<PAGE>
As filed with the Securities and Exchange Commission on September 17, 1997
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------
U.S. Vision, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C> <C>
Delaware 5995 22-3032948
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
</TABLE>
------------
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
------------
<TABLE>
<CAPTION>
Copies of communications to:
<S> <C> <C>
William A. Schwartz, Jr. Brian M. Lidji, Esq. Donald J. Murray, Esq.
President and Chief Executive Officer Sayles & Lidji Dewey Ballantine
U.S. Vision, Inc. 4400 Renaissance Tower 1301 Avenue of the Americas
1 Harmon Drive 1201 Elm Street New York, New York 10019
Blackwood, New Jersey 08012 Dallas, Texas 75270 (212) 259-8000
(609) 228-1000 (214) 939-8700
</TABLE>
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this registration statement becomes effective.
------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Amount to Proposed Maximum Proposed Maximum Amount of
Title of Each Class of be Aggregate Aggregate Registration
Securities to be Registered Registered(1) Price Per Unit(1) Offering Price(2) Fee
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value 4,600,000 Shares $13.00 $59,800,000 $18,122
</TABLE>
================================================================================
(1) Includes 600,000 shares subject to an over-allotment option granted to the
Underwriters.
(2) Calculated pursuant to Rule 457 of the Securities Act of 1933, as amended.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion
September 17, 1997
Prospectus
4,000,000 Shares
[LOGO]
Common Stock
($.01 par value)
Of the 4,000,000 shares of Common Stock, par value $0.01 per share ("Common
Stock") of U.S. Vision, Inc. ("U.S. Vision" or the "Company") being offered
hereby, 2,500,000 are being offered by the Company and 1,500,000 are being
offered by certain selling stockholders (the "Selling Stockholders"). The
Company will not receive any of the proceeds from the sale of Common Stock by
the Selling Stockholders. See "Principal and Selling Stockholders."
Immediately prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently anticipated that the initial public
offering price will be between $11.00 and $13.00 per share. See "Underwriting"
for information relating to the factors to be considered in determining the
initial public offering price.
The Company intends to apply for approval of the Common Stock for quotation on
the Nasdaq National Market under the symbol "USVI".
See "Risk Factors" beginning on page 9 for a discussion of certain factors that
should be considered by prospective purchasers of the Common Stock offered
hereby.
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.
- --------------------------------------------------------------------------------
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discounts (1) Company(2) Stockholders
Per Share ...... $ $ $ $
Total (3) ...... $ $ $ $
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders named under "Principal and Selling
Stockholders" have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company which are estimated to be
$550,000.
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to 600,000 additional shares of Common Stock
on the same terms as set forth above solely to cover over-allotments, if
any. Pursuant to the over-allotment option, up to 300,000 shares may be
sold by the Company and up to 300,000 shares may be sold by the Selling
Stockholders. If the Underwriters exercise such option in full, the total
Price to Public, Underwriting Discounts, Proceeds to Company and Proceeds
to Selling Stockholders will be $ $ $ and $ , respectively. The
Company will not receive any proceeds from the sale of the shares of Common
Stock by the Selling Stockholders. See "Underwriting."
------------
The shares are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the shares will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about , 1997.
Salomon Brothers Inc Janney Montgomery Scott Inc.
The date of this Prospectus is , 1997
<PAGE>
U.S. Vision
The Company's retail optical centers operate under various trade names,
including Royal Optical, Service Optical, Wall and Ochs, and also operate in
numerous department stores under the folowing names:
O J.C. PENNEY OPTICAL CENTER O KAUFMANN'S OPTICAL
O SEARS OPTICAL CENTER O LAZARUS OPTICAL
O BERGNER'S OPTICAL O L.S. AYRES OPTICAL
O BURDINES OPTICAL O MARSHALL FIELDS OPTICAL
O CARSON PIRIE SCOTT OPTICAL O RICH'S OPTICAL
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS OR
IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITES, SEE
"UNDERWRITING."
<PAGE>
[PICTURES]
<PAGE>
PROSPECTUS SUMMARY
Unless otherwise indicated, all information in this Prospectus (i) assumes
no exercise of the Underwriters' option to purchase up to 300,000 shares of
Common Stock that may be sold by the Company and up to 300,000 shares of Common
Stock that may be sold by the Selling Stockholders to cover over-allotments, if
any, and (ii) is adjusted to reflect the 64-for-1 stock dividend with respect to
the Common Stock on September 12, 1997. The Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock") and the Series C Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock") of the Company
provide for conversion of the face amount (including accrued but unpaid
dividends) at the price at which the Common Stock is offered to the public. The
number of shares issuable upon conversion of all of the Series A Preferred Stock
and the Series C Preferred Stock assumes a public offering price of $12.00 and
will be based on outstanding balances on October 31, 1997. At an offering price
of $12.00 per share, 1,404,444 and 664,059 shares, respectively, of Common Stock
will be issuable upon conversion of the Series A Preferred Stock and the Series
C Preferred Stock in connection with this offering. The following summary is
qualified in its entirety by the more detailed information, financial
statements, and related notes included elsewhere in this Prospectus.
Prior to January 31, 1996, the Company's fiscal year ended on March 31. The
Company has changed its fiscal year end to January 31. References herein to
"fiscal 1992", "fiscal 1993" and "fiscal 1994" refer to the Company's fiscal
years ended March 31, 1993, 1994 and 1995, respectively. Similarly, references
to "fiscal 1995" and "fiscal 1996" refer to the ten months ended January 31,
1996, and the fiscal year ended January 31, 1997, respectively. The differences
in period durations must be considered in making period-to-period comparisons.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation."
The Company
U.S. Vision is a leading retailer of optical products and services
primarily through licensed retail optical departments located in national and
regional department stores. U.S. Vision's retail optical departments are
generally full-service retail vision care stores that offer an extensive
selection of designer brands and private label prescription eyewear, contact
lenses, sunglasses and accessories with an on-premises, independent optometrist
who performs complete eye examinations and prescribes eyeglasses and contact
lenses.
As of July 31, 1997, the Company operated 558 locations in 48 states,
consisting of 495 licensed retail optical departments and 63 freestanding
stores. The Company currently operates 368 J.C. Penney Company, Inc. ("J.C.
Penney") retail optical departments and is J.C. Penney's primary optical
licensee. In addition, the Company operates 57 Sears Roebuck and Co. ("Sears")
retail optical departments and 70 retail optical departments in regional
department stores such as Federated (Rich's, Burdines and Lazarus), May
(Kaufmann's, Famous Barr and L.S. Ayres), Marshall Fields and Carson Pirie
Scott, among others. The Company's freestanding stores are generally located in
malls and shopping centers.
In each of the last six quarters, the Company has experienced strong growth
in revenue in existing stores. Comparable store sales for the year ended January
31, 1997, and the six months ended July 31, 1997, increased 8.3% and 6.4%,
respectively. In addition, the Company's retail optical departments have had
attractive store level economics, with the 456 retail optical departments that
were in operation for all of fiscal 1996 generating average net sales per square
foot in that year of approximately $400 and average store contribution of 16.2%.
For the six months ended July 31, 1997, the Company's operating income increased
by 14.1% over the comparable prior year period from $3.6 million to $4.1
million.
According to a report published by the Jobson Optical Group, U.S. retail
optical sales grew at a 4.9% compound annual growth rate from $11.5 billion in
1991 to $14.6 billion in 1996. This same
3
<PAGE>
industry source projects that total revenues in 1997 will reach an estimated
$15.4 billion. The Company's management believes that the factors contributing
to the steady growth in the U.S. retail optical industry include: (i) the aging
of the U.S. population; (ii) an increase in penetration of managed vision care;
(iii) increased emphasis on fashion and brand names in prescription eyewear; and
(iv) continuing advancements in product technology. According to the Jobson
Optical Group, approximately 162.4 million people, or 61% of the total U.S.
population, required some form of vision correction in 1996.
Competitive Positioning
The Company's objective is to be the leading operator of retail optical
departments in host store environments. Management believes the Company has
several competitive advantages over other optical retailers that will allow it
to achieve its business objective:
Strong Position with Leading Host Stores. Management believes that the
Company's relationships with its host stores provide several competitive
advantages such as: (i) attractive store-level economics; (ii) lower initial
capital investment; (iii) loyal host store customer base; (iv) established host
store advertising and marketing programs; (v) one-stop shopping convenience; and
(vi) access to the host store's private label credit card.
Emphasis on Managed Vision Care. According to industry sources,
approximately 25% of the U.S. eyecare patient base is currently covered by a
third-party vision care program, and this percentage is expected to increase to
approximately 40% by the year 1998. The Company is a participating provider in
Vision One, a national vision care program, which offers comprehensive eyewear
benefits to over 40 million covered lives through a network of over 2,000
optical locations. The Company currently generates approximately 27% of its
revenues from its participation in vision benefit programs and intends to expand
its participation in such programs in order to take advantage of these industry
dynamics.
Enhanced Merchandise Selection. The Company offers an extensive selection
of designer and private label branded eyewear which allows it to tailor its
merchandise selection to meet the needs of host store customers. Designer
branded eyeglass frames offered include Guess, Nautica, Halston and Perry Ellis,
among others and, at certain stores, Giorgio Armani, Calvin Klein and Polo Ralph
Lauren. Similarly, private label eyeglass frames offered include Hunt Club,
Arizona, Ashley Stewart, Oliver Winston and Rascals, among others. The Company
also offers branded eyeglass lenses such as Kodak, as well as contact lenses,
sunglasses and accessories.
Centralized Laboratory Operation. U.S. Vision assembles, finishes and
distributes its products from a centralized, modern optical laboratory,
distribution and lens grinding facility. Management believes that the Company's
central facility provides it with several operating efficiencies compared to
competitors who operate either on-site facilities or multiple optical
laboratories, including the ability to: (i) utilize its labor force more
efficiently; (ii) monitor and control the quality of production and finished
products; (iii) reduce inventory levels; and (iv) provide greater flexibility in
developing and adopting new product technologies.
Vertical Integration. Through its subsidiary, Styl-Rite Optical Mfg. Co.,
Inc. ("Styl-Rite"), the Company designs and manufactures plastic frames and
sources and imports metal frames for sale primarily in its own stores and to
third parties. The ability to manufacture and import enables the Company to
respond quickly to changes in fashion trends and acquire frames for resale at
favorable prices.
Growth Strategy
From fiscal 1993 to fiscal 1995, the Company's existing management team
designed and implemented a repositioning plan to emphasize retail optical
departments within host stores, close unprofitable freestanding stores and
consolidate its manufacturing operations. As a result, the Company returned to
profitability in fiscal 1996. Also in fiscal 1996, the
4
<PAGE>
Company began establishing infrastructure and systems designed to support future
growth by: (i) extending its licensing agreement with J.C. Penney through 2003;
(ii) extending its Vision One agreement through 2002; and (iii) designing and
beginning the implementation of an integrated management information system. The
Company's growth strategy is to capitalize on this position by opening new
retail optical departments within existing and new host stores and exploring
new retail and medical host environments.
Open New Retail Optical Departments in Existing Host Stores. The Company
plans to open 40 new retail optical departments in fiscal 1997 (25 of which have
been opened to date) and 40 new retail optical departments in fiscal 1998. The
majority of these retail optical departments are expected to be located in J.C.
Penney stores. The other new stores are expected to be opened in host stores
with which the Company has existing relationships such as Sears, Marshall Fields
and Lazarus.
Pursue Relationships with New Host Department Stores. Management believes
that future growth opportunities currently exist in many department stores for
its retail optical departments and is currently pursuing relationships with a
number of department store chains with which it does not currently have an
existing relationship.
Explore New Retail Environments. The Company is exploring opportunities to
expand its operations to include optical departments in other non-mall retail
environments. In September 1997, the Company entered into a license agreement
with Pioneer Group, a physician practice management group, to open two pilot
retail optical centers in Pioneer's medical practices.
Evaluate Acquisition Opportunities. According to the Jobson Optical Group,
the retail optical industry is highly fragmented with the top ten retail optical
chains accounting for only 18% of total optical industry sales in 1996. Retail
chains accounted for 35% of all eyewear sales in 1996, while independent
retailers accounted for 63%. Management believes the Company is well positioned
to take advantage of the consolidation currently taking place in the optical
retailing sector. Although the Company has no definitive agreements or letters
of intent with regard to acquisitions at this time, it intends to selectively
evaluate opportunities to acquire retail optical departments and independent
optical retailers in the future.
5
<PAGE>
The Offering
Common Stock being offered by the
Company .............................. 2,500,000 shares(1)
Common Stock being offered by the
Selling Stockholders .................. 1,500,000 shares(1)
Common Stock to be outstanding after the
offering .............................. 7,072,043 shares(1)(2)
Use of proceeds ........................ To repay certain outstanding
indebtedness and for working
capital and general corporate
purposes, including store openings
and remodelings. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol .............................. USVI
- ------------
(1) Does not include up to 300,000 shares of Common Stock that may be sold by
the Company and up to 300,000 shares of Common Stock that may be sold by
the Selling Stockholders, in each case pursuant to the Underwriters'
over-allotment option. See "Underwriting."
(2) Based on the number of shares of Common Stock outstanding as of August 31,
1997 assuming a public offering price of $12.00 per share. The number of
shares of Common Stock to be issued upon the conversion of the Series A
Preferred Stock and the Series C Preferred Stock is subject to adjustment
based on the public offering price of the Common Stock. Includes the
conversion of all shares of the Series A Preferred Stock and the Series C
Preferred Stock into 1,404,444 and 664,059 shares, respectively, of Common
Stock issuable upon the conversion of the face amount of such securities in
connection with this offering of all outstanding shares of the Series A
Preferred Stock and the Series C Preferred Stock which includes accrued, but
unpaid dividends, as of the assumed conversion date of October 31, 1997. See
"Description of Capital Stock -- Conversion Rights of Series A Preferred and
Series C Preferred." Excludes 736,190 shares of Common Stock issuable upon
the exercise of options outstanding as of July 31, 1997. See "Management --
Stock Option Plan."
6
<PAGE>
Summary Consolidated Financial Data
<TABLE>
<CAPTION>
Year Ended Ten Months Ended
March 31, 1995 January 31, 1996 (1)
---------------- ----------------------
(In thousands, except share, per share
and selected operating data)
<S> <C> <C>
Statements of Operations Data:
Net sales ........................ $ 112,283 $ 91,172
Gross profit ..................... 77,144 61,520
Selling, general and
administrative expenses ......... 70,506 61,598
Depreciation and amortization
expense ........................ 3,654 2,608
Unusual charges .................. 2,100(2) 19,845 (3)
----------- ------------
Operating income (loss) ......... 884 (22,531)
Net income (loss) ............... $ (96) $ (22,886)
=========== ============
Pro forma net income (4) .........
Pro forma net income per common
share (5) .....................
Weighted average shares
outstanding used in pro forma net
income per common share calcu-
lation (5)
Selected Operating Data:
Stores open at end of period:
Leased departments ............ 452 467
Freestanding stores ............ 143 73
----------- ------------
Total stores .................. 595 540
Comparable store sales increase (6) 10.4% 6.3%
Net sales per store (7) ......... $ 178,000 $ 195,000
Net sales per square foot: (8)
Leased departments ............ $ 349 $ 405
Freestanding stores ............ 186 241
Total stores .................. 278 353
Balance Sheet Data:
Cash ...........................
Working capital ...............
Total assets ..................
Long-term debt (including current
portion) .....................
Stockholders' equity ............
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months
Ended July 31,
Year Ended ----------------------------------
January 31, 1997 1996 1997
------------------ -------------- ------------------
(In thousands, except share, per share and selected operating data)
ta)
<S> <C> <C> <C>
Statements of Operations Data:
Net sales ........................ $ 111,544 $ 57,372 $ 62,053
Gross profit ..................... 77,271 39,627 42,615
Selling, general and
administrative expenses ......... 68,366 34,391 36,612
Depreciation and amortization
expense ........................ 3,271 1,599 1,855
Unusual charges .................. -- -- --
------------ ------------ -----------------
Operating income (loss) ......... 5,634 3,637 4,148
Net income (loss) ............... $ 2,135 $ 2,085 $ 2,934
============ ============ =================
Pro forma net income (4) ......... $ 4,512 $ 3,125 $ 4,154
============ ============ =================
Pro forma net income per common
share (5) ..................... $ .62 $ .43 $ .57
============ ============ =================
Weighted average shares
outstanding used in pro forma net
income per common share calcu-
lation (5) 7,336,458 7,336,458 7,336,458
============ ============ =================
Selected Operating Data:
Stores open at end of period:
Leased departments ............ 488 471 495
Freestanding stores ............ 66 69 63
------------ ------------ -----------------
Total stores .................. 554 540 558
Comparable store sales increase (6) 8.3 % 7.6% 6.4 %
Net sales per store (7) ......... $ 200,000 $ 105,000 $ 110,000
Net sales per square foot: (8)
Leased departments ............ $ 394 $ 200 $ 220
Freestanding stores ............ 223 124 120
Total stores .................. 355 184 199
July 31, 1997
-----------------------------------
Actual As Adjusted (9)
------------ -----------------
Balance Sheet Data:
Cash ........................................... $ 428 $ 5,114
Working capital ............................... 7,323 21,988
Total assets .................................. 61,834 66,220
Long-term debt (including current
portion) ..................................... 27,008 4,344
Stockholders' equity ............................ 16,744 43,794
</TABLE>
- ------------
(1) The difference in duration of this period must be considered in making
period-to-period comparisons. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) Represents the writedown of the Dallas laboratory which was closed by the
Company in connection with its plan to consolidate its laboratories into a
single facility.
(3) Represents the $8,067 write-off of goodwill, an additional writedown of the
Dallas facility of $1,305 and a charge of $10,473 to record store closings
and disposals.
(4) Gives effect to this offering and to the repayment of the Subordinated
Debt, repayment of the revolving line of credit, and the retirement of a
term loan as described in "Use of Proceeds", as if such transactions
occurred as of February 1, 1996.
(5) Pro forma net income per common share is based on pro forma net income and
the weighted average number of shares outstanding during the period after
giving effect to this offering as if consummated on February 1, 1996 and
giving effect to (a) the conversion of all shares of the Series A Preferred
Stock and the Series C Preferred Stock into 1,404,444 and 664,059 shares,
respectively, of Common Stock and (b) the 64-for-1 stock dividend effected
on September 12, 1997. See "Capitalization."
(6) Comparable store sales reflect existing stores that were open on the first
day of the prior fiscal period.
(7) Net sales per store is determined by dividing net sales by the average
number of stores in operation at the beginning and
7
<PAGE>
end of each fiscal period. For the ten months ended January 31, 1996, this
figure has been calculated on an annualized basis.
(8) Net sales per square foot is determined by dividing net sales by the
average estimated total square footage at the beginning and end of each
fiscal period. For the ten months ended January 31, 1996, this figure has
been calculated on an annualized basis.
(9) As adjusted to give effect to the sale of the 2,500,000 shares of Common
Stock offered by the Company hereby (at an assumed public offering price of
$12.00 per share) and the application of the estimated net proceeds
therefrom as described in "Use of Proceeds" and the conversion of the
Series A Preferred Stock and the Series C Preferred Stock into Common
Stock.
8
<PAGE>
RISK FACTORS
Before purchasing any shares of Common Stock offered by this Prospectus,
prospective investors should consider carefully the following factors relating
to the Company and this offering, together with the other information and
financial statements appearing elsewhere in this Prospectus. This Prospectus
contains certain forward-looking statements covering its plans, goals and
anticipated financial performance. These forward-looking statements may
generally be identified by introductions such as "outlook" for a future period
of time, or words and phrases such as "should", "expect", "hope", "plans",
"projected", "believes", "forward-looking" (or variants of those words and
phrases) or similar language indicating the expression of an opinion or view
concerning the future, with respect to the financial condition, results of
operations, prospects and business of the Company. The Company's actual results
may differ significantly from the results discussed in such forward-looking
statements. Certain factors that might cause such differences include, but are
not limited to, the following risk factors.
Risks Relating to Host Store Relationships and Short-Term Leases
The Company is dependent on its relationships with department stores. For
the year ended January 31, 1997, 85% of U.S. Vision's net sales were derived
from sales in retail optical departments located within department stores. For
the same period, sales attributable to retail optical departments located within
J.C. Penney and Sears stores represented 63% and 10%, respectively, of the
Company's sales. The Company's optical departments within J.C. Penney stores are
subject to a master lease that expires in December 2003 and provides that no
more than 40 of the Company's J.C. Penney optical departments may be closed by
J.C. Penney in any calendar year without cause. The Company's retail optical
departments within Sears stores are each subject to a lease which provides for a
year-to-year term, subject to earlier termination by either party, without
cause, on thirty-days prior written notice. Most of Sears' optical departments
are operated by one of the Company's principal competitors. The Company's retail
optical departments located within other department stores are subject to lease
arrangements which contain short notice lease termination provisions. U.S.
Vision anticipates that it will continue to obtain a significant portion of its
revenues from retail optical departments located within J.C. Penney and Sears
stores and, as part of its growth strategy, intends to increase the number of
retail optical departments it operates within these stores. There can be no
assurance, however, that the Company will be able to maintain its relationships
with its host stores on favorable terms, if at all, or that any lease between
the Company and a host store will not be terminated or its terms adversely
changed. A substantial change in the Company's relationship with one or more of
its host department stores resulting in the termination or change of optical
center leases could have a material adverse effect on the Company's business,
financial condition or results of operations.
The Company is also indirectly dependent on the operations and financial
success of its host department stores. A decline in the sales, customer traffic
or overall financial performance of one or more of U.S. Vision's host department
stores could have a material adverse effect on the Company's business, financial
condition or results of operation. In addition, the Company's future expansion
plans depend, to a large extent, on the expansion plans of its host department
stores, primarily J.C. Penney. A substantial change in J.C. Penney's expansion
or remodeling plans could have a material adverse effect on the Company's
planned growth strategy and future financial performance and results of
operations.
Competition
The retail optical business is highly competitive, and many of the
Company's competitors have greater financial and other resources than the
Company. The Company competes with other national, regional and local retail
optical chains and independent optical retailers. Optical retailers generally
serve individual or local markets and, as a result, competition is fragmented
and varies substantially among locations and geographic areas. The principal
competitive factors affecting the Company's retail operations are merchandise
selection, quality and consistency of products and services, price, location
within the host store, convenience, availability of on-site professional eye
examinations and
9
<PAGE>
access to a host store's private label credit card. The retail optical industry
engages in price-related promotional offers as a standard marketing practice.
Periods of intense price competition resulting from such offers could materially
affect the Company's profitability.
Additionally, the Company faces competition from advances in vision
correction technologies, including laser surgery and other surgical vision
correction procedures. This could result in decreased demand for eyeglasses and
contact lenses, which could have a material adverse effect on the Company's
business, financial condition or results of operations.
To the extent U.S. Vision's customers may not be covered by its eye care
benefit plans, the Company may compete with other vision care benefit plans and
retailers who provide alternative vision care plans. As the number of national
and regional managed vision care programs increase, competition for customers
will intensify among the various vision care programs.
Risks Related to Growth Strategy
U.S. Vision intends to pursue a strategy of growth through internal
expansion and acquisitions, as opportunities arise. This strategy is likely to
place significant demands on the Company's capital, operational and management
resources and may expose the Company to a variety of risks, including the risk
that the Company will be unable to retain personnel or acquire other resources
necessary to service such growth adequately. The Company's expansion strategy is
predominantly dependent upon its expansion within its current host stores,
particularly J.C. Penney. Although as a part of its growth strategy the Company
anticipates the opening of a significant number of new retail optical
departments, the Company is under no obligation to do so and there can be no
assurance that the Company will open these locations. Furthermore, none of the
Company's agreements with its host department stores require the host stores to
offer the Company additional optical center leases. Failure to open new stores
as anticipated would materially and adversely affect the Company's future
results of operations. Although the Company is looking at new host store
formats, including non-mall retail environments, in which to open retail optical
departments, there can be no assurance that the Company will open any such
departments or that if it does, such departments will be profitable.
Contract with Cole National and Dependence on Vision One
Since 1991, U.S. Vision has been a national provider of managed vision care
through Vision One. Vision One is a third party vision care plan owned by Cole
National Corporation ("Cole National"), one of the Company's principal
competitors. U.S. Vision currently generates approximately 27% of its revenues
from sales to members of Vision One and other vision care benefit plans, and the
Company anticipates that this percentage will increase over the next several
years. The Company's contract with Cole National expires in 2002, subject to
being terminated earlier under certain circumstances. There can be no assurance
that the Company will be able to maintain its relationship with Cole National. A
substantial change in the Company's relationship with Cole National could have a
material adverse effect on the Company's business, financial condition or
results of operations.
Dependence on Key Personnel
The Company's future success will depend largely on the efforts and
abilities of its senior management, particularly William A. Schwartz, Jr., the
Company's Chairman, President and Chief Executive Officer. The loss of his
services, or of certain officers or other members of the Company's senior
management team, could have a material adverse effect on the Company's business,
financial condition and results of operations. Mr. Schwartz's employment
agreement terminates in November 1998, at which time it automatically renews for
one-year periods thereafter unless terminated by the Company or Mr. Schwartz on
not less than ninety-days notice prior to the end of the then current one year
term. See "Management -- Employment Agreements."
10
<PAGE>
History of Losses in Freestanding Stores
As a result of poor financial operations relating to freestanding stores,
the Company commenced a program to identify and close unprofitable freestanding
stores from fiscal 1990 through fiscal 1995. During that six-year period, the
Company closed 356 unprofitable freestanding stores. Since January 31, 1996, the
Company's remaining freestanding stores have generated positive store
contribution. There can be no assurance, however, that this trend will continue.
Should certain freestanding locations generate less than desired operating
results, the Company may decide to close additional locations, the result of
which could have a material adverse effect on the Company's business, financial
condition or results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Background."
Risks Associated with New Information Systems
In order to enhance operating efficiencies and customer service, the
Company is currently upgrading its information system by installing an
integrated management information system which will be "year 2000 compliant."
The Company may experience unanticipated delays, complications and expenses in
implementing, integrating and operating such a system. Further, the system may
require modifications, improvements or replacements as the Company expands or as
new technologies become available. Such modifications, improvements or
replacements may require substantial expenditures and interruptions in
operations during periods of implementation. There can be no assurance that the
Company will be able to implement and operate this information system
effectively or that the system will produce the expected benefits. The failure
to successfully implement and maintain this management information system could
have a material adverse effect on the Company's business, financial condition or
results of operations.
Government Regulation
The field of optical retailing is regulated by many of the states in which
the Company does business. Certain states require the presence of licensed
opticians in vision centers where eyeglasses or contact lenses are fitted or
dispensed. Any difficulties or delays in securing the services of such optical
professionals could adversely affect the business of the Company and its
relationship with the host stores. The Company is subject to a variety of
federal, state and local laws, rules and regulations affecting the health care
industry and the delivery of health care services. State and local legal
requirements vary widely among jurisdictions and are subject to change, as are
federal legal requirements.
The legality of the Company's relationships with independent optometrists
in the states in which it operates may be challenged in the future, and if
challenged, the Company may be required to alter the manner in which it conducts
its business. Any such alteration could adversely affect the Company's business
and its relationships with its host stores. Failure to comply with existing laws
and regulations or the adoption of new laws and regulations could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Government Regulation."
Dependence on Centralized Laboratory Facility
The Company finishes 100% of its merchandise at its main optical
laboratory, distribution and lens grinding facility. An interruption in
production at that facility could have a material adverse effect on the
Company's business, financial condition or results of operations.
Other Factors Affecting Future Operating Performance
The Company's future quarterly results may be materially affected by a
variety of factors, some of which may be beyond the control of the Company,
including, but not limited to: (i) the Company's ability to select and stock
merchandise attractive to customers; (ii) operating factors affecting customer
11
<PAGE>
satisfaction; (iii) the mix of products sold, pricing and other competitive
factors; (iv) the seasonality of the Company's business; (v) weather factors
affecting retail operations; and (vi) general economic cycles affecting consumer
spending. Accordingly, results of operations for any particular quarter may not
be indicative of results of operations for future periods.
Shares Eligible for Future Sale
Sales or the availability for sale of a substantial number of shares of
Common Stock in the public market following this offering could adversely affect
the market price of the Common Stock. The Company, its directors, its executive
officers, and certain of its stockholders, have agreed to execute agreements
(the "Lockup Agreements") pursuant to which they will agree not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities exercisable, exchangeable or convertible into shares of Common Stock
without the prior consent of Salomon Brothers Inc for a period of 180 days from
the date of this Prospectus (the "Lockup Period"). Upon completion of the
offering, the Company's directors, executive officers, and affiliates will own,
in the aggregate, approximately 28.4% of the outstanding Common Stock, and would
have the right, subject to the Lockup Agreements, to cause the Company to
register their shares of Common Stock for immediate resale. See "Shares Eligible
For Future Sale" and "Underwriting."
Possible Volatility of Stock Price
Immediately prior to this offering, there has been no public market for the
Common Stock. Although the Company intends to apply to have the Common Stock
approved for quotation on the Nasdaq Stock Market's National Market, there can
be no assurance that an active trading market will develop or, if developed,
that it will be sustained following this offering. The initial public offering
price has been determined by negotiations among the Company and representatives
of the Underwriters and is not necessarily related to the Company's asset value,
net worth or other established criteria of value or necessarily indicative of
future market prices. In addition, general market fluctuations in the future may
adversely affect the market price of the Common Stock. Further, the trading
price of the Common Stock could be subject to significant fluctuations in
response to variations in quarterly operating results and other factors. There
can be no assurance that the market price of the Common Stock will not decline
below the initial public offering price.
Control by Principal Stockholders
Upon completion of this offering, the Company's directors, executive
officers and affiliates will own, in the aggregate, approximately 28.4% of the
outstanding shares of Common Stock. Therefore, such stockholders may be able to
control the outcome of substantially all actions requiring stockholder approval,
including the election of the entire Board of Directors of the Company and the
outcome of any stockholder vote concerning a merger, asset sale, or other major
corporate transaction affecting the Company. Such control could adversely affect
the market price for the Common Stock. See "Principal and Selling Stockholders"
and "Description of Capital Stock."
Adverse Impact of Anti-Takeover Provisions
Certain provisions of the Company's Certificate of Incorporation and of
Delaware law could have the effect of delaying, deterring or preventing a
change of control involving the Company. See "Description of Capital Stock --
Certain Provisions of the Company's Certificate of Incorporation and Delaware
Law."
Substantial Dilution
The public offering price is substantially higher than the net tangible
book value per share of the Common Stock. Accordingly, investors purchasing
shares of Common Stock in this offering will incur immediate dilution of $6.23
per share (based on an assumed public offering price of $12.00 per share). See
"Dilution."
12
<PAGE>
THE COMPANY
U.S. Vision, Inc., a Pennsylvania corporation and predecessor to the
Company, was founded in 1967 by William A. Schwartz, Jr., the Company's
Chairman, President and Chief Executive Officer. Mr. Schwartz has been in the
retail optical industry for over thirty years, and during that time the Company
has grown from a single optical store in Philadelphia to its present size. In
1990, the Company completed a leveraged buyout of Royal International Optical
Corporation ("Royal"), and became a publicly traded retail optical company.
Royal, based in Dallas, Texas, operated 658 retail stores, 258 of which were in
host department stores and 400 of which were freestanding stores. The Company
also acquired Royal's main prescription laboratory facility and four regional
laboratories, along with Styl-Rite, a wholly-owned subsidiary of Royal, which
manufactured, imported and distributed optical frames and sunglasses principally
for sale in Royal's retail optical stores, as well as for sale to third party
optical retailers.
At the time of the acquisition, Royal was J.C. Penney's primary domestic
optical licensee. Management believed, as part of the Company's growth strategy,
that it could expand the J.C. Penney relationship by acquiring Royal. Since the
acquisition, the Company has expanded its relationship with J.C. Penney by
opening 167 new J.C. Penney locations. However, the Company incurred net
operating losses following the acquisition as a result of: (i) the poor
operating performance of the Company's freestanding stores, 205 of which were
closed through the end of fiscal 1992; (ii) interest payments related to the
debt incurred by the Company in connection with the Royal acquisition; and (iii)
the economic recession of the early 1990s.
From fiscal 1993 through fiscal 1995, the Company's existing management
team designed and implemented a repositioning plan to emphasize retail optical
departments within host stores, close unprofitable freestanding stores and
consolidate manufacturing operations. During that three year period, the Company
closed an additional 151 unprofitable freestanding stores, sold its Montgomery
Ward licensed departments, terminated its unprofitable host store relationship
with Kmart and consolidated its prescription laboratory operations from seven
facilities to two.
The majority of the outstanding Common Stock of the Company was acquired by
Royal Associates Acquisition Partnership ("RAA") in December 1994 and, in May
1995, the Company effected a 1,000-for-1 reverse stock split and deregistered
its Common Stock for trading. See Note 1 to Notes to Consolidated Financial
Statements.
After completing its repositioning plan in January 1996, management began
establishing infrastructure and systems designed to support future growth by:
(i) further expanding its relationship with J.C. Penney; (ii) expanding its role
as a national provider of vision care primarily through Vision One; (iii)
completing the consolidation of its manufacturing operations into a single
facility; and (iv) exploring new retail environments. In December 1996, the
Company extended its license agreement with J.C. Penney through 2003 and in June
1997 extended its Vision One agreement through 2002. In 1997, the Company began
to implement an integrated management information system which includes an
automated order entry system at each retail optical department and new
manufacturing and financial computer systems in the Company's corporate
headquarters.
U.S. Vision, Inc. is a Delaware corporation which maintains its corporate
headquarters at 1 Harmon Drive, Blackwood, New Jersey, 08012. The Company's
telephone number is (609) 228-1000.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from sale of the 2,500,000 shares of Common
Stock offered by the Company hereby, assuming an initial public offering price
of $12.00 per share and after deducting the estimated underwriting discount and
offering expenses, are approximately $27,350,000. The Company intends to use the
estimated net proceeds as follows: (i) to repay indebtedness totaling
approximately $22,664,000, $8,837,000 of which is to repay the outstanding
subordinated debentures held primarily by certain affiliates of the Company (the
"Subordinated Debt"), approximately $7,428,000 of which will be used to retire
a bank term loan (the "Term Loan"), and $6,399,000 of which will be used to
repay the total outstanding balance due under the terms of the Company's
revolving credit facility (the "Revolving Line of Credit"); and (ii) the balance
of approximately $4,686,000 for working capital, store openings and remodelings
and general corporate purposes.
The Subordinated Debt, which is held by certain affiliates of the Company,
is subordinate to the Term Loan and the Revolving Line of Credit. See "Certain
Transactions." The Subordinated Debt bears interest at the rate of 12% per annum
and is due and payable in full on March 1, 1998.
The Term Loan, which is owed to Commerce Bank, N.A., carries a floating
rate of 1.5% above the prime rate, which was 8.5% on July 31, 1997. Payments
under the Term Loan are due quarterly, with a final payment due December 31,
2001. The Term Loan is secured by substantially all the assets of the Company.
The Revolving Line of Credit, which is also owed to Commerce Bank, N.A.,
carries a floating interest rate of 1% above the prime rate and is due in
December 1998 subject to certain renewal provisions. The Revolving Line of
Credit is secured by substantially all the assets of the Company.
Upon repayment of the Term Loan and the Revolving Line of Credit concurrent
with the offering, the Company will record a one-time write-off of unamortized
loan fees which total approximately $300,000 as of July 31, 1997.
The Company intends to seek acquisitions that are complementary to the
Company and a portion of the net proceeds may also be used for such
acquisitions. Although the Company from time to time engages in discussions
regarding potential acquisitions and strategic affiliations, the Company is not
currently a party to any letter of intent or definitive purchase agreement with
respect to any material acquisition.
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term, interest bearing investment
grade securities. The Company will not receive any of the proceeds from the sale
of shares by the Selling Stockholders.
DIVIDEND POLICY
The Company does not intend to pay cash dividends on its Common Stock in
the foreseeable future. The Company currently intends to retain future earnings
to finance its operations and fund the growth of its business. Any payment of
future dividends will be at the discretion of the Board of Directors of the
Company and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
and other restrictions in respect of the payment of dividends, and other factors
that the Company's Board of Directors deems relevant.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at July
31, 1997, and as adjusted to give effect to the conversion of all shares of the
Series A Preferred Stock and the Series C Preferred Stock into 1,404,444 and
664,059 shares, respectively, of Common Stock and to the sale by the Company of
the 2,500,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $12.00 per share and the application of the estimated net
proceeds therefrom as described in "Use of Proceeds." The Series A Preferred
Stock and the Series C Preferred Stock are convertible into shares of Common
Stock at the option of the holder at the public offering price assumed here to
be $12.00 per share. All of the holders of shares of the Series A Preferred
Stock and the Series C Preferred Stock have notified the Company of the holder's
intent to convert such shares in connection with this offering. If this offering
is not completed until after October 31, 1997, the Company intends to pay any
dividends which shall accrue after October 31, 1997, in cash rather than by
converting such dividends into additional shares of Common Stock.
<TABLE>
<CAPTION>
At July 31, 1997
--------------------------------
Actual As Adjusted
------------ ------------------
(In thousands)
<S> <C> <C>
Cash ..................................................................... $ 428 $ 5,114
========= ============
Short-term debt and current portion of long-term debt (1) .................. $ 10,224 $ 245
========= ============
Long-term debt (excluding current portion):
Revolving Line of Credit ................................................ $ 6,399 $ --
Term Loan ............................................................... 6,286 --
Other long-term debt ................................................... 4,099 4,099
--------- ------------
Total: ................................................................... 16,784 4,099
Stockholders' equity:
9%Series A Cumulative Convertible Preferred Stock, $100,000 face value per
share; 200 shares authorized; 165 shares issued and outstanding, actual;
and no shares issued and outstanding, as adjusted ..................... 16,483 --
9% Series C Cumulative Convertible Preferred Stock, $63.50 face value per
share; 300,000 shares authorized; 122,730 shares issued and outstanding,
actual; and no shares issued and outstanding, as adjusted ............... 7,793 --
Common stock, $.01 par value per share; 15,000,000 shares authorized;
2,503,540 shares issued and outstanding, actual; and 7,072,043 shares
issued and outstanding, as adjusted (2) ................................. 25 71
Additional paid-in capital ................................................ 70,914 122,494
Accumulated deficit ...................................................... (78,471) (78,771)(3)
--------- ------------
Total stockholders' equity ............................................. 16,744 43,794
--------- ------------
Total capitalization ................................................ $ 33,528 $ 47,893
========= ============
</TABLE>
- ------------
(1) Short-term debt includes current maturities of long-term debt. See Notes 1
and 6 of Notes to Consolidated Financial Statements for a description of
the Company's indebtedness.
(2) Excludes 736,190 shares issuable upon the exercise of outstanding options
with a weighted average exercise price of $7.69 per share. See "Management
-- Stock Option Plan" and "Description of Capital Stock."
(3) Includes effect of $300,000 write-off of unamortized loan fees.
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at July 31, 1997, was
$13,486,000, or $2.95 per share of Common Stock. Pro forma net tangible book
value per share is determined by dividing the net tangible book value (total
tangible assets less total liabilities) of the Company by the number of shares
of Common Stock outstanding, giving pro forma effect to the conversion of all
outstanding shares of the Series A Preferred Stock and the Series C Preferred
Stock into 1,404,444 and 664,059 shares, respectively, of Common Stock. See
"Capitalization." Without taking into account any changes in the pro forma net
tangible book value of the Company, other than to give effect to the sale of the
2,500,000 shares of Common Stock offered by the Company hereby (assuming an
initial public offering price of $12.00 per share) and receipt of the net
proceeds therefrom, the pro forma net tangible book value of the Company at July
31, 1997, would have been $40,836,000, or $5.77 per share. This represents an
immediate dilution in net tangible book value of $6.23 per share to the new
investors purchasing shares in this offering and an immediate increase in net
tangible book value of $2.82 per share to existing stockholders. The following
table illustrates this per share dilution.
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share. .................. $12.00
Pro forma net tangible book value per share at July 31, 1997. ...... $2.95
Increase per share attributable to new investors .................. 2.82
-----
Pro forma net tangible book value per share after this offering. ... 5.77
------
Dilution per share to new investors . .............................. $ 6.23
======
</TABLE>
The following table sets forth on a pro forma basis as of July 31, 1997
(giving pro forma effect to the conversion of all outstanding shares of Series A
Preferred Stock and Series C Preferred Stock into 1,404,444 and 664,059 shares,
respectively, of Common Stock) the number of shares of Common Stock purchased
from the Company or its affiliates, the total consideration paid and the average
price per share paid by existing stockholders and by new investors.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------------- ------------------------- Average Price
Number Percent Amount Percent Per share
----------- --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders ...... 4,572,043 64.6% $25,119,373 45.6% $ 5.49
New investors ............... 2,500,000 35.4 30,000,000 54.4 12.00
--------- ------ ------------ ------
Total ........................ 7,072,043 100.0% $55,119,373 100.0%
========= ====== ============ ======
</TABLE>
The foregoing tables assume no exercise of outstanding options. At July 31,
1997, there were outstanding options to purchase 736,190 shares of Common Stock
at a weighted average exercise price of $7.69 per share. To the extent any of
these options are exercised, there will be future dilution to investors. See
"Management -- Stock Option Plan" and Note 11 of Notes to Consolidated Financial
Statements. This table also does not give effect to the sale of Common Stock by
the Selling Stockholders. The sale by the Selling Stockholders of 1,500,000
shares in this offering will reduce the number of shares held by existing
shareholders to 3,072,043, or approximately 43.4%, and will increase the shares
held by the new investors to 4,000,000, or approximately 56.6% of the
outstanding Common Stock after this offering.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of January 31,
1996 and 1997, and for the year ended March 31, 1995, the ten months ended
January 31, 1996, and the year ended January 31, 1997, have been derived from
the consolidated financial statements of the Company included elsewhere herein,
which have been audited by Ernst & Young LLP, independent certified public
accountants. The selected consolidated financial data as of March 31, 1993, 1994
and 1995 and for each of the years in the two-year period ended March 31, 1993
and 1994, have been derived from the consolidated financial statements of the
Company, which have been audited by Ernst & Young LLP, but are not included
herein. The selected consolidated financial and operating data presented below
as of and for the six months ended July 31, 1996 and 1997 have been derived from
the unaudited consolidated financial statements of the Company which in the
opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the information set forth
therein. The results as of and for the six months ended July 31, 1997, are not
necessarily indicative of the results to be achieved for the full fiscal year.
The selected consolidated financial data set forth below should be read in
conjunction with the consolidated financial statements of the Company and
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------
1993 1994 1995
------------- ---------- ----------
(In thousands, except share and per share data)
<S> <C> <C> <C>
Statements of Operations Data:
Net sales ........................ $ 122,015 $116,468 $112,283
Cost of sales .................. 37,467 34,851 35,139
--------- -------- --------
Gross profit ..................... 84,548 81,617 77,144
Operating expenses:
Selling, general and
administrative ............... 81,684 77,741 70,506
Depreciation and amortization 5,862 4,563 3,654
Write-off of goodwill ............ 37,528 -- --
Writedown of Dallas facility ... -- -- 2,100
Store closings and disposals ..... 4,224 272 --
--------- -------- --------
Total operating expenses ....... 129,298 82,576 76,260
--------- -------- --------
Operating income (loss) ......... (44,750) (959) 884
Other income (expense):
Other income .................. 461 355 16
Interest expense ............... (6,788) (211) (1,459)
--------- -------- --------
Income (loss) before income
tax (benefit)..................... (51,077) (815) (559)
Income tax (benefit) ............ -- 175 (463)
--------- -------- --------
Net income (loss) before
extraordinary item ............... (51,077) (990) (96)
Extraordinary item-gain on
restructuring of debt ......... 11,397 -- --
--------- -------- --------
Net income (loss) ............... $ (39,680) $ (990) $ (96)
========= ======== ========
Pro forma net income (2) .........
Pro forma net income per com-
mon share (3)
Weighted average shares out-
standing used in pro forma net
income per common share
calculation (3) ..................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ten Months Year Six Months Ended
Ended Ended July 31,
January 31, January 31, ----------------------------
1996 (1) 1997 1996 1997
------------- ------------- ------------- -------------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Net sales ........................ $ 91,172 $ 111,544 $ 57,372 $ 62,053
Cost of sales .................. 29,652 34,273 17,745 19,438
--------- ----------- ----------- -----------
Gross profit ..................... 61,520 77,271 39,627 42,615
Operating expenses:
Selling, general and
administrative ............... 61,598 68,366 34,391 36,612
Depreciation and amortization 2,608 3,271 1,599 1,855
Write-off of goodwill ............ 8,067 -- -- --
Writedown of Dallas facility ... 1,305 -- -- --
Store closings and disposals ..... 10,473 -- -- --
--------- ----------- ----------- -----------
Total operating expenses ....... 84,051 71,637 35,990 38,467
--------- ----------- ----------- -----------
Operating income (loss) ......... (22,531) 5,634 3,637 4,148
Other income (expense):
Other income .................. 59 18 14 2
Interest expense ............... (2,100) (3,517) (1,566) (1,216)
--------- ----------- ----------- -----------
Income (loss) before income
tax (benefit)..................... (24,572) 2,135 2,085 2,934
Income tax (benefit) ............ (1,686) -- -- --
--------- ----------- ----------- -----------
Net income (loss) before
extraordinary item ............... (22,886) 2,135 2,085 2,934
Extraordinary item-gain on
restructuring of debt ......... -- -- -- --
--------- ----------- ----------- -----------
Net income (loss) ............... $ (22,886) $ 2,135 $ 2,085 $ 2,934
========= =========== =========== ===========
Pro forma net income (2) ......... $ 4,512 $ 3,125 $ 4,154
=========== =========== ===========
Pro forma net income per com-
mon share (3) $ .62 $ .43 $ .57
=========== =========== ===========
Weighted average shares out-
standing used in pro forma net
income per common share
calculation (3) .................. 7,336,458 7,336,458 7,336,458
=========== =========== ===========
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Ten Months
Ended Year Ended Six Months
Year Ended March 31, January 31, January 31, Ended July 31,
------------------------------------ ------------ ------------- ---------------------
1993 1994 1995 1996 (1) 1997 1996 1997
----------- ---------- ----------- ------------ ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Data:
Stores open at end of period:
Leased departments ............... 532 440 452 467 488 471 495
Freestanding stores ............... 222 202 143 73 66 69 63
---------- --------- -------- --------- --------- --------- ---------
Total stores ..................... 754 642 595 540 554 540 558
Comparable store sales increase (4) (2.8%) 2.9% 10.4% 6.3% 8.3% 7.6% 6.4%
Net sales per store (5) ............ $150,000 $162,000 $178,000 $195,000 $200,000 $105,000 $110,000
Net sales per square foot: (6)
Leased departments ............... $ 291 $ 321 $ 349 $ 405 $ 394 $ 200 $ 220
Freestanding stores ............... 159 165 186 241 223 124 120
Total stores ........................ 222 248 278 353 355 184 199
</TABLE>
<TABLE>
<CAPTION>
March 31, January 31, July 31,
--------------------------------- --------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash ................................. $ 3,689 $ 588 $ 3,528 $ 1,529 $ 374 $ 715 $ 428
Working capital ..................... 13,649 14,351 20,617 12,252 11,321 4,902 7,323
Total assets ........................ 68,978 61,310 64,587 53,033 54,403 51,604 61,834
Long-term debt (including current por-
tion) 32,106 17,281 17,363 22,239 23,463 21,068 27,008
Stockholders' equity ............... 21,754 29,161 35,287 11,897 13,810 13,857 16,744
</TABLE>
- ------------
(1) The difference in duration of this period must be considered in making
period-to-period comparisons. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) Gives effect to this offering and to the repayment of the Subordinated Debt,
repayment of the Revolving Line of Credit and the retirement of the Term
Loan as described in "Use of Proceeds", as if such transactions occurred as
of February 1, 1996.
(3) Pro forma net income per common share is based on pro forma net income and
the weighted average number of shares outstanding during the period after
giving effect to this offering as if consummated on February 1, 1996 and
giving effect to (a) the conversion of all shares of the Series A Preferred
Stock and the Series C Preferred Stock into 1,404,444 and 664,059 shares,
respectively, of Common Stock and (b) the 64-for-1 stock dividend effected
on September 12, 1997. See "Capitalization".
(4) Comparable store sales reflect existing stores that were open on the first
day of the prior fiscal period.
(5) Net sales per store is determined by dividing net sales by the average
number of stores in operation at the beginning and end of each fiscal
period. For the ten months ended January 31, 1996, this figure has been
calculated on an annualized basis.
(6) Net sales per square foot is determined by dividing net sales by the average
estimated total square footage at the beginning and end of each fiscal
period. For the ten months ended January 31, 1996, this figure has been
calculated on an annualized basis.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background
In 1990, the Company completed a leveraged buyout of Royal, a publicly
traded retail optical company which operated 658 retail stores, 258 of which
were in host department stores and 400 of which were freestanding stores. The
Company also acquired Royal's main prescription laboratory facility, four
regional laboratories and Styl-Rite, which manufactured, imported and
distributed optical frames and sunglasses principally for sale in Royal's retail
optical stores, as well as for sale to third party optical retailers. As a
result of the acquisition, the Company operated 201 J.C. Penney retail optical
departments, 244 retail optical departments located in other host department
stores, 422 freestanding stores, seven manufacturing facilities and Styl-Rite.
At the time of the acquisition, Royal was J.C. Penney's primary domestic
optical licensee. Management believed, as part of the Company's growth strategy,
that it could expand the J.C. Penney relationship by acquiring Royal. Since the
acquisition, the Company has expanded its relationship with J.C. Penney by
opening 167 new J.C. Penney locations. However, the Company incurred net
operating losses following the acquisition as a result of: (i) the poor
operating performance of the Company's freestanding stores, 205 of which were
closed through the end of fiscal 1992; (ii) interest payments related to the
debt incurred by the Company in connection with the Royal acquisition; and (iii)
the economic recession of the early 1990s.
From fiscal 1993 to fiscal 1995, the Company's existing management team
focused on: (i) restructuring its existing debt; (ii) closing unprofitable
freestanding stores; and (iii) consolidating its manufacturing operations.
During that three-year period, the Company closed an additional 151 unprofitable
freestanding stores, sold its Montgomery Ward licensed departments, terminated
its unprofitable host store relationship with Kmart and consolidated its
prescription laboratory operations from seven facilities to two.
After completing its repositioning plan in January 1996, management began
establishing infrastructure and systems to support future growth by: (i) further
expanding its relationship with J.C. Penney; (ii) expanding its role as a
national provider of vision care primarily through Vision One; (iii) completing
the consolidation of its manufacturing operations into a single facility; and
(iv) exploring new retail environments. In December 1996, the Company extended
its license agreement with J.C. Penney through 2003 and in June 1997 extended
its Vision One agreement through 2002. In 1997, the Company began to implement
an integrated management information system which includes an automated order
entry system at each retail optical department and new manufacturing and
financial computer systems in the Company's corporate headquarters.
General
The Company's net sales consist primarily of retail sales of prescription
eyewear and contact lenses, net of refunds and allowances for customer returns.
The Company's sales are heavily influenced by customer traffic in its host
department stores, the successful implementation of its promotional programs and
its participation in various third-party vision care plans. The principal
components of the Company's cost of sales include the cost of materials,
including eyeglass frames and lenses, as well as manufacturing, assembly, labor
and overhead costs associated with operating the Company's centralized optical
laboratory. Prices of frames vary widely, from the very inexpensive to high-end
designer brands.
The Company's selling, general and administrative expenses include
primarily labor-related expenses at the store level, rent and occupancy costs,
managed vision care costs, advertising and administrative expenses. The
Company's rent paid to the host store is calculated as a percentage of
19
<PAGE>
net sales within each retail optical department. Freestanding store rent is
generally a fixed monthly payment plus, in many cases, a percentage of net sales
above certain revenue levels. Flat fees per transaction are paid to Vision One
and other vision care providers.
Unusual charges, resulting from the Company's restructuring from fiscal
1993 through fiscal 1995, include the write-off of goodwill, writedown of the
closed Dallas optical laboratory and former corporate headquarters and reserves
for lease terminations and other costs associated with store closings and
disposals. Management believes that the Company has adequately reserved for all
previous store closing costs. The Company's other expenses include principally
interest paid or accrued on outstanding indebtedness.
Results of Operations
The following table sets forth selected statement of operations items
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Ten Months Year Six Months
Ended Ended Ended July 31,
Year Ended January 31, January 31, -------------------------
March 31, 1995 1996 1997 1996 1997
---------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales ........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales .................. 31.3 32.5 30.7 30.9 31.3
--------- --------- ------- ------- -------
Gross margin .................. 68.7 67.5 69.3 69.1 68.7
Operating expenses:
Selling, general and adminis-
trative 62.8 67.6 61.3 59.9 59.0
Depreciation and amortiza-
tion 3.2 2.8 2.9 2.9 3.0
--------- --------- ------- ------- -------
Operating income (loss),
excluding unusual charges ...... 2.7 (2.9) 5.1 6.3 6.7
Unusual charges .................. 1.9 21.8 -- -- --
--------- --------- ------- ------- -------
Operating income (loss) ......... 0.8 (24.7) 5.1 6.3 6.7
Other expense .................. 1.3 2.2 3.2 2.7 2.0
Net income (loss) ............... (0.1%) (25.1%) 1.9% 3.6% 4.7%
</TABLE>
Six Months Ended July 31, 1997, Compared to Six Months Ended July 31, 1996
Net sales increased by $4.7 million, or 8.2%, from $57.4 million for the
six months ended July 31, 1996 to $62.1 million for the six months ended July
31, 1997. A 6.4% increase in comparable store sales accounted for $3.5 million
of the increase in net sales and new store openings accounted for the remaining
$1.2 million of the increase. The increase in comparable store sales was
principally the result of an increase in the number of eyeglasses sold.
Cost of sales increased by $1.7 million, or 9.5%, from $17.7 million for
the six months ended July 31, 1996 to $19.4 million for the six months ended
July 31, 1997. The increase was due to the $4.7 million increase in net sales.
As a percentage of net sales, cost of sales increased slightly from 30.9% in the
six months ended July 31, 1996, to 31.3% in the comparable 1997 period due to
variations in the mix of products sold.
Selling, general and administrative expenses increased by $2.2 million, or
6.5%, from $34.4 million for the six months ended July 31, 1996, to $36.6
million in the comparable 1997 period. The dollar increase was primarily
attributable to an increase in compensation associated with new store openings
and greater department store rents which are tied directly to sales volume.
However, as a percentage of net sales, selling, general and administrative
expenses decreased from 59.9% for the six months ended July 31, 1996 to 59.0%
for the six months ended July 31, 1997 as revenue increases enabled the Company
to take advantage of operating efficiencies.
20
<PAGE>
Depreciation and amortization increased by $0.3 million, or 16.0%, from
$1.6 million for the six months ended July 31, 1996 to $1.9 million for the six
months ended July 31, 1997 due to the increase in capital expenditures
associated with the implementation of the new management information systems.
Other expenses, representing principally interest expense, decreased by
$0.4 million, or 21.8%, from $1.6 million for the six months ended July 31, 1996
to $1.2 million for the six months ended July 31, 1997. The interest rate on the
Company's Subordinated Debt was reduced from an accrual rate of 20% in fiscal
1996 to 12% in fiscal 1997 when the Company agreed to make cash interest
payments.
Fiscal 1996 Compared to Fiscal 1995 (ten month period)
Net sales increased by $20.3 million, or 22.3%, from $91.2 million for
fiscal 1995 to $111.5 million for fiscal 1996. This increase was due to: (i)
$21.2 million in net sales in February and March 1995 not included in fiscal
1995 due to the change in year end; (ii) an $8.1 million increase in comparable
store sales resulting from a higher number of eyeglasses sold; and (iii) a $2.0
million increase attributable to new stores, offset by: (i) a $10.8 million
decrease due to store closings; and (ii) a $0.2 million decrease in third-party
sales at Styl-Rite in fiscal 1996.
Cost of sales increased by $4.6 million, or 15.6%, from $29.7 million in
fiscal 1995 to $34.3 million in fiscal 1996. The $20.3 million increase in net
sales accounted for $6.1 million of the increase in cost of goods sold, which
was offset by a one-time inventory write-off of $1.5 million recorded in fiscal
1995. This write-off was taken on merchandise that was rendered unsalable due to
the closing of 87 underperforming freestanding stores and 52 Super Kmart optical
departments. As a percentage of sales, cost of sales decreased from 32.5% in
fiscal 1995 to 30.7% in fiscal 1996 due primarily to the write-off.
Selling, general and administrative expenses increased by $6.8 million, or
11.0%, from $61.6 million in fiscal 1995 to $68.4 million for fiscal 1996. This
net increase was attributable to $12.3 million in February and March 1995
operating expenses not included in fiscal 1995 due to the change in year end,
which was offset by a $5.5 million decrease in fiscal 1996 in salaries, rent and
advertising due to the closure of non-performing stores in fiscal 1995. As a
percentage of net sales, selling, general and administrative expenses decreased
from 67.6% for fiscal 1995 to 61.3% for fiscal 1996. The decrease, as a
percentage of sales, was primarily due to: (i) the leverage achieved by the 8.3%
increase in comparable store sales in fiscal 1996; and (ii) the elimination in
fiscal 1996 of expenses relating to the 138 unprofitable stores that were open
for most of fiscal 1995.
Depreciation and amortization increased by $0.7 million, or 25.4%, from
$2.6 million in fiscal 1995 to $3.3 million in fiscal 1996 due principally to
the change in year end and resulting ten-month period in fiscal 1995.
Unusual charges for fiscal 1995 included the write-off of $8.1 million in
goodwill caused by the cumulative effect of the closure of 194 stores over the
last three years and the closure of the Dallas production facility. Also in
fiscal 1995, the Company recorded a charge of $10.5 million related to the
closure of 140 stores in fiscal 1995 and an additional $1.3 million writedown
of the Dallas facility to reflect a revision to its estimated net realizable
value.
Other expenses, representing principally interest expenses, increased by
$1.5 million, or 71.4%, from $2.0 million for fiscal 1995 to $3.5 million for
fiscal 1996. The increase was caused principally by: (i) the $1.6 million in
additional interest in fiscal 1996 accrued as a result of the Subordinated Debt
that was put in place in the beginning of fiscal 1996; and (ii) a $0.4 million
fee paid in connection with the renewal of the Subordinated Debt in January
1997, offset by a $0.7 million reduction in fiscal 1996 of interest paid on bank
debt related to a decrease in total borrowings.
Fiscal 1995 (ten month period) Compared to Fiscal 1994
Net sales decreased by $21.1 million, or 18.8%, from $112.3 million in
fiscal 1994 to $91.2 million in fiscal 1995. This decrease was due to: (i) $20.2
million in net sales in February and March 1996 not
21
<PAGE>
included in fiscal 1995 due to the change in year end; (ii) an $8.9 million
decrease attributable to the stores which were closed, offset by: (i) a $3.3
million increase from sales at new stores and (ii) a $4.7 million or 6.3%
increase in comparable store sales.
Cost of sales decreased by $5.4 million, or 15.6%, from $35.1 million in
fiscal 1994 to $29.7 million in fiscal 1995. The principal reason for the
decrease in cost of sales was the $6.0 million in costs associated with sales in
February and March 1996 which were not included in fiscal 1995 due to the change
in year end. As a percentage of sales, cost of sales increased from 31.3% in
fiscal 1994 to 32.5% in fiscal 1995 due to the write-off of $1.5 million of
inventory during fiscal 1995 that was previously discussed.
Selling, general and administrative expenses decreased by $8.9 million, or
12.6%, from $70.5 million in fiscal 1994, to $61.6 million in fiscal 1995. This
decrease was attributable to the $12.1 million in expenses for the months of
February and March 1996 that were not included in fiscal 1995 due to the change
in year end, offset in part by a $3.2 million increase in fiscal 1995 in costs
principally associated with the Super Kmart stores that were opened in fiscal
1995. As a percentage of net sales, selling, general and administrative expenses
increased by 4.8% from 62.8% of net sales in fiscal 1994 to 67.6% for fiscal
1995. This increase as a percentage of sales was due to the 140 unprofitable
stores that were open for most of fiscal 1995 which, due to their low sales
volume, had the effect of increasing fixed expenses as a percentage of sales.
Depreciation and amortization decreased by $1.1 million, or 28.6%, from
$3.7 million in fiscal 1994 to $2.6 million in fiscal 1995 due principally to
the change in year end.
Other expenses, representing principally interest expense, increased by
$0.6 million, or 41.4%, from $1.4 million in fiscal 1994 to $2.0 million for
fiscal 1995. The difference was caused primarily by $0.5 million of interest
expense incurred in the months of February and March of 1996 that were not
included in fiscal 1995 due to the change in year end.
Quarterly Fluctuations
The Company's financial position and results of operations are affected by
seasonal fluctuations in sales and operating profits. The Company's sales and
operating profits are generally lower in the fourth quarter, due to the
Christmas season, which has historically been a period of reduced sales of
prescription optical products. This trend has been mitigated somewhat by the
increase in vision care sales under plans which are on a calendar year basis and
require participants to use or lose their benefits annually. Quarterly sales can
also be affected by the timing and amount of sales contributed by new stores.
Accordingly, the results of operations for interim periods are not necessarily
indicative of results for the entire fiscal year.
The following tables set forth certain unaudited financial data for the
quarters indicated:
<TABLE>
<CAPTION>
Fiscal 1996 Quarter Ended Fiscal 1997 Quarter Ended
----------------------------------------------------- -------------------------
April 30, July 31, Oct. 31, Jan. 31, April 30, July 31,
1996 1996 1996 1997 1997 1997
----------- ---------- ---------- ---------------- ----------- ------------
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Net sales ............... $ 29,616 $27,756 $27,972 $ 26,200 $ 31,239 $ 30,814
Gross profit ............ 20,370 19,257 19,504 18,140 21,597 21,018
% of net sales ......... 68.8% 69.4% 69.7% 69.2% 69.1% 68.2%
Income from operations ... $ 2,169 $ 1,468 $ 1,484 $ 513 $ 2,369 $ 1,779
% of net sales ......... 7.3% 5.3% 5.3% 2.0% 7.6% 5.8%
Net income (loss) ......... $ 1,385 $ 700 $ 681 ($ 631)(1) $ 1,780 $ 1,154
% of net sales ......... 4.7% 2.5% 2.4% (2.4%) 5.7% 3.7%
</TABLE>
- ------------
(1) Includes $0.4 million fee paid in connection with the renewal of the
Subordinated Debt.
Income Taxes
As of January 31, 1997, the Company had net operating loss carryforwards of
approximately $27,300,000 which will begin to expire in the year 2006.
Approximately $15,900,000 of these carryforwards are available to offset future
taxable income without limitation ("Unrestricted NOLs") and
22
<PAGE>
approximately $11,400,000 of these carryforwards are significantly limited (the
"Restricted NOLs") due to ownership changes experienced by the Company prior to
1997. As a result of these limitations, approximately $780,000 of the Restricted
NOLs will become available for use each year through the year 2008. The
remaining Restricted NOLs in the amount of $3,400,000 are expected to expire
unutilized. A valuation allowance has been established to fully reserve the
future benefit of all the net operating loss carryforwards.
A change in ownership will result from the initial public offering
described herein. Such a change in ownership may limit the availability of the
Unrestricted NOLs to offset future taxable income of the Company. As a result of
this limitation, the Unrestricted NOLs will be reclassified as Restricted NOLs
and approximately $3.1 million of all the Restricted NOLs will become available
for use each year through the year 2012. The Restricted NOLs will begin to
expire in the year 2006 through 2012. It is anticipated that $3,400,000 of
NOL's will expire unutilized.
The amount of the Company's net operating loss carryforwards may be further
limited if the Company has further ownership changes after this offering as a
result of subsequent sales of Common Stock. The amount of any such further
limitations will depend on numerous factors, some of which are not determinable
at this time.
Liquidity and Capital Resources
The Company's capital requirements are generally related to new store
openings, remodeling of existing stores and upgrading product for existing
stores. Starting in fiscal 1996 and continuing through fiscal 1998 the Company
has required and will require additional capital to fund the development and
implementation of an integrated management information system. The Company's
working capital requirements are also seasonal and traditionally peak at the end
of the fourth quarter and the beginning of the first quarter. Cash and working
capital at July 31, 1997 were $428,000 and $7.3 million, respectively, compared
to $374,000 and $11.3 million, respectively at January 31, 1997 and $1.5 million
and $12.3 million, respectively at January 31, 1996. The decrease in working
capital as of July 31, 1997 is partially attributable to the reclassification of
$8,837,000, of the Subordinated Debt from a long-term liability to a current
liability, which matures in March 1998.
For the six months ended July 31, 1997, cash used in operating activities
was $0.3 million compared to cash provided by operating activities of $1.4
million for the same period in fiscal 1996. The decrease was due principally to
a $3.7 million increase in accounts receivable due to: (i) an increase in
billable Vision Care sales and the resulting receivable; (ii) an increase in the
receivable from host department stores relating to new store openings; and (iii)
a temporary increase in receivables due to a payables centralization by one of
the Company's host department stores. For the year ended January 31, 1997 cash
provided by operations was $4.2 million compared to cash used in operations of
$1.5 million for the ten months ended January 31, 1996. The increase was due to
the increase in profitability in fiscal 1996.
With respect to cash flows from investing activities, the Company's capital
expenditures in fiscal 1996 were $4.5 million compared to $4.8 million in fiscal
1995 and $4.4 million in fiscal 1994. The capital expenditures in fiscal 1996
were primarily for new store openings and the initial development work on the
integrated management information system. The Company estimates that the capital
expenditures for fiscal 1997 will be approximately $6.2 million, of which $3.5
million has been spent as of July 31, 1997. Approximately 50% of the capital
expenditures in fiscal 1997 will be for the integrated management information
system, 30% for new store openings and 20% for new laboratory equipment and
other capital expenditures. In fiscal 1998, the Company expects to spend
approximately $5.4 million on capital expenditures of which 40% will be for the
integrated management information system, 40% for new store openings and 20% for
new laboratory equipment and other capital expenditures. Historically, the
Company has funded capital expenditures through a revolving line of credit, debt
financing activities, including capital leases, and operating cash flow.
The Company's principal external source of liquidity is its $7.0 million
Revolving Line of Credit with Commerce Bank. The Revolving Line of Credit
facility carries a floating interest rate of 1.0% above the
23
<PAGE>
prime rate, which was 8.5% on July 31, 1997, is due in December 1998 and renews
automatically for a two-year period, subject to either party's right to
terminate by notice of non-renewal. As of July 31, 1997, the Company had
$6,399,000 outstanding under its Revolving Line of Credit and $601,000 of
availability. The loan agreement prohibits dividends to common stockholders and
contains covenants and financial ratios pertaining to net worth, current ratio
and ratio of cash to fixed charges which the Company must meet.
In fiscal 1994 and 1995, the Company invested $4.6 million in capital
expenditures related to the consolidation of the Company's laboratory operations
and the purchase of its current corporate headquarters in New Jersey, which were
financed with a 2% term loan provided by a local economic development authority.
See Note 6 to Notes to Consolidated Financial Statements. In addition, the
Company used the proceeds from its Term Loan and the Subordinated Debt for
working capital and capital requirements.
The Term Loan, which is owed to Commerce Bank, N.A. carries a floating rate
of 1.5% above the prime rate, which was 8.5% on July 31, 1997. Payments under
the Term Loan are due quarterly with a final payment due December 31, 2001. The
Term Loan is secured by substantially all the assets of the Company.
The Subordinated Debt, which is held primarily by certain affiliates of the
Company, is subordinate to the Term Loan and the Revolving Line of Credit. See
"Certain Transactions." The Subordinated Debt bears interest at the rate of 12%
per annum and is due and payable in full on March 1, 1998.
The Company plans to use the net proceeds of this offering to: (i) repay
$13,827,000 in bank debt; (ii) repay $8,837,000 in Subordinated Debt; and
(iii) use the balance of approximately $4,686,000 for working capital, store
openings and remodelings and general corporate purposes. Upon repayment of the
Term Loan and the Revolving Line of Credit concurrent with the offering, the
Company will record a one-time write-off of unamortized loan fees which total
approximately $300,000 as of July 31, 1997. Based upon its current operating and
new store opening plans, the Company believes that it can fund its working
capital and capital expenditure needs for the foreseeable future through
borrowings under the Revolving Line of Credit, cash generated from operations
and proceeds from this offering.
24
<PAGE>
BUSINESS
General
The Company is a leading retailer of optical products and services through
licensed retail optical departments within national and regional department
stores and through a limited number of freestanding retail locations. As of July
31, 1997, the Company operated 558 locations in 48 states, consisting of 495
licensed departments and 63 freestanding stores. The Company currently operates
368 J.C. Penney retail optical departments and is J.C. Penney's primary optical
licensee. In addition, the Company operates 57 Sears retail optical departments
and 70 retail optical departments in regional department stores such as
Federated (Rich's, Burdines and Lazarus), May (Kaufmann's, Famous Barr and L.S.
Ayres), Marshall Fields and Carson Pirie Scott, among others. The Company's
freestanding stores are generally located in malls and shopping centers.
U.S. Vision's retail optical departments are generally full-service retail
vision care stores that offer an extensive selection of designer brands and
private label prescription eyewear, contact lenses, sunglasses and accessories
with an on-premises, independent optometrist who performs complete eye
examinations and prescribes eyeglasses and contact lenses. The Company's
extensive selection of designer and private label branded eyewear allows the
Company to tailor its merchandise selection to meet the needs of the Company's
host store customers. Designer branded eyeglass frames offered include Guess,
Nautica, Halston and Perry Ellis, among others and, at certain stores, Giorgio
Armani, Calvin Klein and Polo Ralph Lauren. Similarly, private label eyeglass
frames include Hunt Club, Arizona, Ashley Stewart, Oliver Winston and Rascals,
among others. The Company also offers branded lenses such as Kodak progressive
lenses and Bausch & Lomb contact lenses, as well as a variety of options and
accessories.
U.S. Vision operates a single, modern optical laboratory, distribution and
lens grinding facility where it fills customer orders for prescription eyewear
and maintains a central inventory of frames. Customer orders are placed at the
retail stores and are phoned or electronically transmitted into the central
optical laboratory daily, where the lenses are ground, cut, finished and custom
fitted to optical frames in the size and style selected by the customer. The
finished eyewear is then shipped to the retail store for delivery to the
customer within one day upon request, otherwise generally within two to three
days. Through its Styl-Rite subsidiary, the Company manufactures, imports and
distributes optical frames and sunglasses principally for sale in its Company
optical stores and to a lesser extent for sale to third party retailers.
Since 1991, the Company has been a national provider of managed vision care
benefits primarily through Vision One, a national vision care program, which
offers comprehensive eyewear benefits to over 40 million covered lives through a
network of over 2,000 optical locations. Vision One is marketed directly to
employers, employee benefit plan sponsors and insurance companies such as
Metropolitan Life, Aetna, Cigna, John Hancock and Blue Cross/Blue Shield. The
Company currently generates approximately 27% of its revenues from its
participation in Vision One and other vision benefit programs. According to
industry sources, by 1998 as much as 40% of the U.S. eyecare patient base may be
covered by managed vision care programs.
Industry
According to a report published by the Jobson Optical Group, U.S. retail
optical sales grew at a 4.9% compound annual growth rate from $11.5 billion in
1991 to $14.6 billion in 1996. This same industry source projects that total
revenues in 1997 will reach an estimated $15.4 billion. Management believes that
the factors contributing to the continuing growth in the U.S. retail optical
industry include: (i) the aging of the U.S. population; (ii) increase in
penetration of managed vision care; (iii) emphasis on fashion and brand names in
prescription eyewear; and (iv) continuing advancements in product technology.
25
<PAGE>
Aging of U.S. Population. Management believes the aging of America's
population will continue to drive the growth of the optical industry. According
to the Jobson Optical Group, in 1996, 95% of people between the ages of 45 and
64 required some type of corrective eyewear and 61% of the total population
required some type of corrective eyewear, as indicated in the following table:
<TABLE>
<CAPTION>
Population Number of Users (1)
Age Group (in millions) (in millions) Percent
--------- --------------- -------------------- --------
<S> <C> <C> <C>
14 and under ...... 58.0 9.0 16%
15 - 24 ............ 35.9 18.3 51
25 - 44 ............ 83.7 52.6 63
45 - 64 ............ 53.7 51.0 95
65 and over ...... 33.9 31.5 93
------ ------ ---
Total ............ 265.2 162.4 61%
====== ====== ===
</TABLE>
- ------------
(1) People requiring some form of vision correction in 1996.
Source: Woods & Poole, Jobson Optical Group Data Base (1997)
Increase in Penetration of Managed Vision Care. According to industry
sources, approximately 25% of the U.S. eyecare patient base may be covered by a
third-party vision care plan. Industry sources estimate that by 1998,
approximately 40% of the U.S. population may be covered by a managed vision care
program. Many vision care plan participants have vision examinations on a
regular basis and, as a result, may become more frequent customers of optical
retailers. Management believes that optical retailers who have a national
network of stores and provide attractively priced, high quality eyewear will
have a competitive advantage as the optical industry continues to move towards
managed vision care.
Emphasis on Fashion and Brand Names. Eyewear is increasingly being used as
a fashion accessory for dress, casual and recreational activity. In addition, a
number of leading fashion designers such as Giorgio Armani, Calvin Klein, Guess,
Nautica, Halston, Polo Ralph Lauren and Perry Ellis, among others, are
leveraging the appeal of their brand names by offering lines of ophthalmic
frames and sunglasses. As the emphasis on eyewear shifts from function to
fashion, the offerings of shapes and colors has been expanded, creating more
eyewear choices and increasing the frequency of purchases by customers.
Continuing Advancements in Product Technology. New products and
technologies are continually introduced in the optical industry to improve the
quality and durability of eyeglass frames and lenses. Advances include (i)
lightweight, virtually unbreakable, polycarbonate lenses for better comfort and
safety, (ii) scratch resistant coatings for longer lasting lenses, (iii)
anti-reflective coatings to reduce glare and eyestrain, improve visual clarity
and cosmetic appeal and (iv) disposable contact lenses which virtually eliminate
the daily or weekly care and supplies required for other types of contact
lenses. These innovations are increasing the overall range of products in the
vision care industry as well as, in many cases, profit margins.
At the same time that the retail optical industry has been growing, it has
also been consolidating. The retail optical industry in the United States is
highly fragmented, with the top ten retail optical chains accounting for only
18% of total optical industry sales in 1996. Consolidation in the industry is
due primarily to a shift in consumer buying patterns toward retail optical
chains and superstores from independent retailers. Management believes this
shift has occurred as a result of better product selection, quality and
consistency, pricing and convenience offered by retail optical chains. The
retail optical chains are able to offer better pricing and promotional practices
as a result of greater purchasing power due to size. According to the Jobson
Optical Group, independent retailers (optometrists, opticians and
opthamologists) accounted for 63% of the total optical industry sales in 1996,
with optical chains, optical superstores and mass merchandisers accounting for
21%, 11% and 4% of total industry sales, respectively. Management believes
independent optical retailers will continue to lose market share to optical
chains and superstores, creating consolidation opportunities.
26
<PAGE>
Competitive Positioning
U.S. Vision's objective is to be the leading operator of retail optical
departments in host store environments. Management believes the Company has
several competitive advantages over other optical retailers that will allow it
to achieve its business objective:
Strong Position with Leading Host Stores. The Company is well positioned as
the primary domestic optical licensee for J.C. Penney and the second largest
domestic optical licensee for Sears. The Company has developed strong
relationships with the host stores in which the Company operates. Management
believes that the Company's relationships with its host stores provide several
competitive advantages such as: (i) attractive store-level economics; (ii) lower
initial capital investment; (iii) loyal host store customer base; (iv)
established host store advertising and marketing programs; (v) one-stop shopping
convenience; and (vi) access to the host store's private label credit card.
Emphasis on Managed Vision Care. According to industry sources,
approximately 25% of the U.S. eyecare patient base is currently covered by a
third-party vision care program and this percentage is expected to increase to
approximately 40% by the year 1998. The Company is a participating provider in
Vision One, a national vision care program, which offers comprehensive eyewear
benefits to over 40 million covered lives through a network of over 2,000
optical locations. Vision One's basic program gives employers the opportunity to
offer their employees a group discount at optical locations within the managed
vision care network with minimal direct cost to the employer. Consequently, many
Vision One participants have vision examinations on a regular basis and, as a
result, may become more frequent customers of U.S. Vision. In addition, Vision
One participants frequently apply their discounts and allowances toward the
purchase of premium eyeglass products and related accessories. The Company
currently generates approximately 27% of its revenues from its participation in
Vision One and other vision benefit programs and intends to expand its
participation in such programs in order to take advantage of these industry
dynamics.
Enhanced Merchandise Selection. The Company offers an extensive selection
of designer and private label branded eyewear, which allows it to tailor its
merchandise selection to meet the needs of host store customers. Designer
branded eyeglass frames offered include Guess, Nautica, Halston and Perry Ellis,
among others and, at certain stores, Giorgio Armani, Calvin Klein and Polo Ralph
Lauren. Similarly, private label eyeglass frames offered include Hunt Club,
Arizona, Ashley Stewart, Oliver Winston and Rascals, among others. The Company
also offers branded eyeglass lenses such as Kodak, as well as, contact lenses,
sunglasses and accessories. The Company plans to license additional brand names
in the future and to offer additional lenses, options and accessories.
Centralized Laboratory Operation. U.S. Vision assembles, finishes and
distributes its products from a centralized, modern optical laboratory,
distribution and lens grinding facility. Management believes that the Company's
central facility provides it with several operating efficiencies compared to
competitors who operate either in store laboratories or multiple optical
laboratories, including the ability to: (i) utilize its labor force more
efficiently; (ii) monitor and control the quality of production and finished
products; (iii) reduce inventory levels; and (iv) provide greater flexibility in
developing and adopting new product technologies. Management believes it has the
manufacturing capacity in its laboratory to accommodate all of the projected
growth anticipated by the Company for the foreseeable future.
Vertical Integration. Through its subsidiary, Styl-Rite, the Company
designs and manufactures plastic frames and sources and imports metal frames for
sale primarily in its own stores and to third parties. The ability to
manufacture and import enables the Company to respond quickly to changes in
fashion trends and acquire frames for resale at favorable prices.
Growth Strategy
The Company's growth strategy is to continue to open new retail optical
departments and medical host environments within existing and new host stores
and to continue to evaluate new retail environments. To achieve this strategy
the Company intends to:
Open New Retail Optical Departments in Existing Host Stores. The Company
plans to open 40 new retail optical departments in fiscal 1997 (25 of which
have been opened to date) and 40 new retail
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optical departments in fiscal 1998, conditions permitting. The majority of these
retail optical departments are expected to be located in J.C. Penney stores.
Since the Company currently operates within only 30% of J.C. Penney's 1,200
stores, management believes significant opportunities are available to expand
within J.C. Penney's existing store network. In addition, as J.C. Penney expands
and updates its store base, the Company plans to seek retail optical departments
in all new or remodeled J.C. Penney stores. The remainder of the new stores are
expected to be opened in host stores with which the Company has existing
relationships such as Sears, Marshall Fields and Lazarus.
Pursue Relationships with New Host Department Stores. Management believes
that future growth opportunities exist in department store locations. The
Company's 70 retail optical departments in traditional department stores
represent the nation's largest concentration of licensed optical departments in
this category. The Company is currently pursuing relationships with a number of
department store chains with which it does not currently have an existing
relationship.
Explore New Retail Environments. The Company is exploring opportunities to
expand its operations to include optical departments in other non-mall retail
environments. In September 1997, the Company entered into a license agreement
with Pioneer Group, a physician practice management group, to open two pilot
retail optical centers in Pioneer's medical practices.
Evaluate Acquisition Opportunities. According to the Jobson Optical Group,
the optical industry is highly fragmented with the top ten retail optical chains
accounting for only 18% of total optical industry sales in 1996. Retail chains
accounted for 35% of all eyewear sales in 1996, while independent retailers
accounted for 63%. Management believes the Company is well positioned to take
advantage of the consolidation currently taking place in the optical retailing
sector. Although the Company has no definitive agreements or letters of intent
pertaining to acquisitions at this time, it intends to selectively evaluate
opportunities to acquire retail optical departments and independent optical
retailers in the future.
Unit Economics
The Company's leased retail optical departments typically occupy 500 to 800
square feet of space, with the 488 leased retail optical departments that were
in operation during fiscal 1996 generating average net sales per square foot in
that year of $394. Management believes that its licensed optical departments
have historically generated significantly higher sales per square foot than that
generated in most other departments of its host stores. Furthermore, since the
Company's licensed optical departments pay rent based on a percentage of their
net sales and have little or no associated costs for the department store, the
Company believes they are one of the most profitable areas of a typical host
store.
Both operating and start-up costs associated with licensed retail optical
departments are typically below those of freestanding stores. For example,
because licensed departments have the advantage of an established traffic base,
the Company historically has not conducted expensive advertising campaigns,
instead conducting joint promotions with its department store hosts.
Furthermore, since rent expense varies as a percentage of net sales, it provides
flexibility in the early years of a licensed department's operation.
The Company's freestanding stores typically occupy 900 to 1,400 square feet
of space, with the freestanding stores that were in operation during fiscal 1996
generating average net sales per square foot of $223. The typical required
investment, including leaseholds, optical equipment, initial inventory and
working capital, in a freestanding store is significantly higher than the
typical investment for those same items in a licensed retail optical department.
Store Locations
As of July 31, 1997, U.S. Vision operated 558 locations in 48 states,
consisting of 495 licensed retail optical departments and 63 freestanding
stores. The following table sets forth the number of U.S. Vision retail stores
by state:
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Alabama.........10 Indiana............20 Montana............ 2 Pennsylvania..........38
Alaska.......... 1 Iowa............... 6 Nebraska........... 4 South Carolina........ 3
Arizona.........11 Kansas............. 3 Nevada............. 2 South Dakota.......... 2
Arkansas........ 3 Kentucky........... 8 New Hampshire...... 5 Tennessee.............15
California......44 Louisiana.......... 8 New Jersey.........11 Texas.................42
Colorado........10 Maine.............. 6 New Mexico......... 4 Utah..................10
Connecticut..... 4 Maryland...........16 New York...........10 Vermont............... 1
Delaware........ 1 Massachusetts...... 3 North Carolina..... 4 Virginia.............. 7
Florida.........50 Michigan...........14 North Dakota....... 6 Washington............ 9
Georgia.........13 Minnesota.......... 8 Ohio...............42 West Virginia......... 4
Idaho........... 2 Mississippi........ 4 Oklahoma........... 3 Wisconsin.............15
Illinois........43 Missouri...........24 Oregon............. 4 Wyoming............... 3
</TABLE>
Merchandising
U.S. Vision's merchandising strategy emphasizes merchandise selection,
style, quality and consistency of products and services, competitive pricing,
convenient locations, availability of on-site professional eye examinations,
customer service, customer oriented store design and product displays,
knowledgeable sales associates and a broad range of quality products.
Merchandise Selection. U.S. Vision carries a full selection of men's,
women's and children's eyeglass frames, a complete line of contact lenses,
sunglasses and ancillary products for eyeglasses and contact lenses.
Prescription eyewear accounted for 86% of the Company's sales during fiscal
1996. The Company offers an extensive selection of designer and private label
branded eyewear. Designer eyeglass frames offered include Guess, Nautica,
Halston and Perry Ellis, among others and, at certain stores, Giorgio Armani,
Calvin Klein and Polo Ralph Lauren. The Company also offers private label
branded eyeglass frames such as Hunt Club, Arizona, Ashley Stewart, Oliver
Winston and Rascals, among others. The Company carries a complete line of
contact lenses by major contact lens manufacturers such as Bausch & Lomb, Wesley
Jessen, and Johnson & Johnson, including daily wear and extended wear soft
contact lenses and cosmetic tinted lenses. During fiscal 1996, contact lenses
accounted for approximately 14% of the Company's sales. U.S. Vision offers a
wide variety of value-added eyewear features and services on which it realizes a
higher gross margin such as lightweight, virtually unbreakable polycarbonate
lenses, including Kodak progressive lenses and plastic photochromic lenses, as
well as scratch resistant and anti-reflective coatings. The ability to
manufacture and import enables the Company to respond quickly to changes in
fashion trends and acquire frames for resale at favorable prices.
Pricing. U.S. Vision maintains a promotional pricing strategy which
stresses a quality product delivered with superior service at a competitive
price. The Company's frames and lenses are generally competitively priced, with
prices varying based on geographic region. While the Company earns a higher
gross margin on its private-label lines, designer frames generally command
premium prices, resulting in higher gross profit dollars per transaction.
Full Customer Service. The Company places great emphasis on providing
attentive professional service to its customers. U.S. Vision strives to provide
its customers with exceptional care and value by combining the personal service
typically associated with a private optometrist with the broad product selection
and competitive prices of a large optical retailer. Management believes that
providing superior customer service from knowledgeable and courteous employees
complements the customer-oriented policies of its department store hosts.
Managed Vision Care
Since 1991, U.S. Vision has been a participating provider of managed vision
care benefits primarily through Vision One, a national vision care program which
offers comprehensive eyewear benefits to over 40 million covered lives through a
network of over 2,000 optical locations. Vision One is marketed directly to
employers, employee benefit plan sponsors and insurance companies such as
Metropolitan Life, Aetna, Cigna, John Hancock and Blue Cross/Blue Shield. Vision
One's basic program
29
<PAGE>
gives employers the opportunity to offer their employees a group discount at
retail optical locations of participating providers with minimal direct cost to
the employer. The discounts vary under the plans from fixed percentage discounts
to fixed dollar amounts with the balance paid by the subscriber. As a result of
these benefits, management believes that many Vision One participants have
vision examinations on a regular basis and may become more frequent customers of
U.S. Vision. In addition, Vision One participants frequently apply their
discounts and allowances toward the purchase of premium eyeglass products and
related accessories. Under the terms of the Company's contract with Cole
National, a competitor of the Company and the owner of the Vision One program,
the Company pays an administrative fee for each Vision One member transaction.
The Company's contract with Cole National expires in 2002. The Company retains
the right, though it has not exercised it in the past, to refuse to participate
in particular Vision One programs under which it cannot profitably provide goods
and services, and to participate in other managed care vision plans under
certain conditions. The Company currently generates approximately 27% of the
Company's revenues from its participation in the Vision One and other vision
benefit programs and intends to expand its participation in such programs.
Store Operations
The Company's retail optical departments are generally full-service retail
vision care stores that offer designer brands and private label prescription
eyewear, contact lenses, sunglasses and accessories with an on-premises,
independent optometrist who performs complete eye examinations and prescribes
eyeglasses and contact lenses.
Location and Layout. U.S. Vision operates most of its stores on the
premises of national and regional department stores. These stores generally
operate under names such as "J.C. Penney Optical Center" and "Sears Optical,"
which associate the departments with the host store. The Company's retail
optical departments generally operate under a lease or license arrangement
through which the host store collects the sales receipts, retains an agreed upon
percentage of sales, which is recorded as rent expense by the Company, and
remits the remainder to the Company on a regular basis. The Company's leased
retail optical departments typically range in size from 500 to 800 square feet.
The Company's retail optical departments are located within the host department
store near the host store's other licensed departments such as the beauty salon
and photography studio. Management believes that the location of its retail
optical departments within a host store is essential to its ability to take full
advantage of the host store's customer traffic.
Each store follows a uniform merchandise layout plan which is designed to
emphasize fashion, invite customer browsing and enhance the customer's shopping
experience. All of the Company's stores are similar in appearance and are
operated under certain uniform standards and procedures. In connection with the
J.C. Penney expansion and new store design, the Company has recently developed a
modern new store prototype which the Company refers to as its "concept 2000"
store. All of the Company's new retail optical departments are designed in
accordance with this concept, and the Company intends to convert its existing
stores to this concept as they are remodeled over time.
U.S. Vision's freestanding stores operate under various trade names such as
Royal Optical, Service Optical and Wall & Ochs and are located in malls and
shopping centers. A limited number of these stores are housed in freestanding
buildings with adjacent parking facilities. The Company's freestanding stores
generally range in size from 900 to 1,400 square feet.
Store Management. The Company's store management structure consists of
field managers and store managers. The store managers, along with two to three
associates known as Optechs, are responsible for the day-to-day operations of
each of the Company's retail optical departments. Optechs undertake a
comprehensive training program that familiarizes them with the Company's
product lines, customer services, store procedures and automated systems. The
Company's national
30
<PAGE>
director of training is responsible for overseeing the training of the Optechs
and updating the Company's training materials. Management believes that
providing knowledgeable and responsive customer service is an important element
of its success and, accordingly, has developed and implemented a variety of
employee training and incentive programs.
On-Site Independent Optometrist. The Company has made arrangements with
licensed optometrists to provide eye examination services at or adjacent to its
retail locations in those states where it is permitted. The independent
optometrists sublease space and equipment from the Company or from the host
store. The Company and the optometrists do not share in each other's revenues.
Management believes the presence of the optometrists at the stores leads to
repeat customers and reinforces the quality and professionalism of each store.
Relationship with Host Stores
Most of the Company's stores operate as leased optical departments within a
host department store such as J.C. Penney, Sears, Federated (Rich's, Burdines
and Lazarus), May (Kaufmann's, Famous Barr and L.S. Ayres), Marshall Fields and
Carson Pirie Scott, among others. Management believes that the Company's
relationships with its host stores provide several competitive advantages such
as: (i) attractive store-level economics; (ii) lower initial capital investment;
(iii) loyal host store customer base; (iv) established host store advertising
and marketing programs; (v) one-stop shopping convenience; and (vi) access to
the host store's private label credit card. Management believes its hosts'
reputation of quality, trust and value further enhances the Company's customer
relations.
Management believes it has developed excellent relationships with the host
stores in which it operates. Management strives to continue to enhance these
relationships. The Company routinely consults with the host stores about the
size and placement of the Company's optical departments within newly opened or
remodeled host stores.
The Company's retail optical departments within J.C. Penney stores are
subject to a master lease that expires in December 2003 and provides that no
more than 40 of the Company's J.C. Penney optical centers may be closed by J.C.
Penney in any calendar year without cause. The lease also provides that J.C.
Penney will reimburse the Company for certain costs relating to the closed
department. The Company's optical departments within Sears stores are each
subject to a lease which provides for a year-to-year term, subject to early
termination by either party, without cause, on thirty-days prior written notice.
The Company's retail optical departments located within other department stores
are subject to lease arrangements which contain short notice lease termination
provisions. These leases provide for monthly lease payments based upon a
percentage of the Company's sales at each location. See "Risk Factors -- Risks
Related to Host Store Relationships and Short-Term Leases."
Marketing and Advertising
U.S. Vision engages in a variety of marketing and promotional efforts to
maintain and strengthen its customer base. The Company's advertising program is
targeted at the department store consumer and is designed to convey a message of
value, fashion, convenience and trust to its customer base. The Company works
with each of its host stores to design advertising programs that convey this
message in a manner consistent with that of the host store and are targeted at
the specific targeted customer base. For example, the Company works with J.C.
Penney to develop targeted catalog inserts which advertise the Company's J.C.
Penney optical departments. These advertising promotions generally mention the
availability of on-site professional eye examinations and the Company's
acceptance, as a participating provider of managed vision care benefits, of the
discounts and allowances offered by managed vision care plans. These targeted
inserts are mailed to selected customers based on previous spending patterns at
the host store. The Company actively supports its stores by providing local
advertising in individual geographic markets. U.S. Vision has an in-house
advertising department which permits it to respond quickly to fashion trends,
competitor advertising and promotional initiatives.
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<PAGE>
Optical Laboratory and Distribution
U.S. Vision operates a 60,000 square foot modern optical laboratory,
distribution and lens grinding facility adjacent to its headquarters in
Blackwood, New Jersey. Management believes that the Company's central facility
provides it with several operating efficiencies compared to competitiors who
operate in store laboratories or multiple optical laboratories, including the
ability to: (i) utilize its labor force more efficiently; (ii) monitor and
control the quality of production and finished products; (iii) reduce inventory
levels; and (iv) provide greater flexibility in developing and adopting new
product technologies.
Customer orders for prescription eyewear, sunglasses and contact lenses are
phoned in or, as stores are brought on-line with the Company's new managment
information system, electronically transmitted daily from each of the Company's
store locations to its central laboratory. Customer orders are generally
processed and shipped to stores within two to three working days and can be
completed overnight if requested by the customer. Most prescription lenses are
completed from semi-finished polycarbonate or plastic lenses obtained from
third-party suppliers. These lenses are finished in a highly technical process
that grinds the surface of the lens to fit the prescription utilizing modern
grinding equipment, much of it computer-guided. The lenses are then custom
fitted to optical frames in the size and style selected by the customer. Other
prescriptions, including many standard prescriptions, can be manufactured by
cutting and edging a prefinished lens, also purchased from a third-party
supplier, to fit the frames selected. Contact lenses, accessories and
non-prescription sunglasses orders are filled from available stock and shipped
to the Company's retail optical departments.
In 1995, the Company spent approximately $3.6 million to purchase, renovate
and equip its central laboratory with new machinery. This new machinery is
capable of custom grinding, polishing, cutting, edging, tempering, tinting and
coating prescription lenses. In 1997, the Company also purchased new
anti-reflective coating equipment for the laboratory to improve the turnaround
time for this specialty coating. Management believes it has the manufacturing
capacity in its laboratory to accommodate all of the Company's projected growth
for the foreseeable future.
Purchasing
The Company's relationships with its vendors and Styl-Rite's manufacturing
and importing capability have enabled the Company to gain access to a wide array
of brand name product offerings. As a leading retailer of eyewear in the United
States, U.S. Vision purchases significant quantities of frames, lenses and
contact lenses from its suppliers. In most cases, such purchases are not made
under long-term contracts. In fiscal 1996, no single supplier or manufacturer
accounted for 10% or more of total purchases.
Through Styl-Rite, the Company manufactures, imports, and distributes
optical frames and sunglasses for use primarily in its own eyewear products, and
for sale to third party optical retailers. Through various licenses and
sublicenses, Styl-Rite imports metal frames and manufactures plastic frames
which bear the designer, brand name and private label names sold by the Company.
Management Information Systems
In 1997, the Company began to implement an integrated management
information system, which includes an automated order entry system at each of
its optical stores, and new manufacturing and financial computer systems in the
Company's corporate headquarters. This new integrated system is designed to
provide the Company with improved order pricing and costing capability and
better control of laboratory and store inventories, and is designed to give the
stores access to the status of each order. This new system is also designed to
provide the stores with the capability to capture sales and customer
information, including prescription data, enhancing the Company's ability to
monitor sales and merchandise trends and to improve customer service after the
sale. In addition, the automated order entry system is designed to enable the
stores to validate, at the time of sale, whether a particular frame selected by
the customer is in stock and whether the combination of the customer's
prescription, selected lenses and frame is within manufacturing tolerances. The
integrated information system is expected to enhance the Company's operating
efficiencies by permitting all orders to be
32
<PAGE>
electronically transmitted from the stores to the laboratory at any time,
providing real-time order profile information for the laboratory, daily sales
results for the Company and will be "year 2000 compliant." In April 1997, the
Company completed its implementation of the new financial accounting and
reporting systems in its corporate headquarters and commenced the implementation
of the integrated manufacturing systems in its laboratory, including the
automated connection with the order entry system for the stores. In July 1997,
the Company commenced a pilot store test of the automated order entry system and
the national roll out is expected to begin in late 1997 and be completed in
early 1999. There can be no assurance that the Company will be able to implement
and operate this information system effectively or that the system will produce
the expected benefits.
Currently, customer prescription orders for the Company's optical products
are prepared by the stores on order forms and the details of each order are
phoned in daily to the Company's centralized laboratory. These orders are then
manually entered into the laboratory's order entry system which, for lenses,
also makes the necessary optical calculations to grind and finish the lenses to
the correct prescription and shape them to the dimensions of the frame selected
by the customer. The present laboratory order entry system also tracks each
order through every step of the manufacturing process until the finished product
is shipped to the retail optical department.
Competition
The Company competes with other national, regional, and local retail
optical chains and independent optical retailers. Optical retailers generally
serve individual or local markets, and, as a result, competition is fragmented
and varies substantially among locations and geographic areas. The principal
competitive factors affecting the Company's retail operations are merchandise
selection, quality and consistency of products and services, price, location
within the host store, convenience, availability of on-site professional eye
examinations and access to a host store's private label credit card. The retail
optical industry engages in price-related promotions as a standard marketing
practice.
Additionally, the Company faces competition from advances in vision
correction technologies, including laser surgery and other surgical vision
correction procedures. This could result in decreased demand for eyeglasses and
contact lenses.
To the extent U.S. Vision's customers may not be covered by its eye care
benefit plans, the Company may compete with other vision care benefit plans and
retailers who provide alternative vision care plans. As the number of national
and regional managed vision care programs increase, competition for customers
will intensify among the various vision care programs.
Facilities
The Company owns a 20,000 square foot facility in Blackwood, New Jersey,
which serves as the Company's corporate headquarters and a 60,000 square foot
optical laboratory and distribution facility. Styl-Rite, the Company's frame
manufacturing and importing operation, operates from a 40,000 square foot
facility in Miami, Florida. In September 1997, the Company contracted to sell
its 100,000 square foot facility in Dallas, Texas, which served as the Company's
headquarters and optical laboratory and distribution facility until January
1996, when the Company consolidated its operations in Blackwood, New Jersey.
Employees
As of July 31,1997, the Company had approximately 2,500 full-time and
part-time employees, of which: (i) approximately 1,960 were employed in the
Company's retail outlets; (ii) 350 were employed in manufacturing and
distribution in the Company's laboratory in Blackwood; (iii) 100 were employed
at the Company's Styl-Rite manufacturing center in Miami; and (iv) 90 were
employed in administrative, marketing and managerial positions at the Company's
headquarters in Blackwood.
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Approximately 60 of the Company's employees at the Styl-Rite facility are
subject to a collective bargaining agreement with the United Optical Workers
that expires in 2000. The Company has never experienced a work stoppage or other
organized labor dispute and considers its labor relations to be good.
By providing its employees with extensive training and a positive,
employee-friendly work environment, the Company believes that it has
successfully retained quality employees and, accordingly, improved operating
efficiencies. In June 1997, the Company opened a daycare facility to provide
affordable child care for children of its employees. Management believes
innovative employee programs have had a positive effect on full and part-time
labor productivity, especially for working parents.
Government Regulation
The Company is subject to a variety of federal, state and local laws, rules
and regulations affecting the health care industry and the delivery of health
care services. State and local legal requirements vary widely among
jurisdictions and are subject to frequent change. Federal legal requirements are
also subject to change.
Relationships between the Company and independent optometrists and
ophthalmologists are subject to federal, state and local laws and regulations.
State laws generally prohibit the practice of medicine and optometry by
unlicensed practitioners. In addition, many states prohibit medical
practitioners and optometrists from splitting fees with business corporations
such as the Company and prohibit the practice of medicine and optometry by
corporate entities. Some states have enacted laws governing the ability of
ophthalmologists and optometrists to enter into contracts to provide
professional services with business corporations or lay persons. Some states
prohibit the Company from computing its fee for rent, equipment leases and
management services provided by the Company based on a percentage of the gross
revenue of the ophthalmologists and the optometrists. Such requirements are
particularly comprehensive in California and Texas, where the Company operates a
significant number of stores. Further, some states restrict the location of
optometric offices in relation to optical stores, such as the Company's, and
regulate advertising and the solicitation of prospective patients.
Relationships between the Company and independent ophthalmologists and
optometrists are also subject to the fraud and abuse provisions of the federal
Social Security Act which include the "anti-kickback" laws. The anti-kickback
laws prohibit the offering, payment, solicitation or receipt of any direct or
indirect remuneration for the referral of Medicare or Medicaid patients or for
the ordering or providing of Medicare or Medicaid covered services, items or
equipment. Violations of these laws may result in substantial civil or criminal
penalties for individuals or entities and exclusion from participation in the
Medicare and Medicaid programs. Several states, including states in which the
Company operates, have adopted similar laws that cover patients with private
health insurance coverage as well as those covered by government programs.
Although management believes it is not in violation of the anti-kickback laws,
the applicability of these provisions has been subject to only limited judicial
and regulatory interpretation. In addition, certain of the Company's products,
specifically frames manufactured by Styl-Rite, must comply with standards set by
the United States Food and Drug Administration.
Management believes it is in substantial compliance with all material
governmental regulations applicable to its operations. The Company, as well as
the independent optometrists providing services in or adjacent to the Company's
stores, nevertheless from time to time receive inquiries from regulatory bodies
regarding its compliance with applicable state and local regulations. If the
Company's relationships with ophthalmologists and optometrists are challenged,
the Company may be required to alter the manner in which it conducts its
business. There can be no assurance that a review of the Company's business by
courts or regulatory authorities will not result in determinations that could
adversely affect the operations of the Company or that new laws, regulations or
interpretations of current laws and regulations will not have a material adverse
effect on the Company's business, financial condition or results of operations.
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Legal Proceedings
The Company is subject to various pending and threatened litigation from
time to time in the ordinary course of business. Although all litigation
involves some degree of uncertainty, in the opinion of management, liabilities,
if any, arising from such litigation or threat thereof are not expected to have
a material adverse effect on the Company.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information with respect to
executive officers, directors and key employees of the Company as of July 31,
1997.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William A. Schwartz, Jr. 56 President, Chief Executive Officer and Director
Reid V. Eikner 54 Executive Vice President, Finance and Administration
George T. Gorman 46 Executive Vice President, Retail
James M. McGrath 57 Executive Vice President, Retail Operations
Gayle E. Schmidt 45 Executive Vice President, Manufacturing
George E. McHenry, Jr. 45 Secretary, Treasurer and Chief Financial Officer
G. Kenneth Macrae 66 Director
Richard K. McDonald 49 Director
Dennis J. Shaughnessy 50 Director
E. Theodore Stolberg 48 Director
J. Roger Sullivan, Jr. 54 Director
David M. Tracy 73 Director
</TABLE>
William A. Schwartz, Jr. has served as the President, Chief Executive
Officer and Director of the Company and its predecessors since 1967. Mr.
Schwartz has been involved in the optical retail industry for more than 30
years. Mr. Schwartz is married to Ms. Schmidt.
Reid V. Eikner has served as the Executive Vice President, Finance and
Administration of the Company since November 1995. Prior to joining the Company,
Mr. Eikner was President and Chief Executive Officer of Best Way Distributing
Company from 1989 to 1995. From 1982 to 1989, Mr. Eikner was employed by CRI
International, Inc. in various managerial capacities.
George T. Gorman has served as the Executive Vice President, Retail of the
Company since September 1996. From 1975 until joining the Company, Mr. Gorman
was a senior retail officer with Strawbridge & Clothier a full line department
store.
James M. McGrath has served as the Executive Vice President, Retail
Operations of the Company since 1990. From 1967 to 1990, Mr. McGrath served in
various managerial capacities with the Company.
Gayle E. Schmidt has served as the Executive Vice President, Manufacturing
of the Company since 1988. From 1970 to 1990, Ms. Schmidt served in various
managerial capacities with the Company. Ms. Schmidt is married to Mr. Schwartz.
George E. McHenry, Jr. has served as the Secretary, Treasurer and Chief
Financial Officer of the Company since 1990. He served as Vice President,
Finance from 1987 to 1990. Prior to joining the Company, Mr. McHenry was an
accountant with the firms of Touche Ross & Co. (now Deloitte & Touche) and Main
Hurdman (now KPMG Peat Marwick) from 1974 to 1987.
G. Kenneth Macrae has been a Director of the Company since 1990. Mr. Macrae
has been the President of Keystone Venture Capital Management Co., a venture
capital firm in Philadelphia, Pennsylvania, since 1983, and the President and
Director of KVM IV MCGP, Inc., the general partner of Keystone Venture IV
Management Company, L.P., the general partner of Keystone IV.
Richard K. McDonald has been a Director of the Company since 1994. Since
1988, Mr. McDonald has served as the President and Director of Constitutional
Capital Corporation, a general partner of RAA; a general partner of M&M; and a
general partner of RKM Investment Company, the general partner of Constitution
Capital Corporation. From 1990 to 1993, he served as a Senior Vice President of
Westinghouse Credit Corporation.
36
<PAGE>
Dennis J. Shaughnessy has been a Director of the Company since 1994. Since
September 1989, Mr. Shaughnessy has served as the Managing Director, Treasurer
and Director of Grotech Capital Group, Inc., the general partner of Grotech
III, Grotech Companion and Grotech Pennsylvania; and Managing Director,
Treasurer and Director of Grotech Capital Group IV, Inc., the general partner
of Grotech IV. He served as the President and Chief Executive Officer of CRI
International, Inc. from 1985 to September 1989. Mr. Shaughnessy currently
serves on the board of Tesseco Technologies, Inc., Secure Computing, Inc. and
Forensic Technologies, Inc.
E. Theodore Stolberg has been a Director of the Company since 1994. Mr.
Stolberg is a partner and founder of Stolberg Partners, a private equity
investment and advisory firm. Prior to founding Stolberg Partners, Mr. Stolberg
was a co-managing partner of Weiss Peck and Greer's Private Equity Investment
Group and was a specialist in merger and acquisition activities at the First
Boston Corporation. Mr. Stolberg has submitted his resignation to the Company as
a director effective prior to this offering.
J. Roger Sullivan, Jr. has been a Director of the Company since 1994. Since
March 1994, Mr. Sullivan has served as a special partner of Grotech Capital
Group, Inc., the general partner of Grotech III, and Group IV, Inc., the general
partner of Grotech IV. From 1993 to March 1994, he was self employed as a
consultant. From 1979 to 1992 he served as a Senior Vice President of First
National Bank of Maryland.
David M. Tracy has been a Director of the Company since 1994. Mr. Tracy
has extensive experience in the textile and home furnishing industries, having
served as the former Vice Chairman of J.P. Stevens and Co. and the past
president of Fieldcrest Mills, Inc. Mr. Tracy currently serves on the board of
International Executive Service Corps, Stonehill College, the Educational
Foundation for the Fashion Industries and Decorative Home Accents. Mr. Tracy
also is currently the Chairman of Calvin Klein Home, Inc. and was the Chairman
of the American Textile Manufacturers Institute Consumer Affairs Committee.
Board Meetings and Committees of the Board
The Company's Board of Directors has a standing Executive Committee, Audit
Committee, Compensation Committee and Stock Option Committee. The principal
responsibilities and membership of each committee are described below.
Executive Committee. The Executive Committee has the authority to exercise
substantially all of the powers of the Company's Board of Directors in the
management and business affairs of the Company, except it does not have the
authority to declare dividends, authorize the issuance of shares of Common
Stock, modify the Company's Certificate of Incorporation or its Bylaws, adopt
any agreement of merger or consolidation or recommend to the stockholders the
sale, lease or exchange of all or substantially all of the Company's assets or
the dissolution of the Company. The members of this committee are Messrs.
Macrae, McDonald, Schwartz and Shaughnessy.
Audit Committee. The Audit Committee is responsible for reviewing the
Company's accounting and financial practices and policies and the scope and
results of the Company's audit. The Audit Committee is also responsible for
recommending the selection of the Company's independent public accountants. This
committee is presently comprised of Messrs. McDonald and Sullivan.
Compensation Committee. The Compensation Committee reviews the
compensation of executive officers, except members of the committee, and makes
recommendations to the Board regarding executive compensation. This committee
is presently comprised of Messrs. Shaughnessy, Stolberg, Macrae and Schwartz.
Stock Option Committee. The Stock Option committee administers the
Company's existing stock option plan. This committee is presently comprised of
Messrs. Shaughnessy, Stolberg and Macrae.
37
<PAGE>
Executive Compensation
The following table summarizes the compensation earned by the Company's
Chief Executive Officer and its four other most highly compensated executive
officers (whose compensation exceeded $100,000 in fiscal 1996), collectively,
the "Named Officers," for services rendered in all capacities to the Company
during the fiscal year ended January 31, 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
1996 Compensation Compensation
-------------------- -------------
Securities
Underlying
Options/ All Other
Salary Bonus SARs Compensation
Name and Principal Positions ($) ($) (#) ($)(1)
- ------------------------------- --------- -------- ------------- -------------
<S> <C> <C> <C> <C>
William A. Schwartz, Jr ...... 230,900 60,000 228,735 --
President, Chief Executive
Officer and Director
Reid V. Eikner ................ 179,800 40,000 76,050 --
Executive Vice President,
Finance and Administration
George T. Gorman(2) ........... 43,400 15,000 15,665 --
Executive Vice President,
Retail
Gayle E. Schmidt ............. 159,700 40,000 76,050 15,300
Executive Vice President,
Manufacturing
George E. McHenry, Jr. ...... 149,000 25,000 76,050 7,800
Secretary, Treasurer and
Chief Financial Officer
</TABLE>
- ------------
(1) Represents amounts paid by the Company to the account of the Named Officers
for unused vacation time.
(2) Mr. Gorman's employment with the Company began in September 1996.
Stock Option Plan
Pursuant to the Company's 1996 Stock Option Plan, as amended (the "Stock
Option Plan"), incentive options may be granted to eligible individuals for the
purchase of an aggregate of up to 1,300,000 shares of Common Stock, of which
options to acquire 736,190 shares have already been granted. Eligible
individuals include key employees and such employees of the Company or its
subsidiaries as the Board of Directors may determine from time to time. The
Stock Option Plan is administered by the Stock Option Committee of the Board,
which determines, in its discretion, the number of shares subject to each
incentive option granted and the related purchase price and option period. The
Stock Option Committee consists of Messrs. Shaughnessy, Stolberg and Macrae, all
of whom are disinterested directors with respect to the Stock Option Plan.
The Stock Option Plan requires that the exercise price for each incentive
stock option must not be less than the fair market value per share of the Common
Stock at the time the option is granted. No incentive stock option, however, may
be granted to an employee who owns more than 10% of the total combined voting
power of all classes of outstanding stock of the Company unless the option price
is at least 110% of the fair market value of the Common Stock at the date of
grant and option
38
<PAGE>
period is not more than five years from the date of grant. No employee may be
granted incentive stock options that first become exercisable during a calendar
year to purchase Common Stock, or stock of any affiliate (or a predecessor of
the Company or an affiliate), with an aggregate fair market value (determined as
of the date of grant of each option) in excess of $100,000. An incentive stock
option counts against the annual limitation only in the year it first becomes
exercisable. Incentive stock options may be granted only to employees of the
Company.
The option period may not be more than ten years from the date the option
is granted. Options may be exercised in annual installments as specified by the
Stock Option Committee. All installments that become exercisable are cumulative
and may be exercised at any time after they become exercisable until the option
expires. Options are not assignable or transferable other than by will or the
laws of descent and distribution.
Full payment for shares purchased upon exercise of an option must be made
at the time of exercise. No shares may be issued until full payment is made. The
Stock Option Plan provides that an option agreement may permit an optionee to
tender previously owned shares of Common Stock in partial or full payment for
shares to be purchased on exercising an option. Unless sooner terminated by
action of the Board, the Stock Option Plan will terminate in 2006. Subject to
certain exceptions, the Stock Option Plan may be amended, altered, or
discontinued by the Board without stockholder approval.
The Board has retained the right to amend or terminate the Stock Option
Plan as it deems advisable. However, without stockholder approval no amendment
shall be made to: (i) change the aggregate number of shares that may be issued
under options pursuant to the provisions of the plan; (ii) reduce the price at
which options may be exercised to an amount less than fair market value per
share at the time the options are granted; or (iii) change the class or classes
of employees eligible to receive options. However, the Board of Directors may
make changes to the plan or outstanding options to enable options to continue to
qualify under Section 422 of the Internal Revenue Code, and the Board of
Directors has the power to accelerate the vesting of or extend the time of
exercise for options subject to the limitations set forth in the plan.
The following table provides information regarding the stock options
granted by the Company to Named Officers during fiscal 1996. Other than the
incentive stock options which were granted to Mr. Gorman in October
1996 in connection with the beginning of his employment with the Company, all of
the following incentive stock options were granted in March 1996 and replaced
previously granted non-qualified options.
Fiscal Year 1996 Option Grants
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------------------------
Potential Realizable Value at
Number of Percent of Assumed Annual Rates of
Securities Total Stock Price Appreciation for
underlying Options Exercise of Option Term (1)
Option/SARs Granted to Base Price Expiration -------------------------
Granted (#) Employees ($/Share) Date 5% 10%
------------- ------------ ------------- ------------ ------------ -----------
Name
- ----
<S> <C> <C> <C> <C> <C> <C>
William A. Schwartz, Jr. ...... 228,735 35.7% $ 7.69 10/31/04 $2,715,084 $5,350,112
Reid V. Eikner ............... 76,050 11.9 7.69 10/31/04 902,714 1,778,810
George T. Gorman ............... 15,665 2.4 7.69 10/31/04 185,944 366,404
Gayle E. Schmidt ............... 76,050 11.9 7.69 10/31/04 902,714 1,778,810
George E. McHenry, Jr. ......... 76,050 11.9 7.69 10/31/04 902,714 1,778,810
- ------------
(1) The potential realizable values set forth under these columns result from
calculations assuming 5% and 10% growth rates as set by the Securities and
Exchange Commission and are not intended to forecast future price
appreciation of the Company's Common Stock. The amounts reflect potential
future value based upon growth at these prescribed rates. The Company did
not use an alternative formula for a grant date valuation, an approach which
would state gains at present, and
</TABLE>
39
<PAGE>
therefore lower, value. The Company is not aware of any formula which will
determine with reasonable accuracy a present value based on future unknown or
volatile factors. Actual gains, if any, on stock options exercises are
dependent on the future performances of the Company's Common Stock. There can
be no assurance that the amounts reflected in this table will be achieved.
Aggregated Option Exercises in Fiscal Year 1996 by the Company's Executive
Officers
No options were exercised during the fiscal year ended January 31, 1997.
The following table provides information concerning unexercised options and the
value of options held by the Named Officers at fiscal year end.
Aggregate Option Exercises in Fiscal Year 1996
and Year-end Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of in-the-Money
Securities Underlying Options at
Unexercised Options January 31, 1997
at January 31, 1997(#) (1)($)
------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
William A. Schwartz, Jr. ...... 228,735 -- $985,848 $ --
Reid V. Eikner ............... 76,050 -- 327,776 --
George T. Gorman ................ 5,221 10,444 22,502 45,014
Gayle E. Schmidt ............... 76,050 -- 327,776 --
George E. McHenry, Jr. ......... 76,050 -- 327,776 --
- ------------
(1) The initial public offering price is used in lieu of the fair market value
of the Company's Common Stock as of January 31, 1997 in accordance with the
guidelines of the Securities and Exchange Commission and should not be
construed to equal such fair market value.
</TABLE>
Employment Agreements
The Company has employment agreements with the following executive
officers: William A. Schwartz, Jr., President and Chief Executive Officer;
George T. Gorman, Executive Vice President Retail; Gayle E. Schmidt, Executive
Vice President Manufacturing, Reid V. Eikner, Executive Vice President Finance;
George E. McHenry, Jr., Vice President, Secretary and Chief Financial Officer.
The employment contracts provide for a guaranteed base salary and the right to
be considered for such bonus programs as are adopted by the board of directors.
All of the agreements were entered into in 1994, except that Mr. Eikner and Mr.
Gorman entered into their contracts in 1995 and 1996, respectively. The
employment agreements of all of the individuals terminate in November 1998,
except that Mr. Gorman's terminates in September, 1999. All of the contracts
automatically renew annually if not terminated by either party, except that Mr.
Eikner has the right to resign in November of 1997 and receive one year's
severance. Under the terms of the agreements, the executive is entitled to
salary continuation for the balance of the term of the employment agreement in
the event that the contract is terminated by the Company other than for good
cause. The severance due to such executive depends on the monthly salary at that
time and the term of such severance period. The monthly salary for such
executives is as follows: Mr. Schwartz -- $18,133 ; Mr. Eikner -- $13,333 ; Mr.
Gorman -- $13,333 ; Ms. Schmidt -- $13,333 ; and Mr. McHenry -- $12,500 .
Messrs. Gorman and Eikner have non-compete and non-solicitation agreements which
limit their rights to seek competitive employment or hire away employees of the
Company following the termination of their employment with the Company.
Director Compensation
The Company has granted options to acquire Common Stock to directors who
are not employed, affiliated with or 5% stockholders of the Company. The
Company also reimburses directors for out-of
40
<PAGE>
pocket expenses. The purpose of using options as director compensation is to
encourage the ownership of Common Stock by the outside directors upon whose
judgment and ability the Company depends for its long term growth and
development and to provide an effective and economic manner of compensating
outside directors. This is intended to promote a close identity of interest
among the Company, the outside directors and the stockholders, and to provide a
further means to attract and retain outstanding board members.
In November 1995, options to purchase up to 16,250 shares of the Company's
Common Stock were issued to Mr. David M. Tracy.
41
<PAGE>
CERTAIN TRANSACTIONS
On December 2, 1994, all of Westinghouse Credit Corporation's
("Westinghouse") interest in the Company was acquired by RAA, an entity created
for the sole purpose of acquiring Westinghouse's interest in the Company.
Following RAA's acquisition of Westinghouse's interest, which included over 80%
of the Company's Common Stock and approximately $20 million of preferred stock
and debt, RAA guaranteed loans to the Company and loaned additional funds to the
Company. See "Use of Proceeds." RAA was dissolved in fiscal 1995, and its
ownership in the Company was transferred to its former partners. Messrs. Dennis
J. Shaughnessy, J. Roger Sullivan, Jr., E. Theodore Stolberg and Richard K.
McDonald, all of whom are directors of the Company, are officers, directors and
or shareholders in one or more of the entities which were partners in RAA. The
former partners of RAA agreed to guarantee a $3,600,000 overadvance on the
Company's revolving line of credit until November 13, 1995. The guarantee was
extinguished in January 1996, at which time the Company issued the Subordinated
Debt to a group of investors, which consisted primarily of the former RAA
partners. The Subordinated Debt is subordinate to the Company's Revolving Line
of Credit and Term Loan, and accrues interest at the rate of 12% per annum. The
principal balance and all accrued interest on the Subordinated Debt is due and
payable in full on March 1, 1998. The Company intends to repay this debt in full
with the proceeds of this offering.
Since 1990, the Company has leased a retail store and office space located
in a 7,000 square foot building in Philadelphia, Pennsylvania, from a limited
partnership in which William A. Schwartz, Jr., a director, the President and
Chief Executive Officer of the Company and the general partner of such
partnership, Gayle E. Schmidt, the Executive Vice President, Manufacturing of
the Company, George E. McHenry, Jr., the Secretary, Treasurer and Chief
Financial Officer of the Company and James M. McGrath, the Executive Vice
President, Retail Operations of the Company are limited partners, each of whom
owns 10% of such limited partnership. The Company made payments to the
partnership of $136,600 in fiscal 1995, $136,600 in fiscal 1996 and $67,800
through August 1, 1997. Management believes that the lease terms are comparable
to those that could have been obtained pursuant to an arms length transaction
with unaffiliated parties.
42
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of August 31, 1997 (giving pro forma effect to the
conversion of all outstanding shares of the Series A Preferred Stock and the
Series C Preferred Stock into Common Stock), and as adjusted to reflect the sale
of shares offered hereby, by: (i) each director of the Company who beneficially
owns Common Stock and the Company's executive officers; (ii) all of the
Company's directors and executive officers as a group; (iii) each person known
to the Company to be the beneficial owner of more than 5% of the Common Stock as
of August 31, 1997; and (iv) each stockholder who will sell shares in this
offering.
The number of shares of the Company's Common Stock beneficially owned by
each individual set forth below is determined under the rules of the Securities
and Exchange Commission (the "Commission") and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares as to which an individual
has sole or shared voting power or investment power and any shares which an
individual presently, or within 60 days, has the right to acquire through the
exercise of any stock option or other right. However, such shares are not
deemed to be outstanding for the purpose of computing the percentage of
outstanding shares beneficially owned by any other person. Unless otherwise
indicated, each individual has sole voting and investment power (or shares such
powers with their spouse) with respect to the shares of the Company's Common
Stock set forth in the table below.
<TABLE>
<CAPTION>
Beneficial Ownership
of Common Stock Beneficial Ownership
Before this Offering After this Offering
----------------------------- Number of ----------------------------
Percentage of Shares Percentage of
Officers, Directors, 5% Stockholders Number of Outstanding Being Number of Outstanding
and Selling Stockholders Shares Shares Offered Shares Shares(1)
- ---------------------------------------- ----------- --------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Dennis J. Shaughnessy (2) ............ 1,680,612 36.8% -- 1,185,336 16.8%
J. Roger Sullivan, Jr. (2) ............ 1,680,612 36.8% -- 1,185,336 16.8%
E. Theodore Stolberg (3) ............ 1,313,003 28.7% -- 673,003 9.5%
Richard K. McDonald (4) ............... 635,604 13.9% 46,406 448,291 6.3%
G. Kenneth Macrae (5) ............... 467,438 10.2% -- 336,446 4.7%
William A. Schwartz, Jr. (6) ......... 288,925 6.0% -- 288,925 4.0%
David M. Tracy ........................ 16,250 * -- 16,250 *
Reid V. Eikner ........................ 76,050 1.6% -- 76,050 1.1%
George T. Gorman ..................... 5,221 * -- 5,221 *
Gayle E. Schmidt (7) .................. 77,090 1.7% -- 77,090 1.1%
George E. McHenry, Jr. ............... 76,050 1.6% -- 76,050 1.1%
Grotech Partners IV, L.P. (2) ......... 1,365,608 29.9% 402,445 963,163 13.6%
Grotech Partners III, L.P. ............ 268,974 5.9% 79,266 189,708 2.7%
Grotech III Companion Fund,
L.P. ................................. 29,238 * 8,616 20,622 *
Grotech III Pennsylvania
Fund, L.P. ........................... 16,792 * 4,949 11,843 *
Stolberg Partners, L.P. (3) ............ 1,313,003 28.7% 640,000 673,003 9.5%
M&M General Partnership ............... 58,080 1.3% 17,116 40,964 *
Constitution Partners I, L.P. (4) ...... 420,053 9.2% 123,790 296,263 4.2%
Keystone Ventures IV L.P. (8) .......... 467,438 10.2% 130,992 336,446 4.7%
Penn Janney Fund, Inc. ............... 104,983 2.3% 30,939 74,044 1.1%
Needham Capital Partners, L.P .......... 52,531 1.2% 15,481 37,050 *
All directors and officers as a
group (9) ........................... 4,690,389 91.5% 3,236,809 42.4%
</TABLE>
43
<PAGE>
- ------------
* Less than one percent.
(1) Assumes no exercise of the Underwriters' over-allotment option. Certain of
the Company's stockholders have granted an option to the Underwriters
exercisable during the 30-day period after the date of this Prospectus to
purchase up to an aggregate of 300,000 shares of Common Stock, solely to
cover over-allotments, if any. Assuming such over-allotment option is
exercised in full, the following stockholders are expected to sell
additional shares in the offering, as follows: Grotech Partners IV, L.P.,
105,795 shares; Grotech Partners III, L.P., 20,837 shares; Grotech III
Companion Fund, L.P., 2,265 shares; Grotech III Pennsylvania Fund, L.P.,
1,301 shares; Stolberg Partners, L.P., 73,923 shares; M&M General
Partnership 4,500 shares; Constitution Partners I, L.P., 32,542 shares;
Keystone Venture IV, L.P., 34,435 shares; Richard K. McDonald, 12,199
shares; Penn Janney Fund, Inc., 8,133 shares; and Needham Capital Partners,
L.P., 4,070 shares.
(2) The shares of Common Stock listed in Mr. Shaughnessy's and Mr. Sullivan's
name are owned by Grotech Partners IV, L.P., Grotech Partners III, L.P.,
Grotech III Companion Fund, L.P. and Grotech III Pennsylvania Fund, L.P.,
each a limited partnership in which Mr. Shaughnessy and Mr. Sullivan serve
as directors and or officers of the respective general partners.
(3) The shares of Common Stock listed in Mr. Stolberg's name are owned by
Stolberg Partners, L.P., a limited partnership in which Mr. Stolberg
serves as a director and or officer of its general partner.
(4) A portion of the shares of Common Stock and derivative securities listed in
Mr. McDonald's name are owned by M&M General Partnership and Constitution
Partners I, L.P., each a limited partnership in which Mr. McDonald serves
as a director and or officer of the respective general partners.
(5) The shares of Common Stock listed in Mr. Macrae's name are owned by
Keystone Venture IV, L.P., a limited partnership in which Mr. Macrae
serves as a director and or officer of its general partner.
(6) Includes 228,735 shares issuable upon exercise of currently exercisable
options. Mr Schwartz is married to Gayle E. Schmidt and, accordingly, may be
deemed to beneficially own the shares held by Ms. Schmidt.
(7) Includes 76,050 shares issuable upon exercise of currently exercisable
options. Ms. Schmidt is married to William A. Schwartz, Jr. and,
accordingly, may be deemed to beneficially own the shares held by Mr.
Schwartz.
(8) Includes 22,945 shares of Common Stock issuable upon exercise of currently
exercisable options.
(9) Includes 554,406 shares of Common Stock issuable upon exercise of currently
exercisable options.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is a Delaware corporation authorized to issue 15,000,000
shares of Common Stock, par value $0.01 per share, and 5,000,000 shares of
Preferred Stock, par value $0.01 per share, issuable in series, the relative
rights, limitations, and preferences of which may be designated by the Board of
Directors. As of the date hereof, the Board of Directors has designated the
Series A Preferred Stock and the Series C Preferred Stock both of which will be
converted to common stock in this Offering. The Company currently has 2,503,540
shares of Common Stock, 165 shares of Series A Preferred Stock and 122,730
shares of Series C Preferred Stock outstanding. Upon consummation of this
Offering, 7,072,043 shares of Common Stock and no shares of Preferred Stock
will be outstanding.
Common Stock. The holders of Common Stock are entitled to one vote per
share on all matters that may come before them. Subject to the relative rights,
limitations, and preferences of the Series A Preferred Stock, the Series C
Preferred Stock or any other series of preferred stock that may be issued.
Holders of Common Stock are entitled, among other things: (i) to share ratably
in dividends if, when, and as declared by the Company's Board of Directors out
of legally available funds; and (ii) in the event of the liquidation,
dissolution, or winding-up of the Company, to share ratably in the distribution
of legally available assets, after payment of debts and expenses. The holders
of Common Stock have no preemptive rights to subscribe for additional shares of
any of the Company's capital stock or other securities. No cumulative voting
rights exist with regard to the election of directors.
Preferred Stock. Under the Company's Certificate of Incorporation, the
Board of Directors is authorized, without further stockholder action, to
provide for the issuance of preferred stock in one or more classes or series
within any class or classes, with such designations, preferences,
qualifications, limitations and special or relative rights, if any, as may be
designated by the Board of Directors. The authority of the Board of Directors
includes, but is not limited to, the determination or fixing of the following
with respect to shares of each class or any series thereof: (i) the voting
rights and powers, if any; (ii) the rates and times at which, and the terms and
conditions on which, dividends, if any, will be paid, and any dividend
preferences or rights of cumulation; (iii) whether shares shall be convertible
or exchangeable, and if, so, the terms and provisions thereof; (iv) whether
shares shall be redeemable, and, if so, the terms and conditions thereof; and
(v) the rights and preferences, if any upon the voluntary or involuntary
dissolution, liquidation or winding up of the Company.
Series A 9% Cumulative Convertible Preferred Stock. The Board of Directors
has authorized the issuance of 200 shares of Series A Preferred Stock, 165 of
which have been issued and are outstanding. The Series A Preferred Stock is
senior to the Common Stock and any other capital stock of the Company ranking
junior to the Series A Preferred Stock as to dividends and upon the
liquidation, dissolution or winding up of the Company's affairs. Holders of the
Series A Preferred Stock are entitled to receive cumulative dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor, at the annual rate of 9% per annum until December 31, 1998 or, at the
option of the Company, by the issuance of additional shares of Series A
Preferred Stock. After that date, all dividends are subject to an adjustable
rate based on the treasury bond rate then in effect. Unless all accrued
dividends on the Series A Preferred Stock have been paid or set apart for
payment: (i) no dividends or other distributions may be paid or set apart for
payment on the Common Stock or any other class of capital stock ranking junior
to the Series A Preferred Stock as to dividends or other distributions; and
(ii) the Company is prohibited from repurchasing, redeeming or otherwise
acquiring Common Stock or any other class of capital stock ranking junior to
the Series A Preferred Stock as to dividends and other distributions, except by
conversion of such junior stock into, or exchange of such stock for, stock of
the Company ranking junior to the Series A Preferred Stock as to dividends.
Shares of the Series A Preferred Stock may be redeemed at the option of
the Company at any time, in whole or in part, at a price per share of $100,000,
plus accrued and unpaid dividends (the "Redemption Price"). The Series A
Preferred Stock is not subject to any mandatory redemption, sinking fund or
other similar provisions. Further, the holders of Series A Preferred Stock are
entitled to elect two members to the Company's Board of Directors, but have
only limited voting rights and no preemptive rights or subscription rights in
respect of any capital stock of the Company.
45
<PAGE>
In the event of any voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company, before any distribution of assets may
be made to the holders of any Common Stock or the holders of any other capital
stock of the Company that ranks junior to the Series A Preferred Stock upon
liquidation, the holders of shares of Series A Preferred Stock are entitled to
receive, out of the assets of the Company available for distribution to its
shareholders, an amount equal to the Redemption Price plus any accrued and
unpaid dividends.
Series C 9% Cumulative Convertible Preferred Stock. Pursuant to its
authority under the Certificate of Incorporation, the Board of Directors of the
Company has authorized the issuance of 300,000 shares of Series C Preferred
Stock, 122,730 shares of which have been issued and are outstanding. The Series
C Preferred Stock is senior to all capital stock of the Company as to dividends
and upon liquidation, dissolution or winding up of the Company's affairs.
Holders of the Series C Preferred Stock are entitled to receive cumulative
quarterly dividends out of funds legally available therefor, at the annual rate
of 9% per annum or, at the option of the Company, by the issuance of additional
shares of Series C Preferred Stock. Any quarterly dividends payable after
December 1, 1999, are payable only in cash out of funds legally available
therefor, at the annual rate of 25% per annum. Unless full cumulative quarterly
dividends on all outstanding shares of the Series C Preferred Stock have been
paid or declared and set aside for payment for all past dividend periods: (i)
no dividends, in cash, stock or other property, may be declared or any other
distribution made upon any other capital stock of the Company; and (ii) no
other capital stock of the Company may be redeemed pursuant to a sinking fund
or otherwise purchased or otherwise acquired for any consideration by the
Company.
Shares of the Series C Preferred Stock may be redeemed at the option of
the Company at any time, in whole or in part, at a price per share of $63.50
(subject to adjustments for any stock dividends, combinations, splits or
recapitalizations), plus accrued and unpaid dividends (the "Redemption Price").
The Series C Preferred Stock is not subject to any mandatory redemption,
sinking fund or other similar provisions. Further, the holders of Series C
Preferred Stock are entitled to elect two members to the Company's Board of
Directors, but have only limited voting rights and have no preemptive rights or
subscription rights in respect of any securities of the Company.
In the event of any voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company, before any distribution of assets may
be made to the holders of any other capital stock of the Company, the holders
of shares of Series C Preferred Stock are entitled to receive, out of the
assets of the Company available for distribution to its shareholders, an amount
equal to the Redemption Price plus any accrued and unpaid interest on any
dividends.
Series A Preferred and Series C Preferred Stock
The designation of rights for both the Series A Preferred Stock and the
Series C Preferred Stock provide for the conversion of such preferred stock into
Common Stock at the option of the stockholder in connection with any public
offering accomplished during 1997. The Series A Preferred Stock and the Series C
Preferred Stock of the Company provide for conversion of the face amount of such
preferred stock (including accrued but unpaid dividends) at the price at which
the Common Stock is offered to the public in this offering. Accordingly, the
conversion ratio of the Series A Preferred Stock and the Series C Preferred
Stock is subject to adjustment based upon the public offering price of the
Common Stock. The number of shares issuable upon conversion of all of such
preferred stock assumes a public offering price of $12.00 and that such
conversion will occur on October 31, 1997. Any dividends accrued on the Series A
Preferred Stock and the Series C Preferred Stock prior to this offering and
after October 31, 1997, will be paid in cash by the Company. If the offering
price is lower than $12.00 per share, more shares of Common Stock will be issued
in the conversion; if the offering price is higher than $12.00 per share, fewer
shares of Common Stock will be issued in connection with the conversion of such
preferred stock. At an assumed offering price of $12.00 per share, 1,404,444 and
664,059 shares, respectively, of Common Stock would be issuable upon conversion
of the Series A Preferred Stock and the Series C Preferred Stock in connection
with this offering.
46
<PAGE>
Certain Provisions of the Company's Certificate of Incorporation
and Delaware Law
Anti-takeover Provisions
The Company's Certificate of Incorporation contains provisions described
below that may reduce the likelihood of a change in management or voting
control of the Company without the consent of the Company's Board of Directors.
These provisions could have the effect of delaying, deterring, or preventing
tender offers or takeover attempts that some or a majority of the Company's
stockholders might consider to be in their best interests, including offers or
attempts that might result in a premium over the market price for the Common
Stock, and may have the effect of depressing the market price investors are
willing to pay.
Preferred Stock. The Company's Certificate of Incorporation permits the
Company's Board of Directors to issue at any time, without stockholder
approval, preferred stock with super-voting rights or other features that would
deter or delay a takeover by reducing the ability of a potential acquiror to
acquire the necessary voting shares to obtain control.
Delaware Takeover Statute. The Company is subject to Section 203 of the
Delaware General Corporation Law which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any of a broad range of
business combinations with any "interested stockholder" for a period of three
years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or after such
date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder. An "interested
stockholder" is defined as any person that is (a) the owner of 15% or more of
the outstanding voting stock of the corporation or (b) an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
Other Provisions
Director Liability Limitation. As authorized by the Delaware General
Corporation Law, the Com-pany's Certificate of Incorporation provides that the
Company's directors will have no personal liability to the Company or its
stockholders for monetary damages for breach or alleged breach of the
directors' duty of care. This provision does not apply to: (i) the directors'
duty of loyalty; (ii) acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law; (iii) unlawful dividends,
stock repurchases, or stock redemptions; and (iv) approval of any transaction
from which such director derives an improper personal benefit. In addition, the
Company's Certificate of Incorporation provides that any additional liabilities
permitted to be eliminated by subsequent legislation will automatically be
eliminated without further stockholder vote, unless additional stockholder
approval is required by such legislation.
The principal effect of the limitation of liability provision is that a
stockholder will be unable to pursue an action for monetary damages against a
director of the corporation for breach of the duty of care unless the
stockholder can demonstrate one of the specified bases for liability. This
provision, however, will not eliminate or limit director liability arising in
connection with causes of action brought under the Federal securities laws or
for breaches by directors of the duty of loyalty.
47
<PAGE>
The Company's Certificate of Incorporation does not eliminate its
directors' duty of care. Accordingly, the provision should not affect the
availability of equitable remedies such as an injunction or rescission based
upon a director's breach of the duty of care.
Indemnification. The Company's Certificate of Incorporation also provides
that the Company will indemnify its directors and officers to the fullest
extent permitted by Delaware law, including circumstances in which
indemnification is otherwise discretionary under Delaware law. The Company
generally is required to indemnify its directors and officers against all
judgments, fines, settlements, legal fees, and other expenses incurred in
connection with pending or threatened legal proceedings because of the
director's or officer's position with the Company or another entity that the
director or officer serves at the Company's request, subject to certain
conditions. To receive indemnification, the director or officer must have been
successful in the legal proceeding or acted in good faith; in what was
reasonably believed to be a lawful manner, and in, or not opposed to, the
Company's best interest.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company pursuant to the Company's Certificate of Incorporation, 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. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the Company
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 Company 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.
Transfer Agent and Registrar
Registrar and Transfer Company, 10 Commerce Drive, Cranford, New Jersey
07016-3572 has been appointed as the transfer agent and registrar for the
Common Stock.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, 7,072,043 shares of Common Stock will be
issued and outstanding. The 4,000,000 shares of Common Stock sold in this
offering (or 4,600,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction under the
Securities Act, except that any shares acquired by an "affiliate" of the
Company (as defined in the rules and regulations of the Securities Act) will be
subject to certain of the resale limitations of Rule 144 promulgated under the
Securities Act. Of the remaining 3,072,043 shares (or 2,472,043 shares of the
Underwriters' over-allotment option is exercised in full) of Common Stock
outstanding after this Offering 2,731,226 are restricted securities (the
"Restricted Securities") under the Securities Act, and may not be resold except
pursuant to an effective registration statement under the Securities Act
regarding that sale, in accordance with the provisions of Rule 144, or in other
transactions that are exempt from registration under the Securities Act.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated for purposes of Rule 144), including
an affiliate of the Company, who has beneficially owned Common Stock treated as
restricted securities for at least one (1) year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (i)
one percent of the then outstanding shares of Common Stock (approximately
71,000 shares immediately after this Offering) or (ii) the average weekly
trading volume of Common Stock on the Nasdaq National Market during the four
calendar weeks preceding the date of the sale. These sales are also subject to
certain other requirements with respect to the manner of sale, notice to the
Commission, and availability of current public information about the Company.
Under Rule 144(k), a stockholder is not and has not been an affiliate of the
Company at any time during the three months before a sale and who has
beneficially owned restricted Common Stock for at least two (2) years before
the sale will be entitled to sell the Common Stock immediately, without regard
to the restrictions and requirements described above. In addition, affiliates
of the Company must comply with the requirements of Rule 144, other than the
one-year holding period requirement, to sell any of their shares of Common
Stock that are not treated as restricted securities.
The 2,731,226 Restricted Shares to be outstanding after this offering, are
subject to the lock-up agreements described below. These shares will be eligible
for sale in the public market pursuant to Rule 144 beginning 90 days after the
offering, subject to the manner of sale, volume and other restrictions of Rule
144, and 340,817 shares (36,994 of which are subject to the lock up agreements
described below) will be eligible for sale in the public market immediately
after the offering pursuant to and without the restriction of Rule 144.
The Company is unable to estimate the number of shares that may be sold
from time to time under Rule 144 because the number will depend on the market
price and trading volume for the Common Stock, the personal circumstances of
the sellers, and other factors.
Each of the Company's officers, directors, and certain stockholders of the
Company will agree not to sell, contract to sell, grant any option for the sale
of, or otherwise dispose of any shares of capital stock or any securities
convertible into capital stock currently owned (a total of 3,066,184 shares upon
the completion of this Offering, assuming no exercise of the over-allotment
option) for 180 days after the effective date of the Registration Statement
without the prior written consent of Salomon Brothers Inc.
The Company plans to file a registration statement on Form S-8 to register
shares of Common Stock issuable under the Stock Option Plan. Accordingly,
shares issued pursuant to these stock options will be freely tradeable without
restriction under the Securities Act, except for any shares acquired by an
affiliate of the Company. The Company's Stock Option Plan provides for grants
of options to purchase up to 1,300,000 shares, of which options to acquire
736,190 shares have been granted. See "Management -- Stock Option Plan" and
"Description of Capital Stock."
49
<PAGE>
The Company cannot predict the effect, if any, that future sales of shares
of Common Stock or the availability of shares for sale will have on the market
price of the Common Stock. Nevertheless, sales of substantial amounts of Common
Stock in the public market could adversely affect the prevailing market price
of Common Stock and impair the Company's ability to raise capital by issuing
additional equity securities.
UNDERWRITING
Subject to the terms and subject to the conditions set forth in the
Underwriting Agreement, the Company and the Selling Stockholders have agreed to
sell to each of the Underwriters named below (the "Underwriters"), for whom
Salomon Brothers Inc and Janney Montgomery Scott Inc. are acting as
representatives (the "Representatives"), and each of such Underwriters has
severally agreed to purchase from the Company, and the Selling Stockholders,
the respective number of shares of Common Stock set forth opposite its name
below:
Name Number of Shares
---- ----------------
Salomon Brothers Inc .....................
Janney Montgomery Scott Inc. ...............
---------
Total ................................. 4,000,000
=========
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Common Stock offered hereby (other than those covered by the
Underwriters' over-allotment option described below) if any such shares are
purchased. In the event of a default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, purchase commitments of the
nondefaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose initially to offer the shares of
Common Stock to the public at the offering price set forth on the cover page of
this Prospectus and to certain dealers at such price, less a concession not in
excess of $ per share. The Underwriters may allow and such dealers may
reallow a concession not in excess of $ per share to certain other
dealers. After the initial public offering, the price and such concessions may
be changed by the Underwriters.
The Company and the Selling Stockholders have granted to the Underwriters
an option, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to an aggregate of 600,000 additional shares of
Common Stock at the same price per share as the initial 4,000,000 shares of
Common Stock to be purchased by the Underwriters. The Underwriters may exercise
such options only to cover over-allotments in the sale of the shares of Common
Stock that the Underwriters have agreed to purchase. To the extent the
Underwriters exercise such option, each Underwriter will have a firm
commitment, subject to certain conditions, to purchase the same proportion of
the option shares as the number of shares of Common Stock to be purchased and
offered by such Underwriter in the above table bears to the total number of
shares of Common Stock initially offered by the Underwriters. In the event that
the Underwriters exercise less than their full over-allotment option, the
Company and each Selling Stockholder granting the option will sell the same
proportion of option shares as the number of shares of Common Stock to be sold
by the Company and each such Selling Stockholder bears to the total number of
shares initially sold to the Underwriters by the Company and each such Selling
Stockholder.
50
<PAGE>
The Company, its officers and directors, and the holders of all of the
Common Stock and options to purchase Common Stock outstanding prior to this
offering have agreed not to offer, sell, contract to sell or otherwise dispose
of, directly or indirectly, or announce the offering of their shares of Common
Stock or any securities convertible into or exchangeable for shares of Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of Salomon Brothers Inc.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments the Underwriters may be required to make in respect thereof.
During and after the offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include overallotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members of other
broker-dealers in respect of the shares of Common Stock sold in the offering
for their account may be reclaimed by the syndicate if such shares are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Stock which may be higher than the price that might otherwise prevail in
the open market.
Immediately prior to this offering, there has been no public market for
the Common Stock. The initial public offering price for the Shares was
determined by negotiation among the Company, the Selling Stockholders and
Salomon Brothers Inc. Among the factors considered in determining the initial
public offering price were the earnings and certain other financial and
operating information of the Company in recent periods, the future prospects of
the Company and its industry in general, the general condition of the
securities market at the time of this offering and the market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. There can, however, be no
assurance that the prices at which the Common Stock will sell in the public
market after this offering will not be lower than the price at which they are
sold by the Underwriters.
Penn Janney Fund, Inc. ("Penn Janney"), which owns 104,983 shares of Common
Stock and is selling 30,939 shares in this offering, is an affiliate of Janney
Montgomery Scott Inc., an Underwriter of this offering. See "Principal and
Selling Stockholders". Penn Janney also holds $224,242 of the Subordinated Debt,
all of which will be repaid with the proceeds of this offering. See "Use of
Proceeds". In addition, FMH Incorporated holds options to purchase 22,945 shares
of Common Stock with an exercise price of $7.69 per share. Michael J. Mufson, a
Senior Vice President and Co-Director of Investment Banking at Janney Montgomery
Scott Inc. and Michael C. Foley, Senior Vice President of Syndication and a
Director of Janney Montgomery Scott Inc., each own 25.5% of the equity interest
in FMH Incorporated. Because Janney Montgomery Scott Inc. is a member of the
National Association of Securities Dealers Inc. (the "NASD"), the Conduct Rules
of the NASD require that the public offering price of the Common Stock be no
higher than that recommended by a "qualified independent underwriter" meeting
certain standards. Salomon Brothers Inc has assumed the responsibilities of
acting as a qualified independent underwriter and will recommend the maximum
offering price per share of Common Stock as set forth on the cover page of this
Prospectus.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Sayles & Lidji, A Professional
Corporation, Dallas, TX. Certain legal matters in connection with the sale of
the issuance of the shares of Common Stock offered hereby will be passed upon
for the Underwriters by Dewey Ballantine, New York, NY.
51
<PAGE>
EXPERTS
The consolidated financial statements of the Company as of January 31,
1996 and 1997, and for the year ended January 31, 1997, the ten months ended
January 31, 1996, and the year ended March 31, 1995, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance on 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
S-1 (together with all amendments and exhibits filed or to be filed in
connection therewith, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Common Stock
offered hereby. This Prospectus is a part of and does not include all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission.
For further information regarding the Company and the Common Stock offered
by this Prospectus, reference is made to the Registration Statement and
exhibits and schedules thereto, which may be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and the
regional offices of the Commission located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can be obtained at
prescribed rates by writing to the Commission, Public Reference Section, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Commission
also maintains a Web site that contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov.
52
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
-----
Report of Independent Auditors .............................. F-2
Consolidated Balance Sheets ................................. F-3
Consolidated Statements of Operations ........................ F-5
Consolidated States of Changes in Stockholders' Equity ...... F-6
Consolidated Statements of Cash Flows ........................ F-7
Notes to Consolidated Financial Statements .................. F-8
F-1
<PAGE>
Report of Independent Auditors
Board of Directors
U.S. Vision, Inc.
We have audited the accompanying consolidated balance sheets of U.S. Vision,
Inc. as of January 31, 1997 and 1996, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the year ended
January 31, 1997, the ten months ended January 31, 1996 and the year ended March
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of U.S. Vision, Inc.
at January 31, 1997 and 1996, and the consolidated results of its operations and
its cash flows for the year ended January 31, 1997, the ten months ended January
31, 1996 and the year ended March 31, 1995 in conformity with generally accepted
accounting principles.
The foregoing report is in the form that will be signed upon the completion of
the restatement of capital accounts described in Note 12 to the financial
statements.
Philadelphia, Pennsylvania ERNST & YOUNG LLP
March 18, 1997, except for
Note 12 as to which the
date is October 31, 1997
F-2
<PAGE>
U.S. Vision, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share data and per share amounts)
<TABLE>
<CAPTION>
January 31, July 31,
1996 1997 1997
---------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash ....................................... $ 1,529 $ 374 $ 428
Accounts receivable ........................ 7,605 8,706 12,420
Inventory ................................. 18,663 18,125 19,790
Prepaid expenses and other ............... 172 423 450
--------- --------- ---------
Total current assets ........................ 27,969 27,628 33,088
Property, plant and equipment:
Land ....................................... 937 549 549
Buildings ................................. 5,907 6,792 7,033
Leasehold improvements ..................... 8,497 8,612 8,671
Machinery and equipment .................. 16,969 17,143 17,307
Furniture and fixtures ..................... 11,232 15,684 18,761
Automobiles ................................. 943 482 482
--------- --------- ---------
44,485 49,262 52,803
Less accumulated depreciation ............ 23,308 25,882 27,693
--------- --------- ---------
21,177 23,380 25,110
Goodwill (net of $236, $319, and $361 in accumu-
lated amortization, respectively) 3,083 3,000 2,958
Other ....................................... 804 395 678
--------- --------- ---------
$ 53,033 $ 54,403 $ 61,834
========= ========= =========
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
January 31, July 31,
1996 1997 1997
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable -- trade ........................ $ 7,820 $ 7,173 $ 9,917
Accrued expenses and other ........................ 6,891 7,141 5,088
Current portion of obligation under capital lease . 58 586 536
Current portion of long-term debt ............... 948 1,407 10,224
--------- --------- ---------
Total current liabilities ........................... 15,717 16,307 25,765
Obligations under capital lease ..................... 225 567 946
Long-term debt, less current portion ............... 21,291 22,056 16,784
Other long-term liabilities ........................ 3,903 1,663 1,595
Stockholders' equity:
9% Series A cumulative preferred stock;
$100,000 face value:
Authorized shares -- 200
Issued and outstanding shares -- 158 at
January 31, 1997, 144 at January 31,
1996, and 165 at July 31, 1997 ............... 14,422 15,765 16,483
9% Series C cumulative convertible preferred
stock; $63.50 face value:
Authorized shares -- 300,000
Issued and outstanding shares - 120,969 at
January 31, 1997, 110,936 at January 31,
1996, and 122,730 at July 31, 1997 ............ 7,044 7,682 7,793
Common stock, $0.01 par value:
Authorized shares -- 15,000,000
Issued and outstanding shares - 895,765 at
January 31, 1997, 916,890 at January 31,
1996 and 2,503,540 at July 31, 1997 ......... 9 9 25
Additional paid-in capital ........................ 70,905 70,683 70,914
Accumulated deficit .............................. (80,483) (80,329) (78,471)
--------- --------- ---------
Total stockholders' equity ........................... 11,897 13,810 16,744
--------- --------- ---------
$ 53,033 $ 54,403 $ 61,834
========= ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
U.S. Vision, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year 10 months Year Six months Six months
ended ended ended ended ended
March 31, January 31, January 31, July 31, July 31,
1995 1996 1997 1996 1997
------------ ------------- ------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales ........................ $ 112,283 $ 91,172 $ 111,544 $ 57,372 $ 62,053
Cost of sales .................. 35,139 29,652 34,273 17,745 19,438
---------- ---------- ---------- ---------- ----------
Gross profit ..................... 77,144 61,520 77,271 39,627 42,615
Operating expenses:
Selling, general and adminis-
trative expenses 70,506 61,598 68,366 34,391 36,612
Depreciation and amortization 3,654 2,608 3,271 1,599 1,855
Write-off of goodwill ......... -- 8,067 -- -- --
Writedown of Dallas facility 2,100 1,305 -- -- --
Store closings and disposals . -- 10,473 -- -- --
---------- ---------- ---------- ---------- ----------
76,260 84,051 71,637 35,990 38,467
---------- ---------- ---------- ---------- ----------
Operating income (loss) ......... 884 (22,531) 5,634 3,637 4,148
Other income (expense):
Other income .................. 16 59 18 14 2
Interest expense ............ (1,459) (2,100) (3,517) (1,566) (1,216)
---------- ---------- ---------- ---------- ----------
(1,443) (2,041) (3,499) (1,552) (1,214)
---------- ---------- ---------- ---------- ----------
Income (loss) before income tax
benefit ........................ (559) (24,572) 2,135 2,085 2,934
Income tax benefit ............... (463) (1,686) -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) ............... $ (96) $ (22,886) $ 2,135 $ 2,085 $ 2,934
========== ========== ========== ========== ==========
Net income (loss) per share --
supplemental ..................... $ (.02) $ (5.01) $ .44 $ .43 $ .61
========== ========== ========== ========== ==========
Shares used in computing income
per share ..................... 4,572,043 4,572,043 4,836,458 4,836,458 4,836,458
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
U.S. Vision, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(In thousands, except share data)
<TABLE>
<CAPTION>
9% Series C
9% Series A Cumulative
Cumulative Convertible
Preferred Stock Preferred Stock
($100,000 face value ($63.50 face value
per share) per share)
-------------------- --------------------
Shares Amount Shares Amount
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Balance at March 31, 1994 ...... 130 $ 13,000 -- $ --
---- --------- ------- -------
Net loss ........................
Effect of debt for equity
exchange between stock-
holder and Royal Acquisition
Associates including costs
incurred net of income taxes
of $801,000 .....................
Issuance of preferred stock ...... 100,000 6,350
Dividends on preferred stock ... 4 390 3,000 191
---- --------- ------- -------
Balance at March 31, 1995 ...... 134 13,390 103,000 6,541
Net loss ........................
Cash in lieu of fractional shares
after reverse stock split ......
Additional cost of equity
exchange ........................
Dividends on preferred stock ... 10 1,032 7,936 503
---- --------- ------- -------
Balance at January 31, 1996 ...... 144 14,422 110,936 7,044
Net income .....................
Additional cost of equity
exchange ........................
Dividends on preferred stock ... 14 1,343 10,033 638
---- --------- ------- -------
Balance at January 31, 1997 ...... 158 15,765 120,969 7,682
Net income (unaudited) .........
Dividends on preferred stock
(unaudited) ..................... 7 718 5,656 358
Conversion of warrants ......... (3,895) (247)
---- --------- ------- -------
Balance at July 31, 1997
(unaudited) ..................... 165 $ 16,483 122,730 $ 7,793
==== ========= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Common Stock
($0.01 par value
per share) Additional Total
---------------------- Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------------ -------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1994 ...... 671,450 $ 7 $ 71,539 $ (55,385) $ 29,161
Net loss ........................ (96) (96)
Effect of debt for equity
exchange between stock-
holder and Royal Acquisition
Associates including costs
incurred net of income taxes
of $801,000 ..................... (166) (166)
Issuance of preferred stock ...... 245,440 2 36 6,388
Dividends on preferred stock ... (581) --
--------- ----- -------- ---------- ----------
Balance at March 31, 1995 ...... 916,890 9 71,409 (56,062) 35,287
Net loss ........................ (22,886) (22,886)
Cash in lieu of fractional shares
after reverse stock split ...... (407) (407)
Additional cost of equity
exchange ........................ (97) (97)
Dividends on preferred stock ... (1,535)
--------- ----- -------- ---------- ----------
Balance at January 31, 1996 ...... 916,890 9 70,905 (80,483) 11,897
Net income ..................... 2,135 2,135
Additional cost of equity
exchange ........................ (21,125) (222) (222)
Dividends on preferred stock ... (1,981)
--------- ----- -------- ---------- ----------
Balance at January 31, 1997 ...... 895,765 9 70,683 (80,329) 13,810
Net income (unaudited) ......... 2,934 2,934
Dividends on preferred stock
(unaudited) ..................... (1,076) --
Conversion of warrants ......... 1,607,775 16 231 --
--------- ----- -------- ---------- ----------
Balance at July 31, 1997
(unaudited) ..................... 2,503,540 $ 25 $ 70,914 $ (78,471) $ 16,744
========= ===== ======== ========== ==========
</TABLE>
See accompanying notes.
F-6
<PAGE>
U.S. Vision, Inc.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Ten months Six months Six months
Year ended ended Year ended ended ended
March 31, January 31, January 31, July 31, July 31,
1995 1996 1997 1996 1997
------------ ------------- ------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) ........................ $ (96) $ (22,886) $ 2,135 $ 2,085 $ 2,934
Adjustments to reconcile net income (loss) to
net cash provided by (used in)
operating activities:
Depreciation and amortization ......... 3,911 2,823 3,719 1,821 1,881
Interest expense ........................ -- -- 1,637 -- --
Deferred tax benefit .................. (269) (1,958) -- -- --
Decrease in deferred taxes ............ (289) (26) -- -- --
Goodwill write-off ..................... -- 8,067 -- -- --
Writedown of Dallas facility ............ 2,100 1,305 -- -- --
Store closings and lease termination
payments .............................. -- 640 (3,513) (1,839) (845)
Changes in operating assets and
liabilities:
Accounts receivable .................. (1,476) 287 (1,101) (376) (3,715)
Inventory ........................... (1,968) 1,240 538 707 (1,665)
Other .............................. 126 103 (118) (132) (337)
Accounts payable -- trade ............ 651 2,807 (647) (1,353) 2,744
Accrued expenses and other ......... (2,285) 6,081 1,522 444 (1,276)
---------- ---------- ---------- --------- ---------
Net cash provided by (used in)
operating activities .................. 405 (1,517) 4,172 1,357 (279)
Cash flows from investing activities
Additions to property, plant, and
equipment, net ........................... (4,426) (4,825) (4,492) (1,411) (3,541)
---------- ---------- ---------- --------- ---------
Cash flows from financing activities
Costs to exchange debt for equity ......... (1,434) (97) (222) (125) --
Cash in lieu of shares after reverse stock
split .................................... -- (407) -- -- --
Proceeds from borrowings:
Revolving line of credit ............... 110,008 90,805 106,034 52,431 59,362
Term loan .............................. -- -- 8,000 -- --
RAA Term loan ........................... -- 7,200 -- -- --
DRPA loans .............................. 4,680 -- -- -- --
Repayments of borrowings:
Revolving line of credit ............... (104,548) (92,348) (111,988) (53,637) (55,105)
Term loans .............................. -- -- (2,099) (156) (571)
Vendor notes and other .................. (1,745) (810) (560) 727 188
---------- ---------- ---------- --------- ---------
Net cash provided by (used in)
financing activities .................. 6,961 4,343 (835) (760) 3,874
---------- ---------- ---------- --------- ---------
Net increase (decrease) in cash ......... 2,940 (1,999) (1,155) (814) 54
Cash at beginning of year ............... 588 3,528 1,529 1,529 374
---------- ---------- ---------- --------- ---------
Cash at end of year ..................... $ 3,528 $ 1,529 $ 374 $ 715 $ 428
========== ========== ========== ========= =========
Supplemental disclosure of cash flow
data
Interest paid ........................... $ 1,021 $ 1,799 $ 990 $ 1,332 $ 1,117
========== ========== ========== ========= =========
Income tax payments, net of refunds ...... $ 107 $ -- $ -- $ -- $ --
========== ========== ========== ========= =========
Capital lease obligations incurred ...... $ -- $ 306 $ 1,070 $ 330 $ 696
========== ========== ========== ========= =========
</TABLE>
See accompanying notes.
F-7
<PAGE>
U.S. Vision, Inc.
Notes to Consolidated Financial Statements
January 31, 1997 and 1996
(Information with respect to the six months ended
July 31, 1996 and 1997 is unaudited)
1. Organization
U.S. Vision, Inc. (formerly Royal International Optical Inc.) and
Subsidiaries (the Company) was formed in March 1990 and incorporated in the
Commonwealth of Pennsylvania. In March 1997, the Company reincorporated in the
State of Delaware. The Company's principal business activity is the retail sale
and manufacture of prescription eyewear through approximately 550 stores
located throughout the United States.
On December 2, 1994 all of the interest of Westinghouse Credit Corporation
(Westinghouse), the Company's principal shareholder at that time, was acquired
by Royal Associates Acquisition Partnership ("RAA"), a Delaware general
partnership for the aggregate purchase price of $19,400,000. The "RAA"
Partnership was dissolved in Fiscal 1995 and the interest of the Partnership in
the Company was transferred to the individual partners. Any reference to a
transaction with "RAA" will be referred to as a transaction with "investors."
The interest that the investors acquired from Westinghouse is described as
follows:
(a) Senior Subordinated Term Loan - This loan with an outstanding balance of
$6,350,000 when acquired from Westinghouse, was exchanged for 100,000
shares of a new 9% Series C Cumulative Preferred Stock with a liquidation
preference value of $63.50 per share. The Series C Preferred Stock may be
convertible into the Company's common stock should certain events occur.
The Series C Preferred Stock pays a quarterly dividend (payable in cash
or additional shares of stock) at an annual rate of 9%. Effective for
dividend payment dates after December 1, 1999, the dividend rate will
increase to 25%. The Company issued 3,000, 7,936, and 10,033 additional
shares in fiscal 1994, 1995 and 1996, respectively, to satisfy the
dividend requirement. The Company issued 5,656 additional shares in the
first six months of 1997 to satisfy the dividend requirements. Also, the
shareholders used 3,895 shares to exercise 1,607,775 warrants to purchase
common stock in first six months of 1997.
(b) 9% Series A Cumulative Preferred Stock - The Investors acquired the
Series A Preferred Stock from Westinghouse with a face value of
$13,000,000 ($100,000 per share). The Series A Preferred Stock pays a
quarterly dividend (payable in cash or additional shares of stock) at an
annual rate of 9%. The Company issued 4, 10, and 14 additional shares in
fiscal 1994, 1995, and 1996, respectively, to satisfy the dividend
requirements. The Company issued 7 additional shares in the first six
months of 1997 to satisfy the dividend requirements. The Series A
Shareholders have the right to elect two directors and have other limited
voting rights.
(c) Common Stock - The investors exercised a portion of its acquired warrants
to purchase 245,440 shares of the Company's stock at $0.01 per share,
which together with the 390,910 shares previously acquired increased
their holdings of common stock to 636,350 shares.
(d) Common Stock Warrants - After exercising 245,440 warrants and canceling
warrants to purchase 631,150 shares of common stock, the investors had
warrants to purchase 1,607,775 additional shares of common stock. On
February 1, 1997 all of the outstanding warrants were exercised. The
warrant holders used unpaid paid-in-kind dividends on the Series C
preferred stock to pay the exercise price.
(e) Guarantee on Revolving Line of Credit - The investors agreed to guarantee
a $3,600,000 overadvance on the Company's revolving line of credit until
November 30, 1995. The guarantee was extinguished in January 1996 at
which time the investors made a $7.2 million subordinated loan to the
Company which is described in Note 6.
F-8
<PAGE>
U.S. Vision, Inc.
Notes to Consolidated Financial Statements -- (Continued)
January 31, 1997 and 1996
(Information with respect to the six months ended
July 31, 1996 and 1997 is unaudited)
1. Organization -- (Continued)
As part of the above transaction the unpaid interest payments on the Senior
Subordinated Term Loan in the amount of $1,306,000, net of $801,000 of income
taxes, was forgiven. The Company incurred legal, accounting and other costs to
complete the transaction in the amount of $1,753,000, including $821,000 paid to
the investors for reimbursement of costs incurred by the investors to complete
the transaction and $182,000 paid to officers and directors of the Company for
reimbursements of deposits paid to Westinghouse to allow the Company to obtain
an option to acquire Westinghouse's position. As the investors are the majority
shareholders, these transactions were accounted for as capital contributions.
On May 12, 1995, the Board of Directors of the Company effected a
1,000-for-1 reverse stock split. All shareholders who had fractional shares
after the reverse split received cash at the rate of $1.25 per pre-split share.
The Company paid $407,000 for the fractional shares. Subsequent to the reverse
split, the Company deregistered its common stock under the Securities and
Exchange Act of 1934, as amended, and delisted its common stock for trading on
the National Association of Securities Dealers, Inc. stock exchange. All share
data for all periods presented herein reflects the reverse stock split.
As further discussed in Note 12, in September 1997 the Company filed a
registration statement in anticipation of a proposed underwritten public
offering by the Company of 4,000,000 shares of the Company's Common Stock, of
which 1,500,000 shares will be sold by current shareholders. In connection with
the sale of Common Stock, the Company recapitalized the Common Stock by
effecting a 64-for-1 stock dividend.
2. Significant Accounting Policies
Fiscal Year
Effective January 31, 1996, the Company changed its fiscal year from March
31 to January 31. Fiscal years are identified according to the calendar year in
which they begin. The fiscal year ended January 31, 1997 will be referred as
"fiscal 1996."
Interim Financial Information
The financial statements and disclosures included herein for the six months
ended July 31, 1996 and 1997 are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial statements in
accordance with generally accepted accounting principles for these interim
periods have been included. The results of interim periods are not necessarily
indicative of the results to be obtained for a full fiscal year.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all of its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-9
<PAGE>
U.S. Vision, Inc.
Notes to Consolidated Financial Statements -- (Continued)
January 31, 1997 and 1996
(Information with respect to the six months ended
July 31, 1996 and 1997 is unaudited)
2. Significant Accounting Policies -- (Continued)
Earnings Per Share
Historical per share data in accordance with Accounting Principles Board
Opinion No. 15, "Earnings Per Share," is excluded from the Company's financial
statements since such per share data is not indicative of the continuing
capital structure of the Company. See Note 12
Earnings per share -- supplemental reflected in the consolidated statements
of income has been computed using the weighted average number of shares
outstanding after giving effect to the 64 for 1 stock dividend described in Note
12, and also gives effect to the exchange of all outstanding Series A Preferred
Stock and Series C Preferred Stock for Common Stock upon the closing of the
Company's initial public offering (determined using the if-converted method)
also as described in Note 12. In addition, common share equivalents such as
warrants and options are included in the computation for the year ended January
31, 1997 and the six months ended July 31, 1996 and 1997, respectively. These
common share equivalents have not been included in the computation for the year
ended March 31, 1995 and the ten months ended January 31, 1996 as this effect
would be anti-dilutive. Primary and fully diluted earnings per share are the
same for all periods presented.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted for annual and
quarterly periods ending after December 15, 1997. At that time, the Company will
be required to change the method currently used to compute earnings per share
and to restate all prior periods presented. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options and
warrants will be excluded. The impact is estimated to result in an increase in
primary earnings per share for the year ended March 31, 1995, the ten months
ended January 31, 1996, and the year ended January 31, 1997 of 0, 0, and .03,
respectively. The impact of Statement 128 on the calculation of fully diluted
earnings per share for these years is not expected to be material.
Inventory
Inventory, principally frames and lenses, is valued at the lower of cost or
market, determined by the first-in, first-out method.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation, which
includes assets under capital leases, is computed using the straight-line method
for financial reporting purposes and accelerated methods for income tax
purposes. The general range of useful lives for financial reporting is 10 to 30
years for buildings and improvements, and 3 to 10 years for automobiles,
machinery and equipment, and furniture and fixtures. Depreciation expense
totalled $3,344,000, $2,347,000 and $3,178,000, in fiscal 1994, 1995 and 1996,
respectively. Depreciation expense totalled $1,552,000 and $1,811,000 for the
six months ended July 31, 1996 and 1997, respectively.
Goodwill
Goodwill arising from business acquisitions is amortized on a straight-line
basis, over 40 years. See Note 9. The realizability of goodwill is evaluated
periodically as events or circumstances indicate a possible inability to recover
their carrying amount. Such evaluation is based on various analyses, including
cash flow and profitability projections.
F-10
<PAGE>
U.S. Vision, Inc.
Notes to Consolidated Financial Statements -- (Continued)
January 31, 1997 and 1996
(Information with respect to the six months ended
July 31, 1996 and 1997 is unaudited)
2. Significant Accounting Policies -- (Continued)
Advertising
The Company expenses advertising costs as incurred. Advertising expense was
$7,202,000, $6,426,000 and $6,766,000 in fiscal 1994, 1995 and 1996,
respectively. Advertising expense was $3,368,000 and $4,036,000 for the six
months ended July 31, 1996 and 1997, respectively.
Store Openings and Closings
The noncapital expenditures incurred in opening new stores or remodeling
existing stores are expensed as incurred. When a store is closed, the remaining
investment in leasehold improvements and the amount estimated to terminate the
lease are expensed.
Revenue Recognition
Revenue is generally recognized when merchandise is delivered or shipped to
the customer.
Accounting for Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. The
effect of applying Statement 123's fair value method to the Company's
stock-based awards results in pro forma net income and earnings per share that
are not materially different from amounts reported.
Reclassification
Certain prior-year amounts have been reclassified to conform with the
current-year presentation.
3. Inventory
Inventory is as follows (in thousands):
January 31,
--------------------- July 31,
1996 1997 1997
--------- --------- ------------
(Unaudited)
Finished goods ...... $15,571 $15,204 $16,645
Work-in-process ...... 1,005 1,196 1,158
Raw materials ......... 2,087 1,725 1,987
-------- -------- --------
$18,663 $18,125 $19,790
======== ======== ========
4. Accrued Expenses and Other
Accrued expenses and other are as follows (in thousands):
<TABLE>
<CAPTION>
January 31,
------------------- July 31,
1996 1997 1997
-------- -------- ------------
(Unaudited)
<S> <C> <C> <C>
Estimated lease payments on closed stores ...... $3,097 $1,825 $1,048
Compensation ................................. 1,400 1,825 1,828
Rent .......................................... 903 1,058 1,537
Other .......................................... 1,491 2,433 675
------- ------- -------
$6,891 $7,141 $5,088
======= ======= =======
</TABLE>
F-11
<PAGE>
U.S. Vision, Inc.
Notes to Consolidated Financial Statements -- (Continued)
January 31, 1997 and 1996
(Information with respect to the six months ended
July 31, 1996 and 1997 is unaudited)
5. Writedown of the Dallas Facility
In February 1995, the Company decided to move its manufacturing operations
from Dallas, Texas to Blackwood, New Jersey. As part of the move to New Jersey,
the Company decided to sell the Dallas facility. Accordingly, the Company
recorded a charge of $2,100,000 for the year ended March 31, 1995 to reduce the
book value of the Dallas facility to its estimated net realizable value. In
January, 1996 the Company recorded an additional charge of $1,305,000 to further
reduce the book value of the Dallas facility to its revised estimate of net
realizable value of $1,300,000.
6. Long-Term Debt
Long-term debt is as follows (in thousands):
<TABLE>
<CAPTION>
January 31,
-------------------- July 31,
1996 1997 1997
-------- --------- ------------
(Unaudited)
<S> <C> <C> <C>
$7,000,000 Revolving Line of Credit which expires on
December 31, 1998 (with automatic one year extensions).
Interest is payable monthly at prime, as defined, plus
1.0% (9.25% at January 31, 1997). The
revolving line of credit is secured by substan-
tially all the assets of the Company................... $ -- $ 2,010 $ 6,399
$8,000,000 Term Loan. Interest is due monthly at
prime, as defined, plus 1.5% (9.75% at January 31,
1997). Requires quarterly principal payments of
$285,714 nd a final payment of $2,571,428 on
December 31, 2001. The term loan is secured by
substantially all the assets of the Company............. -- 8,000 7,428
DRPA Term Loan due February 1, 2010. Requires
quarterly payments of $13,322, which includes
principal and interest at 2%. Final payment of
i$702,434 s due on January 31, 2010. The term
loan is secured by the land and building of the Cor-
porate headquarters..................................... 1,178 1,148 1,133
DRPA Term Loan due February 1, 2010. Requires
quarterly payments of $25,313, which includes
principal and interest at 2%. Final payment of
i$1,334,625 s due on January 31, 2010. The term
loan is secured by the land and building of the New
Jersey manufacturing facility. ....................... 2,238 2,181 2,152
DRPA Term Loan due on June 7, 2005. Requires
quarterly payments of $33,175, which includes
principal and interest at 2%. The term loan is
secured by certain of the equipment located in the
New Jersey manufacturing facility. .................... 1,118 1,007 950
</TABLE>
F-12
<PAGE>
U.S. Vision, Inc.
Notes to Consolidated Financial Statements -- (Continued)
January 31, 1997 and 1996
(Information with respect to the six months ended
July 31, 1996 and 1997 is unaudited)
6. Long-Term Debt -- (Continued)
<TABLE>
<CAPTION>
January 31,
----------------------- July 31,
1996 1997 1997
---------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Subordinated Term Loan payable to investors. Inter-
est accrued at 20% per annum in fiscal 1996
(reduced to 12% per annum on January 29, 1997).
The principal balance and all accrued interest is
payable in full on March 1, 1998. ............... $ 7,200 $ 8,837 $ 8,837
Other .......................................... 508 280 109
Revolving Line of Credit, repaid on December 19,
1996. .......................................... 8,096 -- --
Term Loan, repaid on December 19, 1996. ......... 1,901 -- --
--------- --------- ---------
22,239 23,463 27,008
Less current portion ........................... 948 1,407 10,224
--------- --------- ---------
$ 21,291 $ 22,056 $ 16,784
========= ========= =========
</TABLE>
The revolving credit and term loan agreements contain various financial
covenants pertaining to net worth, current ratio, and ratio of cash flow to
fixed charges. At July 31, 1997, the Company was in compliance with all
financial covenants.
Borrowings under the revolving line of credit are limited based upon a
formula. Total availability as determined by the formula, at January 31, 1997,
was $7,000,000, of which $2,010,000 was outstanding and $4,990,000 was
available. Total availability as determined by the formula, at July 31, 1997,
was $7,000,000, of which $6,399,000 was outstanding and $601,000 was available.
The carrying amounts of the Company's borrowings approximate their fair
value.
Maturities of long-term debt for each of the next five years and thereafter
are as follows (in thousands):
Year ended January 31,
---------------------
1998 ..................................... $ 1,407
1999 ..................................... 12,367
2000 ..................................... 1,377
2001 ..................................... 1,370
2002 ..................................... 3,658
Thereafter ............................... 3,284
---------
$ 23,463
=========
7. Lease Commitments
Capital lease obligations are machinery and equipment leases which expire
on various dates through 2001. Assets under capital leases at January 31, 1996
and 1997 were $355,000 and $1,303,000 net of accumulated amortization of
$715,000 and $768,000, respectively.
F-13
<PAGE>
U.S. Vision, Inc.
Notes to Consolidated Financial Statements -- (Continued)
January 31, 1997 and 1996
(Information with respect to the six months ended
July 31, 1996 and 1997 is unaudited)
7. Lease Commitments -- (Continued)
At January 31, 1997, the Company operated 66 of its retail stores under
operating leases with varying terms. The leases expire at various dates from
fiscal 1997 to fiscal 2002, and many have renewal options for up to five
additional years. The leases provide for minimum lease payments and, in many
cases, require payment of additional rents if sales exceed stipulated levels.
These additional rents are not significant. The leases also require, in most
cases, payment of taxes and common area expenses such as maintenance, security,
and other expenses. The Company also operates other facilities under operating
leases. Rent expense for all operating leases was $17,498,000, $13,974,000 and
$15,519,000 in fiscal 1994, 1995 and 1996, respectively. Total rent expense was
$7,723,000 and $8,597,000 for the six months ended July 31, 1996 and 1997,
respectively.
Future minimum payments required under noncancelable capital leases and
operating leases with lease terms in excess of one year as of January 31, 1997,
are as follows (in thousands):
Capital Operating
Year ended January 31 Leases Leases
- --------------------- --------- ----------
1998 ............................................. $ 429 $ 2,072
1999 ............................................. 429 1,403
2000 ............................................. 344 1,081
2001 ............................................. 47 631
2002 ............................................. -- 184
Thereafter ....................................... -- 88
------ --------
Total lease payments ........................... 1,249 $ 5,459
========
Less amount representing interest ............... (96)
------
Present value of minimum capitalized lease payments 1,153
Current portion ................................. 586
------
Long-term portion .............................. $ 567
======
At January 31, 1997, the Company operated 488 licensed optical departments
under leases with expiration dates ranging from 5 years to 60 days. These leases
provide for monthly lease payments calculated as a percentage of sales. Rent
expense under these leases was $11,227,000, $9,244,000 and $12,580,000, for the
year ended March 31, 1995, the ten months ended January 31, 1996 and the year
ended January 31, 1997, respectively. Rent expense under the leases was
$6,215,000 and $7,158,000, for the six months ended July 31, 1996 and July 31,
1997, respectively.
8. Income Taxes
The components of income tax provision (benefit) are as follows (in
thousands):
<TABLE>
<CAPTION>
10 months Quarter Quarter
Year ended ended Year ended ended ended
March 31, January 31, January 31, April 30, April 30,
1995 1996 1997 1996 1997
------------ ------------- ------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Current provision (benefit) ...... $ (194) $ 272 $ -- $ -- $ --
Deferred benefit .................. (269) (1,958) -- -- --
------- --------- ----- ----- -----
Income tax benefit ............... $ (463) $ (1,686) $ -- $ -- $ --
======= ========= ===== ===== =====
</TABLE>
F-14
<PAGE>
U.S. Vision, Inc.
Notes to Consolidated Financial Statements -- (Continued)
January 31, 1997 and 1996
(Information with respect to the six months ended
July 31, 1996 and 1997 is unaudited)
8. Income Taxes -- (Continued)
Deferred income tax liabilities and assets result from differences in the
tax basis of assets and liabilities and their reported amounts in the
consolidated financial statements. Significant components of the Company's
deferred income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
10 months Six months Six months
ended Year ended ended ended
January 31, January 31, July 31, July 31,
1996 1997 1996 1997
------------- ------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Deferred tax liability:
Depreciation ........................... $ 2,028 $ 1,739 $ 1,884 $ 1,511
Deferred tax assets:
Store closing reserves .................. 2,676 1,324 1,993 793
Inventory costs ........................ 1,548 423 1,092 482
Other ................................. 233 104 153 113
Net operating loss carryover ............ 8,915 10,366 9,177 9,487
--------- --------- --------- --------
13,372 12,217 12,415 10,875
Valuation allowance for deferred tax assets (11,344) (10,478) (10,531) (9,364)
--------- --------- --------- --------
Total deferred tax assets ............... 2,028 1,739 1,884 1,511
--------- --------- --------- --------
Net deferred tax liability ............... $ -- $ -- $ -- $ --
========= ========= ========= ========
</TABLE>
The deferred tax valuation reserve increased $4,141,000 and decreased
$866,000 for 1996 and 1997, respectively. The deferred tax valuation reserve
decreased $813,000 and $1,114,000 for the six months ended July 31, 1996 and
July 31, 1997, respectively. The valuation reserve has been established to
eliminate the benefit of all net deferred tax assets.
A reconciliation of the income tax provision (benefit) with amounts
determined by applying the U.S. Statutory rate to income (loss) before income
tax benefit is as follows (in thousands):
<TABLE>
<CAPTION>
10 months Six months Six months
Year ended ended Year ended ended ended
March 31, January 31, January 31, July 31, July 31,
1995 1996 1997 1996 1997
------------ ------------- ------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Income tax provision (benefit) at the
statutory rate .................. $ (190) $ (8,355) $ 726 $ 709 $ 997
Amortization of goodwill ......... 102 2,828 28 14 14
Nondeductible expenses ............ 77 53 32 16 16
Change in realization of deferred
asset ........................... (377) 19 (13) (6) (6)
Increase (decrease) in deferred tax
asset valuation reserve ......... (133) 4,141 (866) (813) (1,114)
State income tax provision (benefit)
and other taxes .................. 58 (372) 93 80 93
------- --------- ------ ------- ---------
Income tax benefit ............... $ (463) $ (1,686) $ -- $ -- $ --
======= ========= ====== ======= =========
</TABLE>
F-15
<PAGE>
U.S. Vision, Inc.
Notes to Consolidated Financial Statements -- (Continued)
January 31, 1997 and 1996
(Information with respect to the six months ended
July 31, 1996 and 1997 is unaudited)
8. Income Taxes -- (Continued)
As of January 31, 1997, the Company had net operating loss carryforwards of
approximately $27,300,000 which will begin to expire in the year 2006.
Approximately $15,900,000 of these carryforwards are available to offset future
taxable income without limitation and approximately $11,400,000 of these
carryforwards (the "Restricted NOLs") are significantly limited due to ownership
changes experienced by the Company. As a result of these limitations,
approximately $780,000 of the Restricted NOLs will become available for use each
year through the year 2008. The remaining Restricted NOLs in the amount of
$3,400,000 are expected to expire unutilized. A valuation allowance has been
established to fully reserve the future benefit of all the net operating loss
carryforwards.
9. Store Closings and Goodwill Write-off
In fiscal 1995, the Company recorded a charge of $10,473,000 related to the
closing of approximately 140 retail stores. All such stores were closed prior to
January 31, 1996. Sales and operating losses for these 140 stores totaled
$10,554,000 and $2,737,000 for fiscal 1995 and $11,921,000 and $155,000 for
fiscal 1994, respectively.
The charge includes $6,500,000 for estimated lease termination liabilities.
Approximately $6,175,000 of unpaid lease liabilities remained at January 31,
1996 of which $2,500,000 was recorded as a current liability and $3,675,000 was
classified in other long-term liabilities. At January 31, 1997, approximately
$3,459,000 of these liabilities remain unpaid, of which $1,825,000 is classified
as current and $1,634,000 as long term. At July 31, 1997, approximately
$2,615,000 of these liabilities remain unpaid, of which $1,048,000 is classified
as current and $1,567,000 as long term. The charge also includes $1,483,000 of
property and equipment write-offs for leasehold improvements and other equipment
located in the affected stores, $1,600,000 of inventory previously stocked in
these stores, and $890,000 in other costs associated with the closings. No
termination benefits were offered to the affected employees, therefore, no
provision for termination benefits was recorded.
Additionally, in fiscal 1995, the Company wrote off goodwill of $8,067,000
which reduced the remaining unamortized balance to $3,083,000 at January 31,
1996. A significant portion of goodwill was attributable to assets that were
closed or otherwise liquidated prior to January 31, 1996, including 210 stores
over the last three fiscal periods and the Dallas lab facility. Consequently,
the Company determined that the cumulative effect of store closings and the
closing of the Dallas facility was material and indicative of a significant
impairment of goodwill.
In fiscal 1995, the Company further evaluated inventory determined to be
slow moving and, as a result, wrote off an additional $1,500,000 of inventory.
This charge was recorded as a component of costs of sales.
10. Commitments and Contingencies
The Company, in the normal course of business, has become the defendant or
is the plaintiff in various legal proceedings. Management of the Company
believes that, in all cases, the outcome of such legal proceedings will not have
a material adverse effect on the Company's results of operations or financial
condition.
Approximately 50%, 55% and 62% of the Company's sales were in licensed
departments of one retailer for the year ended March 31, 1995, the ten months
ended January 31, 1996 and for the year
F-16
<PAGE>
U.S. Vision, Inc.
Notes to Consolidated Financial Statements -- (Continued)
January 31, 1997 and 1996
(Information with respect to the six months ended
July 31, 1996 and 1997 is unaudited)
10. Commitments and Contingencies -- (Continued)
ended January 31, 1997, respectively. Approximately 62% and 65% of the Company's
sales were in licensed departments of one retailer for the quarters ended July
31, 1996 and July 31, 1997, respectively. A termination of the licensed
departments could cause a loss of sales, which would affect operating results
adversely.
11. Stock Options
In February 1996, the Board of Directors authorized the formation of an
incentive stock option plan. As of January 31, 1997, various members of
management had options to purchase 639,665 shares of common stock under this
plan. The options are exercisable at $7.69 per share (estimated fair market
value at the date of grant) and expire on October 30, 2004.
12. Recapitalization and Impact of Initial Public Offering (Unaudited)
In September 1997, the Company filed a registration statement with respect
to a proposed underwritten public offering of 4,000,000 shares of the Company's
Common Stock, of which 1,500,000 shares will be sold by current shareholders.
The estimated initial public offering price will be between $11.00 and $13.00
per share. The net proceeds to the Company will be used to retire the
outstanding balance (including any accrued interest thereon) of its 12%
subordinated debentures due March 1998 (see Note 6) to retire its outstanding
bank term loan (including any accrued interest thereon) due 1998 (see Note 6)
and to retire the outstanding balance on the Company's revolving line of credit
which expires on December 31, 1996 (see Note 6). In conjunction with the sale of
Common Stock, the Company recapitalized the Common Stock and authorized a
64-for-1 stock dividend. In conjunction with the proposed public offering
described above, the Company intends to exchange all outstanding Series A
Preferred Stock and Series C Preferred Stock for Common Stock. The liquidation
value of the preferred stock plus accumulated dividends at the date of the
exchange (assumed to be October 31, 1997) of approximately $16,853,000 and
$7,969,000 respectively, will convert to approximately 1,404,444 and 664,059
shares of Common Stock, respectively. All references to earnings per share data
in the financial statements have been restated to give effect to the stock
dividend and conversion of the Preferred Stock.
A change in ownership will result from the initial public offering
described above. Such a change in ownership may limit the availability of the
Unrestricted NOLs to offset future taxable income of the Company. As a result of
this limitation, the Unrestricted NOLs will be reclassified as Restricted NOLs
and approximately $3,100,000 million of all the Restricted NOLs will become
available for use each year through the year 2012. The Restricted NOLs will
begin to expire in the year 2006 through 2012. It is anticipated that $3,400,000
of NOLs will expire unutilized.
Adjusted pro forma net income per share is calculated by dividing net
income after adjustment for applicable interest expense, net of tax ($2,377,000
and $1,220,000 for the fiscal year ended January 31, 1997 and the six months
ended July 31, 1997, respectively) by the adjusted number of weighted average
shares outstanding (6,945,958 shares at January 31, 1997 and July 31, 1997,
respectively) after giving effect to the estimated number of shares that would
be required to be sold at the initial public offering price of $12.00 per share
to repay $22,664,000 of debt (unaudited). Adjusted pro forma net income per
share for the fiscal year ended January 31, 1997 and the six months ended July
31, 1997 was $.65 and $.60, respectively.
F-17
<PAGE>
U.S. Vision, Inc.
Notes to Consolidated Financial Statements -- (Continued)
January 31, 1997 and 1996
(Information with respect to the six months ended
July 31, 1996 and 1997 is unaudited)
13. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
For the quarter ended,
---------------------------------
April 30, 1997 July 31, 1997
-------------- --------------
<S> <C> <C>
Net sales ...................... $ 31,239 $ 30,814
Gross profit ................... 21,597 21,018
Net income ...................... 1,780 1,154
Net income per share-supplemental.. .37 .24
</TABLE>
<TABLE>
<CAPTION>
For the quarter ended,
-------------------------------------------------------
April 30, July 31, October 31, January 31,
1996 1996 1996 1997
----------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales ............................. $29,616 $27,756 $27,972 $26,200
Gross profit .......................... 20,370 19,257 19,504 18,140
Net income (loss) .................... 1,386 700 681 (632)
Net income (loss) per share-supplemental .29 .14 .14 (.13)
</TABLE>
<TABLE>
<CAPTION>
For the quarter ended,
-------------------------------------------------------
April 30, July 31, October 31, January 31,
1995 1995 1995 1996
--------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales ............................. $30,445 $28,028 $28,262 $ 25,183
Gross profit .......................... 20,375 19,576 19,626 15,485
Net income (loss) .................... (927) 167 (925) (21,842)
Net income (loss) per share-supplemental (.20) .04 (.20) (4.78)
</TABLE>
F-18
<PAGE>
[PICTURES]
<PAGE>
No dealer, sales representative or any other person has been authorized to give
any information or to make any representation in connection with this offering
other than those contained in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company, any Selling Shareholder or any Underwriter. This Prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the registered securities to which it relates or an offer
to, or solicitation of, any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
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 date subsequent to
the date hereof.
-----------
Table of Contents
Page
----
Prospectus Summary ........................ 3
Risk Factors .............................. 9
The Company .............................. 13
Use of Proceeds ........................... 14
Dividend Policy ........................... 14
Capitalization ........................... 15
Dilution ................................. 16
Selected Consolidated Financial Data ...... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .............................. 19
Business ................................. 25
Management ................................. 36
Certain Transactions ..................... 42
Principal & Selling Stockholders ......... 43
Description of Capital Stock ............... 45
Shares Eligible for Future Sale ............ 49
Underwriting .............................. 50
Legal Matters .............................. 51
Experts .................................... 52
Available Information ..................... 52
Index to Consolidated Financial Statements . F-1
Until , 1997 (25 days after the date of this Prospectus), all dealers effecting
transactions in shares of Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This requirement is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters or with respect to their unsold allotments or subscriptions.
<PAGE>
4,000,000 Shares
U.S. VISION, INC.
Common Stock
($.01 par value)
[LOGO]
Salomon Brothers Inc
Janney Montgomery Scott Inc.
Prospectus
Dated , 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The Company will pay all expenses of this offering. Total expenses, other
than the Underwriters' discounts, in connection with the issuance and
distribution of the Common Stock are as follows:
Securities and Exchange Commission registration fee ...... $ 18,122
NASD filing fee .......................................... $ 6,480
Legal fees and expenses ................................. $150,000
Blue Sky fees and expenses (including legal fees) ......... $ 25,000
Printing and engraving expenses ........................... $ *
Accounting fees and expenses .............................. $ *
Transfer Agent and Registrar fees ........................ $ *
Miscellaneous ............................................. $ *
--------
Total ................................................ $550,000
========
- ------------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers.
Generally, Delaware law permits a corporation to indemnify a person who was
or is an officer, director, agent, or employee, or who serves at the
corporation's request as an officer, director, agent, or employee, of another
corporation, partnership, trust joint venture, or other enterprise ("nominee"),
who was, is, or is threatened to be named a defendant in a legal proceeding by
virtue of such person's position in the corporation or nominee, but only if the
person acted in good faith and reasonably believed that the conduct was in or at
least not opposed to the corporation's best interest, and, in the case of a
criminal proceeding, the person had no reasonable cause to believe the conduct
was unlawful. A person may be indemnified within the above limitations against
judgments, fines, settlements, and reasonable expenses actually incurred.
Generally, an officer, director, agent, or employee of the corporation or
nominee may not be indemnified, however, against judgments, fines, and
settlements incurred in a proceeding in which the person is found liable to the
corporation and may not be indemnified for expenses unless, and only to the
extent that, in view of all the circumstances, the person is fairly and
reasonably entitled to indemnification for such expenses. A corporation must
indemnify a director, officer, employee, or agent against reasonable expenses
incurred in connection with a proceeding in which the person is a party because
of the person's corporate position, if the person was successful, on the merits
or otherwise, in the defense of the proceeding. Under certain circumstances, a
corporation may also advance expenses to such person. Under Delaware law, a
corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee, or agent of the corporation against any
liability asserted against and incurred by the person in such capacity, or
arising out of the person's status as such a person, regardless of whether the
applicable law otherwise empowers the corporation to indemnify that person
against such liability.
Article 12 of the Company's certificate of incorporation requires
indemnification of directors and officers to the fullest extent permitted by the
Delaware General Corporation Law. The Company has entered into agreements with
its directors contractually obligating the Company to indemnify the directors to
the extent currently required by the Certificate of incorporation.
The Underwriting Agreement provides for indemnification of the Company and
its officers and directors by the Underwriters against certain liabilities,
including liabilities arising under the Securities Act.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Since August 1994, the Company has not issued any Common Stock, except for
the February 1, 1997, issuance in connection with the exercise of certain
warrants to acquire 1,607,775 shares of Common Stock in the aggregate by the
holders thereof for which the Company relied on Section 4(2) as well as Section
3(a)(9). None of such issuances involved any public offering. The following
table reflects the issuances of securities during the last three years.
Date No. of
of Shares
Shareholders Issuance Issued
------------ ---------- --------
Grotech Partners IV, L.P. 2/01/97 509,080
Grotech Partners III, L.P. 2/01/97 100,295
Grotech III Companion Fund, L.P. 2/01/97 10,920
Grotech III Pennsylvania Fund, L.P. 2/01/97 6,240
Stolberg Partners, L.P. 2/01/97 489,515
Penn Janney Fund, Inc. 2/01/97 39,130
Needham Capital Partners, L.P. 2/01/97 19,565
Richard K. McDonald 2/01/97 58,695
M & M General Partnership 2/01/97 21,645
Constitution Partners I, L.P. 2/01/97 156,585
Keystone Venture IV, L.P. 2/01/97 156,585
Nathan Friedman 2/01/97 4,745
Spider Trust 2/01/97 17,225
Rupert Capital Trust 2/01/97 17,225
The following table shows employee stock options granted during the
previous 3 years. All of such grants were made in reliance upon Section 4(2) and
Rule 701.
Employee # of Shares
-------- ------------
William A. Schwartz, Jr. 228,735
Reid V. Eikner 76,050
Gayle E. Schmidt 76,050
George T. Gorman 15,665
George E. McHenry, Jr. 76,050
David M. Tracy 16,250
Non-executive officer employees 167,115
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number
- -----------
<S> <C>
1** -- Form of Underwriting Agreement
3.1 -- Restated Certificate of Incorporation of the Company
3.2 -- Bylaws of the Company
4** -- Specimen Certificate evidencing Common Stock
5** -- Opinion and Consent of Sayles & Lidji, A Professional Corporation
10.1 -- Loan and Security Agreement between the Company and Commerce Bank, as amended
10.2 -- Stock Option Plan, including form of Stock Option Agreement
10.5**+ -- J.C. Penney License Agreement
10.6**+ -- Vision Care Agreement
23.1 -- Consent of Ernst & Young
23.2** -- Consent of Sayles & Lidji, A Professional Corporation (included in Exhibit 5)
24 -- Power of Attorney
27 -- Financial Data Schedule
</TABLE>
- ------------
+Confidentiality to be sought as to certain portions
**To be filed by amendment
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser;
(2) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as a part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(3) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement related 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.
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, 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 Act
and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of Blackwood, State of
New Jersey, on September 17, 1997.
U.S. VISION, INC.
By: /s/ William A. Schwartz, Jr.
-----------------------------------------------------
William A. Schwartz, Jr., President and Chief
Executive Officer
POWER OF ATTORNEY
Each individual whose signature appears below hereby designates and
appoints William A. Schwartz, Jr., Reid V. Eikner and George E. McHenry, Jr.,
and each of them, as such person's true and lawful attorneys-in-fact and agents
(the "Attorneys-in-Fact") with full power of substitution and resubstitution,
for such person and in such person's name, place, and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, which amendments may make such changes in this
Registration Statement as either Attorney-in-Fact deems appropriate and requests
to accelerate the effectiveness of this Registration Statement, to sign any
registration statement to be filed pursuant to Rule 462(b) under the Securities
Act of 1933 for the purpose of registering additional shares of Common Stock for
the same offering covered by this Registration Statement and to file each such
amendment and Registration Statement with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto such Attorneys-in-Fact and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
such Attorneys-in-Fact or either of them, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on September 17, 1997.
<TABLE>
<CAPTION>
Signature Capacity
- --------- --------
<S> <C>
/s/ William A. Schwartz, Jr. President, Chief Executive Officer and Director
- ------------------------------- (Principal Executive Officer)
William A. Schwartz, Jr.
/s/ Reid V. Eikner Executive Vice-President, Finance
- -------------------------------
Reid V. Eikner
/s/ George E. McHenry, Jr. Secretary, Treasurer and Chief Financial Officer
- ------------------------------- (Principal Financial Officer)
George E. McHenry, Jr.
/s/ Kathy G. Cullen Vice President, Finance and Chief Accounting Officer
- ------------------------------- (Principal Accounting Officer)
Kathy G. Cullen
/s/ G. Kenneth Macrae Director
- -------------------------------
G. Kenneth Macrae
/s/ Richard K. McDonald Director
- -------------------------------
Richard K. McDonald
/s/ Dennis J. Shaughnessy Director
- -------------------------------
Dennis J. Shaughnessy
/s/ E. Theodore Stolberg Director
- -------------------------------
E. Theodore Stolberg
/s/ J. Roger Sullivan, Jr. Director
- -------------------------------
J. Roger Sullivan, Jr.
/s/ David M. Tracy Director
- -------------------------------
David M. Tracy
</TABLE>
II-4
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
U.S. VISION, INC.
(Originally incorporated July 12, 1995)
First: The name of the corporation (the "Corporation") is U.S. Vision,
Inc.
Second: The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Corporation Trust Company.
Third: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
Fourth: The aggregate number of shares which the Corporation shall have
authority to issue is Twenty Million (20,000,000) shares in the aggregate, which
shall be divided into two classes as follows: (1) Fifteen Million (15,000,000)
shares of Common Stock, par value $.01 per share; and (2) Five Million
(5,000,000) shares of Preferred Stock, par value $.01 per share.
Except as otherwise required by law or as otherwise provided in this
Certificate of Incorporation or in any designation of any series of Preferred
Stock pursuant to a resolution of the Board of Directors, each share of Common
Stock shall be entitled to one vote and the holders of the Common Stock shall
exclusively possess all voting power, shall be entitled to participate equally
and on the same basis as to any dividends if, as and when declared by the Board
of Directors and as to the distributions in the event of any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary.
The Board of Directors is expressly authorized from time to time to
designate one or more series of the Preferred Stock, to issue the Preferred
Stock as Preferred Stock of any such series, and in connection with the
designation of each such series to fix by resolution or resolutions providing
for the issue of shares thereof the voting and other powers, if any, and the
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof to the
fullest extent now or hereafter permitted by the laws of the State of Delaware.
All series of Preferred Stock shall rank equally and
- 1 -
<PAGE>
be identical in all respects except as set forth in the resolutions of the Board
of Directors of the Corporation providing for the issue of such stock.
Fifth: No stockholder of this corporation shall, by reason of such
person's holding stock of any class, have any preemptive or preferential right
to purchase or subscribe to any stock of any class of this Corporation, now or
hereafter to be authorized, nor for any of its notes, debentures, bonds, or
other securities, whether or not the issuance of such stock, or such notes,
debentures, bonds, or other securities would adversely affect the dividend or
voting rights of such stockholder, other than such rights, if any, as the Board
of Directors, in its discretion, may grant to the stockholders to purchase such
additional securities; and the Board of Directors may issue treasury shares of
any class of this Corporation, or any note, debentures, bonds, or other
securities convertible into or of any class without offering the same in whole
or in part to existing stockholders of any class.
Sixth: Elections of Directors need not be by written ballot except and
to the extent provided otherwise in the Bylaws of the Corporation. Cumulative
voting for the election of Directors shall not be permitted.
Seventh: The Corporation is to have perpetual existence.
Eighth: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized to make, amend, and repeal the Bylaws of the Corporation.
Ninth: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (i) for breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
Delaware General Corporation Law is amended after the date of the filing of this
Certificate of Incorporation, to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware
- 2 -
<PAGE>
General Corporation Law, as so amended, without vote of the stockholders unless
required by such provisions of the Delaware General Corporation Law. Any repeal
or modification of this Article 11 by the stockholders of the Corporation shall
not adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification or with respect to events
occurring prior to such time.
Tenth: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
Eleventh: (A) Subject to the rights, if any, of the holders of any
series of Preferred Stock to elect directors under specified circumstances, the
number of directors may be changed from time to time only by resolution of the
Board of Directors and only to a number not less than three.
(B) The directors of the Corporation shall be elected by plurality vote.
(C) Subject to applicable law and to the rights of the holders of any series of
Preferred Stock with respect to such series of Preferred Stock, and unless the
Board of Directors otherwise determines, newly created directorships resulting
from any increase in the authorized number of directors or any vacancies on the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be filled only by a
majority vote of the directors then in office, though less than a quorum. Any
director so chosen shall hold office for a term expiring at the next annual
meeting of stockholders and until such director's successor shall have been duly
elected and qualified.
(D) The entire Board of Directors, or any individual director, may be removed
from office with or without cause pursuant to a majority vote of all
shareholders entitled to vote at any annual or regular election of directors.
The foregoing shall not be deemed to limit the right of the Board of Directors,
without shareholder approval, to declare vacant the office of any director in
accordance with the Bylaws of the Corporation.
Twelfth: (A) Each person who was or is made a party or is threatened to
be made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was (i) a director or
officer of the Corporation or, at the request of the Corporation, a director or
officer of any other corporation or (ii) is or was a director or officer of this
Corporation or, at the request of the Corporation, a director or
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officer of any other corporation, and is or was serving as an agent of a
partnership, joint venture, trust, employee benefit plan or other enterprise
(hereinafter called an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a director or officer or in any other
capacity while serving as a director or officer, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amount paid in settlement)
reasonably incurred or suffered by such indemnitees in connection therewith;
provided, however, that, except as provided in section (E) hereof with respect
to proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part hereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
(B) The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification, and to the advancement of
expenses, to any employee or agent of the Corporation or any person serving, at
any request of the Corporation, as an employee or agent of any other
corporation, partnership, joint venture, trust or other enterprise, or employee
benefit plan, to the fullest extent of the provisions of section (A) with
respect to the indemnification and advancement of expenses of directors and
officers of the Corporation and, to the extent required by the Delaware General
Corporation Law, the Corporation shall grant indemnification to any employee or
agent of the Corporation.
(C) Expenses (including, without limitation, attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon the
receipt of an undertaking by or on behalf of such director or officer to repay
such sums if it shall ultimately be determined that such person is not entitled
to be indemnified by the Corporation as authorized in Section 145 of the
Delaware General Corporation Law, if and to the extent such an undertaking is
required prior to such advancement under the Delaware General Corporation Law.
(D) The right of indemnification provided by this Article 12 shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in another capacity while holding such
office.
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(E) The right of indemnification provided by this Article 12 shall be deemed to
be a contract between the Corporation and each indemnitee who serves in such
capacity, both as to action in such person's official capacity and as to action
in another capacity while holding such office, at any time while this Article 12
and the relevant provisions of the Delaware General Corporation Law and other
applicable law, if any, are in effect, and any repeal or modification thereof
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts. In any suit brought by an indemnitee to enforce a right of
indemnification or advancement of expenses hereunder in which the indemnitee is
successful, in whole or in part, the indemnitee shall be entitled to be paid the
costs and expense incurred in prosecuting such suit. The burden of proof in any
such suit shall be upon the Corporation to demonstrate that the indemnitee is
not entitled to indemnification or advancement of expenses. The right of
indemnification provided by this Article 12 shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
(F) The Corporation may, but shall not be obligated to, purchase and maintain
insurance to protect itself and any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against any liability asserted against
such person and incurred by such person in any capacity, or arising out of such
person's status as such, whether or not the Corporation shall have the power to
indemnify such person against such liability.
(G) If a claimant is entitled to indemnification by the Corporation for some
portion, but less than all, of expenses, liability or losses actually and
reasonably incurred by the claimant in an investigation, defense, appeal, or
settlement, or in any other proceeding, then the Corporation shall nevertheless
indemnify such claimant for such portion of such expenses, liabilities or
losses.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which
only restates and integrates and does not further amend the provisions of the
Certificate of Incorporation of this Corporation as heretofore amended or
supplemented, and there being no discrepancies between those provisions and the
provisions of this Restates Certificate of Incorporation and it having been duly
adopted by the Corporation's board of directors in accordance with Section 245
of the General Corporation Law of the State of Delaware,
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has been executed by its President and Chief Executive Officer and attested by
its Secretary on this 10th day of September, 1997.
U.S. Vision, Inc.
By: /s/ William A. Schwartz, Jr.
------------------------------------------
William A. Schwartz, Jr, President and CEO
Attest:
By: /s/ George E. McHenry, Jr.
--------------------------------------
George E. McHenry, Jr., Secretary,
Treasurer, and Chief Financial Officer
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CERTIFICATE OF DESIGNATION,
PREFERENCES, POWERS, AND RIGHTS
OF
SERIES A CUMULATIVE PREFERRED STOCK
OF
U.S. VISION, INC.
------------------
Pursuant to Section 151 of the
Delaware General Corporation Law
U.S. Vision, Inc., a Delaware corporation (the "Company"), hereby
certifies that, pursuant to the authority contained in Article Fourth of its
Certificate of Incorporation (the "Certificate"), and in accordance with the
provisions of Section 151 of the Delaware General Corporation Law (the "GCL"),
its Board of Directors has adopted the following resolution providing for the
issuance of Series A Cumulative Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock of
the Company is hereby created and the Board of Directors hereby fixes the
designation and amount thereof, and the voting powers, preferences, and
relative, participating, optional and other special rights of the shares of such
series, and the qualifications, limitations, or restrictions thereon as follows:
1. DESIGNATION OF THE SERIES; RANK. The shares of such series of
preferred stock shall be designated as "Series A Cumulative Convertible
Preferred Stock" (the "Series A Preferred Stock") and the number of shares
constituting such series shall be 200. The par value of the Series A Preferred
Stock shall be $.01 per share and the issuance price of the Series A Preferred
Stock shall be $100,000 per share (the "Issuance Price"). The number of shares
that may be issued may be decreased, at any time and from time to time, by
resolution of the Board of Directors; provided that no decrease shall reduce the
number of shares of Series A Preferred Stock to a number less than the number of
such shares then outstanding. The Series A Preferred Stock shall rank senior to
the common stock of the Company (the "Common Stock") and any other capital stock
of the Company ranking junior to the Series A Preferred Stock as to dividends
and upon liquidation, dissolution or winding up.
2. DIVIDENDS. (a) The holders of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
funds legally available therefor, cumulative annual cash dividends, payable in
arrears on the first day of each January, April, July and October (each, a
"Dividend Payment Date") at the following rates: (i) until December 31, 1998
(the "Fixed Rate Period"), at a rate of 9% of the Issuance Price per annum per
share, and (ii) after the Fixed Rate Period, at an Adjustable Rate per annum
times the Issuance Price per share. The Adjustable Rate will be determined
annually and will become effective on January 1 of each year after the Fixed
Rate Period. The Adjustable Rate means: (1) for the first year following the
Fixed Rate Period, a rate equal to the Treasury Bond Rate (as determined below)
plus 375 basis points; (2) for the second year following the Fixed Rate Period,
a rate
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equal to the Treasury Bond Rate plus 450 basis points; (3) for the third year
following the Fixed Rate Period, a rate equal to the Treasury Bond rate plus 475
basis points; (4) for the fourth year following the Fixed Rate Period, a rate
equal to the Treasury Bond rate plus 500 basis points; and (5) for the fifth and
each succeeding year following the Fixed Rate Period, a rate equal to the
Treasury Bond Rate plus 525 basis points.
The "Treasury Bond Rate" for each dividend period shall be the
arithmetic average of the two most recent weekly per annum Ten Year Average
Yields, as defined below (or the one weekly per annum Ten Year Average Yields,
as defined below (or the one weekly per annum Ten Year Average Yield, if only
one such Yield shall be published during the relevant period), published by the
Federal Reserve Board during the period immediately prior to the ten calendar
days immediately preceding the January 1, April 1, July 1 or October 1, as the
case may be, prior to the dividend period for which the dividend rate on the
Series A Preferred Stock is being determined. If the Federal Reserve Board does
not publish such weekly per annum Ten Year Average Yield during any such period,
then the Treasury Bond Rate for such dividend period shall be the arithmetic
average of the two most recent weekly per annum Ten Year Average Yields (or the
one weekly per annum Ten Year Average Yield, if only one such Yield shall be
published during the relevant period) published during such period by any
Federal Reserve Bank or by any U.S. Government department or agency selected by
the Company. If a weekly per annum Ten Year Average Yield shall not be published
by the Federal Reserve Board or by any Federal Reserve Bank or by any U.S.
Government department or agency during such period, then the Treasury Bond Rate
for such dividend period shall be the arithmetic average of the two most recent
weekly per anum average yields to maturity (or the one weekly per annum average
yield to maturity, if only one such yield shall be published during the relevant
period) for all of the actively traded marketable U.S. Treasury fixed interest
rate securities, other than Special Securities (as defined below), then having
maturities of not less than eight nor more than twelve years, published during
such period by the Federal Reserve Board or, if the Federal Reserve Board shall
not publish such yields, by any Federal Reserve Bank or by any U.S. Government
department or agency selected by the Company. If the Company determines in good
faith that for any reason the Company cannot determine the Treasury Bond Rate
for any dividend period as provided above in this paragraph, then the Treasury
Bond Rate for such dividend period shall be the arithmetic average of the per
annum average yields to maturity based upon the closing bids during such period
for each of the issues of actively traded marketable U.S. Treasury fixed
interest rate securities (other than Special Securities) with a final maturity
date not less than eight nor more than twelve years from the date of each such
quotation, as chosen and quoted daily for each business day in New York City (or
less frequently if daily quotations shall not be generally available) to the
Company by at least three recognized dealers in U.S. Government securities
selected by the Company.
"Ten Year Average Yield" means the average yield to maturity for
actively traded marketable U.S. Treasury fixed interest rate securities
(adjusted to constant maturities of ten years). In January 1994, the weekly per
annum market discount rate for the Ten Year Average Yield was published weekly
by the Federal Reserve Board in "Federal Reserve Statistical Release H. 15 (519)
- -- Selected Interests Rates." "Special Securities" means securities which can,
at the option of the holder, be surrendered at face value in payment of any
Federal estate tax or which provide tax benefits to the holder and are priced to
reflect such tax benefits or which were originally issued at a deep or
substantial discount.
The Treasury Bond Rate with respect to each dividend period after the
Fixed Rate Period will be calculated as promptly as practicable by the Company
according to the method described herein. The Company will cause notice of the
Treasury Bond Rate to be provided to each holder of Series A Preferred Stock at
least three days prior to the commencement of the new dividend period to which
it applies. The Treasury Bond Rate will be rounded to the nearest
five-hundredths of a percentage point.
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In the event that the Company determines in good faith that for any
reason the Treasury Bond Rate cannot be determined for any dividend period, the
Treasury Bond Rate or fixed rate in effect for the preceding dividend period
shall be continued for such dividend period.
The amount of dividends payable per share for each full quarterly
dividend period shall be computed by dividing by four the annual rate of
dividends. Dividends payable for any period other than a full quarterly dividend
period shall be calculated pro rata on the basis of a year of 360 days,
consisting of twelve 30-day months.
The dividends will be payable to Series A Preferred Stock holders of
record as they appear on the stock books of the Company on a record date fixed
by the Board of Directors, which shall in no event be more than sixty (60) days
nor less than ten (10) days prior to the Dividend Payment Date. Dividends on
each share of Series A Preferred Stock accrue continuously from day to day,
whether or not earned, and are cumulative from the date of issue of each share
of Series A Preferred Stock, whether or not the Company at any time has funds
legally available for the payment of dividends. Holders of the Series A
Preferred Stock shall not be entitled to any dividends, whether payable in cash,
property or securities, in excess of the full cumulative dividends described in
the preceding paragraph.
On each Dividend Payment Date prior to December 1, 1999, the quarterly
dividend shall be payable at the rate specified herein in cash, out of funds
legally available therefor or, at the option of the Company, by the issuance of
that number of shares of Series A Preferred Stock which shall be equal to (i)
the amount of the cash quarterly dividend due and payable per share of Series A
Preferred Stock on such Dividend Payment Date divided by (ii) the Issuance
Price.
Any dividend which is not paid on the Dividend Payment Date on which it
becomes due will be deemed to be "past due" until such dividend is paid or until
the share of Series A Preferred Stock with respect to which such dividend became
due is no longer outstanding, whichever is the earlier to occur. To the extent
not paid, all dividends that have accrued on each share of Series A Preferred
Stock (whether or not declared) will accrue interest at thirteen and one-half
percent (13.5%) per annum, from and after the Dividend Payment Date, until such
dividends are paid. Dividends paid on shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the time accumulated and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding.
Unless full cumulative dividends on all outstanding shares of the
Series A Preferred Stock have been paid or declared and set aside for payment
for all past dividend periods: (i) no dividends, in cash, stock or other
property, may be declared or any other distribution made upon the Common Stock
or on any other stock of the Company ranking junior to the Series A Preferred
Stock as to dividends (other than dividends or distributions in Common Stock or
any other stock of the Company ranking junior to the Series A Preferred Stock as
to dividends and upon liquidation, dissolution or winding up); and (ii) no
Common Stock, or any other stock of the Company ranking junior to the Series A
Preferred Stock as to dividends or upon liquidation, dissolution or winding up,
may be redeemed pursuant to a sinking fund or otherwise or purchased or
otherwise acquired for any consideration by the Company, except by conversion of
such junior stock into, or exchange of such stock for, stock of the Company
ranking junior to the Series A Preferred Stock as to dividends and upon
liquidation, dissolution or winding up, provided that unless prohibited by the
terms of any other outstanding series of preferred stock, any monies theretofore
deposited in any sinking fund with respect to any preferred stock of the Company
in compliance with this Section 2 and the provisions of such sinking fund may
thereafter be applied to the purchase or redemption of such preferred stock in
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accordance with the terms of such sinking fund, regardless of whether at the
time of such application full cumulative dividends on all outstanding shares of
Series A Preferred Stock through the most recent Dividend Payment Date shall
have been paid in full or declared and a sufficient sum set apart for payment
thereof.
If a dividend upon any shares of Series A Preferred Stock or any other
outstanding preferred stock of the Company ranking in parity with the Series A
Preferred Stock as to dividends is in arrears, all dividends or other
distributions on account of such arrearage (other than dividends paid in Common
Stock or any other stock of the Company ranking junior to the Series A Preferred
Stock as to dividends and upon liquidation, dissolution or winding up) will be
declared pro rata so that the amounts of dividends per share declared on the
Series A Preferred Stock and such other series shall in all cases bear to each
other the same ratio that full cumulative dividends per share at the time on the
shares of Series A Preferred Stock and on such other series bear to each other.
(b) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company if the Company could not, under paragraph (a) of this Section 2, redeem,
purchase or otherwise acquire such shares at such time and in such manner.
3. GENERAL, CLASS AND SERIES VOTING RIGHTS. (a) Except as provided in
this Section 3 and in Section 4 hereof, or as otherwise from time to time
required by law, the Series A Preferred Stock shall have no voting rights.
So long as any shares of Series A Preferred Stock remain outstanding,
the consent of the holders of at least two-thirds of the shares of Series A
Preferred Stock outstanding at the time (voting separately as a class together
with all other series of preferred stock ranking on a parity with the Series A
Preferred Stock either as to dividends or the distribution of assets upon
liquidation, dissolution or winding up and upon which like voting rights have
been conferred and are exercisable) given in person or by proxy, either in
writing or at any special or annual meeting called for the purpose, shall be
necessary to permit, effect or validate any one or more of the following:
(i) The authorization, creation, issuance or reclassification
of authorized stock of the Company into, or authorization, creation or
issuance of any obligation or security convertible into or evidencing a
right to purchase, any shares of any class of stock of the Company
(including any class or series of preferred stock) ranking prior to the
Series A Preferred Stock or to any other series of preferred stock
which ranks on a parity with the Series A Preferred Stock as to
dividends or upon liquidation, dissolution or winding up;
(ii) The amendment, alteration or repeal of any of the
provisions of this Certificate of Designation or of these resolutions,
whether by merger, consolidation or otherwise, which would materially
and adversely effect the preferences, rights, powers or privileges,
qualification, limitations and restrictions of the Series A Preferred
Stock; provided however, that the creation, issuance or increase in the
amount of authorized shares of any other series of preferred stock
ranking on a parity with or junior to the Series A Preferred Stock with
respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution and the distribution of assets upon
liquidation, dissolution or winding up, shall not be deemed to
materially and adversely affect such rights and powers, preferences,
privileges or voting powers;
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(iii) The entry into any agreement that would restrict the
Company's ability to perform under the Securities Purchase Agreement
for the Series A Preferred Stock;
(iv) The amendment of the Company's Certificate of
Incorporation or By-Laws in any way which adversely affects the rights
and preferences of the holders of the Series A Preferred Stock as a
class (except that the Company may complete a reverse split of its
Common Stock without the consent of the holders of the Series A
Preferred Stock);
(v) The issuance of any of the Company's securities for a
price less than fair market value; or
(vi) The entry by the Company or its subsidiaries into any
business other than the operation of retail optical stores and the
vertically integrated business of lens grinding, frame manufacturing,
filling and shipping retail orders for prescriptive eyewear and contact
lenses, and businesses related thereto.
The foregoing voting provisions shall not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of Series A Preferred Stock shall have
been redeemed or sufficient funds shall have been deposited in trust to effect
such redemption.
4. ELECTION OF SERIES A DIRECTORS.
------------------------------
(a) The holders of the outstanding shares of Series A Preferred Stock
shall have the exclusive right (voting separately as a class) to elect two
directors of the Company (the "Series A Directors").
(b) Upon written notice of exercise of the right to elect the Series A
Directors signed by the holders of at least the minimum number of issued and
outstanding shares of Series A Preferred Stock required under the GCL and the
Certificate to take action by written consent, the maximum authorized number of
members by the Board of Directors shall automatically be increased by the number
of directors named in the notice (but not more than two) and the designees named
in the notice shall be deemed elected to fill the vacancies so created by vote
of the holders of the Series A Preferred Stock, with the same effect as the vote
of the holders of the Series A Preferred Stock obtained at a meeting of the
holders of the Series A Preferred Stock obtained at a meeting of the holders of
the Series A Preferred Stock duly called and held for the purpose of voting upon
the election of the Series A Directors.
(c) In lieu of electing Series A Directors by written notice, the
President of the Company shall, within 20 days after deliver to the Company at
its principal office of a written request for a special meeting signed by the
holders of at least 15 percent of all outstanding shares of the Series A
Preferred Stock, call a special meeting of the holders of Series A Preferred
Stock to be held as promptly as is practicable within 90 days after the delivery
of such request for the purpose of electing Series A Directors. Each holder of
Series A Preferred Stock shall be entitled in electing the Series A Directors to
one vote for each share of Series A Preferred Stock held.
The Series A Directors elected by the holders of Series A Preferred
Stock shall be in addition to the number of directors, other than the Series A
Directors, constituting the Board of Directors of the Company immediately prior
to the Series A. Directors' election, and the maximum authorized number of
members
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of the Board of Directors shall automatically be increased by a one-time maximum
of two and the two vacancies so created shall be filled by vote of the holders
of the outstanding shares of Series A Preferred Stock.
(d) Each Series A Director shall hold office until the earliest to
occur of (i) the time at which no shares of Series A Preferred Stock are
outstanding, (ii) his or her death, (iii) his or her resignation, (iv) his or
her removal, (v) his or her disqualification, (vi) his or her retirement, or
(vii) election by the holders of Series A Preferred Stock of a duly qualified
successor at any annual or special meeting of shareholders. Subject to the
limitations of the preceding sentence, Series A Directors shall serve until the
next annual meeting of the shareholders of the Company, at which time the
holders of Series A Preferred Stock may elect successors to the Series A
Directors.
(e) If the office of any Series A Director becomes vacant by reason of
death, resignation, retirement, disqualification, removal from office or
otherwise, the remaining Series A Director may choose a successor who shall hold
office for the unexpired term in respect of which such vacancy occurred. Any
Series A Director may be removed by, and shall not be removed otherwise than by,
a majority of the votes of the holders of the outstanding shares of Series A
Preferred Stock. Whenever no Series A Director is serving in office, the number
of directors shall be such number as may be provided for in the Bylaws or in a
resolution of the Board of Directors adopted in accordance with the Bylaws,
irrespective of any increase made pursuant to the provisions of this Section 4.
5. REDEMPTION. The Series A Preferred Stock may be redeemed at the
option of the Company at any time, in whole or in part, at the price per share
equal to the Issuance Price (the "Redemption Price") plus accrued and unpaid
dividends, if any, up to but excluding the date fixed for redemption (subject to
the right of the holder of record of shares of Series A Preferred Stock on a
record date for the payment of a dividend on the Series A Preferred Stock to
receive the dividend due on such shares of Series A Preferred Stock on the
corresponding Dividend Payment Date).
Except as provided below, no sinking fund, mandatory redemption or
other similar provision shall apply to the Series A Preferred Stock.
If fewer than all the outstanding shares of Series A Preferred Stock
are to be redeemed, the Company will determine the shares to be redeemed pro
rata as nearly as practicable, by lot, or by such other method as the Board of
Directors may determine to be fair and appropriate.
Notice of any proposed redemption of shares of Series A Preferred Stock
shall be mailed by means of first class mail, postage paid, addressed to the
holders of record of the shares or Series A Preferred Stock to be redeemed, at
their respective addresses then appearing in the stock register of the Company,
not less than thirty (30) nor more than sixty (60) days prior to the date fixed
for such redemption (herein referred to as the "Redemption Date") . Each such
notice shall specify (a) the Redemption Date, (b) the Redemption Price, (c) the
place for payment and for delivering the stock certificate(s) and transfer
instrument(s) in order to collect the Redemption Price, and (d) the shares of
Series A Preferred Stock to be redeemed. Any notice mailed in such manner shall
be conclusively deemed to have been duly given whether or not such notice is in
fact received.
The holder of any shares of Series A Preferred Stock redeemed upon any
exercise of the Company's redemption right shall not be entitled to receive
payment of the Redemption Price for such shares until such
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holder shall cause to be delivered to the place specified in the notice given
with respect to such redemption (a) the certificate(s) representing such shares
of Series A Preferred Stock or an affidavit of lost stock certificate acceptable
to the Company, and (b) transfer instrument(s) satisfactory to the Company and
sufficient to transfer such shares of Series A preferred Stock to the Company
free of any adverse interest. No interest shall accrue on the Redemption Price
of any share of Series A Preferred after its Redemption Date.
On and after the Redemption Date for any share of Series A Preferred
Stock, such share shall (provided the Redemption Price of such share, including
any accrued and unpaid dividends to the Redemption Date, has been paid or
properly provided for) be deemed to cease to be outstanding and all rights of
any person other than the Company in such share shall be extinguished on the
Redemption Date for such share (including all rights to receive future dividends
with respect to such share) except for the right to receive the Redemption Price
(including any accrued and unpaid dividends to the Redemption Date), without
interest, for such share in accordance with the provisions of this Section 5,
subject to applicable escheat laws.
Subject to Section 2 hereof and to the following paragraph, if there is
a public market for Series A Preferred Stock, the Company has the right to
purchase shares of Series A Preferred Stock in the public market at such prices
as may from time to time be available in the public market for such shares, and
also has right at any time to acquire any shares of Series A Preferred Stock
from the owner of such shares on such terms as may be agreeable to such owner.
Shares of Series A Preferred Stock may be acquired by the Company from any
stockholder pursuant to this paragraph without offering any other stockholder an
equal opportunity to sell Series A Preferred Stock to the Company, and no
purchase by the Company from any stockholder pursuant to this paragraph shall be
deemed to create any right on the part of any stockholder to sell any shares of
Series A Preferred Stock (or any other stock) to the Company.
Notwithstanding the foregoing provisions of this Section 5, and subject
to the provisions of Section 2 hereof, if a dividend upon any shares of Series A
Preferred Stock is past due, (a) no shares of the Series A Preferred Stock may
be redeemed, except (i) by means of a redemption pursuant to which all
outstanding shares of the Series A Preferred Stock are simultaneously redeemed,
or pursuant to which the outstanding shares of the Series A Preferred Stock are
redeemed on a pro rata basis or (ii) by conversion of shares of Series A
Preferred Stock into, or exchange of such shares for, Common Stock or any other
stock of the Company ranking junior to the Series A Preferred Stock as to
dividends and upon liquidation, dissolution or winding up, and (b) neither the
Company nor any subsidiary of the Company shall purchase or otherwise acquire
any shares of the Series A Preferred Stock, except pursuant to a purchase or
exchange offer made on the same terms to all holders of the Series A Preferred
Stock.
6. LIQUIDATION. In the event of any voluntary or involuntary
dissolution, liquidation or winding up of the Company (for the purposes of this
Section, a "Liquidation"), before any distribution of assets shall be made to
the holders of Common Stock or the holders of any other stock of the Company
that ranks junior to the Series A Preferred Stock upon Liquidation the holder of
each share of Series A Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Company available for distribution to its
stockholders, an amount equal to the Redemption Price per share plus all
dividends accrued and unpaid on such share up to the date of distribution of the
assets of the Company to the holders of Series A Preferred Stock, and the
holders of any class or series of preferred stock ranking in parity with the
Series A Preferred Stock as to Liquidation shall be entitled to receive the full
respective Liquidation preferences to which they are entitled and shall receive
all accrued and unpaid dividends with respect to their respective shares through
and including the date of distribution.
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If upon any Liquidation of the Company, the assets available for
distribution to the holders of Series A Preferred Stock and any other stock of
the Company ranking on a parity with the Series A Preferred Stock upon
Liquidation which shall then be outstanding shall be insufficient to pay the
holders of all outstanding shares of Series A Preferred Stock and all other such
parity stock the full amounts (including all dividends accrued and unpaid) of
the liquidating distribution to which they shall be entitled, then the holders
of each series of such stock will share ratably in any such distribution of
assets first in proportion to their respective Liquidation preferences until
such preferences are paid in full, and then in proportion to their respective
amounts accrued but unpaid dividends. After payment of any such liquidating
preference and accrued dividends, the holders of the shares of the Series A
Preferred Stock will not be entitled to any further participation in any
distribution of assets by the Company.
For purposes of this Section 6, a Liquidation shall not include (a) any
consolidation or merger of the company with or into any other corporation in
which the Company is the surviving entity, (b) any liquidation, dissolution,
winding up or reorganization of the Company immediately followed by
reincorporation of another corporation or (c) a sale or other disposition of all
or substantially all of the Company's assets to another corporation unless in
connection therewith the Liquidation of the Company is specifically approved by
the holders of the Series A Preferred Stock.
The holder of any shares of Series A Preferred Stock shall not be
entitled to receive any payment owed for such shares under this Section 6 until
such holder shall cause to be delivered to the Company (a) the certificate(s)
representing such shares of Series A Preferred Stock or an affidavit of lost
stock certificates reasonable acceptable to the Company and (b) transfer
instrument(s) satisfactory to the Company and sufficient to transfer such shares
of Series A Preferred Stock to the Company free of any adverse interest. As in
the case of the Redemption Price, no interest shall accrue on any payment upon
Liquidation after the due date thereof.
7. PAYMENTS. The Company may provide funds for any payment of the
Redemption Price prior to the Redemption Date for any shares of Series A
Preferred Stock or any amount distributable with respect to any Series A
Preferred Stock under Section 6 hereof by depositing such funds with a bank or
trust company selected by the Company having a net worth of at least
$100,000,000 and having its principal place of business in New York, New York,
Pittsburgh, Pennsylvania or Dallas, Texas, in trust for the benefit of the
holders of such shares of Series A Preferred Stock under arrangements providing
irrevocably for payment upon satisfaction of any conditions to such payment by
the holders of such shares of Series A Preferred Stock which shall reasonably be
required by the Company. The Company shall be entitled to make any deposit of
funds contemplated by this Section 7 under arrangements designed to permit such
funds to generate interest or other income for the Company, and the Company
shall be entitled to receive all interest and other income earned by any funds
while they shall be deposited as contemplated by this Section 7, provided that
the Company shall maintain on deposit funds sufficient to satisfy all payments
which the deposit arrangement shall have been established to satisfy. If the
conditions precedent to the disbursement of any funds deposited by the Company
pursuant to this Section 7 shall not have been satisfied within two years after
the establishment of such funds, then (a) such funds shall be returned to the
Company upon its request; (b) after such return, such funds shall be free of any
trust which shall have been impressed upon them; (c) the person entitled to the
payment for which such funds shall have been originally intended shall have the
right to look only to the Company for such payment, subject to applicable
escheat laws; and (d) the trustee which shall have held such funds shall be
relieved of any responsibility for such funds upon the return of such funds to
the Company.
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Any payment which may be owed for the payment of the Redemption Price
for any shares of Series A Preferred Stock pursuant to Section 5 hereof or the
payment of any amount distributable with respect to any shares of Series A
Preferred Stock under Section 6 hereof shall be deemed to have been "paid or
properly provided for" upon the earlier to occur of: (a) the date upon which
funds sufficient to make such payment shall be deposited in a manner
contemplated by the preceding paragraph or (b) the date upon which a check
payable to the person entitled to receive such payment shall be delivered to
such person or mailed to such person at either the address of such person then
appearing on the books of the Company or such other address as the Company shall
deem reasonable.
8. STATUS OF REACQUIRED SHARES OF SERIES A PREFERRED STOCK. Shares of
Series A Preferred Stock issued and reacquired by the Company (including,
without limitation, shares of Series A Preferred Stock which have been redeemed,
pursuant to the terms of Section 5 hereof) shall have the status of authorized
and unissued shares of preferred stock, undesignated as to series, subject to
later issuance.
9. FRACTIONAL SHARES. In the event the holder of Series A Preferred
Stock shall be entitled to receive a fractional interest in a share of Series A
Preferred Stock of less than one one-hundredth of one share, except as otherwise
provided herein, the Company shall either, in the sole discretion of the Board
of Directors, (a) round such fractional interest up to the next one hundredth of
one whole share of Series A Preferred Stock or Common Stock, as the case may be,
or (b) deliver cash in the amount of the fair market value (as determined by the
Board of Directors or in any manner prescribed by the Board of Directors) of
such fractional interest.
10. PREEMPTIVE RIGHTS. The Series A Preferred Stock is not entitled to
any preemptive or subscription rights in respect of any securities of the
Company.
11. INFORMATION RIGHT. The Company will provide to or make available to
the holder of the Series A Preferred Stock, as the case may be, the same
information, reports and notices as it provides to, or makes available to, any
holder of its capital stock. Upon the holder's reasonable request (on behalf of
itself or any other holder), the Company shall make its senior management,
including, without limitation, Company's chairman, president, chief executive
officer, chief financial officer, vice presidents, treasurer and secretary,
available to meet with the holder and such advisors as the holder deems
appropriate to discuss the business and affairs of Company, including, without
limitation, Company's past performance, financial statements, financial
condition, projections and forecasts.
12. LEGAL HOLIDAYS. In any case where any Dividend Payment Date, or any
Redemption Date shall not be a Business Day (as defined below), then
(notwithstanding any other provision of these resolutions or of the Series A
Preferred Stock) payment of a dividend due or a Redemption Price need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the Dividend Payment Date or Redemption
Date, provided that, for purposes of computing such payment, no interest shall
accrue for the period from and after such Dividend Payment Date or Redemption
Date, as the case may be. As used in this Section 12, "Business Day" means each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York, New York or Pittsburgh, Pennsylvania or
Dallas, Texas are authorized or obligated by law or executive order to close.
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13. Conversion. Each share of Series A Preferred Stock shall, at the
option of the record holder of Series A Preferred Stock, be convertible into
that number of shares of common stock, $0.01 par value per share of the Company
(the "Common Stock"), equal to the liquidation preference thereof plus (i) all
accrued but unpaid Quarterly Dividends thereon and (ii) any accrued but unpaid
interest in respect of "past due" Quarterly Dividends, divided by the Offering
Price Per Share, as hereinafter defined, upon the closing of a public offering
(the "Offering") of Common Stock registered under the provisions of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder during calendar year 1997. The price per share of Common Stock in the
Offering is referred to herein as the "Offering Price Per Share." The conversion
shall be effective on the date the record holder of Series A Preferred Stock
elects to convert the Series A Preferred Stock to shares of Common Stock.
IN WITNESS WHEREOF, U.S. VISION, INC. has caused this certificate to be
signed by its President, and attested by its Secretary, as of the 10th day of
September, 1997.
U.S. VISION, INC.
By: /s/ William A. Schwartz, Jr.
-------------------------------------
William A. Schwartz, Jr. President
ATTEST:
By: /s/ George E. McHenry, Jr.
------------------------------------
George E. McHenry, Jr., Secretary
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<PAGE>
CERTIFICATE OF DESIGNATION,
PREFERENCES, POWERS, AND RIGHTS
OF
SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
U.S. VISION, INC.
--------------
Pursuant to Section 151 of the
Delaware General Corporation Law
U.S. Vision, Inc., a Delaware corporation (the "Company"), hereby
certifies that, pursuant to the authority contained in Article Fourth of its
Certificate of Incorporation (the "Certificate"), and in accordance with the
provisions of Section 151 of the Delaware General Corporation Law (the "GCL"),
its Board of Directors has adopted the following resolution providing for the
issuance of Series C Cumulative Convertible Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock of
the Company is hereby created and the Board of Directors hereby fixes the
designation and amount thereof, and the voting powers, preferences, and
relative, participating, optional and other special rights of the shares of such
series, and the qualifications, limitations, or restrictions thereon as follows:
1. DESIGNATION OF THE SERIES: RANK. The shares of such series of
preferred stock shall be designated as "Series C Cumulative Convertible
Preferred Stock" (the "Series C Preferred Stock") and the number of shares
constituting such series shall be 300,000. The par value of the Series C
Preferred Stock shall be $.01 per share and the issuance price of the Series C
Preferred Stock shall be $63.50 per share (as adjusted for any stock dividends,
combinations, splits or recapitalizations ("Recapitalization Events"), the
"Issuance Price"). The Series C Preferred Stock shall rank senior to all capital
stock of the Company as to dividends and upon liquidation, dissolution or
winding up.
2. DIVIDENDS.
---------
(a) The holders of the Series C Preferred Stock shall be
entitled to receive cumulative quarterly dividends (the "Quarterly Dividends"),
payable in arrears on the first day of each January, April, July and October
(each, a "Dividend Payment Date"). On each Dividend Payment Date prior to
December 1, 1999, the Quarterly Dividend shall be payable at the rate of nine
percent (9.0%) per annum and shall be equal to $1.42875 per share (as adjusted
for Recapitalization Events), in cash, out of funds legally available therefor
or, at the option of the Company, by the issuance of that number of shares of
Series C Preferred Stock which shall be equal to (i) the amount of the cash
Quarterly Dividend due and payable per share of Series C Preferred Stock on such
Dividend Payment Date divided by (ii) the Issuance Price. On each Dividend
Payment Date after December 1, 1999, the Quarterly Dividend shall be payable
only in cash, out
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of funds legally available therefor, at the rate of twenty-five percent (25.0%)
per annum and shall equal $3.96875 per share (as adjusted for Recapitalization
Events).
Dividends payable for any period other than a full quarterly dividend
period shall be calculated by multiplying the appropriate dividend rate by a
fraction, the numerator of which is equal to the actual number of days in such
period and the denominator of which is equal to a year of 360 days.
The Quarterly Dividends will be payable to holders of record of Series
C Preferred Stock as they appear on the stock books of the Company on a record
date fixed by the Board, which shall in no event be more than sixty (60) days
nor less than ten (10) days prior to the Dividend Payment Date. Dividends on
each share of Series C Preferred Stock accrue continuously from day to day,
whether or not earned, and are cumulative from the date of issue of each share
of Series C Preferred Stock, whether or not the Company at any time has funds
legally available for the payment of dividends. Holders of the Series C
Preferred Stock shall not be entitled to any dividends, whether payable in cash,
property or securities, in excess of the full cumulative dividends described in
the preceding paragraph.
Any Quarterly Dividend which is not paid on the Dividend Payment Date
on which it becomes due will be deemed to be "past due" until such Quarterly
Dividend is paid or until the share of Series C Preferred Stock with respect to
which such Quarterly Dividend became due is no longer outstanding, whichever is
the earlier to occur. To the extent past due, all Quarterly Dividends that have
accrued on each share of Series C Preferred Stock (whether or not declared) will
accrue interest at a rate per annum equal to 25% from and after the Dividend
Payment Date, until such Quarterly Dividends are paid. Quarterly Dividends paid
on shares of Series C Preferred Stock in an amount less than the total amount of
such Quarterly Dividends at the time accumulated and payable on such shares
shall be allocated pro rata on a share-by-share basis among all such shares at
the time outstanding.
Unless full cumulative Quarterly Dividends on all outstanding shares of
the Series C Preferred Stock have been paid or declared and set aside for
payment for all past dividend periods: (A) no dividends, in cash, stock or other
property, may be declared or any other distribution made upon any other capital
stock of the Company; and (B) no other capital stock of the Company may be
redeemed pursuant to a sinking fund or otherwise purchased or otherwise acquired
for any consideration by the Company.
(b) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company if the Company could not, under paragraph (a) of this Section 2, redeem,
purchase or otherwise acquire such shares at such time and in such manner.
3. GENERAL, CLASS AND SERIES VOTING RIGHTS.
(a) Except as provided in this Section 3 and in Section 4 hereof,
or as otherwise from time to time required by law, the Series C Preferred Stock
shall have no voting rights.
So long as any shares of Series C Preferred Stock remain outstanding,
the consent of the holders of at least two-thirds of the shares of Series C
Preferred Stock outstanding at the time (voting separately as a class) given in
person or by proxy, either in writing or at any special or annual meeting called
for the purpose, shall be necessary to permit, effect or validate any one or
more of the following:
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(i) The authorization, creation, issuance or reclassification
of authorized stock of the Company into, or authorization, creation or
issuance of any obligation or security convertible into or evidencing a
right to purchase, any shares of any class of stock of the Company
(including any class or series of preferred stock) ranking prior to the
Series C Preferred Stock;
(ii) The amendment, alteration or repeal of any of the
provisions of this Certificate of Designation or of these resolutions,
whether by merger, consolidation or otherwise, which would materially
and adversely affect the preferences, rights, powers or privileges,
qualification, limitations and restrictions of the Series C Preferred
Stock;
(iii) The entry into any agreement that would restrict the
Company's ability to perform under the Securities Purchase Agreement or
the Series C Preferred Stock;
(iv) The amendment of the Company's Certificate of
Incorporation or By-Laws in any way which adversely affects the rights
and preferences of the holders of the Series C Preferred Stock as a
class;
(v) The issuance of any of the Company's securities or
pursuant to management compensation plans approved by the Board;
(vi) The entry by the Company or its subsidiaries into any
business other than the operation of retail optical stores and the
vertically integrated business of lens grinding, frame manufacturing,
filling and shipping retail orders for prescriptive eyewear and contact
lenses, and businesses related thereto; or
(vii) The sale of substantially all of the assets or stock of
the Company (whether by merger, consolidation or otherwise) without, as
part of such transaction, effecting the redemption of all outstanding
preferred stock of the Company owned by the holders of the Series C
Preferred Stock.
The foregoing voting provisions shall not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of Series C Preferred Stock shall have
been redeemed or sufficient funds shall have been deposited in trust to effect
such redemption.
4. ELECTION OF SERIES C DIRECTORS.
(a) The holders of the outstanding shares of Series C
Preferred Stock shall have the exclusive right (voting separately as a class) to
elect two directors of the Company (the "Series C Directors").
(b) Upon written notice of exercise of the right to elect the
Series C Directors signed by the holders of at least the minimum number of
issued and outstanding shares of Series C Preferred Stock required under the GCL
and the Certificate to take action by written consent, the maximum authorized
number of members of the Board shall automatically be increased by the number of
directors named in the notice (but not more than two) and the designees named in
the notice shall be deemed elected to fill the vacancies so created by vote of
the holders of the Series C Preferred Stock, with the same effect as the vote
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<PAGE>
of the holders of the Series C Preferred Stock obtained at a meeting of the
holders of the Series C Preferred Stock duly called and held for the purpose of
voting upon the election of the Series C Directors.
(c) In lieu of electing Series C Directors by written notice,
the President of the Company shall, within 20 days after delivery to the Company
at its principal office of a written request for a special meeting signed by the
holders of at least 15 percent of all outstanding shares of the Series C
Preferred Stock, call a special meeting of the holders of Series C Preferred
Stock to be held as promptly as is practicable within 90 days after the delivery
of such request for the purpose of electing Series C Directors. Each holder of
Series C Preferred Stock shall be entitled in electing the Series C Directors to
one vote for each share of Series C Preferred Stock held.
The Series C Directors elected by the holders of Series C Preferred
Stock shall be in addition to the number of directors, other than the Series C
directors (any directors of the Company elected by the holders of the Company's
Series A Cumulative Preferred Stock having already resigned their positions as
directors), constituting the Board immediately prior to the Series C Directors'
election, and the maximum authorized number of members of the Board shall
automatically be increased by a one-time maximum of two and the two vacancies so
created shall be filled by vote of the holders of the outstanding shares of
Series C Preferred Stock.
(d) Each Series C Director shall hold office until the earliest to
occur of (i) the time at which no shares of Series C Preferred Stock are
outstanding, (ii) his or her death, (iii) his or her resignation, (iv) his or
her removal, (v) his or her disqualification, (vi) his or her retirement, or
(vii) the election by the holders of Series C Preferred Stock of a duly
qualified successor at any annual or special meeting of shareholders of the
Company. Subject to the limitations of the preceding sentence, Series C
Directors shall serve until the next annual meeting of the shareholders of the
Company, at which time the holders of Series C Preferred Stock may elect
successors to the Series C Directors.
(e) If the office of any Series C Director becomes vacant by reason of
death, resignation, retirement, disqualification, removal from office or
otherwise, the remaining Series C Director may choose a successor who shall hold
office for the unexpired term in respect of which such vacancy occurred. Any
Series C Director may be removed by, and shall not be removed otherwise than by,
a majority of the votes of the holders of the outstanding shares of Series C
Preferred Stock. Whenever no Series C Director is entitled to serve in office,
the number of directors shall be such number as may be provided for in the
By-Laws or in a resolution of the Board adopted in accordance with the By-Laws,
irrespective of any increase made pursuant to the provisions of this Section 4.
5. REDEMPTION. The Series C Preferred Stock may be redeemed at the
option of the Company at any time, in whole or in part, at the price per share
equal to the Issuance Price plus accrued and unpaid dividends, if any, up to but
excluding the date fixed for redemption (subject to the right of the holder of
record of shares of Series C Preferred Stock on a record date for the payment of
a Quarterly Dividend on the Series C Preferred Stock to receive the Quarterly
Dividend due on such shares of Series C Preferred Stock on the corresponding
Dividend Payment Date) (the "Redemption Price").
Except as provided below, no sinking fund, mandatory redemption or
other similar provision shall apply to the Series C Preferred Stock.
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<PAGE>
If fewer than all the outstanding shares of Series C Preferred Stock
are to be redeemed, the Company will determine the shares to be redeemed pro
rata as nearly as practicable, by lot, or by such other method as the Board may
determine to be fair and appropriate.
Notice of any proposed redemption of shares of Series C Preferred Stock
shall be mailed by means of first class mail, postage paid, addressed to the
holders of record of the shares of Series C Preferred Stock to be redeemed, at
their respective addresses then appearing in the stock register of the Company,
not less than thirty (30) nor more than sixty (60) days prior to the date fixed
for such redemption (herein referred to as the "Redemptive Date"). Each such
notice shall specify (a) the Redemption Date, (b) the Redemption Price, (c) the
place for payment and for delivering the stock certificate(s) and transfer
instrument(s) in order to collect the Redemption Price, and (d) the shares of
Series C Preferred Stock to be redeemed. Any notice mailed in such manner shall
be conclusively deemed to have been duly given whether or not such notice is in
fact received.
The holder of any shares of Series C Preferred Stock redeemed upon any
exercise of the Company's redemption right shall not be entitled to receive
payment of the Redemption Price for such shares until such holder shall cause to
be delivered to the place specified in the notice given with respect to such
redemption (e) the certificate(s) representing such shares of Series C Preferred
Stock or an affidavit of lost stock certificate acceptable to the Company (no
bond shall be required to accompany such affidavit), and (f) transfer
instrument(s) satisfactory to the Company and sufficient to transfer such shares
of Series C Preferred Stock to the Company free of any adverse interest. No
interest shall accrue on the Redemption Price of any shares of Series C
Preferred Stock after its Redemption Date (provided the Redemption Price of such
shares has been paid or properly provided for).
On or after the Redemption Date for any share of Series C Preferred
Stock, such share shall (provided the Redemption Price of such share has been
paid or properly provided for) be deemed to cease to be outstanding and all
rights of any person other than the Company in such shares shall be extinguished
on the Redemption Date for such share (including all rights to receive future
dividends with respect to such share) except for the right to receive the
Redemption Price, without interest, for such share in accordance with the
provisions of this Section 5, subject to applicable escheat laws.
Subject to Section 2 hereof and to the following paragraph, if there is
a public market for the Series C Preferred Stock, the Company has the right to
purchase shares of Series C Preferred Stock in the public market at such prices
as may from time to time be available in the public market for such shares, and
also has right at any time to acquire any shares of Series C Preferred Stock
from the owner of such shares on such terms as may be agreeable to such owner.
Shares of Series C Preferred Stock may be acquired by the Company from any
stockholder pursuant to this paragraph without offering any other stockholder an
equal opportunity to sell Series C Preferred Stock to the Company, and no
purchase by the Company from any stockholder pursuant to this paragraph shall be
deemed to create any right on the part of any stockholder to sell any shares of
Series C Preferred Stock (or any other stock) to the Company.
Notwithstanding the foregoing provisions of this Section 5, and subject
to the provisions of Section 2 hereof, if a dividend upon any shares of Series C
Preferred Stock is past due, (g) no shares of the Series C Preferred Stock may
be redeemed, except by means of a redemption pursuant to which all outstanding
shares of the Series C Preferred Stock are simultaneously redeemed, or pursuant
to which the outstanding shares of the Series C Preferred Stock are redeemed on
a pro rata basis or (h) neither the Company nor any subsidiary of the Company
shall purchase or otherwise acquire any shares of the Series C Preferred Stock,
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<PAGE>
except pursuant to a purchase or exchange offer made on the same terms to all
holders of the Series C Preferred Stock.
6. LIQUIDATION. In the event of any voluntary or involuntary
dissolution, liquidation or winding up of the Company (for the purposes of this
Section 6, a "Liquidation"), before any distribution of assets shall be made to
the holders of any capital stock of the Company upon Liquidation the holder of
each share of Series C Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Company available for distribution to its
stockholders, an amount equal to the Redemption Price to the holders of Series C
Preferred Stock plus any accrued and unpaid interest on any dividends on the
shares of Series C Preferred Stock deemed to be "past due."
If upon any Liquidation of the Company, the assets available for
distribution to the holders of Series C Preferred Stock which shall then be
outstanding shall be insufficient to pay the holders of all outstanding shares
of Series C Preferred Stock the full amounts (including all dividends accrued
and unpaid) of the liquidating distribution to which they shall be entitled,
then the holders of such stock will share ratably in any such distribution of
assets first in proportion to their respective Liquidation preferences
(excluding accrued but unpaid dividends) until such preferences are paid in
full, and then in proportion to their respective amounts of accrued but unpaid
dividends. After payment of any such liquidating preference, accrued dividends
and accrued interest on "past due" dividends, the holders of shares of the
Series C Preferred Stock will not be entitled to any further participation in
any distribution of assets by the Company.
For purposes of this Section 6, a Liquidation shall not include (a) any
consolidation or merger of the Company with or into any other corporation in
which the Company is the surviving entity, (b) any liquidating, dissolution,
winding up or reorganization of the Company immediately followed by
reincorporation of another corporation or (c) a sale or other disposition of all
or substantially all of the Company's assets to another corporation unless in
connection therewith the Liquidation of the Company is specifically approved by
the holders of the Series C Preferred Stock.
The holder of any shares of Series C Preferred Stock shall not be
entitled to receive any payment owed for such shares under this Section 6 until
such holder shall cause to be delivered to the Company (d) the certificate(s)
representing such shares of Series C Preferred Stock or an affidavit of lost
stock certificates reasonably acceptable to the Company (provided that no bond
shall be required to accompany the affidavit) and (e) transfer instrument(s)
satisfactory to the Company and sufficient to transfer such shares of Series C
Preferred Stock to the Company free of any adverse interest. As in the case of
the Redemption Price, no interest shall accrue on any payment upon Liquidation
after the due date thereof (provided that the Liquidation payment hereunder is
made when due).
7. PAYMENTS. The Company may provide funds for any payment of the
Redemption Price prior to the Redemption Date for any shares of Series C
Preferred Stock or any amount distributable with respect to any Series C
Preferred Stock or any amount distributable with respect to any Series C
Preferred Stock under Section 6 hereof by depositing such funds with a bank or
trust company selected by the Company having a net worth of at least
$100,000,000.00 and having its principal place of business in New York, New
York, Pittsburgh, Pennsylvania or Dallas, Texas, in trust for the benefit of the
holders of such shares of Series C Preferred Stock under arrangements providing
irrevocably for payment upon satisfaction of any conditions to such payment by
the holders of such shares of Series C Preferred Stock which shall reasonably be
required by the Company. The Company shall be entitled to make any deposit of
funds contemplated by this Section 7 under arrangements designed to permit such
funds to generate interest or
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other income for the Company, and the Company shall be entitled to receive all
interest and other income earned by any funds while they shall be deposited as
contemplated by this Section 7, provided that the Company shall maintain on
deposit funds sufficient to satisfy all payments which the deposit arrangement
shall have been established to satisfy. If the conditions precedent to the
disbursement of any funds deposited by the Company pursuant to this Section 7
shall not have been satisfied within two years after the establishment of such
funds, then (a) such funds shall be returned to the Company upon its request;
(b) after such return, such funds shall be free of any trust which shall have
been impressed upon them; (c) the person entitled to the payment for which such
funds shall have been originally intended shall have the right to look only to
the Company for such payment, subject to applicable escheat laws; and (d) the
trustee which shall have held such funds shall be relieved of any responsibility
for such funds upon the return of such funds to the Company.
Any payment which may be owed for the payment of the Redemption Price
for any shares of Series C Preferred Stock pursuant to Section 5 hereof or the
payment of any amount distributable with respect to any shares of Series C
Preferred Stock under Section 6 hereof shall be deemed to have been "paid or
properly provided for" upon the earlier to occur of: (e) the date upon which
funds sufficient to make such payment shall be deposited in a manner
contemplated by the preceding paragraph or (f) the date upon which a check
payable to the person entitled to receive such payment shall be delivered to
such person or mailed to such person at either the address of such person then
appearing on the books of the Company or such other address as the Company shall
deem reasonable.
8. STATUS OF REACQUIRED SHARES OF SERIES C PREFERRED STOCK. Shares of
Series C Preferred Stock issued and reacquired by the Company (including,
without limitation, shares of Series C Preferred Stock which have been redeemed
pursuant to the terms of Section 5 hereof or converted pursuant to the
provisions of Section 11 hereof) shall have the status of authorized and
unissued shares of preferred stock, undesignated as to series, subject to later
issuance.
9. FRACTIONAL SHARES. In the event the holder of Series C Preferred
Stock shall be entitled to receive a fractional interest in a share of Series C
Preferred Stock of less than one one-hundredth of one share, except as otherwise
provided herein, the Company shall either, in the sole discretion of the Board,
(a) round such fractional interest up to the next one-hundredth of one whole
share of Series C Preferred Stock or (b) deliver cash in the amount of the fair
market value (as determined by the Board or in any manner prescribed by the
Board) of such fractional interest.
10. PREEMPTIVE RIGHTS. The Series C Preferred Stock is not entitled to
any preemptive or subscription rights in respect of any securities of the
Company.
11. MANDATORY CONVERSION. Each share of Series C Preferred Stock shall
automatically convert into that number of shares of common stock, $10.00 par
value per share of the Company (the "Common Stock"), equal to the liquidation
preference thereof plus accrued but unpaid Quarterly Dividends thereon plus any
accrued but unpaid interest in respect of "past due" Quarterly Dividends divided
by the Offering Price Per Share, as hereinafter defined, upon the closing of a
public offering (the "Offering") of Common Stock registered under the provisions
of the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder, in which the net proceeds (that is, gross Offering
Proceeds less the applicable underwriting discounts and commissions) to the
Company as a result of the Offering equal or exceed Twenty-Five Million Dollars
($25,000,000.00) and the pre-offering valuation for the Company's
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common equity equals or exceeds One Hundred Million Dollars ($100,000,000.00).
The price per share of Common Stock in the Offering is referred to herein as the
"Offering Price Per Share."
12. INFORMATION RIGHT. The Company will provide to or make available to
the holder of the Series C Preferred Stock, as the case may be, the same
information, reports and notices as it provides to, or makes available to, any
holder of its capital stock. Upon the holder's reasonable request (on behalf of
itself or any other holder), the Company shall make its senior management,
including, without limitation, Company's chairman, president, chief executive
officer, chief financial officer, vice presidents, treasurer and secretary,
available to meet with the holder and such advisors as the holder deems
appropriate to discuss the business and affairs of the Company, including,
without limitation, Company's past performance, financial statements, financial
condition, projections and forecasts.
13. LEGAL HOLIDAYS. In any case where any Divided Payment Date, or any
Redemption Date shall not be a Business Day (as defined below), then
(notwithstanding any other provision of these resolutions or of the Series C
Preferred Stock) payment of a divided due or a Redemption Price need not be made
on such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on the Dividend Payment Date or Redemption Date,
provided that, for purposes of computing such payment, no interest shall accrue
for the period from and after such Dividend Payment Date or Redemption Date, as
the case may be. As used in this Section 13, "Business Day" means each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York, New York are authorized or obligated by law or
executive order to close.
14. STOCK TO BE RESERVED. The Company will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of the Series C Preferred Stock as herein provided,
such number of shares of Common Stock as shall then be issuable upon the
conversion of all outstanding shares of the Series C Preferred Stock. The
Company covenants that all shares of Common Stock which shall be so issued shall
be duly and validly issued and fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof. The Company will
take all such action as may be necessary to ensure that all such shares of
Common Stock may be issued without violation of any applicable law or
regulation, or of any requirement of any national securities exchange upon which
the Common Stock may be listed.
15. CONVERSION. Each share of Series C Preferred Stock shall, at the
option of the record holder of Series C Preferred Stock, be convertible into
that number of shares of common stock, $0.01 par value per share of the Company
(the "Common Stock"), equal to the liquidation preference thereof plus (i)
accrued but unpaid Quarterly Dividends thereon and (ii) any accrued but unpaid
interest in respect of "past due" Quarterly Dividends, divided by the Offering
Price Per Share, as hereinafter defined, upon the closing of a public offering
(the "Offering") of Common Stock registered under the provisions of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder during calendar year 1997. The price per share of Common Stock in the
Offering is referred to herein as the "Offering Price Per Share." The conversion
shall be effective on the date the record holder of Series C Preferred Stock
elects to convert the Series C Preferred Stock to shares of Common Stock
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<PAGE>
IN WITNESS WHEREOF, U.S. VISION, INC. has caused this certificate to be
signed by its President, and attested by its Secretary, as of the 10th day of
September, 1997.
U.S. VISION, INC.
By: /s/ William A. Schwartz, Jr.
--------------------------------------
William A. Schwartz, Jr., President
ATTEST:
By: /s/ George E. McHenry, Jr.
------------------------------------
George E. McHenry, Jr., Secretary
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<PAGE>
BYLAWS
OF
U.S. VISION, INC.
ARTICLE I
OFFICES AND AGENT
-----------------
1.01 Registered Office and Agent. The registered office of the
corporation shall be located at 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801, and the name of the registered agent of the corporation
at such address is Corporation Trust Center.
1.02 Other Offices. The corporation may also have offices at such other
places within and without the State of Delaware as the board of directors may
from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
2.01 Annual Meetings. An annual meeting of the shareholders shall be
held at such time as the Board of Directors shall fix. At each annual meeting
the shareholders shall elect a board of directors and shall transact such other
business as may properly be brought before the meeting.
2.02 Call for Special Meetings. Special meetings of the shareholders,
for any purpose or purposes may be held at such time and place, within or
without the State of Delaware as shall be stated in the notice of the meeting or
in a duly executed waiver of notice. Unless otherwise prescribed by statute or
by the Certificate of Incorporation, or by these bylaws, special meetings of the
shareholders may be called by the President, the board of directors, or by one
or more shareholders, the aggregate of whose shares comprise not less than
one-tenth of all shares entitled to vote at the meetings. Business transacted at
all special meetings shall be confined to the subjects stated in the notice of
the meeting, unless such notice shall have been waived.
2.03 Notice. Unless notice is waived, written or printed notice stating
the place, date, and time of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten nor more than sixty days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or person calling the meeting, to each shareholder of record
entitled to vote at the meeting.
2.04 Quorum; Majority Vote. The holders of a majority of the shares
issued and outstanding and entitled to vote, present in person or represented by
proxy, shall be requisite and shall constitute a quorum at all meetings of the
shareholders for the transaction of business except as otherwise provided by
law, the Certificate of Incorporation, or these bylaws. When a quorum is present
at any meeting, the vote of the holders of a majority of the shares having
voting power present in person or represented by proxy shall decide any question
before such meeting, unless the question is one upon which, by express provision
of law, the Certificate of Incorporation, or these bylaws, a different vote is
required, in which case such express
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<PAGE>
provision shall govern. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
2.05 Voting. Unless otherwise provided in the Certificate of
Incorporation, at every election of directors, each shareholder shall have the
right to vote the number of voting shares that such shareholder owns for as many
persons as there are directors to be elected. Unless otherwise provided in the
Certificate of Incorporation, no shareholder shall be entitled to cumulate such
shareholder's votes, and cumulative voting is prohibited.
ARTICLE III
DIRECTORS
---------
3.01 Powers. The business and affairs of the corporation shall be
managed by its board of directors who may exercise all such powers of the
corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation, or these bylaws directed or required to be
exercised or done by the shareholders.
3.02 Number and Election. The board of directors shall consist of not
less than one director; no director need be a shareholder or a resident of the
State of Delaware. The directors shall be elected at the annual meeting of the
shareholders, except as hereinafter provided, and each director elected shall
hold office until such director's successor shall be elected and shall qualify.
Any vacancy occurring in the board of directors may be filled by the affirmative
vote of a majority of the remaining directors, notwithstanding that the
remaining directors constitute less than a quorum of the board of directors, or
by the holders of a majority of the shares then entitled to vote in election of
directors. A director elected to fill a vacancy shall be elected for the
unexpired term of such director's predecessor in office. Any directorship to be
filled by reason of an increase in the number of directors may be filled by
election at an annual meeting or a special meeting of the shareholders called
for that purpose, or may be filled by the board of directors for a term of
office continuing only until the next election of one or more of the directors
by the shareholders.
3.03 Removal. Any director may be removed, with or without cause, at
any duly constituted meeting of shareholders called expressly for that purpose,
by the affirmative vote of the holders of a majority of the shares then entitled
to vote in elections of directors.
3.04 First Meeting of New Board. The first meeting of each newly
elected board of directors shall be held without further notice immediately
following the annual meeting of the shareholders.
3.05 Meetings. Regular meetings of the board of directors may be held
without notice at such time and place as shall be determined by the board.
Special meetings of the board of directors may be called by the President on
three days' notice to each director, either personally or by mail or by
telegram. The purpose or purposes of such meeting need not be stated in the
notice thereof, except as is specifically provided in section 11.01 of these
bylaws.
3.06 Quorum; Majority Vote. At all meetings of the board of directors,
the presence of a majority of the number of directors fixed in the manner
provided in these bylaws shall be necessary and sufficient to constitute a
quorum for the transaction of business, and the act of a majority of the
directors
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<PAGE>
present at any meeting at which there is a quorum shall be the act of the board
of directors, except as may be otherwise specifically provided by law, the
Certificate of Incorporation, or these bylaws. If a quorum shall not be present
at any meeting, the directors present at the meeting may adjourn the meeting
from time to time without notice other than announcement at the meeting, until a
quorum shall be present.
3.07 Committees. The board of directors, by resolution adopted by a
majority of the full board of directors, may designate from among its members an
executive committee and one or more other committees, each of which shall be
comprised of one or more members and, to the extent provided in such resolution,
shall have and may exercise all of the authority of the board of directors,
except that no such committee shall have the authority of the board of directors
in reference to amending the Certificate of Incorporation, adopting an agreement
of merger or consolidation under ss.251 or ss.252 of the Delaware General
Corporation Law, recommending to the shareholders the sale, lease, or exchange
of all or substantially all of the property and assets of the corporation,
recommending to the shareholders a voluntary dissolution of the corporation or a
revocation thereof, amending, altering or repealing the bylaws of the
corporation or adopting new bylaws for the corporation, altering or repealing
any resolution of the board of directors that by its terms provide that it shall
not be so amendable or repealable; and, unless the resolution expressly so
provides, no committee shall have the power or authority to declare a dividend,
or to authorize the issuance of shares of the corporation, or to adopt a merger
pursuant to ss.253 of the Delaware General Corporation Law. The designation of
such committee and the delegation of authority to such committee shall not
operate to relieve the board of directors, or any member of the board, of any
responsibility imposed by law.
ARTICLE IV
NOTICES
-------
4.01 Formalities of Notices. Whenever, under the provisions of law, the
Certificate of Incorporation, or these bylaws, notice is required to be given to
any director or shareholder and no provision is made as to how such notice shall
be given, personal notice shall not be required, but any such notice may be
given in writing, by mail, postage prepaid, addressed to such director or
shareholder at such address as appears on the books of the corporation. Any
notice required or permitted to be given by mail shall be deemed to be given at
the time when such notice shall have been deposited in the United States mails
as aforesaid.
4.02 Waiver of Notices. Whenever any notice is required to be given to
any shareholder or director of the corporation under the provisions of law, the
Certificate of Incorporation, or these bylaws, a waiver of such notice in
writing signed by the person or persons entitled to such notice, whether before
or after the time stated in such notice, shall be deemed equivalent to giving
such notice.
ARTICLE V
OFFICERS
--------
5.01 Offices. The officers of the corporation shall be elected by the
directors and may include a chairman of the board of directors, a president, one
or more vice presidents, a secretary, and a treasurer. The board of directors
may also elect or appoint one or more assistant secretaries and assistant
treasurers. Any two or more offices may be held by the same person.
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<PAGE>
5.02 Election of Officers; Term; Removal; Salary. The board of
directors at its first meeting after each annual meeting of shareholders shall
elect the officers, none of whom need be members of the board. Each officer of
the corporation shall hold office until such officer's successor is chosen and
qualified or until such officer's death, resignation, or removal from office.
Any officer or agent elected or appointed by the board of directors may be
removed at any time by the board of directors, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the board of directors. The salaries of all officers and agents of the
corporation shall be fixed by the board of directors.
5.03 The President. The President shall be the chief executive officer
of the corporation; the President shall preside at all meetings of the
shareholders, shall have general and active management of the business and
affairs of the corporation, shall see that all orders and resolutions of the
board are carried into effect, and shall perform such other duties as the board
of directors shall prescribe.
5.04 The Vice Presidents. If the corporation elects or appoints one or
more Vice Presidents, then each Vice President shall have such power and perform
such duties as the board of directors may from time to time prescribe or as the
President may from time to time delegate.
5.05 The Secretary and Assistant Secretaries. The Secretary shall
attend all sessions of the board of directors and all meetings of the
shareholders and record all votes and the minutes of all proceedings in a book
to be kept for that purpose, and shall perform like duties for the Executive
Committee when required. The Secretary shall give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the board of
directors, and shall perform such other duties as may be prescribed by the board
of directors or President, under whose supervision the Secretary shall be. The
Secretary shall keep in safe custody the seal of the corporation and, when
authorized by the board, affix the same to any instrument requiring it and, when
so affixed, it shall be attested by the Secretary's signature or by the
signature of the Treasurer or an Assistant Secretary. Of the corporation does
not elect or appoint a person to the office of Treasurer or Assistant Treasurer,
then the Secretary shall assume all duties of the Treasurer, as described in
paragraph 5.06. Each Assistant Secretary shall have such powers and perform such
duties as the board of directors may from time to time prescribe or as the
President may from time to time delegate.
5.06 The Treasurer and Assistant Treasurers. The Treasurer shall have
the custody of the corporate funds and securities, shall keep full and accurate
accounts of receipts and disbursements of the corporation, and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as the board of directors may designate. The
Treasurer shall disburse the funds of the corporation as the board of directors
may order, taking proper vouchers for such disbursements, shall render to the
President and directors, at the regular meetings of the board or whenever the
board may require it, an account of all the Treasurer's transactions and of the
financial condition of the corporation, and shall perform such other duties as
the board of directors may prescribe. If the board of directors requires, then
the Treasurer shall give the corporation a bond in such form, in such sum, and
with such surety or sureties as shall be satisfactory to the board for the
faithful performance of the duties of the Treasurer's office and for the
restoration to the corporation, in case of the Treasurer's death, resignation,
retirement, or removal from office, of all books, papers, vouchers, money, and
other property of whatever kind in the Treasurer's possession or under the
Treasurer's control belonging to the corporation. If no person is elected or
appointed to fill the office of Treasurer, then the duties described in this
paragraph shall be assumed by the Secretary.
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<PAGE>
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
--------------------------------
6.01 Delivery, Form and Content. The board of directors shall cause to
be delivered to the shareholders certificates in such form as the board of
directors may determine representing all shares to which such shareholders are
entitled. Certificates shall be consecutively numbered by classes and shall be
entered in the books of the corporation as they are issued. Each certificate
shall state on its face the holder's name, the number and class of shares, and
the par value of such shares or a statement that such shares are without par
value. Each certificate shall be signed by the President or a Vice President and
the Secretary or an Assistant Secretary and may be sealed with the seal of the
corporation or a facsimile. If any certificate is countersigned by a transfer
agent, or an assistant transfer agent, or registered by a registrar, other than
the corporation or an employee of the corporation, then the signature of any
officer may be a facsimile.
6.02 Lost Certificates. The board of directors may direct a new
certificate representing shares to be issued in place of any certificate
theretofore issued by the corporation alleged to have been lost or destroyed,
upon receiving an affidavit of that fact from the person claiming the
certificate to be lost or destroyed. When authorizing the issue of a new
certificate, the board of directors, in its discretion and as a condition
precedent to the issuance of a new certificate, may require the owner of such
lost or destroyed certificate, or such person's legal representative, to
advertise the same in such manner as the board shall require and/or give the
corporation a bond in such form, in such sum, and with such surety or sureties
as the board may direct as indemnity against any claim that may be made against
the corporation with respect to the certificate alleged to have been lost or
destroyed and/or agree to indemnify the corporation against any such claim.
6.03 Transfer. Shares of stock shall be transferable only on the books
of the corporation by the holder in person or by such person's duly authorized
attorney. Upon surrender to the corporation of the certificate representing
shares duly endorsed or accompanied by proper evidence of succession,
assignment, or authority to transfer, the Corporation shall be obligated to
issue a new certificate to the person entitled to the new certificate, cancel
the old certificate, and record the transaction upon its books.
6.04 Record Holder. The corporation shall be entitled to treat the
holder of record of any share or shares of stock as the holder in fact of such
stock and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person, or
any limitation upon the ownership, power, or authority of such holder, whether
or not the corporation shall have express or other notice, except as otherwise
provided by law.
ARTICLE VII
DIVIDENDS
---------
7.01 Dividends. Dividends on the outstanding shares of the corporation,
subject to the provisions of the Certificate of Incorporation, may be declared
by the board of directors at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the corporation, subject to the
provisions of law and the Certificate of Incorporation. The board of directors
may fix in advance a record date of such dividend, or the board of directors may
close the stock transfer books for such purpose for a period of not more than
thirty days prior to the payment date of such dividend. In the absence of any
action
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<PAGE>
by the board of directors, the date upon which the board of directors adopts the
resolution declaring such dividend shall be the record date.
ARTICLE VIII
ACTION BY UNANIMOUS CONSENT
OR BY CONFERENCE TELEPHONE
--------------------------
8.01 Action by Unanimous Consent. Any action required by the
Certificate of Incorporation, these bylaws, or Delaware law to be taken at a
meeting of the board of directors of the corporation, or any action that may be
taken at any such meeting may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all the directors
entitled to vote with respect to the subject matter of the action, and such
consent is filed in the minute book of the corporation.
8.02 Action by Consent of Shareholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required to
be taken at any annual or special meeting of the shareholders of the
corporation, or any action which may be taken at any annual meeting or special
meeting of the shareholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote on the action were
present and voted. Prompt notice that corporate action was taken without a
meeting by less than unanimous written consent shall be given to the
stockholders who have not consented in writing. In lieu of any statement
regarding a shareholders vote required to be set forth in any document or
certificate to be filed with the Delaware Secretary of State, a statement that a
written consent and written notice have been given in accordance with the
provisions of ss.228 of the Delaware General Corporation Law may be given.
8.03 Actions by Conference Telephone. Subject to any notice of meeting
requirements in these bylaws or under Delaware law, the board of directors, or
members of any committee designated by such board, may participate in and hold a
meeting of such board or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in such a meeting shall constitute
presence in person at such meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened. Minutes of
any such meeting shall be promptly prepared by the Secretary, circulated to all
directors entitled to vote at the meeting (whether they participated or not),
placed in the regular corporate records containing similar meeting minutes, and
called to the attention of such board of directors or committee at its next
regular meeting.
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<PAGE>
ARTICLE IX
INDEMNIFICATION
9.01 Persons. The corporation may indemnify, to the extent permitted in
this article, and shall indemnify as required by this article:
(a) any person who is or was a director, officer, agent,
or employee of the corporation, and
(b) any person who serves or served at the corporation's
request as a director, officer, partner, venturer, proprietor, trustee,
agent, employee, or similar functionary of another corporation or of a
partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise.
9.02 Derivative Suits. In case of a suit or action by or in the right
of the corporation to procure a judgment in its favor against a person named in
paragraph 9.01 by reason of such person holding a position named in paragraph
9.01, the corporation may indemnify such person if the standard in paragraph
9.04 is satisfied, for reasonable expenses actually and reasonably incurred by
such person (including attorney's fees) in connection with the defense or
settlement of the suit or action and, additionally, for judgments and fines if
such person is found liable for negligence in the performance of duties to the
corporation.
9.03 Nonderivative Suits. In case of a suit, action, or proceeding
(whether civil, criminal, administrative, or investigative), other than a suit
by or in behalf of the corporation, collectively hereinafter referred to as a
nonderivative suit, against a person named in paragraph 9.01 by reason of such
person holding a position named in paragraph 9.01, the corporation may indemnify
such person if the standard in paragraph 9.04 is satisfied for amounts actually
and reasonably incurred by such person in connection with the defense or
settlement of the nonderivative suit as follows:
(a) Judgments;
(b) Penalties, including excise and similar taxes;
(c) Fines;
(d) Settlements; and
(e) Reasonable expenses actually incurred
(including attorney's fees).
9.04 Standard. In case of a derivative suit, a person named in
paragraph 9.01 may be indemnified if such person acted in good faith in the
transaction that is the subject of the suit, and in a manner reasonably believed
to be in or not opposed to the corporation's best interest; provided that no
indemnification shall be made in respect to any claim, issue, or matter as to
which such person shall have been adjudged to be liable to the corporation
unless, and only to the extent that, the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably
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<PAGE>
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper. In the case of nonderivative suit, a person named
in paragraph 9.01 may be indemnified if such person acted in good faith and in a
manner reasonably believed to be in or not opposed to the corporation's best
interest. With respect to any criminal action or proceeding, the person must
have had no reasonable cause to believe that the conduct that is the subject of
such action was unlawful. The termination of a nonderivative proceeding by
judgment, order, settlement, conviction, or on a plea of nolo contendere or its
equivalent, does not of itself create a presumption that the person does not
meet the standards set forth in this paragraph.
9.05 Mandatory Indemnification. The corporation shall indemnify a
person named in paragraph 9.01 against expenses (including attorney's fees)
actually and reasonably incurred in connection with a proceeding in which such
person is a party by reason of such person holding a position named in paragraph
9.01 to the extent such person has been successful, on the merits or otherwise,
in the defense of the proceeding.
9.06 Determination that Standard Has Been Met. A determination that the
standard of paragraph 9.04 has been satisfied shall be made by:
(a) a majority vote of a quorum of the directors
of the corporation who at the time of the vote are not parties to the action,
suit, or proceeding; or
(b) if such a quorum is not obtainable, or, even
if obtainable, by a written opinion of independent legal counsel selected by the
disinterested members of the board of directors; or
(c) the shareholders of the corporation.
9.07 Advance Payments. The corporation may pay in advance any expense
(including attorney's fees) that may become subject to indemnification under
paragraphs 9.01-9.06 if the person receiving the payment affirms in writing that
in good faith the person believes the standards set forth in paragraph 9.04 have
been met, and undertakes to repay any advance payments if it is ultimately
determined that such person has not met those standards.
9.08 Insurance. The corporation may purchase and maintain insurance on
behalf of any person who holds or who has held any position named in paragraph
9.01, against any liability asserted against or incurred by such person in any
such position, or arising out of such person's status as such, whether or not
the corporation would have power to indemnify such person against such liability
under paragraphs 9.01-9.07.
9.09 Additional Indemnification. The rights of indemnification provided
in this article IX shall be in addition to any other rights to which any person
named in paragraph 9.01 may otherwise be entitled by contract or as a matter of
law; and if any such person dies, then such rights shall extend to such person's
heirs and legal representatives. The provisions of this article IX are
separable, and if any provision be held invalid, all other provisions shall only
be curtailed to the extent necessary to make such provision enforceable, it
being the intent of this article that the corporation indemnify each person
named in paragraph 9.01 to the maximum extent permitted by law.
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<PAGE>
ARTICLE X
GENERAL PROVISIONS
10.01 Seal and Official Records. The seal of the corporation, if
adopted by the board of directors, the stock certificate book, the minute book,
and the corporation's financial records shall be of the type that the board of
directors determines and establishes and may be changed from time to time in the
board's discretion.
10.02 Invalid Provisions. If any part of these bylaws shall be held
invalid or inoperative, for any reason, the remaining parts, so far as possible
and reasonable, shall be valid and operative.
10.03 Headings. The headings used in these bylaws have been inserted
for administrative convenience only and do not constitute matter to be construed
in interpretation.
ARTICLE XI
AMENDMENTS
----------
11.01 Alteration, Amendment, or Repeal. The power to alter, amend, or
repeal these bylaws or adopt new bylaws, subject to repeal or change by action
of the shareholders, shall be vested in the board of directors. The board of
directors may make such alteration, amendment, or repeal at any meeting at which
a quorum is present, by the affirmative vote of a majority of the directors
present at such meeting, provided notice of the proposed alteration, amendment
or repeal contained in the notice of such meeting (or such notice shall have
been waived).
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LOAN AND SECURITY AGREEMENT
Dated as of December 19, 1996
between
U.S. VISION, INC. (Pennsylvania corporation)
STYL-RITE OPTICAL MFG. CO., INC.
USV OPTICAL, INC.
U.S. VISION, INC. (Delaware corporation)
and
COMMERCE BANK, N.A.
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<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT, dated as of December 19, 1996 (herein
called the "Agreement"), is entered into among U.S. VISION, INC., a Pennsylvania
corporation ("USVI" or a "Borrower"), STYL-RITE OPTICAL MFG. CO., INC., a
Florida corporation ("SRO" or a "Borrower") and USV OPTICAL, INC., a Texas
corporation ("USVO" or a "Borrower") U.S. VISION, INC., a Delaware corporation
("USVID" or a "Borrower") and, collectively with each other Borrower and each
subsidiary of USVI that is hereafter created or acquired and joins this
Agreement as provided herein, the "Borrowers"), and COMMERCE BANK, N.A.
("Bank").
WITNESSETH:
-----------
A. All of the Borrowers other than USVI are wholly owned by USVI, and
all Borrowers have shared management and financial support.
B. Borrowers desire to establish certain financing arrangements with
and borrow funds from Bank and Bank is willing to establish such arrangements
for and make loans and advances to Borrowers under the terms and provisions
hereinafter set forth.
C. The extension of such credit by the Bank to each Borrower will
result in direct and material benefits to each other Borrower by reducing
borrowing costs and facilitating the orderly administration of the Borrowers'
financing needs.
D. The parties desire to define the terms and conditions of their
relationship and to reduce their agreements to writing.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
covenant and agree as follows:
SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION.
---------------------------------------
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<PAGE>
SECTION 1.01 Definitions.
-----------
"Accounts", "Chattel Paper", "Contracts","Documents",
"Equipment","Fixtures", "Goods", "Instruments" and "Inventory" shall have the
same respective meanings as are given to such terms in the Uniform Commercial
Code as enacted in the Commonwealth of Pennsylvania.
"Account Debtor" shall mean any Person who is or may become obligated
under or on account of an Account.
"Affiliate" means any Person controlling, controlled by or under common
control with any other Person; and with respect to an individual, "Affiliate"
shall also mean any individual related to such individual as a sibling, parent,
child, grandchild or other issue or by adoption or marriage. For purposes of
this definition, "control" (including "controlled by" and "under common control
with") means the possession, directly or indirectly, individually or in
conjunction with other Persons, of the power to direct or cause the direction of
the management and policies of such Person, whether through the ownership of
voting securities or otherwise.
"Aggregate Deductions" shall have the meaning given such term in the
Penney Agreement.
"Annual Financial Statements" shall mean the annual consolidated
financial statements of the Borrowers, including all notes thereto, which
statements shall include a balance sheet as of the end of a calendar year and an
income statement and a statement of cash flows for such year, all setting forth
in comparative form the corresponding figures from the previous year, all
prepared in conformity with Generally Accepted Accounting Principles and, as to
the consolidated statements only, accompanied by (i) a report of independent
certified public accountants reasonably satisfactory to the Bank (it is agreed
that Ernst & Young or any other Big Six accounting firm is satisfactory to
Bank), which report shall not contain any qualifications or explanatory
paragraphs (other than explanatory paragraphs as to changes in accounting
principles where the accountants concur with such changes) and shall state that
such accountants have audited such consolidated financial statements
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in accordance with required procedures and standards and that such financial
statements fairly present in all material respects the financial condition and
results of operations of the Borrowers in conformity with Generally Accepted
Accounting Principles and (ii) a letter from such accountants to Bank (in form
and substance satisfactory to Bank) stating that such accountants and Borrowers
know that such financial statements and report are being delivered to Bank who
will rely on such statements and report, and that Bank may rely on such
statements and report.
"Applicable Percentage" shall mean fifty percent (50%), except that
during the period from October 15 of each year until February 15 of the
following year, it shall mean seventy percent (70%).
"Available Credit shall mean, at any time, the amount, if any, by which
(a) the lesser of (i) the Loan Value, and (ii) the Maximum Revolving Loan
Amount, exceeds (b) the outstanding Bank Revolving Debt.
"Bank Debt" shall mean the sum of (i) Bank Revolving Debt and (ii) the
unpaid principal balance of the Term Loan.
"Bank Revolving Debt" shall mean the sum of (i) all outstanding
advances under the Revolving Loan Facility, (ii) all outstanding Reimbursement
Obligations, and (iii) the full face amount of all outstanding Letters of
Credit.
"Bank Indemnitees" shall mean the Bank, any pledgee, assignee or
subsequent holder or owner of any Note or any interest in any Note, any
affiliate, successor, assign or Subsidiary of the Bank, and each of their
respective shareholders, members, directors, officers, employees, counsel,
agents and contractors, as well as their respective heirs, beneficiaries,
administrators, executors, personal representatives, trustees, receivers,
successors and assigns.
"Borrowed Debt" means (i) Indebtedness for borrowed money (including,
but not limited to all Subordinated Indebtedness); (ii) Indebtedness, whether or
not in any such case the same was for borrowed money, (A) which is represented
by notes payable or
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drafts accepted that evidence extensions of credit, (B) which constitutes
obligations evidenced by bonds, debentures, notes or similar instruments, or (C)
upon which interest charges are customarily paid (other than accounts payable)
or that was issued or assumed as full or partial payment for Property; (iii)
Indebtedness that constitutes a Capitalized Lease Obligation; and (iv)
Indebtedness under any Guarantee of obligations that would constitute
Indebtedness for Borrowed Debt under clauses (i) through (iii) hereof.
"Borrowing Base Certificate" shall mean the Certificate in the form of
Exhibit A hereto.
"Business Day" shall mean a day, other than a Saturday or Sunday, on
which Bank is open for business in Cherry Hill, New Jersey.
"Capital Expenditures" shall mean expenditures made or liabilities
incurred for the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than one
year, including the direct or indirect acquisition of such assets by way of
increased product or service charges, offset items or otherwise, and all
Capitalized Lease Obligations.
"Capitalized Lease Obligation" shall mean Indebtedness represented by
obligations under a lease that is required under GAAP to be capitalized, and the
amount of such Indebtedness shall be the capitalized amount of such obligations
determined in accordance with GAAP.
"Cash Collateral Account" - Section 4.06.
"Collateral" - Section 4.01.
"Collateral Documents" shall mean the Lockbox Agreements, the Trademark
Assignment, the Mortgage Documents, the Financing Statements, and all other
documents, instruments and agreements relating to the Collateral or Bank's Liens
therein.
"Collection Cut-Off Date" shall mean (i) if an Account is an SRO
Account, ninety (90) days after the original invoice date,
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(ii) if an Account is a Vision Care Account, 150 days after the original invoice
date, and (iii) for all other Accounts, ninety (90) days after the date of sale
generating the Account.
"Collections" shall mean, with respect to any Account, all cash
collections and other cash proceeds of such Account including, without
limitation, all payments by the Account Debtor in respect of such Account and
all cash proceeds of any related security with respect to such Account.
"Commitment Letter" shall mean the letter agreement dated November 8,
1996 between Borrowers and Bank relating to the Loans and this Agreement.
"Contractual Obligation" shall mean, as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
understanding to which such Person is a party or by which it or any of its
property is bound or affected.
"Credit and Collection Policy" shall mean those Account credit and
collection policies of Borrowers in effect on the date of this Agreement, as
modified from time to time with the consent of the Bank.
"Current Control Group" shall mean the current shareholders
of USVI.
"Current Ratio" shall mean the ratio of current assets of the Borrowers
to current liabilities of the Borrowers, all as determined in accordance with
Generally Accepted Accounting Principles.
"Dallas Property" shall mean the real property owned by USVO and
described on Schedule 1.01(B) hereto.
"Debt Coverage Ratio" shall mean, as of any date, the ratio of (a)
Borrowers' consolidated EBITDA for the Twelve Month Period ending on such date
to (b) the consolidated Debt Service of the Borrowers for such Twelve Month
Period plus Tax Expense (but not below zero) for such Period.
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"Debt Service" shall mean for any Twelve Month Period the sum of (a)
principal payments maturing during such Twelve Month Period on Borrowed Debt,
and (b) interest expense on Borrowed Debt (not net of interest income) paid,
payable or otherwise accrued during such Twelve Month Period.
"Default Rate" shall mean the rate of interest which is two percent
(2.0%) per annum in excess of each of the applicable Rates.
"EBIT" shall mean gross revenues and other proper income credits, less
all proper charges against income other than (i) interest expense on Borrowed
Debt, and (ii) taxes on income, all determined in accordance with Generally
Accepted Accounting Principles; provided that there shall not be included in
such revenues or charges (a) any gains resulting from the write-up of assets;
(b) any proceeds of any life insurance policy, or (c) any gain or loss which is
classified as "extraordinary" in accordance with Generally Accepted Accounting
Principles. EBIT can be less than zero for all purposes of this Agreement.
"EBITDA" shall mean EBIT plus the sum of depreciation and amortization
expense during the period for which EBIT is calculated.
"Effective Net Worth" shall mean Tangible Net Worth plus the
amount of outstanding Subordinated Indebtedness.
"Eligible Account" shall mean an Account arising in the ordinary course
of any Borrower's business from the sale of goods or rendition of services which
Bank, in its sole reasonable credit judgment, deems to be an Eligible Account.
Without limiting the generality of the foregoing, no Account shall be an
Eligible Account if: (i) it arises out of a sale made by a Borrower to a
Subsidiary, an Affiliate or to a Person controlled by a Subsidiary or an
Affiliate or to any officer, director or employee of a Borrower or any
Subsidiary or Affiliate; or (ii) it is unpaid beyond the applicable Collection
Cut-Off Date; or (iii) the Account Debtor has disputed its liability (in whole
or in part) with respect to such Account or the Account Debtor has made any
claim with respect to any other Account due from such Account Debtor to such
Borrower, (iv) fifty percent (50%) or more of the
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Accounts from the Account Debtor are not deemed Eligible Accounts hereunder; or
(v) the total unpaid Accounts of the Account Debtor (other than Penney, Sears,
Vision One and Cole National) exceed twenty percent (20%) of the net amount of
all Accounts, to the extent of such excess; or (vi) any covenant, representation
or warranty contained in this Agreement with respect to such Account has been
breached; or (vii) the Account Debtor is also a creditor or supplier of such
Borrower and the Account is or may become subject to any right of setoff by the
Account Debtor (except to the extent of the specified setoffs in the Penney
Agreement and setoffs for host department store rent); or (viii) the Account
Debtor has commenced a voluntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or made an assignment for the benefit of
creditors, or a decree or order for relief has been entered by a court having
jurisdiction in the premises in respect of the Account Debtor in an involuntary
case under the federal bankruptcy laws, as now constituted or hereafter amended,
or any other petition or other application for relief under the federal
bankruptcy laws has been filed against the Account Debtor, or if the Account
Debtor has failed, suspended business, ceased to be Solvent, or consented to or
suffered a receiver, trustee, liquidator or custodian to be appointed for it or
for all or a significant portion of its assets or affairs; or (ix) it arises
from a sale to an Account Debtor outside the United States, unless the sale is
on letter of credit, guaranty or acceptance terms, in each case acceptable to
Bank in its sole discretion; or (x) it arises from a sale to the Account Debtor
on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval,
consignment or any other repurchase or return basis; or (xi) Bank believes, in
its reasonable sole judgment, that collection or enforceability of such Account
is uncertain or that payment thereof is doubtful or will be delayed by reason of
the Account Debtor's financial condition; or (xii) the Account Debtor is the
United States of America or any department, agency or instrumentality thereof
unless such Account has been assigned to Bank in compliance with the Assignment
of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 203 et seq.); or (xiii)
the Account is subject to a Lien other than a Permitted Lien; or (xiv) the goods
giving rise to such Account have not been delivered to and accepted by the
Account Debtor or the services giving rise to such Account have not been
performed by the respective Borrower and accepted by the
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Account Debtor or the Account otherwise does not represent a final sale; or (xv)
the total unpaid Accounts of the Account Debtor exceed a credit limit determined
by Bank, in its sole and reasonable discretion, to the extent such Account
exceeds such limit; or (xvi) the Account is evidenced by chattel paper or an
instrument of any kind, or has been reduced to judgment; or (xvii) Borrower has
made any agreement with the Account Debtor for any deduction therefrom, except
for discounts or allowances which are made in the ordinary course of business
for prompt payment and the payment of rent to host department stores; or (xviii)
subsequent to the date of shipment, Borrower has made an agreement with the
Account Debtor to extend the time of payment thereof.
"Eligible Inventory" shall mean Borrowers' Inventory which satisfies
each and every one of the following requirements:
(i) A Borrower is the sole lawful and exclusive owner of
the Inventory as set forth in (iv) below, has good
right, title and power to assign, transfer and grant
to Bank a security interest therein, and Bank has at
all times a perfected first priority Lien therein;
(ii) The Inventory is not subject to any security
interest, Lien or other interest other than Bank's
Liens;
(iii) The Inventory has been in Borrowers' possession for
less than 180 days or is on order under a purchase
order covered by a Letter of Credit;
(iv) The Inventory (x) is owned by USVI and is located
in the Lab or (y) is SRO Inventory;
(v) The Inventory is not fronts, temples or work-in
process;
(vi) No covenant, representation or warranty contained in
this Agreement with respect to such Inventory has
been breached; and
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(vii) Bank does not believe, in its sole reasonable
judgment, that the marketability or salability of
Inventory is uncertain.
Within the objective criteria set forth above, determination of the eligibility
of Inventory will be made by Bank in its reasonable discretion.
"Eligible Locations" shall mean the Lab and the Mortgaged
Property.
"Environmental Laws" means all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters, including, but not
limited to, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Toxic
Substances Control Act as amended, the Clean Water Act, the River and Harbor
Act, Water Pollution Control Act, the Marine Protection Research and Sanctuaries
Act, the Deep-Water Port Act, the Safe Drinking Water Act, the Super Fund
Amendments and Reauthorization Act of 1986, the Federal Insecticide, Fungicide
and Rodenticide Act, the Mineral Lands and Leasing Act, the Surface Mining
Control and Reclamation Act, state and federal super lien and environmental
clean up programs and laws, and U.S.
Department of Transportation regulations.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Event of Default" shall mean an event specified in Section
7 hereof.
"Existing Letters of Credit" shall mean those certain Letters of Credit
outstanding on the date hereof and listed on Schedule 1.01(A) hereto.
"Existing Lockbox Agreements" means the Tri-Party Lockbox
Agreements dated January 31, 1994 among Borrowers, Fleet and Wells Fargo.
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"Existing Lockboxes" means the lockboxes maintained and administered by
Wells Fargo pursuant to the Existing Lockbox Agreements.
"Expenses" - Section 8.04.
"Financial Statements" means any Annual Financial Statements
or any Quarterly Financial Statements.
"Financing Statements" shall mean UCC-1 financing statements
relating to the Collateral.
"Fiscal Quarter" shall mean the fiscal quarter of Borrowers ending on
April 30, July 31, and October 31 of each year and January 31 of the following
year.
"Fiscal Year" shall mean the fiscal year of Borrowers ending on January
31 of each year. For purposes of this Agreement (including, but not limited to,
the financial covenants set forth herein), each Fiscal Year will be identified
by the calendar year in which eleven of the twelve calendar months during such
Fiscal Year fall (e.g. the 1996 Fiscal Year will be the fiscal year ending on
January 31, 1997).
"Fiscal Year-to-Date" shall mean the period beginning on the first day
of the current Fiscal Year and ending on the last day of the Fiscal Quarter most
recently ended.
"Fixed Charges" means the sum of (a) principal payments on Borrowed
Debt maturing during the applicable Twelve Month Period, (b) interest expense
(not net of interest income) during such Period, (c) Tax Expense (but not below
zero) for such Period and (d) Unfunded Capital Expenditures during such Period.
"Fixed Charge Coverage Ratio" shall mean, as of any date, the ratio of
(a) Borrowers' consolidated EBITDA for the Twelve Month Period ending on such
date to (b) the Fixed Charges of the Borrowers for such period.
"Fleet" shall mean Fleet Capital Corporation f/k/a Shawmut
Capital Corporation f/k/a Barclays Business Credit, Inc.
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"Generally Accepted Accounting Principles" or "GAAP" shall mean, with
respect to any Person, such accounting practice as, in the opinion of the
independent accountants retained by such Person and reasonably acceptable to the
Bank, conforms at the time to generally accepted accounting principles,
consistently applied. Generally accepted accounting principles means those
principles and practices which are (a) recognized as such by the Financial
Accounting Standards Board; (b) applied for all periods after the date hereof in
a manner consistent with the manner in which such principles and practices were
applied to the most recent financial statements of the relevant Person furnished
to the Bank, and (c) consistently applied for all periods after the date hereof
so as to reflect properly the financial condition, and results of operations and
cash flows, of such Person. If any change in any accounting principle or
practice is required by the Financial Accounting Standards Board in order for
such principle or practice to continue as a generally accepted accounting
principle or practice, all reports and financial statements required hereunder
shall be prepared in accordance with such change. Solely for purposes of this
Agreement, if any such material change is made, then either (i) Borrowers and
Bank shall negotiate in good faith to agree upon how the financial covenants
shall be appropriately modified to reflect such change or (ii) if they can't so
agree, the financial covenant compliance computations shall be computed without
regard to such change.
"General Intangibles" shall mean all intangible personal property of
each Borrower of every kind and nature, including without limitation, chooses in
action, causes of action, corporate or other business Records, information and
sources of information, inventions, designs, patents, patent applications,
trademarks, trade names, trade secrets, good will, copyrights, registrations,
licenses, leases, franchises, tax refund claims, computer programs, software,
technical data, and any indemnity and guarantee claims and security interests.
"Government Authority" means any nation or government, any state or
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory, supervisory or administrative functions of or pertaining
to government.
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"Guarantee" - shall mean any guarantee of the payment or performance of
any indebtedness or other obligation and any other arrangement whereby credit is
extended to one obligor on the basis of any promise of another Person, whether
that promise is expressed in terms of an obligation to pay the indebtedness of
such obligor, or the purchase an obligation owed by such obligor, or to purchase
goods and services from such obligor pursuant to a take-or-pay contract, or to
maintain the capital, working capital, solvency or general financial condition
of such obligor, whether or not any such arrangement is listed on the balance
sheet of such other Person, or referred to in a footnote thereto, but shall not
include endorsements of items for collection in the ordinary course of business.
"Inactive Borrower" means a Borrower which as of any date (i) has
conducted no business for at least 90 days and (ii) is not a lessee of any
premises at which any Borrower had conducted business within the immediately
preceding 90 days.
"Included Debts" means all debts and liabilities for which any Borrower
is primarily liable whether or not joint and several and whether or not such
Borrower has any right of contribution, subrogation, reimbursement, exoneration
or indemnity relating thereto, all without duplication.
"Indebtedness" shall mean all debts, obligations and liabilities, due
or to become due, liquidated or unliquidated, direct or contingent, joint or
several, of any nature whatsoever and out of whatever transaction arising,
including, without limitation:
(A) All indebtedness Guaranteed, directly or
indirectly, in any manner, or discounted with recourse;
(B) All indebtedness in effect Guaranteed, directly or
indirectly, through agreements, contingent or otherwise to (l) purchase such
indebtedness, (2) purchase, sell or lease (as lessee or lessor) property,
products, materials or supplies, or to purchase or sell services, primarily for
the purpose of enabling any debtor to make payment of such indebtedness or to
assure the owner of the indebtedness against loss, or (3) supply funds to or in
any other manner invest in any debtor;
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(C) All indebtedness secured by (or for which the holder of
such indebtedness has an existing right, contingent or otherwise, to be secured
by) any mortgage, deed of trust, pledge, lien, security interest or other charge
or encumbrance upon property owned or acquired subject to such mortgage, deed of
trust, pledge, lien, security interest, charge or encumbrance, whether or not
the liabilities secured thereby have been assumed; and
(D) All indebtedness incurred as the lessee of goods or
services under leases that, in accordance with GAAP, consistently applied,
should be reflected on the lessee's balance sheet.
"Interest Coverage Ratio" shall mean, as of any date, the ratio of (a)
Borrowers' consolidated EBITDA for the Twelve Month Period ending on such date
to (b) Borrowers' consolidated interest expense on Borrowed Debt (not net of
interest income) paid, payable or otherwise accrued for such Twelve Month
Period.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended.
"IRS" - Section 6.01(K).
"Lab" shall mean Borrowers' laboratory facility located in Glendora,
New Jersey.
"Laws" shall mean all ordinances, statutes, rules, regulations, orders,
injunctions, writs or decrees of any government or political subdivision or
agency thereof or any court or similar entity established by any thereof.
"Leases" shall mean the leases under which Borrowers occupy premises
for the conduct of their Business.
"Letter of Credit" shall have the meaning given thereto in Section 2.10
hereof, and, except as may be expressly set forth herein to the contrary, shall
include Existing Letters of Credit.
"Letter of Credit Disbursement" shall mean any payment or disbursement
by Bank under any Letter of Credit.
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"Letter of Credit Disbursement Date" shall mean the date on which any
Letter of Credit Disbursement is made.
"Leverage Ratio" means, as of any date, the ratio of (a) all
Liabilities (other than Subordinated Indebtedness) of the Borrowers as of such
date to (b) the Effective Net Worth of the Borrowers on such date.
"Liabilities" shall mean all Indebtedness that, in accordance with
GAAP, consistently applied, should be classified as liabilities on a balance
sheet of the Borrowers.
"Lien" means any security interest, lien, mortgage, encumbrance, claim,
lien, levy, distraint, attachment, pledge, conditional sale, lease, or
assignment of any kind or nature.
"Loan Documents" shall mean this Agreement, the Notes, the Collateral
Documents, the Subordination Agreement and all other documents, instruments and
agreements executed and/or delivered in connection with this Agreement and the
transactions contemplated hereby.
"Loans" means all Revolving Credit Loans and the Term Loan.
"Loan Value" means an amount equal to the sum of (i) eighty percent of
the aggregate amount of Borrowers' Eligible Accounts (the face amount of such
Accounts less any and all returns, rebates, discounts, credits, permitted
setoffs or other deductions (including without limitation all Aggregate
Deductions under the Penney Agreement) allowances or excise Taxes of any nature
at any time issued, owing, claimed by Account Debtors, granted, outstanding or
payable in connection therewith) and (ii) the Applicable Percentage of the value
(lower of cost or market and net of reserves (including, but not limited to, a
3% reserve against Eligible Inventory consisting of eyeglass frames) established
by Bank in its reasonable sole discretion) of Borrowers' Eligible Inventory.
"Lockbox Agreement" means the agreement between Borrowers and Bank in
the form of Exhibit B hereto regarding the creation and maintenance of lockboxes
for the collection of Borrowers' Accounts.
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"Lockboxes" - Section 4.06.
"Material Adverse Change" shall mean any material adverse change in the
assets, properties, liabilities, condition (financial or otherwise), business or
prospects of Borrowers taken as a whole.
"Material Adverse Effect" means any specified event, condition or
occurrence as to any one or more of the Borrowers which individually or in the
aggregate with any other such event, condition or occurrence and whether through
the affect on any Borrower's business, property, prospects, profits or condition
(financial or otherwise) or otherwise could reasonably be expected to (a) result
in any liability, loss, forfeiture, penalty, costs, fine, expense, payment or
other monetary obligation or loss of property of any one or more of the
Borrowers in excess of $500,000, and/or (b) in the good faith judgment of the
Bank, materially impair the ability of any of the Borrowers to meet all of their
respective Obligations to the Bank.
"Maximum Revolving Loan Amount" shall mean $7,000,000 as reduced in
accordance with Section 2.14 herein.
"MEPPAA" shall mean the Multiemployer Pension Plan Amendments Act, as
amended.
"Monthly Financial Statements" shall mean the monthly consolidated
financial statements of the Borrowers, including all notes (if any) thereto,
which statements shall include (i) a balance sheet as of the end of each month
and (ii) an income statement and a statement of cash flows for such month and
for the Fiscal Year to Date, subject to normal year-end adjustments, all setting
forth in comparative form the corresponding figures for the corresponding month
and Fiscal Year to Date of the preceding Fiscal Year, prepared in accordance
with Generally Accepted Accounting Principles consistently applied.
"Mortgage Documents" means the Mortgages and related Assignments of
Rents and Leases, Collateral Assignments of Licenses and Contracts,
Environmental Indemnification Agreements and Mortgagor's Affidavits, all in the
form of Exhibit C hereto.
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"Mortgaged Property" shall mean 3907 and 3850 N.W. 35th Avenue, Miami,
Florida; and 2760 Irving Boulevard, Dallas, Texas, including without limitation,
all real estate, buildings, improvements, rents, profits, insurance and
condemnation proceeds, and other property rights and claims related thereto, all
as described on Schedule 1.01(B) hereto.
"Mortgages" - means the Open-End Mortgages and Deeds of Trust on the
Mortgaged Property in the form of Exhibit C hereto.
"New Subsidiaries" - Section 6.01.
"Notes" shall mean the Revolving Loan Note and the Term Loan
Note.
"Obligations" shall mean the obligations of Borrowers to pay the
principal of and interest on the Notes and to satisfy and perform all of their
other existing and future obligations, liabilities and indebtedness to Bank
hereunder, under the Notes, any of the Collateral Documents, or under any of the
other Loan Documents whether matured or unmatured, direct or contingent, joint
or several, including, without limitation, any extensions, modifications,
renewals thereof and substitutions therefor.
"Offered Participant" shall mean any present or future participant of
Bank in all or any portion of the Loans which participant was initially
solicited or requested by a Borrower to become a participant of Bank in all or
any portion of the Loans.
"PBGC" - Section 6.01(K).
"Penney" shall mean J.C. Penney & Company, Inc.
"Penney Agreement" shall mean the License Agreement dated February 1,
1995, as amended, between Borrowers and Penney.
"Penney Instruction" - Section 3.01(K).
"Permitted Indebtedness" shall mean (i) the Indebtedness listed on
Schedule 5.01B, (ii) Subordinated Indebtedness approved by Bank, and (iii)
Permitted Purchase Money Indebtedness.
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"Permitted Investments" shall mean (a) direct obligations of, or
obligations guaranteed by, the United States of America, (b) deposit accounts
in, or certificates of deposit issued by, any commercial bank in the United
States of America having total capital and surplus in excess of Seventy Five
Million Dollars ($75,000,000) or certificates of deposit which are fully insured
by the Federal Deposit Insurance Corporation, (c) investment grade (rated AA or
better) commercial paper, bankers' acceptances or similar financial instruments,
(d) investment grade bonds (rated AA or better), and/or (e) mutual funds having
at least eighty percent (80%) of their assets in cash and/or investments
included in (a), (b), (c) or (d) above.
"Permitted Liens" shall mean:
---------------
(A) Liens for taxes, assessments or similar charges incurred
in the ordinary course of business which are not yet due and payable;
(B) Pledges or deposits made in the ordinary course of
business to secure repayment of workers' compensation, or to participate in any
fund in connection with compensation, insurance, old-age pensions or other
social security programs, as well as any underlying lien, if any, being replaced
by such pledge or deposit;
(C) Liens of mechanics, materialmen, warehousemen, carriers,
or other like lienors, securing obligations incurred in the ordinary course of
business that are not yet due and payable;
(D) Good faith pledges or deposits made in the ordinary course
of business to secure performance of bids, tenders, contracts (other than for
the repayment of borrowed money) or leases, not in excess of ten percent (10%)
of the aggregate amount due thereunder, or to secure statutory obligations, or
surety, appeal, indemnity, performance or other similar bonds required in the
ordinary course of business, as well as any underlying lien, if any, being
replaced by such pledge, deposit or bond;
(E) Liens in favor of Bank;
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(F) Liens on fixed assets securing Permitted Purchase Money
Indebtedness, provided such Liens do not extend to any other property of the
Borrowers and Bank has a perfected second priority Lien in such fixed assets;
and
(G) Existing liens listed on Schedule "1.01(C)" to this
Agreement.
"Permitted Purchase Money Indebtedness" shall mean Purchase Money
Indebtedness which, in the aggregate with respect to all Borrowers, does not
exceed during any Fiscal Year of Borrowers the amounts expressly approved by
Bank in writing through its review and approval of the Projections for such
Fiscal Year.
"Person" shall mean any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, estate,
unincorporated organization, joint venture, Government Authority, government
division or agency thereof.
"Potential Default" shall mean an event, occurrence or condition which,
with the giving of notice, the lapse of time, or both, could become or otherwise
constitute an Event of Default.
"Prime Rate" shall mean the "Prime Rate" of interest as published in
the "Money Rates" section of The Wall Street Journal on the applicable date (or
the highest "Prime Rate" if more than one is published) as such rate may change
from time to time. If The Wall Street Journal ceases to be published or goes on
strike or is otherwise not published for any period of time or if it ceases to
publish a "Prime Rate", then Bank may use any similar published prime or base
rate. The Prime Rate is not necessarily the lowest or best rate of interest
charged by Bank to any borrower or group or class of borrowers.
"Proceedings" shall have the meaning given it in Section
5.01(E) herein.
"Projections" shall mean Borrowers' forecasted (a) balance sheets, (b)
profit and loss statements, (c) cash flow statements, (d) Purchase Money
Indebtedness, and (e) Capital Expenditures, all prepared on a consistent basis
with Borrowers' historical
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financial statements, together with appropriate supporting details and a
statement of underlying assumptions.
"Property" shall mean any interest of any Borrower in any kind of
property or asset, whether real, personal or mixed, or tangible or intangible.
"Purchase Money Indebtedness" shall mean purchase money
Indebtedness (including Capitalized Lease Obligations) incurred solely for the
purchase of fixed assets.
"Quarterly Financial Statements" shall mean the quarterly consolidated
financial statements of the Borrowers, including all notes (if any) thereto,
which statements shall include (i) a balance sheet as of the end of each Fiscal
Quarter and (ii) an income statement and a statement of cash flows for such
Quarter and for the Fiscal Year to Date, subject to normal year-end adjustments,
all setting forth in comparative form the corresponding figures for the
corresponding Fiscal Quarters and Fiscal Year to Date of the preceding Fiscal
Year, prepared in accordance with Generally Accepted Accounting Principles
consistently applied.
"Rates" shall mean the Revolving Loan Rate and the Term Loan
Rate.
"Records" shall mean correspondence, memoranda, tapes, discs, records
and other documents, or transcribed information of any type, whether expressed
in ordinary or machine language, either on or off the premises of any Borrower.
"Reimbursement Obligations" shall have the meaning set forth
in Section 2.10(B) hereof.
"Requirement of Law" means, as to any Person, the Articles of
Incorporation of By-Laws and other organizational and governing documents of
such Person, and any Law, treaty, rule or regulation, or order, writ, judgment
or other determination of an arbitrator or a court or other Government
Authority, in each case applicable to or binding upon such Person or any of its
properties or to which such Person or any of its property is subject.
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"Revolving Loan Facility" shall mean the Revolving Loan facility
established pursuant to Section 2 of this Agreement.
"Revolving Loan Rate" shall mean the Prime Rate plus one percent (1%)
per annum.
"Revolving Loan Termination Date" shall mean December 31, 1998 or such
other later date to which Bank and Borrowers may (without any obligation to do
so) hereafter agree in writing in connection with any renewal or extension of
the Revolving Loan Facility. Anything in the preceding sentence to the contrary
notwithstanding, if on or before December 1 of any year (beginning December 1,
1997) neither Bank nor Borrowers has given the other written notice not to
extend the Revolving Loan Termination Date, then the Revolving Loan Termination
Date shall automatically be extended by one additional year.
"Same Store Sales" shall mean Borrowers' store sales calculated on a
same store basis in aggregate amount for each individual store and for all
stores.
"Significant Stockholder" shall mean any stockholder of USVI or USVID
which owns, directly or indirectly, 10% of the issued and outstanding capital
stock of USVI or USVID.
"Solvent" shall mean as to any Person, such Person (i) owns Property
whose fair saleable value exceeds the amount required to pay in full all of such
Person's Indebtedness (including contingent debts), (ii) is able to pay all of
its Indebtedness as such Indebtedness matures and (iii) has capital sufficient
to carry on its business and transactions and all business and transactions in
which it is about to engage.
"Specified Officer" shall mean Reid Eikner, George E. McHenry or Kathy
Cullen, who are presently the Executive Vice President, Finance, Vice President
and Chief Financial Officer, and Vice President-Finance, respectively, of USVI,
or such other officer or officers of USVI as Borrowers may hereafter specify to
Bank in writing. Each Borrower agrees that any request made or other function
specified herein to be made or performed by a Specified Officer shall be deemed
made or performed by and on behalf of all Borrowers.
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"SRO Account" shall mean an Account owned by SRO arising from Inventory
sold by SRO.
"SRO Inventory" shall mean Inventory owned by SRO which is located in
SRO's facilities in Miami, Florida.
"Subordinated Debt Documents" shall mean all the agreements,
instruments, documents, entered into among Borrowers and holders of Subordinated
Indebtedness, or among Bank and such holders, including without limitation all
agreements, related notes, and all instruments, agreements and documents
associated therewith.
"Subordinated Indebtedness" shall mean the Indebtedness of the
Borrowers, the repayment of which by written agreement (in form and manner
satisfactory to Bank) is subordinated to the Loans and all other Obligations.
"Subordination Agreement" shall mean the Subordination Agreement dated
the date hereof among Bank, Borrowers and certain holders of evidences of USVI's
Indebtedness in the form of Exhibit "I" hereto.
"Subsidiary" shall mean any corporation more than fifty (50%) percent
of whose voting stock is legally and beneficially owned by any Borrower or owned
by a corporation more than fifty (50%) percent of whose voting stock is legally
and beneficially owned by any Borrower.
"Tangible Net Worth" shall mean the excess of assets over liabilities
as would be shown on a combined balance sheet of Borrowers, prepared in
accordance with GAAP, consistently applied, provided, however, (a) such amounts
are to be net of amounts carried on the books of Borrowers for any of the
following: (i) unamortized debt discount and expense, (ii) patents, patent
applications, copyrights, trademarks, trade names, goodwill (including any
excess of cost over net assets of businesses acquired), experimental or
organization expenses and other like reserves and intangible assets, and (b) the
Included Debts (without duplication) shall be included as liabilities.
"Tax Expense" shall mean Liabilities of the Borrowers for local, state
and federal income taxes.
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"Term Loan" shall mean the term loan made pursuant to Section 2 of this
Agreement.
"Term Loan Maturity Date" shall mean December 31, 2001.
"Term Loan Note" shall mean the promissory note evidencing each
Borrower's joint and several obligation to repay the Term Loan.
"Term Loan Rate" shall mean the Prime Rate plus one and one-half
percent (1.5%) per annum.
"Total Loan Amount" shall mean the sum of (i) the Maximum Revolving
Credit Amount and (ii) the original principal amount of the Term Loan.
"Trademark Assignment" means collectively the Trademark Assignment and
the Intellectual Property Security Agreement, all in the form of Exhibit E
hereto, to be executed by the Borrowers owning such Property on or about the
Closing Date in favor of Bank and by which such Borrower(s) shall assign to
Bank, and grant to Bank a security interest in, as security for the Obligations
all of such Borrower's right, title and interest in and to all of its trademarks
as set forth on Schedule 5.01(V) hereto.
"Twelve Month Period" shall mean, as of any date, the twelve month
period ending on such date.
"Unfunded Capital Expenditures" shall mean Capital Expenditures which
are not fully funded through Borrowers' incurring additional Borrowed Debt.
"Unsubordinated Borrowed Debt" shall mean Borrowers' Borrowed Debt,
excluding Borrowers' Subordinated Indebtedness.
"Vision Care Account" shall mean an Account arising out of the joint
venture between Borrowers and Cole Vision Corporation concerning Borrowers'
sales of their products and services under the vision benefit plan sponsored by
Cole Vision Corporation.
"Wells Fargo" shall mean Wells Fargo Bank (Texas), N.A.
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"Working Capital" shall mean the excess of current assets over current
liabilities as would be shown on a consolidated balance sheet of Borrowers,
prepared in accordance with GAAP, consistently applied. For purposes of the
computation of Working Capital, all Revolving Loans and Reimbursement
Obligations for Letter of Credit Disbursements outstanding under the Revolving
Loan Facility shall be treated as current liabilities.
SECTION 1.2 Accounting Principles: Where the character or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for
the purposes of this Agreement, this shall be done in accordance with GAAP, to
the extent applicable, except as otherwise expressly provided in this Agreement.
SECTION 1.3 Interpretation of Financial Measurements. Except where
specifically otherwise provided herein and in the Collateral Documents, all
financial measurements shall be computed on a consolidated basis, without
duplication, and all references to financial statements of the Borrowers
contained herein and in the Collateral Documents shall be references to
consolidated and consolidating financial statements.
SECTION 2. THE LOANS.
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SECTION 2.01 Revolving Loan. (a) Under and subject to the terms and
conditions of this Agreement and within the then Available Credit, and as
requested by a Specified Officer from time to time up to but not including the
Revolving Loan Termination Date, Bank hereby establishes the Revolving Loan
Facility pursuant to which Bank will make cash advances ("Revolving Loans" or
"Loans"), and issue Letters of Credit from time to time, to or (as to Letters of
Credit) for the account of Borrowers. For purposes of this Agreement, any
determination as to whether there is sufficient Available Credit shall be made
by Bank and is final and binding upon Borrowers absent manifest error. Unless
sooner terminated pursuant to any other provision of this Agreement, the
Revolving Loan Facility will terminate and the entire principal balance of the
Revolving Loan, together with all unpaid accrued interest thereon, shall be
repaid on the Revolving Loan Termination Date, without notice or demand. Each
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cash advance or Letter of Credit under the Revolving Loan Facility shall be made
or issued following the giving of notice by a Specified Officer to Bank (which
notice shall be given not later than 1:30 p.m. Philadelphia time on the same
Business Day on which such cash advance is required or on the Business Day which
is three (3) Business Days preceding the Business Day on which such Letter of
Credit is required), specifying the date of borrowing and the amount thereof.
Upon fulfillment of all applicable conditions to such cash advance or Letter of
Credit set forth herein, Bank will, as to Loans which are cash advances, make
such funds available to the Borrowers at Bank's main office by either depositing
same in Borrowers' deposit account with Bank or honoring draws from a Borrower's
controlled disbursement account with Bank. The outstanding principal balance of
the Loans under the Revolving Loan Facility may fluctuate from time to time, to
be reduced by repayments made by Borrowers, to be increased by future loans,
advances and extensions of credit which may be made by Bank, to or for the
benefit of Borrowers. If the aggregate unpaid principal amount of Bank Debt
exceeds the lesser of (i) the Loan Value and (ii) the Maximum Revolving Loan
Amount, Borrowers shall immediately repay to Bank the amount of such excess
within three (3) Business Days thereafter.
(b) All Revolving Loans to be made available to Borrowers, if
made by Bank, shall set forth the date on which the borrowing is to be made and
shall be made by crediting such proceeds to the operating account of Borrowers
with Bank. Bank may rely upon any telephonic request purported to be made by
Borrowers through any of its Specified Officers, which request shall set forth
the date on which the borrowing is to be made and shall be confirmed in writing
(by telecopy or facsimile transmission) by delivery to Bank of a signed
Borrowing Base Certificate.
(c) In the event Bank honors a check of any Borrower resulting
in any Borrower's checking account being overdrawn, then Bank shall be deemed to
have loaned the amount of such overdraft to Borrowers, pursuant to the terms of
this Section 2, on the Bank's Business Day on which such Borrower's check is
tendered to Bank for collection. Bank shall not be obliged to honor any
overdraft of Borrowers, whether or not it has done so in the past.
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SECTION 2.02 The Revolving Loan Note. Contemporaneously herewith, each
Borrower will execute and deliver to Bank the Revolving Loan Note in the form of
Exhibit G hereto to evidence each Borrower's joint and several obligation to
repay Bank for all amounts due or which may become due in connection with the
Revolving Loan Facility, with interest, all as more fully described in the
Revolving Loan Note which is incorporated herein by reference and made part
hereof.
SECTION 2.03 The Term Loans. At Closing, the Bank will under the terms
and subject to the conditions of this Agreement and all related instruments,
agreements and documents, make a term loan (the "Term Loan") to Borrowers in the
principal sum of $8,000,000. The Term Loan will be repaid as set forth in the
Term Loan Note.
SECTION 2.04 The Term Loan Note. Contemporaneously herewith, each
Borrower will execute and deliver to Bank the Term Loan Note in the form of
Exhibit H hereto to evidence each Borrower's joint and several obligation to
repay to Bank, with interest, the principal amount of the Term Loan, all as more
fully set forth in the Term Loan Note, the terms of which are incorporated
herein by reference.
SECTION 2.05 Use Of Loan Proceeds. Advances under the Revolving Loan
Facility and Term Loan shall be used by the Borrowers exclusively for the
following purposes:
(A) Repayment of existing Indebtedness for money
borrowed;
(B) Letters of Credit;
(C) Capital expenditures; and
(D) Working capital and general corporate purposes.
SECTION 2.06 Interest Rates and Calculation of Interest.
(A) The outstanding principal balance of all Revolving Credit
Loans shall accrue interest at the Revolving Loan Rate.
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(B) The outstanding principal balance of the Term Loan shall
accrue interest at the Term Loan Rate.
(C) All unpaid Reimbursement Obligations for Letter of Credit
Disbursements shall earn interest at the Default Rate.
(D) After the earlier of (i) Borrowers' knowledge of the
occurrence of an Event of Default and (ii) written notice of such Event of
Default from Bank to Borrowers, during the continuance of the Event of
Default,interest on the Loans shall automatically increase to and shall accrue
at the Default Rate. For purposes of this calculation, waivers of Events of
Default will be dated the actual date of grant rather than any "as of" date.
Interest at the Default Rate shall continue to accrue notwithstanding the entry
of any judgment hereon or on the Note, and all such judgments shall bear
interest at the Default Rate provided for herein.
(E) If, at any time, any of the Rates shall be finally
determined by any court of competent jurisdiction, governmental agency or
tribunal to exceed the maximum rate of interest permitted by any applicable
Laws, then, for such time as such Rate would be deemed excessive, application
thereof shall be suspended and there shall be charged in lieu thereof the
maximum rate of interest permissible under such Laws.
(F) Interest shall be payable monthly in arrears within one
Business Day after being billed by Bank to Borrowers, to be charged by Bank
against any Borrower's accounts with Bank as provided in Section 2.07(B) below.
(G) Anything in this Agreement to the contrary
notwithstanding, if any current or future United States federal or state law,
rule, regulation, guideline, request, instruction, treaty or official directive
adopted after the date hereof which has general applicability to commercial
banks, or the interpretation or application thereof after the date hereof by any
court or by any Government Authority charged with the administration thereof, or
the compliance with any guideline or request adopted after the date hereof which
has general applicability to commercial banks (whether or not having the force
of law) from any United States central bank or other
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Government Authority, including without limitation, Regulation D promulgated by
the Board of Governors of the Federal Reserve System as now or hereafter in
effect (all of the above being collectively referred to as a "Triggering
Action") (a) subjects the Bank to any tax, levy, impost, duty, fee, charge,
deduction or withholding of any nature or changes the basis of taxation with
respect to payments of principal, interest or other amounts due from the
Borrowers in respect of the Loans (except for taxes, fees or other charges based
on, or measured by, the income or profits of the Bank or any franchise or gross
receipts taxes or similar taxes imposed in lieu thereof); (b) imposes, modifies
or deems applicable in respect of the Loans any reserve, special deposit or
similar requirement against assets held by, or deposits in or for the account
of, or loans by the Bank, or any allocation of capital (whether or not primary
capital) by Bank; or (c) imposes or increases any fees, charges or other
out-of-pocket expenses applicable to the types of Loans made and to be made
hereunder; and the result of any of the foregoing is to increase the cost to the
Bank, reduce the income receivable by the Bank, or the return on its capital, or
require it to maintain additional capital, or impose any other expense upon the
Bank, in respect of the Loans and/or any advances or Letters of Credit made or
issued thereunder, by an amount which the Bank reasonably deems to be material,
the Bank shall from time to time notify the Borrowers thereof promptly after
becoming aware of such law, treaty, directive, interpretation, etc.; and the
Borrowers shall pay to the Bank, within 15 days after receipt of such notice,
that amount which shall fully compensate the Bank (on an after-tax basis) for
such increase in cost, reduction in income or return on capital, maintenance of
additional capital or additional expense; provided that Borrowers shall not be
required to pay any amount relating to any period more than 180 days prior to
the notice of such Triggering Action being given by Bank except to the extent of
any retroactive effect or application of the Triggering Action. The protection
of this Section 2.04(G) shall be available to the Bank regardless of any
possible contention of the invalidity or inapplicability of any law, regulation
or other condition which shall give rise to any demand by the Bank for
compensation hereunder; provided, however, in the event that such compensation
is later found to have been invalid or inapplicable at any time when it was
collected, the Bank shall reimburse the Borrowers therefor to the extent
authorized by
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applicable Government Authority, and to the extent Bank is in turn reimbursed by
the appropriate Government Authority for amounts collected by Bank and remitted
to such Government Authority. No failure to demand compensation under this
Section on any one occasion shall constitute a waiver of its right to demand
such compensation on any other occasion and no failure on the part of the Bank
to deliver any certificate in a timely manner shall in any way reduce any
obligations of the Borrowers to the Bank under this Section 2.06(G). Bank's
determination of the amount so due shall be prime facie evidence thereof, and
the Borrowers shall have the burden of proving the determination of such amounts
are incorrect. For purposes of the application of this Section, and in
calculating the amount necessary to compensate Bank or its parent company
hereunder, Bank shall determine the applicability of this provision and
calculate the amount payable to it hereunder in a manner consistent with the
manner in which it shall apply and calculate similar compensation payable to it
by other borrowers having provisions in their credit agreements comparable to
this Section.
(H) If, after the date hereof, Bank determines that the
applicability or adoption of any United States federal or state law, rule,
regulation, guideline, directive or request (whether or not having the force of
law) regarding capital requirements for banks or bank holding companies, or any
change in any of the foregoing, or any change in the interpretation or
administration thereof by any Government Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by Bank (or its parent company) with any of the foregoing imposes, increases
deems applicable or results in the application of a requirement by Bank to
allocate, maintain capital resources, or capital ratio or similar requirement to
Bank's commitment to make Loans hereunder which has or would have the effect of
reducing the return on the Bank's capital (or on the capital of Bank's parent
company) as a consequence of making, having made or being committed to make any
Loan pursuant hereto to a level below that which Bank (or its parent company)
could have achieved (taking into consideration Bank's and such parent company's
then existing policies with respect to capital adequacy and assuming full
utilization of Bank's capital) but for such adoption, change or compliance,
then: (i) Bank shall promptly after its determination of such
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occurrence give notice thereof to the Borrowers; and (ii) the Borrowers shall
pay to Bank as an additional fee from time to time demand such amount as Bank
certifies to be the amount that will compensate it for such reduction. A
certificate of Bank claiming compensation under this Section shall be conclusive
in the absence of manifest error. Such certificate shall set forth the nature of
the occurrence giving rise to such compensation, the additional amount or
amounts to be paid to is hereunder and the method by which such amounts were
determined. For purposes of the application of this Section, and in calculating
the amount necessary to compensate Bank or its parent company hereunder, Bank
shall determine the applicability of this provision and calculate the amount
payable to it hereunder in a manner consistent with the manner in which it shall
apply and calculate similar compensation payable to it by other borrowers having
provisions in their credit agreements comparable to this Section.
SECTION 2.07 Collections and Payments to Bank. (A) All payments of
interest on and principal of the Loans, all fees, expenses and all other sums
payable to Bank hereunder shall be paid directly to Bank at its Cherry Hill
banking office, 1701 Route 70 East, in immediately available funds, in such
currency of the United States of America as is, at the time of payment, legal
tender for the payment of public and private debts. To the extent Bank sends any
Borrower statements of any amounts due or outstanding hereunder for interest or
principal, such statements shall be considered correct and conclusively binding
on all Borrowers unless Borrowers notify Bank in writing to the contrary within
thirty (30) days of the date of any statement which they deem to be incorrect
specifying the reason for their position.
(B) Bank may (and is hereby irrevocably authorized to) charge
any of Borrowers' deposit accounts with Bank, and/or charge the Revolving Loan,
for any and all principal, Reimbursement Obligations, interest, fees, expenses
and any other amounts due from any Borrower to Bank hereunder and under any of
the Collateral Documents.
(C) Borrowers shall receive immediate credit for federal
funds, wire transfers or other funds which are immediately available to Bank;
all other funds which are not immediately available shall be subject to Bank's
standard published clearing procedures and clearing periods for
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uncollected funds as such procedures and periods may change from time to time.
Bank may, in its sole discretion, charge any account of Borrowers with Bank for
all of Borrowers' Obligations to Bank as they become due from time to time under
this Agreement including without limitation, interest, principal, fees and
reimbursement of Expenses. Alternatively, Bank may, and without any obligation
on Bank's part to do so, in its discretion (and Borrowers hereby authorize Bank
to) make a Loan under the Revolving Loan Facility (subject to the terms and
provisions of this Agreement) in a sum sufficient to pay all interest accrued
and payable on the Obligations and to pay all costs, fees and Expenses owing
hereunder.
SECTION 2.08 Due Date Extension. If any payment of principal of, or
interest on any of the Loans or any payment of any fee provided for herein or
any other amount due hereunder shall fall due on a day which is not a Business
Day of Bank, then such due date shall be extended to the next succeeding
Business Day of Bank and additional interest and fees shall accrue and be
payable for the period of such extension.
SECTION 2.09 Prepayment. (A) The Loans may be prepaid in whole or in
part and from time to time, provided that (i) all unpaid accrued interest on the
amount(s) prepaid shall be paid concurrently with any such prepayment.
(B) Mandatory Prepayments. If Borrowers, or any of them, sell
any of their Equipment (unless such sale does not require Bank's consent as
provided under Section 6.01(B) below) or Mortgaged Properties (including, but
not limited to, the Dallas Property) or if any of such Property is taken by
condemnation or is lost, damaged or destroyed (unless replaced to the extent
permitted hereunder), Borrowers shall pay to Bank, unless otherwise expressly
agreed by Bank or already received by Bank, as and when received, the proceeds
received by Borrowers from such sale, condemnation, loss, damage or destruction,
with all such proceeds received by Borrowers applied as a mandatory prepayment
first to accrued but unpaid interest on the Term Loan, then to the principal
balance of the Term Loan in the inverse order of maturity, then to unpaid
Expenses, then to accrued but unpaid interest on the Revolving Loans and then to
the outstanding balance of the Revolving Loans.
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SECTION 2.10 Letters of Credit.
-----------------
(A) Agreement to Issue; Existing Letters of Credit;
-----------------------------------------------
Termination; Cash Collateral.
----------------------------
(i) Upon the request of Borrowers, Bank shall under and
subject to the terms and conditions hereof issue documentary and commercial
letters of credit for the account of Borrowers from time to time through but not
including the Revolving Loan Termination Date (a "Letter of Credit" and,
collectively, the "Letters of Credit"). Letters of Credit issued hereunder shall
be under terms customary for Bank, including provisions for draw, and except for
Existing Letters of Credit, having a term exceeding twelve (12) months or as may
otherwise be agreed to by Bank at the time of Borrowers' request for a Letter of
Credit, shall in no event have an expiry date exceeding twelve (12) months from
the date of issue.
(ii) Borrowers agree that all Existing Letters of Credit shall
be deemed to be Letters of Credit issued under this Agreement and, except as
otherwise expressly set forth herein to the contrary, shall be subject to all
terms and provisions hereof applicable to Letters of Credit.
(iii) Bank shall have the right, in its absolute discretion
and whether or not an Event of Default has occurred or is continuing hereunder,
to provide the beneficiary of any of the Letters of Credit with notice of
non-renewal in accordance with the provisions of the Letters of Credit relating
thereto.
(iv) In the event that any Letter of Credit remains
outstanding on the Revolving Loan Termination Date, Borrowers shall on said
Revolving Loan Termination Date provide Bank with cash or cash equivalents
acceptable to Bank in an amount equal to the face amount of all Letters of
Credit so outstanding, to be held by Bank as security for the Obligations. This
right to require cash collateral is in addition to the right of Bank to require
cash collateral upon the occurrence of an Event of Default as set forth in
Section 7 hereof.
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(B) Letters of Credit Generally.
---------------------------
(i) Reimbursement of Letters of Credit
Disbursements. Each Borrower, jointly and severally, agrees to reimburse Bank
for the amount of each Letter of Credit Disbursement made by Bank on the
corresponding Letter of Credit Disbursement Date. Such obligation of each
Borrower to reimburse Bank for any such Letter of Credit Disbursement is herein
referred to as a "Reimbursement Obligation." Upon the presentation of any draft
or demand for payment under any Letter of Credit by the beneficiary thereof,
Borrowers shall reimburse Bank on the day on which such draft or demand is
honored in an amount in same day funds equal to the amount of such draft or
demand. Unless Borrower shall have notified the Bank prior to 11:00 A.M. on the
date such draft or demand is honored that Borrower intends to reimburse the Bank
for the amount of such draft or demand with funds other than the proceeds of
Revolving Loans, Borrower shall be deemed to have given notice to the Bank
requesting the Bank to make Revolving Loans in accordance with Section 2.01
herein on the day on which such draft or demand is honored in an aggregate
amount equal to the amount of such draft or demand. Subject to satisfaction or
waiver of the conditions specified in Section 3.02 herein, the Bank shall, on
such day, make Revolving Loans in an aggregate amount equal to the amount paid
by the Bank under the Letter of Credit. If any such Reimbursement Obligation is
not paid in full by Borrowers to Bank on the corresponding Letter of Credit
Disbursement Date (for this purpose payments received by Bank after 1:30 p.m.,
Philadelphia, Pennsylvania time on any Business Day shall be deemed to have been
made on the next succeeding Business Day), the unpaid amount of such
Reimbursement Obligation shall bear interest for each day from the corresponding
Letter of Credit Disbursement Date until payment in full thereof (after, as well
as before, judgment), payable on demand, at the Default Rate.
(ii) Letter of Credit Charges and Fees. Each
Borrower, jointly and severally, agrees to pay on demand to Bank, as well as to
any confirming bank of any Letter of Credit required by the beneficiary thereof
to be confirmed as a condition to such beneficiary's acceptance thereof, with
respect to the amendment or transfer of any Letter of Credit and each drawing
made under any Letter of Credit, documentary and
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processing fees and charges in accordance with (i) Bank's standard fees and
charges and (ii) such confirming bank's fees and charges, all as in effect at
the time of such amendment, transfer or drawing, as the case may be. These fees
and charges shall be in addition to the Letters of Credit Fees provided in
Section 2.11 hereof.
(iii) Obligations Absolute. All Reimbursement
Obligations of Borrowers arising from Letter of Credit Disbursements shall be
unconditional and absolute and joint and several and shall be paid strictly in
accordance with the terms of this Agreement under all circumstances whatsoever
including, without limitation, the following circumstances: (i) any lack of
validity or enforceability of any Letter of Credit; (ii) the existence of any
claim, set-off, defense or other right which any Borrower may have at any time
against any beneficiary or any transferee of any Letter of Credit (or any Person
for whom any such beneficiary or transferee may be acting), or any other Person,
whether in connection with this Agreement, the transactions contemplated herein
or any unrelated transaction (including any underlying transaction between any
Borrower or any of its subsidiaries or affiliates and the beneficiary for which
any Letter of Credit was procured); (iii) any draft, demand, certificate or any
other document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect; or (iv) payment by Bank under any
Letter of Credit against presentation of a demand, draft, certificate or other
document which does not comply with the terms of the Letter of Credit, except to
the extent that Borrowers prove that such payment was negligence or willful
misconduct on the part of Bank; (v) the failure or delay on the part of Bank in
giving any notice hereunder; or (vi) any draw thereunder being a consequence of
Bank's non-renewal of any Letter of Credit.
(iv) Indemnification; Nature of Duties.
---------------------------------
(a) In addition to amounts payable as
elsewhere provided in this Agreement, each Borrower, jointly and severally,
hereby indemnifies and holds harmless Bank from and against any and all claims,
damages, losses, liabilities, costs
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or expenses whatsoever which Bank may incur (or which may be claimed against
Bank by any Person) by reason of or in connection with the issuance or transfer
of, or payment or failure to pay under, any Letter of Credit, or the involvement
by Bank in any suit, proceeding or action as a consequence, direct or indirect,
of Bank's issuance of any Letter of Credit, except for any such claims, damages,
losses, liabilities, costs or expenses to the extent, but only to the extent,
which were caused by the gross negligence or willful misconduct of Bank in
determining whether a certificate, draft, statement or document presented under
any Letter of Credit complied with the terms of the Letter of Credit.
(b) As between Borrowers and Bank, Borrowers assume
all risks of the acts or omissions of the beneficiary or any transferee of any
Letter of Credit with respect to such beneficiary's or transferee's use of the
Letter of Credit. Bank shall not be liable or responsible for: (A) the use which
may be made of any Letter of Credit or the proceeds of any drawing thereunder or
for any acts or omissions of the beneficiary or any transferee in connection
therewith; (B) the validity, sufficiency or genuineness of certificates, drafts
or documents presented under any Letter of Credit that appear on their face to
be in order, or of any endorsement thereon, even if any of the same should in
fact prove to be in any or all respects invalid, insufficient, fraudulent or
forged; (C) payment by Bank under any Letter of Credit against presentation of
drafts, certificates or documents which do not comply with the terms of the
Letter of Credit, including failure of any such drafts, certificates or
documents to bear any reference or adequate reference to the Letter of Credit,
or for any failure of the beneficiary of any Letter of Credit otherwise to
comply fully with the conditions required in order to draw under the Letter of
Credit; (D) the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Letter of Credit or the rights
or benefits thereunder or the proceeds thereof, in whole or in part, which may
prove to be invalid or ineffective for any reason; or (E) any other
circumstances whatsoever in making or failing to make payment under any Letter
of Credit, except only that Bank shall be liable to Borrowers to the extent, but
only to the extent, of any direct, as opposed to consequential, damages suffered
by Borrowers which Borrowers prove were caused by Bank's negligence or willful
misconduct in
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connection with the matters referred to in clauses (B) through (E) above. In
furtherance and not in limitation of the foregoing, Bank may accept drafts,
certificates or documents presented to it under any Letter of Credit that appear
on their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary, and any action taken or
omitted by Bank under or in connection with any Letter of Credit, if taken or
omitted in good faith and without willful misconduct or gross negligence, shall
not put Bank to any resulting liability to any Borrower.
(v) Payments to Bank. All payments to be made by
Borrowers to Bank hereunder in respect of Reimbursement Obligations due from
Borrowers shall be payable on the day when due without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived, and an
action therefor shall immediately accrue.
(vi) Application. Borrowers shall, as a condition to
the issuance by Bank of any Letter of Credit, execute and deliver to Bank Bank's
then standard Letter of Credit Application and Agreement and such note or notes
as Bank may require to further evidence the Reimbursement Obligations of
Borrowers.
SECTION 2.11 Fees.
Borrowers jointly and severally agree to pay Bank the
following fees:
(A) Letter of Credit Fees. One percent (1%) per annum (based
on a 360 day year) of the face amount of each outstanding standby Letter of
Credit, payable on issuance and annually in advance thereafter (if renewed or
extended), one quarter of one percent (1/4%) of the amount of and payable at the
time of each Letter of Credit Disbursement under each commercial Letter of
Credit, and an issuance fee of $35.00 for each Letter of Credit issued by Bank
hereunder. There will be no issuance fees for Existing Letters of Credit.
(B) Commitment Fee. A fee equal to 1/2% per annum on the
average unused portion of the Maximum Revolving Loan Amount. The fee will be
calculated on the basis of a 360-day year for
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actual number of days elapsed, will be payable quarterly in arrears and will be
non-refundable. Any permanent reductions of the Maximum Revolving Loan Amount
will be taken into account in the calculation of this fee.
(C) Origination Fees. Fees of $150,000 (one percent (1%) of
the Total Loan Amount), $10,000 having already been paid; the balance of such
fees shall be paid on January 3, 1997.
SECTION 2.12 Participations. (A) Borrowers agree that Bank may sell
assignments and participations in the Obligations to financial institutions and
other Persons who lend money in the ordinary course of their business, and
therefore:
(1) Bank may from time to time provide financial and
other information concerning the Borrowers to any other purchaser, participant
or prospective purchaser or participant, provided that, Bank will first have
such Person execute and deliver to Bank a confidentiality letter; and
(2) Should any purchaser default under its
obligations to fund any portion of its interest in the Loans, Bank will have no
obligation to fund (including by issuance of Letters of Credit) any Loans to the
extent of such purchaser's share thereof;
(B) If Bank desires to sell (other than as part of a bulk
assignment or participation) any interests or participations in the Revolving
Loans and Revolving Loan Facility constituting more than fifty percent (50%) of
the Revolving Loans and Revolving Loan Facility, Bank must first obtain
Borrowers' consent.
Section 2.13 Permanent Reductions of Maximum Revolving Loan Amount.
Borrowers may from time to time, at their option, permanently reduce the Maximum
Revolving Loan Amount on five (5) Business Days' prior written notice to Bank.
All such reductions shall be in minimum amounts of $1,000,000 and integral
multiples thereof and such reductions may not reduce the Maximum Revolving Loan
Amount below the amount of Bank Revolving Debt then outstanding (including
outstanding Letters of Credit and Reimbursement Obligations).
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SECTION 3. CONDITIONS.
----------
The making of the Loans hereunder is subject to the following
conditions precedent (all documents to be in form and substance satisfactory to
Bank and its counsel):
SECTION 3.01 Documents Required for the Closing. The Borrowers shall
have duly delivered to the Bank the following on the Closing Date:
(A) This Agreement, the Notes, the Subordination Agreement,
the Collateral Documents and the other Loan Documents duly executed on behalf of
each Borrower;
(B) Payment of all Expenses;
(C) A certified (as of the date of the Closing) copy of
resolutions of board of directors of each Borrower authorizing the execution,
delivery and performance of this Agreement, the Notes, the Collateral Documents
and each other document and instrument to be delivered pursuant hereto and any
other instrument, agreement or document referred to herein;
(D) A certified (as of the date of the Closing) copy of each
Borrower's by-laws;
(E) A certificate (dated the date of the Closing) of each
Borrower's corporate secretary or assistant secretary as to the incumbency and
specimen signatures of the officers of each Borrower executing this Agreement,
the Notes, the Collateral Documents and each other document to be delivered
pursuant hereto or thereto;
(F) A copy, certified as of the most recent date practicable
by the appropriate Secretary of State, of each Borrower's articles or
certificate of incorporation, together with a certificate (dated the date of the
Closing) of each Borrower's corporate secretary or assistant secretary to the
effect that such articles or certificate of incorporation have not been amended
since the date of the aforesaid certification;
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(G) Certificates, as of the most recent dates practicable, of
the Secretary of State of the states listed on Schedule 3.01(G) hereto with
respect to the Borrowers listed thereon, and the department of revenue or
taxation of each of the foregoing states, as to the qualification as a foreign
corporation, subsistence and good standing of each Borrower;
(H) Written opinions of counsel to Borrowers, dated the date
of the Closing and addressed to the Bank, in form and substance satisfactory to
Bank and its counsel;
(I) A certificate, dated the date of the Closing, signed on
behalf of each Borrower by the president of each Borrower to the effect that:
(1) The representations and warranties set forth in
Section 5 of this Agreement are true, complete and correct as of the date of the
Closing as though made on and as of the date of Closing;
(2) No Event of Default or Potential Default has
occurred and is continuing as of the date of the Closing;
(3) There exists no material default in any of
Borrowers' obligations or in their compliance with applicable Law, and no
default or event which with the passage of time or the giving of notice, or
both, would constitute a default under Borrowers' current or prospective
obligations;
(4) All consents and approvals necessary for
Borrowers' execution, delivery and performance of the Loan Documents and the
consummation of the transactions contemplated herein; and
(5) No material adverse change has occurred in the
Borrowers' operations, business, prospects or financial condition since October
31, 1996.
(J) Searches referred to in Section 4.07 hereof.
(K) A copy of the Penney Agreement shall have been delivered
to Lender and shall have been certified by Borrowers as
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being true and correct and in full force and effect and there shall be in full
force and effect an irrevocable instruction by Borrowers to Penney (in the form
of Exhibit D hereto) which provides that all payments by Penney of Accounts owed
by Penney to Borrowers will be made by Penney directly to the Lockboxes or to
the Cash Collateral Account (the "Penney Instruction").
(L) All documents, agreements and arrangements required by
Bank with respect to the Collateral including, but not limited to, all
Lockboxes, Lockbox Agreements, an Assignment to Bank by Fleet of the Existing
Lockbox Agreements and Existing Lockboxes, consented to and acknowledged by
Wells Fargo, a payoff letter from Fleet, releases and terminations of all
existing Liens on the Collateral which are not Permitted Liens, and all
Financing Statements.
(M) Duly executed Landlord's Waivers if obtained under Section
4.10 herein, in form and substance satisfactory to Bank.
(N) Certificates or Binders of Insurance in form and substance
satisfactory to Bank and evidencing Borrowers' maintenance of insurance policies
as required by this Agreement.
(O) Evidence satisfactory to the Bank that USVI directly or
indirectly through wholly-owned subsidiaries owns all of the issued and
outstanding stock of all other Borrowers and the Borrowers constitute all of the
Affiliates involved in USVI's business.
(P) The Mortgages and the other Mortgage Documents duly
executed by the appropriate Borrowers, together with title insurance, in form
and substance (and in amounts), and issued by an insurer, satisfactory to Bank;
(Q) Appraisals of the Mortgaged Property, in form and
substance (and in amounts) satisfactory to Bank;
(R) Phase I audits of the Mortgaged Property, in form and
substance satisfactory to the Bank, together with evidence satisfactory to the
Bank that all recommendations set forth therein have been followed and
satisfied; and
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(S) The Subordination Agreement duly executed by the Borrowers
and the holders of the Subordinated Indebtedness covered thereby.
SECTION 3.02 Certain Events. At the time of the Closing and each
request for a cash advance or the issuance of a Letter of Credit under the
Revolving Loan Facility, (1) there shall be Available Credit in an amount at
least equal to the requested advance or Letter of Credit, as evidenced by a
Borrowing Base Certificate, (2) no Event of Default or Potential Default shall
have occurred and be continuing, (3) Borrowers shall have performed and complied
with all agreements, covenants and conditions contained herein which are
required to be performed or complied with by Borrowers including, without
limitation, the provisions of Section 6 hereof, (4) no material adverse change
in the financial or operating condition of the Borrowers shall have occurred
where in Bank's reasonable opinion there is no reasonable likelihood that the
condition or situation constituting, causing or giving rise to such change will
be reversed prior to the creation, existence or occurrence of a default
hereunder, (5) all representations and warranties of Borrowers set forth in this
Agreement are true and correct as in effect on the date thereof, except changes
not constituting an Event of Default hereunder, and (6) there shall be no
Proceedings pending or threatened relating to the Loans or which could
reasonably be expected or projected to have a Material Adverse Effect upon the
Collateral or the creditworthiness, condition, operation or prospects of
Borrowers.
SECTION 3.03 No Waiver of Rights: By completing the Closing hereunder,
or by making advances hereunder, Bank does not thereby waive a breach of any
warranty or representation made by Borrowers hereunder or under any agreement,
document, or instrument delivered to Bank or otherwise referred to herein, and
all of Bank's claims and rights resulting from any breach or misrepresentation
by Borrowers are specifically reserved by Bank.
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SECTION 4. COLLATERAL SECURITY.
-------------------
SECTION 4.01 Composition of the Collateral. The property in which a
security interest or other lien is granted pursuant to any of the provisions of
this Agreement, including this Section 4, and/or the documents executed and
delivered pursuant hereto, including the proceeds (including insurance proceeds)
thereof, is herein collectively called the "Collateral".
SECTION 4.02 Rights in Property Held by Bank. As security for the
prompt and full satisfaction of all of the Obligations, each Borrower hereby
assigns, transfers and sets over to Bank all of its right, title and interest in
and to, and grants Bank a lien on and a security interest in, (i) all amounts
that may be owing from time to time by Bank to such Borrower in any capacity,
including, without limitation, any balance or share belonging to any Borrower of
any deposit or other account with Bank, which lien and security interest shall
be independent of any right of set-off which Bank has or may have, and (ii) any
other property of any Borrower, real or personal, which may come into the
possession of Bank.
SECTION 4.03 Rights in Other Property. As further security for the
prompt and full satisfaction of all of the Obligations, each Borrower hereby
grants to Bank a continuing Lien on and security interest in, all of the
following owned by such Borrower, wherever located, whether now owned or
hereafter created or acquired, together with all replacements, accessions,
additions and substitutions therefor and cash and non-cash proceeds (including,
without limitation, insurance proceeds) thereof:
(A) Accounts, all contents of the Lockboxes and Cash
Collateral Account, and all of Borrowers' deposit
accounts with Bank;
(B) Chattel Paper;
(C) Contracts;
(D) Documents;
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(E) Equipment and machinery;
(F) Fixtures;
(G) General Intangibles (including, but not limited to,
all trademarks, tradenames and copyrights);
(H) Instruments;
(I) Leases;
(J) Inventory (including, but not limited to, all
returned or rejected merchandise); and
(K) All Records pertaining to the Collateral.
SECTION 4.04 Priority of Liens. The foregoing Liens shall be first
and prior Liens except for Permitted Liens designated as prior Liens in Schedule
4.04 hereto. Borrowers shall pay and discharge when due all taxes, levies, and
other charges upon said Collateral and upon the goods evidenced by any documents
constituting Collateral and shall defend Bank against and save it harmless from
all claims of any Person with respect to the Collateral. This indemnity shall
include reasonable attorneys' fees and expenses.
SECTION 4.05 Financing Statements.
(A) At Closing and thereafter as Bank deems necessary,
Borrowers will:
(1) Execute such financing statements and other
assignments and documents (including amendments thereto and
continuation statements thereof) as Bank may specify, which Bank may
file in any jurisdiction or office where any Borrower maintains an
office or any of the Collateral and in any other jurisdiction or office
that Bank deems appropriate;
(2) Pay or reimburse Bank for all charges, fees and
taxes of filing or recording the same in such public offices as Bank
may designate; and
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(3) Take such other steps as Bank may reasonably
direct, including, without limitation, noting of Bank's lien on the
Collateral and on any certificates of title evidencing any Borrower's
ownership of the Collateral, delivering to Bank all notes, documents of
title, bills of lading, chattel paper, instruments and any other
similar Collateral.
(B) In addition to the foregoing, and not in limitation
thereof:
(1) A carbon, photographic, or other reproduction of
this Agreement shall be sufficient as a financing statement and may be
filed in any appropriate office in lieu thereof; and
(2) Upon and at any time during the continuance of an
Event of Default, to the extent lawful, each Borrower hereby appoints
Bank as its attorney-in-fact (without requiring Bank to act as such) to
execute any financing statement or other assignment or document in the
name of such Borrower, and to perform all other acts that Bank deems
appropriate to secure, perfect and continue its security interest in,
and to protect and preserve, the Collateral.
SECTION 4.06 Lockboxes. In addition to the Existing Lockboxes,
Borrowers shall establish and maintain lockboxes for USVI and SRO ("Lockboxes")
and non-interest bearing depository accounts (each a "Cash Collateral Account")
with Bank subject to the provisions of this subparagraph and the Lockbox
Agreement to be executed by Borrowers and delivered to Bank. Unless otherwise
prohibited by applicable law, all collections of Accounts shall be paid directly
by Account Debtors into the Lockboxes and then deposited into Bank's Cash
Collateral Account or shall be wired by Account Debtors directly into the Cash
Collateral Account. Provided no Potential Default or Event of Default is then
outstanding, cleared funds in the Cash Collateral Account shall, on a daily
basis, be transferred to Borrowers' concentration operating account at Bank and,
upon the direction of a Specified Officer, be either (i) applied to reduce the
outstanding Indebtedness under the Revolving Credit Loans (other than the
undrawn amount of issued and outstanding Letters of Credit), or
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(ii) transferred to other operating accounts of Borrowers, with future advances
and extensions of credit to be made by Bank under the conditions set forth in
Section 2. While a Potential Default is outstanding, Bank may retain all funds
in the Cash Collateral Account. Upon the occurrence of an Event of Default, Bank
shall have all rights and remedies set forth in Section 8 herein. In the event
that collections of Accounts and proceeds of other Collateral are received at
any time by Borrowers, such collections shall be held in trust for the benefit
of Bank and shall be remitted, in the form received, to Bank for deposit in the
Cash Collateral Account immediately upon receipt by Borrowers. All funds
transferred from Borrowers' operating accounts shall, upon application to
Borrowers' Revolving Indebtedness to Bank, reduce the balance of the Revolving
Loans. Borrowers shall have no right of access to or withdrawal from the
Lockboxes or Bank's Cash Collateral Account(s).
SECTION 4.07 Mortgage Documents. As further security for the
Obligations, Borrowers will execute and deliver to Bank the Mortgages and the
other Mortgage Documents. The owner of each Mortgaged Property will at Closing
execute and deliver to Bank, as security and Collateral for the Obligations,
deeds of trust, Mortgages and the other Mortgage Documents covering such real
Property (including all buildings, improvements, rents and profits). Each
Mortgage Document shall be duly recorded in each office where such recording is
required to constitute a valid Lien on the Property covered thereby. Such
Borrower shall deliver to Bank, at Borrower's expense, mortgagee title insurance
policies issued by a title insurance company satisfactory to Bank insuring Bank
as mortgagee; such policies shall be in form and substance satisfactory to Bank
and shall insure a valid first Lien in favor of Bank on the Property covered
thereby, subject only to those exceptions acceptable to Bank and its counsel.
Said policies shall be in form and substance satisfactory to Bank. Such Borrower
shall also deliver to Bank all other documents, including, without limitation,
as-built survey prints of the real Property, as Bank and its counsel may request
relating to the real Property subject to any such Mortgages.
SECTION 4.08 Dallas Property. Bank consents to, and agrees that upon a
sale of the Dallas Property it will release its Lien thereon, provided the sale
price received by USVO for
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such Property is at least $1,000,000 and Bank receives (i) the entire cash
payment of the purchase price therefor, (ii) endorsements or assignments (in
form and substance satisfactory to Bank) of all instruments evidencing the
obligation to pay any unpaid portion of the purchase price therefor, (iii)
assignments (in form and substance satisfactory to Bank) of any and all Liens
securing such payment, and (iv) any and all other instruments and documents (in
form and substance satisfactory to Bank) deemed necessary or advisable by Bank
in connection therewith. The proceeds of such sale shall be applied in
accordance with Section 2.09(B) hereof.
SECTION 4.09 Power of Attorney: Each of the officers of Bank is hereby
irrevocably made, constituted and appointed the true and lawful attorney for
Borrowers (without requiring any of them to act as such) with full power of
substitution to do the following: (1) endorse the name of Borrowers upon any and
all checks, drafts, money orders and other instruments for the payment of monies
that are payable to Borrowers and constitute Proceeds; (2) execute in the name
of Borrowers any Financing Statements, schedules, assignments, instruments,
documents and statements that Borrowers are obligated to give Bank hereunder;
and (3) upon the occurrence of an Event of Default, do such other and further
acts and deeds in the name of Borrowers that Bank may deem necessary or
desirable to enforce and collect the Collateral or perfect Bank's Lien in the
Collateral.
SECTION 4.10 Landlords' Waivers; Other Third Persons. Each Borrower
will use its reasonable best efforts to cause each landlord of any of the
premises (other than retail locations) leased by such Borrower to execute and
deliver to Bank instruments, in form and substance satisfactory to the Bank and
its counsel, by which such landlord waives its rights, if any, to the Collateral
and permits Bank access to such premises at any time upon and during the
continuance of an Event of Default for purposes of repossession and/or otherwise
exercising its rights with respect to the Collateral. Each Borrower will deliver
to Bank all such consents, waivers (including without limitation mortgagee
waivers) and such other documents, in form and substance acceptable to Bank and
duly executed by any Person whose consent, waiver or recognition of Bank's
rights in the Collateral is required by Bank in order to fully perfect,
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protect, continue and enforce the liens and security interests granted to Bank
pursuant hereto and pursuant to the Collateral Documents.
SECTION 4.11 Searches. Bank will have received prior to or at Closing,
and thereafter from time to time, at Borrowers' expense, Uniform Commercial
Code, judgment, federal and state tax and real estate lien searches against each
Borrower, showing that Bank's security interests in and Liens on the Collateral,
shall be, upon perfection, security interests in and liens thereon with the
priority rights agreed to in this Agreement, and the Collateral is not subject
to any Liens, claims and encumbrances except for Permitted Liens. Borrowers will
also deliver Good Standing and Corporate Tax Lien Search Certificates showing no
Liens on the Collateral and showing each Borrower to be subsisting and in good
standing in each jurisdiction identified on Schedule 5.01(A) to this Agreement.
SECTION 4.12 Protection of Collateral. All insurance expenses and all
expenses of protecting, storing, warehousing, insuring, handling, maintaining
and shipping the Collateral, any and all excise, property, sales, and use taxes
imposed by any state, federal, or local authority on any of the Collateral or in
respect of the sale thereof shall be borne and paid by Borrowers. If Borrowers
fail to promptly pay any portion thereof when due, Bank may, at its option, but
shall not be required to, pay the same and charge Borrower therefor. Borrowers
agree to reimburse Bank promptly therefor with interest accruing thereon daily
at the Default Rate provided in this Agreement. All sums so paid or incurred by
Bank for any of the foregoing and all costs and expenses (including attorneys'
fees, expenses, and court costs) which Bank may incur in enforcing or protecting
its Lien on or rights and interest in the Collateral or any of its rights or
remedies under this or any other agreement between the parties hereto or in
respect of any of the transactions to be had hereunder, until paid by Borrowers
to Bank with interest at the Default Rate, shall be considered Obligations owing
by Borrowers to Bank hereunder. Such Obligations shall be secured by all
Collateral and by any and all other collateral, security, assets, reserves, or
funds of Borrowers in or coming into the hands or inuring to the benefit of
Bank. Bank shall not be liable or responsible in any way for the safekeeping of
any of the
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Collateral or for any loss or damage thereto (except for reasonable care in the
custody thereof while any Collateral is in Bank's actual possession) or for any
diminution in the value thereof, or for any act or default of any warehouseman,
carrier, forwarding agency, or other Person whomsoever, but the same shall be at
Borrowers' sole risk.
SECTION 5. REPRESENTATIONS, WARRANTIES AND SURVIVAL.
----------------------------------------
SECTION 5.01 Representations and Warranties. To induce Bank to enter
into this Agreement, each Borrower jointly and severally represents and warrants
to Bank as to itself and as to each other Borrower that:
(A) Each Borrower is a corporation duly organized, validly
existing and in good standing under the Laws of its state of incorporation as
shown on Schedule 5.01(A) hereto; each Borrower has the lawful power to own its
property and to engage in the business it conducts, and is duly qualified and in
good standing in each of the jurisdictions where the nature of its business
makes such qualification necessary and where the failure to so qualify could
reasonably be expected or projected to have a Material Adverse Effect; the
states in which each Borrower is qualified to do business, and the addresses and
counties of all places of business of each Borrower, including all places where
any Borrower maintains Records and any item of tangible Collateral, are as set
forth in Schedule "5.01(A)" to this Agreement; and no Borrower has changed its
name, been the surviving entity in a merger, acquired any business (other than
another Borrower) or changed its principal executive office within five (5)
years and one (1) month prior to the date hereof, except as set forth in
Schedule "5.01(A)" to this Agreement;
(B) No Borrower has Indebtedness for money borrowed except as
set forth on Schedule 5.01(B) hereto; except as set forth on Schedule 5.01(B),
all such Indebtedness will be repaid in full out of the proceeds of the Loans
made on the date hereof. No Borrower is in material default with respect to any
of its existing Indebtedness, and the execution, delivery and performance of
this Agreement, the Notes and the Collateral
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Documents by Borrowers will not (immediately, with the passage of time, or with
the giving of notice and the passage of time):
(1) Violate the charter, minutes or by-law
provisions of any Borrower or violate in any material respect any Laws or result
in a default under any contract, agreement or instrument to which any Borrower
is a party or by which any Borrower or its property is or may be bound, the
result of which default could reasonably be expected or projected to be a
Material Adverse Effect; or
(2) Result in the creation or imposition of any
security interest in, or Lien or encumbrance upon, any of the
assets of any Borrower, except such as are in favor of Bank;
(C) Each Borrower has the power and authority to enter into
and perform this Agreement, the Notes, the Collateral Documents and the other
Loan Documents and to incur the Obligations herein and therein provided for, and
has taken all proper and necessary action, corporate or otherwise, to authorize
the execution, delivery and performance of this Agreement, the Notes, the
Collateral Documents and the other Loan Documents;
(D) This Agreement, the Notes, the Collateral Documents and
the other Loan Documents are valid, binding and enforceable against each
Borrower in accordance with their respective terms, except to the extent that
the enforceability thereof is limited by bankruptcy and similar laws affecting
the rights of creditors generally and equitable principles;
(E) Except as disclosed in Schedule 5.01(E) to this Agreement,
there are no judgments or judicial or administrative orders or proceedings or
other suits, claims or other litigation (collectively, "Proceedings") pending,
or threatened, against or affecting any Borrower in any court or before any
governmental authority or arbitration board or tribunal, and no Borrower is in
violation of any order of any court, governmental authority, arbitration board
or tribunal or administrative agency, or any applicable statute, regulation or
ordinance of the United States of America, or of any state, city, town,
municipality, county or of any other jurisdiction, or of any agency thereof
(including
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without limitation, environmental laws and regulations), which could reasonably
be expected or projected to have a Material Adverse Effect. Neither the nature
of Borrowers or of their respective businesses and activities, nor any
relationship between Borrowers and any other Person, nor any circumstance
affecting Borrowers in connection with the issuance or delivery of this Loan
Agreement and the other Loan Documents, is such as to require a consent,
approval or authorization of, or filing, registration or qualification with, any
Government Authority on the part of Borrowers in conjunction with the execution
and delivery of this Agreement or the other Loan Documents.
(F) Borrowers have good and marketable title to all
Collateral, free from Liens (other than Permitted Liens) and free from the
claims of any Person other than Bank. No Borrower has agreed or consented to
cause or permit any of its Property whether now owned or hereafter acquired to
be subject in the future (upon the happening of a contingency or otherwise), to
a Lien not permitted by this Agreement.
(G) Schedule 5.01(G) hereto accurately sets forth all
locations occupied or utilized by each Borrower as lessee, together with the
name and address of the lessor and, if other than the lessor, the record owner
thereof, and the date of the applicable Lease; all such leases are in full force
and effect and each Borrower is in material compliance with the terms of each
lease;
(H) The annual audited consolidated financial statements of
Borrowers for the ten months ended January 31, 1996, including balance sheet and
the related statements of income, cash flows and retained earnings for the year
then ended, all accompanied by reports thereon from Borrowers' independent
certified public accountants, (complete copies of which have been delivered to
Bank), have been prepared in accordance with GAAP and present fairly the
financial position of Borrowers' as of such date and the results of their
operations for all periods covered thereby. The consolidated financial
statements of Borrowers at and for nine months ended October 31, 1996, including
balance sheet and the related statements of income, cash flows and retained
earnings, have been prepared in accordance with GAAP and present fairly the
financial positions
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of Borrowers as of such date and the results of their operations for the period
covered therein). Borrowers have no material debts, liabilities or obligations
which are not fully reflected in such financial statements or in the notes
hereto. Since September 30, 1996, there has been no Material Adverse Change in
the business, operations, assets, liabilities, financial or other condition of
Borrowers. All financial statements to be provided to Bank by or on behalf of
Borrowers (including, but not limited to, the Financial Statements) do and will
fairly and fully present in accordance with GAAP consistently applied the
financial condition of Borrowers as of the date(s) thereof and the results of
operations for the periods covered thereby subject, in the case of interim
statements only, to normal year-end adjustments;
(I) As of the date of the most recent Financial Statements, no
Borrower had any Indebtedness of any nature (including, without limitation,
liabilities for taxes and any interest or penalties relating thereto) required
to be reflected therein, except to the extent reflected (in a footnote or
otherwise) and reserved against in the Financial Statements or as disclosed in
or permitted by this Agreement. No Borrower knows of any basis for the assertion
against it of any material Indebtedness of any nature not fully reflected and
reserved against in the Financial Statements. Since the date of the latest
financial statements delivered to Bank, there has not been a Material Adverse
Change in the operations, business or financial condition of Borrowers. Each
Borrower is solvent, is able to pay its debts as they become due and has capital
sufficient to carry on its business and all businesses in which it is about to
engage, and now owns property having a value both at fair valuation and at
present fair salable value greater than the amount required to pay such
Borrower's debts. No Borrower will be rendered insolvent by the execution and
delivery of this Agreement or any of the other Loan Documents or by the
transactions contemplated hereunder or thereunder;
(J) Each Borrower has filed all federal, state and local tax
returns and other reports as required by Law to be filed by it prior to the date
hereof, has paid or caused to be paid all taxes, assessments and other
governmental charges that are due and payable prior to the date hereof, and has
made
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adequate provision for the payment of such taxes, assessments or other charges
accruing but not yet payable, where the failure to do any of the foregoing could
reasonably be expected or projected to have a Material Adverse Effect. No
Borrower has knowledge of any deficiency or additional assessment against it in
connection with any taxes, assessments or charges not provided for on its books
the failure to pay any of which could reasonably be expected or projected to
have a Material Adverse Effect;
(K) Except as otherwise disclosed in Schedule "5.01(K)" to
this Agreement, each Borrower has complied with all applicable Laws the
noncompliance with which could reasonably be expected or projected to have a
Material Adverse Effect with respect to (1) restrictions, specifications or
other requirements pertaining to products that it manufactures and sells or to
the services it performs, or that it intends to manufacture, sell or perform,
(2) the conduct or planned conduct of its business operations, and (3) the use,
maintenance and operation or planned use, maintenance and operation of the real
and personal property owned or leased by it in the operation or planned
operation of its business. Schedule "5.01(K)" to this Agreement discloses any
and all such noncompliance by any Borrower or Affiliate with all such applicable
Laws as of the date hereof;
(L) No Borrower has been or intends to be a party to a merger,
acquisition, consolidation or reorganization, and Borrowers have used no other
name, tradestyle or designation, except as set forth in Schedule 5.01(L).
Borrower has registered all fictitious names listed on Schedule 5.01(L);
(M) All necessary consents, approvals or authorizations of, or
filing, registration or qualification with, any Person required to be obtained
by any Borrower in connection with the execution and delivery of this Agreement,
the Notes, the Collateral Documents and the other Loan Documents or the
undertaking or performance of any Obligation hereunder or thereunder has been
obtained. No further action need be taken to perfect the Liens granted to Bank,
other than the filing of the Trademark Assignment with the Patent and Trademark
Office, the filing of financing and continuation statements under the Code or
other applicable law, continued possession by Bank of that portion of the
Collateral constituting instruments or documents,
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the processing of Lien notations on motor vehicle title certificates, and the
recording of the Mortgages and other Mortgage Documents;
(N) No Borrower maintains, contributes to or contributed to
any employee benefit plan other than as set forth in Schedule "5.01(N)" hereto.
Each employee benefit plan (including without limitation those subject to ERISA)
maintained by any Borrower or to which any Borrower contributed or contributes
meets the minimum funding standards established in Section 302 of ERISA and
complies in all material respects with all applicable requirements of ERISA and
of the Internal Revenue Code and with all applicable rulings and regulations
issued under the provisions of ERISA and the Internal Revenue Code, and no
Prohibited Transaction or reportable event (other than an event for which the
requirement to report has been waived), within the meaning of Section 4043 of
ERISA ("Reportable Event"), has occurred and is outstanding with respect to any
employee benefit plan of any Borrower. Furthermore, no employee benefit plan,
including any pension plan, has asserted or threatened to assert, or because of
any action taken or contemplated to be taken by any Borrower would be entitled
to assert, a claim or demand for withdrawal liability under ERISA as a result of
any withdrawal from any said plan by any Borrower or any member of its
Controlled Group which has occurred on or before the date hereof or which could
take place after the date hereof other than the unfunded pension liability, if
any, which may exist in the event SRO withdraws from the SRO multiemployer plan
disclosed on Schedule 5.01(N) hereto;
(O) No Borrower is engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System), and no
part of the proceeds of the Loans will be used, directly or indirectly, to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock. No Borrower is an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended;
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(P) Each Borrower has obtained all licenses, permits,
franchises or other governmental authorizations necessary to the ownership of
its property and assets and to the conduct of its business, which violation or
failure to obtain could reasonably be expected or projected to have a Material
Adverse Effect;
(Q) No Borrower is a guarantor or surety of, or otherwise
responsible or liable in any manner with respect to, any debt, liability,
obligation or undertaking of any other Person except as set forth in the
Financial Statements;
(R) No Borrower has knowledge of any violations of any
Environmental Laws relating to the Collateral or to the operations and
properties of any Borrower;
(S) No Borrower has received a summons, citation, notice,
directive, letter or other communication, written or oral, from any state or
federal agency concerning any intentional or unintentional action or omission by
any Borrower resulting in any material releasing, spilling, leaking, pumping,
pouring, emitting, emptying, dumping or otherwise disposing of Hazardous Waste
(as defined in 12 U.S.C. ss. 6903(5)) or Hazardous Substance (as defined in 42
U.S.C. ss. 9609(14));
(T) All information, reports and other papers and data
furnished and to be furnished to the Bank by Borrowers (including, but not
limited to, all financial information) are and will be, at the time the same are
so furnished, accurate, correct and complete in all material respects;
(U) USVI owns, directly or indirectly through the ownership of
another Borrower, all of the issued and outstanding shares of the capital stock
of all of the other Borrowers. Except as set forth on Schedule 5.01(U) attached
hereto, USVI has no Subsidiaries or Affiliates other than as set forth in
Schedule 5.01(U) hereto;
(V) No Borrower has any rights or licenses with respect to any
registered patents, trade names, trademarks or copyrights, other than as set
forth in Schedule 5.01(V) hereto;
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(W) All Accounts included in the calculation of Loan Value
were, are and will be Eligible Accounts. Unless otherwise expressly indicated in
writing to Bank, each Account:
(a) is genuine and in all respects what it
purports to be, and it is not evidenced by a judgment;
(b) arises out of a completed, bona fide sale and
delivery of goods or rendition of services by such Borrower(s) in the ordinary
course of business and in accordance with the terms and conditions of all
purchase orders, contracts or other documents relating thereto and forming a
part of the contract between such Borrower(s) and the Account Debtor;
(c) is for a liquidated amount maturing as stated
in the duplicate invoice covering such sale or rendition of
services, a copy of which has been furnished or is available to
Bank;
(d) and Bank's Lien therein, is not, and to the best
of such Borrower's knowledge will not be in the future, subject to any offset,
Lien, deduction, defense, dispute, counterclaim or any other adverse condition,
except for disputes resulting in returned goods where the amount in controversy
is deemed by Bank to be immaterial, and each such Account is absolutely owing to
such Borrower and is not contingent in any respect or for any reason;
(e) is not subject to any agreement with any Account
Debtor thereunder for any deduction therefrom, except (i) discounts or
allowances which are granted by a Borrower in the ordinary course of its
business for prompt payment thereof and (ii) rent or other payments payable to
host department stores, which are reflected in the calculation of the net amount
of each Account related thereto;
(f) there are no facts, events or occurrences which,
to the best of Borrowers' knowledge, in any way impair the validity or
enforceability thereof or tend to reduce the amount payable thereunder from the
face amount of the invoice and statements delivered to Bank with respect
thereto;
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(g) the Account Debtor thereunder, to the best of
Borrowers' knowledge, (i) had the capacity to contract at the time any contract
or other document giving rise to the Account was executed and (ii) such Account
Debtor is Solvent; and
(h) there is no fact or circumstances of which
Borrowers' have knowledge which would impair the validity or collectability of
the Account, and to the best of Borrowers' knowledge there are no proceedings or
actions which are threatened or pending against any Account Debtor thereunder
which might have a material adverse affect on such Account Debtor's financial
condition or the collectability of such Account.
All Inventory included in the calculation of Loan Value were, are and will be
Eligible Inventory. Unless otherwise expressly indicated in writing by Borrowers
to Bank:
(a) All Inventory is presently and will continue to
be located at such Borrower's places of business listed on Schedule 5.01(A) and
will not be removed therefrom except as expressly authorized by this Agreement;
(b) All Eligible Inventory will be located only at
Borrowers' places of business which are Eligible Locations;
(c) No Inventory is now, nor shall any Inventory at
any time or times hereafter be, stored with a bailee, warehouseman or similar
party without Bank's prior written consent and, if Bank gives such consent,
Borrowers will concurrently therewith cause any such bailee, warehouseman, or
similar party to issue and deliver to Bank, in form and substance acceptable to
Bank, warehouse receipts therefor in Bank's name;
(d) No Inventory of any Borrower is or will be
consigned to any Person without Bank's prior written consent, except that SRO
may make sales on consignment which shall not, at any time, exceed $50,000 in
the aggregate; and
(e) No Inventory is or will be produced in violation
of the Fair Labor Standards Act.
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(X) Borrowers maintain insurance coverage as set
forth in Schedule 5.01(X) hereto;
(Y) This Agreement and the other Loan Documents are effective
to create in favor of the Bank legal, valid and enforceable Liens in all right,
title and interest of the Borrowers in the Collateral, and when Financing
Statements have been filed in the offices in the jurisdictions listed in
Schedule 5.01(A) hereto under Borrowers' names, Borrowers will have granted to
Bank, and Bank will have perfected first priority Liens in the Collateral,
superior in right to any and all other Liens, existing or future; and
(Z) No representation or warranty by Borrowers in this
Agreement or any of the other Loan Documents and no information in any
statement, certificate, schedule on other document furnished or to be furnished
to Bank pursuant hereto, or in connection herewith, contains or will contain any
untrue statement of a material fact necessary to make the statements contained
herein or therein not misleading. There is no fact known to any officer of any
Borrower which Borrowers have not disclosed to Bank in writing, which materially
affects adversely or may materially affect adversely any Borrowers' Property,
busi ness, prospects or financial condition or the ability of any Borrower to
perform this Agreement.
SECTION 5.02 Survival. By completing the Closing, Bank does not thereby
waive any breach of warranty or misrepresentation made by any Borrower
hereunder, or under any other document or agreement delivered to Bank at Closing
or otherwise referred to herein, and all of Bank's claims and rights resulting
from any breach or misrepresentation by Borrowers is expressly reserved by Bank.
All of the foregoing representations and warranties set forth in this Section 5
shall survive until all Obligations hereunder are paid and satisfied in full.
SECTION 5.03 Reaffirmation of Representations and Warranties. Each
request by Borrowers that Bank make an advance or issue a Letter of Credit under
the Revolving Loan shall, as of the date of such request, constitute (A) a
representation and warranty by each Borrower to Bank that no Event of Default or
Potential Default exists hereunder, and (B) a reaffirmation of
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each and every one of the representations and warranties of Borrowers contained
in Section 5.01 as if made as of the date of such request, except to the extent
of changes which do not and could not reasonably be expected or projected to
constitute an Event of Default or a Potential Default under this Agreement.
SECTION 6. COVENANTS.
---------
SECTION 6.01 Affirmative Covenants. Each Borrower covenants and agrees
with Bank that, so long as any of the Obligations hereunder remain unsatisfied
or Bank has any commitment in connection herewith, it will and will cause each
other Borrower to comply with the following covenants:
(A) Borrowers will furnish to Bank:
(1) Within one hundred ten (110) days after the end
of the 1996 Fiscal Year of Borrowers and within ninety (90) days after
the end of each other Fiscal Year of Borrowers, a copy of Borrowers'
Annual Financial Statements;
(2) Within forty-five (45) days after the end of each
Fiscal Quarter, a copy of Borrowers' Quarterly Financial Statements,
prepared under the supervision of USVI's chief financial officer and
certified by such officer on behalf of Borrowers as fairly presenting,
in accordance with GAAP consistently applied, the financial condition
and results of operations of Borrowers at the dates and for the periods
covered thereby subject to normal year-end adjustments, together with a
list of all Subsidiaries formed or otherwise acquired during such
Fiscal Quarter ("New Subsidiaries");
(3) Within thirty (30) days after the end of each
month, a copy of Borrowers' Monthly Financial Statements, prepared
under the supervision of USVI's chief financial officer and certified
by such officer on behalf of the Borrowers as fairly presenting, in
accordance with GAAP consistently applied, the financial condition and
results of operations of Borrowers at the date and for the periods
covered thereby subject to normal year-end adjustments;
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(4) Within thirty (30) days after the end of each
month and forty-five (45) days after the end of each Fiscal Quarter, a
compliance certificate prepared under the supervision of USVI's chief
financial officer setting forth and certifying (i) Borrowers'
compliance or non-compliance with the financial covenants set forth in
Section 6.01(M) hereof, (ii) a Borrowing Base Certificate certifying
the amounts of Eligible Accounts and Eligible Inventory, the
calculation of Loan Value and Available Credit, and a statement of the
amount and nature of insurance covering the Collateral, and (iii)
monthly and Fiscal Year-to-Date Same Store Sales information and
comparisons for the current and prior Fiscal Years (which shall provide
separate information for stores which have been open and operating for
less than one full Fiscal Year), certified as true, correct and
complete by USVI's chief financial officer on behalf of Borrowers;
(5) As soon as available, and in any event no later
than fifteen (15) days prior to the end of each Fiscal Year of
Borrowers, Projections of Borrowers for the forthcoming three (3)
Fiscal Years, year by year, and for the forthcoming Fiscal Year, month
by month;
(6) Promptly upon its becoming available, one copy of
each financial statement, report, notice or statement sent by USVI to
its stockholders generally; and
(7) Such data, reports, statements and information,
financial or otherwise, as Bank may request, including, without
limitation, monthly consolidated Accounts analysis.
(B) Each Borrower will maintain its material Inventory,
Equipment and other properties in good condition and repair (normal wear and
tear excepted), and will pay and discharge or cause to be paid and discharged
when due, the cost of repairs to or maintenance of the same, and will pay or
cause to be paid all rental payments due. Each Borrower hereby agrees that, in
the event it fails to pay or cause to be paid any such payment, Bank may (but is
under no obligation to) with five (5) days' prior notice to Borrowers do so and
shall be reimbursed
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therefor by Borrowers on demand, with interest at the Default Rate until paid.
Immediately on request therefor by Bank, Borrowers shall deliver to Bank any and
all evidence of ownership, if any, of any of the Equipment (including, without
limitation, certificates of title and applications for title). Borrowers shall
maintain accurate records itemizing and describing the kind, type, quality,
quantity and value of their Equipment and all dispositions made in accordance
with the terms hereof, and shall furnish Bank with a current schedule containing
the foregoing information on at least an annual basis and more often if
requested by Bank. No Borrower will sell, lease or otherwise dispose of or
transfer any of the Equipment or any part thereof without the prior written
consent of Bank; provided, however, that the foregoing restriction shall not
apply, for so long as no Potential Default or Event of Default exists, to
dispositions of such Equipment which, in the aggregate during any consecutive
twelve-month period, has a fair market value or book value, whichever is less,
of $150,000 or less.
(C) (1) Borrowers will carry insurance, (without any
co-insurance provision) including all-risk casualty, business interruption and
workmen's compensation insurance, in form and amount with insurers reasonably
satisfactory to Bank, against fire (with extended coverage), liability and such
other hazards as are customary with companies in the same or similar business in
the same area as Borrowers and cause Bank's Liens to be endorsed on all policies
of insurance as mortgagee and loss payee, so that: (i) all payments for losses
will be paid solely to Bank; (ii) the policy shall cover and insure Bank's
interest in the Collateral notwithstanding any act or neglect of Borrowers, and
(iii) the insurer shall furnish Bank upon request with evidence of such
insurance together with a certificate thereby requiring not less than thirty
(30) days written notice to Bank prior to cancellation or termination. Borrowers
shall also comply with the insurance provisions contained in the Collateral
Documents. Bank agrees that Borrowers' current insurers, insurance coverages and
amounts are satisfactory to it based on the value of the Collateral on the date
hereof.
(2) In the event of loss, Borrowers will give
immediate notice thereof to Bank and Bank may make proof of loss if not made
promptly by Borrowers and may negotiate settlement of
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any claims on behalf of Borrowers. Each insurance company concerned is hereby
authorized and directed to make payment under such insurance, including return
of unearned premiums, directly to Bank instead of to Borrowers and Bank jointly,
and Borrowers irrevocably appoint Bank as Borrowers' attorney-in-fact to endorse
any draft therefor and to sign any and all proofs of claim, releases and all
other documents relating thereto. Bank shall have the right to retain and apply
the proceeds of any such insurance to reduction of the Obligations in any order
as Bank may determine (such reduction if applied to the Revolving Loans
constituting a permanent reduction of the Maximum Loan Amount), unless (i) the
loss is less than $250,000, (ii) Borrowers request in writing to Bank within 15
days of the receipt of the insurance proceeds that they request such proceeds be
applied to restoration, repair or replacement of the damaged property, and (iii)
all of the conditions set forth in Section 3.02 shall be satisfied, in which
case Bank shall honor such request, provided that if the cost of restoration,
repair or replacement is more than $250,000, such proceeds shall be deposited
with and held by Bank and advanced to Borrowers only upon written request to
Bank for the payment of such repairing, restoring or replacing of the damaged
property upon fulfillment, to the reasonable satisfaction of Bank, of the
following conditions:
(i) Bank shall have first approved the property and/or work
constituting the repair, restoration or replacement of the
damaged property and that all replacement property shall be
Collateral in which Bank has a perfected first Lien;
(ii) Borrowers shall have executed and delivered to Bank an
assignment of the contract relating to such repair,
restoration or replacement, which assignment shall be in form
and substance acceptable to Bank;
(iii) Bank shall be satisfied, in its reasonable discretion,
that the insurance proceeds and such other funds to be made
available by Borrowers therefor are sufficient to properly and
fully repair, restore or replace the damaged property; and
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(iv) Prior to any disbursement, Borrowers shall have satisfied
Bank, in Bank's reasonable discretion, that the proposed payee
is entitled to such disbursement for goods delivered or
completed work properly done (or that Borrowers have paid such
payee for such goods or work and are entitled to reimbursement
therefor).
Notwithstanding anything contained herein to the contrary, Bank may
require Borrowers to enter into a separate written agreement which shall include
the aforementioned requirements and such other provisions as shall be reasonably
required by Bank before Bank disburses any insurance proceeds for repair,
restoration or replacement.
(3) Borrowers will carry liability insurance in such
amounts, against such risks and with such insurance companies as are reasonably
acceptable to Bank, and will cause Bank to be named as an additional insured on
all such policies. Bank agrees that Borrowers' current insurers, insurance
coverages and amounts are satisfactory to it based upon Borrowers' business
operations on the date hereof.
(D) Each Borrower will pay or cause to be paid when due, all
taxes, assessments and charges or levies imposed upon such Borrower or on any of
its property or which it is required to withhold and pay over, except where
contested in good faith by appropriate proceedings with adequate reserves
therefor having been set aside on its books; provided, however, that Borrowers
will pay or cause to be paid all such taxes, assessments, charges or levies
forthwith whenever foreclosure on any Lien that attaches (or security therefor)
appears imminent.
(E) Each Borrower will maintain complete and accurate books
and records and will permit access by Bank during business hours to such books
and records and will permit Bank to inspect its properties and operations. Once
each year and additionally after and during the continuance of any Event of
Default, Bank may at any time and from time to time on reasonable notice to
Borrowers (except that no notice will be required after the occurrence and
during the continuance of an Event of Default) audit and conduct examinations of
any Borrower's books and records and Collateral and make abstracts and copies
thereof.
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After the occurrence and during the continuance of an Event of Default,
Borrowers shall pay Bank's then standard fees therefor; otherwise Borrowers
shall only be responsible for Bank's reasonable out of pocket expenses therefor.
(F) Each Borrower will take all necessary steps to (1)
preserve and qualify its existence, rights, privileges, licenses and franchises
and (2) comply with all present and future contracts applicable to it in the
operation of its business, where the failure to do so could have a Material
Adverse Effect.
(G) Each Borrower will give immediate notice to the Bank of
(i) any litigation to which it is a party if an adverse decision therein could
have a Material Adverse Effect, and (ii) the institution of any other suit or
any administrative proceeding involving any Borrower that could have a Material
Adverse Effect.
(H) Each Borrower will pay when due (or within applicable
grace periods) all Indebtedness, rental payments and other liabilities and
obligations to third Persons, except when the amount thereof is being contested
in good faith, by appropriate proceedings and with adequate reserves therefor
being set aside on its books. If any Borrower defaults in the payment of any
principal or rental (or installment thereof) of, or interest on, any
Indebtedness for money borrowed in excess of $25,000 in the aggregate or rental
or other obligations in excess of $25,000 in the aggregate, Bank shall have the
right, in its discretion and without obligation, to pay such interest,
principal, rental or obligation for the account of Borrowers and shall be
reimbursed therefor on demand by Borrowers, with interest at the Default Rate
until paid.
(I) Each Borrower will notify Bank promptly upon becoming
aware of the occurrence of any Event of Default or Potential Default or of any
fact, condition or event that, with the giving of notice or passage of time, or
both, could become an Event of Default or Potential Default, or of the failure
of any Borrower to observe any of its undertakings hereunder. Borrowers agree
that immediately upon becoming aware of any development or other information
outside the ordinary course of business and excluding matters of a general
economic, financial or political
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nature which may materially and adversely affect their respective Property,
businesses, prospects, or financial condition or their respective ability to
perform under this Agreement, they shall give to Bank telephonic or telegraphic
notice specifying the nature of such development or information and such
anticipated effect. In addition, such verbal communication shall be confirmed
by written notice thereof to Bank on the same day such verbal communication is
made.
(J) All Collateral, other than Inventory in transit and motor
vehicles, will at all times be kept by Borrower at one or more of the business
locations set forth in Schedule 5.01(A) and shall not, without the prior written
approval of Bank, be moved therefrom except, prior to an Event of Default and
Bank's acceleration of the maturity of the Obligations in consequence thereof,
for (A) sales of Inventory in the ordinary course of business; (B) the storage
of Inventory at locations within the continental United States other than those
shown on Schedule 5.01(A) if (i) Borrower gives Bank written notice of the new
storage location at least sixty (60) days prior to storing Inventory at such
location, (ii) Bank's Lien in such Inventory is and continues to be a duly
perfected, first priority Lien thereon, (iii) neither Borrowers' nor Bank's
right of entry upon the premises where such Inventory is stored, or its right to
remove the Inventory therefrom, is in any way restricted, (iv) the owner of such
premises agrees with Bank not to assert any landlord's, warehouseman's, bailee's
or other Lien in respect of the Inventory for unpaid rent or storage charges
(provided that this subparagraph shall not be applicable to Borrowers' retail
store facilities), and (v) all negotiable documents and receipts in respect of
any Collateral maintained at such premises are promptly delivered to Bank; (C)
temporary transfers (for a period not to exceed 3 months in any event) of
Equipment from a location set forth on Schedule 5.01(A) to another location if
done for the limited purpose of repairing, refurbishing or overhauling such
Equipment in the ordinary course of Borrowers' business and (D) removals in
connection with dispositions of Equipment that are expressly authorized herein.
(K) Each Borrower will (1) fund all its employee benefit plans
in accordance with no less than the minimum funding standards of Section 302 of
ERISA, (2) furnish Bank, promptly
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after the filing of the same, with copies of all material reports or other
material statements filed with the United States Department of Labor, the
Pension Benefit Guaranty Corporation ("PBGC") or the Internal Revenue Service
("IRS") with respect to all such Plans which reflect or relate to a material
unfunded liability, or which any Borrower, or any member of a Controlled Group,
may receive from the United States Department of Labor, the IRS or the PBGC,
with respect to all such employee benefit plans which reflect or relate to a
material unfunded liability, (3) promptly advise Bank of the occurrence of any
Reportable Event or Prohibited Transaction with respect to any such employee
benefit plan(s) and the action which Borrowers propose to take with respect
thereto; and (4) promptly advise Bank of any material claim for withdrawal
liability made against it or a member of its Controlled Group.
(L) All Financial Statements to be furnished by Borrowers to
Bank shall fairly present in accordance with Generally Accepted Accounting
Principles the financial condition of Borrowers as of the date(s) thereof and
the results of the operations for the periods covered thereby, subject, as to
interim statements only, normal year-end adjustments.
(M) Borrowers will, as of the end of each applicable month,
Fiscal Quarter and Fiscal Year, be in compliance with the financial covenants
set forth in Exhibit 6.01(M) hereto. Such financial covenants shall be
appropriately adjusted if Borrowers change any accounting principles with the
consent of their independent accountants.
(N) Borrowers will at all times maintain with Bank all of
their bank accounts, except that Borrowers may maintain bank accounts with other
banks for the purposes of (i) maintaining a payroll account for SRO employees,
(ii) maintaining an SRO disbursement account, the balance of which shall not at
any time exceed $25,000, (iii) petty cash accounts, the balance of which shall
not at any time exceed $2,000 individually or $120,000 in the aggregate and (iv)
receiving cash deposits from their retail locations (Borrowers will deposit all
cash receipts (including checks) into such accounts), and all such deposits will
be automatically wired into the Cash Collateral Account.
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(O) Each Borrower shall at all times be compliance in all
material respects with any and all Laws, and shall obtain and maintain any and
all licenses, permits, franchises or other governmental authorizations necessary
to the ownership of its Property or to the conduct of its businesses, which
violation or failure to obtain may materially adversely affect the business,
prospects, Property or financial condition of each Borrower. Each Borrower shall
timely satisfy all assessments, fines, costs and penalties imposed by any
Government Authority against such Borrower or any of Borrowers' Property.
(P) Each Borrower will notify Bank in writing at least fifteen
(15) Business Days in advance of any change in the location of any Borrower's
chief executive office and/or the location of any of the Collateral.
(Q) Each New Subsidiary shall execute and deliver to Bank all
such instruments and documents as Lender shall require to make such New
Subsidiary a Borrower hereunder and a maker of the Notes.
(R) After the occurrence of an Event of Default, Borrowers
shall execute and deliver to Bank formal written assignments of all of their
Accounts weekly, which shall include all Accounts that have been created since
the date of the last assignment, together with copies of invoices, invoice
registers or other evidence of the sale related thereto. Borrowers shall keep
accurate and complete records of their Accounts and all payments and collections
thereon and shall submit to Bank on a weekly basis a sales and collections
report from the preceding week, in form satisfactory to Bank. On or before the
twentieth (20th) day of each month from and after the date hereof, Borrowers
shall deliver to Bank, in form acceptable to Bank, a detailed aged trial balance
of all Accounts existing as of the last day of the preceding month, specifying
the names, addresses, face value, dates of invoices and due dates for each
Account Debtor obligated on an Account so listed ("Schedule of Accounts"), and,
upon Bank's request therefor, make available to Bank copies of proof of delivery
and the original copy of all documents, including, without limitation, repayment
histories and present status reports relating to the Accounts so scheduled and
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such other matters and information relating to the status of then existing
Accounts as Bank shall reasonably request.
(S) Upon the granting of any discounts, allowances or credits
by Borrowers, or any of them, that are not shown on the face of the invoice for
the Account involved, Borrowers shall promptly report such discounts, allowances
or credits, as the case may be, to Bank and in no event later than the time of
its submission to Bank of the next Schedule of Accounts as provided in Section
6.01(R). Upon and after the occurrence of an Event of Default, Bank shall have
the right to settle or adjust all disputes and claims directly with the Account
Debtor and to compromise the amount or extend the time for payment of the
Accounts upon such terms and conditions as Bank may deem advisable, and to
charge the deficiencies, costs and expenses thereof, including attorneys' fees,
to Borrowers. If an Account includes a charge for any tax payable to any
Government Authority, Bank is authorized, in its sole discretion, to pay the
amount thereof to the proper Government Authority for the account of Borrowers
and to charge Borrowers hereunder therefor. Borrowers shall notify Lender if any
Account includes any tax due to any Government Authority and, in the absence of
such notice, Lender shall have the right to retain the full proceeds of the
Account and shall not be liable for any taxes to any Government Authority that
may be due by Borrowers, or any of them, by reason of the sale and delivery
creating the Account. Whether or not a Potential Default or an Event of Default
has occurred, any of Bank's officers, employees or agents shall have the right,
at any time or times hereafter, in the name of Bank, any designee of Bank or
Borrowers, to verify the validity, amount or any other matter relating to any
Accounts by mail, telephone, telegraph or otherwise. Borrowers shall cooperate
fully with Bank in an effort to facilitate and promptly conclude any such
verification process.
(T) To expedite collection, Borrowers shall (subject to the
provisions below) endeavor in the first instance to make collection of its
Accounts for Bank. All remittances received by any Borrower on account of
Accounts (and proceeds of all other Collateral) shall be held as Bank's property
by such Borrower as trustee of an express trust for Bank's benefit and such
Borrower shall immediately deposit same, in kind, in the Lockbox or the
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Cash Collateral Account. Lender retains the right following the occurrence of an
Event of Default, to notify Account Debtors that Accounts have been assigned to
Bank and to collect Accounts directly in its own name and to charge the
collection costs and expenses, including attorneys' fees to Borrowers. Bank has
no duty to protect, insure, collect or realize upon the Accounts or preserve
rights in them.
(U) In the event any amounts due and owing in excess of
$50,000.00 are in dispute between a Borrower and any Account Debtor, Borrowers
shall provide Bank with written notice thereof at the time of submission of the
next Schedule of Accounts, explaining in detail the reason for the dispute, all
claims related thereto and the amount in controversy.
(V) Borrowers will furnish Bank with Inventory reports for all
Inventory at such times as Bank may request, but at least once each Fiscal
Quarter. Such reports shall be in form and detail satisfactory to Bank.
Borrowers shall conduct a physical inventory of the SRO Inventory and Inventory
located at the Lab no less frequently than once each Fiscal Quarter and shall
provide to Bank a report based on each such physical inventory promptly
thereafter, together with such supporting information as Bank shall, in its
discretion, request.
(W) If at any time or times hereafter any Account Debtor
returns an item(s) of Inventory to a Borrower the shipment of which generated an
Account on which such Account Debtor is obligated in excess of $100,000,
Borrowers shall notify Bank of the same immediately, specifying the reason for
such return and the location and condition of the returned Inventory. After the
occurrence of an Event of Default, Borrowers shall hold all returned Inventory
in trust for Bank, shall segregate all returned Inventory from all other
Property owned by Borrowers or in their possession and shall conspicuously label
such Inventory as the Property of Bank.
SECTION 6.02 Negative Covenants. Each Borrower hereby covenants and
agrees that so long as any of the Obligations remain unsatisfied, without the
prior written consent of Bank:
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(A) No Borrower will change its name, enter into any merger,
consolidation, reorganization, reincorporation or recapitalization, create or
acquire any Subsidiary (except a newly formed Subsidiary not for the purpose of
acquiring an existing business and provided that the Subsidiary executes
instruments and documents in form and substance satisfactory to Bank joining in
this Agreement, the Notes and all other Loan Documents designated by Bank, after
which such subsidiary will be a "Borrower" hereunder), acquire any stock in or
all or substantially all of the assets of or any partnership or joint venture
interest in, or make any loan or advance to or investment (other than a
Permitted Investment) in, any other Person (other than another Borrower);
provided that USVI may proceed toward changing its state of incorporation to the
State of Delaware, without the prior written consent of Bank, by merging into
USVID, provided that (a) USVI gives Bank at least thirty days' prior written
notice of the consummation of the merger and (b) prior to consummating such
merger, (i) USVI advises Bank of the aggregate number of shares seeking
statutory shareholder dissenters' rights under Pennsylvania law (which shares
shall not exceed five percent (5%) of the number of shares then issued and
outstanding) and (ii) Bank provides USVI with its express prior written consent
to consummate the merger.
(B) Without Bank's express prior written consent (which will
not be unreasonably withheld), no Borrower will sell, transfer, lease or
otherwise dispose of all or, except for the sale of Inventory in the ordinary
course of its business and except for dispositions of Equipment expressly
permitted under Section 6.01(B) above, any substantial part of its assets
outside of the ordinary course of business, except without Bank's consent
Borrowers may in any Fiscal Year sell one or more stores constituting less than
(i) 5% of their aggregate number of stores and (ii) 3% of their aggregate sales
revenues, provided the proceeds of such sales are applied as provided in Section
2.09(B) herein.
(C) No Borrower will mortgage, pledge, grant or permit to
exist a Lien in or on any of its assets of any kind, real or personal, tangible
or intangible, now owned or hereafter acquired, except for Permitted Liens and
Liens in favor of Bank.
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(D) No Borrower will incur any additional Indebtedness for
money borrowed, other than Permitted Indebtedness, or become a surety, guarantor
of, or otherwise responsible or liable in any manner with respect to, directly
or indirectly, the Indebtedness of any Person other than another Borrower.
(E) No Borrower will directly or indirectly apply any part of
the proceeds of the Loans to the purchasing or carrying of any "margin stock"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, or any regulations, interpretations or rulings thereunder.
(F) No Borrower will (i) pay any dividends (other than (1)
stock dividends and (2) dividends to another Borrower or other distributions on
or with respect to its stock, or (ii) redeem or otherwise acquire its stock or
any other security issued by any Borrower.
(G) Borrowers will not substantially change the nature or
operations of their business as conducted on the date hereof, or amend the
Penney Agreement.
(H) Borrowers will not pay directly or indirectly, as salary,
bonuses, fringe benefits, expenses, drawing accounts, or otherwise, compensation
for personal services to any director or Significant Stockholder or to any
relative of any director or Significant Stockholder or to any corporation,
enterprise or other Person directly or indirectly affiliated with any director
or Significant Stockholder, except that a Borrower may:
(1) reimburse its directors for their reasonable
expenses incurred in attending directors' meetings; and
(2) provide reasonable compensation for services
actually rendered.
(I) No Borrower shall enter into any transaction, including,
without limitation, the purchase, sale, or exchange of Property, or the loaning
or giving of funds to any Affiliate or any Subsidiary (other than another
Borrower) except in the ordinary course of and pursuant to the reasonable
requirements of such Borrower's business and upon terms substantially the same
and no
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less favorable to such Borrower as it would obtain in a comparable arm's-length
transactions with any Person not an Affiliate or a Subsidiary, and so long as
such transaction is not prohibited hereunder.
(J) Borrowers will not enter into any sale-leaseback or
similar transactions.
(K) Borrowers will not make any payment of any part or all of
any Subordinated Indebtedness other than payments that are expressly permitted
to be made under the terms of the Subordinated Debt Documents, or otherwise
repurchase, redeem or retire any instrument evidencing any such Subordinated
Indebtedness, or enter into any agreement (oral or written) which could in any
way be construed to amend, modify, alter or terminate any one or more
instruments or agreements evidencing or relating to any Subordinated
Indebtedness which would modify the payment terms of the Subordinated
Indebtedness (other than to defer scheduled payments to the maturity date) or
would violate the terms of the Subordinated Debt Documents.
(L) Borrowers will own Collateral only as set forth in
Schedule 5.01(F) hereto.
(M) No Borrower will permit any of the Equipment to become
affixed to any real Property leased to such Borrower so that an interest arises
therein under the real estate laws of the applicable jurisdiction unless the
landlord of such real Property (other than with respect to Borrowers' retail
store facilities) unless such Borrower has executed a landlord's waiver or
leasehold mortgage in favor of Bank, and no Borrower will permit any of the
Equipment to become an accession to any personal Property other than Equipment
subject to a first priority Lien in favor of Bank.
(N) No Borrower will hereafter create or acquire any
Subsidiary or divest itself of any material assets by transferring them to any
Subsidiary.
(O) Other than Capital Expenditures for the POS System for
Borrowers' retail operations as described in Schedule 6.02(O) hereto, Borrowers
will not make Capital Expenditures (including,
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without limitation, by way of Capitalized Lease Obligations) which, in the
aggregate with respect to all Borrowers, exceed during any Fiscal Year of
Borrowers the amounts expressly approved by Bank in writing through its review
and approval of the Projections for such Fiscal Year.
(P) Borrowers will not transfer any principal place of
business or chief executive office, or open new manufacturing plants, or
transfer existing manufacturing plants, or maintain warehouses or records with
respect to Accounts or Inventory, to or at any locations other than those at
which the same are presently kept or maintained, as set forth on Schedule
5.01(A) hereto, except upon at least sixty (60) days prior written notice to
Bank and after the delivery to Bank of Financing Statements, if required by
Bank, in form satisfactory to Bank to perfect or continue the perfection of
Bank's Lien and security interest hereunder.
(Q) Borrowers will not make a sale to any customer on a
bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment
basis, except for sales on approval or on consignment of SRO Inventory in an
aggregate amount outstanding at any time not exceeding $50,000, or any sale on a
repurchase or return basis.
(R) Borrowers will not change their Fiscal Year, or permit any
Borrower to have a fiscal year different from the other Borrowers.
(S) Borrowers will not sell or otherwise dispose of any shares
of capital stock of any Subsidiary (including without limitation the stock of
another Borrower).
(T) Borrowers will not become a lessee under any operating
lease (other than a lease under which another Borrower is lessor and other than
leases for Borrowers' retail store facilities) of Property if the aggregate
rentals (base and additional) payable during any current or future period of
twelve (12) consecutive months under the lease in question and all other leases
under which Borrowers are then lessees would exceed $250,000, excluding rental
payments for the current New Jersey storage facility.
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(U) Borrowers will not file or consent to the filing of any
consolidated income tax return with any Person other than the other Borrowers.
(V) Borrowers will not take any action or fail to take any
action which would result in any of them incurring any withdrawal liability
under ERISA or MEPPAA, except that SRO may withdraw from its multiemployer plan
provided (i) Bank shall be satisfied that the aggregate liability to be incurred
by SRO or any other Borrower as a result of such withdrawal shall not exceed
$350,000 and (ii) no Potential Default or Event of Default has occurred and is
continuing as of the date of such withdrawal nor will any Potential Default or
Event of Default occur as a result of such withdrawal.
SECTION 7. DEFAULTS.
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SECTION 7.01 Events of Default. Each of the following events shall
constitute an Event of Default and upon the occurrence thereof Bank shall
thereupon have the option (which is not intended to diminish, alter or limit any
other of Bank's rights described in this Agreement, the Notes, the Collateral
Documents or the other Loan Documents) (A) to declare Borrowers in default under
this Agreement, the Collateral Documents, the Notes, and all other agreements
with Bank, (B) to terminate any and all undertakings and obligations of Bank
hereunder or otherwise in connection with the Revolving Loan Facility, (C)
require that Borrowers provide the Bank, and Borrowers agree to provide to the
Bank, cash or cash equivalents acceptable to Bank in an amount equal to the face
amount of all outstanding Letters of Credit, (D) charge interest at the Default
Rate after notice to Borrowers, and/or (E) to declare all Obligations of
Borrowers to Bank immediately due and payable, including, but not limited to,
interest, principal, expenses, advances to protect Bank's position and
reasonable attorneys' fees to enforce this Agreement, the Notes, the Collateral
Documents, and all related agreements and documents, and all of Bank's rights
hereunder and thereunder, all without demand, notice, presentment or protest, or
further action of any kind:
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(A) Any Borrower fails to pay to Bank when due any payment of
principal, interest, fee or other charge or amount payable hereunder or under
any other Loan Document and such failure shall have remained unremedied for a
period of three (3) Business Days or more after the date on which any such
payment was due and payable or was declared due and payable; in the event any
such payment is not received by Bank when due and payable or declared due and
payable, Bank shall use reasonable efforts to give Borrowers notice of such
fact; provided, however, that any failure by Bank to give or attempt to give
such notice shall not in any way affect or limit Bank's rights or remedies with
respect to such failure to pay, and such failure to pay shall nonetheless
constitute an immediate Event of Default upon the expiration of the three (3)
Business Day grace period provided for above.
(B) Any Borrower fails to observe or perform any other
Obligation to be observed or performed by it hereunder, under the Notes, or
under any of the Collateral Documents or other Loan Documents, or under any
other existing or future agreement between any Borrower and Bank, which failure,
to the extent reasonably susceptible of cure (Borrower acknowledging that the
covenants set forth in Sections 4.05, 6.01(C), 6.01(E), 6.01(I), 6.01(J),
6.01(M), 6.01(N), and 6.01(P) and Section 6.02 hereof are not susceptible of
cure) is not cured within twenty (20) days of the earlier of (i) the date on
which any Borrower has actual knowledge thereof and (ii) Bank's giving such
Borrower written notice of the occurrence thereof.
(C) Any Borrower either (1) fails to pay when due or otherwise
defaults with respect to any Borrowed Debt in excess of $100,000 due any Person
other than Bank and such failure or default shall continue beyond any applicable
grace or cure period, or (2) suffers to exist any default under any agreement
relating to any Indebtedness with any Person other than Bank in excess of
$100,000 and such default results in an acceleration of such Indebtedness.
(D) Any financial statement, representation, warranty,
statement or certificate made or furnished by any Borrower to Bank in connection
with this Agreement, or as inducement to Bank to enter into this Agreement, or
in any separate statement or
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document to be delivered hereunder to Bank, is materially false, incorrect, or
incomplete when made.
(E) Any Borrower (other than an Inactive Borrower) becomes
insolvent or generally fails to pay, or admits its inability to pay, debts as
they become due or makes a general assignment for the benefit of any of its
creditors.
(F) Any Borrower (other than an Inactive Borrower) applies
for, consents to, or acquiesces in the appointment of, a trustee, receiver or
other custodian for such Borrower or any of the property of such Borrower, or,
in the absence of such application, consent or acquiescence, a trustee, receiver
or other custodian is appointed for any Borrower (other than an Inactive
Borrower) or for a substantial part of its property and is not discharged within
thirty (30) days.
(G) Any bankruptcy, reorganization, liquidation, dissolution
or other case and proceeding under any bankruptcy or insolvency law is commenced
in respect of any Borrower (other than an Inactive Borrower) and if such case or
proceeding is not commenced by such Borrower, it is consented to or acquiesced
in by such Borrower or remains for thirty (30) days undismissed.
(H) Any Borrower (other than an Inactive Borrower)
discontinues its business operations or materially changes the nature of its
business.
(I) Any Borrower shall suffer final judgment(s) for the
payment of money aggregating in excess of $100,000.00, and shall not discharge,
satisfy or stay enforcement of the same within a period of twenty (20) days of
such judgment.
(J) A judgment creditor of any Borrower shall obtain actual or
constructive possession of any of the Collateral by any means, including, but
without limitation, levy, distraint, replevin or self-help.
(K) (1) Any Reportable Event which Bank determines to
constitute grounds or the termination of any employee benefit plan by the PBGC
or for the appointment by any United States District Court of a trustee to
administer or liquidate any
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Employee Benefit Plan; (2) the termination of any Employee Benefit Plan, or any
Defined Benefit Plan described in Section 414(j) or Section 414(k) of the
Internal Revenue Code, the present value of whose benefits that may be
guaranteeable under Title IV of ERISA exceeds by more than $100,000 the amount
of plan assets allocable to such benefits; (3) the appointment by any United
States District Court of a trustee to administer any Employee Benefit Plan; (4)
the institution by the PBGC of proceedings to terminate any employee benefit
plan; (5) the failure by any Borrower or any member of any Controlled Group to
meet the minimum funding standards established in Section 302 of ERISA; or (6)
the assertion of any claim of, or demand for, withdrawal liability in excess of
$100,000 under ERISA by any multi-employer pension plan to which any Borrower or
any member of its Controlled Group heretofore contributed or currently
contributes.
(L) The Current Control Group shall at any time not control
each Borrower (meaning the possession, directly or indirectly, by them of the
power to direct or cause the direction of the management and policies of each
Borrower, whether through the ownership of voting securities or otherwise and
including, but not limited to, control of a majority of the members of each
Borrower's Board of Directors).
(M) William A. Schwartz shall cease to be the Chairman of the
Board and Chief Executive Officer of USVI.
(N) The Penney Agreement shall terminate for any reason or
there shall be any substantial adverse change in the relationship between
Borrowers and Penney.
SECTION 7.02 Remedies.
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(A) In addition to all other rights, options and remedies
granted to Bank under this Agreement and any of the other Loan Documents, Bank
may, upon the occurrence and continuance of an Event of Default, terminate the
Revolving Credit Facility, exercise all other rights granted to it hereunder and
all rights under the Uniform Commercial Code and any other applicable law, and
under all related agreements with Borrowers referred to herein or hereafter
executed, permitted to
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be exercised after the occurrence of an Event of Default, including the
following rights and remedies (which list is given by way of example and is not
intended to be an exhaustive list of all such rights and remedies):
(i) The right to withhold or cease making Loans or issue
Letters of Credit under the Revolving Credit Facility;
(ii) The right to enter upon any premises of any
Borrower, exclude Borrowers, take immediate possession of, send notices
regarding and collect directly the Collateral, either personally or by means of
a representative, with or without judicial process (including without
limitation, notices to the United States Postmaster to redirect the mail of
Borrowers to Bank);
(iii) At Bank's option and in its sole discretion,
to use, operate, manage, maintain, alter and control the
Collateral;
(iv) The right to require Borrowers to furnish
additional Collateral (including cash collateral for outstanding
Letters of Credit) for any Obligations of Borrowers to Bank; and
(v) The right to relinquish or abandon any Collateral or
any security interest therein.
(B) Without limiting the generality of the foregoing, Bank
may, if permitted by applicable law, after ten (10) days' prior notice to
Borrowers, immediately, without demand of performance and without other notice
or demand whatsoever to Borrowers, all of which are hereby expressly waived, and
without advertisement, sell at public or private sale or otherwise realize upon,
the whole or, from time to time, any part of the Collateral, or any interest
which any Borrower may have therein. After deducting from the proceeds of sale
or other disposition of the Collateral all expenses (including all reasonable
expenses for legal services), Bank shall apply such proceeds toward the
satisfaction of the Obligations in any order as Bank shall in its discretion
determine. Any remainder of the proceeds after satisfaction in full of the
Obligations shall be distributed as required by applicable Laws. Each Borrower
hereby agrees that
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ten (10) days notice of any sale or other disposition shall be reasonable notice
of any sale or other disposition. Each Borrower agrees to assemble, or to cause
to be assembled at its own expense, the Collateral at such place or places as
Bank shall designate. At any such sale or other disposition, Bank may, to the
extent permissible under applicable Laws, purchase the whole or any part of the
Collateral, free from any right of redemption on the part any Borrower, which
right is hereby waived and released.
(C) Bank shall have the right to proceed against all or any
portion of the Collateral in any order and may apply such Collateral to the
Obligations of Borrowers in any order and may retain proceeds of Collateral for
obligations of Borrowers which are not matured. All rights and remedies granted
Bank hereunder and under any agreement referred to herein, or otherwise
available at law or in equity, shall be deemed concurrent and cumulative, and
not alternative remedies, and Bank may proceed with any number of remedies at
the same time until the Obligations are satisfied in full. The exercise of any
one right or remedy shall not be deemed a waiver or release of any other right
or remedy, and Bank, upon the occurrence of an Event of Default, may proceed
against Borrowers, and/or the Collateral, at any time, under any agreement, with
any available remedy and in any order.
(D) If any bank account of Borrowers with Bank or with any
participant is attached or otherwise liened or levied upon by any third party,
Bank (and any participant) need not await the running of any applicable grace
period hereunder, but Bank (and such participant as agent for Bank) shall have
and be deemed to have exercised the immediate right of set-off and may apply the
funds or amount thus set-off against any Obligations.
SECTION 8. MISCELLANEOUS.
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SECTION 8.01 Construction. The provisions of this Agreement shall be in
addition to those of any guaranty, pledge or security agreement, note or other
evidence of liability held by Bank, all of which shall be construed as
integrated and complementary to each other. Nothing herein contained shall
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prevent Bank from enforcing any or all other notes, guaranty, pledge or security
agreements in accordance with their respective terms.
SECTION 8.02 Further Assurance. From time to time, each Borrower will
execute and deliver to Bank such additional documents and will provide such
additional information as Bank may reasonably require to carry out the terms of
this Agreement and be informed of each Borrower's status and affairs.
SECTION 8.03 Enforcement and Waiver by the Bank. Bank shall have the
right at all times to enforce the provisions of this Agreement and the
Collateral Documents in strict accordance with the terms hereof and thereof,
notwithstanding any conduct or custom on the part of Bank in refraining from so
doing at any time or times. The failure of Bank at any time or times to enforce
its rights under such provisions, strictly in accordance with such provisions,
shall not be construed as having created a custom in any way or manner contrary
to specific provisions of this Agreement or as having in any way or manner
modified or waived this Agreement. All rights and remedies of Bank are
cumulative and concurrent and the exercise of one right or remedy shall not be
deemed a waiver or release of any other right or remedy.
SECTION 8.04 Expenses of the Bank. Each Borrower, jointly and
severally, agrees to pay all reasonable costs and expenses (including, but not
limited to, reasonable attorneys' fees and expenses), and filing, recording,
search, examination, consultant, appraisal and other out-of-pocket expenditures,
incurred by Bank in connection with the analysis, preparation, negotiation,
interpretation, closing, amendment, administration, extension, replacement,
modification, enforcement or termination of this Agreement, the Notes, the
Collateral Documents and the other Loan Documents, and the collection or
attempted collection of the Notes or any other Obligations, and the protection,
preservation or defense of the Collateral and Bank's rights and interests
(collectively, the "Expenses"). Expenses shall also include but not be limited
to (i) cost of reproducing this Agreement and related agreements and documents;
(ii) filing and recording taxes and fees; (iii) environmental tests and reports;
(iv) all title insurance premiums and costs of title reports; (v)
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insurance premiums; (vi) appraisal fees; and (vii) searches and search reports.
SECTION 8.05 Notices. Any notices or consents required or permitted by
this Agreement shall be in writing and shall be deemed delivered if delivered in
person, or by commercial courier against receipt or if sent by Federal Express
or other overnight delivery service or by certified mail, postage prepaid,
return receipt requested, or by telecopy, as follows, unless such address or
telecopy number it changed by written notice hereunder:
(A) If to Borrowers:
U. S. Vision, Inc.
Glen Oaks Industrial Park
P. O. Box 124
Glendora, NJ 08029
Attention: George E. McHenry, Vice President
and Chief Financial Officer
Telecopy No. (609) 232-1848
CC: Brian M. Lidji, Esquire
Sayles & Lidji
4400 Renaissance Tower
1201 Elm Street
Dallas, TX 75270
Telecopy No. (214) 939-8787
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(B) If to Bank:
Commerce Bank, N.A.
1701 Route 70 East
Cherry Hill, NJ 08034-5400
Attention: Gerard L. Grady,
Vice President
Telecopy No. (609) 751-6884
CC: Lawrence Finkelstein, Esquire
Blank, Rome, Comisky & McCauley
1200 Four Penn Center Plaza
Philadelphia, PA 19103
Telecopy No. (215) 569-5555
SECTION 8.06 Waiver and Release by Borrowers. To the maximum extent
permitted by applicable Laws, each Borrower:
(A) Waives (1) protest of all commercial paper at any time
held by Bank on which any Borrower is any way liable; and (2) except as
otherwise set forth herein or in the Collateral Documents, notice and
opportunity to be heard, after acceleration in the manner provided in Section
7.01 hereof, before exercise by Bank of the remedies of self-help, set-off, or
of other summary procedures permitted by any applicable Laws or by any agreement
with any Borrower and, except where required by the Loan Documents or by any
applicable Laws, notice of any other action taken by Bank; and
(B) Releases Bank and its officers, attorneys, agents and
employees from all claims for loss or damage caused by any act or omission on
the part of any of them except willful misconduct, gross negligence or acts
taken in bad faith.
SECTION 8.07 Provisions Cumulative. All representations, warranties,
conditions, agreements and covenants of Borrowers contained in this Agreement
and the other Loan Documents are
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cumulative and must be independently satisfied. If there is any direct conflict
between the provisions of this Agreement and any other Loan Document, the
provisions of this Agreement shall control; this Agreement and the other Loan
Documents shall be interpreted and construed in a manner to avoid any such
direct conflict.
SECTION 8.08 Applicable Law. The substantive Laws of the Commonwealth
of Pennsylvania shall govern the construction of this Agreement and the rights
and remedies of the parties hereto, provided, however, that if any of the
Collateral shall be located in any jurisdiction other than Pennsylvania, the
laws of such jurisdiction shall govern the method, manner and procedure for
foreclosure of Bank's lien upon such Collateral and the enforcement of Bank's
other remedies in respect of such Collateral to the extent that the laws of such
jurisdiction are different from or inconsistent with the laws of Pennsylvania.
SECTION 8.09 Binding Effect; Assignment and Entire Agreement. This
Agreement shall inure to the benefit of, and shall be binding upon, the
respective successors and permitted assigns of the parties hereto. No Borrower
has any right to assign any of its respective rights or Obligations hereunder
without the prior written consent of Bank. This Agreement, and the documents
executed and delivered pursuant hereto, constitute the entire agreement among
the parties relating to the subject matter thereof, and supersede all agreements
between any Borrower and Bank including, but not limited to, the Commitment
Letter.
SECTION 8.10 Severability. If any provision of this Agreement is held
invalid under any applicable Laws, such invalidity will not affect any other
provision of this Agreement that can be given effect without the invalid
provision, and, to this end, the provisions hereof are severable.
SECTION 8.11 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute but one and the same instrument.
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SECTION 8.12 Headings. The headings of any paragraph or section of this
Agreement are for convenience only and shall not be used to interpret any
provision of this Agreement.
SECTION 8.13 Modification. No modification or amendment hereof or of
any agreement referred to herein shall be binding or enforceable unless in
writing and signed on behalf of the party against whom enforcement is sought.
SECTION 8.14 Third Parties. No rights are intended to be created
hereunder, or under the Collateral Documents or related agreements and documents
for the benefit of any third party donee, creditor or incidental beneficiary of
any Borrower. Nothing contained in this Agreement shall be construed as a
delegation to Bank of any Borrower's duty of performance, including, without
limitation, any Borrower's duties under any Account in which Bank has a security
interest.
SECTION 8.15 Withholding and Other Tax Liabilities. Bank shall have the
right to refuse to make any advances or issue any Letters of Credit hereunder
from time to time in the event that any Borrower has not properly deposited or
paid, as required by law, all withholding taxes and all other federal, state,
city, county or other taxes due up to and including the date of a request for an
advance. Upon expiration or termination of the Loans and full satisfaction of
all Obligations, Bank shall be entitled to continue to hold any and all of the
Collateral until Borrowers have given to Bank evidence, in form and substance,
satisfactory to Bank and its counsel, that each Borrower has properly deposited
or paid, as required by law, all federal withholding taxes due up to and
including the date of such expiration or termination. In the event that any
lien, assessment or tax liability against any Borrower shall arise in favor of
any taxing authority, whether or not notice thereof shall be filed or recorded
as may be required by Laws, Bank shall have the right (but shall not be
obligated nor shall Bank hereby assume the duty) to pay any such lien,
assessment or tax liability by virtue of which such charge shall have arisen. In
order to pay any such lien, assessment or tax liability, Bank shall not be
obligated to wait until said lien, assessment or tax liability is filed before
taking any such action as hereinabove set forth. The Bank shall not, however,
make such payment if the
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lien, assessment or tax liability is being contested in good faith by a Borrower
by appropriate proceedings. Any sum or sums which Bank shall have paid for the
discharge of any such lien shall be added to the Obligations and shall be paid
by Borrowers to Bank with interest at the Default Rate thereon, on demand, and
Bank shall be subrogated to all rights of such taxing authority against
Borrowers.
SECTION 8.16 Seal. This Agreement is intended to take effect as an
instrument under seal.
SECTION 8.17 Waiver of Jury Trial. EACH BORROWER INDEPENDENTLY AND
IRREVOCABLY WAIVES (i) THE RIGHT TO TRIAL BY JURY (WHICH BANK HEREBY ALSO
WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT
OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL;
(ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST,
DEFAULT, NONPAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR
RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY BANK ON WHICH SUCH
BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER BANK
MAY DO IN THIS REGARD; (iii) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE
COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO
ALLOWING BANK TO EXERCISE ANY OF BANK'S REMEDIES; (iv) THE BENEFIT OF ALL
VALUATION, APPRAISEMENT AND EXEMPTION LAWS; (v) ANY RIGHT SUCH BORROWER MAY HAVE
UPON PAYMENT IN FULL OF THE OBLIGATIONS TO REQUIRE BANK TO TERMINATE ITS
SECURITY INTEREST IN THE COLLATERAL OR IN ANY OTHER PROPERTY OF SUCH BORROWER
UNTIL TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS AND THE
EXECUTION BY SUCH BORROWER, AND BY ANY PERSON WHOSE LOANS TO BORROWERS, OR ANY
OF THEM, ARE USED IN WHOLE OR IN PART TO SATISFY THE OBLIGATIONS, OF AN
AGREEMENT INDEMNIFYING BANK FROM ANY LOSS OR DAMAGE BANK MAY INCUR AS THE RESULT
OF DISHONORED CHECKS OR OTHER ITEMS OF PAYMENT RECEIVED BY BANK FROM BORROWERS,
OR ANY OF THEM, OR ANY ACCOUNT DEBTOR AND APPLIED TO THE OBLIGATIONS; (vi) ANY
AND ALL RIGHTS EACH MAY HAVE AT ANY TIME (WHETHER ARISING DIRECTLY OR
INDIRECTLY, BY OPERATION OF LAW OR CONTRACT) TO ASSERT ANY CLAIM AGAINST EACH
OTHER OR ANY OF THEM, ON ACCOUNT OF PAYMENTS MADE UNDER THIS AGREEMENT,
INCLUDING WITHOUT LIMITATION ANY AND ALL RIGHTS OF SUBROGATION, REIMBURSEMENT
EXONERATION, CONTRIBUTION OR
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INDEMNITY; (vii) ANY EVENT OR CIRCUMSTANCES WHICH MIGHT CONSTITUTE A LEGAL OR
EQUITABLE DEFENSE OF, OR DISCHARGE OF, SUCH BORROWER; AND (viii) NOTICE OF
ACCEPTANCE HEREOF, AND EACH BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE
A MATERIAL INDUCEMENT TO BANK'S ENTERING INTO THIS AGREEMENT AND THAT BANK IS
RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWERS. EACH
BORROWER WARRANTS AND REPRESENTS THAT IT HAS KNOWINGLY AND VOLUNTARILY WAIVED
ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
SECTION 8.18 Jurisdiction. AS PART OF THE CONSIDERATION FOR NEW VALUE
RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF
BUSINESS OF BORROWERS OR BANK, BORROWERS HEREBY CONSENT AND AGREE THAT THE
COMMON PLEAS COURT OF PHILADELPHIA, PENNSYLVANIA, OR AT BANK'S OPTION, THE
UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, SHALL
HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWERS
AND BANK PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED
TO THIS AGREEMENT. BORROWERS EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWERS
HEREBY WAIVE ANY OBJECTION WHICH BORROWERS MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENT TO THE
GRANTING FOR SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. BORROWERS HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO BORROWERS AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT
SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWERS' ACTUAL
RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER
POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT
THE RIGHT OF BANK TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW,
OR TO PRECLUDE THE ENFORCEMENT BY LENDER OR ANY CLAIM, OR ANY JUDGMENT OR ORDER
OBTAINED IN SUCH FORUM, OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE SAME, IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
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SECTION 8.19 Indemnity. Each Borrower agrees to jointly and severally
indemnify, defend and hold the Bank Indemnitees harmless from and against any
and all loss, liability, obligation, damage, penalty, judgment, claim,
deficiency and expense (including interest, penalties, attorneys' fees and costs
and amounts paid in settlement but excluding any consequential damages) incurred
by any Bank Indemnitee or to which any Bank Indemnitee may become subject
arising out of, relating to or based upon the execution, delivery or performance
of this Agreement, the Collateral Documents, the Subordination Agreement, the
Note or the other Loan Documents, the making of any Loans of the issuance, honor
or dishonor of any Letter of Credit, Borrowers' use of proceeds, or any other
transaction or relationship contemplated hereby or thereby including, but not
limited to, the alleged negligence of such Bank Indemnitee, except and to the
extent that such loss, liability, etc. was caused by the gross negligence,
willful misconduct or acts taken in bad faith of the Person otherwise so
indemnified.
SECTION 8.20 Time: Whenever a Borrower shall be required to make any
payment, or perform any act on a Saturday, Sunday or a legal holiday under the
Laws of New Jersey or such other jurisdiction where such Borrower may be
required to make any payment or perform any act, such payment may be made, or
such act may be performed, on the next succeeding Business Day. Time is of the
essence in Borrowers' performance under all provisions of this Agreement and all
related agreements and documents.
SECTION 8.21 Brokerage: This transaction was brought about and entered
into by Bank and Borrowers acting as principals and without any brokers, agents
or finders being the effective procuring cause hereof. Borrowers and Bank
represent that neither has committed to the payment of any brokerage fee,
commission or charge in connection with this transaction. If any such claim is
made on Bank by any broker, finder or agent or other person which was hired or
engaged by Borrowers, Borrowers will indemnify, defend and save Bank harmless
against such claim and further will defend any action or actions to recover on
such claim, at Borrowers' own cost and expense, including Bank's counsel fees
and costs. Borrowers further agree that until any such claim or demand is
adjudicated in Bank's favor, the amount
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demanded shall be deemed an Obligation of Borrowers under this Agreement,
secured by the Collateral.
SECTION 8.22 Survival: All warranties, representations, and covenants
made by Borrowers herein, or in any agreement referred to herein or on any
certificate, document or other instrument delivered by it or on its behalf under
this Agreement, shall be considered to have been relied upon by Bank and shall
survive the delivery to Bank of the Notes, regardless of any investigation made
by Bank or on its behalf. All statements in any such certificate or other
instrument prepared and/or delivered for the benefit of Bank shall constitute
warranties and representations by Borrowers hereunder. Except as otherwise
expressly provided herein, all covenants made by Borrowers hereunder or under
any other agreement or instrument shall be deemed continuing until all
Obligations of Borrowers are indefeasibly satisfied in full and the Revolving
Credit Facility is terminated.
SECTION 8.23 Obligations Joint and Several: All obligations of
Borrowers hereunder and under the other Loan Documents are joint and several.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the day and year
first above written.
U.S. VISION, INC.
(Pennsylvania corporation)
By:_________________________
Attest:_____________________
STYL-RITE OPTICAL MFG. CO., INC.
By:_________________________
Attest:_____________________
USV OPTICAL, INC.
By:_________________________
Attest:_____________________
U.S. VISION, INC.
(Delaware corporation)
By:_________________________
Attest:_____________________
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<PAGE>
COMMERCE BANK, N.A.
By:_________________________
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<PAGE>
EXHIBIT 6.01(M)
---------------
Financial Covenants
-------------------
1. Current Ratio: Borrowers' Current Ratio shall be greater
than or equal to:
Fiscal Year Ratio
----------------------------------------------------------
1996 1.40 to 1.0
1997 1.60 to 1.0
1998 1.75 to 1.0
1999 and thereafter 1.75 to 1.0
2. Effective Tangible Net Worth: Borrowers' Consolidated
Effective Net Worth shall be greater than or equal to:
Fiscal Year Amount (in Millions)
----------------------------------------------------------------------
1996 $15,000,000
1997 $18,000,000
1998 $21,000,000
1999 and thereafter $25,000,000
3. Borrowers' Leverage Ratio shall be not greater than:
Fiscal Year Ratio
----------------------------------------------------------
1996 1.80 to 1.0
1997 1.60 to 1.0
1998 1.40 to 1.0
1999 and thereafter 1.20 to 1.0
4. Borrowers' Fixed Charge Coverage Ratio shall be at least:
Fiscal Year Ratio
----------------------------------------------------------
1996 1.0 to 1.0
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1997 .92 to 1.0
1998 1.0 to 1.0
1999 and thereafter 1.0 to 1.0
5. Borrowers' Debt Coverage Ratio shall be at least:
Fiscal Year Ratio
----------------------------------------------------------
1996 1.50 to 1.0
1997 1.50 to 1.0
1998 1.50 to 1.0
1999 and thereafter 1.50 to 1.0
6. Borrower's Interest Coverage Ratio shall be at least:
Fiscal Year Ratio
----------------------------------------------------------
1996 2.25 to 1.0
1997 2.75 to 1.0
1998 3.00 to 1.0
1999 and thereafter 3.25 to 1.0
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Schedules
---------
1.01(A) - Existing Letters of Credit
1.01(B) - Real Property Descriptions
1.01(C) - Existing Liens
1.01(D) - Non-Current Inventory
3.01(G) - Good Standing Certificates
4.04 - Prior Liens
5.01(A) - States of Incorporation/Locations
5.01(B) - Indebtedness
5.01(E) - Proceedings
5.01(G) - Leased Locations
5.01(K) - Compliance With Laws
5.01(L) - Mergers; Names
5.01(N) - Employee Benefit Plans
5.01(U) - Subsidiaries & Affiliates
5.01(V) - Intangibles
5.01(X) - Insurance
6.02(O) - POS System
Exhibits
--------
A - Borrowing Base Certificate
B - Lockbox Agreement
C - Mortgage Documents
D - Penneys Instruction
E - Trademark Security Documents
F - [Intentionally Omitted]
G - Revolving Loan Note
H - Term Loan Note
I - Subordination Agreement
6.01(M) - Financial Covenants
<PAGE>
Exhibit 10.2
1996 U.S. VISION, INC.
STOCK OPTION PLAN
1. Purpose. This 1996 U.S. Vision, Inc. Stock Option Plan (the "Plan")
of U.S. Vision, Inc., a Pennsylvania corporation (the "Company"), is intended to
advance the best interests of the Company by providing employees with additional
incentive to remain employed and aligning their interests with the interests of
the Company's stockholders by increasing their proprietary interest in the
Company.
2. Administration. The Plan will be administered by the Company's board
of directors (the "Board"). Al I questions of interpretation and application of
the Plan, or of options granted under the Plan (the "Options"), will be subject
to the determination, which will be final and binding, of the Board. A mernber
of tile Board who is also a participant in the Plan will not vote or act upon
any matter relating solely to hirnsel-for herself Only incentive stock options
("Incentive Options"), as defined in Section 422 of the Internal Revelltie Code
ol'1986, as amended (the "Code") may be granted under the Plan. The Plan will be
interpreted and administered so that Incentive Options qualify as incentive
stock options pursuant to Section 422 ofthe Code
3. Option Shares. The stock for which Options may be granted will be
shares of the Company's coi-ni-noi-i stock, par value $1 0.00 ("Common Stock").
The total amount of Common Stock for which Options may be granted under this
Plan may not exceed in the aggregate 20,000 shares. However, the aggregate
number of shares will be subject to adjustment in accordance with the provisions
of Paragraph 14 of tills Plari. Such shares may be treasury shares or authorized
but unissued shares.
The number of Incentive Options that each individual may be granted
under the Plan is limited as follows. For each optionee, a record shall be kept
of the number of Incentive Options that first become exercisable ill a given
calendar year (taking into account vesting provisions, if any, and aggregating
Incentive Options under all stock option plans of the Company and any parent or
subsidiary of the Company). For each calendar vear, this number of Options which
become exercisable shall be multiplied by the fair market value per share of the
Cornmon Stock purchasable under the Options, determined as of the date on which
the Option was granted. If the resulting number is $1 00,000 or less, all
Options granted as Incentive Options for that individual becoming exercisable in
that year will be taxed as Incentive Options. Any Options granted as Incentive
Options that exceed this $100,000 limit will be treated as options that do not
qualify under the Code as Incentive Options.
If any outstanding Option expires or terminates by reason of the
optionee's death or severance of employment, the surrender of any such Option,
or for any other reason, then the shares of Common Stock allocable to the
unexercised portion of such Option may again be subject to an Option under the
Plan.
4. Eligibility. The individuals who are eligible to participate in the
Plan are such employees of the Company, or of any corporation in which the
Company owns, directly or indirectly, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock ("Affiliates"),
as the Board may determine from time to time. Options may be granted to
employees who have previously received Options.
5. Option Price. The price at which shares may be purchased pursuant to
Options may not be less than the fair market value of the shares of Common Stock
on the date the Option is granted, and the Board in its discretion may provide
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<PAGE>
that the price at which shares may be so purchased will be more than such fair
market value. If an Incentive Option is granted to an employee who, at the time
the Incentive Option is granted, owns stock possessing more than ten percent
(IO%) of the total combined voting power of all classes of stock of the Company
or of its parent or subsidiary corporation, then the price at which shares may
be purchased under such Incentive Option may not be less than I IO% of the fair
market value of the shares of Common Stock on the date on which the Incentive
Option is granted.
6. Duration qf Options. No Option will be exercisable after the
expiration of ten years after the date on which the Option is granted. If an
Incentive Option is granted to an employee who, at the tirne that the I
riceritive Option is granted, owns stock possessing more than IO% of the total
combined voting power ofal I classes of stock of the Company or of its parent or
subsidiary corporation, then the Incentive Option will not be exercisable after
the expiration of five (5) years after the date on which the Incentive Option is
granted.
7. Amount Exercisable. Each Option may be exercised, so long as it is
valid and outstanding, from time to time in part or as a whole, as set forth in
the Option, and subject to such other conditions set forth in the Option as the
Board, in its discretion, may establish.
8. Exercise of Options. An optionee may exercise an Option by
delivering written notice to the Cornpariy setting forth the number of shares
with respect to which the Option is being exercised, together with cash,
certified check, bank draft, or postal or express money order payable to the
order of the Company for an arnount equal to the option price of such shares,
and specifying the address to which the certificates for such shares are to be
mailed. In lieu of payment in cash or cash equivalents to purchase shares under
an Option, tile optioriee may make payment by tendering to the Company shares of
Common Stock, or by tendering shares ofCommon Stock plus cash or cash
equivalents, in amounts such that the fair market value of the Coi-ninoi-i Stock
tendered, plus the amount of cash or cash equivalents paid, if any, equals the
option price for the shares that the optionee is purchasing under the Option. As
promptly as practicable after receipt Of Such writteii notification and payment,
the Company will deliver to the optionee certificates for the number Of shares
with respect to which the Option has been exercised, issued ill the optionee's
name. However, del Ivery wiH lie deemed effected for all purposes when the
Company or its stock transfer agent deposits the certificates M the United
States mail, postage prepaid, addressed to the optionee at the address specified
pursuant to This Paragraph 8.
9. Transferability of Options. Options may not be transferred by the
optionee otherwise than by will or under the laws of descent and distribution,
and are exercisable during the optionee's lifetime only by the optionee.
10. Termination of Employment or Death of 0ptionee. Options will
terminate three months after severance of the employment relationship between
the Company and the optionee for any reason (including death, permanent
disability, or retirement by reason of age). Whether authorized leave of absence
or absence on military or government service will constitute severance of the
employment relationship between the Company and the optionee will be determined
by the Board at the time. If an optionee dies before the date on which an Option
expires, the optionee's executors, administrators, or any person or persons to
whoin the optionee's Option may be transferred by will or by the laws ot descent
and distribution, will have the right, at any tirne prior to such termination,
to exercise the Option, in whole or in part. For the purpose of'determinirig the
employment relationship between the Company and the optionee, employment by any
Affillate of flie Company will be considered employment by the Company. The
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<PAGE>
Board reserves the right to extend the three-month period described in the
Paragraph 10 with respect to any particular Options from time to time, even if
extending such period causes such Options to no longer qualify as Incentive
Options.
11. Requirements of Law. The Company is not required to sell or issue
any shares under any Option if issuing such shares will constitute a violation
by the optionee or the Company of any law or regulation of ally governmental
authority. In addition, upon the exercise of all Option by its holder, the
Company is not required to issue shares unless the Board has received evidence
satisfactory to it to the effect that the holder of such Option will not
transfer such shares except pursuant to a registration statement in effect under
the Securities Act of 1933 (as now in effect or hereafter amended) or unless the
Company has received an opinion of its counsel to the effect that registration
is not required. Any determination of the Board in this connection will be
final, binding, and conclusive. If the shares issuable oil exercise of an Option
are not registered under the Securities Act of 1933, then the Company may
imprint oil the share certificate any legend fliat its counsel considers
necessary or advisable to comply with the Securities Act of 1933.
The Cornpany may, but will in no event be obligated to, register ally
securities covered by this Plan pursuant to the Securities Act of 1933 (as now
in effect or as hereafter amended). If any shares are so registered, then the
Company may remove any legend from certificates representing such shares. The
Company will not be obligated to take any other affin-native action to cause the
exercise of an Option or the issuance of shares pursuant to an Option to comply
with any law or regulation of any governmental authority.
12. No Rights as Stockholder. No optionee will have rights as a
stockholder with respect to shares covered by an Option until tile date on which
a stock certificate is issued for such shares. No adjustment for dividends or
otherwise (except as set forth in Paragraph 14) will be made if the record date
therefor is prior to the date oil which such certificate is issued.
13. Employment Obligation. The granting of any Option will not impose
upon the Company any obligation to employ or continue to employ any optionee.
The Company's right to terminate the employment ofany employee will not be
diminished or affected by reason of the fact that an Option has been granted to
the optionee.
14. Changes in the Company's Capital Structure. The existence of
outstanding 0ptions will not affect in any way the right or power of the Company
or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations, or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights of the Common Stock, or the dissolution
or liquidation of tile Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
If the Company effects a subdivision or consolidation of shares or other
capital readjustment, pays a stock dividend, or otherwise increases or reduces
the number of shares of Common Stock outstanding, without receiving compensation
therefor in money, services, or property, then (a) if the number of such shares
outstanding is increased, then tile number of shares of Common Stock then
subject to Options under this Plan will be proportionately increased, and the
Option price per share will be proportionately reduced; (b) if the number 0f
such shares outstanding is reduced, then the number of shares of Common Stock
then subject to Options under this Plan will be proportionately reduced, and the
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<PAGE>
option price per share will be proportionately increased; and (c) the number of
shares then available for Options under this Plan will be proportionately
increased or decreased.
If the Company merges or consolidates with, or is merged into, another
entity regardless of whether the Company is the surviving entity in such merger,
or if the Company liquidates or dissolves, then each holder of outstanding
Options shall be entitled to receive upon a subsequent exercise of such Option
at no additional costs (subject to any required action by stockholders) in lieu
of the number of shares as to which such option shall then be so exercisable,
the number and class of shares of stock or other securities or cash or other
property to which the optionee would have been entitled pursuant to the terms of
the agreement of merger or consolidation, or pursuant to such liquidation or
dissolution, if the optionee had been the holder of record of a FlUrnber of
shares of Common Stock of the Company equal to the number of shares as to which
such option shall be so exercised. If the Company (i) decides to merge or
consolidate with another entity and (ii) determines that it will materially
facilitate such merger or consolidation for the Options granted hereunder to no
longer be outstanding, then the Company, at its option, may send to each holder
of an issued, unexercised Option a notice stating that the Company intends to
merge or consolidate and requiring such optionee to exercise their options
within 60 days of the date of the Company's notice. The Company shall furnish
each Such optionee during such 60-day period with such information concerning
the proposed merger or consolidation as the optionee shall reasonably request.
If the optionee fails to exercise the optionee's Options Within Such 60 day
period, then such option shall be void and of no further effect.
Except as hereinbefore expressly provided, the Company's issuance of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash, property, labor, or services, either upon direct sale, upon
a merger not resulting in any consideration being received by Company
shareholders, upon the exercise of rights or warrants to subscribe therefor, or
upon conversion of shares or obligations of the Company convertible into such
shares or other securities, will not affect, and no adjustment by reason thereof
will be made with respect to, the number or price of shares of Common Stock then
subject to outstanding Options.
15. Substitute Options. Options may be granted under this Plan from time
to time in substitution for incentive stock options or nonstatutory options held
by employees of other corporations who are about to become employees of the
Company as the result of a merger or consolidation of the employing corporation
with the Company, or the Company's acquisition of substantially all of the
assets of the employing corporation, or the Company's acquisition of at least
50% of the issued and outstanding stock of the employing corporation as the
result of which it becomes a subsidiary of the Company. The terms and conditions
of the substitute options granted may vary from the terms and conditions set
forth in this Plan to such extent as the Company's board of directors at the
time of grant may deem appropriate to conform, in whole or in part, to the
provisions of the incentive stock options or nonstatutory options in
substitution for which the), are granted, but no such variation may adversely
affect the status of any substitute Incentive Option as an "incentive stock
option" under the Code.
16. Amendment or Termination of Plan; Amendment of Options. The board of
directors may modify, revise, or terminate this Plan at any time and from time
to time. However, without the further approval of the Company's stockholders,
the board may not (a) change the aggregate number of shares that rnay be issued
under Options pursuant to the provisions of the Plan; (b) reduce the price at
which Options may be exercised to an arnount less than the fair market value per
share at the time the Options are granted; or (c) change the class or classes of
employees eligible to receive Options. However, the board of directors may make
such changes in the Plan and in the rules of the Board under the Plan or in any
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<PAGE>
outstanding Incentive Option as in the opinion of the Company's counsel may be
necessary or appropriate from time to time to enable the Incentive Options
granted pursuant to the Plan to continue to qualify as incentive stock options
under Section 422 of the Code, and the regulations that may be issued thereunder
as in existence from time to time. In addition, the Board has the power to
accelerate the vesting, if any, of any exercise rights under an Option issued
under the Plan and outstanding at any time or to extend the time for exercise of
any Option issued Linder the Plan subject to the limitations set forth in
Paragraph 6 hereof and any requirements imposed with respect to incentive stock
options.
17. Written Agreement. Each Option granted under this Plan shall be
issued pursuant to the form of Option Agreern ent attached hereto as Exhibit A,
subject to such changes and additions as the Board may determine, such agreement
will be signed by the optionee and by the President or any Vice President of the
Company for, in the name of, and on behalf of the Company.
18. Effective Date of Plan. The Plan will be effective upon receipt of
stockholder approval. No Option will be granted pursuant to the Plan after the
tenth anniversary of the date of such stockholder approval.
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<PAGE>
STOCK OPTION AGREEMENT
THIS AGREEMENT, made this _____ day of March, 1996, by and between U.S.
VISION, INC., a Pennsylvania corporation, formerly known as Royal International
Optical Inc. (hereinafter called the "Company"), and ________________________
(hereinafter called the "Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee is now employed by the Company in a key
management capacity and the Company desires to have Optionee remain in its
employment, and desires to encourage stock ownership by Optionee and to increase
the Optionee's proprietary interest in the Company's success; and as an
inducement thereto has determined to grant to the Optionee the option herein
provided, to the end that the Optionee may thereby be assisted in obtaining an
interest, or an increased interest, as the case may be, in the stock ownership
of the Company; and
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained, the Company and the Optionee hereby agree with each
other as follows:
1. No Employment Obligation. The granting of this Option shall not
impose upon the Company any obligation to employ or continue to employ the
Optionee; and the right of the Company to terminate the employment of the
Optionee shall not be diminished or affected by reason of the fact that an
option has been granted to him.
2. Grant of Option. Subject to the terms and conditions set forth
herein, the Company hereby grants to the Optionee the right to purchase at a
price of five hundred dollars ($500.00) per share, up to, but not exceeding in
the aggregate, ________________________ shares of the common stock, $10.00 par
value, of the Company (the "Common Stock"). Such right may be exercised from
time to time prior to October 1, 2004, at which time such right shall terminate.
3. Exercise of Option. The right and option granted hereunder shall be
exercised by delivering to the Company a written notification specifying the
number of shares which the Optionee desires to purchase, together with cash,
certified check, bank draft or postal or express money order to the order of the
Company for an amount equal to the option price of such shares, and specifying
the address to which the certificates for such shares are to be mailed. In lieu
of payment in cash or cash equivalents, Optionee may make payment by tendering
to the Company shares of Common Stock, or by tendering shares of Common Stock
plus cash or cash equivalents, in amounts such that the fair market value of the
Common Stock tendered, plus the amount of cash or cash equivalents paid, if any,
equals the option price for the shares to be purchased. The Company may then
require that there be presented to and filed with it such evidence as it may
deem necessary to establish that the shares to be purchased are being acquired
for investment and not with a view to their sale or other disposition. For the
purposes of this paragraph, "fair market value" means closing price if the stock
is traded on a national securities exchange and the bid price if traded on
NASDAQ.
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<PAGE>
4. Issuance of Shares. As promptly as practical after receipt of such
written notification and payment and receipt of such evidence of intent to
acquire for investment as may be required by the Company, the Company will
deliver to the Optionee certificates for the number of shares with respect to
which such option has been so exercised, issued in the Optionee's name; provided
that such delivery shall be deemed effected for all purposes when a stock
transfer agent of the Company shall have deposited such certificates in the
United States mail, postage prepaid, addressed to the Optionee, at the address
specified pursuant to Paragraph 3 hereof.
5. Early Termination. If the employment relationship between the
Optionee and the Company is severed for any reason (including death, permanent
disability, or retirement by reason of age), the option herein granted shall
terminate 90 days after such severance of employment (but in no event later than
the tenth anniversary of the effective date hereof ). For purposes of this
paragraph 5, "Company" shall mean U.S. Vision, Inc. or any corporation in which
U.S. Vision, Inc. owns, directly or indirectly, stock possessing fifty percent
or more of the total combined voting power of all classes of stock. Whether
authorized leave of absence or absence on military or government service shall
constitute severance of the employment relationship between the Company and the
Optionee shall be determined by the Board of Directors of the Company. After the
death of the Optionee, his executors, administrators, or any person or persons
to whom this option may be transferred by will or by the laws of descent and
distribution, shall have the right to exercise, to the extent provided below,
the option granted hereunder, in whole or in part.
6. Executors, Etc.. Whenever the word "Optionee" is used in any
provision of this Agreement under circumstances where the provisions should
logically be construed to apply to the executors, administrators or the person
or persons to whom the option may be transferred by will or by the laws of
descent and distribution, the word "Optionee" shall be deemed to include such
person or persons.
7. Non-Assignability. This option is not transferable by the Optionee
otherwise than by will or under the laws of descent and distribution, and is
exercisable, during his lifetime, only by him. No assignment or transfer of this
option, or of the rights represented thereby, whether voluntary or involuntary,
by operation of law or otherwise (except by will or by the laws of descent and
distribution) shall vest in the assignee or transferee any interest or right
herein whatsoever, but immediately upon any such assignment or transfer this
option shall terminate and become of no further effect.
8. No Rights as Stockholder. The Optionee shall not be deemed for any
purpose to be a stockholder of the Company in respect of any shares as to which
this option shall not have been exercised, as herein provided, and until such
shares shall have been issued to the Optionee by the Company hereunder.
9. Changes in Company's Capital Structure. The existence of this option
shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital
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<PAGE>
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
The shares with respect to which this option is granted are shares of
the Common Stock of the Company as presently constituted, but if, and whenever,
prior to the delivery by the Company of all the shares of the Common Stock with
respect to which this option is granted, the Company shall effect a subdivision
or consolidation of shares or other capital readjustment, the payment of a stock
dividend, or other increase or reduction of the number of shares of the Common
Stock outstanding, without receiving compensation therefor in money, services or
property, then (a) in the event of an increase in the number of such shares
outstanding, the number of shares of Common Stock then remaining subject to
option hereunder shall be proportionately increased, and the option price per
share shall be proportionately reduced; and (b) in the event of a reduction in
the number of such shares outstanding, the number of shares of Common Stock then
remaining subject to option hereunder shall be proportionately reduced, and the
option price per share shall be proportionately increased.
While the Optionee holds unexercised options, if the Company is merged
or consolidated with another corporation under circumstances in which the
shareholders of the Company receive consideration for their shares in Company,
if the Company sells or otherwise disposes of substantially all of its assets to
another corporation, or if the Company liquidates or dissolves, then (i) subject
to the provisions of clause (ii) below, after the effective date of such merger,
liquidation, dissolution, consolidation, or sale, as the case may be, the
Optionee will be entitled, upon exercise of his Option, to receive, in lieu of
shares of Common Stock, shares of such stock or other securities (or cash or
other property) as the holders of shares of Common Stock received pursuant to
the terms of the merger, liquidation, dissolution, consolidation, or sale; and
(ii) the board of directors may cancel all outstanding options hereunder as of
the effective date of any such merger (other than a merger that constitutes a
reorganization under section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended, or any successor provision thereto), liquidation, dissolution,
consolidation, or sale provided that (x) notice of such cancellation is given to
the Optionee and (y) has the right to exercise options granted hereby in full
during a 30-day period preceding the effective date of such merger, liquidation,
dissolution, consolidation, or sale.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property or for labor or services, either upon direct
sale, upon a merger not resulting in any consideration being received by Company
shareholders, upon the exercise of rights or warrants to subscribe therefor, or
upon conversion of shares or obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common
Stock subject to this option.
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<PAGE>
10. Requirements of Law. Notwithstanding any of the provisions hereof,
the Optionee hereby agrees that he will not exercise the option granted hereby,
and that the Company will not be obligated to issue any shares to the Optionee
hereunder, if the exercise hereof or the issuance of such shares shall
constitute a violation by the Optionee or the Company of any provisions of any
law or regulations of any governmental authority. If, at any time specified
herein for the issuance of shares to the Optionee, any law or regulation shall
require either the Company or the Optionee to take any action in connection with
the shares then to be issued, the issuance of such shares shall be deferred
until such action shall have been taken. Any determination in this connection by
the board of directors shall be final, binding and conclusive. The Company shall
in no event be obligated to register any securities pursuant to the Securities
Act of 1933 (as now in effect or as hereafter amended) or to take any other
affirmative action in order to cause the exercise of the option or the issuance
of shares pursuant thereto to comply with any law or regulation of any
governmental authority.
11. Notices. Every notice or other communication relating to this
Agreement shall be in writing, and shall be mailed to or delivered to the party
for whom it is intended at such address as may from time to time be designated
by it in a notice mailed or delivered to the other party as herein provided;
provided that, unless and until some other address be so designated, all notices
or communications by the Optionee to the Company shall be addressed to the
President of the Company and mailed or delivered to the Company at its office at
Lower Landing and Landing Road, Chews Landing, New Jersey 08029, and all notices
or communications by the Company to the Optionee may be given to the Optionee
personally or may be mailed to him at Optionee's address listed under Optionee's
signature below.
12. Securities Restriction. THESE OPTIONS AND THE COMMON STOCK ISSUABLE
HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAW. THEY MAY NOT BE SOLD, OR OFFERED FOR SALE, OR
PLEDGED, OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SUCH ACT AND ANY APPLICABLE STATE LAW, OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
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<PAGE>
13. Termination of Prior Options. THIS AGREEMENT REPLACES, SUPERSEDES,
CANCELS AND TERMINATES ALL STOCK OPTION AGREEMENTS, WHETHER ONE OR MORE BETWEEN
THE OPTIONEE AND ROYAL INTERNATIONAL OPTICAL INC. DATED ON OR ABOUT OCTOBER 1,
1994.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
U.S. VISION, INC.
By:
-----------------------------------
Name of officer:
-----------------------------------
Title of officer:
-----------------------------------
NAME
----------------------------------------
STREET ADDRESS
----------------------------------------
----------------------------------------
City State Zip Code
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<PAGE>
Exhibit 10.5
LICENSED DEPARTMENT AGREEMENT
AGREEMENT made as of this 1st day of February, 1995 between J. C. PENNEY
COMPANY, INC., a Delaware corporation having its principal place of business at
6501 Legacy Drive, Plano, Texas, 75024-3698 (hereinafter "Penney"), and U.S.
Vision, Inc. a Pennsylvania corporation having its principal place of business
at 2760 Irving Boulevard, Dallas, Texas 75207 (hereinafter "Operator").
W I T N E S S E T H
That the parties hereto, in consideration of the mutual covenants contained
herein, do hereby agree as follows:
1. Definitions. Certain terms, as used in this Agreement, shall have the
meanings set forth below:
a. the term "Store(s)" shall mean the Penney department stores specified in
the attached Schedule A;
b. the term "Licensed Department" shall mean a licensed department operated
by Operator as a department in a Store;
c. the term "Merchandise" shall mean the goods and services sold by
Operator in the Licensed Department which shall be limited to those goods
and services set forth in the attached Schedule A;
d. the term "Selling Space" shall mean a space agreed upon by the parties
in each Store where a Licensed Department is located or the parties have
agreed to locate a Licensed Department (including any space in which the
Licensed Department may hereafter be relocated as provided in this
Agreement) as set forth in the attached Schedule A;
e. the term "Affiliate" shall mean any person, firm or corporation which,
directly or indirectly, controls, or is controlled by, or is under common
control with, the Operator;
f. the term "Gross Sales" shall mean the total aggregate amount of cash and
credit sales (including sales, use and excise taxes, service charges and
both collected and uncollected amounts of credit sales, but excluding
credit service charges) of a Licensed Department. Cash sales shall be
deemed to include all sales other than credit sales. Gross Sales shall not
<PAGE>
include doctors' fees received in cash by doctors within a Licensed
Department;)
g. the term "Net Sales" shall mean the Gross Sales during the period for
which Net Sales is being determined after deducting the following items:
(a) sales, use and excise taxes applicable to such sales collected from
customers and subsequently turned over to the taxing authorities, and (b)
adjustments and refunds to customers of the Licensed Department during such
period;
h. the term "Aggregate Deductions" shall include the following:
(i) adjustments and refunds to customers of the individual Licensed
Department;
(ii) costs and expenses of Penney which have been acknowledged by
Penney and Operator to be allocable to, or incurred on behalf of,
the Operator in the operation of the individual Licensed
Department, including any costs or expenses associated with
any bad checks; provided however, such costs and expenses shall
not include equipment unless due to negligence or intentional
misconduct;
(iii) payments and reimbursements which Penney shall be entitled to
receive from the Operator under this Agreement; and
(iv) license fees payable to Penney pursuant to Section 6;
i. the term "Period's Net Receipts" shall mean the amount by which Gross
Sales for any accounting period shall exceed Aggregate Deductions for such
period;
j. the term "Period's Net Deficit" shall mean the amount by which the
Aggregate Deductions for any accounting period shall exceed Gross Sales for
such period;
k. the term "Trademarks" shall mean the trademark and service mark
"JCPENNEY" or any variations thereof, or any other trademark or service
mark which the parties may hereinafter agree in writing shall be used by
Operator in connection with the Licensed Departments; and
l. the term "Insurance Sales" shall mean the sales transactions in which
the customer pays for the Merchandise in whole in part by assignment of
insurance proceeds.
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2. Grant of License. Penney hereby grants to Operator, as more specifically
set forth and limited herein, a revocable license to operate a Licensed
Department for the sale of Merchandise in the Stores.
3. Prior Agreements. This Agreement supersedes, cancels and terminates as
of the effective date hereof, any and all prior existing Agreements between
the parties or their predecessors in interest with respect to the operation
of Licensed Departments in any Penney stores. Any notices or other
termination requirements set forth under any such prior existing agreements
are hereby waived.
4. Independent Contractor; Compliance With Law. The Operator hereby
represents, warrants and agrees that it is an independent contractor; that
it has in its employ persons trained in the operation of providing optical
services; that it does and will pay all contributions, taxes and other
amounts required to be paid by an employer with respect to the compensation
paid to its employees under the provisions of applicable state unemployment
insurance, disability benefits and withholding tax laws, the Federal
Insurance Contributions Act, Federal Unemployment Tax Act and Federal
Internal Revenue Code, and does and will comply with all other local, state
and federal laws, regulations and requirements applicable to its employees
or affecting their compensation or conditions of employment or applicable
to the Operator or the products and services sold by Operator in
connection with the Licensed Departments, including the obtaining of all
necessary permits, franchises or licenses required in connection with the
operation of the Licensed Departments; and that it does and will carry
Worker's Compensation and Employer's Liability Insurance.
5. Hours of Operation: Relocation; Opening Costs. The Operator agrees to
sell the Merchandise in each Licensed Department and shall be entitled to
sell the Merchandise in the Selling Space. The hours of operation of any
Licensed Department shall be the same as the hours of operation of the
Store in which such Licensed Department is located, unless otherwise agreed
to in writing by the parties. All opening and relocation costs for Licensed
Departments shall be paid by Penney and Operator as follows: (i) opening
costs for fixtures, furniture, merchandise, promotional materials, and
equipment to be at the expense of Operator, with the balance at the expense
of Penney; and (ii) relocation costs associated with relocations determined
by Penney shall be at Penney's expense, unless otherwise agreed to by the
parties. Penney may, upon not less than 60 days written notice to the
Operator, relocate a Licensed Department to a different space in a Store,
provided, however, that the operator may terminate this Agreement as to an
individual Licensed Department effective as of the date specified for its
relocation by giving to Penney written notice
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<PAGE>
of its election to terminate as to that individual Licensed Department,
which notice shall be given within 14 days from Operator's receipt of
Penney's notice of relocation. All opening and relocation costs for
Licensed Departments shall be paid by Operator, except as specifically set
forth herein or as otherwise agreed in writing by the parties.
6. License Fee. The Operator shall pay to Penney a license fee for each
Licensed Department to be determined by applying to Net Sales on a cash and
credit basis, respectively, the percentages for cash Net Sales and for
credit Net Sales set forth in the attached Schedule A.
7. Payments to Operator; Deductions. All transactions and sales of the
Licensed Department shall be registered through designated cash registers
provided by Penney. The daily proceeds from Gross Sales from each Licensed
Department shall be collected by, or immiediately turned over at the end of
each day to, Penney in accordance with such procedure as set forth in the
Store accounting manual and amendments thereto. Thereafter Penney shall
make settlement with Operator by providing Operator with the Period's Net
Receipts, if any, in accordance with the accounting procedures agreed to by
the parties. The Operator shall promptly reimburse Penney for any Period's
Net Deficit. Failure on the part of Penney to deduct from Gross Sales any
item or items includable in Aggregate Deductions shall not be deemed to
constitute a waiver by Penney of its right to receive payment therefor from
the Operator, and the Operator shall continue to be liable therefor
notwithstanding any termination of this Agreement as to all or any Licensed
Departments. The Operator will promptly discharge all obligations and
liabilities incurred by it to Penney and third parties in the operation of
the Licensed Departments, and in the event that the Operator shall fail to
discharge such obligations and liabilities to third parties, Penney may, in
its sole discretion (and without being under obligation so to do),
discharge all or any part of such obligations and liabilities (either
during or after the term of this Agreement), in which event Penney shall be
entitled to prompt reimbursement from the Operator for all amounts paid,
and other expenses incurred, by Penney in discharging such obligations and
liabilities.
8. Trademarks; Advertising. Subject to the terms and conditions herein,
Penney grants to Operator a non-exclusive right to use the Trademarks in
connection with the Merchandise during the term of this Agreement. Operator
shall not have the right, title or interest in the Trademarks, except only
the right to use the Trademarks in connection with the conduct of the
Licensed Departments as set forth herein. Nothing contained in this
Agreement shall be construed to grant or assign to Operator any additional
right, title or interest in the Trademarks. Upon termination of this
Agreement, Operator shall forthwith
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<PAGE>
cease any and all use of the Trademarks and shall arrange for the
destruction or eradication of the Trademarks on Merchandise, signs,
stationary or any other materials of Operator.
The Operator shall advertise the Licensed Departments only under the
Penney name, or such other name as Penney and Operator may agree upon in
writing, and with Penney's prior approval and in accordance with reasonable
Penney advertising practices and procedures. Operator shall expend for
advertising and promotion of sales by Operator in the Licensed Department
(including reimbursement to Penney for advertising costs is hereinafter
provided) during such fiscal year of Penney not less than five (5) percent
of Net Sales of the Licensed Departments. Penney may, with the prior
consent of the Operator, create and place advertising and may include the
cost thereof in Aggregate Deductions. Such advertising deductions shall be
allocated to the Operator, and shall include (a) the Operator's
proportionate share of general titles, white space and other general space,
and (b) Penney's production costs in connection with preparing such
advertising. Penney shall provide Operator with advertising tear sheets and
invoices for advertising created and placed by Penney in accordance with
the foregoing.
9. Facilities. The license fee for each Licensed Department payable by the
Operator to Penney hereunder shall include, in addition to the right to use
the Selling Space, only the following items: electrical current and outlets
(for normal store lighting and equipment approved by Penney only), normal
store heating, ventilation and air conditioning, in Store telephone, access
to rest rooms, normal store janitor services, use of a cash register and
any additional items, if any, as are specifically set forth in Schedule A.
The cash register shall be kept in good working order by and at Penny's
expense, except as provided in Section 1 (h)ii). The cash register shall at
all times remain the property of Penney. It is expressely understood that
Penney shall not be responsible for providing the Operator with any items
or services other than those specified in this Agreement. Operator shall be
responsible for handling, at its sole expense, the payroll of its employees
and all bookkeeping, inventory and other accounting activities relating to
the operation of the Licensed Departments. Penney shall supply, or
designate the standards of supply of, all services, facilities and
janitorial, clerical (including all customer contracts, forms and other
stationery), and wrapping materials and supplies used by the Operator in
the operation of the Licensed Departments, all such services, facilities,
materials and supplies to be approved by Penney. Penney store bags and
receipts shall be supplied by Penney at no cost to Operator.
10. Employees. The Operator shall furnish at its sole expense such number
of competent and skilled employees as it shall deem adequate for the
operation of the Licensed Departments in a manner consistent with Penney's
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<PAGE>
policy of providing its customers with satisfactory service. All employees
of the Operator performing services within the Licensed Departments must at
all times be acceptable to Penney in the sense that their conduct, behavior
and appearance shall be consistent with the provision of satisfactory
service, including, without limitation, such elements as promptness,
efficiency, and courtesy. The compensation and other conditions of
employment of the Operator's employees shall at all times be in compliance
with all applicable laws. The Operator also agrees that it will pay the
cost (including all employees benefits) of the services of Penney's
employees utilized in the Licensed Departments. The Operator shall at all
times maintain satisfactory relations with its employees, and shall
reimburse Penney for any and all costs and expenses incurred by Penney
(including, but without limitation, attorneys' fees) in connection with
employee relations matters affecting the Operator's employees. The Operator
represent and warrants that it has, prior to the execution hereof, advised
Penney of all collective bargaining agreements and negotiations with any
and all unions representing, or seeking to represent employees used or to
be used by the Operator in the operation of the Licensed Departments, and
the Operator agrees that at all times during the term hereof, Penney shall
be supplied with correct and up-to-date copies of any and all collective
bargaining agreements affecting such employees. Operator further agrees
that it will take prompt and efficient action to correct any situation
brought to its attention which could have an adverse affect on Penny's
goodwill or its relations with its employees. In all negotiations and
contracts with labor organizations, Operator shall act solely on its own
account and shall not in any way involve Penney in such matters. Operator
shall advise any labor organization with which it may deal, as well as any
other third party, that Operator is sole employer of its employees.
11. Fixtures. The Operator shall, at its own expense supply to Penney
furniture, fixtures, operating equipment and appliances, to be installed by
Penney in each new Licensed Department, which items so furnished by the
Operator shall be owned by the Operator and, subject only to the rights of
Penney hereunder, shall be free of liens, charges and encumberances, and
(b) maintain the Selling Space and all such furniture, fixtures, operating
equipment and appliances in good condition and repair and make all
necessary replacements and additions. The layout of the Licensed
Departments, all furniture, fixtures, operating equipment and appliances,
and all contractors and labor used by the Operator to perform work with
respect to the Licensed Departments, must at all times be acceptable to
Penney, and no liens, charges or encumberances shall be created in
connection with the performance of such work. No alterations or changes
shall be made in the Selling Space without Penney's prior written consent.
Upon any termination of this Agreement as to all or any Licensed
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<PAGE>
Departments, Operator shall, at its expense, remove fixtures, equipment and
other property owned by Operator (subject to any liens held by Penney
pursuant to Section 20 below) and return the Selling Space occupied by the
Licensed Department(s) to its original condition, normal wear and tear
excepted.
12. Merchandising and Credit Policies. Merchandising policies of the
Operator shall at all times be in accord with Penney's merchandising
policies and otherwise satisfactory to Penney and inventories shall at all
times be adequate as to quantity and selection. All credit sales made by
the Operator shall be made strictly in accordance with Penney's general
credit policies and with such special requirements and limitations as
Penney from time to time may impose on credit sales made by the Operator.
Subject to Section 7 above, all accounts receivable and amounts received
with respect to credit sales and all credit service charges received shall
be the property of Penney. Operator shall not use or permit Selling Space
to be used in any manner that is likely to constitute waste, a public or
private nuisance, or unlawful or objectionable activity. Further, Operator,
its employees and agents shall conform in all respects to all rules and
requirements of Penney, as may now or hereinafter be in effect, with
respect to the conduct of the business of the Licensed Departments,
including all specific requirements of the Manager of the individual Store.
It shall be incumbent on the Operator to inform itself and its agents and
employees of Penney's merchandising policies and Penney's rules and
regulations affecting the operation of the Licensed Departments.
13. Taxes and Fees. The Operator shall be liable for the payment, when due,
of any and all taxes and license or other fees imposed, based or levied on,
or allocable in accordance with Penney's accounting procedures to, the
Licensed Departments or the Operator, the use and occupancy by the
Operator of the Selling Space or the sales or operations of the Operator
(including, but without limitation, sales, use excise, occupancy, stamp,
income, and personal and real estate property taxes), provided, however,
that state and local retail sales taxes assessed upon Licensed Department
sales shall be collected by Penney and remitted directly to the appropriate
taxing authorities. The Operator shall reimburse Penney for any and all
taxes and license fees paid by Penney for the account of the Operator.
14. Warranty; Disputes With Customers; Employee Discounts. All Merchandise
sold by the Operator is warranted to be in good condition and/or quality,
in compliance with all applicable laws and regulations, and as represented
by Operator. Further, Operator warrants that the Merchandise and the
operation of the Licensed Department will not infringe upon any third
party's personal, contractual or proprietary rights, including any patents,
trademarks, copyrights, trade secrets or rights of privacy or publicity.
7
<PAGE>
Penney reserves the right to make final determination of disputes with
customers, and the Operator shall be bound by Penney's determination. All
adjustments and refunds to customers of the Licensed Departments, and
payments (or other adjustments) of customer claims under warranties shall
be charged to the Operator, including such adjustments, refunds and
payments made by Penney (whether or not approved by the Operator).
Termination of this Agreement as to all or any Licensed Departments shall
in no way affect the Operator's continuing liability to customers of the
Licensed Departments under express or implied warranties with respect to
Merchandise; and, in connection with any termination of this Agreement as
to all or any Licensed Departments, Penney shall be entitled to require
that the Operator reserve against such liability by setting up, in a manner
satisfactory to Penney, a trust account to provide for the discharge of
anticipated future claims under such warranties. Penney employees shall be
entitled to the same percentage discounts with respect to purchases of
Merchandise from the Licensed Departments as they receive from Penney.
Similarly, all persons employed by the Operator in the Licensed
Departments and doctors located within a Store shall be entitled, in
connection with purchases from Penney in the Stores, to the same percentage
discount extended to Penney employees, subject to such rules and
regulations as shall be applicable to Penney employees.
15. Relationship Between Parties; Confidentiality. The relationship between
the parties hereto is entirely contractual, and this Agreement and the
relationship of the parties hereunder shall not be deemed to create a
franchise or a lease or any other interest in real property. The Licensed
Departments shall be operated by the Operator for its own account and at
its own risk. Penney shall have no responsibility in respect of any
contract or commitment of the Operator. All contracts and agreements,
whether written or oral, shall be entered into by the Operator in the name,
and solely for the account, of the Operator, and, unless otherwise agreed
to in writing by the parties, the Operator shall not hold itself out as an
agent or employee of Penney; provided, however, that notwithstanding the
fact that all transactions with customers relating to sales of Merchandise
(including credit sales) in the ordinary course of business of the Licensed
Departments shall be for the account of the Operator, such transactions
with customers shall be handled, and the Licensed Departments shall be
advertised, solely in the name of Penney, unless a different name or
identity shall be agreed upon in writing between Penney and Operator. All
records of customers' names and other information with respect to the
operation of the Licensed Departments or the Stores shall be the exclusive
property of Penney and shall not at any time (either during or after the
term hereof) be divulged by the Operator to any third party, or utilized by
the Operator, except where such use is required as determined by Penney in
the operation of the Licensed Departments in the Stores. Except in
connection with
8
<PAGE>
the operation and advertising of the Licensed Departments in the ordinary
course of business of the Licensed Departments during the term hereof, the
Operator shall not at any time (either during or after the term hereof) in
any advertising or in any other manner refer to its relationship hereunder
to Penney, except as required by law.
16. Utilization of Selling Space; Financial Information and Requirements.
The Operator shall at all times during the business hours of the Stores in
which Licensed Departments are located continuously utilize the Selling
Space for the sale of Merchandise in accordance with the terms hereof, and
shall use its best efforts to obtain maximum Gross Sales. The Operator
shall furnish to Penney such financial information required by Penney in
order to assure itself of Operator's continuing financial stability. Any
financial statements provided shall be prepared in accordance with
generally accepted accounting principles consistently applied. Any
financial statements provided by Operator to Penney shall be maintained by
Penney on a confidential basis. Penney shall exercise reasonable care in
assuring that no copies are made of such statements and no information
contained in those statements is made available to people, except to those
within the Penney organization and agents of Penney who have a need to know
such information. All financial statements so furnished are hereby
warranted to be true and correct, and the annual statements will, if Penney
shall so request, be certified, in a form satisfactory to Penney, by an
independent certified public accountant acceptable to Penney. The Operator
at all times shall (a) continue in sound financial condition, and (b)
maintain working capital and net worth which shall be sufficient, in the
judgement of Penney, to permit it to pay its obligations as they accrue and
to carry on its business in a manner satisfactory to Penney. Penney shall
have the right to audit the Operator's books and records relating to the
operations and assets of the Licensed Departments, and the Operator hereby
agrees to keep all books and records (including all invoices, vouchers and
other supporting documents) of the Licensed Departments for a period of at
least three years after the date of last entry.
17. Insurance. The Operator shall at all times, at its sole expense,
maintain insurance of the kinds and in the amounts specified below and
furnish Penney with certificates of insurance as evidence thereof prior to
the effective date of this Agreement and yearly during the term hereof.
Such insurance shall be primary and not contributory with or in excess of
any coverage Penney may carry. If any work provided for or to be performed
under this Agreement is subcontracted by Operator, the subcontractor(s)
shall maintain and furnish satisfactory evidence of Worker's Compensation,
Employer's Liability and such other forms and amounts of insurance which
the Operator deems reasonably adequate. The certificates of insurance
furnished by the Operator as evidence of the insurance maintained by
Operator shall include clauses obligating
9
<PAGE>
such insurers to give Penney 30 days prior written notice of the
cancellation of or any material change in the insurance. The required
insurance shall include:
(a) Worker's Compensation and Employer's Liability Insurance affording (i)
protection in accordance with the Worker's Compensation Laws of the States
in which the Licensed Departments are located and (ii) Employer's Liability
protection subject to a limit of not less than $100,000 for each Licensed
Department;
(b) Commercial General Liability Insurance for each Licensed Department in
amounts not less than: $2,000,000 per occurence and $2,000,000 annual
aggregate for bodily injury and property damage combined. The insurance
required hereunder shall be extended to include: (1) Products
Liability/Completed Operations Coverage; (2) Contractual Liability coverage
for the liability assumed by the Operator under Section 19 of
this Agreement; (3) Penney as an additional insured; and (4) coverage for
property of others in the care, custody or control of Operator; and
(c) Professional Liability Insurance covering the professional services
provided by Operator, its employees and agents, in an amount not less than
$1,000,000 per occurence. This insurance shall be extended to name Penney
as an additional insured with respect to services provided under this
Agreement.
18. Penney Not Liable for Damage to Property of Operator or Business
Interruption. It is understood that Penney will not maintain fire, theft,
or other insurance covering the Merchandise or any other property of the
Operator; and that neither Penney, its agents or employees, nor any person
to whom Penney shall be responsible (including the lessors of the Stores
premises), shall have any liability for loss of, damage to, or destruction
of, the Merchandise or any other property of the Operator, its agents,
employees or Affiliates by reason of any cause (whether or not attributable
to the negligence or fault of Penney, its agents or employees).
Furthermore, neither Penney, its agents or employees, nor any person to
whom Penney shall be responsible (including the lessors of the Stores
premises), shall have any liability to the Operator for any interruption in
the use by the Operator of the Selling Space or for any failure to provide,
or defect in, any materials, supplies, services or facilities furnished or
required to be furnished, by Penney (whether or not such interruption,
failure or defect is attributable to the negligence or fault of Penney, its
agents or employees).
19. Indemnity. The Operator shall at all times (both during and after the
term hereof) indemnify and hold harmless Penney, its
10
<PAGE>
agents and employees, against and from any and all actions, suits,
liabilities, settlements, losses, damages, costs, charges, counsel fees and
all other expenses, relating to or arising from any and all claims (whether
founded or unfounded) of every nature or character (including, but without
limitation, claims for personal injury, death, libel, slander, false
arrest, detention or accusation, malicious prosecution, abuse of process,
assault and battery, damage to property or invasion or infringement of any
patent, trademark, copyright, right of privacy or any other tangible or
intangible personal or property right), based upon or arising out of the
operations of the Licensed Departments, or the sale, use or installation of
the Merchandise, or any defect or alleged defect in the Merchandise or in
any ingredient, product or component used in the Merchandise (or, in the
event the Merchandise shall be a service, used in the performance of such
service), or due to any actual or alleged negligence or dishonesty of, or
to any actual or alleged act of commission or omission by, the Operator or
any of its employees or agents; and in case any action, suit or proceeding
shall at any time (either during or after the term hereof) be brought
against Penney by reason of any such claim, the Operator, if Penney so
requests, shall resist and defend such actions suit or proceeding, at the
sole expense of the Operator, by reputable counsel.
20. Effective Date; Termination.
a. This Agreement shall become effective as of the date first above written
and shall expire on the date set forth in the attached Schedule A, unless
sooner terminated as provided herein.
b. Either party may terminate this Agreement with respect to any or all
individual Licensed Departments without cause upon 60 days prior written
notice to the other party. Penney may terminate this Agreement as to all or
any Licensed Departments forthwith by written notice to the Operator if (i)
the Operator shall at any time vioate, or be in default under, any of the
terms or provisions hereof and such violation or default shall not have
been remedied within 30 days after the date on which the Operator shall
have first received notice thereof from Penney, or (ii) Penney shall in its
reasonable judgment determine that any conditions resulting in an
interruption in the use by the Operator of the Selling Space, howsoever
caused, will continue in effect for more than 30 days, or (iii) the
Operator shall permit any material judgment against it to remain unpaid
(unless being contested in good faith), or any material attachment or
similar lien on its property to remain undischarged, for a period of more
than 30 days or (iv) any bankruptcy, reorganization, arrangement or other
insolvency proceeding shall be commenced (whether with or without the
Operator's consent) with respect to the Operator, or (v) a receiver,
trustee or liquidator shall be appointed with respect to the Operator or
its
11
<PAGE>
properties, and not discharged within 30 days. With respect to items (iv)
and (v) above, it is the intent of the parties that this is a contract
under which applicable law excuses Penney from accepting performance from
anyone other than Operator within the meaning of the United States
Bankruptcy Code, 11 U.S.C. Sections 365(c) and 365(e). At Penney's option,
this Agreement will terminate automatically 30 days after a transfer or
sale of a majority of the stock or assets of Operator unless (i) such sale
of stock is by the Operator for cash in connection with a public stock
offering registered with the Securities and Exchange Commission, or (ii)
Operator obtains the advance written consent of Penney for such sale of
stock or assets, which consent may be withheld or granted in Penney's sole
discretion.
c. Penney may, if it shall so elect, take such actions or make such
expenditures, at the Operator's sole expense, as Penney shall in its sole
discretion deem necessary to prevent or cure any default of, or other
failure of performance by, the Operator hereunder; provided, however, that
such actions or expenditures shall not be deemed to constitute a waiver of
Penney's rights hereunder, or at law or in equity, with respect to any such
default or failure.
d. In the event Penney shall for any reason whatsoever (including, but
without limitation, cancellation or termination of leases of any Store,
destruction of or damage to the premises of such Store, condemnation or
business conditions) permanently discontinue the operation of any Store,
then this Agreement as it may apply to such Store shall terminate on the
date of such discontinuance; and Penney shall have no liability to the
Operator in the event of any such termination.
e. Termination of this Agreement as to all or any Licensed Departments
shall not impair any rights hereunder of the parties hereto which have
theretofore accrued or which are of a continuing nature. If the Operator
shall be indebted to Penney upon any termination hereof, Penney shall have
a lien to secure the prompt repayment of such indebtedness on any and all
property of the Operator located on the premises of the Stores.
21. Penney To Be Protected Against Failures of Performance By Operator.
Penney shall be protected against the failure or inability of the Operator
to perform its obligations hereunder. In the event of any termination of
said Agreement as to all or any Licensed Departments or the giving notice
of such termination, Penney may, notwithstanding anything to the contrary
in this Agreement, retain the proceeds from Licensed Department sales then
in the possession of Penney or required to be turned over to Penney,
together with all such proceeds, if any, thereafter accruing to the date of
termination; provided that the amount of such retained cash proceeds shall
not exceed the total of the cash proceeds accruing during the 90-day period
immediately prior to the date of termination. Such retained cash proceeds
may be held by Penney until such time after termination of this Agreement
as to all or any Licensed Departments (but not exceeding 120 days) as
Penney shall be satisfied that all obligations and liabilities of the
Operator have been discharged or provided for, whereupon Penney shall
return to the Operator the amount due to Operator pursuant to
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<PAGE>
Section 7 remaining after payment or providing for the payment of such
obligation and liabilities. Any performance bond furnished by the Operator
hereunder shall be in a form satisfactory to Penney and be issued by a
surety company acceptable to Penney.
22. Notices. Any notice to either party hereunder shall be in writing and
deemed to have been received by the party upon mailing thereof by certified
mail, return receipt requested, or by receipted courier to the party
addressed as set forth in the attached Schedule A.
23. Subordination To Store Leases. This Agreement shall be subordinate to
the terms and conditions of the leases of the premises of the Stores, and
in the event of any conflict between the provisions hereof and such leases,
the provisions of such leases shall prevail.
24. Choice of Law. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF. THE PARTIES HEREBY SUBMIT TO
EXCLUSIVE JURISDICTION AND VENUE IN THE UNITED STATES FEDERAL DISTRICT
COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION, OR THE DISTRICT
COURTS OF COLLIN COUNTY, TEXAS.
25. Severability and Validity. The various provisions of this Agreement are
severable and any determination that one or more provision is invalid,
illegal, or unenforceable in any respect in any jurisdiction shall not
affect or impair the continuing force and effect of the remaining valid
portions hereof.
26. Entire Agreement; Modification; Waivers; and Assignment. This Agreement
contains the entire understanding of the parties hereto and shall not be
modified or amended except in writing duly signed by the parties hereto. No
waiver by either party of any default shall be deemed a waiver of any
subsequent default. This Agreement may not be assigned by either party
without the prior written consent of the other.
13
<PAGE>
IN WITNESS WHEREOF, Penney and the Operator have caused this Agreement to
be executed as of the day and year first above written.
"Penney"
J.C. PENNEY COMPANY, INC.
By /s/ Margaret E. O'Connor
----------------------------------
Margaret E. O'Connor
Licensed Services Program Manager
"Operator"
U.S. VISION, INC.
By /s/ William A. Schwartz
-----------------------------------
William A. Schwartz
Chairman of the Board and
Chief Executive Officer
14
<PAGE>
Schedule A to Licensed Department Agreement Between
J. C. Penney Company, Inc. and
U. S. Vision, Inc.
1. Stores in which Licensed Departments are to be located: (list stores)
All Stores in which Operator is operating a Licensed Department as of
the effective date of this Agreement or in which the parties may
hereinafter agree in writing to open a Licensed Department.
2. Merchandise: (list products and/or services sold in department)
Optical products and services, including the sale of contact lenses,
prescription sunglasses, optical goods and supplies and the taking of
orders for and repair of the same, and such other merchandise as may be
mutually agreed upon.
3. Decription of Selling Space:
Approximately 600 square feet in each Store, including 200 square feet
in each Store for a doctor's examination room, as agreed to between Store
management and Operator.
4. Date agreement will expire: February 1, 2000.
5. License fee:
*
6. List of items, if any, in addition to those specifically described in
Seciton 9 of the Agreement, to be provided by Penney without additional
charge:
Painted partitions, normal store lighting, normal store flooring,
optical sign, and heating, ventilation and air conditioning (HVAC).
* Filed under an application for confidential treatment.
A-1
<PAGE>
7. Addresses for notice pursuant to Section 22 of the Agreement:
Penney: Operator:
J. C. Penney Company, Inc. U. S. Vision, Inc.
6501 Legacy Drive 2760 Irving Boulevard
Plano, Texas 75024-3698 Dallas, Texas 75207
Attn: Margaret E. O'Connor Attn: William A. Schwartz, Jr.
Licensed Services Chairman and
Program Manager Chief Executive Officer
"Penney" "Operator"
J. C. PENNEY COMPANY, INC. U. S. VISION, INC.
By /s/ Margaret E. O'Connor By /s/ William A. Schwartz
-------------------------------- -------------------------------
Margaret E. O'Connor William A. Schwartz
Licensed Services
Program Manager Chairman of the Board and
Chief Executive Officer
A-2
<PAGE>
AMENDMENT TO LICENSED DEPARTMENT AGREEMENT
This Amendment To Licensed Department Agreement (the "Amendment"), is
entered into as of December 18, 1996, by and between J. C. Penney Company,
Inc., a Delaware corporation having its principal place of business at
6501 Legacy Drive, Plano, Texas 75024-3698 (hereinafter "Penney"), and U. S.
Vision, Inc., a Pennsylvania corporation, having its principal place of business
at Glen Oaks Industrial Park, P. O. Box 124, Glendora, New Jersey (hereinafter
"Operator").
WHEREAS, Penney and Operator have entered into a Licensed Department
Agreement dated February 1, 1995 (the "Agreement"); and
WHEREAS, in accordance with the terms of the Agreement, the parties
desire to amend the following terms and provisions of the Agreement to reflect
the current agreement of the parties;
NOW THEREFORE, in consideration of the premises, and for other good and
valuable consideration, receipt and sufficiency of which is hereby acknowledged,
Penney and Operator hereby agree:
1. The last sentence in Paragraph 1.f. of the Agreement shall be
deleted in its entirety and the following shall be substituted in its place:
Gross Sales shall include only those doctors' fees paid by customers
with an approved credit card(s) and shall exclude all doctors' fees paid in
cash by customers within a Licensed Department.*
2. Paragraph 20.a. of the Agreement shall be deleted in its entirety
and the following shall be substituted in its place:
a. This Agreement shall become effective as of February 1, 1995 and
shall expire on December 31, 2003, unless sooner terminated as provided
herein. This Agreement may be renewed for additional two (2) year terms
by mutual agreement of the parties. If Operator desires to renew this
Agreement for an additional two (2) year term, Operator shall notify
Penney in writing at least one hundred eighty (180) days prior to
termination of this Agreement. Penney shall have ninety (90) days from
receipt of Operator's written notice to accept or reject in writing
Operator's, renewal notice. If Penney does not respond to Operator's
request within such ninety (90) day period, Operator's renewal request
SHALL BE DEEMED DISAPPROVED BY PENNEY.
* Filed under an application for confidential treatment.
<PAGE>
3. Paragraph 20. b. of the Agreement shall be deleted in its entirety
and the following paragraphs substituted in its place:
b. Either party may terminate this Agreement with respect to individual
Licensed Department(s) without cause upon sixty (60) days prior written
notice to the other party. If Penney, in accordance with this
subparagraph, terminates this Agreement with respect to any individual
Licensed Departments without cause, Penney shall give written notice to
Operator sixty (60) days prior to such termination. Operator, within
fifteen (15) days of receiving such notice of termination, may request
in writing the reason for such termination. Penney may elect to inform
Operator of the reason; however, nothing herein shall obligate Penney
to do so. Notwithstanding the foregoing, Penney may not close more than
forty (40) Licensed Department(s) in any one calendar year pursuant to
this subparagraph. Penney agrees to pay Operator for the costs of the
fixtures and equipment for each Licensed Department terminated pursuant
to this subparagraph, using the lesser amount of either the actual
costs of such fixtures and equipment or a cost basis of twenty thousand
dollars ($20,000) less accumulated depreciation which shall be
calculated on a straight line ten (10) year basis.
c. In addition to the terms and provisions set forth in subparagraph
20. b., Penney may terminate this Agreement as to all or any Licensed
Department(s) forthwith by written notice to Operator if (i) Operator
shall at any time violate, or be in default of any of the terms or
provisions herein in regards to one or more of the Licensed
Department(s) and such violation or default shall not have been
remedied within thirty (30) days after the date on which Operator shall
have first received written notice thereof from Penney, or (ii) Penney
shall in its reasonable judgment determine that any conditions
resulting in an interruption in the use by Operator of the Selling
Space, howsoever caused, will continue in effect for more than thirty
(30) days, or (iii) Operator shall permit any material judgment against
it to remain unpaid, or any attachment or similar lien on its property
to remain undischarged, for a period of more than five days or (iv) any
bankruptcy, reorganization, arrangement or other insolvency proceeding
shall be commenced (whether with or without Operator's consent) with
respect to Operator and remain undischarged for 120 days if not
commenced by Operator, or (v) a receiver, trustee or liquidator shall
be appointed with respect to Operator or its properties. With respect
to items (iv) and (v) above, it is the intent of the parties that this
is a contract under which applicable law excuses Penney from accepting
performance from anyone other than Operator within the meaning of the
United States Bankruptcy Code, 11 U.S.C. Sections 365(c) and 365(e).
At Penney's option, this Agreement will terminate automatically thirty
(30) days after a transfer or sale of a majority of the stock or
assets of Operator unless (i) such sale of stock is by the Operator for
cash in connection with a public stock offering registered with the
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<PAGE>
consent of Penney for such sale of stock or assets, which consent may
be withheld or granted in Penney's sole discretion.
4. Paragraph 20. c. shall be reformatted as Paragraph 20. d.
5. Paragraph 20. d. shall be reformatted as Paragraph 20. e.
6. Paragraph 20 e. shall be reformatted as Paragraph 20 . f.
7. Paragraph 4 of Schedule A. To Agreement Between J. C. Penney
Company, Inc. and U. S. Vision, Inc. ("Schedule A") shall be deleted in its
entirety.
8. Paragraph 5 of Schedule A shall be deleted in its entirety and the
following should be substituted in its place:
5. License fees:
*
IN WITNESS WHEREOF, the parties have caused the Amendments to this
Agreement to be executed as of the 18th day of December, 1996.
"PENNEY" "OPERATOR"
J. C. PENNEY COMPANY, INC. U.S. VISION, INC.
By: /s/ James A. Fike By: /s/ William A. Schwartz
------------------------- ----------------------------
James A. Fike William A. Schwartz
Vice-President Chairman of the Board and
Director Of Operations, Chief Executive Officer
Services & Systems
J. C. Penney Stores
3
*Filed under an application for confidential treatment.
<PAGE>
PARTICIPATING PROVIDER AGREEMENT
--------------------------------
This Agreement, dated as of June 1, 1997 ("Commencement Date"), is
between U.S. VISION, INC., a Delaware corporation ("USV") with its principal
place of business located at 10 Harmon Drive, Blackwood, New Jersey, 08012 and
COLE VISION CORPORATION, a Delaware corporation ("CVC") with its principal place
of business located at 18903 South Miles Road, Warrensville Heights, Ohio,
44128.
WHEREAS, there continues to be a growing demand by employers, employee
organizations, health maintenance organizations and other third party purchasers
for innovative employee vision benefit plans; and
WHEREAS, CVC and USV each own and operate a national network of optical
outlets; and
WHEREAS, CVC is also engaged in the business of marketing and managing
employee vision benefit plans to Purchasers (as hereinafter defined) that
utilize a network of CVC and affiliate-owned locations, independent optometrists
and other selected locations (the "CVC Network" or the "Network"); and
WHEREAS, USV desires to actively participate in CVC's Network and
innovative vision benefit plans;
THEREFORE, in consideration of the premises and the mutual covenants
set forth herein, CVC and USV agree as follows:
I. DEFINITIONS
-----------
1.1 "Purchaser(s)" means an employer, association, employer group or
other third party purchasers which have established a self-insured vision
benefit plan under the Employment Retirement Income Security Act of 1974, as
amended ("ERISA"); a health maintenance organization or any other third party,
and individuals who purchase uninsured vision plans from CVC.
1.2 "Plan" means an employee benefit plan or other type of Purchaser
plan that provides Covered Vision Services pursuant to an agreement CVC has
entered into or arranged with a Purchaser. "Employee Benefit Plan" has the same
meaning as in Section 3 of ERISA, 29 U.S.C. Section 1002.
1.3 "Covered Vision Services" means the optical products and services
provided to Members under this Agreement.
<PAGE>
1.4 "Member" means a person eligible for Covered Vision Services.
1.5 "Benefits Manual" means the CVC Benefits Manual prepared and
maintained by CVC or its Affiliates, and any amendments thereto.
1.6 "Program Manual" means the Quality Assurance Program Manual (which
includes the Quality Assurance Program Standards attached hereto as Exhibit A),
including the CVC Vision Peer Review Program and Complaint Resolution Procedure.
1.7 "Healthcare Provider" means an optometrist, ophthalmologist or
other duly-licensed healthcare professional either employed by or who has
entered into a contractual arrangement with USV to perform eye examination
services on behalf of the Members at or adjacent to the USV Locations (as
defined in Section 1.10).
1.8 "Credentialing" and "Recredentialing" means the verification and
reverification of all education, licenses, certificates, insurance and liability
or claims history to support the qualifications of any Healthcare Provider.
1.9 "Affiliates" means a corporation, partnership, limited liability
company or such other business entity controlled by, controlling or under common
control with CVC.
1.10 "Locations" shall mean the optical outlets owned or operated by
USV where optical products and services are provided to Members.
1.11 "Billable Plans" means a plan in which some or all of the cost of
Covered Vision Services are billed to and paid by the Purchaser or the Plan
following submission of Claim Forms (as hereinafter defined) by the Provider of
the Covered Vision Services, i.e., USV or a Health Care Provider.
1.12 "Non-Billable Plans" are plans where the Member pays a discounted
fee at the point of service for Covered Vision Services.
II. OBLIGATIONS OF CVC
------------------
2.1 CVC and its Affiliates will organize, administer, market and
negotiate contracts with Purchasers for Covered Vision Services.
2.2 CVC and its Affiliates will act as USV's limited agent to execute
contracts with Purchasers on USV's behalf. USV appoints CVC and its Affiliates
as its attorneys-in-fact with full power and authority to execute contracts with
Purchasers only in accordance with the terms and conditions of this Agreement.
2.3 CVC and its Affiliates will publish lists of the Locations with the
address and other relevant information to promote and administer the Plans in
the same manner in which CVC publishes lists of its Network.
2.4 CVC will or will cause its Affiliates to administer claims and
eligibility determinations as required by Purchasers and state or federal law in
the manner set forth in the Program Manual and the Benefits Manual for all
Billable Plans in which USV participates.
<PAGE>
2.5 CVC and its Affiliates will administer Credentialing and Quality
Assurance.
2.6 CVC shall provide USV with claim forms ("Claim Forms") for USV to
submit a record of Transaction (as hereinafter defined ) to CVC or its
Affiliates.
III. OBLIGATIONS OF USV
-----------------
3.1 USV agrees to provide the Covered Vision Services in accordance
with the terms of all Plans where the reimbursement levels are not less than the
amounts set forth on Exhibit B attached hereto, including any deductibles and
co-payments.
3.2 USV shall not voluntarily waive payment of any deductibles or
co-payments which a Member is obligated to pay under a Plan.
3.3 Other than for co-payments or deductibles under Billable Plans, USV
shall not bill or seek reimbursement for Covered Vision Services under Billable
Plans from any Member.
3.4 USV shall submit to CVC and its Affiliates Claims Forms for each
Transaction within sixty (60) days of the date of such Transaction.
3.5 USV agrees to comply with all state and federal laws, Purchasers'
and Plan requirements, the Program Manual and the Benefit Manual.
3.6 USV shall cause all Healthcare Providers to provide CVC or its
Affiliates with the Credentialing information required by CVC or its Affiliates
at any time during the term of this Agreement. CVC or its Affiliates shall
provide Credentialing and Recredentialing (every two years) administration for
the Healthcare Providers at each Location and USV shall pay or cause the
Healthcare Provider to pay CVC or its Affiliates an administration fee
of * for each such Healthcare Provider so Credentialied or Recredentialed.
CVC may change Credentialing requirements and Credentialing administrative fees
from time to time.
3.7 Subject to any applicable laws regarding the confidentiality of
patient records, USV agrees to provide CVC, its Affiliates and their agents and
Purchaser (when arranged by CVC) with reasonable access to those records as may
be necessary to determine compliance with the Purchaser's Plan, state or federal
law and the terms of this Agreement. USV agrees to retain all patient records
for at least five (5) years.
3.8 USV agrees to obtain all required licenses in all jurisdictions
where it renders services pursuant to this Agreement, and to maintain such
licenses at all times while this Agreement is in effect.
3.9 USV agrees to notify CVC of any complaints made regarding or
disciplinary actions taken based upon USV's provision of Covered Vision Services
under this Agreement and, upon request of CVC, authorizes any regulatory body to
release such information to CVC or its agents.
3.10 USV agrees that (unless otherwise prohibited by law), it will
provide the services of at least one (1) Healthcare Provider at each Location
who will provide Members with reasonable access and, in compliance with Plan
requirements, to Covered Vision Services, at such Location and that such
Services will be provided by persons who have complied with CVC's Credentialing
and Recredentialing requirements. USV agrees that whenever any Healthcare
Provider is absent
* Confidential portion omitted and filed separately with the Commission.
<PAGE>
for any extended period, USV will or will cause such Healthcare Provider to
arrange for a substitute Healthcare Provider to provide Covered Vision Services
for Members. USV is responsible for assuring that any replacement Healthcare
Provider agrees to be subject to the terms and conditions of this Agreement
while providing Covered Vision Services to Members and that each substitute
Healthcare Provider has complied with CVC's Credentialing and Recredentialing
requirements.
3.11 USV will not discriminate against Members because of age, sex,
race, creed, source of payment or health maintenance organization affiliation.
3.12 USV agrees that it shall submit a Claim Form to CVC and its
Affiliates reflecting all Covered Vision Services (excluding eye examination
services) provided to a Member or such Member's eligible dependents within
* of the date on which such Service shall have been provided to the
Member (the "Transaction"). For purposes of this Agreement, a Transaction shall
mean each separate optical product (i.e., eyeglasses, frames, lenses, etc.)
provided to a Member or such Member's eligible dependent pursuant to a Billable
or Non-Billable Plan; provided, however, the purchase of a complete pair of
eyeglasses shall be recorded as one (1) Transaction. For each such Transaction
reflected on the Claim Form, USV shall pay CVC the sum of * from the
Commencement Date hereof through December 31, 1998 and * thereafter
(the "Transaction Fees"). In the event a Member purchases more than one (1)
optical product pursuant to a USV promotion when the promotional price is more
favorable than the price payable by such Member pursuant to a Plan and any such
additional optical product is provided by USV at no cost to the Member, only the
first optical product purchased hereunder shall be subject to the payment of a
Transaction Fee. Notwithstanding the above, for each Transaction for the sale of
three (3) boxes or less of disposable contact lenses, USV agrees to pay CVC a
Transaction Fee of * and for each Transaction for the sale of more than
three (3) boxes of disposable contact lenses, USV shall pay CVC a Transaction
Fee of * from the Commencement Date through December 31, 1998 and
* thereafter. Each month during the term hereof, CVC shall submit
an invoice to USV reflecting the amount of Transaction Fees owed by USV to CVC
based on the number of Transactions reflected on the Claim Forms received by CVC
during the previous month. Such invoice shall be due and payable within *
of the date thereof. For any Claim Forms submitted by USV for reimbursement
under Billable Plans, CVC shall have the right to deduct Transaction Fees from
any sums due and owing USV.
3.13 USV is not required to, but may choose to, provide Covered Vision
Services under a Plan for which the scheduled payment is below the minimum
reimbursements listed on Exhibit B ("Below Minimum Plan"). However, if USV
chooses to provide Covered Vision Services under a Below Minimum Plan, USV must
provide Covered Vision Services to all Members seeking such Services under the
Below Minimum Plan. USV may elect to no longer provide Covered Vision Services
under a Below Minimum Plan by providing one hundred eighty (180) days prior
written notice to CVC.
3.14 USV shall provide CVC with notice as soon as reasonably practical
of the opening of a new Location or the closing of any existing Location;
provided, however, in no event shall such notice occur more than ten (10) days
after the opening or closing of such Location.
3.15 No later than June 1, 1997, USV shall enter into a non-compete
agreement with its Vice President of vision care or such individual or
individuals who hold comparable positions providing that such individual or
individuals shall not compete with USV in the managed vision
__________________
* Confidential portion omitted and filed separately with the Commission.
<PAGE>
care business for a period of no less than one (1) year subsequent to the
termination of such individual's or individuals' employment. Upon request, USV
shall provide CVC with a copy of such agreement.
IV. TERM AND TERMINATION
4.1 The Term of this Agreement shall commence on June 1, 1997 and,
unless sooner terminated as provided for herein, expire on December 31, 2002.
4.2 CVC may immediately terminate this Agreement in its entirety or as
to any individual Location upon written notice to USV: (a) for USV's failure to
materially comply with the Program Manual or the Benefits Manual; (b) if USV's
license to engage in business is revoked, withdrawn, canceled or suspended; (c)
as to any Location, if USV fails to provide reasonable access to Covered Vision
Services by a Credentialed Healthcare Provider at such Location in accordance
with this Agreement, except however, this subsection (c) will not apply if USV
is prohibited by law from doing so; (d) on the effective date of any state's or
other jurisdiction's action which prohibits the arrangement provided for in this
Agreement, or upon written notice from CVC to USV that the arrangement provided
for in this Agreement is contrary to any federal, state or local law; (e) if
more than twenty-five (25) Location audits conducted by CVC during any twelve
(12) month period during the term hereof reveal that the Transaction Fees paid
bu USV to CVC at each such Location have been understated by more than five
percent (5%) and upon such determination, CVC shall notify USV of the results of
such audit; or (f) as to any Location, if CVC receives two (2) documented Member
complaint about USV or a Healthcare Provider at such Location.
4.3 Either party may terminate this Agreement immediately upon written
notice to the other party if such other party applies for or consents to
appointment of receiver, trustee or liquidator for a substantial part of its
assets, files a voluntary petition in bankruptcy or admits in writing its
inability to pay its debts, files a petition or an answer seeking reorganization
or arrangements with creditors or takes advantage of any insolvency law.
4.4 Except as provided in Section 4.2, either party may terminate this
Agreement upon thirty (30) days prior written notice to the other party upon the
breach by such other party of any of its obligations hereunder if such breach is
not cured within such thirty (30) day period to the reasonable satisfaction of
the non-breaching party.
4.5 If this Agreement is terminated, USV agrees: (I) to return the
Benefits Manual and the Program Manual within thirty (30) days of termination;
(ii) to complete all Covered Vision Services begun prior to the date of
termination; and (iii) at the request of a Member, the Plan, the Purchaser or as
required by law, to promptly transfer a copy of Members' records to another
provider. USV also agrees that CVC and Purchasers may notify Members and other
Purchasers that USV has ceased being a participating provider.
V. INDEMNIFICATION
---------------
5.1 CVC agrees to indemnify and hold USV, its affiliates and their
officers, directors and employees harmless against and third party claims or
liabilities arising by reason of any act or omission of CVC or its Affiliates in
connection with the performance by CVC or its Affiliates of any of their
obligations under this Agreement.
<PAGE>
5.2 USV agrees to indemnify and hold CVC, its Affiliates and their
officers, directors and employees harmless against any third party claims or
liabilities arising by reason of any act or omission of USV, its officers,
employees, agents, subtenants or any Healthcare Provider, in connection with the
performance of any Covered Vision Service or the use of any property or
facilities provided by USV under this Agreement.
5.3 If any claim is made by a third party against a party that is
subject to indemnification under Section 5.1 or 5.2, prompt written notice shall
be given by the indemnified party to the indemnifying party, which may assume
the defense by counsel of its selection, subject to the reasonable approval of
the indemnified party. The indemnified party may participate in the defense with
counsel of its selection, but if the indemnifying party has assumed the defense,
the indemnified party will pay the cost of its own counsel.
VI. INSURANCE
---------
6.1 Required Coverage. Each of the parties hereto shall obtain and
maintain, at its sole expense, during the term of this Agreement, the following
policies of insurance from companies reasonably satisfactory to the other party,
and shall provide such other party with certificates evidencing such coverages
within fifteen (15) days of the execution of this Agreement, such policies to
contain provisions and be in the amounts set forth below so as to fully protect
the party obtaining such insurance from and against all expenses, claims,
actions, liabilities, losses and damages relating to the subjects covered by
said policies of insurance:
(1) Worker's Compensation Insurance (with limits of not less than
statutory benefits) and Employer's Liability Insurance (with
limits of not less than $500,000) covering all persons
employed by the party;
(2) Public Liability Insurance, including contractual liability
insurance, covering death of or injury to persons (with limits
of not less than $2,000,000 each occurrence) and damage to
property (with limits of not less than $1,000,000 each
occurrence) arising out of or relating to the party's
obligations under this Agreement.
(3) Products liability Insurance covering products sold by the
party with the same limits as are set forth in Subparagraph
(2) immediately above;
(4) Malpractice or Professional Liability Insurance covering all
professional activities conducted by the party, its agents,
employees or subtenants with limits of $2,000,000 each claim
and $5,000,000 in the aggregate.
All such policies shall bear endorsements to the effect that each party shall be
notified not less than thirty (30) days in advance of any modification,
expiration or cancellation of any policies maintained by the other party. The
policies described in Subparagraphs (2), (3) and (4) above shall name the other
party hereto as an additional named insured.
<PAGE>
VII. GENERAL PROVISIONS
------------------
7.1. Audit Right of CVC. CVC shall have the right from time to
time, upon ten (10) days prior written notice to USV, to inspect during
reasonable business hours at USV's Locations or its corporate headquarters all
records relating to the Covered Vision Services provided to Members pursuant to
the terms of this Agreement. CVC shall not have the right to audit any other
records except those relating solely to the Covered Vision Services provided by
USV pursuant to the terms of this Agreement. In the event such audit reveals
that USV has failed to pay CVC a Transaction Fee for any Covered Vision Services
provided to Members by USV, USV shall immediately pay CVC the sums due hereunder
with interest at the rate of twelve percent (12%) per annum from the date such
Covered Vision Service was provided to the Member. USV shall provide CVC with
access to and the cooperation of appropriate personnel for the interpretation of
such records. In the event such audit reveals that USV has paid CVC an amount of
less than two percent (2%) of the total Transaction Fees due CVC at any such
Location, USV shall reimburse CVC for the reasonable cost of such audit
(including travel expenses) applicable to such Location.
7.2 Audit Right of USV. USV shall have the right from time to
time, upon ten (10) days prior written notice to CVC, to inspect during
reasonable business hours at CVC's corporate headquarters all records relating
to payments made by Purchasers pursuant to Covered Vision Services provided by
USV pursuant to the terms of this Agreement. USV shall not have the right to
audit any other records except those described above. In the event such audit
reveals that CVC has failed to pay USV for any Covered Vision Services provided
by USV pursuant to the terms of this agreement, CVC shall immediately pay USV
any sums due hereunder with interest at the rate of twelve percent (12%) per
annum from the date such payment shall have otherwise been made to USV. CVC
shall supply USV with access to and the cooperation of appropriate personnel for
the interpretation of records. In the event such audit reveals that CVC has paid
USV an amount of less than two percent (2%) of the total sums due USV from
Purchaser, CVC shall reimburse USV for the reasonable cost of such audit
(including travel expenses).
7.3 Assignment. Neither party may assign its interest in this
Agreement without the prior written consent of the other party, which consent
may be granted or withheld in such party's sole discretion; provided, however,
that either party may assign its interest in this Agreement to any parent,
subsidiary or affiliated corporation with the assignor remaining liable for the
performance of the terms hereof. In the event USV conveys its interest in more
than forty percent (40%) of its issued and outstanding stock or sells
substantially all of its assets to any entity primarily engaged in the optical
business, either at retail or through the management of a network of providers
who provide optical products or services to Purchasers or Plans and either own,
operate of manage one hundred (100) or more locations, by purchase, merger,
consolidation or otherwise (including operation of law). USV shall promptly
notify CVC and CVC shall have the right, within thirty (30) days of receipt of
such notice, to terminate this Agreement. A public offering of USV's stock shall
not be deemed to be a change of control as contemplated by this Paragraph 7.3.
Notwithstanding the above, if USV provides written notice to CVC of the identity
of the potential other party or parties to such transaction (the "Parties"), and
a description (i.e. sale of stock, assets, etc.) thereof, CVC shall, within
thirty (30) days after receipt of such notice, advise USV in writing that in the
event such transaction is consummated with such Parties, CVC will exercise its
right to terminate this Agreement as provided for in this Paragraph 7.3; if CVC
fails to notify USV of its intent to terminate this Agreement as aforesaid, then
in the event such a transaction is consummated with the Parties, CVC shall not
have the right to terminate this Agreement as provided in this Paragraph 7.3.
USV shall provide CVC with all information reasonably necessary for CVC to
determine whether it will exercise its right to terminate this Agreement,
pursuant to this Paragraph 7.3.
<PAGE>
7.4 Independent Contractors. Nothing in this Agreement shall
be construed to make or constitute the parties hereto partners, joint venturers,
employees or employers of the other, or either deemed the agent of the other in
any respect, except to the extent CVC is specifically authorized to be the agent
of USV for the limits purposes set forth in this Agreement.
7.5 Taxes. USV shall be responsible for timely filing all
returns and paying all sales, use, excise or other taxes attributable to the
performance of any of its obligations hereunder (except for the payment of
Transportation Fees to CVC), and shall indemnify and hold harmless CVC from any
liabilities resulting therefrom.
7.6 Supply Agreement. Notwithstanding CVC's failure to perform
its minimum purchase obligations pursuant to the provisions of Paragraph 1 of
the Supply Agreement between Styl-Rite Mfg. Co., Inc. (a wholly-owned subsidiary
of USV) and CVC dated January 29, 1994, by executing this Agreement, Styl-Rite
hereby releases CVC from any further obligations thereunder as of the
termination date of such Supply Agreement.
7.7 Most Favored Nation. CVC agrees that it will not enter
into an agreement with any multi-unit retail optical chain (i.e., a retail
optical chain with more than one hundred (100) retail locations) which owns its
own manufacturing facility to participate as a provider in CVC's exclusive
vision benefit plans under terms and conditions more favorable than the terms
and conditions under which USV serves as a provider pursuant to the terms of
this Agreement. This Section 7.7 shall not be applicable to any Affiliates of
CVC.
7.8 Exclusivity. Except as provided for in this Agreement. USV
shall not provide, or offer to provide, Covered Vision Services to Purchasers of
plans during the term of this Agreement, unless (i) USV first offers CVC the
right of first refusal to participate in such plan; (ii) CVC refuses to
participate in such plan; and (iii) and the reimbursement levels of such plan
are at least equal to or greater than the reimbursement levels set forth on
Exhibit B. In such event, USV shall have the right to serve as a provider of
such plan. The prohibition contained in this Paragraph 7.8 shall not apply to
Medicare, Medicaid (provided USV renders services to Medicare and Medicaid
eligible participants through contracts with state of the federal government and
not through third parties such as HMOs etc.), ECPA and Outlook Vision Services,
Inc., for which plans USV currently serves as a provider. Under no circumstances
shall USV participate in any plans where the reimbursement levels are below
those set forth on Exhibit B hereto. Notwithstanding the above, nothing
contained in this Paragraph 7.8 shall preclude USV from serving as provider of
optical products and services pursuant to an agreement with any host store in
which USV provides such products and services solely for the members of
employees of such host store.
7.9 Notice. All notices or demands which either party hereto
either is required to or may desire to serve upon the other must be in writing
and shall be served in a sealed envelope, which envelope shall be deposited in
the U.S. Mail, postage prepaid, certified or registered, or by facsimile
transmission, or overnight delivery using a nationally recognized overnight
delivery service, and addressed to the respective parties at the addresses set
forth above. Notice shall be deemed to have been served at the earlier of the
date received, refused or returned as undeliverable; provided, however, that
should such notice pertain to the change of address of either of the parties
hereto, such notice shall be deemed to have been served upon receipt thereof by
the party to whom such notice is given.
<PAGE>
7.10 Confidentiality. In connection with the performance of
this Agreement, USV and CVC may have access to certain confidential and
proprietary information of the other party, including, but not limited to,
business plans, proposed advertising, sales records, financial data and the
business terms of this Agreement. Recognizing that such information represents
valuable assets and property of the disclosing party and the harm that may
befall such party, if any, if such information is disclosed, the recipient of
such information agrees to hold all such information in strict confidence and
not to use or otherwise disclose such information to third parties without
having received the prior written consent of the disclosing party and a written
agreement from such third party to maintain such information in strict
confidence. The obligation of confidentiality created herein shall survive the
expiration and termination of this Agreement. Notwithstanding the above, the
obligations of confidentiality set forth above shall cease to apply when (i) the
information comes into the public domain, provided it did not come into the
public domain through the unauthorized acts of the receiving party; (ii) the
information was in the receiving party's possession prior to its disclosure or
was later disclosed to the receiving party by a third party who is lawfully in
possession of such and, to the receiving party's knowledge, was under no
obligation to keep such information confidential; (iii) the information, in the
opinion of the receiving party's counsel, is required to be disclosed by law,
but only to the extent so required and only upon prior written notice to the
other party hereto; and (iv) the receiving party may be required to disclose the
information in order to enforce its rights under this Agreement.
7.11 Employees. During the term of this Agreement and for a
period of two (2) years thereafter, each of the parties agrees not to directly
or indirectly employ, retain or negotiate regarding the employment or retention
of, any current or former officer of the other party or of any management
employee of the other party directly involved with third party managed vision
care.
7.12 Successors. This Agreement will inure to the benefit of
and may be enforced by CVC and its successors and assigns.
7.13 No Third Party Rights. Except as provided in Section 3.1,
no third party will have any rights under this Agreement.
7.14 Governing Law. This Agreement is governed by the laws of
the United States and the State of Ohio.
7.15 Entire Agreement. This Agreement together with the
Program Manual, Benefits Manual and Exhibits which are hereby incorporated by
reference, supersedes all other third party agreements between CVC and USV
pertaining to USV's participation in third party contract, whether written or
oral and constitutes the entire agreement of the parties.
U.S. VISION, INC. COLE VISION CORPORATION
By: /s/ William A. Schwartz By: /s/ Dennis C. Osgood
------------------------------ ---------------------------
Dennis C. Osgood
Title: President and CEO Executive Vice President
---------------------------
Date: May 27, 1997 Date: May 27, 1997
---------------------------
<PAGE>
STYL-RITE OPTICAL MFG. CO., INC.
(Only as to Paragraph 7.6 hereof)
By: /s/ William A. Schwartz
---------------------------------
Title: President and CEO
------------------------------
Date: May 27, 1997
------------------------------
<PAGE>
Exhibit A
---------
QUALITY ASSURANCE PROGRAM STANDARDS
-----------------------------------
In order to be considered a participating Location, that Location must meet the
following Quality Assurance Program Standards, as well as such standards which
may be set forth in the Quality Assurance Program Manual from time to time:
o Healthcare Provider must complete the minimum eye
examination procedures, as set forth on the Quality
Assurance Program Manual.
o Healthcare Provider must report eye examination
outcomes in accordance with the Quality Assurance
Program Manual.
o Healthcare Provider must have the minimum eye
examination equipment as set forth in the Quality
Assurance Program Manual.
o A minimum frame selection (number of styles) as
follows:
74 between $101 and $150 retail
83 between $81 and $100 retail
64 between $61 and $80 retail
47 below $60 retail
o Compliance with any revisions to the minimum frame
selection set forth above, including, but not limited
to, the designation by CVC of specific frame SKUs not
to exceed .
o Open a minimum of five days per week, at least one
weekday evening, and at least one weekend day.
o Next day delivery available upon request at no
charge.
o Spectacles manufactured to ANSI standards.
o Prescription verification of spectacles at location.
o No more than seven calendar days for next available
appointment for examination.
o Spectacle/contact order turnaround time from date
fitted to date available for dispensing not more than
seven calendar days.
o Members are not discriminated against because of
participation in vision care program.
<PAGE>
Exhibit B
Eyewear
Minimum
Reimbursement
-------------
A. Spectacle Lenses (uncoated plastic or glass (only for non-minors), any
power, any size):
a. Single vision
b. Bifocal
c. Trifocal
d. Lenticular/aspheric, etc.
e. or a blended rate for all spectacle lenses
Lens Options
------------
a. Standard progressive (no-line bifocals and including scratch coating)
b. Polycarbonate (including scratch coating and ultra violet coating)
c. Scratch resistant coating
d. Ultraviolet coating
e. Solid or gradient tine
f. Glass (only for non-minors)
g. Photochromic
h. Anti-reflective coating
i. Transitions (including scratch coating)
Frames
------
a. All frames
b. Plan allowances
* allowance
allowance
allowance
allowance
allowance
allowance
allowance
allowance
allowance
allowance
allowance
Plus Member pays * of the difference between the applicable
Plan Allowance and the full retail price.
c. Scheduled Discount Plan Allowance
i. Frame *
ii. Frame
iii. Frame
iv. Frame
v. Frame
B. Contact Lenses * discount from regular retail prices
--------------
____________
* Confidential portion omitted and filed separately with the Commission.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 18, 1997 (except Note 12, as to which the date
is October 31, 1997) in the Registration Statement (Form S-1, No. 333- ) and
related Prospectus of U.S. Vision, Inc. for the registration of 4,600,000 shares
of its common stock.
Ernst & Young LLP
Philadelphia, Pennsylvania
The foregoing consent is in the form that will be signed upon the completion of
the restatement of capital accounts described in Note 12 to the financial
statements.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
September 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
U.S. Vision, Inc.
Financial Data Schedule Required under:
Appendix A to Item 601(c) of Regulation S-B
Commercial and Industrial Companies
Article 5 of Regulation S-X
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JUL-31-1997
<CASH> 428,000
<SECURITIES> 0
<RECEIVABLES> 12,420,000
<ALLOWANCES> 0
<INVENTORY> 19,790,000
<CURRENT-ASSETS> 33,088,000
<PP&E> 52,083,000
<DEPRECIATION> (27,693,000)
<TOTAL-ASSETS> 61,834,000
<CURRENT-LIABILITIES> 25,765,000
<BONDS> 0
0
24,276,000
<COMMON> 25,000
<OTHER-SE> (7,557,000)
<TOTAL-LIABILITY-AND-EQUITY> 61,834,000
<SALES> 62,053,000
<TOTAL-REVENUES> 62,053,000
<CGS> 19,438,000
<TOTAL-COSTS> 38,467,000
<OTHER-EXPENSES> (2,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,216,000
<INCOME-PRETAX> 2,934,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,934,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,934,000
<EPS-PRIMARY> .61
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
U.S. Vision, Inc.
Financial Data Schedule Required under:
Appendix A to Item 601(c) of Regulation S-B
Commercial and Industrial Companies
Article 5 of Regulation S-X
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 374,000
<SECURITIES> 0
<RECEIVABLES> 8,706,000
<ALLOWANCES> 0
<INVENTORY> 18,125,000
<CURRENT-ASSETS> 27,628,000
<PP&E> 49,262,000
<DEPRECIATION> (25,882,000)
<TOTAL-ASSETS> 54,403,000
<CURRENT-LIABILITIES> 16,307,000
<BONDS> 0
0
23,447,000
<COMMON> 9,000
<OTHER-SE> (9,646,000)
<TOTAL-LIABILITY-AND-EQUITY> 54,403,000
<SALES> 111,544,000
<TOTAL-REVENUES> 111,544,000
<CGS> 34,273,000
<TOTAL-COSTS> 71,637,000
<OTHER-EXPENSES> (18,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,517,000
<INCOME-PRETAX> 2,135,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,135,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,135,000
<EPS-PRIMARY> .44
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
U.S. Vision, Inc.
Financial Data Schedule Required under:
Appendix A to Item 601(c) of Rregulation S-B
Commercial and Industrial Companies
Article 5 of Regulation S-X
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 1,529,000
<SECURITIES> 0
<RECEIVABLES> 7,605,000
<ALLOWANCES> 0
<INVENTORY> 18,663,000
<CURRENT-ASSETS> 27,969,000
<PP&E> 44,485,000
<DEPRECIATION> (23,308,000)
<TOTAL-ASSETS> 53,033,000
<CURRENT-LIABILITIES> 15,717,000
<BONDS> 0
0
0
<COMMON> 9,000
<OTHER-SE> (9,578,000)
<TOTAL-LIABILITY-AND-EQUITY> 53,033,000
<SALES> 91,172,000
<TOTAL-REVENUES> 91,172,000
<CGS> 29,652,000
<TOTAL-COSTS> 84,051,000
<OTHER-EXPENSES> (59,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,100,000
<INCOME-PRETAX> (24,572,000)
<INCOME-TAX> (1,686,000)
<INCOME-CONTINUING> (22,886,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,886,000)
<EPS-PRIMARY> (5.01)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
U.S. Vision, Inc.
Financial Data Schedule Required under:
Appendix A to Item 601(c) of Regulation S-B
Commercial and Industrial Companies
Article 5 of Regulation S-X
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
<CASH> 715,000
<SECURITIES> 0
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0
22,443,000
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<EPS-PRIMARY> .43
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</TABLE>
