<PAGE>
As filed with the Securities and Exchange Commission on October 29, 1997
Registration No. 333-35819
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
AMENDMENT NO. 1
to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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U.S. Vision, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <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>
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1 Harmon Drive, Blackwood, New Jersey 08012 (609) 228-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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William A. Schwartz, Jr.
President and Chief Executive Officer
U.S. Vision, Inc.
1 Harmon Drive
Blackwood, New Jersey 08012
(609) 228-1000
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
Copies of communications to:
Brian M. Lidji, Esq. Donald J. Murray, Esq.
Sayles & Lidji Dewey Ballantine LLP
4400 Renaissance Tower 1301 Avenue of the Americas
1201 Elm Street New York, New York 10019
Dallas, Texas 75270 (212) 259-8000
(214) 939-8700
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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. / /
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.
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<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
October 28, 1997
Prospectus
4,000,000 Shares
U.S. VISION 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. Of the proceeds to be received from the sale of
Common Stock by the Company, $8,501,000 will be used to repay the outstanding
indebtedness owed to certain affiliates of directors and former directors of
the Company. See "Use of Proceeds" and "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 Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "USVI".
See "Risk Factors" beginning on page 7 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>
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 effected in September 1997. Pursuant to amendments to the
preferred stock designations adopted in September 1997, the Series A Cumulative
Preferred Stock (the "Series A Preferred Stock") and the Series C Cumulative
Preferred Stock (the "Series C Preferred Stock") of the Company provide for
conversion by the holder of the face amount (including accrued but unpaid
dividends) into Common Stock at the price at which the Common Stock is offered
to the public. The number of shares referred to in this Prospectus as 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 is based on
balances estimated to be outstanding 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
Operations."
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 increased by 8.3% when compared to sales for the same stores
for the year ended January 31, 1996. Comparable store sales for the six months
ended July 31, 1997, increased by 6.4% when compared to the sales for the same
stores for the six months ended July 31, 1996. 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 nationwide optical revenues in 1997 will
reach $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. See "Business -- Competitive Positioning."
Strong Position with Leading Host Stores. Management believes that the
Company's relationships with its host stores provide several competitive
advantages such as: (i) low operating expenses; (ii) low 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. 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.
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. The Company
also offers branded eyeglass lenses, as well as contact lenses, sunglasses and
accessories.
Centralized Laboratory Operation. Management believes that the Company's
central facility provides it with several operating efficiencies 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, as well
as to third parties.
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 laboratory operations. Also in fiscal 1996, the 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 these initiatives by opening
new retail optical departments within existing and new host stores and
exploring new retail and medical host environments. See "Business -- Growth
Strategy."
Open New Retail Optical Departments in Existing Host Stores. The Company
expects to open approximately 35 new retail optical departments in fiscal 1997
(28 of which have been opened to date) and expects to open approximately 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.
4
<PAGE>
Pursue Relationships with New Host Department Stores. Management believes
that future growth opportunities exist in many department stores for its retail
optical departments and is 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.
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 stores in the future.
The Offering
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<S> <C>
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 outstanding indebtedness and for
working capital and general corporate pur-
poses, including store openings and remodel-
ings. See "Use of Proceeds."
Nasdaq National Market
symbol .............................. USVI
</TABLE>
- ------------
(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. 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 (assuming a public offering
price of $12.00 per share) issuable upon the conversion of the face
amount, including accrued but unpaid dividends, of such securities in
connection with this offering assuming a conversion date of October 31,
1997. The actual public offering price, however, will determine how many
shares of Common Stock are issued upon conversion of the Series A
Preferred Stock and the Series C Preferred Stock. If the offering price is
$11.00 per share, 1,532,121 and 724,428 shares, respectively, of Common
Stock will be issuable upon conversion of Series A Preferred Stock and the
Series C Preferred Stock. If the offering price is $13.00 per share,
1,296,410 and 612,977 shares, respectively, of Common Stock will be
issuable upon conversion of the Series A Preferred Stock and the Series C
Preferred Stock. 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."
5
<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 ...... 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:
Licensed 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 $ 185,000
Net sales per square foot: (8)
Licensed departments ............ $ 349 $ 355
Freestanding stores ............... 186 217
Total stores ........................ 278 311
<CAPTION>
Six Months
Ended July 31,
Year Ended ------------------------------
January 31, 1997 1996 1997
------------------ -------------- --------------
(In thousands, except share, per share
and selected operating data)
<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 ...... 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:
Licensed 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)
Licensed departments ............ $ 394 $ 200 $ 220
Freestanding stores ............... 223 124 120
Total stores ........................ 355 184 199
</TABLE>
<PAGE>
July 31, 1997
-----------------------
Actual As Adjusted (9)
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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
- ------------
(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 subordinated
indebtedness, 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 for 1,404,444 and 664,059
shares, respectively, of Common Stock and (b) the 64-for-1 stock dividend
effected in September 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 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 for Common
Stock.
6
<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 Related to Host Store Relationships
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. 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.
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.
Risks Related to Short-Term Leases
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; provided, however, that this limitation
does not apply if J.C. Penney closes an entire J.C. Penney department store,
either temporarily or permanently. Each of the Company's retail optical
departments within Sears stores are subject to an individual lease which
provides for a year-to-year term, subject to earlier termination by either
party, without cause, on thirty-days prior written notice. One of the Company's
principal competitors operates most of the Sears optical departments. The
Company's retail optical departments located within other department stores are
subject to lease arrangements which contain short notice lease termination
provisions. There can be no assurance 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.
Competition within the Retail Optical Industry
The retail optical business is highly competitive, and several of the
Company's competitors have greater financial and other resources than the
Company. These additional resources may enable
7
<PAGE>
competitors to pursue more aggressive pricing and promotional strategies at the
expense of profits for longer periods of time than the Company and may enable
them to pursue such strategies through an extended downturn in the optical
market. 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 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
will be 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 if it does, that such departments will be profitable.
Risks Related to 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 could have a material adverse effect on the Company's business,
8
<PAGE>
financial condition and results of operations. Mr. Schwartz's employment
agreement terminates in October 2000, 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."
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 currently is 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.
Risks Related to 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.
9
<PAGE>
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) the Company's ability to efficiently
fill customer orders; (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.
Potential Adverse Effect of 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"). See "Shares
Eligible for Future Sale."
No Prior Market for Common Stock
Immediately prior to this offering, there has been no public market for
the Common Stock. Although the Common Stock has been approved for listing 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.
Possible Volatility of Stock Price
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 29.8% of the
outstanding shares of Common Stock. Such stockholders may be able to control
the outcome of 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."
10
<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 are approximately $27,350,000,
assuming an initial public offering price of $12.00 per share and after
deducting the estimated underwriting discount and offering expenses. The
Company intends to use the estimated net proceeds to repay indebtedness
totaling approximately $22,664,000, $8,837,000 of which will be used to repay
outstanding Subordinated Debentures ("Subordinated Debt"), $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 terms of
the Company's revolving credit facility (the "Revolving Line of Credit"). The
balance of approximately $4,686,000 will be used for working capital, store
openings and remodelings and general corporate purposes.
Of the $8,837,000 which will be used to repay the Subordinated Debt,
$8,501,000 will be paid to the following affiliates of directors and former
directors of the Company in the indicated amounts: Grotech Partners IV, L.P.
($3,588,000); Keystone Ventures IV, L.P. ($753,000); Stolberg Partners, L.P.
($2,803,000); Richard K. McDonald ($460,000); and Constitution Partners I, L.P.
($897,000). The balance of the Subordinated Debt is held by Needham Capital
Partners, L.P. ($112,000) and Penn Janney Fund, Inc. ($224,000). The following
directors are affiliated with the following entities: Dennis J. Shaughnessy and
J. Roger Sullivan, Jr. (Grotech Partners IV, L.P., Grotech Partners III, L.P.,
Grotech III Companion Fund, L.P. and Grotech III Pennsylvania Fund, L.P.);
Richard K. McDonald (M&M General Partnership and Constitution Partners I,
L.P.); and G. Kenneth Macrae (Keystone Ventures IV, L.P.).
The Subordinated Debt 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 of retail optical stores that are
complementary to the Company and a portion of the net proceeds may 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. Under the terms
of the Revolving Line of Credit, the Company is prohibited from paying cash
dividends to its stockholders.
11
<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, which were first convertible
in September 1997 as a result of an amendment to the relevant designations of
rights, are convertible into shares of Common Stock at the public offering
price assumed here to be $12.00 per share. 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 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 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." The actual
public offering price, however, will determine how many shares of Common
Stock are issued upon conversion of the Series A Preferred Stock and the
Series C Preferred Stock.
(3) Includes effect of $300,000 write-off of unamortized loan fees.
12
<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 at an
assumed public offering price of $12.00 per share. 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>
<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 at an assumed public offering price of
$12.00 per share) 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.
13
<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(2) -- --
Writedown of Dallas facility (4) -- -- 2,100
Store closings and
disposals (5) .................. 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 (6) .........
Pro forma net income per com-
mon share (7)
Weighted average shares out-
standing used in pro forma net
income per common share
calculation (7) ..................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ten Months Year Six Months Ended
Ended Ended July 31,
January 31, January 31, ----------------------------
1996 (1) 1997 1996 1997
------------- ------------- ------------- -------------
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(3) -- -- --
Writedown of Dallas facility (4) 1,305 -- -- --
Store closings and
disposals (5) .................. 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 (6) ......... $ 4,512 $ 3,125 $ 4,154
=========== =========== ===========
Pro forma net income per com-
mon share (7) $ .62 $ .43 $ .57
=========== =========== ===========
Weighted average shares out-
standing used in pro forma net
income per common share
calculation (7) .................. 7,336,458 7,336,458 7,336,458
=========== =========== ===========
</TABLE>
Footnotes on following page.
14
<PAGE>
<TABLE>
<CAPTION>
Ten Months Six Months
Year Ended March 31, Ended Year Ended Ended July 31,
------------------------------------ January 31, January 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:
Licensed 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 (decrease)
increase (8) ........................ (2.8%) 2.9% 10.4% 6.3% 8.3% 7.6% 6.4%
Net sales per store (9) ............ $150,000 $162,000 $178,000 $185,000 $200,000 $105,000 $110,000
Net sales per square foot: (10)
Licensed departments ............... $ 291 $ 321 $ 349 $ 355 $ 394 $ 200 $ 220
Freestanding stores ............... 159 165 186 217 223 124 120
Total stores ........................ 222 248 278 311 355 184 199
March 31, January 31,
------------------------------------- ---------------------- July 31,
1993 1994 1995 1996 1997 1997
---------- ------- ------- ------- ------- ---------
(In thousands)
Balance Sheet Data:
Cash ................................. $ 3,689 $ 588 $ 3,528 $ 1,529 $ 374 $ 428
Working capital ..................... 13,649 14,351 20,617 12,252 11,321 7,323
Total assets ........................ 68,978 61,310 64,587 53,033 54,403 61,834
Long-term debt (including current por-
tion) 32,106 17,281 17,363 22,239 23,463 27,008
Stockholders' equity ............... 21,754 29,161 35,287 11,897 13,810 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) Represents write-off of goodwill related to the 1990 acquisition of Royal
International Optical. The write-off was determined based upon a
measurement of the remaining discounted operating cash flows of the
Company.
(3) Represents additional write-off of goodwill related to the 1990
acquisition of Royal International Optical. The goodwill was attributed to
the closing of the Dallas facility and closed or otherwise liquidated
stores described in notes (4) and (5) below, respectively.
(4) Represents the writedown of the Dallas facility which was closed by the
Company in connection with its plan to consolidate its laboratories into a
single facility.
(5) Represents lease termination costs, write-off of leasehold improvements
and other related costs associated with the closing and disposal of stores
during fiscal 1992 through 1995.
(6) 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.
(7) 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."
(8) Comparable store sales reflect existing stores that were open on the first
day of the prior fiscal period.
(9) Net sales per store is determined by dividing net sales by the average
number of stores in operation at the beginning and the end of each fiscal
period. For the ten months ended January 31, 1996, this figure has been
calculated on an annualized basis.
(10) 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.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background
In 1990, the Company completed a leveraged buyout of Royal International
Optical Corporation ("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.
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 under the Securities Exchange Act of 1934. See
Note 1 to Notes to Consolidated Financial Statements.
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
16
<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 profit ..................... 68.7 67.5 69.3 69.1 68.7
Operating expenses:
Selling, general and administrative. 62.8 67.6 61.3 59.9 59.0
Depreciation and amortization ...... 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.
17
<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 expense, 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 decrease was
due to a reduction of the interest rate on the Company's Subordinated Debt 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 $20.4 million, or 22.3%, from $91.2 million for
fiscal 1995 to $111.5 million for fiscal 1996. This increase was due to: (i)
$21.1 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 $3.6
million increase attributable to new stores, offset by: (i) a $12.2 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 expense, 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
18
<PAGE>
included in fiscal 1995 due to the change in year end; (ii) a $7.1 million
decrease attributable to the stores which were closed, (iii) a $0.6 million
increase in refunds offset by: (i) a $2.4 million increase from sales at new
stores and (ii) a $4.4 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 expense, 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%
Operating income ...... $ 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
19
<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 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 primarily attributable to the
reclassification of $8,837,000 of 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, N.A. The Revolving Line of Credit
facility carries a floating interest rate of 1.0%
20
<PAGE>
above the 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 the payment of dividends to common
stockholders and contains customary covenants. The Company must also maintain
certain financial ratios pertaining to its net worth, current ratio, ratio of
debt to net worth and ratio of cash to fixed charges. See Note 6 to Notes to
Consolidated Financial Statements. The Company is currently in compliance with
all financial covenants and management does not believe that the financial
covenants set forth in its Revolving Line of Credit will have an adverse impact
on its operations or future plans.
Regarding other financing activities engaged in by the Company, in January
1996 and December 1996, the Company borrowed $7,200,000 and $8,000,000,
respectively, through the placement of the Subordinated Debt and the Term Loan.
The Subordinated Debt, which is held primarily by certain affiliates of
directors and former directors of the Company, is subordinate to the Term Loan
and the Revolving Line of Credit. The Subordinated Debt bears interest at the
rate of 12.0% per annum and is due and payable in full on March 1, 1998. The
balance of the Subordinated Debt as of July 31, 1997, was $8,837,000. 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 balance of
the Term Loan as of July 31, 1997, was $7,428,000.
In addition, in fiscal 1994 and 1995, the Company invested $5.6 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. These expenditures were partially financed with a 2% term loan provided
by the Delaware River Port Authority ("DRPA"). The first DRPA term loan, which
had a balance of $1,133,000 as of July 31, 1997, is due in February 2010 and is
secured by the real property and building in which the Company maintains its
corporate headquarters. The second DRPA term loan, which had a balance of
$2,152,000 as of July 31, 1997, is due in February 2010 and is secured by the
real property and building in which the Company maintains its optical
laboratory and distribution facility. The third DRPA term loan. which had a
balance of $950,000 as of July 31, 1997, is due in June 2005 and is secured by
certain equipment located in the Company's optical laboratory and distribution
facility. See Note 6 to Notes to Consolidated Financial Statements.
The Company plans to use the net proceeds of this offering to: (i) retire
$7,428,000 outstanding under the Term Loan, (ii) repay $6,399,000 outstanding
under the Revolving Line of Credit; (iii) retire $8,837,000 in Subordinated
Debt; and (iv) 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. See "Use of Proceeds." 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.
21
<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
the Jobson Optical Group, by 1998 as much as 40% of the U.S. eyecare patient
base may be covered by managed vision care programs.
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.
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.
22
<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:
Population Number of Users (1)
Age Group (in millions) (in millions) Percent
--------- --------------- -------------------- --------
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%
====== ====== ===
- ------------
(1) People requiring some form of vision correction in 1996.
Increase in Penetration of Managed Vision Care. According to the Jobson
Optical Group, approximately 25% of the U.S. eyecare patient base may be
covered by a third-party vision care plan. That same industry source estimates
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.
23
<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) low operating expenses; (ii) low 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 the Jobson Optical Group,
approximately 25% of the U.S. eyecare patient base currently is 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, as well as 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:
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<PAGE>
Open New Retail Optical Departments in Existing Host Stores. The Company
expects to open approximately 35 new retail optical departments in fiscal 1997
(28 of which have been opened to date) and expects to open approximately 40 new
retail 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
approximately 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 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.
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 stores in the future.
Unit Economics
The Company's licensed retail optical departments typically occupy 500 to
800 square feet of space, with the 488 licensed 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 historically have 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.
25
<PAGE>
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:
<TABLE>
<S> <C> <C> <C> <C> <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.
26
<PAGE>
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 programgives 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.
27
<PAGE>
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 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 licensed 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) low operating expenses; (ii) low 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; provided, however, that this
limitation does not apply if J.C. Penney closes an entire J.C. Penney
department store, either temporarily or permanently. 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 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
28
<PAGE>
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.
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 generally
are 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 $4.6 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. All raw materials
for products manufactured by the Company are available from numerous suppliers.
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
29
<PAGE>
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 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. Although the
retail optical industry is highly competitive, management believes none of the
Company's competitors has more than a 6% market share based on revenue. 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. Several of the Company's competitors have greater
financial and other resources than the Company. These additional resources may
enable competitors to pursue more aggressive pricing and promotional strategies
at the expense of profits for longer periods of time than the Company and may
enable them to pursue such strategies through an extended downturn in the
optical market.
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 neighboring 60,000
square foot optical laboratory and distribution facility. The real property on
which these facilities are located, as well as the buildings and
30
<PAGE>
certain equipment located therein, secure the Company's obligations under the
DRPA Term Loans. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations--Liquidity and Capital Resources."
Styl-Rite, the Company's frame manufacturing and importing operation, owns and
operates a 40,000 square foot facility in Miami, Florida. The real property on
which this facility is located, as well as the building, secure the Company's
obligations under the Revolving Line of Credit and Term Loan.
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.
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
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<PAGE>
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.
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.
32
<PAGE>
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
J. Roger Sullivan, Jr. 54 Director
David M. Tracy 73 Director
Peter M. Troup 54 Director Nominee
</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.
33
<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.
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. For the last
five years, Mr. Tracy has been the Chairman of Calvin Klein Home, Inc. and was
previously the Chairman of the American Textile Manufacturers Institute
Consumer Affairs Committee.
Peter M. Troup has been chosen as a nominee to serve as a member of the
board of directors and has agreed to serve as such. Mr. Troup is expected to be
appointed by the board at its next meeting. Since 1996, Mr. Troup has served as
a management consultant to the retail industry. From 1994 to 1995 he served as
the vice president of international marketing of E&J Gallo Winery. From 1990 to
1994, Mr. Troup was the general manager of Proctor & Gamble's cosmetics and
fragrances operations in the United Kingdom.
Following this offering, the board of directors intends to consider other
unaffiliated individuals for nomination to the board.
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 and Schwartz.
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, 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 and Macrae.
34
<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 and Macrae, both 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
35
<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 ----------------------------
Name Granted (#) Employees ($/Share) Date 5% 10%
- ---- ------------- ------------ ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
William A. Schwartz, Jr. ...... 228,735 35.7% $ 7.69 10/31/04 $2,715,084 $5,350,112
Reid V. Eikner ............... 76,050 11.9 7.69 10/31/04 902,714 1,778,810
George T. Gorman ............... 15,665 2.4 7.69 10/31/04 185,944 366,404
Gayle E. Schmidt ............... 76,050 11.9 7.69 10/31/04 902,714 1,778,810
George E. McHenry, Jr. ......... 76,050 11.9 7.69 10/31/04 902,714 1,778,810
</TABLE>
- ------------
(1) The potential realizable values set forth under these columns result from
calculations assuming 5% and 10% growth rates as set by the Securities and
Exchange Commission and are not intended to forecast future price
appreciation of the Company's Common Stock. The amounts reflect potential
future value based upon growth at these prescribed rates. The Company did
not use an alternative formula for a grant date valuation, an approach
which would state gains at present, and therefore lower, value. The
Company is not aware of any formula which will determine with reasonable
accuracy a present value based on future unknown or volatile factors.
Actual gains, if any, on stock options exercises are dependent on the
future performances of the Company's Common Stock. There can be no
assurance that the amounts reflected in this table will be achieved.
36
<PAGE>
No options were exercised by the Named Officers during the fiscal year
ended January 31, 1997. The following table provides information concerning
unexercised options and the value of options held by the Named Officers at
fiscal year end.
Aggregate Option Exercises in Fiscal Year 1996
and Year-end Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of in-the-Money
Securities Underlying Options at
Unexercised Options January 31, 1997
at January 31, 1997(#) (1)($)
------------------------------- ------------------------------
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 --
</TABLE>
- ------------
(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.
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 Mr. Eikner's and Mr.
Gorman's, both of whom entered into their contracts in 1995 and 1996,
respectively. Mr. Schwartz's employment agreement has been extended for an
additional three year term commencing in November 1997. The employment
agreements of all of the individuals terminate in November 1998, except Mr.
Schwartz's agreement, which terminates in November 2000 and Mr. Gorman's
agreement, which 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 the
time and the term of such severance period but in no event may Mr. Schwartz's
be less than one year. The monthly salary for such executives is as follows:
Mr. Schwartz -- $20,417; Mr. Eikner -- $13,333; Mr. Gorman -- $13,333; Ms.
Schmidt -- $13,333; and Mr. McHenry -- $12,500. Messrs. Schwartz, Eikner and
Gorman 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.
Non-employee directors have historically received $15,000 per year in director
fees. The Company has agreed to grant as director compensation to Messrs. Tracy
and Troup concurrent with this offering, five year options, which vest over two
years, to acquire Common Stock at the public offering price. Assuming an
offering price of $12.00 per share, Mr. Tracy will receive options to acquire
8,333 shares and Mr. Troup will receive options to acquire 16,667 shares. The
Company also reimburses directors for out-of pocket expenses. The purpose of
37
<PAGE>
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. Tracy.
38
<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 $19,350,000 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., Richard K. McDonald and G. Kenneth Macrae, all of whom
are directors of the Company and are officers, directors and or shareholders in
one or more of the entities which were partners in RAA. See "Principal and
Selling Stockholders." 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 in the amount of $7,200,000 to the former
RAA partners. The Subordinated Debt is held by the following affiliates of
directors and former directors in the amounts indicated: Grotech Partners IV,
L.P. ($3,588,000); Keystone Ventures IV, L.P. ($753,000); Stolberg Partners,
L.P. ($2,803,000); Richard K. McDonald ($460,000); and Constitution Partners I,
L.P. ($897,000), and by the following non-affiliates; Penn Janney Fund, Inc.
($224,000) and Needham Capital Partners, L.P. ($112,000). See
"Management--Executive Officers and Directors", "Principal and Selling
Stockholders" and "Underwriting." The Subordinated Debt is subordinate to the
Company's Revolving Line of Credit and Term Loan, and accrues interest at the
rate of 12.0% 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.
The following directors are affiliated with the following entities: Dennis
J. Shaughnessy and J. Roger Sullivan, Jr. (Grotech Partners IV, L.P., Grotech
Partners III, L.P., Grotech III Companion Fund, L.P. and Grotech III
Pennsylvania Fund, L.P.); Richard K. McDonald (M&M General Partnership and
Constitution Partners, L.L.P.); and G. Kenneth Macrae (Keystone Ventures IV,
L.P.). Mr. E. Theodore Stolberg, a partner of Stolberg Partners, L.P. served as
a director of the Company for two years prior to his resignation in October
1997.
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.
The Company has a consulting arrangement with David M. Tracy, a director
of the Company, pursuant to which Mr. Tracy receives compensation in the amount
of $1,500 per day for consulting services rendered at the Company's request.
During 1996, Mr. Tracy received $20,000 in compensation from the Company for
consulting services rendered.
39
<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, assuming an offering
price of $12.00 per share), 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 or entity 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 his or her 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% -- 1,196,687 16.9%
J. Roger Sullivan, Jr. (2) ......... 1,680,612 36.8% -- 1,196,687 16.9%
Richard K. McDonald (3) ............ 635,604 13.9% 45,344 452,582 6.4%
G. Kenneth Macrae (4) ............... 467,438 10.2% -- 339,741 4.8%
William A. Schwartz, Jr. (5) ......... 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 (6) ............... 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. ............ 1,365,608 29.9% 393,220 972,388 13.8%
Grotech Partners III, L.P. ......... 268,974 5.9% 77,450 191,524 2.7%
Grotech III Companion Fund,
L.P. .............................. 29,238 * 8,419 20,819 *
Grotech III Pennsylvania Fund,
L.P. .............................. 16,792 * 4,836 11,956 *
Stolberg Partners, L.P. ............ 1,313,003 28.7% 660,000 653,003 9.2%
M&M General Partnership ............ 58,080 1.3% 16,724 41,356 *
Constitution Partners I, L.P. ...... 420,053 9.2% 120,953 299,100 4.2%
Keystone Ventures IV L.P. ......... 467,438 10.2% 127,697 339,741 4.8%
Penn Janney Fund, Inc. ............... 104,983 2.3% 45,357 59,626 *
All directors and officers as a
group (7) ........................... 3,377,386 65.9% -- 2,516,064 33.0%
</TABLE>
40
<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.,
140,436 shares; Grotech Partners III, L.P., 27,661 shares; Grotech III
Companion Fund, L.P., 3,007 shares; Grotech III Pennsylvania Fund, L.P.,
1,727 shares; M&M General Partnership 5,973 shares; Constitution Partners
I, L.P., 43,198 shares; Keystone Venture IV, L.P., 45,605 shares; Richard
K. McDonald, 16,194 shares; and Penn Janney Fund, Inc., 16,199 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) 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.
(4) 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. Includes
22,945 shares of Common Stock issuable upon exercise of currently
exercisable options.
(5) Includes 228,735 shares issuable upon exercise of currently exercisable
options. Mr. Schwartz is married to Ms. Gayle E. Schmidt and, accordingly,
may be deemed to beneficially own the shares held by Ms. Schmidt.
(6) Includes 76,050 shares issuable upon exercise of currently exercisable
options. Ms. Schmidt is married to Mr. William A. Schwartz, Jr. and,
accordingly may be deemed to beneficially own the shares held by Mr.
Schwartz.
(7) Includes 554,406 shares of Common Stock issuable upon exercise of currently
exercisable options.
41
<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 into 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 at an assumed offering price of $12.00 per share. The
actual public offering price, however, will determine how many shares of Common
Stock are issued upon conversion of the Series A Preferred Stock and the Series
C Preferred Stock.
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 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
42
<PAGE>
"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.
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 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.
Conversion of Series A Preferred Stock 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 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
43
<PAGE>
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. The actual public offering
price, however, will determine how many shares of Common Stock are issued upon
conversion of the Series A Preferred Stock and the Series C Preferred Stock. If
the offering price is $11.00 per share, 1,532,121 and 724,428 shares,
respectively, of Common Stock will be issuable upon conversion of Series A
Preferred Stock and the Series C Preferred Stock. If the offering price is
$13.00 per share, 1,296,410 and 612,977 shares, respectively, of Common stock
will be issuable upon conversion of the Series A Preferred Stock and the Series
C Preferred Stock.
Registration Rights
The Company, the Selling Stockholders (except for Keystone Ventures
IV, L.P.), Needhem Capital Partners, L.P. William A. Schwartz, Jr., Reid V.
Eikner, Gayle E. Schmidt, George E. McHenry, Jr. and James M. McGrath are
parties to a Stockholders' Agreement dated December 29, 1995 (the "Stockholders'
Agreement" ). Under the terms of the Stockholders' Agreement, the holders of at
least two-thirds of all shares of Common Stock covered by the Stockholders'
Agreement may, at any time after December 29, 1997, require the Company to
register all or a portion of those shares of Common Stock under the Securities
Act at the expense of the Company. The Stockholders' Agreement also provides
that the Company must provide each party to the Stockholders' Agreement with
written notice of any proposal by the Company to register any Common Stock under
the Securities Act for sale to the public. If any party to the Stockholders'
Agreement elects to have its shares registered under the Securities Act along
with those of the Company, the Company is required to use its best efforts to
include such party's shares in any registration of Common Stock by the Company
for sale to the public. In addition, the Stockholders' Agreement provides that
those parties covered by the agreement may elect to have their shares registered
on Form S-3 if such is available for use by the Company; provided that the
Company is not required to make more than two such registrations within any
twelve-month period.
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
44
<PAGE>
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 automatically will 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.
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. The Company has entered into an indemnification
agreement with each director of the Company which provides for indemnification
to the fullest extent permitted by law.
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.
45
<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 if the
Underwriters' over-allotment option is exercised in full) of Common Stock
outstanding after this offering, 2,836,678 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 who 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.
Of the 2,836,678 Restricted Shares to be outstanding after this offering,
2,679,003 shares (all of which are subject to the lock-up agreements described
below) 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 157,675 shares (none 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(k), In addition 173,095 shares (none of which are subject to the
lock-up agreements described below) are unrestricted and available for immediate
sale following this offering.
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.
Stolberg Partners, L.P., an affiliate of Mr. E. Theodore Stolberg, a former
director of the Company, will own 653,003 shares (all of which are subject to
the lock-up agreements described below after the completion of this offering).
Because Stolberg Partners, L.P. has owned the shares for over two (2) years,
following the lock-up period, it may be entitled to sell those shares, without
restrictions, pursuant to Rule 144(k).
The Company has granted registration rights to certain of its stockholders.
See "Discription of Capital Stock-Registration Rights".
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 3,293,940 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 Company stock options to employees and
directors. Accordingly, shares issued
46
<PAGE>
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."
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.
47
<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 45,357 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 $224,000 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 16,689
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 and a
Director of Janney Montgomery Scott Inc., each own 25.5% of the equity interest
in FMH Incorporated. Mr. Mufson also holds options to purchase 2,295 shares of
Common Stock with an exercise price of $7.69 per share. Because Janney
Montgomery Scott Inc. is a member of the National Association of Securities
Dealers Inc. (the "NASD") and an affiliate is selling shares in this offering,
Section 2710(7)(C) of 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 LLP, New York, NY.
48
<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.
49
<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 November 15, 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 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 per share -- supple-
mental $ .44 $ .61
========== ==========
Shares used in computing income
per share -- supplemental ............ 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 A 9% Series C
Cumulative Cumulative
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 former 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 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 $10.00 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 245,440 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 and effected a 64-for-1
stock dividend. All share data for all periods presented herein also reflects
the 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 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 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, 1997,
respectively.
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 application of Statement 128
on earnings per share -- supplemental was $0.03 for both the year ended January
31 and the six months ended July 31, 1997. The impact of Statement 128 on the
calculation of fully diluted earnings per share for these periods 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.
Long-Lived Assets
Long-lived assets, which principally includes property, plant and
equipment, and goodwill arising from business acquisitions, are amortized on a
straight-line basis over the expected period to be benefited up to 40 years. In
accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company
periodically evaluates the realizability of long-lived assets as events or
circumstances indicate a possible inability to recover their carrying amounts.
Long-lived assets are grouped and evaluated on a per store basis by applying
various analyses, including undiscounted cash flows and profitability
projections. See Note 9 for charge-offs relating to long-lived assets.
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 and 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
$702,434 is 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
$1,334,625 is 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. These options were issued before September 30, 1996 and are exercisable
at $7.69 per share (estimated fair market value at the date of grant) and
expire on October 30, 2004.
In October 1994, the Company issued options to certain directors to
purchase 96,525 shares of Common Stock at $7.69 per share. These options expire
on October 30, 2004.
12. Recapitalization and Impact of Initial Public Offering
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 November 15, 1997) of approximately $16,853,000 and
$7,969,000 respectively, will be exchanged for 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 exchange 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 Net Operating Losses ("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 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, July 31,
1997 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)
</TABLE>
F-18
<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 .............................. 7
Use of Proceeds ........................... 11
Dividend Policy ........................... 11
Capitalization ........................... 12
Dilution ................................. 13
Selected Consolidated Financial Data ...... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .............................. 16
Business ................................. 22
Management ................................. 33
Certain Transactions ..................... 39
Principal & Selling Stockholders ......... 40
Description of Capital Stock ............... 42
Shares Eligible for Future Sale ............ 46
Underwriting .............................. 47
Legal Matters .............................. 48
Experts .................................... 49
Available Information ..................... 49
Index to Consolidated Financial State-
ments 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 LOGO
Common Stock
($.01 par value)
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
10.3 -- Subordinated Note Purchase Agreement
10.4 -- Amendment to Subordinated Note Purchase Agreement
10.5+ -- J.C. Penney License Agreement
10.6+ -- Vision Care Agreement
10.7 -- Employment Agreement for William A. Schwartz, Jr.
10.8 -- Employment Agreement for Reid V. Eikner
10.9 -- Employment Agreement for George T. Gorman
10.10 -- Employment Agreement for Gayle E. Schmidt
10.11 -- Employment Agreement for George E. McHenry, Jr.
10.12 -- Form of Non-Statutory Option Agreement
10.13 -- Form of Indemnification Agreement
10.14 -- Stockholders' Agreement
10.15 -- Form of Sears Lease
10.16 -- Commerce Bank Mortgages and Schedules
10.17 -- DRPA Loan Documentation
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Sayles & Lidji, A Professional Corporation (included in Exhibit 5)
23.3 -- Consent of Johnson Optical Group
23.4 -- Consent of Peter Troup
24* -- Power of Attorney
27* -- Financial Data Schedule
</TABLE>
- ------------
+ Confidentiality to be sought as to certain portions
* Previously filed as an exhibit to the Form S-1 (Reg. No. 333-35819) filed with
the Commission on September 17, 1997
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.
II-3
<PAGE>
(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-4
<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 October 29, 1997.
U.S. VISION, INC.
By: /s/ William A. Schwartz, Jr.
-----------------------------------
William A. Schwartz, Jr., President
and Chief Executive Officer
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 October 29, 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/ J. Roger Sullivan, Jr.* Director
- -------------------------------
J. Roger Sullivan, Jr.
/s/ David M. Tracy* Director
- -------------------------------
David M. Tracy
</TABLE>
*By: /s/ William A. Schwartz, Jr.
-----------------------------
Pursuant to Power of Attorney
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<S> <C> <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
10.3 -- Subordinated Note Purchase Agreement
10.4 -- Amendment to Subordinated Note Purchase Agreement
10.5+ -- J.C. Penney License Agreement
10.6+ -- Vision Care Agreement
10.7 -- Employment Agreement for William A. Schwartz, Jr.
10.8 -- Employment Agreement for Reid V. Eikner
10.9 -- Employment Agreement for George T. Gorman
10.10 -- Employment Agreement for Gayle E. Schmidt
10.11 -- Employment Agreement for George E. McHenry, Jr.
10.12 -- Form of Non-Statutory Option Agreement
10.13 -- Form of Indemnification Agreement
10.14 -- Stockholders' Agreement
10.15 -- Form of Sears Lease
10.16 -- Commerce Bank Mortgages and Schedules
10.17 -- DRPA Loan Documentation
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Sayles & Lidji, A Professional Corporation (included in Exhibit 5)
23.3 -- Consent of Johnson Optical Group
23.4 -- Consent of Peter Troup
24* -- Power of Attorney
27* -- Financial Data Schedule
</TABLE>
- ------------
+ Confidentiality to be sought as to certain portions
* Previously filed as an exhibit to the Form S-1 (Reg. No. 333-35819) filed
with the Commission on September 17, 1997
<PAGE>
DB DRAFT OF 10/16/97
U.S. Vision, Inc.
4,000,000 Shares/1
Common Stock
($.01 par value per share)
Underwriting Agreement
New York, New York
, 1997
Salomon Brothers Inc
Janney Montgomery Scott Inc
As Representatives of the several Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
- --------
/1 Plus an option to purchase up to 300,000 additional shares
from the Company and up to an aggregate of 300,000 additional shares
from certain Selling Stockholders to cover over-allotments.
1
<PAGE>
U.S. Vision, Inc., a Delaware corporation (the "Company"), proposes to sell to
the underwriters named in Schedule I hereto (the "Underwriters"), for whom you
(the "Representatives") are acting as representatives, 2,500,000 shares of
Common Stock, $.01 par value per share ("Common Stock"), of the Company, and the
persons named in Schedule II hereto (the "Selling Stockholders") propose to sell
to the Underwriters 1,500,000 shares of Common Stock (said shares to be issued
and sold by the Company and shares to be sold by the Selling Stockholders
collectively being hereinafter called the "Underwritten Securities"). The
Company (as to 300,000 additional shares) and the Selling Stockholders named in
Schedule III hereto (as to an aggregate of 300,000 additional shares) also
propose to grant to the Underwriters an option to purchase up to an aggregate of
600,000 additional shares of Common Stock (the "Option Securities"; the Option
Securities, together with the Underwritten Securities, being hereinafter called
the "Securities"). To the extent there are no additional Underwriters listed on
Schedule I other than you, the term Representatives as used herein shall mean
you, as Underwriters, and the terms Representatives and Underwriters shall mean
either the singular or plural as the context requires.
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1. Representations and Warranties.
(a)__ The Company and the Selling Stockholders jointly and severally
represent and warrant to, and agree with, each Underwriter as set forth below in
this Section 1. Certain terms used in this Section 1 are defined in Section 17
hereof.
(i) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement (file
number ) on Form S-1, including a related preliminary
prospectus, for the registration under the Act of the offering and sale
of the Securities. The Company may have filed one or more amendments
thereto, including a related preliminary prospectus, each of which has
previously been furnished to you. The Company will next file with the
Commission either (A) prior to the Effective Date of such registration
statement, a further amendment to such registration statement
(including the form of final prospectus) or (B) after the Effective
Date of such registration statement, a final prospectus in accordance
with Rules 430A and 424(b)(1) or (4). In the case of clause (B), the
Company has included in such registration statement, as amended at the
Effective Date, all information (other than Rule 430A Information)
required by the Act and the rules thereunder to be included in such
registration statement and the Prospectus. As filed, such amendment and
form of final prospectus, or such final prospectus, shall contain all
Rule 430A Information, together with all other such required
information, and, except to the extent the Representatives shall agree
in writing to a modification, shall be in all substantive respects in
the form furnished to you prior to the Execution Time or, to the extent
not completed at the Execution Time, shall contain only such specific
additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you, prior to
the Execution Time, will be included or made therein.
(ii) On the Effective Date, the Registration Statement did or
will, and when the Prospectus is first filed (if required) in
accordance with Rule 424(b) and on the Closing Date (as defined herein)
and on any date on which shares sold in respect of the Underwriters'
over-allotment option are purchased, if such date is not the Closing
Date (a "settlement date"), the Prospectus (and any supplements
thereto) will, comply in all material respects with the applicable
requirements of the Act and the rules thereunder; on the Effective Date
and at the Execution Time, the Registration Statement did not or will
not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order
to make the statements therein not misleading; and, on the Effective
Date, the Prospectus, if not filed pursuant to Rule 424(b), will not,
and on the date of any filing pursuant to Rule 424(b) and on the
Closing Date and any settlement date, the Prospectus (together with any
supplement thereto) will not, include any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
Company and the Selling Stockholders make no representations or
warranties as to the information contained in or omitted from the
Registration Statement, or the Prospectus (or any supplement thereto)
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in reliance upon and in conformity with information furnished herein or
in writing to the Company by or on behalf of any Underwriter through
the Representatives specifically for inclusion in the Registration
Statement or the Prospectus (or any supplement thereto).
(iii) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or
organized with full corporate power and authority to own its properties
and conduct its business as described in the prospectus, and is duly
qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such
qualification.
(iv) all the outstanding shares of capital stock of each
Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in the
Prospectus, all outstanding shares of capital stock of the Subsidiaries
are owned by the Company either directly or through wholly owned
subsidiaries free and clear of any security interests, claims, liens or
encumbrances.
(v) The Company's authorized equity capitalization is as set forth
in the Prospectus; the capital stock of the Company conforms in all
material respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and nonassessable; the
Securities being sold hereunder have been duly and validly authorized,
and, when issued and delivered to and paid for by the Underwriters
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable; the Securities have been duly authorized for listing,
subject to official notice of issuance, on the Nasdaq National Market;
the certificates for the Securities are in valid and sufficient form;
the holders of outstanding shares of capital stock of the Company are
not entitled to preemptive or other rights to subscribe for the
Securities; and, except as set forth in the Prospectus, no options,
warrants or other rights to purchase, agreements or other obligations
to issue, or rights to convert any obligations into or exchange any
securities for, shares of capital stock of or ownership interests in
the Company are outstanding.
(vi) There is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit thereto, which is not
described or filed as required.
(vii) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation
of the Company enforceable against the Company in accordance with its
terms, except as rights to indemnity and contribution hereunder may be
limited by federal or state securities laws or principles of public
policy and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium and other
laws relating to or affecting creditors' rights generally and by
general equitable principles.
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(viii) The Company is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof
as described in the Prospectus, will not be an "investment company" as
defined in the Investment Company Act of 1940, as amended.
(ix) No consent, approval, authorization, filing with or order of
any court or governmental agency or body is required in connection with
the transactions contemplated herein, except such as have been obtained
under the Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of
the Securities by the Underwriters in the manner contemplated herein
and in the Prospectus.
(x) Neither the issue and sale of the Securities nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation of or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries
pursuant to, (i) the charter or by-laws of the Company or any of its
subsidiaries or (ii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which the
Company or any of its subsidiaries is a party or bound or to which its
or their property is subject, or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or any
of its subsidiaries of any court, regulatory body, administrative
agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or any of its subsidiaries or any of its
or their properties.
(xi) No holders of securities of the Company have rights to the
registration of such securities under the Registration Statement.
(xii) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the Prospectus
and the Registration Statement present fairly in all material respects
the financial condition, results of operations and cash flows of the
Company as of the dates and for the periods indicated, comply as to
form with the applicable accounting requirements of the Act and the
rules and regulations thereunder and have been prepared in conformity
with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as otherwise noted
therein). The selected financial data set forth under the caption
"Selected Financial Information" in the Prospectus and Registration
Statement fairly present, on the basis stated in the Prospectus and the
Registration Statement, the information included therein.
(xiii) No action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries or its or their property is pending
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or threatened that (i) could reasonably be expected to have a material
adverse effect on the performance of this Agreement or the consummation
of any of the transactions contemplated hereby or (ii) could reasonably
be expected to have a material adverse change in the condition
(financial or otherwise), prospects, earnings, business or properties
of the Company and its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto) (except, in the case of this clause (ii), for those
that have been disclosed in the Prospectus).
(xiv) Each of the Company and each of its subsidiaries owns or
leases all such properties as are necessary to the conduct of its
operations as presently conducted; neither the Company nor any
subsidiary is in violation of any law, rule or regulation of any
Federal, state or local governmental or regulatory authority applicable
to it or is in non-compliance with any term or condition of, or has
failed to obtain and maintain in effect, any license, certificate,
permit or other governmental authorization required for the ownership
or lease of its property or the conduct of its business, which
violation, non-compliance or failure would individually or in the
aggregate have a material adverse change in the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto); and the Company has not received notice of any proceedings
relating to the revocation or material modification of any such
license, certificate, permit or other authorization.
(xv) Neither the Company nor any subsidiary is in violation or
default of (i) any provision of its charter or bylaws, (ii) the terms
of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument to which it is a party or bound or to which its
property is subject, or (iii) any statute, law, rule, regulation,
judgment, order or decree of any court, regulatory body, administrative
agency, governmental body, arbitrator or other authority having
jurisdiction over the Company or such subsidiary or any of its
properties, as applicable.
(xvi) Ernst & Young LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries and
delivered their report with respect to the audited consolidated
financial statements and schedules included in the Prospectus, are
independent public accountants with respect to the Company within the
meaning of the Act and the applicable published rules and regulations
thereunder.
(xvii) There are no transfer taxes or other similar fees or
charges under Federal law or the laws of any state, or any political
subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance by the Company
or sale by the Company and the Selling Stockholders of the Securities,
except for stock transfer taxes payable by the Selling Stockholders,
which will be discharged thereby in a timely manner.
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(xviii) The Company has filed all foreign, federal, state and
local tax returns that are required to be filed or has requested
extensions thereof (except in any case in which the failure so to file
would not have a material adverse change in the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement thereto)
and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any
of the foregoing is due and payable, except for any such assessment,
fine or penalty that is currently being contested in good faith or as
described in or as would not have a material adverse change in the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(xix) No labor disturbance by or dispute with the employees of the
Company or any of its subsidiaries exists or is threatened or imminent
that could result in a material adverse change in the condition
(financial or otherwise), prospects, earnings, business or properties
of the Company and its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of business, except as
set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(xx) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not cause a material adverse change in
the condition (financial or otherwise), prospects, earnings, business
or properties of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(xxi) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such subsidiary from
the Company or from transferring any of such subsidiary's property or
assets to the Company or any other subsidiary of the Company, except as
described in or contemplated by the Prospectus.
(xxii) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
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foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a material adverse change in the
condition (financial or otherwise), prospects, earnings, business or
properties of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(xxiii) Neither the Company nor any of its subsidiaries is in
violation of any federal or state law or regulation relating to
occupational safety and health or to the storage, handling or
transportation of hazardous or toxic materials and the Company and its
subsidiaries have received all permits, licenses or other approvals
required of them under applicable federal and state occupational safety
and health and environmental laws and regulations to conduct their
respective businesses, and the Company and each such subsidiary is in
compliance with all terms and conditions of any such permit, license or
approval, except any such violation of law or regulation, failure to
receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or
approvals which would not, singly or in the aggregate, result in a
material adverse change in the condition (financial or otherwise),
prospects, earnings, business or properties of the Company and its
subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto).
(xxiv) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable
assurance that (A) transactions are executed in accordance with
management's general or specific authorizations; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (C) access to assets is permitted only
in accordance with management's general or specific authorization; and
(D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxv) The subsidiaries listed on Annex A attached hereto are the
only subsidiaries of the Company (the "Subsidiaries").
(xxvi) The Company owns or has obtained licenses for the patents,
patent applications, trade and service marks, trade secrets and other
intellectual properties referenced or described in the Prospectus as
being owned by or licensed to it (collectively, the "Intellectual
Property"). Except as set forth in the Prospectus (a) there are no
rights of third parties to any such Intellectual Property; (b) there is
no material infringement by third parties of any such Intellectual
Property; (c) there is no pending or threatened action, suit,
proceeding or claim by others challenging the Company's rights in or to
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any such Intellectual Property, and the Company is unaware of any facts
which would form a reasonable basis for any such claim; (d) there is no
pending or threatened action, suit, proceeding or claim by others
challenging the validity or scope of any such Intellectual Property,
and the Company is unaware of any facts which would form a reasonable
basis for any such claim; and (e) there is no pending or threatened
action, suit, proceeding or claim by others that the Company infringes
or otherwise violates any patent, trademark, copyright, trade secret or
other proprietary rights of others, and the Company is unaware of any
other fact which would form a reasonable basis for any such claim. Each
of the Company and each of its subsidiaries owns the Intellectual
Property or has the rights to the Intellectual Property that is
necessary to conduct its business as described in the Prospectus
(b)__ Each Selling Stockholder further represents and warrants to, and
agrees with, each Underwriter that:
(i) Such Selling Stockholder is the lawful owner of the Securities
to be sold by such Selling Stockholder hereunder, and upon sale and
delivery of, and payment for, such Securities, as provided herein, such
Selling Stockholder will convey good and marketable title to such
Securities, free and clear of all liens, encumbrances, equities and
claims whatsoever.
(ii) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or which has constituted
or which might reasonably be expected to cause or result, under the
Exchange Act or otherwise, in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale
of the Securities and has not effected any sales of shares of Common
Stock which, if effected by the issuer, would be required to be
disclosed in response to Item 701 of Regulation S-K.
(iii) Certificates in negotiable form for such Selling
Stockholder's Securities have been placed in custody, for delivery
pursuant to the terms of this Agreement, under a Custody Agreement duly
authorized, executed and delivered by such Selling Stockholders, in the
form heretofore furnished to you (the "Custody Agreement") with of , as
Custodian (the "Custodian"); the Securities represented by the
certificates so held in custody for each Selling Stockholder are
subject to the interests hereunder of the Underwriters, the Company and
the other Selling Stockholders; the arrangements for custody and
delivery of such certificates, made by such Selling Stockholder
hereunder and under the Custody Agreement, are not subject to
termination by any acts of such Selling Stockholder, or by operation of
law, whether by the death or incapacity of such Selling Stockholder or
the occurrence of any other event; and if any such death, incapacity or
any other such event shall occur before the delivery of such Securities
hereunder, certificates for the Securities will be delivered by the
Custodian in accordance with the terms and conditions of this Agreement
and the Custody Agreement as if such death, incapacity or other event
had not occurred, regardless of whether or not the Custodian shall have
received notice of such death, incapacity or other event.
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(iv) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by such
Selling Stockholder of the transactions contemplated herein, except
such as have been obtained under the Act and such as may be required
under the blue sky laws of any jurisdiction in connection with the
purchase and distribution of the Securities by the Underwriters and
such other approvals as have been obtained.
(v) Neither the sale of the Securities being sold by such Selling
Stockholder nor the consummation of any other of the transactions
herein contemplated by such Selling Stockholder or the fulfillment of
the terms hereof by such Selling Stockholder will conflict with, result
in a breach or violation of, or constitute a default under any law or
the charter, by-laws or other organizational document (if such Selling
Stockholder is not a natural person) of such Selling Stockholder or the
terms of any indenture or other agreement or instrument to which such
Selling Stockholder or any of its subsidiaries (if such Selling
Stockholder is not a natural person) is a party or bound, or any
judgment, order or decree applicable to such Selling Stockholder or any
of its subsidiaries (if such Selling Stockholder is not a natural
person) of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Stockholder or any of its subsidiaries (if such Selling Stockholder is
not a natural person).
Any certificate signed by a Selling Stockholder or any officer
of the Company or any Selling Stockholder and delivered to the Representatives
or counsel for the Underwriters in connection with the offering of the
Securities shall be deemed a representation and warranty by such party, as to
matters covered thereby, to each Underwriter.
2. Purchase and Sale.
(a)__ Subject to the terms and conditions and in reliance
upon the representations and warranties herein set forth, the Company and the
Selling Stockholders agree, severally and not jointly, to sell to each
Underwriter, and each Underwriter agrees, severally and not jointly, to purchase
from the Company and the Selling Stockholders named in Schedule II hereto, at a
purchase price of $ per share, the amount of the Underwritten Securities set
forth opposite such Underwriter's name in Schedule I hereto.
(b)__ Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company and the Selling
Stockholders named in Schedule III hereto hereby grant an option to the several
Underwriters to purchase, severally and not jointly, up to 300,000 of the Option
Securities from the Company and up to an aggregate of 300,000 Option Securities
from such Selling Stockholders at the same purchase price per share as the
Underwriters shall pay for the Underwritten Securities. Said option may be
exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or in part
at any time (but not more than once) on or before the 30th day after the date of
the Prospectus upon written or telegraphic notice by the Representatives to the
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Company and such Selling Stockholders setting forth the number of shares of the
Option Securities as to which the several Underwriters are exercising the option
and the settlement date. Delivery of certificates for the shares of Option
Securities by the Company and such Selling Stockholders and payment therefor to
the Company and such Selling Stockholders, shall be made as provided in Section
3 hereof. The maximum number of shares of the Option Securities to be sold by
the Company and each of such Selling Stockholders is set forth in Schedule III
hereto. In the event that the Underwriters exercise less than their full
over-allotment option, the number of shares of the Option Securities to be sold
by each party listed on Schedule III shall be, as nearly as practicable, in the
same proportion to each other as are the number of shares of the Option
Securities listed opposite their respective names on said Schedule III. The
number of shares of the Option Securities to be purchased by each Underwriter
shall be the same percentage of the total number of shares of the Option
Securities to be purchased by the several Underwriters as such Underwriter is
purchasing of the Underwritten Securities, subject to such adjustments as you in
your absolute discretion shall make to eliminate any fractional shares.
3. Delivery and Payment.
Delivery of and payment for the Underwritten Securities and
the Option Securities (if the option provided for in Section 2(b) hereof shall
have been exercised on or before the third Business Day prior to the Closing
Date) shall be made at 10:00 AM, New York City time, on , 1997, or at such time
on such later date not more than three Business Days after the foregoing date as
the Representatives shall designate, which date and time may be postponed by
agreement among the Representatives, the Company and the Selling Stockholders or
as provided in Section 9 hereof (such date and time of delivery and payment for
the Securities being herein called the "Closing Date"). Delivery of the
Securities shall be made to the Representatives for the respective accounts of
the several Underwriters against payment by the several Underwriters through the
Representatives of the respective aggregate purchase prices of the Securities
being sold by the Company and each of the Selling Stockholders to or upon the
order of the Company and the Selling Stockholders by wire transfer payable in
same-day funds to an account specified by the Company. Delivery of the
Underwritten Securities and the Option Securities shall be made through the
facilities of The Depository Trust Company unless the Representatives shall
otherwise instruct.
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Each Selling Stockholder will pay all applicable state transfer taxes, if any,
involved in the transfer to the several Underwriters of the Securities to be
purchased by them from such Selling Stockholder, and the respective Underwriters
will pay any additional stock transfer taxes involved in further transfers.
If the option provided for in Section 2(b) hereof is exercised after the third
business day prior to the Closing Date, the Company and the Selling Stockholders
named in Schedule III hereto will deliver the Option Securities (at the expense
of the Company) to the Representatives on the date specified by the
Representatives (which shall be within three Business Days after exercise of
said option) for the respective accounts of the several Underwriters, against
payment by the several Underwriters through the Representatives of the purchase
price thereof to or upon the order of the Company and the Selling Stockholders
identified in Schedule III by wire transfer payable in same-day funds to an
account specified by the Company and the Selling Stockholders named in Schedule
III hereto. If settlement for the Option Securities occurs after the Closing
Date, the Company and such Selling Stockholders will deliver to the
Representatives on the settlement date for the Option Securities, and the
obligation of the Underwriters to purchase the Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters.
It is understood that the several Underwriters propose to offer the
Securities for sale to the public as set forth in the Prospectus.
5. Agreements.
(a)__ The Company agrees with the several Underwriters that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and any
amendment thereof, to become effective as soon as practicable. Prior to
the termination of the offering of the Securities, the Company will not
file any amendment of the Registration Statement or supplement to the
Prospectus or any Rule 462(b) Registration Statement unless the Company
has furnished you a copy for your review prior to filing and will not
file any such proposed amendment or supplement to which you reasonably
object. Subject to the foregoing sentence, if the Registration
Statement has become or becomes effective pursuant to Rule 430A, or
filing of the Prospectus is otherwise required under Rule 424(b), the
Company will cause the Prospectus, properly completed, and any
supplement thereto to be filed with the Commission pursuant to the
applicable paragraph of Rule 424(b) within the time period prescribed
and will provide evidence satisfactory to the Representatives of such
timely filing. The Company will promptly advise the Representatives (A)
when the Registration Statement, if not effective at the Execution
Time, shall have become effective, (B) when the Prospectus, and any
supplement thereto, shall have been filed (if required) with the
Commission pursuant to Rule 424(b) or when any Rule 462(b) Registration
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Statement shall have been filed with the Commission, (C) when, prior to
termination of the offering of the Securities, any amendment to the
Registration Statement shall have been filed or become effective, (D)
of any request by the Commission or its staff for any amendment of the
Registration Statement, or any Rule 462(b) Registration Statement, or
for any supplement to the Prospectus or of any additional information,
(E) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (F) of the receipt
by the Company of any notification with respect to the suspension of
the qualification of the Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose. The
Company will use its best efforts to prevent the issuance of any such
stop order or the suspension of any such qualification and, if issued,
to obtain as soon as possible the withdrawal thereof.
(ii) If, at any time when a prospectus relating to the Securities
is required to be delivered under the Act, any event occurs as a result
of which the Prospectus as then supplemented would include any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall
be necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Act or the rules thereunder, the Company
promptly will (i) prepare and file with the Commission, subject to the
second sentence of paragraph (a)(i) of this Section 5, an amendment or
supplement which will correct such statement or omission or effect such
compliance and (ii) supply any supplemented Prospectus to you in such
quantities as you may reasonably request.
(iii) As soon as practicable, the Company will make generally
available to its security holders and to the Representatives an
earnings statement or statements of the Company and its subsidiaries
which will satisfy the provisions of Section 11(a) of the Act and Rule
158 under the Act.
(iv) The Company will furnish to the Representatives and counsel
for the Underwriters, without charge, signed copies of the Registration
Statement (including exhibits thereto) and to each other Underwriter a
copy of the Registration Statement (without exhibits thereto) and, so
long as delivery of a prospectus by an Underwriter or dealer may be
required by the Act, as many copies of each Preliminary Prospectus and
the Prospectus and any supplement thereto as the Representatives may
reasonably request. The Company will pay the expenses of printing or
other production of all documents relating to the offering.
(v) The Company will arrange, if necessary, for the qualification
of the Securities for sale under the laws of such jurisdictions as the
Representatives may designate, and will maintain such qualifications in
effect so long as required for the distribution of the Securities and
will pay any fee of the National Association of Securities Dealers,
Inc., in connection with its review of the offering and the reasonable
fees and expenses of counsel to the Underwriters in connection
therewith.
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(vi) The Company will not, for a period of 180 days following the
Execution Time, without the prior written consent of Salomon Brothers
Inc, offer, sell or contract to sell, or otherwise dispose of (or enter
into any transaction which is designed to, or could be expected to,
result in the disposition (whether by actual disposition or effective
economic disposition due to cash settlement or otherwise) by the
Company or any affiliate of the Company or any person in privity with
the Company or any affiliate of the Company) directly or indirectly, or
announce the offering of, any other shares of Common Stock or any
securities convertible into, or exchangeable for, shares of Common
Stock; provided, however, that the Company may issue and sell Common
Stock pursuant to any employee stock option plan, stock ownership plan
or dividend reinvestment plan of the Company in effect at the Execution
Time and the Company may issue Common Stock issuable upon the
conversion of securities or the exercise of warrants outstanding at the
Execution Time, in each case to the extent such plans, securities or
warrants are described in the Prospectus.
(b)__ Each Selling Stockholder agrees with the several Underwriters
that such Selling Stockholder will not during the period of 180 days following
the Execution Time, without the prior written consent of the Representatives,
offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce the offering of, any other shares of Common Stock
beneficially owned by such person, or any securities convertible into, or
exchangeable for, shares of Common Stock.
6. Conditions to the Obligations of the Underwriters.
The obligations of the Underwriters to purchase the Underwritten
Securities and the Option Securities, as the case may be, shall be subject to
the accuracy of the representations and warranties on the part of the Company
and the Selling Stockholders contained herein as of the Execution Time, the
Closing Date and any settlement date pursuant to Section 3 hereof, to the
accuracy of the statements of the Company and the Selling Stockholders made in
any certificates pursuant to the provisions hereof, to the performance by the
Company and the Selling Stockholders of their respective obligations hereunder
and to the following additional conditions:
(a)__ If the Registration Statement has not become effective prior to
the Execution Time, unless the Representatives agree in writing to a later time,
the Registration Statement will become effective not later than (i) 6:00 PM New
York City time on the date of determination of the public offering price, if
such determination occurred at or prior to 3:00 PM New York City time on such
date or (ii) 9:30 AM on the Business Day following the day on which the public
offering price was determined, if such determination occurred after 3:00 PM New
York City time on such date; if filing of the Prospectus, or any supplement
thereto, is required pursuant to Rule 424(b), the Prospectus, and any such
supplement, will be filed in the manner and within the time period required by
Rule 424(b); and no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or threatened.
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(b)__ The Company shall have furnished to the Representatives the
opinion of Sayles & Lidji, counsel for the Company, dated the Closing Date, to
the effect that:
(i) each of the Company and the Subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is chartered or
organized, with full corporate power and authority to own its
properties and conduct its business as described in the Prospectus, and
is duly qualified to do business as a foreign corporation and is in
good standing under the laws of each jurisdiction which requires such
qualification;
(ii) all the outstanding shares of capital stock of each
Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise set forth in the
Prospectus, all outstanding shares of capital stock of the Subsidiaries
are owned by the Company either directly or through wholly owned
subsidiaries free and clear of any perfected security interest and, to
the knowledge of such counsel, after due inquiry, any other security
interests, claims, liens or encumbrances;
(iii) the Company's authorized equity capitalization is as set
forth in the Prospectus; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock (including the
Securities being sold hereunder by the Selling Stockholders) have been
duly and validly authorized and issued and are fully paid and
nonassessable; the Securities being sold hereunder by the Company have
been duly and validly authorized, and, when issued and delivered to and
paid for by the Underwriters pursuant to this Agreement, will be
validly issued, fully paid and nonassessable; the Securities being sold
by the Selling Stockholders are duly listed and admitted for trading on
the Nasdaq National Market; the Securities being sold hereunder by the
Company are duly authorized for listing, subject to official notice of
issuance, on the certificates for the Securities are in valid and
sufficient form; and the holders of outstanding shares of capital stock
of the Company are not entitled to preemptive or other rights to
subscribe for the Securities; and, except as set forth in the
Prospectus, to such counsel's knowledge, no options, warrants or other
rights to purchase, agreements or other obligations to issue, or rights
to convert any obligations into or exchange any securities for, shares
of capital stock of or ownership interests in the Company are
outstanding;
(iv) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or any of its subsidiaries of a character required to be
disclosed in the Registration Statement which is not adequately
disclosed in the Prospectus, and there is no franchise, contract or
other document of a character required to be described in the
Registration Statement or Prospectus, or to be filed as an exhibit
thereto, which is not described or filed as required;
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(v) the Registration Statement has become effective under the Act;
any required filing of the Prospectus, and any supplements thereto,
pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); to the knowledge of such counsel, no
stop order suspending the effectiveness of the Registration Statement
has been issued, no proceedings for that purpose have been instituted
or threatened, and the Registration Statement and the Prospectus (other
than the financial statements and other financial information contained
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the applicable requirements of the
Act and the rules thereunder;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the Company is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof
as described in the Prospectus, will not be an "investment company" as
defined in the Investment Company Act of 1940, as amended;
(viii) no consent, approval, authorization, filing with or order
of any court or governmental agency or body is required in connection
with the transactions contemplated herein, except such as have been
obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters in the manner
contemplated in this Agreement and in the Prospectus;
(ix) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or its subsidiaries pursuant
to, (i) the charter or by-laws of the Company or its subsidiaries or
(ii) the terms of any indenture contract, lease, mortgage, deed of
trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which the Company or its
subsidiaries is a party or bound or to which its property is subject
that is made an exhibit to the Registration Statement or is otherwise
known to such counsel, or (iii) to such counsel's knowledge, any
statute, law, rule, regulation, judgment, order or decree applicable to
the Company or its subsidiaries of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority
having jurisdiction over the Company or its subsidiaries or any of its
or their properties; and
(x) to such counsel's knowledge, no holders of securities of the
Company have rights to the registration of such securities under the
Registration Statement.
In addition, such counsel shall state that although such counsel does not assume
any responsibility for the accuracy, completeness or fairness of the statements
16
<PAGE>
in the Registration Statement and the Prospectus, such counsel has participated
in the preparation of the Registration Statement and the Prospectus, including
review and discussion of the contents thereof with representations of the
Underwriters and their counsel, officers and representatives of the Company, and
representatives of the independent certified public accountants of the Company,
and such counsel has no reason to believe that on the Effective Date or at the
Execution Time the Registration Statement contains or contained any untrue
statement of a material fact or omitted or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus as of its date and on the Closing Date
includes any untrue statement of a material fact or omitted or omits to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (in each case, other
than the financial statements and the notes thereto and the schedules and other
financial and statistical information contained therein, as to which such
counsel need express no opinion);
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
Delaware General Corporation Law or the Federal laws of the United States, to
the extent they deem proper and specified in such opinion, upon the opinion of
other counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters and (B) as to matters of fact, to
the extent they deem proper, on certificates of responsible officers of the
Company and public officials. References to the Prospectus in this paragraph (b)
include any supplements thereto at the Closing Date.
(c)__ The Selling Stockholders shall have furnished to the
Representatives the opinion of , counsel for the Selling Stockholders, dated the
Closing Date, to the effect that:
(i) this Agreement, the Custody Agreement and the
Power-of-Attorney have been duly authorized, executed and delivered by
the Selling Stockholders, the Custody Agreement is valid and binding on
the Selling Stockholders and each Selling Stockholder has full legal
right and authority to sell, transfer and deliver in the manner
provided in this Agreement and the Custody Agreement the Securities
being sold by such Selling Stockholder hereunder;
(ii) the delivery by each Selling Stockholder to the several
Underwriters of certificates for the Securities being sold hereunder by
such Selling Stockholder against payment therefor as provided herein,
will pass good and marketable title to such Securities to the several
Underwriters, free and clear of all liens, encumbrances, equities and
claims whatsoever;
(iii) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by any
Selling Stockholder of the transactions contemplated herein, except
such as may have been obtained under the Act and such as may be
required under the blue sky laws of any jurisdiction in connection with
the purchase and distribution of the Securities by the Underwriters and
such other approvals (specified in such opinion) as have been obtained;
and
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<PAGE>
(iv) neither the sale of the Securities being sold by any Selling
Stockholder nor the consummation of any other of the transactions
herein contemplated by any Selling Stockholder or the fulfillment of
the terms hereof by any Selling Stockholder will conflict with, result
in a breach or violation of, or constitute a default under any law or
the charter or by-laws of the Selling Stockholder (if such Selling
Stockholder is other than a natural person) or the terms of any
indenture or other agreement or instrument known to such counsel and to
which any Selling Stockholder or any of its subsidiaries (if such
Selling Stockholder is other than a natural person) is a party or
bound, or any judgment, order or decree known to such counsel to be
applicable to any Selling Stockholder or any of its subsidiaries of any
court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over any Selling Stockholder or any of
its subsidiaries.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
Delaware General Corporation Law or the Federal laws of the United States, to
the extent they deem proper and specified in such opinion, upon the opinion of
other counsel of good standing whom they believe to be reliable and who are
satisfactory to counsel for the Underwriters, and (B) as to matters of fact, to
the extent they deem proper, on certificates of responsible officers of the
Selling Stockholders and public officials.
(d)__ The Representatives shall have received from Dewey Ballantine
LLP, counsel for the Underwriters, such opinion or opinions, dated the Closing
Date, with respect to the issuance and sale of the Securities, the Registration
Statement, the Prospectus (together with any supplement thereto) and other
related matters as the Representatives may reasonably require, and the Company
and each Selling Stockholder shall have furnished to such counsel such documents
as they request for the purpose of enabling them to pass upon such matters.
(e)__ The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the President
and the principal financial or accounting officer of the Company, dated the
Closing Date, to the effect that the signers of such certificate have carefully
examined the Registration Statement, the Prospectus, any supplements to the
Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or to such officers' knowledge,
threatened; and
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<PAGE>
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto), there
has been no material adverse change in the condition (financial or
otherwise), prospects, earnings, business or properties of the Company
and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in
or contemplated in the Prospectus (exclusive of any supplement
thereto).
(f)__ Each Selling Stockholder shall have furnished to the
Representatives a certificate, signed by such Selling Stockholder (or, if such
Selling Shareholder is other than a natural person by the Chairman of the Board
or the President and the principal financial or accounting officer of such
Selling Stockholder (or such other authorized personnel satisfactory to the
Representatives), dated the Closing Date, to the effect that the signer(s) of
such certificate have carefully examined the Registration Statement, the
Prospectus, any supplement to the Prospectus and this Agreement and that the
representations and warranties of such Selling Stockholder in this Agreement are
true and correct in all material respects on and as of the Closing Date to the
same effect as if made on the Closing Date.
(g)__ At the Execution Time and at the Closing Date, Ernst & Young LLP
shall have furnished to the Representatives letters, dated respectively as of
the Execution Time and as of the Closing Date, in form and substance
satisfactory to the Representatives.
(h)__ Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto),
there shall not have been (i) any change or decrease specified in the letter or
letters referred to in paragraph (g) of this Section 6 or (ii) any change, or
any development involving a prospective change, in or affecting the condition
(financial or otherwise), earnings, business or properties of the Company and
its subsidiaries taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto) the effect of which, in any
case referred to in clause (i) or (ii) above, is, in the sole judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the Registration Statement (exclusive of any amendment thereof)
and the Prospectus (exclusive of any supplement thereto).
(i)__ On or prior to the Execution Time, the National Association of
Securities Dealers, Inc. shall have approved the Underwriters' participation in
the distribution of the Securities to be sold by the Selling Stockholders.
(j)__ At the Execution Time, the Company shall have furnished to the
Representatives a letter substantially in the form of Exhibit A hereto from each
officer and director of the Company and certain shareholders addressed to the
Representatives, in which each such person agrees not to offer, sell, contract
to sell, pledge or otherwise dispose of, or exercise any registration rights
with respect to, or file a registration statement with the Commission in respect
of, or establish or increase a put equivalent position or liquidate or decrease
a call equivalent position within the meaning of Section 16 of the Exchange Act
19
<PAGE>
with respect to, any shares of capital stock of the Company or any securities
convertible into or exercisable or exchangeable for such capital stock, or
publicly announce an intention to effect any such transaction, for a period of
180 days after the date of this Agreement, other than (i) any shares of Common
Stock to be sold hereunder, (ii) any option or warrant or the conversion of a
security outstanding on the date hereof and referred to in the Prospectus to
which this Agreement relates and (iii) other than shares of Common Stock
disposed of as bona fide gifts approved by Salomon Brothers Inc.
(k)__ The Company shall have caused the Securities to be eligible for
trading on the Nasdaq National Market upon issuance.
(l)__ On the Closing Date, the Company shall have furnished to the
Representatives evidence satisfactory to the Representatives of the application
of the net proceeds of this offering as set forth in "Use of Proceeds" in the
Prospectus;
(m)__ On the Closing Date, the Company shall have furnished to the
Representatives evidence satisfactory to the Representatives of the conversion
of all outstanding shares of Series A Cumulative Preferred Stock and Series C
Cumulative Preferred Stock.
(n)__ Prior to the Closing Date, the Company shall have furnished to
the Representatives such further information, certificates and documents as the
Representatives may reasonably request.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representatives. Notice of such
cancellation shall be given to the Company and each Selling Stockholder in
writing or by telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be delivered at
the office of Dewey Ballantine LLP, counsel for the Underwriters, at 1301 Avenue
of the Americas, New York, New York, on the Closing Date.
7. Reimbursement of Underwriters' Expenses.
If the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 6 hereof is not satisfied, because of any termination pursuant to
Section 10 hereof or because of any refusal, inability or failure on the part of
the Company or any Selling Stockholder to perform any agreement herein or comply
with any provision hereof other than by reason of a default by any of the
Underwriters, the Company will reimburse the Underwriters severally through
Salomon Brothers Inc on demand for all out-of-pocket expenses (including
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<PAGE>
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the proposed purchase and sale of the Securities. If the
Company is required to make any payments to the Underwriters under this Section
7 because of any Selling Stockholder's refusal, inability or failure to satisfy
any condition to the obligations of the Underwriters set forth in Section 6, the
Selling Stockholders pro rata in proportion to the percentage of Securities to
be sold by each shall reimburse the Company on demand for all amounts so paid.
8. Indemnification and Contribution.
(a)__ The Company and the Selling Stockholders jointly and severally
agree to indemnify and hold harmless each Underwriter, the directors, officers,
employees and agents of each Underwriter and each person who controls any
Underwriter within the meaning of either the Act or the Exchange Act against any
and all losses, claims, damages or liabilities, joint or several, to which they
or any of them may become subject under the Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement for the
registration of the Securities as originally filed or in any amendment thereof,
or in any Preliminary Prospectus or the Prospectus, or in any amendment thereof
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company and the Selling Stockholders will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter through
the Representatives specifically for inclusion therein. This indemnity agreement
will be in addition to any liability which the Company or the Selling
Stockholders may otherwise have.
(b)__ Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who signs the
Registration Statement, and each person who controls the Company within the
meaning of either the Act or the Exchange Act and each Selling Stockholder, to
the same extent as the foregoing indemnity to each Underwriter, but only with
reference to written information relating to such Underwriter furnished to the
Company by or on behalf of such Underwriter through the Representatives
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any Underwriter may otherwise have. The Company and each Selling Stockholder
acknowledges that the statements set forth in the last paragraph of the cover
page regarding delivery of the Securities, the stabilization legend in block
capital letters on page 2, (i) the sentences related to concessions and
reallowances and (ii) the paragraph related to stabilization under the heading
"Underwriting" or "Plan of Distribution" in any Preliminary Prospectus and the
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Prospectus constitute the only information furnished in writing by or on behalf
of the several Underwriters for inclusion in any Preliminary Prospectus or the
Prospectus.
(c)__ Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above or (e) below. The indemnifying party
shall be entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
(d)__ In the event that the indemnity provided in paragraph (a), (b)
or (e) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Selling Stockholders,
jointly and severally, and the Underwriters agree to contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company, the Selling Stockholders and one
or more of the Underwriters may be subject in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Selling
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Stockholders on the one hand and by the Underwriters on the other from the
offering of the Securities; provided, however, that in no case shall (i) any
Underwriter (except as may be provided in any agreement among underwriters
relating to the offering of the Securities) be responsible for any amount in
excess of the underwriting discount or commission applicable to the Securities
purchased by such Underwriter hereunder or (ii) Salomon Brothers Inc in its
capacity as "qualified independent underwriter" (within the meaning of National
Association of Securities Dealers, Inc. Conduct Rule 2720) be responsible for
any amount in excess of the compensation received by Salomon Brothers Inc for
acting in such capacity. If the allocation provided by the immediately preceding
sentence is unavailable for any reason, the Company and the Selling
Stockholders, jointly and severally, and the Underwriters shall contribute in
such proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company and the Selling Stockholders on the one
hand and of the Underwriters on the other in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company and the Selling Stockholders
shall be deemed to be equal to the total net proceeds from the offering (before
deducting expenses) received by it, and benefits received by the Underwriters
shall be deemed to be equal to the total underwriting discounts and commissions,
in each case as set forth on the cover page of the Prospectus. Benefits received
by Salomon Brothers Inc in its capacity as "qualified independent underwriter"
shall be deemed to be equal to the compensation received by Salomon Brothers Inc
for acting in such capacity. Relative fault shall be determined by reference to,
among other things, whether any untrue or any alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information provided by the Company or the Selling Stockholders on
the one hand or the Underwriters on the other, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company, the Selling Stockholders
and the Underwriters agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (d), no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls an Underwriter within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of an Underwriter shall have the
same rights to contribution as such Underwriter, and each person who controls
the Company within the meaning of either the Act or the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
(e)__ Without limitation and in addition to its obligations under the
other paragraphs of this Section 8, the Company agrees to indemnify and hold
harmless Salomon Brothers Inc, its directors, officers, employees and agents and
each person who controls Salomon Brothers Inc within the meaning of either the
Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject,
insofar as such losses, claims, damages or liabilities (or action in respect
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thereof) arise out of or are based upon Salomon Brothers Inc's acting as a
"qualified independent underwriter" (within the meaning of National Association
of Securities Dealers, Inc. Conduct Rule 2720) in connection with the offering
contemplated by this Agreement, and agrees to reimburse each such indemnified
party, as incurred, for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
results from the gross negligence or willful misconduct of Salomon Brothers Inc.
(f)__ The liability of each Selling Stockholder under such Selling
Stockholder's representations and warranties contained in Section 1 hereof and
under the indemnity and contribution agreements contained in this Section 8
shall be limited to an amount equal to the initial public offering price of the
Securities sold by such Selling Stockholder to the Underwriters. The Company and
the Selling Stockholders may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to the respective amounts of
such liability for which they each shall be responsible.
9. Default by an Underwriter.
If any one or more Underwriters shall fail to purchase and pay for any
of the Securities agreed to be purchased by such Underwriter or Underwriters
hereunder and such failure to purchase shall constitute a default in the
performance of its or their obligations under this Agreement, the remaining
Underwriters shall be obligated severally to take up and pay for (in the
respective proportions which the amount of Securities set forth opposite their
names in Schedule I hereto bears to the aggregate amount of Securities set forth
opposite the names of all the remaining Underwriters) the Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase; provided,
however, that in the event that the aggregate amount of Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase shall
exceed 10% of the aggregate amount of Securities set forth in Schedule I hereto,
the remaining Underwriters shall have the right to purchase all, but shall not
be under any obligation to purchase any, of the Securities, and if such
nondefaulting Underwriters do not purchase all the Securities, this Agreement
will terminate without liability to any nondefaulting Underwriter, the Selling
Stockholders or the Company. In the event of a default by any Underwriter as set
forth in this Section 9, the Closing Date shall be postponed for such period,
not exceeding five Business Days, as the Representatives shall determine in
order that the required changes in the Registration Statement and the Prospectus
or in any other documents or arrangements may be effected. Nothing contained in
this Agreement shall relieve any defaulting Underwriter of its liability, if
any, to the Company, the Selling Stockholders and any nondefaulting Underwriter
for damages occasioned by its default hereunder.
10. Termination.
This Agreement shall be subject to termination in the absolute
discretion of the Representatives, by notice given to the Company prior to
delivery of and payment for the Securities, if at any time prior to such time
(i) trading in the Common Stock shall have been suspended by the Commission or
24
<PAGE>
the Nasdaq National Market or trading in securities generally on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market shall
have been suspended or limited or minimum prices shall have been established on
such Exchanges or the Nasdaq National Market, (ii) a banking moratorium shall
have been declared either by Federal or New York State authorities or (iii)
there shall have occurred any outbreak or escalation of hostilities, declaration
by the United States of a national emergency or war or other calamity or crisis
the effect of which on financial markets is such as to make it, in the sole
judgment of the Representatives, impractical or inadvisable to proceed with the
offering or delivery of the Securities as contemplated by the Prospectus
(exclusive of any supplement thereto).
11. Representations and Indemnities to Survive.
The respective agreements, representations, warranties, indemnities
and other statements of the Company or its officers, of the Selling Stockholders
and of the Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter, any Selling Stockholder or the Company or any of the
officers, directors or controlling persons referred to in Section 8 hereof, and
will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
12. Notices.
All communications hereunder will be in writing and effective only on
receipt, and, if sent to the Representatives, will be mailed, delivered or
telefaxed to the Salomon Brothers Inc General Counsel (fax no.: (212) 783-1752)
and confirmed to the General Counsel, care of Salomon Brothers Inc, at Seven
World Trade Center, New York, New York, 10048, Attention: General Counsel; or,
if sent to the Company, will be mailed, delivered or telefaxed to William A.
Schwartz, Jr., President and Chief Executive Officer (fax no. (609) 232-1848)
and confirmed to it at [address]; or if sent to the Selling Stockholders, will
be mailed, delivered or telefaxed to and confirmed to them at the addresses set
forth in Schedule II hereto.
13. Successors.
This Agreement will inure to the benefit of and be binding upon the
parties hereto and their respective successors and the officers and directors
and controlling persons referred to in Section 8 hereof, and no other person
will have any right or obligation hereunder.
14. Applicable Law.
This Agreement will be governed by and construed in accordance with
the laws of the State of New York.
25
<PAGE>
15. Counterparts.
This Agreement may be signed in one or more counterparts, each of
which shall constitute an original and all of which together shall constitute
one and the same agreement.
16. Headings.
The section headings used herein are for convenience only and shall
not affect the construction hereof.
17. Definitions.
The terms which follow, when used in this Agreement, shall have the
meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a legal holiday or a day on which banking institutions or
trust companies are authorized or obligated by law to close in New York
City.
"Effective Date" shall mean each date and time that the
Registration Statement, any post-effective amendment or amendments
thereto and any Rule 462(b) Registration Statement became or become
effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto.
"Preliminary Prospectus" shall mean any preliminary prospectus
referred to in paragraph 1(a) above and any preliminary prospectus
included in the Registration Statement at the Effective Date that omits
Rule 430A Information.
"Prospectus" shall mean the prospectus relating to the
Securities that is first filed pursuant to Rule 424(b) after the
Execution Time or, if no filing pursuant to Rule 424(b) is required,
shall mean the form of final prospectus relating to the Securities
included in the Registration Statement at the Effective Date.
"Registration Statement" shall mean the registration statement
referred to in paragraph 1(a) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at
the Execution Time, in the form in which it shall become effective)
and, in the event any post-effective amendment thereto or any Rule
462(b) Registration Statement becomes effective prior to the Closing
Date (as hereinafter defined), shall also mean such registration
statement as so amended or such Rule 462(b) Registration Statement, as
the case may be. Such term shall include any Rule 430A Information
deemed to be included therein at the Effective Date as provided by Rule
430A.
26
<PAGE>
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules
under the Act.
"Rule 430A Information" shall mean information with respect to
the Securities and the offering thereof permitted to be omitted from
the Registration Statement when it becomes effective pursuant to Rule
430A.
"Rule 462(b) Registration Statement" shall mean a registration
statement and any amendments thereto filed pursuant to Rule 462(b)
relating to the offering covered by the initial registration statement.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement among the
Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
U.S. Vision, Inc.
By: ______________________
Name:
Title:
Selling Stockholders
Richard K. McDonald
--------------------------
Name:
Grotech Partners IV, L.P.
By:_________________________
Name:
Title:
27
<PAGE>
Grotech Partners III, L.P.
By:__________________________
Name:
Title:
Grotech III Companion Fund, L.P.
By:_____________________________
Name:
Title:
Grotech III Pennsylvania Fund, L.P.
By:______________________________
Name:
Title:
Stolberg Partners, L.P.
By:______________________________
Name:
Title:
M&M General Partnership
By:______________________________
Name:
Title:
Constitution Partners I, L.P.
By:______________________________
Name:
Title:
28
<PAGE>
Keystone Ventures IV L.P.
By:______________________________
Name:
Title:
Penn Janney Fund, INC.
By:______________________________
Name:
Title:
29
<PAGE>
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
Salomon Brothers Inc
Janney Montgomery Scott Inc.
By: Salomon Brothers Inc
By:_______________________
Vice President
For themselves and the other several
Underwriters named in Schedule I to
the foregoing Agreement.
30
<PAGE>
SCHEDULE I
Number of Shares
to be
Underwriters Purchased
- ------------ ----------------
Salomon Brothers Inc..................................
Janney Montgomery Scott Inc...........................
Total........................................ 4,000,000
<PAGE>
SCHEDULE II
(Underwritten Securities)
Number of
Shares to be
Name Sold
- ---- ------------
U.S. Vision, Inc. 2,500,000
Richard K. McDonald 46,406
Grotech Partners IV, L.P. 393,220
Grotech Partners III, L.P. 74,450
Grotech III Companion Fund, L.P. 8,419
Grotech III Pennsylvania Fund, L.P. 4,836
Stolberg Partners, L.P. 660,000
M&M General Partnership 16,724
Constitution Partners I, L.P. 120,953
Keystone Ventures IV L.P. 127,697
Penn Janney Fund, Inc. 45,357
Total................................... 4,000,000
<PAGE>
SCHEDULE III
(Option Securities)
Number of
Shares to be
Name Sold
- ---- ------------
U.S. Vision, Inc. 300,000
Richard K. McDonald 16,194
Grotech Partners IV, L.P. 140,436
Grotech Partners III, L.P. 27,661
Grotech III Companion Fund, L.P. 3,007
Grotech III Pennsylvania Fund, L.P. 1,727
Stolberg Partners, L.P. 0
M&M General Partnership 5,973
Constitution Partners I, L.P. 43,198
Keystone Ventures IV L.P. 45,605
Penn Janney Fund, Inc. 16,199
Total........................................ 600,000
<PAGE>
ANNEX A
Subsidiaries
<PAGE>
EXHIBIT A
U.S. Vision, Inc.
Public Offering of Common Stock
, 1997
Salomon Brothers Inc
Janney Montgomery Scott Inc.
As Representatives of the several Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement"), between U.S. Vision,
Inc., a Delaware corporation (the "Company"), and each of you as representatives
of a group of Underwriters named therein, relating to an underwritten public
offering of Common Stock, $.01 par value (the "Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the Underwriting
Agreement, the undersigned will not, without the prior written consent of
Salomon Brothers Inc, offer, sell, contract to sell, pledge or otherwise dispose
of, or exercise any registration rights with respect to, or file a registration
statement with the Commission in respect of, or establish or increase a put
equivalent position or liquidate or decrease a call equivalent position within
the meaning of Section 16 of the Exchange Act with respect to, any shares of
capital stock of the Company or any securities convertible into or exercisable
or exchangeable for such capital stock, or publicly announce an intention to
effect any such transaction, for a period of 180 days after the date of this
Agreement, other than (i) any shares of Common Stock to be sold hereunder, (ii)
any option or warrant or the conversion of a security outstanding on the date
hereof and referred to in the Prospectus to which this Agreement relates and
(iii) shares of Common Stock disposed of as bona fide gifts approved by Salomon
Brothers Inc.
<PAGE>
If for any reason the Underwriting Agreement shall be
terminated prior to the Closing Date (as defined in the Underwriting Agreement),
the agreement set forth above shall likewise be terminated.
Yours very truly,
[Signature of officer, director or major
shareholder]
[Name and address of officer, director or
major shareholder]
A-2
<PAGE>
- ---------- ----------
NUMBER SHARES
- ---------- ----------
COMMON STOCK COMMON STOCK
U.S. VISION
U.S. VISION, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE CUSIP 90339M 10 4
IN THE CITIES OF LOS ANGELES, SEE REVERSE FOR CERTAIN DEFINITIONS
RIDGEFIELD PARK OR NEW YORK
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK
OF THE PAR VALUE OF $.01 EACH OF
==============================U.S. VISION, INC.=================================
transferable on the books of the Corporation by the holder hereof, in person
or by duly authorized attorney, upon surrender of this Certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
Witness the facsimile seal of said Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
Countersigned and Registered:
TRANSFER AND REGISTRAR INC.
Transfer Agent and Registrar
[SEAL]
By
George E. McHenry xxxxxxxxxxxxxxxxxxxxx
------------------------ ---------------------- ---------------------
AUTHORIZED SIGNATURE SECRETARY PRESIDENT
<PAGE>
The following abbreviations, when used in the inscription on the face of this
Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
------ ------
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right Act
of survivorship and not as --------------------------
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
For Value received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
- ----------------------------
- ----------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPE NAME AND ADDRESS)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------ Shares
of the Stock represented by this Certificate, and hereby irrevocably constitutes
and appoints
- ---------------------------------------------------------------------- Attorney
to transfer this Certificate on the books of the Corporation with full power
of substitution in the premises.
Dated:---------------------------------- ------------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of
this Certificate in every
particular, without alteration or
enlargement or any change whatever.
Signature(s) Guaranteed:
By
-------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (Banks,
Stockbrokers, Savings and Loan Associations
and Credit Unions) WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5
October 29, 1997
U.S. Vision, Inc.
1 Harmon Drive
Blackwood, New Jersey 08012
Re: Registration Statement on Form S-1, Registration No. 333-35819 filed
by U.S. Vision, Inc. with the Securities and Exchange Commission on
September 17, 1997 (the "Registration Statement")
Ladies and Gentlemen:
We have acted as counsel to U.S. Vision, Inc., a Delaware corporation (the
"Company"), in connection with the registration under the Securities Act of
1933, amended, of up to 4,000,000 shares of common stock, $0.01 par value of the
Company (the "Common Stock"), which the Company and certain selling stockholders
have proposed to offer to the public. We have examined such corporate records
and other documents, including the Rgistration Statement, and have reviewed such
matters of law as we have deemed necessary for this opinion. Based on such
examination, we advise you that in our opinion:
1. The Company is a corporation duly organized and existing under the
laws of the State of Delaware; and
2. All necessary corporate action on the part of the Company has been
taken to authorize the registration of the Common Stock by the
Company, and when sold as contemplated in the Registration Statement
(after payment therefore in the case of the Common Stock issued and
sold by the Company), such shares of Common Stock will be validly
issued, fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement referred to above and to the reference to our firm under the heading
"Legal Matters" in the Registration Statement. In giving this consent, we do not
hereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the Rules of the
Securities and Exchange Commission thereunder.
Very truly yours,
Sayles & Lidji,
A Professional Corporation
By:/s/ Brian M. Lidji
------------------
Brian M. Lidji
<PAGE>
SUBORDINATED PROMISSORY NOTE PURCHASE AGREEMENT
THIS SUBORDINATED PROMISSORY NOTE PURCHASE AGREEMENT (this "Agreement") is
dated as of January 10, 1996 and is by and among U.S. Vision, Inc., a
Pennsylvania corporation (the "Company"), and each of the several purchasers
listed in Schedule I hereto ("Schedule I") (each a "Purchaser" and collectively,
the "Purchasers").
RECITALS
WHEREAS, the Purchasers desire to make available to the Company, and the
Company desires to accept from the Purchasers, a credit facility (the "Credit
Facility") in the aggregate principal amount of up to Seven Million Two Hundred
Thousand Dollars ($7,200,000.00), pursuant to the terms and subject to the
conditions hereinafter set forth;
WHEREAS, on the date hereof, the Purchasers desire to make a loan (the
"Loan") in the aggregate principal amount (the "Loan Amount") of Five Million
Dollars ($5,000,000.00), and the Company desires to borrow the Loan Amount from
the Purchasers, in accordance with the provisions of this Agreement and those
certain subordinated promissory notes, substantially in the form attached hereto
as Exhibit A (the "Promissory Notes"), to be issued to the Purchasers in
consideration of the Loan;
WHEREAS, the Purchasers desire to offer to the Company up to one (1)
additional loan (the "Additional Loan") in the aggregate principal amount of up
to Two Million Two Hundred Thousand Dollars ($2,200,000.00) (the "Additional
Loan Amount"), on January 19, 1996, pursuant to the terms and subject to the
conditions set forth in Section 1.03 hereof;
WHEREAS, Grotech Partners IV, L.P. ("Grotech IV") and Stolberg Partners,
L.P. ("Stolberg") made a loan (the "Bridge Loan"), in the aggregate amount of
One Million Four Hundred Thousand Dollars ($1,400,000.00), to the Company on
January 5, 1996 in consideration of the issuance and delivery by the Company of
certain Demand Promissory Notes, each in the original principal amount of Seven
Hundred Thousand Dollars ($700,000.00), copies of which are attached hereto as
Exhibit B (each, a "Demand Note"); and
- 1 -
<PAGE>
WHEREAS, Fleet Capital Corporation, the Company's senior lender ("Fleet
Capital"), has consented to the transactions contemplated by this Agreement on
the condition that each Purchaser execute a Subordination Agreement, in a form
reasonably acceptable to Fleet Capital (the "Subordination Agreement"), on or
before the fifteenth (15) day immediately following the Closing Date (as such
term is defined in Section 1.02(a) hereof);
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
PROMISSORY NOTES
SECTION 1.01. Issuance, Sale and Delivery of Promissory Notes. Subject to
the terms and conditions of this Agreement and the Promissory Notes, the Company
agrees to issue and sell to each Purchaser and, subject to and in reliance upon
the representations, warranties, covenants, terms and conditions of this
Agreement, each Purchaser, severally and not jointly, hereby agrees to purchase
from the Company, a Promissory Note in the principal amount set forth opposite
such Purchaser's name in Schedule I hereto under the heading "Principal Loan
Amount". The aggregate purchase price (the "Purchase Price") payable for the
Promissory Notes by each of the Purchasers is as set forth opposite the name of
such Purchaser under the heading "Principal Loan Amount" in Schedule I hereto.
SECTION 1.02. The Closing.
(a) The purchase and sale of the Promissory Notes shall take
place at the offices of Piper & Marbury L.L.P., 36 South Charles Street,
Baltimore, Maryland 21201 at 10:00 a.m. (Baltimore time) on January 10, 1996, or
at such other date, time and location as may be agreed upon between the
Purchasers and the Company (such event being called the "Closing" and such date
and time being called the "Closing Date").
(b) On or prior to the Closing Date:
(i) the Company shall deliver to each Purchaser (A)
an executed copy of this Agreement, (B) a Promissory Note payable to
the order of such Purchaser in the original principal amount equal to
the amount as set forth opposite such Purchaser's name on Schedule I
hereto under the heading "Principal Loan Amount", (C) the Supporting
Documents listed in
- 2 -
<PAGE>
Section 4.01(d) hereof (the "Supporting Documents"), and (D) payment in
full of the Loan Fee in accordance with the provisions of Section 1.04
hereof;
(ii) each of the Purchasers, other than Grotech IV
and Stolberg, shall deliver to the Company (A) an executed copy of this
Agreement and (B) payment in full of the Purchase Price described in
Section 1.01 hereof by wire transfer in immediately available funds to
the bank account set forth in Exhibit C hereto (the "Bank Account");
(iii) each of Grotech IV and Stolberg shall deliver
to the Company (A) an executed copy of this Agreement, (B) the Demand
Note issued to it by the Company on January 4, 1996, and (C) payment in
full, by wire transfer in immediately available funds to the Bank
Account, of an amount equal to (1) the amount as set forth opposite
such Purchaser's name on Schedule I hereto under the heading "Principal
Loan Amount" minus (2) the Principal Amount under the Demand Note plus
accrued interest thereon for the period beginning on January 5, 1996
and ending on January 10, 1996.
SECTION 1.03. Additional Loans. Subject to the provisions of this Section
1.03, the Purchasers hereby agree to lend to the Company the Additional Loan in
an aggregate principal amount not to exceed the Additional Loan Amount on
January 19, 1996 (the "Additional Loan Closing Date").
(a) Additional Loan Request. The Company may borrow all or part
of the Additional Loan Amount from the Purchasers by delivering written notice
(the "Additional Loan Notice") to the Purchasers on or prior to the Additional
Loan Closing Date, which Additional Loan Notice shall set forth the amount of
the Additional Loan that the Company desires to borrow (the "Additional Loan
Request").
(b) Additional Loan Closing Date. On the Additional Loan Closing
Date:
(i) the Purchasers shall deliver to the Company
immediately available funds by wire transfer in an aggregate amount
equal to the Additional Loan Request;
(ii) the Company shall deliver to each Purchaser:
(A) a promissory note (the "Additional
Loan Note"), substantially in the form of the Promissory Note with such
changes as the holders of Promissory Notes that have an outstanding
principal amount equal to or greater than two-thirds (2/3) of the then
outstanding aggregate principal amount of all the Promissory Notes (the
"Two-Thirds Interest") may agree, payable to the order of such
Purchaser in the original principal amount equal to the product of (1)
the amount set forth opposite such Purchaser's name on Schedule 1
hereto under
- 3 -
<PAGE>
the heading "Additional Loan Amount" and (2) a fraction, the numerator
of which is equal to the Additional Loan Request and the denominator of
which is equal to the Additional Loan Amount;
(B) the Supporting Documents; and
(C) payment in full of the Loan Fee in accordance
with the provisions of Section 1.04 hereof.
SECTION 1.04. Loan Fees.
(a) Loan Fee. At or prior to (i) the Closing Date and (ii) any
Additional Loan Closing Date, the Company shall deliver to the Purchasers or
their designees a fee (the "Loan Fee") equal to the product of (A) the Loan
Amount or any Additional Loan Amount, as appropriate, and (B) two and one-half
percent (2.5%).
(b) Payment of the Fees. The Company shall pay the Loan Fee by
wire transfer of immediately available funds by the Company to accounts
specified in writing by the Purchasers.
- 4 -
<PAGE>
SECTION 1.05. Subordination Agreement.
(a) Fleet Capital Subordination Agreement. On or before the
fifteenth (15th) calendar day immediately following the Closing Date, each
Purchaser shall execute and deliver the Subordination Agreement in a form
reasonably acceptable to Fleet Capital.
(b) Prospective Senior Lender Subordination Agreement. If any
prospective senior lender to the Company shall require that the Purchasers
execute a subordination agreement as a condition precedent to providing the
Company with a senior credit facility, each of the Purchasers hereby agrees that
it shall execute and deliver to such prospective lender a subordination
agreement, the terms of which are acceptable to the Two-Thirds Interest,
pursuant to which the obligations of the Company under the Promissory Notes
shall be subordinate to the obligations of the Company to the prospective senior
lender under such senior credit facility.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to and covenants and agrees with
each Purchaser, on the date hereof, intending and acknowledging that each
Purchaser shall rely upon such representations and warranties, that, except as
set forth in the Disclosure Schedule attached hereto as Schedule II (the
"Disclosure Schedule") furnished to each Purchaser and to each Purchaser's
counsel, (which specifically refers to the section number identifying the
information to which such disclosure relates and which exceptions shall be
deemed to be representations and warranties as if made hereunder):
SECTION 2.01. Organization, Good Standing, Qualifications and Corporate
Power. The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the Commonwealth of Pennsylvania and is duly
licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification, except such jurisdictions where the
failure to so qualify would not have a material adverse effect on the business,
assets, financial condition or results of operations of the Company. The Company
has the requisite corporate power and authority to (i) own and hold its
properties and to carry on its business as now conducted and as proposed to be
conducted, (ii) execute and deliver the Promissory Notes, this Agreement and any
other agreements, if any, to which the Company is a party, the execution and
delivery of which is contemplated hereby (the "Ancillary Agreements"), (iii)
issue and sell the Promissory Notes and any Additional Loan Notes (collectively,
the "Notes") and (iv) carry out and perform the provisions of this Agreement,
the Notes and any Ancillary Agreements (collectively, the "Loan Documents").
- 5 -
<PAGE>
SECTION 2.02. Authorization of Agreements, Etc.
(a) The (i) execution and delivery by the Company of the Loan
Documents, (ii) performance of all obligations of the Company under the Loan
Documents and (iii) issuance, sale and delivery of the Notes, have been duly
authorized by all requisite corporate action on the part of the Company, its
officers, directors and stockholders, and have not and will not violate any
provision of applicable law, any order of any court or other agency of
government, the Articles of Incorporation of the Company, as amended or
supplemented (the "Articles") or the By-Laws of the Company, as amended (the
"By-Laws"), or any provision of any indenture, agreement or other instrument to
which the Company or any of its respective properties or assets is bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or result in the creation or imposition of any lien, encumbrance, or restriction
of any name whatsoever (a "Lien"), upon any of the properties or assets of the
Company.
(b) Each of the Notes when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration herein
expressed, will be duly and validly issued, free and clear of all Liens imposed
by or through the Company.
SECTION 2.03. Validity. The Loan Documents have been duly executed and
delivered by the Company and, assuming the execution and delivery of this
Agreement and any required Ancillary Agreements by the Purchasers, constitute
the legal, valid and binding obligations of the Company, enforceable in
accordance with their terms.
SECTION 2.04. Authorized Capitalized Stock.
(a) Immediately prior to the Closing, (i) the Company had
authority to issue Five Million One Hundred Thousand (5,100,000) shares of
capital stock, consisting of One Hundred Thousand (100,000) shares of common
stock, par value Ten Dollars ($10.00) per share (the "Common Stock") and Five
Million (5,000,000) shares of preferred stock, par value One Cent ($0.01) per
share (the "Preferred Stock"), of which the Board of Directors of the Company
(the "Board") has designated as (A) One Hundred Thirty (130) shares of Series A
Cumulative Preferred Stock, stated value One Hundred Thousand Dollars
($100,000.00) per share (the "Series A Preferred Stock"), and (B) One Hundred
Thousand (100,000) shares of the 9% Series C Cumulative Convertible Preferred
Stock, stated value Sixty-Three Dollars and Fifty-Three Cents ($63.50) per share
(the "Series C Preferred Stock"); and (ii) the issued and outstanding shares of
the Company's capital stock consisted of Thirteen Thousand Seven Hundred
Eighty-Six (13,786) shares of Common Stock, One Hundred Thirty (130) shares of
the Series A Preferred Stock and One Hundred Thousand (100,000) shares of the
Series C Preferred Stock; warrants (the "RAA Warrants") to purchase Twenty-Four
Thousand Seven Hundred Thirty-Four (24,734) shares of Common Stock and options
(the "Options") to purchase up to Eleven Thousand Thirteen (11,013) shares of
Common Stock.
- 6 -
<PAGE>
(b) The stockholders of record as of the close of business on
January 9, 1996 of the Company and its subsidiaries and the number of shares of
and capital stock, respectively, held by each on the date hereof are set forth
in Exhibit 1 to the Disclosure Schedule.
(c) (i) Except for the RAA Warrants, the Options and the Series C
Preferred Stock, there are no subscriptions, warrants, options, convertible
securities or other rights (contingent or otherwise) to purchase or otherwise
acquire equity securities of the Company; (ii) except for shares of Common Stock
reserved for issuance in connection with the RAA Warrants, the Options and the
Series C Preferred Stock, no shares of Common Stock or other capital stock of
the Company are reserved for possible future issuance; (iii) there is no
commitment by the Company to issue shares, subscriptions, warrants, options,
convertible securities or other such rights or to distribute to holders of any
of its equity securities any evidence of indebtedness or any assets of the
Company; (iv) the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity or debt securities or
any interest therein or to pay any dividend or make any other distribution in
respect thereof; and (v) there are no voting trusts or agreements, stockholders'
agreements, pledge agreements, buy-sell agreements, rights of first refusal,
preemptive rights or proxies relating to any securities of the Company (whether
or not the Company is a party thereto), except for any agreements existing or
contemplated among the partners of Royal Acquisition Associates Partnership, a
Maryland general partnership ("RAAP").
(d) The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class and series
of authorized capital stock of the Company are as set forth in the Articles, and
all such designations, powers, preferences, rights, qualifications, limitations
and restrictions are valid, binding and enforceable and in accordance with all
applicable laws. The issuance and sale of Notes hereunder will not effect the
rights of any holders of the Company's capital stock (including any rights to
anti-dilution protection). All of the outstanding securities of the Company and
each of its subsidiaries were issued in compliance with or pursuant to valid
exemptions from all Federal and state securities laws.
SECTION 2.05. Financial Budget and Projections. The Company's Cash Flow
Forecast Through March of 1996 (the "Cash Flow Forecast"), a copy of which has
previously been provided to the Purchasers, was prepared by management of the
Company and is based upon assumptions which the Company believes to be
reasonable.
SECTION 2.06. Litigation; Compliance with Laws. There is no material (a)
action, suit, claim, proceeding or investigation pending or threatened against
or affecting the Company, at law or
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in equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (b) arbitration proceeding relating to the Company pending under
collective bargaining agreements or otherwise or (c) governmental inquiry
pending or threatened against or affecting the Company, and there is no basis
for any of the foregoing. The Company has not received any opinion or memorandum
or legal advice from legal counsel to the effect that it is exposed, from a
legal standpoint, to any liability or disadvantage which may be material to its
business, prospects, financial condition, operations, properties or affairs. The
Company is not in default with respect to any order, writ, injunction or decree
known to or served upon the Company of any court or of any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. There is no action or suit by the Company
pending or threatened against others. The Company has complied in all material
respects with all laws, rules, regulations and orders which are material and
applicable to its business, operations, properties, assets, products and
services, and the Company has all necessary permits, licenses and other
authorizations, including environmental, required to conduct its business as
conducted and as proposed to be conducted, except where the failure to obtain
such permits, licenses and other authorizations would not have a material
adverse effect on the business, assets, financial condition or results of
operations of the Company. There is no existing or proposed law, rule,
regulation or order, whether Federal or state, which would prohibit or restrict
the Company from, or otherwise materially adversely affect the Company in,
conducting its business in any jurisdiction in which it is now conducting
business or in which it proposes to conduct business. Any reference to the
"Company" in this Section 2.06 shall include its subsidiaries.
SECTION 2.07. Other Agreements. Except as set forth in the Loan Documents,
the Company is not a party to or otherwise bound by any written or oral contract
or instrument or other restriction which individually or in the aggregate could
materially adversely affect the business, prospects, financial condition,
operations, property or affairs of the Company.
SECTION 2.08. Disclosure. Each of the Loan Documents (except with regard to
any statements made by the Purchasers), including any Schedule or Exhibit hereto
or thereto, contains no untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading. None of the written statements, documents, certificates or other
items prepared or supplied by the Company with respect to the transactions
contemplated hereby, when read together and in light of the circumstances in
which they were made, contains an untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained therein not
misleading. There is no fact which the Company has not disclosed to the
Purchasers and their counsel in writing and of which the Company is aware which
materially and adversely affects or could materially and adversely affect the
business, prospects, financial condition, operations, property or affairs of the
Company.
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SECTION 2.09. Offering of the Notes. Except pursuant to the Purchasers,
neither the Company nor any person authorized or employed by the Company as
agent, broker, dealer or otherwise in connection with the offering or sale of
the Notes has offered the Notes for sale to, or solicited any offer to buy the
Notes from, or otherwise approached or negotiated with respect thereto with, any
person or persons, and neither the Company nor any person acting on its behalf
has taken or will take any other action so as to subject the offering, issuance
or sale of the Notes to the registration provisions of the Securities Act of
1933, as amended (the "Securities Act").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 3.01. Each Purchaser severally, but not jointly, represents and
warrants to the Company as of the Closing that:
(a) it is an "accredited investor" within the meaning of Rule 501
under the Securities Act and was not organized for the specific purpose of
acquiring the Notes;
(b) it is either (i) an "institutional investor" as such term is
defined under Section 102.111 of the regulations promulgated under the
Pennsylvania Securities Act of 1972, (ii) an "institutional buyer" under Section
359(e)(1)(a)(iii) of the New York Fraudulent Practices ("Martin") Act, (iii) a
"principal" as defined under Section 203.184(b) of the regulations promulgated
under the Pennsylvania Securities Act of 1972, or (iv) has its principal office
located in the State of Maryland. Schedule III hereto sets forth the relevant
definitions of "institutional investor", "institutional buyer" and "principal"
for the purposes of this Section 3.01(b);
(c) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of development
so as to be able to evaluate the risks and merits of its investment in the
Company and it is able financially to bear the risks thereof;
(d) it has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management;
(e) the Notes being purchased by it are being acquired for its
own account for the purpose of investment and not with a view to or for resale
in connection with any distribution thereof;
(f) it understands that (i) the Notes have not been registered
under the Securities Act by reason of their issuance in a transaction exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) or Section 3(b) thereof or Rule 506 promulgated thereunder, (ii) the Notes
must be held indefinitely unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration, (iii) the Notes
will bear a legend to such effect and (iv) the Company will make a notation on
its transfer books to such effect; and
(g) as a holder of shares of the Series C Preferred Stock, it
consents to the transactions contemplated by this Agreement and the Notes.
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ARTICLE IV
CONDITIONS TO THE CLOSING
SECTION 4.01. Conditions to the Obligations of the Purchasers. The
obligations of each Purchaser under Sections 1.01, 1.02 and 1.03 hereof, as
appropriate, are subject to the fulfillment on or before the of each of the
following conditions, the waiver of which shall not be effective against any
Purchaser who does not consent in writing thereto:
(a) Performance. The Company shall have performed and complied
with all agreements, obligations and conditions (the "Closing Conditions")
contained in Sections 1.01, 1.02 and 1.03 hereof, as appropriate, and in this
Section 4.01 that are required to be performed or complied with by it on or
before the Closing Date or the Additional Loan Closing Date, as appropriate. The
President of the Company shall deliver to each Purchaser at or prior to the
Closing or the Additional Loan Closing a certificate certifying that the Closing
Conditions have been fulfilled.
(b) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to each Purchaser and its counsel, and each Purchaser and its
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they reasonably may request.
(c) The Notes. The Company shall have executed and delivered to
each Purchaser the Promissory Note required to be delivered by the Company under
Section 1.02 hereof or the Additional Loan Note required to be delivered by the
Company under Section 1.03 hereof, as appropriate.
(d) Supporting Documents. Each Purchaser and its counsel shall
have received copies of the following documents:
(i) a certificate of the Secretary of State of the
Commonwealth of Pennsylvania (the "Pennsylvania Secretary"), dated as
of a recent date, as to the due incorporation and good standing of the
Company and listing all documents of the Company on file with said
Secretary;
(ii) a certificate of the Secretary of the Company
dated the Closing Date or the Additional Loan Closing Date, as
appropriate, and certifying: (A) that attached thereto is a true and
complete copy of the Articles, certified by the Pennsylvania Secretary
as of a recent date, and the By-Laws of the Company as in effect on the
date of such certification;
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(B) that attached thereto is a true and complete copy of all
resolutions adopted by the Board and the stockholders of the Company
authorizing the execution, delivery and performance of the Loan
Documents, the issuance, sale and delivery of the Notes and that all
such resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions contemplated by
the Loan Documents; (C) that the Articles have not been amended since
the date of the last amendment referred to in the certificate delivered
pursuant to clause (i)(A) above; and (D) to the incumbency and specimen
signature of each officer of the Company executing this Agreement, the
Notes and any Ancillary Agreement;
(iii) an opinion of the law firm of Sayles & Lidji,
counsel for the Company, dated as of the Closing Date, in form and
substance acceptable to the Purchasers; and
(iv) such additional supporting documents and other
information with respect to the operations and affairs of the Company
as the Purchasers or their counsel reasonably may request.
(e) Transaction Fees and Expenses. The Company, at or prior to
the Closing, shall have paid all fees and disbursements referenced in Sections
1.04 and 7.01 hereof.
(f) Representations and Warranties to be True and Correct. The
representations and warranties of the Company contained in Article II hereof
shall be true, complete and correct on and as of the Closing Date or the
Additional Loan Closing Date, as appropriate, with the same effect as though
such representations and warranties had been made on and as of such closing
date, and no Event of Default has occurred and is continuing on or prior to such
closing date, the President and the Chief Financial Officer of the Company shall
have certified, in writing, to such effect to the Purchasers.
SECTION 4.02. Conditions to the Obligations of the Company. The
obligations of the Company under Sections 1.01, 1.02 and 1.03 hereof, as
appropriate, are subject to the fulfillment on or before the Closing Date of
each of the following conditions, the waiver of which shall not be effective
against the Company unless it consents in writing thereto:
(a) Purchase by each Purchaser. Each Purchaser shall have made
the Loan or the Additional Loan, as appropriate, in accordance with the terms of
this Agreement.
(b) Representations and Warranties to be True and Correct. The
representations and warranties of the Purchasers contained in Article III hereof
shall be true, complete and correct on and as of the Closing Date or the
Additional Loan Closing Date, as appropriate, with the same effect as though
such representations and warranties had been made on and as of such closing
date.
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ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each Purchaser that so long as any
of the Notes are outstanding:
SECTION 5.01. Use of Loan Proceeds. The Company shall use the proceeds of
the Loan (the "Loan Proceeds") for only the following purposes:
(a) to obtain the return and cancellation of that certain
Continuing Limited Guaranty Agreement, dated January 1995, issued by Grotech
Partners IV, L.P. (the "Guarantor"), on behalf of the general partners of RAAP,
to Fleet Capital, pursuant to which the Guarantor guaranteed an amount up to
Three Million Six Hundred Thousand Dollars ($3,600,000.00) of all debts,
liabilities and obligations of the Company and its affiliates to Fleet Capital
under that certain Loan and Security Agreement, dated January 31, 1994;
(b) to meet any short term working capital shortfall;
(c) to fund the remainder of the Cash Flow Forecast, including
(i) the initial costs of a point of sale system, in the amount equal to Five
Hundred Fifty Thousand Dollars ($550,000.00) and (ii) the office building
renovation, in the amount equal to Two Hundred Thousand Dollars ($200,000.00);
(d) to fund capital expenditures necessary to complete
construction of various of the Company's facilities at stores owned or operated
by J.C. Penney & Company, Inc.; and
(e) to pay any and all expenses relating to this Agreement.
SECTION 5.02. Corporate Existence. Except as contemplated hereunder, the
Company shall maintain its corporate existence, rights and franchises in full
force and effect.
SECTION 5.03. Properties, Business, Insurance. The Company shall maintain,
as to its properties and business, with financially sound and reputable
insurers, insurance against such casualties and contingencies and of such types
and in such amounts as is customary for companies similarly situated (which
shall include Federal flood insurance if the business of the Company is located
in a designated Federal Flood Area), which insurance shall be deemed by the
Company to be sufficient. The Company annually shall supply to the Purchasers a
list of all such insurance policies, which shall be on terms acceptable to the
Purchasers.
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<PAGE>
SECTION 5.04. Amendment of the Designation of the Series C Preferred Stock.
Promptly after the Closing, the Company shall amend and restate Section 11 of
the Designation of the Series C Preferred Stock by deleting Section 11 in its
entirety and inserting the following:
"11. MANDATORY CONVERSION. Each share of Series C Preferred
Stock shall automatically convert 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 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 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"."
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Noncompliance; Events of Default. For so long as
any indebtedness under the Notes (including, but not limited to costs and
expenses of collection and penalties and late fees thereunder) shall be
outstanding, if any of the following events ("Events of Noncompliance") shall
occur and be continuing:
(a) The Company shall either fail to repay the principal on any
of the Notes within ten (10) calendar days of when due; or
(b) The Company shall fail to pay any interest or premium (either
in cash or by adding such interest to the principal amount outstanding) on any
of the Notes; or
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(c) The Company shall default in the performance of any other
covenant or provision of the Loan Documents (which is not addressed by
subsections (a) and (b) above), and such default continues uncured for a period
of thirty (30) days; or
(d) Any representation or warranty made by the Company in the
Loan Documents or by the Company (or any officers of the Company) in any
certificate, instrument or written statement contemplated by or made or
delivered pursuant to or in connection with the Loan Documents, shall prove to
have been incorrect when made in any material respect; or
(e) The Company shall fail to pay any Senior Debt for borrowed
money owing by the Company, or any interest or premium thereon, when due (or, if
permitted by the terms of the relevant document, within any applicable grace
period), whether such Senior Debt shall become due by scheduled maturity, by
required prepayment, by demand or otherwise, or shall fail to perform any term,
covenant or agreement on its part to be performed under any agreement or
instrument evidencing or securing or relating to any Senior Debt owing by the
Company when required to be performed (or, if permitted by the terms of the
relevant document, within any applicable grace period), if the effect of such
failure to pay or perform is to accelerate, or to permit the holders of Senior
Debt to accelerate, the maturity of such Senior Debt; or
(f) The Company shall fail to pay any indebtedness for borrowed
money owing by the Company ("Indebtedness"), other than Senior Debt, for
borrowed money (other than as evidenced by the Notes) owing by the Company, or
any interest or premium thereon, when due (or, if permitted by the terms of the
relevant document, within any applicable grace period), whether such
Indebtedness shall become due by scheduled maturity, by required prepayment, by
acceleration, by demand or otherwise, or shall fail to perform any term,
covenant or agreement on its part to be performed under any agreement or
instrument (other than this Agreement or the Notes) evidencing or securing or
relating to any Indebtedness owing by the Company when required to be performed
(or, if permitted by the terms of the relevant document, within any applicable
grace period), if the effect of such failure to pay or perform is to accelerate,
or to permit the holder or holders of such Indebtedness, or the trustee or
trustees under any such agreement or instrument, to accelerate, the maturity of
such Indebtedness, or
(g) The Company or any subsidiary shall be involved in financial
difficulties as evidenced (i) by its admitting in writing its inability to pay
its debts generally as they become due; (ii) by its commencement of a voluntary
case under Title 11 of the United States Bankruptcy Code as from time to time in
effect, or by its authorizing, by appropriate proceedings of its Board or other
governing body, the commencement of such a voluntary case; (iii) by its filing
an answer or other pleading admitting or failing to deny the material
allegations of a petition filed against it commencing an involuntary case under
said Title 11, or seeking, consenting to or acquiescing in the relief therein
provided, or by its failing to controvert timely the material allegations of any
such petition; (iv) by the
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entry of an order for relief in any involuntary case commenced under said Title
11, which order is not dismissed within sixty (60) days; (v) by its seeking
relief as a debtor under any applicable law, other than said Title 11, of any
jurisdiction relating to the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors, or by its consenting to
or acquiescing in such relief; (vi) by the entry of an order by a court of
competent jurisdiction (A) finding it to be bankrupt or insolvent, (B) ordering
or approving its liquidation, reorganization or any modification or alteration
of the rights of its creditors, or (C) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its property,
which order is not dismissed within sixty (60) days; or (vii) by its making an
assignment for the benefit of, or entering into a composition with, its
creditors, or appointing or consenting to the appointment of a receiver or other
custodian for all or a substantial part of its property; or
(h) Any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against the Company or any subsidiary
or their respective properties in an amount in excess of ten percent (10%) or
more of the value of the Company's assets, income or stockholders' equity, and
such judgment, writ, or similar process shall not be released, vacated or fully
bonded within sixty (60) days after its issue or levy; provided, however, that
the provisions of this Section 6.01(h) shall not apply until the aggregate
amount of the sum of any such judgments, writs, warrants of attachment or
executions shall be greater than or equal to Ten Thousand Dollars ($10,000.00);
then, and in any such event, the holders of a Two-Thirds Interest, by notice to
the Company, may declare an event of default (an "Event of Default"), after
which declaration (i) the entire unpaid principal amount of the Notes, all
interest accrued and unpaid thereon and all other amounts payable under the
Notes shall be forthwith due and payable and (ii) all other amounts due and
payable under the Loan Documents shall be forthwith due and payable (unless
there shall have occurred an Event of Noncompliance under Section 6.01(g), in
which case an Event of Default shall automatically be called and all such
amounts shall automatically become redeemable or due and payable, as the case
may be), without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Company with respect to itself and
any subsidiaries alike.
SECTION 6.02. Annulment of Defaults. Section 6.01 hereof is subject to the
condition that, if at any time after the principal of any of the Notes shall
have become due and payable, and before any judgment or decree for the payment
of the moneys so due shall have been entered, all arrears of interest upon all
the Notes and all other sums payable under the Notes and under this Agreement
(except the principal of the Notes which by such declaration shall have become
payable) shall have been duly paid, and every other default and Event of
Noncompliance shall have been made good or cured, then and in every such case,
the holders of a Two-Thirds Interest, by written instrument filed with the
Company, may rescind and annul such declaration and its consequences; but no
such rescission or annulment shall extend to or affect any other or subsequent
default or Event of Noncompliance or Event of Default or impair any right of the
holders of the Notes consequent thereon.
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ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Fees and Expenses. At or prior to the Closing, the Company
shall pay (a) the fees and disbursements of the Purchaser's counsel, Piper &
Marbury L.L.P. and (b) all other types of Closing costs and recording fees, if
any, in connection with the transactions contemplated hereby.
SECTION 7.02. Survival of Agreements. All covenants, agreements,
representations and warranties made herein, in the Notes, in any Ancillary
Agreement or in any certificate or instrument delivered to the Purchasers
pursuant to or in connection with the foregoing agreements, shall survive the
execution and delivery of this Agreement, the Notes, any Ancillary Agreement,
the issuance, sale and delivery of the Notes, and all statements contained in
any certificate or other instrument delivered by the Company hereunder or
thereunder or in connection herewith or therewith shall be deemed to constitute
representations and warranties made by the Company.
SECTION 7.03. Parties in Interest. All representations, warranties,
covenants and agreements contained in this Agreement, the Notes or any Ancillary
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. Without limiting the generality of the foregoing,
all representations, covenants and agreements benefiting the Purchasers shall
inure to the benefit of any and all subsequent holders from time to time of the
Notes.
SECTION 7.04. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
by overnight express mail, or mailed by certified or registered mail, return
receipt requested, addressed as follows:
(a) If to the Company:
U.S. Vision, Inc.
Glenn Oaks Industrial Park
Glendora, New Jersey 08029
Attention: William A. Schwartz, Jr., President and CEO
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With a copy to:
Sayles & Lidji
4400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attention: Brian M. Lidji, Esquire
(b) If to any Purchaser, at the address of such Purchaser set
forth in the stock records of the Company,
With a copy to:
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
Attention: Jay Gordon Cohen, Esquire
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 7.05. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Maryland, without
giving effect to its conflicts of laws provisions. The parties agree and
acknowledge that each party has retained counsel in connection with the
negotiation and preparation of this Agreement, the Notes and any Ancillary
Agreements, and that any rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall not be employed in the
interpretation of the foregoing agreements or any amendment, schedule or
exhibits thereto.
SECTION 7.06. Entire Agreement. This Agreement, including the Schedules and
Exhibits hereto, together with the Notes and any Ancillary Agreement,
constitutes the sole and entire agreement of the parties and hereto supersedes
all prior agreements and understandings, oral and written, among the parties
hereto with respect to the subject matter hereof. All Schedules and Exhibits
hereto are incorporated herein by reference.
SECTION 7.07. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
SECTION 7.08. Amendments. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the holders of a Two-Thirds Interest.
SECTION 7.09. Severability. Each provision of this Agreement shall be
treated as a separate and independent clause, and the unenforceability of any
one clause shall in no way impair the enforceability of any of the other clauses
herein. Moreover, if one or more of the provisions contained in this Agreement
shall for any reason be held to be excessively broad as to scope, activity,
subject or otherwise so as to be unenforceable at law, such provision or
provisions shall be construed by the appropriate judicial body by limiting or
reducing it or them, so as to be enforceable to the maximum extent compatible
with the applicable law as it shall then appear.
SECTION 7.10. Titles and Subtitles. The titles and subtitles used in this
Agreement are for convenience only and are not to be considered in construing or
interpreting any term or provision of this Agreement.
SECTION 7.11. Recital. The Recitals hereto are specifically made a part of
this Agreement.
SECTION 7.12. WAIVER OF JURY TRIAL. THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY OF ALL CLAIMS OF ANY KIND ARISING FROM OR RELATING TO THIS
AGREEMENT OR THE NOTES. EACH OF THE PARTIES HERETO ACKNOWLEDGE THAT THIS IS A
WAIVER OF A LEGAL RIGHT AND THAT THE PARTIES MAKE THIS WAIVER VOLUNTARILY AND
KNOWINGLY AFTER CONSULTATION WITH COUNSEL OF SUCH PARTY'S CHOICE. THE PARTIES
AGREE THAT ALL SUCH CLAIMS SHALL BE TRIED BEFORE A JUDGE OF A COURT OF COMPETENT
JURISDICTION AND NOT A JURY. THE PARTIES ACKNOWLEDGE THAT THIS WAIVER OF JURY
TRIAL IS A MATERIAL PART OF THE CONSIDERATION OF THE OBLIGATIONS OF THE OTHER
PARTIES ARISING UNDER THIS AGREEMENT AND THE NOTES.
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
ATTEST: U.S. VISION INC., INC.
/s/ By: /s/ (SEAL)
- ---------------------------------- --------------------------
George E. McHenry, Jr., Secretary William A. Schwartz, Jr.,
President and CEO
WITNESS: GROTECH PARTNERS IV, L.P.
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<PAGE>
By: GROTECH CAPITAL GROUP IV, INC.,
GENERAL PARTNER
/s/ By: /s/ (SEAL)
- ----------------------------- ---------------------------
Dennis J. Shaughnessy,
Managing Director
WITNESS: KEYSTONE VENTURE IV, L.P.
By: KEYSTONE VENTURE IV MANAGEMENT
COMPANY, GENERAL PARTNER
By: KVM IV MCGP, INC.,
GENERAL PARTNER
/s/ By: /s/ (SEAL)
- ----------------------------- ---------------------------
G. Kenneth Macrae, President
WITNESS: NEEDHAM CAPITAL PARTNERS, L.P.
By: NEEDHAM CAPITAL MANAGEMENT, L.P.,
GENERAL PARTNER
/s/ By: /s/ (SEAL)
- ----------------------------- ---------------------------
John C. Michaelson, General Partner
WITNESS: THE PENN JANNEY FUND, INC.
/s/ By: /s/ (SEAL)
- ----------------------------- ---------------------------
Richard M. Fox, Executive Vice President
WITNESS: STOLBERG PARTNERS, L.P.
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<PAGE>
By: SGMS, L.P., GENERAL PARTNER
By: STOLBERG PARTNERS, INC.,
GENERAL PARTNER
/s/ By: /s/ (SEAL)
- ----------------------------- ---------------------------
Matthew M. Meehan, Vice President
WITNESS: CONSTITUTION PARTNERS I, L.P.
By: RKM INVESTMENT COMPANY,
GENERAL PARTNER
/s/ By: /s/ (SEAL)
- ----------------------------- ---------------------------
Richard K. McDonald
WITNESS:
/s/ By: /s/ (SEAL)
- ----------------------------- ---------------------------
RICHARD K. MCDONALD
- 20 -
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Percentage Percentage
Interest Additional Interest Aggregate
NAME OF PRINCIPAL Principal Loan Additional Loan
PURCHASERS LOAN AMOUNT Loan Amount Loan Amount
---------- ----------- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
Grotech Partners IV, L.P. $1,948,715.00 38.9743% $974,357.50 44.2890% $2,923,072.50
Keystone Venture IV, L.P. $608,975.00 12.1795% $4,487.50 0.2039% $613,462.50
Stolberg Partners, L.P. $1,522,435.00 30.4487% $761,217.50 34.6008% $2,283,652.50
Penn Janney Fund, Inc. $121,795.00 2.4359% $60,897.50 2.7681% $182,692.50
Needham Capital Partners, L.P. $60,900.00 1.2180% $30,450.00 1.3841% $91,350.00
Richard K. McDonald $250,000.00 5.0000% $125,000.00 5.6818% $375,000.00
Constitution Partners I, L.P. $487,180.00 9.7436% $243,590.00 11.0723% $730,770.00
TOTALS $5,000,000.00 100.0000% $2,200,000.00 100.0000% $7,200,000.00
</TABLE>
- 21 -
<PAGE>
SCHEDULE II
DISCLOSURE SCHEDULE
- 22 -
<PAGE>
SCHEDULE III
Section 102.111 of the regulations promulgated under the Pennsylvania
Securities Act of 1972(a) defines the term "institutional investor" as follows:
Institutional investor. Institutional investor, as defined in section 102(k) of
the act (70 P.S. S1-102(k)), includes:
(1) A corporation or business trust or a wholly-owned subsidiary of the
person which has been in existence for 18 months and which has a tangible net
worth on a consolidated basis, as reflected in its most recent audited financial
statements, of $10 million or more.
(2) A college, university or other public or private institution which has
received exempt status under section 501(c)(3) of the Internal Revenue Code of
1954 (26 U.S.C.A. S501(c)(3)) and which has a total endowment or trust funds,
including annuity and life income funds, of $5 million or more according to its
most recent audited financial statements; provided that the aggregate dollar
amount of securities being sold to the person under the exemption contained in
section 203(c) of the act (70 P.S. S1-203(c)) and this title may not exceed 5%
of the endowment or trust funds.
(3) A wholly-owned subsidiary of a bank as defined in section 102(d) of the
act ((70 P.S. S1-102(d) and S102.041 (relating to banking institution; savings
and loan institution).
(4) A person, except an individual or an entity whose securityholders
consist entirely of one individual or group of individuals who are related,
which is organized primarily for the purpose of purchasing, in non-public
offerings, securities of corporations or issuers engaged in research and
development activities in conjunction with a corporation and which complies with
one of following:
(i) Has purchased $5 million or more of the securities excluding
both of following:
(A) A purchase of securities of a corporation in
which the person directly or beneficially owns more than 50% of the
corporation's voting securities, but securities purchased under a
leveraged buy-out financing in which the person does not intend to
provide direct management to the issuer, in not excluded.
(B) a dollar amount of a purchase of securities of a
corporation which investment represents more than 20% of the person's
net worth.
(ii) Is capitalized at $2.5 million or more and is controlled by
an individual controlling a person which meets the criteria contained in
subparagraph (i).
(iii) Is capitalized at $10 million or more and has purchased
$500,000 or more of the securities, excluding a purchase of securities of a
corporation in which the person directly or beneficially owns more than 50% of
the corporation's voting securities.
(iv) Is capitalized at $250,000 or more and is a side-by-side fund
as defined in subsection (b)(4).
(5) A Small Business Investment Company as the term is defined in section
103 of the Small Business Investment Act of 1958, (15 U.S.C.A. S662) which
either:
(i) Has a total capital of $1 million or more.
(ii) Is controlled by institutional investors as defined in
section 102(k) of the act (70 P.S. S1-102(k))of this section.
III - 1
<PAGE>
(6) A Seed Capital Fund, as defined in section 2 and authorized in section
of the Small Business Incubators Act (73 P.S. SS395.2 and 395.6).
(7) A Business Development Credit Corporation, as authorized by the
Business Development Credit Corporation Law (15 P.S. SS2701 -- 2716).
(8) A person whose securityholders consist solely of institutional
investors or broker-dealers.
(9) A person as to which the issuer reasonably believed qualified as an
institutional investor under this section at the time of the offer or sale of
the securities on the basis of written representations made to the issuer by the
purchaser.
(b) Definitions. The following words and terms, when used in this section, shall
have the following meanings, unless the context clearly indicates otherwise:
(1) Individuals controlling -- A general partner and, in the case of a
corporation, the president and other officers responsible for making investment
decisions with respect to the purchase of the securities described in subsection
(a)(4), if the person is currently engaged in that capacity.
(2) Most recent audited financial statements -- Audited financial
statements dated not more than 16 months prior to the date of the transaction in
which the person proposed to purchase securities in reliance upon the exemption
contained in section 203(c) of the act ((70 P.S. S1-203(c)).
(3) Related -- A relative by marriage residing in the same household or a
blood relative.
(4) Side-by-side fund -- A person which is both of following:
(i) Promoted and controlled by individuals controlling a person
meeting the criteria contained in subsection (a)(4)(i), (ii) or (iii).
(ii) Formed exclusively for the purpose of purchasing securities
of issuers in various amounts and on the same terms and conditions as the person
described in subparagraph (i).
(5) Tangible net worth -- Net worth less the amount of all items of
goodwill, preoperating, deferred or development expenses, patents, trademarks,
licenses or other similar accounts.
[Eff. 9-21-85.]
***
Section 203.184(b) of the regulations promulgated under the Pennsylvania
Securities Act of 1972 defines the term "principal" as follows:
(b) For purposes of this section, the term "principal," means the following:
(1) The chairperson, president, chief executive officer, general manager,
chief operating officer, chief financial officer, vice president or other
officer in charge of a principal business function (including sales,
administration, finance, marketing, research and credit), secretary, treasurer,
controller and any other natural person who performs similar functions, of one
of the following:
(i) The issuer.
(ii) A wholly-owned subsidiary of the issuer.
III - 2
<PAGE>
(iii) A corporation, partnership or other entity which owns the
voting stock or other voting equity interest of the issuer.
(iv) A corporation, partnership or other entity which serves as a
general partner of the issuer.
(2) A director, general partner or comparable person charged by law with
the management of one of the following:
(i) The issuer.
(ii) A wholly-owned subsidiary of the issuer.
(iii) A corporation, partnership or other entity which owns all of
the voting stock or other voting equity interest of the issuer.
(iv) A corporation, partnership or other entity which serves as a
general partner of the issuer.
(3) A beneficial owner of 10% or more of an outstanding class of voting
stock or other voting equity interest of one of following:
(i) The issuer.
(ii) A corporation, partnership or other entity which serves as a
general partner of the issuer.
(4) A promoter of the issuer as defined in section 102(o) of the act (70
P.S. S1-102(o)).
(5) A relative of a person specified in paragraphs (1) -- (4). For purposes
of this subsection, the term "relative" means one of following:
(i) The spouse.
(ii) A parent.
(iii) A grandparent.
(iv) An aunt, uncle, child, child of a spouse, sibling,
mother-in-law, father-in-law, brother-in-law or sister-in-law.
***
The term "institutional buyer" is nowhere defined in the Martin Act. Policy
Statement 105 promulgated under Section 359(g)(2) defines the term
"institutional investor" as "institutions described in Rule 501(a)(1)--(3) of
SEC Regulation D, savings and loan associations, registered broker-dealers, and
corporations having total assets in excess of $5,000,000."
Sections 501(a)(1)--(3) of SEC Regulation D provide as follows:
(1) Any bank as defined in Section 3(a)(2) of the Act or any savings and
loan association or other institution as defined in Section 3(a)(5)(A) of the
Act whether acting in its individual or fiduciary capacity; any broker dealer
registered pursuant to Section 15 of the Securities Exchange Act of 1934; any
insurance company as defined in Section 2(13) of the Act; any investment company
registered under the Investment Company Act of 1940 or a business
III - 3
<PAGE>
development company as defined in Section 2(a)(48) of that Act; any Small
Business Investment Company licensed by the U.S. Small Business Administration
under Section 301(c) or (d) of the Small Business Investment Act of 1958; any
plan established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of $5,000,000;
any employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank , savings and loan
association, insurance company, or registered investment adviser, or if the
employee benefit plan has total assets in excess of $5,000,000, or, if a
self-directed plan, with investment decisions made solely by persons that are
accredited investors;
(2) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000;
III - 4
<PAGE>
EXHIBIT A
THIS PROMISSORY NOTE (THIS "NOTE") HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS. THIS
NOTE MAY NOT BE SOLD, OFFERED FOR RESALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO U.S. VISION, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
PROMISSORY NOTE
$ January 10, 1996
---------------------
FOR VALUE RECEIVED, U.S. VISION, INC., a Pennsylvania
corporation (the "Borrower"), promises to pay to the order of
___________________, a ___________________ (together with its successors and
assigns, the "Holder"), the principal amount of ___________________ Dollars
($_______.00) (together with any interest added thereto in accordance with the
provisions of the next paragraph, the "Principal Amount") on March 31, 1997.
Additionally, the Borrower promises to pay to the order of the
Holder interest on the unpaid balance of the Principal Amount from the date
hereof until the maturity of this Note (whether by acceleration, declaration,
extension, or otherwise) (hereinafter, the "Maturity") at the rate of twenty
percent (20.0%) per annum. Interest accrued on the unpaid balance of the
Principal Amount from the date hereof until the Maturity during each year shall
be paid quarterly in cash by the Borrower to the Holder on March 31, June 30,
September 30 and December 31 of each year (each, an "Interest Payment Date"),
commencing March 31, 1996, until the Maturity or, alternatively, at the option
of the Borrower, by adding to the Principal Amount the amount of the interest
payment due and payable by the Borrower to the Holder hereunder. If the Borrower
shall not have paid any interest due hereunder on or before the fifth (5th)
Business Day immediately following an Interest Payment Date, then the Borrower
shall be deemed to have elected to add such interest payment to the Principal
Amount. As used herein, the term "Business Day" shall mean each day on which
banks (as such term is defined in Section 3(a)(2) of the Securities Act of 1933,
as amended) are open for business in New York, New York.
Interest shall be computed on the basis of a three hundred
sixty (360)-day year of twelve (12) equal months and the actual number of days
elapsed.
<PAGE>
After the Maturity, the Borrower promises to pay to the Holder
upon demand interest on the unpaid balance of the Principal Amount from the date
of Maturity until the Principal Amount, together with all accrued and unpaid
interest thereon and other charges, has been paid at a rate equal to the rate of
interest otherwise payable on this Note plus five percent (5%) per annum.
All payments on account of this Note, when paid, shall be
applied first to the payment of any outstanding fees and charges hereunder, then
to all interest then due on the unpaid balance of the Principal Amount, and the
balance, if any, shall be applied in reduction of the unpaid balance of the
Principal Amount.
This Note is one of a series of subordinated promissory notes
(collectively, the "Notes") of like tenor, issued by the Borrower pursuant to
the terms of that certain Subordinated Promissory Note Purchase Agreement, dated
as of even date herewith, by and among the Borrower and each of the several
Purchasers listed in Schedule I thereto (as the same may be amended from time to
time, the "Purchase Agreement"). Capitalized terms not herein defined shall have
the meanings ascribed to them by the Purchase Agreement.
The Holder is entitled to the rights and benefits of the
Purchase Agreement, which provides, inter alia, that upon the occurrence of an
Event of Default, the Maturity of this Note may be accelerated and the unpaid
balance of the Principal Amount then outstanding, together with interest accrued
and unpaid thereon, may be declared to be immediately due and payable at the
option of the Holder without demand, notice, presentment, and protest, all of
which are hereby waived by the Borrower.
The Borrower may prepay the unpaid balance of the Principal
Amount in whole at any time or in part from time to time without premium or
penalty; provided, however, that (a) each prepayment shall be in the aggregate
amount of an integral multiple of One Hundred Thousand Dollars ($100,000.00),
(b) any such prepayment is accompanied by any fees and charges owing and by
interest accrued and unpaid on the amount so prepaid to the date of such
prepayment, and (c) that any such prepayment of the unpaid Principal Amount
shall be made on a pro rata basis to each of the holders of the Notes.
All payments of the unpaid balance of the Principal Amount and
interest thereon shall be paid in lawful money of the United States of America
during regular business hours at the address of the Holder listed in the stock
records of the Company or at such other place as the Holder may at any time or
from time to time designate in writing to the Borrower.
Upon the declaration of an Event of Default, as defined in
Article VI of the Purchase Agreement, the Holder may, at its option, declare the
entire unpaid balance of the Principal Amount,
<PAGE>
together with all accrued and unpaid interest thereon, to become immediately due
and payable. Failure to exercise this option, however, shall not constitute any
waiver of a right to exercise the same in the event of a subsequent Event of
Default.
The rights and remedies of the Holder hereunder and under the
Purchase Agreement shall be cumulative and concurrent and may be pursued
singularly, successively, or together at the sole discretion of the Holder and
may be exercised as often as occasion therefor shall occur, and the failure to
exercise any such right or remedy shall in no event be construed as a waiver or
release of the same or any other right or remedy.
No modification, change, waiver or amendment of this Note
shall be deemed to be made by the Holder unless in writing signed by the Holder,
and each such waiver, if any, shall apply only with respect to the specific
instance involved.
This Note shall be governed and construed under the internal
laws of the State of Maryland, without reference to the laws of conflicts in
effect therein.
The Borrower hereby stipulates and warrants that the loan evidenced hereby
is a Commercial Loan within the meaning of Title 12 of Commercial Law Article of
the Annotated Code of Maryland (1990) Replacement Volume and 1995 Cumulative
Supplement, as amended), and that all proceeds of such loan will be used solely
to acquire or carry on a business or commercial enterprise, as those terms are
used therein.
The Borrower agrees that all claims of any kind arising from
or relating to this Note shall be brought in a court of competent jurisdiction
in the State of Maryland and agrees to the jurisdiction of the Maryland courts
(including the United States District Court for the District of Maryland) in all
such matters. The Borrower waives all objections to venue.
THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY IS AND SHALL
BE SUBORDINATED IN THE MANNER AND ONLY TO THE EXTENT SET FORTH IN A
SUBORDINATION AGREEMENT BY THE BORROWER AND THE HOLDER IN FAVOR OF FLEET CAPITAL
CORPORATION (THE "SENIOR LENDER"), AND EACH SUBSEQUENT HOLDER OF THIS NOTE, BY
ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE SUBORDINATION AGREEMENT.
THE BORROWER HEREBY WAIVES (A) PRESENTMENT OR DEMAND FOR
PAYMENT OF THIS NOTE, (B) NOTICE OF DISHONOR OF THIS NOTE, (C) PROTEST OF
DISHONOR OF THIS NOTE AND (D) NOTICE OF NONPAYMENT OF THIS NOTE.
<PAGE>
IF THIS NOTE IS NOT PAID AT MATURITY, THE BORROWER HEREBY
AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD WITHIN THE UNITED
STATES TO APPEAR FOR IT IN ANY COURT IN ONE OR MORE PROCEEDINGS OR BEFORE ANY
CLERK THEREOF, AND CONFESS JUDGMENT AGAINST IT, WITHOUT PRIOR NOTICE, OR
OPPORTUNITY TO PRIOR HEARING, IN FAVOR OF THE HOLDER FOR THE THEN UNPAID BALANCE
OF THE PRINCIPAL SUM, WITH INTEREST ACCRUED THEREON AND THE COST OF SUIT AND AN
ATTORNEY'S FEE OF FIFTEEN PERCENT (15%) OF SUCH UNPAID BALANCE OF THE PRINCIPAL
SUM, HEREBY WAIVING AND RELEASING, TO THE EXTENT PERMITTED BY LAW, ALL ERRORS
AND DEFENSES AND ALL RIGHTS OF EXEMPTION, APPEAL, STAY OF EXECUTION, INQUISITION
AND EXTENSION UPON ANY LEVY ON REAL ESTATE OR PERSONAL PROPERTY TO WHICH IT MAY
OTHERWISE BE ENTITLED UNDER THE LAWS OF THE UNITED STATES OR OF ANY STATE OR
POSSESSION OF THE UNITED STATES NOW IN FORCE OR WHICH MAY HEREAFTER BE PASSED.
NO SINGLE EXERCISE OF THE FOREGOING POWER TO CONFESS JUDGMENT SHALL BE DEEMED TO
EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT
TO BE INVALID, VOIDABLE OR VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED, AND
IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE HOLDER OF THIS NOTE SHALL
ELECT, UNTIL SUCH TIME AS THE HOLDER OF THIS NOTE SHALL HAVE RECEIVED PAYMENT IN
FULL OF ALL INDEBTEDNESS OF THE BORROWER TO THE HOLDER OF THIS NOTE.
THE BORROWER WAIVES ALL RIGHT TO TRIAL BY JURY OF ALL CLAIMS
OF ANY KIND ARISING FROM OR RELATING TO THIS NOTE. THE BORROWER ACKNOWLEDGES
THAT THIS IS A WAIVER OF A LEGAL RIGHT AND THAT THE BORROWER MAKES THIS WAIVER
VOLUNTARILY AND KNOWINGLY AFTER CONSULTATION WITH COUNSEL OF THE BORROWER'S
CHOICE. THE BORROWER AGREES THAT ALL SUCH CLAIMS SHALL BE TRIED BEFORE A JUDGE
OF A COURT OF COMPETENT JURISDICTION, AND NOT A JURY. THE BORROWER ACKNOWLEDGES
THAT THIS WAIVER OF JURY TRIAL IS A MATERIAL PART OF THE CONSIDERATION FOR THE
OBLIGATION EVIDENCED BY THIS NOTE.
IN WITNESS WHEREOF, U.S. Vision, Inc. has caused this Note to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer on the date first above written.
ATTEST: U.S. VISION, INC.
__________________________________ By: _________________________(SEAL)
George E. McHenry, Jr., Secretary William A. Schwartz, Jr.,
President and CEO
<PAGE>
EXHIBIT B
THIS PROMISSORY NOTE (THIS "NOTE") HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS. THIS
NOTE MAY NOT BE SOLD, OFFERED FOR RESALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO U.S. VISION, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
DEMAND PROMISSORY NOTE
$700,000.00 January 5, 1996
For value received, U.S. VISION, INC., a Pennsylvania
corporation (the "Borrower"), promises to pay to the order of GROTECH PARTNERS
IV, L.P. (together with its successors and assigns and any subsequent holder of
this Note, the "Holder") the principal amount of Seven Hundred Thousand Dollars
($700,000.00) (together with any interest added thereto in accordance with the
provisions of the next paragraph, the "Principal Amount") upon the demand of the
Holder.
Additionally, the Borrower promises to pay to the order of the
Holder interest on the unpaid balance of the Principal Amount from the date
hereof until the date on which the Holder demands payment in full of the
Principal Amount (hereinafter, the "Maturity Date") at the rate of fifteen
percent (15%) per annum. Interest accrued on the unpaid balance of the Principal
Amount from the date hereof until the Maturity Date during each year shall be
paid quarterly in cash by the Borrower to the Holder on March 31, June 30,
September 30 and December 31 of each year (each, an "Interest Payment Date"),
commencing March 31, 1996, until the Maturity Date or, alternatively, at the
option of the Borrower, by adding to the Principal Amount the amount of the
interest payment due and payable by the Borrower to the Holder hereunder. If the
Borrower shall not have paid any interest due hereunder on or before the fifth
(5th) Business Day immediately following an Interest Payment Date, then the
Borrower shall be deemed to have elected to add such interest payment to the
Principal Amount. As used herein, the term "Business Day" shall mean each day on
which banks (as such term is defined in Section 3(a)(2) of the Securities Act of
1933, as amended) are open for business in New York, New York.
Interest shall be computed on the basis of a three hundred
sixty (360)-day year of twelve (12) equal months and the actual number of days
elapsed.
After the Maturity Date, the Borrower promises to pay to the
Holder upon demand interest on the unpaid balance of the Principal Amount from
the Maturity Date until the Principal Amount, together with all accrued and
unpaid interest thereon and other charges, has been paid at a rate equal to the
rate of interest otherwise payable on this Note plus five percent (5%) per
annum.
<PAGE>
All payments on account of this Note, when paid, shall be
applied first to the payment of any outstanding fees and charges hereunder, then
to all interest then due on the unpaid balance of the Principal Amount, and the
balance, if any, shall be applied in reduction of the unpaid balance of the
Principal Amount.
This Note is one of a series of Demand Promissory Notes
(collectively, the "Notes") of like tenor, in the aggregate principal amount of
One Million Four Hundred Thousand Dollars ($1,400,000.00), issued by the
Borrower to each of Grotech Partners IV, L.P. and Stolberg Partners, L.P.
on the date hereof.
The Borrower may prepay the unpaid balance of the Principal
Amount in whole at any time or in part from time to time without premium or
penalty; provided, however, that (a) each prepayment shall be in the aggregate
amount of an integral multiple of One Hundred Thousand Dollars ($100,000.00),
(b) any such prepayment is accompanied by any fees and charges owing and by
interest accrued and unpaid on the amount so prepaid to the date of such
prepayment, and (c) that any such prepayment of the unpaid Principal Amount
shall be made on a pro rata basis to each of the holders of the Notes.
All payments of the unpaid balance of the Principal Amount and
interest thereon shall be paid in lawful money of the United States of America
during regular business hours at the address of the Holder listed in the stock
records of the Company or at such other place as the Holder may at any time or
from time to time designate in writing to the Borrower.
The rights and remedies of the Holder hereunder shall be
cumulative and concurrent and may be pursued singularly, successively, or
together at the sole discretion of the Holder and may be exercised as often as
occasion therefor shall occur, and the failure to exercise any such right or
remedy shall in no event be construed as a waiver or release of the same or any
other right or remedy.
No modification, change, waiver or amendment of this Note
shall be deemed to be made by the Holder unless in writing signed by the Holder,
and each such waiver, if any, shall apply only with respect to the specific
instance involved.
This Note shall be governed and construed under the internal
laws of the State of Maryland, without reference to the laws of conflicts in
effect therein.
The Borrower agrees that all claims of any kind arising from
or relating to this Note shall be brought in a court of competent jurisdiction
in the State of Maryland and agrees to the jurisdiction of the Maryland courts
(including the United States District Court for the District of Maryland) in all
such matters. The Borrower waives all objections to venue.
2
<PAGE>
The Borrower hereby stipulates and warrants that the loan evidenced hereby
is a Commercial Loan within the meaning of Title 12 of Commercial Law Article of
the Annotated Code of Maryland (1990) Replacement Volume and 1995 Cumulative
Supplement, as amended), and that all proceeds of such loan will be used solely
to acquire or carry on a business or commercial enterprise, as those terms are
used therein.
THE BORROWER HEREBY WAIVES (A) PRESENTMENT OR DEMAND FOR
PAYMENT OF THIS NOTE, (B) NOTICE OF DISHONOR OF THIS NOTE, (C) PROTEST OF
DISHONOR OF THIS NOTE AND (D) NOTICE OF NONPAYMENT OF THIS NOTE.
IF THIS NOTE IS NOT PAID AT MATURITY, THE BORROWER HEREBY
AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD WITHIN THE UNITED
STATES TO APPEAR FOR IT IN ANY COURT IN ONE OR MORE PROCEEDINGS OR BEFORE ANY
CLERK THEREOF, AND CONFESS JUDGMENT AGAINST IT, WITHOUT PRIOR NOTICE, OR
OPPORTUNITY TO PRIOR HEARING, IN FAVOR OF THE HOLDER FOR THE THEN UNPAID BALANCE
OF THE PRINCIPAL SUM, WITH INTEREST ACCRUED THEREON AND THE COST OF SUIT AND AN
ATTORNEY'S FEE OF FIFTEEN PERCENT (15%) OF SUCH UNPAID BALANCE OF THE PRINCIPAL
SUM, HEREBY WAIVING AND RELEASING, TO THE EXTENT PERMITTED BY LAW, ALL ERRORS
AND DEFENSES AND ALL RIGHTS OF EXEMPTION, APPEAL, STAY OF EXECUTION, INQUISITION
AND EXTENSION UPON ANY LEVY ON REAL ESTATE OR PERSONAL PROPERTY TO WHICH IT MAY
OTHERWISE BE ENTITLED UNDER THE LAWS OF THE UNITED STATES OR OF ANY STATE OR
POSSESSION OF THE UNITED STATES NOW IN FORCE OR WHICH MAY HEREAFTER BE PASSED.
NO SINGLE EXERCISE OF THE FOREGOING POWER TO CONFESS JUDGMENT SHALL BE DEEMED TO
EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT
TO BE INVALID, VOIDABLE OR VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED, AND
IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE HOLDER OF THIS NOTE SHALL
ELECT, UNTIL SUCH TIME AS THE HOLDER OF THIS NOTE SHALL HAVE RECEIVED PAYMENT IN
FULL OF ALL INDEBTEDNESS OF THE BORROWER TO THE HOLDER OF THIS NOTE.
THE BORROWER WAIVES ALL RIGHT TO TRIAL BY JURY OF ALL CLAIMS
OF ANY KIND ARISING FROM OR RELATING TO THIS NOTE. THE BORROWER ACKNOWLEDGES
THAT THIS IS A WAIVER OF A LEGAL RIGHT AND THAT THE BORROWER MAKES THIS WAIVER
VOLUNTARILY AND KNOWINGLY AFTER CONSULTATION WITH COUNSEL OF THE BORROWER'S
CHOICE. THE BORROWER AGREES THAT ALL SUCH CLAIMS SHALL BE TRIED BEFORE A JUDGE
OF A COURT OF COMPETENT JURISDICTION, AND NOT A JURY. THE BORROWER ACKNOWLEDGES
3
<PAGE>
THAT THIS WAIVER OF JURY TRIAL IS A MATERIAL PART OF THE CONSIDERATION FOR THE
OBLIGATION EVIDENCED BY THIS NOTE.
IN WITNESS WHEREOF, U.S. Vision, Inc. has caused this Note to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer on the date first above written.
ATTEST: U.S. VISION, INC.
_________________________________ By: ____________________________(SEAL)
George E. McHenry, Jr., Secretary William A. Schwartz, Jr.,
President and CEO
4
<PAGE>
THIS PROMISSORY NOTE (THIS "NOTE") HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS. THIS
NOTE MAY NOT BE SOLD, OFFERED FOR RESALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO U.S. VISION, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
DEMAND PROMISSORY NOTE
$700,000.00 January 5, 1996
For value received, U.S. VISION, INC., a Pennsylvania
corporation (the "Borrower"), promises to pay to the order of STOLBERG PARTNERS,
L.P. (together with its successors and assigns and any subsequent holder of this
Note, the "Holder") the principal amount of Seven Hundred Thousand Dollars
($700,000.00) (together with any interest added thereto in accordance with the
provisions of the next paragraph, the "Principal Amount") upon the demand of the
Holder.
Additionally, the Borrower promises to pay to the order of the
Holder interest on the unpaid balance of the Principal Amount from the date
hereof until the date on which the Holder demands payment in full of the
Principal Amount (hereinafter, the "Maturity Date") at the rate of fifteen
percent (15%) per annum. Interest accrued on the unpaid balance of the Principal
Amount from the date hereof until the Maturity Date during each year shall be
paid quarterly in cash by the Borrower to the Holder on March 31, June 30,
September 30 and December 31 of each year (each, an "Interest Payment Date"),
commencing March 31, 1996, until the Maturity Date or, alternatively, at the
option of the Borrower, by adding to the Principal Amount the amount of the
interest payment due and payable by the Borrower to the Holder hereunder. If the
Borrower shall not have paid any interest due hereunder on or before the fifth
(5th) Business Day immediately following an Interest Payment Date, then the
Borrower shall be deemed to have elected to add such interest payment to the
Principal Amount. As used herein, the term "Business Day" shall mean each day on
which banks (as such term is defined in Section 3(a)(2) of the Securities Act of
1933, as amended) are open for business in New York, New York.
Interest shall be computed on the basis of a three hundred
sixty (360)-day year of twelve (12) equal months and the actual number of days
elapsed.
After the Maturity Date, the Borrower promises to pay to the
Holder upon demand interest on the unpaid balance of the Principal Amount from
the Maturity Date until the Principal Amount, together with all accrued and
unpaid interest thereon and other charges, has been paid at a rate equal to the
rate of interest otherwise payable on this Note plus five percent (5%) per
annum.
<PAGE>
All payments on account of this Note, when paid, shall be
applied first to the payment of any outstanding fees and charges hereunder, then
to all interest then due on the unpaid balance of the Principal Amount, and the
balance, if any, shall be applied in reduction of the unpaid balance of the
Principal Amount.
This Note is one of a series of Demand Promissory Notes
(collectively, the "Notes") of like tenor, in the aggregate principal amount of
One Million Four Hundred Thousand Dollars ($1,400,000.00), issued by the
Borrower to each of Grotech Partners IV, L.P. and Stolberg Partners, L.P.
on the date hereof.
The Borrower may prepay the unpaid balance of the Principal
Amount in whole at any time or in part from time to time without premium or
penalty; provided, however, that (a) each prepayment shall be in the aggregate
amount of an integral multiple of One Hundred Thousand Dollars ($100,000.00),
(b) any such prepayment is accompanied by any fees and charges owing and by
interest accrued and unpaid on the amount so prepaid to the date of such
prepayment, and (c) that any such prepayment of the unpaid Principal Amount
shall be made on a pro rata basis to each of the holders of the Notes.
All payments of the unpaid balance of the Principal Amount and
interest thereon shall be paid in lawful money of the United States of America
during regular business hours at the address of the Holder listed in the stock
records of the Company or at such other place as the Holder may at any time or
from time to time designate in writing to the Borrower.
The rights and remedies of the Holder hereunder shall be
cumulative and concurrent and may be pursued singularly, successively, or
together at the sole discretion of the Holder and may be exercised as often as
occasion therefor shall occur, and the failure to exercise any such right or
remedy shall in no event be construed as a waiver or release of the same or any
other right or remedy.
No modification, change, waiver or amendment of this Note
shall be deemed to be made by the Holder unless in writing signed by the Holder,
and each such waiver, if any, shall apply only with respect to the specific
instance involved.
This Note shall be governed and construed under the internal
laws of the State of Maryland, without reference to the laws of conflicts in
effect therein.
The Borrower agrees that all claims of any kind arising from
or relating to this Note shall be brought in a court of competent jurisdiction
in the State of Maryland and agrees to the jurisdiction of the Maryland courts
(including the United States District Court for the District of Maryland) in all
such matters. The Borrower waives all objections to venue.
6
<PAGE>
The Borrower hereby stipulates and warrants that the loan evidenced hereby
is a Commercial Loan within the meaning of Title 12 of Commercial Law Article of
the Annotated Code of Maryland (1990) Replacement Volume and 1995 Cumulative
Supplement, as amended), and that all proceeds of such loan will be used solely
to acquire or carry on a business or commercial enterprise, as those terms are
used therein.
THE BORROWER HEREBY WAIVES (A) PRESENTMENT OR DEMAND FOR
PAYMENT OF THIS NOTE, (B) NOTICE OF DISHONOR OF THIS NOTE, (C) PROTEST OF
DISHONOR OF THIS NOTE AND (D) NOTICE OF NONPAYMENT OF THIS NOTE.
IF THIS NOTE IS NOT PAID AT MATURITY, THE BORROWER HEREBY
AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD WITHIN THE UNITED
STATES TO APPEAR FOR IT IN ANY COURT IN ONE OR MORE PROCEEDINGS OR BEFORE ANY
CLERK THEREOF, AND CONFESS JUDGMENT AGAINST IT, WITHOUT PRIOR NOTICE, OR
OPPORTUNITY TO PRIOR HEARING, IN FAVOR OF THE HOLDER FOR THE THEN UNPAID BALANCE
OF THE PRINCIPAL SUM, WITH INTEREST ACCRUED THEREON AND THE COST OF SUIT AND AN
ATTORNEY'S FEE OF FIFTEEN PERCENT (15%) OF SUCH UNPAID BALANCE OF THE PRINCIPAL
SUM, HEREBY WAIVING AND RELEASING, TO THE EXTENT PERMITTED BY LAW, ALL ERRORS
AND DEFENSES AND ALL RIGHTS OF EXEMPTION, APPEAL, STAY OF EXECUTION, INQUISITION
AND EXTENSION UPON ANY LEVY ON REAL ESTATE OR PERSONAL PROPERTY TO WHICH IT MAY
OTHERWISE BE ENTITLED UNDER THE LAWS OF THE UNITED STATES OR OF ANY STATE OR
POSSESSION OF THE UNITED STATES NOW IN FORCE OR WHICH MAY HEREAFTER BE PASSED.
NO SINGLE EXERCISE OF THE FOREGOING POWER TO CONFESS JUDGMENT SHALL BE DEEMED TO
EXHAUST THE POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT
TO BE INVALID, VOIDABLE OR VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED, AND
IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE HOLDER OF THIS NOTE SHALL
ELECT, UNTIL SUCH TIME AS THE HOLDER OF THIS NOTE SHALL HAVE RECEIVED PAYMENT IN
FULL OF ALL INDEBTEDNESS OF THE BORROWER TO THE HOLDER OF THIS NOTE.
THE BORROWER WAIVES ALL RIGHT TO TRIAL BY JURY OF ALL CLAIMS
OF ANY KIND ARISING FROM OR RELATING TO THIS NOTE. THE BORROWER ACKNOWLEDGES
THAT THIS IS A WAIVER OF A LEGAL RIGHT AND THAT THE BORROWER MAKES THIS WAIVER
VOLUNTARILY AND KNOWINGLY AFTER CONSULTATION WITH COUNSEL OF THE BORROWER'S
CHOICE. THE BORROWER AGREES THAT ALL SUCH CLAIMS SHALL BE TRIED BEFORE A JUDGE
OF A COURT OF COMPETENT JURISDICTION, AND NOT A JURY. THE BORROWER ACKNOWLEDGES
THAT THIS WAIVER OF JURY TRIAL IS A MATERIAL PART OF THE CONSIDERATION FOR THE
OBLIGATION EVIDENCED BY THIS NOTE.
<PAGE>
IN WITNESS WHEREOF, U.S. Vision, Inc. has caused this Note to be signed by
its duly authorized officer under its corporate seal, attested by its duly
authorized officer on the date first above written.
ATTEST: U.S. VISION, INC.
_________________________________ By: ____________________________(SEAL)
George E. McHenry, Jr., Secretary William A. Schwartz, Jr.,
President and CEO
8
<PAGE>
EXHIBIT C
WIRE INSTRUCTIONS FOR DELIVERY OF PURCHASE PRICE
NAME OF BANK: First National Bank of Maryland
ABA #: 052-000-113
FOR CREDIT TO: Piper & Marbury L.L.P. Attorney Escrow Account
ACCOUNT #: 074-88-093
REFERENCE: U.S. Vision, Inc.
If you should need further instructions, please phone Mr. Michael Porter at
(410) 576-1283.
<PAGE>
AMENDMENT
TO
SUBORDINATED PROMISSORY NOTE PURCHASE AGREEMENT
This Amendment ("Amendment") to Subordinated Promissory Note Purchase
Agreement is made as of April 7, 1997, by and among U.S. Vision, Inc., a
Delaware corporation (the "Company"), the successor by merger to U.S. Vision,
Inc., a Pennsylvania corporation ("Old USV"), and each of several Purchasers
listed in Schedule I (each a "Purchaser" and collectively, the "Purchasers"),
and is effective as of January 29, 1997.
WHEREAS, Old USV and the Purchasers are parties to that certain
Subordinated Promissory Note Purchase Agreement dated January 10, 1996 (the
"Agreement"). Capitalized terms therein defined all have the meaning ascribed to
them by the Agreement.
WHEREAS, the Purchasers loaned the Company Seven Million Two Hundred
Thousand Dollars ($7,200,000.00) under the Agreement, and, as of January 29,
1997 the total amount outstanding under the notes issued under the Agreement
(the "1996 Promissory Notes"), including interest, was Eight Million Eight
Hundred Thirty Seven Thousand Four Hundred Eighty Three Dollars ($8,837,483.00)
(the "Original Sub-Debt").
WHEREAS, on January 29, 1997 the Purchasers and Old USV agreed to
refinance the Original Sub-Debt with a new loan in the amount of Eight Million
Eight Hundred Thirty Seven Thousand Four Hundred Eighty Three Dollars
($8,837,483.00) on the terms and conditions provided in this Amendment (the
"Loan").
WHEREAS, on March 18, 1997, Old USV was merged with and into the
Company to reincorporate Old USV in the State of Delaware.
WHEREAS, Commerce Bank, N.A. ("Commerce Bank"), the Company's senior
lender, has consented to the transactions contemplated by this Amendment on the
condition that each Purchaser executes a Subordination Agreement in the form of
attached Exhibit A (the "Subordination Agreement").
WHEREAS, all capitalized terms not defined in this Amendment are used
as defined in the Agreement.
NOW, THEREFORE, for and in consideration of the terms and conditions
set forth herein, the parties hereto agree as follows:
Section 1. Amendment to Agreement. The Agreement is hereby amended as
follows:
(a) Section 1.01 of the Agreement is amended in its entirety as
follows:
Issuance, Sale, and Delivery of Promissory Notes. Subject to
the terms and conditions of this Amendment, the Company agrees to issue
and sell to each Purchaser, and each Purchaser, severally and not
jointly, hereby agrees to purchase from the Company, a Promissory Note
in the form of Exhibit B (a "Promissory Note") in the principal amount
set forth opposite such Purchaser's name in Schedule I hereto under the
heading "Principal Loan Amount" in exchange for the 1996 Promissory
Note or Notes held by that Purchaser.
(b) Section 1.02 (a) and (b) of the Agreement is amended in its
entirety as follows:
<PAGE>
(a) The purchase and sale of the Promissory Notes shall take place
at the offices of Piper & Marbury L.L.P., 36 South Charles
Street, Baltimore, Maryland 21201 at 10:00 a.m. (Baltimore
time) on April 14, 1997, or at such other date, time, and
location as may be agreed upon between the Purchasers and the
Company (such event being called the "Closing" and such date
and time being called the "Closing Date").
(b) On or before the Closing Date:
(i) the Company shall deliver to each Purchaser:
(A) an executed copy of the Amendment;
(B) an executed Promissory Note payable to the
order of such Purchaser in the original
principal amount equal to the amount as set
forth opposite such Purchaser's name on
Schedule I hereto under the heading
"Principal Loan Amount"; and
(C) payment in full of such Purchaser's share of
the Loan Fee in accordance with the
provisions of Section 1.04;
(ii) each of the Purchasers shall deliver to the Company:
(A) the 1996 Promissory Notes issued under the
Agreement and held by that Purchaser, and
(B) an executed copy of the Amendment; and
(iii) the Company and each of the Purchasers shall deliver to
Commerce Bank:
(A) an executed copy of the Subordination Agreement.
(c) Section 1.04(a) of the Agreement is amended in its entirety as
follows:
(a) Loan Fee. On or before the Closing Date the Company shall deliver a
fee (the "Loan Fee") of Four Hundred Forty One Thousand Eight Hundred
Seventy Four Dollars and seventeen cents ($441,874.17), such amount
being equal to five percent (5%) of the Loan, to the Purchasers' Agent
("Agent"), Piper & Marbury, L.L.P., who will then distribute to each
Purchaser that Purchaser's share of the Loan Fee, as set forth on
Schedule I.
Section 2. Documents Otherwise Changed. This Amendment embodies the
entire agreement of the parties (and supersedes any prior agreements or
understandings) with respect to the subject matter hereof. Except as modified or
supplemented herein, the Agreement shall remain unchanged and in full force and
effect.
Section 3. Counterparts. This Amendment may be executed in several
counterparts, all of which
taken together shall constitute one single agreement between the parties hereto.
Section 4. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and any respective successors and
assigns.
<PAGE>
Section 5. Governing Law. This Amendment shall be deemed to be an
agreement made under, and shall be construed in accordance with, the laws of the
State of Maryland without giving effect to conflict of laws principals.
<PAGE>
IN WITNESS WHEREOF, the Company and each of the Purchasers have each
caused this Agreement to be signed and delivered by its duly authorized officer,
all as of the date set forth above.
U.S. VISION, INC. GROTECH PARTNERS IV, L.P.
By: Grotech Capital Group IV, LLC.,
General Partner
By:/s/
-----------------------
Title: By: /s/
-------------------- -------------------------------------
Attest:
-------------------
STYL-RITE OPTICAL MFG. CO., INC. STOLBERG PARTNERS, L.P.
By: SGMS, L.P., General Partner
By: Stolberg Partners, Inc.,
General Partner
By:/s/
-----------------------
Title: By: /s/
-------------------- -------------------------------------
Attest: Matthew M. Meehan, V.P.
-------------------
USV OPTICAL, INC. KEYSTONE VENTURE IV, L.P.
By: Keystone Venture IV Management
Company, General Partner
By:/s/ By: KVM IV MCGP, Inc.,
----------------------- General Partner
Title: By: /s/
-------------------- -------------------------------------
Attest: G. Kenneth Macrae, President
-------------------
THE PENN JANNEY FUND, INC. CONSTITUTION PARTNERS I, L.P.
By: RKM Investment Company,
General Partner
By: /s/
-------------------------- By:/s/
Richard M. Fox, President --------------------------------------
Richard K. McDonald
RICHARD K. MCDONALD By: Needham Capital Management,
L.P., General Partner
M & M GENERAL PARTNERSHIP
By:/s/
--------------------------------------
George A. Needham,Chairman & CEO
By:/s/
------------------------------------
Richard K. McDonald, General Partner
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
PERCENTAGE NEW
NAME OF OLD AGGREGATE LOAN LOAN
PURCHASERS LOAN AMOUNT AMOUNT AMOUNT LOAN FEE
---------- ----------- ------ ------ --------
<S> <C> <C> <C> <C>
Grotech Partners IV, L.P. $2,923,072.50 40.5982 $3,587,861.60 $179,393.08
Keystone Venture IV, L.P. 613,462.50 8.5203 752,981.17 37,649.06
Stolberg Partners, L.P. 2,283,652.50 31.7174 2,803,019.46 140,150.98
Penn Janney Fund, Inc. 182,692.50 2.5374 224,241.93 11,212.10
Needham Capital Partners, L.P. 91,350.00 1.2688 112,125.57 5,606.28
Richard K. McDonald 375,000.00 5.2083 460,285.57 23,014.28
Constitution Partners I, L.P. 730,770.00 10.1496 896,967.70 44,848.39
TOTALS $7,200,000.00 100% $837,483.00 $441,874.17
</TABLE>
<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.
2
<PAGE>
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
3
<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
4
<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
5
<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
6
<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
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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
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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>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is dated as of October 1, 1997, by and
between U.S. Vision, Inc., a Delaware corporation ("Company"), and William A.
Schwartz, Jr. ("Executive").
RECITALS
The Executive is a key employee of Company and has made and is expected
to continue to make major contributions to the profitability, growth and
financial strength of Company.
Company desires to induce its key employees to remain in the employment
of Company on certain terms and conditions and Executive desires to remain
employed by Company on such terms and conditions.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties do hereby mutually agree as follows:
1. Term of Employment. This Agreement shall, subject to Sections 4 and
5 hereof, remain in effect for three (3) years from the effective date and shall
be automatically and repeatedly renewed for successive one (1) year periods
thereafter (the "Term of Employment").
2. Position and Responsibilities. Company hereby agrees to employ
Executive as a member of senior management of the Company. Executive shall have
such responsibilities and authority as may from time to time be assigned to
Executive by the Board of Directors of the Company (the "Board of Directors").
Such responsibilities may include the performance by Executive of certain
services from time to time for any of the Company's subsidiaries or other
affiliated companies without any additional compensation to Executive.
3. Compensation. As compensation for all services to be performed by
Executive under this Agreement, Company shall compensate Executive as follows:
a. Base Salary. Company shall pay Executive an annual base
salary of $245,000.00 during the first year of Executive's Term of
Employment and $275,000.00 for each year thereafter (the "Base
Salary"). The Base Salary shall be paid monthly throughout the Term of
Employment. The Board of Directors shall review Executive's Base Salary
periodically to determine whether such amount shall be adjusted upwards
in accordance with the duties and responsibilities of Executive and
Executive's performance thereof.
b. Bonuses. In addition to the Base Salary, Company may pay to
Executive an annual bonus. The date on which any such bonus shall be
paid and the amount of such bonus, if any, shall be determined by the
Board of Directors.
c. Benefits and Perquisites. Executive shall continue to be
entitled to participate in the employee benefit plans of the Company
and the perquisites enjoyed by other officers of Company, as presently
in effect or as they may be modified from time to time.
d. Expenses. Company shall also reimburse Executive for all
expenses properly incurred by Executive in the performance of
<PAGE>
Executive's duties hereunder in accordance with policies established
from time to time by the Board of Directors.
All such payments will be subject to deductions as from time to time may be
required to be made pursuant to law, government regulations or order, or by
agreement with, or consent of, Executive.
4. Termination.
a. Death. In the event of Executive's death during the Term
of Employment, thisAgreement shall terminate immediately.
b. Disability. If, as a result of Executive's incapacity due
to physical or mental illness, the Executive shall have been absent from his or
her duties with Company on a full-time basis for six (6) months and, within
sixty (60) days after written notice of termination is thereafter given by
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, Company may terminate this Agreement for "Disability."
c. Cause and Resignation for Good Reason. Company may
terminate Executive's employment for Cause (as defined below). For purposes of
this Agreement only, Company shall have "Cause" to terminate the Executive's
employment hereunder only on the basis of: fraud, misappropriation or
embezzlement; after the final, non-appealable conviction by a court of competent
jurisdiction of Executive for a felony; or after repeated and material breaches
of this Agreement after written notice from the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the Board of Directors at a meeting of the Board of
Directors called and held for the purpose (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board of Directors), finding that in the good
faith opinion of the Board of Directors the Executive was guilty of conduct set
forth in the second sentence of this Section 4(c) and specifying the particulars
thereof in detail. Executive may resign for Good Reason (as defined below) and
thereupon shall be entitled to receive the severance compensation provided for
in Section 7. For purposes of this Agreement, Executive's resignation for "Good
Reason" shall mean Executive's resignation is in part the result of: (i) a
reduction in Executive's compensation or terms of Executive's employment other
than as to benefits offered by the Company generally, (ii) a material reduction
in the duties or responsibilities of Executive, or (iii) a requirement that
Executive be required to relocate Executive's residence in order to continue
employment.
d. Termination without Cause. Company shall have the right to
terminate Executive's employment at any time "Without Cause." In the event of
the termination of Executive's employment Without Cause, Executive shall be
entitled to receive the severance compensation provided for in Section 7.
5. Notice of Termination. Any termination by Company pursuant to
Section 4(b), 4(c) or 4(d) shall be communicated by a Notice of Termination
(defined below). For purposes of this Agreement, a "Notice of Termination" shall
mean a written notice which shall indicate those specific termination provisions
in this Agreement relied upon and which sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. For purposes of this
Agreement, no such purported termination by Company shall be effective without
such Notice of Termination.
6. Date of Termination. For purposes of this Agreement, the "Date of
Termination" shall mean the day Executive receives a Notice of Termination
hereunder from Company or the day Company receives a Notice of Termination from
Executive of such resignation if the Executive resigns Executive's employment
with Company in accordance with Section 4(c).
7. Severance Compensation upon Termination of Employment. If
Executive's employment shall be terminated by Company or Executive for whatever
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reason, other than as a result of (i) Executive's death, (ii) Executive's
Disability, (iii) for Cause, or (iv) Executive's resignation without Good
Reason, then Company shall be obligated to pay to Executive as severance the
Executive's Base Salary on the Date of Termination for the number of months
remaining under the then current term of this Agreement, but in no event less
than one (1) year (each a "Monthly Severance Payment" and collectively, the
"Monthly Severance Payments"). The Monthly Severance Payment shall be due and
payable on or before the day of the month that Company paid Executive the Base
Salary. If, however, Company receives written notice from Executive of Company's
failure to pay a Monthly Severance Payment, Company shall pay Executive in a
lump sum, in cash, an amount equal to the unpaid balance of the Monthly
Severance Payments on or before the fifth (5th) day following the date Company
receives such written notice from Executive.
8. Noncompetition. Executive agrees that during the term of this
Agreement and in any event not less than one (1) year from the Date of
Termination, Executive shall not become involved, directly or indirectly, as an
employee, advisor, director, shareholder (other than of a public company in
which the Executive owns less than 5%), consultant or agent of any business
engaged in the retail optical business of the type engaged in by the Company in
any state in which Company does business, including the operation of retail
optical departments within host department stores. Further, Executive agrees
that during the term of this Agreement and in any event not less than one (1)
year from the date hereof, Executive shall not employ or solicit for employment
any employee of Company to leave such employment.
9. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights. The Executive shall not be required to mitigate damages or the amount of
any payment provided for under this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for under this Agreement
be reduced by any compensation earned by the Executive as a result of employment
by another employer after the Date of Termination, or otherwise.
10. Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, to the party
entitled to receive such notice at the address shown on the signature page
hereof, or to such other address as either party may have furnished to the other
in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
11. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and Company. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
12. Validity. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Legal Fees and Expenses. If there is any legal action or proceeding
to enforce or interpret any provision of this Agreement or to protect or
establish any right or remedy of any party, the unsuccessful party to such
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action or proceeding, whether such action or proceeding is settled or prosecuted
to final judgment, shall pay to the prevailing party as finally determined all
costs and expenses, including reasonable attorneys' fees and costs, incurred by
such prevailing party in such action or proceeding, in enforcing such judgment,
and in connection with any appeal from such judgment.
15. Confidentiality. The Executive shall retain in confidence any and
all confidential information known to the Executive concerning Company and its
businesses so long as such information is not otherwise publicly disclosed by a
person entitled to make such disclosure.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
U.S. VISION, INC., EXECUTIVE
a Delaware corporation
By:/s/__________________ /s/__________________________
Name:___________________ William A. Schwartz, Jr.
Title:__________________
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made on this day of November, 1995, by and
between REID V. EIKNER, a resident of Timonium, Maryland (hereinafter
"Executive"), and U.S. Vision, Inc., a company organized under the laws of the
Commonwealth of Pennsylvania with headquarters in Glendora, New Jersey
(hereinafter "Company").
IN CONSIDERATION of the covenants set forth herein and other
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. EMPLOYMENT. The Company employs the Executive and the Executive
accepts such employment by the Company upon the terms and conditions hereinafter
set forth for a three (3) year term commencing on November 6, 1995 which terms
shall be automatically extended for a further period of one (1) year on November
5, 1998 for a total period of four (4) years from the date of the execution of
this Agreement, unless otherwise terminated in accordance with Section 6 hereof.
2. POSITION AND RESPONSIBILITIES. During the term of employment, the
Executive shall serve as the Company's Executive vice-President of Finance and
Administration or such other executive level office as may be assigned by the
Board of Directors of the Company. He shall perform such executive and
administrative duties and functions consistent with the position of Executive
Vice-President as he may be called upon to perform by the Board of Directors of
the Company in any of the Company's subsidiaries and/or affiliates. The Employee
shall devote substantially all of this time to his duties hereunder and he shall
exert his best efforts in the performance of his duties as to promote the
profit, benefit and advantage of the business of the Company.
3. COMPENSATION. For all the services rendered by the Executive under
this Agreement, the Company shall compensate Executive as follows:
a. Deferred Salary. The Company shall pay to the Executive a
deferred cash bonus of $24,670 for the period from November 6, 1995 through
December 31, 1995, such bonus to be paid in full on January 2, 1996.
b. Monthly Base Salary. Beginning on January 1, 1996, the
Company shall pay to the Executive a Monthly Base Salary of $13,333.33 in
arrears until increased in accordance with the provisions of this Section or
until this Agreement is terminated in accordance with the provisions of Section
6 of this Agreement. At any time during this Agreement or any extension thereof,
the Board of Directors may increase Executive's Monthly Base Salary in
accordance with the position and responsibilities of the Executive and
Executive's performance, but the Executive's Monthly Base Salary may only be
decreased during the term of this Agreement and any extension thereto with the
prior written consent of the Executive. The Company is authorized to deduct from
the actual compensation of the Executive such sums as are required by law to be
deducted or withheld.
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c. Bonuses. In addition to the Monthly Base Salary, the
Company may pay to the Executive an annual bonus. The date on which any such
bonus shall be paid and the amount of such bonus, if any, shall be determined by
the Board of Directors of the Company.
d. Vacation. The Executive shall also be entitled to a
vacation of four (4) weeks per year, beginning with calendar year 1996, during
which his compensation shall be paid in full.
e. Employee Benefit Plans. The Executive shall be entitled to
participate in any pension, profit-sharing, stock option, medical, dental or
vision benefit plan, disability program, insurance or any other benefit plan
which is or may be established by the Company for the benefit of its employees
or any group of them.
f. Company Car. The Company shall provide the Executive with a
new 1996 automobile at the inception of this Agreement. The automobile shall be
selected by the Executive in consideration of his position and the type of
automobiles provided other Executive Vice-President employees of the Company.
The Company agrees to reimburse the Executive for the costs of gasoline and all
related automobile maintenance and operation expenses.
g. Expenses. The Company agrees to reimburse or pay on the
Executive's behalf any and all travel, entertainment and business expenses
incurred by the Executive which are reasonable and necessary to the Executive's
performance of his duties as permitted by the Company's policies. Until the
Executive relocates according to a mutually acceptable plan with the Company,
the Company agrees to reimburse the Executive for reasonable commuting expenses
such as tolls, automobile gasoline and maintenance, hotel room and meals, except
that the Executive agrees that reimbursement for hotel room and meals will cease
if and when the Company provides comparable housing at its expense. In the event
that the Company and Executive determine in good faith that relocation is
necessary for Executive to fulfill his duties herein, the Company agrees at such
time of relocation to pay: (i) all of the costs of such relocation including
packing, unpacking, moving and/or storage expenses and mortgage loan obligation
fees and/or points; and (ii) the sum of $25,000 to Executive to replace the
value of the country club membership Executive forfeits as a result of such
relocation.
h. Stock Options. The Company will grant to Executive upon the
execution of this Agreement options to purchase 1,053 shares of common stock for
ten (10) years at $250 per share, vesting over three years (or sooner in the
event of an initial public offering or the sale or merger of the Company).
Executive will be considered with other members of management for additional
options awarded by the Board without regard to the options referred to here. The
Company will use reasonable efforts to convert (or issue) the option as tax
qualified incentive stock options.
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4. CONFIDENTIAL INFORMATION The Executive shall retain in confidence
any and all confidential information known to the Executive concerning the
Company and its businesses so long as such information is not otherwise publicly
disclosed by a person entitled to make such disclosure.
5. NON-COMPETITION. During the term of his employment and for a period
of three (3) years following termination (for any reason whatsoever) of
employment with the Company, theExecutive shall not without the written consent
of the Company, directly or indirectly, engage, assist or have any active
interest in (whether as a principal, partner, stockholder, officer, director or
otherwise) or enter the employment of or act as an agent for or advisor or
consultant to any person, corporation or business entity which is or is about to
become directly or indirectly engaged in the development, manufacture or sale,
within the territory which the Company manufactures or sells its products, or
any provide with whose development, manufacture or sale the Executive shall have
in anywise been concerned or connected while employed by the Company; provided,
however, that nothing shall prohibit the ownership by Executive at any time of
less than 5% of a total outstanding issue of securities of any class listed on a
national securities exchange.
6. TERMINATION.
a. Death. In the event of the Executive's death during the
term of this Agreement, or any extension thereto, this Agreement shall terminate
immediately.
b. Disability. If, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall have been absent from his
duties with the Company on a full-time basis for six (6) months and the
Executive shall not have returned to the full performance of his duties within
sixty (60) days after written notice of termination under this Section, the
Company may terminate this Agreement for Disability.
c. Cause. The Company may terminate the Executive's employment
for Cause as defined below. For the purposes of this Agreement only, the Company
shall have "Cause" to terminate the Executive's employment hereunder only on the
basis of: Fraud; misappropriation or embezzlement; after the final,
non-appealable conviction by a court of competent jurisdiction of the Executive
of a felony; or after repeated and material breaches of this Agreement after
written notice from the Company. Notwithstanding this foregoing, the Executive
shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the Board of Directors at a meeting of the Board of Directors called and held
for the purpose of terminating the Executive (after reasonable notice to the
Executive including the specific details grounds for termination and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board of Directors) and after a finding that in the good faith
opinion of the Board of Directors the Executive was guilty of conduct set forth
in the second sentence of this Section 6(c).
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<PAGE>
d. Without Cause. The Company shall have the right to
terminate the Executive's employment at any time Without Cause. The Executive
shall have the right to terminate this Agreement at any time: (i) if there is
reduction in the Executive compensation of benefits without his prior consent
other than a reduction in benefits being offered by the Company to all employees
generally; or (ii) if there is a material reduction in the duties and
responsibilities of the Executive, or (iii) if the Executive is required, as a
condition of employment, to relocate his residence without his mutual consent,
or (iv) after November 6, 1997 if the Executive provides the Company with at
least ninety (90) days prior notice.
e. Notice of Termination. Any termination by the Company
pursuant to Section 6(b), 6(c), or 6(d) shall be given by a written notice which
shall indicate those specific termination provisions in this Agreement relied
upon and which sets forth in reasonable detail the facts and circumstances
claimed to be a basis for termination of the Executive's employment under the
provision so indicated. No such purported termination by the Company shall be
effective without such a written notice as provided in this Section 6(e).
f. Date of Termination. For the purposes of this Agreement,
the Date of Termination shall mean the day the Executive receives a Notice of
Termination required in Section 6(e) above from the Company or the date the
Company receives a Notice of Termination from the Executive of Executive's
resignation of this employment with the Company under Section 6(d) (iv) above,
or otherwise.
g. Severance, Compensation Upon Termination. If the
Executive's employment with the Company is terminated by the Company or
Executive, for any reason other than as a result of: (i) the Executive's death,
(ii) the Executive's disability, (iii) Cause as defined in Section 6(c) above,
or (iv) the Executive's resignation prior to November 6, 1997, then the Company
shall be obligated to pay to the Executive as severance the Executive's Monthly
Base Salary on the Date of Termination times the number of months remaining in
the then effective term, but in no event less than twelve (12) months. The
monthly severance payments shall be due and payable on or before the day of the
month that the Company paid the Executive the Monthly Base Salary. If, however,
the Company receives a written notice from the Executive of the Company's
failure to pay a monthly severance payment, the Company shall pay the Executive
in a lump sum, in cash, an amount equal to the unpaid balance of the monthly
severance payments on or before the fifth (5th) day following the date the
Company receives such written notice from the Executive.
h. Other Remedies. Neither the grant nor the exercise of a
right of termination hereunder shall preclude any other legal relief or remedy
available to any party, and nothing contained in this Section 6 shall relieve
the Company of the duty to pay the Executive compensation for services performed
prior to the Date of Termination of the Executive's employment with the Company.
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<PAGE>
7. NO OBLIGATION TO MITIGATE DAMAGES. The Executive shall not be
required to mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise. However, the amount of
any payment provided for under this Agreement payable after one year from the
Date of Termination shall be reduced by any compensation actually received by
the Executive following such one-year period.
8. NOTICES. Any notice or other communication pursuant to this
Agreement shall be in writing and shall be deemed to have been given or made
when personally delivered or when mailed by registered or certified mail,
postage prepaid, to the other party.
9. BINDING EFFECT. This Agreement shall inure to the benefit of and
shall be binding upon the parties, their successors, assigns or personal
representatives. Since the duties of the Executive hereunder are special,
personal and unique in nature, the Executive may not transfer, sell or otherwise
assign his obligations under this Agreement.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and there are no other representations, warranties,
covenants or obligations except as set forth herein. This Agreement may be
amended only in writing executed by the parties.
11.GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal.
EXECUTIVE
WITNESS:
/s/ /s/
- ----------------------------- -------------------------------------
REID V. EIKNER
COMPANY
ATTEST: U.S. VISION, INC.
/s/ By: /s/
- ----------------------------- ------------------------------------
PRESIDENT
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made on this 16th day of September, 1996, by
and between GEORGE GORMAN, a resident of Springfield, Pennsylvania (hereinafter
"Executive"), and U.S. Vision, Inc., a company organized under the laws of the
Commonwealth of Pennsylvania with headquarters in Glendora, New Jersey
(hereinafter "Company").
IN CONSIDERATION of the covenants set forth herein and other
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. EMPLOYMENT. The Company employs the Executive and the Executive
accepts such employment by the Company upon the terms and conditions hereinafter
set forth for a three (3) year term commencing on September 16, 1996, unless
otherwise terminated in accordance with Section 6 hereof.
2. POSITION AND RESPONSIBILITIES. During the term of employment, the
Executive shall serve as the Company's Executive Vice President of Retail or
such other executive level office as may be assigned by the Board of Directors
of the Company. He shall perform such executive and administrative duties and
functions consistent with the position of Executive Vice President of Retail as
he may be called upon to perform by the Board of Directors of the Company in any
of the Company's subsidiaries and/or affiliates. The Executive shall devote
substantially all of this time to his duties hereunder and he shall exert his
best efforts in the performance of his duties as to promote the profit, benefit
and advantage of the business of the Company. During the term of this Agreement,
the Company shall not cause Executive to relocate his residence without his
consent.
3. COMPENSATION. For all the services rendered by the Executive under
this Agreement, the Company shall compensate Executive as follows:
a. Monthly Base Salary. Beginning on the commencement of
employment hereunder, the Company shall pay to the Executive a Monthly Base
Salary of $13,333.33 in arrears until increased in accordance with the
provisions of this Section or until this Agreement is terminated in accordance
with the provisions of Section 6 hereof. During the term of this Agreement,
Executive shall receive an annual performance review and evaluation. At any time
during this Agreement or any extension thereof, the Board of Directors may
increase Executive's Monthly Base Salary in accordance with the position and
responsibilities of the Executive and Executive's performance, but the
Executive's Monthly Base Salary may only be decreased during the term of this
Agreement and any extension thereof with the prior written consent of the
Executive. The Company is authorized to deduct from the actual compensation of
the Executive such sums as are required by law to be deducted or withheld.
b. Bonuses. In addition to the Monthly Base Salary, the
Executive shall be eligible to participate in Company established bonus
incentive plans, pursuant to which management of the Company, which shall
include the Executive, are eligible to receive bonuses based upon the Company
reaching sales and/or profit benchmarks or other objectives established by the
Board of Directors. Executive's bonus during the first year of his employment
will be pro-rated for the period of the fiscal year during which Executive was
employed with the Company. The dates on which any such bonus shall be paid and
the amounts of such bonus, if any, shall be determined by the Board of Directors
of the Company.
c. Vacation. The Executive shall also be entitled to a
vacation of four (4) weeks per year during which his compensation shall be paid
in full.
<PAGE>
d. Employee Benefit Plans. The Executive shall be entitled to
participate in any pension, profit-sharing, stock option, medical, dental or
vision benefit plan, disability program, insurance or any other benefit plan
which is or may be established by the Company for the benefit of its employees
or any group of them.
e. Company Car. The Company shall provide the Executive with a
late model automobile at the inception of this Agreement. The automobile shall
be selected by the Executive in consideration of his position and the type of
automobiles provided other Executive Vice President employees of the Company.
The Company agrees to reimburse the Executive for the costs of gasoline and all
related automobile maintenance and operation expenses.
f Expenses. The Company agrees to reimburse or pay on the
Executive's behalf any and all travel, entertainment and business expenses
incurred by the Executive which are reasonable and necessary to the Executive's
performance of his duties as permitted by the Company's policies.
g. Stock Options. Upon the execution of this Agreement, the
Company shall grant to Executive incentive stock options to purchase 245 shares
of the Company's common stock, par value $10.00 per share (the "Common Stock")
for ten (10) years at $500 per share, vesting over the three (3) year term of
this Agreement, as provided in the Stock Option Agreement of even date herewith
by and between the Executive and the Company. Executive will be considered with
other members of management for options to acquire the same number of Common
Stock options referred to above on or before the date on which the Company
commences an initial public offering of Common Stock; provided, however, the
grant of all or a portion of such options shall be in the sole discretion of the
Company's Board of Directors. As of the date of this Agreement, there are
currently 13,786 shares of Common Stock outstanding and outstanding warrants and
options to acquire 24,733 and 10,542 shares of Common Stock, respectively.
4. CONFIDENTIAL INFORMATION The Executive shall retain in confidence
any and all confidential information known to the Executive concerning the
Company and its businesses so long as such information is not otherwise publicly
disclosed by a person entitled to make such disclosure.
5. POST EMPLOYMENT RESTRICTIONS. For a period of one (1) year following
the termination (for any reason whatsoever) of Executive's employment with the
Company, the Executive shall not in any manner, directly or indirectly, contact,
communicate or discuss with (i) any Licensor (as defined below) concerning
establishing any business relationship with such Licensor which may be related,
directly or indirectly, to the retail optical industry or (ii) any Employee (as
defined below) the hiring or engaging of such Employee through any employer that
employs or is employed by, directly or indirectly, Executive. For the purposes
of this paragraph the term "Licensor" shall mean any enterprise which leases or
licenses the Company to sell optical goods in space controlled by such Licensor
(such as JC Penney, Sears, and other host department stores of the Company)
during the 1 year period prior to the termination of Executive's employment with
the Company. For the purposes of this paragraph the term "Employee" shall mean
any person employed by the Company or its affiliates during the 60 day period
prior to the date on which such a determination is made.
6. TERMINATION.
a. Death. In the event of the Executive's death during the
term of this Agreement, or any extension thereto, this Agreement shall terminate
immediately.
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b. Disability. If, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall have been absent from his
duties with the Company on a full-time basis for six (6) months and the
Executive shall not have returned to the full performance of his duties within
sixty (60) days after written notice of termination under this Section, the
Company may terminate this Agreement for Disability.
c. Cause. The Company may terminate the Executive's employment
for Cause as defined below. For the purposes of this Agreement only, the Company
shall have "Cause" to terminate the Executive's employment hereunder only on the
basis of: (i) fraud, misappropriation or embezzlement; (ii) after the final,
non-appealable conviction by a court of competent jurisdiction of the Executive
of a felony; or (iii) after repeated and material breaches of this Agreement
after written notice from the Company. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the Board of Directors at a meeting of the Board of Directors called
and held for the purpose of terminating the Executive (after reasonable notice
to the Executive including the specific grounds for termination and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board of Directors) and after a finding that in the good faith
opinion of the Board of Directors the Executive was guilty of conduct set forth
in the second sentence of this Section 6(c).
d. Notice of Termination. Any termination by the Company
pursuant to Section 6(b) or 6(c) shall be given by a written notice of
termination which, with respect to the termination of Executive under Section
6(b) or 6(c), shall set forth in reasonable detail the facts and circumstances
claimed to be a basis for termination of the Executive's employment. No such
purported termination by the Company shall be effective without such a written
notice as provided in this Section 6(e).
e. Date of Termination. For the purposes of this Agreement,
the "Date of Termination" shall mean the day the Executive receives a Notice of
Termination required in Section 6(d) above from the Company or the date the
Company receives a Notice of Termination from the Executive of Executive's
resignation of this employment with the Company.
f. Severance, Compensation Upon Termination; Release. The
Company shall have the right to terminate the Executive's employment at any time
Without Cause and, if the Executive's employment with the Company is terminated
by the Company for any reason other than as a result of: (i) the Executive's
death, (ii) the Executive's disability, (iii) Cause as defined in Section 6(c)
above, or (iv) the Executive's resignation, the Company will be obligated to pay
to the Executive, as severance, the Executive's Monthly Base Salary on the Date
of Termination for twelve (12) months thereafter, if and only if Executive
requests such severance in writing within forty-five (45) days of the
Termination Date and releases the Company from liability as provided below. The
monthly severance payments, if payable, shall be due and payable (bi-weekly if
that is the manner in which Executive was paid during his employment) on or
before the day of the month on which the Company paid the Monthly Base Salary to
Executive. In order to be entitled to the severance payments pursuant to this
Section 6(g), Executive must release the Company and
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the owners, shareholders, employees, officers, directors and agents of all of
them from all claims and demands based on Executive's employment with the
Company or the termination thereof, including any claims: (i) for wrongful
discharge; (ii) arising under common law; (iii) arising under the Age
Discrimination in Employment Act of 1967, which prohibits age discrimination in
employment; (iv)for any bonus; (v) for shares of stock of the Company; (vi) for
options to purchase shares of stock of the Company (except as provided herein);
(vii) under any severance plan or policy of the Company; (viii) based upon any
contract, whether oral or written and (ix) based upon any tort. Executive agrees
to execute such other documents as Company may reasonably request to evidence
the release by Executive of the foregoing claims in exchange for the severance
payments described above. In the event Executive elects not to execute such
other document(s) as may be reasonably requested by Company, Company may place
an endorsement on the back of the first severance check to Executive which
contains a reference to this release provision. Upon Executive's endorsement or
negotiation of that check, Executive shall be deemed to have released the
Company from all claims and demands based on Executive's employment with the
Company or the termination thereof.
g. Other Remedies. Neither the grant nor the exercise of a
right of termination hereunder shall preclude any other legal relief or remedy
available to any party, and nothing contained in this Section 6 shall relieve
the Company of the duty to pay the Executive compensation for services performed
prior to the Date of Termination of the Executive's employment with the Company.
7. NO OBLIGATION TO MITIGATE DAMAGES. The Executive shall not be
required to mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise.
8. NOTICES. Any notice or other communication pursuant to this
Agreement shall be in writing and shall be deemed to have been given or made
when personally delivered or when mailed by registered or certified mail,
postage prepaid, to the other party.
9. BINDING EFFECT. This Agreement shall inure to the benefit of and
shall be binding upon the parties, their successors, assigns or personal
representatives. Since the duties of the Executive hereunder are special,
personal and unique in nature, the Executive may not transfer, sell or otherwise
assign his obligations under this Agreement.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and there are no other representations, warranties,
covenants or obligations except as set forth herein. This Agreement may be
amended only in writing executed by the parties.
11. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal.
EXECUTIVE: U.S. VISION, INC.
/s/ By: /s/
- ----------------------------- -------------------------------------
George Gorman
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<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement is dated as of December 1, 1994, by and
between Royal International Optical Inc., a Pennsylvania corporation
("Company"), and Gayle E. Schmidt ("Executive").
RECITALS
The Executive is a key employee of Company and has made and is expected
to continue to make major contributions to the profitability, growth and
financial strength of Company.
Company desires to induce its key employees to remain in the employment
of Company on certain terms and conditions and Executive desires to remain
employed by Company on such terms and conditions.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein the parties do hereby mutually agree as follows:
1. Term of Employment. This Agreement shall, subject to Sections 4 and
5 hereof, remain in effect for three (3) years from the effective date and shall
be automatically and repeatedly renewed for successive one (1) year periods
thereafter (the "Term of Employment").
2. Position and Responsibilities. Company hereby agrees to employ
Executive as the a member of senior management of Company. Executive shall have
such responsibilities and authority as may from time to time be assigned to
Executive by the Board of Directors of Company (the "Board of Directors"). Such
responsibilities may include the performance by Executive of certain services
from time to time for any of Company's subsidiaries or other affiliated
companies without any additional compensation to Executive.
3. Compensation. As compensation for all services to be performed by
Executive under this Agreement, Company shall compensate Executive as follows:
a. Base Salary. Company shall pay Executive a monthly base
salary equal to $160,000 per month (the "Monthly Base Salary"). The
Board of Directors shall review Executive's Monthly Base Salary
periodically to determine whether such amount shall be adjusted
upwards in accordance with the duties and responsibilities of Executive
and Executive's performance thereof.
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<PAGE>
b. Bonuses. In addition to the Monthly Base Salary, Company
may pay to Executive an annual bonus. The date on which any such bonus
shall be paid and the amount of such bonus, if any, shall be determined
by the Board of Directors.
c. Benefits and Perquisites. Executive shall continue to be
entitled to participate in the employee benefit plans of Company and
the perquisites enjoyed by other officers of Company, as presently in
effect or as they may be modified from time to time.
d. Expenses. Company shall also reimburse Executive for all
expenses properly incurred by Executive in the performance of
Executive's duties hereunder in accordance with policies established
from time to time by the Board of Directors.
All such payments will be subject to deductions as from time to time may be
required to be made pursuant to law, government regulations or order, or by
agreement with, or consent of, Executive.
4. Termination.
a. Death. In the event of Executive's death during the Term of
Employment, this Agreement shall terminate immediately.
b. Disability. If, as a result of Executive's incapacity due
to physical or mental illness, the Executive shall have been absent from his or
her duties with Company on a full-time basis for six (6) months and, within
sixty (60) days after written notice of termination is thereafter given by
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, Company may terminate this Agreement for "Disability."
c. Cause and Resignation for Good Reason. Company may
terminate Executive's employment for Cause (as defined below). For purposes of
this Agreement only, Company shall have "Cause" to terminate the Executive's
employment hereunder only on the basis of: fraud, misappropriation or
embezzlement; after the final, non-appealable conviction by a court of competent
jurisdiction of Executive of a felony; or after repeated and material breaches
of this Agreement after written notice from the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Executive a copy of a
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<PAGE>
resolution duly adopted by the Board of Directors at a meeting of the Board of
Directors called and held for the purpose (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board of Directors), finding that in the good
faith opinion of the Board of Directors the Executive was guilty of conduct set
forth in the second sentence of this Section 4(c) and specifying the particulars
thereof in detail. Executive may resign for Good Reason (as defined below) and
thereupon shall be entitled to receive the severance compensation provided for
in Section 7. For purposes of this Agreement, Executive's resignation for "Good
Reason" shall mean Executive's resignation is in part the result of: (i) a
reduction in Executive's compensation or terms of Executive's employment other
than as to benefits offered by the Company generally, (ii) a material reduction
in the duties or responsibilities of Executive, or (iii) a requirement that
Executive be required to relocate Executive's residence in order to continue
employment.
d. Termination without Cause. Company shall have the right to
terminate Executive's employment at any time "Without Cause." In the event of
the termination of Executive's employment, Without Cause, Executive shall be
entitled to receive the severance compensation provided for in Section 7.
5. Notice of Termination. Any termination by Company pursuant to
Section 4(b), 4(c) or 4(d) shall be communicated by a Notice of Termination (as
defined below). For purposes of this Agreement, a "Notice of Termination" shall
mean a written notice which shall indicate those specific termination provisions
in this Agreement relied upon and which sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. For purposes of this
Agreement, no such purported termination by Company shall be effective without
such Notice of Termination.
6. Date of Termination. For purposes of this Agreement, the "Date of
Termination" shall mean the day Executive receives a Notice of Termination
hereunder from Company or the day Company receives a Notice of Termination from
Executive of such resignation if the Executive resigns Executive's employment
with Company in accordance with Section 4(c).
7. Severance Compensation upon Termination of Employment. If
Executive's employment shall be terminated by Company or Executive, for whatever
reason, other than as a result of (i) Executive's death, (ii) Executive's
Disability, (iii) for Cause, or (iv) Executive's resignation without Good
Reason, then Company shall be obligated to pay to Executive as severance
Executive's Monthly Base Salary on the Date of Termination for the number of
months remaining under the then current term of this Agreement, but in no event
less than 3 months (each a "Monthly Severance Payment" and collectively, the
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<PAGE>
"Monthly Severance Payments"). The Monthly Severance Payments shall be due and
payable on or before the day of the month that Company paid Executive the
Monthly Base Salary. If, however, Company receives written notice from Executive
of Company's failure to pay a Monthly Severance Payment, Company shall pay
Executive in a lump sum, in cash, an amount equal to the unpaid balance of the
Monthly Severance Payments on or before the fifth (5th) day following the date
Company receives such written notice from Executive.
8. Noncompetition. Executive agrees that during the term of this
Agreement and in any event not less than 3 years from the date hereof, Executive
shall not become involved, directly or indirectly, as an employee, advisor,
director, shareholder (other than of a public company in which the Executive
owns less than 5%), consultant or agent of any business engaged in the optical
business of the type engaged in by the Company in any state or other place in
which Company does business. Further, Executive agrees that during the term of
this Agreement and in any event not less than 3 years from the date hereof,
Executive shall not employ or solicit for employment any employee of Company to
leave such employment.
9. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights. The Executive shall not be required to mitigate damages or the amount of
any payment provided for under this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for under this Agreement
be reduced by any compensation earned by the Executive as a result of employment
by another employer after the Date of Termination, or otherwise.
10. Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, to the party
entitled to receive such notice at the address shown on the signature page
hereof, or to such other address as either party may have furnished to the other
in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
11. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and Company. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
12. Validity. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
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<PAGE>
14. Legal Fees and Expenses. If there is any legal action or proceeding
to enforce or interpret any provision of this Agreement or to protect or
establish any right or remedy of any party, the unsuccessful party to such
action or proceeding, whether such action or proceeding is settled or prosecuted
to final judgment, shall pay to the prevailing party as finally determined all
costs and expenses, including reasonable attorneys' fees and costs, incurred by
such prevailing party in such action or proceeding, in enforcing such judgment,
and in connection with any appeal from such judgment.
15. Confidentiality. The Executive shall retain in confidence any and
all confidential information known to the Executive concerning Company and its
businesses so long as such information is not otherwise publicly disclosed by a
person entitled to make such disclosure.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ROYAL INTERNATIONAL OPTICAL INC., EXECUTIVE
a Pennsylvania corporation
GAYLE E. SCHMIDT
Officer /s/
----------------------
/s/
------------------------
(Signature)
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<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement is dated as of December 1, 1994, by and
between Royal International Optical Inc., a Pennsylvania corporation
("Company"), and George E. McHenry, Jr. ("Executive").
RECITALS
The Executive is a key employee of Company and has made and is expected
to continue to make major contributions to the profitability, growth and
financial strength of Company.
Company desires to induce its key employees to remain in the employment
of Company on certain terms and conditions and Executive desires to remain
employed by Company on such terms and conditions.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein the parties do hereby mutually agree as follows:
1. Term of Employment. This Agreement shall, subject to Sections 4 and
5 hereof, remain in effect for three (3) years from the effective date and
shall be automatically and repeatedly renewed for successive one (1) year
periods thereafter (the "Term of Employment").
2. Position and Responsibilities. Company hereby agrees to employ
Executive as the a member of senior management of Company. Executive shall have
such responsibilities and authority as may from time to time be assigned to
Executive by the Board of Directors of Company (the "Board of Directors"). Such
responsibilities may include the performance by Executive of certain services
from time to time for any of Company's subsidiaries or other affiliated
companies without any additional compensation to Executive.
3. Compensation. As compensation for all services to be performed by
Executive under this Agreement, Company shall compensate Executive as follows:
a. Base Salary. Company shall pay Executive a monthly base
salary equal to $150,000 per month (the "Monthly Base Salary"). The
Board of Directors shall review Executive's Monthly Base Salary
periodically to determine whether such amount shall be adjusted upwards
in accordance with the duties and responsibilities of Executive and
Executive's performance thereof.
b. Bonuses. In addition to the Monthly Base Salary, Company
may pay to Executive an annual bonus. The date on which any such bonus
shall be paid and the amount of such bonus, if any, shall be determined
by the Board of Directors.
c. Benefits and Perquisites. Executive shall continue to be
entitled to participate in the employee benefit plans of Company and
the perquisites enjoyed by other officers of Company, as presently in
effect or as they may be modified from time to time.
d. Expenses. Company shall also reimburse Executive for all
expenses properly incurred by Executive in the performance of
Executive's duties hereunder in accordance with policies established
from time to time by the Board of Directors.
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<PAGE>
All such payments will be subject to deductions as from time to time may be
required to be made pursuant to law, government regulations or order, or by
agreement with, or consent of, Executive.
4. Termination.
a. Death. In the event of Executive's death during the Term
of Employment, this Agreement shall terminate immediately.
b. Disability. If, as a result of Executive's incapacity due
to physical or mental illness, the Executive shall have been absent from his or
her duties with Company on a full-time basis for six (6) months and, within
sixty (60) days after written notice of termination is thereafter given by
Company, the Executive shall not have returned to the full-time performance of
the Executive's duties, Company may terminate this Agreement for "Disability."
c. Cause and Resignation for Good Reason. Company may
terminate Executive's employment for Cause (as defined below). For purposes of
this Agreement only, Company shall have "Cause" to terminate the Executive's
employment hereunder only on the basis of: fraud, misappropriation or
embezzlement; after the final, non-appealable conviction by a court of competent
jurisdiction of Executive of a felony; or after repeated and material breaches
of this Agreement after written notice from the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for Cause
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<PAGE>
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the Board of Directors at a meeting of the Board of
Directors called and held for the purpose (after reasonable notice to the
Executive and an opportunity for the Executive, together with the Executive's
counsel, to be heard before the Board of Directors), finding that in the good
faith opinion of the Board of Directors the Executive was guilty of conduct set
forth in the second sentence of this Section 4(c) and specifying the particulars
thereof in detail. Executive may resign for Good Reason (as defined below) and
thereupon shall be entitled to receive the severance compensation provided for
in Section 7. For purposes of this Agreement, Executive's resignation for "Good
Reason" shall mean Executive's resignation is in part the result of: (i) a
reduction in Executive's compensation or terms of Executive's employment other
than as to benefits offered by the Company generally, (ii) a material reduction
in the duties or responsibilities of Executive, or (iii) a requirement that
Executive be required to relocate Executive's residence in order to continue
employment.
d. Termination without Cause. Company shall have the right to
terminate Executive's employment at any time "Without Cause." In the event of
the termination of Executive's employment, Without Cause, Executive shall be
entitled to receive the severance compensation provided for in Section 7.
5. Notice of Termination. Any termination by Company pursuant to
Section 4(b), 4(c) or 4(d) shall be communicated by a Notice of Termination (as
defined below). For purposes of this Agreement, a "Notice of Termination" shall
mean a written notice which shall indicate those specific termination provisions
in this Agreement relied upon and which sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. For purposes of this
Agreement, no such purported termination by Company shall be effective without
such Notice of Termination.
6. Date of Termination. For purposes of this Agreement, the "Date of
Termination" shall mean the day Executive receives a Notice of Termination
hereunder from Company or the day Company receives a Notice of Termination from
Executive of such resignation if the Executive resigns Executive's employment
with Company in accordance with Section 4(c).
7. Severance Compensation upon Termination of Employment. If
Executive's employment shall be terminated by Company or Executive, for whatever
reason, other than as a result of (i) Executive's death, (ii) Executive's
Disability, (iii) for Cause, or (iv) Executive's resignation without Good
Reason, then Company shall be obligated to pay to Executive as severance
Executive's Monthly Base Salary on the Date of Termination for the number of
months remaining under the then current term of this Agreement, but in no event
less than 3 months (each a "Monthly Severance Payment" and collectively, the
"Monthly Severance Payments"). The Monthly Severance Payments shall be due and
payable on or before the day of the month that Company paid Executive the
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<PAGE>
Monthly Base Salary. If, however, Company receives written notice from Executive
of Company's failure to pay a Monthly Severance Payment, Company shall pay
Executive in a lump sum, in cash, an amount equal to the unpaid balance of the
Monthly Severance Payments on or before the fifth (5th) day following the date
Company receives such written notice from Executive.
8. Noncompetition. Executive agrees that during the term of this
Agreement and in any event not less than 3 years from the date hereof, Executive
shall not become involved, directly or indirectly, as an employee, advisor,
director, shareholder (other than of a public company in which the Executive
owns less than 5%), consultant or agent of any business engaged in the optical
business of the type engaged in by the Company in any state or other place in
which Company does business. Further, Executive agrees that during the term of
this Agreement and in any event not less than 3 years from the date hereof,
Executive shall not employ or solicit for employment any employee of Company to
leave such employment.
9. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights. The Executive shall not be required to mitigate damages or the amount of
any payment provided for under this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for under this Agreement
be reduced by any compensation earned by the Executive as a result of employment
by another employer after the Date of Termination, or otherwise.
10. Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, to the party
entitled to receive such notice at the address shown on the signature page
hereof, or to such other address as either party mayhave furnished to the other
in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
11. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and Company. No waiver by either party hereto
at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
12. Validity. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
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<PAGE>
14. Legal Fees and Expenses. If there is any legal action or proceeding
to enforce or interpret any provision of this Agreement or to protect or
establish any right or remedy of any party, the unsuccessful party to such
action or proceeding, whether such action or proceeding is settled or prosecuted
to final judgment, shall pay to the prevailing party as finally determined all
costs and expenses, including reasonable attorneys' fees and costs, incurred by
such prevailing party in such action or proceeding, in enforcing such judgment,
and in connection with any appeal from such judgment.
15. Confidentiality. The Executive shall retain in confidence any and
all confidential information known to the Executive concerning Company and its
businesses so long as such information is not otherwise publicly disclosed by a
person entitled to make such disclosure.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ROYAL INTERNATIONAL OPTICAL INC., EXECUTIVE
a Pennsylvania corporation
/s/
- -------------------------- GEORGE E. MCHENRY, JR.
Officer
/s/
-----------------------------------
(Signature)
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<PAGE>
FORM OF NONSTATUTORY STOCK OPTION AGREEMENT
This Nonstatutory Stock Option Agreement ("Agreement") is made this
_____ day of October, 1997, by and between U.S. Vision, Inc., a Delaware
corporation (hereinafter called the "Company"), and ________________
(hereinafter called the "Optionee").
Recital
The Optionee has rendered substantial advice or assistance to the
Company, and the Company has determined to grant to the Optionee the Option
(defined below) provided by this Agreement in recognition of such advice or
assistance.
Agreement
In consideration of the premises and the covenants and agreements
contained in this Agreement, the Company and the Optionee hereby agree with each
other as follows:
1. No Obligation. The granting of the Option shall not impose upon the
Company any obligation to employ the Optionee, to continue to elect Optionee as
a director, or to maintain any future relationship with Optionee, and the right
of the Company to terminate its relationship with the Optionee shall not be
diminished or affected by reason of the fact that the Option has been granted to
him.
2. Grant of Nonstatutory Option. Subject to the terms and conditions
set forth herein, the Company hereby grants to the Optionee the nonstatutory
right (a stock option not intended to satisfy the requirements of Section 422 of
the Internal Revenue Code of 1986, as amended) (the "Option"), beginning on
today's date and ending on October 31, 2002, to purchase at a price of
______________ dollars(1) ($______) per share, up to, but not exceeding in the
aggregate, ________________ (________) shares of the Company's common stock,
$.01 par value (the "Common Stock"). Optionee may exercise the Option from time
to time as follows: from the date of this Agreement until October 31, 1998, as
to not more than one-third of the total number of shares covered by this
Agreement; from November 1, 1998 until October 31, 1999, as to any number of
shares that, when added to the number of shares previously purchased under the
Option, shall not exceed two-thirds of the total number of shares covered by
this Agreement; from November 1, 1999 until October 31, 2002, as to any number
of shares that, when added to the number of shares previously purchased under
the Option, shall not exceed 100% of the total number of shares covered by this
Agreement.
3. Exercise of Nonstatutory Option. Optionee may exercise the Option by
delivering to the Company a written notification specifying (i) the number of
shares that 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 (ii) 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
- --------
(1) The number of shares shall be determined by dividing the initial
public offering price into $100,000 for David Tracy and into $200,000 for Peter
Trupe.
- 1 -
<PAGE>
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.
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 issued in the Optionee's name for the
number of shares with respect to which the Option has been so exercised.
Delivery of such certificates 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 Section 3 hereof.
5. Early Termination for Cause. Notwithstanding any other provision of
this Agreement to the contrary, the portion of the Option, if any, that remains
unexercised on the date the Optionee ceases to be an employee, consultant, or
director of the Company because the Company terminates the Optionee's employment
or other relationship with the Company for cause, including that portion of the
Option, if any, that is not yet exercisable as of such date, shall terminate and
cease to be exercisable as of such date. An Optionee's employment or other
relationship with the Company shall be deemed terminated "for cause" if
terminated by the Board of Directors of the Company ("Board of Directors")
because of the Optionee's dishonesty, other acts detrimental to the Company, or
any material breach by the Optionee of any employment, nondisclosure,
noncompetition, or other contract with the Company. Whether cause exists shall
be determined by such Board of Directors in its sole discretion and good faith.
For the purpose of determining the employment or other relationship between the
Company and the Optionee, employment by or service to any corporation of which
the Company owns stock possessing 50 percent or more of the total combined
voting power of all classes of stock will be considered employment by or service
to the Company.
6. Early Termination Other than for Cause. If the Optionee ceases to be
an employee, consultant, or director of the Company for any reason other than
for cause as defined in Section 5 above, including, without limitation, because
of the Optionee's death or permanent disability, the Optionee or the Optionee's
executors, administrators, or any person to whom the Option may be transferred
by will or by the laws of descent and distribution, shall have the right, until
the expiration date of the Option, to exercise that portion of the Option, if
any, that has become exercisable by the Optionee pursuant to this Agreement but
that the Optionee has not yet exercised as of the date the Optionee's employment
or other relationship with the Company is terminated by disability, death, or
some reason other than for cause.
7. Executors, Etc.. Whenever the word "Optionee" is used in this
Agreement under circumstances in which the provisions logically should 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.
8. Non-Assignability. The 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 the
Option or of the rights represented by the Option, 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 in this Agreement whatsoever, but immediately upon any such assignment
or transfer, the Option shall terminate and become of no further effect.
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<PAGE>
9. No Rights as Stockholder. The Optionee shall not be deemed for any
purpose to be a stockholder of the Company with respect to any shares as to
which the Option shall not have been exercised, as provided in this Agreement
and until such shares shall have been issued to the Optionee by the Company
under this Agreement.
10. Changes in Company's Capital Structure. The existence of the Option
shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any 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, or preferred or prior preference stock ahead of or affecting the
Common Stock, 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 the Option is granted are shares of
the Common Stock of the Company as presently constituted, but if prior to the
delivery by the Company of all the shares of the Common Stock with respect to
which the 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 for such shares 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 the Option 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 the Option shall be proportionately reduced, and the
option price per share shall be proportionately increased.
Until the Option is fully exercised, if the Company is merged or
consolidated with another corporation under circumstances in which the
stockholders 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 (iii) 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 the 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; (ii)
the Board of Directors shall waive any limitations on exercisability set forth
in or imposed pursuant to Section 2 of this Agreement so that the Option, from
and after a date prior to the effective date of the merger, liquidation,
dissolution, consolidation, or sale, as the case may be, specified by the Board
of Directors, will be exercisable in full; and (iii) the Board of Directors may
cancel the Option as of the effective date of any such merger, liquidation,
dissolution, consolidation, or sale provided that (a) notice of such
cancellation is given to the Optionee and (b) has the right to exercise the
Option in full (without regard to any limitations set forth in or imposed
pursuant to Section 2 of this Agreement) during a 30-day period preceding the
effective date of such merger, liquidation, dissolution, consolidation, or sale.
Except as expressly provided above, 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
stockholders, upon the exercise of rights or warrants to subscribe therefor, or
upon conversion of shares or obligations of the Company convertible into 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 the Option.
11. Requirements of Law. Notwithstanding any of the provisions hereof,
the Optionee hereby agrees that he will not exercise the Option, and that the
Company will not be obligated to issue any shares to the Optionee under this
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<PAGE>
Agreement, if the exercise of the Option 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 in
this Agreement for the issuance of shares to the Optionee, any law or regulation
shall require either the Company or the Optionee to take 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. 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 to
the Option to comply with any law or regulation of any governmental authority.
12. 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 provided in this
Agreement; 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 10000 N. Central Expressway, Suite 1460, Dallas, Texas, 75231, 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
U.S. VISION, INC.
By:________________________________________________
William A. Schwartz, Jr., President
---------------------------------------------------
Optionee
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Street address
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City State/County Zip Code
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<PAGE>
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effected the 1st day of
October, 1997, between U.S. Vision, Inc., a Delaware corporation (the
"Corporation") and _______________ ("Director").
Recitals
The following recitals are true and correct and constitute the basis of
this Agreement:
A. The Corporation has filed with the Delaware Secretary of
State a Restated Certificate of Incorporation ("Certificate of
Incorporation") and has adopted bylaws ("Bylaws") providing for the
indemnification of the officers, directors, agents, and employees of
the Corporation to the extent authorized by the Delaware General
Corporation Law, as amended (the "Delaware Law").
B. The Certificate of Incorporation, Bylaws, and the Delaware
Law specifically provide that they are not exclusive, contemplating
that contracts regarding indemnification of officers and directors may
be entered into between the Corporation and its officers and the
members of its board of directors ("Board of Directors").
C. In accordance with the authorization provided by the
Delaware Law, the Corporation has purchased and presently maintains a
policy or policies of directors and officers liability insurance ("D&O
Insurance"), covering certain liabilities that may be incurred by the
Corporation's directors and officers in the performance of services for
the Corporation.
NOW, THEREFORE, in consideration of Director's service as a Director
and in order to induce Director to enter into and continue such service, the
parties agree to the terms and conditions set forth below.
Agreement
1. Indemnity of Director. The Corporation agrees to hold harmless and
indemnify Director to the full extent authorized by the provisions of the
Delaware Law and by any other applicable law authorizing indemnification.
2. Additional Indemnity. Subject only to the exclusions set forth in
Section 3 of this Agreement, the Corporation further agrees to hold harmless and
indemnify Director:
(a) against any and all expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by Director in connection with any threatened, pending, or completed
action, suit, or proceeding--whether civil, criminal, administrative, or
investigative (including an action by or in the right of the Corporation) to
which Director is, was, or at any time becomes a party or is threatened to be
made a party--by reason of the fact that Director is, was, or at any time
becomes a director, officer, employee, or agent of the Corporation or is or was
serving or at any time serves at the request of the Corporation as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Director by
the Corporation under the provisions of the Certificate of Incorporation,
Bylaws, and the Delaware Law stating that the indemnification provided for is
not exclusive.
<PAGE>
3. Limitations on Additional Indemnity. No indemnity pursuant to
Section 2 of this Agreement shall be paid by the Corporation except:
(a) to the extent the aggregate losses to be indemnified under Section
2 exceed the amount of such losses for which the Director is indemnified either
pursuant to Section 1 of this Agreement or pursuant to any D&O Insurance
purchased and maintained by the Corporation;
(b) with respect to remuneration paid to Director, if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any suit in which judgment is rendered against a
Director for an accounting of profits made from the purchase or sale by Director
of securities of the Corporation pursuant to the provisions of Section 16(b) of
the Securities Exchange Act of 1934 and amendments thereto or similar provisions
of any federal, state, or local statutory law;
(d) on account of Director's conduct finally adjudged to have been
knowingly fraudulent or deliberately dishonest or as willful misconduct; or
(e) if a decision by a court having final jurisdiction in the matter
shall determine that such indemnification is not lawful.
4. Continuation of Indemnity. All agreements and obligations of the
Corporation contained in this Agreement shall continue during the period
Director is a director, officer, employee, or agent of Corporation (or is or was
serving at the request of Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust, or other enterprise)
and shall continue so long as Director is subject to any possible claim or
threatened, pending, or completed action, suit, or proceeding-whether civil,
criminal, or investigative--by reason of the fact that Director was a director
of the Corporation or serving in any other capacity referred to in this
Agreement.
5. Notification and Defense of Claim. If a claim is to be made against
Corporation under this Agreement, Director will notify Corporation of the
commencement such action promptly after he receives notice of the commencement
of any action, suit, or proceeding. If, however Director fails to notify the
Corporation, the Corporation will not be relieved from any liability that it may
have to Director under this Agreement. With respect to any such action, suit, or
proceeding about which Director notifies the Corporation:
(a) The Corporation will be entitled to participate in the action suit,
or proceeding at its own expense.
(b) Except as otherwise provided below, the Corporation, with any other
indemnifying party similarly notified, will be entitled to assume the defense of
the action, suit, or proceeding under the guidance of legal counsel satisfactory
to Director. After notice from the Corporation to Director of its election to
assume the defense of the action, suit, or proceeding, the Corporation will not
be liable to Director under this Agreement for any legal or other expenses
subsequently incurred by Director in connection with the defense of the action,
suit, or proceeding other than reasonable costs of investigation or as otherwise
provided below. Director shall have the right to employ his own legal counsel in
such action, suit, or proceeding, but the fees and expenses of such counsel
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<PAGE>
incurred after notice from the Corporation of its assumption of the defense of,
the action, suit, or proceeding shall be at the expense of Director unless (i)
the employment of counsel by Director has been authorized by the Corporation,
(ii) Director has reasonably concluded that there may be a conflict of interest
between the Corporation and Director in the conduct of the defense of such
action, suit, or proceeding or (iii) the Corporation has not employed counsel to
assume thedefense of such action, suit, or proceeding, in each of which cases
the fees and expenses of counsel shall be at the expense of the Corporation. The
Corporation shall be entitled to assume the defense of any action, suit, or
proceeding brought by or on behalf of the Corporation or as to which Director
has concluded as in (ii) above.
(c) The Corporation shall not be liable to indemnify Director under
this Agreement for any amounts paid in settlement of any action or claim
effected without written consent. The Corporation shall not settle any action or
claim effected without the Corporation's written consent. The Corporation shall
not settle any action or claim in any manner that would impose any penalty or
limitation on Director without Director's written consent. Neither the
Corporation nor Director will unreasonably withhold its or his consent to any
proposed settlement.
6. Advancement and Repayment of Expenses. The Corporation shall advance
all reasonable expenses incurred by or on behalf of Director in connection with
any proceeding within 20 days after the receipt by the Corporation of a
statement from Director requesting such advance, whether prior to or after final
disposition of such proceeding. Director agrees to reimburse the Corporation for
all reasonable expenses paid by the Corporation in defending any civil or
criminal action, suit, or proceeding against Director in the event that it is
ultimately determined that Director is not entitled to be indemnified by the
Corporation for such expenses under the provisions of the Delaware Law, the
Certificate of Incorporation, Bylaws, this Agreement, or otherwise.
7. Enforcement.
(a) The Corporation expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on the Corporation by
this Agreement in order to induce Director to continue as a director of the
Corporation and acknowledges that Director is relying upon this Agreement in
continuing in such capacity.
(b) In the event Director is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in such
action, the Corporation shall reimburse Director for all of Director's
reasonable fees and expenses in pursuing such action.
8. Separability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
of this Agreement is held invalid or unenforceable for any reason, the provision
shall be limited or modified in its application to the minimum extent necessary
to avoid violation of law, and, as so limited or modified, such provision and
the balance of this Agreement shall be enforceable in accordance with their
terms.
9. Rights Not Exclusive. The rights provided under this Agreement shall
not be deemed exclusive of any other rights to which the Director may be
entitled under any bylaw, agreement, vote of stockholders or of disinterested
directors or otherwise, both as to action in his official capacity and as to
action in any other capacity by holding such office, and shall continue after
the Director ceases to serve Corporation as a Director.
10. Term of Agreement. All agreements and obligations of the
Corporation contained in this Agreement shall commence as of the time the
Director first served as a director, officer, employee, or agent of the
Corporation (or first served at the request of the Corporation as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust or other enterprise) and shall continue as long as Director shall so
serve, shall be, or could become subject to any possible proceeding or claim
with respect to which Director is granted rights of indemnification or
advancement of expenses under this Agreement.
11. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
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<PAGE>
12. Binding Effect. This Agreement shall be binding upon Director and
upon Corporation, its successors and assigns, and shall inure to the benefit of
Director, his heirs, personal representatives, and assigns and to the benefit of
the Corporation, its successors, and assigns. In the event Director is required
to bring any action to enforce rights or to collect moneys due under this
Agreement and is successful in such action, the Corporation shall reimburse
Director for all of Director's reasonable fees and expenses in bringing and
pursuing such action.
13. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed as of the day and
year first above written.
U.S. VISION, INC.
By:_______________________________________
George E. McHenry, Jr.
------------------------------------------
Director
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<PAGE>
EXECUTION COPY
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of December
29, 1995, is by and among U.S. Vision, Inc., a Pennsylvania corporation
(formerly, Royal International Optical, Inc., the "Company"), certain holders of
capital stock of the Company listed on Schedule I hereto (the
"Securityholders"), each of which owns that number of shares of Series C
Cumulative Convertible Preferred Stock of the Company, $0.01 par value per share
(the "Series C Preferred Stock"), Common Stock of the Company, par value $10.00
per share (the "Common Stock"), warrants to acquire shares of Common Stock (the
"Warrants"), and options to acquire shares of Common Stock (the "Options"), as
set forth opposite such Securityholder's name on Schedule I hereto. The shares
of Common Stock, shares of Series C Preferred Stock, Warrants, Options and
shares of Common Stock issuable upon the exercise of the Warrants and the
Options and conversion of the Series C Preferred Stock are hereinafter
collectively called, the "Securities".
RECITALS
WHEREAS, each of Grotech Partners III, L.P., Grotech III Companion
Fund, L.P., Grotech III Pennsylvania Fund, L.P., Grotech Partners IV, L.P.,
Keystone Venture IV, L.P., Stolberg Partners, L.P., Penn Janney Fund, Inc.,
Needham Capital Partners, L.P., Richard K. McDonald, M&M General Partnership and
Constitution Partners I, L.P. was formerly a general partner of Royal
Acquisition Associates Partnership, a Maryland general partnership ("RAAP"),
that was dissolved as of the date hereof and that has distributed the Securities
formerly held by it to said general partners;
WHEREAS, William A. Schwartz, Jr., Gayle E. Schmidt, George E. McHenry,
Jr., James M. McGrath, and Reid V. Eikner (each, an "Executive Officer") are
executive officers of the Company; and
WHEREAS, with respect to this Agreement, the Company and the
Securityholders desire to enter into this Agreement among themselves to assure
continuity in the ownership and management of the Company, to set forth their
rights and obligations as holders of the Company's Securities and to provide a
market and a purchase price for the Securities owned by them upon the occurrence
of certain events.
NOW, THEREFORE, in consideration of the premises and mutual agreements,
covenants and provisions herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. RECITALS. The Recitals hereto are specifically incorporated
by reference herein and made a part hereof.
<PAGE>
SECTION 2. PURCHASE AND SALE. The Securityholders hereby agree to
purchase, sell or redeem, as applicable, the Securities in the manner and upon
the terms provided in this Agreement. Except if made in accordance with the
terms and conditions of this Agreement, the Company's Articles of Incorporation
(the "Articles") and pursuant to applicable federal and state securities laws,
no purchase, sale, gift, endorsement, assignment (including an assignment of
voting rights), transfer, pledge, encumbrance or other disposition, whether
voluntary, involuntary or by operation of law, including, without limitation,
any transfer pursuant to the death or mental incapacity of a Securityholder or a
divorce decree (hereinafter collectively referred to as, a "Transfer"), of any
Securities by any Securityholder shall be valid and binding; provided, however,
that (a) any Executive Officer shall be permitted to transfer his Securities to
immediate family members (that is, the Executive Officer's spouse, son,
daughter, grandchild and their respective spouses) or a trust for the benefit of
family members for estate planning purposes (a "Family Transfer"), and (b) any
other Securityholder may Transfer its Securities to one or more of its
affiliates; provided, further, that in either such event, the Securities so
transferred shall remain subject to the provisions of this Agreement. The
transferee of any Securities or rights therein shall, as a condition precedent
to the validity, and the recognition by the Company, of such Transfer, become a
party to this Agreement. Any transfer prohibited by this Agreement or the
attempted bad faith Transfer of any Securities for the purpose of evading the
provisions of this Agreement shall be null and void.
SECTION 3. TRANSFERS OF SECURITIES.
(a) Except as otherwise provided in this Agreement, the
Securityholders agree that each will not Transfer any of his respective
Securities, except upon the compliance by him with the provisions of this
Agreement.
(b) Offer From a Third Party.
(i) If a Securityholder (the "Transferring
Securityholder") receives a bona fide offer that the Transferring
Securityholder is willing to accept from an independent third party
that is not an affiliate of the Transferring Securityholder to purchase
all or any of the Securities then beneficially owned by the
Transferring Securityholder, the Transferring Securityholder shall
first offer in writing (the "First Offer") to sell such Securities (the
"Offered Securities") to the Company at the price and on the terms on
which the Transferring Securityholder proposes to transfer the Offered
Securities to the proposed third-party transferee. The First Offer
shall set forth (A) the number of shares of the Offered Securities, (B)
the name and address of the proposed transferee, (C) the amount of
consideration to be received by the Transferring Securityholder in the
proposed sale of the Offered Securities to the third party transferee
and (D) the method of proposed payment. A copy of the First Offer shall
also be sent to the Securityholders. The Company shall have the option
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<PAGE>
to acquire all or any of the shares of Offered Securities at the price
and upon the terms provided in the First Offer. The Company shall have
the right to exercise its option for a period of thirty (30) days (the
"First Option Period") following its receipt of the First Offer by
notifying the Transferring Securityholder in writing of its intention
to purchase at Closing (as defined in Section 5 hereof) all or any
shares of the Offered Securities.
(ii) If the Company does not accept the First Offer
to purchase all of the shares of Offered Securities within the period
of thirty (30) days provided above in Section 3(b)(i), the Transferring
Securityholder, immediately thereafter, shall be deemed to have made an
offer (the "Second Offer") to sell any remaining shares of the Offered
Securities to the Securityholders, at the same price and on the same
terms as contained in the First Offer. The Securityholders shall have
the option to acquire all or any of the remaining shares of Offered
Securities at the price and upon the terms provided in the First Offer.
The Securityholders shall have the option, within thirty (30) days
following the expiration of the First Option Period, to accept the
Transferring Securityholder's Second Offer by notifying the
Transferring Securityholder in writing of their intention to so
purchase at Closing all or any portion of the remaining shares of
Offered Securities. If more than one Securityholder desires to purchase
the remaining shares of Offered Securities, such remaining shares shall
be purchased by them in such proportions as they may agree. In the
absence of agreement, each Securityholder desiring to purchase the
remaining shares of Offered Securities shall be entitled to purchase up
to that number of shares of such remaining Offered Securities which is
equal to the product of his fully-diluted percentage ownership interest
of Securities held by the Securityholders desiring to purchase the
shares of remaining Offered Securities and that number of shares of
remaining Offered Securities available for purchase hereunder.
(iii) If the Company and the Securityholders
collectively elect to exercise options to purchase less than all of the
shares of Offered Securities pursuant to Section 3(b)(i) and (ii)
hereof, the Transferring Securityholder may (A) either proceed to
Closing with respect to those shares of Offered Securities to be
purchased by the Company and/or the Securityholders and require that
the Company purchase any remaining shares, or (B) elect not to sell any
of the shares of Offered Securities by providing notice to the Company
and/or the Securityholders, as the case may be, within fifteen (15)
days after the expiration of the thirty (30) day period provided in
Section 3(b)(ii) hereof. In all of the events set forth in Section
3(b)(i) - (iii) hereof, the Offered Securities shall continue to be
subject to the terms and conditions of this Agreement, and any new
securityholder shall execute a counterpart to this Agreement.
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<PAGE>
(iv) Any such shares of Offered Securities which are
not so purchased pursuant to Sections 3(b)(i) - (iii) hereof by the
Company and/or the Securityholders, as the case may be, may be (after
first complying with the provisions of Section 7 hereof) sold by the
Transferring Securityholder to the third party named in the First Offer
within a period of ninety (90) days after the expiration of the thirty
(30) day period provided in Section 3(b)(ii) hereof. Such shares of
Offered Securities may be transferred to the third party named in the
First Offer provided that such shares are sold at the price and on the
terms set forth in the First Offer. Any shares of Offered Securities
not actually sold or transferred to such third party by the
Transferring Securityholder within such ninety (90) day period at the
price and on the terms set forth in the First Offer shall remain
subject to all of the provisions of this Agreement.
(c) Involuntary Transfer. If (i) any portion of a
Securityholder's Securities is attached or taken in execution, or if a
Securityholder applies for the benefit of a case under any provision of the
Federal bankruptcy law or any other law relating to insolvency or relief of
debtors, or (ii) a case or proceeding is brought against a Securityholder under
any provision of the Federal bankruptcy law or any other law relating to
insolvency or relief of debtors that is not dismissed within sixty (60) days
after the commencement thereof, or (iii) a Securityholder makes an assignment
for the benefit of creditors, or (iv) any portion of a Securityholder's
Securities is made subject to a charging order, or (v) any portion of a
Securityholder's Securities is transferred pursuant to a divorce decree, or (vi)
any portion of a Securityholder's Securities is transferred in the event of the
death (unless in accordance with the provisions of Section 3(d) hereof), mental
incapacity, or dissolution, as may be appropriate, of a Securityholder, or (vii)
the employment of an Executive Officer with the Company is terminated for Cause
(as such term is defined below) (each such event shall be hereinafter referred
to as, an "Involuntary Transfer"), such Securityholder, or his representative or
guardian, if appropriate (the "Subject Securityholder"), shall give immediate
written notice of the Involuntary Transfer to the Company and the other
Securityholders (the "Other Securityholders"), and the Company and the Other
Securityholders shall have the option, as provided in Section 3(c)(i) and (ii)
hereof, to purchase any or all of the Securities subject to the Involuntary
Transfer (the "Involuntary Transfer Stock") at the price and upon the terms
provided in Sections 4(a) and 5 hereof in accordance with the provisions of this
Section 3(c). For the purposes of this Agreement, the term "Cause" shall mean
(i) fraud, misappropriation or embezzlement, as determined in good faith by the
Board of Directors of the Company, (ii) the final, non-appealable conviction of
the Executive Officer by a court of competent jurisdiction of a felony, or (iii)
repeated and material breaches of the terms of the Executive Officer's written
or oral employment agreement with the Company, as determined in good faith by
the Company's Board of Directors, after written notice from the Company.
(i) The Company shall have the option, exercisable
upon written notice to the Subject Securityholder, for a period of
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forty-five (45) days following receipt by the Company of the written
notice of such Involuntary Transfer, to acquire all or any of the
shares of the Involuntary Transfer Stock.
(ii) Any such shares of the Involuntary Transfer
Stock with respect to which the Company shall fail to timely exercise
its option to purchase pursuant to Section 3(c)(i) hereof shall be
deemed to have been offered to the Other Securityholders, who shall
have the option, exercisable upon written notice to the Subject
Securityholder, for a period of thirty (30) days following expiration
of the forty-five (45) day period provided in Section 3(c)(i) hereof,
to purchase all or any of such remaining shares of the Involuntary
Transfer Stock. If more than one Other Securityholder desires to
purchase the Involuntary Transfer Stock, such remaining shares shall be
purchased by them in such proportions as they may agree. In the absence
of agreement, each Other Securityholder desiring to purchase the
remaining shares of the Involuntary Transfer Stock shall be entitled to
purchase up to that number of shares of such remaining Involuntary
Transfer Stock that is equal to the product of his fully-diluted
percentage ownership interest of Securities held by the Other
Securityholders desiring to purchase the remaining shares of the
Involuntary Transfer Stock and that number of shares of Involuntary
Transfer Stock available for purchase hereunder.
(iii) If the Company or any Other Securityholder has
actual knowledge of an Involuntary Transfer by a Subject
Securityholder, the Company or the Other Securityholder, as applicable,
shall give written notice to such effect to the Subject Securityholder
and to the Other Securityholders, and giving such written notice shall
constitute the Subject Securityholder's giving written notice to the
Company and to the Other Securityholders for purposes of this Section
3(c).
(iv) The Company, the Other Securityholders, or a
combination of both, as applicable, purchasing Involuntary Transfer
Stock hereunder (collectively, the "Section 3(c) Securityholders"), as
the case may be, shall settle with an assignee, trustee in bankruptcy,
attaching court or officer, legal guardian, personal representative or
successor in interest, as the case may be, holding shares of the
Involuntary Transfer Stock received in an Involuntary Transfer by
taking any or all such shares in execution and paying to them the
purchase price for each share as provided in Section 5 hereof, but not
exceeding the Subject Securityholder's indebtedness and proper items of
expense. The balance of the value of such shares of Involuntary
Transfer Stock shall be distributable to the Subject Securityholder.
(d) Death of an Executive Officer. In the event of the death
of an Executive Officer (the deceased party hereinafter being called, the
"Deceased Securityholder"), such death shall be deemed to be an Involuntary
Transfer and shall be subject to the provisions of Section 3(c) hereof;
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<PAGE>
provided, however, that in the event that the Deceased Securityholder shall make
a Family Transfer upon his death, either by will or by the laws of intestacy in
force in the jurisdiction of his residence, then such a Family Transfer shall
not be deemed an Involuntary Transfer; provided, further, that any Securities
transferred by the Deceased Securityholder under this Section 3(d) shall remain
subject to the provisions of this Agreement. The transferee of any Securities or
rights therein under this Section 3(d) shall, as a condition precedent to the
validity, and the recognition by the Company, of such Transfer, become a party
to this Agreement.
SECTION 4. PURCHASE PRICE FOR INVOLUNTARY TRANSFER.
(a) In the event of an Involuntary Transfer (a "Sale Event"),
the purchase price for the Securities to be purchased as the result of said Sale
Event shall be the fair market value of such Securities, as provided in Section
4(b) hereof, as of the date of the Sale Event.
(b) Fair Market Value.
(i) Agreement of Parties. For purposes of determining
the fair market value of the Securities to be purchased pursuant to
Section 3(c) hereof, if the Section 3(c) Securityholders or the
Company, as applicable, and the Subject Securityholder, as applicable,
agree in writing as to the purchase price for the Securities to be
purchased as the result of a Sale Event, such agreed value shall be the
fair market value of said Securities and shall be the purchase price of
said Securities for purposes of this Agreement. If no agreement on the
fair market value of the Securities to be purchased pursuant to Section
3(c) hereof can be reached within fifteen (15) days after the date that
the last option period pursuant to which any Section 3(c)
Securityholder or the Company, as applicable, elected to purchase such
Securities has expired, then the fair market value of said Securities
shall be determined pursuant to Section 4(b)(ii) hereof.
(ii) Third Party Appraisal. If the parties cannot
agree on the fair market value, as set forth in Section 4(b)(i) above,
of the Securities to be purchased within the period therein stated,
then within seven (7) days thereafter, an appraiser or appraisers shall
be jointly selected by the Subject Securityholder, on the one hand, and
the Company, if it is the only Section 3(c) Securityholder, or the
Section 3(c) Securityholders (excluding the Company) owning at least a
majority in interest of the fully-diluted Securities owned by the
Section 3(c) Securityholders (hereinafter, the "Majority Interest"), if
the Section 3(c) Securityholders are comprised in whole or in part of
persons or entities other than the Company, and the determination of
such jointly selected appraiser or appraisers as to the "fair market
value" of the Securities to be sold by the Subject Securityholder and
purchased by the Section 3(c) Securityholders or the Company, as
applicable, shall be binding and conclusive upon all parties. If the
applicable parties are unable to reach an agreement as to an appraiser,
the provisions of Section 4(b)(iii) below shall apply.
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For purposes of this Section 4(b)(ii), the "fair
market value" of the Securities shall be an amount equal to the "fair
market value per share of Common Stock" multiplied by the number of
shares of Common Stock held by the Securityholder or issuable upon the
exercise of the Warrants or conversion of the shares of Series C
Preferred Stock (or issuable upon the exercise conversion of any other
securities of the Company not outstanding on the date hereof) held by
the Securityholder which are being sold and purchased hereunder.
For purposes hereof, "fair market value per share of
Common Stock" shall be an amount equal to the fair market value of all
of the shares of Common Stock on a fully-diluted basis as of the date
of the Sale Event as determined by appraisal pursuant to this Section
4(b)(ii), divided by the total number of shares of Common Stock on a
fully-diluted basis issued and outstanding as of such date.
(iii) Additional Appraiser. If the Subject
Securityholder, on the one hand, and the Company or the Majority
Interest, as the case may be, on the other hand, do not agree upon the
selection of an appraiser or appraisers, as provided in Section
4(b)(ii) hereof within the period therein stated, then, within five (5)
days after the expiration of the seven (7) day period provided for in
Section 4(b)(ii) hereof, the Subject Securityholder and the Company or
the Majority Interest, as applicable, shall deliver to the other a list
of three appraisers and each of the Subject Securityholder and the
Company or the Majority Interest, as applicable, shall select one (1)
appraiser from the list delivered by the other by written notice to the
other. If either party fails to deliver a list of appraisers or to
select an appraiser from such list within said five (5) day period, the
other party may select an appraiser from its list and such appraiser
shall serve as the sole appraiser. Each of the appraisers so selected
shall, within thirty (30) days of being selected, determine the fair
market value of the Securities. If the lower of the two (2) appraisals
is at least ninety percent (90%) of the higher appraisal, then the fair
market value of the Securities shall be equal to the average of the two
(2) appraisals. If the lower of the two (2) appraisals is less than
ninety percent (90%) of the higher appraisal, then the two (2)
appraisers shall appoint a third appraiser within seven (7) days after
the end of said thirty (30) day period, and such third appraiser shall,
within fifteen (15) days of being selected, determine the fair market
value of the Securities. In such event, the fair market value of the
Securities shall be equal to the average of (A) the third appraisal and
(B) whichever of the first two appraisals is closest in dollar amount
to the third appraisal. The determination of such appraisers shall be
determinative of the fair market value of the Securities for the
purposes of this Section 4, and shall be binding, final and conclusive
on all parties hereto.
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(iv) Costs of Appraisals. All expenses incurred in
the appraisal process shall be borne and paid equally by the Subject
Securityholder, on the one hand, and the Company, on the other hand.
SECTION 5. CLOSING. Closing (the "Closing") on the sale of any
Securities sold pursuant to this Agreement shall be, unless otherwise agreed to
in writing by the purchasers of such shares (the "Section 5 Securityholders")
and the seller of such shares (the "Seller") or his personal or legal
representative, or successor, as the case may be, held at the principal place of
business of the Company thirty (30) days after the earlier of (a) the date on
which an option is exercised to purchase all of the Securities offered for sale
pursuant to this Agreement (or, if an election is made to sell less than all of
the offered Securities, then upon the date on which an option is subsequently
exercised to purchase the remaining portion of such offered Securities) or (b)
if all of such Securities offered for sale are not purchased pursuant to this
Agreement, the date on which the last option period to purchase such offered
Securities expires (collectively, the "Closing Date"). At the Closing, (i) the
Seller shall surrender the certificates representing the Securities to be
transferred and any documentation reasonably requested by the Company or the
Section 5 Securityholders, as the case may be, to convey the Securities
transferred, properly endorsed or executed for transfer and (ii) the
Securityholder shall pay the full amount of the purchase price in cash or by any
other means as agreed upon in writing by the Seller.
SECTION 6. STOCK COVERED. Except as otherwise provided herein, the
provisions of Sections 2 through 5 and Section 7 of this Agreement shall apply
to all of the Securities, now owned or which may be hereinafter acquired in any
manner, and any other capital stock or securities exercisable or convertible
into capital stock, of the Company hereinafter acquired. The term "Securities"
shall include such other acquired securities.
SECTION 7. TAG ALONG RIGHTS; DRAG ALONG RIGHTS.
(a) Tag Along Rights. If, at any time prior to the successful
completion of a firm commitment underwritten initial public offering (the "IPO")
of the Common Stock pursuant to an effective registration statement on Form S-1
(or its equivalent) under the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder (the "Securities Act"), any
Securityholder (a "Selling Securityholder") desires to Transfer in a single
transaction or in a series of related transactions, that number of Securities
equal to ten percent (10%) or more of the total number of Securities owned by
him in the aggregate and neither the Company nor the Securityholders have
elected to purchase said Securities pursuant to the provisions of Section 3
hereof, then the Selling Securityholder shall give notice of such intent to the
Securityholders at least twenty (20) days prior to the proposed date of such
sale. Such notice shall specify the number of shares and the terms, including
price, upon which such Securities are to be sold, exchanged, conveyed, or
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otherwise transferred and the proposed date of such sale, exchange, conveyance,
or transfer.
One or more of the Securityholders may elect to participate
in such sale by giving notice to the Selling Securityholder at least five (5)
days prior to the date of the proposed sale. Such notice from one or more of the
Securityholders shall specify the number of Securities which they propose to
sell. If one or more of the Securityholders elect to participate in such sale,
and give timely notice of such election in accordance with the provisions of
this Section 7(a), then the Selling Securityholder shall not effect such sale
unless either (i) the proposed purchaser of such shares offers to purchase from
each of the Securityholders electing to participate in the sale, at the same
time and on the same terms (including price) as Securities that are being
purchased from the Selling Securityholder, that number of Securities on a
fully-diluted basis owned by each of the electing Securityholders which bears
the same proportion to the total number of Securities on a fully-diluted basis
which such Securityholder beneficially owns as the number of Securities being
sold by the Selling Securityholder bears to the total number of Securities owned
by the Selling Securityholder, or (ii) to the extent the proposed purchaser is
unwilling to purchase shares of one or more of the electing Securityholders'
Securities as calculated above, then the number of shares of the electing
Securityholders' Securities as so calculated, and the number of Securities of
the Selling Securityholder as otherwise to be sold, shall each be reduced
proportionately to equal the total number of shares to be purchased by the
proposed purchaser, who will thereupon offer to purchase that number of shares
of the electing Securityholders' Securities as so calculated at the same time
and on the same terms (including price) as the number of Securities to be sold
by the Selling Securityholder, as recalculated herein.
(b) Drag Along Rights. If at any time prior to the IPO, a
bona fide offer (a "Bona Fide Offer") is made by an independent third party to
purchase all or substantially all of the Company's assets or equity securities,
then if the Bona Fide Offer is received by a Securityholder, that Securityholder
shall promptly notify the Company in writing of the terms, including price, and
conditions of the Bona Fide Offer. Upon receipt of the notice from the
Securityholder or, if the Bona Fide Offer is received by the Company directly
from the independent third party, the Company, promptly shall notify (the
"Company Notice") the Securityholders in writing of the Bona Fide Offer,
specifying the terms, including price, and conditions of the Bona Fide Offer.
The Securityholders owning at least two-thirds (2/3) of the shares of Common
Stock on a fully-diluted basis owned by all of the Securityholders on the date
of the Bona Fide Offer (the "Two-Thirds Interest") shall have the option (the
"Option"), for a period of thirty (30) days from the date of receipt of the
Company Notice, to require the Company and the Securityholders to accept the
Bona Fide Offer; provided, however, that the Company may elect instead to
acquire all of the Securityholders' Securities (the "Securityholders' Equity")
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on the same terms, including price, and subject to the same conditions as
specified in the Bona Fide Offer (except that the consideration payable to the
Securityholders shall be cash). Any election by the Company pursuant to this
Section 7(b) shall be at the direction of a two-thirds majority of the members
of the Board of Directors of the Company (the "Board")(with the Securityholders'
Board representatives abstaining from any such vote to the extent that they or
their affiliates are party to the Option election).
Should the Two-Thirds Interest desire to exercise the Option,
they shall notify the Company (the "Securityholders' Notice") in writing of
their exercise of the Option prior to the expiration of the aforementioned
thirty (30) day period. The Company shall have thirty (30) days from the date of
receipt of the Securityholders' Notice to elect whether to acquire the
Securityholders' Equity or accept the Bona Fide Offer. If the Company declines
to acquire the Securityholders' Equity, the Securityholders hereby agree to
effect the sale of their Securities (or, if the transaction is an asset sale, to
effect the asset sale) pursuant to the Bona Fide Offer.
If the Company elects to acquire the Securityholders' Equity,
it shall consummate the acquisition of the Securityholders' Equity on or before
the period expiring ninety (90) days from the date of the Company Notice. If the
Company shall fail to consummate the acquisition of the Securityholders' Equity
on or prior to the expiration of such period, then the Company and the
Securityholders shall accept the Bona Fide Offer. If, however, the Bona Fide
Offer has been withdrawn prior to such date due to the Company's inability to
timely consummate the acquisition of the Securityholders' Equity, then the
Securityholders shall have the election, in accordance with the procedures set
forth herein, to require the Company and the Securityholders to accept the next
Bona Fide Offer without the option of the Company to acquire the
Securityholders' Equity in lieu of accepting the Bona Fide Offer.
The acquisition by the Company of the Securityholders' Equity
shall be for cash consideration. If the Bona Fide Offer is accepted, the
Securityholders shall be entitled to receive the same form of consideration as
the Company's Other Securityholders.
SECTION 8. REGISTRATION RIGHTS.
(a) Certain Definitions: As used in this Section 8, the
following terms shall have the following respective meanings:
(i) "Commission" shall mean the Securities and
Exchange Commission, or any other Federal agency at the time
administering the Securities Act;
(ii) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended, or any similar Federal statute, and
the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time;
(iii) "Securityholder Shares" shall mean,
collectively, the shares of Common Stock held by the Securityholders and
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issuable upon the exercise of the Warrants and conversion of the Series
C Preferred Stock (or issuable upon the exercise or conversion of any
warrants, options or convertible securities acquired after the date
hereof) held by the Securityholders;
(iv) "Registration Expenses" shall mean the expenses
so described in Section 8(f) hereof; and
(v) "Selling Expenses" shall mean the expenses so
described in Section 8(f) hereof.
(b) Demand Rights.
(i) At any time after the second (2nd) anniversary
of the date of this Agreement, the Two-Thirds Interest on such date, may
require that the Company register under the Securities Act all or a
portion of their Securityholder Shares for sale in the manner specified
in such notice. Notwithstanding anything to the contrary contained
herein, (A) no request may be made under this Section 8(b) within one
hundred and twenty (120) days after the effective date of (I) the IPO or
(II) a registration statement filed by the Company covering a firm
commitment underwritten public offering in which the holders of
Securityholder Shares shall have been entitled to join pursuant to
Section 8(c) or (d) hereof and in which there shall have been
effectively registered at least fifty percent (50%) of the total
Securityholder Shares as to which registration shall have been so
requested and (B) if the demand under this Section shall relate to an
IPO in which the net proceeds (the is gross proceeds to the Company as a
result of such offering less the applicable underwriting discounts and
commissions) equals or exceeds Twenty-Five Million Dollars ($25,000,000)
and the pre-offering valuation for the Company's common equity equals or
exceeds One Hundred Million Dollars ($100,000,000).
(ii) Following receipt of any notice of demand under
this Section 8(b), the Company shall immediately notify all record
holders of the Securityholder Shares from whom notice has not been
received of their rights to participate in the underwritten public
offering and, upon the written request from such holders within thirty
(30) days after the giving of such notice by the Company, shall include
all Securityholder Shares held by such holders in the underwritten
public offering.
(iii) The holders of a majority of the
Securityholder Shares to be sold in the underwritten public offering may
designate the managing underwriter of such offering.
(iv) The Company shall be obligated to register
Securityholder Shares pursuant to this Section 8(b) on not more than two
(2) separate occasions, provided, however, that such obligation shall be
deemed satisfied only when a registration statement covering at least
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seventy-five percent (75%) of the total Securityholder Shares specified
in notices received as aforesaid, for sale in accordance with the method
of disposition specified by the requesting holders, shall have become
effective and, if such method of disposition is a firm commitment
underwritten public offering, all such shares shall have been sold
pursuant thereto. Notwithstanding anything in this Section 8(b) to the
contrary, the Company shall be entitled, upon the written advice of the
managing underwriters, to reduce the number of Securities to be offered
in any such public offering, pro rata in accordance with the ownership
interest of each holder of Securityholder Shares to be included in the
offering.
(v) The Company shall be entitled to include in any
registration statement referred to in this Section 8(b) Securities to be
sold by the Company for its own account, except as and to the extent
that, in the opinion of the managing underwriter (if such method of
disposition shall be an underwritten public offering), such inclusion
would adversely affect the marketing of the Securityholder Shares to be
sold. The Company will not file with the Commission any other
registration statement with respect to its Securities, whether for its
own account or for that of other Securityholders, from the date of
receipt of a notice from requesting holders pursuant to this Section
8(b) until the completion of the period of distribution of the
registration contemplated thereby.
(c) Incidental Registration. If the Company at any time
(other than pursuant to Section 8(b) or (d) hereof) proposes to register any of
its securities under the Securities Act for sale to the public, whether for its
own account or for the account of other security holders or both (except with
respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Securityholder Shares for sale to the public),
each such time it will give written notice to all holders of Securityholder
Shares of its intention so to do. Upon the written request of any holder of
Securityholder Shares, received by the Company within thirty (30) days after the
giving of any such notice by the Company, to register any of its Securityholder
Shares (whether or not such Securityholder Shares are issued or outstanding at
the time), in whole or in part (which request shall state the intended method of
disposition thereof), the Company will use its best efforts to cause the
Securityholder Shares as to which registration shall have been so requested to
be included in the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent requisite to permit the
sale or other disposition by the holder (in accordance with its written request)
of such Securityholder Shares so registered. In the event that any registration
pursuant to this Section 8(c) shall be, in whole or in part, an underwritten
public offering of Securities, the number of Securityholder Shares to be
included in such an underwriting may be reduced, in whole or in part, (pro rata
among the requesting holders of Securityholder Shares based upon the number of
Securityholder Shares owned by such holders) if and to the extent that the
managing underwriter shall be of the opinion that such inclusion would adversely
affect the marketing of the securities to be sold by the Company therein,
provided, however, that such number of Securityholder Shares shall not be
reduced below thirty percent (30%) of the aggregate number of shares offered by
the Company and the requesting holders of Securityholder Shares. Notwithstanding
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the foregoing provisions, the Company may withdraw any registration statement
referred to in this Section 8(c) without thereby incurring any liability to the
holders of Securityholder Shares.
(d) Registration on Form S-3. If at any time (i) a holder or
holders of Securityholder Shares requests that the Company file a registration
statement on Form S-3 (or any successor thereto) for a public offering of all or
any portion of the Securityholder Shares held by such requesting holder or
holder and (ii) the Company is a registrant entitled to use Form S-3 (or any
successor thereto) to register such shares, then the Company shall use its best
efforts to register under the Securities Act on Form S-3 (or any successor
thereto), for public sale in accordance with the method of disposition specified
in such notice, the number of Securityholder Shares specified in such notice.
Whenever the Company is required by this Section 8(d) to use its best efforts to
effect the registration of Securityholder Shares, each of the procedures and
requirements of Section 8(b) hereof (including but not limited to the
requirement that the Company notify all holders of Securityholder Shares from
whom notice has not been received and provide them with the opportunity to
participate in the offering) shall apply to such registration; provided,
however, that there shall be no limitation on the number of registrations on
Form S-3 (or any successor thereto) which may be requested and obtained under
this Section 12(d), except that not more than two (2) such registrations shall
occur within any twelve-month period; and provided further that the requirements
contained in the first sentence of Section 8(b) hereof shall not apply to any
registration on Form S-3 (or any successor thereto) which may be requested and
obtained under this Section 8(d).
(e) Registration Procedures. If and whenever the Company is
required by the provisions of Section 8(b), (c) or (d) hereof to use its best
efforts to effect the registration of any Securityholder Shares under the
Securities Act, the Company will, as expeditiously as possible:
(i) prepare and file with the Commission a
registration statement (which, in the case of an underwritten public
offering pursuant to Section 8(b) hereof, shall be on Form S-1 or such
other form of general applicability satisfactory to the managing
underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration statement
to become and remain effective for the period of the distribution
contemplated thereby (determined as hereinafter provided);
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for the period specified in
subparagraph (i) above and comply with the provisions of the Securities
Act with respect to the disposition of all Securityholder Shares covered
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by such registration statement in accordance with the sellers' intended
method of disposition set forth in such registration statement for such
period;
(iii) furnish to each seller of Securityholder
Shares and to each underwriter such number of copies of the registration
statement and the prospectus included in the registration statement
(including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or other disposition of
the Securityholder Shares covered by such registration statement;
(iv) use all reasonable efforts to register or
qualify the Securityholder Shares covered by such registration statement
under the securities or "blue sky" laws of such jurisdictions as the
sellers of Securityholder Shares or, in the case of an underwritten
public offering, the managing underwriter reasonably shall request,
provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(v) use its best efforts to list the Securityholder
Shares covered by such registration statement with any securities
exchange on which the Securities is then listed;
(vi) immediately notify each seller of
Securityholder Shares and each underwriter under such registration
statement, at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, of the happening of any event of
which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(vii) if the offering is underwritten and at the
request of any seller of Securityholder Shares, use its best efforts to
furnish on the date that Securityholder Shares are delivered to the
underwriters for sale pursuant to such registration: (A) an opinion
dated such date of counsel representing the Company for the purposes of
such registration, addressed to the underwriters and to such seller,
stating that such registration statement has become effective under the
Securities Act and that (1) to the best knowledge of such counsel, no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (2) the registration statement,
the related prospectus and each amendment or supplement thereof comply
as to form in all material respects with the requirements of the
Securities Act (except that such counsel need not express any opinion as
to financial statements contained therein) and (3) to such other effects
as reasonably may be requested by counsel for the underwriters or by
such seller or its counsel and (B) a letter dated such date from the
independent public accountants retained by the Company, addressed to the
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underwriters and to such seller, stating that they are independent
public accountants within the meaning of the Securities Act and that, in
the opinion of such accountants, the financial statements of the Company
included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material
respects with the applicable accounting requirements of the Securities
Act, and such letter shall additionally cover such other financial
matters (including information as to the period ending not more than
five (5) business days prior to the date of such letter) with respect to
such registration as such underwriters reasonably may request; and
(viii) make available for inspection by each seller
of Securityholder Shares, upon such seller signing an appropriate
confidentiality agreement, any underwriter participating in any
distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by such seller or underwriter, all
financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors
and employees to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with
such registration statement.
For purposes of Section 8(e)(i) and (ii) and of Section
8(b)(iii) and (vi) hereof, the period of distribution of Securityholder Shares
in a firm commitment underwritten public offering shall be deemed to extend
until each underwriter has completed the distribution of all securities
purchased by it (but not later than one hundred and eighty (180) days), and the
period of distribution of Securityholder Shares in any other registration shall
be deemed to extend until the earlier of the sale of all Securityholder Shares
covered thereby and one hundred and twenty (120) days after the effective date
thereof.
In connection with each registration hereunder, the sellers
of Securityholder Shares will furnish to the Company in writing such information
with respect to themselves and the proposed distribution by them as reasonably
shall be necessary in order to assure compliance with Federal and applicable
state securities laws.
In connection with each registration pursuant to Section
8(b), (c) or (d) hereof covering an underwritten public offering, the Company
and each seller agree to enter into a written agreement with the managing
underwriter selected in the manner herein provided in such form and containing
such provisions as are customary in the securities business for such an
arrangement between such underwriter and companies of the Company's size and
investment stature.
(f) Expenses. All expenses incurred by the Company in
complying with Section 8(b), (c) and (d) hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, fees and expenses
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(including counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, costs of
insurance and reasonable fees and disbursements of one law firm for the sellers
of Securityholder Shares, but excluding any Selling Expenses, are called
"Registration Expenses". All underwriting discounts and selling commissions
applicable to the sale of the Securityholder Shares are called "Selling
Expenses".
The Company will pay all Registration Expenses in connection
with each registration statement under Section 8(b), (c) or (d) hereof, except
to the extent that any such Registration Expenses must be borne by the
participating sellers in order to permit the sale of shares in any state under
the state securities or "blue sky" laws thereof and except that the sellers
shall pay such expenses in connection with the third (3rd) and all following
registration requests under Section 8(d) hereof (if at least two (2) of the
prior registrations under Section 8(d) have successfully been consummated or, if
not consummated, were terminated due to the request of the person(s) originally
requesting registration). All Selling Expenses in connection with each
registration statement under Section 8(b), (c) or (d) hereof, and any
Registration Expenses borne by the sellers pursuant to the preceding sentence
shall be borne by the participating sellers in proportion to the number of
shares sold by each, or by such participating sellers (including the Company if
it shall be a participating seller) as they may agree.
(g) Indemnification and Contribution.
(i) In the event of a registration of any of the
Securityholder Shares under the Securities Act pursuant to Section 8(b),
(c) or (d) hereof, the Company will indemnify and hold harmless each
seller of such Securityholder Shares thereunder, each underwriter of
such Securityholder Shares thereunder and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities
Act, against any losses, claims, damages, liabilities or expenses, joint
or several (or actions in respect thereof), to which such seller,
underwriter or controlling person may become subject under the
Securities Act, Exchange Act, or other Federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of
any litigation, if such settlement is effected with the written consent
of the Company), insofar as such losses, claims, damages liabilities or
expenses (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any registration statement (the "Registration Statement")
under which such Securityholder Shares were registered or qualified
under the Securities Act or applicable state securities laws pursuant to
Section 8(b), (c) or (d) hereof, any preliminary prospectus (the
"Preliminary Prospectus") or final prospectus ("Prospectus") contained
therein, or any amendment or supplement thereof, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or arise out of or are based in whole or in part
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on any inaccuracy in the representations and warranties of the Company
contained in an underwriting agreement with the underwriters or any
failure of the Company to perform its obligations under such
underwriting agreement or under law; and will reimburse each such
seller, each such underwriter and each such controlling person for any
legal and other expenses as such expenses are reasonably incurred by
them in connection with investigating, defending, settling, compromising
or paying any such loss, claim, damage, liability, expense or action;
provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with the
information furnished in writing by any such seller, any such
underwriter or any such controlling person.
(ii) In the event of a registration of any of the
Securityholder Shares under the Securities Act pursuant to Section 8(b),
(c) or (d) hereof, each seller of such Securityholder Shares thereunder,
severally and not jointly, will indemnify and hold harmless the Company,
each person, if any, who controls the Company within the meaning of the
Securities Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter, each person
who controls any underwriter within the meaning of the Securities Act
and each other seller of Securityholder Shares thereunder, against any
losses, claims, damages liabilities or expenses, joint or several, to
which the Company or such officer, director, underwriter, controlling
person or other seller may become subject under the Securities Act,
Exchange Act, or other Federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation if
such settlement is effected with the written consent of the seller of
the Securityholder Shares), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or arise out of or are based
in whole or in part on any inaccuracy in the representations and
warranties of the seller of such Securityholder Shares contained in an
underwriting agreement with the underwriters or any failure of such
seller to perform its obligations under such agreement or under law;
provided, however, that such seller will be liable hereunder in any such
case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon
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and in strict conformity with information pertaining to such seller, as
such, furnished in writing to the Company by such seller stated to be
specifically for use in such registration statement and prospectus;
provided further that the liability of each seller hereunder shall be
limited to the proportion of any such loss, claim, damage, liability or
expense which is equal to the proportion that the public offering price
of the shares sold by such seller under such registration statement
bears to the total public offering price of all securities sold
thereunder, but not in any event to exceed the proceeds received by such
seller from the sale of Securityholder Shares covered by such
registration statement.
(iii) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing
of the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to such indemnified party for contribution or otherwise other than
as specifically set forth under the terms of this Section 8(g) and shall
only relieve it from any liability which it may have to such indemnified
party under this Section 8(g) if and to the extent the indemnifying
party is materially prejudiced by such omission. In case any such action
shall be brought against any indemnified party and such indemnified
party seeks or intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in and, to the extent
it may desire, jointly with all other indemnifying parties similarly
notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded that there may be a conflict between the positions of the
indemnifying party and the indemnified party in conducting the defense
of any such action or that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional
to those available to the indemnifying party, the indemnified party or
parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of
notice from the indemnifying party to such indemnified party of its
election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable
to such indemnified party for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense
thereof unless (A) the indemnified party shall have employed such
counsel in connection with the assumption of legal defenses in
accordance with the provisions of the preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel) or (B) the indemnifying
party shall not have employed counsel reasonably satisfactory to the
-18-
<PAGE>
indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases
the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(iv) In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in
which either (A) any holder of Securityholder Shares exercising rights
under this Agreement, or any controlling person of any such holder,
makes a claim for indemnification pursuant to this Section 8(g) but it
is judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section
8(g) provides for indemnification in such case or (B) contribution under
the Securities Act may be required on the part of any such selling
holder or any such controlling person in circumstances for which
indemnification is provided under this Section 8(g); then, and in each
such case, the Company and such holder will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that such holder
is responsible for the portion represented by the percentage that the
public offering consideration of its Securityholder Shares offered by
the registration statement bears to the public offering consideration of
all securities offered by such registration statement, and the Company
is responsible for the remaining portion; provided, however, that, in
any such case, (1) no such holder will be required to contribute any
amount in excess of the public offering price of all such Securityholder
Shares offered by it pursuant to such registration statement and (2) no
person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 12(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(h) Changes in Securities. If, and as often as, there is any
change in the Securities by way of a Recapitalization Event, or through a
merger, consolidation, reorganization, recapitalization or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Securities as
so changed.
(i) Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Securityholder Shares to the public without
registration, at all times after ninety (90) days after any registration
statement covering a public offering of securities of the Company under the
Securities Act shall have become effective, the Company agrees to:
-19-
<PAGE>
(i) make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities
Act ("Rule 144");
(ii) use its best efforts to file with the
Commission in a timely manner all reports and other documents required
of the Company under the Securities Act and the Exchange Act; and
(iii) furnish to each holder of Securityholder
Shares forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so
filed by the Company as such holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing such holder
to sell any Securityholder Shares without registration.
(j) Transfer of Registration Rights. Any Securityholder (or
any valid transferee thereof) may transfer to any transferee its registration
rights pursuant to this Section 8, provided that the number of Securityholder
Shares as to which registration rights are transferred shall equal at least
twenty percent (20%) of the Securityholder Shares originally owned by the
Securityholder and provided, further, that no transfer of such rights may be
made to a direct competitor of the Company.
(k) Termination of Registration Rights. The obligations of
the Company under this Section 8 shall terminate on the fifth (5th) anniversary
of the IPO.
SECTION 9. ELECTION/REMOVAL OF DIRECTORS. Each Securityholder agrees to
vote his Securities in accordance with the applicable provisions of the
Articles.
SECTION 10. SPECIFIC PERFORMANCE. Inasmuch as the Securities cannot be
readily purchased or sold in the open market, irreparable damage would result in
the event that the provisions of this Agreement are not specifically enforced.
Therefore, the rights to, or obligations of, the parties hereto shall be
enforceable in a court of equity by a decree of specific performance and
appropriate injunctive relief may be applied for and granted in connection
therewith. Such remedies, and all other remedies provided for in this Agreement,
shall, however, be cumulative and not exclusive and shall be in addition to any
other remedies which any party may have under this Agreement or otherwise.
SECTION 11. ENDORSEMENT OF CERTIFICATE. Upon the execution of this
Agreement, each certificate for Securities now registered or to be issued in the
name of the Securityholders shall be endorsed by the Secretary of the Company as
follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS THEY HAVE BEEN SO REGISTERED UNDER THOSE
ACTS OR IF EXEMPTIONS FROM REGISTRATION ARE AVAILABLE.
-20-
<PAGE>
THIS CERTIFICATE IS TRANSFERABLE ONLY UPON COMPLIANCE WITH
THE PROVISIONS OF THAT CERTAIN STOCKHOLDERS' AGREEMENT DATED
AS OF DECEMBER 29, 1995 BY AND AMONG U.S. VISION, INC. AND
CERTAIN OF ITS SECURITYHOLDERS, A COPY OF WHICH IS ON FILE IN
THE OFFICE OF THE SECRETARY OF THE COMPANY AND IS AVAILABLE
UPON REQUEST OF ANY SECURITYHOLDER WITHOUT CHARGE.
All certificates for any equity securities of the Company
hereinafter issued to the Securityholders shall bear the same endorsement, and
this Agreement shall cover all such stock.
SECTION 12. TERM. Notwithstanding anything contained herein to the
contrary, this Agreement shall terminate, and all rights and obligations
hereunder shall cease, upon the earlier to occur of the termination of this
Agreement as provided by applicable Maryland law or the occurrence of any of the
following events:
(a) The written agreement of each of the then parties
hereto; or
(b) The cessation of the Company's business.
The provisions of this Agreement set forth in Sections 2 through 5 and Section 7
hereof, shall terminate and be of no further force and effect upon the
completion of an IPO.
SECTION 13. NOTICES. All notices, offers, acceptances, requests and
other communications hereunder shall be in writing and shall be deemed to have
been duly given if delivered or mailed by certified or registered mail to the
Securityholders at their addresses in the stock records of the Company, and if
to the Company at Glenn Oaks Industrial Park, Glendora, New Jersey 08029. Any
party hereto may change his or its address for notice by giving notice thereof
in the manner herein above provided.
SECTION 14. MISCELLANEOUS.
(a) Entire Agreement, Etc. This Agreement, and the documents
referred to herein, embody the entire agreement and understanding among the
parties hereto with respect to the subject matter hereof and may be amended,
modified or canceled only by written agreement of the parties hereto. This
Agreement shall be binding upon, and inure to the benefit of, and shall be
enforceable by, the heirs, successors, assigns, and personal representatives, as
the case may be, of the parties hereto. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware,
without giving effect to its conflicts of laws provisions. In case any term of
-21-
<PAGE>
this Agreement shall be held invalid, illegal or unenforceable in whole or in
part, neither the validity of the remaining part of such term nor the validity
of the remaining terms of this Agreement shall in any way be affected thereby.
Each of the parties agrees that he will consent to and approve any amendments of
the Restated Articles or Bylaws of the Company which may be necessary or
advisable in order to conform any of the provisions of this Agreement or any
amendments hereto to applicable law. Each Securityholder further agrees to
execute and deliver such documents as may be necessary in order to implement the
provisions of the preceding sentence. Any amendments hereto shall be in writing
and executed by each of the parties hereto.
(b) COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be considered an original and all of
which, when taken together, shall constitute one and the same instrument.
(c) GENDER. The use of the singular shall include the plural
and the use of the masculine gender shall include the feminine and neutral
genders and vice versa.
(d) NO RIGHT OF EMPLOYMENT. Neither this Agreement nor any
purchase or sale of Securities hereunder shall create, or be construed or deemed
to create, any right of employment by the Company in favor of any person.
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
ATTEST: U.S. VISION INC., INC.
/s/ George E. McHenry, Jr. By: /s/ William A. Schwartz, Jr. SEAL)
- ----------------------------- ------------------------------
George E. McHenry, Jr., Secretary William A. Schwartz, Jr.,
President and CEO
WITNESS: GROTECH PARTNERS III, L.P.
GROTECH III COMPANION FUND, L.P.
GROTECH III PENNSYLVANIA FUND, L.P.
By: GROTECH CAPITAL GROUP, INC.,
GENERAL PARTNER
/s/ By: /s/ Dennis J. Shaughnessy (SEAL)
- ----------------------------- ------------------------------
Dennis J. Shaughnessy,
Managing Director
-22-
<PAGE>
EXECUTION COPY
WITNESS: GROTECH PARTNERS IV, L.P.
By: GROTECH CAPITAL GROUP IV, INC.,
GENERAL PARTNER
/s/ By: /s/ Dennis J. Shaughnessy (SEAL)
- ----------------------------- ------------------------------
Dennis J. Shaughnessy,
Managing Director
WITNESS: NEEDHAM CAPITAL PARTNERS, L.P.
By: NEEDHAM CAPITAL MANAGEMENT, L.P.,
GENERAL PARTNER
/s/ By: /s/ John C. Michaelson (SEAL)
- ----------------------------- ------------------------------
John C. Michaelson, General Partner
WITNESS: THE PENN JANNEY FUND, INC.
/s/ By: /s/ Richard M. Fox (SEAL)
- ----------------------------- ------------------------------
Richard M. Fox, Executive Vice
President
WITNESS: STOLBERG PARTNERS, L.P.
By: SGMS, L.P., GENERAL PARTNER
By: STOLBERG PARTNERS, INC.,
GENERAL PARTNER
/s/ By: /s/ Walter Scano (SEAL)
- ----------------------------- ------------------------------
Walter Scano, Vice President
-23-
<PAGE>
WITNESS: M & M GENERAL PARTNERSHIP
/s/ By: /s/ Richard K. McDonald (SEAL)
- ----------------------------- ------------------------------
Richard K. McDonald, General Partner
WITNESS: CONSTITUTION PARTNERS I, L.P.
By: RKM INVESTMENT COMPANY,
GENERAL PARTNER
/s/ By: /s/ Richard K. McDonald (SEAL)
- ----------------------------- ------------------------------
Richard K. McDonald
WITNESS:
/s/ By: /s/ Richard K. McDonald (SEAL)
- ----------------------------- ------------------------------
RICHARD K. MCDONALD
WITNESS:
/s/ By: /s/ WILLIAM A. SCHWARTZ. (SEAL)
- ----------------------------- ------------------------------
WILLIAM A. SCHWARTZ, JR.
WITNESS:
s/ By: /s/ GAYLE E. SCHMIDT (SEAL)
- ----------------------------- ------------------------------
GAYLE E. SCHMIDT
WITNESS:
/s/ By: /s/ GAYLE E. SCHMIDT (SEAL)
- ----------------------------- ------------------------------
GEORGE E. MCHENRY, JR.
-24-
<PAGE>
WITNESS:
/s/ By: /s/ JAMES M. MCGRATH (SEAL)
- ----------------------------- ------------------------------
JAMES M. MCGRATH
WITNESS:
/s/ By: /s/ REID V. EIKNER (SEAL)
- ----------------------------- ------------------------------
REID V. EIKNER
-25-
<PAGE>
<TABLE>
<CAPTION>
SHARES OF SHARES OF
SHARES OF SERIES C NUMBER OF SERIES A NUMBER OF
COMMON PREFERRED WARRANT PREFERRED OPTION TOTAL PERCENT
NAME OF SECURITYHOLDER STOCK STOCK* SHARES STOCK ** SHARES CSEs CSEs
<S> <C> <C> <C> <C> <C> <C> <C>
GROTECH PARTNERS IV, L.P. 3,100.0000 31,666.70 7,832.0000 41.1667 10,932.00 .22
GROTECH PARTNERS III, L.P. 610.0000 6,238.50 1,543.0000 8.1101 2,153.00 .04
GROTECH III COMPANION FUND, L.P. 66.0000 679.60 168.0000 0.8835 234.00 .00
GROTECH III PENNSYLVANIA FUND, L.P. 38.0000 389.50 96.0000 0.5064 134.00 .00
STOLBERG PARTNERS, L.P. 2,980.0000 30,448.70 7,531.0000 39.5833 10,511.00 .21
PENN JANNEY FUND, L.P. 238.0000 2,435.90 602.0000 3.1667 840.00 .02
NEEDHAM CAPITAL PARTNERS, L.P. 119.0000 1,218.00 301.0000 1.5834 420.00 .01
RICHARD K. MCDONALD 357.0000 3,651.30 903.0000 4.7467 1,260.00 .03
M&M GENERAL PARTNERSHIP 132.0000 1,348.70 333.0000 1.7533 465.00 .01
CONSTITUTION PARTNERS I, L.P. 953.0000 9,743.60 2,409.0000 12.6667 3,362.00 .07
WILLIAM A. SCHWARTZ, JR. 926.0000 3,519.6500 4,445.65 .09
GAYLE E. SCHMIDT 16.0000 1,170.7390 1,186.74 .02
GEORGE E. MCHENRY, JR. 1,170.7380 1,170.74 .02
JAMES M. MCGRATH 16.0000 1,170.7390 1,186.74 .02
REID V. EIKNER 1,170.7390 1,170.74 .02
PIPER & MARBURY L.L.P. AS TRUSTEE **** 5.0000 3.55
SUBTOTAL SECURITYHOLDERS 9,556.0000 87,820.50 21,721.5520 114.1667 8,202.6050 39,471.61 .80
KEYSTONE VENTURE IV, L.P. *** 1,192.0000 12,179.50 3,012.0000 15.8334 4,204.00 .08
TOTAL ISSUED & OUTSTANDING 13,786.0000 100,000.00 24,733.5520 130.0000 11,013.0000 49,532.55 1.00
* The Series C Preferred Stock is convertible pursuant to the provisions of
Section 11 of its Certificate of Designation. Assuming that no Accrued
Dividends are owed by the Company and the Offering Price Per Share (pre-split)
equals $20.00, then the number of shares of shares of Common Stock issuable
upon the conversion of each share of Series C Preferred Stock would equal
317.500 (post-split), calculated as follows: [($63.50 / $20.00) x 100,000] /
1,000 = 317.50 shares. Because the conversion ratio for the Series C Preferred
Stock is uncertain and the Series C Preferred Stock is subject to redemption
at the option of the Company, the shares of Series C Stock have not been included
in the calculation of the number and percentage of Common Stock Equivalents.
** Non-convertible and therefore not included in the calculation of the number and
percentage of Common Stock Equivalents.
*** Not a party to the Stockholders' Agreement.
**** FRACTIONAL SHARES HELD IN TRUST BY PIPER & MARBURY L.L.P.
</TABLE>
SHARES OF NUMBER OF
COMMON WARRANT
NAME OF SECURITYHOLDER STOCK SHARES
GROTECH PARTNERS IV, L.P. 0.1699 0.2997
GROTECH PARTNERS III, L.P. 0.7492 0.0026
GROTECH III COMPANION FUND, L.P. 0.5328 0.0892
GROTECH III PENNSYLVANIA FUND, L.P. 0.1321 0.3372
STOLBERG PARTNERS, L.P. 0.9277 0.0450
PENN JANNEY FUND, L.P. 0.4746 0.4846
NEEDHAM CAPITAL PARTNERS, L.P. 0.2422 0.2547
RICHARD K. MCDONALD 0.4623 0.0962
M&M GENERAL PARTNERSHIP 0.0377 0.5814
CONSTITUTION PARTNERS I, L.P. 0.8984 0.9384
KEYSTONE VENTURE IV, L.P. 0.3731 0.4230
SUBTOTAL SECURITYHOLDERS 5.0000 3.5520
<PAGE>
FORM OF LICENSE/LEASE AGREEMENT
OPTICAL
THIS LICENSE/LEASE AGREEMENT (hereinafter referred to as "Agreement")
is made and entered into as of May 26, 1994, by and between SEARS, ROEBUCK AND
CO., a New York corporation (hereinafter referred to as "Sears") and ROYAL
INTERNATIONAL OPTICAL, INC., a Pennsylvania corporation, (hereinafter referred
to as "Licensee/Tenant").
WHEREAS, Sears operates a retail store located at:
REGION DIST. ACT.CTR. STORE LOCATION
- ------ ----- -------- ----- --------
Central 261 9825 2950 Owensboro, KY
(hereinafter referred to as the "Store"), and
WHEREAS, Licensee/Tenant desires to operate an optical concession in
the Store,
NOW THEREFORE, Sears and Licensee/Tenant hereby mutually agree as
follows:
PURPOSE OF AGREEMENT
- --------------------
1. Licensee/Tenant is in the business described in this paragraph, and
has expertise in that business and has a marketing plan for that business. Sears
hereby leases to Licensee/Tenant the space described below, and grants
Licensee/Tenant the privilege of conducting and operating within that space, and
Licensee/Tenant shall conduct and operate, pursuant to the terms, provisions and
conditions contained in this Agreement, a concession for the sale of optical
merchandise, goods, and supplies; and for taking orders for repair, and repair
of optical merchandise, goods and supplies and for visual eye exams and for the
sale of repair and replacement certificates (hereinafter referred to as
"Concession"), in the Store.
TERM
- ----
2. The term of this Agreement (hereinafter referred to as "Term") shall
be for a period beginning on February 1, 1994 and ending at the close of
business on January 31, 1995 unless sooner terminated under any of the
provisions of this Agreement.
REPRESENTATION TO LICENSEE/TENANT
- ---------------------------------
3. Sears makes no promises or representations whatsoever as to the
potential amount of business Licensee/Tenant can expect at any time during the
Term. Licensee/Tenant is solely responsible for any expenses incurred related to
this Agreement. Sears shall not be obligated for any expense incurred by
Licensee/Tenant in connection with any increase in the number of
Licensee/Tenant's employes or expenditures made by Licensee/Tenant for
additional facilities or equipment.
UNAUTHORIZED SALES
- ------------------
4. Licensee/Tenant covenants that it will use the space occupied by the
Concession only for the purpose expressly authorized in this Agreement, and will
render only those services and sell only such merchandise in the Concession as
expressly authorized by this Agreement.
<PAGE>
FEE
- ---
5. (a) Licensee/Tenant shall pay to Sears, as provided in Paragraph 26
of this Agreement, a fee (hereinafter referred to as "Fee") which shall be a sum
equal to _________ percent (___%) of net sales which are paid totally or
partially by recognized members of vision care program and/or assistance groups,
i.e. Medicare, Medicaid, vision care programs underwritten by insurance
carriers, and/or third party groups and _________ percent (___%) of all other
net sales.
NET SALES
- ---------
(b) "Net Sales" means gross sales less returns, sales taxes,
and allowances for sales of merchandise, goods and supplies made in, upon or
from the Concession location, and includes:
(1) Charges for repair work made pursuant to orders
taken or received in, upon or from the Concession location and
(2) Charges for services performed in connection with
the sale in, upon or from the Concession location of merchandise, goods and
supplies.
GROSS SALES
- -----------
(c) "Gross Sales" means all of Licensee/Tenant's direct or
indirect sales of services and merchandise from the Concession. Eye exam fees
are excluded from Gross Sales.
HOLDING OVER
- ------------
6. Licensee/Tenant shall pay Sears double the monthly Fee, for each
month or portion of a month for which Licensee/Tenant of the Concession area,
retains possession of the Concession area or any part after the termination of
the Term or Licensee/Tenant's right of possession, whether by lapse of time or
otherwise. The provisions of this Paragraph shall not constitute a waiver of any
other right or remedy of Sears under this Agreement or provided by law or
equity. No such holding over shall renew or extend the Term even if Sears
accepts Fee, and Licensee/Tenant shall have no right to continue possession of
the premises, and shall be a Licensee/Tenant at sufferance only.
CONSTRUCTION OF LEASEHOLD IMPROVEMENTS
- --------------------------------------
7. (a) Licensee/Tenant shall determine (based on good engineering
practices) the nature, scope, size of Concession and Licensee/Tenant shall
determine the nature, scope, size of the furniture, fixtures and equipment in
the Concession. Licensee/Tenant shall submit plans to Sears, Sears must approve
such plans, before commencement of construction. Sears will arrange for
construction of all improvements. The expense of all such construction and
equipment shall be divided between Sears and Licensee/Tenant as described in
Exhibit A.
TITLE TO LEASEHOLD IMPROVEMENTS
- -------------------------------
(b) All Leasehold Improvements shall become the property of
Sears at the termination of the Agreement. At the termination of the Agreement,
or if Licensee/Tenant vacates or abandons the Concession, Licensee/Tenant shall
convey to Sears, without charge, good title to the Leasehold
2
<PAGE>
Improvements free from any and all liens, charges, encumbrances and rights of
third parties, by means of a Quit Claim Deed and any other documents required by
Sears.
CONCESSION FAILS TO BECOME FULLY OPERATIONAL
- --------------------------------------------
(c) If the Concession is not fully operational within thirty
(30) days after completion of construction of the concession area as a result of
delay by Licensee/Tenant, Sears may, at Sears option, terminate this Agreement
and have no further obligation to Licensee/Tenant, and Licensee/Tenant shall
reimburse Sears within ten (10) days after receipt of an invoice, for Sears
cost, of putting the space involved back to its condition immediately prior to
the commencement of such construction.
USE OF SEARS NAME
- -----------------
8. (a) Licensee/Tenant shall operate the Concession under the name
"Sears Optical". Licensee/Tenant shall not commence any business activity under
this Agreement without Sears prior written approval of any and all names that
Licensee/Tenant intends to use in conjunction with the Concession.
(b) Licensee/Tenant may use the name of Sears, and any Sears
trademark, service mark or trade name only when communicating with customers or
potential customers of the Concession. Licensee/Tenant shall not use the name
Sears or any Sears trademark, service mark or trade name, either orally or in
writing, including, but not limited to, use of any letterhead, when
communicating with persons or entities other than such customers or potential
customers.
(c) Licensee/Tenant shall not question, contest or challenge,
either during or after the Term of this Agreement, Sears ownership of the name
"Sears" or of any other trademark, service mark or trade name Sears may license
Licensee/Tenant to use in connection with the Concession. Licensee/Tenant will
claim no right, title or interest in any such trademark, service mark or trade
name, except with the right to use the same pursuant to the terms and conditions
of this Agreement, and will not seek to register the same.
(d) Licensee/Tenant expressly recognizes and acknowledges that
the use of any such trademark, service mark or trade name shall not confer upon
Licensee/Tenant any proprietary rights to such trademark, service mark or trade
name. Upon termination of this Agreement, Licensee/Tenant shall immediately stop
using any such trademark, service mark or trade name and will execute all
necessary or appropriate documents to confirm Sears ownership, or to transfer to
Sears any rights it may have acquired from Sears in any such trademark, service
mark or trade name.
(e) Nothing in this Agreement shall be construed to bar Sears
after expiration or termination of this Agreement from protecting its right to
the exclusive use of its trademarks, service marks or trade names against
infringement by any party or parties, including Licensee/Tenant.
REMEDIES FOR UNAUTHORIZED USE
- -----------------------------
(f) Licensee/Tenant recognized that the trademark, service
mark and trade name licensed under the Agreement posses a special, unique and
extraordinary character which makes it difficult to assess the monetary damage
Sears would sustain in the event of unauthorized use. Licensee/Tenant expressly
recognizes that irreparable injury would be caused to Sears by such unauthorized
use, and that preliminary
3
<PAGE>
or permanent injunctive relief would be appropriate in the event of breach of
this Agreement by Licensee/Tenant.
POLICING THE TRADEMARKS, SERVICE MARKS, AND TRADE NAMES
- -------------------------------------------------------
(g) If Licensee/Tenant receives knowledge of any manufacture
or sale by anyone else of products and/or services offered by the
Licensee/Tenant that would be confusingly similar in the minds of the public and
which bear or are promoted in association with the licensed trademarks, service
marks or trade names or any names, symbols, emblems, or designs or colors which
would be confusingly similar in the minds of the public to such licensed
trademarks, service marks or trade names, Licensee/Tenant will promptly notify
Sears. Sears shall have the sole right, at its sole expense, to take such action
as it determines, in its sole discretion, is appropriate. Licensee/Tenant
undertakes reasonably to cooperate and assist in such protest or legal action at
Sears expense. If demanded by Sears, Licensee/Tenant shall join in such protest
or legal action at Sears expense. Licensee/Tenant shall not undertake such
protest or legal action on its own behalf without first securing Sears written
permission to do so. If Sears permits Licensee/Tenant to undertake such protest
or legal action, such protest or legal action shall be at Licensee/Tenant's sole
expense. Sears shall cooperate and assist reasonably therein at
Licensee/Tenant's expense. For the purposes of the foregoing, expenses shall
include reasonable attorneys' fees. All recovery in the form of legal damages or
settlement shall belong to the party bearing the expense of such protest or
legal action.
ADVERTISING
- -----------
9. Licensee/Tenant shall advertise and actively promote the Concession
authorized by this Agreement. Prior to Licensee/Tenant's use thereof in
connection with the Concession, Licensee/Tenant shall submit all signs,
advertising copy, including, but not limited to, sales brochures, newspaper
advertisements, radio and television commercials; all sales promotional plans
and devices; and all customer contract forms, guarantee certificates; and other
forms and materials; to Sears Divisional Vice-President, Licensed Businesses, in
Hoffman Estates, or to his designee, for approval. Licensee/Tenant will not use
any such advertising material or sales promotional plan or device without such
prior approval. Sears has the right to disapprove any or all the aforesaid
advertising forms and other materials insofar as they, in Sears opinion, do not
properly use Sears trademarks, service marks or trade names; may subject Sears
to liability, loss of goodwill, damage to Sears reputation or Sears customer
relations; or may fail to adhere to the requirements of any Federal , state or
local governmental rules, regulations and laws.
PUBLICITY
- ---------
10. Licensee/Tenant will not issue any publicity or press release
regarding its contractual relations with Sears hereunder or regarding the
Concession, and will refrain from making any reference to this Agreement or to
Sears in the solicitation of business without obtaining Sears prior written
approval and consent to such action.
RELATIONSHIP
- ------------
11. Licensee/Tenant is an independent contractor. Nothing contained in
or done pursuant to this Agreement shall be construed as creating a partnership,
agency or joint venture. Except as otherwise expressly provided in this
Agreement, neither party shall become bound by any representation, act or
omission of the other party.
4
<PAGE>
PRICES
- ------
12. Sears has no right or power to establish or control the prices at
which Licensee/Tenant offers service and/or merchandise in the Concession. Such
right and power is retained by Licensee/Tenant.
LICENSEE/TENANT'S OBLIGATIONS
- -----------------------------
13. (a) Licensee/Tenant will make no purchases or incur any obligation
or expense of any kind in the name of Sears. Prior to any purchase(s) involving
the Concession, Licensee/Tenant shall inform its vendor(s) that Sears is not
responsible for any obligation(s) incurred as a result of Licensee/Tenant's
purchase(s).
(b) Licensee/Tenant shall promptly pay all its obligations,
including those for labor and material, and will not allow any lien(s) to attach
to any Sears or customer's property as a result of Licensee/Tenant's failure to
pay such sums.
LICENSEE/TENANT'S EMPLOYES
- --------------------------
14. (a) Licensee/Tenant has no authority to employ persons on behalf of
Sears and no employes of Licensee/Tenant shall be deemed to be employes or
agents of Sears, such employes at all times remaining Licensee/Tenant's
employes. Licensee/Tenant has sole and exclusive control over its labor and
employe relations policies, and its policies relating to wages, hours, working
conditions, or conditions of its employes. Licensee/Tenant has the sole and
exclusive right to hire, transfer, suspend, lay off, recall, promote, assign,
discipline, adjust grievances and discharge its employes, provided, however,
that at any time Sears so requests, Licensee/Tenant will give consideration to
the transfer from the Concession of any employe who is objectionable to Sears
for reasons of health, safety and/or security of Sears customers, employes or
merchandise and/or whose manner impairs Sears customer relations. If Sears
objects to any of Licensee/Tenant's employes, and Licensee/Tenant refuses to
remove such employe and the conditions which cause Sears to object continue,
Sears may terminate this Agreement by giving ninety (90) days notice to
Licensee/Tenant.
(b) Licensee/Tenant is solely responsible for all salaries and
other compensation of all its employes and will make all necessary salary
deductions and withholdings from its employes' salaries and other compensation,
and is solely responsible for the payment of any and all contributions, taxes
and assessments and all other requirements of the Federal Social Security,
Federal and state unemployment compensation and Federal, state and local
withholding of income tax laws on all salary and other compensation of its
employe.
(c) Licensee/Tenant will comply with any other contract,
Federal, state or local law, ordinance, rule, or regulation regarding its
employes, including Federal or state laws or regulations regarding minimum
compensation, overtime and equal opportunities for employment, and, in
particular, Licensee/Tenant will comply with the terms of the Federal Civil
Rights Acts, Age Discrimination in Employment Act, Occupational Safety and
Health Act, and the Federal Fair Labor Standards Act, whether or not
Licensee/Tenant may otherwise by exempt from such acts by reason of
Licensee/Tenant's size or the nature of Licensee/Tenant's business or for any
other reason whatsoever.
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(d) Licensee/Tenant warrants that its employes, while working
in connection with this Agreement, will comply with any and all applicable
Federal, state or local laws, rules, regulations and ordinances.
LICENSEE/TENANT'S EQUIPMENT
- ---------------------------
15. Entirely at its own expense, Licensee/Tenant shall install
furniture, fixtures and equipment as may be necessary and proper for the
operation of the Concession (such furniture, fixtures and equipment being herein
for convenience referred to as "Licensee/Tenant's Equipment"). Licensee/Tenant's
Equipment, and its size, design and location, shall at all times be subject to
Sears approval.
PROHIBITED LIENS
- ----------------
16. Except as otherwise provided in this Agreement, Licensee/Tenant
shall not allow, suffer or permit any liens, claims or encumbrances to attach to
or against by reason of the installation of any of Licensee/Tenant's Equipment
or construction of Leasehold Improvements, Sears premises in which the
Concession is located. In the event any lien, claim or encumbrance attaches to
Sears premises, Licensee/Tenant shall immediately take all necessary action to
cause such lien, claim or encumbrance to be released and discharged, or Sears,
at its option, may take such action and charge Licensee/Tenant or withhold from
sales receipts all expenses, including attorneys fees, incurred by Sears in
removing such liens.
CUSTOMER ADJUSTMENT
- -------------------
17. (a) All of the work and services performed by Licensee/Tenant in
connection with the Concession shall be of a high standard of professionalism,
and all of the merchandise sold in connection with such Concession shall be of
high quality. Licensee/Tenant shall at all times maintain a general policy of
satisfaction of customers and shall adjust all complaints of and controversies
with customers arising out of the operation of the Concession.
(b) In any case in which an adjustment is unsatisfactory to
the customer, Sears shall have the right, at Licensee/Tenant's expense, to make
such further adjustment as Sears may deem necessary under the circumstances, and
any adjustment made by Sears shall be conclusive and binding upon
Licensee/Tenant. Sears may deduct the amounts of any such adjustments from the
sales receipts held by Sears as described in Paragraph 25. Licensee/Tenant shall
maintain files pertaining to customer complaints and their adjustment and make
such files available to Sears, at Sears request.
CONDITION OF CONCESSION AREA
- ----------------------------
18. Licensee/Tenant shall, at its expense, keep the space occupied by
the Concession in a thoroughly clean and neat condition and shall maintain
Licensee/Tenant's Equipment in good order and repair.
HOURS, RULES
- ------------
19. (a) The Concession shall be kept open for business and operated
during the business hours agreed to by Sears, Department 725 and
Licensee/Tenant.
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(b) Licensee/Tenant shall conduct its operations in an honest,
courteous and efficient manner and abide by safety and security rules and
regulations of Sears in effect from time to time.
ACCESS TO CONCESSION AREA
- -------------------------
20. Licensee/Tenant shall have access to the area occupied by the
Concession at all times that the Store is open to customers for business and at
all such other times as the Store Manager of the Store authorizes and approves.
Sears shall be furnished with keys to the Concession area and shall have access
thereto at all times.
RIGHTS RESERVED BY SEARS
- ------------------------
21. Sears retains the following rights, each of which Sears may
exercise without notice to Licensee/Tenant and without liability to
Licensee/Tenant for damage or injury to property, person or business. The
exercise of any such rights shall not be deemed to constitute an eviction,
constructive or partial eviction or disturbance of Licensee/Tenant's use or
possession of the Concession and shall not give rise to any claim for set-off or
abatement of the Fee or any other claim.
(a) To, solely at Sears' discretion, not open the Store at any
time for purposes of taking a physical inventory. Licensee/Tenant waives any
claim it may have against Sears for damages resulting from such closing.
(b) Sears shall have the right to change the location,
dimensions and amount of area of the Concession from time to time during the
Term in accordance with Sears judgment as to what arrangements will be most
satisfactory for the general good of the Store, and this Agreement shall apply
to such new space. In the event Sears desires that the Concession's location be
changed, Sears will, at its expense, move Licensee/Tenant's Equipment to the new
location and prepare the space for occupation and use by the Concession. The new
space shall be as nearly equal to the original space as practicable. If a change
in location is requested or initiated by Licensee/Tenant, then Licensee/Tenant
shall bear all expense involved in moving Licensee/Tenant's Equipment.
(c) To change the Store's name or street address.
(d) To install, affix and maintain any and all signs on the
exterior and interior of the Store. Provided, however, that when required by
state law or ethical considerations, Licensee/Tenant shall have the right to
pose and maintain a sign on the Concession premises containing Licensee/Tenant's
name and identifying the Concession as Licensee/Tenant's optometric office. All
such signs shall comply with applicable rules and regulations, and shall be
acceptable to Sears.
(e) To decorate or to make repairs, alterations, additions, or
improvements, whether structural or otherwise, in and about the Store, or any
part thereof, and for such purposes enter the Concession and, during the
continuance of any such work, to temporarily close doors, entryways, public
space and corridors in the Store and to interrupt or temporarily suspend
services and facilities, all without affecting any of the Licensee/Tenant's
obligations hereunder, so long as the Concession is reasonably accessible.
(f) To furnish door keys of doors in the Concession at the
commencement of the Agreement. To retain at all times, and to use in appropriate
instances, keys to all doors within and into the
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Concession. Licensee/Tenant agrees to purchase only from Sears additional
duplicate keys as required, not to change any locks, and not to affix additional
locks on doors without the prior written consent of Sears. Notwithstanding the
provision for Sears access to the Concession, Licensee/Tenant relieves Sears of
all responsibility arising out of theft, robbery and pilferage. Provided
however, that Licensee/Tenant does not relieve Sears of liability for Sears own
negligence or willful misconduct. Upon the expiration of the Term or of
Licensee/Tenant's right to possession, Licensee/Tenant shall return all keys to
Sears and shall disclose to Sears the combination of any safes, cabinets or
vaults left in the Concession.
(g) To designate and approve, prior to installation, all types
of window shades, blinds, draperies, window ventilators and any other similar
equipment.
(h) To approve the weight, size and location of safes, vaults
and other heavy equipment and articles in and about the Concession, and to
require all such items and furniture and similar items to be moved into or out
of the Store and Concession only at such times and in such manner as Sears shall
direct in writing. Licensee/Tenant shall not install or operate machinery or any
mechanical devices of a nature not directly related to Licensee/Tenant's
ordinary use of the Concession without the prior written consent of Sears.
movements of Licensee/Tenant's property into or out of the Store and within the
Store are entirely at the risk and responsibility of Licensee/Tenant and Sears
reserves the right to require permits before allowing any property to be moved
into or out of the Store.
(i) To establish controls for the purpose of regulating all
property and packages (both personal and otherwise) to be moved into or out of
the Store and Concession and for the purpose of regulating access to public
common areas of the Store.
(j) To regulate delivery and service of inventory, merchandise
and other similar items in order to insure the cleanliness and security of the
Concession, and to avoid congestion of the loading docks, receiving areas and
freight elevators.
(k) To show the Concession to prospective licensee/tenants at
reasonable hours during the last three (3) months of the Term of the Agreement,
and if vacated or abandoned, to show the Concession at any time and to prepare
the Concession for reoccupancy.
(l) To erect, use and maintain pipes, ducts, wiring, conduits
and appurtenances in and through the Concession at reasonable locations and at
all reasonable times.
UTILITIES
- ---------
22. (a) Sears shall furnish, at reasonable hours and, except as
otherwise provided, without expense to Licensee/Tenant, a reasonable amount of
heat, light and electric power for the operation of the Concession, except when
prevented by strikes, accidents, breakdowns, improvements and repairs to the
heating, lighting and electric power systems or other causes beyond the control
of Sears. Sears shall not be liable for any injury or damage whatsoever which
may arise by reason of Sears failure to furnish such heat, light and electric
power, regardless of the cause of such failure, all claims for such injury or
damage are expressly waived by Licensee/Tenant.
TELEPHONE
- ---------
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(b) If requested by Licensee/Tenant, Sears will arrange for
telephone service for the Concession. Sears will pay for all local calls and
Licensee/Tenant will pay for any long-distance calls, at the rate charged by the
telephone company. All telephone numbers used in connection with the Concession
shall be separate from phone numbers used by Licensee/Tenant in its other
business operations and such numbers shall be deemed to be the property of
Sears. Upon expiration or termination of this Agreement, Licensee/Tenant shall
immediately, upon demand by Sears, cease to use such numbers and transfer such
numbers to Sears or to any party Sears designates, and Licensee/Tenant shall
immediately notify the telephone company of any such transfer.
CREDIT SALES
- ------------
23. (a) When permitted by state law, and with the approval of the
Credit Central designated by Sears, Licensee/Tenant may offer to sell, assign
and transfer its credit accounts to Sears, or Licensee/Tenant may make sales on
such of Sears regularly established credit plans (including the Discover Card)
as may be of first approved by such Credit Central. The approval of such Credit
Central is required for each individual credit sale, and approval shall be
granted in the sole discretion of the Credit Central. No part of the finance
charge which may be made by Sears in connection with any credit sale shall be
payable to or credited in any way to Licensee/Tenant. All losses sustained by
Sears as a result of non-payment of a Sears credit account shall be borne by
Sears, provided that Licensee/Tenant has complied with Sears credit policies and
procedures.
CREDIT SALES
- ------------
(b) Licensee/Tenant will comply with all provisions of Federal
and state laws governing credit sales, and their solicitation, including but not
limited to provisions dealing with disclosures to customers and finance charges.
NON-PAYMENT OF CHECKS
- ---------------------
(c) any and all losses which may be sustained by reason of
non-payment of any and all check(s) upon presentment shall be borne by and
charged to Licensee/Tenant, and Sears shall have no liability for such checks.
CASH REGISTER
- -------------
24. At its expense, Sears shall furnish a cash register for use in
connection with the Concession. Such cash register shall be of a size and design
satisfactory to Sears, and shall at all times be and remain the property of
Sears. Licensee/Tenant shall immediately return such cash register to Sears upon
demand. Sears shall have the right to take possession of the cash register at
any time without giving prior notice to Licensee/Tenant.
SALES RECEIPTS
- --------------
25. (a) At the close of each business day, Licensee/Tenant shall submit
an accounting of the gross sales of Licensee/Tenant and where appropriate, the
returns, allowances and customer adjustments made during such day by
Licensee/Tenant to the head cashier of the Sears unit which Sears shall
designate. When making such reports, Licensee/Tenant shall deliver, in cash, the
gross amount of all cash sales, and all credit sales documents for transactions
completed that day to such cashier. An account
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<PAGE>
of Licensee/Tenant's receipts shall be kept by both Licensee/Tenant and Sears.
Sears shall have the right to retain out of such receipts the proper amount of
the Fee payable under this Agreement together with any other sums due Sears from
Licensee/Tenant. The remaining balance shall be payable to Licensee/Tenant at
the regular settlement.
(b) Licensee/Tenant shall reimburse Sears at each settlement
for all invoiced expenses, including any advertising expense, incurred by Sears
on behalf of Licensee/Tenant and requested by Licensee/Tenant, outstanding at
the time of such settlement. If Sears is not reimbursed at such settlement, then
Sears shall have the right, but not the obligation, to retain out of
Licensee/Tenant's sales receipts the amount of such expense(s) with interest, if
any, due Sears.
SETTLEMENT
- ----------
26. A settlement between the parties shall be made promptly each month
for all Commissions and any and all other sums due and owing between the parties
for such month. Sears will advance to Licensee/Tenant at the end of each week a
sum equal to:
o Eighty nine percent (89%) of vision care (195017) Net Sales
o Eighty nine percent (89%) of all other (195018) Net Sales
o One hundred percent of all subleased doctor eye exam fees
(195217 and 195218)
made by Licensee/Tenant in the Concession during such week. Such weekly advances
shall be advances to the monthly settlement.
AUDIT
- -----
27. Licensee/Tenant shall keep and maintain books and records which
accurately reflect the sales made by Licensee/Tenant under this Agreement and
the expenses which Licensee/Tenant incurs in performing under this Agreement.
Sears shall have the right at any reasonable time to review and audit
the books and records of Licensee/Tenant regarding this Agreement. Such books
and records shall be kept and maintained according to generally accepted
accounting principles.
PERIODIC REPORTS
- ----------------
28. Licensee/Tenant shall provide to Sears a monthly report of sales
and income in the manner and form prescribed by Sears, together with any other
information sears may require for its records or auditing purposes.
WAIVER
- ------
29. Licensee/Tenant waives any and all claims it may have against Sears
for damage to Licensee/Tenant, for the safekeeping or safe delivery or damage to
any property whatsoever of Licensee/Tenant or of any customer of Licensee/Tenant
at the location of the Concession, because of the alleged negligence, act or
omission of sears or of any tenant, licensee, or occupant of the premises at
which the Concession may be located, or because of any damage caused by any
casualty, including but not limited to, fire, water, snow, steam, gas or odors
in or from the Store or Store premises, or because of the
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leaking of any plumbing, or because of any accident or event which may occur in
the Store or upon Store premises, or because of the alleged acts or omissions of
any janitors or other persons in or about the Store or Store premises or from
any cause whatsoever.
INDEMNITY BY LICENSEE/TENANT
- ----------------------------
30. Licensee/Tenant covenants that it will protect, defend, hold
harmless and indemnify Sears, its directors, officers and employees, from and
against any and all expenses, claims, actions, liabilities, penalties,
attorneys' fees, damages and losses of any kind whatsoever (including, without
limitation of the foregoing, death of or injury to persons and damage to
property), actually or allegedly resulting from or connected with the operation
of the Concession (including, without limitation of the foregoing, goods sold,
work done, services rendered, or products utilized therein, lack of repair in or
about the area occupied by the Concession, operation of or defects in any
machinery, motor vehicles, or equipment used in connection with
Licensee/Tenant's business hereunder, or located within the area occupied by the
Concession; or arising out of any actual or alleged infringement of any patent
or claim of patent, copyright or non-Sears trademark, service mark, or trade
name); or from the omission or commission of any act, lawful or unlawful by
Licensee/Tenant or its agents or employees, whether or not such act is within
the scope of the employment of such agents or employees. This indemnity shall
not apply to any injury or damage which is caused solely by Sears' negligence.
Licensee/Tenant's indemnity shall survive the termination of this Agreement.
INSURANCE
- ---------
31. (a) Licensee/Tenant hereby covenants that it shall, at its sole
expense, obtain and maintain during the Term the following policies of insurance
from companies satisfactory to Sears and containing provisions satisfactory to
Sears and adequate to fully protect Sears as well as Licensee/Tenant from and
against all expenses, claims, actions, liabilities and losses related to the
subjects covered by the policies of insurance below:
(1) Worker's Compensation Insurance containing a
waiver of subrogation in favor of sears executed by the insurance company (when
permitted by state law) and covering all costs, benefits and liability under
state worker's compensation and similar laws which may accrue in favor of any
person employed by Licensee/Tenant; and Employer's Liability Insurance with
limits of not less than $100,000.
(2) Comprehensive General Liability Insurance,
including, but not limited to, coverage for product liability and completed
operations insurance, and containing a Contractual Liability Endorsement
specifically covering the indemnity provisions in this Agreement, with limits of
not less than $500,000 for bodily injury per occurrence and $100,000 for
property damage per occurrence.
(3) Motor Vehicle Liability insurance with an
Employer's Non-Owership Liability Endorsement in Licensee/Tenant's name covering
all vehicles used by Licensee/Tenant in connection with Licensee/Tenant's
business hereunder, with limits of not less than $500,000 combined single limit
for bodily injury and property damage per occurrence.
(4) Fire and Extended Coverage Insurance upon
Licensee/Tenant's property, equipment and merchandise utilized in the Concession
for the full insurable value thereof and containing a waiver of subrogation in
favor of Sears executed by the insurance company. Licensee/Tenant shall pay
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<PAGE>
only the first $250,000 for damages to sears property caused by Licensee/Tenant,
and Sears shall provide Licensee/Tenant with a waiver of subrogation for all
losses covered by Sears fire and extended coverage insurance.
(5) Bailee's Insurance with limits covering the value
of any and all customers' goods in Licensee/Tenant's possession.
(6) Malpractice or Professional Liability Insurance
covering all professional activities conducted by Licensee/Tenant, or its
agents, employees or sub-licensees, with limits of not less than $1,000,000 for
bodily injury per occurrence.
(b) Each policy shall name Sears as an additional insured and
shall contain a severability of interest/cross liability endorsement and a
waiver of subrogation in Sears favor executed by the insurance company.
(c) Licensee/Tenant's policies of insurance shall expressly
provide that they shall not be subject to material change or cancellation
without at least thirty (30) days' prior notice to Sears.
(d) Licensee/Tenant shall furnish Sears with certificates of
insurance or, at Sears request, copies of policies, prior to execution of this
Agreement. If, in Sears opinion, such policies do not afford adequate protection
for Sears, Sears will so advise Licensee/Tenant, and if Licensee/Tenant does not
furnish evidence of acceptable coverage within fifteen (15) days, Sears shall
have the right, at its option, to obtain additional insurance at the expense of
Licensee/Tenant and deduct the cost of such insurance from the sales receipts
held by Sears as described in Paragraph 25 of this Agreement.
(e) Any approval by Sears of any of Licensee/Tenant's
insurance policies or additional insurance obtained by Sears shall not relieve
Licensee/Tenant of any responsibility under this Agreement, including liability
for claims in excess of described limits.
MUTUAL RIGHT OF TERMINATION
- ---------------------------
32. Either party may terminate this Agreement without cause, without
penalty, and without liability for any damages as a result of such termination,
at any time hereafter by giving the other party at least ninety (90) days' prior
notice. The notice shall specify the termination date.
ASSIGNMENT BY LICENSEE/TENANT
- -----------------------------
33. Licensee/Tenant may sublet all or a portion of the Concession area
to a licensed optometrist or ophthalmologist for use as an examining room. Any
such sub-lease shall be subject to all the terms and conditions of this
Agreement, and Licensee/Tenant shall remain fully liable to Sears for the
performance by such sub-leased tenant of all the obligations contained in this
Agreement. Licensee/Tenant shall not otherwise sublet, assign or transfer all or
any part of the Concession area without prior written consent of Sears. Any such
transfer or attempt to transfer by Licensee/Tenant, whether expressly or by
operation of law, and without Sears prior written consent, shall, at the option
of Sears, without notice, immediately terminate this Agreement. The sale of
Licensee/Tenant's business or any other transaction which shifts the rights or
liabilities of Licensee/Tenant to another controlling interest, shall be such a
transfer.
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RIGHT TO TERMINATE ON DEFAULT OR INSOLVENCY BY LICENSEE/TENANT
- --------------------------------------------------------------
34. In the event any bankruptcy or insolvency proceedings are commenced
by or against Licensee/Tenant, or if any property of Licensee/Tenant passes into
the hands of any receiver, assignee, officer of the law or creditor, or if
Licensee/Tenant vacates, abandons, or ceases to operate under this Agreement, or
if Licensee/Tenant fails to comply with any material provision or condition of
this Agreement, then, Sears may terminate this Agreement immediately unless
prohibited by law.
RIGHT TO TERMINATION ON CLOSING OF STORE
- ----------------------------------------
35. Sears may, solely at Sears discretion, terminate this Agreement
without notice, due to the closing of the Store. Licensee/Tenant shall not be
entitled to any notice of the Store closing prior to a public announcement of
such closing. Licensee/Tenant waives any claim it may have against Sears for
damages, if any, incurred as a result of such closing.
RIGHT OF TERMINATION AFTER FIRE
- -------------------------------
36. In the event the Store is damaged by fire or any other casualty in
such a manner that the space occupied by the Concession becomes untenantable,
this Agreement may be terminated effective as of the date of such casualty, by
either party giving the other party written notice of such termination within
twenty (20) days after the occurrence of such casualty. If such notice is not
given, then this Agreement shall not terminate, but shall remain in full force
and effect and the parties shall cooperate with each other so that
Licensee/Tenant may resume the conduct of business as soon as possible
SUBJECT TO STORE LEASES
- -----------------------
37. If the Store is leased to Sears, this Agreement shall be subject to
all of the terms, leases and conditions contained in such lease. In the event of
the termination of any such lease by expiration of time or otherwise, this
Agreement shall immediately terminate.
FUTURE OBLIGATIONS
- ------------------
38. After the termination of this Agreement by expiration of time or
otherwise, Licensee/Tenant shall have no right or interest in future contracts
with Sears relating to any operation similar to that under this Agreement, and
Sears may, without incurring any liability to Licensee/Tenant:
(1) enter into an Agreement for the operation of a
similar business with any person or organization Sears chooses, including, but
not limited to, Licensee/Tenant or any of Licensee/Tenant's counterparts,
(2) directly operate a similar business itself, or
(3) terminate the operation of the business.
REMOVAL OF LICENSEE/TENANT'S EQUIPMENT
- --------------------------------------
39. Upon the termination of this Agreement by expiration of time or
otherwise, Licensee/Tenant shall, at its expense, immediately remove all of
Licensee/Tenant's Equipment from Sears'
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premises and shall, without delay and at Licensee/Tenant's expense, repair any
damage to sears' premises caused by such removal.
QUIET ENJOYMENT
- ---------------
40. Sears covenants that, subject to the provisions of this Agreement
and upon Licensee/Tenant (i) paying the Fee and other payments due to Sears
under this Agreement, and (ii) observing and keeping all the covenants, terms
and conditions of this Agreement, Licensee/Tenant will lawfully and quietly
hold, occupy and enjoy the concession area during the Term without interference
from Sears or any person claiming through Sears.
SURVIVAL OF OBLIGATIONS
- -----------------------
41. No termination of this Agreement, by expiration of time or
otherwise, shall relieve the parties of liability for obligations arising out of
the operation of the Concession before termination.
LICENSES, LAWS, ORDINANCES
- --------------------------
42. Licensee/Tenant shall, at its expense, obtain all permits and
licenses which may be required under any applicable Federal, state, or local
law, ordinance, rule or regulation by virtue of any act performed within the
scope of this Agreement. Licensee/Tenant shall comply fully with all applicable
Federal, state and local laws, ordinances, rules and regulations, including all
rules and regulations of the Federal trade Commission, all applicable rules and
regulations governing the practice of optometry or ophthalmology, and all
ethical rules of Licensee/Tenant's profession.
FEES, TAXES
- -----------
43. Licensee/Tenant shall, at its expense, pay and discharge all
license commissions, business, use, sales, gross receipts, income, property or
other applicable taxes or assessments which may be charged or levied by reason
of any act performed as a result of this Agreement, excluding, however, all
taxes and assessments applicable to Sears income from the Fee or applicable to
Sears property.
REMEDIES CUMULATIVE
- -------------------
44. The remedies provided in this Agreement are cumulative, and shall
not affect in any manner any other remedies that either party may have for any
default or breach by the other party. The exercise of any right or remedy shall
not constitute a waiver of any other right or remedy under this Agreement or
provided by law or equity. No waiver of any such right or remedy shall be
implied from failure to enforce any such right or remedy other than that to
which the waiver is applicable, and only for that occurrence.
ASSIGNS
- -------
45. The provisions of this Agreement shall be binding upon
Licensee/Tenant and upon Licensee/Tenant's successors and assigns and shall be
binding upon and inure to the benefit of Sears, its successors and assigns.
NOTICES
- -------
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46. All notices herein provided for or which may be given in connection
with this Agreement shall be in writing and given by personal delivery or
certified or registered mail with postage prepaid and return receipt requested
or its equivalent such as private express courier.
Notices given by Licensee/Tenant to sears shall be addressed to:
SEARS, ROEBUCK AND CO.
Attention: Divisional Vice-President,
Licensed Businesses,
Department 725 E3-359B
3333 Beverly Road
Hoffman Estates, Illinois 60179
Notices given by Sears to Licensee/Tenant shall be addressed to:
ROYAL INTERNATIONAL OPTICAL, INC.
Attention: President
2760 Irving Boulevard
Dallas, Texas 75207
(214) 638-1397
Notices if so sent shall be deemed to have been given when sent.
ILLEGAL PROVISION
- -----------------
47. If any provision in this Agreement is held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
included.
GOVERNING LAW
- -------------
48. This Agreement shall be interpreted and governed by the laws of the
State of Illinois.
ENTIRE AGREEMENT
- ----------------
49. This Agreement sets forth the entire agreement and understanding
between the parties with respect to the subject matter hereof. This Agreement
shall not be supplemented, modified or amended except by a written instrument
signed by a duly authorized officer or agent of both parties and no person has
or shall have the authority to supplement, modify or amend this Agreement in any
other manner.
PARAGRAPH TITLES
- ----------------
50. The paragraph titles in this Agreement are for the mere convenience
of the parties, and shall not be considered in any construction or
interpretation of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have this day set their hands by
their proper officers or agents duly authorized thereunto.
SEARS, ROEBUCK AND CO.
By:
----------------------------
Divisional Vice-President
Licensed Businesses
ROYAL INTERNATIONAL OPTICAL, INC.
By:
----------------------------
Michael M. McPhillips
16
<PAGE>
EXHIBIT A
---------
ROYAL INTERNATIONAL OPTICAL, INC.
NEW DEPARTMENT
- --------------
Sears will be responsible for the following in the construction of a
new department:
1. Perimeter walls, painted standard Sears colors.
2. Floor covered with standard Sears carpet/tile.
3. Ceiling containing standard Sears Fluorescent lighting.
4. Standard electrical outlets within the department.
5. When required, water and drain to the perimeter wall.
6. Department identification sign.
Licensee will be responsible for all furniture, fixtures, equipment,
displays, cabinets, counters, shelving, sinks, and other such items. Licensee
will also be responsible for any non-standard walls, wall coverings, floor
coverings, ceilings, lighting and electrical and for the final connection of all
plumbing within the department.
RELOCATED DEPARTMENT
- --------------------
If a department is required to relocate by Sears or if the Licensee
requests (and Sears agrees) that the department be relocated, the financial
responsibilities for the relocation will be the same as for a New Department
with the following exception.
1. Sears will absorb fifty percent (50%) of the un-depreciated
cost of furniture and fixtures that cannot be used in the new
location. A five year straight line method of depreciation
will be used to determine the un-depreciated cost.
REMODELED DEPARTMENT
- --------------------
If Sears requires that the Licensee remodel their department, the
financial responsibilities for the remodel will be the same as for a Relocated
Department.
17
<PAGE>
MORTGAGE, ASSIGNMENT OF LEASES, RENTS
& PROFITS, AND SECURITY AGREEMENT
Dated December , 1996
between
RIO OPTICAL CORPORATION
a Texas corporation
("Mortgagor"),
---------
and
COMMERCE BANK, N.A.
("Mortgagee").
LOCATION OF MORTGAGED PROPERTY
Dade County, Florida
- --------------------------------------------------------------------------------
THIS INSTRUMENT IS ALSO TO BE INDEXED IN THE INDEX OF UNIFORM COMMERCIAL CODE
FINANCING STATEMENTS.
[THIS IS A BALLOON MORTGAGE AND THE FINAL PRINCIPAL PAYMENT OR THE
REMAINING PRINCIPAL BALANCE IS ANTICIPATED TO BE PAID ON ________________
(UNLESS IT IS EARLIER ACCELERATED OR EXTENDED BY MORTGAGEE IN WRITING), TOGETHER
WITH ACCRUED INTEREST, IF ANY, AND ALL ADVANCEMENTS MADE BY THE MORTGAGEE UNDER
THE TERMS OF THIS MORTGAGE.]
THIS MORTGAGE IS GIVEN IN CONNECTION WITH A MULTI-STATE TRANSACTION,
AND THE INDEBTEDNESS SECURED BY THIS MORTGAGE IS ALSO SECURED BY MORTGAGES,
DEEDS OF TRUST AND SECURITY AGREEMENTS ENCUMBERING PROPERTY IN OTHER STATES. THE
VALUE OF THE PROPERTY ENCUMBERED BY THIS MORTGAGE IS $ ____________________.
THIS INSTRUMENT PREPARED BY
AND AFTER RECORDING RETURN TO:
- ----------------------------------
Matthew J. Comisky, Esquire
Blank, Rome, Comisky & McCauley
1200 Four Penn Center Plaza
Philadelphia, PA 19103
<PAGE>
MORTGAGE, ASSIGNMENT OF LEASES, RENTS
& PROFITS, AND SECURITY AGREEMENT
---------------------------------
THIS MORTGAGE, ASSIGNMENT OF LEASES, RENTS & PROFITS, AND SECURITY
AGREEMENT is made and entered into as of the ____ day of December, 1996, by and
between RIO OPTICAL CORPORATION, a Texas corporation, formerly known as Royal
International Optical Corporation ("Mortgagor"), and COMMERCE BANK, N.A., a
national banking association (collectively "Mortgagee");
W I T N E S S E T H, That:
--------------------------
WHEREAS, Mortgagor is justly indebted unto Mortgagee in the aggregate
principal sum of FIFTEEN MILLION ($15,000,000) DOLLARS for sums advanced or to
be advanced by Mortgagee to Mortgagor and under, a revolving credit note (the
"Revolving Note") from Borrower and certain affiliates of Borrower to Lender in
the original principal sum of Seven Million Dollars ($7,000,000) of even date
herewith, and a term note (the "Term Note"; the Revolving Note and the Term Note
are hereinafter collectively referred to as the "Notes") from Borrower and
certain affiliates of Borrower to Lender in the original principal sum of Eight
Million Dollars ($8,000,000) and other collateral documents in connection
therewith; and
WHEREAS, Mortgagor desires hereby to secure unto Mortgagee the full and
punctual payment of the Indebtedness and the full and punctual performance and
observance by Mortgagor of the Obligations.
NOW, THEREFORE, incorporating the foregoing recitals of fact, in order
to secure unto Mortgagee, and its successors and assigns, the full and punctual
payment of the Indebtedness and the full and punctual performance and observance
by Mortgagor of the Obligations and in consideration of Ten Dollars ($10.00) in
hand paid to Mortgagor by Mortgagee, the receipt of which, before the sealing
and delivery of these presents, is hereby acknowledged, Mortgagor does hereby
MORTGAGE, GRANT, BARGAIN, SELL, CONVEY, ASSIGN, AND TRANSFER the Mortgaged
Property unto Mortgagee, its successors and assigns, in fee simple;
TOGETHER WITH all Leases, Rents, Abatements, Damages, and
Losses or Rebates; and
TOGETHER WITH all right, title, and interest of Mortgagor in and to all
extensions, improvements, betterments, renewals, substitutes, and replacements
of, and all additions and appurtenances to, the Mortgaged Property, hereafter
acquired by or released to Mortgagor or constructed, assembled, or placed by
Mortgagor on the Mortgaged Property, and all conversions of the security
constituted thereby, immediately upon such acquisition, release, construction,
assembling, placement, or conversion, as the case may be, and in each such case,
without any further
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mortgage, grant, conveyance, assignment, or other act by Mortgagor, which shall
become subject to the lien of this Mortgage as fully and completely and with the
same effect, as though now owned by Mortgagor and specifically described herein.
TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee, its
successors and assigns in fee simple, until the Indebtedness is paid in full and
the Obligations are fully performed.
THIS MORTGAGE IS GRANTED SUBJECT TO THE FOLLOWING ADDITIONAL
CONDITIONS:
ARTICLE 1
DEFINITIONS
Mortgagor and Mortgagee agree that, unless the context otherwise
specifies or requires, in addition to any terms defined elsewhere in this
Mortgage, the following capitalized terms shall have the meanings specified in
this Article l, which meanings shall be applicable equally to the singular and
plural forms of such terms:
1.1. "Abatements" shall mean any abatement, rebate, refund, or return,
whether now or hereafter payable, of the whole or any part of any Imposition
whether heretofore or hereafter levied or assessed or that has been or hereafter
is paid.
1.2. "Collateral" shall mean, collectively, the Personalty, the
Fixtures, and the Rents.
1.3. "Damages" shall mean any sum or sums now due or hereafter to
become due by reason of any taking of the whole or any part of the Mortgaged
Property for public purposes, by right of eminent domain or otherwise, or by
reason of any claim now or hereafter existing against any and all parties
whomsoever for compensation for real or alleged harm or damage done to or in
connection with the Mortgaged Property.
1.4. "Default Rate" shall have the meaning set forth in the Loan
Agreement.
1.5. "Event of Default" shall have the meaning set forth in Section
7.1.
1.6. "Fixtures" shall mean all fixtures located upon or within the
Improvements or now or hereafter attached to, or installed in, or used in
connection with any of the Improvements, including, but not limited to, any and
all partitions, dynamos, screens, awnings, motors, engines, boilers, furnaces,
pipes, plumbing, elevators, cleaning, call, and sprinkler systems, fire
extinguishing apparatus and equipment, water tanks, heating, ventilating,
air-conditioning and air-cooling equipment (including all furnaces, heaters,
boilers, plants, units,
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<PAGE>
systems, condensers, compressors, motors, ducts, and apparatus), built-in
refrigerated rooms, gas and electric machinery, appurtenances, and equipment.
Fixtures shall also include all products and proceeds of all of the foregoing
items. Fixtures as herein defined are also, without limiting the generality
hereof, more particularly described in the UCC Financing Statement between
Mortgagor and Mortgagee executed simultaneously herewith.
1.7. "Hazardous Substances" shall mean and include: (i) any "hazardous
substance," "Pollutant" or "Contaminant" as defined in the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
Section 9601, et seq., or the regulations promulgated thereunder; (ii) any
hazardous waste as that term is defined in applicable state or local law; (iii)
any substance containing petroleum, as that term is defined in Section 9001(8)
of the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section
6991(8) or in 40 C.F.R. Section 280.1; or (iv) any other substance for which any
governmental entity with jurisdiction over the Mortgaged Property requires
special handling in its generation, handling, use, collection, storage,
treatment or disposal.
1.8. "Impositions" shall mean all real estate and personal property
taxes and assessments and any other taxes, assessments, fees, or governmental or
private charges levied, imposed, or assessed against Mortgagor or the Mortgaged
Property.
1.9. "Improvements" shall mean any and all buildings, improvements,
alterations, or appurtenances now standing or at any time hereafter constructed,
erected, or placed on the Land or any part thereof.
1.10. "Indebtedness" shall mean all sums owed by Mortgagor to Mortgagee
arising under or secured by the Notes and/or the Loan Agreement, including,
without limitation, all principal, interest, payments, fees, late charges, and
premiums due under the Notes and/or the Loan Agreement, and all other sums now
or hereafter owed by Mortgagor to Mortgagee however arising.
1.11. "Land" shall mean the two parcels of real estate, easements, and
rights described on Exhibit A, attached hereto and by this reference
incorporated herein and made a part hereof.
1.12. "Leases" shall mean all leases, written or oral, and all other
agreements for the use or occupancy of the Mortgaged Property or any part
thereof, together with any and all extensions or renewals thereof and any and
all future leases, lettings, or agreements (including subleases and tenancies
following attornment) upon or covering the use or occupancy of the Mortgaged
Property or any part thereof.
1.13. "Legal Requirements" shall mean all existing or future laws,
statutes, building codes, rules, regulations, ordinances, orders, requirements,
decrees, decisions,
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<PAGE>
resolutions, and restrictions of all governmental, quasi-governmental, or
administrative authorities having jurisdiction over the Mortgaged Property and
which pertain to the Mortgaged Property or Mortgagor, and all terms, covenants,
restrictions, and conditions contained in all agreements and instruments,
recorded and unrecorded, affecting the Mortgaged Property.
1.14. "Loan Agreement" shall mean that certain Loan and Security
Agreement dated of even date herewith between Mortgagee, Mortgagor, [Royal
International Optical Inc.], U.S. Vision, Inc. and [Styl-Rite Optical Mfg. Co.,
Inc.] and all amendments, modifications, and/or supplements thereto.
1.15. "Loan Documents" shall mean, collectively, this Mortgage, the
Notes, the Loan Agreement, and all other documents, certificates, agreements,
and/or instruments now or at any time hereafter evidencing, securing, or related
to the Indebtedness, and all amendments, modifications, and/or supplements
thereto.
1.16. "Losses or Rebates" shall mean any payments for loss or damage,
and any rebates, refunds, or return of any premium now or hereafter paid or
payable under any policy of insurance covering the Mortgaged Property or any
part thereof.
1.17. "Mortgage" shall mean this Mortgage, Assignment of Leases, Rents,
and Profits, and Security Agreement and all amendments, modifications, and/or
supplements thereto.
1.18. "Mortgaged Property" shall mean, collectively, the Land, the
Improvements, the Fixtures, and the Personalty, together with:
1.18.1. all rights, privileges, tenements, hereditaments,
rights-of-way, easements, appendages, and appurtenances of the Land and/or the
Improvements belonging or in anywise appertaining thereto, or which hereafter
shall in any way belong, relate, or be appurtenant thereto;
1.18.2. all right, title, and interest of Mortgagor in
and to any streets, ways, alleys, strips, or gores of land adjoining the Land or
any part thereof;
1.18.3. all of Mortgagor's right, title, and interest in
and to any award or awards heretofore made or hereafter to be made by any
municipal, state or federal authorities or boards to the present, and all
subsequent owners of the Land and/or the Improvements and/or the Fixtures and/or
the Personalty, including any award or awards or settlements hereafter made
resulting from condemnation proceedings or the taking of the Land and/or the
Improvements and/or the Fixtures and/or the Personalty or any part thereof under
the power of eminent domain or for any change or changes of grade of streets
-4-
<PAGE>
affecting the Land and/or the Improvements and/or the Fixtures and/or the
Personalty; and
1.18.4. all the estate, right, title, interest, claim, or
demand whatsoever of Mortgagor, either at law or in equity, in and to the Land,
the Improvements, the Fixtures, and the Personalty.
1.19. "Mortgagee" shall mean Commerce Bank, N.A., a national banking
association and its successors and assigns.
1.20. "Mortgagor" shall mean RIO Optical Corporation, a Texas
corporation, formerly known as Royal International Optical Corporation.
1.21. "Notes" shall have the meaning set forth in the recitals hereto.
1.22. "Obligations" shall mean any and all of the covenants, promises,
and other obligations (other than the Indebtedness) made or owing by Mortgagor
or others to or due to Mortgagee under or as set forth in the Loan Documents.
1.23. "Personalty" shall mean all of the personal property of any kind
whatsoever (but excluding the Fixtures), including, but not limited to, all
materials, machinery, apparatus, equipment, furnishings, furniture, and all
other goods, chattels, and articles of personal property including, without
limitation, all building materials and supplies, all construction equipment, all
medical equipment and supplies, furniture, rugs and carpets, linens and bedding
materials, televisions, radios and other sound equipment, kitchen fixtures,
utensils, and all cooking and serving equipment, furnaces, boilers, oil burners,
refrigeration, air conditioning, and sprinkler systems, awnings, screens, window
shades, draperies, motors, dynamos, incinerators, plants and shrubbery, and all
other equipment, machinery, appliances and fittings, whether personal property
or inventory, whether now owned or hereafter from time to time acquired by
Mortgagor, together with all substitutions, replacements, additions,
attachments, accessories, accretions, their component parts thereto or thereof,
all other items of like property, all escrow accounts held by Mortgagee pursuant
to Section 3.3, all "Accounts" and "General Intangibles" (as defined in the
UCC), all contract rights covering or relating to any or all of the foregoing,
and any proceeds and products of any of the foregoing, whether now in existence
or hereafter arising, and relating to, situated or located on, or used or usable
in connection with, the construction, maintenance, or operation of the Land or
the Improvements.
1.24. "Rents" shall mean all of the rents, income, receipts, revenues,
issues, and profits now due or which may become due or to which Mortgagor may
now or shall hereafter (including the period of redemption, if any) become
entitled or may demand or claim, arising or issuing from or out of the
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<PAGE>
Leases, the Mortgaged Property or any part thereof, or the business conducted by
any of the Mortgagor on or out of the Mortgaged Property, including, but not
limited to, minimum rents, additional rents, percentage rents, parking and other
revenues of any kind, maintenance, tax, and insurance contributions, deficiency
rents, and liquidated damages following default, the premium payable by any
lessee upon the exercise of a cancellation privilege provided in any of the
Leases, and any rights and claims of any kind which Mortgagor may have against
any lessee under the Leases or any subtenants or occupants of the Mortgaged
Property. Rents shall also include the products and proceeds of all of the
foregoing items.
1.25. "Replacement Cost" shall mean:
1.25.1. with respect to any existing Improvements, the
full replacement cost of all buildings and the contents thereof, without
allowance for depreciation, and shall include, but not be limited to: all
architects', engineers' and attorneys' fees incurred in connection with the
reconstruction of the Improvements; fences, glass, signs (attached or detached),
retaining walls, pavement, radio and television equipment (attached or
detached), and landscaping (trees, shrubs, etc.); foundations below the ground
(including underground piping and piers), flues, tiles, drains (attached or
detached), holding or retaining ponds, swimming pools, and tennis courts; loss
of rents and business income; cost of excess demolition, removal of debris, and
condemnation by public officials; and cost of rebuilding to current local and
national standards;
1.25.2. with respect to any Improvements which are under
construction, the full price of the construction contract relating to such
Improvements, plus the cost of all other improvements, contents, and
contingencies connected therewith, plus all costs for interest and for the items
listed in Section 1.25.1; and
1.25.3. with respect to any Improvements which are part
of a condominium, the full value of the buildings, including all individual
units, but excluding any items of personal property owned by an individual unit
owner, plus all costs for the items listed in Section 1.25.1.
1.26. "UCC" shall mean the Uniform Commercial Code as
adopted by the state in which the Land is located, as it may be hereafter
amended from time to time.
ARTICLE 2
WARRANTIES AND REPRESENTATIONS
Mortgagor hereby warrants and represents to Mortgagee:
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2.1. Title. Mortgagor is lawfully seized of the indefeasible,
marketable, fee simple estate in the Mortgaged Property, free and clear of all
liens and encumbrances, subject only to those liens, easements, rights-of-way,
covenants, agreements, restrictions, and conditions contained in Exhibit "B"
attached hereto and Mortgagor has the full right and power to encumber the
Mortgaged Property hereby.
2.2. Due Formation; Capacity. Mortgagor is a duly organized and validly
existing corporation in good standing under the laws of the State of Texas.
Mortgagor has the full power and authority to consummate the transactions
contemplated hereby, to execute and deliver the Loan Documents, to conduct
business in said state, and to perform its obligations hereunder and under the
Loan Documents.
2.3. Compliance with Law. The use and any intended use of the Mortgaged
Property complies with all Legal Requirements. All necessary approvals,
licenses, permits, and authorizations required for the use, any intended use,
and occupancy of the Mortgaged Property have been obtained.
2.4. No Litigation or Investigations. There are no actions, suits,
investigations, or proceedings pending or, to the knowledge of Mortgagor,
threatened, against or affecting it or the Mortgaged Property or involving the
validity or enforceability of this Mortgage, or the priority of the lien hereof,
at law or in equity, or before or by any governmental authority, or any other
matters which would substantially impair the ability of Mortgagor to pay when
due any amounts which may become payable in respect to the Notes. To Mortgagor's
knowledge, it is not in default with respect to any order, writ, injunction,
decree, or demand of any governmental authority.
2.5. No Conflicts or Defaults. To the knowledge of Mortgagor the
performance by Mortgagor under the Loan Documents will not result in any breach
of, or conflict with any Legal Requirement. Additionally, the performance by
Mortgagor under the Loan Documents will not result in any breach of, or conflict
with, or constitute a default under any other mortgage, deed of trust, lease,
bank or other loan, credit agreement, or any other instrument to which any
Mortgagor Party is a party or by which any Mortgagor Party may be bound or
affected.
2.6. Financial Condition. There has been no material adverse change in
the financial condition of Mortgagor since the date of the loan application
originally submitted to Mortgagee.
2.7. Access. The Land has unrestricted access to and from a public
road.
2.8. Utilities. Electricity, potable water, gas, and sewage facilities
are available at the Land and are of sufficient capacity to serve the needs of
the Improvements.
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2.9. Municipal Agreements. Mortgagor has not executed, and is not
currently obligated to execute in the future, any agreement or contract with any
municipal or quasi-municipal body or authority or supplier of any public utility
service pursuant to which Mortgagor is obligated to construct any municipal
improvements or amenities.
2.10. Enforceability. Each of the Loan Documents is in full force and
effect and is valid, binding, and enforceable against Mortgagor in accordance
with its terms.
2.11. Environmental Representations. Mortgagor represents and warrants
that:
2.11.1. No notice has been given to Mortgagor and no
notice has been given to any party in the chain of title to the Mortgaged
Property, by any governmental authority or any person claiming any violation of,
or requiring compliance with, any federal, state or local statute, ordinance,
regulation or other requirement of law, or demanding remediation of or payment
or contribution for any environmental contamination or any damages attributable
thereto.
2.11.2. No investigation, administrative order, consent
order, lien, superlien or agreement, litigation or settlement with respect to
any Hazardous Substance of any kind located on, about or under all or any
portion of the Mortgaged Property or that is attributable to Mortgagor at any
location or in any jurisdiction, exists, is pending, or to the best knowledge of
Mortgagor, is proposed, threatened or anticipated.
2.11.3. To the best of its knowledge after due diligence
inquiry, no Hazardous Substance, including but not limited to asbestos,
polychlorinated biphenyls ("PCBs"), and urea-formaldehyde, has been generated,
treated, stored, used, handled, disposed of or deposited on, in or under the
Mortgaged Property, and that no underground storage tanks have ever been located
on the Mortgaged Property.
2.11.4. There is no actual or threatened release of any
Hazardous Substance or any other environmental condition in, on, under or from
the Mortgaged Property or any other property that may (i) restrict the
development or any use of the Mortgaged Property, (ii) increase the cost of
operating or maintaining the Mortgaged Property, (iii) present any risk to any
persons or things on or off of the Mortgaged Property, or (iv) diminish or
impair the value or marketability of the Mortgaged Property.
2.11.5. No activity has been undertaken on the Mortgaged
Property which would cause the discharge of pollutants or effluents into any
water source or system, or the discharge into the air of any emissions, which
would require a permit under the Federal Water Pollution Control Act, 33 U.S.C.
ss. 1251 et
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seq., the Clean Air Act, 42 U.S.C. ss.7401, et seq., or any similar state law or
local ordinance.
2.12. Improvements.
2.12.1. To the knowledge of Mortgagor, the Improvements
have been constructed strictly in accordance with all Legal Requirements.
2.12.2. The Improvements have been constructed and
installed entirely within the boundaries of the Land and do not encroach on any
easement or right-of-way or on the land of others except for such minor
encroachments, above or below ground, onto public space as may be consented to
and permitted by the jurisdiction in which the Mortgaged Property is located.
2.12.3. The Improvements lie wholly within all building
restriction lines, however established.
2.12.4. To the extent required by applicable Legal
Requirements, the appropriate governmental authority has issued final
certificates of occupancy for all Improvements.
2.13. Survival. The representations and warranties made herein shall
survive the delivery hereof and shall be deemed to be made continuously until
this Mortgage is released of record.
ARTICLE 3
COVENANTS OF MORTGAGOR
3.1. Priority of Lien. Mortgagor covenants and agrees that the lien
created hereby is and will be maintained as a first lien upon the Mortgaged
Property and every part thereof, and hereby warrants and will forever defend the
Mortgaged Property against all claims of all persons whomsoever.
3.2. Payment of Indebtedness. Mortgagor covenants and agrees to pay the
Indebtedness when due.
3.3. Payment of Impositions.
3.3.1. Mortgagor covenants and agrees to pay before
delinquency and before penalty for nonpayment attaches thereto all Impositions
and deliver to Mortgagee, at least ten (10) days before delinquency, receipted
bills evidencing the payment thereof.
3.3.2. Nothing in this Section 3.3 shall require the
payment or discharge of any Imposition so long as Mortgagor shall, after
complying with each of the following conditions, in good faith and at its own
expense, contest the same or the validity thereof by appropriate legal
proceedings diligently pursued. Before commencing any such proceedings,
Mortgagor
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shall: (i) notify Mortgagee in writing of its intent to do so; (ii) ascertain
that such proceedings will operate to prevent the collection thereof or other
realization thereon and the sale or forfeiture of the Mortgaged Property or any
part thereof to satisfy the same; and (iii) provide security satisfactory to
Mortgagee assuring the discharge of Mortgagor's obligation hereunder and of any
additional interest, charge, penalty, or expense arising from or incurred as a
result of such contest. Notwithstanding the foregoing, if at any time payment of
any Imposition shall become necessary to prevent a lien foreclosure sale of the
Mortgaged Property or any portion thereof because of nonpayment, then Mortgagor
shall pay the same in sufficient time to prevent the foreclosure sale.
3.3.3. Mortgagor covenants and agrees after notice from
Mortgagee (i) initially to pay into an escrow account held by Mortgagee for the
purposes of establishing such escrow account (which shall not bear interest), an
amount equal to the aggregate of one-twelfth (1/12) of the estimated annual real
estate taxes, assessments, and hazard, liability, difference in coverage, and
workers' compensation insurance premiums on the Mortgaged Property for one (1)
month plus each month or fraction thereof that has elapsed since the last due
date of such real estate taxes, assessments, and hazard insurance premiums, and
(ii) thereafter continue to pay into the escrow account monthly, on each and
every monthly payment date, one-twelfth (1/12) of the estimated annual real
estate taxes, assessments, and hazard insurance premiums on the Mortgaged
Property. The amount of such real estate taxes, assessments, and hazard
insurance premiums when unknown shall be estimated by Mortgagee based on the
previous year's bills and such other information as may be available to
Mortgagee. Mortgagee shall use such deposits to pay such real estate taxes,
assessments, and hazard insurance premiums when due. Any insufficiency in the
sums in such account to pay such charges when due shall be paid by Mortgagor to
Mortgagee on demand. In the event the Land is part of a larger tract for
purposes of taxation and assessments, Mortgagee may require Mortgagor to have
the Land taxed and assessed as a separate parcel or separate parcels, or, in the
alternative, to make the deposits required under this Section 3.3.3 based upon
the taxation and assessment of the larger tract. The Mortgaged Property must be
taxed and assessed as a separate parcel or parcels unless Mortgagee has given
its prior written consent to a different arrangement. Following an Event of
Default, Mortgagee may, at its option, then apply any funds in such account
against the entire Indebtedness in such manner as Mortgagee may elect. Mortgagee
may from time to time at its option waive, and after any such waiver reinstate,
any or all provisions hereof requiring such deposits, by notice to Mortgagor in
writing. While any such waiver is in effect, Mortgagor shall pay real estate
taxes, assessments, and hazard insurance premiums as elsewhere herein provided.
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3.4. Imposition of Taxes on Mortgagee. Mortgagor covenants and agrees
that the entire Indebtedness shall become immediately due and payable thirty
(30) days after notice from Mortgagee to Mortgagor in the event of the passage
of any law or ordinance (i) deducting from the value of real estate for the
purposes of taxation any lien thereon and imposing all or any portion of such
tax adjustment upon the holder of such lien, or (ii) under which any tax on this
Mortgage or the Indebtedness hereby secured would be imposed by any governmental
authority having jurisdiction thereover. Mortgagee will, however, waive its
right to declare the whole of the Indebtedness due and payable if Mortgagor at
all times lawfully and without violation of any usury or other laws is permitted
to pay and does pay any such tax, assessment, or charge in full before it
becomes due and payable.
3.5. Insurance. Mortgagor covenants and agrees to keep the Mortgaged
Property insured for its full Replacement Cost against loss and damage by fire
and the perils covered by extended coverage insurance, and against such other
risks (including loss of rents, difference in coverage, workers' compensation,
and public liability insurance) in such amounts, with such companies, and
pursuant to such form of policies, as may from time to time be required and
approved by Mortgagee, with the proceeds thereof payable to Mortgagee under a
mortgagee's Lenders Loss Payee clause acceptable to Mortgagee. In addition, if
the Mortgaged Property is located in an area identified by the Secretary of
Housing and Urban Development as an area within a flood plain and in which flood
insurance has been made available under the National Flood Insurance Act of 1968
and any successor act thereto, Mortgagor shall obtain flood insurance in an
amount at least equal to the lesser of (i) the maximum limit of coverage
available with respect to the Improvements under said Act, or (ii) the
Replacement Cost of all Improvements and Fixtures. All such insurance shall be
written by companies licensed and lawfully operating in the jurisdiction in
which the Land is located and shall provide for sixty (60) days' minimum written
notice (by certified mail, return receipt requested) to Mortgagee of the
cancellation, nonpayment, nonrenewal, or expiration of the policy. Each policy
shall contain an agreed amount endorsement, a full replacement cost endorsement,
coverage for differences in coverage, and an inflation guard endorsement.
Originals of all policies of insurance and all renewals thereof, together with
receipts evidencing payment in full of the premiums thereon for an advance
period of at least one (1) year from the date thereof, shall be delivered to
Mortgagee at least thirty (30) days prior to the expiration of any such
insurance coverage.
3.6. Insurance Proceeds.
3.6.1. Mortgagor covenants and agrees that, in the event
of any insured loss or damage, any insurance proceeds relating thereto shall be
paid to Mortgagee alone. Mortgagee, at its option, is authorized to adjust and
compromise such loss, to
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collect, receive, and sign and deliver receipts for such proceeds in the name of
Mortgagee and Mortgagor, and is granted a power of attorney to endorse
Mortgagor's name on any check or draft in payment thereof. Such proceeds shall
be applied toward reimbursement of all costs and expenses of Mortgagee in
collecting the proceeds (including, without limitation, all adjusters' fees and
expenses and reasonable attorneys' fees and expenses), and toward the payment of
the Indebtedness or any portion thereof as a voluntary prepayment, whether or
not then due or payable, in such order and manner as Mortgagee, in its sole
discretion, shall determine, or Mortgagee, at its sole option, may apply such
insurance proceeds or any part thereof to the repair or rebuilding of the
Mortgaged Property. All insurance proceeds received by Mortgagor shall be first
used either to repay the Indebtedness or, with Mortgagee's prior written
consent, to repair or rebuild the Mortgaged Property, before Mortgagor makes any
other use of such insurance proceeds. All policies of insurance relating to the
Mortgaged Property shall be held by Mortgagee as additional security hereunder
and upon foreclosure of this Mortgage or any other acquisition of the Mortgaged
Property or any part thereof by Mortgagee, the ownership of all policies of
insurance and the right to receive the proceeds of any insurance payable by
reason of any loss theretofore or thereafter occurring and the right to cancel
any such policies and receive the unearned premium shall pass to Mortgagee or to
the purchaser or purchasers at any such foreclosure sale, and Mortgagor hereby
appoints Mortgagee its attorney-in-fact, in Mortgagor's name, to assign and
transfer all such policies and proceeds to such purchaser or purchasers and to
cancel any such policies. The powers of attorney granted in this Section 3.6.1
shall be deemed to be coupled with an interest and shall be irrevocable until
this Mortgage is satisfied of record.
3.6.2. Notwithstanding the provisions of Section 3.6.1,
in the event an insured loss or damage occurs, the Replacement Cost of which is
determined by the insurer of the Mortgaged Property to be less than $150,000,
then Mortgagee, after deducting its costs and expenses (including, without
limitation, all adjusters' fees and expenses and reasonable attorneys' fees and
expenses), shall disburse the net insurance proceeds to Mortgagor if all of the
following conditions are fully satisfied by Mortgagor within six (6) months
after the occurrence of the loss or damage: (i) all loss or damage to the
Mortgaged Property has been fully repaired or replaced so that the Mortgaged
Property is returned as nearly as possible to the value, character, and
condition that existed immediately prior to the loss or damage; (ii) a full and
final release of liens with respect to the repair and/or replacement work is
delivered to Mortgagee from all contractors, materialmen, and subcontractors;
and (iii) there exists no Event of Default hereunder. Further notwithstanding
the provisions of Section 3.6.1, in the event an insured loss or damage occurs,
the Replacement Cost of which is determined by the insurer of the Mortgaged
Property to be more than $150,000 but less than $250,000, then Mortgagee, after
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deducting its costs and expenses (including, without limitation, all adjusters'
fees and expenses and reasonable attorneys' fees and expenses), agrees with
respect to such insured loss or damage that Mortgagor will be permitted to apply
the net insurance proceeds to the repair or rebuilding of the Mortgaged Property
in accordance with the following terms:
3.6.2.1. the net insurance proceeds shall be deposited in
an account at a bank acceptable to Mortgagee which shall require the
signature of Mortgagee alone for any disbursement;
3.6.2.2. the plans, specifications, engineering reports,
construction contracts, subcontracts, and related documents for the
repair, restoration, and replacement work shall have been approved by
Mortgagee and Mortgagee's construction consultant, which approval may
be based on factors such as whether the work described therein, when
completed, would cause the Mortgaged Property to be fully repaired,
replaced, or restored so that it will be returned as nearly as possible
to the value, character, and condition that existed immediately prior
to the loss or damage so that the Mortgaged Property continues to be an
architecturally cohesive, integrated, economically viable commercial
real estate project in full compliance with all Legal Requirements and
with the same use as existed immediately prior to such loss or damage;
3.6.2.3. Mortgagor shall deliver to Mortgagee its budget
of the cost for such repair, restoration, and replacement work (which
costs shall include the fees of Mortgagee's construction consultant),
and, prior to the commencement of any work and from time to time
thereafter, Mortgagor must deposit in the account a sum equal to the
amount by which the estimated remaining cost of such repair,
restoration, and replacement work exceeds the account balance, if at
all;
3.6.2.4. Mortgagee shall be the judge of the amount
reasonably necessary to complete such repair, restoration, and
replacement work and any funds disbursed by it through the account
shall be in accordance with normal and usual construction loan draw
procedures used by Mortgagee;
3.6.2.5. there shall exist no Event of Default hereunder;
3.6.2.6. after approval of the plans and specifications,
Mortgagor must begin work promptly and thereafter diligently prosecute
construction in order to complete all work within such reasonable time
frame as may be reasonably prescribed by Mortgagee;
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3.6.2.7. a full and final release of liens with respect
to all repair, restoration, or replacement work is delivered to
Mortgagee from all contractors, materialmen, and subcontractors and/or
partial releases of liens with respect to all sums advanced from such
account;
3.6.2.8. upon the satisfaction of all of the foregoing
conditions, any excess funds and/or accrued interest in such savings
account shall be disbursed to Mortgagor and to the holder of any
inferior liens, if any, on the Mortgaged Property.
3.6.3. During any construction, repair, restoration, or
replacement of any Improvements, Mortgagor shall obtain and keep in effect a
standard builder's risk policy with extended coverage for the Replacement Cost
of the Improvements, with a noncontributing mortgagee clause and nonsurrender,
noncancellation, nonmodification clause, and such insurance shall be written in
such manner and by such companies as are approved by Mortgagee. During any
construction, repair, restoration, or replacement of any Improvements, Mortgagor
shall cause all contractors and subcontractors (including Mortgagor if it acts
as a contractor) to obtain and keep in effect workers' compensation insurance to
the full extent required by applicable laws. Such workers' compensation
insurance shall also cover all employees of each contractor and subcontractor.
Upon demand, Mortgagor shall provide evidence satisfactory to Mortgagee that
Mortgagor is complying with the requirements of this Section 3.6.3.
3.7. Assignment of Condemnation Proceeds and Damages.
3.7.1. Mortgagor covenants and agrees that all awards and
other compensation heretofore or hereafter made to Mortgagor in any taking by
eminent domain, or by deed in lieu thereof, either permanent or temporary, of
all or any part of the Mortgaged Property including severance and consequential
damages and change in grade of any street, together with all compensation,
judgments, awards, and settlements for any damage to the Mortgaged Property
caused tortiously or otherwise, are hereby assigned by Mortgagor to Mortgagee,
and Mortgagor hereby appoints Mortgagee as its attorney-in-fact, said power
being coupled with an interest, and authorizes, directs and empowers such
attorney, at the option of such attorney, on behalf of Mortgagor to adjust or
compromise the claim for any such award, and to collect and receive the proceeds
thereof, to give proper receipts and acquittances therefor, and, after deducting
the expenses of collection, including attorney's fees, to apply the net
proceeds, or any portion thereof as a credit upon any portion, as selected by
Mortgagee, of the Indebtedness, notwithstanding the fact that the amount owing
thereon may not then be due and payable or that the Indebtedness is otherwise
adequately secured. Mortgagor further covenants and agrees to give Mortgagee
immediate notice of the actual or threatened commencement of any such
proceedings under eminent domain and
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will deliver to Mortgagee copies of any and all papers served in connection with
any such proceedings. Mortgagor further covenants and agrees to make, execute,
and deliver to Mortgagee at any time or times, upon request, free, clear, and
discharged of any encumbrances of any kind whatsoever, any and all further
assignments or other instruments deemed necessary by Mortgagee, or either, for
the purpose of validly and sufficiently assigning all such awards and other
compensation heretofore or hereafter to be made to Mortgagee and agrees to make
or permit no other use of such awards and other compensation without Mortgagee's
prior written consent thereto in each instance.
3.7.2. Notwithstanding the provisions of Section 3.7.1,
in the event of any taking by eminent domain or deed in lieu thereof, where such
taking is not total and where funds are sufficient to restore the Mortgaged
Property, and the Replacement Cost of which is determined by the insurer of the
Mortgaged Property to be less than $150,000 and no Event of Default shall have
occurred and be continuing, then Mortgagee, after deducting its costs and
expenses (including, without limitation, all adjusters' fees and expenses and
reasonable attorneys' fees and expenses), shall immediately disburse the net
proceeds or such amount as is reasonably deemed by Mortgagee to be sufficient to
Mortgagor to restore the Mortgaged Property and all of the following conditions
are to be fully satisfied by Mortgagor within six (6) months after the
occurrence of such taking: (i) the Mortgaged Property has been substantially
restored so that the Mortgaged Property is returned as nearly as possible to
substantially the value, character, and condition that existed immediately prior
to the taking; (ii) a full and final release of liens with respect to the
restoration work is delivered to Mortgagee from all contractors, materialmen,
and subcontractors and (iii) there exists no Event of Default hereunder.
Further, notwithstanding the provisions of Section 3.7.1, in the event of any
taking by eminent domain or deed in lieu thereof, the Replacement Cost of which
is determined by the insurer of the Mortgaged Property to be more than $150,000
but less than $250,000, then Mortgagee, after deducting its costs and expenses
(including, without limitation, all adjusters' fees and expenses and reasonable
attorneys' fees and expenses), agrees with respect to such taking that Mortgagor
will be permitted to apply the net proceeds or so much thereof as Mortgagee
reasonably deemed to be sufficient to the restoration of the Mortgaged Property
in accordance with the following terms:
3.7.2.1. all or a portion of the net proceeds shall be
deposited in a bank acceptable to Mortgagee which shall require the
signature of Mortgagee alone for any disbursement;
3.7.2.2. the plans, specifications, engineering reports,
construction contracts, subcontracts, and related documents for the
restoration work shall have been approved by Mortgagee and Mortgagee's
construction consultant, which
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approval may be based on factors such as whether the work described
therein, when completed, would cause the Mortgaged Property to be fully
restored so that it will be returned as nearly as possible to
substantially the value, character, and condition that existed
immediately prior to the taking so that the Mortgaged Property
continues to be an architecturally cohesive, integrated, economically
viable commercial real estate project in full compliance with all Legal
Requirements and with the same use as existed immediately prior to such
taking;
3.7.2.3. Mortgagor shall deliver to Mortgagee its budget
of the cost for such restoration work (which costs shall include the
fees of Mortgagee's construction consultant), and, prior to the
commencement of any work and from time to time thereafter, Mortgagor
must deposit in the account a sum equal to the amount by which the
estimated remaining cost of such restoration work exceeds the account
balance, if at all;
3.7.2.4. Mortgagee shall be the judge of the amount
reasonably necessary to complete such restoration work and any funds
disbursed by it through the account shall be in accordance with normal
and usual construction loan draw procedures used by Mortgagee;
3.7.2.5. there shall exist no Event of Default hereunder;
3.7.2.6. after approval of the plans and specifications,
Mortgagor must begin work promptly and thereafter diligently prosecute
construction in order to complete all work within such reasonable time
frame as may be reasonably prescribed by Mortgagee;
3.7.2.7. a full and final release of liens with respect
to all restoration work shall be delivered to Mortgagee from all
contractors, materialmen, and subcontractors and/or partial releases of
liens with respect to all sums advanced from such account;
3.7.2.8. upon the satisfaction of all of the foregoing
conditions, any excess funds and/or accrued interest in such savings
account shall be disbursed to Mortgagor and to the holder of any
inferior liens, if any, on the Mortgaged Property.
3.7.3. During any construction or restoration of any
Improvements, Mortgagor shall obtain and keep in effect a standard builder's
risk policy with extended coverage for the Replacement Cost of the Improvements,
with a noncontributing mortgagee clause and nonsurrender, noncancellation,
nonmodification clause, and such insurance shall be written in such manner and
by such companies as are approved by Mortgagee.
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During any construction or restoration of any Improvements, Mortgagor shall
cause all contractors and subcontractors (including Mortgagor if it acts as a
contractor) to obtain and keep in effect workers' compensation insurance to the
full extent required by applicable laws. Such workers' compensation insurance
shall also cover all employees of each contractor and subcontractor. Upon
demand, Mortgagor shall provide evidence satisfactory to Mortgagee that
Mortgagor is complying with the requirements of this Section 3.7.3.
3.8. Negative Covenants. Mortgagor covenants and agrees that it shall
not:
3.8.1. assign the Rents, or any part thereof, from time
to time accruing, to anyone other than conditionally to or for the benefit of
Mortgagee, unless Mortgagee shall first consent thereto in writing;
3.8.2. remove, demolish, erect, or add additions to any
Improvements, Personalty, or Fixtures or alter the design or structural
character of any building now or hereafter erected upon the Mortgaged Property
unless Mortgagee shall first consent thereto in writing;
3.8.3. commit or suffer waste thereof;
3.8.4. suffer any act to be done or any conditions to
exist on the Mortgaged Property or any part thereof or have any thing or article
brought thereon in violation of any Legal Requirement, or that may in fact or in
law constitute a nuisance, public or private, or that may void or make voidable
any insurance then in force or required by the terms of this Mortgage to be in
force; or
3.8.5. permit any lien on the Mortgaged Property,
subordinate or otherwise, unless Mortgagee shall first consent thereto in
writing.
3.9. Care of the Mortgaged Property. Mortgagor covenants and agrees
that it shall:
3.9.1. maintain the Mortgaged Property in good condition
and repair, normal wear and tear excepted;
3.9.2. promptly notify Mortgagee in writing of the
occurrence of any loss or damage to the Mortgaged Property in excess of
$10,000.00;
3.9.3. comply with all Legal Requirements and not suffer
or permit any violation thereof; and
3.9.4. do or cause to be done any and all things or acts,
all in a timely and proper manner, that, from the
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character and/or use of the Mortgaged Property, may be reasonably necessary to
protect and preserve the Mortgaged Property.
3.10. Subsequent Improvements. Mortgagor covenants and agrees that all
Improvements to be constructed on the Land in the future:
3.10.1. will be constructed strictly in accordance with
all Legal Requirements;
3.10.2. will be constructed and installed entirely within
the boundaries of the Land and will not encroach upon any easement or
right-of-way or upon the land of others except for such minor encroachments,
above or below ground, onto public space as may be consented to and permitted by
the jurisdiction in which the Mortgaged Property is located; and
3.10.3. will be wholly within all building restriction
lines however established.
3.11. Collateral Agreements. Mortgagor covenants and agrees faithfully
to perform and carry out all of the terms, conditions, and provisions of all of
the Loan Documents. Mortgagor covenants and agrees on behalf of itself, and its
assigns, from time to time to make, execute, acknowledge, and deliver or cause
to be made, executed, acknowledged, and delivered to Mortgagee any and all
further instruments, certificates, and other documents as may in the opinion of
Mortgagee be necessary or desirable in order to effectuate, complete, or perfect
or to continue and preserve (i) the obligations of Mortgagor under this Mortgage
or the other Loan Documents, and/or (ii) the lien and legal operation and effect
of this Mortgage or the lien of any security agreement on any real or personal
property referred to herein or therein taken now or hereafter to secure the
payment of the Indebtedness. Mortgagor will execute, acknowledge, and deliver
such instruments, including UCC continuation statements, required to continue
and preserve the security of Mortgagee, and Mortgagor will pay all expenses so
incurred.
3.12. Management Contracts. Mortgagor covenants and agrees not to enter
into any management contract for the Mortgaged Property or materially alter the
terms of any management contract or the Mortgaged Property without the prior
written consent of Mortgagee.
3.13. Mortgagee's Right to Remedy Defaults. Mortgagor covenants and
agrees that if Mortgagor shall commit or permit waste or shall fail for any
reason to pay any claim, lien, or encumbrance that is prior to this Mortgage, or
any Imposition not previously escrowed with Mortgagee when the same shall be due
and payable, or any insurance premium not previously escrowed with Mortgagee at
least ten (10) days before the same becomes due and payable, or shall fail to
keep the Mortgaged Property in good
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condition and repair, or to correct any condition that may be or become
unsatisfactory by law, ordinance, regulation, covenant, condition, or
restriction, or to perform any other covenants contained in this Mortgage, then
Mortgagee may, at its sole option, in addition to, and not in limitation of, any
and all other rights and remedies which Mortgagee may have at law or hereunder:
(i) pay said claim, rental, lien, encumbrance, tax, assessment, or premium with
the right of subrogation thereunder; (ii) procure such abstracts or other
evidence of title as it deems necessary; (iii) make such reasonable repairs and
take such reasonable steps as it deems advisable to prevent or cure such waste
or unsatisfactory condition; and (iv) for any of such purposes advance such sums
of money and perform such acts as it deems necessary. Mortgagee shall be the
sole judge of the legality, validity, and priority of such claim, rental, lien,
encumbrance, costs, expenses, tax, assessment, and/or premium and of the amount
necessary to be paid in satisfaction thereof; and the amount thereof shall be
considered an advancement hereunder and as such shall be secured hereby and bear
interest as provided in Section 3.14. Nothing contained in this Mortgage shall
be deemed to require Mortgagee to pay or expend any such sum or perform any such
act.
3.14. Repayment of Advances. Mortgagor covenants and agrees to pay to
Mortgagee immediately and without demand all sums of money advanced by Mortgagee
pursuant to Section 3.13 or pursuant to any other provision of this Mortgage or
any of the other Loan Documents to protect or preserve the Mortgaged Property
and Mortgagee's interest therein, together with interest on each such
advancement at the Default Rate, and all such sums and interest thereon shall be
secured hereby. The obligation imposed by this Section 3.14 is separate and
apart from any obligation set forth in the Notes.
3.15. Inspection. Mortgagor covenants and agrees that Mortgagee and its
representatives shall have the right at all reasonable times to enter and
inspect the Mortgaged Property.
3.16. Superiority of Lien. Mortgagor covenants and agrees that any
agreement hereafter made by Mortgagor and Mortgagee pursuant to or in respect of
this Mortgage shall be superior to the rights of the holder of any intervening
lien or encumbrance insofar as the parties hereto may legally so covenant and
agree.
3.17. Additional Security. Mortgagor covenants and agrees from time to
time to execute, acknowledge, and deliver to Mortgagee, upon Mortgagee's
request, additional or supplemental deeds of trust, security agreements, chattel
mortgages, financing statements, pledge agreements, loan agreements, assignments
of leases or rents, and other security instruments covering any equipment,
fixtures, or other property or property rights hereafter acquired by Mortgagor
and installed on or in the Mortgaged Property, the cost of the execution and
recording thereof to be paid by Mortgagor.
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3.18. Financial Statements and Leasing Reports.
3.18.1. Mortgagor covenants and agrees to keep and
maintain full and correct books and records showing in detail the leasing and
operation of the Mortgaged Property and shall permit Mortgagee or its
representatives to examine such books and records and all supporting vouchers
and data at any time and from time to time on request, at the offices of
Mortgagor or at such other location as may be mutually agreed upon.
3.18.2. Mortgagor covenants and agrees to provide, or
cause to be provided to Mortgagee such financial information as is required by
the Loan Agreement.
3.18.3. In the event that any portion of the Mortgaged
Property is subject to any Lease or Leases, Mortgagor covenants and agrees to
furnish to Mortgagee within fifteen (15) calendar days after the end of each and
every six (6) months, a monthly operating report and a status report showing all
current Leases.
3.19. Leasing Requirements.
3.19.1. Mortgagor covenants and agrees to carry out all
of its agreements and covenants contained in any Lease and not permit any lien
or other encumbrance superior to the Leases other than this Mortgage and any
other mortgage granted by Mortgagor to Mortgagee. Upon demand by Mortgagee,
Mortgagor shall deliver to Mortgagee an executed copy of each Lease immediately
upon its execution. Mortgagor hereby covenants and agrees with Mortgagee that
Mortgagor will not, without the express prior written consent of Mortgagee:
3.19.1.1. Cancel any Lease or accept a surrender thereof;
3.l9.1.2. Reduce the rent or accept payment of any
installment of rent more than one (1) month in advance of the due date
thereof under any Lease;
3.19.1.3. Modify any Lease in any material way or grant
any concession in connection therewith; or
3.19.1.4. Consent to an assignment of the lessee's
interest or to a subletting of any Lease.
3.19.2. Mortgagor covenants and agrees to obtain
Mortgagee's prior written approval of all Leases and that, at Mortgagee's
option, Mortgagor's interest in such Lease and any guaranty thereof shall be
separately assigned to Mortgagee as collateral security on Mortgagee's form of
assignment and/or subordinated to this Mortgage. All sums received from
occupancy tenants as security for the performance of their respective Leases
shall be held by Mortgagor in a manner satisfactory to
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Mortgagee and fully in compliance with all Legal Requirements. All future Leases
shall contain the following provisions:
Tenant hereby agrees not to look to any mortgagee, as mortgagee,
mortgagee in possession, or successor in title to the property, for
accountability for any security deposit required by the landlord
hereunder, unless said sums have actually been received by such
mortgagee as security for the tenant's performance of this lease.
3.19.3. Mortgagor hereby assigns to Mortgagee any award
made hereafter to it in any court proceeding involving any of the Leases and/or
the lessees thereunder in any bankruptcy, insolvency, or reorganization
proceeding in any state or federal court and any and all payments made by any
lessee in lieu of rent.
3.19.4. Mortgagor covenants and agrees that it shall
cause all Leases now existing or hereinafter entered into to be made subordinate
to this Mortgage and the lien and legal operation and effect hereof and of the
other Loan Documents. At the option of Mortgagee, the lien and legal operation
and effect of this Mortgage and of the other Loan Documents may be subordinated
to any Lease. Any foreclosure sale may be made subject to any one or more of any
Leases entered into subsequent to the recording of this Mortgage, provided that
the required advertisements of sale so disclose.
3.20. Additional Liens.
3.20.1. Mortgagor covenants and agrees not to create or
permit to be created or filed against the Mortgaged Property, without the prior
written consent of Mortgagee to all material terms and provisions (which consent
may be given or withheld in Mortgagee's sole and absolute discretion), any other
mortgage lien, deed of trust, security interest, or other lien or liens superior
or inferior to the lien and legal operation and effect of this Mortgage.
Mortgagor covenants and agrees to keep and maintain the Mortgaged Property free
from the claims of all persons supplying labor or materials used in the
construction of any Improvements now being erected or that hereafter may be
erected on the Land, notwithstanding who contracted for such labor or materials,
and, if any liens in respect of any such labor or materials are filed against
the Mortgaged Property, Mortgagor shall cause the same to be released completely
of record (either by payment and discharge or by the posting of substitute
collateral therefor in accordance with applicable laws) within fifteen (15) days
of the filing thereof.
3.20.2. Mortgagor covenants and agrees that except as
expressly consented to in writing by Mortgagor, all Fixtures and Personalty that
are now or at any time hereafter installed in, affixed to, placed upon, or used
in connection with the
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Mortgaged Property (but excluding all such property which is owned by occupancy
tenants of Mortgagor and installed for the purpose of their tenancy if such
occupancy tenant has the right to remove the same at or before the expiration of
the term of the applicable Lease) shall be owned by Mortgagor and shall not be
the subject matter of any lease or other transaction whereby the ownership or
any security or beneficial interest in any of such property shall be held by any
person or entity other than Mortgagor.
3.20.3. In the event that any lien or security interest
is created with or without the written approval of Mortgagee at any time prior
to or during the existence of this Mortgage covering any of the Fixtures or
Personalty, Mortgagor agrees that the following provisions of this Section
3.20.3 shall apply:
3.20.3.1. Mortgagee may, at its option, at any time after
default in any security agreement or at any time after the attachment
of any unpermitted lien pay the balance due under such security
agreement or lien. Any declaration of default made by the holder of
such security interest shall conclusively establish such default and
the amount of the indebtedness due such holder, and Mortgagee may rely
exclusively thereon in exercising any rights and remedies provided in
this Mortgage or by law.
3.20.3.2. Mortgagee shall have the privilege of acquiring
by assignment from the holder of such security interest all of the
holder's rights with respect to the collateral that is the subject
matter of the security interest and any other collateral held by the
secured party, including, but not limited to, all contract rights,
accounts receivable, chattel papers, negotiable or non-negotiable
instruments, and any other evidence of Mortgagor's indebtedness under
the security agreement.
3.21. Restriction on Sale.
3.21.1. Mortgagor covenants and agrees that, without the
prior written consent of Mortgagee (which consent may be given or withheld in
Mortgagee's sole and absolute discretion), Mortgagor shall not sell, convey,
transfer, or alienate all or any part of the Mortgaged Property, or any interest
therein, nor shall Mortgagor be divested of its title to or any interest in the
Mortgaged Property in any manner or way, whether voluntary or involuntary.
3.21.2. Mortgagor covenants and agrees that, without the
prior written consent of Mortgagee (which consent may be given or withheld in
Mortgagee's sole and absolute discretion), Mortgagor shall not permit (i) a
voluntary sale or pledge of any of the shares of Mortgagor or any of its
partners, if Mortgagor or any of its partners is a corporation, or (ii) the
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transfer or pledge of any interest in Mortgagor or any of its partners if
Mortgagor or any of its partners is a partnership or joint venture. Mortgagor
covenants and agrees that it will continuously maintain its existence and right
to do business and own property in the jurisdiction where the Mortgaged Property
is located (including reformation and continuance of the partnership in the
event of any termination thereof as a result of any event which by law
terminates a partnership if Mortgagor or any of its partners is a partnership).
3.22. Environmental Covenants.
3.22.1. Mortgagor covenants that it: (i) will not treat,
discharge, spill, dispense, dispose or otherwise release any Hazardous Substance
or any waste of any kind in, on or under the Mortgaged Property and it will not
cause, suffer, allow or permit any other person or entity to do so; (ii) will
not use, generate, hold or store any Hazardous Substance or any waste of any
kind, except that (aa) construction materials, office equipment, other office
furnishings, cleaning solutions and other maintenance materials that are or
contain Hazardous Substances may be used, held or stored on the Mortgaged
Property, provided such use, holding or storage is incident to and reasonably
necessary for the construction, operation or maintenance of the Mortgaged
Property as flex/office/retail buildings and is in accordance with Legal
Requirements except that no asbestos, asbestos containing materials or PCBs
shall be brought onto the Mortgaged Property, (bb) reasonable quantities of
Hazardous Substances may be used, stored or held on the Mortgaged Property if
such activity is incident to the retail sale of such substances on the Mortgaged
Property, provided such substances are properly packaged, labeled, stored, held
and used in a safe manner in accordance with all Legal Requirements, and (cc)
reasonable quantities of municipal waste may be generated by Mortgagor on the
Mortgaged Property and such wastes may be stored temporarily on the Mortgaged
Property, provided such activity is performed in compliance with all applicable
laws and provided all such wastes are removed within one week after they are
generated; (iii) will not permit the discharge of pollutants or effluents into
any water source or system, or the discharge into the air of any emissions,
which would require a permit under the Federal Water Pollution Control Act, 33
U.S.C. ss. 1251 et seq., the Clean Air Act, 42 U.S.C. ss. 7401, et seq., or any
similar state law or local ordinance; (iv) will not generate, use, hold or store
any Hazardous Substance that is permitted under subparagraph 3.22.1(ii) above,
in a manner so as to create an undue risk of its release on the Mortgaged
Property; (v) will provide written notice to Mortgagee within one week of
Mortgagor's knowledge of any and all discharges, spills, disposals or other
releases on the Mortgaged Property of any Hazardous Substance that are not
completely cleaned up and removed within one business day of release; (vi) will
obtain prior written permission of Mortgagee for the installation of any type of
storage tank, whether it is under or above-ground, at the Mortgaged Property and
will comply
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with all applicable laws and regulations concerning such installation; and (vii)
will within five (5) days of receipt notify Mortgagee and provide Mortgagee with
copies of any notice of violation from any government agency, notice of filing
of any administrative, civil or criminal action or investigation, request for
information by any government agency or related materials relative to the
Mortgaged Property.
3.22.2. Mortgagor may cure a breach of paragraph 3.22.1
above, resulting from the discharge, spill, disposal or other release of any
Hazardous Substance or waste of any kind, if Mortgagor (i) promptly takes all
measures necessary to contain and remove any and all on-site discharges, spills,
disposals or other releases of any Hazardous Substance or waste of any kind and
remedies and mitigates any and all threats to health, property and the
environment in a manner consistent with all applicable laws; and (ii) provides
Mortgagee, within thirty days after demand by Mortgagee, with a bond, letter of
credit, or similar financial assurance evidencing to Mortgagee's satisfaction
that the necessary funds are available to pay the costs of removing, treating
and disposing of Hazardous Substances and discharging any assessments that are
or may be imposed on the Mortgaged Property as a result thereof.
3.22.3. Mortgagor agrees that any contracts and
agreements of any kind entered into or renewed after the date hereof for the
occupancy of or the performance of any activities on the Mortgaged Property will
contain the same limitations on the activities of such other contracting party
as are placed on Mortgagor by paragraph 3.22.1 above.
3.22.4. Mortgagor agrees that Mortgagee and its
authorized representatives may enter and inspect and assess the Mortgaged
Property at reasonable times to determine Mortgagor's compliance with the above
conditions. The cost of performing such inspections and assessments shall be
paid by Mortgagor upon demand by Mortgagee and any such obligations shall
constitute an indebtedness secured by this Mortgage.
3.22.5. Mortgagor shall defend, indemnify and hold
Mortgagee harmless from and against any and all past, present and future
liability, loss, damage, costs and expenses suffered, incurred or threatened as
a result of any event of default hereunder or as a result of notice, complaint,
claim, demand, suit, order, judgment, or any legal requirement, including
without limitation of the generality of the foregoing, court costs, attorneys'
and consultants' fees, environmental cleanup costs, natural resources damages,
fines, penalties and damages to persons, personal property, real property and
business enterprises, arising out of or relating to the environmental condition
of the Mortgaged Property, the existence of any environmental hazard on the
Mortgaged Property or any release or threat of release of any Hazardous
Substance of any kind in, on, under or from the Mortgaged Property at any time,
regardless of
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whether caused by or within the control of Mortgagee. Notwithstanding anything
to the contrary in this Mortgage, the provisions of this indemnity shall survive
the payment and satisfaction or termination of this Mortgage.
3.23. Indemnity. Mortgagor covenants and agrees to hold harmless and to
indemnify Mortgagee from and against all losses, costs, and expenses, including
reasonable attorneys' fees, incurred by reason of any action, suit, proceeding,
hearing, motion, or application before any court or administrative body, or
arbitration panel to which Mortgagee may become a party by reason of this
Mortgage or any of the other Loan Documents. All costs incurred by Mortgagee in
that regard shall be part of the Indebtedness secured hereby and shall be
immediately and without notice due and payable by Mortgagor.
3.24. Subrogation to Liens. Mortgagor covenants and agrees that
Mortgagee is hereby subrogated to the lien or liens and to the rights of the
owners and holders thereof for each and every mortgage, lien, or other
encumbrances on the Mortgaged Property, any part thereof, or any claim or demand
which is paid or satisfied, in whole or in part, out of the proceeds of the
Indebtedness, and the respective liens of such mortgages and other encumbrances,
claims, and demands shall pass to and be held by Mortgagee as additional
security for the Indebtedness to the same extent that they would have been
preserved and would have been passed to and been held by Mortgagee had they each
been duly and regularly assigned, transferred, set over, and delivered to
Mortgagee by separate deed of assignment.
3.25. Waivers by Mortgagor. Mortgagor hereby waives to the fullest
extent permissible by law: (i) trial by jury in any litigation arising out of,
relating to, or connected with this Mortgage or any other Loan Document, (ii)
all statutory and equitable rights of redemption, and (iii) the benefit of all
exemption laws whatsoever, or any other present or future stay, exemption, or
insolvency laws of any jurisdiction, against any claim of Mortgagee for any sum
of money which may become due and payable to Mortgagee under the Loan Documents.
3.26. Estoppel Certificates. Mortgagor or Mortgagee, within five (5)
calendar days after written request from the other, which written request shall
reference this Section 3.26 of this Mortgage, will furnish a written estoppel
certificate, duly acknowledged, setting forth the amount due under the Notes and
whether any claims, offsets, or defenses exist against either the collection of
the Indebtedness or against the enforcement of the Loan Documents (and, if so,
specifying any claimed offsets and/or defenses in detail).
3.27. Covenants Binding on the Land. All covenants contained herein
shall run with and be binding on the Mortgaged Property until this Mortgage
shall be released of record.
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3.28. FIRPTA Certification. Mortgagor represents under penalty of
perjury that it is not a "foreign person" as that term is defined in section
1445 of the Internal Revenue Code of 1986, as amended. In the event that
Mortgagor is ever deemed to be a "foreign person," Mortgagor covenants and
agrees immediately to make an election pursuant to section 897(i) of the
Internal Revenue Code of 1986, as amended, and Mortgagor hereby appoints
Mortgagee as its attorney-in-fact, in Mortgagor's name, to file such election on
Mortgagor's behalf. Such power of attorney shall be deemed to be coupled with an
interest and shall be irrevocable. Mortgagor covenants that an 897(i) election,
once made, will never be revoked without the prior written consent of Mortgagee,
which consent may be withheld in Mortgagee's sole and absolute discretion. Any
liability accruing to Mortgagee on account of Mortgagor's failure to comply with
the provisions of this Section 3.28 shall be separate from, independent of, and
notwithstanding any other obligations or provisions in the Loan Documents.
ARTICLE 4
ASSIGNMENT OF LEASES, RENTS, & PROFITS
4.1. Absolute Assignment. Mortgagor does hereby, absolutely and
unconditionally, sell, assign, transfer, set over, and deliver unto Mortgagee,
its successors and assigns, all of the following, to have and to hold the same
unto Mortgagee, its successors and assigns forever, or for such shorter period
as hereinafter may be indicated, for the purpose of providing additional
security for payment of the Indebtedness and performance of the Obligations:
4.1.1. all of the Leases;
4.1.2. any and all guarantees of and security for the
lessees' performance under the Leases;
4.1.3. any and all judgments, awards, and/or settlements
received by Mortgagor in any present or future litigation or arbitration in
connection with the Leases; and
4.1.4. the immediate and continuing right to collect and
receive all of the Rents, Losses or Rebates, Damages, and Abatements.
4.2. License to Collect. The assignment granted in Section 4.1 is,
however, subject to a right, prior to the occurrence of an Event of Default,
hereby granted by Mortgagee to Mortgagor, but limited as hereinafter provided,
to collect and receive all of the Rents, Losses or Rebates, Damages, and
Abatements.
4.3. Mortgagee's Rights.
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4.3.1. Mortgagor irrevocably constitutes and appoints
Mortgagee as its lawful attorney in its name and stead to:
4.3.1.1. collect any and all of the Rents, Losses or
Rebates, Damages, and/or Abatements;
4.3.1.2. use such measures, legal or equitable, as in its
discretion may be deemed necessary or appropriate to enforce the
payment of the Rents, Losses or Rebates, Damages, Abatements, and/or
any security given in connection therewith;
4.3.1.3. secure and maintain the use and/or possession of
the Mortgaged Property and/or any part thereof;
4.3.1.4. fill any and all vacancies and to rent, lease,
and/or let the Mortgaged Property and/or any part thereof at its
discretion;
4.3.1.5. order, purchase, cancel, modify, amend, and/or
in any and all ways control and deal with any and all policies of
insurance of any and all kinds now or hereafter on or in connection
with the whole or any part of the Mortgaged Property at its discretion
and to adjust any loss or damage thereunder and/or to bring suit at law
or in equity therefor and to execute and/or render any and all
instruments deemed by Mortgagee to be necessary or appropriate in
connection therewith;
4.3.1.6. adjust, bring suit at law or in equity for,
settle, or otherwise deal with any taking of any or all of the
Mortgaged Property for public purposes as aforesaid or any claim for
real or alleged harm or damage as aforesaid and to execute and/or
render any and all instruments deemed by Mortgagee to be necessary or
appropriate in connection therewith; and
4.3.1.7. adjust, settle, or otherwise deal with any
Abatements and to execute any and all instruments deemed by Mortgagee
to be necessary or appropriate in connection therewith, hereby granting
full power and authority to Mortgagee to use and apply the Rents,
Losses or Rebates, Damages, and/or Abatements to the payment of any
Impositions, to the payment of premiums on such policies of insurance
on or in connection with the whole or any part of the Mortgaged
Property as may be deemed advisable by Mortgagee, to the payment of the
Indebtedness, to the payment of all expenses in the care and management
of the Mortgaged Property, including such repairs, alterations,
additions, and/or improvements to the Mortgaged Property or any part
thereof as may be deemed necessary or advisable by Mortgagee, to the
payment of attorneys' fees, court costs,
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labor, charges, and/or expenses incurred in connection with any and all
things which Mortgagee may do or cause to be done by virtue hereof, and
to the payment of such interest on the Indebtedness or on any of the
foregoing, if any, as may be deemed necessary or advisable by
Mortgagee.
4.3.2. Mortgagor grants to Mortgagee full power and
authority to make contracts for the care and management of the whole or any part
of the Mortgaged Property in such form and providing for such compensation as
may be deemed advisable by Mortgagee and for the performance or execution of any
or all of these presents, to constitute, appoint, authorize, and in its place
and stead put and substitute one or more attorney or attorneys to do, execute,
perform, and finish for Mortgagor and in Mortgagor's name all and singular those
things which shall be necessary or advisable or which Mortgagor's said attorney
or its substitute or substitutes shall deem necessary or advisable in and about,
for, touching, or concerning these presents or the Mortgaged Property as
thoroughly, amply, and fully as Mortgagor could do concerning the same, being
personally present, and whatsoever Mortgagor's attorney, or its substitutes
shall do or cause to be done in, about, or concerning these presents or the
Mortgaged Property or any part of any of them Mortgagor hereby ratifies and
confirms.
4.3.3. Mortgagor grants to Mortgagee full power and
authority to exercise at any and all times each and every right, privilege, and
power herein granted, without notice to Mortgagor; provided, however, that
Mortgagee's powers hereinabove described shall be exercisable by Mortgagee only
after the occurrence of an Event of Default not cured within any applicable cure
period.
4.4. Title. Mortgagor represents and warrants that it is the owner in
fee simple of the Mortgaged Property and the lessor under each of the Leases,
and that there has been no other assignment of any interest in the Leases which
is currently in effect.
4.5. Advance Rent. Mortgagor covenants and agrees that no request will
be made of any lessee to pay any advance rents, and no Rents will be accepted
(other than security deposits) in advance of the dates upon which such Rents
become due and payable under the terms of the Leases, it being agreed by
Mortgagor that rents shall be paid as provided in the Leases and not otherwise,
and in no event for more than one (1) month in advance.
4.6. Revocation of License. Upon an occurrence of an Event of Default,
the license granted to Mortgagor in Section 4.2 shall be immediately and without
notice revoked, and any Rents, Losses or Rebates, Damages, or Abatements
thereafter collected by Mortgagor shall be held in trust for Mortgagee.
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4.7. Right to Enter. Subject to the provisions of Section 3.15, upon
the occurrence of an Event of Default hereunder, or at any time thereafter,
Mortgagee, its successors and assigns, at its option and without further consent
thereto by Mortgagor, may enter in and upon the Mortgaged Property and take
possession thereof, and collect the Rents, Losses or Rebates, Damages, and
Abatements, and do every act and thing that Mortgagor might or could do.
4.8. Termination. Upon payment of the Indebtedness and performance of
the Obligations this assignment shall be null and void.
4.9. Covenant Not to Sue. Mortgagor hereby agrees that Mortgagee shall
not be responsible for the control, care, or management of the Mortgaged
Property, nor for carrying out any of the terms and conditions of the Leases,
nor for any waste committed or permitted on the Mortgaged Property by any
lessee, nor shall Mortgagee be liable by reason of any dangerous or defective
condition on or about the Mortgaged Property, and Mortgagor hereby covenants not
to file any lawsuit against Mortgagee in connection with any of the foregoing.
4.10. No Waiver. Mortgagee shall not in any way be responsible for
failure to do any or all of the things for which rights, interest, power, and/or
authority are herein granted it. Mortgagee shall be accountable for only such
cash as it actually receives under the terms hereof. The failure of Mortgagee to
do any of the things or exercise any of the rights, interests, powers, and/or
authorities hereunder shall not be construed to be a waiver of any of the
rights, interests, powers, or authorities hereby assigned and granted to
Mortgagee.
4.11. Further Documentation. Mortgagor will execute upon the request of
Mortgagee any and all instruments requested by Mortgagee reasonably required to
effectuate this assignment.
4.12. No Release of Remedies. This assignment shall not prohibit
Mortgagee from pursuing any remedy which it now or hereafter may have under this
Mortgage or under any of the other Loan Documents.
4.13. Payment of Rents. Mortgagor authorizes and directs every present
and future lessee of the whole or any part of the Mortgaged Property to pay all
Rents to Mortgagee upon demand from Mortgagee following an Event of Default.
4.14. Parties Bound. The terms, covenants, conditions, and warranties
contained herein and the powers granted hereby shall run with the Mortgaged
Property and shall inure to the benefit of and shall bind all parties hereto and
their respective successors and assigns, all lessees, subtenants, and assigns of
same, all occupants and subsequent owners of the Mortgaged Property, and all
subsequent holders of the Loan Documents. A
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foreclosure of this Mortgage shall not extinguish Mortgagor's obligations to
Mortgagee with respect to the Leases, Rents, Losses and Rebates, Damages, and
Abatements to the extent they are in Mortgagor's possession and/or control.
4.15. Other Security. Mortgagee may take or release other security, may
release any party primarily or secondarily liable for any of the Indebtedness,
may grant extensions, renewals, or indulgences with respect to the Indebtedness,
and may apply any other security therefor held by it to the satisfaction of the
Indebtedness without prejudice to any of its rights hereunder.
ARTICLE V
SECURITY AGREEMENT
5.1. Grant of Security Interest. Mortgagor hereby grants to Mortgagee a
security interest in the Collateral to secure payment of the Indebtedness and to
secure the performance by Mortgagor of the Obligations.
5.2. Warranties. Mortgagor warrants and represents that:
5.2.1. the security interest granted to Mortgagee in the
Collateral constitutes a first-in-priority security interest;
5.2.2. Mortgagor is the lawful owner of the Collateral
and is, or, with respect to any after-acquired property, when it acquires such
Collateral it will be, in possession of the Collateral free and clear from any
other lien, security interest, or encumbrance other than those subordinate liens
referenced on Exhibit B hereto;
5.2.3. no financing statement or other notice of lien
agreement or lien, except those in favor of Mortgagee and as referenced on
Exhibit B, is on file or record at any public office which relates to any of the
Collateral or which could through general language related thereto;
5.2.4. Mortgagor has a good and valid right to pledge,
sell, consign, assign, transfer, and create a security interest in the
Collateral;
5.2.5. Mortgagor at its cost and expense will protect and
defend the security interest created herein and the Collateral against all
adverse claims that any of the Collateral has ceased to be personal property,
unless such Collateral has become a fixture encumbered by this Mortgage as a
first lien;
5.2.6. Other than as referenced on Exhibit B hereto, the
Collateral shall continue to be free from all pledges, liens, encumbrances, and
security interests or other
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claims in favor of others; and Mortgagor will warrant, and, at Mortgagee's
request, defend the same from all claims and demands of all persons;
5.2.7. the Collateral will not be used by Mortgagor in
violation of the terms of the Loan Agreement;
5.2.8. the Collateral will not be removed from the
Mortgaged Property in violation of the terms of the Loan Agreement.
5.2.9. Mortgagor will, at its own cost and expense, keep
the Collateral in as good and substantial order, repair, and condition as it is
in at this date, or as the same is when acquired, reasonable wear and tear alone
excepted, making replacements when and as necessary, and, in this connection,
Mortgagee hereby gives its written consent to the removal by Mortgagor of any
part of the Collateral, from the Mortgaged Property if such removal is necessary
so to do in connection with Mortgagor's fulfilling of its obligations under this
Section 5.2.9, and if the priority of its security interest therein will not be
materially jeopardized.
5.3. Compliance with Laws. Mortgagor agrees to comply with all Legal
Requirements in order to grant to Mortgagee a valid lien upon, and a security
interest in, the Collateral.
5.4. Impositions and Costs. Mortgagor will pay, when due, all
Impositions lawfully and validly levied or assessed against the Collateral, or
any part thereof, and Mortgagor will pay any and all fees, costs, and expenses,
of whatever kind and nature, which Mortgagee may incur in filing public notices,
and the charges of any attorneys whom Mortgagee may engage in preparing and
filing such documents, making title examinations, and rendering opinion letters,
as well as expenses incurred by Mortgagee, including reasonable attorneys' fees,
in protecting, maintaining, preserving, enforcing, and foreclosing the security
interest granted to Mortgagee hereunder, whether through judicial proceedings or
otherwise, or in defending or prosecuting any actions or proceedings arising out
of or relating to this transaction, promptly after Mortgagor shall have been
notified by Mortgagee of the amount of such fees, costs, or expenses.
5.5. Right to Enter. Mortgagor agrees that Mortgagee, or its agents,
may enter upon the Mortgaged Property at any time, and from time to time, for
the purpose of inspecting the Collateral, and any and all records pertaining
thereto. Mortgagor agrees to notify Mortgagee promptly of any change in its
mailing address or principal place of business, in order that prompt refiling of
any outstanding notices may be made, if necessary. Mortgagor also is to advise
Mortgagee, within thirty (30) calendar days, of any new facts which, under
applicable provisions of law, would affect the priority of the security interest
granted to Mortgagee by this instrument.
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5.6. Discharge of Liens. At its option, Mortgagee may, but shall not be
required to:
5.6.1. discharge taxes, liens, or security interests or
other encumbrances at any time levied or placed on the Collateral;
5.6.2. pay for insurance on the Collateral; and
5.6.3. pay for the maintenance and preservation of the
Collateral.
Mortgagor agrees to reimburse Mortgagee on demand for any payment made or any
expense incurred by Mortgagee pursuant to the foregoing authorization together
with interest thereon at the Default Rate, from the date incurred until
reimbursed by Mortgagor. Until the occurrence of an Event of Default, Mortgagor
may have possession of the Collateral and use it at all times as personal
property and for business purposes, and in a lawful manner not inconsistent with
the provisions hereof and not inconsistent with any policy of insurance thereon.
5.7. Further Agreements. Mortgagor will do all acts requested by
Mortgagee, including, but not limited to, the execution and filing of all
instruments (such as security agreements, financing statements, and continuation
statements) necessary to establish, maintain, and continue perfected the
security interests of Mortgagee in the Collateral, will promptly on demand pay
all costs of any searches deemed necessary by Mortgagee to establish and
determine the validity and the priority of the security interest of Mortgagee,
and will also pay in full all other claims and charges which in the opinion of
Mortgagee might prejudice, imperil, or otherwise affect the Collateral or
Mortgagee's security interest therein. Mortgagor agrees promptly to notify
Mortgagee of any change of the address of Mortgagor's principle place of
business.
5.8. Continuing Effectiveness. The security interest granted hereby
shall continue to be effective irrespective of any retaking of the Collateral by
or any redelivery of the Collateral to Mortgagor until the Indebtedness is paid
in full and the Obligations are fully performed.
5.9. Safekeeping of the Collateral. Mortgagee shall have no
responsibility or liability as to any matter pertaining to the Collateral, and
shall have no duty to protect, insure, or realize on the Collateral except for
those obligations imposed on it by the UCC, and the giving by Mortgagee of such
care as Mortgagee gives to the safekeeping of property of a like kind owned by
Mortgagee shall constitute reasonable care of the Collateral when in Mortgagee's
possession. Mortgagor hereby releases Mortgagee from any liability for any act
or omission relating to the Collateral, except for the failure of Mortgagee to
exercise the above-described reasonable care.
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5.10. Compliance with UCC. This Article 5 constitutes a "security
agreement" as defined in the UCC and is intended to be a UCC financing
statement. For purposes of complying with the UCC:
5.10.1. Mortgagor is the "Debtor";
5.10.2. Mortgagee is the "Secured Party";
5.10.3. the address of the Secured Party from which
information concerning the security interest herein granted is the Mortgagee's
address set forth in Section 8.4;
5.10.4. the mailing address of the Debtor is the
Mortgagor's address set forth in Section 8.4; and
5.10.5. the collateral covered by this financing
statement is the Collateral.
ARTICLE 6
EVENTS OF DEFAULT
6.1. Events of Default. Any of the following events or conditions shall
constitute an "Event of Default" under this Mortgage:
6.1.1. the default by Mortgagor in the payment of the
Indebtedness or performance of the Obligations after the expiration of any grace
and/or notice period provided in the Loan Agreement;
6.1.2. any warranty, representation, or statement made or
furnished to Mortgagee by or on behalf of the Mortgagor proves to have been
false in any material respect when made or furnished;
6.1.3. the occurrence of an Event of Default under the
Loan Agreement;
6.1.4. the occurrence of an Event of Default under any
other mortgage or debt instrument given by Mortgagor to Mortgagee for this or
any other property;
6.1.5 the filing of record by or on behalf of Mortgagor
of a notice under Section 697.04 of the Florida Statutes purporting to set a
maximum limit on future advances secured by this Mortgage.
ARTICLE 7
REMEDIES
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7.1. Remedies on Default. Upon the occurrence of an Event of Default,
then in addition to, and not in limitation of, any and all other rights and
remedies available to Mortgagee at law or by any other provision hereof as a
result of such Event of Default:
7.1.1. Acceleration. All of the Indebtedness shall become
and be immediately due and payable at the option of Mortgagee (unless said Event
of Default results in automatic acceleration pursuant to the Loan Agreement, in
which case acceleration shall occur automatically) without notice (except as may
be hereinafter provided) on demand, all of which are hereby expressly waived;
and
7.1.2. Foreclosure.
7.1.2.1. Mortgagee may institute proceedings for the
complete foreclosure of this Mortgage, in which case the Mortgaged
Property may be sold for cash or credit in one or more parcels in
accordance with the provisions of Section 7.1.3; or
7.1.2.2. With or without entry, to the extent permitted
and pursuant to the procedures provided by applicable law, institute
proceedings for the partial foreclosure of this Mortgage for the
portion of the Indebtedness then due and payable, subject to the
continuing lien of this Mortgage for the portion of the Indebtedness
not then due; and
7.1.3. Sale. Mortgagee may foreclose and sell, in
accordance with the applicable laws of the jurisdiction in which the Mortgaged
Property is located, and in the case of any default of any purchaser, to resell
the Mortgaged Property and Mortgagor's rights of redemption thereof at public
auction, upon such terms and conditions, in such parcels, at such time and
place, with such postponements, and after such previous public advertisement as
Mortgagee shall deem advantageous and proper and as required by all applicable
laws and rules of the jurisdiction in which the Mortgaged Property is located;
and to convey the Mortgaged Property in fee simple, upon compliance with the
terms of the sale, to and at the cost of the purchaser or purchasers thereof
(who shall not be required to see to the application of the purchase money), and
upon the completion of any sale and compliance with all the terms thereof, to
execute and deliver to the purchaser or purchasers a good and sufficient deed of
conveyance, assignment, and transfer, lawfully conveying, assigning, and
transferring the property sold, and to hold and apply the proceeds of such sale
or sales in the following order of priority:
7.1.3.1. to discharge the expenses of executing the
Mortgage, including all proper costs, charges, and expenses
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of the sale and reasonable attorneys' fees in connection with the sale;
7.1.3.2. to discharge all taxes, levies, and assessments
with costs and interest thereon to the date of sale, including all
monies previously advanced for Impositions and the due pro rata portion
thereof for the current year;
7.1.3.3. to discharge in the order of their priority, if
any, the remaining debts and obligations secured by this Mortgage, and
any liens of record inferior thereon, it being agreed that the Notes
shall, upon such sale being made before the maturity date of the Notes,
be and become immediately due and payable; and
7.1.3.4. the residue of the proceeds shall be paid to
Mortgagor or its assigns, less the expense, if any, of obtaining
possession upon the delivery and surrender to the purchaser of
possession of the Mortgaged Property; provided, however, that Mortgagee
as to such residue shall not be bound by any inheritance, devise,
conveyance, assignment, or lien upon Mortgagor's equity of which
Mortgagee does not have actual notice prior to distribution; and
7.1.4. Entry and Receivership.
7.1.4.1. Mortgagor, upon demand of Mortgagee, shall
forthwith surrender the actual possession of the Mortgaged Property to
Mortgagee. Regardless of whether Mortgagee accelerates the maturity of
the Indebtedness, Mortgagee may at any time, without notice and without
regard to either the adequacy of the Mortgaged Property as security for
the debt or the solvency of Mortgagor or any other party or parties
liable for the payment of such debt, enter upon and take possession of
the Mortgaged Property or any part thereof, and perform any acts,
including the employment of watchmen to protect any improvements from
depreciation or injury and to preserve and protect the Personalty
therein, to continue any and all outstanding contracts or, at
Mortgagee's option, to enter into a new contract or contracts for the
construction and completion of any improvements already begun, to use
the architects' and engineers' plans, drawings, and specifications
therefor, to make or enter into contracts and obligations necessary to
complete such improvements, pay and discharge all debts, obligations,
and liabilities incurred thereby and all mechanics' or other liens
affecting the Mortgaged Property, to rent, manage, operate, and/or sell
any part or all of the Mortgaged Property, which Mortgagee deems
necessary or proper to conserve the Mortgaged Property, and may collect
and receive all Rents.
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7.1.4.2. Mortgagee shall also be entitled without any
notice to Mortgagor or to any other party or parties (such notice being
hereby expressly waived) to have a receiver appointed without regard
for the adequacy or inadequacy of the Mortgaged Property as security
for the Indebtedness or the solvency of Mortgagor or any other party or
parties liable for the payment of the Indebtedness, to enter and take
possession of the Mortgaged Property and perform all acts which
Mortgagee is authorized to perform under Section 7.1.4.1.
7.1.4.3. Mortgagee or the receiver may also take
possession of, and for these purposes use, any and all Personalty
contained in the Mortgaged Property and owned and used by Mortgagor in
the operation, construction, marketing, sale, rental, or leasing
thereof or any part thereof. The expense (including but not limited to
the receiver's fees, counsel fees, costs, and agent's compensation)
incurred pursuant to the powers herein contained shall be secured by
the Mortgage and shall be due and payable on demand with interest at
the Default Rate. Mortgagor shall deliver to the receiver appointed
pursuant to the provisions of Section 7.1.4.2, or to Mortgagee in the
event of its entry pursuant to the terms of Section 7.1.4.1, all
original records, books, bank accounts, leases, agreements, security
deposits of the lessees, and all other material relating to the
ownership and/or operation of the Mortgaged Property. After payment of
all costs and expenses incurred, the receiver shall pay to Mortgagee
all Rents and other proceeds collected by the receiver, and Mortgagee
shall apply the same and any Rents, sale proceeds, and other proceeds
collected directly by Mortgagee (after payment therefrom of all
expenses) on the Indebtedness in such order as Mortgagee determines.
The right to enter and take possession of the Mortgaged Property, to
manage and operate the Mortgaged Property, and to collect the Rents
whether by a receiver or otherwise, shall be in addition to, and not in
limitation of, any other right or remedy hereunder or afforded by law,
and may be exercised concurrently therewith or independently thereof.
The receiver and/or Mortgagee (as the case may be) shall be under no
duty to lease the Mortgaged Property or to perform or discharge any
obligation of Mortgagor under any Lease, and they shall be liable to
account only for Rents and other proceeds actually received,
respectively, by either of them.
7.1.4.4. The failure of Mortgagee to exercise its option
to accelerate the maturity of the Indebtedness, to foreclose, or
either, following any occurrence of an Event of Default, or to exercise
any other option granted to Mortgagee hereunder, in any one or more
instances, or the acceptance by Mortgagee of partial payments
hereunder, or the delay for any period of time in exercising the option
to accelerate the entire Indebtedness, shall not constitute
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<PAGE>
a waiver of any such Event of Default or of Mortgagee's right to
exercise such option, but such option shall remain continuously in
force. Acceleration of maturity, once claimed hereunder by Mortgagee,
may, at the option of Mortgagee, be rescinded by written
acknowledgement to that effect by Mortgagee, but the tender and
acceptance of partial payments alone shall not in any way effect or
rescind such acceleration of maturity.
7.1.5. The Collateral.
7.1.5.1. Mortgagee may thereupon or at any time or times
thereafter sell the Collateral or any part or parts thereof at public
or private sales and may apply the net proceeds, after deducting all
costs and expenses for collection, sale, and delivery, to the payment
of the Indebtedness and at public sale Mortgagee may purchase any part
or parts of the Collateral or all thereof offered at any such sale;
and, in addition, Mortgagee shall have all of the rights and remedies
of a secured party under the UCC or otherwise provided by law. In any
case where Mortgagee determines to give notice of any sales or other
dispositions of Collateral, the mailing of notice to Mortgagor at least
ten (l0) calendar days before any sale or other disposition,
conclusively shall be deemed commercially reasonably notice thereof.
Expenses of retaking, holding, preparing for sale, selling, or the like
shall include Mortgagee's reasonable attorneys' fees and legal expenses
and are secured hereby as part of the Obligations. If the proceeds
realized from disposition of the Collateral shall fail to satisfy the
Indebtedness, Mortgagor shall immediately pay any deficiency balance to
Mortgagee.
7.1.5.2. In the event Mortgagee elects to dispose of the
Collateral by public sale, it shall advertise for sale under this
Mortgage, by notice of such sale published in some newspaper published
in the jurisdiction where the Collateral is located for such number of
times as is required by all applicable laws and rules of the
jurisdiction in which the Collateral is located, giving notice of the
time, place, and terms of such sale. Mortgagee may, at its option, sell
the Collateral as a whole or in parcels and such sale may be held at
the courthouse door in the jurisdiction where the Collateral is
located, at the place where the Collateral is located, or at any other
reasonable place, all at the option of Mortgagee, but in no event shall
it be necessary that the Collateral be present at the sale.
7.1.5.3. Mortgagee may enter upon the Mortgaged Property
to take possession of the Collateral, or at its option may require
Mortgagor to assemble the Collateral at any place designated by
Mortgagee reasonably convenient to the parties.
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7.2. Remedies Cumulative. The rights and remedies herein provided are
cumulative, and Mortgagee may recover judgment thereon, issue execution
therefor, and resort to every other remedy available at law or in equity without
affecting or in any manner impairing the security or any right or remedy
afforded by this Mortgage, and no enumeration of special rights or powers by any
provisions of this Mortgage shall be construed to limit any grant of general
rights or powers, or to take away or limit any and all rights granted to or
vested in Mortgagee by virtue of the laws of the jurisdiction in which the
Mortgaged Property is located.
7.3. Waiver of Marshalling. Mortgagor further specifically agrees that,
in any exercise of the rights of Mortgagee under this or any other instrument,
any combination or all of the property, rights, or security given to secure the
Indebtedness may be offered for sale for one total price, and the proceeds of
any such sale accounted for in one account without distinction between the items
of security or without assigning to them any proportion of such proceeds,
Mortgagor hereby waiving the application of any doctrine of marshalling.
7.4. Additional Collateral. To the extent the Indebtedness is now or
hereafter further secured by any additional collateral, including, but not
limited to, collateral conveyed by any chattel mortgages or deeds of trust,
security agreements, financing statements, pledges, contracts of guaranty or
suretyship, assignments of leases, or other securities, Mortgagee may, at its
option, exhaust any one or more of such securities and the security hereunder
either concurrently or independently and in such order as Mortgagee may
determine.
7.5. Mortgagee's Right to Release. Without affecting the liability of
Mortgagor or any other person (except any person expressly released in writing)
for payment of the Indebtedness or for performance of the Obligations and
without affecting the rights of Mortgagee with respect to any security not
expressly released in writing, Mortgagee may, at any time, and from time to
time, either before or after the maturity of the Notes, and without notice or
consent:
7.5.1. Release any person or persons liable for payment
of all or any part of the Indebtedness or for the performance of the
Obligations;
7.5.2. Make any agreement extending the time or otherwise
altering the terms of payment of all or any part of the Indebtedness or
modifying or waiving the performance of any of the Obligations, or
subordinating, modifying, or otherwise dealing with the lien or charge hereof;
7.5.3. Exercise or refrain from exercising or waive any
right Mortgagee may have;
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7.5.4. Accept additional security of any kind; or
7.5.5. Release or otherwise deal with any property, real
or personal, securing the Indebtedness, including all or any part of the
Mortgaged Property.
ARTICLE 8
MISCELLANEOUS PROVISIONS
8.1. Release of This Mortgage. Subject to Section 8.16, when all of the
Indebtedness has been paid and all of the Obligations performed, then upon the
request of Mortgagor and at Mortgagor's sole cost and expense, a release or
satisfaction shall be delivered to Mortgagor upon payment of the costs and
charges of Mortgagee.
8.2. Gender, Number, Successors, and Assigns. The obligations,
covenants, and agreements herein contained shall bind, and the rights, benefits,
and advantages herein granted shall inure to, the parties hereto and their
respective successors and assigns. Whenever used, the singular number shall
include the plural, the plural the singular, and the use of any gender shall be
applicable to all genders.
8.3. Headings. The headings used herein are inserted only for
convenience of reference and in no way define, limit, or describe the scope or
intent of this Mortgage or of any particular Section hereof.
8.4. Notice. Except as otherwise provided herein, all notices, requests
and demands to or upon a party hereto to be effective shall be in writing and
sent by certified or registered mail, return receipt requested, personal
delivery against receipt, via nationally recognized overnight courier or by
facsimile or telex and, unless otherwise expressly provided herein, shall be
deemed to have been validly served, given or delivered when delivered against
receipt or two Business Days after deposit in the mail, postage prepaid, or, in
the case of facsimile or telex, when sent, answer back received, addressed as
follows:
(A) If to Mortgagor:
RIO Optical Corporation
2760 Irving Boulevard
Dallas, Texas 75207
Attention: George McHenry
Telecopier: (214) 638-3072
(B) If to Mortgagee:
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<PAGE>
Commerce Bank, N.A.
1701 Route 70 East
Cherry Hill, New Jersey 08034-5400
Attention:
Telecopier:
-40-
<PAGE>
With a copy to:
---------------
Blank, Rome, Comisky & McCauley
1200 Four Penn Center Plaza
Philadelphia, PA 19103
Attention: Lawrence Finkelstein, Esq.
Telecopy: 215-569-5555
(C) If to Borrowers:
Royal International Optical Inc.
2760 Irving Boulevard
Dallas, Texas 75207
Attention:
Telecopy:
With a copy to:
---------------
Sayles & Lidji
3500 Fountain Place
1445 Ross Avenue
Dallas, TX 75202-2799
Attention: Brian M. Lidji, Esq.
Telecopy: 214-969-7169
or to such other address as each party may designate for itself by like notice
given in accordance with this Section 8.4, it being understood that whenever
facsimile notice is used the party sending such notice shall endeavor to follow
the notice with a hard copy via regular mail, but such party is under not
obligation to do so and the notice shall be effective as provided above.
8.5. GOVERNING LAW. THIS MORTGAGE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF PENNSYLVANIA; PROVIDED, HOWEVER, THAT
THE LAWS OF THE STATE IN WHICH THE MORTGAGED PROPERTY IS LOCATED (THE "SITUS
STATE") SHALL GOVERN WITH RESPECT TO (A) THE CREATION OF LIENS ON PROPERTY
LOCATED IN THE SITUS STATE, AND (B) THE METHOD, MANNER AND PROCEDURE FOR
FORECLOSURE OF MORTGAGEE'S LIEN UPON ANY PORTION OF THE MORTGAGED PROPERTY
LOCATED IN THE SITUS STATE AND THE ENFORCEMENT IN THE SITUS STATE OF MORTGAGEE'S
OTHER REMEDIES WITH RESPECT TO THE MORTGAGED PROPERTY LOCATED IN THE SITUS
STATE.
8.6. Waiver. No waiver by Mortgagee of any Event of Default shall
operate as a waiver of any other Event of Default or the same Event of Default
on a future occasion. No delay or failure on the part of Mortgagee in the
exercise of any right or remedy shall operate as a waiver thereof, and no single
or partial exercise by Mortgagee of any right or remedy shall operate as a
waiver thereof, or the exercise of any right or remedy.
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<PAGE>
8.7. Separate Security. Articles 2, 3, 4, and 5 of this Mortgage shall
each provide separate and independent security for the Indebtedness with the
effect that, in the event that the lien, operation, and effect of any one or
more of such Articles shall be removed or extinguished for any reason and by any
means, the lien, operation, and effect of the remaining Article(s) shall not be
impaired or diminished until such time as all Indebtedness is repaid in full.
8.8. Time. Time is of the essence of this Mortgage and of every
covenant and provision hereof.
8.9. Severability. The invalidity or unenforceability of any provision
of this Mortgage shall not affect the other provisions hereof, and this Mortgage
shall be construed as if the invalid or unenforceable provision had never been a
part of this Mortgage.
8.10. Integration. Mortgagor acknowledges and agrees that any and all
prior understandings and agreements between Mortgagor and Mortgagee are merged
into this Mortgage and the other Loan Documents, which, taken as a whole, fully
and completely express their agreement. Mortgagor acknowledges that this
Mortgage and the other Loan Documents were executed by it after a full
investigation and that Mortgagor is not relying on any statement or
representation of Mortgagee not embodied herein.
8.11. Rules of Interpretation. The provisions of this Mortgage shall be
construed as a whole according to their respective meanings, and shall not be
construed against any party based on which party drafted one or more provisions
of this Mortgage and shall in no event be construed against Mortgagee in the
event any provision hereof is considered ambiguous or of uncertain application
to any facts or circumstances, but, instead, all provisions of this Mortgage
shall be construed to protect the security for this Mortgage and Mortgagee's
right to recover the full amount of the Indebtedness. All rights and remedies of
Mortgagee, including the security interest in the Collateral and the assignment
of the Leases, Rents, Losses or Rebates, Damages, and Abatements, shall be
senior to and supersede any conflicting rights or title of Mortgagor, if any. To
the extent that any provision of this Mortgage is or is construed to be a
release by Mortgagor in favor of Mortgagee, it shall extend to all direct or
indirect claims, claims for contribution. To the extent any provision of this
Mortgage is or is construed to be an obligation of Mortgagor to indemnify
Mortgagee, the duty of Mortgagor to indemnify Mortgagee shall extend for the
benefit of the directors, officers, controlling persons, employees, and agents
of Mortgagee, and for the benefit of all successors to Mortgagee's interest as
lienholder in the chain of title to the Mortgaged Property. ALL SUCH INDEMNITIES
SHALL INCLUDE INDEMNIFICATION AGAINST MATTERS CAUSED IN WHOLE OR IN PART BY THE
INDEMNITEE'S OWN NEGLIGENCE. All provisions of this Mortgage releasing Mortgagee
or requiring Mortgagor to
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<PAGE>
indemnify Mortgagee shall survive the reconveyance of the Mortgaged Property or
any other extinguishment of the Indebtedness and the Obligations. EACH PROVISION
IN THIS MORTGAGE WHEREBY MORTGAGOR APPOINTS MORTGAGEE AS ITS ATTORNEY-IN-FACT IS
A DURABLE POWER OF ATTORNEY WITH FULL POWER OF SUBSTITUTION FOR THE PURPOSES
RESPECTIVELY SET FORTH IN EACH PROVISION, IS IRREVOCABLE, IS TO BE CONSIDERED
COUPLED WITH AN INTEREST, AND SHALL NOT BE AFFECTED BY ANY SUBSEQUENT
INCAPACITY, DEATH, DISSOLUTION, OR OTHER EVENT AFFECTING MORTGAGOR.
8.12. Mortgagor's Risks. Mortgagor agrees that any duty of good faith
and fair dealing arising under this Mortgage shall be interpreted to permit
Mortgagee to make or take any decision, action, or inaction based on its right
to realize the full financial yield and payment of the Notes and the other
Indebtedness and the Obligations. Mortgagor acknowledges that this Mortgage is a
contract voluntarily entered into by Mortgagor and agrees that Mortgagee is
entitled to enforce the rights and remedies of Mortgagee under this Mortgage and
to require Mortgagor to comply with Mortgagor's obligations hereunder. Mortgagee
is a lender to Mortgagor and is neither an investor in Mortgagor or Mortgagor's
operations nor a partner or joint venturer with Mortgagor. Mortgagor releases
Mortgagee from all claims to the effect that Mortgagee is or may be considered a
partner, joint venturer, fiduciary, or quasi-fiduciary to or with Mortgagor.
Mortgagor accepts the risk that an Event of Default may result in a total loss
of Mortgagor's interest in the Mortgaged Property, a judgment against Mortgagor
for any deficiency as may be permitted by law, and other material adverse
consequences to Mortgagor. Mortgagor releases Mortgagee from all claims to the
effect that Mortgagee's credit decisions, appraisals, or other action or
inaction should cause Mortgagee to bear any risks related to the Mortgaged
Property or otherwise limit or impair Mortgagee's rights and remedies under this
Mortgage. Mortgagor has no right to rely on any statement, action, or inaction
by Mortgagee to indicate the value, income, or appreciation of the Mortgaged
Property or the advisability of Mortgagor's incurring any of the Indebtedness or
the Obligations. Mortgagor agrees that there has been legal consideration and
reasonably equivalent value given in exchange for this Mortgage. Mortgagor
represents that Mortgagor has retained legal counsel to advise Mortgagor on all
aspects of the Mortgage, the Indebtedness and the Obligations.
8.13. Unilateral Subordination. Mortgagee shall have the right at its
option and in its sole and absolute discretion without notice to Mortgagor or
any other party (which is hereby expressly waived), at any time to unilaterally
subordinate the liens and encumbrances of this Mortgage to any other liens or
encumbrances or to any Leases, including, but not limited to, any mortgage(s)
held by Mortgagee, such unilateral subordination to be in writing executed and
acknowledged by Mortgagee and recorded in the real property records of the
county in which the Mortgaged Property is located, whereupon the liens and
encumbrances of this
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Mortgage shall be inferior and subordinate as, but only to the extent, expressly
described therein. Mortgagee, in exercising its right pursuant to this section,
shall not be required to subordinate the liens and encumbrances of this Mortgage
to any other liens or encumbrances or Leases against all or a portion of the
Mortgaged Property, but shall be permitted to subordinate the liens and
encumbrances of this Mortgage to whichever liens, encumbrances and Leases
Mortgagee designates, in its sole and absolute discretion.
8.14. WAIVERS. MORTGAGOR WAIVES TRIAL BY JURY, RIGHTS OF SETOFF, AND
THE RIGHT TO IMPOSE COUNTERCLAIMS OTHER THAN MANDATORY COUNTERCLAIMS, IN ANY
ACTION OR PROCEEDING WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS
MORTGAGE OR ANY OF THE OTHER LOAN DOCUMENTS, OR THE MORTGAGED PROPERTY, OR ANY
INSTRUMENT OR DOCUMENT DELIVERED PURSUANT HERETO, OR ANY OTHER CLAIM OR DISPUTE
HOWEVER ARISING, BETWEEN MORTGAGOR AND MORTGAGEE. MORTGAGOR ACKNOWLEDGES THAT
THE FOREGOING WAIVER IS INFORMED AND VOLUNTARY.
8.15. Other Agreements. In case of any conflict between this Mortgage
and the Loan Agreement, the Loan Agreement shall control. The representations,
warranties and covenants hereunder are in addition to and shall not limit the
representations, warranties and covenants contained in any other Loan Documents.
8.16. Revolving Credit Notes. This Mortgage secures, in part, a
revolving promissory note or other such indebtedness where (a) a line of credit
of a specific amount is extended to a borrower for the term of indebtedness
thereunder, (b) the amount of indebtedness actually outstanding at any
particular time is subject to fluctuations up or down due to future
disbursements of loan proceeds and/or future repayments thereof from time to
time over the term of the indebtedness, which disbursements and repayments were
contemplated by the parties to the indebtedness at the time that it was created,
and (c) repayments by the borrower neither reduce nor increase the original line
of credit extended nor affect the borrower's liability to repay the principal
sum of all outstanding disbursements plus all accrued interest thereon. As this
Mortgage secures a revolving credit loan, there shall not be any release of this
Mortgage, even if at any time or from time to time the amount of the secured
indebtedness is zero, unless and until Mortgagee executes and records an express
release of this Mortgage.
8.17 Advances and Future Advances. It is understood and agreed that the
proceeds of the Indebtedness evidenced by the Notes may be advanced by Mortgagee
at one time, or from time to time, and Mortgagee reserves the right to make
additional advances of proceeds, from time to time, including the readvances of
any sums previously repaid on the Notes. In the event of the readvance by
Mortgagee of any sum previously repaid on the Notes, then, in such event, the
Notes shall be deemed to evidence, and
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<PAGE>
this Mortgage shall be deemed to secure, the repayment of the proceeds last
advanced by Mortgagee under the Notes.
8.18 Further Assurances. Mortgagor agrees, upon demand of Mortgagee, to
do any act or execute any additional documents (including, but not limited to,
security agreements on any Personalty included or to be included in the
Mortgaged Property) as may be required by Mortgagee to confirm the lien of this
Mortgage.
8.19 Balloon Mortgage. This is a balloon mortgage and the final
principal payment or the remaining principal balance is anticipated to be paid
on January 31, 1997, together with accrued interest, if any, and all
advancements made by the Mortgagee under the terms of this Mortgage.
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned
Mortgagor has executed this Mortgage under seal as of the day and year first
hereinabove written.
Signed, sealed and RIO OPTICAL CORPORATION
delivered in the
presence of:
By: /s/
/s/ -----------------------------------
- -----------------------------------
Name: Title:
------------------------------ --------------------------------
/s/
- ----------------------------------- Name:
Name: ---------------------------------
------------------------------
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<PAGE>
STATE OF ___________)
) ss:
COUNTY OF __________)
I CERTIFY that on this day before me, an officer duly authorized in the
state aforesaid and in the county aforesaid to take acknowledgements, personally
appeared __________________ of RIO OPTICAL CORPORATION, a Texas corporation,
described in and who executed the foregoing instrument, and he acknowledged
before me that he executed the same for purposes and uses therein expressed on
behalf of said corporation. He produced__________ as identification and he did
take an oath.
WITNESS my hand and official seal in the county and state last
aforesaid, this_______ day of______ , 1996.
----------------------------
Notary Public
My commission expires:
------
CERTIFICATE OF RESIDENCE
------------------------
The undersigned hereby certifies that Mortgagee's precise address is
1701 Route 70 East, Cherry Hill, New Jersey 08034- 5400.
----------------------------
For Mortgagee
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<PAGE>
EXHIBIT "A"
-----------
DESCRIPTION
-----------
Parcel 1
A portion of the West 1/2 of the Northwest 1/4 of the Southeast 1/4 of the
Southwest 1/4 of Section 21, Township 53 South, Range 41 East, being more
particularly described as follows:
COMMENCE at the Southwest corner of the Northwest 1/4 of the Southeast 1/4 of
the Southwest 1/4 of Section 21, Township 53 South, Range 41 East and run North
02(degree) 11' 04" West along the west line of the Northwest 1/4 of the
Southeast 1/4 of said Southwest 1/4 for 101.00 feet; thence easterly along a
line 101.00 feet north of and parallel to the South line of the Northwest 1/4 of
the Southeast 1/4 of said Southwest 1/4 for 35 feet to the POINT OF BEGINNING;
thence continue easterly along the last described course for 299.25 feet; thence
run North 02(degree) 12' 12" West along the East line of the West 1/2 of the
Northwest 1/4 of the Southeast 1/4 of the Southwest 1/4 of said section 21 for
175.58 feet to a point of intersection with the southerly right-of-way line of
State Road No. 25, as shown on State of Florida State Road Department
Right-of-Way map, as recorded in Plat Book 68 at Page 86, of the Public Records
of Dade County, Florida; thence run South 75(degree) 23' 32" West along said
southerly right-of-way line of State Road No. 25 for 306.19 feet; thence South
73(degree) 04' 53" West, a distance of 62.04 feet; thence South 76(degree) 40'
20" West, a distance of 316.20 feet; thence South 01(degree) 55' 35" East, a
distance of 134.52 feet; thence North 87(degree) 45' 41" East, a distance of
173.84 feet; thence South 02(degree) 11' 04" East, a distance of 30.00 feet;
thence North 87(degree) 45' 41" East, a distance of 137.00 feet; thence North
02(degree) 11' 04" West, a distance of 131.10 feet; thence North 87(degree) 45'
41" East, a distance of 60.00 feet to the POINT OF BEGINNING lying and being in
Dade County, Florida.
<PAGE>
Parcel 2
<PAGE>
EXHIBIT "B"
-----------
PERMITTED EXCEPTIONS
(Florida Property)
1. Second Mortgage from Rio Optical Corporation, a Texas Corporation to
Westinghouse Credit Corporation, dated June 18, 1990, filed June 29,
1990, in Official Records Book 14608, at Page 1968, Public Records,
Dade County, Florida [Subordinate to this Mortgage].
2. U.C.C.-I Financing Statement(s) from Styl-Rite Optical Mortgage Co.
Inc., to Westinghouse Credit Corporation, filed July 3, 1990, in
Official Records Book 14609, at Page 3715, and at Book 14609, at Page
3719, Public Records, Dade County, Florida [Subordinate to this
Mortgage].
3. U.C.C.-I Financing Statements from U.S. Vision, Inc., to Westinghouse
Credit Corporation, filed July 3, 1990, in Official Records Book 14609,
at Page 3723, filed July 3, 1990, in Official Records Book 14609, at
Page 3727, Public Records, Dade County, Florida [Subordinate to this
Mortgage].
4. U.C.C.-I Financing Statements from Royal International Optical Inc., to
Westinghouse Credit Corporation, filed July 3, 1990, in Official
Records Book 14609, at Page 3731, filed July 3, 1990, in Official
Records Book 14609, at Page 3737, Public Records, Dade County, Florida
[Subordinate to this Mortgage].
5. U.C.C.-I Financing Statements from Rio Optical Corporation to
Westinghouse Credit Corporation, filed July 3, 1990, in Official
Records Book 14609, at Page 3739, filed July 3, 1990, in Official
Records Book 14609, at Page 3743, Public Records, Dade County, Florida
[Subordinate to this Mortgage].
6. Mortgage from RIO OPTICAL CORPORATION, a Texas Corporation
to WESTINGHOUSE CREDIT CORPORATION, dated June 28, 1990,
filed June 29, 1990, in Official Records Book 14608, at Page
1923, which mortgage was previously modified by instrument,
filed April 1, 1992, in Official Records Book 15453, at Page
2975, Public Records, Dade County, Florida, and is being
further modified by instrument of even date herewith
[Subordinate to this Mortgage].
7. Taxes for the year 1993, and subsequent years, not yet due and payable.
Exhibit "B" - Page 49
<PAGE>
8. Industrial Structure and/or Use Affidavit(s) filed April 1, 1959 in
Official Records Book 1348, at Page 570 and filed February 17, 1961 in
Official Records Book 2492, at Page 524 Note: Does not contain a
reverter and will not cause forfeiture or reversion of title.
9. Billboard Sign located on building situated at 3907 N.W. 35th Avenue,
as shown on survey by Langan Engineering Associates, Inc., Job No.
7019703 dated June, 1990.
Exhibit "B" - Page 50
<PAGE>
SCHEDULE 1.01 (B)
TO
LOAN AND SECURITY AGREEMENT
BY AND AMONG
U.S. VISION, INC. (PA), USV OPTICAL, INC.,
STYL-RITE OPTICAL MFG. CO., INC., U.S. VISION, INC. (DE),
AND
COMMERCE BANK, N.A.
Real Property Descriptions
Miami, Florida
- --------------
1. 3907 N.W. 35th Avenue, Miami, Florida.
2. 3850 N.W. 35th Avenue, Miami, Florida.
Dallas, Texas
- -------------
3. 2760 Irving Boulevard, Dallas, Texas.
<PAGE>
PROMISSORY NOTE
$1,200,000 TERM LOAN March 8, 1995
1. Amount and Interest Rate
------------------------
The undersigned, (hereinafter called "Borrower") promises to pay to the
order of DELAWARE RIVER PORT AUTHORITY (hereinafter together with any holder
thereof called "Lender") the sum of ONE MILLION TWO HUNDRED THOUSAND DOLLARS
($1,200,000), with interest as hereinafter provided on the unpaid principal
balance until paid, lawful money of the United States of America, without
defalcation, at the offices of Lender at Bridge Plaza, Camden, New Jersey,
08101, or such other address as Lender may designate by written notice to
Borrower. The aforesaid sum shall bear interest at the fixed rate of 2.0% per
annum (hereinafter referred to as the "Interest Rate").
2. Purpose of Loan
---------------
The Loan shall be used by Borrower for purchase of new equipment (as
fully described hereinbelow) for its manufacturing facility and for payment of
expenses associated with installation of said equipment, or for any other costs
or expenses associated with consolidation of the company's operations in New
Jersey.
3. Method of Interest Calculation
------------------------------
The interest hereunder shall be calculated on the basis of a 360 day
year and paid for the number of days elapsed. All payments shall be applied
first to accrued interest and then to principal.
4. Terms of Repayment
------------------
The Loan shall be payable over ten (10) years in thirty-nine (39)
consecutive quarterly payments of $33,175.00, principal and interest, based on a
ten (10) year amortization schedule; and one (1) final payment of $33,158.00.
Said payments shall be due on the first day of the month each quarterly payment
is due, and the first payment shall be due on June 1, 1995.
5. Lien and Security Interest
--------------------------
Lender shall have a lien upon and a security interest in the Collateral
(as hereafter defined) to secure the payment of this Note.
5. Definitions: Collateral
-----------------------
Collateral shall consist of a first lien position in the equipment
described in the Security Agreement and Financing Statements executed herewith,
as between U.S. Vision, Inc. and Lender as Secured Party.
6. Definitions: Obligations
------------------------
The term "Obligations" as used herein shall include payment of this
Note in total, and each installment hereunder and all other obligations of
Borrower under this Note and the Mortgage and Security Agreement executed
contemporaneously herewith. This Note shall be evidence of and shall secure
payment of all Obligations.
7. Default Events
--------------
<PAGE>
The occurrence of any of the following events or conditions shall, upon
expiration of the notice and opportunity to cure period provided in accordance
with the requirements of section 9 below, constitute an Event of Default
hereunder: (a) default in the payment by Borrower to Lender of any of the
installments due pursuant to Section 4 of this Note; (b) breach by Borrower of
any warranty, covenant, or agreement herein or in the Security Agreement other
than with respect to a default listed in the preceding subsection (a); (c) if
Borrower voluntarily or involuntarily dissolves or liquidates; (d) attachment or
seizure of or levy upon any property of Borrower, under any Bankruptcy or
insolvency statute not removed or withdrawn within sixty (60) days of such
attachment, seizure, or levy; (e) institution of any proceedings by or against
Borrower, under any Bankruptcy or insolvency statute not removed or withdrawn
with sixty (60) days of institution of same; (f) Borrower's assignment for the
benefit of creditors, or the appointment of a receiver, trustee, conservator, or
other judicial representative for Borrower, or Borrower's property not removed
or withdrawn within sixty (60) days of institution of such proceeding, (g)
relocation of Borrower's principal eyeglass manufacturing facility or
headquarters out of the State of New Jersey while any amount remains due
hereunder, or (h) any Event of Default pursuant to the Notes dated February 2,
1995 as made by U.S. Vision, Inc. and in favor of the Delaware River Port
Authority.
8. Opportunity to Cure Defaults
----------------------------
Lender agrees to give Borrower notice of and an opportunity to cure
defaults under the following terms and conditions: Said opportunity to cure
shall exist for a period of ten (10) business days (i.e., exclusive of weekends
and legal holidays), for monetary defaults. Said ten (10) day period shall
commence on the date that notice is received by Borrower. Borrower shall have
the opportunity to cure any other defaults within thirty (30) days from the date
that notice is received by Borrower. Notice shall be given in writing and shall
be forwarded by facsimile transmission or certified mail in accordance with
section 10 (a) of the Security Agreement.
9. Remedies of Lender Upon Default
-------------------------------
If, upon the expiration of the period in which Borrower may cure an
Event of Default, the default at issue has not been cured, all of the
obligations shall, at the option of Lender, become immediately due and payable,
and Lender shall thereupon have all rights and remedies provided hereunder or as
otherwise available at law or in equity.
10. Waiver
------
Waiver by Lender of any event of default hereunder shall not constitute
a waiver of any subsequent event of default.
11. Borrower's Waiver
-----------------
Except as otherwise provided herein or in the Security Agreement,
Borrower hereby waives presentment for payment, demand, notice of non-payment,
notice of protest, and protest of this Promissory Note.
- 2 -
<PAGE>
12. Successors and Assigns
----------------------
All rights and obligations of Lender hereunder shall inure to the
benefit of and bind its successors and assigns and all rights and obligations of
Borrower shall inure to the benefit of and bind its successors and assigns.
13. Severability
------------
Any provision hereof found to be illegal, invalid, or unenforceable for
any reason whatsoever shall not affect the validity, legality or enforceability
of the remainder hereof.
14. Construction
------------
Whenever used herein and the context requires it, the singular number
shall include the plural, the plural the singular, and any gender shall include
all genders.
ATTEST: BORROWER:
U.S. VISION, INC.
/s/ Carolyn Meldrum BY: /s/ Gayle Schmidt
- -------------------- -------------------------
CAROLYN MELDRUM, GAYLE SCHMIDT,
ASSISTANT SECRETARY EXECUTIVE VICE PRESIDENT
- 3 -
<PAGE>
MORTGAGE NOTE
$1,200,000 MORTGAGE LOAN February 2, 1995
1. Amount and Interest Rate
------------------------
The undersigned, (hereinafter called "Borrower") promises to pay to the
order of DELAWARE RIVER PORT AUTHORITY (hereinafter together with any holder
thereof called "Lender") the sum of ONE MILLION TWO HUNDRED THOUSAND DOLLARS
($1,200,000), with interest as hereinafter provided on the unpaid principal
balance until paid, lawful money of the United States of America, without
defalcation, at the offices of Lender at Bridge Plaza, Camden, New Jersey,
08101, or such other address as Lender may designate by written notice to
Borrower. The aforesaid sum shall bear interest at the fixed rate of 2.0% per
annum (hereinafter referred to as the "Interest Rate").
2. Method of Interest Calculation
------------------------------
The interest hereunder shall be calculated on the basis of a 360 day
year and paid for the number of days elapsed. All payments shall be applied
first to accrued interest and then to principal.
3. Terms of Repayment
------------------
The Loan shall be payable over fifteen (15) years in fifty-nine (59)
consecutive quarterly payments of $13,322.46, principal and interest, based on a
thirty (30) year amortization schedule; and one (1) final balloon payment of
$702,434.19. Said payments shall be due on the first day of the month each
quarterly payment is due, and the first payment shall be due on May 1, 1995.
4. Due on Sale
-----------
Except with respect to transfers by Borrower to its parent corporation,
or to any subsidiary or affiliate corporation reasonably acceptable to Lender,
the loan shall be due and payable in full upon any transfer of the Land,
Building, and Improvements thereto or any interest therein.
5. Lien and Security Interest
--------------------------
Lender shall have a lien upon and a security interest in the Collateral
(as hereafter defined) to secure the payment of this Note.
6. Definitions: Collateral
-----------------------
Collateral shall consist of a first mortgage on the Land, Building, and
Improvements thereto defined in the Mortgage and Security Agreement executed
simultaneously herewith, as between U.S. Vision, Inc.
(as Mortgagor) and Lender (as Mortgagee).
7. Definitions: Obligations
------------------------
The term "Obligations" as used herein shall include payment of this
Note in total, and each installment hereunder and all other obligations of
Borrower under this Note and the Mortgage and Security Agreement executed
contemporaneously herewith. This Note shall be evidence of and shall secure
payment of all Obligations.
<PAGE>
8. Default Events
--------------
The occurrence of any of the following events or conditions shall, upon
expiration of the notice and opportunity to cure period provided in accordance
with the requirements of section 9 below, constitute an Event of Default
hereunder: (a) default in the payment by Borrower to Lender of any of the
installments due pursuant to Section 3 of this Note; (b) breach by Borrower of
any warranty, covenant, or agreement herein or in the Mortgage other than with
respect to a default listed in the preceding subsection (a); (c) if Borrower
voluntarily or involuntarily dissolves or liquidates; (d) attachment or seizure
of or levy upon any property of Borrower, not removed or withdrawn within sixty
(60) days of such attachment, seizure, or levy; (e) institution of any
proceedings by or against Borrower, under any Bankruptcy or insolvency statute
not removed or withdrawn with sixty (60) days of institution of same; (f)
Borrower's assignment for the benefit of creditors, or the appointment of a
receiver, trustee, conservator, or other judicial representative for Borrower,
or Borrower's property not removed or withdrawn within sixty (60) days of
institution of such proceeding, or (g) relocation of Borrower's principal
eyeglass manufacturing facility or headquarters out of the State of New Jersey
while any amount remains due hereunder.
9. Opportunity to Cure Defaults
----------------------------
Lender agrees to give Borrower notice of and an opportunity to cure
defaults under the following terms and conditions: Said opportunity to cure
shall exist for a period of ten (10) business days (i.e., exclusive of weekends
and legal holidays), for monetary defaults. Said ten (10) day period shall
commence on the date that notice is received by Borrower. Borrower shall have
the opportunity to cure any other defaults within thirty (30) days from the date
that notice is received by Borrower. Notice shall be given in writing and shall
be forwarded by facsimile transmission or certified mail in accordance with
section 11 of the Mortgage.
10. Remedies of Lender Upon Default
-------------------------------
Upon the expiration of the period in which Borrower may cure an Event
of Default: all of the obligations shall, at the option of Lender, become
immediately due and payable, and Lender shall thereupon have all rights and
remedies provided hereunder or as otherwise available at law or in equity.
11. Waiver
------
Waiver by Lender of any event of default hereunder shall not constitute
a waiver of any subsequent event of default.
12. Borrower's Waiver
-----------------
Except as otherwise provided herein or in the Mortgage, Borrower hereby
waives presentment for payment, demand, notice of non-payment, notice of
protest, and protest of this Mortgage Note.
13. Successors and Assigns
----------------------
All rights and obligations of Lender hereunder shall inure to the
benefit of and bind its successors and assigns and all rights and obligations of
Borrower shall inure to the benefit of and bind its successors and assigns.
14. Severability
------------
-2-
<PAGE>
Any provision hereof found to be illegal, invalid, or unenforceable for
any reason whatsoever shall not affect the validity, legality or enforceability
of the remainder hereof.
15. Construction
------------
Whenever used herein and the context requires it, the singular number
shall include the plural, the plural the singular, and any gender shall include
all genders.
ATTEST: BORROWER:
U.S. VISION, INC.
/s/ Carolyn Meldrum BY: /s/ Gayle Schmidt
- ---------------------- ------------------------
CAROLYN MELDRUM, GAYLE SCHMIDT,
ASSISTANT SECRETARY EXECUTIVE VICE PRESIDENT
- 3 -
<PAGE>
MORTGAGE NOTE
$2,280,000 MORTGAGE LOAN February 2, 1995
1. Amount and Interest Rate
------------------------
The undersigned, (hereinafter called "Borrower") promises to pay to the
order of DELAWARE RIVER PORT AUTHORITY (hereinafter together with any holder
thereof called "Lender") the sum of TWO MILLION TWO HUNDRED EIGHTY THOUSAND
DOLLARS ($2,280,000.00), with interest as hereinafter provided on the unpaid
principal balance until paid, lawful money of the United State of America,
without defalcation, at the offices of Lender at Bridge Plaza, Camden, New
Jersey, 08101, or such other address as Lender may designate by written notice
to Borrower. The aforesaid sum shall bear interest at the fixed rate of 2.0% per
annum (hereinafter referred to as the "Interest Rate").
2. Method of Interest Calculation
------------------------------
The interest hereunder shall be calculated on the basis of a 360 day
year and paid for the number of days elapsed. All payments shall be applied
first to accrued interest and then to principal.
3. Terms of Repayment
------------------
The Loan shall be payable over fifteen (15) years in fifty-nine (59)
consecutive quarterly payments of $25,312.67, principal and interest, based on
a thirty (30) year amortization schedule; and one (1) final balloon payment of
$1,334,624.95. Said payments shall be due on the first day of the month each
quarterly payment is due on May 1, 1995.
4. Due on Sale
-----------
Except with respect to transfers by Borrower to its parent corporation,
or to any subsidiary or affiliate corporation reasonably acceptable to Lender,
the loan shall be due and payable in full upon any transfer of the Land,
Building, and Improvements thereto, or any interest therein.
5. Lien and Security Interest
--------------------------
Lender shall have a lien upon and a security interest in the Collateral
(as hereafter defined) to secure the payment of this Note.
<PAGE>
6. Definitions: Collateral
-----------------------
Collateral shall consist of a first mortgage on the Land, Building, and
Improvements thereto defined in the Mortgage and Security Agreement executed
simultaneously herewith, as between U.S. Vision, Inc. (as Mortgagor) and Lender
(as Mortgagee).
7. Definitions: Obligations
------------------------
The term "Obligations" as used herein shall include payment of this
Note in total, and each installment hereunder and all other obligations of
Borrower under this Note and the Mortgage and Security Agreement executed
contemporaneously herewith. This Note shall be evidence of and shall secure
payment of all Obligations.
8. Default Events
--------------
The occurrence of any of the following events or conditions shall, upon
expiration of the notice and opportunity to cure period provided in accordance
with the requirements of section 9 below, constitute an Event of Default
hereunder: (a) default in the payment by Borrower to Lender of any of the
installments due pursuant to Section 3 of this Note; (b) breach by Borrower of
any warranty, covenant, or agreement herein or in the Mortgage other than with
respect to a default listed in the preceding subsection (a); (c) if Borrower
voluntarily or involuntarily dissolves or liquidates; (d) attachment or seizure
of or levy upon any property of Borrower, not removed or withdrawn within sixty
(60) days of such attachment, seizure, or levy; (e) institution of any
proceedings by or against Borrower, under any Bankruptcy or insolvency statute
not removed or withdrawn within sixty (60) days of institution of same; (f)
Borrower's assignment for the benefit of creditors, or the appointment of a
receiver, trustee, conservator, or other judicial representative for Borrower,
or Borrower's property not removed or withdrawn within sixty (60) days of
institution of such proceeding, or (g) relocation of Borrower's principal
eyeglass manufacturing facility or headquarters out of the State of New Jersey
while any amount remains due hereunder.
9. Opportunity to Cure Defaults
----------------------------
Lender agrees to give Borrower notice of and an opportunity to cure
defaults under the following terms and conditions: Said opportunity to cure
shall exist for a period of ten (10) business days (i.e., exclusive of weekends
and legal holidays), for monetary defaults. Said ten (10) day period shall
commence on the date that notice is received by Borrower. Borrower shall have
the opportunity to cure any other defaults within thirty days from the date that
notice is received by Borrower. Notice shall be given in writing and shall be
forwarded by facsimile transmission or certified mail in accordance with section
11 of the Mortgage.
<PAGE>
10. Remedies of Lender Upon Default
-------------------------------
Upon the expiration of the period in which Borrower may cure an Event
of Default: all of the obligations shall, at the option of Lender, become
immediately due and payable, and Lender shall thereupon have all rights and
remedies provided hereunder or as otherwise available at law or in equity.
11. Waiver
------
Waiver by Lender of any event of default hereunder shall not constitute
a waiver of any subsequent event of default.
12. Borrower's Waiver
-----------------
Except as otherwise provided herein or in the Mortgage, Borrower hereby
waives presentation for payment, demand, notice of non-payment, notice of
protest, and protest of this Mortgage Note.
13. Successors and Assigns
----------------------
All rights and obligations of Lender hereunder shall insure to the
benefit of and bind its successors and assigns and all rights and obligations of
Borrower shall inure to the benefit of and bind its successors and assigns.
14. Severability
------------
Any provision hereof found to be illegal, invalid, or unenforceable for
any reason whatsoever shall not affect the validity, legalitly or enforceability
of the remainder hereof.
15. Construction
------------
Whenever used herein and the context requires it, the singular number
shall include the plural, the plural the singular, and any gender shall include
all genders.
ATTEST: BORROWER:
U.S. VISION, INC.
/s/ Carolyn Meldrum BY: Gayle Schmidt
- --------------------------- --------------------------------
CAROLYN MELDRUM GAYLE SCHMIDT
ASSISTANT SECRETARY EXECUTIVE VICE PRESIDENT
-3-
<PAGE>
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT, dated as of this 8th day of March, 1995, by
U.S. Vision, Inc. (the "Borrower").
AND IN FAVOR OF
Delaware River Port Authority (the "Lender");
RECITALS
The Borrower has executed a Promissory Note ("Note") as defined
hereinbelow in favor of Lender dated as of the date of this Security Agreement.
Pursuant to the Note, the Borrower has agreed to grant a security interest in
and to the Collateral (as defined hereinbelow) on the terms and conditions set
forth in this Security Agreement.
NOW, THEREFORE, for and in consideration of the Debt (as defined
hereinbelow), and of the premises and intending to be legally bound, the parties
covenant and agree as follows:
Section 1. Definitions. In addition to the words and terms defined
elsewhere in this Security Agreement, the following words and terms shall have
the following meanings, unless the context otherwise clearly requires:
"Code" shall mean the Uniform Commercial code as in effect on
the date of this Security Agreement and as amended from time to time,
of the state or states having jurisdiction with respect to all or any
portion of the Collateral from time to time.
"Collateral" shall mean collectively the Equipment (listed on
Exhibit "A" hereto), and Proceeds thereof.
"Debt" shall mean (i) all indebtedness, both principal and
interest, of the Borrower to the Lender now or after the date of this
Security Agreement evidenced by the Note, (ii) all costs and expenses
incurred by the Lender in the collection of any of the indebtedness
described in this paragraph or in connection with the enforcement of
any of the duties and obligations of any or all of the borrower to the
Lender described in this paragraph, including reasonable attorneys'
fees and expenses, and (iii) all future advances made by the Lender for
the maintenance, protection, preservation or enforcement of, or
realization upon, the Collateral or any portion of the Collateral,
including advances for storage, transportation charges, taxes,
insurance, repairs and the like.
"Documents" shall have the meaning given to that term in the
code and shall include without limitation all warehouse receipts (as
defined by the Code) and other documents of title (as defined by the
Code) owned by Borrower, whenever acquired.
"Event of Default" shall mean any of the events of default
described or defined in the Note, and any default by the Borrower in
the performance of its obligations under this Security Agreement.
"Loan Documents" shall mean collectively, the Note and this
Security agreement, as each may be amended, supplemented or modified
from time to time.
1
<PAGE>
"Note" shall mean the $1,200,000.00 Promissory Note executed
and delivered by the Borrower of even date herewith.
"Proceeds" means funds received when Collateral is sold,
exchanged, collected or otherwise disposed of, whether cash or
non-cash, and includes without limitation proceeds of insurance payable
by reason of loss of or damage to Collateral.
"Security Agreement" shall mean this Security Agreement as the
same may be supplemented or amended from time to time.
Section 2. Security Interest. As security for the full and timely
payment of the Debt in accordance with the terms of the Note and the performance
of the obligations of the Borrower this Security Agreement, the Borrower agrees
that the Lender shall have, and the borrower grants to and create in favor of
the Lender, a security interest under the Code in and to such of the Collateral
as is now owned or acquired after the date of this Security Agreement by
Borrower. Moreover, the Lender shall have a first lien position in and to all
such Collateral.
Section 3. Rights and Remedies of a Secured Party. In addition to all
rights and remedies given to the Lender by the Note and this Security Agreement,
the Lender shall have all the rights and remedies of a secured party under the
Code.
Section 4. Provisions Applicable to the Collateral. The parties agree
that the following provisions shall be applicable to the Collateral:
a. The Borrower covenants and agrees that it shall keep
accurate and complete books and records concerning the Collateral that
is now owned or acquired after the date of this Security Agreement by
the borrower, in accordance with generally accepted accounting
principles (as such principles may change from time to time) applied a
consistent basis (except for changes in which the Borrower's certified
public accountants concur) at the headquarters of U.S. Vision, located
at Landing and Lower Landing Road, Glendora, New Jersey, 08012, and at
no other location without the prior written consent of the Lender.
b. The Lender or its representatives shall have the right at
reasonable times during regular business hours of the Borrower to
examine and inspect the Collateral and to review the books and records
of the borrower concerning the Collateral that is now owned or acquired
after the date of this Security Agreement by the Borrower and to copy
the same and make excerpts therefrom.
c. The Borrower shall at all times during the term of this
Security Agreement keep the Equipment that is the subject of this
Security Agreement at its location at 10 Harmon Drive, Blackwood, New
Jersey, or at its facility located at Landing and Lower Landing Road,
Glendora, New Jersey or, upon written notice to the Lender, at such
other locations in jurisdictions in which the Lender has filed
financing statements, and at no other location without the prior
written consent of the Lender.
d. As of July 1, 1995, the borrower shall maintain its chief
executive offices at its facility located at Landing and Lower Landing
Road, Glendora, New Jersey. Borrower shall not thereafter move the
location of its chief executive offices without prior written
notification to the Lender, which shall not be unreasonably withheld.
2
<PAGE>
Section 5. Preservation and Protection of Security Interest. The
borrower represents and warrants that it has, and covenants and agrees that at
all times during the term of this Security Agreement, it will have, good and
marketable title to the Collateral from time to time owned or acquired by it
free and clear of all mortgages, pledges, liens, security interests, charges or
other encumbrances, except those in favor of the Lender, and shall defend the
Collateral against the claims and demands of all persons, firms and entities
whomsoever. The Borrower represents and warrants that as of the date of this
Security Agreement the Lender has, and, upon proper filing of financing
statements, at all times in the future the Lender will have, a first priority
perfected security interest in the Collateral prior and superior to the rights
of all third parties in the Collateral existing on the date of this Security
Agreement or arising after the date of this Security Agreement. The Borrower
covenants and agrees that it shall not, without the prior written consent of the
Lender, which shall not be unreasonably withheld, (i) borrower against the
Collateral or any portion of the Collateral from any other person, firm or
entity, (ii) permit any levy or attachment to be made against the Collateral or
any portion of the Collateral. The borrower shall faithfully preserve and
protect the Lender's security interest in the Collateral and shall, reasonably
assist the Lender to cause that security interest to be perfected and continue
perfected so long as the Debt or any portion of the Debt is outstanding, unpaid
or executory. The Borrower shall do all acts and things and shall execute and
deliver all such instruments and documents, including further security
agreements, pledges, endorsements, assignments and notices, as the Lender in its
reasonable discretion, may deem necessary or advisable from time to time in
order to perfect and preserve the priority of such security interest as a first
lien security interest in the Collateral prior to the rights of all third
persons, firms and entities. the borrower irrevocably appoints the Lender (and
any of the Lender's designated officers, employees and/or agents) as the
attorney-in-fact of the Borrower to do all acts and things which the Lender may
deem necessary or advisable from time to time to preserve, perfect and continue
perfected the Lender's security interest in the Collateral in accordance with
the requirements of this Security Agreement, including, but not limited to,
signing any financing statements or amendments to financing statements
evidencing the Lender's security interest in the Collateral for and on behalf of
the Borrower. The borrower agrees that a carbon, photographic or other
reproduction of this Security Agreement or a financing statement is sufficient
as a financing statement and may be filed instead of the original.
Section 6. Insurance. Risk of loss of, damage to or destruction of the
Equipment is on the Borrower. The borrower shall insure the Equipment against
such risks and casualties and in such amounts and with such insurance companies
as is ordinarily carried by corporations or other entities engaged in the same
or similar businesses and similarly situated. Each of the Borrower's policies of
insurance shall contain loss payable clauses in favor of the borrower and the
Lender as their respective interests may appear and shall contain provision for
notification of the Lender thirty (30) days prior to the termination of such
policy. If the Borrower fails to effect and keep in full force and effect such
insurance or fails to pay the premiums when due, the Lender may (but shall not
be obligated to) do so for the account of the Borrower and add the cost thereof
to the Debt. The Borrower assigns and sets over to the Lender all monies which
may become payable on account of such insurance and direct the insurers to pay
the Lender any amount so due. The Lender is irrevocably appointed
attorney-in-fact of the Borrower to endorse any draft or check which may be
payable to the borrower in order to collect the proceeds of such insurance.
Unless an Event of Default has occurred and is continuing, the Lender will turn
over to the Borrower the proceeds of any such insurance collected by it on the
condition that the Borrower apply such proceeds either (i) to the repair of
damaged Equipment or (ii) to the replacement of destroyed Equipment with
Equipment of the same or similar type and function and of at least equivalent
value (in the sole judgment of the Lender), provided such replacement Equipment
is made subject to the security interest created by this Security Agreement and
constitutes a first lien security interest in the Equipment and is perfected by
the filing of financing statements in the appropriate public offices and the
taking of such other action as may be necessary or desirable in order to perfect
and continue perfected such security interest. Any balance of insurance proceeds
remaining in the possession of the Lender after payment
3
<PAGE>
in full of the Debt shall be paid over to the Borrower.
Section 7. Maintenance and Repair. The Borrower shall maintain the
Equipment, and every portion thereof, in good condition, repair and working
order, reasonable wear and tear excepted, and shall pay and discharge all taxes,
levies and other impositions assessed or levied thereon as well as the cost of
repairs to or maintenance of the same. If the Borrower fails to do so the Lender
may (but shall not be obligated ) pay the cost of such repairs or maintenance
and such taxes, levies or impositions for the account of the Borrower and add
the amount of such payments to the Debt.
Section 8. Events of Default and Remedies.
a. An event of default under the Note shall constitute an
event of default, and the Event of Default, Opportunity to Cure
Defaults, and Remedies Sections set forth in such Note are incorporated
by reference herein.
b. If any one or more of the Events of Default shall occur or
shall exist, the Lender may the, so long as such default shall
continue, subject to Borrower's right to cure, foreclose its lien or
security interest in the Collateral in any way permitted by law, sell
any or all Collateral at private sale at any time or place in one or
more sales, at such price or prices and upon such terms, either for
cash or on credit, as the Lender, in its sole discretion, may elect, or
sell any or all Collateral at public auction, either for cash or on
credit, as the Lender, in its sole discretion, may elect, and at any
such sale, the Lender may bid for and become the purchaser of any or
all such Collateral. Pending any such action the Lender may liquidate
the Collateral.
c. If any one or more of the Events of Default shall occur or
shall exist, the Lender may the, subject to Borrower's right to cure,
so long as such default shall continue, grant extensions to, or adjust
claims of, or make compromises or settlements with, debtors, guarantors
or any other parties with respect to Collateral or any securities,
guarantees or insurance applying thereon, with the consent of the
Borrower which shall not be unreasonably withheld, without affecting
the Borrower's liability under this Security Agreement or the Note.
d. If any one or more of the Events of Default shall occur or
shall exist and be continuing, then in any such event, subject to
Borrower's right to cure, the Lender shall have such additional rights
and remedies in respect of the Collateral or any portion thereof as are
provided by the Code and such other rights and remedies in respect
thereof which it may have at law.
e. The Lender shall apply the Proceeds of any sale or
liquidation of the Collateral, and, subject to Section 6, any Proceeds
received by the Lender from insurance, first to the payment of the
reasonable costs and expenses incurred by the Lender in connection with
such sale or collection, including without limitation reasonable
attorneys' fees and legal expenses, second to the payment of the Debt,
whether on account of principal or interest or otherwise as the Lender
in its sole discretion may elect, and then to pay the balance, if any,
to the Borrower or as otherwise required by law. If such Proceeds are
insufficient to pay the amounts required by law, the borrower shall be
liable for any deficiency.
Section 9. Defeasance. Notwithstanding anything to the contrary
contained in this Security Agreement upon payment and performance in full of the
Debt, this Security Agreement shall terminate and be of no further force and
effect and the Lender shall thereupon terminate its security interest in the
Collateral.
4
<PAGE>
Until such time, however, this Security Agreement shall be binding and inure to
the benefit of the parties, their successors and assigns.
Section 10. Miscellaneous.
a. The provisions of this Security Agreement are intended to
be severable. If any provision of this Security Agreement shall for any
reason be held invalid or unenforceable in whole or in part in any
jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability
without in any manner affecting the validity or enforceability of such
provision in any other jurisdiction or any other provision of this
Security Agreement in any jurisdiction.
b. No failure or delay on the part of the Lender in exercising
any right, remedy, power or privilege under this Security Agreement
shall operate as a waiver thereof or of any other right, remedy, power
or privilege of the Lender under this Security Agreement, nor shall any
single or partial exercise of any such right, remedy, power or
privilege preclude any other right, remedy, power or privilege or
further exercise thereof or the exercise of any right, remedy, power or
privilege.
c. All notices, statements, requests and demands given to or
made upon either party in accordance with the provisions of this
Security Agreement shall be deemed to have been given or made when
personally delivered or when deposited in the United States mail,
postage prepaid, or with private overnight courier service, charges
prepaid, or where transmitted, in the case of telegraphic or facsimile
notice, addressed, if to the Borrower, Landing and Lower Landing Roads,
Glendora, New Jersey, 08012, (copy to Jonathan M. Petrakis, Frey,
Petrakis & Deeb, 1601 Market Street, Sixth Floor, Philadelphia,
Pennsylvania, 19103 and copy to Shawmut Capital Corporation, 200
Glastonbury Boulevard, Glastonbury, Connecticut, 06033, Attn: Jeffrey
P. Hoffman) and, if to The Lender, to Richard L. Brown, Esquire,
General Counsel, Delaware River Port Authority, Bridge Plaza, Camden,
New Jersey, 08101, or in accordance with the latest unrevoked written
direction from either party to the other party.
d. The section headings contained in this Security Agreement
are for reference purposes only and shall not control or affect its
construction or interpretation in any respect.
e. Unless the context otherwise requires, all terms used in
this Security Agreement which are defined by the Code shall have the
meanings stated in the Code.
f. The Code shall govern the settlement, perfection and the
effect of attachment and perfection of the Lender's security interest
in the Collateral, and the rights, duties and obligations of the Lender
and the Borrower with respect to the Collateral.
5
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound, the
parties have executed and delivered this Security Agreement as of the day and
year set forth at the beginning of this Security Agreement.
ATTEST: U.S. VISION, INC.
/s/ Carolyn Meldrum By: /s/ Gayle E. Schmidt
- ---------------------- ---------------------------
Carolyn Meldrum, Gayle E. Schmidt,
Assistant Secretary Executive Vice President
6
<PAGE>
EXHIBIT "A"
Collateral Listing
<TABLE>
<CAPTION>
<S> <C> <C>
Optek 15 425 air operated Surface machines 425F951779 to 425F951793
6825-38th Street North
Pinellas Park, Florida
National Optronics 35 Horizon III Edgers 200 to 234
2 Saturn Tracers N/A
5 Scan Computer Blockers CD-154 to CD-161
</TABLE>
<PAGE>
MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE AND SECURITY AGREEMENT, (the "Mortgage") made this 2nd
day of February, 1995, is between U.S. Vision, Inc. (the "Mortgagor"), whose
business address is P.O. Box 124, Landing and Lower Landing Road, Glendora, New
Jersey and Delaware River Port Authority (the "Mortgagee"), Bridge Plaza,
Camden, New Jersey 08101.
W I T N E S S E T H:
DEFINITIONS
The following words shall have the following meanings when used in this
Mortgage. Terms not otherwise defined in this Mortgage shall have the meanings
attributable to such terms in the Uniform Commercial Code.
1. Building. The word "Building" shall mean the structure presently located on
the Land described in Attachment "A" hereto, as commonly known as 10 Harmon
Drive in Gloucester Township, New Jersey, and all improvements or additions
thereto.
2. Collateral. The word "Collateral" shall have the definition set forth in the
Mortgage Note executed contemporaneously herewith.
3. Fixtures. The word "Fixtures" means the components of the HVAC, electrical,
and plumbing systems now or hereafter installed in the Building. Specifically
excluded from the definition of "fixtures" as used herein is any equipment
installed in the Building for use in Mortgagee's business operations, whether or
not same is affixed or attached to the Land.
4. Improvements. The word "Improvements" means all existing and future
buildings, fixtures, and structures existing on affixed to the Land, and all
improvements, additions, renovations, and other construction thereto.
5. Land. The word "Land" shall mean all real property described in Exhibit "A"
attached hereto.
6. Mortgaged Property. The phrase "Mortgaged Property" means the Land defined in
section 1, below, and all Additional Mortgaged Property defined in section 2,
below.
7. Obligation. The word "Obligation" shall have that meaning set forth in the
Mortgage Note executed by the parties contemporaneously herewith.
1. Consideration and Land
----------------------
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and to secure the payment of the indebtedness of
U.S. Vision, Inc. as evidenced by that certain Mortgage Note (the "Note") in the
principal sum of TWO MILLION TWO HUNDRED EIGHTY THOUSAND DOLLARS ($2,280,000.00)
of even date herewith, and incorporated by reference herein, as thus made by
Mortgagor and in favor of Mortgagee, together with interest thereon (hereafter,
the "Obligations" which term shall include, without limitation, the indebtedness
evidenced by the Note) the Mortgagor does by these presents grant, bargain,
sell, remise, release, give, transfer, assign, mortgage, pledge, warrant, convey
and confirm unto Mortgagee all estate, right, title and interest of Mortgagor in
and to that certain real property (the "Land") in Camden County, New Jersey,
with an address of 10 Harmon Drive, Blackwood,
<PAGE>
New Jersey, and more particularly described in Exhibit "A" attached hereto and
made a part hereof, together with all rights, privileges, tenements,
hereditaments, rights-of-way, easements, appendages, projections, appurtenances,
water rights including riparian and littoral rights, streets, ways, alleys and
strips and gores of land now or hereafter in any way belonging, adjoining,
crossing or pertaining to the Land; and
2. Additional Mortgaged Property
-----------------------------
Together with all right, title, and interest in all of the following
property of Mortgagor whether now owned or existing, or hereafter acquired: (a)
all buildings, structures, and improvements (collectively, hereafter the
"Improvements"), fixtures, including all additions thereto and replacements and
extensions thereof, now constructed or hereafter to be constructed under, on, or
above the Land; (b) all insurance policies required by this Mortgage, the
unearned premiums therefor and all loss proceeds thereof; (c) all awards and
refunds hereafter made with respect to any real estate and property taxes,
utility rates and charges and all other governmental and non-governmental
charges that may be assessed, levied or imposed upon the Land; (d) all building
materials, fixtures, building machinery and building equipment of Debtor
delivered on-site to the Land during the course of, or in connection with,
construction of the buildings and improvements thereon; all the fixtures
appurtenant thereto owned by Debtor, which shall include insofar as they now are
or may hereafter belong to or be used in the operation of the buildings and
improvements, plant, business or dwelling(s) thereon, whether attached or
detached, all lighting, heating, ventilation, air conditioning, sprinkling,
plumbing, irrigating, water and power systems and fixtures, engines, boilers,
ranges, refrigeration plants or units, kitchen cabinets, cooking appliances,
storm and screen windows, rugs and carpeting, doors and appliances; all proceeds
of the conversion, whether voluntary or involuntary, of any of the foregoing
into cash or liquidated claims including, without limitation, proceeds of
insurance and condemnation awards and premiums for such insurance; and (e) all
monies payable under the leases affecting the use or occupancy of all or any
part of the Land, and all deposits paid thereunder and all rights of Debtor to
payment thereunder.
3. Conditions of Mortgage
----------------------
The conditions of this Mortgage are such that if Mortgagor shall in
strict accordance with the terms hereof pay unto Mortgagee the Obligations and
perform, comply with, observe, discharge and abide by each and every of the
stipulations, agreements, conditions and covenants contained and set forth in
this Mortgage, then this Mortgage and the estates, interests and rights hereby
created shall be null and void, but otherwise shall remain in full force and
effect.
4. Mortgagor's Representations and Warranties
------------------------------------------
Mortgagor does hereby represent and warrant to Mortgagee that: (a)
Mortgagor is indefeasibly seized of and has and will have good and marketable
fee simple title to the Land and Improvements and has and will have good and
marketable title to all other property comprising the Mortgaged Property; (b)
any and all of the Mortgaged Property is free and clear of any and all
mortgages, liens, encumbrances, claims and security interests of any kind as of
record, including, without limitation, taxes and assessments, except those in
favor of Mortgagee and those disclosed in the Title Report effective as of this
date; (c) Mortgagor has full power and lawful authority to convey, transfer, and
mortgage the Mortgaged Property unto Mortgagee; (d) Mortgagor will preserve its
title to the Mortgaged Property and will forever warrant and defend the same to
Mortgagee and will forever warrant and defend the validity and priority of the
lien of this Mortgage against the claims of all persons and parties whomsoever;
(e) all information, certificates and otherwise, given to Mortgagee with respect
to Mortgagor, the loan evidenced by the Note and the
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<PAGE>
Mortgaged Property are true, accurate and correct in all material respects and
complete; (f) no event has occurred and is continuing which, with notice or the
lapse of time, or both, would constitute a default under any provision of this
Mortgage; (g) no governmental requirement, and no covenant, condition,
restriction, easement or similar matter affecting the Land or Improvements has
been violated of which Mortgagor is aware or reasonably should be aware, and
Mortgagor has not received any notice of violation from any governmental
authority or any other person with respect to any of the foregoing matters.
5. Mortgagor's Covenants and Agreements
------------------------------------
The Mortgagor does hereby covenant and agree that:
(a) Mortgage shall promptly pay, as and when due and payable, the
Obligations as defined in the Note.
(b) Mortgagor shall punctually perform, comply with and abide by, or
shall cause to be punctually performed, complied with and abided by all of the
stipulations, agreements, conditions and covenants contained and set forth in
this Mortgage.
(c) The property is not located in a flood plain.
(d) Mortgagor shall pay, prior to the time when interest or penalties
commence to accrue thereon, all taxes, sewer and water rents and other charges,
including charges in lieu of taxes, and all taxes and other claims owing the
county in which the land is located or any other governmental authority, and all
taxes, charges, and claims owed by Mortgagor to the United States of America.
However, if Mortgagor in good faith and by appropriate legal action shall
contest the validity of any such item, or the amount thereof, after notice to
Mortgagee, and, if required by Mortgagee, shall have furnished assurance
reasonably satisfactory to Mortgagee indemnifying it against any loss by reason
of such contest, then Mortgagor shall not be required to pay the item or to
produce the required receipts so long as the contest: (i) operates to prevent
collection and enforcement; (ii) does not interfere with the use, occupancy or
operations of the Mortgage Property, and the timely payment of all sums due
hereunder; (iii) does not unreasonably jeopardize the lien of this Mortgage;
(iv) is maintained and prosecuted with due diligence; and (v) shall not have
been terminated or discontinued adversely to Mortgagor. Mortgagor agrees to pay
all contested sums and items, plus all charges, interests, penalties and
expenses, if any, and provide Mortgagee with acceptable evidence of such
payments, within thirty (30) days after the contest is terminated adversely to
Mortgagor or is discontinued. Mortgagor represents and warrants that the
Premises are separately assessed and shall remain separately assessed on the tax
rolls for so long as the debt secured hereby remains unpaid. If any of the
foregoing charges or any part thereof are not paid as aforesaid, the Mortgagee
may at any time pay same with accrued interest and charges, if any, without
waiving or affecting Mortgagee's option to foreclose this Mortgage or to
exercise any other right or remedy of Mortgagee hereunder or available at law or
in equity, and all such payments shall be secured by the lien of this Mortgage.
(e) Insurance: Mortgagor shall during the term of this mortgage obtain,
maintain and keep in full force and effect All-Risk Hazard Insurance with
respect to the Mortgaged Property, which insurance shall reflect coverage in
such amounts as Mortgagee may reasonably require, but in no event less than 100%
of the full replacement cost of the Mortgaged Property, and which insurance
shall include, a mortgage endorsement naming the Mortgagee as Mortgagee and
Lender Loss Payee (in the first lien position), and which shall also
specifically cover and apply to that portion of the mortgaged property
constituting personal property. Mortgagor shall also maintain General
Comprehensive Public Liability
-3-
<PAGE>
Insurance against claims for bodily injury, death and property damage, occurring
in, on, or about the Mortgaged Property, in such amounts as may reasonably be
required by Mortgagee. All policies of insurance which are required hereunder
shall be written by reputable carriers. At all times during the term of this
Mortgage, Mortgagor shall deliver to Mortgagee proof of insurance (insurance
certificate) required above. Mortgagee, if it deems necessary, may place and pay
for any and all insurance as aforesaid, or any part thereof, without losing,
waiving, or affecting Mortgagee's right to foreclose this Mortgage or to
exercise any other remedy or right of Mortgagee hereunder, and every such
payment shall bear interest from the date hereof until paid, and all such
payments with interest thereon, as aforesaid, shall be secured by the lien of
this Mortgage. If all or any part of the Mortgaged Property shall be destroyed
or damaged by a casualty, Mortgagor shall promptly give written notice thereof
to Mortgagee and the appropriate insurer. All proceeds of insurance shall be
paid to Mortgagee and shall be applied to the restoration, repair or replacement
of the Mortgaged Property. Such proceeds shall be disbursed to Mortgagor as work
progresses pursuant to a construction and disbursing loan agreement in form and
content reasonably satisfactory to Mortgagee, and Mortgagor shall promptly and
diligently, regardless of whether there shall be sufficient insurance proceeds
therefor, restore, repair, and rebuild the Mortgaged Property to the equivalent
of its condition immediately prior to the casualty. The application of the
insurance proceeds to the restoration, repair or replacement of the Mortgaged
Property shall not affect the lien of this Mortgage or affect or reduce the
Obligations. If all or any part of the Mortgaged Property shall be damaged or
destroyed by a casualty not covered by insurance, or, if so covered, the insurer
fails or refuses to pay the claim within 90 days following the filing thereof,
Mortgagor shall immediately give written notice thereof to Mortgagee. During any
period of restoration and repair, Mortgagor shall continue to duly and promptly
pay, perform, observe and comply with all of the Obligations and all of the
stipulations, conditions and covenants contained and set forth in this Mortgage.
(f) Condemnation: Mortgagor shall immediately notify Mortgagee upon
obtaining any knowledge of the institution of any proceeding for the
condemnation of the Mortgaged Property or any part thereof. The Mortgagee shall
be entitled to all compensation awards and other payments or relief therefore to
the extent of the amount remaining due under the Note secured hereby.
(g) Abstracts of Title: Mortgagor shall deliver the abstract(s) of
title or title insurance policy covering the Mortgaged Property to Mortgagee or
its designated agent, which abstract(s) or policy shall at all times during the
term of this Mortgage remain in the possession of Mortgagee or its designated
agent, and in the event of the foreclosure of this Mortgage or other transfer of
title in lieu thereof, all right, title and interest of Mortgagor in and to any
such abstract(s) or policy shall pass to the purchaser or grantee.
(h) Right of Inspection: Mortgagor shall permit Mortgagee and its
agents to inspect the Mortgaged Property upon reasonable prior notice at any
time during normal business hours and at all other reasonable times, provided
such inspections shall not unreasonably interfere with conduct of Mortgagor's
use of the Mortgaged Property.
(i) Improvements; Right to Audit Improvement Account: Mortgagor and
Mortgagee acknowledge that the funds loaned to Mortgagor pursuant to the Note
exceed the price paid by the Mortgagor to purchase the Land and existing
building and improvements thereon. The funds loaned pursuant to the Note which
exceed the purchase price shall hereafter be referred to as "excess funds."
Mortgagor further covenants that all such excess funds shall be used by
Mortgagor for the purpose of paying those costs reasonably and traditionally
associated with settlement on purchase of the Land and the building thereon, and
for the payment of expenses incurred in connection with improvements to be made
thereto, including, but not limited to architect, engineer and other
professional fees, demolition costs,
-4-
<PAGE>
interior renovation and construction costs, acquisition or repair of fixtures,
expenses incurred in connection with renovations to the parking lot on the Land,
other exterior renovations, and costs associated with the consideration of
Mortgagor's operations in New Jersey. All such improvements shall be subject to
the Lien of this Mortgage. All excess funds shall be held by Mortgagor in an
account specially set up for the purpose of making disbursements for the items
described hereinabove. Such account will be known as the "Improvement Account,"
and Mortgagee shall have the right to audit the records of the Improvement
Account. Mortgagee may exercise this right on a monthly basis, during reasonable
business hours, during the entire period in which improvements to the Land are
made.
(j) Tax, Assessment Payments: Mortgagor shall pay all taxes and
assessments when due, or contest same in good faith in accordance with Section
6(d) hereinabove.
(k) Indemnity: Mortgagor shall pay or reimburse Mortgagee for all
costs, charges, expenses, and reasonable attorneys' fees paid or incurred by
Mortgagee in any action, proceeding or dispute of any kind brought by third
parties in which Mortgagee is joined as a party because of the failure of
Mortgagor to promptly perform, comply with and abide by any and all of the
covenants, conditions and stipulations set forth in this Mortgage or in the
Note, or pursuant to any condemnation or eminent domain action involving the
Mortgaged Property or any part thereof, any action to protect the security
hereof, or any proceeding in probate, reorganization, bankruptcy, or forfeiture
in rem. All such amounts paid or incurred by Mortgagee, together with interest
thereon shall be secured by this Mortgage and shall be due and payable by
Mortgagor immediately, whether or not there be notice or demand therefor.
(l) Hazardous Substances. If Mortgagor receives (i) any notice of the
happening of any event involving spillage, release, leakage, seepage, discharge
or cleanup of any Hazardous Substance on the Mortgaged Property or in connection
with Mortgagor's operations thereon or (ii) from any person or governmental
authority (including, without limitation, the EPA) any complaint, order,
citation or notice with regard to air emissions, water discharges, or any other
environmental, health or safety matter (collectively and individually an
"Environmental Complaint") affecting Mortgagor or the Mortgaged Property (or any
part thereof), then Mortgagor shall promptly notify Mortgagee orally and in
writing of such Environmental Complaint. Mortgagee shall have the right but not
the obligation, and without any limitation of Mortgagee's other rights under
this Mortgage, to enter onto the Mortgaged Property or to take such other
actions as it deems necessary or advisable to clean-up, remove, resolve or
minimize the impact of, or otherwise deal with, any Hazardous Substance or an
Environmental Complaint following receipt of any notice from any person or
governmental authority (including, without limitation, the EPA and NJDEP)
asserting the existence of any Hazardous Substance or an Environmental Complaint
pertaining to the Mortgaged Property or any part thereof which, if true, could
result in an order, suit or other action against Mortgagor or Mortgagee which,
in the sole reasonable opinion of Mortgagee, could jeopardize Mortgagee' s
security interest under this Mortgage. All reasonable costs and expenses
incurred by Mortgagee in the exercise of any such rights shall be secured by
this Mortgage, and shall be paid by Mortgagor upon demand.
(m) Clouds on Title: Mortgagor shall not create or permit to be created
or to remain, without Mortgagee's prior written consent, any mortgage, pledge,
mechanics' lien or other lien, conditional sale or other title retention
agreement, encumbrance, claim or charge on (whether prior or subordinate to the
lien on this Mortgage) the Mortgaged Property. Any transaction prohibited under
this Section shall be null and void.
-5-
<PAGE>
(n) Repair and Maintain Obligation: Mortgagor shall not commit or
permit any waste, impairment, or deterioration of the Mortgaged Property and
shall at all times maintain the Mortgaged Property in a state of good repair;
Mortgagor shall not do or permit any alteration or change in the use and
character of the Mortgaged Property, which shall materially impair or weaken the
security of this Mortgage. In the event that Mortgagor shall refuse, neglect or
be unable to repair and maintain the Mortgaged Property, the Mortgagee may, at
its option, make such repairs or cause the same to be made and advance monies in
that regard. All such amounts paid or incurred by Mortgagee together with
interest thereon from the date incurred by Mortgagee shall be secured by this
Mortgage and shall be due and payable by Mortgagee immediately, whether or not
there be notice or demand therefor.
6. Events of Default
-----------------
Subject to the Notice and Opportunity to Cure provision set forth in
the Note, an "Event of Default" as used in this Mortgage shall occur at any time
or from time to time: (a) if any Obligation or any installment thereof is not
paid on or before the date the same is due and payable or prior to expiration of
the cure period set forth in the Note; (b) if any covenant, condition,
agreement, or stipulation contained in this Mortgage (other than one requiring
the payment of money or otherwise specifically provided for hereinafter) is not
duly and promptly performed, or if any negative covenant contained in this
mortgage is violated, and such non-performance or violation is not cured; (c) if
any representation or warranty made in this Mortgage, or in any other document
evidenced by the Note is at the time made materially false or misleading; (d) if
U.S. Vision, Inc. is voluntarily adjudicated a bankrupt or insolvent, seeks or
consents to the appointment of a receiver or trustee for itself or for all or
any part of its property, files a petition seeking relief, including
reorganization, arrangement or similar relief, under the present Bankruptcy Code
or other similar present or future applicable laws of the United States or any
state or any other competent jurisdiction, makes a general assignment for the
benefit of creditors or admits in writing an inability to pay its debts as they
mature; (e) if a receiver or trustee is appointed for U.S. Vision, Inc. seeking
relief, including reorganization, arrangement or similar relief, under the
present Bankruptcy Code or other similar present or future applicable laws of
the United States or any state or other competent jurisdiction, and such
petition is not dismissed within sixty (60) days after the filing thereof; (f)
if U.S. Vision, Inc. voluntarily or involuntarily dissolves or liquidates; (g)
relocation of Borrower's principal eyeglass manufacturing facility or corporate
headquarters out of the State of New Jersey while any amount remains due
hereunder.
7. Remedies of Mortgage Upon Default
---------------------------------
Upon expiration of the period in which Mortgagor may cure an Event of
Default: all of the obligations shall, at the option of Mortgagee, become
immediately due and payable, and Mortgagee shall thereupon have all rights and
remedies provided hereunder or as otherwise available at law or in equity.
8. Due on Sale
-----------
Except with respect to transfers by Mortgagor to its parent
corporation, or any subsidiary or affiliate corporation reasonably acceptable to
Lender, the Loan shall be due and payable in full upon any transfer of the Land,
Building, and Improvements thereto.
9. Survival
--------
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<PAGE>
The warranties, representations, covenants and agreements as set forth
in this Mortgage shall survive the execution and delivery hereof and shall
continue in full force in effect until all of the Obligations shall have been
paid in full.
10. Subrogation
-----------
Mortgagee is hereby subrogated to the claims and liens of all parties
whose claims or liens are fully or partially discharged or paid with the
proceeds of the indebtedness secured by this Mortgage notwithstanding that such
claims or liens may have been canceled and satisfied of record.
11. Notices, Demands, etc.
---------------------
All notices, demands, requests and other communications, if any,
required under this Mortgage must be in writing, and must be given by facsimile
transmission or certified mail, addressed to the party for whom it is intended
at the addresses set forth hereinbelow:
If to Mortgagor:
U.S. Vision, Inc.
ATTN: George E. McHenry, Jr., C.F.O.
Landing and Lower Landing Roads
Chews Landing, NJ 08012
Facsimile number: 609-232-1848
With copy to:
Jonathan M. Petrakis, Esquire
Frey, Petrakis & Deeb
1601 Market Street, Sixth Floor
Philadelphia, PA 19103
Facsimile number: 215-563-5532
If to Mortgagee:
Delaware River Port Authority
ATTN: General Counsel
Bridge Plaza
Camden, NJ 08101
Facsimile number: 609-541-6379
Any party may designate a change of address by written notice to the other
parties, received by such other parties prior to the time that such change of
address is to become effective.
12. Successors and Assigns
----------------------
All of the terms of this Mortgage shall apply to and be binding upon,
and inure, to the benefit of, the heirs, devises, personal representatives,
successors and assigns of Mortgagor and Mortgagee, respectively, and all persons
claiming under or through them.
-7-
<PAGE>
13. Severability
------------
If any one or more of the provisions contained in this Mortgage is
declared or found by a court of competent jurisdiction to be invalid, illegal,
or unenforceable, such provision or portion thereof shall be deemed stricken and
severed and the remaining provisions hereof shall continue in full force and
effect. If any one or more of the Obligations is declared or found by a court of
competent jurisdiction to be invalid, illegal, or unenforceable, the validity,
legality and enforceability of the remaining Obligations shall continue in full
force and effect.
14. Entire Agreement
----------------
No other agreement, unless in writing and signed by Mortgagee, and no
course of dealing between the parties hereto, shall be effective to change,
waive, terminate, modify, discharge, or release in whole or in part any
provision of this Mortgage. No waiver of any rights or powers of Mortgagee or
consent by it shall be valid unless in writing signed by Mortgagee and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
15. Security Agreement
------------------
This Mortgagee constitutes a "Security Agreement" within the meaning
of, and shall create a security interest under the Uniform Commercial Code. A
carbon, photographic or other reproduction of this Mortgage or of any financing
statement shall be sufficient as a financing statement.
16. Time is of Essence
------------------
It is specifically agreed that time is of the essence as to all matters
provided for in this Mortgage, and that no waiver of any Obligation or provision
contained in this Mortgage shall at any time thereafter be held to be a waiver
of such Obligation or provision.
17. Joint and Several Applicability
-------------------------------
If more than one person or entity executes this Mortgage, each is and
shall be jointly and severally liable hereunder.
18. Environmental Matters
---------------------
Mortgagor represents and warrants to Mortgagee that Mortgagor has
inspected the premises and to the best of its knowledge,
(a) Mortgagor is not in violation of The Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, The Resource Conservation and
Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of
1984, The Clean Water Act, The Toxic Substances Control Act and The Clean Air
Act or any rule or regulation promulgated pursuant to any of the foregoing
statutes, or any other applicable environmental law, statute, rule, regulation
or ordinance (all of the foregoing are hereinafter sometimes collectively
referred to as the "Environmental Laws").
-8-
<PAGE>
(b) Neither Mortgagor or agent or independent contractor of Mortgagor
has arranged, by contract, agreement or otherwise, (i) for the disposal or
treatment of, or (ii) with a transporter for the transport or disposal or
treatment of, any hazardous substance (as defined by CERCLA, as amended), owned,
used or possessed by the Mortgagor, identified by the EPA on the National
Priorities List, 40 C.F.R. part 300, at any location.
(c) Mortgagor shall comply with all Environmental Laws and, to the
extent necessary for the conduct of Mortgagor's business, shall obtain,
maintain, and comply with all permits, licenses, registrations and
authorizations required under the Environmental Laws. Mortgagor shall comply
with all governmental orders, directives, judgments, orders, decrees, awards,
administrative consent orders, settlement agreements, or other settlement
documents entered into with any administrative or governmental agency or entity
concerning compliance with the Environmental Laws.
Mortgagor shall not use or permit the use of the Mortgaged Property for
the generation, storage, recycling, processing, transportation, disposal of or
release of any hazardous substance (as defined by CERCLA, as amended). Mortgagor
shall not use or permit the use of the Mortgaged Property in any manner which
would be in violation of any Environmental Laws.
Mortgagor agrees to defend, indemnify and save Mortgagee harmless from
and against any and all loss, damages and costs, including reasonable attorneys'
fees and expenses which Mortgagee may after the date of the Mortgage suffer,
incur or lay out, by reason of any liability arising out of Environmental Laws,
claims, or proceedings due to activities of Mortgagor or any other person or
entity during Mortgagor's ownership of the Mortgaged Property. This
indemnification shall extend to any liability of Mortgagee may suffer or incur
in connection with any toxic waste clean up ordered by any governmental agency
or court. This indemnity shall survive any event of foreclosure under this
Mortgage or conveyance of the Mortgaged Property in lieu of foreclosure.
19. Titles
------
The titles of the paragraphs shall not be considered in determining the
meaning of any paragraph. They exist for ease of review only.
20. Excess Interest Waiver
----------------------
Nothing contained herein, in the Note, or in any other instrument or
transaction related thereto, shall be construed or so operate as to require
Mortgagor or any person liable for the payment of any of the Obligations to pay
interest, or any charge in the nature of interest, in an amount or at a rate
which exceeds the maximum rate of interest allowed by applicable law, as amended
from time to time. Should any interest or other charges in the nature of
interest received by Mortgagee or paid by Mortgagor or by any person liable for
the payment of any of the Obligations exceed the maximum rate of interest
allowed by applicable law, as amended from time to time, then such excess sum
shall be credited against the principal balance of the Note or the balance of
the other Obligations, as applicable, unless the Mortgagor or such other person
liable for such payments, as applicable, shall notify the Mortgagee, in writing,
that the Mortgagor or such other person elects to have such excess sum returned
to him, her, or it forthwith, it being the intent of the parties hereto that
under no circumstances shall the Mortgagor or any person liable for the payment
of any of the Obligations be required to pay interest in excess of the maximum
rate of interest allowed by applicable law, as amended from time to time. The
Mortgagee may, in determining the maximum rate of interest allowed under
applicable law, as amended from time to time, take advantage of
-9-
<PAGE>
any state or federal law, rule or regulation in effect from time to time which
may govern the maximum rate of interest which may be reserved, charged or taken.
21. Closing
-------
PROVIDED ALWAYS, that if Mortgagor shall pay all the sums secured by
this Mortgage at the times and in the manner provided in this Mortgage, in the
Note, then this Mortgage and the estate and interest granted by this Mortgage
shall cease and have no further effect; and in such case, Mortgagee, on demand
of and at the sole cost and expense of Mortgagor, shall execute proper
instruments in recordable form acknowledging satisfaction and discharge of this
Mortgage and shall release or assign all of the Mortgagee's right, title and
interest of, in and to the Mortgaged Property, and shall deliver to Mortgagor
any other property then pledged to and held by Mortgagee pursuant to the terms
of the Note, and this Mortgage including all policies of title, fire and
property damage insurance theretofore furnished or assigned to Mortgagee and any
monies not theretofore applied by Mortgagee in accordance with the Note, or this
Mortgage.
IN WITNESS WHEREOF, Mortgagor and Mortgagee have executed this
instrument as of the day and year first above written.
ATTEST: MORTGAGOR:
U.S. Vision, Inc. U.S. Vision, Inc.
/s/ Carolyn Meldrum By: /s/ Gayle Schmidt
- --------------------- ------------------------
CAROLYN MELDRUM GAYLE SCHMIDT
Assistant Secretary Executive Vice President
- 10 -
<PAGE>
MORTGAGE ADDRESS CERTIFICATION
- ------------------------------
I hereby certify that the address of the within Mortgagee is Bridge
Plaza, Camden, New Jersey, 08101.
By: /s/ Matthew A. Saline
-------------------------
Matthew A. Saline
Assistant General Counsel
- 11 -
<PAGE>
STATE OF NEW JERSEY :
: SS:
COUNTY OF CAMDEN :
BEFORE ME, the undersigned authority, personally appeared Gayle Schmidt
on behalf of U.S. Vision, Inc. to me well known and known to me to be the person
described in and who executed the foregoing Mortgage and acknowledged to and
before me that she executed such instrument and that said instrument is her free
act and deed of said corporation.
WITNESS my hand and official seal this 2nd day of February, 1995.
/s/Suzanne M. [Not legible]
------------------------------
Notary Public
Seal
My Commission Expires: 7/19/99
- 12 -
<PAGE>
MORTGAGE EXHIBIT "A"
<PAGE>
Land Dimensions Engineering [Letterhead]
Professional Engineers, Planners, Land Surveyors, Landscape Architects,
Environmental Scientists and Foresters
Mailing Address: P.O. Box 204, Grenloch, NJ 08032
Location: 508 Black Horse Pike at County House Road, Turnersville, NJ 08012
(609)228-8150
Fax: (609)228-8224
DESCRIPTION
TRACT 1
Lot 10, Block 24.01
Gloucester Twp., Camden Co., N.J.
January 26, 1995
LDE File No. S-1603
All that certain tract or parcel of land and premises, situate in the Township
of Gloucester, County of Camden, and State of New Jersey, bounded and described
as follows:
BEGINNING at a point in the Northwesterly end of a curve, connecting the
Northwesterly R.O.W. line of Harmon Drive (50' wide), with the Northeasterly
R.O.W. line of Harmon Drive, thence;
1. S 46 degrees, 00 minutes, 00 seconds W, along the Northwesterly R.O.W. line
of Harmon Drive, 239.23' to a point corner to same, thence;
2. N 44 degrees, 00 minutes, 00 seconds W, along Lot 3.09, and Part of Lot 3A,
Block 55, Plan hereinafter mentioned, 380.0' to a point in line of the Remainder
of Lot 3A, lands now or formerly Gloucester Township M.U.A., thence;
3. N 46 degrees, 00 minutes, 00 seconds E, along said Lot, 220.0' to a point
corner to same, thence;
4. N 44 degrees, 00 minutes, 00 seconds W, still along the Remainder of Lot 3A,
50.0' to a point corner to same, thence;
5. N 46 degrees, 00 minutes, 00 seconds E, along Part of Lot 3, lands now or
formerly Gloucester Township M.U.A., 50.0' to a point of curvature in same,
thence;
6. In a general Southeastwardly direction, still along said Lot, curving to the
right on a Radius of 150.0', an Arc of 235.62', a central angle of 90 degrees,
00 minutes, 00 seconds, to a point of tangency corner to Part of Lot 3 and Lot
5, thence;
7. S 44 degrees, 00 minutes, 00 seconds E, along Lot 5, lands now or formerly
Philadelphia Coca-Cola Bottling Co., 130.0' to a point of curvature in same,
thence;
8. In a general Southwardly direction, still along Lot 5, curving to the right
on a Radius of 200.0', an Arc of 221.04, a central angel of 63 degrees, 19
minutes, 28 seconds, to a point corner to same, thence;
9. S 43 degrees, 14 minutes, 04 seconds E, still along Lot 5, 42.22' to a point
of curvature in the Northeasterly R.O.W. line of Harmon Drive; thence;
<PAGE>
10. In a general Southwestwardly direction, along the aforementioned connecting
curve, curving to the left on a Radius of 70.0', an Arc of 110.89, a central
angle of 90 degrees, 45 minutes, 56 seconds, to the place of beginning.
Containing within said bounds, 3.75 Acres.
Said described being the Remainder of Lot 3 and Part of Lot 3A, Block 55, Pine
Run Industrial Park, Plan of Major Subdivision for Lot 3, Block 55, prepared by
William J. McCamy, P.E. & L.S., dated 10- 26-78, filed 9-4-79, Original Map No.
351-9, Duplicate No. 643-9. Being Lot 10, Block 2401, Gloucester Township Tax
Map.
Said described being subjected to a 25' Wide Drainage Easement, per Tax Map,
being described as follows:
BEGINNING at the terminous of course number 2 as described above thence;
1. N 46 degrees, 00 minutes, 00 seconds E, along the Remainder of Lot 3A, and
along the Southeasterly line of a 50' Wide Access Easement, 270.0' to a point
corner to said Easement line, thence;
2. S 44 degrees, 00 minutes, 00 seconds E, through the Remainder of Lot 3, 25.0'
to a point corner to same, thence;
3. S 46 degrees, 00 minutes, 00 seconds W, through the Remainder of Lot 3, and
Part of Lot 3A, 270.0' to a point in line of Part of Lot 3A, thence;
4. N 44 degrees, 00 minutes, 00 seconds W, along Part of Lot 3A, 25.0' to the
place of beginning.
Containing within said bounds, 6,750 sq. ft.
Also being subjected to a 50' Wide Access Easement, per Tax Map, being described
as follows:
BEGINNING at a point in the Northwesterly end of a curve, connecting the
Northwesterly R.O.W. line of Harmon Drive (50' wide), with the Northeasterly
R.O.W. line of Harmon Drive, thence;
1. S 46 degrees, 00 minutes, 00 seconds W, along the Northwesterly R.O.W. line
of Harmon Drive, 19.23' to a point of curvature in same, thence;
2. In a general Northwardly direction, through the Remainder of Lot 3, curving
to the left on a Radius of 150.0', an Arc of 235.62', a central angle of 90
degrees, 00 minutes, 00 seconds, to a point of tangency, thence;
3. N 44 degrees, 00 minutes, 00 seconds W, still through said Lot, 130.0' to a
point of curvature, thence;
4. In a general Northwestwardly direction, still through the Remainder of Lot 3,
curving to the left on a Radius of 100.0', an Arc of 157.08', a central angle of
90 degrees, 00 minutes, 00 seconds, to a point of tangency, thence;
<PAGE>
5. S 46 degrees, 00 minutes, 00 seconds W, still through said Lot, 50.0' to a
point corner to Lot 3A, thence;
6. N 44 degrees, 00 minutes, 00 seconds W, along the Remainder of Lot 3A, lands
now or formerly Gloucester Township M.U.A., 50.0' to a point corner to same,
thence;
7. N 46 degrees, 00 minutes, 00 seconds E, along Part of Lot 3, lands now or
formerly Gloucester Township M.U.A., 50.0' to a point of curvature in same,
thence;
8. In a general Southeastwardly direction, still along said Lot, curving to the
right on a Radius of 150.0', an Arc of 235.62', a central angel of 90 degrees,
00 minutes, 00 seconds, to a point of tangency corner to Part of Lot 3 and Lot
5, thence;
9. S 44 degrees, 00 minutes, 00 seconds E, along Lot 5, lands now or formerly
Philadelphia Coca-Cola Bottling Co., 130.0' to a point of curvature in same,
thence;
10. In a general Southwardly direction, still along Lot 5, curving to the right
on a Radius of 200.0', an Arc of 221.04, a central angle of 63 degrees, 19
minutes, 28 seconds, to a point corner to same, thence;
11. S 43 degrees, 14 minutes, 04 seconds E, still along Lot 5, 42.22' to a point
of curvature in the Northeasterly R.O.W. line of Harmon Drive, thence;
12. In a general Southwestwardly direction, along the aforementioned connecting
curve, curving to the left on a Radius of 70.0', an Arc of 110.89, a central
angle of 90 degrees, 45 minutes, 56 seconds, to the place of beginning.
Containing within said bounds, 0.68 Acres.
/s/ James S. Gugel
- ----------------------
James S. Gugel, P.L.S.
N.J. Lic. No. 33102
<PAGE>
Land Dimensions Engineering [Letterhead]
Professional Engineers, Planners, Land Surveyors, Landscape Architects,
Environmental Scientists and Foresters
Mailing Address: P.O. Box 204, Grenloch, NJ 08032
Location: 508 Black Horse Pike at County House Road, Turnersville, NJ 08012
(609)228-8150
Fax: (609)228-8224
DESCRIPTION
TRACT 2
Lot 9, Block 24.01
Gloucester Twp., Camden Co., N.J.
January 26, 1995
LDE File No. S-1603
All that certain tract or parcel of land and premises, situate in the Township
of Gloucester, County of Camden, and State of New Jersey, bounded and described
as follows:
BEGINNING at a point in the Northwesterly R.O.W. line of Harmon Drive (50'
wide), said point being S 46 degrees, 00 minutes, 00 seconds W, 239.23' from the
Northwesterly end of a curve, connecting the Northwesterly R.O.W. line of Harmon
Drive, with the Northeasterly R.O.W. line of Harmon Drive, said connecting curve
having a Radius of 70.0', an Arc of 110.89', thence;
1. S 46 degrees, 00 minutes, 00 seconds W, along the Northwesterly R.O.W. line
of Harmon Drive, 180.0' to a point corner to same, thence;
2. N 44 degrees, 00 minutes, 00 seconds W, along Lot 3.08, Block 55, Plan
hereinafter mentioned, and along the Northeasterly line of a 20' Wide Water and
Sanitary Sewer Easement, 380.0' to a point in line of the Remainder of Lot 3A,
thence;
3. N 46 degrees, 00 minutes, 00 seconds E, along the Remainder of Lot 3A, 180.0'
to a point corner to same, thence;
4. S 44 degrees, 00 minutes, 00 seconds E, along Part of Lot 3A, and the
Remainder of Lot 3, 380.0' to the place of beginning.
Containing within said bounds, 1.57 Acres.
Said described being Lot 3.09 and Part of Lot 3A, Block 55, Pine Run Industrial
Park, Plan of Major Subdivision for Lot 3, Block 55, prepared by William J.
McCamy, P.E. & L.S., dated 10-26-78, filed 9- 4-79, Original Map No. 351-9,
Duplicate No. 643-9. Being Lot 9, Block 2401, Gloucester Township Tax Map.
Said described being subjected to a 25' Wide Drainage Easement, per Tax Map,
being described as follows:
BEGINNING at the terminous of course number 2 as described above thence;
<PAGE>
1. N 46 degrees, 00 minutes, 00 seconds E, along the Remainder of Lot 3A,
180.00' to a point corner to same, thence;
2. S 44 degrees, 00 minutes, 00 seconds E, along Part of Lot 3A, 25.0' to a
point corner to same, thence;
3. S 46 degrees, 00 minutes, 00 seconds W, through Part of Lot 3A, 180.0' to a
point in line of Lot 3.08, thence;
4. N 44 degrees, 00 minutes, 00 seconds W, along Lot 3.08, 25.0' to the place of
beginning.
Containing within said bounds, 4,500 Acres.
Also being subjected to a 10' Wide Sanitary Sewer Easement, per Tax Map, being
described as follows:
BEGINNING at a point in the division line between Lots 3.08 and 3.09, Block 55,
said point being the following (2) course from the Northwesterly end of the
aforementioned connecting curve, connecting the Northwesterly R.O.W. line of
Harmon Drive, with the Northeasterly R.O.W. line of Harmon Drive, thence;
A. S 46 degrees, 00 minutes, 00 seconds W, along the Northwesterly R.O.W. line
of Harmon Drive, 419.23' to a point corner to same, thence;
B. N 44 degrees, 00 minutes, 00 seconds w, along Lot 3.08, 30.0' to the above
mentioned beginning point, thence;
1. N 46 degrees, 00 minutes, 00 seconds E, through Lot 3.09, 180.0' to a point
in line of the Remainder of Lot 3, thence;
2. N 44 degrees, 00 minutes, 00 seconds W, along said Lot, 10.0' to a point
corner to same, thence;
3. S 46 degrees, 00 minutes, 00 seconds W, through Lot 3.09, 180.0' to a point
in line of Lot 3.08, thence;
4. N 44 degrees, 00 minutes, 00 seconds W, along said Lot, 10.0' to the place of
beginning.
Containing within said bounds, 1,800 sq. ft.
/s/ James S. Gugel
- -----------------------
James S. Gugel, P.L.S.
N.J. Lic. No. 33102
<PAGE>
MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE AND SECURITY AGREEMENT, (the "Mortgage") made this 2nd
day of February, 1995, is between U.S. Vision, Inc. (the "Mortgagor"), whose
business address is P.O. Box 124, Landing and Lower Landing Road, Glendora, New
Jersey and Delaware River Port Authority (the "Mortgagee"), Bridge Plaza,
Camden, New Jersey 08101.
WITNESSETH:
DEFINITIONS
The following words shall have the following meanings when used in this
Mortgage. Terms not otherwise defined in this Mortgage shall have the meanings
attributable to such terms in the Uniform Commercial Code.
1. Building. The word "Building" shall mean the structure presently
located on the Land fully described in Attachment "A" hereto as existing at the
intersection of Landing and Lower Landing Road in Gloucester Township, New
Jersey, and all improvements or additions thereto.
2. Collateral. The word "Collateral" shall have the definition set
forth in the Mortgage Note executed contemporaneously herewith.
3. Fixtures. The word "Fixtures" means the components of the HVAC,
electrical, and plumbing systems now or hereafter installed in the building.
specifically excluded from the definition of "fixtures" as used herein is any
equipment installed in the Building for use in Mortgagee's business operations,
whether or not same is affixed or attached to the Land.
4. Improvements. The word "Improvements" means all existing and future
buildings, fixtures, and structures existing on or affixed to the Land, and all
improvements, additions, renovations, and other construction thereto.
5. Land. The word "Land" shall mean all real property described in
Exhibit "A" attached hereto.
6. Mortgaged Property. The phrase "Mortgaged Property" means the Land
defined hereinabove and all Additional Mortgaged Property defined in section 2,
below.
7. Obligation. The word "Obligation" shall have the meaning set forth
in the Mortgage Note executed by the parties contemporaneously herewith.
1. Consideration and Land
----------------------
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, and to secure the payment of the indebtedness of
U.S. Vision, Inc. as evidenced by that certain Mortgage Note (the "Note") in the
principal sum of ONE MILLION TWO HUNDRED THOUSAND DOLLARS ($1,200,000.00) of
even date herewith, and incorporated by reference herein, as thus made by
Mortgagor and in favor of Mortgagee, together with interest thereon (hereafter,
the "Obligations" which term shall include, without limitation, the indebtedness
evidenced by the Note), the Mortgagor does by these presents grant, bargain,
sell, remise, release, give, transfer, assign, mortgage, pledge, warrant, convey
and confirm unto
1
<PAGE>
Mortgagee all estate, right, title and interest of Mortgagor in and to that
certain real property (the "Land") in Camden County, New Jersey, with an address
of Landing and Lower Landing Roads, Chews Landing, New Jersey, 08012, and more
particularly described in Exhibit "A" attached hereto and made a party hereof,
together with all rights, privileges, tenements, hereditaments, rights-of-way,
easements, appendages, projections, appurtenances, water rights including
riparian and littoral rights, streets, ways, alleys and strips and gores of land
now or hereafter in any way belonging, adjoining, crossing or pertaining to the
Land; and
2. Additional Mortgaged Property
-----------------------------
Together with all right, title, and interest in all of the following
property of Mortgagor whether now owned or existing, or hereafter acquired: (a)
all buildings, structures, and improvements (collectively, hereafter the
"Improvements"), fixtures, including all additions thereto and replacements and
extensions thereof, now constructed under, on, or above the Land; (b) all
insurance policies required by this Mortgage, the unearned premiums therefor and
all loss proceeds thereof; (c) all awards and refunds hereafter made with
respect to any real estate and property taxes, utility rates and charges and all
other governmental and non-governmental charges that may be assessed, levied or
imposed upon the Land; (d) all building materials, fixtures, building machinery
and building equipment of Debtor delivered on-site to the Land during the course
of, or in connection with, construction of the buildings and improvements
thereon; all the fixtures appurtenant thereto owned by Debtor, which shall
include insofar as they now are or may hereafter belong to or be used in the
operation of the buildings and improvements, plant, business or dwelling(s)
thereon, whether attached or detached, all lighting, heating, ventilation, air
conditioning, sprinkling, plumbing, irrigating, water and power systems and
fixtures, engines, boilers, ranges, refrigeration plants or units, kitchen
cabinets, cooking appliances, storm and screen windows, rugs and carpeting,
doors and appliances; all proceeds of the conversion, whether voluntary or
involuntary, of any of the foregoing into cash or liquidated claims including,
without limitation, proceeds of insurance and condemnation awards and premiums
for such insurance; and (e) all monies payable under leases affecting the use or
occupancy of all or any part of the Land, and all deposits paid thereunder and
all rights of Debtor to payment thereunder.
3. Conditions of Mortgage
----------------------
The conditions of this Mortgage are such that if Mortgagor shall in
strict accordance with the terms hereof pay unto Mortgagee the Obligations and
perform, comply with, observe, discharge and abide by each and every of the
stipulations, agreements, conditions and covenants contained and set forth in
this Mortgage, then this Mortgage and the estates, interests and rights hereby
created shall be null and void, but otherwise shall remain in full force and
effect.
4. Mortgagor's Representations and Warranties
------------------------------------------
Mortgagor does hereby represent and warrant to Mortgagee that: (a)
Mortgagor is indefeasibly seized of and has and will have good and marketable
fee simple title to the Land and Improvements and has and will have good and
marketable title to all other property comprising the Mortgaged Property; (b)
any and all of the Mortgaged Property is free and clear of any and all mortgage,
liens, encumbrances, claims and security interests of any kind as of record,
including, without limitation, taxes and assessments, except those in favor of
Mortgagee and those disclosed in the Title Report effective as of this date; (c)
Mortgagor has full power and lawful authority to convey, transfer, and mortgage
the Mortgaged Property unto Mortgagee; (d) Mortgagor will preserve its title to
the Mortgaged Property and will forever warrant and defend the same to Mortgagee
and will forever warrant and defend the validity and priority of the lien of
this Mortgage against the claims of all persons and parties whomsoever; (e) all
information, certificates and otherwise, given to Mortgagee with
2
<PAGE>
respect to Mortgagor, the loan evidenced by the Note and the Mortgaged Property
are true, accurate and correct in all material respects and complete; (f) no
event has occurred and is continuing which, with notice or the lapse of time, or
both, would constitute a default under any provision of this Mortgage; (g) no
governmental requirement, and no covenant, condition, restriction, easement or
similar matter affecting the Land or Improvements has been violated of which
Mortgagor is aware or reasonably should be aware, and Mortgagor has not received
any notice of violation from any governmental authority or any other person with
respect to any of the foregoing matters.
5. Mortgagor's Covenants and Agreements
------------------------------------
The Mortgagor does hereby covenant and agree that:
(a) Mortgagor shall promptly pay, as and when due and payable, the
Obligations as defined in the Note.
(b) Mortgagor shall punctually perform, comply with and abide by, or
shall cause to be punctually performed, complied with and abided by all of the
stipulations, agreements, conditions and covenants contained and set forth in
this Mortgage.
(c) The property is not located in a flood plain.
(d) Mortgagor shall pay, prior to the time when interest or penalties
commence to accrue thereon, all taxes, sewer and water rents and other charges,
including charges in lieu of taxes, and all taxes and other claims owing the
county in which the land is located or any other governmental authority, and all
taxes, charges, and claims owed by Mortgagor to the United States of America.
However, if Mortgagor in good faith and by appropriate legal action shall
contest the validity of any such item, or the amount thereof, after notice to
Mortgagee, and, if required by Mortgagee, shall have furnished and deposited
reasonable security as required by Mortgagee and furnished assurance reasonably
satisfactory to Mortgagee indemnifying it against any loss by reason of such
contest, then Mortgagor shall not be required to pay the item or to produce the
required receipts so long as the contest: (i) operates to prevent collection and
enforcement; (ii) does not interfere with the use, occupancy or operations of
the Mortgaged Property, and the timely payment of all sums due hereunder; (iii)
does not unreasonably jeopardize the lien of this Mortgage; (iv) is maintained
and prosecuted with due diligence; and (v) shall not have been terminated or
discontinued adversely to Mortgagor. Mortgagor agrees to pay all contested sums
and items, plus all charges, interests, penalties and expenses, if any, and
provide Mortgagee with acceptable evidence of such payments, within thirty (30)
days after the contest is terminated adversely to Mortgagor or is discontinued.
Mortgagor represents and warrants that the Premises are separately assessed and
shall remain separately assessed on the tax rolls for so long as the debt
secured hereby remains unpaid. If any of the foregoing charges or any part
thereof are not paid as aforesaid, the Mortgagee may at any time pay same with
accrued interest and charges, if any, without waiving or affecting Mortgagee's
option to foreclose this Mortgage or to exercise any other right or remedy of
Mortgagee hereunder or available at law or in equity, and all such payments
shall be secured by the lien of this Mortgage.
(e) Insurance: Mortgagor shall during the term of this Mortgage obtain,
maintain and keep in full force and effect All-Risk Hazard Insurance with
respect to the Mortgaged Property, which insurance shall reflect coverage in
such amounts as Mortgagee may reasonably require, but in no event less than 100%
of the full replacement cost of the Mortgaged Property, and which insurance
shall include, a mortgage endorsement naming the Mortgagee as Mortgagee and
Lender Loss Payee (in a first lien position), and which shall also specifically
cover and apply to that portion of the mortgaged property constituting personal
property.
3
<PAGE>
Mortgagor shall also maintain General Comprehensive Public Liability Insurance
against claims for bodily injury, death and property damage, occurring in, on,
or about the Mortgaged Property, in such amounts as may reasonably be required
by Mortgagee. All policies of insurance which are required hereunder shall be
written by reputable carriers. At all times during the term of this Mortgage,
Mortgagor shall deliver to Mortgagee proof of insurance (insurance certificate)
required above. Mortgagee, if it deems necessary, may place and pay for any and
all insurance as aforesaid, or any part thereof, without losing, waiving, or
affecting Mortgagee's right to foreclose this Mortgage or to exercise any other
remedy or right of Mortgagee hereunder, and every such payment shall bear
interest from the date thereof until paid, and all such payments with interest
thereon, as aforesaid, shall be secured by the lien of this Mortgage. If all or
any part of the Mortgaged Property shall be destroyed or damaged by a casualty,
Mortgagor shall promptly give written notice thereof to Mortgagee and the
appropriate insurer. All proceeds of insurance shall be paid to Mortgagee and
shall be applied to the restoration, repair or replacement of the Mortgaged
Property. Such proceeds shall be disbursed to Mortgagor as work progresses
pursuant to a construction and disbursing loan agreement in form and content
reasonably satisfactory to Mortgagee, and Mortgagor shall promptly and
diligently, regardless of whether there shall be sufficient insurance proceeds
therefor, restore, repair, and rebuild the Mortgaged Property to the equivalent
of its condition immediately prior to the casualty. The application of the
insurance proceeds to the restoration, repair or replacement of the Mortgaged
Property shall not affect the lien of this Mortgage or affect or reduce the
Obligations. If all or any part of the Mortgaged Property shall be damaged or
destroyed by a casualty not covered by insurance, or, if so covered, the insurer
fails or refuses to pay the claim within 90 days following the filing thereof,
Mortgagor shall immediately give written notice thereof to Mortgagee. During any
period of restoration and repair, Mortgagor shall continue to duly and promptly
pay, perform, observe and comply with all of the Obligations and all of the
stipulations, agreements, conditions and covenants contained and set forth in
this Mortgage.
(f) Condemnation: Mortgagor shall immediately notify Mortgagee upon
obtaining any knowledge of the institution of any proceeding for the
condemnation of the Mortgaged Property or any part thereof. The Mortgagee shall
be entitled to all compensation awards and other payments or relief therefore to
the extent of the amount remaining due under the Note secured hereby.
(g) Abstracts of Tile: Mortgagor shall deliver the abstract(s) of title
or title insurance policy covering the Mortgaged Property to Mortgagee or its
designated agent, which abstract(s) or policy shall at all times during the term
of this Mortgage remain in the possession of Mortgagee or its designated agent,
and in the event of the foreclosure of this Mortgage or other transfer of title
in lieu thereof, all right, title and interest of Mortgagor in and to any such
abstract(s) or policy shall pass to the purchaser or grantee.
(h) Right of Inspection: Mortgagor shall permit Mortgagee and its
agents to inspect the Mortgaged Property upon reasonable prior notice at any
time during normal business hours and at all other reasonable times, provided
such inspections shall not unreasonably interfere with conduct of Mortgagor's
use of the Mortgaged Property.
(i) Improvements; Right to Audit Improvement Account: Mortgagor and
Mortgagee acknowledge that the funds loan to Mortgagor pursuant to the Note
exceed the price paid by the Mortgagor to purchase the Land and existing
building and improvements thereon. the funds loan pursuant to the Note which
exceed the purchase price shall hereafter be referred to as "excess funds."
Mortgagor further covenants that all such excess funds shall be used by
Mortgagor for the purpose of paying those costs reasonably and traditionally
associated with settlement on purchase of the Land and the building thereon, and
for payment of expenses incurred in connection with improvements to be made
thereto, including, but not limited to architect, engineer and other
professional fees, demolition costs, interior renovation and construction costs,
acquisition or repair
4
<PAGE>
of fixtures, expenses incurred in connection renovations to the parking lot on
the Land, other exterior renovations, and costs associated with the
consolidation of Mortgagor's operations in New Jersey. All such improvements
shall be subject to the Lien of this Mortgage. All excess funds shall be held by
Mortgagor in an amount specially set up for the purpose of making disbursements
for the items described hereinabove. such account will be known as the
"Improvement Account," and Mortgagee shall have the right to audit the records
of the Improvement Account. Mortgagee may exercise this right on a monthly
basis, during reasonable business hours, during the entire period in which
improvements to the Land are made.
(j) Tax, Assessment Payments: Mortgagor shall pay all taxes and
assessments when due, or contest same in good faith in accordance with Section
6(d) hereinabove.
(k) Indemnity: Mortgagor shall pay or reimburse Mortgagee for all
costs, charges, expenses, and reasonable attorneys' fees paid or incurred by
Mortgagee in any action, proceeding or dispute of any kind brought by third
parties in which Mortgagee is joined as a party because of the failure of
Mortgagor to promptly perform, comply with and abide by any and all of the
covenants, conditions and stipulations set forth in this Mortgage or in the
Note, or pursuant to any condemnation or eminent domain action involving the
Mortgaged Property or any part thereof, any action to protect the security
hereof, of any proceeding in probate, reorganization, bankruptcy, or forfeiture
in rem. All such amounts paid or incurred by Mortgagee, together with interest
thereon shall be secured by this Mortgage and shall be due and payable by
Mortgagor immediately, whether or not there be notice or demand therefor.
(l) Hazardous Substances: If Mortgagor receives (i) any notice of the
happening of any event involving spillage, release, leakage, seepage, discharge
or cleanup of any Hazardous Substance on the Mortgaged Property or in connection
with Mortgagor's operations thereon of (ii) from any person or governmental
authority (including, without limitation, the EPA) any complaint, order,
citation or notice with regard to air emissions, water discharges, or any other
environmental, health or safety matter (collectively and individually an
"Environmental Complaint") affecting Mortgagor or the Mortgaged Property (or any
part thereof), then Mortgagor shall promptly notify Mortgagee orally and in
writing of such Environmental Complaint. Mortgagee shall have the right but not
the obligation, and without any limitation of Mortgagee's other rights under
this Mortgage, to enter onto the Mortgaged Property or to take such other
actions as it deems necessary or advisable to clean-up, remove, resolve or
minimize the impact of, or otherwise deal with, any Hazardous Substance or an
Environment Complaint following receipt of any notice from any person or
governmental authority (including, without limitation, the EPA and NJDEP)
asserting the existence of any Hazardous Substance or an Environmental Complaint
pertaining to the Mortgaged Property or any part thereof which, if true, could
result in an order, suit or other action against Mortgagor or Mortgagee which,
in the sole reasonable opinion of Mortgagee, could jeopardize Mortgagee's
security under this Mortgage. All reasonable costs and expenses incurred by
Mortgagee in the exercise of any such rights shall be secured by this Mortgage,
and shall be paid by Mortgagor upon demand.
(m) Clouds on Title: Mortgagor shall not create or permit to be created
or to remain, without Mortgagee's prior written consent, any mortgage, pledge,
mechanics' lien or other lien, conditional sale or other title retention
agreement, encumbrance, claim or charge on (whether prior or subordinate to the
lien of this Mortgage) the Mortgaged Property. Any transaction prohibited under
this Section shall be null and void.
(n) Repair and Maintain Obligation: Mortgagor shall not commit or
permit any waste, impairment, or deterioration of the Mortgaged Property and
shall at all times maintain the Mortgaged Property in a state of good repair;
Mortgagor shall not do or permit any alteration or change in the use and
character of the Mortgaged Property, which shall materially impair or weaken the
security of this Mortgage. In the event that
5
<PAGE>
Mortgagor shall refuse, neglect or be unable to repair and maintain the
Mortgaged Property, the Mortgagee may, at its option, make such repairs or cause
the same to be made and advance monies in that regard. All such amounts paid or
incurred by Mortgagee together with interest thereon from the date incurred by
Mortgagee shall be secured by this Mortgage and shall be due and payable by
Mortgagor immediately, whether or not there be notice or demand therefor.
6. Events of Default
-----------------
Subject to the Notice and Opportunity to Cure provision set forth in
the Note, an "Event of Default" as used in this Mortgage shall occur at any time
or from time to time: (a) if any Obligation or any installment thereof is not
paid on or before the date the same is due and payable or prior to expiration of
the cure period set forth in the Note; (b) if any covenant, condition,
agreement, or stipulation contained in this Mortgage (other than one requiring
the payment of money or otherwise specifically provided for hereinafter) is not
duly and promptly performed, or if any negative covenant contained in this
Mortgage is violated, and such non-performance or violation is not cured; (c) if
any representation of warrant made in this Mortgage, or in any other document
executed by or on behalf of U.S. Vision, Inc. in connection with the loan
evidenced by the Note is at the time made materially false or misleading; (d) if
U.S. Vision, Inc. is voluntarily adjudicated a bankrupt or insolvent, seeks or
consents to the appointment of a receiver or trustee for itself or for all or
any part of its property, files a petition seeking relief, including
reorganization, arrangement or similar relief, under the present Bankruptcy Code
or other similar present or future applicable laws of the United States or any
state of any other competent jurisdiction, makes a general assignment for the
benefit of creditors or admits in writing an inability to pay its debts as they
mature; (e) if a receiver or trustee is appointed for U.S. Vision, Inc. or for
all or any part of their property without its consent and such appointment is
not vacated within sixty (60) days, or if a petition is filed against U.S.
Vision, Inc. seeking relief, including reorganization, arrangement or similar
relief, under the present Bankruptcy Code or other similar present or future
applicable laws of the United States or any state or other competent
jurisdiction, and such petition is not dismissed within sixty (60) days after
the filing thereof; (f) if U.S. Vision, Inc. voluntarily or involuntarily
dissolves or liquidates; (g) relocation of Borrower's principal eyeglass
manufacturing facility or corporate headquarters out of the State of New Jersey
while any amount remains due hereunder.
7. Remedies of Mortgage Upon Default
---------------------------------
Upon expiration of the period in which Mortgagor may cure an Event of
Default: all of the obligations shall, at the option of Mortgagee, become
immediately due and payable, and Mortgagee shall thereupon have all rights and
remedies provided hereunder or as otherwise available at law or in equity.
8. Due on Sale
-----------
Except with respect to transfers by Mortgagor to its parent
corporation, or to any subsidiary or affiliate corporation reasonably acceptable
to Lender, the Loan shall be due and payable in full upon any transfer of the
Land, Building, and Improvements thereto.
9. Survival
--------
The warranties, representations, covenants and agreements as set forth
in this Mortgage shall survive the execution and delivery hereof and shall
continue in full force in effect until all of the Obligations shall have been
paid in full.
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<PAGE>
10. Subrogation
-----------
Mortgagee is hereby subrogated to the claims and liens of all parties
whose claims or liens are fully or partially discharged or paid with the
proceeds of the indebtedness secured by this Mortgage notwithstanding that such
claims or liens may have been canceled and satisfied of record.
11. Notices, Demands, etc.
---------------------
All notices, demands, requests and other communications, if any,
required under this Mortgage must be in writing, and must be given by facsimile
transmission or certified mail, addressed to the party for whom it is intended
at the addresses set forth hereinbelow:
If to Mortgagor:
U.S. Vision, Inc.
ATTN: George E. McHenry, Jr., C.F.O.
Landing and Lower Landing Roads
Chews Landing, NJ 08012
Facsimile number: 609-232-1848
With copy to:
Jonathan M. Petrakis, Esquire
Frey, Petrakis & Deeb
1601 Market Street, Sixth Floor
Philadelphia, PA 19103
Facsimile number: 215-563-5532
If to Mortgagee:
Delaware River Port Authority
ATTN: General Counsel
Bridge Plaza
Camden, NJ 08101
Facsimile number: 609-541-6379
Any party may designate a change of address by written notice to the other
parties, received by such other parties prior to the time that such change of
address is to become effective.
12. Successors and Assigns
----------------------
All of the terms of this Mortgage shall apply to and be binding upon,
and inure, to the benefit of, the heirs, devises, personal representatives,
successors and assigns of Mortgagor and Mortgagee, respectively, and all persons
claiming under or through them.
13. Severability
------------
If any one or more of the provisions contained in this Mortgage is
declared or found by a court of
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<PAGE>
competent jurisdiction to be invalid, illegal, or unenforceable, such provision
or portion thereof shall be deemed stricken and severed and the remaining
provisions hereof shall continue in full force and effect. If any one or more of
the obligations is declared or found by a court of competent jurisdiction to be
invalid, illegal, or unenforceable, the validity, legality and enforceability of
the remaining Obligations shall continue in full force in effect.
14. Entire Agreement
----------------
No other agreement, unless in writing and signed by Mortgagee, and no
course of dealing between the parties hereto, shall be effective to change,
waive, terminate, modify, discharge, or release in whole or in part any
provision of this Mortgage. No waiver of any rights or powers of Mortgagee or
consent by it shall be valid unless in writing signed by Mortgagee and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
15. Security Agreement
------------------
This Mortgage constitutes a "Security Agreement" within the meaning of,
and shall create a security interest under the Uniform Commercial Code as
adopted by the State of New Jersey, with respect to all Mortgaged Property which
is covered by the Uniform Commercial Code. A carbon, photographic or other
reproduction of this Mortgage or of any financing statement shall be sufficient
as a financing statement.
16. Time is of Essence
------------------
It is specifically agreed that time is of the essence as to all matters
provided for in this Mortgage, and that no waiver of any Obligation or provision
contained in this Mortgage shall at any time thereafter be held to be a waiver
of such Obligation or provision.
17. Joint and Several Applicability
-------------------------------
If more than one person or entity executes this Mortgage, each is and
shall be jointly and severally liable hereunder.
18. Environmental Matters
---------------------
Mortgagor represents and warrants to Mortgagee that Mortgagor has
inspected the premises and to the best of its knowledge,
(a) Mortgagor is not in violation of The Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, The Resource Conservation and
Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of
1984, The Clean Water Act, The Toxic Substances Control Act and The Clean Air
Act or any rule or regulation promulgated pursuant to any of the foregoing
statutes, or any other applicable environmental law, statute, rule, regulation
or ordinance (all of the foregoing are hereinafter sometimes collectively
referred to as the "Environmental Laws").
(b) Neither Mortgagor or agent or independent contractor of Mortgagor
has arranged, by contract, agreement or otherwise, (i) for the disposal or
treatment of, or (ii) with a transporter for the transport or disposal
or treatment of, any hazardous substance (as defined by CERCLA, as amended),
owned, used or
8
<PAGE>
possessed by the Mortgagor, identified by the EPA on the National Priorities
List, 40 C.F.R. part 300, at any location.
(c) Mortgagor shall comply with all Environmental Laws and, to the
extent necessary for the conduct of Mortgagor's business, shall obtain,
maintain, and comply with all permits, licenses, registrations and
authorizations required under the Environmental Laws. Mortgagor shall comply
with all governmental orders, directives, judgments, orders, decrees, awards,
administrative consent orders, settlement agreements, or other settlement
documents entered into with any administrative or governmental agency or entity
concerning compliance with the Environmental Laws.
Mortgagor shall not use or permit the use of the Mortgaged Property for
the generation, storage, recycling, processing, transportation, disposal of or
release of any hazardous substance (as defined by CERCLA, as amended). Mortgagor
shall not use or permit the use of the Mortgaged Property in any manner which
would be in violation of any Environmental Laws.
Mortgagor agrees to defend, indemnify and save Mortgagee harmless from
and against any and all loss, damages and costs, including reasonable attorneys'
fees and expenses which Mortgagee may after the date of the Mortgage suffer,
incur or lay out, by reason of any liability arising out of Environmental Laws,
claims, or proceedings due to the activities of Mortgagor or any other person or
entity during Mortgagor's ownership of the Mortgaged Property. This
indemnification shall extend to any liability Mortgagee may suffer or incur in
connection with any toxic waste clean up ordered by any governmental agency or
court. This indemnity shall survive any event of foreclosure under this Mortgage
or conveyance of the Mortgaged Property in lieu of foreclosure.
19. Titles
------
The titles of the paragraphs shall not be considered in determining the
meaning of any paragraph. They exist for ease of review only.
20. Excess Interest Waiver
----------------------
Nothing contained herein, in the Note, or in any other instrument or
transaction related thereto, shall be construed or so operate as to require
Mortgagor or any person liable for the payment of any of the Obligations to pay
interest, or any charge in the nature of interest, in an amount or at a rate
which exceeds the maximum rate of interest allowed by applicable law, as amended
from time to time. Should any interest or other charges in the nature of
interest received by Mortgagee or paid by Mortgagor or by any person liable for
the payment of any of the Obligations exceed the maximum rate of interest
allowed by applicable law, as amended from time to time, then such excess sum
shall be credited against the principal balance of the Note or the balance of
the other Obligations, as applicable, unless the Mortgagor or such other person
liable for such payments, as applicable, shall notify the Mortgagee, in writing,
that the Mortgagor or such other person elects to have such excess sum returned
to him, her, or it forthwith, it being the intent of the parties hereto that
under no circumstances shall the Mortgagor or any person liable for the payment
of any of the Obligations be required to pay interest in excess of the maximum
rate of interest allowed by applicable law, as amended from time to time. The
Mortgagee may, in determining the maximum rate of interest allowed under
applicable law, as amended from time to time, take advantage of any state or
federal law, rule or regulation in effect from time to time which may govern the
maximum rate of interest which may be reserved, charged or taken.
9
<PAGE>
21. Closing
-------
PROVIDED ALWAYS, that if Mortgagor shall pay all the sums secured by
this Mortgage at the times and in the manner provided in this Mortgage, in the
Note, then this Mortgage and the estate and interest granted by this Mortgage
shall cease and have no further effect; and in such case, Mortgagee, on demand
of and at the sole cost and expense of Mortgagor, shall execute proper
instruments in recordable form acknowledging satisfaction and discharge of this
Mortgage and shall release or assign all of Mortgagee's right, title and
interest of, in and to the Mortgaged Property, and shall deliver to Mortgagor
any other property then pledged to and held by Mortgagee pursuant to the terms
of the Note, and this Mortgage including all policies of title, fire and
property damage insurance theretofore furnished or assigned to Mortgagee and any
monies not theretofore applied by Mortgagee in accordance with the Note, or this
Mortgage.
IN WITNESS WHEREOF, Mortgagor and Mortgagee have executed this
instrument as of the day and year first above written.
ATTEST: MORTGAGOR:
U.S. Vision, Inc. U.S. Vision, Inc.
/s/ Carolyn Meldrum By: /s/ Gayle Schmidt
- -------------------------- --------------------------
CAROLYN MELDRUM GAYLE SCHMIDT
Assistant Secretary Executive Vice President
41621.1
10
<PAGE>
MORTGAGE ADDRESS CERTIFICATION
- ------------------------------
I hereby certify that the address of the within Mortgagee is Bridge
Plaza, Camden, New Jersey, 08101.
By: /s/ Matthew A. Saline
---------------------------------
Matthew A. Saline
Assistant General Counsel
Delaware River Port Authority
11
<PAGE>
STATE OF NEW JERSEY :
: SS:
COUNTY OF CAMDEN :
BEFORE ME, the undersigned authority, personally appeared Gayle Schmidt
on behalf of U.S. Vision, Inc. to me well known and known to me to be the person
described in and who executed the foregoing Mortgage and acknowledged to and
before me that she executed such instrument and that said instrument is her free
act and deed of said corporation.
WITNESS my hand and official seal this 2nd day of February, 1995.
/s/
--------------------------------
Notary Public
Seal
My Commission Expires: 7/19/99
12
<PAGE>
MORTGAGE EXHIBIT "A"
<PAGE>
EXHIBIT A
Legal Description
-----------------
Land and premises situate in the township of Gloucester, County of
Camden and the State of New Jersey:
Beginning at a point in the northwesterly line of Chews Landing and
lower Landing Road (50 feet wide) said point being the easterly end of a 25 feet
radius connecting the said line of Chews Landing and lower Landing Road with the
northeasterly line of Landing Road (33 feet wide) and proceeding; thence (1)
along said line of Chews Landing and lower Landing Road, north 65 degrees 12
minutes 00 seconds east, 341.04 feet to a point; thence (2) north 24 degrees 48
minutes 00 seconds west, 258.27 feet to a point in the southeasterly line of a
50 feet wide private road, thence (3) along said line of the private road, south
46 degrees 00 minutes 00 seconds west, 423.95 feet to a point in the
northeasterly line of Landing Road; thence (4) along said line of Landing Road,
south 44 degrees 05 minutes 17 seconds east, 108.18 feet to a point of
curvature; thence (5) curving to the left or in an easterly direction with a
radius of 25 feet, an arc distance of 30.85 feet to the point and place of
beginning.
Being part of Lot 1 Block 2402 Plat 24 on the tax map of the Township
of Gloucester.
<PAGE>
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
November 15, 1997) in Amendment No. 1 to the Registration Statement (Form S-1,
No. 333-35819) and related Prospectus of U.S. Vision, Inc. for the registration
of 4,600,000 shares of its common stock.
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
October 28, 1997
<PAGE>
US Vision, Inc.
1 Harmon Drive
Blackwood, New Jersey 0012
(609) 228-1000
October 27, 1997
Via Telecopy 212-274-0260
- -------------------------
Marge Axelrad
VP/Editorial Director
Jobson Optical Group
Jobson Publishing Corp.
Dear Marge:
I am writing to confirm our conversation this morning concerning US Vision's
references to the Jobson Optical Group report and Jobson's US Optical Industry
Handbook, and the data contained therein, in US Vision's registration statement
(No. 333-35819), as it may be amended, filed with the Securities and Exchange
Commission as well as in the prospectus which is a part of the registration
statement. Please confirm that Jobson hereby consents to the forgoing by signing
and returning this letter to me via fax at 215-563-3810. If you need to reach me
today, please call me at 215-563-9000.Your signature also constitutes your
authorization for US Vision to rely on a telecopied signed version of your
consent.
Thank you for your prompt attention to this matter.
Best regards.
Sincerely yours,
/s/
---------------------
Kathy Cullen
VP Finance
Consent Granted:
Jobson Optical Group
Jobson Publishing Corp.
By: /s/
------------------------------------
Marge Axelrad, VP/Editorial Director
October 27, 1997
<PAGE>
CONSENT OF PETER M. TROUP - DIRECTOR NOMINEE
As a nominee to become a director of the Company, I hereby consent to the
inclusion in the Registration Statement of my name in that capacity.
Dated: September 4, 1997 /s/ Peter M. Troup
------------------
Peter M. Troup
