit or any balance thereof shall
be returned to Tenant ten (10) days after termination of this Lease.
Tenant may, at its election, deposit with Landlord an irrevocable letter
of credit in favor of Landlord, said irrevocable letter of credit to be in a
form and drawn upon a commercial bank reasonably satisfactory to Landlord.
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6. ALTERATIONS.
Tenant shall not make or suffer to be made any alterations, additions, or
improvements, including, but not limited to, the attachment of any fixtures or
equipment in, on, or to the Premises or any part thereof or the making of any
improvements as required by Article 7 without the prior written consent of
Landlord, which will not be unreasonably withheld or delayed. Any alteration,
addition or improvement to be done by Tenant as part of Tenant's initial
occupancy shall be specified in Exhibit B. Any alteration, addition, or
improvement in, on, or to the Premises including carpeting, but excepting
movable furniture and personal property of Tenant removable without material
damage to the property or the Premises, shall be and remain the property of
Tenant during the Term but shall, unless Landlord elects otherwise, become a
part of the realty and belong to Landlord without compensation to Tenant upon
the expiration or sooner termination of the Term and title shall pass to
Landlord under this Lease as by a bill of sale. When applying for such consent,
Tenant shall, if requested by Landlord, furnish complete plans and
specifications for such alterations, additions and improvements. All
alterations, additions or improvements proposed by Tenant shall be constructed
in accordance with all governmental laws, ordinances, rules and regulations and
Tenant shall, prior to construction, provide such assurances to Landlord,
including but not limited to, waivers of lien, as Landlord shall require to
protect Landlord against any loss from any mechanic's, materialmen's or other
liens. Tenant shall pay in addition to any sums due pursuant to Article 4 above
any increase in real estate taxes attributable to any such alteration, addition,
or improvement for so long, during the Term, as such increase is ascertainable.
Subject to the terms of the Addendum, upon the expiration or sooner termination
of the Term as herein provided, Tenant shall upon demand by Landlord, at
Tenant's sole cost and expense, forthwith and with all due diligence remove any
such alterations, additions or improvements which are designated by Landlord to
be removed, and Tenant shall forthwith and with all due diligence, at its sole
cost and expense, repair and restore the Premises to their original condition,
reasonable wear and tear and loss by casualty covered by Article 23 excepted.
7. TENANT'S REPAIRS.
(A) Tenant shall at its own cost and expense keep and maintain all parts
of the Premises, the Building and the surrounding real estate for which Landlord
is not expressly responsible under the terms of the Lease, in good condition,
promptly making all necessary repairs and replacements, whether ordinary or
extraordinary, or structural or nonstructural, with materials and workmanship of
the same character, kind and quality as the original, including but not limited
to, windows, glass and plate glass, doors, skylights, any special office
entries, interior walls and finish work, floors and floor coverings, downspouts,
gutters, heating and air conditioning systems, electrical systems and fixtures,
sprinkler systems, dock boards, truck doors, dock bumpers, paving, plumbing work
and fixtures, termite and pest extermination, regular removal of trash and
debris, regular mowing of any grass, trimming, weed removal and general
landscape maintenance, including the rail spur areas. Tenant as part of its
obligations hereunder shall (i) keep the parking areas, driveways, alleys and
the whole of the property in a clean and sanitary condition, (ii) if the
Premises are served by a railroad switch or spur track and Tenant uses such
railroad, maintain (or reimburse the railroad company for maintaining) any
railway switch or spur track and related facilities serving the real estate of
which the Premises are a part (Tenant hereby agreeing to sign a joint
maintenance agreement with the railroad company servicing the property, if
requested by the Landlord or railroad company), and (iii) without injury to the
roof, other horizontal surfaces of the Building, downspouts, parking areas,
driveways and sidewalks, remove all snow and ice from same. Tenant will, as far
as possible, keep all such parts of the Premises, Building and the real estate
on which the Building is located from deterioration due to ordinary wear and
from falling temporarily out of repair, and upon termination of this Lease in
any way Tenant will yield up the Premises to Landlord in good condition and
repair, reasonable wear and tear, repairs that are not Tenant's responsibility,
and loss by fire or other casualty covered by insurance to be maintained by
Landlord; pursuant to Paragraph 23(A) hereof excepted (but not excepting any
damage to glass or loss not reimbursed by insurance because of the existence of
a deductible under the appropriate policy).
(B) Tenant shall not damage any demising wall or disturb the integrity and
support provided by any demising wall and shall, at its sole cost and expense,
promptly repair any damage or injury to any demising wall caused by Tenant or
its employees, agents or invitees.
(C) Tenant and its employees, customers and licensees shall have the
exclusive right to use parking areas.
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(E) Tenant shall, at its own cost and expense, enter into a regularly
scheduled preventive maintenance/service contract with a maintenance contractor
reasonably approved by Landlord, (and a copy thereof shall be furnished to
Landlord), for servicing all heating and air conditioning systems and equipment
within the Premises. The service contract must include all services suggested by
the equipment manufacturer in the operation/maintenance manual and must become
effective within 30 days of the date Tenant takes possession of the Premises.
(F) Tenant shall, at its own cost and expense to the extent not covered
by the insurance to be maintained by Landlord under Article 23, repair any
damage to the Premises or the Building resulting from and/or caused in whole or
in part by the negligence or misconduct of Tenant, its agents, servants,
employees, patrons, customers, or any other person entering upon the property as
a result of Tenant's business activities or caused by Tenant's default
hereunder.
8. LANDLORD'S REPAIRS.
Landlord shall at its expense maintain in good repair, reasonable wear and
tear and any casualty covered by the provisions of Article 23 excepted, only the
foundation and the structural soundness of the exterior walls and of the roof of
the Building. Tenant shall immediately give Landlord written notice of any such
defect or need for repairs after which Landlord shall have a reasonable
opportunity to repair the same or cure such defect. Landlord's liability with
respect to any defects, repairs or maintenance for which Landlord is responsible
under any of the provisions of the Lease shall be limited to the cost of such
repairs or maintenance or the curing of such defect. The term "walls" as used
herein shall not include windows, glass or plate glass, doors, special store
fronts or office entries.
9. SIGNS.
Tenant may install any signs upon the Premises or the exterior of the
Building without Landlord's prior written consent subject to all laws and park
covenants (if any). If Landlord shall consent to any sign, upon termination of
the Lease Tenant shall remove said sign and restore the Premises and/or the
Building in accordance with the provisions of Article 6.
10. LIENS.
Tenant shall keep the Premises and Tenant's leasehold interest in the
Premises free from any liens arising out of any work performed, materials
furnished, or obligations incurred by Tenant. In the event that Tenant shall
not, within 30 days following notice to Tenant of the imposition of any such
lien, cause the same to be bonded or released of record, Landlord shall have the
right to cause the same to be released by such means as it shall deem proper,
including payment of the claim giving rise to such lien. All such sums paid by
Landlord and all expenses incurred by it in connec-
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tion therewith shall be considered additional rent and shall be payable to it by
Tenant on demand with interest at the rate of 18% per annum or the highest rate
permitted by law, whichever is lower.
11. ASSIGNMENT AND SUBLETTING.
(A) Tenant shall not have the right to assign or pledge this Lease or to
sublet the whole or more than 50% of the Premises, whether voluntarily or by
operation of law, or permit the use or occupancy of the Premises by anyone other
than Tenant, or assign this Lease for security purposes, without the prior
written consent of Landlord, and such restrictions shall be binding upon any
assignee or subtenant to which Landlord has consented. In the event Tenant
desires to sublet the Premises, or any portion thereof, or assign this Lease,
Tenant shall give written notice thereof to Landlord at least 30 days but not
more than 180 days prior to the proposed commencement date of such subletting or
assignment, which notice shall set forth the name of the proposed subtenant or
assignee, the relevant terms of any sublease and copies of financial reports and
other relevant financial information of the proposed subtenant or assignee.
Notwithstanding any permitted assignment or subletting, Tenant shall at all
times remain directly and primarily responsible and liable for the payment of
the rent herein specified and for compliance with all of its other obligations
under this Lease. Upon the occurrence of an "event of default" (as hereinafter
defined), if the Premises or any part thereof are then sublet, Landlord, in
addition to any other remedies provided herein or by law, may collect directly
from such subtenant all rents due and becoming due to Tenant under such sublease
and apply such rent against any sums due to Landlord from Tenant hereunder. No
such collection directly from an assignee or subtenant shall be construed to
constitute a novation or a release of Tenant from the further performance of
Tenant's obligations hereunder.
(C) Consent by Landlord to any assignment or subletting shall not include
consent to the assignment or transferring of any lease renewal option rights or
space option rights of the Premises, special privileges or extra services
granted to Tenant by this Lease, or addendum or amendment thereto or letter of
agreement (and such options, right, privileges or services shall terminate upon
such assignment), unless Landlord specifically grants in writing such options,
right, privileges or services to assignee or subtenant. Any sale, assignment,
mortgage, transfer of this Lease or subletting which does not comply with the
provisions of this Article shall be void.
(D) In the event that Tenant sells, sublets, assigns, or transfers this
Lease and at any time receives periodic rent and/or other consideration which
exceeds that which Tenant would at that time be obligated to pay to Landlord,
Tenant shall pay to Landlord 75% of the net increase in such rent as such rent
is received by Tenant and 75% of any other consideration received by Tenant from
such subtenant in connection with such sublease or in the case of an assignment
of this Lease by Tenant, Landlord shall receive 75% of any consideration paid to
Tenant by such assignee in connection with such assignment.*
(E) Should Landlord agree to authorize and execute an assignment or
sublease agreement, Tenant will pay to Landlord on demand a sum equal to all
of Landlord's costs, including reasonable attorney's fees, incurred in
connection with such assignment or transfer.
12. INDEMNIFICATION.
Landlord shall not be liable and Tenant hereby waives all claims against
Landlord for any damage to any property or any injury to any person in or about
the Premises or the Building by or from any cause whatsoever, (including without
limiting the foregoing, rain or water
* "Net" shall mean net of reasonable and customary brokerage, counsel fees
and costs of altering the premises for the new occupant.
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leakage of any character from the roof, windows, walls, basement, pipes,
plumbing works or appliances, the Building not being in good condition or
repair, gas, fire, oil, electricity or theft); except that Landlord will
indemnify and hold Tenant harmless from such claims to the extent caused by the
negligent or willful act or omission of Landlord, or its agents, employees or
contractors. Tenant shall hold Landlord harmless from and defend Landlord
against any and all claims, liability or costs (including court costs and
reasonable attorney's fees) for any damage to any property or any injury to any
person occurring in, on or about the Premises or the Building when such injury
or damage shall be caused by or arise from, in part or in whole, (a) the act,
neglect, fault, or omission to meet the standards imposed by any duty with
respect to the injury or damage, by Tenant, its agents, servants, employees or
invitees; (b) the conduct or management of any work or thing whatsoever done by
the Tenant in or about the Premises or from transactions of the Tenant
concerning the Premises; or (c) any breach or default on the part of the Tenant
in the performance of any covenant or agreement on the part of the Tenant to be
performed pursuant to this Lease. The provisions of this Article shall survive
the termination of this Lease with respect to any claims or liability occurring
prior to such termination.
13. INSURANCE.
Tenant agrees to purchase at its own expense and to keep in force during
the term of this Lease a comprehensive public liability and property damage
insurance policy to protect against any liability to the public or to any
invitee of Tenant or Landlord incident to the use of or resulting from any
accident occurring in or upon the Premises with a comprehensive single limit of
not less than $1,000,000.00. Said policy or policies shall: (a) name Landlord as
an additional insured, (b) be issued by an insurance company which is acceptable
to Landlord; and (c) provide that said insurance shall not be cancelled unless
30 days prior written notice shall have been given to Landlord. Said policy or
policies or certificates thereof shall be delivered to Landlord by Tenant upon
the Commencement Date and upon each renewal of said insurance.
14. WAIVER OF SUBROGATION.
So long as their respective insurers so permit, Tenant and Landlord hereby
mutually waive their respective rights or recovery against each other for any
loss insured by fire, extended coverage or all risk insurance now or hereafter
existing for the benefit of the respective party. Each party shall obtain any
special endorsements required by their insurer to evidence compliance with the
aforementioned waiver.
15. SERVICES AND UTILITIES.
Landlord agrees to provide, at its cost, water (including sprinkler),
electricity and telephone service connections into the Premises; but Tenant
shall pay for all water, gas, heat, light, power, telephone, sewer, sprinkler
system charges and other utilities and services used on or from the Premises,
together with any taxes, penalties, and surcharges or the like pertaining
thereto and any maintenance charges for utilities. Tenant shall furnish all
electric light bulbs, tubes and ballasts. Any such charges paid by Landlord and
assessed against Tenant shall be immediately payable to Landlord on demand and
shall be additional rent hereunder. Landlord shall in no event be liable for any
interruption or failure of utility services on or to the Premises for causes
beyond Landlord's control.
16. HOLDING OVER.
Tenant shall pay Landlord for each day Tenant retains possession of the
premises or part thereof after termination hereof by lapse of time or otherwise
150% of the amount of the Annual Rent for the last period prior to the date of
such termination prorated on a daily basis, and if Tenant holds over for 5 days
after notice, also pay all damages sustained by Landlord by reason of such
retention, and shall indemnify and hold Landlord harmless from any loss or
liability resulting from such holding over and delay in surrender. If Landlord
gives notice to Tenant of Landlord's election thereof, such holding over shall
constitute renewal of this Lease for a period from month to month at 150% of the
Annual Rent being paid to Landlord under this Lease immediately prior thereto,
but if the Landlord does not so elect, acceptance by Landlord of rent after such
termination shall not constitute a renewal; this provision shall not be deemed
to waive Landlord's right or re-entry or any other right hereunder or at law.
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17. SUBORDINATION.
Without the necessity of any additional document being executed by Tenant
for the purpose of affecting a subordination, the Lease shall be subject and
subordinate at all times to ground or underlying leases and to the lien of any
mortgages or deeds of trust now or hereafter placed on, against or affecting the
Building, Landlord's interest or estate therein, or any ground or underlying
lease; provided, however, that if the lessor, mortgagee, trustee, or holder of
any such mortgage or deed of trust elects to have Tenant's interest in this
Lease be superior to any such instrument, then by notice to Tenant this Lease
shall be deemed superior, whether this Lease was executed before or after said
instrument. Notwithstanding the foregoing, Tenant covenants and agrees to
execute and deliver upon demand such further instruments evidencing such
subordination or superiority of this Lease as may be reasonably required by
Landlord.
19. REENTRY BY LANDLORD.
Landlord reserves and shall at all times have the right upon reasonable
notice to reenter the Premises to inspect the same, to supply any service to be
provided by Landlord to Tenant hereunder, to show said Premises to prospective
purchasers, mortgagees or tenants during the last 6 months of the Term, and to
alter, improve, or repair the Premises and any portion of the Building, without
abatement of rent, and may for that purpose erect, use, and maintain
scaffolding, pipes, conduits, and other necessary structural work to be
performed, provided entrance to the Premises shall not be blocked thereby, and
further provide that the business of Tenant shall not be interfered with
unreasonably and Landlord repairs any damage. Tenant hereby waives any claim for
damages for any injury or inconvenience to or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned thereby unless Landlord is negligent. For each of the
aforesaid purposes, Landlord shall at all times have and retain a key with which
to unlock all of the doors in the Premises, excluding Tenant's vaults and safes,
or special security areas (designed in advance), and Landlord shall have the
right to use any and all means which Landlord may deem proper to open said doors
in an emergency to obtain entry to any portion of the Premises.
20. DEFAULT.
The following events shall be deemed to be events of default under this
Lease:
(A) Subject to the Addendum, Tenant shall fail to pay when due any sum of
money becoming due to be paid to Landlord hereunder, whether such sum be any
installment of the rent herein reserved, any other amount treated as additional
rent hereunder, or any other payment or reimbursement to Landlord required
herein, whether or not treated as additional rent hereunder, and such failure
shall continue for a period of five days from the date such payment was due; or
(B) Subject to the Addendum, Tenant shall fail to comply with any term,
provision or covenant of this lease other than by failing to pay when or before
due any sum of money becoming due to be paid to Landlord hereunder, and shall
not cure such failure within 20 days (forthwith, if the default involves a
hazardous condition) after written notice thereof to Tenant; or
(D) Tenant shall fail to vacate the Premises immediately upon termination
of the Lease, by lapse of time or otherwise, or upon termination of Tenant's
right to possession only; or
(E) The leasehold interest of Tenant shall be levied upon under execution
or be attached by process of law or Tenant shall fail to contest diligently the
validity of any lien or claimed lien and give sufficient security to Landlord to
insure payment thereof or shall fail to satisfy any judgment rendered thereon
and have the same released, and such default shall continue
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for ten days after written notice thereof to Tenant; or
(F) Tenant shall become insolvent, admit in writing its inability to pay
its debts generally as they become due, file a petition in bankruptcy or a
petition to take advantage of any insolvency statute, make an assignment for the
benefit of creditors, make a transfer in fraud of creditors, apply for or
consent to the appointment of a receiver of itself or of the whole or any
substantial part of its property, or file a petition or answer seeking
reorganization or arrangement under the federal bankruptcy laws, as now in
effect or hereafter amended, or any other applicable law or statute of the
United States or any state thereof; or
(G) A court of competent jurisdiction shall enter an order, judgment or
decree adjudicating Tenant a bankrupt, or appointing a receiver of Tenant, or of
the whole or any substantial part of its property, without the consent of
Tenant, or approving a petition filed against Tenant seeking reorganization or
arrangement of Tenant under the bankruptcy laws of the United States, as now in
effect or hereafter amended, or any state thereof, and such order, judgment or
decree shall not be vacated or set aside or stayed within 90 days from the date
of entry thereof.
21. REMEDIES.
Upon the occurrence of any of such events of default described in Article
20 or elsewhere in this Lease, Landlord shall have the option to pursue any one
or more of the following remedies without any notice or demand whatsoever:
(A) Landlord may, at its election on 5 days' notice to Tenant, terminate
this Lease or terminate Tenant's right to possession only, without terminating
the Lease;
(B) Upon any termination of this Lease, whether by lapse of time or
otherwise, or upon any termination of Tenant's right to possession without
termination of the Lease, Tenant shall surrender possession and vacate the
Premises immediately, and deliver possession thereof to Landlord, and Tenant
hereby grants to Landlord full and free right to enter into and upon the
Premises in such event with or without process of law and to repossess Landlord
of the Premises as of Landlord's former estate and to expel or remove Tenant and
any others who may be occupying or within the Premises and to remove any and all
property therefrom, without being deemed in any manner guilty of trespass,
eviction or forcible entry or detainer, and without incurring any liability for
any damage resulting therefrom, Tenant hereby waiving any right to claim damage
for such reentry and expulsion, and without relinquishing Landlord's right to
rent or any other right given to Landlord hereunder or by operation of law;
(C) Upon any termination of this Lease, whether by lapse of time or
otherwise, Landlord shall be entitled to recover as damages, all rent, including
any amounts treated as additional rent hereunder, and other sums due and payable
by Tenant on the date of termination, plus the sum of (i) an amount equal to the
then present value of the rent, including any amounts treated as additional rent
hereunder, and other sums provided herein to be paid by Tenant for the residue
of the Term hereof, less the fair rental value of the Premises for such residue
(taking into account the time and expense necessary to obtain a replacement
tenant or tenants, including expenses hereinafter described in subparagraph (D)
relating to recovery of the Premises, preparation for reletting and for
reletting itself), (ii) the cost of performing any other covenants which would
have otherwise been performed by Tenant;
(D) (i) Upon any termination of Tenant's right to possession only without
termination of the Lease, Landlord may, at Landlord's option, enter into the
Premises, remove Tenant's signs and other evidences of tenancy, and take and
hold possession thereof as provided in subparagraph (B) above, without such
entry and possession terminating the Lease or releasing Tenant, in whole or in
part, from any obligation, including Tenant's obligation to pay the rent,
including any amounts treated as additional rent, hereunder for the full Term.
(ii) Landlord shall use reasonable commercial efforts to relet the
Premises or any part thereof for such rent and upon such terms as Landlord in
its sole discretion shall determine (including the right to relet the Premises
for a greater or lesser term than that remaining under the Lease, the right to
relet the premises as a part of a larger area, and the right to change the
character or use made of the premises) and Landlord shall not be required to
accept any tenant offered by Tenant or to observe any instructions given by
Tenant about such reletting. In any such case, Landlord may make reasonable
repairs, alterations and additions in or to the premises, and redecorate the
same to the extent Landlord deems necessary, and Tenant shall, upon demand, pay
the reasonable cost thereof, together with Landlord's reasonable expenses of
reletting including, without
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limitation, any broker's commission incurred by Landlord. If the consideration
collected by Landlord upon any such reletting plus any sums previously collected
from Tenant are not sufficient to pay the full amount of all rent, including any
amounts treated as additional rent hereunder and other sums reserved in this
lease for the remaining term hereof, together with the costs of repairs,
alterations, additions, redecorating, and Lessor's expenses of reletting and the
collection of rent accruing therefrom (including reasonable attorney's fees and
reasonable broker's commissions), Tenant shall pay to Landlord the amount of
such deficiency upon demand and Tenant agrees that Landlord may file suit to
recover any sums falling due under this section from time to time.
(E) Landlord may, at Landlord's option, enter into and upon the Premises,
if Tenant is not acting within a commercially reasonable time and after notice
to maintain, repair or replace anything for which Tenant is responsible
hereunder and correct the same, without being deemed in any manner guilty of
trespass, eviction or forcible entry and detainer and without incurring any
liability for any damage resulting therefrom and Tenant agrees to reimburse
Landlord, on demand, as additional rent, for any expenses which Landlord may
incur in thus affecting compliance with Tenant's obligations under this Lease;
(F) Any and all property which may be removed from the Premises by
Landlord pursuant to the authority of the Lease or of law, to which Tenant is or
may be entitled, may be handled, removed and stored, as the case may be, by or
at the direction of Landlord at the risk, cost and expense of Tenant, and
Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all
expenses incurred in such removal and all storage charges against such property
so long as the same shall be in Landlord's possession under Landlord's control.
Any such property of Tenant not retaken by Tenant from storage within 30 days
after removal from the Premises shall, at Landlord's option, be deemed conveyed
by Tenant to Landlord under this Lease as by a bill of sale without further
payment or credit by Landlord to Tenant. Landlord hereby waives any right to
distrain Tenant's property.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any
of the other remedies herein provided or any other remedies provided by law or
of equity (all such remedies being cumulative), nor shall pursuit of any remedy
herein provided constitute a forfeiture or waiver of any rent due to Landlord
hereunder or of any damages accruing to Landlord by reason of the violation of
any of the terms, provisions and covenants herein contained. No act or thing
done by Landlord or its agents during the Term shall be deemed a termination of
this Lease or an acceptance of the surrender of the Premises, and no agreement
to terminate this Lease or accept a surrender of said Premises shall be valid
unless in writing signed by Landlord. No waiver by Landlord of any violation or
breach of any of the terms, provisions, and covenants herein contained shall be
deemed or construed to constitute a waiver of any other violation or breach of
any of the terms, provisions and covenants herein contained. Landlord's
acceptance of the payment of rental or other payments hereunder after the
occurrence of an event of default shall not be construed as an accord and
satisfaction, compromise or waiver of such default, unless the Landlord so
notifies Tenant in writing. Forbearance by Landlord in enforcing one or more of
the remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default or of Landlord's right to
enforce any such remedies with respect to such default or any subsequent
default. If, on account of any breach or default by Tenant under the Lease, it
shall become necessary or appropriate for Landlord to employ or consult with an
attorney concerning or to enforce or defend any of Landlord's rights or
remedies, Tenant agrees to pay all reasonable attorneys' fees incurred by
Landlord.
22. QUIET ENJOYMENT.
Landlord represents and warrants that it has full right and authority to
enter into this Lease and that Tenant, while paying the rental and performing
its other covenants and agreements herein set forth, shall peaceably and quietly
have, hold and enjoy the Premises for the Term without hindrance or molestation
from Landlord subject to the terms and provisions of this Lease.
23. DAMAGE BY FIRE, ETC.
(A) Landlord agrees to maintain standard fire and extended coverage
insurance covering the Building in an amount not less than 90% of the full
"replacement cost" thereof (as such term is defined in the Replacement Cost
Endorsement to be attached thereto, if any) insuring against the perils of fire
and lightning and including extended coverage, and earthquake and flood
coverage, or at Landlord's option, "All Risk" coverage, with earthquake and
flood
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coverage, all such coverages and endorsements to be as defined, provided and
limited in the standard bureau forms prescribed by the insurance regulatory
authority for the state in which the property is situated for use by insurance
companies admitted in such state for the writing of such insurance on risks
located within such state. Subject to the provisions of paragraphs 23(C), 23(D)
and 23(F), such insurance shall be for the sole benefit of Landlord and under
its sole control. Such insurance shall include protection for continuation of
rental payments for a period of 12 months in the event of any damage caused by
the perils referred to above. Tenant agrees to pay to Landlord, as additional
rental, Landlord's commercially reasonable cost of maintaining such insurance.
Said payments shall be made to landlord within ten days after presentation to
Tenant of Landlord's statement setting forth the amount due with a copy of the
invoice and the failure to pay such share shall be treated in the same manner as
a default in the payment of rent hereunder when due. Any payment to be made
pursuant to this Paragraph with respect to the year in which the Lease commences
or terminates shall be prorated. Tenant shall not take out separate insurance
concurrent in form or contributing in the event of loss with that required to be
maintained by Landlord hereunder unless Landlord is included as an additional
insured thereon. Tenant shall immediately notify Landlord whenever any such
separate insurance is taken out and shall promptly deliver to Landlord the
policy or policies of such insurance.
(B) If the Building should be damaged or destroyed by fire, tornado or
other casualty, Tenant shall give immediate written notice thereof to Landlord.
(C) If the Building should be damaged by any peril covered by the
insurance to be provided by Landlord under Paragraph 23(A), but only to such
extent that the Building can in Landlord's reasonable estimation (which shall
be made within 45 days after the damage) be materially restored within 180 days
after the date upon which Landlord is notified by Tenant of such damage (except
that Landlord may elect not to rebuild if such damage occurs during the last
year of the Term unless Tenant immediately elects to renew the Lease, if any
renewal terms remain available to be exercised), this Lease shall not terminate,
and Landlord shall at its sole cost and expense thereupon proceed with
reasonable diligence to rebuild and repair such building to substantially the
condition in which it existed prior to such damage, and Landlord shall rebuild,
repair or replace any part of the partitions, fixtures, additions and other
improvements which may have been placed in, on or about the Premises by Tenant.
If the Premises are untenantable in whole or in part following such damage, the
rent payable hereunder during the period in which the Premises are untenantable
shall be reduced to such extent as may be fair and reasonable under all of the
circumstances and fully abated if the Premises are wholly untenantable. In the
event that Landlord should fail to materially restore the Building within 180
days after the date upon which Landlord is notified by Tenant of such damage,
Tenant may (if it has given Landlord at least 30 days notice of its need and
intent to do so) at its option terminate this Lease by delivering written notice
of its termination to Landlord as Tenant's exclusive remedy, whereupon all
rights and obligations hereunder shall cease and terminate; provided, however,
that if construction is delayed because of changes, deletions, or additions in
construction requested by Tenant, strikes, lockouts, casualties, acts of God,
war, material or labor shortages, Governmental regulation or control or other
causes beyond the reasonable control of Landlord, the period for restoration,
repair or rebuilding shall be extended for the amount of time Landlord is so
delayed up to 90 additional days. For purposes hereof, the Building or Premises
shall be deemed "materially restored" if they are in such condition as would not
prevent or materially interfere with Tenant's use of the Premises for the
purpose for which it was then being used.
(D) If the Building should be damaged or destroyed by fire, tornado or
other casualty and Landlord is not required to rebuild pursuant to the
provisions of paragraph 23(C), this Lease shall at the option of Landlord, upon
notice to Tenant, given within 30 days after Landlord is notified by Tenant of
such damage, terminate and the rent shall be abated during the unexpired portion
of this Lease, effective upon the date of the occurrence of such damage.
(E) Notwithstanding anything herein to the contrary and unless otherwise
provided in a nondisturbance agreement, in the event the holder of any
indebtedness secured by a mortgage or deed of trust covering the Premises or the
Building requires that the insurance proceeds to be applied to such
indebtedness, then Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within 15 days after such
requirement is made by any such holder, whereupon this Lease and on the date of
such notice to Tenant as if the date of such notice were the date originally
fixed in this Lease for the expiration of the Term.
(F) In the event of any damage or destruction to the Premises by any peril
covered by the provisions of this Article, Tenant shall, upon notice from
Landlord, forthwith remove, at its sole cost and expense, such portion or all of
the Tenant's shelves, bins, machinery and other trade fixtures and all other
property belonging to Tenant or his licensees from such portion or all of the
Premises as Landlord shall request and Tenant hereby indemnifies and holds
Landlord (including without limitation the trustee and beneficiaries if Landlord
is a trust), Landlord's agents and employees harmless from any loss, liability,
claims, suits, costs, expenses, including attorney's fees and damages, both real
and alleged, arising out of any damage or injury as a result of the failure to
properly secure the Premises prior to such removal and/or
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as a result of such removal.
24. EMINENT DOMAIN.
(A) If the whole or any substantial part of the Building should be taken
for any public or quasi-public use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof and the taking would prevent or materially interfere with the use of the
Premises or Building for the purposes for which they are then being used, this
Lease shall terminate and the rent shall be abated during the unexpired portion
of this Lease, effective when the physical taking of said property shall occur.
(B) If part of the Building shall not be taken for any public or
quasi-public use under any governmental law, ordinance or regulation, or by
right of eminent domain, or by private purchase in lieu thereof, and this Lease
is not terminated as provided in Paragraph 24(A), this Lease shall not terminate
but the rent payable hereunder during the unexpired portion of this Lease shall
be reduced to such extent, if at all, as may be fair and reasonable under all of
the circumstances and Landlord shall at Landlord's expense undertake to restore
the Premises to a condition suitable for Tenant's use, as near to the condition
thereof immediately prior to such taking as is reasonably feasible under all the
circumstances.
(C) In the event of any such taking or private purchase in lieu thereof,
Landlord and Tenant shall each be entitled to receive and retain such separate
awards and/or portion of lump sum awards as may be allocated to their respective
interests in any condemnation proceedings; provided that Tenant shall not be
entitled to receive any award for Tenant's loss of its leasehold interest, the
right to such award being hereby assigned by Tenant to Landlord.
25. SALE BY LANDLORD.
In the event of a sale or conveyance by Landlord of the Building, the same
shall operate to release Landlord from any future liability upon any of the
covenants or conditions, expressed or implied, herein contained in favor of
Tenant, and in such event Tenant agrees to look solely to the responsibility of
the successor in interest of Landlord in and to this Lease. Except as set forth
in this Article, this Lease shall not be affected by any such sale, and Tenant
agrees to attorn to the purchaser or assignee. If any security has been given by
Tenant to secure the faithful performance of any of the covenants of this Lease,
Landlord shall transfer or deliver said security, as such, to Landlord's
successor in interest and thereupon Landlord shall be discharged from any
further liability with regard to said security, provided that any successor
shall be liable for such security.
26. ESTOPPEL CERTIFICATES.
Within ten days following any written request which Landlord may make from
time to time, Tenant shall execute and deliver to Landlord or any prospective
Landlord or mortgagee or prospective mortgagee a sworn statement certifying: (a)
the date of commencement of this Lease, (b) the fact that this Lease is
unmodified and in full force and effect (or, if there have been modifications
hereto, that this Lease is in full force and effect, as modified, and stating
the date and nature of such modifications), (c) the date to which the rent and
other sums [ILLEGIBLE] this Lease by either Landlord or Tenant except as
specified to the best of Tenant's knowledge in Tenant's statement.
27. SURRENDER OF PREMISES.
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At the end of the Term or any renewal thereof or other sooner termination
of this Lease, Tenant will peaceably deliver up to Landlord possession of the
Premises, together with all improvements or additions upon or belonging to the
same, by whomsoever made, in good condition, broom clean and free of all debris,
ordinary wear and tear and damage by fire, earthquake, Act of God, repairs for
which Tenant is not responsible or the elements alone excepted. Tenant may, upon
termination of this Lease, remove all movable partitions of less than full
height from floor to ceiling, counters, and other personal property of Tenant
removable without material damage to such property or the Premises previously
installed by Tenant, at Tenant's sole cost, title to which shall be in Tenant
until such termination, repairing such damage caused by such removal. Property
not so removed shall be deemed abandoned by the Tenant and title to the same
shall thereupon pass to Landlord under this Lease as by a bill of sale. Subject
to the Addendum, upon request by Landlord, Tenant shall remove any or all
permanent improvements or additions to the Premises installed at Tenant's cost
and all movable partitions, counters and other personal property of Tenant
removable without material damage to such property or the Premises which may be
left by Tenant and repair any damage resulting from such removal. Tenant shall
indemnify Landlord against any loss or liability resulting from delay by Tenant
in so surrendering the Premises, including without limitation any claims made by
any succeeding tenant founded on such delay.
All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the Term of this Lease shall survive the
expiration or earlier termination of the Term.
28. NOTICES.
Any notice or document required or permitted to be delivered hereunder
shall be in writing and shall be effective upon delivery, if personally
delivered, or two days after mailing, if mailed. All notices shall be personally
delivered or sent by United States Mail, postage prepaid, Certified or
Registered Mail, addressed to the parties hereto at the respective addresses set
forth opposite their respective signatures on the Reference Page, or at such
other address as they have theretofore specified by written notice delivered in
accordance herewith.
29. TAXES PAYABLE BY TENANT.
In addition to the foregoing, Tenant agrees to pay, before delinquency,
any and all taxes levied or assessed against Tenant and which become payable
during the term hereof upon Tenant's equipment, furniture, fixtures, and other
personal property of Tenant located in the Premises.
30. DEFINED TERMS AND HEADINGS.
The article headings herein are for convenience of reference and shall in
no way define, increase, limit, or describe the scope or intent of any provision
of this Lease. Any indemnification of, insurance of, or option granted to
Landlord shall also include or be exercisable by Landlord's trustee,
beneficiary, agents and employees, as the case may be. In any case, where
12
<PAGE>
this Lease is signed by more than one person, the obligations hereunder shall be
joint and several. The terms "Tenant" and "Landlord" or any pronoun used in
place thereof shall indicate and include the masculine or feminine, the singular
or plural number, individuals, marital communities, firms, or corporations, and
their and each of their respective successors, executors, administrators, and
permitted assigns, according to the context hereof. Tenant agrees to furnish
promptly upon demand a corporate resolution, proof of due authorization by
partners, or other appropriate documentation evidencing the due authorization of
Tenant to enter into this Lease. The term "rentable area" shall mean the
rentable area of the Premises or the Building as calculated by the Landlord on
the basis of the plans and specifications (which were available for inspection
by Tenant at the time the Lease was executed) of the Building and including a
proportionate share of any common areas. Tenant hereby consents and agrees that
the calculation of rentable area on the Reference Page shall be controlling.
31. CONFESSION OF JUDGMENT.
32. ENFORCEABILITY.
If for any reason whatsoever any of the provisions hereof shall be void,
unenforceable or ineffective, all of the other provisions shall be and remain in
full force and effect.
33. COMMISSIONS.
Each of the parties (i) represents and warrants to the other that it has
not dealt with any broker or finder in connection with this Lease, except as
described on the Reference Page; and (ii) indemnifies and holds the other
harmless from any and all leases, liability, costs or expenses (including
attorneys' fees) incurred as a result of any breach of the foregoing warranty.
34. TIME AND APPLICABLE LAW.
Time is of the essence of this Lease and all of its provisions. This Lease
shall in all respects be governed by the laws of the state in which the Building
is located.
35. PARKING.
Tenant shall have the right to use the parking facilities of the Building,
as shown on Exhibit A.
36. SUCCESSORS AND ASSIGNS.
Subject to the provisions of Article 11, the terms, covenants and
conditions contained herein shall be binding upon and inure to the benefit of
the heirs, successors, executors, administrators, marital communities, if any,
and assigns of the parties hereto.
37. ENTIRE AGREEMENT.
This Lease, together with its exhibits, contains all agreements of the
parties hereto and supersedes any previous negotiations. There have been no
representations made by the Landlord or Tenant or understandings made between
the parties other than those set forth in this Lease and its exhibits. This
Lease may not be modified except by a written instrument duly executed by the
parties hereto.
13
<PAGE>
38. EXAMINATION NOT OPTION.
Submission of this Lease shall not be deemed to be a reservation of the
Premises. Landlord and Tenant shall not be bound hereby until its delivery to
Tenant of an executed copy hereof signed by Landlord, already having been signed
by Tenant, and until such delivery Landlord reserves the right to exhibit and
lease the Premises to other prospective tenants. Notwithstanding anything
contained herein to the contrary, Landlord may withhold delivery of possession
of the Premises from Tenant until such time as Tenant has paid to Landlord the
security deposit required by Article 5, the first month's rent as set forth in
Article 3,
39. RECORDATION.
Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the prior written consent of the other party, and the
party offering the name for recording shall pay all charges and taxes incident
thereto.
40. LIMITATION OF LANDLORD'S LIABILITY.
The obligations of Landlord herein are intended to be binding only on the
property of the entity acting as Landlord and shall not be personally binding,
nor shall any resort be had to the private properties of, any of its trustees or
board of directors and officers, as the case may be, its investment manager, the
general partners thereof or any employees or agents of Landlord, or the
investment manager.
14
<PAGE>
ADDENDUM TO LEASE BETWEEN 3600 MEADOW LANE PARTNERSHIP
("LANDLORD") AND AMBASSADOR EYE WEAR GROUP ("TENANT") FOR
3600 MARSHALL LANE, BENSALEM, PENNSYLVANIA ("PREMISES")
1. In the event of any conflict between the terms of the form Lease
("Lease") and the terms of this Addendum, the terms of this Addendum shall
control.
2. Provided that no event of default has occurred and is continuing
hereunder, Tenant shall have the option to renew the term of this Lease for one
additional term of five (5) years ("Renewal Term") by notice to Landlord
("Renewal Notice") given at least six (6) months days prior to the expiration
of the initial Term. All terms and conditions of this Lease shall apply to the
Renewal Term, except that the Annual Rent shall be fixed as forth in Schedule 1.
The initial Term and Renewal Term are hereafter collectively called the "Term".
3. Notwithstanding the provisions of Section 1 of the Form Lease, Tenant
may cease active business operations at the Premises so long as (i) Tenant
continues to make all payments and perform all other obligations of Tenant under
the Lease (including, without limitation, maintenance, repair, replacement and
insurance obligations), and (ii) Tenant gives Landlord thirty (30) days advance
written notice of Tenant's intention to cease operations.
4. Notwithstanding the provisions of Section 1 of the Form Lease, in the
event that structural changes to the Premises are hereafter required as a result
of any change in law or regulation, Landlord shall make such alterations and the
cost thereof shall be paid by Tenant to Landlord as additional rent in equal
monthly installments based on amortizing the cost of such alterations, with
interest at Wall Street Journal Prime Rate as of the date of the expenditure,
over ten (10) years (provided that such payments shall only be due during the
remainder of the Term).
5. Landlord hereby represents and warrants to Tenant that Landlord has
received no violation notices affecting the Premises.
6. Notwithstanding the provisions of Section 3 of the Form Lease, the late
charge payable under Section 3 shall be $500 for only the first three (3)
occasions in any twelve-month period on which Tenant incurs a late charge;
thereafter the late charge shall equal the greater of $500 or five percent (5%)
of the overdue amount.
7. Notwithstanding the provisions of Section 4 of the Form
<PAGE>
Lease, Tenant, shall not be responsible for any of Landlord's franchise, income,
inheritance or corporate taxes. Any governmental assessments against the
Premises may be paid by Tenant over the maximum period allowed by law. In
addition, Tenant may, with counsel of its own designation, institute appropriate
proceedings for the reduction of any assessed valuation of the Premises, and
diligently prosecute the same to final determination, so long as such
proceedings operate to stay an action to enforce the lien of such taxes.
Landlord shall cooperate, at Tenant's expense, in the institution and
prosecution of such proceedings to final determination thereof.
8. Notwithstanding the provisions of Section 6 and Section 27 of the Term
Lease, Tenant shall only be required, upon expiration or termination of the
Lease, to remove alterations, additions; and improvements (collectively,
"Alterations") made to the Premises if, at the time Landlord approves such
Alterations, Landlord specifies that such Alterations must be so removed.
Non-structural alterations in an amount not in excess of $25,000 may be made by
Tenant without Landlord's consent. In addition, Landlord hereby approves the
alterations described in the plans and specifications listed on Exhibit B
attached hereto and agrees that such alterations need not be removed when the
Tenant leaves the Premises.
9. Section 7(F) of the Form Lease is hereby amended to add the following
provision at the end of the Section: "Landlord shall indemnify and defend Tenant
from suits, actions, damages, liabilities and expenses (including court costs
and reasonable attorneys' fees) arising out of the negligent or willful act or
omission of Landlord, its agents, contractors, employees, servants, invitees,
licensees or concessionaires."
10. Section 8 of the Form Lease is hereby amended to add the following
provision at the end of the Section: "If Landlord fails to perform any repairs
required under this Section after thirty (30) days notice from Tenant, Tenant
may perform such repairs and collect the cost thereof from Landlord, such
invoices to be paid by Landlord within thirty (30) days after receipt.
Notwithstanding the foregoing, in an emergency Tenant may take reasonable
immediate steps to preserve life or property if Landlord fails to respond to a
telephone call advising Landlord of the emergency. If Landlord fails to pay such
amounts and Tenant obtains a judgment against Landlord, Tenant may then offset
the amount of such judgment against the next installment{s) of Annual Rent.
11. Notwithstanding the provisions of Section 11 of the Form Lease, Tenant
may assign the Lease or sublet the Premises, without Landlord's consent but only
after fifteen (15) days
2
<PAGE>
advance written notice to Landlord, (a) to a parent, subsidiary or other
affiliate of Tenant, provided that if the Lease is assigned and the Tenant is
released by Landlord, such assignee must have a net worth at least as great as
Tenant's net worth on the date hereof (i.e., not less than $2,000,000), as
determined by financial statements prepared in accordance with GAAP by an
independent certified public accountant, or (ii) in connection with a public
offering, a merger or consolidation of Tenant or a sale of substantially all of
Tenant's business, provided that the surviving acquiring entity has a net worth
at least as great as Tenants net worth on the date hereof (i.e., not less than
$2,000,000 as determined by financial statements prepared in accordance with
GAAP by an independent certified public accountant. The provisions of Section
11 of the Form Lease requiring payment to Landlord of 75% of any net increase
in rent received by Tenant from a subtenant or assignee shall not apply to any
transfer not requiring Landlord's consent as described above.
12. Notwithstanding the provisions of Section 11 of the Form Lease, if a
court determines that Landlord has withheld its consent to an assignment or
sublease of the Premises unreasonably, Tenant may terminate this Lease by notice
within thirty (30) days after such determination.
13. Section 12 of the Form Lease is hereby amended to add the following
provision at the end of the Section: "The foregoing indemnification requirement
shall not apply to suits, actions, damages, liabilities and expenses arising out
of the negligent or willful act or omission of Landlord, its agents,
contractors, employees, servants, invitees, licensees or concessionaires."
14. Section 17 of the Form Lease is hereby amended to add the following
provision: "Landlord shall request a Subordination, Non-Disturbance and
Attornment Agreement in form reasonably satisfactory to Tenant ("SNDA") from
each current and future ground lessor and lender holding a mortgage on the
Premises. If an SNDA in form reasonably satisfactory to Tenant has not been
executed by Landlord's current mortgage lender within ten (10) days after the
date hereof, Tenant shall have the right to terminate this Lease by notice to
Landlord given within fifteen (15) days after the date hereof; failure by Tenant
to give a termination notice within such fifteen (15) day period shall
constitute a waiver of such right. Notwithstanding the first sentence of this
Section 17, this Lease shall not be deemed to be subordinate to any mortgage if
the holder of such mortgage refuses or fails to execute an SNDA. Landlord
represents and warrants that there are no ground leases in effect for any
portion of the Premises."
3
<PAGE>
15. Notwithstanding the provisions of Section 20A of the Form Lease, no
event of default shall occur unless Tenant fails to pay any amount owing to
Landlord within ten (10) days after notice from Landlord, provided that Landlord
need only give such notice three (3) times in any twelve-month period, and
thereafter any failure to make any payment within ten (10) days after such
payment is due shall be an event of default without notice.
16. Notwithstanding the provisions of Section 20B of the Form Lease, in
the case of a default which cannot with due diligence be cured within a period
of twenty (20) days, no event of default shall occur if Tenant in good faith
duly institutes within such twenty (20) day period all steps necessary to cure
the same and promptly and diligently prosecutes to completion such cure within a
reasonable time after such notice, but not more that one hundred (120) days.
17. Section 21 of the Form Lease is hereby amended to add the following
provision: "The waiver by Tenant of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of any subsequent
breach of the same or a waiver of any other term, covenant or condition herein
contained. The failure of Tenant at any time or times to enforce its rights
under said covenants and provisions strictly in accordance with the same shall
not be construed as having created a custom in any way or manner contrary to the
specific terms, provisions and covenants of this Lease or as having in any way
or manner modified the same."
18. Notwithstanding the provisions of Section 26 of the Form Lease,
Landlord shall provide a similar estoppel letter upon request from Tenant.
19. Section 33 of the Form Lease is hereby amended to insert the following
provision at the end of the Section: "Landlord shall be responsible for payment
of commissions to the Brokers listed on the Reference Page."
20. Landlord and Tenant each acknowledge that they are intending to enter
an Agreement of Sale for the Premises, that this Lease will terminate at Closing
under the Agreement of Sale, and that this Lease shall remain in full force and
effect if Closing does not occur under the Agreement of Sale for any reason. If
Closing under the Agreement of Sale does not occur by January 1, 1998, the
Annual Base Rent shall increase as set forth in the Reference Page.
21. Notwithstanding anything to the contrary set forth in the form lease,
Tenant, at Tenant's election, shall have (a) ten (10) business days following
the full execution of this Agreement
4
<PAGE>
to obtain at Tenant's expense such structural and mechanical reports as Tenant
may require and to deliver copies of such reports to Landlord, and (b)
forty-five (45) days following the full execution of this Agreement to obtain at
Tenant's expense such environmental reports as Tenant may require, and to
deliver copies of such Reports to Landlord. If Tenant is dissatisfied for any
reason with the contents of any of the structural or mechanical reports, Tenant
shall have the right, prior to the expiration of the foregoing 10-day period, to
terminate this Agreement by notice to Landlord, whereupon the parties will have
no further obligations; if Tenant is dissatisfied for any reason with the
contents of any of the environmental reports, Tenant shall have the right, prior
to the expiration of the foregoing 45-day period, to terminate this Agreement by
notice to Landlord, whereupon the parties will have no further obligations. If
Tenant fails to notify Landlord of Tenant's election within the time periods set
forth above, Tenant shall be deemed to have waived its right to terminate this
Agreement.
22. (a) Landlord represents to Tenant that the current real estate taxes
are $51,872.40 per annum as set forth on the Reference Page, and Landlord is not
aware of any pending or threatened special assessments.
(b) Landlord shall immediately begin and diligently pursue repairs to
the roof, and upon completion of the repairs Tenant shall reimburse Landlord on
demand for fifty percent (50%) of the cost thereof, up to a maximum
reimbursement of $11,000.
(c) Tenant is taking occupancy on the date hereof, and shall
immediately have all utilities put into Tenant's name. The Commencement Date for
payment of rent shall be August 1, 1997.
IN WITNESS WHEREOF, the parties have executed this Addendum on the same
date as the Form Lease.
AMBASSADOR EYEWEAR GROUP
By: /s/ [Illegible]
3600 Meadow Lane Partnership
By: /s/ [Illegible]
5
<PAGE>
SCHEDULE 1
RENEWAL TERM RENT
The Annual Base Rent for each year of the Renewal Term shall be Three
Hundred Fifteen Thousand Seventy Six Dollars ($315,076), payable in monthly
installments of Twenty Six Thousand Two Hundred Fifty Six Dollars and Forty
Cents ($26,256.40).
6
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form SB-2 of
our report dated June 12, 1997 (June 30, 1997 with respect to the last
paragraphs of Notes F and H(1)) on the financial statements of Ambassador
Eyewear Group, Inc. as at March 31, 1997 and for the period May 3, 1995
(inception) through March 31, 1996 and for the year ended March 31, 1997. We
also consent to the inclusion in this Registration Statement on Form SB-2 of our
report dated June 12, 1997 on the financial statements of Renaissance Eyewear,
Inc. as at October 31, 1996 and for the year then ended. We also consent to the
reference to our firm under the caption "Experts" in the Prospectus.
Richard A. Eisner & Company, LLP
New York, New York
November 13, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form SB-2 being filed by Ambassador Eyewear Group, Inc. of our report dated
December 22, 1995 on the combined financial statements of Renaissance Eyewear,
Inc. for the year ended October 31, 1995. We also consent to the reference to
our firm under the caption "Experts" in the Prospectus of the Registration
Statement.
/s/ J. H. COHN LLP
--------------------------------------
J. H. COHN LLP
Roseland, New Jersey
November 14, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE REGISTRATION STATEMENT ON FORM SB-2 AND THE AUDITED FINANCIAL STATEMENTS
CONTAINED THEREIN.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 116,000
<SECURITIES> 0
<RECEIVABLES> 10,424,000
<ALLOWANCES> 1,862,000
<INVENTORY> 11,894,000
<CURRENT-ASSETS> 21,255,000
<PP&E> 1,057,000
<DEPRECIATION> 389,000
<TOTAL-ASSETS> 22,395,000
<CURRENT-LIABILITIES> 19,668,000
<BONDS> 0
1,181,000
0
<COMMON> 35,000
<OTHER-SE> 313,000
<TOTAL-LIABILITY-AND-EQUITY> 22,395,000
<SALES> 12,542,000
<TOTAL-REVENUES> 12,542,000
<CGS> 5,693,000
<TOTAL-COSTS> 5,693,000
<OTHER-EXPENSES> 5,772,000
<LOSS-PROVISION> 21,000
<INTEREST-EXPENSE> 640,000
<INCOME-PRETAX> 437,000
<INCOME-TAX> 131,000
<INCOME-CONTINUING> 306,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 306,000
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
</TABLE>
