<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
ALBECCA INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
GEORGIA 5199 39-1389732
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
CRAIG A. PONZIO
CHIEF EXECUTIVE OFFICER
ALBECCA INC.
3900 STEVE REYNOLDS BOULEVARD
NORCROSS, GEORGIA 30093
(770) 279-5200
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices and Agent for Service)
------------------------
COPIES TO:
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<S> <C>
PHILIP H. MOISE, ESQ. ROBERT W. SMITH, ESQ.
JON H. KLAPPER, ESQ. MARK L. HANSON, ESQ.
NELSON MULLINS RILEY & SCARBOROUGH, L.L.P. JONES, DAY, REAVIS & POGUE
FIRST UNION PLAZA, 3500 SUNTRUST PLAZA
SUITE 1400 303 PEACHTREE STREET
999 PEACHTREE STREET, N.E. ATLANTA, GEORGIA 30308
ATLANTA, GEORGIA 30309 (404) 521-3939
(404) 817-6000
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the 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 any offering
pursuant to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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=================================================================================================================
TITLE OF EACH PROPOSED MAXIMUM
CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A Common Stock, $0.01 par value.......... $75,000,000 $22,125
=================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457. In accordance with Rule 457(o) under the
Securities Act of 1933, as amended, the number of shares being registered
and the proposed maximum offering price per share are not included in this
table.
(2) Includes shares of Class A Common Stock which the U.S. Underwriters have an
option to purchase from the Company to cover over-allotments, if any.
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of Prospectus: one to be
used in connection with an offering of the Registrant's Class A Common Stock in
the United States and Canada (the "U.S. Prospectus") and one to be used in a
concurrent offering of the Registrant's Class A Common Stock outside the United
States and Canada (the "International Prospectus" and together with the U.S.
Prospectus, the "Prospectuses"). The Prospectuses are identical except for the
front cover page. The U.S. Prospectus is included herein and is followed by the
alternate front cover page to be used in the International Prospectus. The
alternate page for the International Prospectus included herein is labeled
"Alternate Page for International Prospectus." Final forms of each Prospectus
will be filed with the Securities and Exchange Commission under Rule 424(b) of
the General Rules and Regulations under the Securities Act of 1933, as amended.
<PAGE> 3
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.
PROSPECTUS (Subject to Completion)
Issued May 22, 1998
Shares
(ALBECCA LOGO)
CLASS A COMMON STOCK
------------------------
OF THE SHARES OF CLASS A COMMON STOCK BEING OFFERED, SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS (THE
"U.S. OFFERING") AND SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED
STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS (THE "INTERNATIONAL
OFFERING" AND TOGETHER WITH THE U.S. OFFERING, THE "OFFERING"). ALL OF THE
SHARES OF CLASS A COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE CLASS A COMMON
STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING
PRICE PER SHARE WILL BE BETWEEN $ AND $ . SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING
PRICE.
------------------------
APPLICATION WILL BE MADE TO LIST THE CLASS A COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share.................................... $ $ $
Total (3).................................... $ $ $
</TABLE>
- ------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional Shares of Class A Common Stock at the Price to Public
less Underwriting Discounts and Commissions for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Jones, Day, Reavis & Pogue, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1998 at the office
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
WHEAT FIRST UNION
, 1998
<PAGE> 4
[INSIDE FRONT COVER PAGE OF PROSPECTUS]
Description of graphics on the inside front cover, inside back cover and outside
back cover of the Prospectus:
Inside front cover: Photographs of certain advertisements used by the Company.
These photographs depict individuals in room settings with framed artwork on the
walls. "Albecca" logo appears in the center of this page.
Gate fold: Pictures and graphics divided into a grid format depicting the
following: (i) two custom framed pieces of artwork; (ii) close-up photograph of
a wood moulding and art alongside of the "Craig Ponzio Signature Frame
Collection" logo and the "Craig Ponzio" written signature; (iii) close-up
photograph of a wood moulding and art alongside the "Larson-Juhl Classic
Collection" logo; and (iv) the words "Innovative Design," "Superior Quality" and
"Outstanding Service" surrounded by three custom framed pieces of artwork."
Inside back cover depicts a photograph of a piece of custom framed artwork
incorporating one of the Company's wood mouldings along with the "Craig Ponzio"
written signature and the "Signature Frame Collection" logo.
Gate fold: A map of the world appears in the background with the following
pictures: (i) nine individuals representing Company team members in various
jobs; (ii) a graphic representation of the flag of each country in which the
Company has operations and (iii) a box with the following text: "Worldwide
Operations -- Serving 40,000 retail framers in twenty countries -- 22
manufacturing plants -- 62 light manufacturing/distribution centers."
Outside back cover: shows the "Albecca" logo.
ii
<PAGE> 5
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
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
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF CLASS A
COMMON STOCK OFFERED HEREBY NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 9
S Corporation Termination................................... 14
Use of Proceeds............................................. 14
Dividend Policy............................................. 15
Dilution.................................................... 15
Capitalization.............................................. 16
Selected Combined Financial Data............................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business.................................................... 24
Management.................................................. 37
Principal Shareholders...................................... 41
Certain Transactions........................................ 42
Description of Capital Stock................................ 43
Certain United States Federal Tax Considerations
for Non-U.S. Holders of Class A Common Stock.............. 47
Shares Eligible for Future Sale............................. 50
Underwriters................................................ 51
Legal Matters............................................... 54
Experts..................................................... 54
Available Information....................................... 54
Index to Combined Financial Statements...................... F-1
</TABLE>
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE
OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF THE CLASS A COMMON STOCK IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
------------------------
LARSON-JUHL(R), CLARK(R) AND ARTIQUE(R) AND THE OTHER NAMES OF ALBECCA'S
PRODUCTS AND BRANDS USED IN THIS PROSPECTUS ARE TRADEMARKS THAT HAVE BEEN OR
WILL BE REGISTERED BY THE COMPANY. IN ADDITION, THE COMPANY HAS BEEN GRANTED THE
PERPETUAL RIGHT TO USE THE NAME CRAIG PONZIO(TM). SEE "MANAGEMENT."
iii
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and combined financial statements and the related notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information contained in this Prospectus assumes an initial public offering
price of $ per share and no exercise of the U.S. Underwriters'
over-allotment option. Unless specified to the contrary or the context clearly
implies otherwise, all references herein to "Albecca" or the "Company" shall be
deemed to include Albecca Inc. and its subsidiaries on a combined basis, as well
as the Company's predecessors. All share numbers in this Prospectus reflect a
1.7-for-one stock split effected on April 27, 1998. All information herein
concerning the Company's operations gives effect to a reorganization, expected
to occur prior to the Offering, in which Larson-Juhl International L.L.C., a
Georgia limited liability company and an affiliate of the Company, will become a
wholly-owned subsidiary of the Company. All references herein to industry
financial and statistical information are based on trade articles, industry
reports and other sources that the Company believes to be reliable but has not
independently verified. The Company uses a 52-53 week fiscal year that ends on
the last Sunday in August. All references to a specific year in connection with
the Company's financial results refer to that specific fiscal year.
THE COMPANY
Albecca, which primarily does business under the Larson-Juhl name, is a
worldwide leader in the custom framing industry. Albecca designs, manufactures
and distributes a complete line of high quality, branded custom framing
products, including wood and metal moulding, matboard, foam board, glass,
equipment and other framing supplies. The Company's principal brands include the
"Larson-Juhl Classic Collection" and the "Craig Ponzio Signature Collection."
For over 100 years, the Company has been designing, manufacturing and
distributing custom framing products that enhance the aesthetic qualities of
prints, paintings, drawings and other art and memorabilia. By combining
traditional craftsmanship with modern manufacturing technology, Albecca creates
frames characterized by distinctive design and superior quality. Albecca has
attained its worldwide leadership position by offering a complete selection of
branded products and outstanding service to its retail custom framing customers
and, more recently, by increasing awareness of its products through consumer
advertising.
Albecca has maintained a consistent operating strategy that combines
innovative design of premium branded products, global distribution capabilities,
superior customer service, efficient, low cost manufacturing and distribution
and a complete line of quality products. This strategy has made the Larson-Juhl
brand one of the most globally recognized names in the custom framing industry.
The Company believes that consumers are placing an increased emphasis on the
home, its decor and the expression of individual style, which will contribute to
the growth of the custom framing market. To capitalize on this trend, Albecca's
growth strategy is focused on continuing to introduce premium branded product
collections, increasing sales penetration to retail custom framers, improving
profitability of its operations, increasing product and brand awareness through
consumer advertising and pursuing acquisitions of manufacturers and distributors
of custom framing products. Albecca's consistent operating strategy and focus on
profitable growth have allowed the Company to grow operating income faster than
net sales in each fiscal year after 1988. Net sales increased from $137.8
million in 1993 to $354.1 million in 1997, representing a compound annual growth
rate of 29%. Over the same period, operating income increased from $13.4 million
to $36.4 million, representing a compound annual growth rate of 31%.
Albecca conducts its operations through 77 locations in 20 countries. North
American operations (United States and Canada) contributed 52% and 76% of the
Company's 1997 net sales and operating income, respectively. International
operations (primarily Europe) contributed 48% and 24% of 1997 net sales and
operating income, respectively. Albecca is a market leader in North America with
an estimated 16% market share and believes that it holds a leading market
position in the other 18 countries it serves. In North America, Albecca operates
four moulding and frame manufacturing plants and 28 light
manufacturing/distribution centers. Internationally, the Company operates 18
moulding and frame manufacturing plants and 34 light manufacturing/distribution
centers located in 18 different countries. The Company has completed 12
3
<PAGE> 7
acquisitions in North America since 1988 and 25 international acquisitions
beginning in 1994. In North America, Albecca's primary customers are retail
custom framers. In Europe, the Company primarily serves retail custom framers as
well as home decorating centers.
Craig Ponzio, the Company's Chairman, President, Chief Executive Officer
and principal shareholder, joined Larson Picture Frame, Inc. in 1973 and
purchased that company in 1981, when it had net sales of approximately $3
million. In 1988 Larson Picture Frame, Inc. acquired Juhl-Pacific Corporation,
creating Larson-Juhl. Following the 1981 acquisition, the Company's management
team initiated a program to expand Albecca's product lines, develop an
organizational infrastructure, acquire and consolidate manufacturers and
distributors of custom framing products and instill a culture based on the
Company's six core values. These core values are:
- Customer always comes first
- Fair and honest in all dealings
- Respect for the individual
- Excellence in products and service
- Rewards tie to performance
- Leadership by example
Building a talented management team with extensive experience in key areas
such as design, sourcing, sales, marketing, information systems, finance,
manufacturing, distribution and logistics has been central to the Company's
objective to be the worldwide leader in the custom framing industry. The
Company's eight senior managers have over 80 years of experience in the custom
framing industry. The experience of the Company's management team has been a key
factor in the growth and profitability of the Company.
INDUSTRY OVERVIEW
The wholesale custom framing industry had 1997 sales to retailers of
approximately $1.2 billion in North America and approximately $1.2 billion in
the rest of the world. There are an estimated 20,000 custom framing retail store
fronts in North America, of which independent, non-franchised stores represent
approximately 85% and national chains, regional chains and franchised operations
comprise the balance. In North America, the Company competes with over 300
manufacturers and distributors of custom framing products. Albecca is one of the
largest manufacturers and distributors in North America and the only
manufacturer operating a broad-based North American distribution network. The
custom framing industry in Europe is similar to that in North America, although
home decorating center chains, primarily in France and Germany, also sell custom
framing products.
OPERATING STRATEGY
Albecca has maintained a consistent operating strategy which has allowed
the Company to achieve a goal of growing operating income faster than net sales
in each fiscal year after 1988. The principal elements of Albecca's operating
strategy are:
Leadership in Design and Premium Branded Products. Albecca provides
consistent leadership in design and premium branded products to the custom
framing industry. With operations in 20 countries, Albecca provides products on
a local, regional and national basis that appeal to the style and design tastes
of a broad range of consumers. Albecca's design team creates new collections
with the objective of providing retail custom framers and consumers with better
designed, higher quality products. The design team uses a proprietary database
that analyzes consumer preferences and cost information to assist in developing
high quality, marketable collections. The Company markets its wood mouldings
under the "Larson-Juhl Classic Collection" and the "Craig Ponzio Signature
Collection" brand names. The "Craig Ponzio Signature Collection" contains the
Company's finest lines of wood moulding, allowing the Company to market
differentiated products to multiple segments of the custom framing industry.
Global Leadership in Sales and Customer Service. Through an organization
designed to respond immediately to the needs of retail custom framers, Albecca
is a global leader in sales and customer service.
4
<PAGE> 8
The Company employs the largest direct sales force serving the custom framing
industry, with 224 sales representatives worldwide, 110 of whom serve North
American retail custom framers. The Company's sales force visits retail custom
framers regularly to introduce new moulding collections, assist with in-store
displays and provide information on more effective merchandising, design and
selling techniques. With 62 light manufacturing/distribution centers worldwide,
Albecca can provide next day shipping of virtually all customer orders. The
Company's proprietary information systems track inventory on a real-time basis
to maximize availability and optimize distribution of products. Albecca's
effective inventory management, global distribution capabilities and superior
customer service have allowed the Company to become a recognized service leader
in the custom framing industry.
Efficient, Low Cost Manufacturing and Distribution. The Company focuses on
continually reducing the costs and improving the efficiency of its manufacturing
and distribution operations while consistently providing the industry's highest
quality products and services. The Company achieves these efficiencies by
leveraging its information systems, process technology, manufacturing
automation, buying power and use of select third-party manufacturers. As a
measure of its success, the Company's operating income margin, which was 10.3%
in 1997, has increased in each fiscal year after 1988.
Complete Line of Quality Products. Albecca designs, manufactures and
distributes a complete line of quality branded products to the custom framing
industry and believes it offers the widest variety of custom framing products in
the world. The Company's products include wood and metal moulding, matboard,
foam board, glass, equipment and other framing supplies. The Company offers over
8,000 branded products in North America and over 17,000 additional branded
products in the rest of world. The Company believes a key competitive advantage
is its ability to offer this full line of quality branded products, which
enables it to be a complete source supplier to retail custom framers.
GROWTH STRATEGY
The Company believes that the ongoing implementation of its operating
strategy combined with its growth strategy has positioned the Company to pursue
continued growth in sales and earnings. The principal elements of Albecca's
growth strategy are:
Introduce Premium, Branded Product Collections. To address changing
consumer style and design preferences, Albecca continually develops new lines of
branded custom mouldings, such as the recent introduction of the "Craig Ponzio
Signature Collection." Since 1994, the Company has designed and introduced 27
new moulding lines in North America, which represented over 30% of Albecca's
1997 North American moulding sales. During the first six months of 1998, the
Company designed and introduced seven new moulding lines in North America.
Albecca believes its ability to design and manufacture premium, branded framing
products that meet consumers' changing tastes will enable the Company to grow
its net sales faster than those of other manufacturers and distributors of
custom framing products.
Increase Sales Penetration to Retail Custom Framers. Albecca has sold
framing products to approximately 90% of the estimated 20,000 retail custom
framers in North America. However, the Company believes that approximately 75%
of these customers purchase less than 20% of their products from Albecca.
Although Albecca is a market leader in North America, the Company believes there
is substantial opportunity to increase its sales penetration to these retail
custom framers and that similar opportunities exist in certain international
markets it serves. One method the Company uses in the U.S. to increase sales to
its current customers is its Partnership Program, through which participating
retail custom framers receive a number of financial and promotional incentives
in return for their commitment to Albecca products. In the first six months of
1998, net sales to Partnership Program participants represented approximately
22% of U.S. net sales. Net sales to Partnership Program participants in the
first half of 1998 increased more than 17% over net sales to the same
participants in the comparable period of 1997.
Improve Profitability of Operations. The Company's U.S. operations
generated an operating income margin of 15% in 1997 from a sales base of $165.5
million. Outside of the U.S., the Company generated an operating income margin
of 6% in 1997 from a sales base of $188.6 million. To continue to improve these
margins, the Company is (i) increasing the number of branded, proprietary
products it offers; (ii) developing
5
<PAGE> 9
a centralized distribution system in Europe; (iii) leveraging the Company's
buying power to reduce costs; (iv) expanding the Partnership Program and (v)
leveraging the capabilities of its proprietary information systems and process
technologies. By taking these steps, which have been successfully applied in its
U.S. operations, the Company believes that it will be able to continue to
increase its operating income margins, particularly in its operations outside of
the U.S.
Increase Product and Brand Awareness through Consumer Advertising. Albecca
believes there are substantial benefits for the Company and the industry to
exposing consumers to the warmth and individuality that custom frames can add to
a home. The Company began a consumer advertising program in September 1996 to
build and strengthen awareness of custom framing generally, and the Company's
brands in particular, among retail custom framers, individual consumers and
decorators. This program uses magazine advertising as well as direct mail
materials and in-store promotional displays. The Company's advertisements have
had an estimated 150 million consumer exposures since September 1996 and can be
seen in publications such as Architectural Digest, Elle Decor, Gourmet, House
and Garden, House Beautiful, Metropolitan Home and Traditional Home.
Pursue Acquisitions. A key growth opportunity and core competency of the
Company is the acquisition of manufacturers and distributors of custom framing
products. Albecca's ability to identify and capitalize on cost savings and other
synergies, and to successfully integrate acquisitions, has been a key factor in
growing the Company's operating income faster than net sales in each fiscal year
after 1988. Since 1988 Albecca has acquired 37 businesses. Albecca has a
disciplined approach to acquisitions, evaluating certain operating and financial
criteria for each candidate, including product design and quality, geographic
markets and customer segments served, management team strength and return on
invested capital. As the leading consolidator of manufacturers and distributors
in the custom framing industry, Albecca is able to leverage its industry
leadership position, marketing and manufacturing expertise, and emphasis on its
core values to become the 'acquiror of choice.' There are currently over 300
manufacturers and distributors of custom framing products in North America and
an additional 500 outside North America, with the smallest having estimated
annual sales under $1 million and the largest having sales over $150 million.
Albecca believes the fragmented nature of the industry presents opportunities to
make further prudent acquisitions.
Albecca Inc. is a Georgia corporation whose principal executive offices are
located at 3900 Steve Reynolds Boulevard, Norcross, Georgia 30093, and its
telephone number is (770) 279-5200.
6
<PAGE> 10
THE OFFERING
Class A Common Stock to be offered:
U.S. Offering............ shares
International Offering... shares
Total............ shares
Common Stock to be
outstanding after the
Offering(1)(2):
Class A Common Stock..... shares
Class B Common Stock..... shares
Total............ shares
Voting Rights.............. Each share of Class A Common Stock is entitled to
one vote, while each share of Class B Common Stock
is entitled to 10 votes. Holders of Class A Common
Stock and Class B Common Stock generally vote
together as a single class. See "Description of
Capital Stock."
Use of Proceeds............ To repay indebtedness under the Company's primary
credit facility and to repay notes payable to the
Company's existing shareholders issued in
connection with the termination of the Company's S
corporation status. See "S Corporation Termination"
and "Use of Proceeds."
Proposed New York Stock
Exchange symbol..........
- ---------------
(1) Excludes 2,600,000 shares of Class A Common Stock reserved for issuance
pursuant to the Company's stock option plan. See "Management -- 1998 Stock
Option Plan."
(2) Assumes no exercise of the U.S. Underwriters' over-allotment option.
7
<PAGE> 11
SUMMARY COMBINED FINANCIAL DATA
The following summary combined financial data is qualified by reference to,
and should be read in conjunction with, the combined financial statements and
the related notes thereto and other financial information included elsewhere in
this Prospectus, as well as "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The summary combined financial data of the
Company for the fiscal years ended August 27, 1995, August 25, 1996 and August
31, 1997 and the six months ended March 1, 1998 are derived from the Company's
audited combined financial statements. The summary combined financial data for
the six months ended February 23, 1997 has been derived from the Company's
unaudited combined financial statements which, in the opinion of management,
contain all adjustments (consisting of only normal and recurring adjustments)
necessary to present fairly the Company's financial position and results of
operations at such dates and for such periods. Historical results are not
necessarily indicative of the results to be expected in the future and results
for interim periods are not necessarily indicative of results for the entire
year.
<TABLE>
<CAPTION>
YEAR ENDED(1) SIX MONTHS ENDED
------------------------------------------ ---------------------------
AUGUST 27, AUGUST 25, AUGUST 31, FEBRUARY 23, MARCH 1,
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $225,359 $300,788 $354,058 $186,016 $199,814
Cost of sales........................ 127,541 172,564 199,250 107,651 112,610
-------- -------- -------- -------- --------
Gross profit...................... 97,818 128,224 154,808 78,365 87,204
Operating expenses................... 75,347 97,495 118,457 58,689 66,986
-------- -------- -------- -------- --------
Operating income.................. $ 22,471 $ 30,729 $ 36,351 $ 19,676 $ 20,218
======== ======== ======== ======== ========
Pro forma net income(2).............. $ 10,612 $ 13,262 $ 14,864 $ 8,424 $ 7,554
======== ======== ======== ======== ========
Pro forma basic earnings per common
share.............................
Pro forma basic weighted average
common shares outstanding.........
OTHER DATA:
Net cash provided by operating
activities........................ $ 19,043 $ 30,640 $ 23,455 $ 13,364 $ 11,979
Net cash (used in) investing
activities........................ (31,084) (38,099) (22,514) (16,300) (23,726)
Net cash provided by financing
activities........................ 14,068 8,282 199 3,516 12,390
EBITDA(3)............................ 28,077 35,731 43,090 22,992 23,510
</TABLE>
<TABLE>
<CAPTION>
MARCH 1, 1998
-------------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 49,459
Total assets.............................................. 243,500
Long-term debt including current maturities............... 132,627
Shareholders'/Members' equity............................. 39,866
</TABLE>
- ---------------
(1) The Company ends its fiscal year on the last Sunday in August. The Company's
fiscal year ended August 31, 1997 was a 53-week year.
(2) On or prior to the date of this Prospectus, Albecca will terminate its
status as an S corporation. Pro forma net income represents net income had
the Company been a C corporation for the periods presented. See "S
Corporation Termination."
(3) EBITDA is defined as income before interest, taxes, depreciation and
amortization and minority interest. EBITDA is presented because the Company
believes it to be a useful indicator of a company's ability to meet debt
service and capital expenditure requirements. It is not, however, intended
as an alternative measure of operating results or cash flow from operations
(as determined in accordance with generally accepted accounting principles).
(4) Adjusted to give effect to the Offering and the application of the net
proceeds therefrom of approximately $ million (assuming an initial public
offering price of $ per share). Also adjusted to give effect to the
estimated final distribution of approximately $ million to the
Company's existing shareholders on or prior to the date of this Prospectus.
See "S Corporation Termination" and "Use of Proceeds."
8
<PAGE> 12
RISK FACTORS
An investment in the shares of Class A Common Stock offered hereby involves
a high degree of risk. In addition to the other information in this Prospectus,
the following factors should be considered carefully in evaluating an investment
in the Class A Common Stock offered hereby. This Prospectus contains statements
which constitute "forward-looking statements" that are based upon assumptions
made by the Company's management as of the date of this Prospectus, including
assumptions about risks and uncertainties faced by the Company. These statements
appear in a number of places in this Prospectus and include all statements that
are not historical statements of fact relating to, without limitation, future
economic performance, plans and objectives of management for future operations
and projections of revenues and other financial items that are based on the
beliefs of, as well as assumptions made by and information currently known to,
the Company's management. The words "may," "would," "could," "will," "expect,"
"estimate," "anticipate," "believe," "intends," "plans" and similar expressions
and variations thereof are intended to identify forward-looking statements. The
cautionary statements set forth in this "Risk Factors" section and elsewhere in
this Prospectus identify important factors with respect to such forward-looking
statements, including certain risks and uncertainties, many of which are beyond
the Company's ability to control, that could cause actual results to differ
materially from those in such forward-looking statements.
ABILITY TO CONTINUE AND MANAGE GROWTH
As part of its growth strategy, the Company seeks to expand its market
presence and increase sales penetration to retail custom framers both in the
North American and international markets. The Company also intends to continue
to grow through strategic acquisitions of manufacturers and distributors of
custom framing products. There can be no assurance that the Company will be able
to expand its market presence in its current locations or successfully complete
future acquisitions. The Company's ability to grow will depend on a number of
factors, including the demand for the Company's existing and new products, the
ability to maintain sufficient profit margins and the impact of existing and
emerging competition. To accommodate growth, the Company must also recruit,
retain and develop qualified personnel, manage costs and, when needed, adapt its
infrastructure and modify its operating systems. Activities related to the
implementation of the Company's growth strategies may at times divert
management's attention from the Company's business operations, and the costs
associated with such activities may adversely affect the Company's
profitability. The Company's failure or inability to continue, or to manage, its
growth strategy successfully may have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business -- Growth
Strategy."
ACQUISITION RISKS
Following the Offering, the Company intends to continue to pursue
acquisitions of manufacturers and distributors of custom framing products. There
can be no assurance, however, that in the future the Company will be able to
enter into acquisition agreements on favorable terms, consummate any acquisition
or successfully integrate any acquired business into the Company's operations.
In addition, the Company competes for acquisition candidates, and continued
consolidation in the industry may result in fewer opportunities for
acquisitions. There also can be no assurance that adequate financing for
acquisitions on acceptable terms can be arranged; however, the Company believes
that following consummation of the Offering it will be in a better position to
obtain such financing. Future acquisitions may also result in potentially
dilutive issuances of equity securities, the incurrence of additional debt
(under existing or new credit facilities or through the public or private
issuance of debt securities), the write-off of in-process product development
and capitalized product costs, integration costs, and the amortization of
expenses related to goodwill and other intangible assets, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Acquisitions involve numerous additional risks,
including difficulties in the assimilation of the operations, products and
personnel of the acquired company, differing corporate cultures, the diversion
of management's attention from other business concerns and the potential loss of
key employees. Any one or more of these risks may have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Growth Strategy."
9
<PAGE> 13
DEPENDENCE ON MANAGEMENT
The Company is dependent upon the abilities and expertise of Craig Ponzio,
its Chief Executive Officer, and other key managers. The Company believes it has
developed significant depth and experience within its management; however, no
assurance can be given that the Company's business, financial condition and
results of operations would not be adversely affected if any of these key
managers ceased to be active in the business of the Company. The Company will
enter into an employment agreement with Mr. Ponzio prior to the consummation of
the Offering, and maintains key man life insurance on Mr. Ponzio in the amount
of $11.0 million. See "Management."
USE OF THIRD-PARTY MANUFACTURERS AND SUPPLIERS
The Company is dependent upon third parties for the manufacture and supply
of a majority of its products. The inability of a manufacturer to ship orders of
the Company's products in a timely manner or to meet the Company's quality
standards could affect the Company's ability to maintain adequate inventory to
meet its customers' needs, which could have a material adverse effect on the
Company's business, financial condition and results of operations. No
manufacturer or supplier accounted for more than 8% percent of the Company's
total purchases, on a cost of goods basis, in 1997. The Company does not have
supply contracts with any of its manufacturers or suppliers; however, the
Company has long-standing relationships with many of these third parties and has
historically experienced only limited difficulty in satisfying its inventory
requirements. See "Business -- Manufacturing and Sourcing."
SHORTAGES AND CHANGES IN COSTS OF RAW MATERIALS
The Company's profitability is dependent on its ability to offer quality
products at competitive prices. Various factors beyond the Company's control may
affect the availability and/or cost of its raw materials. While management of
the Company has been able to anticipate and react to changing costs and
availability of raw materials to date through its price adjustments, purchasing
practices and product variation, there can be no assurance that the Company will
be able to do so in the future. The Company does not have supply contracts with
any of its suppliers of raw materials; however, the Company has long-standing
relationships with many of these suppliers and has historically experienced only
limited difficulty in satisfying its raw materials requirements. See
"Business -- Manufacturing and Sourcing."
FOREIGN OPERATIONS
Outside the U.S., the Company currently manufactures and sells products
primarily in Canada and western Europe. The manufacturing costs, profit margins
and competitive position of the Company are consequently affected by the
strength of the currencies in countries where its products are manufactured
relative to the strength of the currencies in the countries where its products
are sold. The Company's results of operations and financial condition may be
adversely affected by fluctuations in foreign currencies and by translations of
the financial statements of the Company's foreign subsidiaries from local
currencies into U.S. dollars. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 1 of notes to the Company's combined financial statements.
Other risks inherent in foreign operations include changes in social,
political and economic conditions which could result in the disruption of trade
from the countries in which the Company's operations, manufacturers or suppliers
are located, the imposition of additional regulations relating to imports and
exports, the imposition of additional duties, taxes and other charges on imports
and exports or restrictions on the transfer of funds, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
FACTORS AFFECTING OPERATING RESULTS; POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The success of the Company's business depends to a significant extent on a
number of factors relating to discretionary consumer spending, including
economic conditions that affect disposable consumer income, such as employment
levels, business conditions, interest rates and taxation. Any significant
decline in such general
10
<PAGE> 14
economic conditions or uncertainties regarding future economic prospects that
affect consumer spending generally, and spending on home decorating/improvement
products specifically, could have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, the success
of the Company's business depends on consumer tastes in custom picture framing
products, as well as in home decorating products in general, which are subject
to change over time. A shift in consumer preferences away from the products,
brands or styles that the Company manufactures and distributes, or has the
capability to manufacture and distribute, could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company's revenues also may be affected by the introduction of new products by
the Company's competitors. The Company's expense levels are based, in part, on
its expectations as to future revenues. If revenue levels are below
expectations, the Company may be unable or unwilling to reduce expenses
proportionately and its operating results will likely be adversely affected.
The Company's quarterly operating results may vary in the future or
decrease significantly depending on factors such as the timing of new product
announcements or changes in pricing policies by the Company or its competitors.
The Company has limited or no control over many of these factors. As a result,
the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indicative of future performance. Due to all of the foregoing factors and the
other risks identified herein, it is possible that in some future quarter or
quarters the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Class A Common Stock will likely be adversely affected.
COMPETITION
Competition is strong in the segments of the custom framing industry in
which the Company operates. The Company competes with numerous domestic and
foreign manufacturers and distributors of custom framing products. The Company's
business depends on its ability to anticipate and respond to changing consumer
tastes and demands by producing marketable products, as well as on its ability
to remain competitive in the areas of quality, delivery and price. In a broader
sense, the Company also faces competition from other forms of home decorating
products and services. There can be no assurance that the Company will be able
to maintain its operating income margins if the competitive environment changes.
See "Business -- Competition."
NO PRIOR PUBLIC MARKET; VOLATILITY OF STOCK PRICE
Before the Offering, there has been no public market for the Class A Common
Stock or Class B Common Stock, and there can be no assurance that an active
trading market for the Class A Common Stock will develop or continue following
the Offering or that the market price of the Class A Common Stock will not
decline below the initial public offering price. The initial public offering
price for the Class A Common Stock was determined by negotiation between the
Company and the U.S. Representatives (as defined herein) based on several
factors and may not be indicative of the market price for the Class A Common
Stock after the Offering. The Company believes that various factors such as
general economic conditions and changes or volatility in the financial markets,
changing conditions in the Company's markets and quarterly or annual variations
in the Company's financial results, some of which are not necessarily related to
the Company's performance, could cause the market price of the Class A Common
Stock to fluctuate substantially. See "Underwriters."
VOTING RIGHTS OF CLASS A AND CLASS B COMMON STOCK; CONTROL BY PRINCIPAL
SHAREHOLDER
Under the Company's Amended and Restated Articles of Incorporation (the
"Articles"), each share of Class A Common Stock is entitled to one vote, while
each share of Class B Common Stock is entitled to 10 votes on all matters with
respect to which the Company's shareholders have a right to vote, including the
election of directors. Except as otherwise required by law or expressly provided
in the Articles, holders of shares of the Class A Common Stock and Class B
Common Stock vote together as a single class. After the Offering, Craig Ponzio,
Chairman and Chief Executive Officer of the Company, will beneficially own all
outstanding shares of Class B Common Stock, representing approximately
% of the total voting
11
<PAGE> 15
power of all classes of voting stock of the Company. As a result, Mr. Ponzio
will be able to control the outcome of matters requiring a shareholder vote,
including the election of directors, the amendment of the Articles or of the
Company's Amended and Restated Bylaws (the "Bylaws"), and the approval of
certain mergers or other significant transactions, such as sales of
substantially all of the Company's assets; provided, however, that in certain
circumstances where a proposed merger or other significant transaction would
provide disparate treatment to the holders of Class A Common Stock and Class B
Common Stock, and is to be voted on by the Company's shareholders, then each
such class of stock would be entitled to vote on any such proposal as a separate
class. Purchasers of the Class A Common Stock in the Offering will become
minority shareholders of the Company and will be unable to control the
management or business policies of the Company. Moreover, the Company is not
prohibited from engaging in transactions with its management and principal
shareholders, or with entities in which such persons are interested. However,
the Company has adopted a policy that following consummation of the Offering,
all transactions with the Company's principal shareholders, officers or
directors, or their affiliates, must be on terms which are no less favorable to
the Company than could be obtained from an unaffiliated third party in an arm's
length transaction, and any such transaction exceeding $500,000 must be approved
by a majority of the Company's independent and disinterested directors. See
"Management," "Principal Shareholders," "Certain Transactions" and "Description
of Capital Stock."
MATERIAL BENEFITS TO PRINCIPAL SHAREHOLDERS
The Company intends to use the net proceeds of the Offering to, among other
things, repay approximately $ million of notes payable held by the principal
shareholders. See "S Corporation Termination," "Use of Proceeds," "Principal
Shareholders" and "Certain Transactions."
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON MARKET PRICE
Substantially all of the outstanding shares of Class A Common Stock, as
well as shares of Class A Common Stock issuable on exercise of stock options
granted or to be granted under the Company's stock option plan, are or will be
eligible for future sale in the public market at prescribed times pursuant to
Rule 144 under the Securities Act of 1933, as amended (the "Securities Act").
Sales of such shares in the public market, or the perception that such sales may
occur, could adversely affect the market price of the Class A Common Stock or
impair the Company's ability to raise additional capital in the future through
the sale of equity securities. Upon consummation of the Offering, there will be
outstanding shares of Class A Common Stock, outstanding shares of
Class B Common Stock that are convertible into an equal number of shares of
Class A Common Stock upon the occurrence of certain events, and stock options
outstanding to purchase an additional shares of Class A Common Stock.
Of the outstanding shares of Class A Common Stock, the shares sold in
the Offering ( shares if the U.S. Underwriters' over-allotment option
is exercised in full) will be freely tradable by persons other than "affiliates"
of the Company without restriction under the Securities Act. The remaining
shares of Class A Common Stock and shares of Class B Common Stock
will be "restricted" securities within the meaning of Rule 144 under the
Securities Act and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including the
exemptions contained in Rule 144. The Company and all current shareholders of
the Company have agreed not to sell, contract to sell, or otherwise dispose of
any shares of the Class A Common Stock or Class B Common Stock owned by them for
a period of 180 days after the date of this Prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters. See
"Shares Eligible for Future Sale" and "Underwriters."
POTENTIAL ANTI-TAKEOVER EFFECTS OF ARTICLES AND BYLAW PROVISIONS
The Articles and Bylaws contain certain provisions that could have the
effect of delaying, deferring or preventing a change in the control of the
Company, which may adversely affect the market price of the Class A Common Stock
or the ability of shareholders to participate in a transaction in which they
might otherwise receive a premium for their shares over the then-current market
price. In addition, the Articles authorize the Board of Directors to issue
shares of preferred stock ("Preferred Stock") in one or more series, and to
establish the rights, preferences, privileges and restrictions, including voting
rights, of such Preferred
12
<PAGE> 16
Stock without requiring shareholder approval and on such terms as the Board of
Directors may determine. Although the Company has no present plans to issue any
shares of Preferred Stock, the rights of the holders of Class A Common Stock
will be subject to, and may be adversely affected by, the rights of holders of
any Preferred Stock that may be issued in the future. See "Description of
Capital Stock."
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT
The Company does not intend to declare or pay cash dividends in the
foreseeable future because it intends to retain its earnings, if any, to finance
the expansion of its business and for general corporate purposes, including
acquisitions. Any payment of future dividends will be at the discretion of the
Board of Directors and will depend upon, among other things, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
factors that the Company's Board of Directors deem relevant. In addition, the
Company's credit facilities impose certain restrictions that may limit the
Company's ability to pay dividends. See "Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of shares of Class A Common Stock offered hereby will experience
immediate dilution in the net tangible book value per share of Class A Common
Stock of $ per share. See "Dilution."
13
<PAGE> 17
S CORPORATION TERMINATION
In 1986 Albecca Inc. elected, for U.S. income tax purposes, to be treated
as an S corporation under the Internal Revenue Code of 1986, as amended (the
"Code"), and comparable provisions of certain state income tax laws. An S
corporation generally is not subject to income tax at the federal and state
levels (with the exception of certain states' income tax laws). Instead, income
of an S corporation is generally passed through to its shareholders and is taxed
on their personal income tax returns. As a result, since 1987 Albecca Inc.'s
income has generally not been subject to tax at the corporate level.
On or prior to the date of this Prospectus, Albecca Inc. will terminate its
status as an S corporation under the Code (the "Termination Date") and
distribute all undistributed S corporation earnings to its current shareholders.
At March 1, 1998, the undistributed S corporation earnings of Albecca Inc. were
estimated to be $64.3 million. On May 1, 1998, Albecca Inc. distributed
previously undistributed S corporation earnings to its shareholders through the
issuance of promissory notes ("S Corp Notes") in the amount of $10.5 million.
The S Corp Notes bear interest at a rate of 11% per annum and are due in full
upon demand. The undistributed S corporation earnings from March 2, 1998 through
the Termination Date are estimated to be $5.4 million, although the actual
amount of such earnings may vary. In July 1998, Albecca Inc. expects to
distribute the remaining undistributed S corporation earnings, estimated to be
approximately $60 million, to its shareholders through the issuance of
additional S Corp Notes. The S Corp Notes are expected to be repaid in full
using a portion of the net proceeds from the Offering. Purchasers of shares of
Class A Common Stock in the Offering will not receive any portion of the
distribution of the previously undistributed S corporation earnings. See "Use of
Proceeds."
The Company's shareholders have agreed to indemnify the Company should its
status as an S corporation during any portion of the period for which it claimed
such status in federal or certain state income tax filings ever be successfully
challenged. See "Certain Transactions."
In connection with the termination of its S corporation status, the Company
will report an increase in earnings, which will be recognized in the quarter
during which the Termination Date occurs, through the addition of approximately
$8.6 million in deferred tax assets. See Notes 1 and 12 of notes to the
Company's combined financial statements.
USE OF PROCEEDS
The net proceeds to the Company from the Offering, assuming an initial
public offering price of $ per share and after deducting underwriting
discounts and commissions and estimated expenses, are estimated to be
approximately $ million ($ million if the U.S. Underwriters'
over-allotment option is exercised in full).
From the net proceeds of the Offering, the Company will repay approximately
$ million of the Company's outstanding indebtedness under its primary credit
facility and will repay all of the outstanding S Corp Notes, together with
accrued interest thereon, which the Company estimates will then be $ million.
The indebtedness under the credit facility bears interest at a weighted average
rate (equal to 7.5% as of March 1, 1998) and matures on September 1, 2001. See
"S Corporation Termination," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Certain Transactions."
14
<PAGE> 18
DIVIDEND POLICY
The Company historically has made distributions to its shareholders related
to its S corporation status and the resulting tax payment obligations imposed on
its shareholders. Other than the distribution to be made to the Company's
shareholders described under "S Corporation Termination," the Company does not
intend to declare or pay cash dividends in the foreseeable future because it
intends to retain its earnings, if any, to finance the expansion of its business
and for general corporate purposes, including acquisitions. Any payment of
future dividends will be at the discretion of the Board of Directors and will
depend upon, among other things, the Company's earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions with
respect to the payment of dividends and other factors that the Company's Board
of Directors deem relevant. In addition, the Company's credit facilities impose
certain restrictions that may limit the Company's ability to pay dividends. See
"Description of Capital Stock."
DILUTION
At March 1, 1998, the net tangible book value of the Company was
approximately $ million, or $ per share of Class A Common
Stock and Class B Common Stock (after giving effect to the distribution
estimated to be $ million and the estimated $ million of deferred
income tax benefits arising from the termination of the Company's S corporation
status). See "S Corporation Termination." The net tangible book value per share
represents the amount by which the Company's net tangible assets exceed the
Company's total liabilities divided by the number of shares of Class A Common
Stock and Class B Common Stock outstanding. After giving effect to the sale of
the shares of Class A Common Stock offered hereby and the application of
the net proceeds as set forth under "Use of Proceeds," the Company's pro forma
net tangible book value as of March 1, 1998 would have been $ million, or
$ per share of Class A Common Stock and Class B Common Stock,
representing an immediate increase of $ in net tangible book value per
share to existing shareholders and an immediate dilution of $ in net
tangible book value per share to persons purchasing shares of Class A Common
Stock in the Offering. The following table illustrates such per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
Net tangible book value per share before the Offering..... $
Increase in net tangible book value per share attributable
to new investors.......................................
-------
Pro forma net tangible book value per share after the
Offering..................................................
-------
Dilution in net tangible book value per share to new
investors................................................. $
=======
</TABLE>
The following table sets forth as of March 1, 1998 the number of shares of
Class A Common Stock and Class B Common Stock purchased from the Company, the
total consideration paid and the average price per share paid by existing
shareholders and to be paid by the new investors purchasing shares of Class A
Common Stock offered hereby.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
----------------- ----------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders............................ % $ % $
New investors....................................
------- ------ ------- -----
Total.................................. 100.00% 100.0%
======= ====== ======= =====
</TABLE>
15
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
1, 1998 (i) on an actual basis and (ii) as adjusted to give effect to the sale
by the Company of shares of Class A Common Stock in the Offering at
the assumed initial public offering price of $ per share and the
application of the net proceeds therefrom. See "S Corporation Termination," "Use
of Proceeds" and "Selected Combined Financial Data." This table should be read
in conjunction with the Company's combined financial statements and the related
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information appearing elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 1, 1998
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current maturities................ $132,627
Shareholders'/Members' equity:
Common stock, $0.01 par value; 20,000,000 shares
authorized, 17,000,000 shares issued and outstanding
(actual)............................................... 170
Additional paid-in capital................................ 255
Members' capital.......................................... 427
Retained earnings......................................... 46,681
Cumulative foreign currency translation adjustment........ (7,667)
-------- --------
Total shareholders'/members' equity............... 39,866
-------- --------
Total capitalization.............................. $172,493 $
======== ========
</TABLE>
16
<PAGE> 20
SELECTED COMBINED FINANCIAL DATA
The following selected combined financial data is qualified by reference to,
and should be read in conjunction with, the combined financial statements and
the related notes thereto and other financial information included elsewhere in
this Prospectus, as well as "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The selected combined financial data of
the Company for the fiscal years ended August 29, 1993, August 28, 1994, August
27, 1995, August 25, 1996 and August 31, 1997 and the six months ended March 1,
1998 are derived from the Company's audited combined financial statements. The
selected combined financial data for the six months ended on February 23, 1997
has been derived from the Company's unaudited combined financial statements
which, in the opinion of management, contain all adjustments (consisting of only
normal and recurring adjustments) necessary to present fairly the Company's
financial position and results of operations at such dates and for such periods.
Historical results are not necessarily indicative of the results to be expected
in the future and results for interim periods are not necessarily indicative of
results for the entire year.
<TABLE>
<CAPTION>
YEAR ENDED(1) SIX MONTHS ENDED
-------------------------------------------------------------- -----------------------------
AUGUST 29, AUGUST 28, AUGUST 27, AUGUST 25, AUGUST 31, FEBRUARY 23, MARCH 1,
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ------------ --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $ 137,828 $ 157,346 $ 225,359 $ 300,788 $ 354,058 $ 186,016 $ 199,814
Cost of sales................ 79,785 90,804 127,541 172,564 199,250 107,651 112,610
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit............... 58,043 66,542 97,818 128,224 154,808 78,365 87,204
Operating expenses........... 44,643 51,008 75,347 97,495 118,457 58,689 66,986
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income........... 13,400 15,534 22,471 30,729 36,351 19,676 20,218
Interest expense............. 1,056 1,034 4,008 7,346 10,472 5,093 6,577
Provision for income taxes... 966 1,165 2,322 3,679 3,243 1,657 1,710
Minority interest............ -- -- 97 300 146 34 358
---------- ---------- ---------- ---------- ---------- ---------- ----------
Historical net income........ $ 11,378 $ 13,335 $ 16,044 $ 19,404 $ 22,490 $ 12,892 $ 11,573
========== ========== ========== ========== ========== ========== ==========
Historical earnings per
common share -- basic and
diluted.................... $ .67 $ .78 $ .94 $ 1.14 $ 1.32 $ .76 $ .68
========== ========== ========== ========== ========== ========== ==========
Historical weighted average
shares outstanding -- basic
and diluted................ 17,000,000 17,000,000 17,000,000 17,000,000 17,000,000 17,000,000 17,000,000
========== ========== ========== ========== ========== ========== ==========
Income before pro forma
provision for income
taxes...................... $ 11,378 $ 13,335 $ 16,044 $ 19,404 $ 22,490 $ 12,892 $ 11,573
Pro forma provision for
income taxes............... 4,218 4,925 5,432 6,142 7,626 4,468 4,019
---------- ---------- ---------- ---------- ---------- ---------- ----------
Pro forma net income(2)...... $ 7,160 $ 8,410 $ 10,612 $ 13,262 $ 14,864 $ 8,424 $ 7,554
========== ========== ========== ========== ========== ========== ==========
Pro forma basic earnings per
common share............... $ $
========== ==========
Pro forma basic weighted
average common shares
outstanding................
========== ==========
OTHER DATA:
Net cash provided by
operating activities....... $ 12,044 $ 21,298 $ 19,043 $ 30,640 $ 23,455 $ 13,364 $ 11,979
Net cash (used in) investing
activities................. (2,422) (12,023) (31,084) (38,099) (22,514) (16,300) (23,726)
Net cash (used in) provided
by financing activities.... (9,472) (8,899) 14,068 8,282 199 3,516 12,390
EBITDA(3).................... 15,102 17,807 28,077 35,731 43,090 22,992 23,510
</TABLE>
<TABLE>
<CAPTION>
AUGUST 25, AUGUST 31, MARCH 1,
1996 1997 1998
---------- ---------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................... $ 39,456 $ 43,302 $ 49,459
Total assets......................................................... 190,168 208,689 243,500
Long-term debt, including current maturities......................... 93,062 108,726 132,627
Shareholders'/Members' equity........................................ 35,343 37,313 39,866
</TABLE>
- ---------------
(1) The Company ends its fiscal year on the last Sunday in August. The Company's
fiscal year ended August 31, 1997 was a 53-week year.
(2) On or prior to the date of this Prospectus, Albecca will terminate its
status as an S corporation. Pro forma net income represents net income had
the Company been a C corporation for the periods presented. See "S
Corporation Termination."
(3) EBITDA is defined as income before interest, taxes, depreciation and
amortization and minority interest. EBITDA is presented because the Company
believes it to be a useful indicator of a company's ability to meet debt
service and capital expenditure requirements. It is not, however, intended
as an alternative measure of operating results or cash flow from operations
(as determined in accordance with generally accepted accounting principles).
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the "Selected Combined Financial Data" and the Company's combined financial
statements and the related notes thereto which are included elsewhere in this
Prospectus. In this "Management's Discussion and Analysis of Financial Condition
and Results of Operations", all references to the Company's international
operations ("International") include all of Albecca's operations outside of the
U.S. The Company uses a 52-53 week fiscal year ending on the last Sunday in
August. Accordingly, fiscal years 1995, 1996 and 1997 ended on August 27, 1995,
August 25, 1996 and August 31, 1997, respectively. Moreover, fiscal 1997 was a
53-week year.
OVERVIEW
Albecca is a worldwide leader in the custom framing industry, designing,
manufacturing and distributing high quality, branded custom framing products,
including wood and metal moulding, matboard, foam board, glass, equipment and
other framing supplies. The Company was purchased by its current Chairman and
Chief Executive Officer, Craig Ponzio, in 1981 and since then has profitably
grown net sales every year. In each fiscal year after 1988, Albecca achieved its
goal of growing operating income faster than net sales through consistent
implementation of its operating and growth strategies. Over the last five years,
net sales have increased by a compound annual growth rate of 28.9%, from $137.8
million in 1993 to $354.1 million in 1997. Operating income increased by a
compound annual growth rate of 30.7% over the same period, from $13.4 million in
1993 to $36.4 million in 1997.
Albecca's net sales consist primarily of sales of branded custom framing
products to retail custom framers, including independent retailers and framing
departments of arts and craft stores. With operations in 20 countries, Albecca's
net sales are geographically diversified. U.S. customers accounted for 68.2%,
54.0% and 46.7% of 1995, 1996 and 1997 net sales, respectively. International
customers accounted for 31.8%, 46.0% and 53.3% of 1995, 1996, and 1997 net
sales, respectively. A key growth opportunity for Albecca has been the
acquisition of other manufacturers and distributors of custom framing products.
The Company has completed nine acquisitions in the U.S. since 1988 and 28
acquisitions outside of the U.S. since 1989, 27 of which occurred since 1994. Of
these acquisitions, Albecca completed six in 1995, ten in 1996, six in 1997
(four in the first six months) and five in the first six months of 1998.
Albecca's cost of sales for manufactured goods primarily consists of the
cost of raw materials, primarily lumber, direct labor and the overhead
associated with the manufacturing processes (the relationship of raw material,
labor and overhead to the total product cost varies primarily by the amount of
the value added processes, such as hand finishes, that are added to the
product). The Company's cost of sales for products purchased for resale
primarily consists of the cost of the product and the related freight costs. The
cost of the Company's sampling program, through which it provides moulding
samples to retail custom framers, is also included in cost of sales. Albecca's
operating expenses include the expenses associated with the Company's customer
service, marketing, selling, distribution processes and general and
administrative support.
Albecca Inc. has been an S corporation under the Code since 1987 and
Larson-Juhl International L.L.C. has been a limited liability company since
inception. Therefore, neither has been subject to federal and certain state
income tax. The provision for income taxes that Albecca historically has
recorded has been primarily for certain state and foreign income taxes. As of
the date of this Prospectus, the Company will terminate its S corporation status
and thereafter be taxed as a C corporation for federal and state income tax
purposes, as well as for foreign income tax purposes. See "S Corporation
Termination."
18
<PAGE> 22
RESULTS OF OPERATIONS
The following table sets forth certain combined statements of operations
data as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED ENDED
------------------------------------ ------------------------
AUGUST 27, AUGUST 25, AUGUST 31, FEBRUARY 23, MARCH 1,
1995 1996 1997 1997 1998
---------- ---------- ---------- ------------ ---------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..................... 56.6 57.4 56.3 57.9 56.4
----- ----- ----- ----- ------
Gross profit.................... 43.4 42.6 43.7 42.1 43.6
Operating expenses................ 33.4 32.4 33.4 31.5 33.5
----- ----- ----- ----- ------
Operating income................ 10.0 10.2 10.3 10.6 10.1
Interest expense.................. 1.8 2.4 3.0 2.8 3.3
----- ----- ----- ----- ------
Income before provision for
income taxes and minority
interest..................... 8.2 7.8 7.3 7.8 6.8
Provision for income taxes........ 1.0 1.2 .9 .9 .8
Minority interest................. .1 .1 -- -- .2
----- ----- ----- ----- ------
Net income before pro forma
provision for income taxes... 7.1 6.5 6.4 6.9 5.8
----- ----- ----- ----- ------
Pro forma provision for income
taxes........................... 2.4 2.1 2.2 2.4 2.0
Pro forma net income.............. 4.7% 4.4% 4.2% 4.5% 3.8%
===== ===== ===== ===== ======
</TABLE>
First Six Months of 1998 Compared to First Six Months of 1997
Net Sales. Net sales increased $13.8 million, or 7.4%, to $199.8 million
for the first six months of 1998 from $186.0 million in the comparable period in
1997. This increase is primarily a result of the acquisition of five
manufacturers and distributors of custom framing products during the first six
months of 1998 and the expansion of the Company's lines of premium custom frame
mouldings, offset by changes in currency. Currency fluctuations in the first six
months of 1998 reduced sales by 4.8%, primarily due to a strengthening of the
U.S. dollar against the French Franc, German Mark and Dutch Guilder. In constant
currency terms, net sales increased by 12.2% in the first six months of 1998
compared to the same period in 1997. Excluding acquisitions, on a constant
currency basis, net sales increased 1.0% in the first six months of 1998
compared to the same period in 1997. Net sales, excluding acquisitions on a
constant currency basis, increased 2.1% in the U.S. and .1% in International
operations in the first six months of 1998 compared to the same period in 1997.
Net sales increases in the U.S. resulted from a 10.6% increase in net sales to
independent custom framing retailers, offset by a decline in net sales to
framing departments of arts and craft stores. The five acquisitions completed
during the first six months of 1998 contributed increased net sales of $16.7
million, or 9.0%.
Gross Profit. Gross profit margin increased to 43.6% for the first six
months of 1998 from 42.1% in the comparable period in 1997. Gross profit
increased $8.8 million, or 11.3%, to $87.2 million for the first six months of
1998 from $78.4 million in the comparable period in 1997. In the U.S., gross
profit margin increased to 44.9% for the first six months of 1998 from 44.1% in
the comparable period in 1997. This increase was primarily the result of an
improvement in the product mix, with increased sales of products that comprise
the "Craig Ponzio Signature Collection," offset by a 11.6% increase in the cost
of the Company's sampling program and lower gross profit margins on products
sold by acquired businesses. International's gross profit margin increased to
42.6% for the first six months of 1998 from 40.5% in the comparable period in
1997 primarily due to the Company's ability to leverage its buying power with
existing suppliers, sourcing of products from additional vendors and the
consolidation of certain international activities.
Operating Expenses. Operating expenses increased $8.3 million, or 14.1%,
to $67.0 million for the first six months of 1998 from $58.7 million in the
comparable period in 1997. Operating expenses as a percentage
19
<PAGE> 23
of net sales increased to 33.5% for the first six months of 1998 from 31.5% in
the comparable period in 1997. The increase in operating expenses is primarily
attributable to the acquisition of five manufacturers and distributors of custom
framing products during the first six months of 1998 and operating expenses from
the six acquisitions completed during 1997. In the U.S., operating expenses as a
percentage of net sales increased to 31.8% in the first six months of 1998 from
31.3% in the comparable period in 1997. This increase was primarily due to a
14.0% increase in spending for marketing programs, including the consumer
advertising program, as well as $1.2 million of non-recurring costs associated
with the integration of the acquisition of three distributors of custom framing
products and costs associated with upgrading the Company's information systems,
offset by improved efficiencies throughout its U.S. distribution network.
International's operating expenses as a percentage of net sales increased to
35.1% in the first six months of 1998 from 31.8% in the comparable period in
1997 primarily due to the acquisitions of two manufacturers and distributors of
custom framing products which had higher operating expenses as a percentage of
net sales, as well as $1.0 million in non-recurring costs primarily related to
the integration of existing and acquired facilities.
Interest Expense. Interest expense increased $1.5 million, or 29.4%, to
$6.6 million for the first six months of 1998 from $5.1 million in the
comparable period in 1997. The increase in interest expense is primarily due to
$19.2 million of additional indebtedness incurred in connection with the
acquisition of five manufacturers and distributors of custom framing products
during the first six months of 1998.
Provision for Income Taxes. Provision for income taxes was $1.7 million
for each of the first six months of 1998 and 1997, representing .9% and .8% as a
percentage of net sales during the respective periods.
Net Income Before Pro Forma Provision for Income Taxes. For the reasons
set forth above, particularly the increase in interest expense, net income
before pro forma provision for income taxes decreased by $1.3 million, or 10.2%,
to $11.6 million for the first six months of 1998 from $12.9 million for the
comparable period in 1997. Net income before pro forma provision for income
taxes as a percentage of net sales decreased to 5.8% for the first six months of
1998 from 6.9% for the comparable period in 1997.
1997 Compared to 1996
Net Sales. Net sales increased $53.3 million, or 17.7%, to $354.1 million
for 1997 from $300.8 million in 1996. This increase is primarily a result of the
acquisition of six manufacturers and distributors of custom framing products in
1997 and the expansion of the Company's lines of premium custom frame mouldings,
offset by changes in currency. Currency fluctuations in 1997 reduced sales by
3.2%, primarily due to a strengthening of the U.S. dollar against the French
Franc and Dutch Guilder. In constant currency terms, excluding the 53-week
impact of 1997, net sales increased by 18.3% in 1997 compared to 1996. Excluding
acquisitions, on a constant currency basis, net sales increased 3.6% in 1997
compared to 1996. Net sales, excluding acquisitions on a constant currency
basis, increased 1.9% in the U.S. and 6.6% in International operations in 1997
from 1996. The increase in U.S. net sales is primarily due to a 4.8% increase in
net sales to independent custom framing retailers, offset by a decline in net
sales to framing departments of arts and craft stores. The six acquisitions
completed during 1997 contributed increased net sales of $44.4 million or 14.7%.
Gross Profit. Gross profit margin increased to 43.7% in 1997 from 42.6% in
1996. Gross profit increased $26.6 million, or 20.7%, to $154.8 million in 1997
from $128.2 million in 1996. In the U.S., gross profit margin increased to 46.7%
in 1997 from 44.0% in 1996. This increase was primarily the result of an
improvement in the product mix with increased sales of products that currently
comprise the "Craig Ponzio Signature Collection," offset by a 16.0% increase in
the cost of the Company's sampling program. International's gross profit margin
increased to 41.1% in 1997 from 41.0% in 1996.
Operating Expenses. Operating expenses increased $21.0 million, or 21.5%,
to $118.5 million in 1997 from $97.5 million in 1996. Operating expenses as a
percentage of net sales increased to 33.4% in 1997 from 32.4% in 1996. The
increase in operating expenses is primarily attributable to the acquisition of
six manufacturers and distributors of custom framing products during 1997, a
full year of operating expenses from the 10 acquisitions completed during 1996
and a $1.7 million investment in the U.S. consumer advertising program which
commenced in September 1996. In the U.S., operating expenses as a percentage of
net sales increased to 31.5% in 1997 compared to 30.7% in 1996. This increase
was primarily due to the investment in
20
<PAGE> 24
the U.S. consumer advertising program, offset by improved efficiencies
throughout its U.S. distribution network. International's operating expenses as
a percentage of net sales increased to 35.2% in 1997 from 34.4% in 1996
primarily due to acquisition of six manufacturers and distributors of custom
framing products which had higher operating expenses as a percentage of net
sales.
Interest Expense. Interest expense increased $3.2 million, or 42.6%, to
$10.5 million in 1997 from $7.3 million in 1996. The increase in interest
expense is primarily due to $18.4 million of additional indebtedness incurred in
connection with the acquisition of six manufacturers and distributors of custom
framing products during 1997.
Provision for Income Taxes. Provision for income taxes decreased $.5
million, or 11.9%, to $3.2 million in 1997 from $3.7 in 1996. Provision for
income taxes as a percentage of sales was .9% in 1997 compared to 1.2% in 1996.
Net Income Before Pro Forma Provision for Income Taxes. For the reasons
set forth above, net income before pro forma provision for income taxes
increased $3.1 million, or 15.9%, to $22.5 million in 1997 from $19.4 million in
1996. Net income before pro forma provision for income taxes as a percentage of
net sales decreased to 6.4% in 1997 from 6.5% in 1996.
1996 Compared to 1995
Net Sales. Net sales increased $75.4 million, or 33.5%, to $300.8 million
for 1996 from $225.4 million in 1995. This increase is primarily a result of the
acquisition of 10 manufacturers and distributors of custom framing products in
1996 and the expansion of the Company's lines of premium custom frame mouldings,
offset by changes in currency. Currency fluctuations in 1996 reduced sales by
1.5%, primarily due to a strengthening of the U.S. dollar against the French
Franc, British Pound and Dutch Guilder. In constant currency terms, net sales
increased by 34.9% in 1996 compared to 1995. Excluding acquisitions, on a
constant currency basis, net sales increased 6.8% in 1996 compared to 1995. Net
sales, excluding acquisitions on a constant currency basis, increased 5.4% in
the U.S. and 9.9% in International operations in 1996 from 1995. The increase in
U.S. net sales is primarily due to a 3.4% increase in net sales to independent
custom framing retailers. The 10 acquisitions completed during 1996 contributed
increased net sales of $63.4 million or 28.1%.
Gross Profit. Gross profit margin decreased to 42.6% in 1996 from 43.4% in
1995. Gross profit increased $30.4 million, or 31.1%, to $128.2 million in 1996
from $97.8 million in 1995. In the U.S., gross profit margin increased to 44.0%
in 1996 from 42.7% in 1995. This increase was primarily the result of an
improvement in the product mix with increased sales of products that currently
comprise the "Craig Ponzio Signature Collection," as well as the ability to
leverage buying power and sourcing of products. International's gross profit
margin decreased to 41.0% in 1996 from 44.9% in 1995 primarily due to the
acquisition of six manufacturers and distributors of custom framing products
which had lower gross profit margins.
Operating Expenses. Operating expenses increased $22.2 million, or 29.4%,
to $97.5 million in 1996 from $75.3 million in 1995. Operating expenses as a
percentage of net sales decreased to 32.4% in 1996 from 33.4% in 1995. The
increase in operating expenses is primarily attributable to the acquisition of
10 manufacturers and distributors of custom framing products during 1996 and a
full year of operating expenses from six acquisitions completed during 1995. In
the U.S., operating expenses as a percentage of net sales decreased to 30.7% in
1996 compared to 30.8% in 1995. This decrease was primarily due to improved
efficiencies and an increase in net sales within the existing distribution
network. International's operating expenses as a percentage of net sales
decreased to 34.4% in 1996 from 39.2% in 1995 due to the lower operating
expenses as a percentage of net sales of the 10 acquisitions completed in 1996
and improved efficiencies.
Interest Expense. Interest expense increased $3.3 million, or 83.3%, to
$7.3 million in 1996 from $4.0 million in 1995. The increase in interest expense
is primarily due to $37.6 million of additional indebtedness incurred in
connection with the acquisition of 10 manufacturers and distributors of custom
framing products in 1996.
21
<PAGE> 25
Provision for Income Taxes. Provision for income taxes increased $1.4
million, or 58.4%, to $3.7 million in 1996 from $2.3 million in 1995. Provision
for income taxes as a percentage of net sales was 1.2% in 1996 compared to 1.0%
in 1995.
Net Income Before Pro Forma Provision for Income Taxes. For the reasons
set forth above, net income before pro forma provision for income taxes
increased $3.4 million, or 20.9%, to $19.4 million in 1996 from $16.0 million in
1995. Net income before pro forma provision for income taxes as a percentage of
net sales decreased to 6.5% in 1996 from 7.1% in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal funding requirements are to finance working capital
(primarily inventory and receivables), acquisitions of manufacturers and
distributors of custom framing products, and capital expenditures. Historically,
the Company has relied on cash flow from operations and its credit facilities to
fund these requirements.
Operating Activities. Net cash provided by operating activities decreased
to $12.0 million in the first six months of 1998 from $13.4 million in the first
six months of 1997. This decrease was due to changes in operating assets and
liabilities, primarily an increase in accounts receivable resulting from
increased net sales, offset by improved operating results during the first six
months of 1998. Net cash provided by operating activities decreased by $7.2
million to $23.5 million in 1997 compared to 1996. This decrease was a result of
changes in operating assets and liabilities, primarily a decrease in accounts
payable and accrued liabilities and an increase in inventories, offset by
improved operating results during 1997. Net cash provided by operating
activities in 1996 increased by $11.6 million over 1995 to $30.6 million. This
increase is the result of improved operating results and changes in operating
assets and liabilities, primarily a decrease in inventories.
Investing Activities. Net cash used in investing activities is primarily
used for the acquisition of manufacturers and distributors of custom framing
products. During the first six months of 1998, Albecca invested $19.0 million
for the acquisition of five manufacturers and distributors of custom framing
products. In 1997, acquisition expenditures of $18.4 million decreased by $15.7
million from 1996 expenditures, primarily resulting from a lower level of
acquisition activity in 1997. Acquisition expenditures in 1996 were $34.1
million or $9.1 million greater than those in 1995.
Purchases of property, plant and equipment were approximately $4.8 million,
$7.7 million, $5.5 million and $5.3 million for the first half of 1998, and for
1997, 1996 and 1995, respectively. Historically, capital expenditures have been,
and future capital expenditures are anticipated to be, primarily to support
expansion of the Company's operations and management information systems. The
Company's capital expenditures over the next several years, as a percentage of
its net sales, are expected to be generally consistent with those of the past
three fiscal years.
Financing Activities. The Company has financed acquisitions of
manufacturers and distributors of custom framing products through cash flow from
operations and borrowings under its credit facilities. The Company's current
primary credit facility consists of a $100.0 million revolving credit facility
(the "Credit Facility") with a borrowing base calculated on the Company's U.S.
cash flow (EBITDA). The Credit Facility provides for various borrowing rate
options, with interest rates ranging from LIBOR plus .75% to the prime rate less
.50%. At March 1, 1998, the Company had $67.9 million of outstanding borrowings
under the Credit Facility. The Company also has certain additional credit
facilities that support financing needs of its International and U.S.
operations. At March 1, 1998, the Company had an aggregate of $63.7 million of
outstanding borrowings under the additional foreign credit facilities and $1.0
million of other outstanding U.S. borrowings. The Company intends to use a
portion of the net proceeds of the Offering to repay indebtedness under the
Credit Facility. See "Use of Proceeds." The Company believes that cash from
ongoing operations and funds available under its credit facilities will be
sufficient to satisfy the Company's capital requirements for the foreseeable
future.
The Company from time to time reviews and will continue to review
acquisition opportunities as well as changes in the capital markets. If the
Company were to consummate a significant acquisition or elect to take
22
<PAGE> 26
advantage of favorable opportunities in the capital markets, the Company may
supplement availability or revise the terms under its existing or new credit
facilities or complete public or private offerings of equity or debt securities.
EXCHANGE RATES
The Company is affected by the movement of currencies in the 19 foreign
countries in which it operates. The Company's results of operations and
financial condition may be adversely affected by fluctuations in foreign
currencies and by translations of the financial statements of the Company's
International operations from local currencies into U.S. dollars. The Company
addresses this exposure by financing most funding needs in the applicable
foreign currencies. In addition, the exposure is further mitigated by each of
the International operations transacting business primarily in its local
currency.
YEAR 2000 COMPLIANCE
Year 2000 compliance concerns the ability of certain computerized
information systems to properly recognized date sensitive information as the
year 2000 approaches. Systems that do not recognize or properly treat such
information may cause systems to process critical financial and operational
information incorrectly. The Company believes that substantially all of its
information systems are Year 2000 compliant and plans to replace or upgrade
non-compliant systems prior to February 1999. The Company does not believe that
additional costs to be incurred with Year 2000 compliance will have a material
impact on the Company's financial condition or results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
For a discussion of the impact of recent accounting pronouncements, see the
Company's combined financial statements and the related notes thereto which are
included elsewhere in this Prospectus.
23
<PAGE> 27
BUSINESS
OVERVIEW
Albecca, which primarily does business under the Larson-Juhl name, is a
worldwide leader in the custom framing industry. Albecca designs, manufactures
and distributes a full range of high quality, branded custom framing products,
including wood and metal moulding, matboard, foam board, glass, equipment and
other framing supplies. The Company's principal brands include the "Larson-Juhl
Classic Collection" and the "Craig Ponzio Signature Collection." For over 100
years, the Company has been designing, manufacturing and distributing custom
framing products that enhance the aesthetic qualities of prints, paintings,
drawings and other art and memorabilia. By combining traditional craftsmanship
with modern manufacturing technology, Albecca creates frames characterized by
distinctive design and superior quality. Albecca has attained its worldwide
leadership position by offering a complete selection of branded products and
outstanding service to its retail custom framing customers and more recently by
increasing awareness of its products through consumer advertising.
Albecca has maintained a consistent operating strategy that combines
innovative design of premium branded products, global distribution capabilities,
superior customer service, efficient, low cost manufacturing and distribution
and a full line of quality products. This strategy has made the Larson-Juhl
brand one of the most globally recognized names in the custom framing industry.
The Company believes that consumers are placing an increased emphasis on the
home, its decor and the expression of individual style, which will contribute to
the growth of the custom framing market. To capitalize on this trend, Albecca's
growth strategy is focused on continuing to introduce premium branded product
collections, increasing sales penetration to retail custom framers, improving
profitability of its operations, increasing product and brand awareness through
consumer advertising and pursuing acquisitions of manufacturers and distributors
of custom framing products. Albecca's consistent operating strategy and focus on
profitable growth have allowed the Company to grow operating income faster than
net sales in each fiscal year after 1988. Net sales increased from $137.8
million in 1993 to $354.1 million in 1997, representing a compound annual growth
rate of 29%. Over the same period, operating income has grown from $13.4 million
to $36.4 million, representing a compound annual growth rate of 31%.
Albecca conducts its operations through 77 locations in 20 countries. North
American operations (U.S. and Canada) represented 52% and 76% of 1997 sales and
operating income, respectively. International operations (primarily Europe)
represented 48% and 24% of the Company's fiscal 1997 sales and operating income,
respectively. Albecca is the market leader in North America with an estimated
16% market share and believes that it holds a leading market position in the
other 18 countries it serves. In North America, Albecca operates four moulding
and frame manufacturing plants and 28 light manufacturing/distribution centers.
Internationally, the Company operates 18 moulding and frame manufacturing plants
and 34 light manufacturing/distribution centers located in 18 different
countries. The Company has completed 12 acquisitions in North America since 1988
and 25 international acquisitions beginning in 1994. In North America, Albecca's
primary customers are retail custom picture framers. In Europe, the Company
primarily serves retail custom framers as well as home decorating centers.
Craig Ponzio, the Company's Chairman, President, Chief Executive Officer
and principal shareholder joined Larson Picture Frame, Inc. in 1973 and
purchased that company in 1981, when it had net sales of approximately $3
million. In 1988 Larson Picture Frame, Inc. acquired Juhl-Pacific Corporation
creating Larson-Juhl. Following the 1981 acquisition, the management team
initiated a program to expand Albecca's product lines, develop an organizational
infrastructure, acquire and consolidate manufacturers and distributors of custom
framing products and instill a culture based on the Company's six core values.
These core values are:
- Customer always comes first
- Fair and honest in all dealings
- Respect for the individual
- Excellence in products and service
- Rewards tie to performance
- Leadership by example
24
<PAGE> 28
Building a talented management team with extensive experience in key areas
such as design, sourcing, sales, marketing, information systems, finance,
manufacturing, distribution and logistics has been central to the Company's
objective to be the worldwide leader in the custom framing industry. The
Company's eight senior managers have over 80 years of experience in the custom
framing industry. The experience of the Company's management team has been a key
factor in the growth and profitability of the Company.
OPERATING STRATEGY
Albecca has maintained a consistent operating strategy which has allowed
the Company to achieve a goal of growing operating income faster than net sales
in each fiscal year after 1988. The principal elements of Albecca's operating
strategy are:
Leadership in Design and Premium Branded Products. Albecca provides
consistent leadership in design and premium branded products to the custom
framing industry. With operations in 20 countries, Albecca provides products on
a local, regional and national basis that appeal to the style and design tastes
of a broad range of consumers. Albecca's design team creates new collections
with the objective of providing retail custom framers and consumers with better
designed, higher quality products. The design team uses a proprietary database
that analyzes consumer preferences and cost information to assist in developing
high quality, marketable collections. The Company markets its wood mouldings
under the "Larson-Juhl Classic Collection" and the "Craig Ponzio Signature
Collection" brand names. The "Craig Ponzio Signature Collection" contains the
Company's finest lines of wood moulding, allowing the Company to market
differentiated products to multiple segments of the custom framing industry.
Global Leadership in Sales and Customer Service. Through an organization
designed to respond immediately to the needs of retail custom framers, Albecca
is a global leader in sales and customer service. The Company employs the
largest direct sales force serving the custom framing industry, with 224 sales
representatives worldwide, 110 of whom serve North American retail custom
framers. The Company's sales force visits retail custom framers regularly to
introduce new moulding collections, assist with in-store displays and provide
information on more effective merchandising, design and selling techniques. With
62 light manufacturing/distribution centers worldwide, Albecca can provide next
day shipping of virtually all customer orders. The Company's proprietary
information systems track inventory on a real-time basis to maximize
availability and optimize distribution of products. In 1997, 97% of items
ordered were immediately available from a Company distribution center. In
addition Albecca offers its customers a 100% satisfaction guarantee on every
product sold. Albecca's effective inventory management, global distribution
capabilities and superior customer service have allowed the Company to become a
recognized service leader in the custom framing industry.
Efficient, Low Cost Manufacturing and Distribution. The Company focuses on
continually reducing the costs and improving the efficiency of its manufacturing
and distribution operations while consistently providing the industry's highest
quality products and services. The Company's information systems provide data to
assist the Company in identifying activities and processes that have the
greatest potential for cost reduction. The Company continually strives to
improve its process technology and manufacturing automation to increase product
quality and reduce manufacturing costs. The Company's buying power and its
global sourcing capabilities, including the use of select third-party
manufacturers, allow it to rapidly respond to current market trends and better
manage product costs. As a measure of its success, the Company's operating
income margin, which was 10.3% in 1997, has increased in each fiscal year after
1988.
Complete Line of Quality Products. Albecca designs, manufactures and
distributes a complete line of quality branded products to the custom framing
industry and believes it offers the widest variety of custom framing products in
the world. The Company's products include wood and metal moulding, matboard,
foam board, glass, equipment and other framing supplies. The Company offers over
8,000 branded products in North America and over 17,000 additional branded
products in the rest of the world. The Company believes that a key competitive
advantage is its ability to offer this full line of quality branded products,
which enables it to be a complete source supplier to retail custom framers.
25
<PAGE> 29
GROWTH STRATEGY
The Company believes that the ongoing implementation of its operating
strategy combined with its growth strategy has positioned the Company to pursue
continued growth in sales and earnings. The principal elements of Albecca's
growth strategy are:
Introduce Premium, Branded Product Collections. To address changing
consumer style and design preferences, Albecca continually develops new lines of
branded custom mouldings, such as the recent introduction of the "Craig Ponzio
Signature Collection." Since 1994, the Company designed and introduced 27 new
moulding lines in North America, which represented over 30% of Albecca's 1997
North American moulding sales. During the first six months of 1998, the Company
designed and introduced seven new moulding lines in North America. Albecca
believes its ability to design and manufacture premium, branded framing products
that meet consumers' changing tastes will enable the Company to grow its net
sales faster than those of other custom frame manufacturers.
Increase Sales Penetration to Retail Custom Framers. Albecca has sold
framing products to approximately 90% of the estimated 20,000 retail custom
framers in North America. However, the Company believes that approximately 75%
of these customers purchase less than 20% of their products from Albecca.
Although Albecca is a market leader in North America, the Company believes there
is substantial opportunity to increase its sales penetration to these retail
custom framers and that similar opportunities exist in certain of the
international markets it serves. One method the Company uses in the U.S. to
increase sales to its current customers is its Partnership Program, through
which participating retail custom framers receive a number of financial and
promotional incentives. In the first six months of 1998, net sales to
Partnership Program participants represented approximately 22% of total U.S.
sales. Net sales to Partnership Program participants in the first half of 1998
increased more than 17% over net sales to the same participants in the
comparable period of 1997.
Improve Profitability of Operations. The Company's U.S. operations
generated an operating income margin of 15% in 1997 from a sales base of $165.5
million. Outside of the U.S., the Company generated an operating income margin
of 6% in 1997 from a sales base of $188.6. million. To continue to improve these
margins, the Company is (i) increasing the number of branded, proprietary
products it offers; (ii) developing a centralized distribution system in Europe;
(iii) leveraging the Company's buying power to reduce costs; (iv) expanding the
Partnership Program; and (v) leveraging the capabilities of its proprietary
information systems and process technologies. By taking these steps, which have
been successfully applied in its U.S. operations, the Company believes that it
will be able to continue to increase its operating income margins, particularly
in its operations outside of the U.S.
Increase Product and Brand Awareness through Consumer Advertising. Albecca
believes there are substantial benefits for the Company and the industry to
exposing consumers to the warmth and individuality that custom frames can add to
a home. The Company began a consumer advertising program in September 1996 to
build and strengthen awareness of custom framing generally, and the Company's
brands in particular, among retail custom framers, individual consumers and
decorators. This program uses magazine advertising, direct mail materials and
in-store promotional displays including signage and wall samples that emphasize
the lines that comprise the "Larson-Juhl Classic Collection" and "Craig Ponzio
Signature Collection." The Company's advertisements have had an estimated 150
million consumer exposures since September 1996 and can be seen in publications
such as Architectural Digest, Elle Decor, Gourmet, House and Garden, House
Beautiful, Metropolitan Home and Traditional Home. The Company believes it is
the only manufacturer and distributor of custom framing products marketing its
products through a national consumer advertising program.
Pursue Acquisitions. A key growth opportunity and core competency of the
Company is the acquisition of manufacturers and distributors of custom framing
products. Albecca's ability to identify and capitalize on cost savings and other
synergies, and to successfully integrate acquisitions, has been a key factor in
growing the Company's operating income faster than net sales in each fiscal year
after 1988. Since 1988 Albecca has acquired 37 businesses. Albecca has a
disciplined approach to acquisitions, evaluating certain operating and financial
criteria for each candidate, including product design and quality, geographic
markets and customer
26
<PAGE> 30
segments served, management team strength and return on invested capital. As the
leading consolidator in the custom framing industry, Albecca is able to leverage
its industry leadership position, marketing and manufacturing expertise, and
emphasis on its core values to become the 'acquiror of choice.' There are
currently over 300 manufacturers and distributors of custom framing products in
North America and an additional 500 outside North America, with the smallest
having estimated annual sales under $1 million and the largest having sales over
$150 million. Albecca believes the fragmented nature of the industry presents
opportunities to make further prudent acquisitions.
THE CUSTOM FRAMING INDUSTRY
While art work has been framed by hand for centuries, the custom framing
industry began in the 1890s with the development of special clamps, mat cutters
and other framing equipment. The real growth of the industry began in the 1970s
with the advent of technological advances in equipment and distribution
processes, which decreased the custom framer's barrier to entry and allowed an
increasing number of entrepreneurs to start custom framing businesses. These
trends paralleled the continuing growth of an economically strong middle class
seeking to decorate their homes with art work, photographs and other personal
items. Today the industry in North America includes approximately 20,000 retail
custom frame store fronts and over 300 manufacturers and distributors of custom
framing products. Independent custom framers currently account for approximately
85% of custom framing sales in North America. The remaining 15% of sales are
principally generated by chains and custom framing departments of arts and craft
stores. Outside North America, there are over 20,000 retail custom frame store
fronts and over 500 manufacturers and distributors of custom framing products.
Albecca estimates that sales to retail custom framers in 1997 were approximately
$1.2 billion in North America and approximately $1.2 billion in the rest of the
world. In addition, a separate market for wholesale framing products for
commercial framers and manufacturers of pre-assembled frames, framed art and
framed mirrors is approximately $700 million in North America and approximately
$700 million in the rest of the world. Albecca's net sales to this separate
market have not been material to date.
The Company believes that the custom framing industry has been growing at a
rate of 2% to 3% per year. However, the Company believes that this growth rate
is accelerating due in part to consumers placing greater emphasis on the home
and its decor. The Company believes this trend is contributing to the growth of
the custom framing industry and, when combined with the Company's consumer
advertising program, will allow the Company to help generate increased consumer
awareness and sales of custom framing products.
Historically, due to inventory and cost limitations, retail custom framers
were unable to offer a wide selection of products and instead marketed
themselves as craftsmen. Today, with advances in technology and distribution
processes, the retail custom framer is able to rely on manufacturers and
distributors to provide a wide assortment of framing products and supplies on a
just-in-time basis. Because custom framers are now able to offer a full line of
branded products without inventory limitations, the retail custom framing
industry is less dependent on technical ability than on design and marketing
skills. The Company believes this shift will continue to benefit distributors,
such as Albecca, that are able to provide fast delivery of a complete line of
custom framing products as well as assist retail custom framers with
merchandising, design and selling strategies.
PRODUCTS
Albecca designs, manufactures and distributes a complete line of quality
branded custom framing products, including wood and metal moulding, matboard,
foam board, glass, equipment and other framing supplies. This product offering
allows the Company to be a complete source supplier to retail custom framers.
Albecca offers over 8,000 branded products in North America and over 17,000
additional branded products in the rest of the world. Of the Company's products,
over 12,000 are branded custom frame wood moulding products. The Company
believes it offers the widest variety of products for the retail custom framer
in the industry.
27
<PAGE> 31
The following illustration depicts a completed custom frame, utilizing a
variety of framing products sold by the Company:
[Graphic] Illustration representing a custom framed piece of artwork as well as
a cross section of the components indicating the products sold by the Company
including: wood moulding, matboard, foam board and glass.
Wood Moulding
Albecca is one of the world's largest manufacturers and suppliers of wood
moulding to the custom framing industry, based upon sales. Wood moulding
accounted for approximately 50% of the Company's 1997 net sales and is its
fastest growing product category. Albecca provides branded custom moulding in a
variety of shapes, sizes, finishes and forms to meet each customer's specific
needs. The Company's finishes include water gilded gold leaf, naturally stained
North American hardwoods, genuine European burlwood and hand applied beeswax, as
well as a variety of finishes inspired by antique frames or furniture. The
styles of these wood mouldings range from contemporary geometric shapes to
heavily embossed Baroque patterns. With a variety of widths and styles
available, multiple mouldings can be used within a single frame to create
thousands of framing combinations. Custom framers purchase moulding from the
Company in a variety of formats including: (i) long lengths of moulding which
the framers cut to size; (ii) moulding cut to specific lengths (chop service);
and (iii) moulding assembled as a completed frame (join service). Approximately
50% of the Company's wood moulding sales include value added services such as
the cutting or joining of the frame.
Albecca's design team has created each of its over 1,100 branded wood
mouldings in North America. Most of the Company's wood moulding products are
produced either in the Company's plants in the U.S., Canada, Europe and South
Africa, or by third-party manufacturers in Europe and Asia that have devoted a
significant amount of their capacity to producing Albecca's high quality,
proprietary moulding products. See "-- Manufacturing and Sourcing."
The Company markets its wood mouldings under the "Larson-Juhl Classic
Collection" and the "Craig Ponzio Signature Collection" brand names. Each
collection consists of a series of lines designed to evoke a particular era,
location, style or culture. The "Craig Ponzio Signature Collection" contains the
Company's finest lines of wood moulding, allowing the Company to market
differentiated products to multiple segments of the custom framing industry. See
"-- Design."
Metal Moulding
Albecca distributes approximately 1,000 different branded metal mouldings
worldwide. Sales of these mouldings predominantly require chop service, as
retail custom framers generally do not have the equipment necessary to cut metal
moulding. The Company markets one proprietary line of metal moulding, Clark,
which has been recognized as one of the leaders in metal moulding since its
introduction in 1974. To maintain and
28
<PAGE> 32
improve Clark's market position, the Company's design team continually studies
current and predicted future color trends to develop new finishes and colors for
metal moulding. In addition, the Company distributes three other leading brands
of metal moulding.
Matboard and Foam Board
The Company sells matboard, which is cut to surround the art work and used
inside the frame, and foam board, which is used as a firm backing for certain
art work and other items to be framed. The Company sells all major brands of
matboard and foam board to meet the preferences of retail custom framers. As
consumers have become increasingly concerned about preserving framed items
against discoloration and damage, certain premium conservation types of matboard
and foam board have been developed. In 1997, the Company launched its own
proprietary line of premium conservation matboard, under the Artique brand name,
in an effort to promote and capitalize on this growing trend of preservation
framing.
Glass, Equipment and Other Framing Supplies
Albecca supplies a variety of glass types, generally priced based on
differing levels of ultraviolet filtering properties and reflectivity. The
Company also sells a full complement of custom framing equipment and supplies as
a convenience to its customers. This selection includes joining machines,
matboard cutters and framing hardware. The Company's net sales of custom framing
equipment have not been material. All of the glass, equipment and other framing
supplies sold by the Company are produced by third-party manufacturers.
SALES AND MARKETING
The Company markets its products to custom frame shops principally through
Company-employed sales representatives, advertisements in trade magazines and
attendance at industry trade shows. The Company also markets to consumers by
advertising in widely-distributed magazines that the Company considers
influential among consumers and decorators, as well as through the use of direct
mail materials and in-store promotional displays. Through educational seminars
and consultations with the Company's sales team, Albecca also provides
technical, marketing and other business advice both to established retail custom
framers and to prospective customers establishing new custom framing businesses.
The Company employs 224 sales representatives (110 in North America)
operating out of Albecca's 62 light manufacturing/distribution centers, with
each representative generally calling on 150 to 200 customers between six and
eight times a year. In addition to generating sales orders, these
representatives update customers on the Company's product lines, advise
customers on framing design and techniques and provide information on effective
merchandising, design and selling strategies. All North American sales
representatives travel with portable computers and are able to provide retail
custom framers with updated information on sales trends and, in the U.S.,
information on product availability. Additionally, sales representatives assist
retail custom framers in redesigning their frame sample display walls. Albecca's
direct sales force also works with retail custom framers to help them create and
sell more sophisticated custom frames, and thereby increase the average price
per frame. The sales representatives also listen carefully to the retail custom
framers in order to understand and respond to issues concerning the Company's
products, trends in consumer demand and competitive activities in the
marketplace. Sales representatives are employed by the Company and compensated
principally by salary, with commission and bonus components available based on
sales and other performance criteria.
The Company establishes a local presence by consolidating both the sales
and operations functions in each distribution center under the supervision of a
general manager. This decentralization of management has allowed most sales and
distribution issues to be decided at the local level, thereby improving the
level and speed of service provided to customers. The Company believes the skill
and experience of its general managers has contributed significantly to the
Company's ability to build strong personal relationships with its retail custom
framers and provide a superior level of customer service.
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<PAGE> 33
The Company markets to the retail custom framer directly through catalogs
and sales literature and through publicity and advertising in trade publications
such as Art Business News, Art World News, Art Expressions, Decor, der
Kunsthandel, Picture Framing Magazine and The Picture Business. These
advertisements generally focus on the Company's image and the introduction of
new premium branded products.
Albecca has embarked on an aggressive plan to increase consumer awareness
and appreciation of the value of custom framing in general, and specifically,
the Company's premium branded products. The Company believes that in a
fragmented market served by hundreds of suppliers from around the world,
consumers are more likely to perceive value in premium branded products. In
1996, the Company began to extensively advertise its branded products in
well-known publications that the Company considers influential among consumers
and decorators in the home furnishing industry, such as Architectural Digest,
Elle Decor, House and Garden, House Beautiful, Metropolitan Home and Traditional
Home. The Company believes it is the only manufacturer and distributor of custom
framing products marketing its products through a national consumer advertising
program. These advertisements portray the warmth and individuality custom frames
can add to a home. Through these advertisements, the Company targets
sophisticated consumers with the economic power to purchase its high quality,
premium branded products. In addition, the Company provides its customers with
direct mail literature as well as advertisements suitable for inclusion in local
publications.
To increase sales to its current customers in the U.S., the Company has
established the Partnership Program, through which participating retail custom
framers receive a number of financial and promotional incentives in return for
their commitment to Albecca products. In the first six months of 1998, net sales
to Partnership Program participants represented approximately 22% of U.S. net
sales. Net sales to Partnership Program participants in the first half of 1998
increased more than 17% over sales to the same participants in the comparable
period of 1997. Based on the success of the Partnership Program in the U.S., the
Company intends to implement similar programs in the other markets it serves.
DESIGN
The Company's goal is to develop and produce the best-designed products in
the industry. The Company believes that quality designs not only will increase
consumer interest in its own products, but will also help to lead the entire
industry to improve design quality and thereby attract more consumers to custom
framing. Led by Mr. Ponzio, the Company's design team extensively researches and
studies furniture, architectural and historical design elements and art and
decorating trends from around the world. The Company incorporates these elements
into branded product lines introduced under one of the Company's moulding
collections.
Mr. Ponzio is the Company's chief designer and provides leadership in all
aspects of the design process. Mr. Ponzio's 25 years of design experience are
complemented by the other members of the corporate design team, who have an
average of 17 years of design experience in the custom framing industry. The
corporate design team works in collaboration with designers in each of the
Company's manufacturing facilities to create mouldings that bring together the
best in design with the manufacturing strengths of a particular facility. By
combining their creative vision with the Company's commitment to developing
high-quality products, the entire design team strives to understand what
consumers desire and which designs are most likely to be commercially viable.
The Company believes that its future success will be enhanced by its ability to
originate and define design trends, as well as to anticipate and react to
changing consumer demands in a timely manner.
Albecca designs all of its wood moulding products and the Clark collection
of metal moulding. In addition, the Company has recently introduced its first
proprietary matboard design. The team creates products which are manufactured
both by Albecca as well as by third-party manufacturers. Traditionally, the time
involved from design and conception to production of a new product line is
approximately six months. Since 1994, the Company has designed and introduced 27
new wood moulding product lines in North America. During the first six months of
1998, the Company designed and introduced seven new wood moulding product lines
in North America.
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<PAGE> 34
Listed below is a brief description from the Company's marketing materials
of recent introductions of wood moulding lines under the "Craig Ponzio Signature
Collection":
<TABLE>
<CAPTION>
NAME DESCRIPTION YEAR INTRODUCED
- ---- ----------- ---------------
<S> <C> <C>
Aubusson............... Inspired by artfully woven French rugs, Aubusson 1998
reflects the delicate detail, carefully crafted color
and design of antique French tapestries.
Castillano............. The splendor of Spain is captured in this rich, bold, 1996
distinctive moulding. The pleasing proportions and
beautifully embossed patterns exude tradition and
fine quality.
Cortona................ Like a comfortable piece of antique furniture or an 1998
heirloom passed down from generation to generation,
this collection of beautifully patterned genuine
burlwood evokes the same feelings of antiquity.
Couleurs Provence...... Harvested from the French countryside, this moulding 1998
captures the authentic detailing of aged wormwood,
the classic colors of Provence and the beauty of a
natural beeswax finish.
El Greco............... This majestic, deeply embossed Spanish moulding is 1998
designed in the style of the royal court during the
15th century. Our artisans meticulously recapture the
bold, strong distinction of this regal age.
Imperial............... The grace and stately detail of 17th century France 1996
lives again in this collection of delicately embossed
profiles.
Kensington............. The natural beauty and unique characteristics of 1997
authentic mahogany and European burlwood veneers give
this collection a sense of warmth and character that
stands the test of time.
Musee.................. Our Master Guilders create this distinctive 1996
collection of beautiful mouldings using the same
time-honored techniques of hand-finished
waterguilding that began centuries ago.
Prado.................. Seemingly lit from within, the dark, rich glow of 1997
this moulding collection reflects the accumulated age
of the beautiful monasteries of Old World Europe.
Stradivarius........... The graceful shapes and rich finishes of the 1997
Stradivarius violin served as the inspiration for
this exquisitely designed moulding collection.
Vermeer................ Named in honor of the Dutch master, Vermeer, these 1998
elegant, smooth mouldings bring together classic and
modern influences to create a collection that is the
true work of a master.
</TABLE>
MANUFACTURING AND SOURCING
Albecca produces approximately 40% of its wood moulding in three
manufacturing plants in North America and 12 plants in Austria, Czech Republic,
Finland, France, Italy, Netherlands, South Africa, Sweden and the United
Kingdom. The remaining 60% of its wood moulding is produced by third-party
manufacturers. As an industry leader in design, and as one of the largest
distributors of wood moulding to retail custom framers, the Company has
developed close working relationships with many third-party manufacturers who
produce Albecca's proprietary products to its designs and specifications. Many
of these manufacturers have devoted a significant amount of their capacity to
the production of Albecca's high quality products. In addition to moulding
manufacturing plants, the Company has seven pre-assembled frame manufacturing
plants in Europe and the U.S. The Company distributes its products from its
light manufacturing/distribution centers. See "-- Distribution."
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<PAGE> 35
The following lists certain information regarding the Company's
manufacturing facilities:
<TABLE>
<CAPTION>
NUMBER OF
COUNTRY PRODUCTS FACILITIES
------- -------- ----------
<S> <C> <C>
Austria............................................ Mouldings 1
Canada............................................. Mouldings 2
Czech Republic..................................... Mouldings and Frames 2
Finland............................................ Mouldings 1
France............................................. Mouldings and Frames 4
Germany............................................ Frames 1
Italy.............................................. Mouldings 1
Netherlands........................................ Mouldings and Frames 2
Russia............................................. Frames 1
South Africa....................................... Mouldings 2
Sweden............................................. Mouldings 2
United Kingdom..................................... Mouldings 1
United States...................................... Mouldings and Frames 2
--
Total.................................... 22
==
</TABLE>
The wood moulding manufacturing process begins with raw board lumber, from
which the moulding is milled and then sanded to produce the finished profile.
Then a variety of staining, distressing and hand-applied finishing techniques
are used to produce the completed moulding. There are typically between eight
and 25 process steps involved in producing the Company's high-quality wood
moulding products.
Wood, the principal raw material used in the Company's manufacturing
processes, is purchased from a variety of suppliers in the U.S., Canada, Asia
and Africa as kiln-dried blanks or as raw lumber that is then dried by the
Company. The primary types of wood used by the Company are North American oak
and ash, as well as European pine. The Company has long-standing relationships
with many of its suppliers and has experienced only limited difficulty in
satisfying its raw materials requirements. Although the loss of any supplier may
have an adverse effect on the Company's short-term operating results, the
Company believes it could replace suppliers without having a material adverse
effect on the Company. Over the past three years, prices of the Company's
primary types of wood have remained relatively stable.
The Company does not manufacture any other products, but instead purchases
them from numerous other manufacturers and distributors. As a result of the
Company's high volume of purchases from these manufacturers, the Company
believes it is generally able to achieve a cost advantage over its competitors.
The Company works with one manufacturer to produce its proprietary line of Clark
metal moulding. The Company is the only purchaser of metal picture frame
moulding from this manufacturer. The Company also works with one manufacturer to
produce its Artique brand of matboard.
The Company's manufacturing and sourcing staff oversees manufacturing and
production, negotiates purchases of raw materials and researches and identifies
new suppliers and third-party manufacturers. The Company's products are
manufactured according to plans prepared each year which reflect prior years'
experience, current industry trends, economic conditions and the Company's
estimates of a particular line's performance. The Company separately negotiates
with suppliers for the purchase of required raw materials in accordance with the
Company's specifications and limits its exposure to holding excess raw material
inventory by purchasing based on demand. The Company believes that its policy of
limiting its commitments for purchases reduces its exposure to excess inventory
and obsolescence. The Company is not responsible for procuring raw materials
used by its third-party manufacturers.
DISTRIBUTION
Albecca believes its success to date is based in large part on consistently
providing a complete line of framing materials and supplies, and filling orders
rapidly and dependably. By supplying a broad line of quality products, Albecca
offers retail custom framers numerous alternatives to meet the individual tastes
of
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<PAGE> 36
consumers. The Company has developed a user-friendly order and fulfillment
system in North America that includes features such as toll-free telephone and
fax ordering, highly-trained customer service and technical representatives,
extended customer service hours, instant stocking information and next-day
shipping on most orders from the Company's distribution centers. This system,
and advancements in framing technology, allow retail custom framers to offer
fast, dependable service to their customers without requiring significant
amounts of capital to be tied up in inventory and equipment. This, in turn,
allows Albecca's customers to enhance their marketing by committing more of
their shop space to retail display and more of their time to designing and
selling, and less to back-room operations.
North America
A typical custom framing transaction in North America begins with an
Albecca retail custom framing customer helping a consumer determine the best way
to preserve, mount and display a work of art or personal item. Consumers select
the style and color of framing materials to suit their individual taste, aided
by displays of moulding samples ("corners") and other framing materials. Then,
the retail custom framer determines the proper amount and dimensions of each
kind of material needed to complete the framing (e.g., moulding, matboard and
glass) and contacts Albecca's customer service center by telephone or fax to
place the order. After confirming the order and the customer's credit
availability on Albecca's integrated management information system, the order is
automatically printed or displayed at the distribution center closest to the
customer. Upon receiving the order, personnel in the distribution center pull
the required materials, cut the moulding to its required dimensions (if chop
service is requested), join the frame, if necessary, inspect and package the
order. Depending on the location of the customer, orders are either delivered by
one of Albecca's delivery trucks or by a package delivery company, such as UPS,
with the goal of shipping the order for delivery the next business day. After
receiving the order, the retail custom framer completes the preparation of the
materials and assembles the finished frame using matboard cutters, glass cutters
and moulding joiners.
Albecca distributes its products in North America through 28 distribution
centers. The number and location of these distribution centers make Albecca the
only manufacturer with a broad-based North American distribution network. The
Company operates a fleet of over 100 delivery trucks in North America, which in
1997 delivered approximately 80% of its total North American orders. In the
U.S., the Company's distribution centers are located, on average, within a 200
mile radius of approximately 85% of its customers.
The Company's Chicago and Los Angeles distribution centers also serve as
distribution hubs that receive and process container-size deliveries of the
Company's products and ship smaller quantities of products, generally weekly, to
the other distribution centers based on customer demand. This "just-in-time"
system has allowed the more efficient flow of products while avoiding the costly
build-up of inventory at any one location.
Coupled with the Company's efficient order and fulfillment process, this
distribution system resulted in approximately 97% of items ordered being
immediately available from a distribution center in 1997 and the shipment of
virtually all orders the next business day.
In North America, the Company operates distribution centers in the
following metropolitan areas:
<TABLE>
<S> <C>
Atlanta, Georgia Los Angeles, California
Baltimore, Maryland Miami, Florida
Boston, Massachusetts Minneapolis, Minnesota
Calgary, Alberta Montreal, Quebec
Chicago, Illinois New Orleans, Louisiana
Cincinnati, Ohio Newark, New Jersey
Cleveland, Ohio Philadelphia, Pennsylvania
Dallas, Texas Phoenix, Arizona
Denver, Colorado San Diego, California
Detroit, Michigan San Francisco, California
Greensboro, North Carolina Seattle, Washington
Houston, Texas St. Louis, Missouri
Huntsville, Alabama Toronto, Ontario
Lakeland, Florida Vancouver, British Columbia
</TABLE>
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<PAGE> 37
International
Outside North America, the Company has relied to date on the distribution
systems in place for the companies it has acquired, and is in the process of
integrating and rationalizing these systems. The Company's goal for its
international operations is to develop a fast, user-friendly order-fulfillment
system that operates through a logistical network similar to the one existing in
North America. In order to realize this goal, the Company is developing a
central distribution center in Germany to improve response to European framers
as well as to better control distribution costs. This center is expected to be
operational by August 1998.
The Company operates distribution centers from the following countries
outside of North America:
<TABLE>
<CAPTION>
NUMBER OF
COUNTRY FACILITIES
- ------- ----------
<S> <C>
Australia................................................... 6
Austria..................................................... 2
Belgium..................................................... 1
Czech Republic.............................................. 1
Finland..................................................... 1
France...................................................... 2
Germany..................................................... 1
Greece...................................................... 1
Japan....................................................... 1
Korea....................................................... 1
Netherlands................................................. 4
New Zealand................................................. 2
Norway...................................................... 1
Russia...................................................... 1
South Africa................................................ 2
Sweden...................................................... 5
United Kingdom.............................................. 2
--
Total............................................. 34
==
</TABLE>
CUSTOMERS
In North America, Albecca's target customers are the approximately 20,000
custom framing retail store fronts who serve middle to upper income consumers.
To date, the Company has served approximately 90% of these retail store fronts.
Outside North America, the Company targets the over 20,000 retail custom frame
store fronts and home decorating centers. No one customer represented more than
5% of the Company's 1997 net sales.
MANAGEMENT INFORMATION SYSTEMS
The Company believes that information and technology are essential to
maintain its competitive position. The Company's management information system
is designed to provide responsive and efficient order processing, inventory
control, financial reporting and management information for the Company's sales,
marketing, procurement, distribution and financial analysis functions. The
Company's management information system allows it to track inventory on a real
time basis throughout its North American distribution network. The Company's
North American operations utilize J.D. Edwards' WorldSoftware release 7.3
software and IBM Series 640-2239 hardware (AS400 series) which are supported at
the Company's headquarters in Norcross, Georgia. In addition, the Company has
introduced an electronic data interchange ("EDI") system to facilitate
processing customer orders and inventory replenishment. The Company believes
that substantially all of its information systems are Year 2000 compliant and
plans to replace or upgrade non-compliant systems prior to February 1999. The
Company believes that additional costs incurred in connection with these
replacements and upgrades will not have a material impact on the Company's
financial condition or results of operations.
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<PAGE> 38
CREDIT ANALYSIS AND CONTROL
Albecca manages its credit and collection functions regionally in the U.S.
Outside of the U.S., credit and collection functions are managed separately in
each country in which the Company operates. The Company extends credit based on
an evaluation of the customer's financial condition and history with the
Company. Albecca monitors credit levels on an ongoing basis to minimize credit
risk. The Company does not factor its accounts receivable or maintain credit
insurance.
INVENTORY MANAGEMENT
Albecca believes that a key competitive advantage is its complete line of
quality branded products, which allows the Company to be a complete source
supplier to retail custom framers. In the U.S., the Company's sales information
system is integrated into its inventory procurement system in order to provide
current demand trends and to optimize inventory stocking levels. This demand
information is reviewed on an ongoing, location-by-location basis in order to
more effectively control the Company's inventory investment.
QUALITY CONTROL
A key factor in the Company's success in maintaining the high quality of
its products has been to ensure that through the careful design of such
products, they can be manufactured consistently over a long period of time. The
Company monitors the quality of its raw materials prior to the manufacture of
products and inspects prototypes of each product before production runs are
commenced. The Company also performs in-line quality control checks during and
after production. Final inspections occur when the products are processed for
final shipment at each of the Company's distribution centers. The Company
believes that its careful inspection policy is an important element in
maintaining the quality and reputation of its products. In addition, the Company
conducts quarterly reviews with each of its manufacturers and suppliers to
assess and improve performance levels.
Albecca offers its customers a 100% satisfaction guarantee on every product
sold. Less than 1% of the products shipped by the Company in the U.S. during
each of the last three fiscal years have been returned under this policy.
COMPETITION
Albecca competes with over 300 North American and over 500 international
manufacturers and distributors of custom framing products. The Company competes
primarily on the basis of product design and quality, on-time delivery,
inventory availability and price. Albecca is one of the largest distributors and
manufacturers of wood mouldings in North America, where it estimates its largest
competitor is The Williamson Company. However, wood moulding products are
available from most of the other domestic and foreign distributors. The
principal manufacturers of metal moulding are Esselte Holdings, Inc. and
Cardinal Aluminum Company which primarily supply their products to custom
framers through distributors. Albecca believes it is one of the largest metal
moulding customers of both companies. The principal manufacturers of matboard
are Crescent Cardboard Company and Esselte Holdings, Inc. which primarily supply
their products to custom framers through distributors. Albecca believes it is
the largest single matboard customer of both companies.
In the broader sense, the Company competes in the larger home decorating
market, where consumers may forgo custom framing and choose ready-made picture
frames or framed art works, and in the larger wholesale contract framing market,
where wholesale picture framers produce framed art works in volume for large
accounts such as hotels or office complexes. Albecca believes that other home
furnishing items such as furniture, floor and wall coverings and window
treatments compete with custom framing for consumer dollars, and the Company's
biggest challenge is to enable the custom framing industry to capture more of
those sales.
TRADEMARKS
The Company utilizes a number of trademarks to distinguish its brands,
principally, Larson-Juhl, Clark and Artique. The Company has registered or
applied for registration of these trademarks in the U.S. and
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<PAGE> 39
Canada and in numerous countries in Europe, Asia and elsewhere. Mr. Ponzio has
granted the Company a perpetual right to use the name "Craig Ponzio" in
connection with the Company's activities in the custom framing industry. The
Company regards its trademarks and other proprietary rights as valuable assets
in the marketing of its products, and on a worldwide basis, vigorously seeks to
protect them against infringement. There can be no assurance that the actions
taken by the Company to establish and protect its trademarks and other
proprietary rights will be adequate to prevent imitation of its products by
others or to prevent others from seeking to block sales of the Company's
products as violative of the trademarks and other proprietary rights of others.
In addition, the laws of certain foreign countries may not protect proprietary
rights to the same extent as do the laws of the United States.
EMPLOYEES
At April 30, 1998, the Company had 2,979 full-time team members
(employees), of which 2,421 were in operations, 256 were in sales and marketing
and 302 were in corporate and general administrative positions. None of the
Company's North American team members are represented by unions. In certain of
the European countries in which the Company operates, team members may be
represented by unions (as mandated by such countries' laws) or covered by social
legislation governing employment practices. Management believes that the
Company's relationship with its team members is good.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state, local and foreign
environmental laws and regulations relating to the handling and management of
certain chemicals used and generated in manufacturing its products. The Company
believes that its operations currently comply in all material respects with
these laws and regulations. Based on the annual costs incurred by the Company
over the past several years, management does not believe that compliance with
these laws and regulations will have a material adverse effect upon the
Company's business, financial condition and results of operations. The Company
believes, however, that it is reasonably likely that the trend in environmental
litigation and regulation will continue to be toward stricter standards. Such
changes in the law and regulations may require the Company to make additional
capital expenditures which, while not presently estimable with certainty, are
not presently expected to have a material adverse effect on the Company's
business, financial condition and results of operations.
PROPERTY AND FACILITIES
The Company's principal executive offices are located in a 65,000 square
foot office building located in Norcross, Georgia owned by L-J Properties Inc.,
a company owned by Messrs. Ponzio, Trimarco and Scheppmann, each of whom is an
executive officer and director of the Company. The Company's lease for this
facility terminates in August 2001 and the annual rent currently is $678,000.
See "Certain Transactions."
The Company owns two facilities in Ashland, Wisconsin containing
approximately 58,000 and 54,000 square feet each. These facilities are used in
the manufacture of moulding, sample frames and ready-made frames. The Company
also owns facilities in Denver, Colorado and Waldorf, Maryland which are used as
light manufacturing/distribution centers. The Company leases 24 other facilities
in North America from which it operates its light manufacturing/distribution
centers and hubs. These facilities vary in size from approximately 7,000 to
103,500 square feet and have lease termination dates ranging from September 1998
to May 2006. See "-- Manufacturing and Sourcing" and "-- Distribution."
The Company owns 17 facilities and leases 32 facilities in 18 countries
outside of North America which are used to manufacture and/or distribute the
Company's products. The leased facilities vary in size from approximately 1,350
to 105,000 square feet and have lease termination dates ranging from October
1998 to December 2003. See "-- Manufacturing and Sourcing" and
"-- Distribution."
The Company believes that its properties and facilities are adequate for
its current needs. The Company does not anticipate any material difficulty in
replacing such facilities or securing new facilities.
LEGAL PROCEEDINGS
The Company is a party from time to time in actions incidental to its
business. The Company believes that any currently pending proceedings are of a
routine nature and will not, individually or in the aggregate, have a material
adverse effect upon the Company.
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<PAGE> 40
MANAGEMENT
The following table sets forth the names, ages and principal positions of
the Company's executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Craig A. Ponzio........................ 47 Chairman of the Board, President, Chief
Executive Officer and Director
June R. Ponzio......................... 36 Vice Chairman of the Board and Director
William P. Trimarco.................... 39 President, U.S. Operations and Director
Stephen M. Scheppmann.................. 42 Senior Vice President, Chief Financial
Officer and Director
Stephen E. McKenzie.................... 36 Vice President, Marketing
Patrick R. Cronin...................... 51 Vice President, Human Resources
David J. Bolde......................... 49 Vice President, International
R. Bradley Goodson..................... 38 Vice President, Business Development and
Secretary
</TABLE>
Within 12 months after the Offering, the Company will appoint two
independent directors.
Craig A. Ponzio has served as the Company's Chairman of the Board,
President, Chief Executive Officer and a Director since 1981. He has been
actively involved with the Company since 1973 and acquired the Company in 1981.
Mr. Ponzio oversees the Company's operations, including the execution of its
growth strategies, and is active in the identification and consummation of
acquisitions. Mr. Ponzio is the Company's chief designer and provides leadership
in all aspects of the design process.
June R. Ponzio has served as the Company's Vice Chairman of the Board and a
Director since May 1998. She served as Corporate Secretary from October 1993
until May 1998. She participates in corporate strategic planning, with
particular experience in acquisitions, vendor relationships and team member
relations. Prior to joining Albecca in 1992, she held a management position with
Freshens Yogurt.
William P. Trimarco has served as the Company's President, U.S. Operations
since July 1997 and has been a Director since May 1998. Mr. Trimarco joined the
Company in 1982 as Distribution Coordinator. He served as Vice President of
Operations from 1987 to 1995, and Senior Vice President, U.S. Operations from
1995 to 1997.
Stephen M. Scheppmann has served as the Company's Senior Vice President and
Chief Financial Officer since December 1997 and has been a Director since May
1998. Mr. Scheppmann joined the Company in December 1988 as its Vice President
and Chief Financial Officer. From 1978 to 1988, he was employed by Arthur
Andersen & Co.
Stephen E. McKenzie has served as the Company's Vice President, Marketing
since September 1995. From 1991 until 1995, Mr. McKenzie held the positions of
Product Manager and Marketing Manager. Before joining the Company in August
1991, he was the buyer for framing and import products for a national retailer.
Patrick R. Cronin has served as the Company's Vice President, Human
Resources since March 1991. Prior to joining the Company, Mr. Cronin was Vice
President, Human Resources for the Great Atlantic & Pacific Tea Co., Inc.
David J. Bolde has served as the Company's Vice President, International
since September 1996. Prior to joining the Company in September 1996, Mr. Bolde
was General Manager, International Automotive Parts for Federal Mogul from 1972
until June 1996.
R. Bradley Goodson has served as the Company's Vice President, Business
Development and Secretary since May 1998. Mr. Goodson joined the Company in
August 1994 and held the positions of Finance Manager and Business Development
Manager. His primary focus is the Company's acquisition activity. From 1983
until August 1994, Mr. Goodson was employed by Arthur Andersen & Co.
Craig Ponzio and June Ponzio are married. There are no other family
relationships among the Company's directors and executive officers.
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<PAGE> 41
BOARD OF DIRECTORS
The Bylaws provide that the size of the Board of Directors shall be
determined by the Board of Directors or by the shareholders of the Company. The
size of the Board of Directors is currently fixed at four members, all of whom
are members of the Company's management. Following the Offering, the Company
intends to elect two additional directors, both of whom will be independent
directors in accordance with the requirements of the New York Stock Exchange.
The Company anticipates that one of the these directors will be appointed within
three months of the consummation of the Offering and the other director will be
appointed within 12 months of the consummation of the Offering. Directors of the
Company are generally elected at the annual meeting of shareholders. Directors
of the Company are elected or appointed to serve until they resign or are
removed, or until their successors are elected and have qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors intends to establish an Audit Committee within three
months of the consummation of the Offering and a Compensation Committee within
12 months of the consummation of the Offering. The Audit Committee will consist
solely of independent non-employee directors and the Company anticipates that
the Compensation Committee will consist of the Company's two independent
non-employee directors and Mr. Ponzio.
The Audit Committee will be responsible for reviewing and monitoring the
Company's financial reports and accounting practices and will recommend the
appointment of independent public accountants to conduct audits of the Company's
financial statements and review with the independent accountants the plan and
results of the auditing engagement. The Audit Committee will also be responsible
for reviewing related party transactions and potential conflicts of interest
involving officers, directors, employees or affiliates of the Company. The
Compensation Committee will be responsible for determining the compensation
arrangements for the Company's executive officers and administration of the
Company's 1998 Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors intends to establish a Compensation Committee within
12 months of the consummation of the Offering. The Board of Directors has not
previously had a Compensation Committee, and the functions of the Compensation
Committee historically have been performed by Mr. Ponzio, the Company's Chief
Executive Officer, as the sole member of the Board of Directors. The Company
anticipates that following the Offering, Mr. Ponzio will serve on the
Compensation Committee. See "-- Committees of the Board of Directors" and
"Certain Transactions."
DIRECTOR COMPENSATION
Prior to the Offering, the Company's directors did not receive compensation
for their services as directors. Following the consummation of the Offering,
each director who is not an employee of the Company will receive a fee of $2,000
for attendance at each Board of Directors meeting and for each committee meeting
(unless held on the same day as a Board of Directors meeting). In addition,
non-employee directors are eligible to receive stock option grants for 1,000
shares of Class A Common Stock each year under the Company's 1998 Stock Option
Plan. All directors will be reimbursed for out-of-pocket expenses incurred in
attending meetings of the Board of Directors or committees thereof and for other
expenses incurred in their capacity as directors. Directors who are employees of
the Company will not receive additional compensation for serving as directors.
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<PAGE> 42
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued for
services rendered to the Company by the Company's Chief Executive Officer and
the four most highly compensated other executive officers whose total salary and
bonus exceeded $100,000 (collectively, the "Named Executive Officers") during
the year ended August 31, 1997. The Company did not grant any stock appreciation
rights or make any long-term incentive plan payouts during the periods shown.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- -------------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
- --------------------------- -------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Craig A. Ponzio, Chairman of the Board,
President and Chief Executive Officer.....
William P. Trimarco, President, U.S.
Operations................................
Stephen M. Scheppmann, Senior Vice President
and Chief Financial Officer...............
Patrick J. Cronin, Vice President, Human
Resources.................................
David J. Bolde, Vice President,
International.............................
</TABLE>
EMPLOYMENT AGREEMENT
The Company expects to enter into an employment agreement with Mr. Ponzio
to be effective at the consummation of the Offering. Pursuant to such employment
agreement, Mr. Ponzio shall be paid an annual base salary of $ , and
will be eligible for an annual bonus to be determined based on certain
performance criteria as set forth in the agreement or as otherwise determined by
the Compensation Committee. The employment agreement shall be for a term of
three years and shall continue thereafter for additional one year terms unless
either the Company or Mr. Ponzio terminates or elects not to renew the
agreement. The employment agreement will also contain an agreement by Mr. Ponzio
not to compete with the Company for a period of years immediately following
termination of his employment. If the employment agreement is terminated for any
reason other than for cause, as defined in the agreement, the Company will
continue to pay Mr. Ponzio's annual base salary for years following
such termination.
In addition, Mr. Ponzio has agreed to grant the Company a perpetual right
to use the name "Craig Ponzio" in connection with the Company's activities in
the custom framing industry.
1998 STOCK OPTION PLAN
In May 1998, the Board of Directors and the Company's shareholders approved
the Company's 1998 Stock Option Plan (the "Plan"). The purpose of the Plan is to
advance the interests of the Company and its shareholders by affording certain
employees and directors of the Company, as well as key consultants and advisors
to the Company, an opportunity to acquire or increase their proprietary
interests in the Company. The objective of the issuance of stock options under
the Plan is to promote the growth and profitability of the Company because the
optionees will be provided with an additional incentive to achieve the Company's
objectives through participation in its success and growth and by encouraging
their continued association with or service to the Company.
Options under the Plan will be granted by the Compensation Committee of the
Board of Directors and may include incentive stock options ("ISOs") and/or
non-incentive stock options ("non-ISOs"). The Compensation Committee will
administer the Plan and generally will have discretion to determine the terms of
an option grant, including the number of option shares, option price, term,
vesting schedule, the post-termination exercise period and whether the grant
will be an ISO or non-ISO. Notwithstanding this discretion: (i) if an option is
intended to be an ISO, the option price per share of Class A Common Stock may
not be less than 100% of the fair market value of such share at the time of
grant, and the fair market value at the time of
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<PAGE> 43
grant of shares first purchasable under the option in any one year cannot exceed
$100,000, (ii) if an option is intended to be an ISO and is granted to a
shareholder holding more than 10% of the combined voting power of all classes of
the Company's stock or of its parent or subsidiary on the date of the grant of
the option, the option price per share of Class A Common Stock may not be less
than or 110% of the fair market value of such shares at the time of grant; and
(iii) the term of any option may not exceed 10 years, or five years if the
option is intended to be an ISO and is granted to a shareholder owning more than
10% of total combined voting power of all classes of stock on the date of the
grant of the option.
A maximum of 2,600,000 shares of Class A Common Stock may be granted under
the Plan, unless it is amended to increase that number. Shares of Class A Common
Stock which are attributable to options that have expired, terminated or been
canceled are available in connection with future option grants. The Company
intends to grant, as of the date of this Prospectus, options to purchase an
aggregate of shares of Class A Common Stock to approximately key
managers, including to the Company's executive officers as a group, of
which , and will be granted to Messrs. Scheppmann, Cronin and
Bolde, at an exercise price equal to the initial public offering price.
The Plan will remain in effect until terminated by the Board of Directors.
No ISO may be granted after May 1, 2008. The Plan may be amended by the Board of
Directors without the consent of the shareholders of the Company, except that
for any amendment to be effective as to ISOs, it must be approved by the
Company's shareholders within one year after approval by the Board of Directors
if the amendment increases the total number of shares issuable pursuant to ISOs
or changes the class of employees eligible to receive ISOs that may participate
in the Plan.
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Code. Section 162(m) generally disallows a public company's tax deduction for
compensation to the chief executive officer and four other most highly
compensated executive officers in excess of $1,000,000 per person in any tax
year beginning on or after January 1, 1994. Compensation that qualifies as
"performance-based compensation" is excluded from the $1,000,000 deductibility
cap, and therefore remains fully deductible by the company that pays it. The
Company intends that options granted with an exercise price at least equal to
100% of fair market value of the underlying stock at the date of grant will
qualify as such "performance-based compensation," although other options granted
under the Plan may not so qualify.
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<PAGE> 44
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's two classes of Common Stock as of the date of this
Prospectus and as adjusted to reflect the sale of the shares of Class A Common
Stock offered hereby with respect to: (i) each of the Company's Named Executive
Officers and directors; (ii) each person known by the Company to own
beneficially more than 5% of the Common Stock; and (iii) all executive officers
and directors of the Company as a group. Except as otherwise indicated, the
persons or entities listed below have sole voting and investment power with
respect to such shares.
<TABLE>
<CAPTION>
SHARES OWNED SHARES TO BE OWNED TOTAL
PRIOR TO THE OFFERING(1)(2) AFTER THE OFFERING(1)(2) COMMON STOCK
----------------------------------- ------------------------------------ ------------------
CLASS A CLASS B CLASS A CLASS B VOTING POWER
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK AFTER THE OFFERING
---------------- ---------------- ---------------- ----------------- ------------------
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT PERCENT
------ ------- ------ ------- ------ ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Craig A. Ponzio(3).........
June R. Ponzio(3)..........
William P. Trimarco........
Stephen M. Scheppmann......
Patrick R. Cronin..........
David J. Bolde.............
All executive officers and
directors as a group
(8 persons)..............
</TABLE>
- ---------------
* Less than 1%.
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares that such person or group has the right
to acquire within 60 days after the date of this Prospectus or with respect
to which such person has or shares voting or investment power. For purposes
of computing the percentages of outstanding shares held by each person or
group of persons, shares which such person or group has the right to acquire
within 60 days after such date are deemed to be outstanding for purposes of
computing the percentage for such person or group but are not deemed to be
outstanding for the purpose of computing the percentage of any other person
or group.
(2) Each share of Class B Common Stock is convertible at the option of the
holder into one share of Class A Common Stock. The number of shares of Class
A Common Stock and percentages contained under this heading do not account
for such conversion rights. See "Description of Capital Stock."
(3) The address for Craig Ponzio and June Ponzio is 3900 Steve Reynolds
Boulevard, Norcross, Georgia 30093.
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<PAGE> 45
CERTAIN TRANSACTIONS
RELATED PARTY TRANSACTIONS
The Company has entered into a lease for its corporate headquarters in
Norcross, Georgia with L-J Properties Inc. ("L-J Properties"), a company owned
by Messrs. Ponzio, Trimarco and Scheppmann. The lease commenced in August 1991
and terminates in August 2001, subject to the Company's option to extend the
lease for two 36-month periods. The Company currently pays L-J Properties
$678,000 per year in rent, with certain annual increases determined by a formula
set forth therein. The Company believes that the lease with L-J Properties is on
terms at least as favorable to the Company as those obtainable from unaffiliated
third parties in the Company's area of operations. In fiscal years 1995, 1996
and 1997, the Company made payments of $623,000, $642,000 and $661,000,
respectively, to L-J Properties under this lease.
The Board of Directors of the Company has adopted a policy that following
the Offering any transaction with the Company's principal shareholders, officers
or directors or their affiliates must be on terms no less favorable to the
Company than could be obtained from an unaffiliated third party in an arm's
length transaction, and any such transaction exceeding $500,000 must also be
approved by a majority of the Company's independent and disinterested directors.
S CORPORATION DISTRIBUTION AND TERMINATION OF S CORPORATION STATUS
Upon the Termination Date, the Company will terminate its status as an S
corporation under the Code. All undistributed S corporation earnings through the
Termination Date will be distributed to the Company's current shareholders using
a portion of the net proceeds of the Offering. See "S Corporation Termination,"
"-- Repayment of S Corp Notes" below and the Notes 1 and 12 to the combined
financial statements.
REPAYMENT OF S CORP NOTES
On May 1, 1998, the Company distributed $10.5 million of previously
undistributed S corporation earnings to its shareholders through the issuance of
S Corp Notes payable in full upon demand and bearing interest at 11%, with
interest payable quarterly until the notes are paid in full. The principal
amount of S Corp Notes outstanding for each current shareholder at May 1, 1998,
and the anticipated interest payments on that amount as of August 1, 1998, are:
for Mr. Ponzio, $10.27 million and $282,400, respectively; for Mr. Trimarco,
$126,000 and $3,500, respectively; and for Mr. Scheppmann, $105,000 and $2,900,
respectively. The Company expects to distribute an additional $60.0 million of
undistributed S corporation earnings to its shareholders prior to the Offering
through the issuance of additional S Corp Notes. The Company estimates the
interest payable on these additional S Corp Notes will be $127,000. From the net
proceeds of the Offering, the Company will repay the entire unpaid balance of
the S Corp Notes, together with accrued interest thereon. See "S Corporation
Termination" and "Use of Proceeds."
TAX INDEMNIFICATION AGREEMENT
The Company and the current shareholders plan to enter into tax
indemnification agreements prior to the Offering providing for, among other
things, the indemnification of the Company by such shareholders for any federal
and certain state income taxes (including interest and penalties) incurred by
the Company arising as a result of the Company being deemed to have been a C
corporation during any period for which it reported its earnings to the taxing
authorities as an S corporation. The separate indemnification obligation of each
shareholder as to each tax period will be calculated in a manner consistent with
the allocation of the S corporation income for such period and will be limited
to the distributions made to such shareholder during such period. The tax
indemnification agreements are also expected to provide for the
cross-indemnification of the Company and of each existing shareholder for
certain additional taxes (including interest and, in the case of existing
shareholders, penalties) resulting from the Company's operations during the
period in which it was an S corporation.
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<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 250,000,000 shares
of Class A Common Stock, $0.01 par value per share, 100,000,000 shares of Class
B Common Stock, $0.01 par value per share and 50,000,000 shares of Preferred
Stock, $0.01 par value per share. The following description of the terms and
provisions of the shares of stock of the Company and certain other matters does
not purport to be complete and is subject to and qualified in its entirety by
reference to the applicable provisions of the Georgia Business Corporation Code,
as amended (the "GBCC") and the Articles and Bylaws.
CLASS A AND CLASS B COMMON STOCK
Voting. Holders of Class A Common Stock are entitled to one vote per
share. Holders of Class B Common Stock are entitled to 10 votes per share. All
actions submitted to a vote of shareholders are voted on by holders of Class A
Common Stock and Class B Common Stock voting together as a single class, except
as otherwise set forth below or provided by law.
Conversion. Class A Common Stock has no conversion rights. A holder of
Class B Common Stock may convert Class B Common Stock into Class A Common Stock,
in whole or in part, at any time and from time to time on the basis of one share
of Class A Common Stock for each share of Class B Common Stock. If at any time
any shares of Class B Common Stock are beneficially owned by any person other
than Mr. Ponzio or certain permitted transferees, such shares shall
automatically be converted into an equal number of shares of Class A Common
Stock.
Dividends. Holders of Class A Common Stock are entitled to receive cash
dividends on an equal per share basis as holders of Class B Common Stock if and
when such dividends are declared by the Board of Directors of the Company from
funds legally available therefor. In the case of any dividends paid in stock,
holders of Class A Common Stock are entitled to receive dividends (payable in
shares of Class A Common Stock) equal in number to the dividends (payable in
Shares of Class B Common Stock) received by the holders of Class B Common Stock.
Liquidation. Holders of Class A Common Stock and Class B Common Stock
share with each other on a ratable basis as a single class in the net assets of
the Company available for distribution in respect of Class A Common Stock and
Class B Common Stock in the event of liquidation.
Limitation on Issuances of Additional Shares of Class B Common Stock. The
Articles limit the Company's authority to issue additional Class B Common Stock
to dividends or distributions payable in stock. The foregoing restriction may be
altered, amended or modified only with the approval of the holders of 66 2/3% of
both the Class A Common Stock and Class B Common Stock, voting separately as
classes.
Certain Class Voting Rights. In the event the Company proposes to engage
in any business transaction, including a merger, sale of substantially all of
its assets, tender or exchange offer, or other similar business combination, or
proposes to adopt a plan of liquidation, dissolution or reorganization, or
entertain any proposal for acquisition of a substantial equity interest in the
Company (any such event or combination of events being referred to as a
"Proposal"), and the Proposal is to be submitted to a vote of the Company's
shareholders, and either (i) the consideration per share proposed to be paid to
the holders of the Class A Common Stock is less than or otherwise different in
any respect from the consideration per share proposed to be paid to the holders
of the Class B Common Stock, or (ii) the respective rights of the Class A Common
Stock is proposed to be diminished or otherwise adversely altered relative to
the respective rights of the Class B Common Stock, then approval of the Proposal
shall require the affirmative vote of a majority of the outstanding shares of
each of the Class A Common Stock and the Class B Common Stock, voting as
separate voting groups.
Other Terms. Neither the Class A Common Stock nor the Class B Common Stock
may be subdivided, consolidated, reclassified or otherwise changed unless
contemporaneously therewith the other class of shares is subdivided,
consolidated, reclassified or otherwise changed in the same proportion and in
the same manner.
The rights, preferences and privileges of holders of both classes of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which the Company may
designate and issue in the future.
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<PAGE> 47
PREFERRED STOCK
Under the Articles, the Board of Directors may issue, without any further
action by the shareholders, up to 50,000,000 shares of Preferred Stock of one or
more series that include any preferences, conversion and other rights, voting
powers, restrictions, limitations, qualifications and terms and conditions of
redemption as shall be set forth in resolutions duly adopted by the Board of
Directors. The designation of any Preferred Stock with greater rights,
privileges and preferences than those applicable to both classes of Common Stock
may adversely affect the voting power, market price and other rights and
privileges of the Class A Common Stock, and may hinder or delay the removal of
directors, attempted tender offers, proxy contests or takeovers, or other
attempts to change control of the Company, some or all of which may be desired
by holders of the Class A Common Stock. Articles of amendment must be filed with
the Georgia Secretary of State prior to the issuance of any shares of Preferred
Stock of the applicable series.
REMOVAL OF THE BOARD OF DIRECTORS; NO CLASSIFICATION OF THE BOARD
The entire Board of Directors or any individual director may be removed
with or without cause by the shareholders. The Board of Directors is not divided
into classes, and the terms of office of all of the Directors expire at the next
annual meeting of shareholders.
SPECIAL MEETINGS
Under the Bylaws, special meetings of the shareholders may be called by the
Chairman of the Board or the Chief Executive Officer or by the shareholders only
if such shareholders hold outstanding shares representing at least two-thirds
( 2/3) of all votes entitled to be cast on any issue proposed to be considered
at any such special meeting.
CERTAIN PROVISIONS OF GEORGIA LAW
Georgia Business Combination Statute. The Company has elected in its
Bylaws to be subject to provisions of the GBCC prohibiting various "business
combinations" involving "interested shareholders" for a period of five years
after the shareholder becomes an interested shareholder of the Company. Such
provisions prohibit any business combination with an interested shareholder
unless either (i) prior to such time, the Board of Directors approves either the
business combination or the transaction by which such shareholder became an
interested shareholder, (ii) in the transaction that resulted in the shareholder
becoming an interested shareholder, the interested shareholder became the
beneficial owner of at least 90% of the outstanding voting stock of the Company
which was not held by directors, officers, affiliates thereof, subsidiaries or
certain employee stock option plans of the Company, or (iii) subsequent to
becoming an interested shareholder, such shareholder acquired additional shares
resulting in such shareholder owning at least 90% of the outstanding voting
stock of the Company and the business combination is approved by a majority of
the disinterested shareholders' shares not held by directors, officers,
affiliates thereof, subsidiaries or certain employee stock option plans of the
Company. Under the relevant provisions of the GBCC, a "business combination" is
defined to include, among other things, (i) any merger, consolidation, share
exchange or any sale, transfer or other disposition (or series of related sales
or transfers) of assets of the Company having an aggregate book value of 10% or
more of the Company's net assets (measured as of the end of the most recent
fiscal quarter), with an interested shareholder of the Company or any other
corporation which is or, after giving effect to such business combination,
becomes an affiliate of any such interested shareholder, (ii) the liquidation or
dissolution of the Company, (iii) the receipt by an interested shareholder of
any benefit from any loan, advance, guarantee, pledge, tax credit or other
financial benefit from the Company, other than in the ordinary course of
business and (iv) certain other transactions involving the issuance or
reclassification of securities of the Company which produce the result that 5%
or more of the total equity shares of the Company, or of any class or series
thereof, is owned by an interested shareholder. An "interested shareholder" is
defined by the GBCC to include any person or entity that, together with its
affiliates, beneficially owns or has the right to own 10% or more of the
outstanding voting shares of the Company, or any person that is an affiliate of
the Company and has, at any time within the preceding two-year period, been the
beneficial owner of 10% or more of the outstanding voting shares of the Company.
The
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<PAGE> 48
restrictions on business combinations shall not apply to any person who was an
interested shareholder before the adoption of the Bylaw which made the
provisions applicable to the Company nor to any persons who subsequently become
interested shareholders inadvertently, subsequently divest sufficient shares so
that the shareholder ceases to be an interested shareholder and would not, at
any time within the five-year period immediately before a business combination
involving the shareholder, have been an interested shareholder but for the
inadvertent acquisition.
Georgia Fair Price Statute. The Company has elected in its Bylaws to be
subject to the "Fair Price" provisions of the GBCC. These provisions require
that a "business combination" with an "interested shareholder" be (a)
unanimously approved by "continuing directors" who must constitute at least
three members of the board of directors at the time of such approval, or (b)
recommended by at least two-thirds of the "continuing directors" and approved by
a majority of the shareholders excluding the "interested shareholder," unless
certain standards regarding the consideration paid to shareholders in the
transaction are met. Subject to certain exceptions, a "business combination"
includes (i) any merger or consolidation of the corporation or a subsidiary of
the Company; (ii) any share exchange; (iii) any sale, lease, transfer, or other
disposition of assets of the Company or its subsidiary occurring within a 12
month period and having an aggregate book value equal to 10% or more of the net
assets of the Company; (iv) any transaction that results in the issuance or
transfer by the Company of any stock of the Company or the subsidiary
representing 5% or more of the total market value of the outstanding stock of
the Company to any interested shareholder within a 12 month period, except
pursuant to a transaction that effects a pro rata distribution to all
shareholders of the Company; (v) the adoption of any plan or proposal for the
liquidation or dissolution of the corporation in which anything other than cash
will be received by an interested shareholder; and (vi) any transaction
occurring within a 12 month period involving the Company or a subsidiary of the
Company that has the effect of increasing by 5% or more the proportionate share
of the stock of any class or series of the Company or the subsidiary that is
directly or beneficially owned by the interested shareholder. An "interested
shareholder" is defined the same as it is defined in the Georgia Business
Combination Statute. A "continuing director" includes any director who is not an
affiliate or associate of an interested shareholder or any board approved
successor of such a director who is not an affiliate or associate of an
interested shareholder.
The Fair Price provisions do not restrict a business combination if: (a)
the aggregate amount of the cash, and fair market value of any non-cash
property, measured five days before the consummation date, to be received per
share by the shareholders is at least equal to the highest of: (i) the highest
per share price, including brokerage commissions, transfer taxes, and soliciting
dealers' fees, paid by the interested shareholder for any shares of the same
class or series acquired by it within two years preceding the announcement date
or in the transaction in which it became an interested shareholder; (ii) the
higher of the fair market value per share as determined on the announcement date
or the determination date; or (iii) in the case of shares other than common
shares, the highest amount per share to which preferred shareholders are
entitled in the event of liquidation, dissolution, or winding up of the
corporation, provided that subparagraph (iii) shall only be applicable if the
interested shareholder acquired the shares within the two year period
immediately preceding the announcement date; and (b) shareholders receive cash
or the form of consideration used in the past by the interested shareholder to
purchase the largest number of shares of such class or series. Further, subject
to exceptions, prior to the time the business combination with the interested
shareholder takes place, without the approval of the board of directors, there
must have been: (i) no failure to declare and pay full dividends on the
Company's outstanding preferred shares; (ii) no reduction in the annual rate of
dividends paid on common shares except as to reflect any subdivision of the
shares; (iii) an increase in the annual rate of dividends to reflect any
reclassification of shares; and (iv) not more than a 1% increase in the
interested shareholder's ownership of any of the Company's stock in any 12 month
period. An interested shareholder may not receive a direct or indirect benefit,
except proportionately as a shareholder, of any loans, advances, guarantees,
pledges, or other financial assistance or any tax credits or other tax
advantages provided by the corporation or its subsidiaries, either in
anticipation of or in connection with such business combination or otherwise.
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<PAGE> 49
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Articles and Bylaws eliminate, subject to certain exceptions, the
personal liability of a director to the Company or its shareholders for monetary
damage for breaches of such director's duty of care or other duties as a
director. Neither the Articles nor the Bylaws provide for the elimination of or
any limitation on the personal liability of a director for (i) any
appropriation, in violation of the director's duties, of any business
opportunity of the Company, (ii) acts or omissions that involve intentional
misconduct or a knowing violation of law, (iii) unlawful corporate
distributions, or (iv) any transactions from which the director derived an
improper personal benefit. The Articles further provide that if the GBCC is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the Company
shall be eliminated or limited to the fullest extent permitted by the GBCC, as
amended, without further action by the shareholders. These provisions of the
Articles will limit the remedies available to a shareholder in the event of
breaches of any director's duties to such shareholder or the Company.
The Bylaws require the Company to indemnify and hold harmless any director,
and give the Board of Directors discretion to indemnify and hold harmless any
officer or other identified individual, who was or is a party or is threatened
to be made a party, to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (including
any action or suit by or in the right of the Company) because he or she is or
was a director of the Company, against expenses (including, but not limited to,
attorney's fees and disbursements, court costs and expert witness fees), and
against judgments, fines, penalties, and amounts paid in settlement incurred by
him or her in connection with the action, suit or proceeding.
The Company may enter into separate indemnification agreements with each of
its executive officers and directors, to provide for indemnification and
advancement of expenses in a manner and subject to terms and conditions similar
to those set forth in the Bylaws. The Company also may purchase and maintain
liability insurance for the benefit of its directors and executive officers.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any pending or threatened litigation that
may result in claims for indemnification by any director, officer, employee or
other agent. The Company will also agree to hold the shareholders harmless from,
against and in respect of federal income tax liabilities, including interest and
penalties imposed thereon (and any state and local income tax liabilities as
provided by applicable law), if any, incurred by the shareholders as a result of
a final determination of an adjustment (by reason of an amended return, claim
for refund, audit, judicial decision or otherwise) to the taxable income of the
Company for any period during the time the Company was treated as an S
corporation for federal and state income tax purposes which results in a
decrease for any such period in the Company's taxable income and a corresponding
increase for any such period in the taxable income of the shareholders. See "S
Corporation Termination."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is .
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<PAGE> 50
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF CLASS A COMMON STOCK
GENERAL
The following is a general discussion of certain material United States
federal income and estate tax consequences of the ownership and disposition of
shares of Class A Common Stock applicable to Non-U.S. Holders of such shares of
Class A Common Stock. As used herein, the term "Non-U.S. Holder" means a
beneficial owner other than (i) an individual citizen or income tax resident of
the United States, (ii) a corporation created or organized in or under the laws
of the United States or of any State thereof, (iii) an estate the income of
which is subject to United States federal income tax regardless of its source,
(iv) a trust over which a court within the United States is able to exercise
primary supervision and as to which one or more United States persons have the
authority to control all the substantial decisions of trust, or (v) a
partnership or other entity created or organized in or under the laws of the
United States or of any State thereof and properly classified as a United States
entity. The discussion is based on current law, which is subject to change
retroactively or prospectively, and is for general information only. The
discussion does not address all aspects of United States federal income and
estate taxation and does not address any aspects of state, local or foreign tax
laws. The discussion does not consider any specific facts or circumstances that
may apply to a particular Non-U.S. Holder. Accordingly, prospective investors
are urged to consult their tax advisors regarding the current and possible
future United States federal, state, local and non-U.S. income and other tax
consequences of holding and disposing of shares of Class A Common Stock.
DIVIDENDS
In the event that dividends are paid to a Non-U.S. Holder, such dividends
will be subject to United States withholding tax at a 30% rate (or a lower rate
as may be specified by an applicable tax treaty) unless the dividends are (i)
effectively connected with a trade or business carried on by the Non-U.S. Holder
within the United States or (ii) if a tax treaty applies, attributable to a
United States permanent establishment or, in the case of an individual, a fixed
base in the United States, maintained by the Non-U.S. Holder. Dividends
effectively connected with such a trade or business or, if a tax treaty applies,
attributable to such permanent establishment or fixed base will generally not be
subject to withholding (if the Non-U.S. Holder files certain forms as required
with the payor of the dividend) but generally will be subject to United States
federal income tax on a net income basis at regular graduated individual or
corporate rates. In the case of a Non-U.S. Holder that is a corporation, such
effectively connected income also may be subject to the branch profits tax
(which is generally imposed on a foreign corporation on the deemed repatriation
from the United States of effectively connected earnings and profits) at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
The branch profits tax may not apply if the recipient is a qualified resident of
certain countries with which the United States has an income tax treaty.
To determine the applicability of a tax treaty providing for a lower rate
of withholding, dividends paid to an address in a foreign country are currently
presumed to be paid to a resident of that country, unless the payor has definite
knowledge that such presumption is not warranted or an applicable tax treaty (or
United States Treasury Department Regulations thereunder) requires some other
method for determining a Non-U.S. Holder's residence. However, under recently
finalized United States Treasury Department Regulations, in the case of
dividends paid after December 31, 1999, a Non-U.S. Holder generally will be
unable to claim the benefits of a reduced rate under an income tax treaty,
unless certain certification procedures are complied with, directly or through
an intermediary. The Company must report annually to the IRS and to each Non-
U.S. Holder the amount of dividends paid to, and the tax withheld with respect
to, each Non-U.S. Holder. These reporting requirements apply regardless of
whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of these information returns also may be made available under the
provisions of a specific treaty or agreement with the tax authorities of the
country in which the Non-U.S. Holder resides.
A Non-U.S. Holder that is eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the IRS.
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<PAGE> 51
SALE OF COMMON STOCK
Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the sale or other disposition of such
holder's shares of Class A Common Stock unless: (i) the gain is effectively
connected with a trade or business carried on by the Non-U.S. Holder within the
United States and, if a tax treaty applies, the gain is attributable to a
permanent establishment or a fixed base maintained by the Non-U.S. Holder in the
United States; (ii) the Non-U.S. Holder is an individual who holds the shares of
Class A Common Stock as a capital asset and is present in the United States for
183 days or more in the taxable year of the disposition, and either (a) such
Non-U.S. Holder has a "tax home" (as specifically defined for United States
federal income tax purposes) in the United States (unless the gain from
disposition is attributable to an office or other fixed place of business
maintained by such non-U.S. Holder in a foreign country and a foreign tax equal
to at least 10% of such gain has been paid to a foreign country), or (b) the
gain from the disposition is attributable to an office or other fixed place of
business maintained by such Non-U.S. Holder in the United States; (iii) the
Non-U.S. Holder is subject to tax pursuant to the provisions of United States
tax law applicable to certain United States expatriates; or (iv) the Company is
or has been during certain periods a "United States real property holding
corporation" for United States federal income tax purposes (which the Company
does not believe that it has been, currently is or is likely to become) and,
assuming that the Class A Common Stock is deemed for tax purposes to be
"regularly traded on an established securities market," the Non-U.S. Holder
held, at any time during the five-year period ending on the date of disposition
(or such shorter period that such shares were held), directly or indirectly,
more than five percent of the Class A Common Stock.
ESTATE TAX
Shares of Class A Common Stock owned or treated as owned by an individual
who is not a citizen or resident (as specially defined for United States federal
estate tax purposes) of the United States at the time of death will be included
in the individual's gross estate for United States federal estate tax purposes,
unless an applicable tax treaty provides otherwise, and may be subject to United
States federal estate tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING
As a general rule, under current United States federal income tax law,
backup withholding tax (which generally is a withholding tax imposed at the rate
of 31% on certain payments to persons that fail to furnish the information
required under the United States information reporting requirements) and
information reporting requirements apply to the actual and constructive payment
of dividends. The United States backup withholding tax and information reporting
requirements generally, under current regulations, will not apply to dividends
paid on Class A Common Stock to a Non-U.S. Holder at an address outside the
United States, unless the payor has knowledge that the payee is a United States
person. Backup withholding and information reporting generally will apply to
dividends paid on Class A Common Stock to addresses inside the United States to
beneficial owners that are not entitled to an exemption, as discussed above and
that fail to provide in the manner required certain identifying information.
However, under recently finalized United States Treasury Department Regulations,
in the case of dividends paid after December 31, 1999, a Non-U.S. Holder
generally will be subject to backup withholding at a 31% rate, unless certain
certification procedures (or, in the case of payments made outside the United
States with respect to an offshore account, certain documentary evidence
procedures) are complied with, directly or through an intermediary.
The payment of the proceeds from the disposition of shares of Class A
Common Stock to or through the United States office of a broker will be subject
to information reporting and backup withholding unless the holder, under
penalties of perjury, certifies, among other things, its status as a Non-U.S.
Holder, or otherwise establishes an exemption. Generally, the payment of the
proceeds from the disposition of shares of Class A Common Stock to or through a
non-U.S. office of a non-U.S. broker will not be subject to backup withholding
and will not be subject to information reporting. In the case of the payment of
proceeds from the disposition of shares of Class A Common Stock to or through a
non-U.S. office of a broker that is a United States person or a "U.S.-related
person," United States Treasury Department Regulations require (i) backup
withholding if the broker has actual knowledge that the owner is not a Non-U.S.
Holder, and (ii) information reporting on
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<PAGE> 52
the payment unless the broker receives a statement from the owner, signed under
penalties of perjury, certifying, among other things, its status as a Non-U.S.
Holder, or the broker has documentary evidence in its files that the owner is a
Non-U.S. Holder and the broker has no actual knowledge to the contrary. For this
purpose, a "U.S.-related person" is (i) a "controlled foreign corporation" for
United States federal income tax purposes, (ii) a foreign person 50% or more of
whose gross income from all sources for the three-year period ending with the
close of its taxable year preceding the payment (or for such part of the period
that the broker has been in existence) is derived from activities that are
effectively connected with the conduct of a United States trade or business, or
(iii) in the case of payments made after December 31, 1999, a foreign
partnership with certain connections to the United States.
Backup withholding is not an additional tax. Any amounts withheld from a
payment to a Non-U.S. Holder under the backup withholding rules will be allowed
as a credit against such holder's United States federal income tax liability, if
any, provided that such holder files the required information or appropriate
claim for refund with the IRS.
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<PAGE> 53
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares of
Class A Common Stock and shares of Class B Common Stock outstanding. The
shares of Class A Common Stock sold in the Offering ( shares if the
Underwriters over-allotment option is exercised in full) will be freely tradable
by persons other than affiliates of the Company, without restriction. The
remaining shares of Class A Common Stock and all shares of Class B
Common Stock will be "restricted" securities within the meaning of Rule 144
under the Securities Act and may not be sold in the absence of registration
under the Securities Act unless an exemption from registration is available,
including exemptions contained in Rule 144. Of this amount, shares will
be beneficially owned by persons who are affiliates of the Company and,
commencing 90 days after the date of this Prospectus, would be eligible for
public sale pursuant to Rule 144, subject to the volume restrictions discussed
below.
Subject to certain exceptions, each of the Company and the directors,
executive officers and existing shareholders of the Company has agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, it will not, during the period ending 180 days after the
date of this Prospectus, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer, lend or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangements that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or other securities, in cash or otherwise. See
"Underwriters."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her shares of
Common Stock for at least one year (including the prior holding period of any
prior owner other than an affiliate) is entitled to sell within any three-month
period that number of shares which does not exceed the greater of (i) 1% of the
outstanding shares of Class A Common Stock or (ii) the average weekly trading
volume during the four calendar weeks preceding each such sale. Sales under Rule
144 are also subject to certain manner of sale provisions, notice requirements
and the availability of current public information about the Company. A person
(or persons whose shares are aggregated) who is not deemed an "affiliate" of the
Company for at least three months and who has beneficially owned shares for at
least two years (including the holding period of any prior owner other than an
affiliate) would be entitled to sell such shares under Rule 144 without regard
to the limitations described above. Rule 144 defines "affiliate" of a company as
a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such company.
Affiliates of a company generally include its directors, executive officers and
principal shareholders.
The Company intends to issue under the Plan options to purchase up to an
aggregate of shares of Class A Common Stock as of the date of this
Prospectus. The Company intends to file a registration statement on Form S-8
under the Securities Act to register the shares reserved or to be available for
issuance pursuant to the Plan. Upon such registration, such shares will be
eligible for resale in the public market without restrictions by persons who are
not affiliates of the Company, and to the extent they are held by affiliates,
pursuant to Rule 144 without observance of the holding period requirements.
Prior to the Offering, there has been no public market for the Class A
Common Stock, and no prediction can be made as to the effect, if any, that the
sale of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of Class A Common Stock in the public market could adversely affect prevailing
market price and the ability of the Company to raise equity capital in the
future.
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<PAGE> 54
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation and Wheat First Union, a division of
Wheat First Securities, Inc. are acting as U.S. representatives (the "U.S.
Representatives"), and the International Underwriters named below for whom
Morgan Stanley & Co. International Limited, Donaldson, Lufkin & Jenrette
Securities Corporation and Wheat First Union, a division of Wheat First
Securities, Inc., are acting as International Representatives, have severally
agreed to purchase, and the Company has agreed to sell to them, severally, the
respective number of shares of Common Stock set forth opposite the names of such
Underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
Donaldson, Lufkin & Jenrette Securities Corporation.......
Wheat First Securities, Inc. .............................
Subtotal...............................................
International Underwriters:
Morgan Stanley & Co. International Limited................
Donaldson, Lufkin & Jenrette International................
Wheat First Securities, Inc. .............................
Subtotal...............................................
Total.............................................
=======
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives", respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the U.S.
Underwriters' overallotment option described below) if any such shares are
taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States or
Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and
an International Underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in
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<PAGE> 55
its capacity as an International Underwriter apply only to it in its capacity as
an International Underwriter. The foregoing limitations do not apply to
stabilization transactions or to certain other transactions specified in the
Agreement between U.S. and International Underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
Underwriters under the Underwriting Agreement are referred to herein as the
"Shares".
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
52
<PAGE> 56
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law, and that
such dealer will send to any other dealer to whom it sells any of such Shares a
notice containing substantially the same statement as is contained in this
sentence.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, the offering price and other
selling terms may from time to time be varied by the Representatives.
The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock at the public offering
price set forth on the cover page hereof, less underwriting discounts and
commissions. The U.S. Underwriters may exercise such option solely for the
purpose of covering overallotments, if any, made in connection with the offering
of the shares of Common Stock offered hereby. To the extent such option is
exercised, each U.S. Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Common Stock as the number set forth next to such U.S. Underwriter's
name in the preceding table bears to the total number of shares of Common Stock
set forth next to the names of all U.S. Underwriters in the preceding table.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
The Company has applied to have the Common Stock listed on the New York
Stock Exchange under the symbol " ."
Each of the Company and the directors, executive officers and all of the
shareholders of the Company have agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of this Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The restrictions described in this
paragraph do not apply to (x) the sale of Shares to the Underwriters, (y) the
issuance by the Company of shares of Common Stock upon the exercise of an option
or a warrant or the conversion of a security outstanding on the date of this
Prospectus of which the Underwriters have been advised in writing or (z)
transactions by any person other than the Company relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the offering of the Shares.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
53
<PAGE> 57
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiations
between the Company and the U.S. Representatives. Among the factors to be
considered in determining the initial public offering price will be the future
prospects of the Company and its industry in general, sales, earnings and
certain other financial operating information of the Company in recent periods,
and the price-earnings ratios, price-sales ratios, market prices of securities
and certain financial and operating information of companies engaged in
activities similar to those of the Company. The estimated initial public
offering price range set forth on the cover page of this Preliminary Prospectus
is subject to change as a result of market conditions and other factors.
Of the shares of Class A Common Stock being offered, shares are
being offered initially in the United States and Canada by the U.S. Underwriters
and shares are being offered initially outside the United States and Canada
by the International Underwriters.
LEGAL MATTERS
The validity of shares of Class A Common Stock offered hereby is being
passed upon for the Company by Nelson Mullins Riley & Scarborough, L.L.P.,
Atlanta, Georgia. Certain legal matters related to the Offering will be passed
upon for the Underwriters by Jones, Day, Reavis & Pogue, Atlanta, Georgia.
EXPERTS
The combined financial statements included in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as set forth in
their report. In that report, that firm states that with respect to Larson-Juhl
Netherlands B.V. its opinion is based on the report of other independent public
accountants, BDO CampsObers. The financial statements referred to above have
been included herein in reliance upon the authority of those firms as experts in
giving said reports.
AVAILABLE INFORMATION
The Company has filed with the Commission through the Electronic Data
Gathering and Retrieval ("EDGAR") system a registration statement on Form S-1
(together with all amendments, exhibits and schedules thereto, the "Registration
Statement") under the Securities Act with respect to the Securities offered by
this Prospectus. This Prospectus does not contain all of the information set
forth in such Registration Statement, certain parts of which have been omitted
in accordance with the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement of which this Prospectus forms a part. For further
information, reference is made to such registration statement, including the
exhibits thereto, which may be inspected without charge at the Commission's
principal office at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549;
and at the following Regional Offices of the Commission, except that copies of
the exhibits may not be available at certain of the Regional Offices: Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and New York Regional Office, 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of all or any part of such material may be obtained from the
Commission at 450 Fifth Street, N.W. Room 1024, Washington, D.C. 20549, upon
payment of certain fees prescribed by the Commission. The Commission maintains a
World Wide Web site on the Internet at http://www.sec.gov that contains reports,
proxy, information statements, and registration statements and other information
filed with the Commission through the EDGAR system.
54
<PAGE> 58
The Company is not presently a reporting company and does not file reports
or other information with the Commission. On the effective date of the
Registration Statement, however, the Company will become a reporting company.
Further, the Company will register its securities under the Exchange Act.
Accordingly, the Company will become subject to the additional reporting
requirements of the Exchange Act and in accordance therewith will file reports,
proxy statements and other information with the Commission. In addition, after
the completion of the Offering, the Company intends to furnish its shareholders
with annual reports containing audited financial statements.
55
<PAGE> 59
ALBECCA
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Combined Financial Statements:
Report of Independent Public Accountants -- Arthur Andersen
LLP....................................................... F-2
Report of the Auditors -- BDO CampsObers.................... F-3
Combined Balance Sheets as of August 25, 1996, August 31,
1997 and March 1, 1998.................................... F-4
Combined Statements of Operations for each of the three
years in the period ended August 31, 1997 and for the six
months ended March 1, 1998................................ F-5
Combined Statements of Shareholders'/Members' Equity as of
August 25, 1996, August 31, 1997 and March 1, 1998........ F-6
Combined Statements of Cash Flows for each of the three
years in the period ended August 31, 1997 and for the six
months ended March 1, 1998................................ F-7
Notes to Combined Financial Statements...................... F-8
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Albecca Inc. and Larson-Juhl International L.L.C.:
We have audited the accompanying combined balance sheets of ALBECCA INC. (a
Georgia corporation) and LARSON-JUHL INTERNATIONAL L.L.C. (a Georgia limited
liability company) as of March 1, 1998, August 31, 1997 and August 25, 1996, and
the related combined statements of operations, shareholders'/members' equity and
cash flows for the six months ended March 1, 1998 and for each of the three
years in the period ended August 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of Larson-Juhl Netherlands B.V. and subsidiaries, which
statements reflect total assets of 4%, 5%, and 7% at March 1, 1998, August 31,
1997 and August 25, 1996, respectively, and total revenues of 6%, 6%, 7%, and 4%
for the six months ended March 1, 1998 and for each of the three years in the
period ended August 31, 1997, respectively. Those statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for that entity, is based solely on the
report of other auditors.
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 the our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the combined financial position of Albecca Inc. and Larson-Juhl International
L.L.C. as of March 1, 1998, August 31, 1997 and August 25, 1996, and the results
of their operations and their cash flows for the six months ended March 1, 1998
and for each of the three years in the period ended August 31, 1997 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
May 6, 1998
F-2
<PAGE> 61
LARSON-JUHL NETHERLANDS B.V.
REPORT OF THE AUDITORS
To the shareholders of Larson-Juhl Netherlands B.V.:
We have audited the financial statements of Larson-Juhl Netherlands B.V. at
Barneveld for the three years and two months period ended March 1, 1998.
The company's management is responsible for the preparation of these
financial statements. It is our responsibility to form an independent opinion,
based on our audit, on those statements and to report our opinion to you.
We conducted our audit in accordance with auditing standards generally
accepted in the Netherlands. The results of the audit would not have been
materially different had the audit been conducted in accordance with generally
accepted auditing standards in the United States. The standards in the
Netherlands 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
accessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements for the period September 1, 1997 up
to and including March 1, 1998 and including those for the fiscal year 1995 (for
the period January 2, 1995 up to and including August 27, 1995), the fiscal year
1996 (for the period August 28, 1995 up to and including August 25, 1996) and
the fiscal year 1997 (for the period August 26, 1996 up to and including August
31, 1997) as previously audited by us, give a true and fair view of the state of
the Company's affairs as at March 1, 1998 and of the results of its operations
for the three years and two months period ended March 1, 1998 and have been
properly prepared in accordance with accounting principles generally accepted in
The Netherlands and comply with the financial reporting requirements included in
Part 9, Book 2 of the Dutch Civil Code.
Amhem, May 6, 1998
/s/ BDO ChampsObers
BDO CampsObers
Registered accountants
F-3
<PAGE> 62
ALBECCA
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
AUGUST 25, AUGUST 31, MARCH 1, MARCH 1,
1996 1997 1998 1998 (NOTE 12)
---------- ---------- --------- --------------
(AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash......................................... $ 4,363 $ 5,301 $ 5,588 $ 5,588
Accounts receivable, less allowances for
doubtful accounts of $3,891, $5,378 and
$5,375, at August 25, 1996, August 31,
1997 and March 1, 1998.................... 46,179 49,270 56,104 56,104
Inventories.................................. 60,083 68,209 74,787 74,787
Deferred income taxes (Note 5)............... -- -- -- 10,182
Other current assets......................... 4,954 4,879 7,692 7,692
-------- -------- -------- --------
Total current assets................. 115,579 127,659 144,171 154,353
PROPERTY, PLANT AND EQUIPMENT, net............. 52,854 52,675 59,377 59,377
OTHER LONG-TERM ASSETS......................... 21,735 28,355 39,952 39,952
-------- -------- -------- --------
$190,168 $208,689 $243,500 $253,682
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS'/MEMBERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt......... $ 18,925 $ 28,079 $ 31,839 $ 31,839
Accounts payable............................. 30,511 28,296 31,146 31,146
Accrued liabilities.......................... 26,687 27,982 31,727 31,727
Notes payable to shareholders (Note 12)...... -- -- -- 64,300
-------- -------- -------- --------
Total current liabilities............ 76,123 84,357 94,712 159,012
-------- -------- -------- --------
LONG-TERM DEBT, less current maturities (Note
4)........................................... 74,137 80,647 100,788 100,788
-------- -------- -------- --------
DEFERRED INCOME TAXES (Note 5)................. -- -- -- 1,603
-------- -------- -------- --------
OTHER LONG-TERM LIABILITIES.................... 4,565 6,372 8,134 8,134
-------- -------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS'/MEMBERS' EQUITY (DEFICIT) (Notes
7 and 12):
Common stock, $0.01 par value; 20,000,000
shares authorized, 17,000,000 shares
issued and outstanding at August 25, 1996,
August 31, 1997 and March 1, 1998......... 170 170 170 170
Additional paid-in capital................... 139 155 255 682
Members' capital............................. 427 427 427 --
Retained earnings (deficit).................. 36,002 42,408 46,681 (9,040)
Cumulative foreign currency translation
adjustment................................ (1,395) (5,847) (7,667) (7,667)
-------- -------- -------- --------
Total shareholders'/members' equity
(deficit).......................... 35,343 37,313 39,866 (15,855)
-------- -------- -------- --------
$190,168 $208,689 $243,500 $253,682
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-4
<PAGE> 63
ALBECCA
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS ENDED
------------------------------------ -------------------------
AUGUST 27, AUGUST 25, AUGUST 31, FEBRUARY 23, MARCH 1,
1995 1996 1997 1997 1998
---------- ---------- ---------- ------------ ----------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 225,359 $ 300,788 $ 354,058 $ 186,016 $ 199,814
Cost of sales........................ 127,541 172,564 199,250 107,651 112,610
---------- ---------- ---------- ---------- ----------
Gross profit............... 97,818 128,224 154,808 78,365 87,204
Operating expenses................... 75,347 97,495 118,457 58,689 66,986
---------- ---------- ---------- ---------- ----------
Operating income........... 22,471 30,729 36,351 19,676 20,218
Interest expense..................... 4,008 7,346 10,472 5,093 6,577
---------- ---------- ---------- ---------- ----------
Income before provision for
income taxes and minority
interest................. 18,463 23,383 25,879 14,583 13,641
Provision for income taxes........... 2,322 3,679 3,243 1,657 1,710
Minority interest.................... 97 300 146 34 358
---------- ---------- ---------- ---------- ----------
Historical net income...... $ 16,044 $ 19,404 $ 22,490 $ 12,892 $ 11,573
========== ========== ========== ========== ==========
Historical earnings per common
share -- basic and diluted......... $ 0.94 $ 1.14 $ 1.32 $ 0.76 $ 0.68
========== ========== ========== ========== ==========
Historical weighted average shares
outstanding -- basic and diluted... 17,000,000 17,000,000 17,000,000 17,000,000 17,000,000
========== ========== ========== ========== ==========
Income before pro forma provision for
income taxes....................... $ 16,044 $ 19,404 $ 22,490 $ 12,892 $ 11,573
Pro forma provision for income
taxes.............................. 5,432 6,142 7,626 4,468 4,019
---------- ---------- ---------- ---------- ----------
Pro forma net income................. $ 10,612 $ 13,262 $ 14,864 $ 8,424 $ 7,554
========== ========== ========== ========== ==========
Pro forma earnings per
common share -- basic and
diluted.................. $ $
========== ==========
Pro forma weighted average
shares
outstanding -- basic and
diluted..................
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE> 64
ALBECCA
COMBINED STATEMENTS OF SHAREHOLDERS'/MEMBERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
------------------- PAID-IN MEMBERS' RETAINED TRANSLATION
SHARES AMOUNT CAPITAL CAPITAL EARNINGS ADJUSTMENT TOTAL
---------- ------ ---------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, August 28, 1994.. 17,000,000 $170 $139 $404 $ 26,412 $ (542) $ 26,583
Capital contributions... -- -- -- 23 -- -- 23
Historical net income... -- -- -- -- 16,044 -- 16,044
Distributions to
shareholders......... -- -- -- -- (13,608) -- (13,608)
Currency translation
adjustment........... -- -- -- -- 64 64
---------- ---- ---- ---- -------- ------- --------
BALANCE, August 27, 1995.. 17,000,000 170 139 427 28,848 (478) 29,106
Historical net income... -- -- -- -- 19,404 -- 19,404
Distributions to
shareholders......... -- -- -- -- (12,250) -- (12,250)
Currency translation
adjustment........... -- -- -- -- -- (917) (917)
---------- ---- ---- ---- -------- ------- --------
BALANCE, August 25, 1996.. 17,000,000 170 139 427 36,002 (1,395) 35,343
Capital contributions... -- -- 16 -- -- -- 16
Historical net income... -- -- -- -- 22,490 -- 22,490
Distributions to
shareholders......... -- -- -- -- (16,084) -- (16,084)
Currency translation
adjustment........... -- -- -- -- -- (4,452) (4,452)
---------- ---- ---- ---- -------- ------- --------
BALANCE, August 31, 1997.. 17,000,000 170 155 427 42,408 (5,847) 37,313
Capital contributions... -- -- 100 -- -- -- 100
Historical net income... -- -- -- -- 11,573 -- 11,573
Distributions to
shareholders......... -- -- -- -- (7,300) -- (7,300)
Currency translation
adjustment........... -- -- -- -- -- (1,820) (1,820)
---------- ---- ---- ---- -------- ------- --------
BALANCE, March 1, 1998.... 17,000,000 $170 $255 $427 $ 46,681 $(7,667) $ 39,866
========== ==== ==== ==== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE> 65
ALBECCA
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS ENDED
------------------------------------ -------------------------
AUGUST 27, AUGUST 25, AUGUST 31, FEBRUARY 23, MARCH 1,
1995 1996 1997 1997 1998
---------- ---------- ---------- ------------ ---------
(UNAUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Pro forma net income........................ $ 10,612 $ 13,262 $ 14,864 $ 8,424 $ 7,554
Adjustments to reconcile pro forma net
income to net cash provided by operating
activities:
Pro forma provision for income taxes...... 5,432 6,142 7,626 4,468 4,019
Minority interest......................... 97 300 146 34 358
Depreciation and amortization............. 5,703 5,302 6,885 3,350 3,650
Loss on disposal of property, plant and
equipment............................... 177 199 393 369 40
Changes in operating assets and
liabilities:
Accounts receivable....................... (2,791) (568) 1,227 (8,004) (4,772)
Inventories............................... (9,327) 2,138 (1,218) 2,429 1,487
Other current assets...................... (1,426) 1,155 (337) 865 (1,675)
Accounts payable.......................... (1,160) 6,403 (1,909) (2,910) 1,095
Accrued liabilities....................... 6,297 (5,703) (2,846) (314) (267)
Other..................................... 5,429 2,010 (1,376) 4,653 490
-------- -------- -------- -------- --------
Net cash provided by operating
activities......................... 19,043 30,640 23,455 13,364 11,979
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment................................. (5,291) (5,461) (7,746) (5,514) (4,757)
Acquisitions of businesses.................. (24,917) (34,062) (18,408) (13,600) (19,042)
Proceeds from sales of property, plant and
equipment................................. 753 658 3,455 2,802 175
Changes in other long-term assets........... (1,629) 766 185 12 (102)
-------- -------- -------- -------- --------
Net cash used in investing
activities......................... (31,084) (38,099) (22,514) (16,300) (23,726)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facilities... 77,072 76,849 68,249 42,050 47,945
Repayments of revolving credit facilities... (72,361) (68,005) (52,951) (28,967) (28,538)
Proceeds from long-term debt................ 24,447 19,706 9,866 9,994 3,907
Repayments of long-term debt................ (1,505) (8,018) (8,897) (11,561) (3,624)
Capital contribution........................ 23 -- 16 -- --
Distributions to shareholders............... (13,608) (12,250) (16,084) (8,000) (7,300)
-------- -------- -------- -------- --------
Net cash provided by financing
activities......................... 14,068 8,282 199 3,516 12,390
-------- -------- -------- -------- --------
EFFECT OF EXCHANGE RATE ON CASH............... (13) 164 (202) (496) (356)
-------- -------- -------- -------- --------
NET INCREASE IN CASH.......................... 2,014 987 938 84 287
CASH, beginning of period..................... 1,362 3,376 4,363 4,363 5,301
-------- -------- -------- -------- --------
CASH, end of period........................... $ 3,376 $ 4,363 $ 5,301 $ 4,447 $ 5,588
======== ======== ======== ======== ========
SUPPLEMENTAL INFORMATION
Interest paid............................... $ 4,013 $ 7,144 $ 9,282 $ 4,578 $ 6,027
======== ======== ======== ======== ========
Income taxes paid........................... $ 2,132 $ 2,378 $ 3,858 $ 2,586 $ 1,155
======== ======== ======== ======== ========
Details of acquisitions (Note 2):
Fair value of assets acquired............. $(35,637) $(49,814) $(35,611) $(18,705) $(31,624)
Liabilities assumed....................... 9,395 12,205 17,149 5,061 12,559
-------- -------- -------- -------- --------
Cash paid................................. (26,242) (37,609) (18,462) (13,644) (19,065)
Less cash acquired........................ 1,325 3,547 54 44 23
-------- -------- -------- -------- --------
Net cash paid for acquisitions....... $(24,917) $(34,062) $(18,408) $(13,600) $(19,042)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-7
<PAGE> 66
ALBECCA
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Albecca Inc. (formerly Larson-Juhl Inc.) and Larson-Juhl International
L.L.C. (collectively "Albecca" or the "Company") are owned and controlled by the
same shareholders. The Company, which primarily does business under the
Larson-Juhl name, designs, manufactures and distributes a complete line of
branded custom framing products. The Company operates in 20 countries, primarily
in North America and Europe.
The Company is planning an initial public offering (the "Offering") of its
common stock. Prior to the consumation of the Offering, the members of
Larson-Juhl International L.L.C. will contribute their members' interests to
Albecca Inc. under a proposed plan of combination and reorganization (Note 12).
At the time of closing, Albecca Inc. will have converted from an S corporation
to a C corporation.
FISCAL PERIOD
The Company ends its fiscal year on the last Sunday in August. The
Company's fiscal years ended August 27, 1995 and August 25, 1996 were 52-week
years. The fiscal year ended August 31, 1997 was a 53-week year.
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of
Albecca Inc. and subsidiaries and Larson-Juhl International L.L.C. and
subsidiaries. All significant intercompany and intracompany transactions are
eliminated. Minority interest represents minority shareholders' interest in
certain majority-owned subsidiaries.
USE OF ESTIMATES
The preparation of the combined 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 these estimates.
INVENTORIES
Inventories consist primarily of finished goods and are stated at the lower
of cost or market. Cost is determined by using the last-in, first-out method
(approximately 31.3%, 28.9%, and 35.0% at August 25, 1996, August 31, 1997, and
March 1, 1998) and the first-in, first-out method and includes material, direct
and indirect labor, and capitalizable overhead. If the first-in, first-out
method of valuing inventories had been used exclusively, inventories of the
Company would have been $3,677,000, $3,608,000 and $3,609,000 higher at August
25, 1996, August 31, 1997 and March 1, 1998.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 25, AUGUST 31, MARCH 1,
1996 1997 1998
---------- ---------- --------
<S> <C> <C> <C>
Raw materials........................................... $13,046 $11,991 $12,887
Work in process......................................... 3,026 3,028 2,778
Finished goods.......................................... 44,011 53,190 59,122
------- ------- -------
$60,083 $68,209 $74,787
======= ======= =======
</TABLE>
F-8
<PAGE> 67
ALBECCA
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is
provided over the estimated useful lives of the assets (buildings -- 15-35
years, machinery and equipment -- 7-15 years, and furniture and fixtures -- 3-7
years) using primarily the straight-line method.
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 25, AUGUST 31, MARCH 1,
1996 1997 1998
---------- ---------- --------
<S> <C> <C> <C>
Land and buildings...................................... $27,372 $29,251 $36,253
Machinery and equipment................................. 29,231 31,433 33,052
Furniture and fixtures.................................. 9,573 8,402 9,182
------- ------- -------
66,176 69,086 78,487
Less accumulated depreciation........................... 13,322 16,411 19,110
------- ------- -------
$52,854 $52,675 $59,377
======= ======= =======
</TABLE>
Depreciation expense included in the accompanying statements of operations
for the years ended August 27, 1995, August 25, 1996 and August 31, 1997 and the
six months ended March 1, 1998 was approximately $3,801,000, $4,744,000,
$5,900,000 and $2,925,000.
OTHER LONG-TERM ASSETS
Goodwill is amortized over 40 years using the straight-line method.
Trademarks and tradenames are stated at cost, less accumulated amortization, and
are amortized over 15 years using the straight-line method. On a periodic basis
the Company reviews the impairment of long-term assets based primarily upon an
analysis of undiscounted cash flows from the acquired businesses.
Other long-term assets consist of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 25, AUGUST 31, MARCH 1,
1996 1997 1998
---------- ---------- --------
<S> <C> <C> <C>
Goodwill................................................ $14,989 $23,584 $35,896
Trademarks and tradenames............................... 6,998 5,880 5,796
Other................................................... 1,044 936 1,139
------- ------- -------
23,031 30,400 42,831
Less accumulated amortization........................... 1,296 2,045 2,879
------- ------- -------
$21,735 $28,355 $39,952
======= ======= =======
</TABLE>
INCOME TAXES
Albecca Inc. is an S corporation and Larson-Juhl International L.L.C. is a
limited liability company. Each is treated as a pass-through entity under the
Internal Revenue Code. Neither is subject to federal and certain state income
taxes. As a result, the related taxable income is included in the tax returns of
the shareholders and members of the Company. The provision for income taxes
included in the accompanying financial statements primarily relates to certain
state and foreign income taxes.
The accompanying financial statements reflect a provision for income taxes
on a pro forma basis as if the Company were liable for the income taxes as a
taxable corporate entity throughout the years presented. The pro forma income
tax provision has been computed by applying the anticipated statutory tax rate
to pretax income, adjusted for permanent differences (Note 5).
F-9
<PAGE> 68
ALBECCA
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSLATION AND EXPOSURE
The asset and liability accounts of foreign subsidiaries have been
translated into U.S. dollars at the rate of exchange in effect at each balance
sheet date. Shareholders'/members' equity is translated at historical rates. All
the accounts of foreign subsidiaries' statements of operations are translated at
average exchange rates during the year. Resulting translation adjustments
arising from these translations are reflected as a separate component in
shareholders'/members' equity. Gains or losses on foreign currency transactions
are included in income as incurred and are not material to the Company's
statement of operations for the years presented. The denomination of foreign
subsidiaries' account balances in their local currency exposes the Company to
certain foreign exchange rate risks. The Company addresses the exposure by
financing most working capital needs in the applicable foreign currencies.
Management does not believe the remaining risks to be significant.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's long-term debt is estimated based on
current rates offered for debt of similar terms and maturities. Under this
method, the Company's fair value of long-term debt was not significantly
different than the stated value at August 25, 1996, August 31, 1997 and March 1,
1998.
REVENUE RECOGNITION
The Company recognizes revenue at the time of shipment of products or the
performance of services.
BASIC AND DILUTED EARNINGS PER SHARE
Historical basic and diluted earnings per share is computed using
historical or pro forma net income divided by the weighted average number of
shares of common stock outstanding for the periods presented.
Pro forma basic and diluted earnings per share also includes the number of
shares pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 98 that at the assumed public offering price would yield proceeds in the
amount necessary to pay the notes payable to shareholders (Note 12) that are not
covered by the earnings for the year ("Distribution Shares").
No adjustment is necessary for historical and pro forma net income for
earnings per share presentation.
The following is a reconciliation of the shares used in the computation of
pro forma basic and diluted earnings per share:
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED
AUGUST 31, MARCH 1,
1997 1998
---------- ----------
<S> <C> <C>
Weighted average common shares outstanding.................. 17,000,000 17,000,000
Pro forma Distribution Shares...............................
---------- ----------
Pro forma weighted average common shares outstanding........
========== ==========
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In July 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), which establishes
standards for reporting and display of "comprehensive income," which is the
total of net income and all other non-owner changes in shareholder's equity, and
its components. The Company is in the process of evaluating SFAS No. 130 and its
impact and will adopt the standard for its 1999 fiscal year.
F-10
<PAGE> 69
ALBECCA
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131, which
supersedes SFAS Nos. 14, 18, 24 and 30, establishes new standards for segment
reporting, using the "management approach," in which reportable segments are
based on the same criteria on which management disaggregates a business for
making operating decisions and assessing performance. The Company is in the
process of evaluating SFAS No. 131 and its impact and will adopt the standard
for its 1999 fiscal year.
INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statements for the six months ended February 23, 1997 are
unaudited; however, in the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of the unaudited
financial statements for this interim period have been included. The results of
this interim period are not necessarily indicative of the results to be obtained
for a full year.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
2. ACQUISITIONS
The following acquisitions were accounted for under the purchase method of
accounting, applying the provisions of Accounting Principles Board ("APB")
Opinion No. 16, and as a result, the Company has recorded the tangible and
identifiable intangible assets and liabilities of the acquired businesses at
their estimated fair values with the excess of the purchase price over these
amounts being recorded as goodwill which is amortized over 40 years. The
acquisitions were primarily financed with borrowings under the Company's
revolving credit facility and other debt instruments (Note 4). The accompanying
financial statements reflect the operations of the acquired businesses for the
periods after their respective date of acquisition.
During the six months ended March 1, 1998, the Company acquired all of the
outstanding stock of a distributor of custom framing products for approximately
$8,000,000 in cash. Goodwill and intangible assets of approximately $4,400,000
were recorded in connection with the acquisition. The Company also acquired,
during the six month period ended March 1, 1998, the outstanding stock of four
U.S. and international manufacturers and distributors of custom framing products
for aggregate consideration of approximately $11,000,000 in cash resulting in
goodwill and intangible assets of approximately $8,100,000.
During fiscal year 1997, the Company acquired all of the outstanding stock
of an international distributor of custom framing products for approximately
$9,600,000 in cash. Goodwill and intangible assets of approximately $5,200,000
were recorded in connection with this acquisition. The Company also acquired,
during fiscal year 1997, the outstanding stock of five international
manufacturers and distributors of custom framing products for aggregate
consideration of approximately $8,800,000 in cash resulting in goodwill and
intangible assets of approximately $4,600,000.
The following unaudited pro forma summary results of operations are
presented assuming that the acquisitions completed during the year ended August
31, 1997 and the six months ended March 1, 1998 had been consummated on August
26, 1996. The pro forma information is presented for information purposes only
and is not necessarily indicative of the results of operations which would have
actually been obtained. Pro forma adjustments were recorded to include increased
depreciation and amortization of fixed assets and
F-11
<PAGE> 70
ALBECCA
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
intangible assets, additional interest expense on financing required for the
acquisitions and pro forma provision for income taxes (Note 5) (in thousands).
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
AUGUST 31, MARCH 1,
1997 1998
------------ ----------------
<S> <C> <C>
Pro forma revenue........................................... $392,646 $202,420
======== ========
Pro forma net income........................................ $ 15,140 $ 7,850
======== ========
Pro forma earnings per common share......................... $ $
======== ========
</TABLE>
During fiscal year 1996, the Company acquired all of the outstanding stock
of a French manufacturer and distributor of custom framing products for
approximately $6,600,000 in cash. No goodwill resulted from this acquisition.
During fiscal year 1996, the Company acquired all of the outstanding stock of a
United Kingdom manufacturer and distributor of custom framing products for
approximately $13,300,000 in cash. Goodwill and intangible assets of
approximately $4,700,000 were recorded in connection with this acquisition. The
Company also acquired, during fiscal year 1996, the outstanding stock or
substantially all of the operating assets and liabilities of eight international
manufacturers and distributors of custom framing products for aggregate
consideration of approximately $17,700,000 in cash resulting in goodwill and
intangible assets of approximately $7,400,000.
During fiscal year 1995, the Company acquired all of the outstanding stock
of a French manufacturer and distributor of custom framing products for
approximately $12,900,000 in cash. No goodwill resulted from this acquisition.
The Company also acquired, during fiscal year 1995, all of the outstanding stock
or substantially all of the operating assets and liabilities of five
international manufacturers and distributors of custom framing products for
aggregate consideration of approximately $13,300,000 in cash resulting in
goodwill and intangible assets of approximately $2,400,000.
The acquisitions during fiscal years 1996 and 1995 individually and in the
aggregate did not have a material pro forma impact on the Company's results of
operations.
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 25, AUGUST 31, MARCH 1,
1996 1997 1998
---------- ---------- --------
<S> <C> <C> <C>
Accrued operating expenses.............................. $ 9,563 $ 9,495 $10,876
Accrued payroll and benefits............................ 9,310 12,606 13,254
Accrued income taxes.................................... 1,243 627 976
Accrued interest........................................ 312 532 823
Accrued taxes (other than income)....................... 1,876 1,257 1,521
Other................................................... 4,383 3,465 4,277
------- ------- -------
$26,687 $27,982 $31,727
======= ======= =======
</TABLE>
F-12
<PAGE> 71
ALBECCA
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 25, AUGUST 31, MARCH 1,
1996 1997 1998
---------- ---------- --------
<S> <C> <C> <C>
Credit facility ("Credit Facility"), as amended, due
September 1999, payable in U.S. dollars, British
Pounds, Deutsche Marks and Australian dollars,
interest paid periodically at rates ranging from
LIBOR plus .75% to the prime rate less .50% (7.5% at
March 1, 1998 -- weighted average rate).............. $34,322 $49,507 $ 67,897
Demand note payable in French Francs, interest paid
quarterly at a rate of 3.6% to 4.0%, secured by a
standby letter of credit............................. 8,954 3,446 3,448
Mortgage note due September 2017, payable in Deutsche
Marks, principal paid semi-annually in equal
installments, interest paid quarterly at a rate of
5.2%, secured by certain property.................... -- -- 3,085
Demand note payable in British Pounds, interest paid
quarterly at a base rate plus 2.0% (9.5% as of March
1, 1998), secured by certain accounts receivable,
inventory and equipment.............................. 3,559 3,374 3,074
Demand note payable in Dutch Guilders, interest paid
quarterly at a base rate plus 1.25% (5.0% as of March
1, 1998) secured by certain accounts receivable,
inventory and property............................... 3,668 3,521 2,691
Other long-term notes, interest payable at a weighted
average rate of 7.34%, maturing at various dates
through 2010, no individual amounts exceeding
$2,500............................................... 42,559 48,878 52,432
------- ------- --------
93,062 108,726 132,627
Less current maturities................................ 18,925 28,079 31,839
------- ------- --------
Long-term portion...................................... $74,137 $80,647 $100,788
======= ======= ========
</TABLE>
The above facilities are subject to certain financial covenants related to
adjusted tangible net worth and cash flow (as defined). Certain revolving
facilities provide the Company with additional borrowings of up to $28,763,000
as of March 1, 1998. The Company had outstanding letters of credit totaling
$3,742,000 as of March 1, 1998.
A commitment fee at an annual rate equal to 0.25% of the average daily
unused amount of the Credit Facility is payable quarterly. On April 30, 1998,
the Credit Facility's commitment amount was amended to increase from $90,000,000
to $100,000,000. The Credit Facility included borrowings denominated in foreign
currencies in the aggregate amounts of $18,910,000, $26,180,000 and $26,126,000
as of August 25, 1996, August 31, 1997 and March 1, 1998.
Other long-term notes included borrowings denominated in foreign currencies
in the aggregate amounts of $29,746,000, $35,402,000 and $51,459,000 as of
August 25, 1996, August 31, 1997 and March 1, 1998.
Aggregate maturities of long-term debt, as amended, for the remaining six
months of fiscal year 1998 and the fiscal years are as follows:
1998 -- $31,839,000; 1999 -- $7,770,000; 2000 -- $57,423,000; 2001 --
$23,930,000; 2002 -- $3,155,000; thereafter -- $8,510,000.
F-13
<PAGE> 72
ALBECCA
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
In connection with the Offering, the Company, following the completion of
the plan of combination and reorganization (Note 12), will convert from an S
corporation to a C corporation and, accordingly, will be subject to future
federal and state income taxes. Upon conversion to C corporation status, the
Company will record deferred taxes for which it will be responsible following
termination of S corporation status. The assets below will be reflected on the
balance sheet of the Company with a corresponding non-recurring income amount in
the statement of operations at the completion of the Offering. The components of
the pro forma total deferred tax assets and deferred tax liabilities as of March
1, 1998 consist of the following (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Inventories............................................... $ 1,911
Accrued payroll and benefits.............................. 2,877
Other accrued liabilities................................. 4,320
Allowance for doubtful accounts........................... 1,074
-------
$10,182
=======
Deferred tax liabilities:
Property, plant and equipment............................. $ 1,498
Other..................................................... 105
-------
$ 1,603
=======
</TABLE>
The following summarizes the components of the pro forma income tax
provision and provision for income taxes (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------ SIX MONTHS ENDED
AUGUST 27, AUGUST 25, AUGUST 31, MARCH 1,
1995 1996 1997 1998
---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C>
Current domestic taxes:
Federal................................ $ 7,258 $ 9,145 $10,696 $ 5,994
State.................................. 1,324 1,668 1,951 1,093
Foreign taxes............................ 728 968 515 586
Deferred taxes........................... (1,556) (1,960) (2,293) (1,944)
------- ------- ------- -------
$ 7,754 $ 9,821 $10,869 $ 5,729
======= ======= ======= =======
</TABLE>
The following is a reconciliation from the federal statutory rate to the
pro forma income tax provision and provision for income taxes for the years
ended August 27, 1995, August 25, 1996 and August 31, 1997 and the six months
ended March 1, 1998:
<TABLE>
<S> <C>
Statutory federal tax rate.................................. 35.0%
State income taxes.......................................... 3.9
Foreign operations.......................................... 0.2
Other....................................................... 2.9
----
42.0%
====
</TABLE>
F-14
<PAGE> 73
ALBECCA
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. GEOGRAPHIC INFORMATION
The following table presents information regarding the Company's different
geographical regions based on the historical operations of the Company (in
thousands):
<TABLE>
<CAPTION>
SIX
YEARS ENDED MONTHS
------------------------------------ ENDED
AUGUST 27, AUGUST 25, AUGUST 31, MARCH 1,
1995 1996 1997 1998
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Revenue
United States............................... $153,725 $162,429 $165,514 $ 94,183
United Kingdom.............................. 4,385 25,021 47,806 24,934
France...................................... 21,241 41,937 37,698 19,543
Other International......................... 46,008 71,401 103,040 61,154
-------- -------- -------- --------
$225,359 $300,788 $354,058 $199,814
======== ======== ======== ========
Operating income (loss)
United States............................... $ 18,357 $ 21,522 $ 25,175 $ 12,322
United Kingdom.............................. (361) 880 4,227 2,465
France...................................... 944 2,948 2,391 719
Other International......................... 3,531 5,379 4,558 4,712
-------- -------- -------- --------
$ 22,471 $ 30,729 $ 36,351 $ 20,218
======== ======== ======== ========
</TABLE>
Assets by geographical region consist of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 25, AUGUST 31, MARCH 1,
1996 1997 1998
---------- ---------- --------
<S> <C> <C> <C>
United States.......................................... $ 39,591 $ 37,518 $ 54,539
United Kingdom......................................... 42,331 45,166 46,320
France................................................. 42,906 37,686 39,096
Other International.................................... 65,340 88,319 103,545
-------- -------- --------
$190,168 $208,689 $243,500
======== ======== ========
</TABLE>
7. SHAREHOLDERS'/MEMBERS' EQUITY
STOCK SPLIT
On April 27, 1998, the Company effected a 1.7-for-1 stock split of its
common stock. The accompanying financial statements and notes hereof reflect
this stock split as if it had occurred at the beginning of each period.
STOCK OPTIONS
In July 1990, the Company's sole shareholder granted an option to a key
employee to acquire 170,000 shares of common stock from the shareholder for
$7.65 per share which represented the fair value, as estimated by management, at
the date of grant. This option was exercised in January 1995.
In November 1996, the Company's majority shareholder established a stock
performance program whereby a certain key employee could receive annually an
option to acquire 0.2% of the then outstanding shares of Albecca Inc.'s common
stock and 0.2% of member interest in Larson-Juhl International L.L.C. from the
Company's majority shareholder for $300,000, contingent upon the Company
achieving its performance goals, including, sales, profits, asset management and
future positioning, for each fiscal year through fiscal year 2000. In November
1996, the key employee was awarded the option to acquire 34,000 shares of
Albecca Inc.'s common stock and 0.2% of member interest in Larson-Juhl
International L.L.C. from the Company's majority shareholder for $300,000. No
compensation expense was recognized for this award as the exercise
F-15
<PAGE> 74
ALBECCA
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
price, in the opinion of management, exceeded its fair value at the date of
grant. On April 17, 1998, this option was exercised. No award was earned or
granted to the key employee for fiscal year 1997. The Company's majority
shareholder extended the program through fiscal year 2001, under the same terms
and conditions as the original stock performance program. Compensation expense
related to this program will be recorded as a component of expenses.
In November 1996, the Company's majority shareholder granted another key
employee the right to acquire 42,500 shares of Albecca Inc.'s common stock and
.25% of member interest in Larson-Juhl International L.L.C. from the Company's
majority shareholder for $200,000, representing, in management's opinion, the
fair value at the date of grant. On April 19, 1997, this right was exercised. On
December 1, 1997, this key employee acquired 85,000 shares of Albecca Inc.'s
common stock and 0.5% of member interest in Larson-Juhl International L.L.C.
from the Company's majority shareholder for $300,000. The Company recorded a
compensation charge of $100,000, representing the difference between the
exercise price and the fair value, based on management's estimate, at the date
of grant. On January 5, 1998, the Company's majority shareholder granted this
key employee the right to acquire 42,500 shares of Albecca Inc.'s common stock
and .25% of member interest in Larson-Juhl International L.L.C. from the
Company's majority shareholder for $500,000, representing, in management's
opinion, the fair value at the date of grant. On April 17, 1998, this right was
exercised.
On May 1, 1998, the Company adopted the Albecca Inc. 1998 Stock Option Plan
(the "Stock Option Plan") for which 2,600,000 shares of common stock were
authorized for issuance in connection with stock options granted under such
plan. The Stock Option Plan provides for non-qualified and incentive stock
options. Additionally, as of May 1, 1998, the provisions of the stock
performance program discussed above were amended whereby any option grant under
such program would be granted by the Company under the Stock Option Plan. On May
1, 1998, the Company granted to a certain key employee, under the stock
performance program, a non-qualified option to acquire 34,068 shares of common
stock at $8.80 per share, expiring May 1, 2003. As a result of this grant, the
Company will record a compensation charge of $143,000 in the third quarter of
fiscal year 1998 representing the difference between the exercise price and the
fair value, based on management's estimate, at the date of grant.
SFAS No. 123, "Accounting for Stock-Based Compensation" defines a fair
value-based method of accounting for an employee stock option plan or similar
equity instrument and allows an entity to continue to measure compensation cost
for those plans using the method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to remain with the
accounting in APB No. 25 must make pro forma disclosures of net income and, if
presented, earnings per share, as if the fair value-based method of accounting
defined in the statement had been applied.
The Company has elected to account for its stock-based compensation plans
under APB No. 25; however, the Company has computed for pro forma disclosure
purposes the value of all options granted during the year ended August 31, 1997
and the six months ended March 1, 1998 using the minimum value method as
prescribed by SFAS No. 123 using the following assumptions:
<TABLE>
<S> <C>
Risk-free interest rate..................................... 6%
Expected dividend yield..................................... --
Expected lives.............................................. 5 years
Expected volatility......................................... --
</TABLE>
F-16
<PAGE> 75
ALBECCA
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
If the Company had accounted for these grants in accordance with SFAS No.
123, the Company's reported pro forma net income and pro forma earnings per
share for the year ended August 31, 1997 and the six months ended March 1, 1998
would have decreased to the following pro forma amounts (in thousands):
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
AUGUST 31, MARCH 1,
1997 1998
---------- ----------
<S> <C> <C>
Pro forma net income:
As reported in the financial statements................... $14,864 $7,554
======= ======
Pro forma in accordance with SFAS No. 123................. $14,812 $7,425
======= ======
Pro forma earnings per common share:
As reported in the financial statements...................
======= ======
Pro forma in accordance with SFAS No. 123.................
======= ======
</TABLE>
8. RELATED PARTY TRANSACTIONS
The Company's principal executive offices are located in a 65,000 square
foot office building located in Norcross, Georgia owned by L-J Properties Inc.,
a company owned by the existing shareholders of the Company. The Company's lease
for this facility terminates in August 2001. The total rent payments for the
years ended August 27, 1995, August 25, 1996 and August 31, 1997 and the six
months ended March 1, 1998 were approximately $623,000, $642,000, $661,000 and
$339,000.
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain operating facilities and equipment under
operating leases. Future minimum annual rentals under non-cancelable leases as
of March 1, 1998 are as follows: 1998 -- $3,231,000; 1999 -- $4,589,000;
2000 -- $2,828,000; 2001 -- $1,698,000; 2002 -- $672,000; and after
2002 -- $570,000.
The total rent payments for the years ended August 27, 1995, August 25,
1996 and August 31, 1997, and the six months ended March 1, 1998 were
approximately $5,850,000, $6,462,000, $6,229,000 and $4,410,000.
LITIGATION
The Company is involved in certain litigation arising in the ordinary
course of business. In the opinion of management, the ultimate resolution of
these matters will not have a material adverse effect on the Company's financial
position or results of operations.
10. BENEFIT PLANS
The Company sponsors a defined contribution 401(k) retirement investment
plan (the "Plan") for all its U.S. employees with more than one year of service.
The Company makes discretionary contributions to the plan including a 50%
matching contribution. Under the terms of the Plan, a participant is 100% vested
in the Company's matching and discretionary contributions after six years of
service. Discretionary contributions made by the Company for the years ended
August 27, 1995, August 25, 1996 and August 31, 1997 and the six months ended
March 1, 1998 were approximately $333,000, $409,000, $419,000 and $191,000.
F-17
<PAGE> 76
ALBECCA
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
11. QUARTERLY DATA
The following table presents quarterly information regarding the Company's
historical operations for each quarter in the fiscal years 1996 and 1997 and the
six months ended March 1, 1998 (in thousands):
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
-------------------------------------------------------------------------------------------------------
NOVEMBER 26, FEBRUARY 25, MAY 26, AUGUST 25, NOVEMBER 24, FEBRUARY 23, MAY 25, AUGUST 31,
1995 1996 1996 1996 1996 1997 1997 1997
------------ ------------ ------- ---------- ------------ ------------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $72,456 $72,914 $80,620 $74,798 $93,217 $92,799 $80,679 $87,363
Cost of sales........ 41,021 41,528 46,703 43,312 53,900 53,751 43,838 47,761
------- ------- ------- ------- ------- ------- ------- -------
Gross profit...... 31,435 31,386 33,917 31,486 39,317 39,048 36,841 39,602
Operating expenses... 23,137 23,634 26,654 24,070 28,595 30,094 28,905 30,863
------- ------- ------- ------- ------- ------- ------- -------
Operating
income........... 8,298 7,752 7,263 7,416 10,722 8,954 7,936 8,739
Interest expense..... 1,397 1,708 1,836 2,405 2,437 2,656 2,394 2,985
------- ------- ------- ------- ------- ------- ------- -------
Income before
provision for
income taxes and
minority
interest......... 6,901 6,044 5,427 5,011 8,285 6,298 5,542 5,754
Provision for income
taxes............... 821 573 986 1,299 922 735 537 1,049
Minority interest.... (202) 2 (62) (38) (57) 23 (69) (43)
------- ------- ------- ------- ------- ------- ------- -------
Net income before
pro forma
provision for
income taxes..... 5,878 5,473 4,379 3,674 7,306 5,586 4,936 4,662
Pro forma provision
for income taxes.... 2,076 1,964 1,294 808 2,536 1,932 1,772 1,386
------- ------- ------- ------- ------- ------- ------- -------
Pro forma net
income.............. $ 3,802 $ 3,509 $ 3,085 $ 2,866 $ 4,770 $ 3,654 $ 3,164 $ 3,276
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
FOR THE QUARTERS ENDED
-----------------------
NOVEMBER 30, MARCH 1,
1997 1998
------------ --------
<S> <C> <C>
Net sales............ $102,985 $96,829
Cost of sales........ 58,544 54,066
-------- -------
Gross profit...... 44,441 42,763
Operating expenses... 33,256 33,730
-------- -------
Operating
income........... 11,185 9,033
Interest expense..... 2,755 3,822
-------- -------
Income before
provision for
income taxes and
minority
interest......... 8,430 5,211
Provision for income
taxes............... 896 814
Minority interest.... (166) (192)
-------- -------
Net income before
pro forma
provision for
income taxes..... 7,368 4,205
Pro forma provision
for income taxes.... 2,644 1,375
-------- -------
Pro forma net
income.............. $ 4,724 $ 2,830
======== =======
</TABLE>
12. SUBSEQUENT EVENTS
ACQUISITIONS
On April 30, 1998, the Company acquired all of the outstanding stock of a
U.S. distributor of custom framing products for approximately $9,900,000 in
cash.
PLAN OF COMBINATION AND REORGANIZATION
The Company has adopted a plan of combination and reorganization whereby
during the fourth quarter of fiscal year 1998, the members of Larson-Juhl
International L.L.C. will contribute their respective equity interests to
Albecca Inc. The combination will be treated in a manner similar to a pooling of
interest and no step-up in basis will be recorded as the entities are under
common control.
INITIAL PUBLIC OFFERING
In the fourth quarter of fiscal year 1998, the Company is planning an
initial public offering of its common stock. There can be no assurance that the
Offering will be completed. Prior to the Offering, the Company will pay a
distribution to its existing shareholders equal to the amount of previously
undistributed S corporation earnings of the Company.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The accompanying unaudited pro forma combined balance sheet as of March 1,
1998 is based on the Company's historical balance sheet as of March 1, 1998, as
adjusted to reflect the following proposed
F-18
<PAGE> 77
ALBECCA
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
transactions: (i) the combination of Albecca Inc. and Larson-Juhl International
L.L.C., (ii) the issuance of notes payable to shareholders of approximately
$64,300,000, including the $10,500,000 demand promissory notes payable to
shareholders discussed below, in connection with the previously undistributed S
corporation earnings and related effects on historical retained earnings and
(iii) the recording of net deferred tax assets of approximately $8,579,000 as a
result of the change in corporate tax filing status upon the consummation of the
Offering discussed in Note 5. The pro forma information does not give effect to
the proceeds of the Offering.
OTHER
On May 1, 1998, Albecca Inc. made a partial distribution of its previously
undistributed S corporation earnings to its shareholders in the form of demand
promissory notes payable to its shareholders in the aggregate amount of
$10,500,000, bearing interest at a rate of 11% per annum. Additionally, on April
14, 1998, the Company made a cash distribution of part of its previously
undistributed S corporation earnings to its shareholders in the amount of
$3,000,000.
F-19
<PAGE> 78
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.
<TABLE>
<S> <C>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
PROSPECTUS (Subject to Completion)
Issued May 22, 1998
</TABLE>
Shares
(ALBECCA LOGO)
CLASS A COMMON STOCK
------------------------
OF THE SHARES OF CLASS A COMMON STOCK BEING OFFERED, SHARES ARE BEING
OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS (THE "INTERNATIONAL OFFERING") AND SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS (THE "U.S.
OFFERING" AND TOGETHER WITH THE INTERNATIONAL OFFERING, THE "OFFERING"). ALL OF
THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE CLASS A COMMON
STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING
PRICE PER SHARE WILL BE BETWEEN $ AND $ . SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING
PRICE.
------------------------
APPLICATION WILL BE MADE TO LIST THE CLASS A COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share.................................... $ $ $
Total (3).................................... $ $ $
</TABLE>
- ------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional Shares of Class A Common Stock at the Price to Public
less Underwriting Discounts and Commissions for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Jones, Day, Reavis & Pogue, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about , 1998 at the office
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE
International
WHEAT FIRST UNION
, 1998
<PAGE> 79
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the Offering described in the Registration Statement:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $22,125
NASD fees................................................... 8,000
NYSE fees................................................... **
Blue Sky Fees and Expenses.................................. **
Printing and Engraving...................................... **
Legal Fees and Expenses..................................... **
Accounting Fees and Expenses................................ **
Transfer Agent Fees......................................... **
Miscellaneous Expenses...................................... **
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* All amounts other than the SEC Registration Fee and NASD Fees reflect Company
estimates.
** To be provided in a future amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation eliminate, subject to certain
limited exceptions, the personal liability of a director to the Company or its
shareholders for monetary damage for any breach of duty as a director. There is
no elimination of liability for (i) a breach of duty involving appropriation of
a business opportunity of the Company; (ii) an act or omission which involves
intentional misconduct or a knowing violation of law; (iii) any transaction from
which the director derives an improper personal benefit; or (iv) as to any
payments of a dividend or any other type of distribution that is illegal under
Section 14-2-832 of the Georgia Business Corporation Code (the "Code"). In
addition, if at any time the Code is amended to authorize further elimination or
limitation of the personal liability of a director, then the liability of each
director of the Company shall be eliminated or limited to the fullest extent
permitted by such provisions, as so amended, without further action by the
shareholders, unless the provisions of the Code require such action. The
provision does not limit the right of the Company or its shareholders to seek
injunctive or other equitable relief not involving payments in the nature of
monetary damages.
The Company's bylaws contain certain provisions which provide
indemnification to directors of the Company that is broader than the protection
expressly mandated in Sections 14-2-852 and 14-2-857 of the Code. To the extent
that a director or officer of the Company has been successful, on the merits or
otherwise, in the defense of any action or proceeding brought by reason of the
fact that such person was a director or officer of the Company, Sections
14-2-852 and 14-2-857 of the Code would require the Company to indemnify such
persons against expenses (including attorney's fees) actually and reasonably
incurred in connection therewith. The Code expressly allows the Company to
provide for greater indemnification rights to its officers and directors,
subject to shareholder approval.
The indemnification provisions in the Company's bylaws require the Company
to indemnify and hold harmless any director who was or is a party or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(including any action or suit by or in the right of the Company) because he or
she is or was a director of the Company, against expenses (including, but not
limited to, attorney's fees and disbursements, court costs and expert witness
fees), and against judgments, fines, penalties, and amounts paid in settlement
incurred by him or her in connection with the action, suit or proceeding.
Indemnification would be disallowed under any circumstances where
indemnification may not be authorized by action of the Board of Directors, the
shareholders or otherwise. The Board of Directors of the Company also has the
authority to extend to officers, employees and
II-1
<PAGE> 80
agents the same indemnification rights held by directors, subject to all the
accompanying conditions and obligations. Indemnified persons would also be
entitled to have the Company advance expenses prior to the final disposition of
the proceeding. If it is ultimately determined that they are not entitled to
indemnification, however, such amounts would be repaid. Insofar as
indemnification for liability arising under the Securities Act may be permitted
to officers and directors of the Company pursuant to the foregoing provisions,
the Company has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
The Company has entered into separate indemnification agreements with each
of its directors and executive officers, whereby the Company agreed, among other
things, to provide for indemnification and advancement of expenses in a manner
and subject to terms and conditions similar to those set forth in the Company's
bylaws. These agreements also provide that the Company shall purchase and
maintain liability insurance for the benefit of its directors and executive
officers. These agreements may not be abrogated by action of the shareholders.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any pending or threatened litigation that
may result in claims for indemnification by any director, officer, employee or
other agent.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company did not sell any unregistered securities within the past three
years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement*
3.1 -- Amended and Restated Articles of Incorporation of the
Company
3.2 -- Amended and Restated Bylaws of the Company
4.1 -- Specimen Class A Common Stock Certificate*
5.1 -- Opinion of Nelson Mullins Riley & Scarborough, L.L.P.*
10.1 -- 1998 Stock Option Plan*
10.2 -- Credit Agreement by and among Larson-Juhl Inc., Larson-Juhl
International L.L.C., Norwest Bank Minnesota, National
Association, SunTrust Bank Atlanta, and the other financial
institutions party thereto, dated July 16, 1996
10.3 -- First Amendment to Credit Agreement by and among Larson-Juhl
Inc., Larson-Juhl International L.L.C., Norwest Bank
Minnesota, National Association, SunTrust Bank Atlanta, The
Sumitomo Bank, Limited and Southtrust Bank of Georgia, N.A.,
dated November 14, 1992
10.4 -- Second Amendment to Credit Agreement by and among
Larson-Juhl Inc., Larson-Juhl International L.L.C., Norwest
Bank Minnesota, National Association and SunTrust Bank
Atlanta, dated April 30, 1998
10.5 -- Lease Agreement, dated August 8, 1991, by and between L-J
Properties Inc. and Larson-Juhl Inc.
10.6 -- Amendment No. 1 to Lease Agreement dated October 26, 1993,
by and between L-J Properties Inc. and Larson-Juhl Inc.
10.7 -- Form of Indemnification Agreement to be entered into by and
between the Company and each of its directors and executive
officers*
10.8 -- Form of S Corp Note issued by the Company in favor of its
existing shareholders
</TABLE>
II-2
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
10.9 -- Form of Employment Agreement to be entered into by and
between the Company and Craig A. Ponzio*
10.10 -- Form of Tax Indemnification Agreement between the Company
and its existing shareholders*
21.1 -- Subsidiaries of the Company
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of BDO CampsObers
23.3 -- Consent of Nelson Mullins Riley & Scarborough, L.L.P. (filed
as part of Exhibit 5.1)*
24.1 -- Power of Attorney (contained on the signature page hereof).
27.1 -- Financial Data Schedule for the fiscal year ended August 31,
1997 (for SEC use only)
27.2 -- Financial Data Schedule for six months ended March 1, 1998
(for SEC use only)
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the underwriter at the closing
specified in the underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the 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 Company 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 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 Act and will be governed by the final adjudication of
such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company 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.
(2) 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 relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 82
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 City of Atlanta, State of
Georgia, on May 22, 1998.
ALBECCA INC.
By: /s/ CRAIG A. PONZIO
------------------------------------
Craig A. Ponzio
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned officers and
directors of Albecca Inc. (the "Company"), a Georgia corporation, for himself
and not for one another, does hereby constitute and appoint Craig A. Ponzio, a
true and lawful attorney in his name, place and stead, in any and all
capacities, to sign his name to any and all amendments, including post-effective
amendments, to this Registration Statement, and to sign a Registration Statement
pursuant to Section 462(b) of the Securities Act of 1933, and to cause the same
(together with all Exhibits thereto) to be filed with the Securities and
Exchange Commission, granting unto said attorney full power and authority to do
and perform any act and thing necessary and proper to be done in the premises,
as fully to all intents and purposes as the undersigned could do if personally
present, and the undersigned for himself hereby ratifies and confirms all that
said attorney shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities listed and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO Chairman of the Board, President, May 22, 1998
- ----------------------------------------------------- Chief Executive Officer and
Craig A. Ponzio Director (Principal Executive
Officer)
/s/ STEPHEN M. SCHEPPMANN Senior Vice President, Chief May 22, 1998
- ----------------------------------------------------- Financial Officer and Director
Stephen M. Scheppmann (Principal Financial and
Accounting Officer)
/s/ WILLIAM P. TRIMARCO President, U.S. Operations and May 22, 1998
- ----------------------------------------------------- Director
William P. Trimarco
/s/ JUNE R. PONZIO Vice Chairman of the Board and May 22, 1998
- ----------------------------------------------------- Director
June R. Ponzio
</TABLE>
II-4
<PAGE> 83
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To Albecca Inc. and Larson-Juhl International L.L.C.:
We have audited, in accordance with generally auditing standards, the
combined financial statements of ALBECCA INC. (a Georgia corporation) and
LARSON-JUHL INTERNATIONAL L.L.C. (a Georgia limited liability company) included
in this registration statement and have issued our report thereon dated May 6,
1998. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Item 16(b) of the Registration Statement
is the responsibility of the Company's management and presented for purposes of
complying with the Securities and Exchange Commission rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Atlanta, Georgia
May 6, 1998
<PAGE> 84
SCHEDULE II
ALBECCA
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
OF YEAR EXPENSES DEDUCTIONS* OTHER** YEAR
---------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
For the fiscal year ended:
August 27, 1995: Allowance
for doubtful accounts.... $2,255,000 $ 909,000 $ 731,000 $358,000 $2,791,000
---------- ---------- ---------- -------- ----------
August 25, 1996: Allowance
for doubtful accounts.... $2,791,000 $2,643,000 $1,825,000 $282,000 $3,891,000
---------- ---------- ---------- -------- ----------
August 31, 1997: Allowance
for doubtful accounts.... $3,891,000 $4,526,000 $3,149,000 $110,000 $5,378,000
---------- ---------- ---------- -------- ----------
For the six months ended:
March 1, 1998: Allowance for
doubtful accounts........ $5,378,000 $1,465,000 $1,567,000 $ 99,000 $5,375,000
---------- ---------- ---------- -------- ----------
</TABLE>
- ---------------
* Principally charges for which reserves were provided, net of recoveries.
** Acquired through acquisition of businesses.
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement*
3.1 -- Amended and Restated Articles of Incorporation of the
Company
3.2 -- Amended and Restated Bylaws of the Company
4.1 -- Specimen Common Stock Certificate*
5.1 -- Opinion of Nelson Mullins Riley & Scarborough, L.L.P.*
10.1 -- 1998 Stock Option Plan*
10.2 -- Credit Agreement by and among Larson-Juhl Inc., Larson-Juhl
International L.L.C., Norwest Bank Minnesota, National
Association, SunTrust Bank Atlanta, and the other financial
institutions party thereto, dated July 16, 1996
10.3 -- First Amendment to Credit Agreement by and among Larson-Juhl
Inc., Larson-Juhl International L.L.C., Norwest Bank
Minnesota, National Association, SunTrust Bank Atlanta, the
Sumitomo Bank, Limited and Southtrust Bank of Georgia, N.A.,
dated November 14, 1992
10.4 -- Second Amendment to Credit Agreement by and among
Larson-Juhl Inc., Larson-Juhl International L.L.C., Norwest
Bank Minnesota, National Association, SunTrust Bank Atlanta,
The Sumitomo Bank, Limited and Southtrust Bank of Georgia,
N.A., dated April 30, 1998
10.5 -- Lease Agreement, dated August 8, 1991, by and between L-J
Properties Inc. and Larson-Juhl Inc.
10.6 -- Amendment No. 1 to Lease Agreement dated October 26, 1993,
by and between L-J Properties Inc. and Larson-Juhl Inc.
10.7 -- Form of Indemnification Agreement to be entered into by and
between the Company and each of its directors and executive
officers*
10.8 -- Form of S Corp Note issued by the Company in favor of its
existing shareholders
10.9 -- Form of Employment Agreement to be entered into by and
between the Company and Craig A. Ponzio*
10.10 -- Form of Tax Indemnification Agreement between the Company
and its existing shareholders*
21.1 -- Subsidiaries of the Company
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of BDO CampsObers
23.3 -- Consent of Nelson Mullins Riley & Scarborough, L.L.P. (filed
as part of Exhibit 5.1)*
24.1 -- Power of Attorney (contained on the signature page hereof)
27.1 -- Financial Data Schedule for the fiscal year ended August 31,
1997 (for SEC use only)
27.2 -- Financial Data Schedule for six months ended March 1, 1998
(for SEC use only)
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF RESTATEMENT
OF LARSON-JUHL INC.
The undersigned, as Assistant Secretary of Larson-Juhl Inc., a Georgia
corporation (the "Corporation"), does hereby certify pursuant to Section
14-2-1007(d) of the Official Code of Georgia Annotated (the "Code") the
following:
1. The name of the Corporation is Larson-Juhl Inc., and the
accompanying Amended and Restated Articles of Incorporation (the "Amended and
Restated Articles") effect a change of the name of the Corporation to "Albecca
Inc."
2. The Amended and Restated Articles were adopted by the Corporation in
the manner prescribed by the Georgia Business Corporation Code. The Amended and
Restated Articles accurately restate the Articles of Incorporation of the
Corporation and amendments existing immediately prior to the adoption of the
accompanying Amended and Restated Articles and further amend the Corporation's
articles as indicated therein.
3. The shareholders and the sole director of the Corporation approved
and adopted the Amended and Restated Articles on May 20, 1998 in accordance with
the provisions of Code Section 14-2-1003.
4. Immediately prior to the effectiveness of the amendments to be
effected by the Amended and Restated Articles, there were 17,000,000 shares of
Common Stock, par value $.01, outstanding (the "Outstanding Old Common Stock").
Upon the effectiveness of the Amended and Restated Articles, the 16,626,000
shares of Outstanding Old Common Stock held by the shareholder holding
16,626,000 shares of Outstanding Old Common Stock shall be converted into no
shares of Class A Common Stock and 16,626,000 shares of Class B Common Stock,
the 204,000 shares of Outstanding Old Common Stock held by the shareholder
holding 204,000 shares of Outstanding Old Common Stock shall be converted into
204,000 shares of Class A Common Stock and no shares of Class B Common Stock,
and the 170,000 shares of Outstanding Old Common Stock held by the shareholder
holding 170,000 shares of Outstanding Old Common Stock shall be converted into
170,000 shares of Class A Common Stock and no shares of Class B Common Stock,
all as such reclassification is described more fully in resolutions adopted by
the shareholders and the board of directors of the Corporation on May 20, 1998.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
May 21, 1998.
/s/ Philip H. Moise
------------------------------------
Philip H. Moise, Assistant Secretary
<PAGE> 2
AMENDED AND RESTATED ARTICLES OF
INCORPORATION
I.
The name of the Corporation is ALBECCA INC.
II.
The Corporation is organized pursuant to the provisions of the Georgia
Business Corporation Code (the "Code").
III.
A. The Corporation is authorized to issue an aggregate of 400,000,000
shares of capital stock, par value $0.01 per share, consisting of three classes:
250,000,000 shares of "Class A Common Stock", 100,000,000 shares of "Class B
Common Stock", and 50,000,000 shares of "Preferred Stock". All or any part of
the shares of the capital stock may be issued by the Corporation from time to
time and for such consideration as may be determined and fixed by the Board of
Directors as provided by law; and when such consideration has been received by
the Corporation, such shares shall be deemed fully paid and non-assessable.
B. Except to the extent otherwise provided herein, the holders of Class
A Common Stock ("Class A Holders") and the holders of Class B Common Stock
("Class B Holders") shall have the same powers, designations, preferences and
participation rights and privileges. The Class A Holders and the Class B Holders
shall have the following specific powers, designations, preferences, and
relative participation rights and privileges:
(1) Each Class A Holder shall be entitled to one (1) vote per share of
Class A Common Stock standing in his name on the transfer books of the
Corporation, and each Class B Holder shall be entitled to ten (10) votes per
share of Class B Common Stock standing in his name on the transfer books of the
Corporation, with respect to each matter to be voted upon.
(2) The Class A Holders and the Class B Holders shall have the right to
vote, but not as separate classes except to the extent required by law or as
otherwise provided in subsection (3) below, upon all matters submitted to the
shareholders of the Corporation. A quorum shall be present when the majority of
all votes eligible to be cast by the Class A Holders and the Class B Holders
taken as a whole is present in person or by proxy.
(3) (a) In addition to any other vote required by law wherein holders
of the Class A Common Stock and the Class B Holders are entitled to vote as
separate voting groups, the
<PAGE> 3
Corporation may not alter or change, by increase, diminution or otherwise, the
relative rights, preferences, privileges, restrictions, dividend rights, voting
power or other powers given to the Class A Holders or the Class B Holders
pursuant to this Article III other than by the affirmative vote of not less than
sixty-six and two thirds percent (66 2/3%) of all the votes entitled to be voted
by the holders of each class of stock to be adversely affected thereby voting as
a separate class. Notwithstanding anything to the contrary contained anywhere
herein, the Corporation may increase the total number of authorized shares of
Class A Common Stock that may be issued by the Corporation by the affirmative
vote of a majority of all the votes entitled to be cast by the Class A Holders
and the Class B Holders voting together as a single class, and without the
approval of the Class A Holders and Class B Holders voting as separate classes.
In the event that the Board of Directors declares a dividend or other
distribution payable in the shares of capital stock of the Corporation and there
are an insufficient number of authorized shares of Class B Common Stock
available to be distributed in accordance with Section (4)(b) below, then the
Class B Holders may vote on an amendment to these Articles of Incorporation to
increase the number of authorized shares of such class to such number that is
sufficient to permit the issuance of the stock dividend or other distribution,
without submitting such matter to a vote of the Class A Holders.
(b) In the event the Corporation proposes to engage in any
business transaction including a merger, sale of substantially all of its
assets, tender or exchange offer, or other similar business combination, or
proposes to adopt a plan of liquidation, dissolution or reorganization, or
entertain any proposal for acquisition of a substantial equity interest in the
Corporation (any such event or combination of events being herein referred to as
a "Proposal") and the Proposal is to be submitted to a vote of the Corporation's
shareholders, and either (i) the consideration per share proposed to be paid to
the holders of the Class A Common Stock is less than or otherwise different in
any respect from the consideration per share proposed to be paid to the holders
of the Class B Common Stock, or (ii) the respective rights of the Class A Common
Stock is proposed to be diminished or otherwise adversely altered relative to
the respective rights of the Class B Common Stock, then the approval of the
consummation of the Proposal shall also require the affirmative vote of a
majority of the outstanding shares of each of such classes voting as separate
voting groups.
(4) Class A Holders and Class B Holders shall be entitled to
receive such dividends and other distributions in cash, stock or property of the
Corporation as may be declared thereon by the Board of Directors from time to
time out of assets or funds of the Corporation legally available therefor;
provided, however, that:
(a) No dividend may be declared and paid on the Class B
Common Stock unless a dividend of an equal amount per share has been declared
and paid on the Class A Common Stock, and no dividend may be declared and paid
on the Class A Common Stock unless a dividend of an equal amount per share has
been declared and paid on the Class B Common Stock.
(b) In the case of dividends or other distributions
payable in shares of capital stock of the Corporation, including a distribution
pursuant to any stock split or division, which occur after the initial issuance
of Class B Common Stock by the Corporation, only shares of Class A Common Stock
shall be distributed with respect to Class A Common Stock and only
<PAGE> 4
shares of Class B Common Stock shall be distributed with respect to Class B
Common Stock. Such a dividend or other distribution shall be deemed equal for
purposes of Article III.B(4)(a) if the number of shares of Class A Common Stock
distributed per share of Class A Common Stock is equal to the number of shares
of Class B Common Stock distributed per share of Class B Common Stock.
(c) In the case of any combination, reclassification or
recapitalization of the Class A Common Stock, the shares of Class B Common Stock
shall also be combined, reclassified or recapitalized so that the number of
shares of Class B Common Stock outstanding immediately following such
combination, reclassification or recapitalization shall bear the same
relationship to the number of shares of Class B Common Stock outstanding
immediately prior to such combination, reclassification or recapitalization as
the number of shares of Class A Common Stock outstanding immediately following
such combination, reclassification or recapitalization bears to the number of
shares of Class A Common Stock outstanding immediately prior to such
combination, reclassification or recapitalization.
(d) In the case of any combination, reclassification or
recapitalization of the Class B Common Stock, the shares of Class A Common Stock
shall also be combined, reclassified or recapitalized so that the number of
shares of Class A Common Stock outstanding immediately following such
combination, reclassification or recapitalization shall bear the same
relationship to the number of shares of Class A Common Stock outstanding
immediately prior to such combination, reclassification or recapitalization as
the number of shares of Class B Common Stock outstanding immediately following
such combination, reclassification or recapitalization bears to the number of
shares of Class B Common Stock outstanding immediately prior to such
combination, reclassification or recapitalization.
(e) Shares of Class B Common Stock outstanding at any
time shall not be reverse split or combined, whether by reclassification,
recapitalization or otherwise, so as to decrease the number of shares thereof
issued and outstanding unless at the same time the shares of Class A Common
Stock are reverse split or combined so that the number of shares of Class A
Common Stock outstanding immediately following such reclassification or
recapitalization shall bear the same relationship to the number of shares of
Class A Common Stock outstanding immediately prior to such reclassification or
recapitalization as the number of shares of Class B Common Stock outstanding
immediately following such reclassification or recapitalization bears to the
number of shares of Class B Common Stock outstanding immediately prior to such
reclassification or recapitalization.
(f) Shares of Class A Common Stock outstanding at any
time shall not be reverse split or combined, whether by reclassification,
recapitalization or otherwise, so as to decrease the number of shares thereof
issued and outstanding unless at the same time the shares of Class B Common
Stock are reverse split or combined so that the number of shares of Class B
Common Stock outstanding immediately following such reclassification or
recapitalization shall bear the same relationship to the number of shares of
Class B Common Stock outstanding immediately prior to such reclassification or
recapitalization as the number of shares of Class A Common Stock outstanding
immediately following such reclassification or recapitalization bears to the
number of shares of Class A Common Stock outstanding immediately prior to such
reclassification or recapitalization.
<PAGE> 5
(5) Any outstanding shares of Class B Common Stock shall be
convertible into fully paid and non-assessable shares of Class A Common Stock at
the option of the holder thereof at any time on a one-share-for-one-share basis.
In order for a shareholder to effect any such conversion, such shareholder must
furnish the Corporation with a written notice of the request for conversion,
which notice shall be addressed to the principal office of the Corporation or to
the Corporation's designated transfer agent, shall state the number of shares of
Class B Common Stock to be converted into Class A Common Stock, shall state the
name of the person(s) in whose name(s) the shares of Class A Common Stock are to
be registered and shall be accompanied by a certificate or certificates
representing such shares, properly endorsed and ready for transfer. A conversion
shall be deemed to be made (and the holder of such shares shall be deemed to be
the holder of record of a equal number of shares of Class A Common Stock) at the
close of business on the date when the Corporation or transfer agent has
received the prescribed written notice and required certificate or certificates,
properly endorsed for transfer. The Corporation hereby reserves and shall at all
times reserve and keep available out of its authorized and unissued shares of
Class A Common Stock, for the purposes of effecting conversion, such number of
duly authorized shares of Class A Common Stock as shall from time to time be
sufficient to effect such a conversion of all outstanding shares of Class B
Common Stock.
C. (1) Except as permitted under Section B(4) above, the Corporation
shall not issue, either from its authorized, unissued shares or from its
treasury, any additional shares of Class B Common Stock after the initial
issuance of shares of Class B Common Stock to Craig A. Ponzio. Subsequent
transfers of such Class B Common Stock and dividends and distributions payable
in Class B Common Stock of the Corporation shall be subject to the rights and
limitations set forth in this Article III. Thereafter, no other person or entity
other than a Permitted Transferee (as hereinafter defined) may hold or own
shares of Class B Common Stock of record or beneficially, and a Class B Holder
may not transfer, and the Corporation shall not register the transfer of, such
shares of Class B Common Stock, whether by sale, assignment, gift, bequest,
appointment or otherwise, except to a Permitted Transferee (as hereinafter
defined). Shares of Class B Common Stock transferred to any party other than a
Permitted Transferee (as hereinafter defined) thereupon shall be converted into
shares of Class A Common Stock as provided by subsection (4) of this Section C.
"Permitted Transferee" shall mean, with respect to each person from time to time
shown as the record and beneficial holder of shares of Class B Common Stock:
(a) In the case of Craig A. Ponzio or June R. Ponzio (wife of
Craig A. Ponzio):
(i) Craig A. Ponzio, individually or in any capacity in
which he is deemed under law to represent the property of June R. Ponzio upon
her death or disability; or
(ii) June R. Ponzio, individually or in any capacity in
which she is deemed under law to represent the property of Craig A. Ponzio upon
his death or disability; or
(iii) Craig A. Ponzio, as the trustee of a trust (including
a voting trust) exclusively for the benefit of one or more of the Permitted
Transferees described in each subclause of this clause (a), or exclusively for
the benefit of one or more "Family Trust
<PAGE> 6
Beneficiaries", meaning the parents, grandparents, brothers, sisters, children,
grandchildren, aunts, uncles, and first cousins of Craig A. Ponzio or June R.
Ponzio; or
(iv) June R. Ponzio, as the trustee of a trust (including
a voting trust) exclusively for the benefit of one or more of the Permitted
Transferees described in each subclause of this clause (a), or exclusively for
the benefit of one or more Family Trust Beneficiaries; or
(v) (A) A corporation, if and only if more than 50% of
the outstanding shares of capital stock of such corporation that are entitled to
vote for the election of directors are owned by, (B) a partnership if more than
50% of the partners are, and more than 50% of the beneficial interests in the
partnership are owned by, or (C) a limited liability company, if and only if
more than 50% of the membership interests of such limited liability company are
owned by, a Permitted Transferee determined in accordance with this clause (a),
provided that, if by reason of any change in the ownership of such stock,
partnership interests or membership interests, such corporation, partnership or
limited liability company would no longer qualify as a Permitted Transferee, all
shares of Class B Common Stock then held by such corporation, partnership or
limited liability company shall, without further act be converted into a like
number of shares of Class A Common Stock, and stock certificates formerly
representing such shares of Class B Common Stock shall thereupon and thereafter
be deemed to represent the like number of shares of Class A Common Stock; or
(vi) The estate of Craig A. Ponzio, if June R. Ponzio is
the executrix of the estate or occupies a similar office or position with
respect to the estate; or
(vii) The estate of June R. Ponzio, if Craig A. Ponzio is
the executor of the estate or occupies a similar office or position with respect
to the estate; or
(b) In the case of a Class B Holder which is a partnership,
corporation or limited liability company that acquired record and beneficial
ownership of the shares of Class B Common Stock in question as a Permitted
Transferee under Section 5C(i)(a)(v), any Permitted Transferee of Craig A.
Ponzio or June R. Ponzio determined in accordance with clause (a) above.
(2) Notwithstanding anything to the contrary set forth herein, any
Class B Holder may pledge such Class B Holder's shares of Class B Common Stock
to a pledgee pursuant to a bona fide pledge of such shares as collateral
security for indebtedness due to the pledgee, provided that such shares shall
not be transferred to or registered in the name of the pledgee and shall remain
subject to the provisions of this Section C. In the event of foreclosure or
other similar action by the pledgee, such pledged shares of Class B Common Stock
may only be transferred to a Permitted Transferee of the pledgor or converted
into shares of Class A Common Stock, as the pledgee may elect.
(3) For purposes of this Section C each reference to a corporation
or limited liability company shall include any successor entity (corporation or
limited liability company) resulting from merger or consolidation.
<PAGE> 7
(4) Upon any transfer of shares of Class B Common Stock of record
or beneficially to any person or entity other than to a Permitted Transferee,
the shares of Class B Common Stock so transferred shall convert without further
action into an equal number of shares of Class A Common Stock, effective as of
the date on which certificates representing such transferred shares are
presented for transfer on the books of the Corporation, or the date of death of
the Class B Holder (other than in the circumstances noted in subclauses (vi) and
(vii) of clause (a) of subsection C(1) above), as the case may be. The
Corporation may, in connection with preparing or verifying a list of
shareholders entitled to vote at any meeting of shareholders, or as a condition
to the transfer or the registration of shares of Class B Common Stock on the
Corporation's books, require the furnishing of such affidavits or other proof as
it deems necessary to confirm that conversion of any Class B shares to Class A
shares is not required under these Articles prior to such vote, transfer or
registration.
(5) The shares of Class B Common Stock shall be registered only in
the names of Craig A. Ponzio or a Permitted Transferee as the record and
beneficial owner thereof and not in "street" or "nominee" name. For this
purpose, a "beneficial owner" of any shares shall mean a person who or an entity
which possesses the power, either singly or jointly, to direct the voting or
disposition of such shares. The Corporation shall note on the certificates for
shares of Class B Common Stock that there are restrictions on the transfer and
registration imposed by these Articles of Incorporation.
IV.
Pursuant to ss. 14-2-602 of the Code, the Board of Directors may
determine, in whole or in part, the preferences, limitations, and relative
rights of one or more series of any class of shares of the Corporation, and
designate the number of shares within that series, before the issuance of any
shares of that series. Each such series of shares shall be given a
distinguishing designation. All shares of each series must have preferences,
limitations, and relative rights identical with those of other shares of the
same series and, except to the extent otherwise provided in the description of
the series, with those of other series in the same class; provided, however,
that any of the voting powers, preferences, designations, rights,
qualifications, limitations, or restrictions of or on the series of shares, or
the holders thereof, may be dependent upon facts ascertainable outside these
Articles of Incorporation if the manner in which the facts shall operate upon
voting powers, designations, preferences, rights, qualifications, limitations,
or restrictions of or on the shares, or the holders thereof, is clearly and
expressly set forth in the Articles of Incorporation. Before issuing any shares
of a series created under this Section, the Corporation must deliver to the
Secretary of State for filing articles of amendment, which shall be effective
without shareholder action, that set forth:
(1) the name of the Corporation;
(2) the text of the amendment determining the terms of the series
of shares;
(3) the date the amendment was adopted; and
<PAGE> 8
(4) a statement that the amendment was duly adopted by the Board of
Directors.
After a series of shares is established, the Board of Directors at any
time and from time to time may increase or decrease the number of shares
contained in a series, but not below the number of shares then issued, by filing
articles of amendment, which are effective without shareholder action, in the
manner provided in O.C.G.A. ss. 14-2-602.
V.
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of the duty of
care or any other duty as a director, except that such liability shall not be
eliminated for:
(i) any appropriation, in violation of the director's duties, of
any business opportunity of the Corporation;
(ii) acts or omissions that involve intentional misconduct or a
knowing violation of law;
(iii) liability under O.C.G.A. ss. 14-2-832 (or any successor
provision or redesignation thereof); and
(iv) any transaction from which the director received an improper
personal benefit.
If at any time the Code shall have been amended to authorize the
further elimination or limitation of the liability of a director, then the
liability of each director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Code, as so amended, without further action
by the shareholders, unless the provisions of the Code, as amended, require
further action by the shareholders.
Any repeal or modification of the foregoing provisions of this Article
VIII shall not adversely affect the elimination or limitation of liability or
alleged liability pursuant hereto of any director of the Corporation for or with
respect to any alleged act or omission of the director occurring prior to such
repeal or modification.
VI.
In discharging the duties of their respective positions and in
determining what is believed to be in the best interests of the Corporation, the
Board of Directors, committees of the Board of Directors, and individual
directors, in addition to considering the effects of any action on the
Corporation or its shareholders, may consider the interests of the employees,
customers, suppliers and creditors of the Corporation and its subsidiaries, the
communities in which offices or other establishments of the Corporation and its
subsidiaries are located, and all other factors
<PAGE> 9
such directors consider pertinent. This provision solely grants discretionary
authority to the directors and shall not be deemed to provide to any other
constituency any right to be considered.
VII.
Any action as to which all Class A Holders and all Class B Holders vote
together as one voting group, required by or permitted under the Code to be
taken at a meeting of the shareholders of the Corporation, may be taken without
a meeting if written consent, setting forth the action so taken, shall be signed
by persons who would be entitled to vote at a meeting those shares having voting
power to cast not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote were present and voted. Notice shall be given within ten days of the taking
of corporate action without a meeting by less than unanimous written consent to
those shareholders on the record date whose shares were not represented on the
written consent. For purposes of written consent by the shareholders, the record
date shall be determined in accordance with the bylaws. No consent shall be
effective as approval of a plan of merger or plan of consolidation unless the
requirements for the effectiveness of such consent set forth in the Code have
been met.
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
ALBECCA INC.
As of May 21, 1998
unless otherwise noted
<PAGE> 2
AMENDED AND RESTATED
BYLAWS
OF
ALBECCA INC.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I Office...................................................................................1
1.1 Registered Office and Agent..............................................................1
1.2 Principal Office.........................................................................1
1.3 Other Offices............................................................................1
ARTICLE II Shareholders' Meetings...................................................................1
2.1 Place of Meetings........................................................................1
2.2 Annual Meeting...........................................................................2
2.3 Special Meetings.........................................................................2
2.4 Notice of Meetings.......................................................................2
2.5 Waiver of Notice.........................................................................2
2.6 Voting Group; Quorum; Vote Required to Act...............................................3
2.7 Proxies..................................................................................3
2.8 Presiding Officer........................................................................3
2.9 Adjournments.............................................................................4
2.10 Conduct of the Meeting...................................................................4
2.11 Action of Shareholders Without a Meeting.................................................4
ARTICLE III Board of Directors.......................................................................4
3.1 General Powers...........................................................................4
3.2 Number, Election and Term of Office......................................................5
3.3 Removal of Directors.....................................................................5
3.4 Vacancies................................................................................5
3.5 Compensation.............................................................................5
3.6 Committees of the Board of Directors.....................................................5
3.7 Qualification of Directors...............................................................6
ARTICLE IV Meetings of the Board of Directors.......................................................6
4.1 Regular Meetings.........................................................................6
4.2 Special Meetings.........................................................................6
4.3 Place of Meetings........................................................................6
4.4 Notice of Meetings.......................................................................6
4.5 Quorum...................................................................................6
4.6 Vote Required for Action.................................................................6
4.7 Participation by Conference Telephone....................................................7
4.8 Action by Directors Without a Meeting....................................................7
4.9 Adjournments.............................................................................7
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
4.10 Waiver of Notice.........................................................................7
ARTICLE V Officers.................................................................................7
5.1 Officers.................................................................................7
5.2 Term.....................................................................................8
5.3 Compensation.............................................................................8
5.4 Removal..................................................................................8
5.5 Chairman of the Board....................................................................8
5.6 Vice Chairman of the Board.............................................................. 8
5.7 Chief Executive Officer..................................................................8
5.8 President................................................................................9
5.9 Vice Presidents..........................................................................9
5.10 Secretary................................................................................9
5.11 Treasurer................................................................................9
ARTICLE VI Distributions and Dividends.............................................................10
ARTICLE VII Shares..................................................................................10
7.1 Share Certificates......................................................................10
7.2 Rights of Corporation with Respect to Registered Owners.................................10
7.3 Transfers of Shares.....................................................................10
7.4 Duty of Corporation to Register Transfer................................................11
7.5 Lost, Stolen, or Destroyed Certificates.................................................11
7.6 Fixing of Record Date...................................................................11
7.7 Record Date if None Fixed...............................................................11
ARTICLE VIII Indemnification.........................................................................12
8.1 Indemnification of Directors............................................................12
8.2 Indemnification of Others...............................................................12
8.3 Other Organizations.....................................................................12
8.4 Advances................................................................................12
8.5 Non-Exclusivity.........................................................................13
8.6 Insurance...............................................................................13
8.7 Notice..................................................................................13
8.8 Security................................................................................13
8.9 Amendment...............................................................................14
8.10 Agreements..............................................................................14
8.11 Continuing Benefits.....................................................................14
8.12 Successors..............................................................................14
8.13 Severability............................................................................14
8.14 Additional Indemnification .............................................................14
ARTICLE IX Miscellaneous...........................................................................15
9.1 Inspection of Books and Records.........................................................15
9.2 Fiscal Year.............................................................................15
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
9.3 Corporate Seal..........................................................................15
9.4 Annual Statements.......................................................................15
9.5 Notice..................................................................................15
ARTICLE X Amendments..............................................................................16
ARTICLE XI Business Combinations With Interested Shareholders......................................16
ARTICLE XII Fair Price Requirements.................................................................17
</TABLE>
<PAGE> 5
AMENDED AND RESTATED
BYLAWS
OF
ALBECCA INC.
- -------------------------------------------------------------------------------
References in these Bylaws to "Articles of Incorporation" are to the
Articles of Incorporation of Albecca Inc., a Georgia corporation (the
"Corporation"), as amended and restated from time to time.
All of these Bylaws are subject to contrary provisions, if any, of the
Articles of Incorporation (including provisions designating the preferences,
limitations, and relative rights of any class or series of shares), the Georgia
Business Corporation Code (the "Code"), and other applicable law, as in effect
on and after the effective date of these Bylaws. References in these Bylaws to
"Sections" shall refer to sections of the Bylaws, unless otherwise indicated.
- -------------------------------------------------------------------------------
ARTICLE I
OFFICE
1.1 REGISTERED OFFICE AND AGENT. The Corporation shall maintain a
registered office and shall have a registered agent whose business office is the
same as the registered office.
1.2 PRINCIPAL OFFICE. The principal office of the Corporation shall be
at the place designated in the Corporation's annual registration with the
Georgia Secretary of State.
1.3 OTHER OFFICES. In addition to its registered office and principal
office, the Corporation may have offices at other locations either in or outside
the State of Georgia.
ARTICLE II
SHAREHOLDERS' MEETINGS
2.1 PLACE OF MEETINGS. Meetings of the Corporation's shareholders may
be held at any location inside or outside the State of Georgia designated by the
Chairman of the Board, the President or the Chief Executive Officer, or any
other person or persons who properly call the meeting, or if a location is not
designated, at the Corporation's principal office.
<PAGE> 6
2.2 ANNUAL MEETING. The Corporation shall hold an annual meeting of
shareholders, at a time determined by the Chairman of the Board or the Chief
Executive Officer, to elect directors and to transact any business that properly
may come before the meeting. The annual meeting may be combined with any other
meeting of shareholders, whether annual or special.
2.3 SPECIAL MEETINGS. Special meetings of shareholders of one or more
classes or series of the Corporation's shares may be called at any time by the
Chairman of the Board or the Chief Executive Officer, and shall be called by the
Corporation upon the written request (in compliance with applicable requirements
of the Code), of the holders of shares representing two-thirds (2/3) or more of
the votes entitled to be cast on each issue proposed to be considered at the
special meeting. The business that may be transacted at any special meeting of
shareholders shall be limited to that proposed in the notice of the special
meeting given in accordance with Section 2.4 (including related or incidental
matters that may be necessary or appropriate to effectuate the proposed
business.)
2.4 NOTICE OF MEETINGS. In accordance with Section 9.5 and subject to
waiver by a shareholder pursuant to Section 2.5, the Corporation shall give
written notice of the date, time, and place of each annual and special
shareholders' meeting no fewer than 10 days nor more than 60 days before the
meeting date to each shareholder of record entitled to vote at the meeting. The
notice of an annual meeting need not state the purpose of the meeting unless
these Bylaws require otherwise. The notice of a special meeting shall state the
purpose for which the meeting is called. If an annual or special shareholders'
meeting is adjourned to a different date, time or location, the Corporation
shall give shareholders notice of the new date, time or location of the
adjourned meeting, unless a quorum of shareholders was present at the meeting
and information regarding the adjournment was announced before the meeting was
adjourned; provided, however, that if a new record date is or must be fixed in
accordance with Section 7.6, the Corporation must give notice of the adjourned
meeting to all shareholders of record as of the new record date who are entitled
to vote at the adjourned meeting.
2.5 WAIVER OF NOTICE. A shareholder may waive any notice required by
the Code, the Articles of Incorporation or these Bylaws, before or after the
date and time of the matter to which the notice relates, by delivering to the
Corporation (for inclusion in the minutes or filing with the corporate records)
a written waiver of notice signed by the shareholder entitled to the notice. In
addition, a shareholder's attendance at a meeting shall be (a) a waiver of
objection to lack of notice or defective notice of the meeting unless the
shareholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting, and (b) a waiver of objection to
consideration of a particular matter at the meeting that is not within the
purpose stated in the meeting notice, unless the shareholder objects to
considering the matter when it is presented. Except as otherwise required by the
Code, neither the purpose of nor the business transacted at the meeting need be
specified in any waiver.
2
<PAGE> 7
2.6 VOTING GROUP; QUORUM; VOTE REQUIRED TO ACT.
(a) Unless otherwise required by the Code or the Articles of
Incorporation, all classes or series of the Corporation's shares entitled to
vote generally on a matter shall for that purpose be considered a single voting
group (a "Voting Group"). If either the Articles of Incorporation or the Code
requires separate voting by two or more Voting Groups on a matter, action on
that matter is taken only when voted upon by each such Voting Group separately.
At all meetings of shareholders, any Voting Group entitled to vote on a matter
may take action on the matter only if a quorum of that Voting Group exists at
the meeting; and if a quorum exists, the Voting Group may take action on the
matter notwithstanding the absence of a quorum of any other Voting Group that
may be entitled to vote separately on the matter. Unless the Articles of
Incorporation, these Bylaws, or the Code provides otherwise, the presence (in
person or by proxy) of shares representing a majority of votes entitled to be
cast on a matter by a Voting Group shall constitute a quorum of that Voting
Group with regard to that matter. Once a share is present at any meeting (other
than solely to object to holding the meeting or transacting business at the
meeting), the share shall be deemed present for quorum purposes for the
remainder of the meeting and for any adjournments of that meeting, unless a new
record date for the adjourned meeting is or must be set pursuant to Section 7.6
of these Bylaws.
(b) Except as provided in Section 3.4, if a quorum exists, action
on a matter by a Voting Group is approved by that Voting Group if the votes cast
within the Voting Group favoring the action exceed the votes cast opposing the
action, unless the Articles of Incorporation, a provision of these Bylaws that
has been adopted pursuant to Section 14-2-1021 of the Code (or any successor
provision), or the Code requires a greater number of affirmative votes.
2.7 PROXIES. A shareholder entitled to vote on a matter may vote in
person, or by proxy pursuant to an appointment executed in writing by the
shareholder or by his or her attorney-in-fact. An appointment of a proxy shall
be valid for 11 months from the date of its execution, unless a longer or
shorter period is expressly stated in the proxy.
2.8 PRESIDING OFFICER. Except as otherwise provided in this Section
2.8, the Chairman of the Board, and in his or her absence or disability the Vice
Chairman of the Board, and in his or her absence or disability the Chief
Executive Officer, shall preside at every shareholders' meeting (and any
adjournment thereof) as its chairman, if either of them is present and willing
to serve. If neither the Chairman of the Board, the Vice Chairman of the Board,
nor the Chief Executive Officer is present and willing to serve as chairman of
the meeting, and if the Chairman of the Board or the Vice Chairman of the Board
has not designated another person who is present and willing to serve, then a
majority of the Corporation's directors present at the meeting shall be entitled
to designate a person to serve as chairman. If no director of the Corporation is
present at the meeting or if a majority of the directors who are present cannot
be established, then a chairman of the meeting shall be selected by a majority
vote of (a) the shares present at the meeting that would be entitled to
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vote in an election of directors, or (b) if no such shares are present at the
meeting, then the shares present at the meeting comprising the Voting Group with
the largest number of shares present at the meeting and entitled to vote on a
matter properly proposed to be considered at the meeting. The chairman of the
meeting may designate other persons to assist with the meeting.
2.9 ADJOURNMENTS. At any meeting of shareholders (including an
adjourned meeting), a majority of shares of any Voting Group present and
entitled to vote at the meeting (whether or not those shares constitute a
quorum) may adjourn the meeting, but only with respect to that Voting Group, to
reconvene at a specific time and place. If more than one Voting Group is present
and entitled to vote on a matter at the meeting, then the meeting may be
continued with respect to any such Voting Group that does not vote to adjourn as
provided above, and such Voting Group may proceed to vote on any matter to which
it is otherwise entitled to do so; provided, however, that if (a) more than one
Voting Group is required to take action on a matter at the meeting and (b) any
one of those Voting Group votes to adjourn the meeting (in accordance with the
preceding sentence), then the action shall not be deemed to have been taken
until the requisite vote of any adjourned Voting Group is obtained at its
reconvened meeting. The only business that may be transacted at any reconvened
meeting is business that could have been transacted at the meeting that was
adjourned, unless further notice of the adjourned meeting has been given in
compliance with the requirements for a special meeting that specifies the
additional purpose or purposes for which the meeting is called. Nothing
contained in this Section 2.10 shall be deemed or otherwise construed to limit
any lawful authority of the chairman of a meeting to adjourn the meeting.
2.10 CONDUCT OF THE MEETING. At any meeting of shareholders, the
chairman of the meeting shall be entitled to establish the rules of order
governing the conduct of business at the meeting.
2.11 ACTION OF SHAREHOLDERS WITHOUT A MEETING. Action required or
permitted to be taken at a meeting of shareholders may be taken without a
meeting in accordance with Article VII of the Corporation's Articles of
Incorporation.
ARTICLE III
BOARD OF DIRECTORS
3.1 GENERAL POWERS. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the Corporation shall be
managed by, the Board of Directors, subject to any limitation set forth in the
Articles of Incorporation, in bylaws approved by the shareholders, or in
agreements among all the shareholders that are otherwise lawful.
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3.2 NUMBER, ELECTION AND TERM OF OFFICE. The number of directors of the
Corporation shall be fixed by resolution of the Board of Directors or of the
shareholders from time to time; provided, however, that no decrease in the
number of directors shall have the effect of shortening the term of an incumbent
director. Except as provided elsewhere in this Section 3.2 and in Section 3.4,
the directors shall be elected at each annual meeting of shareholders, or at a
special meeting of shareholders called for purposes that include the election of
directors, by a plurality of the votes cast by the shares entitled to vote and
present at the meeting. Except in case of death, resignation, disqualification
or removal, the term of each director shall expire at the next succeeding annual
meeting of shareholders. Despite the expiration of a director's term, he or she
shall continue to serve until his or her successor has been elected and has
qualified, unless the Board of Directors or the shareholders have resolved that
there will be no successor to such director.
3.3 REMOVAL OF DIRECTORS. The entire Board of Directors or any
individual director may be removed, with or without cause, by the shareholders,
provided that directors elected by a particular Voting Group, if any, may be
removed only by the shareholders in that Voting Group. Removal action may be
taken only at a shareholders' meeting for which notice of the removal action has
been given. A removed director's successor, if any, may be elected at the same
meeting to serve the unexpired term.
3.4 VACANCIES. A vacancy occurring in the Board of Directors may be
filled for the unexpired term, unless the shareholders have elected a successor,
by the affirmative vote of a majority of the remaining directors, whether or not
the remaining directors constitute a quorum; provided, however, that if the
vacant office was held by a director elected by a particular Voting Group, only
the holders of shares of that Voting Group or the remaining directors elected by
that Voting Group shall be entitled to fill the vacancy; provided further,
however, that if the vacant office was held by a director elected by a
particular Voting Group and there is no remaining director elected by that
Voting Group, the other remaining directors or director (elected by another
Voting Group or Groups) may fill the vacancy during an interim period before the
shareholders of the vacated director's or directors' Voting Group act to fill
the vacancy. A vacancy or vacancies in the Board of Directors may result from
the death, resignation, disqualification, or removal of any director, or from an
increase in the number of directors.
3.5 COMPENSATION. Directors may receive such compensation for their
services as directors as may be fixed by the Board of Directors from time to
time. A director may also serve the Corporation in one or more capacities other
than that of director and receive compensation for services rendered in those
other capacities.
3.6 COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors may
designate from among its members an executive committee or one or more other
standing or ad hoc committees, each consisting of one or more directors, who
shall serve at the pleasure of the Board of Directors. Subject to any
limitations imposed by the Code, each committee shall have the authority set
forth in the resolution establishing the committee or in any other
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resolution of the Board of Directors specifying, enlarging or limiting the
authority of the committee.
3.7 QUALIFICATION OF DIRECTORS. No person elected to serve as a
director of the Corporation shall assume office and begin serving unless and
until duly qualified to serve, as determined by reference to the Code, the
Articles of Incorporation, and any further eligibility requirements established
in these Bylaws.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
4.1 REGULAR MEETINGS. A regular meeting of the Board of Directors shall
be held in conjunction with each annual meeting of shareholders. In addition,
the Board of Directors may, by prior resolution, hold regular meetings at other
times.
4.2 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board or the Chief Executive
Officer.
4.3 PLACE OF MEETINGS. Directors may hold their meetings at any place
in or outside the State of Georgia that the Chairman of the Board or the Chief
Executive Officer may establish from time to time.
4.4 NOTICE OF MEETINGS. Directors need not be provided with notice of
any regular meeting of the Board of Directors. Unless waived in accordance with
Section 4.10, the Corporation shall give at least two days' notice to each
director of the date, time and place of each special meeting. Notice of a
meeting shall be deemed to have been given to any director in attendance at any
prior meeting at which the date, time and place of the subsequent meeting was
announced.
4.5 QUORUM. At meetings of the Board of Directors, the majority of the
directors then in office shall constitute a quorum for the transaction of
business.
4.6 VOTE REQUIRED FOR ACTION. If a quorum is present when a vote is
taken, the vote of a majority of the directors present at the time of the vote
will be the act of the Board of Directors, unless the vote of a greater number
is required by the Code, the Articles of Incorporation or these Bylaws. A
director who is present at a meeting of the Board of Directors when corporate
action is taken is deemed to have assented to the action taken unless (a) he or
she objects at the beginning of the meeting (or promptly upon his or her
arrival) to holding the meeting or transacting business at it; (b) his or her
dissent or abstention from the action taken is entered in the minutes of the
meeting; or (c) he or she delivers written notice of dissent or abstention to
the presiding officer of the meeting before its adjournment or to the
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Corporation immediately after adjournment of the meeting. The right of dissent
or abstention is not available to a director who votes in favor of the action
taken.
4.7 PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board of
Directors may participate in a meeting of the Board by means of conference
telephone or similar communications equipment through which all persons
participating may hear and speak to each other. Participation in a meeting
pursuant to this Section 4.7 shall constitute presence in person at the meeting.
4.8 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if a written consent, describing the action taken, is signed
by each director and delivered to the Corporation for inclusion in the minutes
or filing with the corporate records. The consent may be executed in
counterparts, and shall have the same force and effect as a unanimous vote of
the Board of Directors at a duly convened meeting.
4.9 ADJOURNMENTS. A meeting of the Board of Directors, whether or not a
quorum is present, may be adjourned by a majority of the directors present to
reconvene at a specific time and place. It shall not be necessary to give notice
to the directors of the reconvened meeting or of the business to be transacted,
other than by announcement at the meeting that was adjourned, unless a quorum
was not present at the meeting that was adjourned, in which case notice shall be
given to directors in the same manner as for a special meeting. At any such
reconvened meeting at which a quorum is present, any business may be transacted
that could have been transacted at the meeting that was adjourned.
4.10 WAIVER OF NOTICE. A director may waive any notice required by the
Code, the Articles of Incorporation or these Bylaws, before or after the date
and time of the matter to which the notice relates, by delivering to the
Corporation (for inclusion in the minutes or filing with the corporate records)
a written waiver notice signed by the director entitled to the notice.
Attendance by a director at a meeting shall constitute waiver of notice of the
meeting, except where a director at the beginning of the meeting (or promptly
upon his or her arrival) objects to holding the meeting or to transacting
business at the meeting and does not thereafter vote for or assent to action
taken at the meeting.
ARTICLE V
OFFICERS
5.1 OFFICERS. The officers of the Corporation shall consist of a Chief
Executive Officer, a President, a Secretary and a Treasurer each of whom shall
be elected or appointed by the Board of Directors. The Board of Directors shall
also elect or appoint a Chairman of the Board and a Vice Chairman of the Board
from among its members. The Board of Directors from time to time may, or may
authorize the Chairman of the Board or the Chief
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Executive Officer, or both, to, create and establish the duties of other offices
and may, or may authorize the Chairman of the Board or the Chief Executive
Officer, or both, to, elect or appoint, or authorize specific senior officers to
appoint, the persons who shall hold such other offices, including one or more
Vice Presidents (including Executive Vice Presidents, Senior Vice Presidents,
Assistant Vice Presidents, and the like), one or more Assistant Secretaries, and
one or more Assistant Treasurers. Whether or not so provided by the Board of
Directors, the Chairman of the Board and the Chief Executive Officer each may
appoint one or more Assistant Secretaries, and one or more Assistant Treasurers.
Any two or more offices may be held by the same person.
5.2 TERM. Each officer shall serve at the pleasure of the Board of
Directors (or, if appointed by the Chairman of the Board or the Chief Executive
Officer or a senior officer pursuant to Section 5.1, at the pleasure of the
Board of Directors, the Chairman of the Board, the Chief Executive Officer, or
the senior officer authorized to have appointed the officer) until his or her
death, resignation or removal, or until his or her replacement is elected or
appointed in accordance with this Article V.
5.3 COMPENSATION. The compensation of all officers of the Corporation
shall be fixed by the Board of Directors or by a committee or officer appointed
by the Board of Directors. Officers may serve without compensation.
5.4 REMOVAL. All officers (regardless of how elected or appointed) may
be removed, with or without cause, by the Board of Directors, and any officer
appointed by the Chairman of the Board, the Chief Executive Officer or another
senior officer may also be removed, with or without cause, by the Chairman of
the Board, the Chief Executive Officer or by any senior officer authorized to
have appointed the officer to be removed.
5.5 CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at
and serve as chairman of meetings of the shareholders and of the Board of
Directors (unless another person is selected under Section 2.8 to act as
chairman). If there shall be no separate Chief Executive Officer of the
Corporation, then the Chairman of the Board shall be the chief executive officer
of the Corporation and shall have all the duties and authority given under these
Bylaws to the Chief Executive Officer. In the absence or disability of the Chief
Executive Officer, the Chairman of the Board shall perform the duties and
exercise the powers of the Chief Executive Officer. The Chairman of the Board
shall perform other duties and have other authority as may from time to time be
delegated by the Board of Directors.
5.6 VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board shall at
the request of, or in the absence or disability of the Chairman of the Board,
perform the duties and exercise the powers of the Chairman of the Board, whether
the duties and powers are specified in these Bylaws or otherwise.
5.7 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be
charged with the general and active management of the Corporation, shall see
that all orders and resolutions
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of the Board of Directors are carried into effect, shall have the authority to
select and appoint employees and agents of the Corporation, and shall, in the
absence or disability of the Chairman of the Board and the Vice Chairman of the
Board, perform the duties and exercise the powers of the Chairman of the Board.
The Chief Executive Officer shall perform any other duties and have any other
authority as may be delegated from time to time by the Board of Directors, and
shall be subject to the limitations fixed from time to time by the Board of
Directors.
5.8 PRESIDENT. The President shall be the chief operating officer of
the Corporation and shall, subject to the authority of the Chief Executive
Officer, have responsibility for the conduct and general supervision of the
business operations of the Corporation. The President shall perform such other
duties and have such other authority as may from time to time be delegated by
the Board of Directors or by the Chief Executive Officer.
5.9 VICE PRESIDENTS. The Vice President (if there be one) shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President, whether the duties and powers are specified in these
Bylaws or otherwise. If the Corporation has more than one Vice President, the
one designated by the Board of Directors or the Chief Executive Officer (in that
order of precedence) shall act in the event of the absence or disability of the
President. Vice Presidents shall perform any other duties and have any other
authority as from time to time may be delegated by the Board of Directors or the
Chief Executive Officer.
5.10 SECRETARY. The Secretary shall be responsible for preparing
minutes of the meetings of shareholders, directors and committees of directors,
and for authenticating records of the Corporation. The Secretary or any
Assistant Secretary shall have authority to give all notices required by law or
these Bylaws. The Secretary shall be responsible for the custody of the
corporate books, records, contracts, and other documents. The Secretary or any
Assistant Secretary may affix the corporate seal to any lawfully executed
documents requiring it, may attest to the signature of any officer of the
Corporation, and shall sign any instrument that requires the Secretary's
signature. The Secretary or any Assistant Secretary shall perform any other
duties and have any other authority as from time to time may be delegated by the
Board of Directors or the Chief Executive Officer.
5.11 TREASURER. Unless otherwise provided by the Board of Directors,
the Treasurer shall be responsible for the custody of all funds and securities
belonging to the Corporation and for the receipt, deposit, or disbursement of
these funds and securities under the direction of the Board of Directors. The
Treasurer shall cause full and true accounts of all receipts and disbursements
to be maintained and shall make reports of these receipts and disbursements to
the Board of Directors and the Chief Executive Officer upon request. The
Treasurer or Assistant Treasurer shall perform any other duties and have any
other authority as from time to time may be delegated by the Board of Directors
or the Chief Executive Officer.
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ARTICLE VI
DISTRIBUTIONS AND DIVIDENDS
Unless the Articles of Incorporation provide otherwise, the Board of
Directors, from time to time in its discretion, may authorize or declare
distributions of share dividends in accordance with the Code.
ARTICLE VII
SHARES
7.1 SHARE CERTIFICATES. The interest of each shareholder in the
Corporation shall be evidenced by a certificate or certificates representing
shares of the Corporation, which shall be in such form as the Board of Directors
from time to time may adopt in accordance with the Code. Share certificates
shall be in registered form and shall indicate the date of issue, the name of
the Corporation, that the Corporation is organized under the laws of the State
of Georgia, the name of the shareholder, and the number and class of shares and
designation of the series, if any, represented by the certificate. Each
certificate shall be signed by the Chairman of the Board or Chief Executive
Officer (or by another officer of the Corporation expressly authorized by the
Chairman of the Board or Chief Executive Officer to sign certificates), and may
be signed by the Secretary or an Assistant Secretary; provided, however, that
where the certificate is signed (either manually or by facsimile) by a transfer
agent, or registered by a registrar, the signatures of those officers may be
facsimiles.
7.2 RIGHTS OF CORPORATION WITH RESPECT TO REGISTERED OWNERS. Prior to
due presentation for transfer or registration of its shares, the Corporation may
treat the registered owner of the shares (or the beneficial owner of the shares
to the extent of any rights granted by a nominee certificate on file with the
Corporation pursuant to any procedure that may be established by the Corporation
in accordance with the Code) as the person exclusively entitled to vote the
shares, to receive any dividend or other distribution with respect to the
shares, and for all other purposes; and the Corporation shall not be bound to
recognize any equitable or other claim to or interest in the shares on the part
of any other person, whether or not it has express or other notice of such a
claim or interest, except as otherwise provided by law.
7.3 TRANSFERS OF SHARES. Transfers of shares shall be made upon the
books of the Corporation kept by the Corporation or by the transfer agent
designated to transfer the shares, only upon direction of the person named in
the certificate or by an attorney lawfully constituted in writing. Before a new
certificate is issued, the old certificate shall be surrendered for cancellation
or, in the case of a certificate alleged to have been lost, stolen or destroyed,
the provisions of Section 7.5 of these Bylaws shall have been complied with.
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7.4 DUTY OF CORPORATION TO REGISTER TRANSFER. Notwithstanding any of
the provisions of Section 7.3 of these Bylaws, the Corporation is under a duty
to register the transfer of its shares only if: (a) the share certificate is
endorsed by the appropriate person or persons; (b) reasonable assurance is given
that each required endorsement is genuine and effective; (c) the Corporation has
no duty to inquire into adverse claims or has discharged any such duty; (d) any
applicable law relating to the collection of taxes has been complied with; (e)
the transfer is in fact rightful or is to a bona fide purchaser; and (f) the
transfer is in compliance with applicable provisions of any transfer
restrictions of which the Corporation shall have notice, including but not
limited to restrictions under applicable federal or state securities laws.
7.5 LOST, STOLEN, OR DESTROYED CERTIFICATES. Any person claiming a
share certificate to be lost, stolen or destroyed shall make an affidavit or
affirmation of this claim in such a manner as the Corporation may require and
shall, if the Corporation requires, give the Corporation a bond of indemnity in
form and amount, and with one or more sureties satisfactory to the Corporation,
as the Corporation may require, whereupon an appropriate new certificate may be
issued in lieu of the one alleged to have been lost, stolen or destroyed.
7.6 FIXING OF RECORD DATE. For the purpose of determining shareholders
(a) entitled to notice of or to vote at any meeting of shareholders or, if
necessary, any adjournment thereof, (b) entitled to receive payment of any
distribution or dividend, or (c) for any other proper purpose, the Board of
Directors may fix in advance a date as the record date. The record date may not
be more than 70 days (and, in the case of a notice to shareholders of a
shareholders' meeting, not less than 10 days) prior to the date on which the
particular action, requiring the determination of shareholders, is to be taken.
A separate record date may be established for each Voting Group entitled to vote
separately on a matter at a meeting. A determination of shareholders of record
entitled to notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting, unless the Board of Directors shall fix a new record
date for the reconvened meeting, which it must do if the meeting is adjourned to
a date more than 120 days after the date fixed for the original meeting.
7.7 RECORD DATE IF NONE FIXED. If no record date is fixed as provided
in Section 7.6, then the record date for any determination of shareholders that
may be proper or required by law shall be, as appropriate, the date on which
notice of a shareholders' meeting is mailed, the date on which the Board of
Directors adopts a resolution declaring a dividend or authorizing a
distribution, or the date on which any other action is taken that requires a
determination of shareholders.
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ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION OF DIRECTORS. The Corporation shall indemnify and
hold harmless any director of the Corporation (an "Indemnified Person") who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, whether formal or informal, including any action or suit by or
in the right of the Corporation (for purposes of this Article VIII,
collectively, a "Proceeding") because he or she is or was a director, officer,
employee or agent of the Corporation, against any judgment, settlement, penalty,
fine or reasonable expenses (including, but not limited to, attorneys' fees and
disbursements, court costs and expert witness fees) incurred with respect to the
Proceeding (for purposes of this Article VIII, a "Liability"); provided,
however, that no indemnification shall be made for (a) any appropriation by a
director, in violation of the directors' duties, of any business opportunity of
the corporation, (b) any acts or omissions of a director that involve
intentional misconduct or a knowing violation of law, (c) the types of liability
set forth in Code Section 14-2-832, or (d) any transaction from which the
director received an improper personal benefit.
8.2 INDEMNIFICATION OF OTHERS. The Board of Directors shall have the
power to cause the Corporation to provide to officers, employees and agents of
the Corporation all or any part of the right to indemnification permitted for
such persons by appropriate provisions of the Code. Persons to be indemnified
may be identified by position or name, and the right of indemnification may (but
need not) be different for each of the persons identified. Each officer,
employee or agent of the Corporation so identified shall be an "Indemnified
Person" for purposes of the provisions of this Article VIII.
8.3 OTHER ORGANIZATIONS. The Corporation shall provide to each
director, and the Board of Directors shall have the power to cause the
Corporation to provide to any officer, employee or agent, of the Corporation who
is or was serving as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, all or any part of the right to indemnification and other
rights of the type provided under Sections 8.1, 8.2, 8.4 and 8.10 of this
Article VIII (subject to the conditions, limitations and obligations specified
in those Sections) permitted for such persons by appropriate provisions of the
Code. Persons to be indemnified may be identified by position or name, and the
right of indemnification may (but need not) be different for each of the persons
identified. Each person so identified shall be an "Indemnified Person" for
purposes of the provisions of this Article VIII.
8.4 ADVANCES. Expenses (including, but not limited to, attorneys' fees
and disbursements, court costs and expert witness fees) incurred by an
Indemnified Person in defending any Proceeding of the kind described in Sections
8.1 or 8.3, as to an Indemnified Person who is a director of the Corporation, or
in Sections 8.2 or 8.3, as to another
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Indemnified Person (if the Board of Directors has specified that advancement of
expenses be made available to such other Indemnified Person), shall be paid by
the Corporation in advance of the final disposition of such Proceeding as set
forth herein. The Corporation shall promptly pay the amount of such expenses to
the Indemnified Person, but in no event later than 10 days following the
Indemnified Person's delivery to the Corporation of a written request for an
advance pursuant to this Section 8.4, together with a reasonable accounting of
such expenses; provided, however, that the Indemnified Person shall furnish the
Corporation a written affirmation of his or her good faith belief that he or she
has met the applicable standard of conduct and a written undertaking and
agreement to repay to the Corporation any advances made pursuant to this Section
8.4 if it shall be determined that the Indemnified Person is not entitled to be
indemnified by the Corporation for such amounts. The Corporation may make the
advances contemplated by this Section 8.4 regardless of the Indemnified Person's
financial ability to make repayment. Any advances and undertakings to repay
pursuant to this Section 8.4 may be unsecured and interest-free.
8.5 NON-EXCLUSIVITY. Subject to any applicable limitation imposed by
the Code or the Articles of Incorporation, the indemnification and advancement
of expenses provided by or granted pursuant to this Article VIII shall not be
exclusive of any other rights to which a person seeking indemnification or
advancement of expenses may be entitled under any provision of the Articles of
Incorporation, or any Bylaw, resolution or agreement specifically or in general
terms approved or ratified by the affirmative vote of holders of a majority of
the shares entitled to be voted thereon.
8.6 INSURANCE. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or who, while serving in such a capacity,
is also or was also serving at the request of the Corporation as a director,
officer, trustee, partner, employee or agent of any corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against any
Liability that may be asserted against or incurred by him or her in any such
capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify him or her against such liability
under the provisions of this Article VIII.
8.7 NOTICE. If the Corporation indemnifies or advances expenses to a
director under any of Sections 14-2-851 through 14-2-854 of the Code in
connection with a Proceeding by or in the right of the Corporation, the
Corporation shall, to the extent required by Section 14-2-1621 or any other
applicable provision of the Code, report the indemnification or advance in
writing to the shareholders with or before the notice of the next shareholders'
meeting.
8.8 SECURITY. The Corporation may designate certain of its assets as
collateral, provide self-insurance, establish one or more indemnification
trusts, or otherwise secure or facilitate its ability to meet its obligations
under this Article VIII, or under any indemnification agreement or plan of
indemnification adopted and entered into in accordance with the provisions of
this Article VIII, as the Board of Directors deems appropriate.
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8.9 AMENDMENT. Any amendment to this Article VIII that limits or
otherwise adversely affects the right of indemnification, advancement of
expenses, or other rights of any Indemnified Person hereunder shall, as to such
Indemnified Person, apply only to Proceedings based on actions, events or
omissions (collectively, "Post Amendment Events") occurring after such amendment
and after delivery of notice of such amendment to the Indemnified Person so
affected. Any Indemnified Person shall, as to any Proceeding based on actions,
events or omissions occurring prior to the date of receipt of such notice, be
entitled to the right of indemnification, advancement of expenses, and other
rights under this Article VIII to the same extent as if such provisions had
continued as part of the Bylaws of the Corporation without such amendment. This
Section 8.9 cannot be altered, amended or repealed in a manner effective as to
any Indemnified Person (except as to Post Amendment Events) without the prior
written consent of such Indemnified Person.
8.10 AGREEMENTS. The provisions of this Article VIII shall be deemed
to constitute an agreement between the Corporation and each Indemnified Person
hereunder. In addition to the rights provided in this Article VIII, the
Corporation shall have the power, upon authorization by the Board of Directors,
to enter into an agreement or agreements providing to any Indemnified Person
indemnification rights substantially similar to those provided in this Article
VIII.
8.11 CONTINUING BENEFITS. The rights of indemnification and advancement
of expenses permitted or authorized by this Article VIII shall, unless
otherwise provided when such rights are granted or conferred, continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
8.12 SUCCESSORS. For purposes of this Article VIII, the term
"Corporation" shall include any corporation, joint venture, trust, partnership
or unincorporated business association that is the successor to all or
substantially all of the business or assets of this Corporation, as a result of
merger, consolidation, sale, liquidation or otherwise, and any such successor
shall be liable to the persons indemnified under this Article VIII on the same
terms and conditions and to the same extent as this Corporation.
8.13 SEVERABILITY. Each of the Sections of this Article VIII, and each
of the clauses set forth herein, shall be deemed separate and independent, and
should any part of any such Section or clause be declared invalid or
unenforceable by any court of competent jurisdiction, such invalidity or
unenforceability shall in no way render invalid or unenforceable any other part
thereof or any separate Section or clause of this Article VIII that is not
declared invalid or unenforceable.
8.14 ADDITIONAL INDEMNIFICATION. In addition to the specific
indemnification rights set forth herein, the Corporation shall indemnify each of
its directors and such of its officers as have been designed by the Board of
Directors to the full extent permitted by action of the
14
<PAGE> 19
Board of Directors without shareholder approval under the Code or other laws of
the State of Georgia as in effect from time to time.
ARTICLE IX
MISCELLANEOUS
9.1 INSPECTION OF BOOKS AND RECORDS. The Board of Directors shall have
the power to determine which accounts, books and records of the Corporation
shall be available for shareholders to inspect or copy, except for those books
and records required by the Code to be made available upon compliance by the
shareholder with applicable requirements, and shall have the power to fix
reasonable rules and regulations (including confidentiality restrictions and
procedures) not in conflict with applicable law for the inspection and copying
of accounts, books and records that by law or by determination of the Board of
Directors are made available. Unless required by the Code or otherwise provided
by the Board of Directors, a shareholder of the Corporation holding less than
two percent of the total shares of the Corporation then outstanding shall have
no right to inspect the books and records of the Corporation.
9.2 FISCAL YEAR. The Board of Directors is authorized to fix the fiscal
year of the Corporation and to change the fiscal year from time to time as it
deems appropriate.
9.3 CORPORATE SEAL. The Corporation may adopt a form of corporate seal
and, if adopted, the corporate seal will be in such form as the Board of
Directors may from time to time determine. The Board of Directors may authorize
the use of one or more facsimile forms of the corporate seal. The corporate seal
need not be used unless its use is required by law, by these Bylaws, or by the
Articles of Incorporation.
9.4 ANNUAL STATEMENTS. Not later than four months after the close of
each fiscal year, and in any case prior to the next annual meeting of
shareholders, the Corporation shall prepare (a) a balance sheet showing in
reasonable detail the financial condition of the Corporation as of the close of
its fiscal year, and (b) a profit and loss statement showing the results of its
operations during its fiscal year. Upon receipt of written request, the
Corporation promptly shall mail to any shareholder of record a copy of the most
recent such balance sheet and profit and loss statement, in such form and with
such information as the Code may require.
9.5 NOTICE.
(a) Whenever these Bylaws require notice to be given to any
shareholder or to any director, the notice may be given by mail, in person, by
courier delivery, by telephone, or by fax, telex, or similar electronic means.
Whenever notice is given to a shareholder or director by mail, the notice shall
be sent by depositing the notice in a post office or letter box in a
postage-prepaid, sealed envelope addressed to the shareholder or director at his
or her
15
<PAGE> 20
address as it appears on the books of the Corporation. Any such written notice
given by mail shall be effective: (i) if given to shareholders, at the time the
same is deposited in the United States mail; and (ii) in all other cases, at the
earliest of (x) when received or when delivered, properly addressed, to the
addressee's last known principal place of business or residence, (y) five days
after its deposit in the mail, as evidenced by the postmark, if mailed with
first-class postage prepaid and correctly addressed, or (z) on the date shown on
the return receipt, if sent by registered or certified mail, return receipt
requested, and the receipt is signed by or on behalf of the addressee. Whenever
notice is given to a shareholder or director by any means other than mail, the
notice shall be deemed given when received. Subject to any provision of the
Code, the Articles of Incorporation or any other article of these Bylaws
requiring written notice, oral notice may be given to a shareholder or a
director if reasonable under the circumstances, and such oral notice shall be
effective when communicated if communicated in a comprehensible manner.
(b) In calculating time periods for notice, when a period of time
measured in days, weeks, months, years or other measurement of time is
prescribed for the exercise of any privilege or the discharge of any duty, the
first day shall not be counted but the last day shall be counted.
ARTICLE X
AMENDMENTS
Except as otherwise provided under the Code, and subject to the last
sentence of this Article X, the Board of Directors shall have the power to
alter, amend or repeal these Bylaws or adopt new Bylaws. Any Bylaws adopted by
the Board of Directors may be altered, amended or repealed, and new Bylaws
adopted, by the shareholders. The shareholders may prescribe in adopting any
Bylaw or Bylaws that the Bylaw or Bylaws so adopted shall not be altered,
amended or repealed by the Board of Directors.
ARTICLE XI
BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS
The requirements of Sections 14-2-1131 through 14-2-1133 of the Code,
as the same may be amended from time to time, shall be applicable to the
Company. The provisions of this Article XI of the Bylaws may not be repealed
except in the manner set forth in Section 14-2-1133 of the Code.
16
<PAGE> 21
ARTICLE XII
FAIR PRICE REQUIREMENTS
The requirements of Sections 14-2-1110 through 14-2-1113 of the Code,
as the same may be amended from time to time, shall be applicable to the
Company. The provisions of this Article XII of the Bylaws may not be repealed
except in the manner set forth in Section 14-2-1113 of the Code.
17
<PAGE> 1
EXHIBIT 10.2
CREDIT AGREEMENT
among
LARSON-JUHL INC.
and
LARSON-JUHL INTERNATIONAL L.L.C.,
as Borrowers;
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Agent;
SUNTRUST BANK, ATLANTA,
as Co-Agent;
and
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
CLOSING DATE: JULY 16, 1996
---------------------------------------------------------------
$90,000,000 REVOLVING CREDIT FACILITY
---------------------------------------------------------------
ARRANGED BY
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I Definitions................................................................................. 1
SECTION 1.1. Definitions....................................................................... 1
ARTICLE II Amount and Terms of the Revolving Loans; Letters of Credit.................................10
SECTION 2.1. Revolving Credit Facility.........................................................10
SECTION 2.2. Procedure for Borrowings..........................................................10
SECTION 2.3. Additional Provisions Regarding Eurodollar Rate Fundings and
SECTION 2.4. Alternative Currency Fundings.....................................................11
SECTION 2.5. Alternative Currency Participation's..............................................12
SECTION 2.6. Interest..........................................................................13
SECTION 2.7. Conversion of Principal to Eurodollar Rate Fundings...............................14
SECTION 2.8. Pricing Adjustments...............................................................15
SECTION 2.9. Letters of Credit.................................................................15
SECTION 2.10. Limitation on LJ International Outstandings.......................................17
SECTION 2.11. Fees..............................................................................17
SECTION 2.12. Termination or Reduction of the Commitments.......................................18
SECTION 2.13. Voluntary Prepayments.............................................................18
SECTION 2.14. Computation of Interest and Fees..................................................18
SECTION 2.15. Payment...........................................................................18
SECTION 2.16. Application of Payments...........................................................19
SECTION 2.17. Payment on Nonbusiness Days.......................................................20
SECTION 2.18. Use of Proceeds...................................................................20
SECTION 2.19. Changes in Law....................................................................20
SECTION 2.20. Funding Losses....................................................................21
SECTION 2.21. Capital Adequacy..................................................................21
SECTION 2.22. Mandatory Assignment of Bank's Interest...........................................22
ARTICLE III Conditions Precedent.....................................................................22
SECTION 3.1. Initial Conditions Precedent......................................................22
SECTION 3.2. Conditions Precedent to All Advances and Letters of Credit........................24
ARTICLE IV Representations and Warranties...........................................................24
SECTION 4.1. Corporate Existence and Power.....................................................24
SECTION 4.2. Authorization of Borrowing, No Conflict as to Law or
SECTION 4.3. Agreements .......................................................................24
SECTION 4.4. Legal Agreements..................................................................25
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SECTION 4.5. Subsidiaries......................................................................25
SECTION 4.6. Financial Condition...............................................................25
SECTION 4.7. Adverse Change....................................................................25
SECTION 4.8. Litigation........................................................................25
SECTION 4.9. Hazardous Substances .............................................................25
SECTION 4.10. Regulation U......................................................................26
SECTION 4.11. Taxes.............................................................................26
SECTION 4.12. Titles and Liens Licenses and Patents.............................................26
SECTION 4.13. ERISA.............................................................................26
ARTICLE V Affirmative Covenants......................................................................26
SECTION 5.1 Financial Statements..............................................................27
SECTION 5.2. Books and Records, Inspection and Examination.....................................29
SECTION 5.3. Compliance with Laws..............................................................29
SECTION 5.4. Payment of Taxes and Other Claims.................................................29
SECTION 5.5. Maintenance of Properties.........................................................29
SECTION 5.6. Insurance .......................................................................29
SECTION 5.7. Preservation of Corporate Existence...............................................30
SECTION 5.8. Subchapter S Status...............................................................30
SECTION 5.9. Total-Funded-Debt-To-EBITDAR Ratio................................................30
SECTION 5.10. Ratio of Total Funded Debt to Adjusted Tangible Net Worth.........................30
SECTION 5.11. Adjusted Tangible Net Worth.......................................................30
SECTION 5.12. EBITDAR...........................................................................30
SECTION 5.13. Net Income .......................................................................30
ARTICLE VI Negative Covenants........................................................................31
SECTION 6.1 Liens..............................................................................31
SECTION 6.2. Indebtedness.......................................................................32
SECTION 6.3. Guaranties.........................................................................33
SECTION 6.4. Investments........................................................................33
SECTION 6.5. Dividends..........................................................................34
SECTION 6.6. Sale of Assets.....................................................................34
SECTION 6.7. Transactions with Affiliates.......................................................34
SECTION 6.8. Consolidation and Merger...........................................................35
SECTION 6.9. Sale and Leaseback.................................................................35
SECTION 6.10. Subordinated Debt..................................................................35
SECTION 6.11. Capital Expenditures...............................................................36
SECTION 6.12. Hazardous Substances...............................................................36
SECTION 6.13. Restrictions on Nature of Business.................................................36
ARTICLE VII Events of Default, Rights and Remedies...................................................36
SECTION 7.1 Events of Default..................................................................36
SECTION 7.2. Rights and Remedies................................................................38
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 7.3. Pledge of Cash Collateral Account..................................................39
ARTICLE VIII The Agent...............................................................................40
SECTION 8.1. Authorization......................................................................40
SECTION 8.2. Distribution of Payments and Proceeds..............................................40
SECTION 8.3. Expenses...........................................................................41
SECTION 8.4. Payments Received Directly by Banks................................................41
SECTION 8.5. Indemnification....................................................................41
SECTION 8.6. Limitations on Agent's Power.......................................................41
SECTION 8.7. Exculpation; "Agent."..............................................................42
SECTION 8.8. Agent and Affiliates...............................................................42
SECTION 8.9. Credit Investigation...............................................................42
SECTION 8.10. Resignation........................................................................42
SECTION 8.11. Assignments........................................................................43
SECTION 8.12. Participations.....................................................................45
SECTION 8.13. Co-Agent...........................................................................45
ARTICLE IX Miscellaneous..............................................................................46
SECTION 9.1 No Waiver. Cumulative Remedies....................................................46
SECTION 9.2. Amendments, Etc....................................................................46
SECTION 9.3. Notice.............................................................................46
SECTION 9.4. Accommodation Party Defenses Waived................................................47
SECTION 9.5. Disclosure of Information..........................................................47
SECTION 9.6. Costs and Expenses.................................................................48
SECTION 9.7. Indemnification by Borrowers.......................................................48
SECTION 9.8. Execution in Counterparts..........................................................48
SECTION 9.9. Binding Effect, Assignment.........................................................49
SECTION 9.10. Governing Law......................................................................49
SECTION 9.11. Jurisdiction.......................................................................49
SECTION 9.12. Waiver of Jury Trial...............................................................49
SECTION 9.13. Severability of Provisions.........................................................49
SECTION 9.14. Prior Agreements...................................................................49
SECTION 9.15. Headings...........................................................................50
</TABLE>
iii
<PAGE> 5
CREDIT AGREEMENT
Dated as of July 16, 1996
Larson-Juhl Inc., a Georgia corporation; Larson-Juhl International
L.L.C., a Georgia limited liability company; the Banks, as defined below;
Norwest Bank Minnesota, National Association, a national banking association, as
Agent for the Banks; and SunTrust Bank, Atlanta, a Georgia banking corporation,
as Co-Agent for the Banks; agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For all purposes of this Agreement except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the
meanings assigned to them in this Article, and include the
plural as well as the singular; and
(b) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with
generally accepted accounting principles consistently applied.
"Additional Bank" means a financial institution that becomes a
Bank pursuant to the procedures set forth in Section 8.11.
"Adjusted Special Reserves and Accruals" means the aggregate
Special Reserves and Accruals of the Company, multiplied in each case
by a percentage. The applicable percentage (i) may be determined
separately for each item included in the Company's Special Reserves and
Accruals, (ii) except as set forth in the following c1ause, shall be
set, as to each item, by the Company with the consent of the Required
Banks, which consent shall not be unreasonably withheld, and (iii) if
less than 70%, may be set by the Company in its sole discretion,
without the consent of the Required Banks.
"Advance" means an advance by the Banks to either Borrower
pursuant to Article II.
"Adjusted Tangible Net Worth" means (i) the sum (without
duplication) of (A) stockholders' equity of the Company, (B) 65% of the
Company's LIFO Reserve as of the date of determination, and (C) the
Company's Adjusted Special Reserves and Accruals as of the date of
determination, minus (ii) intangible assets of the Company included in
calculating such stockholders' equity, all determined in accordance
with generally accepted accounting principles consistently applied. For
purposes of the foregoing calculation, intangible assets of the Company
shall include but not be limited to the net book value of the Company's
patents, trademarks, trade names, copyrights, licenses, premiums paid
on indebtedness, and goodwill.
<PAGE> 6
"Affiliate" means (a) any director or officer of the Company,
(b) any Person who, individually or with his immediate family,
beneficially owns or holds 5% or more of the voting interest of the
Company, or (c) any corporation, partnership or other Person in which
any Person or group of Persons described above directly or indirectly
owns a 5% or greater equity interest.
"Agent" means Norwest acting in its capacity as agent for
itself and the other Banks hereunder.
"Agreement" means this Credit Agreement, together with all
amendments, modifications and restatements thereof.
"Alternative Currency" means Australian dollars, Austrian
Schillings, Belgian francs, Dutch guilders, English pounds, Finnish
Finnmarks, French francs, German Deutsche Marks, Italian lira,
Norwegian crowns, South African rands, Spanish pesetas, Swedish krona,
Swiss francs, or any other currency (other than Dollars) requested by a
Borrower and acceptable to all of the Banks.
"Alternative Currency Base Rate" means, with respect to any
Alternative Currency Funding, the rate per annum determined by the
Agent to be the rate at which deposits in the applicable Alternative
Currency are offered to first-class banks in the London interbank
market at approximately 11:00 a.m. (London time) two LIBO Business Days
prior to the beginning of the applicable Interest Period, for funds to
be made available on the first day of the applicable Interest Period in
an amount approximately equal to the amount of such Alternative
Currency Funding and maturing at the end of the applicable Interest
Period.
"Alternative Currency Funding" means a Borrowing or any
portion thereof that is made in an Alternative Currency.
"Alternative Currency Letter of Credit" means a Letter of
Credit denominated in an Alternative Currency.
"Alternative Currency Rate" means, with respect to any
Alternative Currency Funding, the annual rate equal to the sum of (i)
the Alternative Currency Base Rate, and (ii) the applicable LIBO Rate
Margin.
"Assignment Certificate" has the meaning set forth in Section
8.11.
"Bank Business Day" means a day other than a Saturday, Sunday,
United States national holiday or other day on which banks in
Minnesota, New York or Georgia are permitted or required by law to
close.
2
<PAGE> 7
"Banks" means Norwest, acting on its own behalf and not as
Agent, each of the undersigned banks and any financial institution that
becomes a Bank pursuant to the procedures set forth in Section 8.11,
collectively.
"Base Rate" means, at any time, the rate of interest publicly
announced from time to time by the Agent as its "prime" or "base" rate
or, if the Agent ceases to announce a rate so designated, any similar
successor rate designated by the Agent.
"Borrowers" means the Company and LJ International,
collectively.
"Borrowing" means a borrowing under Article II consisting of
Advances made to a Borrower at the same time by each of the Banks
severally.
"Capital Expenditure" means any expenditure of money for the
purchase or construction of fixed assets or for the purchase or
construction of any other assets, or for improvements or additions
thereto, which are capitalized on the Company's balance sheet in
accordance with generally accepted accounting principles.
"Cash Collateral Account" means an account maintained with the
Agent in which funds are deposited pursuant to Section 2.8(h) or
Section 7.2(c).
"Commitment" means, with respect to each Bank, that Bank's
commitment to make Advances and participate in Letters of Credit
pursuant to Article II.
"Commitment Amount" means, with respect to each Bank, the
amount set forth opposite that Bank's name on the signature page or on
any Assignment Certificate, unless said amount is reduced pursuant to
Section 2.11, in which event it means the amount to which said amount
is reduced.
"Commitment Termination Date" means September 1, 2001, or the
earlier date of termination in whole of the Commitments pursuant to
Section 2.11 or 7.2.
"Company" means Larson-Juhl Inc., a Georgia corporation and a
party to this Agreement. Except as otherwise expressly provided herein,
"Company" means only Larson-Juhl Inc., without regard to any
Subsidiaries of Larson-Juhl Inc. or any consolidation of financial data
with such Subsidiaries.
"Compliance Certificate" means a certificate in substantially
the form of Exhibit C, or such other form as the Borrowers and the
Required Banks may from time to time agree upon in writing, executed by
the chief financial officer of the Company, stating (i) that the
financial statements delivered therewith have been prepared `in
accordance with generally accepted accounting principles applied on a
basis consistent with the accounting practices reflected in the annual
financial statements referred to in Section 4.5, subject, in the case
of interim financial statements, to year-end adjustments, (ii) whether
or not such officer has knowledge of the occurrence of any Default or
Event of Default hereunder not theretofore reported and remedied and,
if so, stating in reasonable detail
3
<PAGE> 8
the facts with respect thereto and (iii) if such financial statements
are as of the end of the Company's fiscal year or the second quarter of
the Company's fiscal year, all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Company is in
compliance with the requirements set forth in Sections 5.9, 5.10, 5.11,
5.12 and 5.13.
"Default" means an event that, but for the giving of notice,
the passage of time or both, would constitute an Event of Default.
"Dollar Equivalent" means (i) with respect to a Borrowing,
Advance or Letter of Credit made or denominated in Dollars, the amount
of such Borrowing, Advance or Letter of Credit, and (ii) with respect
to an Alternative Currency Funding or Alternative Currency Letter of
Credit, the amount in freely-transferable Dollars that the Agent may
purchase for the amount and in the currency of such Alternative
Currency Funding or Alternative Currency Letter of Credit on the spot
market on the day of determination, determined at the Agent's
discretion within the period of three LIBO Business Days preceding the
day of such Alternative Currency Funding, as of the first day of the
Interest Period applicable to such Alternative Currency Funding, on the
date of the issuance of or any draw under such Alternative Currency
Letter of Credit and at such other times as the Agent shall determine
in accordance with this Agreement.
"Dollars" means United States dollars.
"EBITDAR" means, with respect to any period, the Net Income of
the Company with respect to that period, increased or decreased (as the
case may be) by any change in the Company's Adjusted Special Reserves
and Accruals during that period, plus each of the following to the
extent deducted in determining Net Income: (i) any taxes accrued by the
Company with respect to such period, (ii) interest expenses recognized
by the Company with respect to that period, (iii) 65% of the Company's
LIFO Expense during that period, and (iv) depreciation and amortization
recognized by the Company with respect to that period, all determined
in accordance with generally accepted accounting principles
consistently applied.
"Eligible Bank" means a commercial bank having aggregate
capital and surplus greater than $500,000,000 as of the date of
determination.
"Environmental Law" means the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq.,
the Hazardous Materials Transportation Act, 49 U.S.C. ss. 1802 et seq.,
the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq., the
Federal Water Pollution Control Act, 33 U.S.C. ss. 1252 et seq., the
Clean Water Act, 33 U.S.C. ss. 1321 et seq., the Clean Air Act, 42
U.S.C. ss. 7401 et seq., and any other federal, state, county,
municipal, local or other statute, law, ordinance or regulation which
may relate to or deal with human health or the environment all as may
be from time to time amended.
4
<PAGE> 9
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is, along with the Company, a member of a controlled
group of corporations or a controlled group of trades or businesses, as
described in sections 414(b) and 414(c), respectively, of the Internal
Revenue Code of 1986, as amended.
"Eurodollar Base Rate" means, with respect to any Interest
Period, the rate per annum at which U.S. dollar deposits in immediately
available funds are offered as of 11:00 A.M. (London Time) two LIBO
Business Days prior to the beginning of such Interest Period, as
determined by the Agent on the basis of the display designated as page
"LIBO" on the Reuters Monitor Money Rates Service; provided, however,
that if such page is no longer available, the Eurodollar Base Rate
shall be determined by the Agent on the basis of a substantially
comparable source selected by the Agent and acceptable to the Required
Banks.
"Eurodollar Rate" means the annual rate equal to the sum of
(i) the rate obtained by dividing (a) the Eurodollar Base Rate, by (b)
a percentage equal to 100% minus the Federal Reserve System requirement
(expressed as a percentage) applicable to such deposits, and (ii) the
applicable LIBO Rate Margin.
"Eurodollar Rate Funding" means a Borrowing or any portion
thereof, or any other portion of the principal balance of the Notes,
that bears interest at a Eurodollar Rate.
"Event of Default" has the meaning specified in Section 7.1.
"Excess Guaranty Increment" means $0, except that the
Borrowers may increase the Excess Guaranty Increment at any time and
from time to time by payment to the Agent for the benefit of the Banks,
of an excess guaranty fee in an amount equal to 1.125% of the amount of
such increase; provided, however, that in no event shall the Excess
Guaranty Increment be greater than $5,000,000.
"Federal Funds Rate" means at any time an interest rate per
annum equal to the weighted average of the rates for overnight federal
funds transactions with members of the Federal Reserve System arranged
by federal funds brokers, as published for such day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any
day which is a Bank Business Day, the average of the quotations for
such day for such transactions received by the Agent from three federal
funds brokers of recognized standing selected by it, it being
understood that the Federal Funds Rate for any day which is not a Bank
Business Day shall be the Federal Funds Rate for the next preceding
Bank Business Day.
5
<PAGE> 10
"Floating Rate" means, at any time, an annual rate equal to
the greater of
(i) the Base Rate, minus 50 basis points (0.50%); or
(ii) the Federal Funds Rate, plus 50 basis points (0.50%);
The Floating Rate shall change when and as the Base Rate or Federal
Funds Rate changes.
"Hazardous Substance" means any asbestos, urea-formaldehyde,
polychlorinated biphenyls ("PCBs"), nuclear fuel or material, chemical
waste, radioactive material, explosives, known carcinogens, petroleum
products and by-products and other dangerous, toxic or hazardous
pollutants, contaminants, chemicals, materials or substances listed or
identified in, or regulated by, any Environmental Law.
"Interest Period" means, with respect to any Eurodollar Rate
Funding or Alternative Currency Funding, a period of one, two, three or
six months beginning on a LIBO Business Day, as elected by the Borrower
requesting the Eurodollar Rate Funding or Alternative Currency Funding.
Each Interest Period shall end on the day in the final month of such
Interest Period that immediately precedes the date which numerically
corresponds to the first day of such Interest Period, except that (i)
if such final month has no numerically corresponding day, then the
Interest Period shall end on the last LIBO Business Day of such month,
and (ii) if an Interest Period would otherwise end on a day which is
not a LIBO Business Day, such Interest Period shall end on the next
following LIBO Business Day, unless such next following LIBO Business
Day is the first LIBO Business Day of a month, in which case such
Interest Period shall end on the next preceding LIBO Business Day.
"Issuing Bank" means Norwest acting as the Bank issuing
Letters of Credit.
"L/C Amount" means the Dollar Equivalent of the sum of (i) the
aggregate face amount of any issued and outstanding Letters of Credit,
plus (ii) amounts drawn under Letters of Credit for which the Banks
have neither been reimbursed nor made any Advance.
"Letter of Credit" has the meaning set forth in Section 2.8.
"Lien" means any mortgage, deed of trust, lien, pledge,
security interest or other charge or encumbrance, of any kind
whatsoever, including but not limited to the interest of the lessor or
titleholder under any capitalized lease, title retention contract or
similar agreement.
"LIBO Business Day" means a Bank Business Day on which
dealings in the London interbank market are carried on (i) if such
determination relates to a Eurodollar Rate, in U.S. dollar deposits, or
(ii) if such determination relates to an Alternative Currency Funding,
the applicable Alternative Currency.
6
<PAGE> 11
"LIBO Rate Margin" means a percentage, determined as set forth
in Section 2.7.
"LIFO Expense" means, during any period, the change in the
Company's LIFO Reserve during such period.
"LIFO Reserve" means, at any time, the difference between the
value of inventory calculated using a first-in-first-out (FIFO) method
and the value of such inventory calculated using the "link chain"
last-in-first-out (LIFO) method. In determining the Company's LIFO
Reserve as of any date, the LIFO Reserve shall be calculated with
respect to each pool of the Company's inventory (divided into separate
pools in accordance with applicable standards set forth in the Internal
Revenue Code and the regulations thereunder and interpretations
thereof), and the sum of the LIFO Reserves for each such pool shall be
aggregated to determine the Company's LIFO Reserve.
"LJ International" means Larson-Juhl International L.L.C., a
Georgia limited liability company. Except as otherwise expressly
provided herein, "LJ International" means only LJ International,
without regard to any Subsidiaries of LJ International or any
consolidation of financial data with such Subsidiaries.
"LJ International Outstandings" means, at any time, the sum of
(i) the aggregate principal amount of Advances made to LJ International
hereunder, and (ii) the L/C Amount, to the extent that the Letters of
Credit giving rise to the L/C Amount have been issued for the account
or at the request of LJ International.
"LJ Party" means either Borrower or any Subsidiary of either
Borrower.
"Loan Documents" means this Agreement and the Notes.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001 (a)(3) of ERISA.
"Net Income" means the net earnings of the Company, determined
in accordance with generally accepted accounting principles
consistently applied.
"Norwest" means Norwest Bank Minnesota, National Association,
a national banking association and a party to this Agreement.
"Note" has the meaning set forth in Section 2.1.
"Organizational Documents" means, with respect to any limited
liability company, the articles of organization and all operating
agreements, member control relating to that limited liability
agreements and similar organizational documents relating company.
7
<PAGE> 12
"Percentage" means, with respect to each Bank, the ratio of
that Bank's Commitment Amount to the aggregate Commitment Amounts of
all of the Banks.
"Permitted Acquisition" means the acquisition by the Company
of stock or other equity interests in any other Person, the
consolidation or merger of any other Person into the Company, or the
transfer of any assets of any other Person to the Company outside the
ordinary course of business, in each case so long as:
(i) no Default or Event of Default is continuing at the
time of such acquisition, consolidation, merger or
transfer, or would be caused by such acquisition,
consolidation, merger or transfer;
(ii) in the case of the acquisition of stock or other
equity interests or in the case of any consolidation
or merger, the aggregate amount expended by the
Company on account of all such acquisitions,
consolidations and mergers during any single 12-month
period does not exceed $20,000,000, less the amount
expended by the Company on account of any transfer of
assets to the Company outside the ordinary course of
business during such period;
(iii) in the case of any consolidation or merger, the
Company shall be the continuing or surviving
corporation; and
(iv) in the case of a transfer of assets to the Company
outside the ordinary course of business, the
aggregate amount expended by the Company on account
of all such transfers during any single 12-month
period does not exceed the lesser of (A) 40% of the
Company's assets as of the beginning of that 12-month
period, or (B) $20,000,000, in each case reduced by
the aggregate amount expended by the Company on
account of all acquisitions of stock and other equity
interests and all consolidations and mergers with the
Company during such 12-month period.
"Person" means any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock
company, trust unincorporated organization or government or any agency
or political subdivision thereof
"Plan" means an employee benefit plan or other plan maintained
for employees of the Company or any ERISA Affiliate and covered by
Title IV of ERISA.
"Ponzio" means Craig A. Ponzio.
"Ponzio Entity" means (i) Ponzio, (ii) any member of Ponzio's
immediate family, (iii) any trust established for the benefit of Ponzio
or any member of his immediately family, so long as such trust is
controlled solely by Ponzio at all times prior to his death, (iv) the
estate of Ponzio arising after his death, or (v) any corporation,
partnership or limited liability company controlled by Ponzio. For
purposes of this definition, Ponzio
8
<PAGE> 13
shall be deemed to be in control of a corporation, partnership or
limited liability company so long as (x) he owns (both legally and
beneficially) not less than 67% of each class of the equity interests
of such entity, and (y) he maintains voting control of such
corporation, partnership or limited liability company.
"Reportable Event" means (i) a "reportable event" described in
Section 4043 of ERISA and the regulations issued thereunder, (ii) a
withdrawal from any Plan, as described in Section 4063 of ERISA,, (iii)
an action to terminate a Plan for which a notice is required to be
filed under Section 4041 of ERISA, (iv) any other event or condition
that might constitute grounds for termination of, or the appointment of
a trustee to administer, any Plan, or (v) a complete or partial
withdrawal from a Multiemployer Plan as described in Sections 4203 and
4205 of ERISA.
"Required Banks" means one or more Banks (including, where
relevant Additional Banks) having an aggregate Percentage equal to or
greater than 66-2/3%.
"Special Reserves and Accruals" means, as of any date,
reserves and liabilities of the Company that do not meet the "all
events test" as defined in Section 461 of the Internal Revenue Code of
1986 and the regulations thereunder and interpretations thereof,
including but not limited to any reserves or liabilities the existence
or amount of which cannot be determined with reasonable accuracy.
"Subchapter S Corporation" means an "electing small business
corporation," as defined in Subchapter S of the Internal Revenue Code
of 1986 (26 U.S.C. ss.ss. 1371-1377).
"Subordinated Debt" means indebtedness of the Company which is
subordinated in right of payment to all indebtedness of the Company to
any Bank, on terms that have been approved in writing by the Required
Banks and that have been noted by appropriate legend on all instruments
evidencing the Subordinated Debt.
"Subsidiary" means, as to either Borrower, (i) any corporation
of which more than 50% of the outstanding shares of capital stock
having general voting power under ordinary circumstances to elect a
majority of the board of directors of such corporation, irrespective of
whether or not at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by that
Borrower, by that Borrower and one or more other Subsidiaries, or by
one or more other Subsidiaries, (ii) any partnership of which 50% or
more of the partnership interests therein are directly or indirectly
owned by that Borrower, by that Borrower and one or more other
Subsidiaries, or by one or more other Subsidiaries, and (iii) any
limited liability company or other form of business organization the
effective control of which is held by that Borrower, by that Borrower
and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Total Funded Debt" means (without duplication) (i) all
indebtedness of the Company for borrowed money; (ii) indebtedness of
the Company evidenced by bonds,
9
<PAGE> 14
notes or similar written instruments, whether or not representing
obligations for borrowed money; (iii) all capitalized lease obligations
of the Company; (iv) all indebtedness secured by a Lien on any property
owned by the Company, whether or not such indebtedness has been assumed
by the Company or is nonrecourse to the Company; (v) all net
obligations of the Company under interest rate agreements or currency
agreements; (vi) guaranty obligations of the Company with respect to
indebtedness for borrowed money of another Person (including
Affiliates); and (vii) the face amount of all Letters of Credit issued
hereunder, all other letters of credit and bankers' acceptances issued
for the account of the Company, and, without duplication, all drafts
drawn thereunder.
"Total-Funded-Debt-To-EBITDAR Ratio" means, as of any date of
determination, the ratio of (i) the Total Funded Debt of the Company as
of that date, to (ii) (A) the EBITDAR of the Company during the
24-month period ending on that date, divided by (B) 2.
"Welfare Plan" means a "welfare plan" as defined in Section
3(1) of ERISA.
ARTICLE II
AMOUNT AND TERMS OF THE REVOLVING LOANS; LETTERS OF CREDIT
Section 2.1 Revolving Credit Facility. Each Bank agrees, severally but
not jointly, on the terms and subject to the conditions hereinafter set forth,
to make Advances to the Borrowers from time to time during the period from the
date hereof to and including the Commitment Termination Date. In no event shall
any Bank be obligated to make any requested Advance if the sum of the Dollar
Equivalent of the Advances by that Bank then outstanding, that Bank's Percentage
of the then-outstanding L/C Amount and the Dollar Equivalent of the requested
Advance would exceed that Bank's Commitment Amount. Within the limits of each
Bank's Commitment Amount, the Borrowers may borrow, prepay pursuant to Section
2.12 and reborrow under this Section 2.1. The Advances made by each Bank shall
be evidenced by and repayable with interest in accordance with a single
promissory note of the Borrowers (each, a "Note") payable to the order of that
Bank, substantially in the form of Exhibit A hereto, dated the date hereof.
Section 2.2 Procedure for Borrowings. Each Borrowing shall occur
following written notice from either Borrower to the Agent or telephonic request
from any person purporting to be authorized to request Advances on behalf of
either Borrower. Each such notice or request shall specify (i) the name of the
Borrower that will receive the proceeds of such Borrowing, (ii) the date of the
requested Borrowing, (iii) the amount thereof, (iv) if any portion of such
Borrowing will bear interest at a Eurodollar Rate or be made in an Alternative
Currency, the Interest Period selected by the requesting Borrower with respect
thereto, and (v) if such Borrowing will be made in an Alternative Currency, the
Alternative Currency in which such Borrowing will be made. Such notice or
request must be received by the Agent not later than 11:00 a.m. (Minneapolis
time) on the day on which such Borrowing is to occur or, if all or any portion
of the Borrowing will bear interest at a Eurodollar Rate or be made in an
Alternative Currency, not
10
<PAGE> 15
later than 11:00 a.m. (Minneapolis time) on the day three LIBO Business Days'
prior to the date on which such Borrowing is to occur. Upon receiving a request
for a Borrowing, and in any event not later than 1:30 p.m. (Minneapolis time) on
the date that the requested Borrowing is to occur, or, if the requested
Borrowing is to bear interest at a Eurodollar Rate or be made in an Alternative
Currency, the close of business on the day that the request is received, the
Agent will notify the Banks of the amount of the requested Borrowing, the amount
of each Bank's Advance with respect thereto, and, if applicable, the fact that
such Borrowing will bear interest at a Eurodollar Rate or Alternative Currency
Rate, and the Interest Period and Alternative Currency selected by the
requesting Borrower. Not later than 4:00 p.m. (Minneapolis time) on the second
LIBO Business Day prior to the date on which any Eurodollar Rate Funding or
Alternative Currency Funding is to occur, the Agent will notify the Banks and
the Borrowers of the interest rate to be applicable thereto. Upon fulfillment of
the applicable conditions set forth in Article III, each Bank shall remit its
Percentage of the requested Borrowing to the Agent in immediately available
funds. So long as a Bank receives notice of the requested Borrowing by the
applicable time specified above, that Bank will make its Advance with respect to
that Borrowing available to the Agent by wire transfer of immediately available
funds to the Agent not later than 4:00 p.m. (Minneapolis time) on the date
called for in such notice. Prior to the close of business on the day of the
requested Borrowing, the Agent shall disburse such funds by crediting the same
to the demand deposit account of the requesting Borrower maintained with the
Agent or in such other manner as the Agent and either Borrower may from time to
time agree. The Agent shall have no obligation to disburse the requested
Borrowing if any condition set forth in Article III has not been satisfied on
the day of the requested Borrowing. Each Borrowing shall be in the amount of
$500,000 or an integral multiple thereof, provided, however, that each
Eurodollar Rate Funding or Alternative Currency Funding must be in the amount of
$2,000,000 or an integral multiple of $500,000 greater than $2,000,000. The
Borrowers shall be obligated to repay all Advances made to them notwithstanding
the fact that the person requesting the same was not in fact authorized so to
do. Any request for an Advance shall be deemed to be a representation that the
statements set forth in Section 3.2 are correct.
Section 2.3 Additional Provisions Regarding Eurodollar Rate Fundings
and Alternative Currency Fundings.
(a) In no event shall more than 18 Eurodollar Rate Fundings
and Alternative Currency Fundings be outstanding at any one time.
(b) In no event may the Borrower request a Eurodollar Rate
Funding or Alternative Currency Funding if the Interest Period
applicable thereto would end after the Commitment Termination Date.
(c) In no event may the Borrowers rescind any request for a
Eurodollar Rate Funding or Alternative Currency Funding once made.
(d) Notwithstanding anything to the contrary in this
Agreement, the Agent and the Banks shall have no obligation to honor
any request for a Eurodollar Rate Funding or Alternative Currency
Funding (i) if a Default or Event of Default has occurred and is
continuing when such request is made or on the first day of the
Interest
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<PAGE> 16
Period applicable thereto, (ii) if any Bank, in its sole discretion,
determines that funds in amounts equal to the requested amount,
maturing at the end of the proposed Interest Period and, if applicable,
in the applicable Alternative Currency are not readily available to
such Bank from major banks in the London interbank market, or (iii) if
any Bank, in its sole discretion, determines that it is unlawful for
such Bank to make, maintain or fund Eurodollar Rate Fundings or
Alternative Currency Fundings. Absent manifest error, the records of
the Agent shall be conclusive evidence as to the amount of each
Eurodollar Rate Funding and Alternative Currency Funding and the
interest rate and Interest Period applicable thereto.
(e) If any Bank, in its sole discretion, determines that it is
unlawful for it to continue to maintain its portion of any Eurodollar
Rate Funding or Alternative Currency Funding outstanding at the time of
such determination, such Bank may, by notice to the Agent and the
Borrowers, require the immediate repayment thereof or, if legally
permissible, convert its portion of such Eurodollar Funding or
Alternative Currency Funding to an Advance bearing interest at the
Floating Rate in an amount equal to the Dollar Equivalent of such
portion of the applicable Eurodollar Rate Funding or Alternative
Currency Funding. Any such Advance shall be applied to the prepayment
of that Bank's portion of such Eurodollar Rate Funding or Alternative
Currency Funding, but (i) no amount shall be required to be paid under
Section 2.19 on account of such prepayment and (ii) except as provided
in Section 7.2 upon acceleration of the Notes, no interest shall be
due and payable with respect to such Advance until the end of the
applicable Interest Period.
(f) Unless the Borrowers repay an Alternative Currency Funding
on the expiration of the Interest Period applicable thereto in the
applicable Alternative Currency, the outstanding principal balance of
such Alternative Currency Funding shall be converted from the
applicable Alternative Currency to Dollars on the expiration of such
Interest Period. Upon any such conversion to Dollars, the Dollar
Equivalent resulting from such conversion shall be deemed a Borrowing
by the Borrowers from the Banks hereunder consisting of Advances by
each Bank in proportion to their shares of the corresponding
Alternative Currency Funding.
(g) If, as a result of any conversion of an Alternative
Currency Funding to Dollars pursuant to paragraph (f) or any conversion
of the Borrowers' reimbursement obligation with respect to any
Alternative Currency Letter of Credit pursuant to Section 2.8(f), the
sum of the Dollar Equivalent of all outstanding Advances and the L/C
Amount exceeds the aggregate Commitment Amounts of the Banks, the
Borrowers shall on demand by the Agent repay the amount of such excess,
together with interest thereon from the date of such conversion until
payment at the Floating Rate.
Section 2.4 Alternative Currency Participation's
(a) Notwithstanding any other provision of this Agreement to
the contrary, if any Bank (the "Participating Bank"), in its sole
discretion, determines that it is unable to make its portion of
Alternative Currency Fundings in a particular Alternative
12
<PAGE> 17
Currency or if such Bank determines that it will not as a matter of
policy, make loans to any of its borrowers in such Alternative
Currency, such Bank may enter into one or more participation agreements
with another Bank (the "Funding Bank') providing that the Participating
Bank will purchase from the Funding Bank, and the Funding Bank will
grant to the Participating Bank, a participation in each Alternative
Currency Funding made in such Alternative Currency (each, a "Restricted
Currency Funding"). Such participation shall, as between the Funding
Bank and the Participating Bank, be denominated in Dollars, but the
underlying loan to the Borrowers shall be funded by the Funding Bank in
the applicable Alternative Currency (subject to the other terms and
conditions of this Agreement). Any Bank entering into a participation
agreement as contemplated by this paragraph shall deliver a copy of the
applicable agreement to the Agent and the Borrower promptly upon
entering into such agreement.
(b) The Percentages of the Funding Bank and the Participating
Bank with respect to each Restricted Currency Funding covered by any
such participation agreement shall (with respect to the obligation to
provide such Restricted Currency Funding hereunder and with respect to
the right to receive payments on account of such Restricted Currency
Funding) be equal to (i) in the case of the Funding Bank, the sum of
the Funding Bank's Percentage and the Participating Bank's Percentage,
and (ii) in the case of the Participating Bank, 0%.
(c) The participated portion of any Restricted Currency
Funding shall be evidenced by the Note payable to the order of the
Funding Bank. In no event shall the Funding Bank be required to fund
any Advance or participate in any Letter of Credit if the sum of the
Dollar Equivalent of the Advances by that Bank then outstanding
(including the participated portion of any Restricted Currency Fundings
as to which such Bank is the Funding Bank), that Bank's Percentage of
the then-outstanding L/C Amount and the Dollar Equivalent of the amount
of the applicable Advance or Letter of Credit (including, in the case
of any Restricted Currency Fundings, the participated portion thereof
as to which such Bank is the Funding Bank) would exceed that Bank's
Commitment Amount.
(d) In no event shall the Borrowers' liability (whether under
Section 2.18, 2.19 or 2.20 or otherwise) to the Funding Bank and the
Participating Bank, when considered in the aggregate, be greater
because of the arrangement contemplated by this Section 2.4 than it
would be if no such arrangement existed and the Funding Bank and the
Participating Bank each funded their respective Percentages of each
Alternative Currency Funding in the applicable Alternative Currency as
would be required but for this Section 2.4.
Section 2.5 Interest
(a) The Notes shall bear interest on the unpaid principal
amount thereof from the date thereof until paid as follows:
13
<PAGE> 18
a
(i) Except as provided elsewhere in this paragraph (a), the
principal balance of each Note shall bear interest at
the Floating Rate.
(ii) Each Eurodollar Rate Funding shall bear interest at the
applicable Eurodollar Rate for the Interest Period
specified in the notice or request for such Eurodollar
Rate Funding.
(iii) Each Alternative Currency Funding shall bear interest
at the applicable Alternative Currency Rate for the
Interest Period specified in the notice or request for
such Alternative Currency Funding.
(iv) At the termination of each Interest Period, the
interest rate applicable to the Eurodollar Rate Funding
or Alternative Currency Funding to which such Interest
Period was applicable shall revert to the Floating Rate
unless a new Eurodollar Rate request is made by a
Borrower in accordance with this Agreement.
(b) Interest accruing on the principal balance of the Notes
shall be payable as follows:
(i) Interest accruing on the principal balance of the Notes
at the Floating Rate each month shall be due and
payable on the last day of that month, commencing on
the last day of the month hereof, and on the Commitment
Termination Date.
(ii) Interest on each Eurodollar Rate Funding and
Alternative Currency Funding shall be due and payable
on the last day of the applicable Interest Period or,
if such Interest Period is in excess of three months,
on the last day of each three-month interval during
such Interest Period, and on the last day of such
Interest Period.
Section 2.6 Conversion of Principal to Eurodollar Rate Fundings. At the
election of either Borrower, which may be exercised from time to time, a
Borrower may request in writing or by telephone that a Eurodollar Rate be
applicable for the portion of the outstanding principal balance of the Notes
(including any Advance requested or to be requested) and for the Interest Period
indicated by the applicable Borrower in its request. The portion of the
outstanding balance of the Notes for which a Eurodollar Rate is requested (i)
must be in the amount (as to all Notes combined) of $2,000,000 or an integral
multiple of $500,000 greater than $2,000,000, and (ii) must on the first day of
the applicable Interest Period, either (A) bear interest at the Floating Rate,
or (B) bear interest at a Eurodollar Rate or Alternative Currency Rate with
respect to which the Interest Period expires on such first day. A request for a
Eurodollar Rate must be received by the Agent before 11:00 a.m. (Minneapolis
time) on the day three LIBO Business Days before the first day of the proposed
Interest Period. Upon receiving a request for a Eurodollar Rate, and in any
event not later than the close of business on the day that the request is
received, the Agent will notify the Banks of the principal amount to be subject
to such Eurodollar Rate and the Interest Period applicable thereto. Not later
than 4:00 p.m.
14
<PAGE> 19
(Minneapolis time) on the second LIBO Business Day prior to the date on which
such Eurodollar Rate is to become effective, the Agent will notify the Banks and
the Borrowers of the interest rate to be applicable thereto.
Section 2.7 Pricing Adjustments.
(a) Until adjusted as set forth below, the LIBO Rate Margin
shall be 1.125%.
(b) The LIBO Rate Margin shall be adjusted quarterly on the
basis of the Total-Funded-Debt-To-EBITDAR Ratio of the Company as at
the end of the previous fiscal quarter in accordance with the following
table:
<TABLE>
<CAPTION>
Total-Funded-Debt-To-EBITDAR Ratio LIBO Rate Margin
---------------------------------- ----------------
<S> <C>
Less than 1.50 to 1 0.75%
1.50 to 1 or greater, but less than 2.00 to 1 1.00%
2.00 to 1 or greater, but less than 3.00 to 1 1.25%
3. 00 to 1 or greater 1.50%
</TABLE>
Notwithstanding the foregoing, (i) no reduction in the LIBO Rate Margin
will be made if a Default or an Event of Default has occurred and is
continuing at the time that such reduction would otherwise be made, and
(ii) if the Company fails to deliver any financial statements or
Compliance Certificates when required under Section 5.1, the Agent upon
the request of the Required Banks, shall, by notice to the Borrowers,
increase the LIBO Rate Margin to the highest rates set forth above from
the beginning of the fiscal quarter in which such items were required
to be delivered until such time as the Agent has received all such
financial statements and Compliance Certificates.
(c) Reductions and increases in the LIBO Rate Margin (and the
letter of credit fees based thereon) will be determined quarterly
following receipt of the Company's financial statements and quarterly
Compliance Certificates required under Section 5.1. Any such reduction
or increase shall be applicable (i) to Eurodollar Rate Fundings and
Alternative Currency Fundings having an Interest Period commencing
after the last day of the month in which such receipt occurs, and (ii)
to commitment fees and letter of credit fees accruing after the last
day of such month. The Agent shall notify each Bank of any change
pursuant to this Section 2.7 promptly following the determination
thereof.
Section 2.8 Letters of Credit.
(a) Either Borrower may from time to time request that the
Issuing Bank issue one or more irrevocable standby or documentary
letters of credit (each, a "Letter of Credit") for the account of that
Borrower, either solely or jointly with any other LJ
15
<PAGE> 20
Party. No Letter of Credit shall be issued if the Dollar Equivalent of
the face amount of that Letter of Credit, together with the sum of the
L/C Amount and the Dollar Equivalent of the aggregate principal balance
of the Notes then outstanding, would exceed the aggregate Commitment
Amounts. Each Letter of Credit shall be used for the general corporate
purposes of the Borrowers.
(b) At least five days prior to the issuance of each Letter of
Credit the Borrowers shall execute a letter of credit application and
reimbursement agreement either in the form attached as Exhibit B or in
the Issuing Bank's standard form as required by the Issuing Bank.
(c) Each Letter of Credit shall be denominated in Dollars or
an Alternative Currency specified by the applicable Borrower in its
request for such Letter of Credit.
(d) Each Letter of Credit shall be issued in a form acceptable
to the Issuing Bank. Not later than the day on which any Letter of
Credit is issued, the Issuing Bank shall deliver to the Agent, and the
Agent shall deliver to each of the Banks, a copy of such Letter of
Credit. Unless otherwise approved by the Required Banks, no Letter of
Credit shall have an initial or any renewal term of more than one year.
Unless otherwise approved by all of the Banks, no Letter of Credit
shall have a term (including renewals thereof) extending beyond the
Commitment Termination Date.
(e) A fee shall be due and payable to the Agent for the
benefit of the Banks upon issuance of each Letter of Credit, computed
at an annual rate equal to the LIBO Rate Margin applied to the face
amount of that Letter of Credit outstanding from time to time, from and
including the date of issuance of that Letter of Credit until the
expiration thereof, payable in advance on the date of issuance and on
the first day of each calendar quarter thereafter.
(f) The Borrowers shall pay the amount of each draft drawn
under any Letter of Credit to the Issuing Bank on demand (or, if demand
is not earlier made, on the Commitment Termination Date), together with
interest at the Float Rate from the date that such draft is paid by the
Issuing Bank until payment of such amount in full. Unless the Borrowers
make such payment with respect to an Alternative Currency Letter of
Credit in the applicable Alternative Currency immediately upon payment
of such draft by the Issuing Bank, the Borrowers' obligation to pay the
amount of such draft shall be converted from the applicable Alternative
Currency to Dollars following such payment by the Issuing Bank.
(g) Each Bank shall be deemed to hold a participation interest
in each Letter of Credit equal to that Bank's Percentage of the face
amount of that Letter of Credit. If the Issuing Bank makes any payment
pursuant to the terms of any Letter of Credit and is not promptly
reimbursed, the Issuing Bank may request that each other Bank pay such
Bank's Percentage of the unreimbursed amount (which amount shall, in
the case of an Alternative Currency Letter of Credit, have been
converted to Dollars as
16
<PAGE> 21
set forth in paragraph (f). Upon receipt of any such request prior to
1:30 p.m. (Minneapolis time) on a Bank Business Day, the recipient
shall be unconditionally and irrevocably obligated to pay its
Percentage of the unreimbursed amount to the Issuing Bank in
immediately available funds prior to 4:00 p.m. (Minneapolis time) on
such date. Notices received after 1:30 p.m. (Minneapolis time) shall be
deemed to have been received on the following Bank Business Day. If
payment is not made by a Bank when due hereunder, interest on the
unpaid amount shall accrue from and including the date of the Issuing
Bank's request to the date of payment at the Federal Funds Rate. After
making any payment to the Issuing Bank under this subsection in
connection with a particular Letter of Credit, a Bank shall be entitled
to participate to the extent of its Percentage in the related
reimbursements received by the Issuing Bank from the Borrowers or
otherwise. Upon receiving any such reimbursement, the Issuing Bank will
distribute to each Bank its Percentage of such reimbursement. At the
option of the Required Banks, any payment by a Bank hereunder may be
deemed an Advance in accordance with Section 2.1 and payable under the
Notes. Notwithstanding the foregoing, the Banks shall have no
obligation to make any payment under this paragraph (g) to the extent
that the payment of such draw constituted gross negligence or willful
misconduct by the Issuing Bank.
(h) Unless otherwise agreed by each Bank in writing, the
Borrowers shall deposit in the Cash Collateral Account, on the
Commitment Termination Date, an amount equal to the then-applicable L/C
Amount, less the balance (if any) then outstanding in the Cash
Collateral Account. Such deposit shall be made (i) with respect to each
Alternative Currency Letter of Credit in the applicable Alternative
Currency, and (ii) with respect to each Letter of Credit denominated in
Dollars, in Dollars.
Section 2.9 Limitation on LJ International Outstandings.
Notwithstanding any other provision of this Agreement to the contrary, the Banks
shall have no obligation to make any Advance to LJ International or issue any
Letter of Credit for the account of LJ International if, after making such
Advance or issuing such Letter of Credit, the aggregate LJ International
Outstandings would exceed at any time exceed 90% of the Adjusted Tangible Net
Worth of the Company.
Section 2.10 Fees.
(a) Upfront Fee. The Borrowers shall pay to the Agent, for the
benefit of each Bank, on the date hereof, an upfront fee equal to 35
basis points (0.35%) of each Bank's Commitment Amount. Each Bank's
upfront fee shall be deemed fully earned by that Bank's entering into
this Agreement, whether or not any Advance is at any time made
hereunder.
(b) Commitment Fees. The Borrowers shall pay to the Agent for
the benefit of each Bank, a commitment fee at an annual rate equal to
25 basis points (0.25%) on the average daily unused amount of each
Bank's Commitment Amount from the date hereof to and including the
Commitment Termination Date, payable quarterly in arrears on the last
day of each March, June, September and December through the
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Commitment Termination Date, commencing September 30,1996. Any
commitment fee remaining unpaid on the Commitment Termination Date
shall be due and payable on that date. As used herein, the "unused
amount" of any Bank's Commitment Amount shall, at any time, mean that
Bank's Commitment Amount less the sum of (i) the principal balance of
that Bank's Note then outstanding, and (ii) that Bank's Percentage of
the L/C Amount then outstanding.
(c) Agency Fee. The Borrowers shall pay to the Agent, for the
Agent's own account and not for the benefit of the Banks, an agency fee
in an amount set forth in a separate agreement between the Agent and
the Borrowers.
Section 2.11 Termination or Reduction of the Commitments. Either
Borrower may at any time and from time to time upon three Bank Business Days'
prior notice to the Agent permanently terminate the Commitments in whole or
permanently reduce the Commitment Amounts in part, without penalty or premium,
provided that (i) the Commitments may not be terminated while any Advance or L/C
Amount remains outstanding, (ii) each partial reduction shall be in the
aggregate amount of $5,000,000 or a multiple thereof, (iii) any partial
reduction of the Commitment Amounts shall be pro rata as to each Bank in
accordance with that Bank's Percentage, and (iv) no reduction shall reduce the
Commitment Amounts to an amount less than the Dollar Equivalent of the sum of
the aggregate Advances and the L/C Amount outstanding at the time.
Section 2.12 Voluntary Prepayments. The Borrowers may prepay the Notes
in whole or in part, without penalty or premium, at any time and from time to
time; provided that (i) prepayment of any Bank's Note must be accompanied by pro
rata prepayment of each other Bank's Note, (ii) any prepayment of any Eurodollar
Rate Funding or Alternative Currency Funding shall include prepayment of the
entire amount of such Eurodollar Rate Funding or Alternative Currency Funding,
together with accrued interest thereon, (iii) each partial prepayment of the
Notes shall be in the aggregate principal amount of $1,000,000 or a multiple
thereof, except that no prepayment of any portion of the Notes bearing interest
at a Eurodollar Rate or Alternative Currency Rate may be made in an aggregate
principal amount less than $5,000,000, and (iv) any prepayment of any portion of
the principal balance of the Notes which, at the time of such prepayment, bears
interest at a Eurodollar Rate or Alternative Currency Rate shall be accompanied
by compensation as specified in Section 2.19. Each partial prepayment of
principal on the Notes shall be applied, first, to that portion of the Notes
bearing interest at the Floating Rate; and, second, to Eurodollar Rate Fundings
and Alternative Currency Fundings, in inverse order of the maturity of the
Interest Periods applicable thereto.
Section 2.13 Computation of Interest and Fees. Interest under the Notes
and the fees hereunder shall be computed on the basis of actual number of days
elapsed in a year of 360 days.
Section 2.14 Payment.
(a) All payments of principal and interest under the Notes and
of the fees and other amounts hereunder shall be made to the Agent in
immediately available funds.
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All payments shall be made to the Agent's principal office in
Minneapolis, Minnesota, except that payments of Alternative Currency
Fundings and reimbursement obligations arising from Alternative
Currency Letters of Credit shall be made to such office as the Agent
may from time to time designate. All payments of principal and interest
on any Note shall be made in Dollars, except that Alternative Currency
Fundings and reimbursement obligations arising from Alternative
Currency Letters of Credit shall be repaid in that same Alternative
Currency or converted as set forth in Section 2.3(f). Payments received
after noon (Minneapolis time) on any day shall be deemed received on
the next succeeding Bank Business Day. The Borrowers agree that the
amount shown on the books and records of each Bank as being the
principal balance of that Bank's Note shall be prima facie evidence of
such principal balance. The Borrowers hereby authorize the Agent to
charge against any account of either or both Borrowers with the Agent
an amount equal to the accrued interest and fees from time to time due
and payable to the Agent and the Banks under the Notes or hereunder, or
(at the Banks' option) to effect a Borrowing in such amount, all
without receipt of any request for such charge or Borrowing.
(b) If, for the purpose of obtaining judgment in any court, it
is necessary to convert a sum due hereunder in Dollars or any
Alternative Currency (the "Specified Currency") into another currency
(the "Judgment Currency"), the rate of exchange which shall be applied
shall be that at which in accordance with normal banking procedures the
Agent could purchase the Specified Currency with that amount of the
Judgment Currency on the LIBO Business Day next preceding the day on
which such judgment is rendered. The obligation of the Borrowers with
respect to any such sum due from it to the Agent or any Bank (each, an
"Entitled Person") shall, notwithstanding the rate of exchange actually
applied in rendering such judgment, be discharged only to the extent
that on the LIBO Business Day following receipt by such Entitled Person
of any sum adjudged to be due hereunder or under the Notes in the
Judgment Currency, such Entitled Person may in accordance with normal
banking procedures purchase and transfer to the required location of
payment the Alternative Currency with the amount of the Judgment
Currency so adjudged to be due; and the Borrowers hereby, as a separate
obligation and notwithstanding any such judgment, agree to indemnify
such Entitled Person against and to pay such Entitled Person on demand,
in the applicable Alternative Currency, any difference between the sum
originally due to such Entitled Person in the Alternative Currency and
the amount of the Alternative Currency so purchased and transferred on
that LIBO Business Day.
Section 2.15 Application of Payments. The parties intend that the
entire principal balance of and interest on the Notes, and all other amounts due
hereunder, shall be the joint and several obligations of each Borrower. However,
the parties recognize that, for certain purposes hereunder, it will be necessary
that payments be deemed to be applied to the Borrowings made by a particular
Borrower. For such purposes, the parties agree that all payments of the
principal balance of the Notes shall be applied against the then-outstanding
Borrowings of such Borrower as the payer (or, if such payor is not a Borrower,
the Borrowers) may designate, or, if no such designation is made, against the
Borrowings of the Borrower designated as the payor on the applicable check, wire
transfer or other payment device; provided, however, that any such
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payment may be applied by the Banks in such manner as the Required Banks may, in
their sole discretion, determine (i) if the foregoing rules of application may
not be clearly applied, e.g., because payment is received from a party other
than a Borrower and the Borrowers have not designated the order of application,
(ii) to the extent that application as set forth above would result in payment
of a principal amount greater than a Borrower's then-outstanding Borrowings, or
(iii) if a Default or Event of Default has occurred and is continuing at the
time of such application.
Section 2.16 Payment on Nonbusiness Days. Whenever any payment to be
made hereunder or under the Notes shall be stated to be due on a day other than
a Bank Business Day, such payment may be made on the next succeeding Bank
Business Day, and such, extension of time shall in each case be included in the
computation of payment of interest on such Note or the fees hereunder, as the
case may be.
Section 2.17 Use of Proceeds. The proceeds of the first Borrowing shall
be used by the Borrowers (a) to the extent necessary, to repay in full the
obligations of the Borrowers described in Schedule 2.17; and (b) for general
corporate purposes of the Borrowers. The proceeds of each subsequent Borrowing
shall be used by the Borrowers for their general corporate purposes.
Section 2.18 Changes in Law.
(a) Definition. As used in this Section 2.18, "Law Change"
means the adoption after the date hereof of any law, rule, regulation,
treaty or directive, or any change therefor in the interpretation or
administration thereof by any court, central bank, governmental
authority, agency or instrumentality, or comparable agency charged with
the interpretation or administration thereof
(b) Increased Costs. If at any time any Law Change (i) shall
subject any Bank (including the Issuing Bank) to any tax, duty or other
charges (including but not limited to any tax designed to discourage
the purchase or acquisition of foreign securities or debt instruments
by United States nationals) with respect to this Agreement, or shall
materially change the basis of taxation of payments to any Bank of the
principal of or interest on that Bank's Note or reimbursement for any
Letter of Credit (except for the imposition of or changes in respect of
the rate of tax on the overall net income of that Bank), or (ii) shall
impose or deem applicable or increase any reserve, special deposit or
similar requirement against assets of, deposits with or for the account
of, or credit extended by any Bank (including the Issuing Bank) because
of the Currency employed with respect to any portion of that Bank's
Note or in which any Alternative Currency Letter of Credit is issued,
the fact that all or a portion of that Bank's Note bears interest at a
Eurodollar Rate or Alternative Currency Rate, or the manner of funding
such Note, and the result of any of the foregoing would be to increase
the cost to that Bank of maintaining such Note or to reduce any sum
received or receivable by that Bank with respect to such Note, then,
within 30 days after demand by that Bank, the Borrowers shall pay that
Bank such additional amount or amounts as will compensate that Bank for
such increased cost or reduction. A certificate in reasonable detail of
the applicable Bank
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setting forth the basis for the determination of such additional amount
or amounts shall be conclusive evidence of such amount or amounts.
Section 2.19 Funding Losses. The Borrowers will compensate any Bank,
upon written request by that Bank (which request shall set forth the basis for
requesting such amounts), for all losses and expenses which that Bank may
sustain or incur (including, without limitation, any loss or expense sustained
or incurred in obtaining, liquidating or employing deposits or other funds
acquired to effect, fund, or maintain any portion of the principal balance of
that Bank's Note at a Eurodollar Rate or Alternative Currency Rate, or in a
particular Currency) as a consequence of (i) any failure of the Borrowers to
make any payment when due with respect to any Eurodollar Rate Funding or
Alternative Currency Funding, (ii) the failure by reason of the occurrence of an
Event of Default to effect any Eurodollar Rate Funding or Alternative Currency
Funding, requested by either or both Borrowers, or (iii) any payment or
prepayment of any Eurodollar Rate Funding or Alternative Currency Funding on a
day other than the maturity of the Interest Period applicable thereto.
Determinations by a Bank for purposes of this Section 2.19 shall be conclusive
in the absence of manifest error. A certificate as to any such loss or expense
(including calculations, in reasonable detail, showing how that Bank computed
such loss or expense) shall be promptly submitted by that Bank to the Borrowers
and shall, in the absence of manifest error, be conclusive and binding as to the
amount thereof. Such loss or expense may be computed as though that Bank
acquired deposits in the London interbank market in the applicable Currency to
fund that portion of the principal balance whether or not that Bank actually did
so.
Section 2.20 Capital Adequacy. If any Bank determines at any time that
its Return has been reduced as a result of any Capital Adequacy Rule Change,
that Bank may require the Borrowers to pay it the amount necessary to restore
its Return to what it would have been had there been no Capital Adequacy Rule
Change. For purposes of this Section:
(a) "Return", for any period, means the percentage determined
by dividing (i) the sum of interest and ongoing fees earned by a Bank
under this Agreement during such period, by (ii) the average capital
that Bank is required to maintain during such period as a result of its
being a party to this Agreement as determined by that Bank based upon
its total capital requirements and a reasonable attribution formula
that takes account of the Capital Adequacy Rules then in effect. Return
may be calculated for each calendar quarter and for the shorter period
between the end of a calendar quarter and the date of termination in
whole of this Agreement.
(b) "Capital Adequacy Rule" means any law, rule, regulation or
guideline regarding capital adequacy that applies to any Bank, or the
interpretation thereof by any governmental or regulatory authority.
Capital Adequacy Rules include rules requiring financial institutions
to maintain total capital in amounts based upon percentages of
outstanding loans, binding loan commitments and letters of credit.
(c) "Capital Adequacy Rule Change" means any change in any
Capital Adequacy Rule occurring after the date of this Agreement, but
the term does not include any changes in applicable requirements that
at the date hereof are scheduled to take place
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under the existing Capital Adequacy Rules or any increases in the
capital that any Bank is required to maintain to the extent that the
increases are required due to a regulatory authority's assessment of
the financial condition of that Bank.
(d) "Bank" includes (but is not limited to) the Agent, the
Banks, as defined elsewhere in this Agreement, and any assignee of any
interest of any Bank hereunder and any participant in the loans made
hereunder.
The initial notice sent by a Bank shall be sent as promptly as practicable after
that Bank learns that its Return has been reduced, shall include a demand for
payment of the amount necessary to restore that Bank's Return for the quarter in
which the notice is sent and, if applicable, the preceding quarter, and shall
state in reasonable detail the cause for the reduction in its Return and its
calculation of the amount of such reduction. Thereafter, that Bank may send a
new notice with respect to each calendar quarter setting forth the calculation
of the reduced Return for that quarter and including a demand for payment of the
amount necessary to restore its Return for that quarter. A Bank's calculation in
any such notice shall be conclusive and binding absent demonstrable error.
Section 2.21 Mandatory Assignment of Bank's Interest. If any Bank
delivers to the Borrowers a demand for compensation pursuant to Section 2.18 or
a demand for payment pursuant to Section 2.20, the Borrowers may (so long as no
Default or Event of Default has occurred and is continuing) at their expense
require such Bank to assign, in whole and in accordance with Section 8.11
(including the execution of an Assignment Certificate and all other applicable
documents, and the payment by the Borrowers of any fees required under Section
8.11), all of its rights and obligations hereunder and under such Bank's Note,
including but not limited to such Bank's Commitment, to an Eligible Bank
identified by the Borrowers and willing to become a Bank hereunder. Such Bank
may be an existing Bank hereunder. Notwithstanding the foregoing, the Borrowers
may not compel the resignation of any Bank as the Agent except as provided in
Section 8.10.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1 Initial Conditions Precedent. The obligation of the Banks
to make any Advance or to issue any Letter of Credit is subject to the condition
precedent that the Agent shall have received on or before the day of the first
Advance or Letter of Credit all of the following, each dated (unless otherwise
indicated) as of the date hereof, in form and substance satisfactory to each
Bank:
(a) This Agreement, duly executed by each of the parties
hereto.
(b) The Notes, properly executed on behalf of the Borrowers.
(c) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in
effect against either Borrower in the
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states of California, Florida, Georgia, Illinois, Texas and Wisconsin
(the "Search States"), and (ii) no financing statements have been filed
and remain in effect against the Company in the Search States, except
financing statements perfecting only Liens permitted under Section 6.1.
(d) A certificate of the secretary or assistant secretary of
the Company (i) certifying that the execution, delivery and performance
of the Loan Documents and other documents contemplated hereunder to
which such corporation is a party have been duly approved by all
necessary action of the Board of Directors of the Company and attaching
true and correct copies of the applicable resolutions granting such
approval, (ii) certifying that attached to such certificate are true
and correct copies of the articles of incorporation and bylaws of the
Company, together with such copies, and (iii) certifying the names of
the officers of the Company that are authorized to sign the Loan
Documents and other documents contemplated hereunder, including
requests for Borrowings, together with the true signatures of such
officers. The Banks may conclusively rely on such certificate until
they shall receive a further certificate of the secretary or assistant
secretary of the Company canceling or amending the prior certificate
and submitting the signatures of the officers named in such further
certificate.
(e) A certificate of the managing member, secretary or
assistant secretary of LJ International (i) certifying that such person
is the keeper of or otherwise responsible for the maintenance of the
minute books of LJ International, (ii) certifying that the execution,
delivery and performance of the Loan Documents and other documents
contemplated hereunder to which such organization is a party have been
duly approved by all necessary action of the managing member of LJ
International and attaching true and correct copies of the applicable
resolutions granting such approval, (iii) certifying that attached to
such certificate are true and correct copies of all Organizational
Documents relating to LJ International, together with such copies, and
(iv) certifying the names of the managers of LJ International that are
authorized to sign the Loan Documents and other documents contemplated
hereunder, including requests for Borrowings, together with the true
signatures of such managers. The Banks may conclusively rely on such
certificate until they shall receive a further certificate of the
managing member, secretary or assistant secretary of LJ International
canceling or amending the prior certificate and submitting the
signatures of the managers named in such further certificate.
(f) Certificates of good standing of the Company and LJ
International issued by the State of Georgia, dated not more than ten
days before such date.
(g) A signed copy of an opinion of counsel for the Borrowers,
addressed to the Banks, as to matters referred to in Sections 4.1, 4.2,
4.3 and 4.7, and as to such other matters as the Banks may reasonably
request, with that opinion being acceptable to each Bank's counsel in
such counsel's reasonable discretion. In the case of Section 4.7, the
opinion may be to the best knowledge of such counsel, and, in the case
of Section 4.3, insofar as it relates to enforcement of remedies, it
may be subject to
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applicable bankruptcy, insolvency, reorganization or similar laws
affecting the rights of creditors generally from time to time, and to
usual equity principles.
Section 3.2 Conditions Precedent to All Advances and Letters of Credit.
The obligation of the Banks to make any Advance (including the initial Advance)
or to issue any Letter of Credit shall be subject to the further conditions
precedent that on the date of such Advance or Letter of Credit:
(a) the representations and warranties contained in Article IV
are correct on and as of the date of such Advance or Letter of Credit
as though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result
from such Advance or Letter of Credit, which constitutes a Default or
an Event of Default.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrowers represent and warrant to the Banks as follows:
Section 4.1 Corporate Existence and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Georgia. LJ International is a limited liability company duly
incorporated, validly existing and in good standing under the laws of the State
of Georgia. Each Borrower and each Subsidiary of each Borrower is duly licensed
or qualified to transact business in all jurisdictions where the character of
the property owned or leased or the nature of the business transacted by it is
such that the failure to obtain such licensing or qualification would have a
material adverse effect on the Company. Each Borrower has all requisite power
and authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents.
Section 4.2 Authorization of Borrowing, No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrowers of the Loan
Documents and any letter of credit applications and reimbursement agreements to
be executed pursuant to Section 2.8(b), and the borrowings and Letters of Credit
from time to time hereunder, have been duly authorized by all necessary
corporate or other action of the Borrowers and do not and will not (i) require
any consent or approval of the stockholders of the Company, or any
authorization, consent or approval by any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any
provision of (A) any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System), (B) any
order, writ, injunction or decree presently in effect having applicability to
either Borrower, (C) the Articles of Incorporation or Bylaws of the Company, or
(D) any Organizational Document with respect to LJ International, (iii) result
in a breach of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or
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instrument to which either Borrower is a party or by which either Borrower or
the properties of either Borrower may be bound or affected, or (iv) result in,
or require, the creation or imposition of any Lien (other than the Lien created
under Section 7.3) upon or with respect to any of the properties now owned or
hereafter acquired by either Borrower. Neither Borrower is in default of any
material provision of any material agreement, instrument, decree or order to
which it is a party.
Section 4.3 Legal Agreements. This Agreement and the Notes constitute,
and any letter of credit applications and reimbursement agreements to be
executed pursuant to Section 2.8(b) will constitute, the legal, valid and
binding obligations of each Borrower, enforceable against the Borrowers in
accordance with their respective terms.
Section 4.4 Subsidiaries. Schedule 4.4 is a complete and correct list
of all present Subsidiaries of either Borrower, including in each case the
percentage of the ownership of the applicable Borrower or other Subsidiary in
each as of the date of this Agreement.
Section 4.5 Financial Condition. The Company has heretofore furnished
to the Banks (i) the Company's audited financial statement as of August 27,
1995, (ii) the Company's unaudited interim financial statement as of May 26,
1996, (iii) LJ International's consolidated audited financial statement as of
August 27, 1995, and (iv) LJ International's consolidated unaudited interim
financial statement as of February 26, 1996. Those financial statements are
complete and correct in all material respects and fairly present the financial
condition of the LJ Parties on the dates thereof and the results of operations
and cash flows for the periods then ended, and were prepared in accordance with
generally accepted accounting principles consistently applied, subject in the
case of the interim financial statements, to year-end adjustments.
Section 4.6 Adverse Change. There has been no material adverse change
in the business, properties or condition (financial or otherwise) of either
Borrower since the date of the latest financial statement of that Borrower
referred to in Section 4.5.
Section 4.7 Litigation. There are no actions, suits or proceedings
pending or, to the actual knowledge of the Company, threatened against or
affecting any LJ Party or the properties of any LJ Party before any court or
governmental department commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to that LJ Party, would have
a material adverse effect on the financial condition, properties, or operations
of the Company.
Section 4.8 Hazardous Substances. To the best of the Borrowers' actual
knowledge after reasonable inquiry, neither any LJ Party nor any other Person
has ever caused or permitted any Hazardous Substance to be disposed of in any
manner which might result in any material liability to the Company on, under or
at any real property which is operated by any LJ Party or in which any LJ Party
has any interest; and no such real property has ever been used (either by an LJ
Party by any other Person) as a dump site or permanent or temporary storage site
for any Hazardous Substance.
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Section 4.9 Regulation U. No LJ Party is engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase or
carry, directly or indirectly, any margin stock, to extend credit to others for
the purpose of purchasing or carrying any margin stock, or for any other purpose
in violation of Regulation U.
Section 4.10 Taxes. Each LJ Party has paid or caused to be paid to the
proper authorities when due all federal, state and local taxes required to be
withheld by it, except to the extent that the failure to pay such taxes would
not have a material adverse effect on the financial condition, properties or
operations of the Company. Each LJ Party has filed all federal, state and local
tax returns which to the actual knowledge of the officers of that LJ Party are
required to be filed, and each LJ Party has paid or caused to be paid to the
respective taxing authorities all taxes as shown on said returns or on any
assessment received by it to the extent such taxes have become due, other than
taxes whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which the applicable LJ Party has provided
adequate reserves in accordance with generally accepted accounting principles.
Section 4.11 Titles and Liens Licenses and Patents. Each Borrower has
good title to each of the properties and assets reflected in the latest balance
sheet of that Borrower referred to in Section 4.5 (other than any sold, as
permitted by Section 6.6), free and clear of all Liens and encumbrances, except
for Liens permitted by Section 6.1 and covenants, restrictions, rights,
easements and minor irregularities in title which do not materially interfere
with the, business or operations of that Borrower as presently conducted. No
financing statement naming the Company as debtor is on file in any office except
to perfect only Liens permitted by Section 6.1. Each Borrower has such licenses,
permits and patents, or rights thereto, as are necessary to conduct its business
as presently conducted.
Section 4.12 ERISA. No Plan established or maintained by any LJ Party
or any ERISA Affiliate that is subject to Part 3 of Subtitle B of Title I of
ERISA had an accumulated funding deficiency (as such term is defined in Section
302 of ERISA) in excess of $1,000,000 as of the last day of the most recent
fiscal year of such Plan ended prior to the date hereof, and no liability to the
Pension Benefit Guaranty Corporation or the Internal Revenue Service in excess
of such amount has been, or is expected by any LJ Party or ERISA Affiliate to
be, incurred with respect to any Plan of any LJ Party or ERISA Affiliate. No LJ
Party has any contingent liability with respect to any post-retirement benefit
under a Welfare Plan, other than liability for continuation coverage described
in Part 6 of Subtitle B of Title I of ERISA.
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Note shall remain unpaid or any Commitment or L/C Amount
shall be outstanding, the Company will comply with the following requirements,
unless the Required Banks shall otherwise consent in writing:
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Section 5.1 Financial Statements. The Company will deliver to the
Agent, with sufficient copies for each Bank:
(a) As soon as available, and in any event within 120 days
after the end of each fiscal year of the Company, a copy of the annual
audit report of the Company with the unqualified opinion of Arthur
Andersen & Co. or other independent certified public accountants
selected by the Company and acceptable to the Required Banks, which
annual report shall include the balance sheet of the Company as at the
end of such fiscal year and the related statements of income,
stockholders' equity and cash flows of the Company for the fiscal year
then ended, all in reasonable detail and all prepared in accordance
with generally accepted accounting principles applied on a basis
consistent with the accounting practices applied in the annual
financial statements referred to in Section 4.5.
(b) As soon as available and in any event within 60 days after
the end of each fiscal quarter of the Company, a balance sheet of the
Company as at the end of such quarter and related statements of
earnings and cash flows of the Company for such quarter and for the
year to date, in reasonable detail and stating in comparative form the
figures for the corresponding date and period in the previous year, all
prepared in accordance with generally accepted accounting principles
applied on a basis consistent with the accounting practices reflected
in the annual financial statements referred to in Section 4.5, and
certified by the chief financial officer of the Company, subject to
year-end adjustments.
(c) As soon as available, and in any event within 150 days
after the end of each fiscal year of LJ International, a copy of the
annual audit report of LJ International with the unqualified opinion of
Arthur Andersen & Co. or other independent certified public accountants
selected by LJ International and acceptable to the Required Banks,
which annual report shall include the balance sheet of LJ International
as at the end of such fiscal year and the related statements of income,
stockholders' equity and cash flows of LJ International for the fiscal
year then ended, all in reasonable detail and all prepared in
accordance with generally accepted accounting principles applied on a
basis consistent with the accounting practices applied in the annual
financial statements referred to in Section 4.5.
(d) Upon request of the Agent or the Required Banks not
earlier than 150 days after the end of any fiscal year of the Company,
a copy of the annual report of the LJ Parties on a combined basis,
which annual report shall include the combined balance sheet of the LJ
Parties as at the end of such fiscal year and the related combined
statements of income, stockholders' equity and cash flows of the LJ
Parties for the fiscal year then ended, all in reasonable detail and
all prepared on a combined basis in accordance with generally accepted
accounting principles consistently applied.
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(e) Within 180 days after the end of each fiscal year of the
Company, a copy of the management letter, if any, issued to the Company
by its auditors referred to in paragraph (a) above for such year.
(f) Concurrent with the delivery of any financial statements
under paragraph (a) or (b), a Compliance Certificate, duly executed by
the chief financial officer of the Company.
(g) Within 60 days after the end of the second and fourth
fiscal quarters of the Company in each fiscal year, a written
description of all dividends paid by the Company during the period of
two fiscal quarters ending with such quarter, including the amount
thereof and such other information as the Agent or the Required Banks
may reasonably request.
(h) Promptly after the sending or filing thereof, copies of
all regular and periodic financial reports which the Company shall file
with the Securities and Exchange Commission or any national securities
exchange.
(i) Immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Company or LJ
International of the type described in Section 4.7 or which seek a
monetary recovery against the Company or LJ International in excess of
$3,000,000.
(j) As promptly as practicable (but in any event not later
than five business days) after an officer of the Company obtains
knowledge of the occurrence of any Default or Event of Default, notice
of such occurrence, together with a detailed statement by a responsible
officer of the Company of the steps being taken by the Borrowers to
cure the effect of such event.
(k) Promptly upon becoming aware of any Reportable Event or
any prohibited transaction (as defined in Section 4975 of the Internal
Revenue Code or Section 406 of ERISA) in connection with any Plan or
any trust created thereunder, a written notice specifying the nature
thereof, what action the Company has taken, is taking or proposes to
take with respect thereto, and, when known, any action taken or
threatened by the Internal Revenue Service, the Pension Benefit
Guaranty Corporation or the Department of Labor with respect thereto.
(l) Promptly upon their receipt, copies of (i) all notices
received by the Company or any ERISA Affiliate of the Pension Benefit
Guaranty Corporation's intent to terminate any Plan or to have a
trustee appointed to administer any Plan, and (ii) all notices received
by the Company or any ERISA Affiliate from a Multiemployer Plan
concerning the imposition or amount of withdrawal liability pursuant to
Section 4202 of ERISA.
(m) Upon request of the Agent or the Required Banks, copies of
the most recent annual report (Form 5500 Series), including any
supporting schedules, filed by the
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Company or any ERISA Affiliate with the Internal Revenue Service with
respect to any Plan.
(n) Such other information respecting the financial condition
and results of operations of the Company and the other LJ Parties as
any Bank may from time to time reasonably request.
Section 5.2 Books and Records, Inspection and Examination. The Company
will, and will ensure that each other LJ Party will, (i) keep accurate books of
record and account for itself in which true and complete entries will be made in
accordance with generally accepted accounting principles consistently applied,
and (ii) upon request of any Bank, give any representative of that Bank access
to, and permit such representative to examine, copy or make extracts from, any
and all books, records and documents in its possession, to inspect any of its
properties and to discuss its affairs, finances and accounts with any of its
principal officers, all at such times during normal business hours and as often
as any Bank may reasonably request.
Section 5.3 Compliance with Laws. The Company will, and will ensure
that each other LJ Party will, comply with the requirements of applicable laws
and regulations, the noncompliance with which would materially and adversely
affect its business or the financial condition of the Company.
Section 5.4 Payment of Taxes and Other Claims. The Company will, and
will ensure that each other LJ Party will, pay or discharge, when due, (a) all
taxes, assessments and governmental charges levied or imposed upon it or upon
its income or profits, or upon any properties belonging to it, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a Lien or charge upon any
properties of the Company or any other LJ Party; provided, that no LJ Party
shall be required to pay any such tax, assessment charge or claim (i) whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which such LJ Party has provided adequate
reserves in accordance with generally accepted accounting principles, or (ii) to
the extent that the failure to make such payment would not have a material
adverse effect on the financial condition, properties or operations of the
Company.
Section 5.5 Maintenance of Properties. The Company will, and will
ensure that each other LJ Party will, keep and maintain all of its properties
necessary or useful in its business in good condition, repair and working order,
subject to normal wear and tear; provided, however, that nothing in this Section
shall prevent the Company or any other LJ Party from discontinuing the operation
and maintenance of any of its properties if such discontinuance is, in the
judgment of the Company, desirable in the conduct of its business and not
disadvantageous in any material respect to any Bank as holder of a Note.
Section 5.6 Insurance. The Company will, and will ensure that each
other LJ Party will, obtain and maintain insurance with insurers believed by the
Company to be responsible and reputable, in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Company
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or such other LJ Party operates, except to the extent that the Company or such
LJ Party maintains a system or systems of self-insurance consistent with sound
risk management practices and the reliance on such system will not have a
material adverse effect on the financial condition, properties or operations of
the Company.
Section 5.7 Preservation of Corporate Existence. The Company will, and
will ensure that each other LJ Party will, preserve and maintain its existence
and all of its rights, privileges and franchises; provided, however, that no LJ
Party shall be required to preserve any of its rights, privileges and franchises
if its Board of Directors, managing members or equivalent governing body, as the
case may be, shall reasonably determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company or such other LJ
Party and that the loss thereof is not disadvantageous in any material respect
to any Bank as a holder of a Note.
Section 5.8 Subchapter S Status. The Company will at all times maintain
its status as a Subchapter S Corporation; provided, however, that the foregoing
shall not prohibit the Company from losing its status as a Subchapter S
Corporation so long as, prior to the loss of such status, the Borrowers and the
Banks have agreed in writing to any adjustments to Sections 5.9, 5.10, 5.11,
5.12 and 5.13, and to any definitions affecting those Sections, deemed necessary
by the Banks to reflect the loss of such status.
Section 5.9 Total-Funded-Debt-To-EBITDAR Ratio. The Company will at all
times maintain its Total-Funded-Debt-To-EBITDAR Ratio, determined as at the end
of the second and fourth quarters of each fiscal year of the Company, at not
more than 3.50 to 1.
Section 5.10 Ratio of Total Funded Debt to Adjusted Tangible Net Worth.
The Company will at all times maintain the ratio of its Total Funded Debt to
Adjusted Tangible Net Worth, determined as at the end of the second and fourth
quarters of each fiscal year of the Company, at not more than 3.00 to 1.
Section 5.11 Adjusted Tangible Net Worth. The Company will at all times
maintain its Adjusted Tangible Net Worth, determined as at the end of each
fiscal year of the Company, in an amount not less than $28,000,000, plus 30% of
the Company's book pre-tax income with respect to each fiscal year of the
Company ending after August 31, 1996 in which such Net Income is positive.
Section 5.12 EBITDAR. The Company will maintain its EBITDAR with
respect to each fiscal year of the Company in a positive amount; provided,
however, that the Company need not comply with the foregoing requirement with
respect to any particular fiscal year if (i) the Company's Adjusted Tangible Net
Worth, determined as of the end of that fiscal year, is greater than
$40,000,000, and (ii) the ratio of the Company's Total Funded Debt to Adjusted
Tangible Net Worth, determined as of the end of that fiscal year, is less than
1.75 to 1.
Section 5.13 Net Income. The Company will maintain its Net Income with
respect to each fiscal year of the Company in an amount not less than $1.00;
provided, however, that the Company need not comply with the foregoing
requirement with respect to any particular fiscal
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year if (i) the Company's Adjusted Tangible Net Worth, determined as of the end
of that fiscal year, is greater than $40,000,000, and (ii) the ratio of the
Company's Total Funded Debt to Adjusted Tangible Net Worth, determined as of the
end of that fiscal year, is less than 1.75 to 1.
ARTICLE VI
NEGATIVE COVENANTS
So long as any Note shall remain unpaid or any Commitment or L/C Amount
shall be outstanding, the Company agrees that, without the prior written consent
of the Required Banks:
Section 6.1 Liens. The Company will not create, incur, assume or suffer
to exist any Lien on any of its assets, now owned or hereafter acquired, or
assign or otherwise convey Any right to receive income or give its consent to
the subordination of any right or claim of the Company to any right or claim of
any other Person; excluding, however, from the operation of the foregoing:
(a) Liens for taxes or assessments or other governmental
charges to the extent not required to be paid by Section 5.4.
(b) Materialmen's, merchant's, carrier's, worker's,
repairer's, or other like liens arising in the ordinary course of
business to the extent that the claims related thereto are not required
to be paid by Section 5.4.
(c) Pledges or deposits to secure obligations under worker's
compensation laws, unemployment insurance and social security laws, or
to secure the performance of bids, tenders, contracts (other than for
the repayment of borrowed money) or leases or to secure statutory
obligations or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds in the ordinary course of business.
(d) Zoning restrictions, easements, licenses, restrictions on
the use of real property or minor irregularities in title thereto,
which do not materially impair the use of such property in the
operation of the business of the Company or the value of such property
for the purpose of such business.
(e) Purchase money Liens (which term for purposes of this
subsection shall include conditional sale agreements or other title
retention agreements and leases in the nature of title retention
agreements) upon or in property acquired after the date hereof,
provided that:
(i) no such Lien extends or shall extend to or cover any
property of the Company other than the property then
being acquired and fixed improvements then or
thereafter erected thereon;
(ii) the original cost of the property so covered exceeds
$250,000 as to each such Lien;
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(iii) the aggregate principal amount of the indebtedness
secured by Liens described in this subsection (e) at
the time of acquisition of the property subject thereto
shall not exceed the cost of such property or of the
then fair market value of such property as determined
by the Board of Directors of the Company, whichever
shall be less;
(iv) the incurrence of such indebtedness will not result in
a violation of the restriction on the amount of
indebtedness set forth in Section 6.2(c); and
(v) the aggregate amount of payments made thereunder in any
period of 12 consecutive months will not result in a
violation of the restriction contained in Section 6.11.
(f) Liens on any property of the Company (other than
those described in subsection (e) securing any indebtedness for
borrowed money in existence on the date hereof and listed in Schedule
6.1 hereto.
(g) Liens not otherwise permitted under this Section, so
long as the aggregate principal amount of the indebtedness secured by
such Liens does not at any one time exceed $100,000.
(h) Liens arising out of a judgment against the Company
for the payment of money not exceeding $500,000 with respect to which
an appeal is being prosecuted and a stay of execution pending such
appeal has been secured.
Section 6.2 Indebtedness. The Company will not incur, create, assume or
permit to exist any indebtedness or liability of the Company on account of
deposits or advances, or any indebtedness of the Company for borrowed money, or
any other indebtedness or liability of the Company evidenced by notes, bonds,
debentures or similar obligations, except:
(a) Indebtedness to the Banks arising under this
Agreement.
(b) Indebtedness of the Company in existence on the date
hereof and listed in Schedule 6.2 hereto, but not including any
extensions or renewals thereof.
(c) The following indebtedness of the Company, but only
so long as the aggregate amount of all such indebtedness described in
this subsection (c) does not exceed $10,000,000:
(i) Subordinated Debt incurred with the approval of the
Required Banks, which approval shall not be
unreasonably withheld.
(ii) Purchase money indebtedness of the Company secured by
Liens permitted by subsection 6.1(e).
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(iii) Indebtedness to the Banks not arising under this
Agreement.
(iv) Indebtedness owed to the seller of any assets purchased
as permitted under Section 6.8(a).
Section 6.3 Guaranties. The Company will not assume, guarantee, endorse
or otherwise become directly or contingently liable in connection with any
obligations of any other Person, except:
(a) The endorsement of negotiable instruments by the Company
for deposit or collection or similar transactions in the ordinary
course of business.
(b) Guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in
existence on the date hereof and listed in Schedule 6.3 hereto.
(c) Guaranties of the indebtedness of Affiliates other than LJ
International, so long as the aggregate amount of all indebtedness so
guarantied does not at any one time exceed $5,000,000, plus the Excess
Guaranty Increment, if any.
Section 6.4 Investments. The Company will not purchase or hold
beneficially any stock or other securities or evidence of indebtedness of, make
or permit to exist any loans or advances by the Company to, or make any
investment or acquire any interest whatsoever in, any other Person, except:
(a) Investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper issued
by U.S. corporations rated "A-1" or "A-2" by Standard & Poor's
Corporation or "P-1" or "P-2" by Moody's Investors Service or
certificates of deposit or bankers' acceptances having a maturity of
one year or less issued by members of the Federal Reserve System having
deposits in excess of $100,000,000.
(b) Loans to officers and employees of the Company not
exceeding at any one time an aggregate of $5,000,000.
(c) Loans and advances to Affiliates other than LJ
International, so long as (i) no such loan or advance is made while any
Default or Event of Default remains outstanding, and (ii) the aggregate
amount of all such loans and advances outstanding at any one time does
not exceed $5,000,000.
(d) Loans and advances to LJ International, so long as (i) no
such loan or advance is made while any Default or Event of Default
remains outstanding, and (ii) each such loan or advance is reported to
the Agent when made and payments thereon are reported to the Agent at
least monthly, and all such loans, advances and payments are accurately
reflected on the books and records of the Company and LJ International.
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(e) Travel advances to officers and employees of the Company
in the ordinary course of business.
(f) Advances in the form of progress payments, prepaid rent,
security deposits and similar advances in the ordinary course of the
Company's business.
(g) Permitted Acquisitions.
Section 6.5 Dividends. The Company will not declare or pay any dividend
(other than dividends payable solely in stock of the Company) on any class of
its stock or make any payment on account of the purchase, redemption or other
retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly, except the foregoing shall not prohibit:
(a) The payment of not more than $2,000,000 in dividends or
distributions to the Company's shareholders (in addition to those
permitted under paragraph (b)) on or before January 31, 1997.
(b) The payment of dividends in addition to any permitted
under paragraph (a), so long as (i) the aggregate amount of dividends
paid by the Company with respect to any single fiscal year does not
exceed the applicable percentage (as defined below) of the Company's
book after-tax income with respect to that fiscal year (or, if such
payment is made prior to delivery of the Company's audit report under
Section 5.1(a) with respect to such year, the applicable percentage of
the Company's book after-tax income during the period from the
beginning of that fiscal year through the most recent quarter-ending in
such fiscal year for which financial statements have been delivered to
the Agent before the date of such payment), all determined in
accordance with generally accepted accounting principles, and (ii) no
Default or Event of Default has occurred and is continuing at the time
that such dividend is paid. For purposes of this paragraph, a dividend
paid within the first 180 days of any fiscal year may, at the Company's
election, be deemed paid either with respect to that fiscal year or the
immediately preceding fiscal year, but such election must be made only
once by the Company with respect to any particular dividend. As used in
this paragraph, "applicable percentage" means (x) with respect to the
fiscal year of the Company ending on or about August 25, 1996, 65%, and
(y) with respect to each other fiscal year, 70%.
Section 6.6 Sale of Assets. The Company will not sell, lease, assign,
transfer or otherwise dispose of a material part of its assets (whether in one
transaction or in a series of transactions) to any other Person, except that the
foregoing shall not prohibit sales of inventory in the ordinary course of
business. For purposes of this Section, "material part" means 25% or more of the
assets of the Company, as determined in accordance with generally accepted
accounting principles consistently applied.
Section 6.7 Transactions with Affiliates. The Company will not make any
loan or capital contribution to, or any other investment in, any Affiliate, or
pay any dividend to any
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Affiliate, or make any other cash transfer to any Affiliate; provided, however,
that the foregoing shall not prohibit any of the following:
(a) Sales of goods and services to any Affiliate to the extent
that such sales are made in accordance with the Company's uniform
transfer pricing guidelines, as the same may be amended from time to
time with the consent of the Required Banks, which consent shall not be
unreasonably withheld. Such guidelines presently provide that sales by
the Company to its Affiliates will be made at a price equal to 110% of
the Company's cost for the applicable goods and services.
(b) Loans and advances to the extent permitted under
paragraphs (b), (c) and (d) of Section 6.4.
(c) Dividends to the extent permitted under Section 6.5.
Section 6.8 Consolidation and Merger. The Company will not consolidate
with or merge into any Person, or permit any other Person to merge into it, or
acquire (in a transaction analogous in purpose or effect to a consolidation or
merger) all or substantially all of the assets of any other Person, except that
the foregoing shall not prohibit:
(a) Permitted Acquisitions.
(b) The consolidation or merger of any Subsidiary of either
Borrower with, or a conveyance or transfer of its assets to, the
Company, so long as the Company is the continuing or surviving
corporation.
Section 6.9 Sale and Leaseback. The Company will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Company
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Company intends to use for
substantially the same purpose or purposes as the property being sold or
transferred, except that the foregoing shall not prohibit any such arrangement
if the book value of all such property subject to all such arrangements at any
one time does not exceed $1,000,000.
Section 6.10 Subordinated Debt. The Company will not (i) make any
payment of, or acquire, any Subordinated Debt except as expressly permitted by
the subordination provision thereof, (ii) give security for all or any part of
such Subordinated Debt; (iii) amend or cancel the subordination provisions of
such Subordinated Debt; (iv) take or omit to take any action whereby the
subordination of such Subordinated Debt or any part thereof to the Notes might
be terminated, impaired or adversely affected; or (v) omit to give the Banks
prompt written notice of any default under any agreement or instrument relating
to such Subordinated Debt by reason whereof such Subordinated Debt might become
or be declared to be immediately due and payable.
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Section 6.11 Capital Expenditures. The Company will not make any
Capital Expenditure (including payments under capitalized leases) if, after
giving effect to such expenditure, the aggregate amount of Capital Expenditures
made by the Company in any single fiscal year will exceed (i) with respect to a
single fiscal year ending after the date hereof and to be selected by the
Company, $6,500,000, and (ii) with respect to each other fiscal year,
$4,500,000; provided, however, that the restriction contained in this Section is
subject to the further limitations imposed by Section 6.1(e) if any asset is
acquired under a purchase money Lien referred to in that Section.
Section 6.12 Hazardous Substances. The Company will not cause or permit
any Hazardous Substance to be disposed of, in any manner which might result in
any material liability to the Company, on, under or at any real property which
is operated by the Company or in which the Company has any interest.
Section 6.13 Restrictions on Nature of Business. Neither Borrower will
engage in any line of business materially different from that presently engaged
in by any of the LJ Parties.
ARTICLE VII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 7.1 Events of Default. "Event of Default", wherever used
herein, means any one of the following events:
(a) A default in the payment of any principal of any Note when
it becomes due and payable.
(b) A default in the payment of any interest on any Note or
any amount payable under Section 2.8(f) when it becomes due and payable
and the continuance of such default for a period of 10 days.
(c) A default in the payment of any fees payable under Section
2.8(e) or 2.10, or any other amount payable to the Agent or the Banks
in connection with this Agreement and not otherwise specifically dealt
with in this Section 7.1, and the continuance of such default for a
period of 15 days.
(d) A default in the performance, or breach, of any covenant
or agreement on the part of the Company contained in Section 5.9, 5.10,
5.11, 5.12 or 5.13.
(e) A default in the performance, or breach, of any covenant
or agreement of either Borrower in this Agreement (other than a
covenant or agreement a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with), and the continuance
of such default or breach for a period of 30 days after the Agent has
given notice to the Borrowers specifying such default or breach and
requiring it to be remedied; provided, however, that no Event of
Default shall be deemed to have occurred under this paragraph if such
default or breach consists solely of a failure by the Company
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to fulfill its obligation to cause any LJ Party other than the Company
to meet any requirement of Section 5.2, 5.3, 5.4, 5.5, 5.6, 5.7 or 6.13
unless such failure (when considered in conjunction with all such
similar failures of the Subsidiaries of LJ International) will, in the
good faith judgment of the Required Banks, have a material adverse
effect on the financial condition, properties or operations of the
Company.
(f) Any representation or warranty made by either Borrower in
this Agreement or by either Borrower (or any of its officers or
managers) in any certificate, instrument, or statement contemplated by
or made or delivered pursuant to or in connection with this Agreement,
shall prove to have been incorrect or (in the reasonable judgment of
the Banks) misleading in any material respect when made.
(g) A default under any bond, debenture, note or other
evidence of indebtedness of either Borrower (other than hereunder) or
under any indenture or other instrument under which any such evidence
of indebtedness has been issued or by which it is governed and the
expiration of the applicable period of grace, if any, specified in such
evidence of indebtedness, indenture or other instrument; provided,
however, that no Event of Default shall be deemed to have occurred
under this paragraph if the aggregate amount owing as to all such
indebtedness as to which such defaults have occurred and are continuing
is less than $5,000,000, provided, however, that if such default shall
be cured by the applicable Borrower, or waived by the holders of such
indebtedness, in each case prior to the commencement of any action
under Section 7.2 and as may be permitted by such evidence of
indebtedness, indenture or other instrument, then the Event of Default
hereunder by reason of such default shall be deemed likewise to have
been thereupon cured or waived.
(h) Either Borrower shall be adjudicated a bankrupt or
insolvent, or admit in writing its inability to pay its debts as they
mature, or make an assignment for the benefit of creditors; or either
Borrower shall apply for or consent to the appointment of any receiver,
trustee, or similar officer for it or for all or any substantial part
of its property; or such receiver, trustee or similar officer shall be
appointed without the application or consent of the applicable Borrower
and such appointment shall continue undischarged for a period of 60
days; or either Borrower shall institute (by petition, application,
answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to it under the laws of any
jurisdiction; or any such proceeding shall be instituted (by petition,
application or otherwise) against either Borrower and shall continue
without dismissal for a period of 60 days; or any writ or warrant of
attachment or execution or similar process shall be issued or levied
against a property of either Borrower- having a fair market value in
excess of $5,000,000, and such writ, warrant or similar process shall
not be released, vacated or fully bonded within 30 days after its issue
or levy.
(i) Either Borrower shall liquidate, wind up, dissolve, merge
(except as permitted hereunder), terminate or suspend its business
operations, or sell all or substantially all of its assets.
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(j) A petition shall be filed by either Borrower under the
United States Bankruptcy Code naming that Borrower as debtor; or a
petition shall be filed against either Borrower under the United States
Bankruptcy Code naming that Borrower as debtor and shall continue
without dismissal for a period of 60 days; or an order for relief shall
be entered in any case under the United States Bankruptcy Code in which
either Borrower is a debtor.
(k) Ponzio Entities shall cease (for any reason, whether
voluntary or involuntary) to own (legally and beneficially) at least
67% of each class of the issued and outstanding equity interests of the
Company and LJ International, or for any other reason shall cease to
have voting control of the Company and LJ International.
(l) The rendering against either Borrower of a final judgment,
decree or order for the payment of money if (i) such judgment, decree
or order remains unsatisfied and in effect for any period of 30
consecutive days without a stay of execution, and (ii) (A) the amount
of such judgment, decree or order is greater than $5,000,000, or (B)
the amount of such judgment, decree or order, together with the amount
of all other such judgments, decrees and orders then outstanding, is
greater than $10,000,000.
(m) Any Plan shall have been terminated, or a trustee shall
have been appointed by an appropriate United States District Court to
administer any Plan, or the Pension Benefit Guaranty Corporation shall
have instituted proceedings to terminate any Plan or to appoint a
trustee to administer any Plan, or withdrawal liability shall have been
asserted against either Borrower or any ERISA Affiliate by a
Multiemployer Plan; or either Borrower or any ERISA Affiliate shall
have incurred liability to the Pension Benefit Guaranty Corporation,
the Internal Revenue Service, the Department of Labor or Plan
participants in excess of $5,000,000 with respect to any Plan; or any
Reportable Event that the Required Banks may determine in good faith
might constitute grounds for the termination of any Plan, for the
appointment by the appropriate United States District Court of a
trustee to administer any Plan or for the imposition of withdrawal
liability with respect to a Multiemployer Plan, shall have occurred and
be continuing 30 days after written notice to such effect shall have
been given to the Borrowers by the Banks.
Section 7.2 Rights and Remedies. Upon the occurrence of an Event of
Default or at any time thereafter until such Event of Default is cured to the
written satisfaction of the Required Banks, the Agent may, with the consent of
the Required Banks, and upon the request of the Required Banks shall, exercise
any or all of the following rights and remedies:
(a) The Agent may, by notice to the Borrowers, declare the
Commitments to be terminated, whereupon the same shall forthwith
terminate.
(b) The Agent may, by notice to the Borrowers, declare the
entire unpaid principal amount of the Notes then outstanding, all
interest accrued and unpaid thereon, and all other amounts payable
under this Agreement to be forthwith due and payable, whereupon the
Notes, all such accrued interest and all such amounts shall become and
be
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forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by
the Borrowers.
(c) If any Letter of Credit remains outstanding, the Agent
may, by notice to the Borrowers, require the Borrowers to deposit in
the Cash Collateral Account immediately available funds equal to the
aggregate face amount of all such outstanding Letters of Credit. Such
funds shall be deposited (i) with respect to each Alternative Currency
Letter of Credit, in the applicable Alternative Currency, and (ii) with
respect to each Letter of Credit denominated in Dollars, in Dollars.
(d) The Banks may, without notice to the Borrowers and without
further action, apply any and all money owing by any Bank to either
Borrower to the payment of the Notes then outstanding, including
interest accrued thereon, and of all other sums then owing by either
Borrower hereunder.
(e) The Agent and the Banks may exercise any other rights and
remedies available to them by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 7.10) hereof, the Commitments shall terminate and the
entire unpaid principal amount of the Notes then outstanding, all interest
accrued and unpaid thereon, and all other amounts payable under this Agreement
shall be immediately due and payable without presentiment, demand, protest or
notice of any kind.
Section 7.3 Pledge of Cash Collateral Account. Sections 2.8(h) and
7.2(c) set forth certain circumstances under which the Borrowers may be required
to make deposits in the Cash Collateral Account on or after the Commitment
Termination Date. The Borrowers hereby pledge, and grant the Agent, as agent for
the Banks, including the Issuing Bank, a security interest in, all sums held in
the Cash Collateral Account from time to time and all proceeds thereof as
security for the payment of all amounts due and to become due from either or
both Borrowers to the Issuing Bank, the Agent and/or the Banks pursuant to this
Agreement, including but not limited to both principal of and interest on the
Notes and all renewals, extensions and modifications thereof and any notes
issued in substitution therefor, and specifically including the Borrowers'
obligation to reimburse the Agent or any Bank for any amount drawn under any
Letter of Credit, whether such reimbursement obligation arises directly under
this Agreement or under a separate reimbursement agreement. Upon request of
either Borrower, the Agent shall permit either Borrower to withdraw from the
Cash Collateral Account the lesser of (i) the Excess Balance (as defined below),
or (ii) the balance of the Cash Collateral Account. As used herein, "Excess
Balance" means (i) at any time during the continuance of a Default or Event of
Default (unless each such Default or Event of Default has been waived by the
Required Banks in writing), the amount by which the balance of the Cash
Collateral Account exceeds the aggregate amount secured by the sums held in the
Cash Collateral Account, and (ii) at all other times, the amount by which the
balance of the Cash Collateral Account exceeds the L/C Amount. The Agent shall
have full ownership and control of the Cash Collateral Account, and, except as
set forth above, the Borrowers shall have no right to withdraw the funds
maintained in the Cash Collateral Account.
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ARTICLE VIII
THE AGENT
Section 8.1 Authorization. Each Bank and the holder of each Note
irrevocably appoints and authorizes the Agent to act on behalf of such Bank or
holder to the extent provided herein or in any document or instrument delivered
hereunder or in connection herewith, and to take such other action as may be
reasonably incidental thereto.
Section 8.2 Distribution of Payments and Proceeds.
(a) After deduction of any costs of collection as hereinafter
provided and any servicing fee provided in any agreement between the
Agent and the applicable Bank, the Agent shall remit to each Bank that
Bank's Percentage of all payments of principal, interest, excess
guaranty fees paid pursuant to the definition of "Excess Guaranty
Increment" in Section 1.1, upfront and commitment fees payable under
paragraphs (a) and (b) of Section 2.10 and Letter of Credit fees
payable under Section 2.8(e), and any payments to which such Bank is
entitled under Section 2.8(g), that are received by the Agent under the
Loan Documents. Each Bank's interest in the Loan Documents shall be
payable solely from payments, collections and proceeds actually
received by the Agent under the Loan Documents; and the Agent's only
liability to the Banks with respect to payments, collections and
proceeds shall be to account for each Bank's Percentage thereof in
accordance with this Agreement. If the Agent is ever required for any
reason to refund any such payments, collections or proceeds, each Bank
will refund to the Agent, upon demand, its Percentage of such payments,
collections or proceeds, together with its Percentage of interest or
penalties, if any, payable by the Agent in connection with such refund.
The Agent may, in its sole discretion, make payment to the Banks in
anticipation of receipt of payment from the Borrowers. If the Agent
fails to receive any such anticipated payment from the Borrowers, each
Bank shall promptly refund to the Agent, upon demand, any such payment
made to it in anticipation of payment from the Borrowers, together with
interest for each day on such amount until so refunded at a rate equal
to the Federal Funds Rate for each such date.
(b) Notwithstanding the foregoing, if any Bank has wrongfully
refused to fund its Percentage of any Borrowing or other amount as
required hereunder, or if the principal balance of any Bank's Note is
for any other reason less than its Percentage of the aggregate
principal balances of the Notes then outstanding, the Agent may remit
all payments received by it to the other Banks until such payments have
reduced the aggregate amounts owed by the Borrowers to the extent that
the aggregate amount owing to such Bank hereunder is equal to its
Percentage of the aggregate amount owing to all of the Banks hereunder.
The provisions of this paragraph are intended only to set forth certain
rules for the application of payments, proceeds and collections in the
event that a Bank has breached its obligations hereunder and shall not
be deemed to excuse any Bank from such obligations.
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Section 8.3 Expenses. All payments, collections and proceeds received or
effected by the Agent may be applied, first to pay or reimburse the Agent for
all costs, expenses, damages and liabilities at any time incurred by or imposed
upon the Agent in connection with this Agreement or any other Loan Document
(including but not limited to all reasonable attorney's fees, foreclosure
expenses and advances made to protect the security of any collateral). If the
Agent does not receive payments, collections or proceeds sufficient to cover any
such costs, expenses, damages or liabilities within 30 days after their
incurrence or imposition, each Bank shall, upon demand, remit to the Agent its
Percentage of the difference between (i) such costs, expenses, damages and
liabilities, and (ii) such payments, collections and proceeds.
Section 8.4 Payments Received Directly by Banks. If any Bank or other
holder of a Note shall obtain any payment or other recovery (whether voluntary,
involuntary, by application of offset or otherwise) on account of principal of
or interest on any Note other than through distributions made in accordance with
Section 8.2, such Bank or holder shall promptly give notice of such fact to the
Agent and shall purchase from the other Banks or holders such participations in
the Notes held by them as shall be necessary to cause the purchasing Bank or
holder to share the excess payment or other recovery ratably with each of them;
provided, however, that if all or any portion of the excess payment or other
recovery is thereafter recovered from such purchasing Bank or holder, the
purchase shall be rescinded and the purchasing Bank restored to the extent of
such recovery (but without interest thereon, except to the extent that the
purchasing Bank is required to pay interest on the amount recovered, in which
case each other Bank shall pay its Percentage of such interest as well).
Section 8.5 Indemnification. The Agent shall not be required to do any act
hereunder or under any other document or instrument delivered hereunder or in
connection herewith or take any action toward the execution or enforcement of
the agency hereby created, or to prosecute or defend any suit in respect of this
Agreement or the Notes or any documents or instrument delivered hereunder or in
connection herewith unless indemnified to its satisfaction by the holders of the
Notes against loss, cost, liability and expense (other than any such loss, cost,
liability or expense attributable to the Agent's own gross negligence or willful
misconduct). If any indemnity furnished to the Agent for any purpose shall, in
the opinion of the Agent, be insufficient or become impaired, the Agent may call
for additional indemnity and not commence or cease to do the acts indemnified
against until such additional indemnity is furnished.
Section 8.6 Limitations on Agent's Power. Notwithstanding any other
provision of this Agreement the Agent shall not have the power, without the
consent of all of the Banks, to (i) increase any Bank's Commitment Amount (ii)
forgive any indebtedness of the Borrowers arising under this Agreement or the
Notes, (iii) agree to reduce the rate of interest or the amount or rate of any
fees charged under this Agreement, (iv) agree to extend the maturity of any
amount due under this Agreement or the Notes, (v) extend the Commitment
Termination Date, (vi) amend this Section 8.6 or the definition of "Required
Banks" in Section 1.1, or (vii) permit the assignment by either Borrower of its
rights under the Loan Documents or any interest therein.
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Section 8.7 Exculpation; "Agent."
(a) The Agent shall be entitled to rely upon advice of counsel
concerning legal matters, and upon this Agreement, any Loan Document and
any schedule, certificate, statement, report, notice or other writing which
it believes to be genuine or to have been presented by a proper person.
Neither the Agent nor any of its directors, officers, employees or agents
shall (a) be responsible for any recitals, representations or warranties
contained in, or for the execution, validity, genuineness, effectiveness or
enforceability of this Agreement, any Loan Document, or any other
instrument or document delivered hereunder or in connection herewith, (b)
be responsible for the validity, genuineness, perfection, effectiveness,
enforceability, existence, value or enforcement of any collateral security,
(c) be under any duty to inquire into or pass upon any of the foregoing
matters, or to make any inquiry concerning the performance by either
Borrower or any other obligor of its obligations, or (d) in any event be
liable as such for any action taken or omitted by it or them, except for
its or their own gross negligence or willful misconduct. The appointment of
Norwest as Agent hereunder created shall in no way impair or affect any of
the rights and powers of, or impose any duties or obligations upon, Norwest
in its individual capacity.
(b) The term, "agent" is used herein in reference to the Agent merely
as a matter of custom. It is intended to reflect only an administrative
relationship between the Agent and the Banks, in each case as independent
contracting parties. However, the obligations of the Agent shall be limited
to those expressly set forth herein. In no event shall the use of such term
create or imply any fiduciary relationship or any other obligation arising
under the general law of agency.
Section 8.8 Agent and Affiliates. The Agent shall have the same rights and
powers hereunder in its individual capacity as any other Bank, and may exercise
or refrain from exercising the same as though it were not the Agent, and the
Agent and its affiliates may accept deposits from and generally engage in any
kind of business with the Borrowers as fully as if the Agent were not the Agent
hereunder.
Section 8.9 Credit Investigation. Each Bank acknowledges that it has made
such inquiries and taken such care on its own behalf as would have been the case
had its Commitment been granted and the Advances made directly by such Bank to
the Borrowers without the intervention of the Agent or any other Bank. Each Bank
agrees and acknowledges that the Agent makes no representations or warranties
about the creditworthiness of the Borrowers or any other party to this Agreement
or with respect to the legality, validity, sufficiency or enforceability of this
Agreement any Loan Document, or any other instrument or document delivered
hereunder or in connection herewith.
Section 8.10 Resignation. The Agent may resign as such at any time upon at
least 30 days' prior notice to the Borrowers and the Banks. In the event of any
resignation of the Agent, the Required Banks shall as promptly as practicable
appoint a successor Agent. The Banks shall consult with the Borrower about the
choice of such successor Agent prior to making such appointment, but the consent
of the Borrower shall not be a condition to such appointment. If
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no such successor Agent shall have been so appointed by the Required Banks and
shall have accepted such appointment within 30 days after the resigning Agent's
giving of notice of resignation, then the resigning Agent may, on behalf of the
Banks, appoint a successor Agent, which shall be an Eligible Bank organized
under the laws of the United States of America or of any state thereof Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon be entitled to receive from the prior Agent such
documents of transfer and assignment as such successor Agent may reasonably
request and the resigning Agent shall be discharged from its duties and
obligations under this Agreement. After any resignation pursuant to this
Section, the provisions of this Section shall inure to the benefit of the
retiring Agent as to any actions taken or omitted to be taken by it while it was
an Agent hereunder.
Section 8.11 Assignments.
(a) No Bank may assign any of its rights or obligations under any Loan
Document without the prior written consent of the Borrowers and the Agent,
which consent shall not be unreasonably withheld; provided, however, that
the consent of the Borrowers shall not be required in connection with any
such assignment made at any time when a Default or Event of Default has
occurred and is continuing. Upon receiving such consent, any Bank may
assign a portion of its Note and Commitment to an Eligible Bank (an
"Applicant") on any date (the "Adjustment Date") selected by such Bank. The
aggregate principal amount of the Note and Commitment so assigned in any
assignment shall be not less than $5,000,000, and the assigning Bank shall
retain at least $5,000,000 of such Note and Commitment for its own account;
provided, however, that the foregoing restriction shall not apply to a Bank
assigning its entire Note and Commitment to the Applicant. Such request
shall specify the identity of such Applicant and the Percentage which it
proposes that such Applicant acquire.
(b) To confirm the status of each Additional Bank as a party to this
Agreement and to evidence the assignment of the applicable portion of the
assigning Bank's Commitment and Note in accordance herewith:
(i) the Borrowers, such Bank, such Applicant, and the Agent shall, on
or before the Adjustment Date, execute and deliver to the Agent
an Assignment Certificate (provided that the assignment will be
effective whether the Borrowers sign it or not), in substantially
the form of Exhibit D (an "Assignment Certificate"); and
(ii) the Borrowers will execute and deliver to the assigning Bank a
new Note, payable to the order of the Applicant in an amount
corresponding to the applicable interest in the assigning Bank's
rights and obligations acquired by such Applicant pursuant to
such assignment, and, if the assigning Bank has retained
interests in such rights and obligations, a new Note, payable to
the order of that Bank in an amount corresponding to such
retained interests. Such new Notes shall be in an aggregate
principal amount equal to the aggregate principal amount of the
applicable Note to be replaced by
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such new Notes, shall be dated the effective date of such
assignment and shall otherwise be in the form of the Note to be
replaced thereby. Such new Notes shall be issued in substitution
for, but not in satisfaction or payment of, the Note being
replaced thereby.
Upon the execution and delivery of such Assignment Certificate and such Notes,
(a) this Agreement shall deemed to be amended to the extent, and only to the
extent, necessary to reflect the addition of such Additional Bank and the
resulting adjustment of Percentages arising therefrom, (b) the assigning Bank
shall be relieved of all obligations hereunder to the extent of the reduction of
all obligations hereunder and to the extent of the reduction of such Bank's
Percentage, and (c) the Additional Bank shall become a party hereto and shall be
entitled to all rights, benefits and privileges accorded to a Bank herein and in
each other document or instrument executed pursuant hereto and subject to all
obligations of a Bank hereunder, including the right to approve or disapprove
actions which, in accordance with the terms hereof, require the approval of the
Required Banks or all Banks, and the obligations to make Advances hereunder.
Promptly after the execution of any Assignment Certificate, a copy thereof shall
be delivered by the Agent to each Bank.
(c) In order to facilitate the addition of Additional Banks hereto,
the Borrowers shall cooperate fully with each Bank and the Agent in
connection therewith and shall provide all reasonable assistance requested
by each Bank and the Agent relating thereto, including, without limitation,
the furnishing of such written materials and financial information
regarding the Borrowers as any Bank or the Agent may reasonably request,
the execution of such documents as any Bank or the Agent may reasonably
request with respect thereto, and the participation by officers and
managers of the Borrowers in a meeting or teleconference call with any
Applicant upon the request of any Bank or the Agent.
(d) Without limiting any other provision hereof:
(i) each Bank may at any time, upon written notice to the Borrowers
and the Agent, sell, assign, transfer, or negotiate all or any
part of its Commitment, Advances, Note, and other rights and
obligations under this Agreement and the Loan Documents to one or
more affiliates of such Bank, provided that unless consented to
by the Borrowers and the Agent, no such sale, assignment,
transfer or negotiation of Commitment shall relieve the
transferring Bank from its obligations (to the extent such
affiliate does not fulfill its obligations) hereunder; and
(ii) each Bank may at any time sell, assign, transfer, or negotiate
all or any part of its Commitment Advances, Note, and other
rights and obligations under this Agreement and the Loan
Documents to one or more Banks, and any such sale, assignment,
transfer or negotiation shall relieve the transferring Bank from
its obligations hereunder to the extent of the obligations so
transferred (except, in any event, to the extent that the
Borrowers, any other Bank or the Agent has rights against such
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transferring Bank as a result of any default by such transferring
Bank under this Agreement);
provided, however, that any partial sale, assignment, transfer or
negotiation pursuant to this Section shall be pro rata as to all of the
Commitment, Note and Advances transferred.
(e) Any Bank making an assignment under this Section shall pay the
Agent a transfer fee in the amount of $2,500 simultaneous with such
assignment.
(f) Notwithstanding any other provision of this Agreement, any Bank
may at any time create a security interest in all or any portion of its
rights under this Agreement and that Bank's Note in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of
the Federal Reserve System.
(g) Except as set forth in this Section 8.11 and the following Section
8.12, no Bank may assign any of its rights or obligations under any Loan
Document.
Section 8.12 Participations. In addition to the rights granted in Section
8.11, each Bank may grant participations in a portion of its Note and Commitment
to any institutional investor, with the prior written consent of the Agent which
consent shall not be unreasonably withheld, but only so long as the principal
amount of the participation so granted is no less than $5,000,000. A Bank
requesting the Agent's consent to any such participation shall provide the Agent
the name, address and telecopier number of the participant and the amount of the
Note and Commitment covered by the participation, and such other information as
the Agent may reasonably request. No holder of any such participation, other
than an affiliate of such Bank, shall be entitled to require such Bank to take
or omit to take any action hereunder, except that such Bank may agree with such
participant that such Bank will not, without such participant's consent, (i)
forgive any indebtedness of the Borrowers under this Agreement or the Notes,
(ii) agree to reduce the rate of interest charged under this Agreement (iii)
agree to extend the final maturity of any indebtedness evidenced by the Notes,
(iv) extend the Commitment Termination Date, or (v) agree to release any
collateral securing payment of the Notes, except as expressly provided by the
terms of the Loan Documents. No Bank shall, as between the Borrowers and such
Bank, be relieved of any of its obligations hereunder as a result of any such
granting of a participation. The Borrowers hereby acknowledge and agree that any
participant described in this Section will, for purposes of Section 2.20, be
considered to be a Bank hereunder (provided that such participant shall not be
entitled to receive any more than the Bank selling such participation would have
received had such sale not taken place) and may rely on, and possess all rights
under, any opinions, certificates, or other instruments or documents delivered
under or in connection with any Loan Document. Except as set forth in this
Section 8.12, no Bank may grant any participation in any Loan Document or
Commitment.
Section 8.13 Co-Agent. The Bank identified on the title page and in the
preamble to this Agreement as "Co-Agent" shall have no right, power, obligation
or liability under this Agreement or any other Loan Document other than those
applicable to all Banks as such. Each
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Bank acknowledges that it has not relied, and will not rely, on any Bank so
identified in deciding to enter into this Agreement or in taking or omitting any
action hereunder.
ARTICLE IX
MISCELLANEOUS
Section 9.1 No Waiver. Cumulative Remedies. No failure or delay on the part
of the Banks or the Borrower in exercising any right, power or remedy under the
Loan Documents shall operate as a waiver thereof, nor shall any Bank's
acceptance of payments while any Default or Event of Default is outstanding
operate as a waiver of such Default or Event of Default, or any right, power or
remedy under the Loan Documents; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrowers therefrom shall be effective unless the same shall be in writing and
signed by the Required Banks (or, in the case of any action described in Section
8.6 or elsewhere requiring the consent of all of the Banks, each Bank) and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. No notice to or demand on the Borrowers in
any case shall entitle the Borrowers to any other or further notice or demand in
similar or other circumstances.
Section 9.3 Notice. Except as otherwise expressly provided herein, all
notices and other communications hereunder shall be in writing and shall be (i)
personally delivered, (ii) transmitted by certified or registered mail, postage
prepaid, return receipt requested (it being agreed that the returned receipt
shall constitute prima facie evidence of the receipt of such notice or other
communication), (iii) sent by Federal Express or similar expedited delivery
service, or (iv) transmitted by telecopy, in each case addressed to the party to
whom notice is being given at the address or addresses (including any addresses
specified for copies) as set forth for such party by its signature below, or if
telecopied, transmitted to that party at its telecopier number or numbers
(including any numbers specified for copies) set forth by its signature below;
or, as to each party, at such other addresses or telecopier numbers as may
hereafter be designated in a notice by that party to the other parties complying
with the terms of this Section. All such notices or other communications shall
be deemed to have been given on (i) the date received if delivered personally or
by mail, (ii) the date of receipt if delivered by Federal Express or similar
expedited delivery service, or (iii) the date of transmission if delivered by
telecopy, except that notices or requests to the Agent or any Bank pursuant to
any of the provisions of Article II shall not be effective until received.
Notice given by the Agent or any Bank to either Borrower at the addresses and/or
telecopier numbers determined as set forth in this Section shall be deemed
sufficient as to both Borrowers, regardless of whether each Borrower is sent
separate copies of such notice or even specifically identified in such notice.
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Section 9.4 Accommodation Party Defenses Waived. The parties intend that
each of the Borrowers shall be fully liable for the entire principal balance of
and interest on the Notes and all other indebtedness arising hereunder.
Nonetheless, in case a court finds that either Borrower is not such a primary
obligor with respect to all or any part of such obligations, the Borrowers
expressly waive the benefit of any and all defenses and discharges available to
a guarantor, surety, endorser or accommodation party dependent on an obligor's
character as such. Without limiting the generality of the foregoing, the
liability of the Borrowers hereunder shall not be affected or impaired in any
way by any of the following acts or things (which the Agent and the Banks are
hereby expressly authorized to do, omit or suffer from time to time without
notice to or consent of anyone): (i) any acceptance of collateral security,
guarantors, accommodation parties or sureties for any or all indebtedness
arising under this Agreement; (ii) any extension or renewal of any such
indebtedness (whether or not for longer than the original period) or any
modification of the interest rate, maturity or other terms of any such
indebtedness; (iii) any waiver or indulgence granted to either Borrower, and any
delay or lack of diligence in the enforcement of the indebtedness arising under
this Agreement; (iv ) any full or partial release of, compromise or settlement
with, or agreement not to sue, either Borrower or any guarantor or other person
liable on any such indebtedness; (v) any release, surrender, cancellation or
other discharge of any indebtedness arising under this Agreement or the
acceptance of any instrument in renewal or substitution for any instrument
evidencing any such indebtedness; (vi) any failure to obtain collateral security
(including rights of setoff) for any indebtedness arising under this Agreement,
or to see to the proper or sufficient creation and perfection thereof, or to
establish the priority thereof, or to preserve, protect, insure, care for,
exercise or enforce any collateral security for any such indebtedness; (vii) any
modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or discharge
of any collateral security for any such indebtedness; (viii) any assignment,
sale, pledge or other transfer of any of the indebtedness arising under this
Agreement; or (ix) any manner, order or method of application of any payments or
credits on any indebtedness arising under this Agreement.
Section 9.5 Disclosure of Information. The Agent and the Banks shall keep
confidential (and cause their respective officers, directors, employees, agents
and representatives to keep confidential) all information, materials and
documents furnished by the LJ Parties to the Agent or the Banks (the "Disclosed
Information"). Notwithstanding the foregoing, the Agent and each Bank may
disclose Disclosed Information (i) to the Agent, any other Bank or any affiliate
of any Bank; (ii) to legal counsel, accountants and other professional advisors
to the Agent or such Bank, so long as such counsel, accountants or other
advisors have been advised of the terms of this Section 9.5 and are bound
hereby; (iii) to any regulatory body having jurisdiction over any Bank or the
Agent; (iv) to the extent required by applicable laws and regulations or by any
subpoena or similar legal process, or requested by any governmental agency or
authority; (v) to the extent such Disclosed Information (A) becomes publicly
available other than as a result of a breach of this Agreement, (B) becomes
available to the Agent or such Bank on a non-confidential basis from a source
other than an LJ Party, or (C) was available to the Agent or such Bank on a
non-confidential basis prior to its disclosure to the Agent or such Bank by an
LJ Party; (vi) to the extent the Company shall have consented to such disclosure
in writing; (vii) to the extent reasonably deemed necessary by the Agent or any
Bank in the enforcement of the remedies of the Agent and the Banks provided
under the Loan Documents; or (viii) in
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connection with any potential assignment or participation in the interest
granted hereunder, provided that any such potential assignee or participant
shall have executed a confidentiality agreement imposing on such potential
assignee or participant substantially the same obligations as are imposed on the
Agent and the Banks under this Section.
Section 9.6 Costs and Expenses. The Borrowers agree to pay on demand all
costs and expenses incurred by the Agent in connection with the negotiation,
preparation, execution, administration, amendment or enforcement of the Loan
Documents and the other instruments and documents to be delivered hereunder and
thereunder, including the reasonable fees and out-of-pocket expenses of counsel
for the Agent with respect thereto, whether paid to outside counsel or allocated
to the Agent by in-house counsel. The Borrowers also agree to pay and reimburse
the Agent for all of its out-of-pocket and allocated costs incurred in
connection with each audit or examination conducted by the Agent, its employees
or agents, which audits and examinations shall be for the sole benefit of the
Agent and the Banks. In addition, the Borrowers agree to pay on demand all costs
and expenses incurred by any Bank (other than the Agent) in connection with the
enforcement of the Loan Documents following the occurrence of an Event of
Default including the reasonable fees and out-of-pocket expenses of counsel for
such Bank with respect thereto; provided, however, that no such costs and
expenses shall be paid prior to payment in full of all principal and interest on
the Notes and all costs and expenses incurred by the Agent and reimbursable
hereunder.
Section 9.7 Indemnification by Borrowers. The Borrowers hereby agree to
indemnify the Agent and the Banks and each officer, director, employee and agent
thereof (herein individually each called an "Indemnitee" and collectively called
the "Indemnitees") from and against any and all losses, claims, damages,
reasonable expenses (including, without limitation, reasonable attorneys' fees)
and liabilities (all of the foregoing being herein called the "Indemnified
Liabilities") incurred by an Indemnitee in connection with or arising out of the
execution or delivery of this Agreement or any agreement or instrument
contemplated hereby, the performance by the parties hereto of their respective
obligations hereunder or the use of the proceeds of any Advance or Letter of
Credit hereunder (including but not limited to any such loss, claim, damage,
expense or liability arising out of any claim in which it is alleged that any
Environmental Law has been breached with respect to any activity or property of
the Borrowers), except for any portion of such losses, claims, damages, expenses
or liabilities incurred solely as a result of the gross negligence or willful
misconduct of the applicable Indemnitee. If and to the extent that the foregoing
indemnity may be unenforceable for any reason, the Borrowers hereby agree to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law. All
obligations provided for in this Section shall survive any termination of this
Agreement.
Section 9.8 Execution in Counterparts. This Agreement and the other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts of this Agreement or such other Loan Document, as the case may be,
taken together, shall constitute but one and the same instrument.
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Section 9.9 Binding Effect, Assignment. The Loan Documents shall be binding
upon and inure to the benefit of the Borrowers and the Banks and their
respective successors and assigns, except that neither Borrower shall have the
right to assign its rights thereunder or any interest therein without the prior
written consent of each of the Banks.
Section 9.10 Governing Law. The Loan Documents shall be governed by, and
construed in accordance with, the laws of the State of Minnesota.
Section 9.11 Jurisdiction. The Borrowers hereby irrevocably submit to the
jurisdiction of any state or federal court sitting in Minneapolis or St. Paul,
Minnesota, in any action or proceeding arising out of or relating to this
Agreement or any of the other Loan Documents, and the Borrowers hereby
irrevocably agree that all claims in respect of such action or proceeding may be
heard and determined in such Minnesota state or federal court. The Borrowers
hereby irrevocably waive, to the fullest extent they may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or
proceeding. The Borrowers irrevocably consent to the service of copies of the
summons and complaint and any other process which may be served in any such
action or proceeding by the mailing of copies of such process to the Borrowers
at their addresses as determined under Section 9.3. The Borrowers agree that a
final judgment in any such action or proceeding may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Section shall affect the right of the Agent or any Bank to serve
legal process in any other manner permitted by law or affect the right of the
Agent or any Bank to bring any action or proceeding against the Borrowers or
their property in the courts of other jurisdictions.
SECTION 9.12 WAIVER OF JURY TRIAL. THE BORROWERS, THE AGENT AND THE BANKS
HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT AND THE NOTES
OR THE RELATIONSHIPS ESTABLISHED HEREUNDER.
Section 9.13 Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof
Section 9.14 Prior Agreements. This Agreement and the other Loan Documents
and related documents described herein restate and supersede in their entirety
any and all prior agreements and understandings, oral or written, between the
Banks and the Borrowers.
Section 9.15 Headings. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
49
<PAGE> 54
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the date first
above written.
<TABLE>
<S> <C>
Addresses for Larson-Juhl Inc. and Larson-Juhl LARSON-JUHL, INC.
International L.L.C.:
3900 Steve Reynolds Boulevard
Norcross, Georgia 30093
Attention: Craig A. Ponzio By: /s/ Craig A. Ponzio
Telecopier: 770-279-2025 ---------------------------------
Its: President
with a copy of all notices to: LARSON-JUHL INTERNATIONAL L.L.C.
By: /s/ Craig A. Ponzio
---------------------------------
Mr. Philip H. Moise Its: Managing Member
Nelson Mullins Riley & Scarborough, L.L.P.
[If by mail:]
P.O. Box 77707
Atlanta, Georgia 30357
[If by other delivery service:]
400 Colony Square
1201 Peachtree Street, N.E.
Atlanta, Georgia 30361
Telecopier: 404-817-6050
Address: NORWEST BANK MINNESOTA,
Sixth Street and Marquette Avenue NATIONAL ASSOCIATION, as Agent
Minneapolis, Minnesota 55479-0085
Attention: Lennie Kaufman
Telecopier: 612-667-4145 By: /s/ Scott Bjelde
---------------------------------
Its: Vice President
Address: NORWEST BANK MINNESOTA,
Sixth Street and Marquette Avenue NATIONAL ASSOCIATION, as a Bank
Minneapolis, Minnesota 55479-0085
Attention: Scott Bjelde
Telecopier: 612-667-4145 By: /s/ Scott Bjelde
---------------------------------
Its: Vice President
Commitment Amount: $30,000,000
</TABLE>
50
<PAGE> 55
<TABLE>
<S> <C>
Address: SUNTRUST BANK, ATLANTA
25 Park Place, N.E./Mail Code 127
Atlanta, Georgia 30303
Attention: Jenna Hale
Telecopier: 404-588-8833 By: /s/ Jenna M. Hale
---------------------------------
Its: Banking Officer
Commitment Amount: $30,000,000
By: /s/ R. Michael Dunlap
---------------------------------
Its: Vice President
Address: THE SUMITOMO BANK, LIMITED
One Peachtree Center
303 Peachtree Street, Suite 4420
Atlanta, Georgia 30308
Attention: Lauren P. Carrigan By: /s/ Terry Herron
Telecopier: 404-523-7983 ---------------------------------
Its: Vice President
Commitment Amount: $20,000,000
By: /s/ Lauren P. Carrigan
---------------------------------
Its: Assistant Vice President
Address: THE SUMITOMO BANK, LIMITED
647 Roswell Street
Marietta, Georgia 30060
Attention: Tasia T. Katapodis
Telecopier: 770-423-3033 By: /s/ Tasia T. Katapodis
---------------------------------
Its: Vice President
Commitment Amount: $10,000,000
</TABLE>
51
<PAGE> 56
EXHIBITS AND SCHEDULES
Exhibit A Note
Exhibit B Letter of Credit Application and Reimbursement Agreement
Exhibit C Form of Compliance Certificate
Exhibit D Assignment Certificate
---------------------------------------------------
Schedule 2.17 Use of First Borrowing
Schedule 4.4 Subsidiaries
Schedule 6.1 Permitted Liens
Schedule 6.2 Permitted Indebtedness
Schedule 6.3 Permitted Guaranties
<PAGE> 57
Exhibit A
REVOLVING NOTE
$____________ Minneapolis, Minnesota
_________________, 19___
For value received, Larson-Juhl Inc., a Georgia corporation, and
Larson-Juhl International L.L.C., a Georgia limited liability company (each, a
"Borrower" and together, the "Borrowers"), jointly and severally promise to pay
to the order of ________________________ _________, a _________________________
(the "Bank"), at the main office of Norwest Bank Minnesota, National Association
("Norwest") in Minneapolis, Minnesota, on the Commitment Termination Date, as
defined in the Credit Agreement described below, the principal sum of
_______________________________ Dollars ($__________), or, if less, the
aggregate unpaid principal amount of all advances made by the Bank to either or
both Borrowers pursuant to Section 2.1 of the Revolving Credit Agreement dated
July 16, 1996 among the Borrowers, Norwest, as Agent (in such capacity, the
"Agent"), and various Banks, including the Bank (together with all amendments,
modifications and restatements thereof, the "Credit Agreement"), and to pay
interest on the principal balance of this Note outstanding from time to time at
the rate or rates determined pursuant to the Credit Agreement.
Interest accruing on the principal balance of this Note shall be due
and payable on the dates specified in the Credit Agreement.
This Note is issued pursuant to, and is subject to, the Credit
Agreement, which provides (among other things) for the acceleration of this Note
upon an Event of Default and for the voluntary and mandatory prepayment of this
Note.
The Borrowers jointly and severally agree to pay all costs of
collection, including reasonable attorneys' fees and legal expenses, if this
Note is not paid when due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
LARSON-JUHL INC. LARSON-JUHL INTERNATIONAL L.L.C.
By: __________________________ By: _____________________________
Its: _______________________ Its: ___________________________
2
<PAGE> 58
Exhibit C
COMPLIANCE CERTIFICATE
-----------------------, ------
Norwest Bank Minnesota, National Association,
for itself and as Agent under the Credit
Agreement described below
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0085
The Banks, as defined under the Credit
Agreement described below
COMPLIANCE CERTIFICATE
Ladies and Gentlemen:
Reference is made to the Credit Agreement dated July 16, 1996 among
Larson-Juhl Inc. (the "Company"), Larson-Juhl International L.L.C., Norwest Bank
Minnesota, National Association, as Agent and the Banks, as defined therein (the
"Credit Agreement").
All terms defined in the Credit Agreement and not otherwise defined
herein shall have the meanings given them in the Credit Agreement.
This is a Compliance Certificate submitted in connection with the
Company's financial statements (the "Statements") as of ______________________,
______(the "Effective Date").
I hereby certify to you as follows:
1. I am the chief financial officer of the Company, and I am
familiar with the financial statements and financial affairs
of the Company.
2. The Statements have been prepared in accordance with generally
accepted accounting principles applied on a basis that is
consistent with the accounting practices practices reflected
in the annual financial statements referred to in Section
4.5[, subject to year-end audit adjustments].
3. The following computations set forth the Borrower's compliance
or noncompliance with the requirements set forth in Sections
5.9, 5.10, 5.11, 5.12 and 5.13 as of the Effective Date:
<PAGE> 59
<TABLE>
<CAPTION>
ACTUAL REQUIREMENT
<S> <C>
5.9 TOTAL-FUNDED-DEBT-TO-EBITDAR RATIO
Funded Debt
On Balance Sheet $_________
Off Balance Sheet $_________
Total Funded Debt $_________
EBITDAR $_________
Ratio _________:1 =<3.50:1
5.10 TOTAL FUNDED DEBT TO ADJUSTED TANGIBLE NET WORTH
Total Funded Debt $_________
ATNW $_________
Ratio _________:1 =<3.00:1
5.11 ADJUSTED TANGIBLE NET WORTH
ATNW $_________ *
5.12 EBITDAR
EBITDAR $_________ >=$0
5.11 NET INCOME
Net Income $_________ >=$1
</TABLE>
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of, the financial covenants
referred to above.
4. I have no knowledge of the occurrence of any Default or Event
of Default, except as set forth in the attachments, if any,
hereto.
Very truly yours,
LARSON-JUHL INC. LARSON-JUHL INTERNATIONAL L.L.C.
By By
-------------------------- --------------------------------
Its Its
----------------------- -----------------------------
*REQUIRED ADJUSTED TANGIBLE NET WORTH: $28,000,000, plus 30% of in (but not
decreases) in Company's book pre-tax income for fiscal year ending after
8/31/96.
<PAGE> 60
Exhibit D
ASSIGNMENT CERTIFICATE
Assigning Bank:
----------------------------
Applicant:
---------------------------------
This Certificate (the "Certificate") is delivered pursuant to Section 8.11
of the Credit Agreement dated as of July 16, 1996 (together with all amendments,
supplements, restatements and other modifications, if any, from time to time
made thereto, the "Credit Agreement"), among Larson-Juhl Inc., a Georgia
corporation, and Larson-Juhl International .L.L.C., a Georgia limited liability
company (the "Borrower"), Norwest Bank Minnesota, National Association, as agent
(the "Agent"), and the various banks now or hereafter parties thereto.
The Assigning Bank named above wishes to assign a portion of its interest
arising under the Credit Agreement to the Applicant named above pursuant to
Section 8.11 of the Credit Agreement, and the Applicant wishes to become an
Additional Bank pursuant thereto. This Certificate is an Assignment Certificate,
as defined in the Credit Agreement, and is executed for purposes of informing
the Agent and the Borrowers of the transactions contemplate hereby and obtaining
the consent of the Agent and the Borrowers to the extent required under the
Credit Agreement.
Accordingly, the undersigned hereby agree as follows:
1. Definitions. Unless otherwise defined herein, terms used herein have the
meanings provided in the Credit Agreement.
2. Allocation of Payments. Any interest fees and other payments accrued to
the Effective Date with respect to the Assigning Bank's interest under the Loan
Documents shall be for the account of the Assigning Bank. Any interest, fees and
other payments accruing on and after the Effective Date with respect to the
interests assigned hereunder shall be for the account of the Applicant. Each of
the Assigning Bank and the Applicant agrees that it will hold in trust for the
other party any interest fees and other amounts which it may receive to which
the other party is entitled pursuant to the preceding sentence and pay to the
other party any such amounts which it may receive promptly upon receipt.
3. Effective Date, Conditions. The date on which the Applicant shall become
an Additional Bank (the "Effective Date") is _____________________, 19___;
provided, however, that the assignment and assumption described in this
Certificate shall not be effective unless, on or before the Effective Date, (i)
the Agent has received counterparts of this Certificate duly executed and
delivered by the Borrowers (unless the Borrowers' consent to the assignment
hereunder is not required under Section 8.11 of the Credit Agreement), the
Assigning Bank, the Agent and the Applicant, (ii) the Agent has received the
transfer fee for the account of the Agent in the amount of $2,500, and (iii) all
other terms and conditions of this Certificate and the Credit Agreement relating
to the assignment hereunder have been satisfied.
<PAGE> 61
4. Applicant's Interest. Effective as of the Effective Date, (i) the
Applicant's Commitment Amount shall be the amount designated as the "Assigned
Commitment Amount" opposite the Applicant's signature below (and the Applicant
shall be deemed to have assumed the Assigning Bank's Commitment in the amount of
such Assigned Commitment Amount), (ii) the principal amount of Advances owing to
the Applicant shall be the amount designated as the "Assigned Advances" opposite
the Applicant's signature below and (iii) the Applicant's Percentage shall be
the percentage designated as the "Assigned Percentage" opposite the Applicant's
signature below.
5. Retained Interest. Effective as of the Effective Date, (i) the
Assigning Bank's Commitment Amount shall be the amount designated as the
"Retained Commitment Amount" opposite the Assigning Bank's signature below
(which amount shall, when added t the Applicant's Commitment Amount as
determined under paragraph 4, equal the Assigning Bank's Commitment Amount as
determined immediately before giving effect to this Certificate) (and the
Assigning Bank shall be relieved of all of its obligations under-the Credit
Agreement to the extent of the reduction in its Commitment Amount 'm accordance
herewith), (ii) the principal amount of Advances under Section 2.1 owing to the
Assigning Bank shall be the amount designated as the "Retained Advances"
opposite the Assigning Bank's signature below, and (iii) the Assigning Bank's
Percentage shall be the percentage designated as the "Retained Percentage"
opposite the Assigning Bank's signature below.
6. New Notes. Concurrently with the execution and delivery hereof, the
Borrowers shall issue and deliver to the Agent in exchange for the Assigning
Bank's Note (i) a Note payable to the order of the Applicant in a face principal
amount equal to the Applicant's "Assigned Commitment Amount" (or, if the
Effective Date is after the Commitment Termination Date, the Applicant's
"Assigned Advances"), in substantially the form of Exhibit A to the Credit
Agreement, and (ii) a Note payable to the order of the Assigning Bank in the
amount of the "Retained Commitment Amount (or, if the Effective Date is after
the Commitment Termination Date, the Assigning Bank's "Retained Advances"), in
substantially the form of Exhibit A to the Credit Agreement. The Agent shall
deliver the foregoing Notes to the Applicant and the Assigning Bank promptly
after the Effective Date, or (if later) the receipt by the Agent thereof.
7. Notice Address. The address shown below the Applicant's signature
hereto shall be its notice address for purposes of Section 9.3 of the Credit
Agreement, unless and until it shall designate, in accordance with such Section
9.3, another address for such purposes.
8. Assumption. Upon the Effective Date, the Applicant shall become a
party to the Credit Agreement and a Bank thereunder and (i) shall be entitled to
all rights, benefits and privileges accorded to a Bank in the Credit Agreement,
(ii) shall be subject to all obligations of a Bank thereunder, and (iii) shall
be deemed to have specifically ratified, confirmed and agreed to be bound by
(and by executing this Certificate the Applicant hereby specifically ratifies,
confirms and agrees to be bound by) all of the provisions of the Credit
Agreement and the Loan Documents.
9. Independent Credit Decision. The Applicant (a) acknowledges that it
has received a copy of the Credit Agreement and the Schedules and Exhibits
thereto, together with copies of the
<PAGE> 62
most recent financial statements referred to in Section 4.5 or 5.1 of the Credit
Agreement, and such other documents and information as it has deemed appropriate
to make its own credit and legal analysis and decision to enter into this
Assignment and Acceptance; (b) acknowledges and agrees that in becoming an
Additional Bank and in making any Advance under the Credit Agreement, such
actions have been and will be made without recourse to, or representation or
warranty by, the Assigning Bank or the Agent; and (c) agrees that it will,
independently and without reliance upon the Assigning Bank, the Agent or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit and legal decisions in
taking or not taking action under the Credit Agreement.
10. Withholding Tax. The Applicant (a) represents and warrants to the
Agent and the Borrowers that under applicable law and treaties no tax will be
required to be withheld by the Agent with respect to any payments to be made to
the Applicant hereunder, (b) agrees to furnish (if it is organized under the
laws of any jurisdiction other than the United States or any State thereof) to
the Agent and the Borrowers prior to the time that the Agent or Borrowers are
required to make any payment of principal, interest or fees hereunder, duplicate
executes originals of either U.S. Internal Revenue Service Form 4224 or U.S.
Internal Revenue Service Form 1001 (wherein the Applicant claims entitlement to
the benefits of a tax treaty that provides for a complete exemption from U.S.
federal income withholding tax on all payments hereunder) and agrees to provide
new Forms 4224 or 1001 upon the expiration of any previously delivered form or
comparable statements in accordance with applicable U.S. law and regulations and
amendments thereto, duly executed and completed by the Applicant, and (c) agrees
to comply with all applicable U.S. laws and regulations with regard to such
withholding tax exemption.
11. Further Assurances. The Borrowers, the Assigning Bank and the
Applicant shall, at any time and from time to time upon the written request of
the Agent, execute and deliver such further documents and do such further acts
and things as the Agent may reasonably request in order to effect the purpose of
this Certificate.
12. Miscellaneous. This Certificate may be executed in any number of
counterparts by the parties hereto, each of which counterparts shall be deemed
to be an original and all of which shall together constitute one and the same
certificate. Matters relating to this Certificate shall be governed by, and
construed in accordance with, the internal laws of the State of Minnesota.
IN WITNESS WHEREOF, the undersigned have executed this Certificate as
of the Effective Date set forth above.
Retained Advances:
$
----------------- --------------------------------
Retained Commitment Amount: [Assigning Bank]
$
-----------------
Retained Percentage: %
----------
By
------------------------
Its
---------------------
<PAGE> 63
Assigned Advances:
$
----------------- --------------------------------
Assigned Commitment Amount: [Applicant]
$
-----------------
Assigned Percentage: %
-------------
By
---------------------------
Its
------------------------
Notice Address:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
Telecopier:
------------------
<PAGE> 64
Consent of Agent
The Agent hereby consents to the foregoing Assignment.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By
---------------------------------
Its
------------------------------
Consent of Borrowers
The Borrowers hereby consent to the foregoing Assignment.
LARSON-JUHL INC. LARSON-JUHL INTERNATIONAL L.L.C.
By By
-------------------------- ---------------------------------
Its Its
----------------------- ------------------------------
<PAGE> 1
EXHIBIT 10.3
FIRST AMENDMENT TO
CREDIT AGREEMENT
This Amendment is agreed to as of the 14th day of November, 1997, by
and among Larson-Juhl Inc., a Georgia corporation, and Larson-Juhl International
L.L.C., a Georgia general partnership (the "Borrowers"); Norwest Bank Minnesota,
National Association, a national banking association, as Agent under the Credit
Agreement described below (in such capacity, the "Agent"); and Norwest Bank
Minnesota, National Association, a national banking association, SunTrust Bank,
Atlanta, a Georgia banking corporation, The Sumitomo Bank, Limited, a Japanese
banking corporation, a Southtrust Bank of Georgia, N.A., a national banking
association, as Banks (the "Banks").
The Borrower, the Agent and the Banks are each parties to a Credit
Agreement dated as of July 16, 1996 (together with all amendments, modifications
and restatements thereof, the "Credit Agreement")
The Borrowers, the Agent and the Banks wish to amend certain covenants
in the Credit Agreement.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. Definitions. All terms defined in the Credit Agreement that
are not otherwise defined herein shall have the meanings given them in the
Credit Agreement.
2. Amendment. The Credit Agreement is hereby amended as follows:
(a) The following phrase is hereby inserted immediately
after the words, "for borrowed money", in clause (i) of the definition
of "Total Funded Debt" in Section 1.1 of the Credit Agreement:
(including, but not limited to all indebtedness under this
Agreement, whether on account of Advances to or Letters of
Credit for the account of the Company, Advances to or Letters
of Credit for the account of LJ International under this
Agreement, or otherwise)
(b) The following is inserted at the end of the
definition of "Total-Funded-Debt-to-EBITDAR Ratio" In Section 1.1 of
the Credit Agreement:
In determining EBITDAR of the Company with respect to any
period in which the Company has effected a Permitted
Acquisition, the financial performance of the target of such
Permitted Acquisition (as set forth in the financial
statements to be delivered pursuant to clause (v) of the
definition of "Permitted Acquisition" above) shall be
attributed to the Company with respect to the period preceding
such Permitted Acquisition. Such attribution shall be made
1
<PAGE> 2
without regard to any expense reductions or other changes
realized by the Company as a result of consolidating
operations with such target.
(c) The table in Section 2.7(b) of the Credit Agreement
is hereby deleted, and the following us substituted therefor:
<TABLE>
<CAPTION>
Total-Funded-Debt-to-EBITDAR Ratio LIBO Rate Margin
---------------------------------- ----------------
<S> <C>
Less than 1.50 to 1 0.75%
1.50 to 1 or greater, but less than 2.00 to 1 1.00%
2.00 to 1 or greater, but less than 3.00 to 1 1.25%
3.00 to 1 or greater, but less than 3.50 to 1 1.50%
3.50 to 1 or greater 1.65%
</TABLE>
(d) Section 5.1(f) of the Credit Agreement is hereby
amended in its entirety to read as follows:
(f) Concurrent with the delivery of any
financial statements under paragraph (a) or (b), (i) a
Compliance Certificate, duly executed by the chief financial
officer of the Company, and (ii) if the Company effected any
Permitted Acquisition during the last fiscal quarter covered
by such financial statements of the Company, financial
statements with respect to the target of such Permitted
Acquisition during the period of 24 months preceding such
Permitted Acquisition, certified by the chief financial
officer of the Company to be those financial statements
believed by the Company in good faith to be the most accurate
financial statements available to the Company with respect to
such target (whether such financial statements are audited,
reviewed, compiled or internally generated)
(e) Section 5.9 of the Credit Agreement is hereby amended
in its entirety to read as follows:
Section 5.9 Total-Funded-Debt-To-EBITDAR
Ratio. The Company will at all times maintain its
Total-Funded-Debt-To-EBITDAR Ratio, determined as at
the end of the second and fourth quarters of each
fiscal year of the Company (and, in addition, as of
April 30, 1998), at not more than the amount set
forth below opposite the period in which the date of
such determination occurs.
<TABLE>
<CAPTION>
Period Ratio
- ------ -----
<S> <C>
On or before April 29, 1998 3.65 to 1
On or after April 30, 1998 3.50 to 1
</TABLE>
Not later than May 22, 1998, the Company shall deliver to the
Agent a certificate, executed by the chief financial officer
of the Company, certifying
2
<PAGE> 3
that the Company was in compliance with this Section as of
April 30, 1998, together with such supporting documentation as
the Agent or the Required Banks may reasonably require.
(f) The phrase, "Varying amount up to limitation
described in Section 2.8", in Schedule 6.3 of the Credit Agreement is
hereby deleted, and the phrase, "Varying amount up to the limitation
described in Section 2.9", is substituted therefor.
3. Interim LIBO Rate Margin. Notwithstanding Section 2.7 of the
Credit Agreement, the LIBO Rate Margin from the date hereof until the first
adjustment hereafter in accordance with Section 2.7(b) of the Credit Agreement
shall be 1.50%.
4. Representations and Warranties. The Borrowers hereby represent
and warrant to the Agent and the Banks as follows:
(a) The Borrowers have all requisite power and authority,
corporate or otherwise, to execute and deliver this Amendment and to
perform this Amendment and the Credit Agreement as amended hereby. This
Amendment has been duly and validly executed and delivered to the Agent
and the Banks by the Borrowers, and this Amendment and the Credit
Agreement as amended hereby constitute the Borrowers' legal, valid and
binding obligations enforceable in accordance with their terms.
(b) The execution, delivery and performance by the
Borrowers of this Amendment, and the performance of the Credit
Agreement as amended hereby, have been duly authorized by all necessary
corporate action and do not and will not (i) require any authorization,
consent or approval by any governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (ii) violate
the Borrowers' articles of incorporation or bylaws or any provision of
any law, rule, regulation or order presently in effect having
applicability to the Borrowers, or (iii) result in a breach of or
constitute a default under any indenture or agreement to which the
Borrowers are a party or by which the Borrowers or their properties may
be bound or affected.
(c) All of the representations and warranties contained
in Article IV of the Credit Agreement are correct on and as of the date
hereof as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date.
5. Conditions. The amendments set forth in paragraph 2 shall be
effective only if the Agent has received (or waived the receipt of) each of the
following, in form and substance satisfactory to the Agent, on or before the
date hereof (or such later date as the Required Banks may agree in writing):
(a) This Amendment, duly executed by the Borrowers and
each Bank.
3
<PAGE> 4
(b) A certificate of the secretary or assistant secretary
of the Company (i) certifying as accurate resolutions of the board of
directors of the Company evidencing approval of this Amendment, the
Credit Agreement as amended hereby, and the other matters contemplated
hereby, (ii) stating that there have been no amendments to or
restatements of the articles of incorporation or bylaws of the Company
as furnished to the Agent in connection with the execution and delivery
of the Credit Agreement other than those that may be attached to the
certificate, and (iii) certifying the names of the managers of LJ
International that are authorized to sign this Amendment and the
Replacements Notes, together with the true signature of such officers.
(c) A certificate of the managing member, secretary or
assistant secretary of LJ International (i) certifying that such person
is the keeper of or otherwise responsible for the maintenance of the
minute books of LJ International, (ii) certifying that this Amendment
and the Credit Agreement as amended hereby have been duly approved by
all necessary action of the managing member of LJ International and
attaching true and correct copies of the applicable resolutions
granting such approval, (iii) stating that there have been no
amendments to or restatements of the Organizational Documents of LJ
International as furnished to the Agent in connection with the
execution and delivery of the Credit Agreement other than those that
may be attached to the certificate, and (iv) certifying the names of
the officers of the Company that are authorized to sign this Amendment
and the Replacements Notes, together with the true signatures of such
officers.
(d) A signed copy of the opinion of counsel for the
Borrowers, addressed to the Agent and the Banks, confirming the matters
set forth in paragraph 3 hereof (other than paragraph (c) thereof), and
such other matters as the Required Banks may in their sole discretion
request.
6. Miscellaneous. The Borrowers shall pay all costs and expenses
of the Agent, including attorneys' fees, incurred in connection with the
drafting and preparation of this Amendment and any related documents. Except as
amended by this Amendment, all of the terms and conditions of the Credit
Agreement shall remain in full force and effect. This Amendment may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of which counterparts of this
4
<PAGE> 5
Amendment, taken together, shall constitute but one and the same instrument.
This Amendment shall be governed by the substantive law of the State of
Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written.
LARSON-JUHL, INC. LARSON-JUHL INTERNATIONAL LLC
By: /s/ Steve M. Scheppmann By: /s/ Steve M. Scheppmann
----------------------------------- ------------------------
Its VP - Finance Its VP - Finance
-------------------------- ----------------
NORWEST BANK MINNESOTA, SUNTRUST BANK, ATLANTA
NATIONAL ASSOCIATION, AS
AGENT AND AS A BANK
By: /s/ Scott Bjelde By: /s/ Jenna H. Kelly
---------------------------------- -------------------------
Its Vice President Its A.V.P.
------------------------- -------------------
By: /s/ R. M. Dunlap
------------------------
Its V.P.
---------------
THE SUMITOMO BANK, LIMITED SOUTHTRUST BANK OF GEORGA,
N.A.
By: /s/ Sybil H. Weldon By: /s/ Thomas O. Findlay
----------------------------------- ------------------------
Its Vice President & Mgr. Its V.P.
------------------------ ------------------------
By: /s/ Lauren R. Carrigan
-----------------------------------
Its Asst. Vice President
------------------------
5
<PAGE> 1
EXHIBIT 10.4
SECOND AMENDMENT TO CREDIT AGREEMENT
This Amendment is agreed to as of the 30th day of April, 1998, by and
among Larson-Juhl Inc., a Georgia corporation, and Larson-Juhl International
L.L.C., a Georgia general partnership (the "Borrowers"); Norwest Bank Minnesota,
National Association, a national banking association, as Agent under the Credit
Agreement described below (in such capacity, the "Agent"); and Norwest Bank
Minnesota, National Association, a national banking association, SunTrust Bank,
Atlanta, a Georgia banking corporation, The Sumitomo Bank, Limited, a Japanese
banking corporation, and Southtrust Bank of Georgia, N.A., a national banking
association, as Banks (the "Banks").
The Borrower, the Agent and the Banks are each parties to a Credit
Agreement (together with all amendments, modifications and restatements thereof,
the "Credit Agreement") dated as of July 16, 1996, as amended by a First
Amendment to Credit Agreement (the "First Amendment") dated November 17, 1997.
The Borrowers, the Agent and the Banks wish to increase the line of
credit established under the Credit Agreement and to shorten the maturity of
that line of credit.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. Definitions. All terms defined in the Credit Agreement that
are not otherwise defined herein shall have the meanings given them in the
Credit Agreement.
2. Amendment. The definitions of "Commitment Amount" and
"Commitment Termination Date" in Section 1.1 of the Credit Agreement are hereby
amended in their entirety to read as follows:
"Commitment Amount" means, with respect to each Bank, the amount set
forth opposite that Bank's name below or on any Assignment Certificate,
unless said amount is reduced pursuant to Section 2.11, in which event
it means the amount to which said amount is reduced:
<TABLE>
<S> <C>
Norwest Bank Minnesota, National Association $35,000,000
SunTrust Bank, Atlanta $35,000,000
The Sumitomo Bank, Limited $20,000,000
Southtrust Bank of Georgia, N.A. $10,000,000
</TABLE>
"Commitment Termination Date" means September 1, 1998, or the earlier
date of termination in whole of the Commitments pursuant to Section
2.11 or 7.2.
<PAGE> 2
3. Representations and Warranties. The Borrowers hereby represent
and warrant to the Agent and the Banks as follows:
(a) The Borrowers have all requisite power and authority,
corporate or otherwise, to execute and deliver the First Amendment and
this Amendment, and to perform the First Amendment, this Amendment and
the Credit Agreement as amended thereby and hereby. This Amendment and
the First Amendment have been duly and validly executed and delivered
to the Agent and the Banks by the Borrowers, and the First Amendment,
this Amendment and the Credit Agreement as amended hereby constitute
the Borrowers' legal, valid and binding obligations enforceable in
accordance with their terms.
(b) The execution, delivery and performance by the
Borrowers of the First Amendment and this Amendment, and the
performance of the Credit Agreement as amended thereby and hereby, have
been duly authorized by all necessary corporate action and do not and
will not (i) require any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate the Borrowers'
articles of incorporation or bylaws or any provision of any law, rule,
regulation or order presently in effect having applicability to the
Borrowers, or (iii) result in a breach of or constitute a default under
any indenture or agreement to which the Borrowers are a party or by
which the Borrowers or their properties may be bound or affected.
(c) All of the representations and warranties contained
in Article IV of the Credit Agreement are correct on and as of the date
hereof as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date.
4. Conditions. The amendments set forth in paragraph 2 shall be
effective only if the Agent has received (or waived the receipt of) each of the
following, in form and substance satisfactory to the Agent, on or before the
date hereof (or such later date as the Required Banks may agree to in writing):
(a) This Amendment, duly executed by the Borrowers and
each Bank.
(b) A certificate of the secretary or assistant secretary
of the Company (i) certifying as accurate resolutions of the board of
directors of the Company evidencing approval of the First Amendment,
this Amendment, the Credit Agreement as amended hereby, and the other
matters contemplated hereby, (ii) stating that there have been no
amendments to or restatements of the articles of incorporation or
bylaws of the company as furnished to the Agent in connection with the
execution and delivery of the Credit Agreement other than those that
may be attached to the certificate, and (iii) certifying the names of
the managers of LJ International that are authorized to sign the First
Amendment and this Amendment, together with the true signatures of such
officers.
-2-
<PAGE> 3
(c) A certificate of the managing member, secretary or
assistant secretary of LJ International (i) certifying that such person
is the keeper of or otherwise responsible for the maintenance of the
minute books of LJ International, (ii) certifying that the First
Amendment, this Amendment and the Credit Agreement as amended hereby
have been duly approved by all necessary action of the managing member
of LJ International and attaching true and correct copies of the
applicable resolutions granting such approval, (iii) stating that there
have been no amendments to or restatements of the Organizational
Documents of LJ International as furnished to the Agent in connection
with the execution and delivery of the Credit Agreement other than
those that may be attached to the certificate, and (iv) certifying the
names of the officers of the Company that are authorized to sign the
First Amendment and this Amendment, together with the true signatures
of such officers.
(d) A signed copy of the opinion of counsel for the
Borrowers, addressed to the Agent and the Banks, confirming the matters
set forth in paragraph 3 hereof (other than paragraph (c) thereof), and
such other matters as the Required Banks may in their sole discretion
request.
5. Miscellaneous. The Borrowers shall pay all costs and expenses
of the Agent, including attorneys' fees, incurred in connection with the
drafting and preparation of this Amendment and any related documents. Except as
amended by this Amendment, all of the terms and conditions of the Credit
Agreement shall remain in full force and effect. This Amendment may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of which counterparts of this
Amendment, taken together, shall constitute but one and the same instrument.
This Amendment shall be governed by the substantive law of the State of
Minnesota.
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the date first above written.
LARSON-JUHL INC. LARSON-JUHL INTERNATIONAL LLC
By: /s/ Steve M. Scheppmann By: /s/ Steve M. Scheppmann
----------------------------------- -------------------------
Its: V.P. Its: V.P.
--------------------------------- ----------------------
NORWEST BANK MINNESOTA, SUNTRUST BANK, ATLANTA
NATIONAL ASSOCIATION, AS AGENT AND
AS A BANK
By: /s/ Jenna H. Kelly
-------------------------
Its: V.P.
-------------------------
By /s/ Scott Bjelde
------------------------------------
Its: Vice President By: /s/ Jonathan H. James
---------------------------------- -------------------------
Its: Banking Officer
------------------------
THE SUMITOMO BANK, LIMITED SOUTHTRUST BANK OF GEORGIA,
N.A.
By: /s/ J. H. Broadley
----------------------------------
Its: Vice President
----------------------------------
By: /s/ Brian M. Smith By: /s/ Robert M. Seaman
----------------------------------- -------------------------
Its: Senior Vice President & Regional Its: Vice President
----------------------------------- ------------------------
Manager (East)
----------------------------------
-4-
<PAGE> 1
EXHIBIT 10.5
STATE OF GEORGIA
GWINNETT COUNTY
THIS LEASE AGREEMENT, made this 8th day of August, 1991, by and between
L-J Properties Inc., hereinafter referred to as "Landlord," and Larson-Juhl
Inc., hereinafter referred to as "Tenant;"
WITNESSETH:
1.01 Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the property hereinafter referred to as the LEASED PREMISES, described
as: 65,801 sq. ft. at 3900 Steve Reynolds Blvd., Norcross 30093, in Gwinnett
County, Georgia, and property as shown in Exhibit "A".
TERM
2.01 TO HAVE AND TO HOLD said Leased Premises for a term of ten (10)
years, commencing August 8, 1991.
RENTAL
3.01 As rental for the Leased Premises, Tenant agrees to pay to L-J
PROPERTIES INC., for the account of Landlord, the sum of Five-Hundred Twenty
Three Thousand Two Hundred Dollars ($523,200) per year, payable in monthly
installments ("Monthly Base Rent") each in the amount of Forty-Three Thousand
Six Hundred Dollars ($43,600) on or before the first day of each calendar month
beginning on the date determined in Paragraph 2.01 and thereafter for the
remainder of the term, together with any other additional rental as hereinafter
set forth. Monthly Base Rent hereunder shall be adjusted annually, after written
notice from the Landlord. The annual Monthly Base Rent adjustment shall be the
greater of four and one-half percent (4.5%) or the proportional increase, if
any, in the United States Consumer Price index (all items Atlanta, Georgia area,
of the U.S. Bureau of Labor Statistics), from the first month of the lease year
to the last month of the lease year previous to the lease year for which the
Monthly Base Rent adjustment is computed. Tenant shall pay interest at a rate of
twelve percent (12%) per annum on all payments more than 10 days past due. If
the Lease shall end on any date, other than the last day of a calendar month,
rent for such month shall be prorated.
Tenant has deposited with Landlord, upon delivery of this Lease Agreement, an
amount equal to Eighty Seven Thousand Two Hundred Dollars ($87,200), half of
which, or Forty-Three Thousand Six Hundred Dollars ($43,600), is to be applied
as last month's rental, the other half, or Forty-Three Thousand Six Hundred
Dollars ($43,600), shall be held as a refundable security deposit.
Any other adjustments to Monthly Base Rent shall be agreed upon by Landlord and
Tenant. Notwithstanding anything contained in this Lease Agreement, any increase
to Monthly Base Rent
<PAGE> 2
that has occurred on or before such assignment shall not survive an assignment
of this Lease Agreement by Landlord.
3.02 In addition to the Monthly Base Rent called for herein, Tenant
shall contract for landscape maintenance service.
3.03 Tenant consents to pay as additional rent to Landlord, any utility
surcharges, or any other costs levied, assessed or imposed by, or at the
direction of, or resulting from statutes or regulations, or interpretations
thereof, promulgated by any Federal, State, Municipal or local governmental
authorities in connection with the use or occupancy of the Leased Premises.
DELAY IN DELIVERY OF POSSESSION
4.01 If Landlord, for any reason whatsoever, cannot deliver possession
of the Leased Premises to Tenant at the commencement of the term of this Lease,
this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant
for any loss or damage resulting therefrom, but in that event there shall be a
proportionate reduction of rent covering the period between the commencement of
the term and the time when Landlord can deliver possession. If delay is longer
than three (3) months, Landlord will provide Tenant such space (not exceeding in
area the Leased Premises) as Landlord may have available, until the Leased
Premises can be completed, at no charge to Tenant. The term of this Lease shall
be extended by such delay.
USE OF LEASED PREMISES
5.01 The Leased Premises may be used and occupied for manufacturing and
assembly, testing, warehousing and distribution, showroom and offices, other
such purposes which relate to Tenant's business and for no other purpose or
purposes, without Landlord's consent. Tenant shall promptly comply with all
laws, ordinances, orders, and regulations affecting the Leased Premises and
their cleanliness, safety, occupation and use. Tenant shall comply fully with
all environmental laws and regulations, and all other legal requirements,
applicable to Tenant's operations at, on or within, or to Tenant's use and
occupancy of, the Leased Premises.
5.02 Tenant shall not (either with or without negligence) cause or
permit the escape, disposal or release of any biologically or chemically active
or other hazardous substances, or materials. Tenant shall not allow the storage
or use in quantities which would violate any applicable federal, state or local
environmental laws and regulations of such substances or materials in any manner
not sanctioned by law for the storage and use of such substances or materials,
nor allow to be brought into the Project any such materials or substances except
to use in the ordinary course of Tenant's business. Without limitation,
hazardous substances and materials shall include those described in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery
Act, as amended, 42 U.S.C. Section 6901 et seq., any applicable state or local
laws and the regulations adopted under these acts. If any lender or governmental
agency shall ever require testing to ascertain whether or not there has been any
release of hazardous materials, then the reasonable costs thereof shall be
reimbursed by Tenant to Landlord as additional charges if such requirement
applies to the Leased Premises. In addition,
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<PAGE> 3
Tenant may execute affidavits, representations, and the like from time to time
concerning Tenant's best actual knowledge and belief regarding the presence of
hazardous substances or materials on the Leased Premises. In all events, Tenant
shall indemnify Landlord in the manner elsewhere provided in this lease from any
release of hazardous materials on the Leased Premises occurring while Tenant is
in possession, or elsewhere if caused by Tenant or persons acting under Tenant.
The covenants within shall survive the expiration or earlier termination of the
lease term only for matters discussed herein occurring while Tenant is in
possession.
UTILITIES
6.01 Landlord shall not be liable in the event of any interruption in
the supply of any utilities. Tenant agrees that ft will not install any
equipment which will exceed or overload the capacity of any utility facilities
and that if any equipment installed by Tenant shall require additional utility
facilities, the same shall be installed by Tenant at Tenant's expense in
accordance with plans and specifications approved by Landlord. Tenant shall be
solely responsible for and shall pay all charges for use or consumption of
sanitary sewer, water, gas, electricity and any other utility services.
ACCEPTANCE OF LEASED PREMISES
7.01 By entry hereunder, Tenant acknowledges that it has examined the
Leased Premises and accepts the same as being in the condition called for by
this Lease, and as suited for the uses intended by Tenant.
ALTERATIONS, MECHANICS' LIENS
8.01 Tenant may install trade fixtures, machinery or other trade
equipment in conformance with applicable laws, statutes, ordinances, rules,
regulations, and the same may be removed upon the termination of this Lease
provided Tenant shall not be in default under any of the terms and conditions of
this Lease, and the Leased Premises are not damaged by such removal. Tenant
shall return the Leased Premises on the termination of this Lease in the same
condition as when rented to Tenant, reasonable wear and tear excepted. Tenant
shall keep the Leased Premises, the building and property in which the Leased
Premises are situated free from any liens arising out of any work performed for,
materials furnished to, or obligations incurred by Tenant.
FIRE INSURANCE, HAZARDS
9.01 Tenant shall, at its sole cost and expense, comply with any and
all requirements pertaining to the Leased Premises necessary for the maintenance
of reasonable fire and public liability insurance, covering the Leased Premises,
building and appurtenances.
INDEMNIFICATION BY TENANT
10.01 Tenant shall indemnify and hold harmless Landlord against and
from any and all claims arising from Tenant's use of the Leased Premises (other
than those arising from negligence
-3-
<PAGE> 4
of Landlord or its agents or employees), or the conduct of its business or from
any activity, work, or thing done, permitted or suffered by the Tenant in or
about the Leased Premises, and shall further indemnify and hold harmless
Landlord against and from any and all claims arising from any breach or default
in the performance of any obligation on Tenant's part to be performed under the
terms of this Lease, or arising from any act, neglect, fault or omission of the
Tenant, or of its agents or employees, and from and against all costs,
attorney's fees, expenses and liabilities incurred in or about such claim or any
action or proceeding brought relative thereto and in case any action or
proceeding be brought against Landlord shall defend the same at Tenant's expense
by counsel, chosen by Tenant. The obligations of Tenant under this section
arising by reason of any occurrence taking place during the term of this Lease
shall survive any termination of this Lease.
WAIVER OF CLAIMS
11.01 Tenant, as part of the consideration to be rendered to Landlord,
hereby waives all claims against Landlord for damages to goods, wares and
merchandise in, upon or about the Leased Premises and for injury to Tenant, its
agents, employees, invitees, or third persons in or about the Leased Premises
from any cause arising at any time, other than the negligence of Landlord, its
agents and employees.
REPAIRS
12.01 Provided Landlord agrees to pursue all remedies related to
construction defects and warranties, tenant shall, at its sole cost, keep and
maintain the Leased Premises and appurtenances and every part thereof including
by way of illustration and not by way of limitation the foundation, structure,
roof, parking and drives, all windows, and skylights, doors, and store front and
the interior of the Leased Premises, including all plumbing, heating, air
conditioning, sewer, electrical systems and all fixtures and all other similar
equipment serving the Leased Premises in good and sanitary order, condition, and
repair. Tenant shall be responsible for all pest control within the Leased
Premises. Tenant shall, at its sole cost, keep and maintain all utilities,
fixtures and mechanical equipment, used by Tenant. In the event Tenant fails to
maintain the Leased Premises as required herein in the opinion of Landlord,
after reasonable diligence, determines that the repairs are required on an
emergency basis and Tenant will not commence repairs within a reasonable
timeframe with respect to the emergency, or in such other circumstances where no
emergency exists, tenant fails to commence repairs (requested by Landlord in
writing) within thirty (30) days after such request, or fails diligently to
proceed thereafter to complete such repairs, Landlord shall have the right in
order to preserve the Leased Premises or portion thereof, and/or the appearance
thereof, to make such repairs or have a contractor make such repairs and charge
Tenant for the cost thereof as additional rent.
NON-DISTURBANCE
13.01 Tenant acknowledges that Landlord may assign this Lease. Landlord
agrees that a condition of the assignment will be the assignee's acknowledgment
that the lease shall not be terminated, nor shall Tenant's use, possession, or
enjoyment of the Leased Premises be interfered
-4-
<PAGE> 5
with, nor shall the leasehold estate granted by the Lease be affected in any
other manner, other than as is described in the Landlord's assignment, by
exercising the assignment.
ENTRY BY LANDLORD
14.01 Tenant shall permit Landlord and Landlord's agents to enter the
Leased Premises at all reasonable times and not disruptive to Tenant's business
for the purpose of inspecting the same or for the purpose of maintaining the
building, or for the purpose of making repairs, alterations, or additions to any
portion of the building, including the erection and maintenance of such
scaffolding, canopies, fences and props as may be required, or for the purpose
of posting notices of non-responsibility for alterations, additions, or repairs.
If the Tenant defaults under the terms of this Lease, after notice, the Landlord
will be permitted to show the Leased Premises to prospective tenants, or place
upon the building any usual or ordinary "for sale" signs, without any rebate of
rent and without any liability to Tenant for any loss of occupation or quiet
enjoyment of the Leased Premises thereby occasioned; and shall permit Landlord
at any time within thirty (30) days prior to the expiration of this Lease, to
place upon the Leased Premises any usual or ordinary "to let" or "to lease"
signs. For each of the aforesaid purposes, Landlord shall at all times have and
retain a key with which to unlock all of the exterior doors about the Leased
Premises.
TAXES
15.01 (a) Tenant shall pay and discharge, on or before the last day on
which the same may be paid without penalty, "all taxes", (as hereinafter
defined) which shall or may during the term be levied, assessed or imposed on or
become a lien upon or grow due or payable out of or for or by reason of the
Leased Premises or any part thereof, or the Landlord's interest in the real
property described on Exhibit "A" hereto. For the purposes hereof "taxes" means
all taxes at any time imposed by the United States of America or by any state,
city, county or other political or taxing subdivision thereof upon or against
this Lease, the Leased Premises, the use or occupancy thereof, the buildings,
improvements or personalty thereon, and all assessments imposed subsequent to
the execution and delivery of this lease by both Landlord and Tenant (including
assessments for benefits from public works or improvements, whether commenced or
completed prior to the commencement of the term hereof and whether or not to be
completed within said term), levies, license fees, permit fees, water rents and
charges, sewer rents, excises, franchises, imposts, interest, costs, penalties
and charges, general and special, ordinary and extraordinary, of whatever name,
nature and kind, and whether or not within the contemplation of the parties
hereto, which are now or may hereafter be levied, assessed, charged or imposed
upon or against this Lease, the Leased Premises, the use or occupancy thereof,
or the building, improvements or personal property thereon or which are or may
become a lien on any thereof. Notwithstanding anything hereinabove to the
contrary, "taxes" shall not include any penalties or interest imposed or
incurred because of Landlord's dilatory payment, unless the delay in payment is
due to Tenant's breach of its obligations under this Section 15.
(b) All assessments imposed upon the Leased Premises during the final
year of the term of this Lease for public improvements which shall benefit the
Leased Premises after the expiration of this Lease shall be equitably pro rated,
so that only the portion of such assessments
-5-
<PAGE> 6
properly allocable to the term of this Lease shall be included in determining
Tenant's share of "taxes" in accordance with Section 15.01 (a) above.
15.02 Tenant shall pay all taxes, other than income taxes, upon or
measured by the rent payable hereunder, whether as a sales tax, transaction
privilege excise tax, or otherwise.
15.03 Joint Assessment. If the Leased Premises are not separately
assessed, Tenant's liability shall be an equitable proportion of the real
property taxes for all of the land and improvements included with the tax parcel
assessed, such proportion to be determined by Landlord from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Landlord's reasonable determination thereof, in
good faith, shall be conclusive.
15.04 Personal Property Taxes. Tenant shall pay prior to delinquency
all taxes assessed against and levied upon trade fixtures, furnishings,
equipment and all other personal property of Tenant contained in the Leased
Premises or elsewhere.
INSURANCE
16.01 Liability Insurance. Tenant, at its own expense, shall provide
and keep in force public liability insurance for the benefit of Landlord and
Tenant jointly against liability for bodily injury and property damage in the
amount of not less than Three Million Dollars ($3,000,000.00) in respect to
injuries to or death of more than one person in any one occurrence, in the
amount of not less than One Million Dollars ($1,000,000.00) in respect to
injuries to or death of any one person, and in the amount of not less than One
Million Dollars ($1,000,000.00) per occurrence in respect to damage to property,
such limits to be for any greater amounts as may be reasonably indicated by
circumstances from time to time existing. Tenant, upon written request by
Landlord, shall furnish Landlord with a certificate of such policy within sixty
(60) days of the commencement date of this Lease and whenever required, through
written notice, shall satisfy Landlord that such policy is in full force and
effect. Such policy shall name Landlord or other parties designated by Landlord
as additional insureds and shall be primary and non-contributing with any
insurance carried by Landlord. The policy shall further provide that it shall
not be canceled or altered without twenty (20) days prior notice to Landlord.
The limits of said insurance shall not, however, limit the liability of Tenant
hereunder. If Tenant shall fall to procure and maintain said insurance Landlord
may, but shall not be required to procure and maintain the same but at the
expense of Tenant.
16.02 Property Insurance. (a) Tenant shall maintain in full force and
effect on all of its fixtures and equipment in the Leased Premises a policy or
policies of fire and extended coverage insurance with standard coverage
endorsement. During the term of this Lease the proceeds from any such policy or
policies of insurance shall be used for the repair or replacement of the
fixtures. Landlord will not carry insurance on Tenant's possessions. Tenant,
upon written request by Landlord, shall furnish Landlord with a certificate of
such policy within sixty (60) days of the commencement of this Lease, and
whenever required through written notice, shall satisfy Landlord that such
policy is in full force and effect.
-6-
<PAGE> 7
(b) Tenant shall obtain and keep in force during the term of this Lease
a policy or policies of insurance covering loss or damage to the Leased
Premises, in the amount of the full replacement value, as agreed upon in writing
by Landlord and Tenant, thereof, as the same may exist from time to time,
against perils included within the classification of fire, extended coverage,
vandalism, malicious mischief, special extended perils (all risk) and sprinkler
leakage. Such policy shall name Landlord or other parties designated by Landlord
as additional insureds and shall be primary and noncontributing with any
insurance carried by Landlord.
(c) All policies of insurance shall provide that the insurers waive any
right of subrogation against Landlord or Tenant.
DESTRUCTION
17.01 In the event of (a) a partial destruction of the Leased Premises
or the building of which the Leased Premises are a part (hereinafter called the
"building") during the lease term which requires repairs to either the Leased
Premises or the building, or (b) the Leased Premises or the building being
declared unsafe or unfit for occupancy by any authorized public authority for
any reason other than Tenant's act, use or occupation which declaration requires
repairs to either the Leased Premises or the building, Landlord shall forthwith
make repairs, provided repairs can be made within three-hundred sixty (360) days
under the laws and regulations of authorized public authorities, but partial
destruction (including any destruction necessary in order to make repairs
required by any declaration) shall in no way annul or void this Lease. In making
repairs Landlord shall be obligated to replace only such glazing as shall have
been damaged by fire and other damaged glazing shall be replaced by Tenant. If
repairs cannot be made within three-hundred sixty (360) days, Landlord may, at
its option, make same within a reasonable time, this Lease continuing in full
force and effect. In the event that Landlord does not so elect to make repairs,
or which repairs cannot be made within three-hundred sixty (360) days, or
repairs cannot be made under current laws and regulations, this Lease may be
terminated at the option of either party after the three-hundred sixty (360) day
period. In the event of any dispute between Landlord and Tenant relative to the
provisions of this paragraph, they may each select an arbitrator, the two
arbitrators so selected shall select a third arbitrator and the three
arbitrators so selected shall hear and determine the controversy and their
decision thereon shall be final and binding on both Landlord and Tenant who
shall bear the cost of such arbitration equally between them. Landlord shall not
be required to repair any property installed in the Leased Premises by Tenant.
Tenant waives any right under applicable laws inconsistent with the terms of
this paragraph.
ASSIGNMENT AND SUBLETTING
18.01 Landlord shall have the right to transfer and assign, in whole or
in part its rights and obligations in the building and property that are the
subject of this Lease. Tenant may assign this Lease to a related party. In the
event of any assignment or subletting, Tenant shall nevertheless at all times,
remain fully responsible and liable for the payment of the rent and for
compliance with all of its other obligations under the terms, provisions and
covenants of this Lease. Upon the occurrence of an "Event of Default" as defined
below, if all or any part or the Leased Premises are then assigned or sublet,
Landlord, in addition to any other remedies provided
-7-
<PAGE> 8
by this Lease or provided by law, may at its option, collect directly from the
assignee or subtenant all rents becoming due to Tenant by reason of the
assignment or sublease, and Landlord shall have a security interest in all
properties on the Leased Premises to secure payment of such sums. Any collection
directly by Landlord from the assignee or subtenant shall not be construed to
constitute a novation or a release of Tenant from the further performance of Its
obligations under this Lease.
INSOLVENCY OF TENANT
19.01 Either (a) the appointment of a receiver to take possession of
all or substantially all of the assets of Tenant, or (b) a general assignment by
Tenant for the benefit of creditors, shall, if any such appointments,
assignments or action continues for a period of sixty (60) days, constitute a
breach of this Lease by Tenant, and Landlord may at its election with notice,
terminate this Lease and in that event be entitled to immediate possession of
the Leased Premises and damages as provided below.
BREACH BY TENANT
20.01 In the Event of a Default, if not cured by Tenant within thirty
(30) days of notice received from Landlord or if Tenant is not diligently
pursuing remedies of the Event of Default, Landlord in addition to remedies that
it may have hereunder, at law or in equity shall have the right to either
terminate this Lease or from time to time, without terminating this Lease relet
the Leased Premises or any part thereof for the account and in the name of
Tenant or otherwise, for any such term or terms and conditions as Landlord may
deem advisable with the right to make reasonable alterations and repairs to the
Leased Premises. Tenant shall pay to Landlord the reasonable costs and
reasonable expenses incurred and paid by Landlord in such reletting or in making
such reasonable alterations and repairs. Should such rentals received from time
to time from such reletting during any month be less than that agreed to be paid
during that month by Tenant hereunder, the Tenant shall pay such deficiency to
Landlord. Such deficiency shall be calculated and paid monthly.
20.02 No such reletting of the Leased Premises by Landlord shall be
construed as an election on its part to terminate this Lease unless a written
notice of such intention be given to Tenant or unless the termination thereof be
decreed by a court of competent jurisdiction. Should Landlord at any time
terminate this Lease for any breach, in addition to any other remedy it may
have, it may recover from Tenant all damages it may incur by reason of such
breach, including the cost of recovering the Leased Premises, and including (1)
all amounts that would have fallen due as rent between the time of termination
of this Lease and the time of judgment, or other award, less the avails of all
relettings and attornments.
ATTORNEY'S FEES
21.01 If Landlord and Tenant litigate any provision of this Lease or
the subject matter of this Lease, the unsuccessful litigant will pay to the
successful litigant all reasonable costs and reasonable expenses actually paid,
including reasonable attorneys' fees and reasonable court costs actually paid,
incurred by the successful litigant at trial and on any appeal. If, without
fault,
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<PAGE> 9
either Landlord or Tenant is made a party to any litigation instituted by or
against the other, the other will indemnify the faultless one against all loss,
liability, and expense, including reasonable attorneys' fees and reasonable
court costs actually paid, incurred by it in connection with such litigation.
CONDEMNATION
22.01 If, at any time during the term of this Lease, title to the
entire Leased Premises should become vested in a public or quasi-public
authority by virtue of the exercise of expropriation, appropriation,
condemnation or other power in the nature of eminent domain, or by voluntary
transfer from the owner of the Leased Premises under threat of such a taking
then this Lease shall terminate as of the time of such vesting of title, after
which neither party shall be further obligated to the other except for
occurrence antedating such taking. The same results shall follow if less than
the entire Leased Premises be thus taken, or transferred in lieu of such a
taking, but to such extent that it would be legally and commercially impossible
for Tenant to occupy the portion of the Leased Premises remaining, and
impossible for Tenant to reasonably conduct his trade or business therein.
22.02 Should there be such a partial taking or transfer in lieu
thereof, but not to such an extent as to make such continued occupancy and
operation by Tenant an impossibility, then this Lease shall continue on all of
its same terms and conditions subject only to an equitable reduction in rent
proportionate to such taking.
22.03 In the event of any such taking or transfer, whether of the
entire Leased Premises, or a portion thereof, it is expressly agreed and
understood that, with the exception of those sums awarded for the purpose of
paying Tenant's moving and business interruption expense, all sums awarded,
allowed or received in connection therewith shall belong to Landlord, and any
rights otherwise vested in Tenant are hereby assigned to Landlord, and Tenant
shall have no interest in or claim to any such sums or any portion thereof,
whether the same be for the taking of the property or for damages, or otherwise.
NOTICES
23.01 All notices, requests, demands and other communications required
or permitted hereunder excluding consents shall be in writing and shall be
deemed to have been duly given when delivered by postage pre-paid certified or
registered mail, return receipt requested (the return receipt constituting prima
facie evidence of the giving of such notice, request, demand or other
communication) to the following address or such other address of which a party
subsequently may give notice to all the other parties:
To: L-J Properties Inc.
3900 Steve Reynolds Blvd.
Norcross, Georgia 30093
Attention: Craig A. Ponzio
-9-
<PAGE> 10
with copies to: Trotter Smith & Jacobs
400 Colony Square
Suite 2200
1201 Peachtree Street, NE
Atlanta, Georgia 30361
Attention: Philip H. Moise
and
---
Craig A. Ponzio
320 Dashing Wave Lane
Alpharetta, Georgia 30202
To: Larson-Juhl Inc.
3900 Steve Reynolds Blvd.
Norcross, Georgia 30093
Attention: Craig A. Ponzio
with copies to: Trotter Smith & Jacobs
400 Colony Square
Suite 2200
1201 Peachtree Street, NE
Atlanta, Georgia 30361
Attention: Philip H. Moise
WAIVER
24.01 The waiver by Landlord of any breach of any term, covenant, or
condition herein contained shall not be deemed to be a waiver of such term,
covenant, or condition or any subsequent breach of the same or any other term,
covenant, or condition herein contained. The subsequent acceptance of rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
by Tenant of any term, covenant or condition of this Lease, other than the
failure of Tenant to pay the particular rental so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent.
EFFECT OF HOLDING OVER
25.01 If Tenant should remain in possession of the Leased Premises
after the expiration of the lease term and without executing a new lease, then
such holding over shall be construed as a tenancy from month to month, subject
to all the conditions, provisions, and obligations of this Lease insofar as the
same are applicable to a month to month tenancy.
SUBORDINATION
26.01 This Lease, at Landlord's option, shall be subordinate to any
ground lease, first priority mortgage, first priority deed of trust, or first
priority security deed now or hereafter
-10-
<PAGE> 11
placed upon the real property of which the Leased Premises are a part and to any
and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
26.02 Tenant agrees to execute any documents required to effectuate
such subordination or to make this Lease prior to the lien of any such ground
lease, mortgage, deed of trust, or security deed, as the case may be. If
requested to do so, Tenant agrees to attorn to any person or other entity that
acquires title to the real property encompassing the Leased Premises, whether
through judicial foreclosure, sale under power, or otherwise, and to any
assignee of such person or other entity.
ESTOPPEL CERTIFICATE
27.01 Upon thirty (30) days notice from Landlord to Tenant, Tenant
shall deliver a certificate dated as of the first day of the calendar month in
which such notice is received, executed by an appropriate officer, partner or
individual, in the form as Landlord may require and stating to the best of its
actual knowledge but not limited to the following: (i) the commencement date of
this Lease; (ii) the space occupied by Tenant hereunder; (iii) the expiration
date hereof; (iv) a description of any renewal or expansion options; (vi) the
amount of rental currently and actually paid by Tenant under this Lease; (v) the
nature of any default or claimed default hereunder by Landlord and (vii) that
Tenant is not in default hereunder nor has any event occurred which with the
passage of time or the giving of notice would become a default by Tenant
hereunder.
MORTGAGE PROTECTION
28.01 In the event of any default on the part of Landlord, Tenant will
give notice by registered or certified mail to any beneficiary of a deed or
trust or holder of a security deed or mortgage covering the Leased Premises
whose address shall have been furnished it, and shall offer such beneficiary or
holder a reasonable opportunity to cure the default, including time to obtain
possession of the Leased Premises by power of sale or a judicial foreclosure, if
such should prove necessary to effect a cure.
OPTION TO RE-LEASE PREMISES
29.01 Provided Tenant is not in default of its obligations under this
lease, Tenant shall have two, thirty-six (36) month options to renew this Lease
in "as is" condition on the same terms and conditions herein except the Monthly
Base Rent shall be adjusted to a market rate or a rate agreed upon by Landlord
and Tenant.
MISCELLANEOUS PROVISIONS
A. Whenever the singular number is used in this Lease and when required
by the context, the same shall include the plural, and the masculine gender
shall include the feminine and neuter genders, and the word "persons" shall
include corporations, firm or association. If there
-11-
<PAGE> 12
be more than one tenant, the obligations imposed upon Tenant under this Lease
shall be joint and several.
B. The headings or titles to paragraphs of this Lease are not a part of
this Lease and shall have no effect upon the construction or interpretation of
any part of this Lease.
C. This instrument contains all of the agreements and conditions made
between the parties to this Lease and may not be modified orally or in any other
manner than by agreement in writing signed by all parties to this Lease.
D. Except as otherwise expressly stated, each payment required to be
made by Tenant shall be in addition to and not in substitution for other
payments to be made by Tenant.
E. Subject to paragraph 18, the terms and provisions of this Lease
shall be binding upon and inure to the benefit of the heirs, executors,
administrators, successors, and assigns of Landlord and Tenant.
F. All covenants and agreements to be performed by Tenant under any of
the terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of rent.
G. Where the consent of a party is required, such consent will not be
reasonably withheld.
H. This Lease shall create the relationship of Landlord and Tenant
between Landlord and Tenant; no estate shall pass out of Landlord; Tenant has
only a usufruct, not subject to levy and/or sale and not assignable by Tenant
except as provided in paragraph 18.01 hereof.
I. Tenant acknowledges and agrees that Landlord shall not provide
guards or other security protection for the Leased Premises and that any and all
security protection shall be the sole responsibility of Tenant.
J. This Lease shall be governed by Georgia Law.
K. Tenant shall not record this Lease or a memorandum thereof without
the written consent of Landlord. Upon the request of Landlord, Tenant shall join
in the execution of a memorandum or so-called "short form" of this Lease for the
purpose of recordation. Said memorandum or short form of this Lease shall
describe the parties, the Leased Premises and the lease term, and shall
incorporate this Lease by reference.
L. Landlord's liability for performance of its obligations under the
terms of this Lease shall be limited to its interest in the Leased Premises.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto who are individuals have set
their hands and seals, and the parties who are corporations have caused this
instrument to be duly executed by its proper officers and its corporate seal to
be affixed, as of the day and year first above written.
LANDLORD
L-J Properties Inc.
--------------------------------------
By: /s/ Patty G. Kauppi
---------------------------------
Name: Patty G. Kauppi
Its: Assistant Secretary
TENANT
Larson-Juhl Inc.
--------------------------------------
By: /s/ Steve M. Scheppmann
----------------------------------
Name: Steve M. Scheppmann
Its: V.P. - Finance
-13-
<PAGE> 14
EXHIBIT "A"
Legal Description (Boundary)
All that tract or parcel of land lying and being in Land Lot 202 of the 6th
District of Gwinnett County, Georgia and being more particularly described as
follows:
BEGINNING at the point of intersection of the easterly right-of-way line of
Steve Reynolds Boulevard, a variable width right-of-way formerly know as
Franklin Road, with the southerly mitered right-of-way line of Pavilion Place,
an 80-foot right-of-way, thence along said right-of-way miter of Pavilion Place
north 79 degrees 03 minutes 23 seconds east a distance of 30.10 feet to an iron
pin found; thence continuing along said right-of-way south 55 degrees 56 minutes
37 seconds east a distance of 145.88 feet to the point of curvature of a curve
to the left having a radius of 612.96 feet, a chord bearing of south 62 degrees
46 minutes 51 seconds east and a chord distance of 145.94 feet; thence
continuing along said right-of-way and curve an arc distance of 146.29 feet to a
point; thence continuing along said right-of-way south 69 degrees 37 minutes 05
seconds east a distance of 115.80 feet to the point of curvature of a curve to
the right having a radius of 25.00 feet, and a chord bearing of south 49 degrees
33 minutes 30 seconds east and a chord distance of 17.15 feet; thence continuing
along said right-of-way and curve an arc distance of 17.51 feet to the point of
curvature of a curve to the left having a radius of 60.00 feet, a chord bearing
of south 84 degrees 23 minutes 05 seconds east and a chord distance of 98.16
feet; thence continuing along said right-of-way and curve and arc distance of
114.95 feet to an iron pin found; thence departing said right-of-way south 49
degrees 16 minutes 13 seconds east a distance of 19.94 feet to an iron pin
found; thence south 59 degrees 55 minutes 01 seconds east a distance of 71.94
feet to an iron pin found; thence south 11 degrees 20 minutes 22 seconds east a
distance of 104.60 feet to an iron pin found; thence south 34 degrees 00 minutes
47 seconds west a distance of 173.06 feet to an iron pin set; thence south 55
degrees 59 minutes 13 seconds east a distance of 257.65 feet to an iron pin set
on the land lot line common to Land Lots 183 and 202, aforesaid county and
district; thence along said land lot line south 59 degrees 38 minutes 47 seconds
west a distance of 530.75 feet to an iron pin found; thence continuing along
said land lot line south 59 degrees 35 minutes 15 seconds west a distance of
263.31 feet to a point in the centerline of Bromolow Creek (hereinafter referred
to as "Point A"); thence departing said land lot line and thence in a generally
northwesterly direction along the centerline of Bromolow Creek, and following
the meanderings thereof, 659.24 feet, more or less, to a point on the easterly
right-of-way line of Steve Reynolds Boulevard (hereinafter referred to as "Point
B") (the aforesaid Point A and Point B being connected by traverse lines
commencing at Point A and terminating at Point B as follows: north 37 degrees 03
minutes 02 seconds west a distance of 21.68 feet; north 31 degrees 18 minutes 01
seconds west a distance of 149.78 feet; north 32 degrees 51 minutes 51 seconds
west a distance of 70.59 feet; north 34 degrees 13 minutes 53 seconds west a
distance of 77.11 feet; north 28 degrees 08 minutes 06 seconds west a distance
of 43.89 feet; north 39 degrees 59 minutes 51 seconds west a distance of 48.51
feet; north 25 degrees 25 minutes 13 seconds west a distance of 31.68 feet;
north 32 degrees 34 minutes 59 seconds west a distance of 45-09 feet; north 25
degrees 18 minutes 03 seconds west a distance of 54.12 feet; north 40 degrees 31
minutes 41 seconds west a distance of 46.85 feet; and north 56 degrees 21
minutes 28 seconds west a distance of 69.94 feet to said Point B; thence along
said easterly right-of-way line
-14-
<PAGE> 15
of Steve Reynolds Boulevard north 34 degrees 03 minutes 23 seconds east a
distance of 616.09 feet to a point being the POINT OF BEGINNING.
Said Property being shown as Tracts 1 and 2, containing a total of 13.946 acres
of land on that certain survey for L-J Properties Inc., Weeks Super Partnership,
Ltd., A.R. Weeks & Associates, Inc., The First National Bank of Atlanta and
Ticor Title Insurance Company of California, dated September 24, 1990, prepared
by Pinion & McGaughey Land Surveyors, Inc. and bearing the seal and
certification of George H. Pinion, G.R.L.S. No. 1606, said property being all of
Lot 4, Block A, of Unit III of Gwinnett Pavilion Subdivision; a portion of Lot
3, Block A of Unit III of Gwinnett Pavilion Subdivision and a portion of lot 1,
Block D of Unit 1 of Gwinnett Pavilion Subdivision as presently platted and
recorded in Plat Book 46, page 224 and Plat Book 51, page 4 of Gwinnett County,
Georgia Records.
-15-
<PAGE> 1
EXHIBIT 10.6
STATE OF GEORGIA
GWINNETT COUNTY
AMENDMENT NO. 1
THIS AMENDMENT NO. 1 to the Lease Agreement (the "Lease") dated the 8th
day of August, 1997, by and between L-J Properties, Inc. ("Landlord") and
Larson-Juhl Inc. ("Tenant"), made this 26th day of October 1993.
WITNESSETH
Whereas, Landlord leases to Tenant, and Tenant leases from Landlord
"Leased Premises" (as defined in the Lease);
Whereas, Tenant desires to lease from Landlord that certain tract or
parcel of land adjacent to the Leased Premises, as shown in Exhibit "A" (the
"Adjacent Property"); whereas, the Landlord desires to lease to Tenant that
certain tract or parcel of land adjacent to the Leased Premises;
Now, therefore, for and in consideration of the premises, the mutual
covenants and agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant hereby covenant and agree as follows:
1. Landlord and Tenant reaffirm that the Lease Agreement dated
the 8th day of August, 1991 by and between Landlord and Tenant
is in full force and effect.
2. Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord the Adjacent Property.
3. Term - to have and hold said Adjacent Property for a term
coterminus with the Lease Agreement (Section 2.01 and Section
29.01), commencing October 26, 1993.
4. Rental - As rental for the Adjacent Property, Tenant agrees to
pay L-J Properties, Inc., for the account of Landlord, the sum
of Thirty-six Thousand Four Hundred Eighty Dollars ($36,480)
per year, payable in monthly installments ("Monthly Base Rent
- Adjacent Property") each in the amount of Three Thousand
Forty Dollars ($3,040) on or before the first day of each
calendar month beginning on November 1, 1993 and thereafter
for the remainder of the term, together with any other
additional rental as hereinafter set forth. Monthly Base Rent
- Adjacent Property hereunder shall be adjusted annually,
after written notice from the Landlord. The annual Monthly
Base Rent - Adjacent Property adjustment shall be the greater
of four and one-half
<PAGE> 2
percent (4.5%) or the proportional increase, if any, in the
United States Consumer Price Index (all items Atlanta, Georgia
area, of the U.S. Bureau of Labor Statistics), from the first
month of the lease year to the last month of the lease year
previous to the lese year for which the Monthly Base Rent -
Adjacent Property adjustment is computed. Tenant shall pay
interest at a rate of twelve percent (12%) per annum on all
payments more than 10 days past due. If the Lease shall end on
any date, other than the last day of a calendar month, rent
for such month shall be prorated.
IN WITNESS WHEREOF, the parties hereto who are individuals have set
their hands and seals, and the parties who are corporations have caused
this instrument to be duly executed by its proper officers and its
corporate seal to be affixed, as of the day and year first above
written.
Landlord
L-J PROPERTIES INC.
By: /s/ Patty G. Kauppi
----------------------------------
Name: Patty G. Kauppi
Its: Assistant Secretary
Tenant
LARSON-JUHL INC.
By: /s/ Steve M. Scheppmann, VP-Finance
-----------------------------------
Name: Stephen M. Scheppmann
Its: VP - Finance
2
<PAGE> 3
EXHIBIT "A"
(ADJACENT PROPERTY)
LEGAL DESCRIPTION
ALL THAT TRACT or parcel of land lying and being in Land Lot 202 and 2203 of the
Sixth District of Gwinnett County, Georgia, and being more fully described as
follows:
To find the true point of beginning, begin at the point of intersection of the
easterly right of way of Steve Reynolds Boulevard (formerly known as Franklin
Road), a right of way of varying widths beings determined by measuring 50 feet
from the centerline of the existing pavement at this point, with the southerly
mitered right of way of Pavilion Place, an 80 foot right of way, thence along
said right of way miter of Pavilion Place north 79 degrees 03 minutes 23 seconds
east a distance of 30.10 feet to an iron pin found, thence continuing along said
right of way south 55 degrees 56 minutes 37 seconds east a distance of 245.88
feet to a point, thence along a curve to the left, having a radius of 612.96
feet, an arc distance of 146.29 feet to a point, said arc being subtended by a
chord having a chord bearing and distance of south 62 degrees 46 minutes 51
seconds east, 145.94 feet; thence continuing along said right of way south 69
degrees 37 minutes 05 seconds east a distance of 115.80 feet to a point, thence
continuing along said right of way along a curve to the right, making a radius
of 25.00 feet, an arc distance of 17.51 feet to a point, said arc being
subtended by a chord having a chord bearing and distance of south 49 degrees 33
minutes 30 seconds east, 17.15 feet; thence continuing along said right of way
along a curve to the left, having a radius of 60.00 feet, an arc distance of
114.95 feet to an iron pin set and being the true point of beginning, said arc
being subtended by a chord having a chord bearing and distance of south 84
degrees 23 minutes, 05 seconds east 98.16 feet;
Thence from the true point of beginning continuing along the right of way of
Pavilion Place along a curve to the left, having a radius of 60.00 feet, an arc
distance of 63.33 feet to a 1/2" rebar found, said arc being subtended by a
chord having a chord bearing and distance of north 10 degrees 29 minutes 42
seconds east, 60.43 feet; thence leaving said right of way south 86 degrees 11
minutes 36 seconds east a distance of 141.74 feet to an iron pin set; thence
south 31 degrees 14 minutes 13 seconds west a distance 65.98 feet to an iron pin
set; thence south 58 degrees 45 minutes 47 seconds east a distance of 386.99
feet to an iron pin set; thence south 31 degrees 19 minutes 08 seconds west a
distance of 172.49 feet a 1 1/2" hollow top pipe found on the land lot line
common to Land Lots 183 and 202; thence along said land lot line south 59
degrees 38 minutes 47 seconds west a distance of 167.75 feet to an iron pin set;
thence leaving said land lot line and running north 55 degrees 59 minutes 13
seconds west a distance of 257.65 feet to a 1//3" rebar found thence north 34
degrees 00 minutes 47 seconds east a distance of 173.06 feet to a 1/2" rebar
found; thence north 11 degrees 20 minutes 22 seconds west a distance of 104.60
feet to a 1/2" rebar found; thence north 59 degrees 55 minutes 01 seconds west a
distance of 71.94 feet to a 1/2" rebar found; thence north 49 degrees 16 minutes
13 seconds west a distance of 19.94 feet to an iron pin set, and being the true
point of
3
<PAGE> 4
beginning. Said property being Lot 3, Block "A", Unit 111 of Pavilion Place and
containing 2.643 acres.
4
<PAGE> 1
EXHIBIT 10.8
PROMISSORY NOTE
$___________ _________, 1998
Norcross, Georgia
FOR VALUE RECEIVED, LARSON-JUHL INC., a Georgia corporation (the
"Company"), promises to pay to the order of ____________________ ("Holder"), at
3900 Steve Reynolds Boulevard, Norcross, Georgia 30093, or at such other place
as Holder may designate in writing, the principal sum
____________________________________________ ($___________) in full on demand.
Unpaid principal hereunder shall bear interest at 11.0% per annum (the "Interest
Rate"). Interest shall accrue from the date hereof and shall be paid quarterly
in arrears on the 1st day of each August, November, February and May of each
year until the principal balance hereof shall have been paid in full. Interest
shall be computed on the outstanding principal amount hereunder on the basis of
the actual number of days elapsed over a year of 365 days.
Whenever any payment hereunder shall become due, or otherwise would
occur, on a day that is not a business day, such payment may be made on the next
succeeding business day (and such extension of time shall in such case be
included in the computation of interest). Payments made pursuant to the terms
hereof shall first be credited to interest then accrued and the remainder shall
be credited to outstanding principal. Prepayment of principal and interest in
whole or in part may be made at any time and from time to time without penalty.
All past due principal and, to the extent provided by applicable law,
past due interest, under this Note shall bear interest at the Interest Rate plus
3% per annum until all past due amounts of principal and interest shall have
been paid in full; provided that in no event shall the applicable interest rate
exceed the maximum rate of interest allowed by applicable law.
If any of the following events shall occur and be continuing for any
reason whatsoever, then this Note shall immediately become due and payable
without any further notice or demand of any kind whatsoever, all of which are
hereby expressly waived: the Company defaults in the payment of principal or
interest on this Note when and as the same shall become due and payable and such
default continues for five days after the Company receives notice from Holder of
such default; or the Company makes an assignment for the benefit of creditors or
admits in writing its inability to pay its debts generally as they become due;
or an order, judgment or decree is entered adjudicating the Company bankrupt or
insolvent; or the Company petitions or applies to any tribunal for the
appointment of a trustee or receiver of the Company, or of any substantial part
of the assets of the Company, or commences any proceedings relating to the
Company under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction,
whether now or hereafter in effect; or any such petition or application is
filed, or any such proceedings are commenced, against the Company, and the
Company by any act indicates its approval thereof, consent thereto, or
acquiescence therein, or an order is entered appointing any such trustee or
receiver, or approving the petition in any such proceedings, and such order
remains unstayed and in effect for more than ninety days.
<PAGE> 2
The Company (i) promises to pay all expenses, including reasonable
attorneys' fees, actually incurred in the enforcement or collection of this
Note; (ii) agrees that no delay, failure to act or failure to exercise any right
or remedy on the part of Holder of this Note shall in any way affect or impair
the obligations of the Company; and (iii) waives presentment, protest and notice
of dishonor, and further waives its rights to all other notices or demands that
might otherwise be required by law.
Holder is acquiring this Note for his own account and not for
distribution.
The provisions of this Note are to be governed by and construed
according to the laws of the State of Georgia.
IN WITNESS WHEREOF, the Company has executed this Note under seal on
the day and year first written above.
LARSON-JUHL INC.
By:
------------------------------------
Craig A. Ponzio
Chairman and Chief Executive Officer
<PAGE> 1
EXHIBIT 21.1
<TABLE>
<CAPTION>
SUBSIDIARY JURISDICTION
---------- ------------
<S> <C>
Larson-Juhl International, L.L.C. Georgia
Art Materials, Frames and Moulding Company, Inc. Alabama
Robert F. de Castro, Inc. Louisiana
Glass Corporation of America, Inc. Louisiana
Art West, Inc. Arizona
Eastern Moulding Company Maryland
Eastern Mouldings Company New Jersey
Larson-Juhl Canada Inc. Canada
Multico Manufacturing, Inc. Canada
Larson-Juhl Wels GmbH Austria
Nottling Larson-Juhl GmbH Austria
Larson-Juhl Germany GmbH Germany
Larson-Juhl Rahman GmbH & Co. Handels-KG Germany
Larson-Juhl Rahman GmbH Germany
Mersch Design GmbH Germany
Larson-Juhl SA France
Brio SA France
SAB SA France
ARCAD SA France
Senelar Larson-Juhl SA France
Frimpex SA France
SM SARL France
Larson-Juhl France S.A.R.L. France
Larson-Juhl Hellas Picture Frames S.A. Greece
LAC-ART Larson-Juhl Single Partner L.L.C. Greece
Larson-Juhl Netherlands B.V. Netherlands
Dutch Frame Company B.V. Netherlands
Styling Design Barneveld B.V. Netherlands
Lever's Lijstenfabrieck B.V. Netherlands
Lever Onroerond Goed Opperduit B.V. Netherlands
Larson-Juhl Training and Equipment B.V. Netherlands
Erijko Beheer Exploitatiernaatschappij B.V. Netherlands
Barth Lijsten Beheer B.V. Netherlands
Erijko Lijsten B.V. Netherlands
Barth Lijsten Boxtel B.V. Netherlands
Barth Lijsten Nederland B.V. Netherlands
Larson-Juhl Australia L.L.C. Georgia
Larson-Juhl Korea Limited Korea
Lira, A.S. Czech Republic
The Moulding Group Limited U.K.
Northampton Acquisition Limited U.K.
Magnolia Group Limited U.K.
ARQ-DM Limited U.K.
Arquati U.K. Limited U.K.
Larson-Juhl (UK) Limited U.K.
IMALC (Pty.) Ltd. South Africa
Atlanta Mouldings Company (Pty.) Ltd. South Africa
Supreme Larson-Juhl (Pty.) Ltd. South Africa
Larson-Juhl Sweden A.B. Sweden
Guldlist Larson-Juhl AB Sweden
AB Edenholms Guldlistfabrik Sweden
G. Lundrens Effr A.B. Sweden
Tranaslist, A.B. Sweden
Heinonsalo Larson-Juhl Oy Finland
Dekotukku Oy Finland
Larson-Juhl Russia Russia
Larson-Juhl Baltic Latvia
Halvorsens Larson-Juhl, A.S. Norway
Larson-Juhl (NZ) Limited New Zealand
Larson-Juhl France, L.L.C. Georgia
Larson-Juhl Nippon Corporation Japan
Larson-Juhl Italia s.r.l. Italy
Arcobalegno s.r.l. Italy
Larson-Juhl Australia Pty Ltd. Australia
Larson-Juhl South Africa L.L.C. Georgia
Larson-Juhl Korea L.L.C. Georgia
Larson-Juhl Seoul L.L.C. Georgia
Larson-Juhl Netherlands L.L.C. Georgia
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our firm) included in or made part of this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Atlanta, Georgia
May 21, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of our report dated May 6, 1998 on the
financial statements of Larson-Juhl Netherlands B.V. for the period September
1, 1997 up to and including March 1, 1998 as well as our reports on the
financial statements of Larson-Juhl Netherlands B.V. for the fiscal years 1995
(for the period January 2, 1995 up to and including August 27, 1995), 1996 (for
the period August 28, 1995 up to and including August 25, 1996) and 1997 (for
the period August 26, 1996 up to and including August 31, 1997).
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO CampsObers
- -------------------
BDO CampsObers
Registeraccountants
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ALBECCA INC. FOR THE YEAR ENDED AUGUST 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> AUG-26-1996
<PERIOD-END> AUG-31-1997
<CASH> 5,301
<SECURITIES> 0
<RECEIVABLES> 54,648
<ALLOWANCES> 5,378
<INVENTORY> 68,209
<CURRENT-ASSETS> 127,659
<PP&E> 69,086
<DEPRECIATION> 16,411
<TOTAL-ASSETS> 208,689
<CURRENT-LIABILITIES> 84,357
<BONDS> 108,726
0
0
<COMMON> 170
<OTHER-SE> 37,143
<TOTAL-LIABILITY-AND-EQUITY> 208,689
<SALES> 354,058
<TOTAL-REVENUES> 354,058
<CGS> 199,250
<TOTAL-COSTS> 199,250
<OTHER-EXPENSES> 118,457
<LOSS-PROVISION> 4,485
<INTEREST-EXPENSE> 10,472
<INCOME-PRETAX> 25,879
<INCOME-TAX> 3,243
<INCOME-CONTINUING> 22,490
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,490
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ALBECCA INC. FOR THE SIX MONTH PERIOD ENDED MARCH
1, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-30-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> MAR-01-1998
<CASH> 5,588
<SECURITIES> 0
<RECEIVABLES> 61,479
<ALLOWANCES> 5,375
<INVENTORY> 74,787
<CURRENT-ASSETS> 144,171
<PP&E> 78,487
<DEPRECIATION> 19,110
<TOTAL-ASSETS> 243,500
<CURRENT-LIABILITIES> 94,712
<BONDS> 132,627
0
0
<COMMON> 170
<OTHER-SE> 39,696
<TOTAL-LIABILITY-AND-EQUITY> 243,500
<SALES> 199,814
<TOTAL-REVENUES> 199,814
<CGS> 112,610
<TOTAL-COSTS> 112,610
<OTHER-EXPENSES> 66,986
<LOSS-PROVISION> 1,465
<INTEREST-EXPENSE> 6,577
<INCOME-PRETAX> 13,641
<INCOME-TAX> 1,710
<INCOME-CONTINUING> 11,573
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,573
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
</TABLE>
