<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 18, 1998.
REGISTRATION STATEMENT 333-31343
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
------------------------
AMENDMENT NO. 4 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 other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code No.) Identification No.)
</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. JAMES M. JENKINS, ESQ.
Gibbons, Del Deo, Dolan, Griffinger & Vecchione Harter, Secrest & Emery LLP
One Riverfront Plaza 700 Midtown Tower
Newark, New Jersey 07102 Rochester, NY 14604
(973) 596-4500 (716) 232-6500
</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. /X/
--------------------------
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 MARCH 18, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PRELIMINARY PROSPECTUS
AMBASSADOR EYEWEAR GROUP, INC.
1,200,000 SHARES OF COMMON STOCK
$6.00 PER SHARE
------------------
Ambassador Eyewear Group, Inc., a Delaware corporation ("Ambassador" or the
"Company"), hereby offers 1,200,000 shares (the "Shares") of its Common Stock,
par value $.01 per share (the "Common Stock"). See "Description of Securities."
Prior to this offering of stock (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 Chicago Stock Exchange, subject to notice of issuance. There can be no
assurance that this listing application will be approved. If such listing
application is not approved, the Company will apply for the listing of the
Shares offered hereby on the National Association of Securities Dealers, Inc.'s
("NASD's") Over-the-Counter Electronic Bulletin Board Service (the "OTC"). See
"Risk Factors--Uncertain Public Market for the Company's Common Stock."
It is anticipated that the public offering price for the Shares will be
$6.00 per share. The offering price of the Shares have been determined by
negotiation between the Company and H.J. Meyers & Co., Inc., and National
Securities Corporation, the representatives (the "Representatives") of the
several underwriters (the "Underwriters") and is not necessarily related to the
Company's asset value or any other established criterion of value. For the
method of determining the public offering price of the Common Stock, see "Risk
Factors" and "Underwriting."
------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A SUBSTANTIAL
DEGREE OF RISK. PERSONS WHO PURCHASE THESE SECURITIES WILL INCUR IMMEDIATE AND
SUBSTANTIAL DILUTION. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FACTORS SET FORTH UNDER "RISK FACTORS," AT PAGE 5.
------------------------
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................... $6.00 $.60 $5.40
Total (3)................... $7,200,000 $720,000 $6,480,000
</TABLE>
(1) Does not reflect additional compensation to be received by the
Representatives in the form of (a) a non-accountable expense allowance of
$216,000 (or $248,400 if the Underwriters' over-allotment option described
in Footnote (3) is exercised in full) and other compensation payable to the
Representatives, and (b) warrants to purchase up to 120,000 shares of Common
Stock at a purchase price of $9.30 per share (that being 155% of the public
offering price) exercisable over a period of four years, commencing one year
from the date of this Prospectus (the "Representatives' Warrants"). In
addition, the Company has agreed to indemnify the Underwriters against
certain civil liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
(2) Before deducting additional expenses of the Offering payable by the Company,
estimated at $650,000, and the Representative's non-accountable expense
allowance.
(3) The Company has granted the Underwriters an option, exercisable within 45
days, to purchase up to an additional 180,000 shares of Common Stock on the
same terms and conditions as set forth above, solely to cover
over-allotments, if any. If the over-allotment option is exercised in full,
the total "Price to Public," "Underwriting Discount" and "Proceeds to
Company" will be $8,280,000, $828,000 and $7,452,000, respectively. See
"Underwriting."
The Shares are being offered on a "firm commitment" basis by the
Underwriters, when, as, and if delivered to and accepted by the Underwriters and
subject to prior sale, withdrawal or cancellation of the offer without notice.
It is expected that delivery of certificates representing the Shares will be
made at the offices of H.J. Meyers & Co., Inc. ("H.J. Meyers"), 1895 Mount Hope
Avenue, Rochester, New York 14620, on or about , 1998.
------------------------
H.J. MEYERS & CO., INC. NATIONAL SECURITIES CORPORATION
----------------
The date of this Prospectus is , 1998
<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
REPRESENTATIVES 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 DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES
THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR SHOULD
READ THIS PROSPECTUS IN ITS ENTIRETY. EXCEPT AS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITER'S OVER-ALLOTMENT
OPTION IS NOT EXERCISED AND REFLECTS A 1,166.667-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 to 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 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 in the United States and
internationally. 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 Americans 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 is likely to continue to grow. 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 in
the United States and globally. The Company intends to focus on: (i) growth
through the acquisition 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 line 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 substantially expanding 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 substantially increasing 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 $3.5 million were
sunglass products. 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 broadening its product lines and expanding its
potential market.
<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............... 1,200,000 shares(1)
Shares of Common Stock to be Outstanding
after the Offering......................... 4,700,000 shares (1)(2)
Use of Proceeds.............................. The Company intends to use the estimated net
proceeds from the Offering of $5,614,000
($6,553,600 if the Underwriter's
over-allotment option is exercised in full)
for reduction of debt and 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".
Chicago Stock Exchange Symbol................ AEY
</TABLE>
- ------------------------
(1) Assumes no exercise of the Underwriters' over-allotment option with respect
to shares of Common Stock that would be offered by the Company.
(2) Excludes (i) 529,333 shares of Common Stock issuable upon exercise of
outstanding options and warrants, (ii) 120,000 shares of Common Stock
issuable upon exercise of the Representatives' Warrants and (iii) 196,834
shares of Common Stock issuable to two officers, directors and principal
stockholders of the Company who are holders of $1,181,000 principal amount
8% Convertible Promissory Notes (assuming an initial public offering price
of $6.00 per share) that are convertible at the option of the holders at any
time at a per share price equal to the initial public offering price (the
"Convertible Notes"). 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 (condensed) and
as adjusted financial data for the Company derived from the Company's financial
statements which have been included elsewhere in this Prospectus. 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 NINE MONTHS ENDED
(INCEPTION) (CONDENSED) DECEMBER 31,
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 $ 11,722 $ 17,429
Gross profit.............. 4,179 7,903 14,038 5,619 9,597
Selling, general and
administrative
expenses................ 4,258 6,145 12,727 4,513 7,865(3)
Income (loss) from
operations.............. (79) 1,758 1,311 1,106 1,732
Net income (loss)......... (299) 680 136 368 489
Basic income (loss) per
share(2)................ (.09) .19 .04 .11 .14
Diluted income (loss) per
share(2)................ $ (.08) $ .18 $ .04 $ .10 $ .13
Weighted average number of
shares outstanding-basic
income (loss) per
share................... 3,500,000 3,500,000 3,500,000 3,500,000 3,500,000
Weighted average number of
shares
outstanding-diluted
income (loss) per
share................... 3,590,000 3,836,000 3,836,000 3,826,000 3,864,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------
AS ADJUSTED
ACTUAL (4)
--------- --------------
<S> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital...................................................................... $ 1,580 $ 7,381
Total assets......................................................................... 23,570 24,320
Non-current notes payable--stockholders/officer(5)................................... 1,181 1,181
Long-term debt....................................................................... 370 370
Total liabilities.................................................................... 23,030 18,166
Stockholders' equity................................................................. 540 6,154
</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
<PAGE>
(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 personnel 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 $6.00 per Share and the
repayment of $4,720,000 of debt with the proceeds therefrom, including
$106,000 loaned to the Company after December 31, 1997. See "Use of
Proceeds" and "Capitalization."
(5) Represents the Convertible Notes.
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND SHOULD NOT BE MADE BY PERSONS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. PROSPECTIVE INVESTORS, PRIOR TO MAKING AN INVESTMENT DECISION,
SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS (INCLUDING THE FINANCIAL STATEMENTS AND NOTES THERETO), THE
FOLLOWING FACTORS. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE
OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
SUBSTANTIAL INDEBTEDNESS 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 $23.0 million at
December 31, 1997, approximately $20.6 million of which are current which
amounts have increased to date. Of such debt, approximately $13.1 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 nine months ended
December 31, 1997, the Company incurred $738,000 and $972,000, respectively, in
net interest expenses. The revolving line of credit 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 $4.1 million from the proceeds of this Offering. The Company
anticipates that even after the proposed repayment of a portion of the Company's
indebtedness from the proceeds of this Offering, the Company's outstanding
indebtedness and ongoing interest expense will continue to be signficant. In
addition, 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 and to continue its
operations. There can be no assurance that any such alternative funding sources
will be available on a commercially reasonable basis if at all. 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 various other restrictive covenants, 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.
RISKS RELATED TO SUBSTANTIAL INVENTORY AND ACCOUNTS RECEIVABLE BALANCES. As
of December 31, 1997, the Company had an inventory of approximately $11.7
million consisting principally of eyeglass frames and sunglasses held at its
warehouse for distribution and accounts receivable valued at approximately $9.7
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, prospects,
results of operations or financial condition. The Company's balance sheet as of
December 31, 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.
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
5
<PAGE>
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. Furthermore, 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 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 any such 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 business, prospects, results of operations or
financial condition 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, prospects, results of operations or financial
condition. 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 acquisitions 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 48% during the nine months ended December 31,
1997. Sales to the Company's top customer, Wal-Mart, accounted for approximately
51% of the Company's sales in fiscal 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
6
<PAGE>
37% for the nine months ended December 31, 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 business, prospects, results of operations or financial condition.
Furthermore, 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 business, prospects, results of operations or
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 36% for the nine
months ended December 31, 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 be no less than
approximately $1 million and $700,000, 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 on various dates
through the year 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 business, prospects, results of operations or 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 $375,000 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 the Financial Statements
attached hereto.
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 with the continuing availability of funds under its
line of credit 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
7
<PAGE>
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 reasonable terms, if at all. The Company has agreed
that for a period of one year from the date of this Prospectus the Company will
not sell or otherwise dispose of any securities without the prior written
consent of the Respresentatives, which consent shall not be unreasonably
withheld, with the exception of shares of Common Stock issued pursuant to the
exercise of options, warrants or other convertible securities outstanding prior
to the date of this Prospectus. 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 the 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 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 its entire supply
of eyewear. The Company does not have an agreements 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's business, prospects, results of operations or financial
condition. 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, prospects, results of operations or
financial condition as a whole.
8
<PAGE>
USE OF PROCEEDS TO REPAY DEBT; BROAD DISCRETION IN APPLICATION OF PROCEEDS;
BENEFITS TO INSIDERS. Approximately $4,144,000 (74%) will be used for the
repayment of bank indebtedness by reducing the Company's debt under its line of
credit and $894,000 (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 revolving line of credit.
Additionally, approximately $576,000 (10%) of the proceeds will be used to repay
indebtedness to Rudy A. Slucker, the Company's Chairman of the Board of
Directors, incurred by the Company February 1997 to February 1998 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. The Company is also indebted to Mr. Slucker
and Barry Budilov, the President and Chief Executive Officer of the Company, to
the extent of approximately $1.2 million under the Convertible Notes, which bear
interest at the rate of 8% per annum. In addition, since Rudy Slucker and Mr.
Budilov 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 this public offering by February 20, 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 employment agreements and consulting agreements with members
of management and its Board of Directors, including Messrs. Slucker and Budilov,
aggregate approximately $470,000 (8%) over the next 12 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 given time and may introduce up to
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
9
<PAGE>
sunwear line of products, the Company's sales may be adversely affected and it
may be faced with excess inventories and there may be an adverse effect on the
Company's business, prospects, results of operations or financial condition. 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 through the year 2000. The loss of one or more of the trademarks
could have a material adverse effect on the Company's business, prospects,
results of operations or 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 business, prospects, results of
operations or 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 A. 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, prospects, results of operations or financial condition. 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 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 lower sales of prescription eyewear during its third
quarter (the three months ended December 31) 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.
CONTROL OF THE COMPANY BY OFFICERS AND DIRECTORS. Immediately following
this Offering, Rudy A. Slucker and Barry Budilov will beneficially own an
aggregate of approximately 77% 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 revolving line of credit 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 revolving line of 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 $4.71 per Share (78.5%) from the initial public
offering price (assuming an initial public offering price of $6.00 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 4,700,000 shares of Common Stock outstanding, as well as
options and warrants to purchase an additional 649,333 shares of Common Stock
(including the Representatives' Warrants). An additional 196,834 shares of
Common Stock are issuable upon the conversion of the Convertible Notes. The
1,200,000 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
10
<PAGE>
shares of Common Stock or any securities exercisable for or convertible into
shares of Common Stock, other than with respect to up to 300,000 shares of
Common Stock, for a period of 18 months after the date of this Prospectus
without the prior, written consent of the Representatives. 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 Representatives' Warrants will have certain
demand and "piggyback" 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 their registration rights to
effect a distribution of the Representatives' Warrants or the Warrant Shares,
the Representatives, 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 Representatives cease making a market in the Common Stock, the Company could
lose the ability to list the Common Stock on the Pacific Stock Exchange, Chicago
Stock Exchange or the OTC because of each 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 Pacific Stock Exchange and
the Chicago Stock Exchange, there can be no assurance that such application will
be approved or that an active public market will develop. The initial public
offering price has been determined by negotiation between the Company and the
Representatives. 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 an active trading market for the Common Stock
will develop and continue after the Offering. See "Underwriting."
DIFFICULTY OF TRADING "PENNY STOCKS." If the Company is unable to obtain
listing of the Common Stock on the Chicago Stock Exchange and the bid price of
the Company's Common Stock falls below $5.00 per share, and under certain other
circumstances, the Company's Common Stock may be subject to rules that impose
additional sales practice and market making requirements on broker-dealers who
sell or make a market in lower-priced securities which constitute "penny
stocks". The additional requirements will generally apply if sales are made to
persons other than established customers (as defined in such rules) and
accredited investors (generally, institutions and, for individuals, an investor
with assets in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 together with such investors' spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchaser and must have received the purchaser's written consent to the
transaction prior to the purchase. Consequently, many broker-dealers may be
unwilling to sell or make a market in the Company's securities because of the
added disclosure requirements, thereby making it more difficult for purchasers
in this Offering to resell the Common Stock in the secondary market.
UNCERTAIN PUBLIC MARKET FOR THE COMPANY'S COMMON STOCK. The Company has
applied to list the Common Stock on the Chicago Stock Exchange. There can be no
assurance that such listing will be approved, or that a market for the Common
Stock will develop or be sustained. The investment community could show little
or no interest in the Company in the future. As a result, purchasers of the
Company's securities may have difficulty in selling such securities should they
desire to do so. If the Chicago Stock Exchange listing application is not
approved, the Company will apply to list its Common Stock on the NASD's OTC
Bulletin Board Service. It is substantially more difficult for investors to
dispose of securities or to obtain accurate quotations as to securities in the
OTC Bulletin Board Service. In the event the Company's Common Stock is not
approved for listing on the Chicago Stock Exchange or the Company's Common Stock
is subsequently delisted from the Chicago Stock Exchange, the Company intends to
use its best efforts to list its Common Stock on the OTC Bulletin Board Service.
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
11
<PAGE>
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. See
"Description of Securities."
SETTLED NASD INVESTIGATION OF H.J. MEYERS. On July 16, 1996, the National
Association of Securities Dealers, Inc. issued a Notice of Acceptance, Waiver
and Consent (the "AWC") whereby H.J. Meyers was censured and ordered to pay
fines and restitution to retail customers in the amount of $250,000 and
approximately $1.025 million, respectively. The AWC was issued in connection
with claims by the NASD that H.J. Meyers charged excessive markups and markdowns
in connection with the trading of four securities originally underwritten by
H.J. Meyers. The activities in question occurred between December 1990 and
October 1993. H.J. Meyers has informed the Company that the fines and refunds
will not have a material adverse effect on H.J. Meyers' operations and H.J.
Meyers has effected remedial measures to help ensure that the subject conduct
does not recur.
12
<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 $5,614,000 (or $6,553,600 if the Underwriters
over-allotment option is exercised in full), based on an assumed initial public
offering price of $6.00 per share and after deducting the estimated underwriting
discounts and offering expenses payable by the Company. The Company intends to
apply the proceeds of the Offering substantially as follows:
<TABLE>
<CAPTION>
USE OF PROCEEDS AMOUNT PERCENTAGE
- ---------------------------------------------------------------- ------------ -------------
<S> <C> <C>
Repayment of indebtedness....................................... $ 4,720,000 84%
General corporate purposes...................................... 894,000 16%
Total......................................................... $ 5,614,000
</TABLE>
The Company intends to use the net proceeds from the Offering over the next
12 months for reduction of approximately $4,144,000 (74% of net proceeds) of the
Company's bank debt and repayment of approximately $576,000 (10% of net
proceeds) of indebtedness to Rudy A. Slucker, the Chairman of the Board of
Directors of the Company; and general corporate purposes, including for working
capital and to finance potential acquisitions ($894,000, 16% of net proceeds).
The Company intends to use the funds available upon the partial repayment of its
line of credit for the expansion of sales and marketing activities, for the
purchase of inventory and for general corporate purposes. 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 $470,000 (8% of net
proceeds) over the next 12 months. In addition the Company will make interest
payments of an aggregate of approximately $94,400 over the next 12 months on the
Convertible Notes to Mr. Slucker and Barry Budilov, the Company's President. Any
proceeds from the exercise of the Underwriters' over-allotment option will be
added to working capital and may be used to finance potential acquisitions.
The debt that is being repaid from the proceeds of this Offering is
comprised of (i) $4,144,000 of principal, interest and fees to CoreStates Bank
which reflects a portion of the amounts outstanding to such bank and (ii)
$576,000 to Rudy A. Slucker. 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
December 31, 1997). The debt to Mr. Slucker was incurred between February 4,
1997 and February 1, 1998 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 and for working
capital. The loan from Mr. Slucker 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. Interest on this indebtedness will
continue to be paid from the Company's working capital to the extent of
approximately $95,000 per year. 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 Company's management will maintain broad
discretion as to the allocation of proceeds. 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
13
<PAGE>
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.
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."
14
<PAGE>
CAPITALIZATION
The following table sets forth the actual short-term debt and capitalization
of the Company at December 31, 1997 and as adjusted to give effect to the sale
of the Shares offered hereby at an assumed initial public offering price of
$6.00 per Share and the repayment of certain indebtedness with the proceeds
therefrom. 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>
DECEMBER 31, 1997
-------------------------
<S> <C> <C>
AS
ACTUAL ADJUSTED(1)
---------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Short-term debt........................................................................ $ 13,771 $ 9,157
---------- -------------
---------- -------------
Long-term debt......................................................................... 370 370
Non-current notes payable--stockholders/officer(2)..................................... 1,181 1,181
Stockholders' equity:
Preferred Stock, $.01 per value; 1,000,000 shares authorized, none issued............ -- --
Common stock, $.01 par value; 20,000,000 shares authorized; 3,500,000 shares 35
outstanding 4,700,000 shares issued and outstanding
as adjusted (3).................................................................... 47
Additional paid-in capital........................................................... 187 5,789
Unearned portion of compensatory stock options....................................... (156) (156)
Retained earnings.................................................................... 474 474
---------- -------------
Total stockholders' equity......................................................... 540 6,154
---------- -------------
Total capitalization............................................................. $ 2,091 $ 7,705
---------- -------------
---------- -------------
</TABLE>
- ------------------------
(1) Includes the repayment of $4,144,000 owed by the Company to CoreStates Bank
pursuant to a revolving line of credit agreement and $576,000 of
indebtedness ($106,000 of which was borrowed after December 31, 1997), to
Rudy A. Slucker, the Chairman of the Board of Directors of the Company.
(2) Represents the Convertible Notes.
(3) Excludes (i) 529,333 shares of Common Stock issuable upon exercise of
outstanding options; (ii) 120,000 shares of Common Stock issuable upon
exercise of the Representatives' Warrants and (iii) 196,834 shares of Common
Stock issuable pursuant to the Convertible Notes. See "Certain Relationships
and Related Party Transactions" and "Underwriting."
15
<PAGE>
DILUTION
At December 31, 1997, the net tangible book value of the Company was
approximately $23,000, or $.01 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 of Common
Stock outstanding 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 $6.00 per share, the net tangible book
value of the Company at December 31, 1997 would have been approximately
$6,074,000, or $1.29 per Share. This represents an immediate increase in net
tangible book value of $1.28 per share to existing stockholders and an immediate
dilution of $4.71 per share of Common Stock to new stockholders purchasing
Shares offered hereby at an assumed initial offering price of $6.00 per Share,
as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price......................... $ 6.00
Net tangible book value per share at December 31, 1997...... $ .01
Increase per share attributable to sale of Shares in the
Offering.................................................. $ 1.28
---------
Net tangible book value per share after the Offering.......... $ 1.29
---------
Dilution to new investors this Offering....................... $ 4.71
---------
---------
</TABLE>
The following table summarizes on a pro forma basis as of December 31, 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 $6.00 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 74.47% $ 1,000 .01% $ .0003
New Investors.......................................... 1,200,000 25.53% 7,200,000 99.99% $ 6.00
---------- --------- ------------- ---------
Total.................................................. 4,700,000 100.00% $ 7,201,000 100.00%
---------- --------- ------------- ---------
---------- --------- ------------- ---------
</TABLE>
The above discussion and tables assume no exercise of any outstanding stock
options. See "Capitalization" and "Underwriting."
If the over-allotment option is exercised in full, the net tangible book
value per share after the Offering would be approximately $1.44 per share,
resulting in dilution to new investors of $4.56 per share. See "Capitalization"
and "Underwriting".
16
<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, the Company 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. 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.
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 $23.0 million at December 31, 1997, approximately
$20.6 million of which are current which amounts have increased to date. Of such
debt, approximately $13.1 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 nine months ended December 31, 1997, the Company incurred
$738,000 and $972,000, respectively, in net interest expenses. The revolving
line of credit 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 $4.1 million from the
proceeds of this Offering. The Company anticipates that even after the proposed
repayment of a portion of the Company's indebtedness from the proceeds of this
Offering, the Company's outstanding indebtedness and ongoing interest expense
will continue to be significant. In addition, 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 and to continue its operations. There can be no assurance that any
such alternative funding sources will be available on a commercially reasonable
basis if at all. 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
17
<PAGE>
restrict certain activities of the Company, including the declaration of
dividends and also provides for various other restrictive covenants, 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.
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 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.
NINE MONTHS ENDED DECEMBER 31, 1997 ("1997 NINE MONTHS") COMPARED TO NINE
MONTHS ENDED DECEMBER 31, 1996 ("1996 NINE MONTHS"). Net sales for the 1997
Nine Months were approximately $17.5 million as compared to approximately $11.7
million for the 1996 Nine 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 Nine Months were approximately $7.9 million
(approximately 45% of net sales) as compared to approximately $6.1 million for
the 1996 Nine Months (approximately 52% 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. The Company believes
that the gross profit percentage achieved during the 1997 Nine Months is
indicative of what it expects to achieve for the full fiscal year.
Selling, general and administrative expenses, consisting principally of
advertising, marketing, accounting and salaries of officers, increased from
approximately $4.5 million (approximately 39% of net sales) for the 1996 Nine
Months to approximately $7.9 million (approximately 45% of net sales) for the
1997 Nine
18
<PAGE>
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 Nine 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 $1.1 million
(approximately 9% of net sales) for the 1996 Nine Months to approximately $1.7
million (approximately 10% of net sales) during the 1997 Nine 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 $442,000 for the 1996 Nine
Months to approximately $972,000 during the 1997 Nine 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.
LIQUIDITY AND CAPITAL RESOURCES. At December 31, 1997, the Company had
working capital of approximately $1.6 million. The Company's total current
assets at December 31, 1997 of approximately $22.2 million includes accounts
receivable of approximately $9.7 million and inventories of approximately $11.7
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 December 31, 1997 include
approximately $13.1 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 and provides for a maximum
borrowing amount of $13 million. Indebtedness under the line accrues interest at
the prime rate (8.5% at December 31, 1997) and, is collateralized by
substantially all of the assets of the Company. Rudy A. 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 this public offering by February 20, 1998. Accordingly, upon the
completion of this Offering, the personal obligations of Messrs. Slucker and
Budilov will be reduced further. The Company intends to repay approximately $4.1
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 revolving line
of credit restricts the payment of dividends to stockholders and provides for
various restrictive covenants, including the continuing participation of Rudy A.
Slucker and Barry Budilov in their current management
19
<PAGE>
positions. The Company has also borrowed an aggregate of $576,000 from Mr.
Slucker from February 4, 1997 through February 1, 1998 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 and for working Capital. 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 December 31, 1997, the Company's current liabilities also include
approximately $4.4 million of accounts payable and $1.6 million accrued
expenses, payable in the ordinary course of its business. The Company's
long-term debt includes approximately $242,000 (which does not include current
portion of $101,000) of indebtedness in connection with the acquisition of
Windsor. The Company's non-current liabilities include approximately $761,000 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.
The Company's indebtedness includes approximately $1.18 million, payable to
Mr. Slucker and Mr. Budilov under the 8% Convertible Notes. The Convertible
Notes are repayable subject to restrictions contained in the Company's loan
agreement with CoreStates Bank on March 31, 2000. Interest shall accrue and be
payable quarterly at the rate of 8% per annum. If the Company has earnings equal
to or in excess of $.60 per share for the year ending March 31, 1999, the
Convertible Notes may be prepaid at the option of the holder commencing on March
31, 1999. The Convertible Notes may be converted at any time into shares of
Common Stock at a rate equal to the initial public offering price per share.
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 be no less approximately
than $1,000,000 and $700,000, respectively, even if the Company were to generate
no sales under the agreements.
As of December 31, 1997, the Company's obligations under employment
agreements and consulting agreements with members of management and its Board of
Directors aggregate approximately $470,000 over the next 12 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 December 31,
1997 aggregate approximately $2.0 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
negotiating 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
20
<PAGE>
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 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 lower sales of prescription eyewear during its third
quarter (the three months ended December 31) 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.
21
<PAGE>
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 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
in the United States and internationally 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. The Company was
incorporated in Delaware in May 1995 as Diplomat Ambassador Inc. when it
acquired the business of Chanuk, a Pennsylvania corporation. On July 10, 1997,
the Company changed its name to Ambassador Eyewear Group, Inc.
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.
22
<PAGE>
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 by 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 eight 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 five 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, among others,
and under the Company's proprietary Phoenix, Da Vinci, Tarelli, Details,
Landolfi trademarks and/ or trade names. The Company has not applied for
trademark protection of its product lines. 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 licensing and
distribution arrangements:
23
<PAGE>
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 (the "Ireland Agreement"). 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
Ireland Agreement expires on January 30, 2000. The Ireland Agreement provides
for guaranteed minimum royalties to Kathy Ireland for the term of the Ireland
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 (the "Halston 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 Halston 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 produces the largest number of frames in the
industry exclusively for 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
bright colors and light designs, include spring hinges and silicon nosepads to
maintain fit and which contain 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 "Playskool Agreement").
The Playskool Agreement expires on December 31, 1998 pursuant to the second
renewal term. Additional renewal of the Playskool agreement is at the discretion
of the licensor. The Playskool Agreement provides for guaranteed minimum
royalties to the licensor for the term of the Playskool 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 video game 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
"Nintendo Agreement"). The Nintendo Agreement expires on December 31, 2000. The
Company has an option to renew the Nintendo Agreement for one additional three
year term. The Nintendo 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.
24
<PAGE>
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 German manufacturer of 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, while providing 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 his time. John Lennon frames
vary from high-end to moderate-priced and include designs for men and women. The
Company is negotiating to renew its distribution agreement with Eagle Eyewear,
Inc. in order to be the exclusive distributor of adult optical frames and adult
sunglasses for Eagle Eyewear, Inc. in the United States and Canada. If the
distribution agreement is renewed, 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 designs. The collection features unique metal trims, temples,
bridges and colors with colored stones and pearls integrated into the frame
designs 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 (the "Lane Agreement") The license provides
the Company with 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 Lane Agreement was renewed in September 1997. The Lane 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 exceptional 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. The license gives the Company an exclusive right 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 such as 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 "Lifestyle
25
<PAGE>
Agreements"). The Lifestyle Agreements expire on June 30, 1998. With respect to
the license related to sunglasses, sunglass cases and related accessories, the
Lifestyle Agreements shall renew automatically for an additional three year term
if the Company achieves certain minimum net sales. The Lifestyle Agreements also
provide for guaranteed minimum royalties to the licensor for the term of the
Lifestyle 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. The Company has not
applied for trademark protection for these brands.
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 comprised 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 fiscal 1997 (30% on a pro forma basis giving
effect to the acquisitions of the assets of Windsor and Renaissance) and
approximately 48% for the nine months ended December 31, 1997. Sales to the
Company's top customer, Wal-Mart accounted for approximately 51%, of the
Company's sales in fiscal 1996, and approximately 35%, of its sales in fiscal
1997 (20% on a pro forma basis giving effect to the acquisitions of the assets
of Windsor and Renaissance) and approximately 37% for the nine months ended
December 31, 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-
26
<PAGE>
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.
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.
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, the Vision Expo in New York and the Vision Expo
in 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 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 primarily with
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
and the Company then chooses from the 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.
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
27
<PAGE>
competitive. The Company competes with a number of established companies,
including Luxotica, Safilo, Marchon and Bausch & Lomb, which together control a
substantial portion of the premium market. In the sunglass market, 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, Oakley and Gangoyles sunglasses. All of the aforementioned 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 market entrants,
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 through the year 2000. 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 third parties and licensed to the Company for limited purposes on a
royalty basis. The Company has not applied for trademark protection of its
product lines.
EMPLOYEES
At February 1, 1997, the Company had 107 full-time employees and one
part-time employee. Approximately 26 of such employees are engaged in
administrative positions, 28 in sales management, seven in management and 35
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 lease expires in August 2002 and provides for rent of $25,000 per month.
Barry Budilov and Rudy Slucker, the Company's Chairman and President,
respectively, have agreed to purchase the leased property from the landlord for
$2,465,540. In anticipation of such purchase, Messrs Slucker and Budilov have
entered into an agreement with the Company pursuant to which they have agreed to
rent to the Company the property at substantially the same terms and conditions
as are set forth on the current lease. The Company is negotiating to sublease
the Philadelphia facility, although no assurance can be given that it will be
successful in such negotiations.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
28
<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 Committees.
In connection with the Offering, the Company intends to increase the size of
the Board of Directors 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 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
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
and has served as a Director since the Company's inception in 1995. From 1989 to
1995, Mr. Budilov served as the President of Chanuk, the predecessor of the
Company. 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. Mr. Budilov is 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 joining the Company he spent sixteen years in the
optical industry as Vice President and Chief Operating Officer of Windsor, which
the Company acquired in January 1997. 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
manufacturing company with securities traded on Nasdaq. Prior thereto and since
1987, he was employed as a staff accountant for Abo, Uris & Altenburger, a
certified public accounting firm. Mr. Green graduated from Iona College in 1983
with a Bachelor's Degree in finance.
JAY RICE has been the managing partner of the law firm of Nagel Rice &
Dreifuss since 1983 and has served as a Director of the Company since June 1997.
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 a member of the Board of Trustees of the
United Jewish Federation of Metrowest since 1995. Prior to joining Nagel Rice &
Dreifuss, 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 legal 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
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<PAGE>
Jurisprudence Committee from 1989 to 1991) and the American Bar Association. Mr.
Rice received his Juris Doctorate from Rutgers University in 1977.
JEFFREY SEIKEN practices law in Philadelphia, Pennsylvania in the law
offices of Jeffrey Seiken and has served as a Director of the Company since June
1997. From 1988 through 1996, Mr. Seiken was a partner with the law firm of Rush
& Seiken. He was one of the initial founders and investors in American Health
Care, a corporation formed 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 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.
For a period of 36 months, the Representatives have the right to appoint
either a member to the Company's Board of Directors or 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 an Audit Committee and a
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 subject to annual increases at the discretion of the
Board of Directors. The agreement will also contain a confidentiality provision
and a provision prohibiting Mr. Budilov from competing with the Company for a
period of six months subsequent to the termination of his employment. The
Company has agreed to pay to Mr. Budilov an amount equal to six months salary in
the event of a change of control or in the event this agreement is not renewed.
In the event Mr. Budilov is terminated without cause, the Company breaches the
terms of the agreement or upon the relocation of the Company to a place outside
of the Philadelphia metropolitan area, which leads to Mr. Budilov's resignation
the Company will also pay to Mr. Budilov his basic salary unpaid through the
greater of the term date or a period of six months. The agreement also provides
for the payment of additional benefits of approximately $41,000 annually.
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, subject to
annual increases at the discretion of the Board of Directors. Mr. Slucker will
not be required to devote any minimum amount of time to the affairs of the
Company and is subject to an employment agreement with another company. The
consulting agreement will also contain a confidentiality provision and a
provision prohibiting Mr. Slucker from competing with the Company for a period
of six months subsequent to the termination of his employment. The Company has
agreed to pay to Mr. Slucker an amount equal to six months fee in the event of a
change of control or in the event this agreement is not renewed. In the event
Mr. Slucker is terminated without cause the Company breaches the terms of the
agreement or upon the relocation of the Company to a place outside of the
Philadelphia metropolitan area, which leads to Mr. Slucker's resignation, the
Company will also pay to Mr. Slucker his basic salary unpaid through the greater
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<PAGE>
of the term date or a period of six months. The agreement also provides for the
payment of additional benefits of approximately $41,000 annually.
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 into 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, plus
an automobile allowance and provides for annual minimum increases through the
year 1999 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 at an exercise
price of $1.50 per share, vesting over a period of 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 employment 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 an option to purchase 180,833 shares of Common
Stock for five years at an exercise price of $3.00 per share.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
As permitted by Section 145 of 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 Company's Amended Certificate
of Incorporation and 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
million.
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 $100,000 during the period
from inception to March 31, 1996 and the year ended March 31, 1997.
31
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION OTHER LONG TERM
-------------------------- ANNUAL COMPENSATION AWARDS ALL OTHER
FISCAL SALARY COMPENSATION SECURITIES UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($) ($3) OPTIONS (#) ($) (4)
- --------------------------- ----------- --------- --------------- ------------- --------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rudy A. Slucker, Chairman
of the Board of
Directors................ 1997(1) $ 260,000 0 $ 32,742 0 $ 8,473
1996(2) $ 172,000 0 $ 32,742 54,833 $ 8,473
Barry Budilov, President
and Chief Executive
Officer.................. 1997(1) $ 250,000 0 $ 32,742 0 $ 8,473
1996(2) $ 169,900 0 $ 32,742 54,833 $ 8,473
</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.
(3) Include payments for medical insurance, disability insurance and auto
insurance. Also includes $17,106 for automobile allowance.
(4) Represents payment for life insurance.
AGGREGATED OPTION EXERCISES THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE- MONEY OPTIONS AT
OPTIONS AT MARCH 31, 1997 MARCH 31, 1997($)(1)
---------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------------------------------- ---------------------------- -------------------------
<S> <C> <C>
Rudy A. Slucker, Chairman of the Board of Directors..... 54,833/0 $ 315,290/0(2)
Barry Budilov, President and Chief Executive Officer.... 54,833/0 $ 315,290/0
</TABLE>
- --------------------------
(1) Assuming a value of $6 per share.
(2) Does not include an option to purchase 500,000 shares of Common Stock for
$6.00 per share granted personally by Mr. Budilov to Mr. Slucker.
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,
consultants and independent contractors. The Plan is currently administered by
the entire Board of Directors of the Company. The Plan terminates on June 5,
2007 unless terminated earlier by the Company's Board of Directors.
32
<PAGE>
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.
33
<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 (giving effect to the 1,166,667 for
one stock split) 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 at an
exercise price of $.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 principal 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.
The Company's indebtedness includes approximately $1.18 million in principal
and interest, payable to Mr. Slucker and Mr. Budilov under the 8% Convertible
Notes. The Convertible Notes are repayable at 8% per annum, subject to
restrictions contained in the Company's loan agreement with CoreStates Bank, on
March 31, 2000. Interest accrues and is payable quarterly at the rate of 8% per
annum. If the Company has earnings equal to or in excess of $.60 per share for
the year ending March 31, 1999, the Convertible Notes may be prepaid at the
option of the holder commencing on March 31, 1999. The Convertible Notes may be
converted at any time into shares of Common Stock at the initial public offering
price per share. The Company's revolving line of credit with CoreStates Bank
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.
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 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 (one of the relatives referred to
above) pursuant to the same terms as set forth above, which agreement will
continue in effect until May 9, 2005. 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
34
<PAGE>
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 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
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 had 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 each on
February 20, 1998, under certain circumstances.
From February 4, 1997 through February 1, 1998, 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 and for working
capital, Rudy A. Slucker loaned the Company $576,000, payable upon demand with
interest at 8% per annum. This loan will be repaid from the proceeds of this
Offering.
In January 1998, Mr. Budilov granted to Mr. Slucker an option to purchase
500,000 shares of Common Stock owned by Mr. Budilov for $6.00 per share.
In July 1997, Messrs. Budilov and Slucker entered into an agreement with the
landlord of the Company's facility to purchase such facility. In anticipation of
such purchase, Messrs. Budilov and Slucker have also entered into an agreement
to rent such facility to the Company at substantially the same terms and
conditions ser forth in the Company's current lease.
Management believes that each of the above transactions was made pursuant to
terms no less favorable than the terms reasonably expected in third-party,
unaffiliated transactions.
35
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of December 31, 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 and have an address, care of the Company, of 3600
Marshall Lane, Bensalem, Pennsylvania 19020. Under the rules of the Securities
and Exchange Commission, a person is deemed to be a "beneficial" owner of
securities if he or she has or shares the power to vote or direct the voting of
such securities or the power to dispose or direct the disposition of such
securities. A person is also deemed to be a beneficial owner of any securities
of which that person has the right to acquire beneficial ownership within 60
days. More than one person may be deemed to be a beneficial owner of the same
securities.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
---------------------- ---------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Rudy A. Slucker(1)(2)(3)............................... 2,444,500 66.17% 2,444,500 49.94%
Barry Budilov(3)....................................... 1,862,000 51.55% 1,862,000 38.69%
Kenneth Kitnick(4)..................................... 151,667 4.15% 151,667 3.13%
Raymond Green.......................................... 0 -- 0 --
Jay Rice............................................... 0 -- 0 --
Jeffrey Seiken......................................... 0 -- 0 --
All directors and executive officers as a group
(6 persons)(1)(3)(4)................................. 3,958,167 100.00% 3,958,167 76.74%
</TABLE>
- ------------------------
(1) Includes 225,000 shares of Common Stock held in the names of Mr. Slucker's
wife and two children over which Mr. Slucker disclaims beneficial ownership.
(2) Also includes an option to purchase 500,000 shares granted to Mr. Slucker
from Barry Budilov.
(3) Includes (i) options to acquire 54,833 shares of Common Stock held by each
of Mr. Slucker and Mr. Budilov and (ii) 57,167 shares of Common Stock for
Mr. Budilov and 139,667 shares of Common Stock for Mr. Slucker issuable upon
the conversion of the Convertible Notes. See "Description of Securities."
(4) Includes options to acquire 151,667 shares of Common Stock of the Company.
Commencing 90 days after the completion of this Offering each of Mr. Slucker
and Mr. Budilov intend to donate up to 47,000 shares of Common Stock each, every
90 days (not to exceed 150,000 shares of Common Stock each), to the Slucker
Family Foundation, a charitable foundation over which Mr. Slucker will be a
controlling person. The Common Stock donated to the foundation will not be
subject to a lock-up agreement with the Underwriters.
36
<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 4,700,000 shares of Common
Stock outstanding (4,880,000 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 shares of Preferred Stock are outstanding.
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
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 non-assessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent registrar for the Shares is the Continental Stock
Transfer & Trust Company, Two Broadway, New York, New York 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the 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 4,700,000 (4,880,000
if the Underwriters' over allotment option is exercised in full) shares of
Common Stock outstanding. Of those shares, the 1,200,000 Shares sold in the
Offering (1,380,000 Shares if the Underwriters' over-allotment option is
37
<PAGE>
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 stockholders 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 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, as such term is defined under Rule 144, without compliance with
the one-year minimum holding period contained in Rule 144, subject to certain
limitations. There are 529,333 shares of Common Stock issuable upon the exercise
of outstanding options (the "Option Shares"). Beginning 90 days after the date
of this 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
stockholders 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 (47,000 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.
The holders of the Representatives' Warrant will also have certain demand
and incidental registration rights with respect to the Representatives' Warrant
and the 120,000 shares of Common Stock underlying the Warrants 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, other than with respect to up to
300,000 shares of Common Stock, for a period of 18 months after the date of this
Prospectus without the prior written consent of the Representatives. See
"Underwriting."
38
<PAGE>
UNDERWRITING
The Underwriters named below have agreed, subject to the terms and
conditions of the Underwriting Agreement between the Company, H.J. Meyers & Co.,
Inc. and National Securities Corporation, as Representatives of the
Underwriters, to purchase from the Company the number of Shares set forth
opposite their names on a "firm commitment" basis. The 10% underwriting discount
set forth on the cover page of this Prospectus will be allowed to the
Underwriters at the time of delivery to the Underwriters of the Shares so
purchased
<TABLE>
<CAPTION>
NUMBER
OF SHARES
NAME OF UNDERWRITER PURCHASED
- --------------------------------------------------------------------------------- ----------
<S> <C>
H.J. Meyers & Co., Inc...........................................................
National Securities Corporation..................................................
----------
TOTAL.................................................................... 1,200,000
----------
----------
</TABLE>
The Underwriters have advised the Company that they propose to offer the
Shares to the public at the initial public offering price set forth on the front
cover page of this Prospectus, and at such price less a concession not in excess
of $ per share of Common Stock to certain dealers who are members of the
National Association of Securities Dealers, Inc., of which the Underwriters may
allow and such dealers may reallow concessions not in excess of $ per share
of Common Stock to certain other dealers. The public offering price and
concession and discount may be changed by the Underwriters after the initial
public offering.
The Company has granted to the Underwriters an over-allotment option
expiring at the close of business on the 45th day subsequent to the date of this
Prospectus, to purchase up to an additional 180,000 Shares at the public
offering price, less the underwriting discount set forth on the cover page of
this Prospectus. The Underwriters may exercise such option only to satisfy
over-allotments in the sale of the Shares.
The Company has agreed to pay to the Representatives a non-accountable
expense allowance equal to 3% of the total proceeds of this Offering, or
$216,000 (and 3% of the total proceeds from the sale of any shares of Common
Stock pursuant to the exercise of the over-allotment option, or $248,400 if the
Underwriters exercise the over-allotment option in full). In addition to the
Underwriters' commissions and the Representatives' expense allowance, the
Company is required to pay the costs of qualifying the shares of Common Stock
under federal and state securities laws, together with legal and accounting
fees, printing and other costs in connection with this Offering.
At the closing of this Offering, the Company will issue to the
Representatives, for nominal consideration, the Representatives' Warrant to
purchase up to 120,000 shares of Common Stock of the Company (also referred to
herein as the "Representatives' Warrants"). The shares of Common Stock subject
to the Representatives' Warrant are identical to the shares of Common Stock sold
to the public, except for the purchase price and certain registration rights.
The Representatives' Warrants will be exercisable for a four-year period
commencing one year from the date of this Prospectus, at an exercise price of
$9.30 per share of Common Stock (that being 155% of the initial public offering
price per share of Common Stock). The Representatives' Warrants will be
restricted from sale, assignment, pledge or hypothecation prior to their
39
<PAGE>
initial exercise date except to successors in interest to the Representatives
and/or one or more officers of the Representatives.
The Representatives' Warrants will contain anti-dilution provisions
providing for appropriate adjustment in the event of any recapitalization,
reclassification, stock dividend, stock split or similar transactions. The
Representatives' Warrants does not entitle the Representatives to any rights as
stockholders of the Company until such warrants are exercised and the shares of
Common Stock are purchased thereunder.
The Representatives' Warrants and the shares of Common Stock issuable
thereunder may not be offered for sale to the public except in compliance with
the applicable provisions of the Securities Act. The Company has agreed that if
it causes a post-effective amendment to the Registration Statement of which this
Prospectus is a part, or a new registration statement or offering statement
under Regulation A, to be filed with the Securities and Exchange Commission
("Commission"), the Representatives shall have the right during the life of the
Representatives' Warrant to include therein for registration the
Representatives' Warrants and/or the shares of Common Stock issuable upon their
exercise at no expense to the Representatives. Additionally, the Company has
agreed that, upon demand by the holder(s) of at least 50% of the (i) total
unexercised Representatives' Warrants and (ii) shares of Common Stock issued
upon the exercise of the Representatives' Warrants, made on no more than two
separate occasions during the exercise period of the Representatives' Warrants,
the Company shall use its best efforts to register the Representatives' Warrants
and/or any of the shares of Common Stock issuable upon the exercise thereof,
provided that the Company has available current financial statements, the
initial such registration to be at the Company's expense and the second at the
expense of the holder(s).
For the period during which the Representatives' Warrants are exercisable,
the holder(s) will have the opportunity to profit from a rise in the market
value of the Company's Common Stock, with a resulting dilution in the interests
of the other stockholders of the Company. The holder(s) of the Representatives'
Warrants can be expected to exercise the warrants at a time when the Company
would, in all likelihood, be able to obtain any needed capital from an offering
of its unissued Common Stock on terms more favorable to the Company than those
provided for in the Representatives' Warrants. Such facts may materially
adversely affect the terms on which the Company can obtain additional financing.
The Company has agreed to enter into a one year consulting agreement with
H.J. Meyers, pursuant to which H.J. Meyers will act as financial consultant to
the Company, commencing upon the closing date of this Offering. Under the terms
of this agreement, H.J. Meyers, to the extent reasonably required in the conduct
of the business of the Company and at the prior written request of the President
of the Company, has agreed to evaluate the Company's managerial and financial
requirements, assist in the preparation of budgets and business plans, advise
with regard to sales planning and sales activities, and assist in financial
arrangements. H.J. Meyers will make available qualified personnel for this
purpose. The non-refundable consulting fee of $60,000 will be payable, in full,
on the closing date of this Offering.
The Company has agreed that it will engage a public relations firm
acceptable to the Representatives and the Company. The Company also has agreed
to maintain a relationship with such public relations firm for minimum period of
two years and on such other terms as are acceptable to the Reprsentatives.
The Company has also agreed that, for a period of two years from the closing
of this Offering, if it participates in any merger, consolidation or other
transaction which H.J. Meyers has brought to the Company (including an
acquisition of assets or stock for which it pays, in whole or in part, with
shares of the Company's Common Stock or other securities), which transaction is
consummated within three years of the closing of this Offering, then it will pay
for H.J. Meyers' services an amount equal to 5% of the first $3 million of value
paid or value received in the transaction, 3% of any consideration above $3
million and less than $5 million and 2% of any consideration in excess of $5
million. The Company has also agreed that if, during this two-year period,
someone other than H.J. Meyers brings such a merger, consolidation, or other
transaction to the Company, and if the Company in writing retains H.J. Meyers
for consultation or other services in connection therewith, than upon
consummation of the transaction the Company will pay
40
<PAGE>
to H.J. Meyers as a fee the appropriate amount as set forth above or as
otherwise agreed to between the Company and H.J. Meyers.
The Company has agreed that for a period of one year from the date of this
Prospectus the Company will not sell or otherwise dispose of any securities
without the prior written consent of the Respresentatives, which consent shall
not be unreasonably withheld, with the exception of shares of Common Stock
issued pursuant to the exercise of options, warrants or other convertible
securities outstanding prior to the date of this Prospectus. The Company will
not sell or issue any securities pursuant to Regulation S under the Securities
Act without the Respresentatives' prior written consent.
The Company's officers, directors and 5% shareholders have agreed that for a
period of 18 months from the date of this Prospectus they will not offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock acquired
prior to this Offering, other than up to 300,000 shares of Common Stock, without
the prior written consent of the Representatives.
For a period of 36 months from the closing of this Offering, the
Representatives are entitled to designate one member as a nominee for election
to the Company's Board of Directors. Rudy A. Slucker and Barry Budilov have
agreed to vote their shares in favor of such nominee. If the Representatives
elect not to nominate a Board of Directors Member, then they shall have the
right to select a person to act as an observer to attend all meetings of the
Board of Directors. The Company has agreed to hold at least four meetings and to
indemnify the Representatives' observer against any claims arising out of his
participating at meetings.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the
Underwriters against certain liabilities in connection with the Registration
Statement, including liabilities under the Act.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
The offering price of the securities being offered hereby was determined by
negotiation between the Company and the Representatives. Factors considered in
determining such price include the history of and the prospects for the industry
in which the Company competes, the past and present operations of the Company,
the future prospects of the Company, the ability of the Company's management,
the earnings, net worth and financial condition of the Company and the general
condition of the securities markets at the time of this Offering.
The Company previously paid a non-refundable fee of $35,000 to another
underwriter which is no longer participating in the Offering.
On July 16, 1996, the NASD issued a Notice of Acceptance, Waiver and Consent
(the "AWC") whereby H.J. Meyers was censured and ordered to pay fines and
restitution to retail customers in the amount of $250,000 and approximately
$1.025 million, respectively. The AWC was issued in connection with claims by
the NASD that H.J. Meyers charged excessive markups and markdowns in connection
with the trading of four securities originally underwritten by H.J. Meyers. The
activities in question occurred between December 1990 and October 1993. H.J.
Meyers has informed the Company that the fines and refunds will not have a
material adverse effect on H.J. Meyers' operations and that H.J. Meyers has
effected remedial measures to help ensure that the subject conduct does not
recur.
41
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock will be passed upon by Gibbons,
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 Harter, Secrest & Emery, LLP, Rochester, 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 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 that can be electronically examined. The address of the Commission's
Web site is http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and with such other periodic reports as
the Company may from time to time deem appropriate or as may be required by law.
42
<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 December 31, 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 nine-month periods
(unaudited) ended December 31, 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
nine months ended December 31, 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 nine-month periods
(unaudited) ended December 31, 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
------------- -------------- ----- ----------- -----------
------------- -------------- ----- ----------- -----------
Basic income per share.................... $ .19 $ .04
------------- -----------
------------- -----------
Diluted income per share (C).............. $ .18 $ .04
------------- -----------
------------- -----------
Weighted average shares outstanding--basic
income per share........................ 3,500 3,500
------------- -----------
------------- -----------
Weighted average shares
outstanding--diluted income per share
(D)..................................... 3,836 3,836
------------- -----------
------------- -----------
</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 No. 98, potential
common shares issued at prices below the anticipated public offering price
during the twelve months preceding the initial filing date of the
registration statement have been included in the calculation of diluted
income per share in a manner similar to a stock split or stock dividend.
(D) See calculation of weighted average number of shares outstanding in the
Statement of Operations for the year ended March 31, 1997.
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 G and I[1]
June 30, 1997
F-3
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
------------- -------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash............................................................................. $ 75,000 $ 90,000
Accounts receivable, less allowance for returns and doubtful accounts of
$2,394,000 and $1,866,000...................................................... 7,403,000 9,732,000
Inventories...................................................................... 11,508,000 11,749,000
Prepaid expenses................................................................. 175,000 103,000
Deferred taxes................................................................... 586,000 526,000
Other current assets............................................................. 4,000 19,000
------------- -------------
Total current assets........................................................... 19,751,000 22,219,000
Fixed assets, net of accumulated depreciation of $276,000 and $447,000............. 744,000 792,000
Deferred financing cost............................................................ 119,000 80,000
Deferred offering costs............................................................ 437,000
Other assets....................................................................... 42,000 42,000
------------- -------------
TOTAL........................................................................ $ 20,656,000 $ 23,570,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--banks............................................................. $ 12,098,000 $ 13,095,000
Notes payable--stockholders/officers............................................. 280,000 470,000
Loans from stockholders/officers................................................. 63,000
Current portion of long-term debt................................................ 96,000 101,000
Accounts payable................................................................. 4,242,000 4,358,000
Accrued expenses................................................................. 808,000 1,579,000
Income taxes payable............................................................. 544,000 868,000
Current portion of capital leases payable........................................ 69,000 105,000
------------- -------------
Total current liabilities...................................................... 18,137,000 20,639,000
Consulting payable................................................................. 29,000 61,000
Long-term debt, less current portion............................................... 319,000 242,000
Notes payable--stockholders/officers............................................... 1,181,000 1,181,000
Capital leases payable, less current portion....................................... 90,000 128,000
Deferred taxes..................................................................... 41,000 18,000
Deferred credit, net............................................................... 836,000 761,000
------------- -------------
Total liabilities.............................................................. 20,633,000 23,030,000
------------- -------------
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) (156,000)
Retained earnings (accumulated deficit).......................................... (15,000) 474,000
------------- -------------
Total stockholders' equity..................................................... 23,000 540,000
------------- -------------
TOTAL........................................................................ $ 20,656,000 $ 23,570,000
------------- -------------
------------- -------------
</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) NINE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31,
MARCH 31, MARCH 31, ----------------------------
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Net sales........................................... $ 11,005,000 $ 16,455,000 $ 11,722,000 $ 17,492,000
Cost of sales....................................... 6,826,000 8,552,000 6,103,000 7,895,000
------------- ------------- ------------- -------------
Gross profit........................................ 4,179,000 7,903,000 5,619,000 9,597,000
Selling, general and administrative expenses........ 4,258,000 6,145,000 4,513,000 7,865,000
------------- ------------- ------------- -------------
Income (loss) from operations....................... (79,000) 1,758,000 1,106,000 1,732,000
Interest income..................................... 4,000 4,000
Interest (expense).................................. (474,000) (742,000) (442,000) (972,000)
------------- ------------- ------------- -------------
Income (loss) before provision for income taxes..... (553,000) 1,020,000 668,000 760,000
Income tax provision (benefit)...................... (254,000) 340,000 300,000 271,000
------------- ------------- ------------- -------------
NET INCOME (LOSS)................................... $ (299,000) $ 680,000 $ 368,000 $ 489,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic income (loss) per share....................... $ (.09) $ .19 $ .11 $ .14
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted income (loss) per share..................... $ (.08) $ .18 $ .10 $ .13
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of common shares
outstanding--basic income (loss) per share........ 3,500,000 3,500,000 3,500,000 3,500,000
Effect of potential common shares................... 90,000 336,000 326,000 364,000
------------- ------------- ------------- -------------
Weighted average number of common shares
outstanding--diluted income (loss) per share...... 3,590,000 3,836,000 3,826,000 3,864,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</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 RETAINED
-------------------------- ADDITIONAL COMPENSATORY EARNINGS TOTAL
NUMBER OF PAID-IN STOCK (ACCUMULATED 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......... 28,000 28,000
Net income for the nine months....... 489,000 489,000
------------ ------------ ---------- ------------- ------------ ------------
BALANCE--DECEMBER 31, 1997
(unaudited)........................ 3,500,000 $ 35,000 $ 187,000 $ (156,000) $ 474,000 $ 540,000
------------ ------------ ---------- ------------- ------------ ------------
------------ ------------ ---------- ------------- ------------ ------------
</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) NINE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31,
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 $ 368,000 $ 489,000
Adjustments to reconcile net income (loss) to net cash (used
in) operating activities:
Depreciation............................................ 110,000 175,000 120,000 160,000
Amortization of deferred financing costs................ 127,000 71,000 36,000 39,000
Amortization of deferred credit......................... (8,000) (75,000)
Deferred taxes.......................................... (372,000) 173,000 (133,000) 36,000
Compensatory stock option............................... 3,000 28,000
Loss on disposal of assets.............................. 94,000
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............ 57,000 (3,992,000) (2,212,000) (2,329,000)
(Increase) in inventories............................. (1,550,000) (1,364,000) (1,239,000) (241,000)
Decrease in prepaid expenses.......................... 222,000 98,000 172,000 72,000
(Increase) decrease in other assets................... (153,000) 173,000 172,000 (15,000)
Increase (decrease) in accounts payable............... 28,000 252,000 (80,000) 116,000
Increase in consulting payable........................ 29,000 19,000 32,000
Increase in accrued expenses.......................... 302,000 106,000 343,000 521,000
Increase in income taxes payable...................... 119,000 425,000 359,000 324,000
----------- ----------- ----------- -------------
Net cash (used in) operating activities............. (1,365,000) (3,525,000) (2,075,000) (749,000)
----------- ----------- ----------- -------------
Cash flows from investing activities:
Fixed asset acquisitions.................................... (199,000) (136,000) (95,000) (167,000)
Cash obtained through acquisitions.......................... 2,000 59,000 59,000
Deferred financing costs acquired........................... (127,000)
Proceeds from insurance claim............................... 30,000
----------- ----------- ----------- -------------
Net cash (used in) investing activities............. (294,000) (77,000) (36,000) (167,000)
----------- ----------- ----------- -------------
Cash flows from financing activities:
Net borrowings from bank--line of credit.................... 1,667,000 3,575,000 2,229,000 997,000
Payments of financing costs................................. (90,000) (55,000)
Payments of registration costs.............................. (187,000)
Proceeds from stockholder/officer........................... 15,000 265,000 15,000 283,000
Payments of notes payable--stockholders/officer............. (13,000) (12,000) (30,000)
Payments of notes payable--Windsor.......................... (35,000) (72,000)
Payments on capital leases.................................. (48,000) (39,000) (60,000)
----------- ----------- ----------- -------------
Net cash provided by financing activities........... 1,669,000 3,667,000 2,138,000 931,000
----------- ----------- ----------- -------------
NET INCREASE IN CASH.......................................... 10,000 65,000 27,000 15,000
Cash--beginning of period..................................... -0 - 10,000 10,000 75,000
----------- ----------- ----------- -------------
CASH--END OF PERIOD........................................... $ 10,000 $ 75,000 $ 37,000 $ 90,000
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
Supplementary cash flow information:
Income taxes paid (net of refunds received)................. $ 88,000 $ 48,000 $ (90,000)
Interest paid............................................... $ 300,000 629,000 418,000 934,000
Supplementary schedule of noncash investing and financing
activities:
Deferred financing fee.................................... 100,000
Acquisitions (see Note C)
Accrued offering costs.................................... 250,000
Equipment acquired under capital leases................... 189,000 51,000 7,000 134,000
</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 DECEMBER 31, 1997 AND FOR THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 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 L [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 7 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 F[1]).
Accumulated amortization was $71,000 and $110,000, respectively at March 31,
1997 and December 31, 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 $83,000, respectively at March 31, 1997
and December 31, 1997.
[6] INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") 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 DECEMBER 31, 1997 AND FOR THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 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 December 31, 1997 the allowance for returns was
$555,000 and $365,000, respectively.
[8] INCOME (LOSS) PER SHARE:
The Company adopted SFAS No. 128, "Earnings Per Share," in the period ended
December 31, 1997 and has retroactively applied the effects thereof for all
periods presented. Accordingly, the presentation of per share information
includes calculations of basic and diluted income (loss) per share. The impact
on the per share amounts previously reported was not significant for any of the
periods presented.
Potential common shares, consisting of 166,833 options, were not included in
the calculation of diluted loss per share for the period from May 3, 1995 thru
March 31, 1996 since their effect would be antidilutive.
Additionally, pursuant to the Commission's Staff Accounting Bulletin No. 98,
potential common shares issued at prices below the anticipated public offering
price during the twelve months preceding the initial filing date of the
registration statement have been included in the calculations of diluted income
(loss) per share in a manner similar to a stock split or stock dividend.
[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 (loss) and basic and diluted
income (loss) per share in accordance with
F-9
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF DECEMBER 31, 1997 AND FOR THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997)
(NOTE B)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
SFAS No. 123. Accordingly, the Company accounts for the difference between the
exercise price of compensatory stock options and the 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 nine months ended December 31, 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
nine months ended December 31, 1997 was approximately $155,000, $277,000 and
$160,000, respectively.
[14] RECENT ACCOUNTING PRONOUNCEMENTS:
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 December 31, 1997 and
results of operations and cash flows for the nine-month periods ended December
31, 1997 and 1996. The financial statements as of December 31, 1997 and for the
nine months ended December 31, 1997 are not necessarily indicative of the
results that may be expected for the year ending March 31, 1998.
(NOTE C)--ASSET ACQUISITIONS:
[1] 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 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
F-10
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF DECEMBER 31, 1997 AND FOR THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997)
(NOTE C)--ASSET ACQUISITIONS: (CONTINUED)
(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] 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 L[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 L[3]).
[3] 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 L[3]). In addition the
F-11
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF DECEMBER 31, 1997 AND FOR THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997)
(NOTE C)--ASSET ACQUISITIONS: (CONTINUED)
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
Basic income (loss) per share.................................. $ (.14) $ .04
Diluted income (loss) per share................................ $ (.13) $ .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.
(NOTE D)--ACCOUNTS RECEIVABLE:
The Company has recorded allowances of $2,394,000 and $1,866,000 as of March
31, 1997 and December 31, 1997, respectively, against accounts receivable.
Management believes, based on information available at the financial statement
dates, that such allowances are adequate valuation reserves against potential
uncollectable accounts and returns. Management does not believe that there
exists presently a substantial risk that receivable recovery will be materially
less than the net carrying amount of its accounts receivable. Additionally,
receivables over 180 days have been substantially reserved.
F-12
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF DECEMBER 31, 1997 AND FOR THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997)
(NOTE E)--FIXED ASSETS:
Fixed assets are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
------------ -------------
<S> <C> <C>
Furniture, fixtures and displays................................. $ 232,000 $ 262,000
Equipment........................................................ 636,000 829,000
Leasehold improvements........................................... 152,000 148,000
------------ -------------
Total........................................................ 1,022,000 1,239,000
Accumulated depreciation......................................... 276,000 447,000
------------ -------------
Balance...................................................... $ 744,000 $ 792,000
------------ -------------
------------ -------------
</TABLE>
(NOTE F)--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 December 31, 1997). The credit facility is
collateralized by substantially all of the assets of the Company and contains
certain restrictive covenants including the payment of dividends. The credit
facility is represented by demand notes payable to the bank under which the bank
may demand repayment at any time. During the nine months ended December 31, 1997
the Company entered into an overadvance line of credit of $1,000,000 pursuant to
an agreement which is due on the earlier of February 20, 1998 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 which amount is subject
to an increase of $750,000 if the proposed offering does not close by February
20, 1998. At March 31, 1997 and December 31, 1997 $11,998,000 and $12,995,000,
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>
DECEMBER
MARCH 31, 31,
1997 1997
--------- -----------
<S> <C> <C>
Notes payable--Windsor(a)............................ $ 415,000 $ 343,000
Less amounts due within one year..................... 96,000 101,000
--------- -----------
Amounts due after one year........................... $ 319,000 $ 242,000
--------- -----------
--------- -----------
</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 DECEMBER 31, 1997 AND FOR THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997)
(NOTE F)--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 G)--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 December 31, 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 $343,500 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 December 31, 1997 the balance on these notes
aggregated $686,000.
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 nine months ended December 31, 1997 the Company repaid
$30,000 of this loan and borrowed an additional $220,000 under the same terms.
Subsequent to December 31, 1997, the Company agreed to issue convertible
notes in exchange for $1,181,000 of the outstanding balance of these notes. Such
notes are convertible, at the holder's option, into Common Shares at the initial
public offering price.
(NOTE H)--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 nine months ended December
31, 1997 were $189,000, $51,000 and $134,000, respectively. The net book value
of equipment held under capital leases was approximately $183,000 and $257,000,
respectively at March 31, 1997 and December 31, 1997.
F-14
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF DECEMBER 31, 1997 AND FOR THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997)
(NOTE H)--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 I)--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), basic income (loss) per
share and diluted income (loss) per share would have been approximately (i)
$(302,000), $(.09) and $(.08), respectively, for the period May 3, 1995
(inception) through March 31, 1996 and (ii) $661,000, $.19 and $.17,
respectively, 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.
During the nine months ended December 31, 1997, the Company adopted a stock
option plan (the "Plan") pursuant to which options to purchase up to 150,000
shares of the Company's common stock may be granted to employees (including
employees who are also directors and officers), consultants and independent
contractors. The Plan is currently administered by the Board of Directors. At
December 31, 1997 no options had been granted under the Plan.
F-15
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO DATA AS OF DECEMBER 31, 1997 AND FOR THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997)
(NOTE I)--STOCKHOLDERS' EQUITY: (CONTINUED)
THE FOLLOWING TABLE SUMMARIZES INFORMATION ABOUT STOCK OPTIONS OUTSTANDING
AT MARCH 31, 1997 AND DECEMBER 31, 1997 (ALL EXERCISABLE):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING CONTRACTUAL AVERAGE
EXERCISE NUMBER LIFE (IN YEARS) EXERCISE
PRICE OUTSTANDING AT MARCH 31, 1997 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>
Subsequent to December 31, 1997 one of the Company's two
stockholders/executive officers agreed to grant the other stockholder/executive
officer an option to purchace up to 500,000 of his shares of the Company's
common stock at $6.00 per share. None of the proceeds upon exercise of the
options will be received by the Company. The option was granted as consideration
for services rendered to the Company. The Company will account for this
transaction as an employee stock option and accordingly no expense will be
recognized.
(NOTE J)--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 K)--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 nine-month periods ended December 31, 1996 and 1997 are comprised of the
following:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 3, 1995
(INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31,
MARCH 31, MARCH 31, ----------------------
1996 1997 1996 1997
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Current:
Federal.................................. $ 75,000 $ 325,000 $ 274,000 $ 149,000
State.................................... 43,000 188,000 159,000 86,000
----------- ----------- ---------- ----------
118,000 513,000 433,000 235,000
----------- ----------- ---------- ----------
Deferred:
Federal.................................. (238,000) (111,000) (85,000) 23,000
State.................................... (134,000) (62,000) (48,000) 13,000
----------- ----------- ---------- ----------
(372,000) (173,000) (133,000) 36,000
----------- ----------- ---------- ----------
Total.............................. $(254,000) $ 340,000 $ 300,000 $ 271,000
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
F-16
<PAGE>
AMBASSADOR EYEWEAR GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF DECEMBER 31, 1997 AND FOR THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997)
(NOTE K)--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 $526,000 and liability of $18,000 at December
31, 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 DECEMBER 31, 1997
----------------------- -----------------------
CURRENT NONCURRENT CURRENT NONCURRENT
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Accounts receivable........................ $ 283,000 $ 210,000
Inventory valuation........................ 252,000 252,000
Depreciation............................... $ (41,000) $ (18,000)
Accounts payable........................... 12,000 28,000
Other...................................... 36,000 36,000
---------- ----------- ---------- -----------
Total.............................. $ 586,000 $ (41,000) $ 526,000 $ (18,000)
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
Expected tax expense based on the statutory rate is reconciled with actual
tax expense as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 3, 1995 NINE MONTHS ENDED
(INCEPTION)
THROUGH YEAR ENDED DECEMBER 31,
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% 10.9% 8.5%
Recognition of liability for tax purposes.......... (8.6)% (6.3)%
Other.............................................. 1.1% (.2)% (.5)%
--- --- --- ---------
Effective tax rate................................. 45.9 % 33.3 % 44.9% 35.7%
--- --- --- ---------
--- --- --- ---------
</TABLE>
(NOTE L)--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 DECEMBER 31, 1997 AND FOR THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997)
(NOTE L)--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 nine months ended December 31, 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 nine
months ended December 31, 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 nine months ended December
31, 1997 was approximately $76,000, $140,000 and $265,000, 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 DECEMBER 31, 1997 AND FOR THE
NINE-MONTH PERIODS ENDED DECEMBER 31, 1996 AND 1997)
(NOTE L)--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 nine months ended December 31, 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 December 31, the Company had outstanding irrevocable
letters of credit in the amount of $52,000 and $0, 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.
(NOTE M)--RELATED PARTY TRANSACTIONS:
During the nine months ended December 31, 1997, the Company's two
stockholders, who are also executive officers, entered into an agreement with
the Company's landlord to purchase the Company's facility. The
stockholders/executive officers have also entered into an agreement to rent the
facility to the Company at substantially the same terms and conditions set forth
in the Company's current lease.
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.
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.................................... 5
Use of Proceeds................................. 13
Dividend Policy................................. 14
Capitalization.................................. 15
Dilution........................................ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 17
Business........................................ 22
Management...................................... 29
Certain Relationships and Related Party
Transactions.................................. 34
Principal Stockholders.......................... 36
Description of Securities....................... 37
Shares Eligible for Future Sale................. 37
Underwriting.................................... 39
Legal Matters................................... 42
Experts......................................... 42
Available Information........................... 42
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING 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.
1,200,000 SHARES
AMBASSADOR EYEWEAR
GROUP, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
H.J. MEYERS & CO., INC.
NATIONAL SECURITIES CORPORATION
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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
Amended and Restated 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 17 of the By-Laws and the
Underwriting Agreement regarding relevant indemnification provisions described
above and elsewhere herein.
The Underwriting Agreement, included as Exhibit 1.1 hereto, provides that,
in certain circumstances, each of the underwriters will indemnify the directors
and officers of the Registrant against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
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
National Association of Securities Dealers, Inc. Filing Fee....... $ 2,012
Chicago Stock Exchange Listing Fee................................ 15,000
Underwriters Expense Allowance.................................... 216,000
Blue Sky Fees and Expenses........................................ $ 35,000
Legal Fees and Expenses........................................... $ 185,500
Accounting Fees and Expenses...................................... $ 275,000
Printing and Engraving Costs...................................... $ 100,000
Transfer Agent Fees and Expenses.................................. $ 7,500
Miscellaneous Expenses............................................ $ 25,406
---------
TOTAL....................................................... $ 866,000
</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. These investors were both accredited investors as
defined under the Securities Act. 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 to the extent that the number of shares subject to such options
does not exceed 15% of the outstanding number of shares of Common Stock. 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.
4.3 ** Specimen Common Stock Certificate.
5.1 ** Opinion of Gibbons, 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 Revised form of Employment Agreement between the Company and Barry Budilov.
10.6 Revised form of 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 [Intentionally Omitted]
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** Form of Stock Option Agreement between the Company and Barry Budilov.
10.38** Form of Stock Option Agreement between the Company and Rudy Slucker.
10.39** Form of Stock Option Agreement between the Company and Kenneth Butchin.
10.40** Form of Stock Option Agreement between the Company and Edward Kauz.
10.41** Form of Stock Option Agreement between the Company and Kenneth Kitnick.
10.42** Financial Consulting Agreement.
10.43** Mergers and Acquisitions Agreement.
10.44 Form of Amended and Restated Convertible Demand Note between the Company and Rudy A. Slucker.
10.45 Form of Amended and Restated Convertible Demand Note between the Company and Barry Budilov.
10.46 Employee Stock Option Plan.
10.47 Agreement of Sale, dated July 10, 1997, between 3600 Meadow Lane Partnership and Barry Budilov and
Rudy Slucker.
10.48 Agreement to Rent between the Company, Barry Budilov and Rudy Slucker.
23.1 Consent of Gibbons, 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.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
Offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("Securities Act") may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 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, the 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 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.
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 No. 4
to the Registration Statement to be signed on its behalf by the undersigned, in
the City of Philadelphia, State of Pennsylvania, on March 18, 1998.
AMBASSADOR EYEWEAR GROUP, INC.
By: /s/ BARRY BUDILOV
------------------------------------------
Barry Budilov
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ -------------------------------------- -----------------
<C> <S> <C>
*
------------------------------------------- Chairman of the Board March 18, 1998
Rudy A. Slucker
/s/ BARRY BUDILOV President, Chief Executive Officer and
------------------------------------------- Director (Principal Executive March 18, 1998
Barry Budilov Officer)
/s/ RAYMOND GREEN
------------------------------------------- Treasurer and Principal Financial and March 18, 1998
Raymond Green Accounting Officer
*
------------------------------------------- Director March 18, 1998
Jay Rice
*
------------------------------------------- Director March 18, 1998
Jeffrey Seiken
*/s/ BARRY BUDILOV
- -------------------------------------------
Barry Budilov, March 18, 1998
as attorney-in-fact
</TABLE>
II-6
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of March , 1998 by and between
AMBASSADOR EYEWEAR GROUP, INC. ,a Delaware corporation, with its principal
offices located at 3600 Marshall Lane, Bensalem, Pennsylvania 19020 (the
"Company"), and BARRY BUDILOV, having an address at 710 Germantown Park,
Lafayette Hills, Pennsylvania 19444(the "Executive").
R E C I T A L S:
WHEREAS, the Executive has performed and will continue to perform
valuable services for the Company;
WHEREAS, the Executive is willing to serve as the Chief Executive
Officer and President of the Company; and
WHEREAS, the Company desires to retain the Executive as the Chief
Executive Officer and President of the Company on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set
forth below:
1.1 "Basic Salary" shall have the meaning assigned to that term in Section
5 of this Agreement.
1.2 "Board" shall mean the Board of Directors of the Company as duly
constituted from time to time.
1.3 "Business" shall mean the business of designing, sourcing, developing,
marketing and distributing prescription eyeglass frames and non-prescription
sunglasses to department and specialty stores, optical chains and eyewear
boutiques throughout the United States by the Company.
1.4 "Cause" shall mean any of the following:
(a) If the Executive engages in fraud or embezzlement; or
(b) The commission by the Executive of a material breach of any of
the provisions of this Agreement, on his part to be performed (including
material breach of the representation and warranty of Section 9); or
<PAGE>
(c) The continuing willful failure of the Executive to perform the
Duties to the Company (other than any such failure resulting from the
Executive's incapacity due to Disability) after at least thirty (30) days
written notice thereof (specifying the particulars thereof in reasonable
detail) and a reasonable opportunity to be heard and cure such failure are
given to the Executive by the Board.
For purposes of this subparagraph, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interests of the Company.
1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules, regulations and interpretations issued thereunder.
1.6 "Commencement Date" shall be the date that the Company's registration
statement on Form SB-2 is declared effective by the United States Securities and
Exchange Commission.
1.7 "Confidential Information" shall include, without limitation by reason
of specification, any information, including, without limitation, trade secrets,
vendor and customer lists, pricing policies, operational methods, methods of
doing business, technical processes, formulae, designs and design projects,
inventions, research projects, strategic plans, product information,
manufacturing and advertising know-how, possible acquisition information and
other business affairs of the Company, which (i) is or are designed to be used
in, or are or may be useful in connection with the Business, or which results
from any of the research or development activities of the Business, or (ii) is
private or confidential in that it is not generally known or available to the
public, except as the result of unauthorized disclosure by or information
supplied by the Executive, or (iii) gives the Company an opportunity or the
possibility of obtaining an advantage over competitors who may not know or use
such information or who are not lawfully permitted to use the same.
1.8 "Disability" shall mean the inability of the Executive to perform the
Executive's Duties for the Company pursuant to the terms of this Agreement,
because of physical or mental disability, where such disability shall have
existed for a period of more than 180 days in any 365 day period. The existence
of a Disability means that the Executive's mental and/or physical condition
substantially interferes with the Executive's performance of his Duties for the
Company as specified in this Agreement. The fact of whether or not a Disability
exists hereunder shall be determined by appropriate medical experts selected by
the Board.
1.9 "Duties" shall have the meaning assigned to that term in Section 2.1
of this Agreement.
1.10 "Employment Year" shall mean each twelve-month period, or part
thereof, during which the Executive is employed hereunder, commencing on the
Commencement Date and ending on the same day of the subsequent calendar year.
2
<PAGE>
1.11 "Term Date" shall be the date on which the Term expires if during the
period of the initial Term or the date that the Renewal Term expires if during
the period of the Renewal Term.
1.12. "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
1.13 "Term" shall have the meaning assigned to that term in Section 3 of
this Agreement and any renewals thereof as provided for in Section 7 of this
Agreement.
1.14 "Renewal Term" shall have the meaning assigned to that term in
Section 7 of this Agreement.
Wherever from the context it appears appropriate, each word or phrase
stated in either the singular or the plural shall include the singular and the
plural, and each pronoun stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and neuter.
2. EMPLOYMENT AND DUTIES OF THE EXECUTIVE
The Company agrees to employ the Executive, and the Executive agrees to
be employed by the Company upon the terms and conditions hereinafter
provided. During the Term, the Executive agrees to serve as President and
Chief Executive Officer of the Company and will have such powers and duties
as are commensurate with such position and as may be conferred upon him by
the Board. The Executive shall devote substantially all of his business
time, attention, skill and efforts to his duties of Chief Executive Officer
and President of the Company and to such other executive duties as are
reasonably assigned to him from time to time by the Board except to the
extent specifically authorized by the Board.
3. TERM OF EMPLOYMENT
The employment of the Executive pursuant to this Agreement shall be for the
period of three (3) years (the "Term") commencing on the Commencement Date,
unless renewed pursuant to Section 7 or sooner terminated pursuant to Section 8.
3
<PAGE>
4. COMPENSATION AND BENEFITS
The Company shall pay the Executive, as compensation for all of the
services to be rendered by him hereunder during the Term, and in consideration
of the various restrictions imposed upon the Executive during the Term, the
Basic Salary and other benefits as provided for and determined pursuant to
Sections 5 and 6, inclusive, of this Agreement; provided, however, that no
compensation shall be paid to the Executive under this Agreement for any period
subsequent to the termination of employment of the Executive for any reason
whatsoever, except as provided in Sections 7 and 8.
5. BASIC SALARY
The Company shall pay the Executive, as compensation for all of the
services to be rendered by him hereunder during each Employment Year, a
salary of $200,000 per Employment Year (as adjusted upward by the Company
from time to time) (the "Basic Salary"), payable in substantially equal
payments no less frequently than monthly, less such deductions or amounts as
are required to be deducted or withheld by applicable laws or regulations,
deductions for the Executive contributions to welfare benefits provided by
the Company to the Executive and such other deductions or amounts, if any, as
are authorized by the Executive. The Basic Salary shall be prorated for the
month in which employment by the Company commences or terminates, and for any
Employment Year which is less than twelve (12) months in duration. The Basic
Salary may be increased from time to time by the Company and shall not be
reduced below $200,000. The Board of Directors in its discretion may pay
such bonuses to the Executive as it deems appropriate.
6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES
6.1 Additional Benefits. The Company shall provide the following
additional benefits to the Executive during the Term:
(i) all benefits consistent with executive's current benefits
summarized on Exhibit A hereto;
(ii) the lease by the Company for use by the Executive (or the Company
shall reimburse the Executive for these payments if the lease is in
his name) of an automobile such lease payments not to exceed $1,000 a
month (in addition to the payment by the Company of insurance and
other expenses relating thereto) and
(iii)such other benefits as the Board shall lawfully adopt and approve for
the Executive.
6.2 Reimbursement for Expenses. The Company shall pay or reimburse the
Executive for all reasonable business expenses actually incurred or paid by him
during the Term in the performance of his services under this Agreement, upon
presentation of such bills, expense statements, vouchers or such other
supporting information as the Board may reasonably require. In the event the
Company requires the Executive to travel on business during the Term, the
Executive shall be reimbursed for any travel expenses in accordance with this
Section 6.2.
4
<PAGE>
7. RENEWAL OF TERM
If the Executive's employment hereunder has not previously been
terminated in accordance with Section 8 hereof, then the Term shall be
extended for additional periods of six (6) months (the "Renewal Term"),
unless either the Board or the Executive provides written notice ninety (90)
days or more prior to the end of the Term that this Agreement will not be
extended. The rights of termination set forth in Section 8 shall be
applicable during any such extended term. In the event that the Board
provides notice that the Term of the Agreement will not be extended, Executive
shall be entitled to payment equal to his then current "Basic Salary" for a
period of six (6) months, payable in installments as set forth in Section
5, plus payment or reimbursement of all additional benefits as set forth in
Section 6.1.
8. TERMINATION OF EMPLOYMENT
8.1 Death. If the Executive dies during the Term, his employment under
this Agreement shall automatically terminate on the date of his death and no
further compensation shall be due hereunder to the Executive or the Executive's
estate.
8.2 Disability. If, during the Term, the Executive has a Disability, the
Company may, at any time after the Executive has a Disability, terminate the
Executive's employment by written notice to him. In the event that the
Executive's employment is terminated as a result of a Disability, the Executive
shall cease to receive any further compensation hereunder, except to the extent
provided under the benefit plans of the Company.
8.3 Voluntary Termination. If the Executive terminates his employment with
the Company at any time during the term of this Agreement other than for
Good Reason (as such term is defined in Section 8.6), he shall be deemed to
have been terminated by the Company for Cause and shall be subject to the
provisions of Section 8.4 hereof.
8.4 Termination for Cause. The Company may terminate the Executive's
employment hereunder for Cause at any time by written notice given to the
Executive by the Board. If the Executive's employment is terminated for Cause,
he shall be entitled to receive only the portion of his Basic Salary accrued and
not theretofore paid to him and reimbursement for any expenses properly incurred
by the Executive and supported by appropriate vouchers, which expenses have been
incurred prior to the date of such termination and not theretofore reimbursed.
Except as set forth in the immediately preceding sentence, all of the
Executive's rights to compensation hereunder shall be terminated.
8.5 Termination without Cause. The Company may terminate the Executive's
employment hereunder without Cause only upon written notice to the Executive
within ninety (90) days of the Term Date. The Executive shall be entitled to
receive, in lieu of any other compensation hereunder, any cash bonus which had
been awarded to the Executive by the Board but had not yet been paid. If the
Company terminates the Executive's employment hereunder without Cause at any
time prior to the Term Date, the Executive shall be entitled to receive the
Basic Salary unpaid through the greater of the Term Date or a period of 6
months, payable in such installments as set forth in Section 5, plus continued
payment or reimbursement of all additional benefits as set forth in Section 6.1
for the same period. In addition, the Company shall reimburse the Executive
for any expenses properly incurred bythe Executive and supported by proper
5
<PAGE>
vouchers, which expenses have been incurred prior to the date of such
termination and not theretofore reimbursed.
Upon termination for any reason, Executive shall not be deprived of
vested rights to long-term incentive compensation or stock options or any
rights to indemnification under the Company's By-laws for conduct within the
scope of Executive's employment.
8.6 Resignation for Good Reason. Executive shall be entitled to
terminate this Agreement at any time upon prior written notice to the Company
for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean
(1) the relocation of the Company to a place outside of the Philadelphia
metropolitan area; (2) any material breach by the Company of the terms of
this Agreement, or (3) any Change of Control in the Company. In the event
of the Executive's resignation for Good Reason, Executive shall be entitled
to payment of his compensation and accrued benefits through the date of
termination of employment plus severance pay and benefits as if Executive
had been terminated without Cause in accordance with Section 8.5 above. For
purposes of this Agreement, a Change in Control of the Company shall be
deemed to have occurred upon the earliest of the following events:
(i) any "person," as such term is defined under Sections 3(a)(9) and
13(d) of the Securities Exchange Act of 1934 (the "Exchange Act", who is
not an Affiliate of Company on the date hereof, becomes a "beneficial
owner," as such term is used in Rule 13d-3 under the Exchange Act, of a
majority of the Company's Voting Stock;
(ii) the Company adopts any plan of liquidation providing for the
distribution of all or substantially all of its assets; or
(iii) the Company is party to a merger, consolidation, other form of
business combination or a sale of all or substantially all of its assets,
unless the business of Company is continued following any such
transaction by a resulting entity (which may be, but need not be,
Company) and the shareholders of Company immediately prior to such
transaction hold, directly or indirectly, a majority of the voting power
of the resulting entity.
9. REPRESENTATION AND WARRANTY BY THE EXECUTIVE
The Executive hereby represents and warrants to the Company, the same being
part of the essence of this Agreement, that, as of the Commencement Date, he is
not a party to any agreement, contract or understanding, and that no facts or
circumstances exist, which would in any way restrict or prohibit him in any
material way from undertaking or performing any of his obligations under this
Agreement. The foregoing representation and warranty shall remain in effect
throughout the Term.
10. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS
10.1 Acknowledgment of Confidentiality. The Executive understands and
acknowledges that he may obtain Confidential Information during the course of
his employment by the Company. The Executive further acknowledges that the
services to be rendered by him are of a special, unique and extraordinary
character and that, in connection with such services, he will have access to
Confidential Information vital to the Company. Accordingly, the Executive
agrees that he shall not, during the Term or for one year thereafter, (i) use or
disclose any such Confidential Information outside the Company, (ii) publish
any works, speeches or articles with respect thereto; or (iii) except as
required in the proper performance of his services hereunder, remove or aid in
the removal of any Confidential Information or any property or material relating
thereto from the premises of the Company.
The foregoing confidentiality provisions shall cease to be applicable
to any Confidential Information which becomes generally available to the public
(except by reason of or as a consequence of a breach by the Executive of his
obligations under this Section 10).
In the event the Executive is required by law or a court order to
disclose any such Confidential Information, he shall promptly notify the Company
of such requirement and provide the Company with a copy of any court order or of
any law which in his opinion requires such disclosure and, if the Company so
elects, to the extent that he is legally able, permit the Company an adequate
opportunity, at its own expense, to contest such law or court order.
10.2 Delivery of Material. The Executive shall promptly, and without
charge, deliver to the Company on the termination of his employment hereunder,
or at any other time the Company may so request, all memoranda, notes, records,
reports, manuals, computer disks, videotapes, drawings, blueprints and other
documents (and all copies thereof) relating to the Business, and all property
associated therewith, which he may then possess or have under his control.
10.3 Customer and Vendor Lists. The Executive acknowledges that (i) all
lists of customers and vendors of the Company developed during the course of the
Executive's employment and/or by the Company are and shall be the sole and
exclusive property of the Company and the Executive further acknowledges and
agrees that he neither has nor shall have
6
<PAGE>
any personal right, title or interest therein; (ii) such lists are and must
continue to be confidential; and (iii) such lists are not readily accessible to
competitors of the Company.
10.4 Ideas, Programs, Etc. If, during the Term, the Executive invents or
develops any ideas, vendor lists or the like, relating to or useful in
connection with the Business, the same are and shall remain the property of the
Company, and the Executive shall promptly deliver all copies of the same to the
Company, assign his interest therein to the Company and execute such documents
as the Company's counsel may request to convey title thereof to the Company.
The Executive shall not be entitled to any compensation, other than as provided
in this Agreement, for carrying out his obligations to the Company under this
Section 10.4 or any other subsection of this Section 10.
10.5 Extension of Section 10. All of the provisions of Section 10 shall
be deemed to be applicable to all Confidential Information and to all ideas,
programs, etc., as referred to in Section 10.4, to which the Executive may have
obtained access or which he may have invented or developed during his employment
by the Company.
11. COMPETITIVE ACTIVITY
The Executive shall not engage, directly or indirectly in any
Competitive Activity for a period of six (6) months after the termination of
Executive's employment with the Company, provided however, that if the
Executive is terminated without cause as defined in Section 8.5 hereof, he
will not be subject to the provisions of this Section 11. For purposes of
this Agreement, Executive shall be considered to have engaged in a
"Competitive Activity" if Executive:
(i) directly or indirectly, takes any action or engages, or participates
in or within or becomes interested in or associated with any Person
that is engaged or becomes engaged in a business which is similar to
the Business; PROVIDED, HOWEVER, Executive shall not be prohibited
from making an investment in less than 1% of the equity of a public
company;
(ii) retains as an employee, consultant or otherwise, or hires or offers
employment to, any person whom the Company engages as an employee,
consultant or otherwise, where such engagement by the Company
relates to the Business.
(iii)otherwise interferes with the relationships between the Company and
its employees, customers or suppliers.
12. DISPUTES AND REMEDIES
12.1 Reimbursement of Legal Fees. Executive shall have the right to
reimbursement of legal fees and costs in any action to enforce the Agreement.
12.2 Injunctive Relief. If the Executive commits a breach, or threatens
to commit a breach, of any of the provisions of Sections 8.4 or 10, the Company
shall have the following rights and remedies (each of which shall be independent
of the other, and shall be severally
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enforceable, and all of which shall be in addition to, and not in lieu of, any
other rights and remedies available to the Company at law or in equity):
(i) the right and remedy to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it
being acknowledged by the Executive that any such breach or threatened
breach will or may cause irreparable injury to the Company and that
money damages will or may not provide an adequate remedy to the
Company; and
(ii) the right and remedy to require the Executive to account for and
pay over to the Company all compensation, profits, monies, increments,
things of value or other benefits, derived or received by the
Executive as the result of any acts or transactions constituting a
breach of any of the provisions of Sections 8.4 or 10 of this
Agreement, and the Executive hereby agrees to account for and pay over
all such compensation, profits, monies, increments, things of value or
other benefits to the Company.
12.3 Partial Enforceability. If any provision contained in Sections 8.4
or 10, or any part thereof, is construed to be invalid or unenforceable, the
same shall not affect the remainder of the Executive's agreements, covenants and
undertakings, or the other restrictions which he has accepted, in Sections 8.4
or 10, and the remaining such agreements, covenants, undertakings and
restrictions shall be given the fullest possible effect, without regard to the
invalid parts.
12.4 Intention of Parties. It is distinctly understood and agreed that
the confidentiality, proprietary right and restrictive covenant provisions of
this Agreement have been accepted and agreed to by the Executive in
contemplation of this Agreement. It is therefore the specific intention of the
parties, any general considerations of public policy to the contrary
notwithstanding, that the provisions of Sections 8.4 or 10 of this Agreement
shall be enforced as written and to the fullest extent possible.
12.5 Adjustment of Restrictions. Despite the prior provisions of this
Section 11, if any covenant or agreement contained in Sections 8.4 or 10, or any
part thereof, is held by any court of competent jurisdiction to be unenforceable
because of the duration of such provision or the geographic area covered
thereby, the court making such determination shall have the power to reduce the
duration or geographic area of such provision and, in its reduced form, such
provision shall be enforceable.
13. SURVIVAL
The provisions of Sections 8, 9, 10, 11, 12 and this Section 13 shall
survive termination of this Agreement and remain enforceable according to their
terms.
14. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement shall
in no way affect the validity or enforceability of any other provisions hereof.
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15. NOTICES
All notices, demands and requests required or permitted to be given under
the provisions of this Agreement shall be deemed duly given if made in writing
and delivered personally or mailed by postage prepaid certified or registered
mail, return receipt requested, accompanied by a second copy sent by ordinary
mail, which notices shall be addressed as follows:
If to the Company:
Ambassador Eyewear Group, Inc.
3600 Marshall Lane
Bensalem, Pennsylvania 19020
If to the Executive:
Barry Budilov
710 Germantown Park
Lafayette Hills, Pennsylvania 19444
By notifying the other parties in writing, given as aforesaid, any party
may from time to time change his or its address or the name of any person to
whose attention notice is to be given, or may add another person to whose
attention notice is to be given, in connection with notice to any party.
16. ASSIGNMENT AND SUCCESSORS
Neither this Agreement nor any of his rights or Duties hereunder may be
assigned or delegated by the Executive. This Agreement may not be assigned by
the Company without the consent of the Executive except to any successor in
interest which takes over all or substantially all of the business of the
Company as it is conducted at the time of such assignment. Any corporation into
or with which the Company is merged or consolidated or which takes over all or
substantially all of the business of the Company shall be deemed to be a
successor of the Company for purposes hereof. This Agreement shall be binding
upon and, except as aforesaid, shall inure to the benefit of the parties and
their respective successors and permitted assigns.
17. ENTIRE AGREEMENT, WAIVER AND OTHER
17.1. Integration. This Agreement contains the entire agreement of the
parties hereto on its subject matter and supersedes all previous agreements
between the parties hereto, written or oral, express or implied, covering the
subject matter hereof. No representations, inducements, promises or agreements,
oral or otherwise, not embodied herein, shall be of any force or effect.
17.2. No Waiver. No waiver or modification of any of the provisions of
this Agreement shall be valid unless in writing and signed by or on behalf of
the party granting such waiver or modification. No waiver by any party of any
breach or default hereunder shall be deemed a waiver of any repetition of such
breach or default or shall be deemed
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a waiver of any other breach or default, nor shall it in any way affect any of
the other terms or conditions of this Agreement or the enforceability thereof.
No failure of the Company to exercise any power given it hereunder or to insist
upon strict compliance by the Executive with any obligation hereunder, and no
custom or practice at variance with the terms hereof, shall constitute a waiver
of the right of the Company to demand strict compliance with the terms hereof.
The Executive shall not have the right to sign any waiver or
modification of any provisions of this Agreement on behalf of the Company, nor
shall any action taken by the Executive reduce his obligations under this
Agreement.
This Agreement may not be supplemented or rescinded except by
instrument in writing signed by the parties hereto after the date hereof.
Neither this Agreement nor any of the rights of any of the parties hereunder may
be terminated except as provided herein. No waiver of any provision of this
Agreement or any amendment of this Agreement shall be binding upon the Company
unless approved by the Board.
18. GOVERNING LAW
This Agreement shall be governed by and construed, and the rights and
obligations of the parties hereto enforced, in accordance with the laws of the
Commonwealth of Pennsylvania, without regard to conflicts of laws principles.
19. HEADINGS
The Section and subsection headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above, to be effective as of the Commencement Date.
AMBASSADOR EYEWEAR GROUP, INC.
By: /s/ Rudy Slucker
-----------------------------------
Name: Rudy Slucker
Title: Chairman
/s/ Barry Budilov
--------------------------------------
Barry Budilov
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EXHIBIT A
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Schedule of Benefits
1. MEDICAL BENEFITS: Monthly premium payments for Comprehensive
Medical, Dental, I care, Cancer and ACC coverages.
2. LIFE INSURANCE: Payment for Premiums on First Colony, Equitable,
Valley Forge policies.
3. DISABILITY: Payment for Premiums on Equitable and Stuart Kahn
policies.
4. AUTOMOBILE LEASES: Monthly Lease Payments totaling $1,425.51 per
month, plus insurance, operating and repair expenses associated with leased
vehicles.
5. PHONE: Monthly reimbursement for Executive's phone bills.
<PAGE>
Exhibit 10.6
CONSULTING AGREEMENT
THIS AGREEMENT dated as of March , 1998 by and between
AMBASSADOR EYEWEAR GROUP, INC., a Delaware corporation, with its principal
offices located at 3600 Marshall Lane, Bensalem, Pennsylvania 19020 (the
"Company"), and RUDY A. SLUCKER, having an address at 66 Duffield Drive, South
Orange, New Jersey 07079 (the "Consultant").
R E C I T A L S:
WHEREAS, the Consultant has performed and will continue to perform
valuable services for the Company as a consultant to the Company;
WHEREAS, the Consultant is willing to serve as the Chairman of the
Board of the Company; and
WHEREAS, the Company desires to retain the Consultant as the Chairman
of the Board of the Company on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set
forth below:
1.1 "Basic Consulting Fee" shall have the meaning assigned to that term in
Section 5 of this Agreement.
1.2 "Board" shall mean the Board of Directors of the Company as duly
constituted from time to time.
1.3 "Business" shall mean the business of designing, sourcing developing,
marketing and distributing prescription eyeglass frames and non-prescription
sunglasses to department and specialty stores, optical chains and eyewear
boutiques throughout the United States by the Company.
1.4 "Cause" shall mean any of the following:
(a) If the Consultant engages in fraud or embezzlement; or
(b) The commission by the Consultant of a material breach of any of
the provisions of this Agreement, on his part to be performed (including
material breach of the representation and warranty of Section 9); or
<PAGE>
(c) The continuing willful failure of the Consultant to perform
the Duties to the Company (other than any such failure resulting from the
Consultant's incapacity due to Disability) after at least thirty (30) days
written notice thereof (specifying the particulars thereof in reasonable
detail) and a reasonable opportunity to be heard and cure such failure are
given to the Consultant by the Board.
For purposes of this subparagraph, no act, or failure to act, on the
Consultant's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interests of the Company.
1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules, regulations and interpretations issued thereunder.
1.6 "Commencement Date" shall be the date that the Company's registration
statement on Form SB-2 is declared effective by the United States Securities and
Exchange Commission.
1.7 "Confidential Information" shall include, without limitation by reason
of specification, any information, including, without limitation, trade secrets,
vendor and customer lists, pricing policies, operational methods, methods of
doing business, technical processes, formulae, designs and design projects,
inventions, research projects, strategic plans, product information,
manufacturing and advertising know-how, possible acquisition information and
other business affairs of the Company, which (i) is or are designed to be used
in, or are or may be useful in connection with the Business, or which results
from any of the research or development activities of the Business, or (ii) is
private or confidential in that it is not generally known or available to the
public, except as the result of unauthorized disclosure by or information
supplied by the Consultant, or (iii) gives the Company an opportunity or the
possibility of obtaining an advantage over competitors who may not know or use
such information or who are not lawfully permitted to use the same.
1.8 "Disability" shall mean the inability of the Consultant to perform the
Consultant's Duties for the Company pursuant to the terms of this Agreement,
because of physical or mental disability, where such disability shall have
existed for a period of more than 180 days in any 365 day period. The existence
of a Disability means that the Consultant's mental and/or physical condition
substantially interferes with the Consultant's performance of his Duties for the
Company as specified in this Agreement. The fact of whether or not a Disability
exists hereunder shall be determined by appropriate medical experts selected by
the Board.
1.9 "Duties" shall have the meaning assigned to that term in Section 2.1
of this Agreement.
1.10 "Consulting Year" shall mean each twelve-month period, or part
thereof, during which the Consultant is employed hereunder, commencing on the
Commencement Date and ending on the same day of the subsequent calendar year.
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1.11 "Term Date" shall be the date on which the Term expires if during the
period of the initial Term or the date that the Renewal Term expires if during
the period of the Renewal Term.
1.12. "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
1.13 "Term" shall have the meaning assigned to that term in Section 3 of
this Agreement and any renewals thereof as provided for in Section 7 of this
Agreement.
1.14 "Renewal Term" shall have the meaning assigned to that term in
Section 7 of this Agreement.
Wherever from the context it appears appropriate, each word or phrase
stated in either the singular or the plural shall include the singular and the
plural, and each pronoun stated in the masculine, feminine or neuter gender
shall include the masculine, feminine and neuter.
2. RETENTION AND DUTIES OF THE CONSULTANT
The Company agrees to retain the Consultant, and the Consultant agrees
to be retained by the Company upon the terms and conditions hereinafter
provided. During the Term, the Consultant agrees to serve as Chairman of the
Board of Directors of the Company and will have such powers and duties as are
commensurate with such position and as may be conferred upon him by the
Board. The Consultant shall devote such amount of time, attention, skill and
efforts to his duties of Chairman of the Board of the Company and to such
other consultant duties as are reasonably assigned to him from time to time
by the Board except to the extent specifically authorized by the Board and
agreed to by the Consultant. It is acknowledged that the Consultant is
employed on a full-time basis by another company and has a substantial
commitment of time and effort thereto.
3. TERM OF RETENTION
The employment of the Consultant pursuant to this Agreement shall be for
the period of three (3) years (the "Term") commencing on the Commencement Date,
unless renewed pursuant to Section 7 or sooner terminated pursuant to Section 8.
4. COMPENSATION AND BENEFITS
The Company shall pay the Consultant, as compensation for all of the
services to be rendered by him hereunder during the Term, and in consideration
of the various restrictions imposed upon the Consultant during the Term, the
Basic Consulting Fee and other benefits as provided for and determined pursuant
to Sections 5 and 6, inclusive, of this Agreement; provided, however, that no
compensation shall be paid to the Consultant under this Agreement
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for any period subsequent to the termination of employment of the Consultant for
any reason whatsoever, except as provided in Sections 7 and 8.
5. BASIC CONSULTING FEE
The Company shall pay the Consultant, as compensation for all of the
services to be rendered by him hereunder during each Employment Year, a fee
of $100,000 per Consulting Year (as adjusted upward by the Company from time
to time) (the "Basic Consulting Fee"), payable in substantially equal
payments no less frequently than monthly, less such deductions or amounts as
are required to be deducted or withheld by applicable laws or regulations,
deductions for the Consultant contributions to welfare benefits provided by
the Company to the Consultant and such other deductions or amounts, if any,
as are authorized by the Consultant. The Basic Consulting Fee shall be
prorated for the month in which retention by the Company commences or
terminates, and for any Consulting Year which is less than twelve (12) months
in duration. The Basic Salary may be increased from time to time by the
Company and shall not be reduced below $100,000. The Board of Directors in
its discretion may pay such bonuses to the Consultant as it deems appropriate.
6. ADDITIONAL BENEFITS AND REIMBURSEMENT FOR EXPENSES
6.1 Additional Benefits. The Company shall provide the following
additional benefits to the Consultant during the Term:
(i) all benefits consistent with Consultant's current benefits summarized
on Exhibit A hereto;
(ii) such other benefits as the Board shall lawfully adopt and approve for
the Consultant.
6.2 Reimbursement for Expenses. The Company shall pay or reimburse the
Consultant for all reasonable business expenses actually incurred or paid by him
during the Term in the performance of his services under this Agreement, upon
presentation of such bills, expense statements, vouchers or such other
supporting information as the Board may reasonably require. In the event the
Company requires the Consultant to travel on business during the Term, the
Consultant shall be reimbursed for any travel expenses in accordance with this
Section 6.2.
7. RENEWAL OF TERM
If the Consultant's employment hereunder has not previously been
terminated in accordance with Section 8 hereof, then the Term shall be
extended for additional periods of six (6) months (the "Renewal Term"),
unless either the Board or the Consultant provides written notice ninety (90)
days or more prior to the end of the Term that this Agreement will not be
extended. The rights of termination set forth in Section 8 shall be
applicable during any such extended term. In the event that the Board
provides notice that the Term of Agreement will not be extended,
Consultant shall be entitled to payment equal to his then current "Basic
Consulting Fee" for a period of six (6) months, payable in installments as
set forth in Section 5, plus payment or reimbursement of all additional
benefits as set forth in Section 6.1.
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8. TERMINATION OF RETENTION
8.1 Death. If the Consultant dies during the Term, his employment under
this Agreement shall automatically terminate on the date of his death and no
further compensation shall be due hereunder to the Consultant or the
Consultant's estate.
8.2 Disability. If, during the Term, the Consultant has a Disability, the
Company may, at any time after the Consultant has a Disability, terminate the
Consultant's employment by written notice to him. In the event that the
Consultant's employment is terminated as a result of a Disability, the
Consultant shall cease to receive any further compensation hereunder, except to
the extent provided under the benefit plans of the Company.
8.3 Voluntary Termination. If the Consultant terminates his employment
with the Company at any time during the term of this Agreement other than for
Good Reason (as such term is defined in Section 8.6), he shall be deemed to
have been terminated by the Company for Cause and shall be subject to the
provisions of Section 8.4 hereof.
8.4 Termination for Cause. The Company may terminate the Consultant's
employment hereunder for Cause at any time by written notice given to the
Consultant by the Board. If the Consultant's employment is terminated for
Cause, he shall be entitled to receive only the portion of his Basic Salary
accrued and not theretofore paid to him and reimbursement for any expenses
properly incurred by the Consultant and supported by appropriate vouchers,
which expenses have been incurred prior to the date of such termination and
not theretofore reimbursed. Except as set forth in the immediately preceding
sentence, all of the Consultant's rights to compensation hereunder shall be
terminated.
8.5 Termination without Cause. The Company may terminate the
Consultant's employment hereunder without Cause only upon written notice to
the Consultant within ninety (90) days of the Term Date. The Consultant
shall be entitled to receive, in lieu of any other compensation hereunder,
any cash bonus which had been awarded to the Consultant by the Board but had
not yet been paid. If the Company terminates the Consultant's employment
hereunder without Cause at any time prior to the Term Date, the Consultant
shall be entitled to receive the Basic Salary unpaid through the Term Date or
a period of 6 months, payable in such installments as set forth in Section 5,
plus continued payment or reimbursement of all additional benefits as set
forth in Section 6.1 for the same period. In addition, the Company shall
reimburse the Consultant for any expenses properly incurred by the Consultant
and supported by proper vouchers, which expenses have been incurred prior to
the date of such termination and not theretofore reimbursed.
Upon termination for any reason, Consultant shall not be deprived of
vested rights to long-term incentive compensation or stock options or any
rights to indemnification under the Company's By-laws for conduct within the
scope of Consultant's services hereunder.
8.6 Resignation for Good Reason. Consultant shall be entitled to
terminate this Agreement at any time upon prior written notice to the Company
for "Good Reason." For purposes of this Agreement, "Good Reason" shall mean
(1) the relocation of the Company to a place outside of the Philadelphia
metropolitan area; (2) any material breach by the Company of the terms of
this Agreement, or (3) any Change of Control in the Company. In the event
of the Consultant's resignation for Good Reason, Consultant shall be entitled
to payment of his compensation and accrued benefits through the date of
termination of employment plus severance pay and benefits as if Consultant
had been terminated without Cause in accordance with Section 8.5 above. For
purposes of this Agreement, a Change in Control of the Company shall be
deemed to have occurred upon the earliest of the following events:
(i) any "person," as such term is defined under Sections 3(a)(9) and
13(d) of the Securities Exchange Act of 1934 (the "Exchange Act", who is
not an Affiliate of Company on the date hereof, becomes a "beneficial
owner," as such term is used in Rule 13d-3 under the Exchange Act, of a
majority of the Company's Voting Stock;
(ii) the Company adopts any plan of liquidation providing for the
distribution of all or substantially all of its assets; or
(iii) the Company is party to a merger, consolidation, other form of
business combination or sale of all or substantially all of its assets,
unless the business of Company is continued following any such
transaction by a resulting entity (which may be, but need not be,
Company) and the shareholders of Company immediately prior to such
transaction hold, directly or indirectly, a majority of the voting power
of the resulting entity.
9. REPRESENTATION AND WARRANTY BY THE CONSULTANT
The Consultant hereby represents and warrants to the Company, the same
being part of the essence of this Agreement, that, as of the Commencement Date,
he is not a party to any agreement, contract or understanding, and that no facts
or circumstances exist, which would in any way restrict or prohibit him in any
material way from undertaking or performing any of his
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obligations under this Agreement. The foregoing representation and warranty
shall remain in effect throughout the Term.
10. CONFIDENTIAL INFORMATION AND PROPRIETARY INTERESTS
10.1 Acknowledgment of Confidentiality. The Consultant understands and
acknowledges that he may obtain Confidential Information during the course of
his employment by the Company. The Consultant further acknowledges that the
services to be rendered by him are of a special, unique and extraordinary
character and that, in connection with such services, he will have access to
Confidential Information vital to the Company. Accordingly, the Consultant
agrees that he shall not, during the Term or for one year thereafter, (i) use or
disclose any such Confidential Information outside the Company, (ii) publish
any works, speeches or articles with respect thereto; or (iii) except as
required in the proper performance of his services hereunder, remove or aid in
the removal of any Confidential Information or any property or material relating
thereto from the premises of the Company.
The foregoing confidentiality provisions shall cease to be applicable
to any Confidential Information which becomes generally available to the public
(except by reason of or as a consequence of a breach by the Consultant of his
obligations under this Section 10).
In the event the Consultant is required by law or a court order to
disclose any such Confidential Information, he shall promptly notify the Company
of such requirement and provide the Company with a copy of any court order or of
any law which in his opinion requires such disclosure and, if the Company so
elects, to the extent that he is legally able, permit the Company an adequate
opportunity, at its own expense, to contest such law or court order.
10.2 Delivery of Material. The Consultant shall promptly, and without
charge, deliver to the Company on the termination of his employment hereunder,
or at any other time the Company may so request, all memoranda, notes, records,
reports, manuals, computer disks, videotapes, drawings, blueprints and other
documents (and all copies thereof) relating to the Business, and all property
associated therewith, which he may then possess or have under his control.
10.3 Customer and Vendor Lists. The Consultant acknowledges that (i) all
lists of customers and vendors of the Company developed during the course of the
Consultant's employment and/or by the Company are and shall be the sole and
exclusive property of the Company and the Consultant further acknowledges and
agrees that he neither has nor shall have any personal right, title or interest
therein; (ii) such lists are and must continue to be confidential; and (iii)
such lists are not readily accessible to competitors of the Company.
10.4 Ideas, Programs, Etc. If, during the Term, the Consultant invents or
develops any ideas, vendor lists or the like, relating to or useful in
connection with the Business, the same are and shall remain the property of the
Company, and the Consultant shall promptly deliver all copies of the same to the
Company, assign his interest therein to the Company and execute such documents
as the Company's counsel may request to convey title thereof to the Company.
The
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Consultant shall not be entitled to any compensation, other than as provided in
this Agreement, for carrying out his obligations to the Company under this
Section 10.4 or any other subsection of this Section 10.
10.5 Extension of Section 10. All of the provisions of Section 10 shall
be deemed to be applicable to all Confidential Information and to all ideas,
programs, etc., as referred to in Section 10.4, to which the Consultant may have
obtained access or which he may have invented or developed during his employment
by the Company.
11. COMPETITIVE ACTIVITY
The Consultant shall not engage, directly or indirectly in any Competitive
Activity for a period of six (6) months after the termination of Consultant's
employment with the Company, provided however, that if the Consultant is
terminated without cause as defined in Section 8.5 hereof, he will not be
subject to the provisions of this Section 11. For purposes of this Agreement,
Consultant shall be considered to have engaged in a "Competitive Activity" if
Consultant:
(i) directly or indirectly, takes any action or engages, or
participates in or within or becomes interested in or associated with
any Person that is engaged or becomes engaged in a business which is
similar to the Business; PROVIDED, HOWEVER, Consultant shall not be
prohibited from making an investment in less than 1% of the equity of
a public company;
(ii) retains as an employee, consultant or otherwise, or hires or
offers employment to, any person whom the Company engages as an
employee, consultant or otherwise, where such engagement by the
Company relates to the Business.
(iii) otherwise interferes with the relationships between the Company
and its employees, customers or suppliers.
12. DISPUTES AND REMEDIES
12.1 Reimbursement of Legal Fees. Consultant shall have the right to
reimbursement of legal fees and costs in any action to enforce the Agreement.
12.2 Injunctive Relief. If the Consultant commits a breach, or threatens
to commit a breach, of any of the provisions of Sections 8.4 or 10, the Company
shall have the following rights and remedies (each of which shall be independent
of the other, and shall be severally enforceable, and all of which shall be in
addition to, and not in lieu of, any other rights and remedies available to the
Company at law or in equity):
(i) the right and remedy to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it
being acknowledged by the Consultant that any such breach or
threatened breach will or may cause irreparable injury to the Company
and that money damages will or may not provide an adequate remedy to
the Company; and
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(ii) the right and remedy to require the Consultant to account for
and pay over to the Company all compensation, profits, monies,
increments, things of value or other benefits, derived or received
by the Consultant as the result of any acts or transactions
constituting a breach of any of the provisions of Sections 8.4 or
10 of this Agreement, and the Consultant hereby agrees to account
for and pay over all such compensation, profits, monies,
increments, things of value or other benefits to the Company.
12.3 Partial Enforceability. If any provision contained in Sections 8.4
or 10, or any part thereof, is construed to be invalid or unenforceable, the
same shall not affect the remainder of the Consultant's agreements, covenants
and undertakings, or the other restrictions which he has accepted, in Sections
8.4 or 10, and the remaining such agreements, covenants, undertakings and
restrictions shall be given the fullest possible effect, without regard to the
invalid parts.
12.4 Intention of Parties. It is distinctly understood and agreed that
the confidentiality, proprietary right and restrictive covenant provisions of
this Agreement have been accepted and agreed to by the Consultant in
contemplation of this Agreement. It is therefore the specific intention of the
parties, any general considerations of public policy to the contrary
notwithstanding, that the provisions of Sections 8.4 or 10 of this Agreement
shall be enforced as written and to the fullest extent possible.
12.5 Adjustment of Restrictions. Despite the prior provisions of this
Section 11, if any covenant or agreement contained in Sections 8.4 or 10, or any
part thereof, is held by any court of competent jurisdiction to be unenforceable
because of the duration of such provision or the geographic area covered
thereby, the court making such determination shall have the power to reduce the
duration or geographic area of such provision and, in its reduced form, such
provision shall be enforceable.
13. SURVIVAL
The provisions of Sections 8, 9, 10, 11, 12 and this Section 13 shall
survive termination of this Agreement and remain enforceable according to their
terms.
14. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement shall
in no way affect the validity or enforceability of any other provisions hereof.
15. NOTICES
All notices, demands and requests required or permitted to be given under
the provisions of this Agreement shall be deemed duly given if made in writing
and delivered personally or mailed by postage prepaid certified or registered
mail, return receipt requested, accompanied by a second copy sent by ordinary
mail, which notices shall be addressed as follows:
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If to the Company:
Ambassador Eyewear Group, Inc.
3600 Marshall Lane
Bensalem, Pennsylvania 19020
If to the Consultant:
Rudy A. Slucker
66 Duffield Drive
South Orange, New Jersey 07079
By notifying the other parties in writing, given as aforesaid, any party
may from time to time change his or its address or the name of any person to
whose attention notice is to be given, or may add another person to whose
attention notice is to be given, in connection with notice to any party.
16. ASSIGNMENT AND SUCCESSORS
Neither this Agreement nor any of his rights or Duties hereunder may be
assigned or delegated by the Consultant. This Agreement may not be assigned by
the Company without the consent of the Consultant except to any successor in
interest which takes over all or substantially all of the business of the
Company as it is conducted at the time of such assignment. Any corporation into
or with which the Company is merged or consolidated or which takes over all or
substantially all of the business of the Company shall be deemed to be a
successor of the Company for purposes hereof. This Agreement shall be binding
upon and, except as aforesaid, shall inure to the benefit of the parties and
their respective successors and permitted assigns.
17. ENTIRE AGREEMENT, WAIVER AND OTHER
17.1. Integration. This Agreement contains the entire agreement of the
parties hereto on its subject matter and supersedes all previous agreements
between the parties hereto, written or oral, express or implied, covering the
subject matter hereof. No representations, inducements, promises or agreements,
oral or otherwise, not embodied herein, shall be of any force or effect.
17.2. No Waiver. No waiver or modification of any of the provisions of
this Agreement shall be valid unless in writing and signed by or on behalf of
the party granting such waiver or modification. No waiver by any party of any
breach or default hereunder shall be deemed a waiver of any repetition of such
breach or default or shall be deemed a waiver of any other breach or default,
nor shall it in any way affect any of the other terms or conditions of this
Agreement or the enforceability thereof. No failure of the Company to exercise
any power given it hereunder or to insist upon strict compliance by the
Consultant with any obligation hereunder,
9
<PAGE>
and no custom or practice at variance with the terms hereof, shall constitute a
waiver of the right of the Company to demand strict compliance with the terms
hereof.
The Consultant shall not have the right to sign any waiver or
modification of any provisions of this Agreement on behalf of the Company, nor
shall any action taken by the Consultant reduce his obligations under this
Agreement.
This Agreement may not be supplemented or rescinded except by
instrument in writing signed by the parties hereto after the date hereof.
Neither this Agreement nor any of the rights of any of the parties hereunder may
be terminated except as provided herein. No waiver of any provision of this
Agreement or any amendment of this Agreement shall be binding upon the Company
unless approved by the Board.
18. GOVERNING LAW
This Agreement shall be governed by and construed, and the rights and
obligations of the parties hereto enforced, in accordance with the laws of the
Commonwealth of Pennsylvania, without regard to conflicts of laws principles.
19. HEADINGS
The Section and subsection headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above, to be effective as of the Commencement Date.
AMBASSADOR EYEWEAR GROUP, INC.
By: /s/ Barry Budilov
--------------------------------
Name: Barry Budilov
Title: President
/s/ Rudy A. Slucker
-----------------------------------
Rudy A. Slucker
10
<PAGE>
EXHIBIT A
---------
Schedule of Benefits
1. MEDICAL BENEFITS: Monthly premium payments for Comprehensive
Medical, Dental, I care, Cancer and ACC coverages.
2. LIFE INSURANCE: Payment for Premiums on First Colony, Equitable,
Valley Forge policies.
3. DISABILITY: Payment for Premiums on Equitable and Stuart Kahn
policies.
4. AUTOMOBILE LEASES: Monthly Lease Payments totaling $1,425.51 per
month, plus insurance, operating and repair expenses associated with leased
vehicles.
5. PHONE: Monthly reimbursement for Executive's phone bills.
<PAGE>
Exhibit 10.44
THIS NOTE, AND THE INDEBTEDNESS EVIDENCED HEREBY, IS SUBORDINATE AND
JUNIOR IN RIGHT OF PAYMENT IN THE MANNER AND TO THE EXTENT SET FORTH IN THE
INTERCREDITOR SUBORDINATION AGREEMENT (THE "SUBORDINATION AGREEMENT") DATED AS
OF JUNE 7, 1996 BY THE MAKER AND PAYEE OF THIS NOTE IN FAVOR OF CORESTATES BANK,
N.A. TO ALL SENIOR DEBT (AS DEFINED IN THE SUBORDINATION AGREEMENT) AT ANY TIME
OWED BY THE MAKER OF THIS NOTE, AND THE HOLDER OF THIS NOTE, BY ITS ACCEPTANCE
HEREOF, SHALL BE BOUND BY THE SUBORDINATION AGREEMENT, AND THIS NOTE MAY BE SOLD
OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE
SUBORDINATION AGREEMENT.
AMENDED AND RESTATED CONVERTIBLE DEMAND NOTE
Philadelphia, Pennsylvania
$838,000 Dated as of: May 8, 1995
FOR VALUE RECEIVED, DIPLOMAT AMBASSADOR, INC., a Pennsylvania corporation
("Maker"), promises to pay to the order of RUDY SLUCKER ("Payee"), an individual
residing at 66 Duffield Drive, South Orange, New Jersey 07079, the principal sum
of Eight Hundred Thirty Eight Thousand Dollars ($838,000) lawful money of the
United States of America, together with interest from the date of this Note, at
the rate and on the terms set forth below, as follows:
1. The principal, interest and all other sums under this Note shall be
payable on March 31, 2000 at the office of the Maker or at such other place
or payee, from time to time may designate in writing. Interest shall accrue
and be payable quarterly at the rate of eight percent (8%) per annum. If the
Company has earnings of $.60 per share for the fiscal year ending
March 31, 1999, the Convertible Notes shall be prepaid at the option of the
Holder, commencing on March 31, 1999
2. Maker and all endorsers, sureties and guarantors jointly and severally
waive presentment for payment, demand, notice of demand, notice of nonpayment
or dishonor, protest and notice of protest of this Note, and all other notices
in connection with the delivery, acceptance, performance, default, or
enforcement of the payment of this Note, and they agree that the liability of
each of them shall be joint and several and unconditional, without regard to the
liability of any other party, and shall not be affected in any manner by any
indulgence, extension of time, renewal, waiver or modification granted or
consented to by Payee. Maker and all endorsers, sureties, and guarantors consent
to any and all extensions of time, renewals, waivers, or modifications that may
be granted by Payee with respect to the payment or other provisions of this
Note, and to the release of the collateral or any part of it, with or without
substitution, and agree that additional makers, endorsers, guarantors, or
sureties may become parties to it without notice to them or affecting their
liability under this Note.
<PAGE>
3. If any provision of this Note is held to be invalid or unenforceable by
a Court of competent jurisdiction, the other provisions of this Note shall
remain in full force and effect and shall be construed liberally in favor of
Payee in order to effectuate the provisions of this Note. In no event shall the
rate of interest payable under this note exceed the maximum rate of interest
permitted to be charged by the applicable law (including the choice of law
rules) and any interest paid in excess of the permitted rate shall be refunded
to Maker. That refund shall be made by application of the excessive amount of
interest paid against any sums outstanding and shall be applied in such order as
Payee may determine. If the excessive amount of interest paid exceeds the sums
outstanding, the portion exceeding the sums outstanding shall be refunded in
cash by Payee. Any crediting or refund shall not cure or waive any default by
Maker under this Note. Maker agrees, however, that in determining whether or not
any interest payable under this Note exceeds the highest rate permitted by law,
any non-principal payment shall be deemed, to the extent permitted by law, to be
an expense, fee, premium or penalty rather than interest.
4. Payee shall not be deemed, by any act or omission or commission, to
have waived any of its rights or remedies under this Note unless the waiver is
in writing and signed by Payee, and then only to the extent specifically set
forth in the writing. A waiver on one event shall not be construed as continuing
or as a bar to or waiver of any right or remedy to a subsequent event. This Note
may not be amended except by written agreement executed by both Maker and payee.
5.
5.1. This Note may be converted at the option of the holder of
this Note, at any time and from time to time prior to the Maturity Date, in
whole, or in part, at the rate of one share of Common Stock for each six
dollars of unpaid principal and interest outstanding on this Note (the
"Conversion Rate"), subject to such adjustment of the Conversion Rate are set
forth in Section 5(e) below. Upon the exercise of the conversion Right under
Section 5.1 all accrued and unpaid interest on the Note with respect to the
principal amount converted shall be canceled and the Maker shall have no
obligation to pay any such amount on the converted portion of this Note.
5.2 The Conversion Rate shall be subject to adjustment from time to
time as follows:
(i) In case the Maker shall pay or make to all holders of
Common Stock of the Maker a dividend or other distribution on such
class of Common Stock in Common Stock, the Conversion Rate in effect
at the opening of business on the day following the date fixed for
the determination of stockholders entitled to receive such dividend
or other distribution shall be increased by multiplying the
Conversion Rate by a fraction of which the denominator shall be the
number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination (the "Fixed Number
of Shares") and the numerator shall be the sum of the Fixed Number
of Shares and the total number of shares constituting such dividend
or other distribution, such increase to become effective immediately
after the opening of business on the day following the date fixed
for such determination. For the purposes of this paragraph (i), the
number of shares of Common Stock at any time outstanding shall not
include shares issuable in respect of scrip certificate issued in
lieu of fractions of shares of Common Stock.
<PAGE>
(ii) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Rate in effect at the opening of business on the day
following the day upon which subdivision becomes effective shall be
proportionately increased, and, conversely, in case outstanding
shares of Common Stock shall each be combined into a smaller number
of shares of Common Stock, the Conversion Rate in effect at the
opening of business on the day following the day upon which such
combination becomes effective shall be proportionately decreased,
such reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the
day upon which subdivision or combination becomes effective;
(iii) In case to Maker shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its
indebtedness or assets (including securities, any dividend or
distribution paid in cash out of funds of the Maker legally
available for dividends or distributions under the laws of the state
of incorporation of the Maker and any dividend or distribution
referred to in paragraph (i) of this Section), the Conversion Rate
shall be adjusted so that the same shall equal the rate determined
by multiplying the Conversion Rate in effect immediately prior to
the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by a fraction of
which the denominator shall be the current market price per share
(determined as provided in paragraph (vi) of this Section ) of the
Common Stock on the date fixed for such determination less the fair
value (as determined by the Board of Directors of the Maker ("Board
of Directors"), whose determination shall be conclusive and set
forth in a Board resolution, such resolution to be based upon the
opinion of an independent investment banker reasonably satisfactory
to the holder of this Note, if requested by the holder of Note) of
the portion of the assets or evidences of indebtedness so
distributed applicable to one share of Common Stock and the
numerator shall be such current market price per share of the Common
Stock, such adjustment to become effective immediately after the
opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such distribution;
(iv) in case the Maker shall issue shares of Common Stock or
rights or warrants to subscribe for or purchase shares of Common
Stock at a price per share less than the current market price per
share (determined as provided in paragraph (vi) of this Section) of
the Common Stock on the date fixed for the determination of
stockholders entitled to receive such shares, rights or warrants,
the Conversion Rate in effect at the opening of business on the day
following the date fixed for such determination shall be increased
by multiplying such Conversion Rate by a fraction of which the
denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination
-3-
<PAGE>
plus the number of shares of Common Stock which the aggregate of the
offering price of the total number of shares of Common Stock so
offered for subscription of purchase would purchase at such current
market price and the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of additional shares of
Common Stock so offered for subscription or purchase, such increase
to become effective immediately after the opening of business on the
day following the date fixed for such determination. For the
purposes of this paragraph (iv), the number of shares of Common
Stock at any time outstanding shall not include shares held in the
treasury of the Corporation but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares
of Common Stock. For purposes of this paragraph (iv), the granting
of the right to purchase shares of Common Stock (whether from
treasury shares or otherwise) pursuant to any dividend or interest
reinvestment plan and/or any Common Stock purchase plan providing
for the reinvestment of dividends or interest payable on securities
of the Maker and/or investment of periodic optional payments at a
price per share of not less than 95% of the current market price per
share (determined as provided in such plans) of Common Stock (so
long as such right to purchase is in no case evidenced by the
delivery of rights or warrants) shall not be deemed to constitute an
issue of shares, rights or warrants by the Maker within the meaning
of this paragraph (iv). If any rights or warrants subsequently
expire or are canceled prior to exercise thereof, the Conversion
Rate shall be readjusted to the Conversion Rate that would have been
in effect had such rights or warrants not been issued;
(v) The reclassification (excluding any reclassification upon
a consolidation or merger) of Common Stock into securities other
than Common Stock shall be deemed to involve (a) a distribution of
such securities other than the Common Stock to all holders of Common
Stock (and the effective date of such reclassification shall be
deemed to be "the date fixed for the determination of stockholders
entitled to receive such distribution" and "the date fixed for such
determination" within the meaning of paragraph (iii) of this
Section), and (b) a subdivision or combination, the case may be, of
the number of shares of Common Stock outstanding immediately prior
to such reclassification into the number of shares of Common Stock
outstanding immediately thereafter (and the effective date of such
reclassification shall be deemed to be "the day upon which such
subdivision becomes effective" or "the day upon which such
combination becomes effective" or "the day upon which such
combination becomes effective", as the case may be, and "the day
upon which such subdivision or combination becomes effective" within
the meaning of paragraph (ii) of this Section);
(vi) For the purpose of Section 5, the current market price
per share of Common Stock on any day shall be deemed to be (a) the
average of the last reported sales price of Common Stock on the
National 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
-4-
<PAGE>
in common use for the 30 consecutive trading days immediately
preceding the day on which the current market price is to be
determined, if so quoted, or (b) if not quoted as described in
clause (a), the mean between the high bid and low asked quotations
for Common Stock as reported by the National Quotation Bureau
Incorporated for the 30 consecutive trading days immediately
preceding the day on which the current market price is to be
determined, if so quoted, or (c) if the Common Stock is listed or
admitted for trading on any national securities exchange, the last
sales price, or the closing bid price if no sale occurred, of Common
Stock on the principal securities exchange on which Common Stock is
listed for the 30 consecutive trading days immediately preceding the
day on which the current market price is to be determined, if so
quoted. If Common Stock is quoted on a national securities or
central market system, in lieu of a market or quotation system
described above, the closing price shall be determined in the manner
set forth in clause (b) of the preceding sentence if bid and asked
quotations are reported but actual transactions are not, and in the
manner set forth in clause (c) of the preceding sentence if actual
transactions are reported. If none of the conditions set forth above
is met, the current market price per share on any day shall be such
fair market value as shall be determined by a resolution of the
Board of Directors, based upon the opinion of an independent
investment banker reasonably satisfactory to the holder of this
Note, if requested by the holder of this Note;
(vii) No fractional shares will be issued upon conversion to
the extent of legally available funds. The right to convert this
Note terminates on the Maturity Date; and
(viii)Notwithstanding anything contained in this Section, no
adjustment in the Conversion Rate in respect of this Note shall be
required upon the issuance or sale of (a) shares of Common Stock
issued or sold under options granted or to be granted (or shares of
Common Stock otherwise issuable or salable) pursuant to any present
or future stock option plan, stock option agreement, stock purchase
plan, employees' savings or profit sharing plan or other incentive
or benefit plan providing for the sale or other issuance of Common
Stock by the Maker to officers, directors or employees (including
former officers, directors or employees) of the Maker or any of its
subsidiaries (including any such plan or agreement assumed by the
Maker or any subsidiary in connection with the acquisition of a
going concern business), and (b) shares of Common Stock for a
consideration per share equal to or greater than the current market
price per share (determined as provided in paragraph (vi) of this
Section) of Common Stock in effect immediately prior to such sale or
issuance.
5.3 The Maker shall not effect any consolidation, merger,
sale, transfer or other disposition of substantially all of the assets of the
Maker in which the Maker is not the continuing person (other than (i) a merger
with a wholly-owned subsidiary or (ii) a transfer or disposition of assets to
one or more wholly-owned subsidiaries of the Maker), unless prior to the
-5-
<PAGE>
consummation thereof the successor or surviving corporation, as the case may be,
or the corporation purchasing such assets shall assume, by written instrument
executed and mailed to the holder of this Note, at the address appearing in the
first paragraph of this Note or at such other address as may be specified to the
Maker in writing, all of the obligations under this Note. The successor,
surviving or purchasing corporation shall be deemed substituted for the Maker
for all purposes of this Note. The provision of this Section governing the
substitution of another corporation for the Maker shall similarly apply to
successive instances in which the corporation then deemed to be the Maker
hereunder shall either sell all or substantially all of its properties and
assets to any other corporation, shall consolidate with or merge into any other
corporation or shall be the surviving corporation of the merger into it of any
other corporation, as a result of which the holders of any of its stock or other
securities shall become entitled to the stock or other securities of any
corporation other than the corporation at the time deemed to be the Maker
hereunder.
5.4
(i) Upon any adjustment of the Conversion Rate, then, and in
each such case, the Maker shall give written notice thereof to the
holder of this Note, which notice shall state the Conversion Rate
resulting from such adjustment and the increase or decrease, if any,
in the number of shares purchasable at such price upon the exercise
of the conversion rights hereunder, setting forth in reasonable
detail the method of calculation and the facts upon which such
calculation is based. In addition, whenever the Conversion Rate
shall be adjusted as provided in Section 5.2, the Maker shall
forthwith file and keep on record at the office of the Secretary of
the Maker or at such other place as may be designated by the Maker,
a statement, signed by its Treasurer or Chief Financial Officer,
showing in detail the facts requiring such adjustment and the
Conversion Rate that shall be in effect after such adjustment. The
Maker shall also cause a copy of such statement to be sent by
first-class, certified mail, return receipt requested, postage, to
the holder of this Note at such holder's appearing address in the
first paragraph of this Note or at such other address as may be
specified to the Maker in writing. Where appropriate, such copy may
be given in advance of any such adjustment and may be included as
part of a notice otherwise required to be given to the holder of
this Note.
(ii) In the event the Maker shall propose to take any action
of the types described in Section 5.2(i), (ii), (iii) or (iv), or
any contemplated redemption of capital stock of the Maker, the Maker
shall give notice to the holder of this Note in the manner set forth
in Section 5.4(i), which notice shall specify the record date, if
any, with respect to any such action and the date on which such
action is to take place. Such notice shall also set forth such facts
with respect thereto as shall be reasonably necessary to indicate
the effect of such action (to the extent such effect may be known at
the date of such notice) on the Conversion Rate with respect to this
Note, and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon each
conversion of this
-6-
<PAGE>
Note. In the case of any such action, such notice shall be given at
least 10 days prior to the taking of such proposed action. Failure
to give such notice, or any defect therein, shall not affect the
legality or validity of any such action.
(iii) The Maker shall, within 90 days after the end of each of
its fiscal years, and at such other times as the holder of this Note
may reasonably request, mail to the holder of this Note, at such
holder's address appearing in the first paragraph of this Note or at
such other address as may be specified to the Maker in writing, a
certificate of the independent public accountants for the Maker
specifying the Conversion Rate in effect as of the end of such
fiscal year.
(e)
(i) In order to convert into Common Stock the principal and
interest on this Note, the holder shall give written notice thereof
to the Maker duly executed by it, indicating its intention to
convert the principal hereof into Common Stock (the "Conversion
Notice").
(ii) Any conversion of this Note shall be deemed to have
occurred on the date of the Conversion Notice as provided above and
the converting holder of this Note shall be treated for all purposes
as the record holder of such Common Stock on such date (such date
being herein referenced as the "Conversion Date").
(iii) As soon as practicable on or after a Conversion Date,
the Maker shall issue and deliver to such converting holder of this
Note a certificate or certificates for the number of full shares of
Common Stock issuable upon such conversion.
(f) The Maker shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued Common Stock,
for the purposes of issuance upon conversion of this Note, the full number of
shares of Common Stock then deliverable upon the conversion of the full
principal amount of this Note then outstanding.
6. This Note shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania. Each of the parties hereto agree that
sole and exclusive jurisdiction over and proper venue to any controversy or
claim arising out of or relating to this Note or the breach thereof shall reside
in the courts of the Commonwealth of Pennsylvania and the United States District
Court for the Eastern District of Pennsylvania. This Note shall be construed
without the aid of any canon, custom or rule of law requiring construction
against the draftsman.
7. Whenever used, the singular number shall include the plural, the plural
and singular, the use of any gender shall be applicable to all genders, and the
words "Payee" and "Maker" shall be deemed to include the respective heirs,
personal representatives, successors and
- 7 -
<PAGE>
assigns of Payee and Maker. If Maker consists of more than one (1) person,
corporation or other entity, the obligations and liabilities of such persons,
corporations or other entities under this Note shall be joint and several and
the word "Maker" shall mean all or some of any of them.
IN WITNESS WHEREOF, Maker, intending to be legally bound, has caused this
Note to be executed on the date stated above.
Witness: DIPLOMAT AMBASSADOR, INC.
a Delaware corporation
By:
- ----------------------------- --------------------------------
BARRY BUDILOV, President
- 8 -
<PAGE>
Exhibit 10.45
THIS NOTE, AND THE INDEBTEDNESS EVIDENCED HEREBY, IS SUBORDINATE AND
JUNIOR IN RIGHT OF PAYMENT IN THE MANNER AND TO THE EXTENT SET FORTH IN THE
INTERCREDITOR SUBORDINATION AGREEMENT (THE "SUBORDINATION AGREEMENT") DATED AS
OF JUNE 7, 1996 BY THE MAKER AND PAYEE OF THIS NOTE IN FAVOR OF CORESTATES BANK,
N.A. TO ALL SENIOR DEBT (AS DEFINED IN THE SUBORDINATION AGREEMENT) AT ANY TIME
OWED BY THE MAKER OF THIS NOTE, AND THE HOLDER OF THIS NOTE, BY ITS ACCEPTANCE
HEREOF, SHALL BE BOUND BY THE SUBORDINATION AGREEMENT, AND THIS NOTE MAY BE SOLD
OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE
SUBORDINATION AGREEMENT.
AMENDED AND RESTATED CONVERTIBLE DEMAND NOTE
Philadelphia, Pennsylvania
$343,000 Dated as of: May 9, 1995
FOR VALUE RECEIVED, DIPLOMAT AMBASSADOR, INC., a Pennsylvania
corporation ("Maker"), promises to pay to the order of BARRY BUDILOV
("Payee"), an individual residing at 716 Germantown Pike, Lafayette Hill,
Pennsylvania, the principal sum of Three Hundred Forty Three Thousand Dollars
($343,000) lawful money of the United States of America, together with
interest from the date of this Note, at the rate and on the terms set forth
below, as follows:
1. The principal, interest and all other sums under this Note shall be
payable on March 31, 2000, at the office of the Maker or at such other place
or payee, from time to time may designate in writing. Interest shall accrue
and be payable quarterly at the rate of eight percent (8%) per annum. If the
Company has earnings of $.60 per share for the fiscal year ending
March 31, 1999, the Convertible Notes shall be prepaid at the option of the
Holder, commencing on March 31, 1999.
2. Maker and all endorsers, sureties and guarantors jointly and severally
waive presentment for payment, demand, notice of demand, notice of nonpayment
or dishonor, protest and notice of protest of this Note, and all other notices
in connection with the delivery, acceptance, performance, default, or
enforcement of the payment of this Note, and they agree that the liability of
each of them shall be joint and several and unconditional, without regard to the
liability of any other party, and shall not be affected in any manner by any
indulgence, extension of time, renewal, waiver or modification granted or
consented to by Payee. Maker and all endorsers, sureties, and guarantors consent
to any and all extensions of time, renewals, waivers, or modifications that may
be granted by Payee with respect to the payment or other provisions of this
Note, and to the release of the collateral or any part of it, with or without
substitution, and agree that additional makers, endorsers, guarantors, or
sureties may become parties to it without notice to them or affecting their
liability under this Note.
<PAGE>
3. If any provision of this Note is held to be invalid or unenforceable by
a Court of competent jurisdiction, the other provisions of this Note shall
remain in full force and effect and shall be construed liberally in favor of
Payee in order to effectuate the provisions of this Note. In no event shall the
rate of interest payable under this note exceed the maximum rate of interest
permitted to be charged by the applicable law (including the choice of law
rules) and any interest paid in excess of the permitted rate shall be refunded
to Maker. That refund shall be made by application of the excessive amount of
interest paid against any sums outstanding and shall be applied in such order as
Payee may determine. If the excessive amount of interest paid exceeds the sums
outstanding, the portion exceeding the sums outstanding shall be refunded in
cash by Payee. Any crediting or refund shall not cure or waive any default by
Maker under this Note. Maker agrees, however, that in determining whether or not
any interest payable under this Note exceeds the highest rate permitted by law,
any non-principal payment shall be deemed, to the extent permitted by law, to be
an expense, fee, premium or penalty rather than interest.
4. Payee shall not be deemed, by any act or omission or commission, to
have waived any of its rights or remedies under this Note unless the waiver is
in writing and signed by Payee, and then only to the extent specifically set
forth in the writing. A waiver on one event shall not be construed as continuing
or as a bar to or waiver of any right or remedy to a subsequent event. This Note
may not be amended except by written agreement executed by both Maker and payee.
5.
5.1. This Note may be converted at the option of the holder of
this Note, at any time and from time to time prior to the Maturity Date, in
whole, or in part, at the rate of one share of Common Stock for each six
dollars of unpaid principal and interest outstanding on this Note (the
"Conversion Rate"), subject to such adjustment of the Conversion Rate are set
forth in Section 5(e) below. Upon the exercise of the conversion Right under
Section 5.1 all accrued and unpaid interest on the Note with respect to the
principal amount converted shall be canceled and the Maker shall have no
obligation to pay any such amount on the converted portion of this Note.
5.2 The Conversion Rate shall be subject to adjustment from time to
time as follows:
(i) In case the Maker shall pay or make to all holders of
Common Stock of the Maker a dividend or other distribution on such
class of Common Stock in Common Stock, the Conversion Rate in effect
at the opening of business on the day following the date fixed for
the determination of stockholders entitled to receive such dividend
or other distribution shall be increased by multiplying the
Conversion Rate by a fraction of which the denominator shall be the
number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination (the "Fixed Number
of Shares") and the numerator shall be the sum of the Fixed Number
of Shares and the total number of shares constituting such dividend
or other distribution, such increase to become effective immediately
after the opening of business on the day following the date fixed
for such determination. For the purposes of this paragraph (i), the
number of shares of Common Stock at any time outstanding shall not
include shares issuable in respect of scrip certificate issued in
lieu of fractions of shares of Common Stock.
<PAGE>
(ii) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Rate in effect at the opening of business on the day
following the day upon which subdivision becomes effective shall be
proportionately increased, and, conversely, in case outstanding
shares of Common Stock shall each be combined into a smaller number
of shares of Common Stock, the Conversion Rate in effect at the
opening of business on the day following the day upon which such
combination becomes effective shall be proportionately decreased,
such reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the
day upon which subdivision or combination becomes effective;
(iii) In case to Maker shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its
indebtedness or assets (including securities, any dividend or
distribution paid in cash out of funds of the Maker legally
available for dividends or distributions under the laws of the state
of incorporation of the Maker and any dividend or distribution
referred to in paragraph (i) of this Section), the Conversion Rate
shall be adjusted so that the same shall equal the rate determined
by multiplying the Conversion Rate in effect immediately prior to
the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by a fraction of
which the denominator shall be the current market price per share
(determined as provided in paragraph (vi) of this Section ) of the
Common Stock on the date fixed for such determination less the fair
value (as determined by the Board of Directors of the Maker ("Board
of Directors"), whose determination shall be conclusive and set
forth in a Board resolution, such resolution to be based upon the
opinion of an independent investment banker reasonably satisfactory
to the holder of this Note, if requested by the holder of Note) of
the portion of the assets or evidences of indebtedness so
distributed applicable to one share of Common Stock and the
numerator shall be such current market price per share of the Common
Stock, such adjustment to become effective immediately after the
opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such distribution;
(iv) in case the Maker shall issue shares of Common Stock or
rights or warrants to subscribe for or purchase shares of Common
Stock at a price per share less than the current market price per
share (determined as provided in paragraph (vi) of this Section) of
the Common Stock on the date fixed for the determination of
stockholders entitled to receive such shares, rights or warrants,
the Conversion Rate in effect at the opening of business on the day
following the date fixed for such determination shall be increased
by multiplying such Conversion Rate by a fraction of which the
denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination
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plus the number of shares of Common Stock which the aggregate of the
offering price of the total number of shares of Common Stock so
offered for subscription of purchase would purchase at such current
market price and the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of additional shares of
Common Stock so offered for subscription or purchase, such increase
to become effective immediately after the opening of business on the
day following the date fixed for such determination. For the
purposes of this paragraph (iv), the number of shares of Common
Stock at any time outstanding shall not include shares held in the
treasury of the Corporation but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares
of Common Stock. For purposes of this paragraph (iv), the granting
of the right to purchase shares of Common Stock (whether from
treasury shares or otherwise) pursuant to any dividend or interest
reinvestment plan and/or any Common Stock purchase plan providing
for the reinvestment of dividends or interest payable on securities
of the Maker and/or investment of periodic optional payments at a
price per share of not less than 95% of the current market price per
share (determined as provided in such plans) of Common Stock (so
long as such right to purchase is in no case evidenced by the
delivery of rights or warrants) shall not be deemed to constitute an
issue of shares, rights or warrants by the Maker within the meaning
of this paragraph (iv). If any rights or warrants subsequently
expire or are canceled prior to exercise thereof, the Conversion
Rate shall be readjusted to the Conversion Rate that would have been
in effect had such rights or warrants not been issued;
(v) The reclassification (excluding any reclassification upon
a consolidation or merger) of Common Stock into securities other
than Common Stock shall be deemed to involve (a) a distribution of
such securities other than the Common Stock to all holders of Common
Stock (and the effective date of such reclassification shall be
deemed to be "the date fixed for the determination of stockholders
entitled to receive such distribution" and "the date fixed for such
determination" within the meaning of paragraph (iii) of this
Section), and (b) a subdivision or combination, the case may be, of
the number of shares of Common Stock outstanding immediately prior
to such reclassification into the number of shares of Common Stock
outstanding immediately thereafter (and the effective date of such
reclassification shall be deemed to be "the day upon which such
subdivision becomes effective" or "the day upon which such
combination becomes effective" or "the day upon which such
combination becomes effective", as the case may be, and "the day
upon which such subdivision or combination becomes effective" within
the meaning of paragraph (ii) of this Section);
(vi) For the purpose of Section 5, the current market price
per share of Common Stock on any day shall be deemed to be (a) the
average of the last reported sales price of Common Stock on the
National 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
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in common use for the 30 consecutive trading days immediately
preceding the day on which the current market price is to be
determined, if so quoted, or (b) if not quoted as described in
clause (a), the mean between the high bid and low asked quotations
for Common Stock as reported by the National Quotation Bureau
Incorporated for the 30 consecutive trading days immediately
preceding the day on which the current market price is to be
determined, if so quoted, or (c) if the Common Stock is listed or
admitted for trading on any national securities exchange, the last
sales price, or the closing bid price if no sale occurred, of Common
Stock on the principal securities exchange on which Common Stock is
listed for the 30 consecutive trading days immediately preceding the
day on which the current market price is to be determined, if so
quoted. If Common Stock is quoted on a national securities or
central market system, in lieu of a market or quotation system
described above, the closing price shall be determined in the manner
set forth in clause (b) of the preceding sentence if bid and asked
quotations are reported but actual transactions are not, and in the
manner set forth in clause (c) of the preceding sentence if actual
transactions are reported. If none of the conditions set forth above
is met, the current market price per share on any day shall be such
fair market value as shall be determined by a resolution of the
Board of Directors, based upon the opinion of an independent
investment banker reasonably satisfactory to the holder of this
Note, if requested by the holder of this Note;
(vii) No fractional shares will be issued upon conversion to
the extent of legally available funds. The right to convert this
Note terminates on the Maturity Date; and
(viii)Notwithstanding anything contained in this Section, no
adjustment in the Conversion Rate in respect of this Note shall be
required upon the issuance or sale of (a) shares of Common Stock
issued or sold under options granted or to be granted (or shares of
Common Stock otherwise issuable or salable) pursuant to any present
or future stock option plan, stock option agreement, stock purchase
plan, employees' savings or profit sharing plan or other incentive
or benefit plan providing for the sale or other issuance of Common
Stock by the Maker to officers, directors or employees (including
former officers, directors or employees) of the Maker or any of its
subsidiaries (including any such plan or agreement assumed by the
Maker or any subsidiary in connection with the acquisition of a
going concern business), and (b) shares of Common Stock for a
consideration per share equal to or greater than the current market
price per share (determined as provided in paragraph (vi) of this
Section) of Common Stock in effect immediately prior to such sale or
issuance.
5.3 The Maker shall not effect any consolidation, merger,
sale, transfer or other disposition of substantially all of the assets of the
Maker in which the Maker is not the continuing person (other than (i) a merger
with a wholly-owned subsidiary or (ii) a transfer or disposition of assets to
one or more wholly-owned subsidiaries of the Maker), unless prior to the
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consummation thereof the successor or surviving corporation, as the case may be,
or the corporation purchasing such assets shall assume, by written instrument
executed and mailed to the holder of this Note, at the address appearing in the
first paragraph of this Note or at such other address as may be specified to the
Maker in writing, all of the obligations under this Note. The successor,
surviving or purchasing corporation shall be deemed substituted for the Maker
for all purposes of this Note. The provision of this Section governing the
substitution of another corporation for the Maker shall similarly apply to
successive instances in which the corporation then deemed to be the Maker
hereunder shall either sell all or substantially all of its properties and
assets to any other corporation, shall consolidate with or merge into any other
corporation or shall be the surviving corporation of the merger into it of any
other corporation, as a result of which the holders of any of its stock or other
securities shall become entitled to the stock or other securities of any
corporation other than the corporation at the time deemed to be the Maker
hereunder.
5.4
(i) Upon any adjustment of the Conversion Rate, then, and in
each such case, the Maker shall give written notice thereof to the
holder of this Note, which notice shall state the Conversion Rate
resulting from such adjustment and the increase or decrease, if any,
in the number of shares purchasable at such price upon the exercise
of the conversion rights hereunder, setting forth in reasonable
detail the method of calculation and the facts upon which such
calculation is based. In addition, whenever the Conversion Rate
shall be adjusted as provided in Section 5.2, the Maker shall
forthwith file and keep on record at the office of the Secretary of
the Maker or at such other place as may be designated by the Maker,
a statement, signed by its Treasurer or Chief Financial Officer,
showing in detail the facts requiring such adjustment and the
Conversion Rate that shall be in effect after such adjustment. The
Maker shall also cause a copy of such statement to be sent by
first-class, certified mail, return receipt requested, postage, to
the holder of this Note at such holder's appearing address in the
first paragraph of this Note or at such other address as may be
specified to the Maker in writing. Where appropriate, such copy may
be given in advance of any such adjustment and may be included as
part of a notice otherwise required to be given to the holder of
this Note.
(ii) In the event the Maker shall propose to take any action
of the types described in Section 5.2(i), (ii), (iii) or (iv), or
any contemplated redemption of capital stock of the Maker, the Maker
shall give notice to the holder of this Note in the manner set forth
in Section 5.4(i), which notice shall specify the record date, if
any, with respect to any such action and the date on which such
action is to take place. Such notice shall also set forth such facts
with respect thereto as shall be reasonably necessary to indicate
the effect of such action (to the extent such effect may be known at
the date of such notice) on the Conversion Rate with respect to this
Note, and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon each
conversion of this
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Note. In the case of any such action, such notice shall be given at
least 10 days prior to the taking of such proposed action. Failure
to give such notice, or any defect therein, shall not affect the
legality or validity of any such action.
(iii) The Maker shall, within 90 days after the end of each of
its fiscal years, and at such other times as the holder of this Note
may reasonably request, mail to the holder of this Note, at such
holder's address appearing in the first paragraph of this Note or at
such other address as may be specified to the Maker in writing, a
certificate of the independent public accountants for the Maker
specifying the Conversion Rate in effect as of the end of such
fiscal year.
(e)
(i) In order to convert into Common Stock the principal and
interest on this Note, the holder shall give written notice thereof
to the Maker duly executed by it, indicating its intention to
convert the principal hereof into Common Stock (the "Conversion
Notice").
(ii) Any conversion of this Note shall be deemed to have
occurred on the date of the Conversion Notice as provided above and
the converting holder of this Note shall be treated for all purposes
as the record holder of such Common Stock on such date (such date
being herein referenced as the "Conversion Date").
(iii) As soon as practicable on or after a Conversion Date,
the Maker shall issue and deliver to such converting holder of this
Note a certificate or certificates for the number of full shares of
Common Stock issuable upon such conversion.
(f) The Maker shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued Common Stock,
for the purposes of issuance upon conversion of this Note, the full number of
shares of Common Stock then deliverable upon the conversion of the full
principal amount of this Note then outstanding.
6. This Note shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania. Each of the parties hereto agree that
sole and exclusive jurisdiction over and proper venue to any controversy or
claim arising out of or relating to this Note or the breach thereof shall reside
in the courts of the Commonwealth of Pennsylvania and the United States District
Court for the Eastern District of Pennsylvania. This Note shall be construed
without the aid of any canon, custom or rule of law requiring construction
against the draftsman.
7. Whenever used, the singular number shall include the plural, the plural
and singular, the use of any gender shall be applicable to all genders, and the
words "Payee" and "Maker" shall be deemed to include the respective heirs,
personal representatives, successors and
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assigns of Payee and Maker. If Maker consists of more than one (1) person,
corporation or other entity, the obligations and liabilities of such persons,
corporations or other entities under this Note shall be joint and several and
the word "Maker" shall mean all or some of any of them.
IN WITNESS WHEREOF, Maker, intending to be legally bound, has caused this
Note to be executed on the date stated above.
Witness: DIPLOMAT AMBASSADOR, INC.
a Delaware corporation
By:
- ----------------------------- --------------------------------
Kenneth Kitnick
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EX-10.46
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 reserve 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 Sections 7
and 8, 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 Sections 7 and 8,
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.
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(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 months 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. TERMINATION OF RELATIONSHIP
Except as otherwise provided by the Committee at the time a Nonstatutory
Stock Option is granted or any amendment thereto, if a Grantee ceases to be a
director, independent contractor, agent or consultant then:
(a) if termination of the relationship 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;
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(c) if termination is 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 period of three months 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
(d) if the Grantee should die within three months after voluntary
termination of the relationship or involuntary termination without cause, as
contemplated in Section 8(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 such three month
period 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 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.
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<PAGE>
SECTION 11. AMENDMENT AND TERMINATION
(a) The Plan shall terminate on November 11, 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.
(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 November 12, 1997, subject to its
approval by the affirmative votes of the holders of a majority of the securities
of the Company present, or represented, and entitled to vote thereon at the next
meeting of shareholders of the Company or any adjournment or postponement
thereof. Before such approval, Stock Options may be granted under the Plan
expressly subject to such approval.
7
<PAGE>
Exhibit 10.47
AGREEMENT OF SALE
THIS AGREEMENT is made this 10th day of July, 1997, by and between 3600
MEADOW LANE PARTNERSHIP, a Pennsylvania limited partnership ("Seller"), and
BARRY BUDILOV and RUDY SLUCKER (collectively, "Purchaser").
BACKGROUND
Seller is the record owner of a certain parcel of land together with the
building thereon erected containing 64,040 square feet of space, more or
less, located at and known as 3600 Meadow Lane, Bensalem, Pennsylvania, as
more particularly described on Exhibit A attached hereto ("Property").
Purchaser's affiliate Ambassador Eyewear Group has leased the entire Property
from Seller pursuant to a lease dated 10 July 1997, ("Lease"). Seller now
desires to sell the Property and Purchaser desires to purchase the Property
upon the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the covenants and provisions
contained herein and other good and valuable consideration, and intending to
be legally bound hereby, the parties hereto agree as follows:
1. Agreement to Sell and Purchase. Seller agrees to sell to Purchaser,
and Purchaser agrees to purchase from Seller, subject to the terms and
conditions of this Agreement, the Property, together with (a) any land lying
in the bed of any street, road or alley, opened or proposed, abutting the
Property to the center line thereof, (b) any easement, privilege or
right-of-way inuring to the benefit of the Property, and (c) the
appurtenances and hereditaments belonging or otherwise pertaining to the
Property (collectively, "Premises").
2. Purchase Price. The purchase price for the Premises (the "Purchase
Price") shall be Two Million Four Hundred Sixty Five Thousand Five Hundred
Forty Dollars ($2,465,540), payable, plus or minus Closing adjustment, at
Closing (hereinafter defined) by wire transfer pursuant to wire instructions
to be provided by Seller to Purchaser at least 48 hours prior to the Closing
Date.
3. Closing. Closing (the "Closing") hereunder shall take place at the
offices of Purchaser's title insurance company in the Philadelphia,
Pennsylvania area, or at such other location as the parties hereto shall
mutually agree upon, on March 31, 1998, or such earlier date as the parties
may agree ("Closing Date"), provided that Purchaser may extend the Closing
Date for up to sixty (60) additional days as set forth in Section 7 below.
<PAGE>
4. Condition of Title.
(a) Title to the Premises shall be good and marketable, and free
and clear of all liens, restrictions, easements, encumbrances and other title
objections except for the title exceptions listed on Exhibit B attached hereto
("Permitted Encumbrances"). In addition, such title shall be insurable under
an ALTA Owner's Policy, Form B, Amended 1992, as aforesaid by any reputable
title insurance company at regular rates.
(b) Purchaser shall promptly order an examination of title and
shall cause a copy of the title report to be forwarded to Seller's attorney
upon receipt. Seller shall be entitled to a reasonable adjournment or
adjournments of the Closing for up to 60 days or until the expiration date
of any written commitment of any of Purchaser's lender(s) delivered to
Purchaser prior to the Closing Date, whichever occurs first, to remove any
defects in or objections to title noted in such title report other than the
Permitted Encumbrances and any other defects or objections which may be
disclosed on or prior to the Closing Date.
(c) If Seller shall be unable to convey title to the Premises at
the Closing in accordance with the provisions of this Agreement, Purchaser,
nevertheless, may elect to accept such title as Seller may be able to convey
with a credit against the monies payable at the Closing equal to the amount
of any unpermitted lien or encumbrance on the Premises which can be removed
at the Closing by payment of a liquidated amount, but without any other
credit or liability on the part of Seller. If Purchaser shall not so elect,
Purchaser may terminate this Agreement and the sole liability of Seller shall
be to reimburse Purchaser for the net cost of title examination. Upon such
reimbursement, this Agreement shall be null and void and the parties hereto
shall be relieved of all further obligations and liability to each other.
Seller shall not be required to bring any action or proceeding or to incur
any expense to cure any title defect or to enable Seller otherwise to comply
with the provisions of this Agreement.
(d) None of the foregoing are intended to, nor shall they, limit or
affect the remedies available to Purchaser at law or in equity in the event
of a willful failure or refusal by Seller to convey title to the Premises to
Purchaser.
5. Representations and Warranties of Seller. Seller, to induce
Purchaser to enter into this Agreement and to purchase the Premises,
represents and warrants to Purchaser as follows:
(a) Seller has received no outstanding notices of uncorrected
violations of any laws or ordinances, and Seller shall cure before Closing
any violations of record as of the date hereof;
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<PAGE>
(b) To Seller's actual knowledge, there is no action, suit or
proceeding pending or threatened against or affecting the Premises or any
portion thereof, or relating to or arising out of the ownership, management
or operation of the Premises, in any court or before or by any federal, state
or local department, commission, board, bureau or agency or other
governmental instrumentality which could, if adversely decided, have any
adverse effect on Purchaser's acquisition, ownership, renovation or use of
the Premises;
(c) No assessment for public improvements has been served upon the
Seller with respect to the Premises which remains unpaid, including, but not
limited to, those for construction of sewer, water, electric, gas or steam
lines and mains, streets, sidewalks and curbing. In the event such an
assessment is imposed subsequent to the date hereof and work for any public
improvements with respect to the Premises is begun before Closing, Seller
shall pay for the assessments and charges that are imposed on Seller or the
Premises before Closing, subject to reimbursement by Purchaser at Closing for
a pro rata portion of the cost thereof based on the estimated useful life of
such improvements. To Seller's actual knowledge, there are no public
improvements which have been ordered to be made and/or which have not
heretofore been completed, assessed and paid for;
(d) Seller has not received any notice of any condemnation
proceeding or other proceeding in the nature of eminent domain with respect
to the Premises, and to Seller's actual knowledge, no such proceedings are
threatened;
(e) Except for the Lease, there are no leases, occupancy agreements
or licenses, or service, equipment, supply, maintenance or concession
agreements, or similar agreements of any kind affecting the Premises that
will not be terminated by Seller prior to Closing;
(f) Seller has no actual knowledge of the presence of hazardous or
toxic substances or underground storage tanks located in, on or under the
Property. Seller has delivered to Purchaser true and complete copies of any
and all environmental studies, notices, citations, audits or similar data
relating to the existence or non-existence of hazardous wastes or similar
substances at the Property in Seller's possession, and Seller has no
knowledge of any environmental issues affecting the Property except as
disclosed in such reports (if any);
(g) the Certificate of Occupancy attached hereto as Exhibit D is a
true copy of the present Certificate of Occupancy for the Premises;
3
<PAGE>
(h) Seller is a limited partnership duly organized and existing and
in good standing under the laws of the Commonwealth of Pennsylvania;
(i) Seller has the requisite power and authority to enter into and
perform the terms of this Agreement; the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the general partner(s) of the Seller partnership; and
no other partnership proceedings on the part of Seller are necessary in order
to permit Seller to consummate this Agreement;
(j) Neither the entry into nor the performance of, or compliance
with, this Agreement (i) has resulted, or will result, in any violation of,
or (ii) is or will be in conflict with, or (iii) has resulted, or will
result, in the creation of any mortgage, lien, encumbrance or other charge
upon the Premises, or (iv) constitutes or will constitute a default under any
corporate charter, certificate of incorporation, by-law, partnership
agreement, mortgage indenture, contract, permit, judgment, decree, order,
statute, rule or regulation, applicable to Seller or to the Premises;
(k) No approval, consent, order or authorization of or designation,
registration or declaration with, any governmental authority is required in
connection with the valid execution and delivery of and compliance with this
Agreement by Seller;
(l) To Seller's knowledge, there is no violation of any
restriction, condition or agreement contained in any instrument affecting the
Premises, which materially affects the value or operation of the Premises;
(m) There are no oral or written agreement or understandings
between Seller and any employees or employees' representatives which affect
the wages, hours or working conditions of the employees working at the
Premises. No commission or other compensation is now or hereafter payable by
Purchaser to any broker or other agent under any written or oral agreement or
understanding with such broker or agent in relation to any leases or
occupancy agreements affecting the Premises;
(n) Seller has not received any written notice from any insurance
company which has issued a policy with respect to the Premises requesting
performance of any structural or other major repairs or alterations to the
Premises, which has not been complied with;
(o) No work has been performed or is in progress at and no
materials have been furnished to the Premises or any portion thereof which,
though not presently the subject of, might
4
<PAGE>
give rise to mechanic's, materialman's or other liens against the Premises or
any portion thereof.
(p) To Seller's knowledge: all utilities required for the operation
of the Premises either enter the Premises through adjoining public streets or
if they pass through adjoining private land, do so in accordance with valid
public casements or private easements; all of said public utilities are
installed and operating and all installation and connection charges have been
paid for in full; the continued maintenance and operation of the Premises is
not dependent on facilities located at other premises and the continued
maintenance and operation of any other premises is not dependent on
facilities located on the Premises, and no building or other improvements not
part of the Premises relies on the Premises or any part thereof or any
interest therein to fulfill any municipal or governmental requirement, and
similarly no building or other improvement on the Premises relies on any
premises not included within the Premises to fulfill any governmental or
municipal requirement.
(q) The foregoing representations and warranties shall be true as
of the date hereof, and Seller shall reaffirm them (subject to correction for
intervening events of which Seller will give Purchaser notice) at Closing.
The foregoing representations and warranties, as corrected, shall survive
Closing for a period of one year.
6. Provisions with Respect to Closing. At Closing, Seller shall deliver
to Purchaser (i) a special warranty deed, (ii) an affidavit, in accordance
with the Foreign Investment in Real Property Tax Act, stating that Seller is
not a foreign person within the meaning of such Act and that Seller is not
subject to the withholding requirements set forth in such Act, (iii) an
affidavit to Purchaser's title insurance company of the type customarily
provided by sellers of real property to induce title companies in the
Bensalem area to insure over certain "standard" or "preprinted" exceptions to
title, (iv) instruments of assignment duly executed by Seller of all rights
(if any) of Seller under all unexpired assignable building, construction and
other warranties, and, upon request of Purchaser, shall irrevocably appoint
Purchaser as attorney-in-fact for Seller for the purposes of exercising the
rights under such unexpired warranties, (v) copies of any available "as
built" plans and specifications in Seller's possession for all building and
improvements on the Premises, and (vi) all certificates, permits, and
licenses in Seller's possession from any governmental authority having
jurisdiction over the Premises which are related to the use and operation of
the buildings and improvements located on the Premises as an office building.
5
<PAGE>
7. Conditions to Closing. Purchaser's obligations under this Agreement
shall be expressly conditioned as set forth in this Section 7.
(a) Purchaser, at Purchaser's election, shall have ten (10)
business days following the full execution of this Agreement to obtain at
Purchaser's expense such structural, mechanical and environmental inspection
reports as Purchaser may require (collectively, "Reports"), and to deliver
copies of such Reports to Seller. If Purchaser is dissatisfied for any reason
with the contents of any of the Reports, Purchaser shall have the right,
prior to the expiration of such 10-day period, to terminate this Agreement by
notice to Seller, whereupon the parties will have no further obligations. If
Purchaser fails to notify Seller of Purchaser's election within such 10-day
period, Purchaser shall be deemed to have waived its right to terminate this
Agreement.
(b) Purchaser and its architects, contractors, engineers,
inspectors, agents and other representatives shall have full access to and
permission to enter the Property to inspect, survey, measure, review,
analyze, take test borings or soil samples or appraise the Property.
Purchaser shall restore the Property to its former condition, so far as
reasonably possible, following any disturbance of the Property caused by
Purchaser's investigations. Purchaser shall indemnify, defend and
hold harmless Seller for any claim or damage or any contamination of the
Property which may be caused by Purchaser or its representatives entering
upon the Property after the date hereof, and shall provide Seller, prior to
any such entry, with an insurance certificate listing Seller as an additional
insured and showing liability coverage in the amount of at least $1,000,000.
(c) Purchaser's obligation hereunder shall further be conditional
upon receipt by Purchaser, within one hundred eighty (180) days after full
execution hereof (subject to extension as set forth below), of written
commitments from the lenders identified on Exhibit C to make mortgage loans
to Purchaser in the amounts and on the terms set forth in Exhibit C
(collectively, "Commitments"), none of which Commitments, for purposes of
satisfying the conditions contained in this subsection 7(c), may be
conditioned upon (i) the appraised value of the Premises, (ii) the physical
or structural condition of the Premises, (iii) the performance of any
remedial environmental or hazardous waste removal work at the Premises, or
(iv) the satisfaction of any other condition or requirement relating to the
Premises not otherwise required to be satisfied or fulfilled by Seller under
the terms and conditions of this Agreement. If Purchaser fails to receive any
of the Commitments within such 180-day period, Purchaser shall have the right
to terminate this Agreement by written notice to Seller given prior to the
expiration of such 180-day period, provided that, if Purchaser
6
<PAGE>
has not received all of the Commitments by the end of the 180-day period,
Purchaser may extend such 180-day period, and the date for Closing as set
forth in Section 3 above, for an additional sixty (60) days by notice to
Seller given prior to the expiration of the 180-day period. If Purchaser
fails to notify Seller of Purchaser's election within the 180-day period (as
such period may be extended), Purchaser shall be deemed to have waived the
right to terminate this Agreement. Purchaser shall make application for each
of the Commitments immediately following the Seller's execution hereof, and
shall diligently pursue the Commitments thereafter.
8. Taxes; Apportionments.
(a) Real estate taxes, Annual Rent under the Lease and lienable
municipal services shall be apportioned pro rata on a per diem basis as of
the date of Closing (except to the extent such taxes are the obligation of
Purchaser under the Lease).
(b) All realty transfer taxes imposed on any document executed or
delivered pursuant hereto or otherwise in connection with this transaction,
shall be divided equally between Seller and Purchaser. Purchaser shall pay
all title insurance premiums charged by Purchaser's title insurance company,
including additional premiums for any special endorsements requested by
Purchaser. Each party shall bear its own counsel fees. All other recording
and closing costs of any nature or description shall be borne or apportioned
in accordance with the custom and practice in Bensalem, Pennsylvania.
9. Condition of Premises.
(a) Except as expressly set forth in this Agreement, Purchaser
acknowledges and agrees that the Premises is being conveyed by Seller in
"AS-IS" condition, that Purchaser is fully familiar with the condition of the
Premises, and that Purchaser is fully familiar with the condition of the
Premises, and that Purchaser is buying the Premises based solely on
Purchaser's knowledge of the Premises and not in reliance on any
representation made by Seller or any partner, employee or agent of Seller.
Seller expressly disclaims any representations or warranties of any kind
regarding the Premises except as expressly se forth herein, including,
without limitation, any representations or warranties regarding the physical
condition or environmental compliance of the Premises.
(b) Between the date hereof and the Closing Date, Seller shall, subject
to damage or destruction resulting from fire or other casualty which is dealt
with in Article 10 hereof, operate and maintain the Premises in the same
manner in which the Premises is presently maintained, and shall timely make
all repairs, maintenance and replacements to keep the Premises and all
fixtures and equipment thereon and therein in good and
7
<PAGE>
operable condition, as if the sale of the Premises hereunder were not to
occur.
10. Fire, Eminent Domain, etc.
(a) Except as may be otherwise provided in the Lease, Seller shall
bear the risk of all loss or damage to the Premises from all causes, except
negligent or willful acts of Purchaser or its agents, and the risk of
condemnation proceedings or other proceedings in the nature of eminent
domain, until the Closing.
(b) In addition to, and not by way of any limitation of, the
foregoing, in the event that the Premises, or any part thereof, shall be
damaged or destroyed by fire or any other casualty ("Casualty") prior to the
Closing, in the event such Casualty is beyond ordinary wear and tear but less
than "substantial destruction", as defined below, this Agreement shall remain
in full force and effect and on the Closing Seller shall transfer and/or
assign to Purchaser any and all monies and claims received by or accrued to
Seller on account of such Casualty, less such sums, if any, as shall have
been expended by Seller in connection with the repair or restoration of such
Casualty, and there shall be credited towards the Purchase Price the amount
of any deductible under the insurance policy covering such Casualty. In the
event of substantial destruction of the Premises, Purchaser shall have the
option, exercisable by written notice to Seller within fifteen (15) days
after the determination of the cost to repair or restore pursuant to the last
sentence of this subparagraph (b), to cancel this Agreement. If Purchaser so
elects to cancel this Agreement, the Agreement shall be deemed cancelled and
of no force and effect and neither party shall have any further rights or
liabilities against or to the other. If Purchaser does not so elect to cancel
this Agreement, this Agreement shall remain in full force and effect and on
the Closing Seller shall transfer and/or assign to Purchaser any and all
monies and claims received or accrued to Seller on account of such
substantial destruction, less such sums, if any, that shall have been
expended by Seller in connection with the repair or restoration of such
Casualty, and there shall be credited towards the Purchase Price the amount
of any deductible under the insurance policy covering such Casualty. As used
herein, the term "substantial destruction" shall mean a Casualty which shall
require repairs to or restoration of the Premises, the estimated cost of
which shall exceed One Hundred Thousand and 00/100 ($100,000.00) dollars. In
case of any dispute as to the estimated cost of repairs to or restoration of
any Casualty, such dispute shall be determined by a reputable contractor
selected by Seller and approved by Purchaser (which approval Purchaser agrees
not to unreasonably withhold or delay) whose estimate of such cost shall be
incorporated in a bid irrevocable for a period of thirty (30) days and shall
be binding upon Seller and Purchaser
8
<PAGE>
and the Closing Date shall be adjourned until such cost is determined.
(c) Until the Closing Date, Seller shall not settle the adjustment
of any Casualty without the prior written consent of the Purchaser.
11. Brokers. Seller and Purchaser each warrant and represent to the
other that each has had no dealings, negotiations or communications with any
brokers or other intermediaries in connection with this Agreement or the sale
of the Premises except The Flynn Company and Mallin & Panchelli ("Brokers"),
who shall divide a four and one-half percent (4.5%) commission payable by
Seller at Closing as follows: two percent (2%) to The Flynn Company, and two
and one-half percent (2.5%) to Mallin & Panchelli. In the event that any
claim is asserted by any other person, firm or corporation, whether broker or
otherwise, claiming a commission and/or finder's fee with respect to the sale
and purchase of the Premises resulting from any act, representation or
promise of Seller, Seller shall indemnify and save harmless Purchaser from
any such claim, and in the event any such claim shall be made against Seller
resulting from any act, representation or promise of Purchaser with respect
to the sale and purchase, Purchaser shall likewise indemnify and save
harmless Seller from any such claim.
12. Notices. All notices, requests and other communications under this
Agreement shall be in writing and shall be deemed to have been properly given
if personally delivered or sent by overnight delivery service or by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If intended for Seller:
Mr. Kevin Flynn
1621 Wood Street
Philadelphia, PA 19103
With a copy to:
Gregory Kleiber, Esquire
Fox, Rothschild, O'Brien & Frankel
2000 Market Street, Tenth Floor
Philadelphia, PA 19103
9
<PAGE>
If intended for Purchaser:
Ambassador Eyewear Group
1010 Arch Street, 3rd Floor
Philadelphia, PA 19103
Attention: Mr. Barry Budilov
With a copy to:
Stuart Kaplan, Esq.
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, NY 10174
or at such other address of which Seller or Purchaser shall have given notice
as herein provided. Notices by the parties may be given by and to their
respective counsel. All such notices, requests and other communications shall
be deemed to have been sufficiently given for all purposes, on the date
delivered, if personally delivered, or the day after delivery to an overnight
delivery service, or three (3) business days after the postmarked date of
mailing, if sent by certified mail.
13. Default. Upon a default by either party hereunder, the other party
shall have the option to terminate this Agreement of Sale and/or the Lease.
Purchaser's remedies upon a default by Seller before Closing shall be limited
to termination of this Agreement of Sale and/or the Lease or initiating an
action in specific performance to enforce the terms of this Agreement,
provided that such limitation shall not apply if Seller's default is willful
or intentional.
14. Miscellaneous.
(a) The headings and captions in this Agreement are inserted for
convenience of reference only and in no way define; describe or limit the
scope or intent of this Agreement or any of the provisions hereof.
(b) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Purchaser shall have the right to assign its interest in this Agreement to an
entity controlled by or affiliated with Purchaser.
(c) The representatives and officers who have executed this
Agreement on behalf of Seller and/or Purchaser hereby represent, warrant and
confirm that they have the authority to execute this Agreement.
(d) Formal tender of an executed deed and purchase money is hereby
waived.
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<PAGE>
(e) This Agreement contains the entire agreement between the Seller
and the Purchaser and there can be no other terms, obligations, covenants,
representations, statements or conditions, oral or otherwise of any kind
whatsoever concerning this sale. Furthermore, this Agreement shall not be
altered, amended, changed or modified except in writing executed by the
parties hereto.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania. Neither party shall record
this Agreement.
(g) This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which, taken together, shall
constitute one and the same instrument.
(h) TIME IS OF THE ESSENCE OF THIS AGREEMENT.
(i) In the event Seller does not receive executed copies of this
Agreement on or before July 16, 1997, this Agreement shall automatically
become null and void and Seller shall have no obligations hereunder.
IN WITNESS WHEREOF, intending to be legally bound hereby, the
parties hereto have executed this Agreement as of the date first above
written.
SELLER:
3600 MEADOW LANE PARTNERSHIP
By: /s/ Kevin Flynn
-------------------------------
Kevin Flynn
PURCHASER:
/s/ Barry Budilov
-----------------------------------
Barry Budilov
/s/ Rudy Slucker
-----------------------------------
Rudy Slucker
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<PAGE>
EXHIBIT "A"
The land referred to in this Commitment is described as follows:
ALL THAT CERTAIN lot or piece of ground with the buildings and improvements,
Situate in Bansalem Township, Bucks County, Pennsylvania, described in
accordance with certain Plan prepared by A.W. Martin Associates, Inc.,
Consulting Engineers, dated December 7, 1970, Plan No. 2135-4-7, Sheet #1, as
follows, to wit:
BEGINNING at a point on the title line in the back of Meadow Lane (50 feet
wide), which point is at the distance of 356.08 feet measured South 60
degrees 32 minutes 09 seconds West, along said title line from its point of
intersection with the apparent center line of Winks Lane; thence extending
from said point of Beginning along said title line in the bed of Meadow Lane,
South 60 degrees 32 minutes 09 seconds West, 882.29 feet to a point; thence
leaving said title line and extending through the bed of said Meadow Lane and
crossing the Northerly right-of-away line to same on the arc of a circle on a
line curving to the right having a radius of 459.28 feet, the arc distance of
549.74 feet to a point of tangency; thence extending North 53 degrees 22
minutes 59 seconds East, 60.00 feet to a point; thence extending North 60
degrees 32 minutes 09 seconds East, 434.83 feet to a point; thence extending
South 29 degrees 27 minutes 51 seconds East, recrossing the aforesaid
Northerly right-of-way line of Meadow Lane and extending into the bed of the
same, 350.00 feet to a point on the title line in the bed of said Meadow
Lane, the first mentioned point and place of BEGINNING.
PARCEL NUMBER 2-75-77.
BEING the same premises which Kevin D. Flynn Development Corporation t/a The
Flynn Company, a Pennsylvania Corporation by Indenture dated May 16, 1990 and
recorded in the Office of the Recorder of Deeds in and for the County of
Bucks in Land Record Book 181 Page 988, granted and conveyed unto 3600 Meadow
Lane Partnership, a Pennsylvania Limited Partnership.
<PAGE>
EXHIBIT B
PERMITTED ENCUMBRANCES
Rights granted to Bensalem Light and Power CO. as in Deed Book 435, page 353.
Right of way granted to the Bell Telephone Company as in Deed Book 447, page
403, 1955 page 743 and 1953 page 658.
Right of way granted to The Philadelphia Electric Company by Deed Book 1964,
page 533.
Terms and conditions of Agreement recorded in Deed Book 1891, page 1111.
Declaration of Covenants as in Deed Book 1927 page 621 and 1957 page 723.
Rights as set forth in Deed Book 1997, page 550.
Rights, conditions and restrictions as set forth in Deed Book 1988, page 302.
Title to that part of premises lying in the bed and right of way of Meadow
Lane is subject to public and private rights therein.
Subject to building setback lines and notations as shown in Plan Book 65,
page 2.
Subject to railroad siding easements as in Plan Book 65, page 2.
Possible additional tax assessments by reason of new construction or
improvements subsequent to the date hereof pursuant to provisions of Acts of
Assembly relating thereto, not yet due and payable.
Printed exceptions contained in any ALTA 1992 Owners Policy of title
insurance.
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<PAGE>
EXHIBIT C
MORTGAGE LOAN TERMS
<TABLE>
<CAPTION>
Lender Interest
Amount Term Rate
------ -------- -----------
<S> <C> <C> <C>
Pa Industrial Development Corp. ....... $986,216 15 years 3.75%
Small Business Administration.......... $986,216 20 years Prime +.25
SBA First.............................. $246,554 10 years 5%
</TABLE>
13
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EXHIBIT D
CERTIFICATE OF OCCUPANCY
14
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Exhibit 10.48
March __, 1998
Ambassador Eyewear Group, Inc.
3600 Marshall Lane
Bensalem, Pennsylvania 19020
RE: Agreement to Rent
-----------------
Ladies and Gentlemen:
Reference is hereby made to the Agreement of Sale (the "Agreement") dated
July 10, 1997 between us and 3600 Meadow Lane Partnership. Subject to the terms
and conditions of the Agreement, we have obtained an option to purchase the
property located at 3600 Marshall Lane, Bensalem, Pennsylvania (the "Property")
for a purchase price of $2,465,540.
With respect to and in anticipation of the purchase of the Property, we have
agreed to rent said Property to Ambassador Eyewear Group, Inc. (the "Company")
on substantially the same terms and conditions set forth in that certain Lease
dated July 10, 1997 between the Company and 3600 Marshall Lane Partnership. The
parties agree to enter into a lease agreement reflecting the same promptly
after the date hereof.
Please confirm our agreement by signing this letter where indicated.
Very truly yours,
-----------------------------
Barry Budilov
-----------------------------
Rudy Slucker
CONFIRMED AND AGREED TO:
AMBASSADOR EYEWEAR GROUP, INC.
By:
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Title:
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EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Amendment No. 4 to Registration
Statement on Form SB-2 of our report dated June 12, 1997 (June 30, 1997 with
respect to the last paragraphs of Notes G and I(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 Amendment No. 4 to 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
March 16, 1998
<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
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J. H. COHN LLP
Roseland, New Jersey
March 17, 1998
