<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1999
REGISTRATION NO. 333-67975
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ALBECCA INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
GEORGIA 5199 39-1389732
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) Number)
</TABLE>
3900 STEVE REYNOLDS BOULEVARD, NORCROSS, GEORGIA 30093
(770) 279-5210
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
CRAIG A. PONZIO
CHIEF EXECUTIVE OFFICER
ALBECCA INC.
3900 STEVE REYNOLDS BOULEVARD
NORCROSS, GEORGIA 30093
(770) 279-5210
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
Of Agent For Service)
---------------------
COPY TO:
PHILIP H. MOISE, ESQ.
NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
FIRST UNION PLAZA, SUITE 1400
999 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309
(404) 817-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
10 3/4% Senior Subordinated Notes Due
2008................................. $200,000,000 100% $200,000,000 $55,600(1)
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</TABLE>
(1) Previously paid.
---------------------
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.
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<PAGE> 2
TABLE OF CO-REGISTRANTS
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<CAPTION>
PRIMARY STANDARD
INDUSTRIAL I.R.S. EMPLOYEE
STATE OF CLASSIFICATION IDENTIFICATION
NAME OF ADDITIONAL REGISTRANT INCORPORATION CODE CODE
- ----------------------------- ------------- ---------------- ---------------
<S> <C> <C> <C>
Larson-Juhl US LLC.............................. Georgia 5199 58-2398627
Larson-Juhl International LLC................... Georgia 5199 58-2140960
Art Materials, Frames and Mouldings Company,
Inc. ......................................... Alabama 5199 63-0711562
Robert F. de Castro, Inc........................ Louisiana 5199 72-0644195
Glass Corporation of America, Inc. ............. Louisiana 5199 72-1313202
Art West, Inc. ................................. Arizona 5199 86-0499093
Eastern Moulding, Inc. ......................... Maryland 5199 52-1263383
Eastern Mouldings, Inc. ....................... New Jersey 5199 52-1554295
Larson-Juhl Australia L.L.C. ................... Georgia 5199 58-2157387
Larson-Juhl France L.L.C. ...................... Georgia 5199 58-2140956
Larson-Juhl South Africa L.L.C. ................ Georgia 5199 58-2140958
Larson-Juhl Seoul L.L.C. ....................... Georgia 5199 58-2140652
Larson-Juhl Korea L.L.C......................... Georgia 5199 58-2140650
Larson-Juhl Netherlands L.L.C. ................. Georgia 5199 58-2140958
</TABLE>
(ii)
<PAGE> 3
ALBECCA INC.
REGISTRATION STATEMENT ON FORM S-4
(CROSS REFERENCE SHEET FURNISHED PURSUANT TO
ITEM 501(B) OF REGULATION S-K)
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ITEM LOCATION IN PROSPECTUS
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1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover of Prospectus; Cover
Page of the Registration Statement; Cross
Reference Sheet
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Available Information; Incorporation of
Certain Documents by Reference; Outside
Back Cover of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Summary; Risk Factors; Business; Selected
Financial Data
4. Terms of the Transaction................... Summary; Risk Factors; The Exchange Offer;
Description of the Notes; Plan of
Distribution; Certain United States Federal
Income Tax Considerations
5. Financial Information...................... Summary; Capitalization; Selected
Consolidated Financial Data
6. Material Contracts with the Company Being
Acquired................................... Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters............................ Not Applicable
8. Interests of Named Experts and Counsel..... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
10. Information With Respect to S-3
Registrants................................ Not Applicable
11. Incorporation of Certain Information by
Reference.................................. Not Applicable
12. Information With Respect to S-2 or S-3
Registrants................................ Not Applicable
13. Incorporation of Certain Information by
Reference.................................. Not Applicable
14. Information With Respect to Registrants
Other Than S-3 or S-2 Registrants.......... Outside Front Cover of Prospectus; Summary;
Risk Factors; Selected Consolidated
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business; Consolidated
Financial Statements
15. Information With Respect to S-3
Companies.................................. Not Applicable
16. Information With Respect to S-2 or S-3
Companies.................................. Not Applicable
17. Information With Respect to Companies Other
Than S-2 or S-3 Companies.................. Not Applicable
</TABLE>
<PAGE> 4
<TABLE>
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ITEM LOCATION IN PROSPECTUS
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18. Information if Proxies, Consents or
Authorizations are to be Solicited......... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited, or
in an Exchange Offer....................... Summary; Management; Certain Relationships
and Related Transactions
</TABLE>
<PAGE> 5
(ALBECCA LOGO)
PROSPECTUS
Exchange Offer for
$200,000,000
10 3/4% Senior Subordinated Notes Due 2008
TERMS OF EXCHANGE OFFER
- - Expires 5:00 p.m., New York City time,________, 1999, unless extended.
- - Unconditional other than that the exchange offer not violate applicable law or
any applicable interpretation of the Staff of the Securities and Exchange
Commission.
- - All outstanding notes that are validly tendered and not validly withdrawn will
be exchanged.
- - Tenders of outstanding notes may be withdrawn any time before the expiration
of the exchange offer.
- - The exchange of notes will not be a taxable exchange for U.S. federal income
tax purposes.
- - We will not receive any proceeds from the exchange offer.
- - The terms of the notes to be issued are substantially identical to the
outstanding notes, except for certain transfer restrictions and registration
rights relating to the outstanding notes.
Investing in the notes involves certain risks. See "Risk Factors" beginning on
page 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE NOTES TO BE DISTRIBUTED IN THE EXCHANGE OFFER, NOR
HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
, 1998
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY..................................................... 1
RISK FACTORS................................................ 6
WHERE YOU CAN FIND MORE INFORMATION......................... 9
USE OF PROCEEDS............................................. 10
CAPITALIZATION.............................................. 11
SELECTED CONSOLIDATED FINANCIAL DATA........................ 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 13
BUSINESS.................................................... 20
MANAGEMENT.................................................. 31
PRINCIPAL SHAREHOLDERS...................................... 35
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 35
DESCRIPTION OF CERTAIN INDEBTEDNESS......................... 36
THE EXCHANGE OFFER.......................................... 37
DESCRIPTION OF NOTES........................................ 45
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS..... 82
PLAN OF DISTRIBUTION........................................ 84
LEGAL MATTERS............................................... 85
EXPERTS..................................................... 85
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
</TABLE>
i
<PAGE> 7
SUMMARY
The following summary highlights selected information from this Prospectus
and may not contain all of the information that is important to you. This
Prospectus includes specific terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage you
to read this Prospectus in its entirety.
THE EXCHANGE OFFER
Registration Rights........ You have the right to exchange your notes for
registered notes with substantially identical
terms. The exchange offer is intended to satisfy
these rights. After the exchange offer is
complete, you will no longer be entitled to any
exchange or registration rights with respect to
your notes.
The Exchange Offer......... We are offering to exchange $1,000 principal amount
of 10 3/4% senior subordinated notes due 2008 of
Albecca Inc. which have been registered under the
Securities Act of 1933 for each $1,000 principal
amount of its outstanding 10 3/4% senior
subordinated notes due 2008 which were issued in
August 1998 in a private offering. In order to be
exchanged, an outstanding note must be properly
tendered and accepted. All outstanding notes that
are validly tendered and not validly withdrawn
will be exchanged.
As of this date there are $200 million principal
amount of notes outstanding.
We will issue registered notes on or promptly after
the expiration of the exchange offer.
Expiration Date............ The exchange offer will expire at 5:00 p.m., New
York City time, , 1999, unless we
decide to extend the expiration date. Any
extension can be no more than 30 days from the
effective date of this Prospectus.
Resale of Notes............ Based on current SEC interpretations, we believe
that the notes issued in the exchange offer may
be offered for resale, resold and otherwise
transferred by you without compliance with the
registration and prospectus delivery provisions
of the Securities Act of 1933 provided that:
- the notes issued to you in the exchange offer are
being acquired in the ordinary course of your
business;
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate, in
the distribution of the notes issued to you in
the exchange offer; and
- you are not an "affiliate" of ours.
If our belief is inaccurate and you transfer any
note issued to you in the exchange offer without
delivering a prospectus meeting the requirements
of the Securities Act of 1933 or without an
exemption from registration of your notes from
these requirements, you may incur liability under
the Securities Act of 1933. We do not assume or
indemnify you against this liability.
1
<PAGE> 8
Any broker-dealers who acquired the outstanding
notes in the offering may not rely on the SEC's
interpretations. Therefore, each broker-dealer
that is issued notes in the exchange offer for
its own account in exchange for notes which were
acquired by a broker-dealer as a result of
market-making or other trading activities, must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act of
1933, as amended, in connection with any resale
of the notes issued in the exchange offer. A
broker-dealer may use this prospectus for an
offer to resell, resale or other retransfer of
the notes issued to it in the exchange offer.
Consequences of Not
Exchanging Notes......... If you do not exchange your notes for notes issued
in the exchange offer, you will no longer be
entitled to registration rights and will not be
able to offer or sell your notes, unless they are
later registered under the Securities Act, or are
exempt from registration, or are sold in a
transaction not governed by the Securities Act
and applicable state securities laws. Except for
this registration, and except in limited
circumstances, we have no obligation to register
your notes.
Yield and Interest on the
Notes.................... The notes issued in the exchange offer bear
interest at the rate of 10 3/4% per annum,
payable semi-annually on February 15 and August
15 of each year, beginning February 15, 1999.
Conditions to the Exchange
Offer.................... The exchange offer is not conditioned upon any
minimum principal amount of notes being tendered
for exchange. However, the exchange offer has
certain customary conditions, which we may waive,
under certain circumstances. See "The Exchange
Offer -- Conditions." Except for the requirements
of applicable federal and state securities laws,
we do not have to comply with any federal or
state regulatory requirements in connection with
the exchange offer.
Procedures for Tendering
Notes.................... Subject to certain conditions, if you want to
accept the exchange offer you must complete, sign
and date the Letter of Transmittal, or a
facsimile of it, in accordance with the
instructions contained in this Prospectus and in
the Letter of Transmittal, and mail or otherwise
deliver the Letter of Transmittal or facsimile,
together with your notes to be exchanged and any
other required documentation, to the exchange
agent at the address given in this Prospectus.
You may instead tender of your notes through the
procedures for book-entry transfer explained in
this Prospectus. See "The Exchange
Offer -- Procedures for Tendering" and
"-- Book-Entry Transfer."
Guaranteed Delivery
Procedures............... If you wish to tender your notes and they are not
immediately available or you cannot deliver them
and a properly completed Letter of Transmittal,
or any other documents required by the Letter of
Transmittal, to the exchange agent before
, 1999, you may tender your notes
according to the guaranteed delivery procedures
explained under "The Exchange Offer -- Guaranteed
Delivery Procedures."
Withdrawal Rights.......... You may withdraw the tender of your notes at any
time before 5:00 p.m., New York City time, on
, 1999. To withdraw a tender of
2
<PAGE> 9
your notes, a written or facsimile transmission
notice of withdrawal must be received by the
exchange agent at its address given under "The
Exchange Offer -- Exchange Agent" before 5:00
p.m., New York City time, on , 1999.
Acceptance of Notes and
Delivery of Notes........ Subject to certain conditions, any and all notes
that are properly tendered in the exchange offer
before 5:00 p.m., New York City time, on
, 1999 will be accepted for exchange.
The new notes issued in the exchange offer will
be delivered promptly following , 1999.
See "The Exchange Offer -- Terms of the Exchange
Offer."
Certain Tax
Considerations............. The exchange of notes will not be considered a sale
or exchange or otherwise a taxable event for
federal income tax purposes. See "Certain United
States Federal Income Tax Considerations."
Exchange Agent............. State Street Bank and Trust Company is serving as
exchange agent in connection with the exchange
offer.
Fees and Expenses.......... We will pay all expenses incident to the exchange
offer.
Use of Proceeds............ We will not receive any cash proceeds from the
issuance of the notes in the exchange offer. See
"Use of Proceeds."
SUMMARY OF TERMS OF NOTES
The form and terms of the new notes to be issued in the exchange offer are
the same as the form and terms of old notes except that the new notes will be
registered under the Securities Act of 1933 and, therefore, will not bear
legends restricting their transfer and will not be entitled to further
registration under the Securities Act of 1933. The new notes will evidence the
same debt as the old notes and both the old notes and the new notes to be issued
are governed by the same indenture.
Maturity Date.............. August 15, 2008.
Interest Rate.............. 10 3/4% per annum, payable semi-annually on
February 15 and August 15 of each year, beginning
February 15, 1999.
Optional Redemption........ On or after August 15, 2003, the notes will be
redeemable at our option, in whole or in part, at
any time in cash at the redemption prices listed
under the caption "Description of the
Notes" -- "Optional Redemption."
Subsidiary Guarantees...... The notes are unconditionally guaranteed, jointly
and severally, by all of the subsidiary
guarantors, which consist of almost all of our
subsidiaries other than foreign subsidiaries. If
we cannot make payments on the notes when they
are due, the subsidiary guarantors must make them
instead.
Ranking.................... The notes and subsidiary guarantees are senior
subordinated debts.
These rank behind all of our and our guarantor
subsidiaries' current and future debt, except
trade payables and; except indebtedness that
expressly provides that it is not senior to these
notes and the subsidiary guarantees. As of
November 29, 1998, we and our subsidiaries had
$65.0 million in outstanding debt that will be
senior to the notes.
3
<PAGE> 10
Change of Control.......... If we sell certain assets or experience specific
kinds of changes in control, we must offer to
repurchase the notes at prices listed in the
section "Description of the Notes -- Change of
Control."
Restrictive Covenants...... We are issuing the notes under an indenture. The
indenture, among other things, restricts our
ability to:
- pay dividends;
- redeem stock;
- borrow money or issue preferred equity interests;
- sell certain assets or merge with or into other
companies;
- use assets as security in other transactions; and
- enter into certain transactions with affiliates.
OUR COMPANY
Albecca Inc., which primarily does business under the Larson-Juhl name, is
a worldwide leader in the custom framing industry. We design, manufacture and
distribute a complete line of high quality, branded custom framing products,
including wood and metal moulding, matboard, foam board, glass, equipment and
other framing supplies. A more detailed description of our business appears
later in this Prospectus under the heading "Business."
Our headquarters are located at 3900 Steve Reynolds Boulevard, Norcross,
Georgia 30093. Our telephone number is (770) 279-5210.
4
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data of our
company. Our financial statements are prepared in accordance with GAAP. Albecca
is an S corporation and is not required to pay United States federal and certain
state income taxes.
The Company ends its fiscal year on the last Sunday in August. The
information as of and for the fiscal years ended August 28, 1994, August 27,
1995, August 25, 1996, August 31, 1997 and August 30, 1998 is derived from our
audited consolidated financial statements. Fiscal year 1997 was a 53-week year.
The summary consolidated financial data for the three months ended November 30,
1997 and November 29, 1998 has been derived from the Company's unaudited
consolidated 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.
It is important that you read the summary consolidated financial data
presented below along with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of our company and the related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS ENDED
---------------------------------------------------- ----------------------------
NOVEMBER 30, NOVEMBER 29,
1994 1995 1996 1997 1998 1997 1998
-------- -------- -------- -------- -------- ------------ ------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $157,346 $225,359 $300,788 $354,058 $381,137 $102,985 $103,575
Gross profit...................... 66,542 97,018 126,824 153,308 165,056 44,119 44,640
Restructuring charges............. -- -- -- -- 2,262 -- 117
Operating income.................. 15,534 22,471 30,229 35,601 31,961 10,773 8,299
Costs of cancelled initial public
equity offering................. -- -- -- -- 1,273 -- --
Net income........................ 13,335 16,044 19,404 22,490 14,363 7,368 473
OTHER DATA:
Net cash provided by operating
activities...................... $ 12,732 $ 19,043 $ 30,640 $ 22,150 $ 15,834 $ 4,836 $ 1,945
Net cash used in investing
activities...................... (8,826) (31,084) (38,099) (22,514) (34,015) (19,169) (4,529)
Net cash (used in) provided by
financing activities............ (3,530) 14,068 8,282 1,504 67,658 18,564 (2,793)
Adjusted EBITDA(1)................ 17,807 28,174 35,531 42,486 46,404 13,269 10,309
Adjusted EBITDA margin(2)......... 11.3% 12.5% 11.8% 12.0% 12.2% 12.9% 10.0%
Depreciation and amortization..... $ 2,273 $ 5,703 $ 5,302 $ 6,885 $ 8,213 $ 1,818 $ 2,174
Capital expenditures.............. 2,873 5,291 5,461 7,746 8,378 965 616
CREDIT DATA:
Cash interest expense(3)..................................................... $ 11,893 $ 2,343 $ 6,844
Ratio of Adjusted EBITDA to cash interest expense(3)......................... 3.9x 5.7x 1.5x
Ratio of net debt to Adjusted EBITDA(4)...................................... 4.5 3.0 5.0
Ratio of earnings to fixed
charges(5)...................... 15.0 5.6 4.4 3.7 2.7 4.6 1.2
Pro forma ratio of earnings to fixed charges(6).............................. 1.2
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
AUGUST 30, 1998 NOV. 29, 1998
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(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................................... $ 54,884 $ 48,488
Working capital............................................................................. 97,150 99,270
Total assets................................................................................ 305,922 317,779
Total debt.................................................................................. 262,769 264,973
Shareholders' deficit....................................................................... (25,644) (25,742)
</TABLE>
- ---------------
(1) Adjusted EBITDA is defined as operating income plus depreciation,
amortization (excluding amortization of bond issuance costs), restructuring
charges and certain non-recurring costs (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations"). Adjusted EBITDA
presented for the year ended August 30, 1998 excludes restructuring charges
of $2,262,000 and non-recurring costs of $5,241,000. Adjusted EBITDA for the
three months ended November 29, 1998 excludes restructuring charges of
$117,000. There were no restructuring charges or non-recurring costs
excluded in the computation of Adjusted EBITDA in any other period
presented. Adjusted EBITDA is presented as Albecca believes it is 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). Adjusted EBITDA
is not necessarily comparable to similarly titled measures for other
companies and does not necessarily represent amounts of funds available for
management's discretionary use.
(2) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of net
sales.
(3) Cash interest expense represents total interest expense less amortization of
bond issuance costs.
(4) Net debt is defined as total debt less cash and cash equivalents.
(5) Earnings represent operating income and fixed charges represent actual
interest charges for the period.
(6) Fixed charges for purposes of this calculation are adjusted to give effect
for the proceeds and related uses of the notes as if the notes had been
issued of the beginning of the period presented.
5
<PAGE> 12
RISK FACTORS
This Prospectus includes "forward looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act including,
in particular, the statements about the Company's plans, strategies, and
prospects under the headings "Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Business." Although we
believe that our plans, intentions and expectations reflected in or suggested by
such forward-looking statements are reasonable, we can give no assurance that
such plans, intentions or expectations will be achieved. Important factors that
could cause actual results to differ materially from the forward looking
statements we make in this Prospectus are set forth below and elsewhere in this
Prospectus. All forward-looking statements attributable to the Company or
persons acting on our behalf are expressly qualified in their entirety by the
following cautionary statements.
SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT THE
FINANCIAL HEALTH OF ALBECCA AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER
THESE NOTES.
We have now and, after the offering, will continue to have a significant
amount of indebtedness. The following chart shows certain important credit
statistics and is presented assuming we had completed this offering as of the
dates or at the beginning of the periods specified below and applied the
proceeds as intended:
<TABLE>
<CAPTION>
AUGUST 30, 1998 NOVEMBER 29, 1998
--------------- -----------------
<S> <C> <C>
Total indebtedness..................................... $262,769 $264,973
Shareholders' deficit.................................. $(25,644) $(25,742)
</TABLE>
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED THREE MONTHS ENDED
AUGUST 30, 1998 NOVEMBER 29, 1998
--------------- ------------------
<S> <C> <C>
Ratio of earnings to fixed charges.................... 2.7x 1.2x
</TABLE>
Our substantial indebtedness could have important consequences to you. For
example:
- it could require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby making it more
difficult for us to satisfy our obligations with respect to these notes
and reducing the availability of our cash flow to fund working capital,
capital expenditures, research and development efforts and other general
corporate purposes;
- because a certain portion of our borrowings bear interest at variable
rates, we could be exposed to higher interest expense if there is an
increase in interest rates;
- it could limit our ability to borrow additional funds and a failure to
comply with the financial and restrictive covenants in our indebtedness
could result in an event of default which, if not cured or waived, could
have a material adverse effect on us; and
- certain foreign revolving credit facilities and term loans generally
restrict the subsidiary nonguarantors' ability to pay dividends or repay
intercompany loans to Albecca or other subsidiary guarantors.
- it could place us at a competitive disadvantage compared to our
competitors that have less debt because it will limit our flexibility in
planning for, or reacting to, changes in our business and the industry in
which we operate.
See "Description of Notes."
LIQUIDITY AND NEED FOR ADDITIONAL CASH -- TO SERVICE OUR INDEBTEDNESS, WE AND
OUR SUBSIDIARIES MAY NEED TO INCUR MORE DEBT. THIS COULD FURTHER EXACERBATE THE
RISKS DESCRIBED ABOVE.
Our ability to make payments on, or to refinance, our indebtedness
including these notes, or to fund planned capital or other expenditures, will
depend on our ability to generate cash in the future either through operations
or borrowings. However, either because of economic, financial, business and
other factors beyond
6
<PAGE> 13
our control, or our inability to achieve anticipated cost savings and operating
improvements, we cannot assure you that our cash flow from operations, available
cash and available borrowings will be adequate to pay our indebtedness,
including these notes, or to fund our other liquidity needs. We may need to
refinance all or a portion of our indebtedness, including these notes, on or
before maturity, and for the same reasons cannot assure you that we will be able
to refinance any of our indebtedness, including these notes, on commercially
reasonable terms or at all.
SUBORDINATION -- YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES IS JUNIOR TO OUR
EXISTING INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS. FURTHER, THE
GUARANTEES OF THESE NOTES ARE JUNIOR TO ALL OUR GUARANTORS' EXISTING
INDEBTEDNESS AND POSSIBLY TO ALL THEIR FUTURE BORROWINGS.
These notes and the subsidiary guarantees rank behind all of our and the
subsidiary guarantors' existing indebtedness, and future indebtedness incurred
without violating any of the indenture covenants other than trade payables and
inter-company debt, except future indebtedness that expressly provides that it
ranks equal with, or subordinated in right of payment to, the notes and the
guarantees. As a result, upon any distribution to our creditors or the creditors
of the guarantors in a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the guarantors or our or their property, the
holders of our senior debt and the guarantors' senior debt will be entitled to
be paid in full in cash before any payment may be made with respect to these
notes or the subsidiary guarantees.
Assuming we had completed this offering on November 29, 1998, these notes
and the subsidiary guarantees would have been subordinated to $65.0 million of
senior debt.
In addition, under certain circumstances, no payments may be made with
respect to the notes if a default exists with respect to senior debt. If we
incur any pari passu debt, the holders of such debt would be entitled to share
ratably with holders of the notes in any proceeds distributed in connection with
a bankruptcy, liquidation, reorganization or similar proceeding. This may have
the effect of reducing the amount of proceeds paid to holders of the notes. In
addition, no cash payments may be made with respect to the notes during the
continuance of a payment default with respect to certain senior debt and, under
certain circumstances, no payments may be made with respect to the notes for a
period of up to 179 days if a nonpayment default exists with respect to certain
senior debt.
The Company conducts most of its foreign operations through foreign
subsidiaries who will not guarantee the notes. Consequently, upon a foreign
subsidiary's liquidation or reorganization these notes and the subsidiary
guarantees will rank behind the rights of the creditors of the foreign
subsidiaries, including trade creditors. As of November 29, 1998, the Foreign
Subsidiaries had approximately $61.8 million of indebtedness.
ABILITY TO CONTINUE AND MANAGE GROWTH -- OUR FAILURE OR INABILITY TO IMPLEMENT
OUR GROWTH STRATEGY SUCCESSFULLY COULD NEGATIVELY AFFECT OUR PROFITABILITY.
Although we have increased our net sales and Adjusted EBITDA significantly
since 1994 through acquisitions and internal growth, we cannot assure you that
we will be able to maintain such growth. Our ability to continue to grow will
depend on a number of factors, including the ability to make successful
acquisitions, the demand for our existing and new custom framing products, our
ability to maintain sufficient profit margins and the impact of existing and
emerging competition. Concerning acquisitions, we may not be able in the future
to identify acquisition candidates that meet our criteria, enter into
acquisition agreements on favorable terms, or successfully integrate an acquired
business. We compete for acquisitions with both strategic and financial buyers,
and continued consolidation in the industry may result in fewer acquisition
opportunities. To accommodate our growth we must also recruit, retain and
develop qualified personnel, manage costs and, when needed, adapt our
infrastructure and modify our information systems. Activities related to the
implementation of our growth strategies may at times divert management's
attention from our business operations, and the costs associated with such
activities may adversely affect our profitability.
7
<PAGE> 14
ACCOUNTING FOR GOODWILL
Our consolidated balance sheet as of August 30, 1998 includes an amount
designated as goodwill that represents 14% of total assets. Goodwill is recorded
when the purchase price paid for a business is greater than the fair value of
the acquired business' net assets, including both tangible assets and identified
intangible assets. Goodwill and identified intangible assets are amortized over
the periods estimated to be benefited, but not more than 40 years. For the
acquired companies, we have determined that goodwill and other identifiable
intangible assets should be amortized over 10 to 40 years.
GAAP requires that we identify the tangible and intangible assets acquired
and allocated purchase price to those assets based on their fair values.
Reported earnings therefore are affected by our identification and valuation of
tangible and intangible assets as well as our estimate of the useful lives of
tangible assets and the periods that are expected to be benefited by the
identified intangible assets and goodwill. When the fair values of longer lived
assets are greater than the fair values of shorter lived assets, annual
amortization and depreciation charges are less than when the fair values of
shorter lived assets are greater than the fair values of longer lived assets.
Further, earnings are affected when new information or changes in circumstances
indicate that an asset has been impaired or that its estimated useful life is
less than originally expected. For example, if we subsequently determine that
the value of goodwill has been impaired, we will be required to record a charge
to earnings. Based on our assessment, there is no persuasive evidence that
goodwill should be amortized over a period of less than 40 years.
DEPENDENCE ON KEY MANAGEMENT
We are dependent on the abilities and expertise of Craig Ponzio, our Chief
Executive Officer, and the other key managers listed on page 31 under
"Management," particularly Messrs. Trimarco, Scheppmann and McKenzie. We believe
we have developed significant managerial depth and experience. However, our
business, financial condition and results of operations could be adversely
affected if any of these key managers ceased to be active in the business. We do
not have employment agreements with any of our key managers. See "Management."
FINANCING CHANGE OF CONTROL OFFER -- WE MAY NOT HAVE THE ABILITY TO PURCHASE
YOUR NOTES UPON A CHANGE OF CONTROL AS REQUIRED BY THE INDENTURE.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding notes. However, it is
possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of notes and cannot raise additional
funds, or that restrictions in our credit facilities will not allow such
repurchases. See "Description of the Notes -- Certain Covenants -- Change in
Control."
FRAUDULENT CONVEYANCE MATTERS -- FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER
SPECIFIC CIRCUMSTANCES, TO VOID GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN
PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a debt or guarantee could be voided, or claims in
respect of a debt or guarantee could be subordinated to all other debts of that
debtor guarantor if, among other things, the debtor guarantor, at the time it
incurred the indebtedness evidenced by its debt or guarantee:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee;
- was insolvent or rendered insolvent by reason of such incurrence;
- was engaged in a business or transaction for which the debtor's or
guarantor's remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
8
<PAGE> 15
In addition, any payment by that debtor or guarantor pursuant to its debt
or guarantee could be voided and required to be returned to the debtor or
guarantor, or to a fund for the benefit of the creditors of the debtor or
guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a debtor or guarantor
would be considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets; or
- if the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that Albecca and each guarantor, after giving
effect to issuance and guarantee of these notes, will not be insolvent, will not
have unreasonably small capital for the business in which it is engaged and will
not have incurred debts beyond its ability to pay such debts as they mature.
There can be no assurance, however, as to what standard a court would apply in
making such determinations or that a court would agree with our conclusions in
this regard.
NO PRIOR MARKET FOR NOTES -- YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET
WILL DEVELOP FOR THESE NOTES.
The old notes have been designated as eligible for trading in the NASD's
PORTAL market (Private Offerings, Resales and Trading through Automated
Linkages). Prior to this exchange offer, there has been no public market for the
new notes. If such a market were to develop, the new notes could trade at prices
that may be higher or lower than their principal amount. We do not intend to
apply for listing of the new notes on any securities exchange. The underwriters
who initially purchased the old notes have previously made a market in the old
notes, and currently intend to make a market in the new notes, as permitted by
applicable laws and regulations, after consummation of the exchange offer. They
are not obligated, however, to make a market in the notes and any such
market-making activity may be discontinued at any time without notice at their
sole discretion. In addition, the liquidity of the trading market in these
notes, and the market price quoted for these notes, may be adversely affected by
changes in the overall market for high yield securities and by changes in our
financial performance or prospects or in the prospects for companies in our
industry generally. As a result, you cannot be sure that an active trading
market will develop for these notes.
WHERE YOU CAN FIND MORE INFORMATION
Albecca has filed with the SEC a Registration Statement on Form S-4 under
the Securities Act of 1933, as amended, covering the notes to be issued in the
exchange offer. This Prospectus does not contain all of the information included
in the Registration Statement. Any statement made in this Prospectus concerning
the contents of any contract, agreement or other document is not necessarily
complete. If we have filed any such contract, agreement or other document as an
exhibit to the Registration Statement, you should read the exhibit for a more
complete understanding of the document or matter involved. Each statement
regarding a contract, agreement or other document is qualified in its entirety
by reference to the actual document.
Following the exchange offer, we will be required to file periodic reports
and other information with the SEC under the Securities Exchange Act of 1934, as
amended. Our obligation to file periodic reports with the SEC will be suspended
if the notes issued in the exchange offer are held of record by fewer than 300
holders as of the beginning of any year. However, the indenture governing the
notes requires us to file with the SEC financial and other information for
public availability. In addition, the indenture governing the notes requires us
to deliver to you, or to State Street Bank and Trust for forwarding to you,
copies of all reports that we file
9
<PAGE> 16
with the SEC without any cost to you. We will also furnish such other reports as
we may determine or as the law requires.
You may read and copy the Registration Statement, including the attached
exhibits, and any reports, statements or other information that we file at the
SEC's public reference room in Washington, D.C. You can request copies of these
documents, upon payment of a duplicating fee, by writing the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings will also be available to the public on the SEC
Internet site (http://www.sec.gov).
You should rely only on the information provided in this Prospectus. No
person has been authorized to provide you with different information.
We are not making an offer to exchange notes in any jurisdiction where the
offer is not permitted.
The information in this Prospectus is accurate as of the date on the front
cover. You should not assume that the information contained in this Prospectus
is accurate as of any other date.
USE OF PROCEEDS
The exchange offer is being effected to satisfy Albecca's obligations under
the notes, the Indenture and the Registration Rights Agreement. There will be no
cash proceeds payable to Albecca from the issuance of the notes in the exchange
offer. In consideration of issuing the notes in the exchange offer, Albecca will
receive an equal principal amount of notes. Notes that are properly tendered in
the exchange offer and not validly withdrawn will be accepted, cancelled and
retired and cannot be reissued.
The proceeds from the sale of the notes were used to:
(1) repay and retire Albecca's principal credit facility, which had an
outstanding balance of $82.3 million at the closing of the sale of the
notes; and
(2) fund the distribution of previously undistributed S corporation
earnings to Albecca's shareholders, in an aggregate amount of $60.0
million.
The remainder of the net proceeds of approximately $50.9 million is being
used for general corporate purposes, which may include future acquisitions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Certain Relationships and
Related Transactions."
10
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of Albecca at November
29, 1998. This table should be read in conjunction with Albecca's consolidated
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
NOVEMBER 29,
1998
--------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 48,488
========
Debt (including current maturities):
Notes..................................................... 200,000
Other existing indebtedness............................... 64,973
--------
Total debt........................................ 264,973
Shareholders' deficit....................................... (25,742)
--------
Total capitalization.............................. $239,231
========
</TABLE>
11
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is qualified by reference
to, and should be read in conjunction with, the consolidated 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 Company ends its
fiscal year on the last Sunday in August. The information as of and for the
fiscal years ended August 28, 1994, August 27, 1995, August 25, 1996, August 31,
1997 and August 30, 1998 is derived from our audited consolidated financial
statements. Fiscal year 1997 was a 53-week year. The summary consolidated
financial data for the three months ended November 30, 1997 and November 29,
1998 has been derived from the Company's unaudited consolidated 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. Albecca is an S
corporation and is not required to pay United States federal and certain state
income taxes.
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS ENDED
-------------------------------------------------------- --------------------------
NOV. 30, NOV. 29,
1994 1995 1996 1997 1998 1997 1998
-------- -------- -------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $157,346 $225,359 $300,788 $354,058 $381,137 $102,985 $103,575
Cost of sales................ 90,804 128,341 173,964 200,750 216,081 58,866 58,935
-------- -------- -------- -------- -------- -------- --------
Gross profit............... 66,542 97,018 126,824 153,308 165,056 44,119 44,640
Operating expenses........... 51,008 74,547 96,595 117,707 130,833 33,346 36,224
Restructuring charges........ -- -- -- -- 2,262 -- 117
-------- -------- -------- -------- -------- -------- --------
Operating income........... 15,534 22,471 30,229 35,601 31,961 10,773 8,299
Costs of cancelled initial
public equity offering..... -- -- -- -- 1,273 -- --
Interest income.............. -- -- -- -- (116) (555)
Interest expense............. 1,034 4,008 6,846 9,722 11,949 2,343 7,125
Provision for income taxes... 1,165 2,322 3,679 3,243 4,021 896 1,059
Minority interest............ -- 97 300 146 471 166 197
-------- -------- -------- -------- -------- -------- --------
Net income................... $ 13,335 $ 16,044 $ 19,404 $ 22,490 $ 14,363 $ 7,368 $ 473
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Adjusted EBITDA(1)........... $ 17,807 $ 28,174 $ 35,531 $ 42,486 $ 46,404 $ 13,269 $ 10,309
Adjusted EBITDA margin(2).... 11.3% 12.5% 11.8% 12.0% 12.2% 12.9% 10.0%
Depreciation and
amortization............... $ 2,273 $ 5,703 $ 5,302 $ 6,885 $ 8,213 $ 1,818 $ 2,174
Capital expenditures......... 2,873 5,291 5,461 7,746 8,378 965 616
CREDIT DATA:
Cash interest expense(3)................................................... $ 11,893 $ 2,343 $ 6,844
Ratio of Adjusted EBITDA to cash interest expense(3)....................... 3.9x 5.7x 1.5x
Ratio of net debt to Adjusted EBITDA(4).................................... 4.5 3.0 5.0
Ratio of earnings to fixed
charges(5)................. 15.0 5.6 4.4 3.7 2.7 4.6 1.2
Pro forma ratio of earnings to fixed charges(6)............................ 1.2
BALANCE SHEET DATA:
Cash and cash equivalents.... $ 1,362 $ 3,376 $ 4,363 $ 5,301 $ 54,884 $ 8,334 $ 48,488
Working capital.............. 24,615 32,936 39,456 43,302 97,150 56,992 99,270
Total assets................. 58,458 122,781 190,168 208,689 305,922 253,405 317,779
Total debt................... 14,067 53,969 93,062 108,726 262,769 137,209 264,973
Shareholders' equity
(deficit).................. 26,583 29,106 35,343 37,313 (25,644) 39,858 (25,742)
</TABLE>
- ---------------
(1) Adjusted EBITDA is defined as operating income plus depreciation,
amortization (excluding amortization of bond issuance costs), restructuring
charges and certain non-recurring costs (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations"). Adjusted EBITDA
presented for the year ended August 30, 1998 excludes restructuring charges
of $2,262,000 and non-recurring costs of $5,241,000. Adjusted EBITDA for the
three months ended November 29, 1998 excludes restructuring charges of
$117,000. There were no restructuring charges or non-recurring costs
excluded in the computation of Adjusted EBITDA in any other period
presented. Adjusted EBITDA is presented as Albecca believes it is 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). Adjusted EBITDA
is not necessarily comparable to similarly titled measures for other
companies and does not necessarily represent amounts of funds available for
management's discretionary use.
(2) Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of net
sales.
(3) Cash interest expense represents total interest expense less amortization of
bond issuance costs.
(4) Net debt is defined as total debt less cash and cash equivalents.
(5) Earnings represent operating income and fixed charges represent actual
interest charges for the period.
(6) Fixed charges for purposes of this calculation are adjusted to give effect
to the proceeds and related uses of the notes as if the notes had been
issued at the beginning of the period presented.
12
<PAGE> 19
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 Consolidated Financial Data" and Albecca's consolidated 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 Albecca's international operations
("International") include all of Albecca's operations outside of the U.S.
Albecca uses a 52-53 week fiscal year ending on the last Sunday in August.
Accordingly, fiscal years 1996, 1997 and 1998 ended on August 25, 1996, August
31, 1997, and August 30, 1998, respectively. Moreover, fiscal 1997 was a 53-week
year.
OVERVIEW
Albecca's net sales consist primarily of sales of branded custom framing
products to independent retail custom framers and franchise operations. With
operations in 20 countries, Albecca's net sales are geographically diversified.
U.S. customers accounted for 54.0%, 46.7% and 48.7% of net sales in 1996, 1997
and 1998, respectively, with International customers accounting for the balance.
Albecca has grown internally as well as through the acquisition of 38 other
manufacturers and distributors of custom framing products since 1988. Of these
acquisitions, Albecca completed ten in 1996, six in 1997, six in 1998 and one in
the first three months of 1999.
Albecca's cost of sales for manufactured goods consists primarily of the
cost of raw materials, which is primarily lumber, direct labor and the overhead
associated with the manufacturing processes. Albecca's cost of sales for
products purchased for resale primarily consists of the cost of the product and
the related freight costs. Albecca's operating expenses include the expenses
associated with Albecca'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 LLC has been a limited liability company since
inception. Therefore, neither has been subject to federal and certain state
income taxes. The provision for income taxes that Albecca historically has
recorded has been primarily for certain state and foreign income taxes. In
connection with the offering of the notes, Albecca distributed $60.0 million of
previously undistributed S corporation earnings to its shareholders. See "Use of
Proceeds" and "Certain Relationships and Related Transactions." Albecca intends
to continue to make distributions to its shareholders to pay their income tax
obligations as a result of Albecca's status as an S corporation.
Through June 25, 1998, Albecca Inc. and Larson-Juhl International LLC were
owned and controlled by the same shareholders. Effective June 26, 1998, the
members of Larson-Juhl International LLC contributed their respective equity
interests to Albecca Inc. whereby Larson-Juhl International LLC became a wholly
owned subsidiary of the Company. The merger of these entities that are under
common control has been treated in a manner similar to a pooling-of-interests,
and as such, the financial statements have been restated to include the
financial statements of Larson-Juhl International LLC for all periods presented.
During April 1998, the Company acquired all of the outstanding stock of a
U.S. distributor of custom framing products for approximately $9.9 million in
cash. Goodwill and other intangible assets of approximately $8.4 million were
recorded in connection with the acquisition.
Additionally, during October 1997, the Company acquired all of the
outstanding stock of a distributor of custom framing products for approximately
$8.0 million in cash. Goodwill and other intangible assets of approximately $5.5
million were recorded in connection with the acquisition. The Company also
acquired, during October 1997, the outstanding stock of four U.S. and
international manufacturers and distributors of custom framing products for
aggregate consideration of approximately $11.1 million in cash, resulting in
goodwill and other intangible assets of approximately $7.4 million.
During November 1996, the Company acquired all of the outstanding stock of
an international distributor of custom framing products for approximately $9.6
million in cash. Goodwill and intangible assets of approximately $5.2 million
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
13
<PAGE> 20
framing products for aggregate consideration of approximately $8.8 million in
cash, resulting in goodwill and other intangible assets of approximately $4.6
million.
During September 1995, the Company acquired all of the outstanding stock of
a French manufacturer and distributor of custom framing products for
approximately $6.6 million in cash. No goodwill resulted from this acquisition.
During May 1996, the Company acquired all of the outstanding stock of a United
Kingdom manufacturer and distributor of custom framing products for
approximately $13.3 million in cash. Goodwill and other intangible assets of
approximately $4.7 million 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 $14.2 million in cash, resulting in goodwill and
other intangible assets of approximately $7.4 million.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of
operations data as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, NOVEMBER 29,
1996 1997 1998 1997 1998
----- ----- ----- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................ 57.8 56.7 56.7 57.2 56.9
----- ----- ----- ----- -----
Gross profit........................... 42.2 43.3 43.3 42.8 43.1
Operating expenses....................... 32.1 33.2 34.3 32.4 35.0
Restructuring charges.................... -- -- 0.6 -- 0.1
----- ----- ----- ----- -----
Operating income....................... 10.1 10.1 8.4 10.4 8.0
Cost of cancelled initial public
offering............................... -- -- 0.3 -- --
Interest income.......................... -- -- -- -- (0.5)
Interest expense......................... 2.2 2.8 3.1 2.2 6.8
----- ----- ----- ----- -----
Income before provision for income
taxes and minority interest......... 7.9 7.3 5.0 8.2 1.7
Provision for income taxes............... 1.2 0.9 1.1 0.9 1.0
Minority interest........................ 0.1 -- 0.1 0.1 0.2
----- ----- ----- ----- -----
Net income..................... 6.6% 6.4% 3.8% 7.2% 0.5%
===== ===== ===== ===== =====
Adjusted EBITDA................ 11.8% 12.0% 12.2% 12.9% 10.2%
===== ===== ===== ===== =====
</TABLE>
The preparation of unaudited interim financial results requires the
Company's management to make estimates and assumptions that affect the amounts
reported in the interim financial results. Historical results are not
necessarily indicative of the results to be expected in the future and results
for the interim periods are not necessarily indicative of results for the entire
year.
First Three Months of 1999 Compared to First Three Months of 1998
Net Sales. Net sales were $103.6 million in the first three months of 1999
compared to $103.0 million in the comparable period in 1998. This increase is
primarily a result of the impact of the six acquisitions completed during 1998
and an increase in sales to independent custom framing retailers, partially
offset by an estimated $1.6 million decrease in sales to framing departments of
craft chains and the closure of the Company's United Kingdom manufacturing
facility. U.S. net sales increased 5.7% in the first three months of 1999 from
the comparable period in 1998 and International net sales decreased 3.8% in the
same period.
Cost of Sales. Cost of sales was $58.9 million in both the first three
months of 1999 and in the comparable period in 1998. In the U.S., gross profit
margin increased to 45.4% in the first three months of 1999 from 45.2% in the
comparable period in 1998. This increase was primarily the result of an
improvement in the product mix sold. International gross profit margin increased
to 40.9% in the first three months of 1999 from 40.8% in the comparable period
in 1998.
14
<PAGE> 21
Operating Expenses. Operating expenses were $36.2 million in the first
three months of 1999 compared to $33.3 million in the comparable period in 1998.
In the U.S., operating expenses as a percentage of net sales increased to 35.0%
in the first three months of 1999 from 32.1% in the comparable period in 1998.
This increase is primarily attributable to the delay in fully integrating the
four U.S. acquisitions completed during 1998. International operating expenses
as a percentage of net sales increased to 34.9% in the first three months of
1999 from 32.7% in the comparable period in 1998, mainly due to the decrease in
net sales associated with the closure of the United Kingdom manufacturing
facility, the integration of an acquisition and increased operating costs
primarily in two international locations.
Restructuring Charges. During the quarter ended November 29, 1998, the
Company recorded additional restructuring charges of $0.1 million related to its
fiscal 1998 restructuring plan. No restructuring charges were recorded during
the first quarter of fiscal 1998. Albecca expects to incur an additional $0.2
million in restructuring costs related to these closures during the second
quarter of 1999 which will be expensed as incurred or as the requirements of
accrual are met.
Interest Expense. Interest expense was $7.1 million in the first three
months of 1999 compared to $2.3 million in the comparable period in 1998. The
increase in interest expense is primarily due to an increase in debt and the
amortization of deferred financing costs associated with the August 1998 senior
subordinated debt placement.
Interest Income. Interest income was $0.6 million in the first three
months of 1999. This interest income resulted from the investment of cash
remaining from the August 1998 senior subordinated debt placement.
Adjusted EBITDA. Adjusted EBITDA is defined as operating income plus
depreciation, amortization (excluding amortization of bond issue costs),
restructuring charges and certain non-recurring costs. For the reasons set forth
above, Adjusted EBITDA was $10.3 million, in the first three months of 1999
compared to $13.3 million in the comparable period in 1998. Adjusted EBITDA for
the first three months of 1999 excludes restructuring charges of $0.1 million.
1998 Compared to 1997
Net Sales. Net sales were $381.1 million in 1998 compared to $354.1
million in 1997. This increase is primarily a result of internal growth, the
acquisition of six manufacturers and distributors of custom framing products in
1998, the impact of the six acquisitions completed during 1997 and the expansion
of Albecca's lines of premium branded products, partially offset by changes in
currency. Currency fluctuations in 1998 reduced net sales by $8.7 million,
primarily due to a strengthening of the U.S. dollar against the German Mark,
Dutch Guilder, Australian dollar and Canadian dollar. U.S. net sales increased
12.2% in 1998 from 1997 and, on a constant currency basis, International net
sales increased 8.7% in the same period. The increase in U.S. net sales
primarily resulted from the acquisition of four distributors of custom framing
products and an estimated $10.0 million increase in sales to independent custom
framing retailers, offset by an estimated $8.5 million decrease in sales to
framing departments of craft chains. The increase in International net sales
resulted primarily from the acquisition of two manufacturers and distributors of
custom framing products in 1998 and the impact of the six International
acquisitions completed during 1997.
Cost of Sales. Cost of sales was $216.1 million in 1998 compared to $200.8
million in 1997, primarily as a result of increased net sales. In the U.S.,
gross profit margin decreased to 46.0% in 1998 from 46.7% in 1997. This decrease
was primarily the result of lower gross profit margins on products sold by
acquired businesses. This decrease was partially offset by an improvement in the
product mix sold. International gross profit margin increased to 40.8% in 1998
from 40.3% in 1997, primarily due to Albecca's success in leveraging its buying
power with existing suppliers, sourcing of products from additional vendors and
the consolidation of certain international activities, including distribution
centers and manufacturing facilities.
Operating Expenses. Operating expenses were $130.8 million in 1998
compared to $117.7 million in 1997. The increase in operating expenses is
primarily attributable to the acquisition of six manufacturers and distributors
of custom framing products during 1998, representing an estimated $12.0 million,
and operating expenses for the six acquisitions completed during 1997. In the
U.S., operating expenses as a percentage of net
15
<PAGE> 22
sales increased to 32.1% in 1998 from 31.9% in 1997. This increase was primarily
due to an estimated $1.0 million increase in spending for marketing programs,
including the consumer advertising program, as well as $2.1 million of
non-recurring costs associated with the integration of four acquired
distributors of custom framing products and with upgrading Albecca's information
systems, including Year 2000 compliance, offset by improved efficiencies
throughout Albecca's U.S. distribution network. International operating expenses
as a percentage of net sales increased to 36.4% in 1998 from 34.4% in 1997,
primarily due to the acquisition of two manufacturers and distributors of custom
framing products which had higher operating expenses as a percentage of net
sales, as well as $1.4 million in non-recurring costs primarily related to the
integration of existing and acquired facilities.
Restructuring Charges. In June 1998, Albecca initiated a plan to close its
moulding manufacturing facility located in the United Kingdom and recorded a
charge to operations of approximately $1.8 million. This charge included $45,000
for the write-down of a building to estimated realizable value from the future
sale of the building, $230,000 related to severance and other termination
benefits for 59 team members terminated in connection with this plan, $465,000
of lease termination and exit costs, and $730,000 for the write-off of non-
current assets. The write-off of non-current assets is related primarily to
machinery and equipment used in the manufacturing of plastic moulding which was
dismantled and will not be sold nor used by Albecca due to direct competitive
pressures of plastic moulding on traditional moulding lines in the UK. This
charge also included additional reserves for uncollectable accounts receivable
of $330,000 which have been included in operating expenses in the accompanying
consolidated statement of operations for the year ended August 30, 1998.
During the fourth quarter of 1998, Albecca initiated a plan to close its
sole distribution facility in Greece and recorded a charge to operations of
approximately $700,000. This charge included severance costs for 14 team members
aggregating $80,000, write-off of goodwill of $330,000, additional reserves for
uncollectable accounts receivable of $178,000 and other exit costs of
approximately $110,000. The charge related to the additional reserves for
uncollectable accounts receivable has been included in operating expenses in the
accompanying consolidated statement of operations for the year ended August 30,
1998.
Additionally, during the fourth quarter of 1998, Albecca initiated a plan
to close two duplicate facilities in the U.S., and recorded a charge to
operations of approximately $276,000 related to these closures, primarily
consisting of $234,000 for severance and other termination benefits of 33 team
members. These were existing facilities operated by Albecca, but as a result of
recent acquisitions in their geographic areas were deemed to be duplicative.
Costs of Cancelled Initial Public Equity Offering. In July 1998, Albecca
cancelled a planned initial public equity offering of its common stock. As a
result of the decision not to complete the offering, Albecca wrote off the
associated expenses incurred of approximately $1.3 million which included costs
related to SEC filing fees, accounting and legal fees, and printing costs
directly attributable to the cancelled initial public equity offering.
Interest Expense. Interest expense was $11.9 million in 1998 compared to
$9.7 million in 1997. The increase in interest expense is primarily due to $28.1
million of additional indebtedness incurred in connection with the acquisition
of six manufacturers and distributors of custom framing products during 1998.
Adjusted EBITDA. For the reasons set forth above, Adjusted EBITDA was
$46.4 million in 1998 compared to $42.5 million in 1997. Adjusted EBITDA for the
year ended August 30, 1998 excludes restructuring charges of $2.3 million and
non-recurring costs of $5.2 million.
1997 Compared to 1996
Net Sales. Net sales were $354.1 million in 1997 compared to $300.8
million in 1996. This increase is primarily a result of internal growth, the
acquisition of six manufacturers and distributors of custom framing products in
1997, the impact of the ten acquisitions completed during 1996 and the expansion
of Albecca's lines of premium branded products, partially offset by changes in
currency. Currency fluctuations in 1997 reduced net sales by $9.3 million,
primarily due to a strengthening of the U.S. dollar against the French Franc
16
<PAGE> 23
and Dutch Guilder. U.S. net sales increased 1.9% in 1997 from 1996 and, on a
constant currency basis, International net sales increased 46.1% in the same
period. The increase in U.S. net sales is primarily due to an estimated $6.3
million increase in sales to independent custom framing retailers, partially
offset by an estimated $5.7 million decrease in sales to framing departments of
craft chains. The increase in International net sales resulted primarily from
the acquisition of six manufacturers and distributors of custom framing products
in 1997 and the impact of the ten International acquisitions completed during
1996.
Cost of Sales. Cost of sales was $200.8 million in 1997 compared to $174.0
million in 1996, primarily as a result of increased net sales. 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. International's
gross profit margin increased to 40.3% in 1997 from 40.0% in 1996. The six
acquisitions completed in 1997 did not have a significant impact on gross
margin.
Operating Expenses. Operating expenses were $117.7 million in 1997
compared to $96.6 million in 1996. The increase in operating expenses is
primarily attributable to the acquisition of six manufacturers and distributors
of custom framing products during 1997, representing an estimated $11.1 million,
the impact of operating expenses from the ten acquisitions completed during 1996
and a $1.5 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 31.9% in 1997 compared to 31.0% in 1996. This increase
was primarily due to the $1.5 million investment in the U.S. consumer
advertising program, partially offset by improved efficiencies throughout
Albecca's U.S. distribution network. International operating expenses as a
percentage of net sales increased to 34.4% in 1997 from 33.4% 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 was $9.7 million in 1997 compared to
$6.8 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.
Adjusted EBITDA. For the reasons set forth above, Adjusted EBITDA was
$42.5 million in 1997 compared to $35.5 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $30.6 million, $22.2 million,
$15.8 million and $1.9 million in 1996, 1997, 1998 and for the first three
months of 1999, respectively. Albecca's primary cash requirements have been to
fund working capital, capital expenditures and acquisitions. Albecca has
generally used internally generated funds and amounts available under its bank
credit facilities as its primary sources of liquidity. Net cash used in
investing activities is primarily used for the acquisition of manufacturers and
distributors of custom framing products. Albecca invested $34.1 million for
acquisitions in 1996, $18.4 million for acquisitions in 1997, $28.1 million for
acquisitions in 1998 and $3.6 million for acquisitions in 1999.
Capital expenditures, excluding acquisition costs, were $5.5 million, $7.7
million, $8.4 million and $0.6 million in 1996, 1997, 1998 and for the first
three months of 1999, respectively. Albecca's historical capital expenditures
have been primarily used to expand its distribution network, enhance management
information systems and improve manufacturing efficiencies.
At November 29, 1998, Albecca had outstanding indebtedness of approximately
$265.0 million, consisting of $200.0 million in principal amount of the notes
and $65.0 million of other indebtedness. See "Risk Factors -- Substantial
Leverage and Shareholders' Deficit." Albecca's primary sources of liquidity will
be cash flow from operations and its available cash and cash equivalents of
$48.5 million. Albecca's liquidity needs following the Offering will relate
primarily to payment of principal and interest on outstanding indebtedness,
primarily constituting principal and interest on the notes, the funding of
capital expenditures, working capital, acquisitions and the funding of
distributions to Albecca's shareholders to pay income taxes as a result of its
status as an S corporation.
Albecca's ability to make scheduled payments of the principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness, including the notes, or to fund planned capital or other
17
<PAGE> 24
expenditures will depend on its future financial or operating performance, which
will be affected by prevailing economic conditions and financial, business and
other factors, many of which are beyond its control. Based upon the current
level of operations, management believes that cash flow from operations and
available cash and cash equivalents will be adequate to meet Albecca's
anticipated future requirements for working capital, capital expenditures,
scheduled payments of principal and interest on its indebtedness, including the
notes, and acquisitions at least until the end of fiscal 1999. There can be no
assurance that Albecca's business will generate sufficient cash flow from
operations or that future borrowings will be available in an amount sufficient
to enable Albecca to service its indebtedness, including the notes, or to make
anticipated capital and other expenditures.
The Company's Foreign Subsidiaries have outstanding indebtedness under
various foreign credit facilities, term notes and purchase money financing
obligations, which had an aggregate outstanding balance of $61.8 million as of
November 29, 1998. Indebtedness of the Foreign Subsidiaries is effectively
senior to the notes and the Subsidiary Guarantees.
The largest of the Company's foreign credit facilities is the $7.5 million
credit facility entered into by Larson-Juhl Canada Ltd. ("L-J Canada") to fund
its Canadian operations (the "Canadian Facility"). Borrowings under the Canadian
Facility bear interest at rates ranging from LIBOR plus 0.75% to the Canadian
prime rate and become due in August 2000. The Canadian Facility is secured by
all of the assets of L-J Canada. The Canadian Facility is subject to certain
customary financial and other covenants, including without limitation: (i)
financial reporting, (ii) funded indebtedness to total capitalization ratios,
(iii) leverage ratio, (iv) tangible net worth and (v) limitations on
indebtedness, contingent obligations, liens, loans, repayments of intercompany
indebtedness, dividends, advances, investments, acquisitions, mergers and sale
of assets. As of August 30, 1998 and November 29, 1998, approximately $0.3
million and $2.3 million was outstanding under the Canadian Facility,
respectively.
The Company's other foreign revolving credit facilities and term notes
include a series of credit facilities used to finance working capital needs and
acquisitions in the respective countries in which the Company operates. These
facilities range in size from less than $100,000 to $3.6 million. The
indebtedness under these facilities generally bears interest at rates ranging
from 2.0% to 19.0% per annum (as of August 30, 1998) and matures on various
dates ranging through September 2017. Certain of these facilities are secured by
assets of the respective borrowers, including accounts receivable, inventory,
property or capital stock, and are generally subject to certain customary
financial and other covenants, including limitations on repayment of
intercompany indebtedness and payment of dividends.
Total foreign revolving facilities provide the Company with additional
borrowings of up to $17.4 million as of August 30, 1998.
As of the date of this Prospectus, the Company does not have a bank credit
facility in place to fund its U.S. operations, although the Company plans to
enter into a senior bank credit facility to finance future working capital
needs, capital expenditures and complementary acquisitions. At present, the
Company has not entered into any agreements, commitments or understandings with
respect to such a credit facility. The Indenture will permit the Company and the
Subsidiary Guarantors to incur additional indebtedness, including Senior Debt,
subject to certain limitations.
Albecca from time to time reviews and will continue to review acquisition
opportunities as well as changes in the capital markets. If Albecca were to
consummate a significant acquisition or elect to take advantage of favorable
opportunities in the capital markets, Albecca may supplement availability or
revise the terms under its credit facilities or undertake public or private
offerings of equity or debt securities. At present, Albecca has not entered into
any agreements, commitments or understandings with respect to such a credit
facility. Moreover, there can be no assurances that Albecca will be able to
obtain such financing in the amounts or at the times such financing may be
required, or that, if obtained, any such financing would be on acceptable terms.
See "Risk Factors -- Liquidity and Need for Additional Financing."
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<PAGE> 25
EXCHANGE RATES
Albecca is affected by the movement of currencies in the 19 foreign
countries in which it operates. Albecca's results of operations and financial
condition may be adversely affected by fluctuations in foreign currencies and by
translations of the financial statements of Albecca's International operations
from local currencies into U.S. dollars. Albecca 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
Albecca has initiated a program to assess the impact of Year 2000
compliance on its information technology systems and its non-information
technology systems and has formulated a plan to address business disruption
associated with potential date processing problems.
Through its assessments, Albecca has identified potential Year 2000 issues
in its IT systems, both hardware and software and in its non-IT systems. Albecca
is in the process of addressing these deficiencies through upgrades,
replacements, specific enhancements and other corrective measures. Albecca
expects to complete remediation of its material IT systems no later than August
1999. In connection with its non-IT systems, which are building security,
heating, ventilation and air conditioning, and other equipment with date
sensitive operating controls, Albecca is in the process of identifying those
items which may require replacement or upgrading. Albecca expects to complete
testing and correcting the date sensitive non-IT systems by September 1999.
Albecca has initiated inquires of third parties, such as customers, vendors
and lessors with whom Albecca has significant business relationships, to assess
their state of addressing Year 2000 issues that will materially and adversely
impact Albecca. Albecca has just begun requesting that significant business
relationships respond in writing to Albecca's Year 2000 compliance inquiries
that they will be Year 2000 compliant by the end of 1999. Albecca plans to
continue to assess its significant third party business relationships' efforts
in addressing Year 2000 issues through other techniques as it deems appropriate.
Despite Albecca's efforts, there can be no guarantee that the systems of other
companies which Albecca relies upon to conduct its business will be Year 2000
compliant.
Albecca estimates that it will incur expenses of $800,000 to $1.1 million
in conjunction with the Year 2000 compliance project. As of November 29, 1998,
Albecca has spent approximately $700,000 in connection with this project. The
majority of these expenditures have been and will be expensed as incurred.
The estimated dates of completion and costs of the Year 2000 initiatives
are based on management's best estimate. However, there can be no guarantees
that these estimates will be achieved, and actual results could differ
materially from those plans.
Albecca believes that its most reasonably likely worst case Year 2000
scenario would be a failure by a significant third party in supplying Albecca
products and services it needs to conduct its day-to-day operations. This risk
is not limited to its vendors but also includes, without limitation, utilities
or other general service providers or government entities. Albecca is focusing
its remedial efforts on those factors which it can reasonably be expected to
have influence upon. The extent of lost revenue as a result of such scenarios
cannot be estimated at this time.
Albecca has not yet completed its planning and preparation to handle the
most likely worst case scenarios described above. Albecca intends to develop
contingency plans for these scenarios by May 31, 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
For a discussion of the impact of recent accounting pronouncements, see
Albecca's consolidated financial statements and the related notes thereto which
are included elsewhere in this Prospectus.
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<PAGE> 26
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 complete line of high quality, branded custom framing
products, including wood and metal moulding, matboard, foam board, glass,
equipment and other framing supplies. Albecca's principal brands include the
"Larson-Juhl Classic Collection" and the "Craig Ponzio Signature Collection."
For over 100 years, Albecca 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 quality
branded products and outstanding service to its retail custom framing customers
and, more recently, by increasing awareness of its products through consumer
advertising.
Albecca believes it is a market leader in the United States and Canada and
estimates that it holds a leading market position in the other countries in
which it operates. Albecca believes it has achieved its leading market position
by combining innovative design of premium, branded products, a complete line of
quality products, global leadership in sales and customer service and
cost-efficient manufacturing and distribution. These competitive strengths have
made the Larson-Juhl brand one of the most globally recognized names in the
custom framing industry. Albecca 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 business strategy is focused on continuing
to introduce premium, branded product collections, increasing product and brand
awareness through consumer advertising, increasing sales penetration to retail
custom framers, improving profitability of operations and pursuing complementary
acquisitions.
Albecca conducts its operations through 77 locations in 20 countries. In
North America, Albecca operates four moulding and frame manufacturing plants and
29 light manufacturing/distribution centers. Internationally, Albecca operates
16 moulding and frame manufacturing plants and 36 light manufacturing/
distribution centers. In North America, Albecca's primary customers are retail
custom framers. In Europe, Albecca primarily serves retail custom framers and
home decorating centers.
Craig Ponzio, Albecca's Chairman, President, Chief Executive Officer and
principal shareholder joined Larson Picture Frame, Inc. in 1973 and purchased
that company in 1981. 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 the Company's product lines, develop an
organizational infrastructure, and acquire and consolidate manufacturers and
distributors of custom framing products.
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
89% of custom framing sales in North America. The remaining 11% of sales are
principally generated by custom framing departments of craft chains and
franchise operations. Outside North America, Albecca estimates 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 1998 were approximately $1.2 billion in North America and
approximately $1.2 billion in the rest of the world.
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<PAGE> 27
Albecca believes the industry will grow as consumers place greater emphasis
on the home and its decor. Albecca believes this trend is contributing to the
growth of the custom framing industry and, when combined with Albecca's consumer
advertising program, will allow Albecca 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. Albecca believes this shift will continue to benefit manufacturers and
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 Albecca 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 Albecca's worldwide
products, over 12,000 are branded custom frame wood moulding products. Albecca
believes it offers the widest variety of products for the retail custom framer
in the industry.
The following illustration depicts a completed custom frame, utilizing a
variety of framing products sold by Albecca:
[GRAPHIC]
WOOD MOULDING
Albecca is one of the world's largest manufacturers and suppliers of wood
moulding to the custom framing industry, based upon sales. Albecca provides
branded custom moulding in a variety of shapes, sizes, finishes and forms to
meet each customer's specific needs. Albecca'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 and 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
Albecca in a variety of formats including:
(1) long lengths of moulding which the framers cut to size;
(2) moulding cut to specific lengths (chop service); and
(3) moulding assembled as a completed frame (join service).
Albecca's design team has created each of its over 1,100 branded wood
mouldings in North America. Most of Albecca's wood moulding products are
produced either in Albecca's plants in the U.S., Canada,
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<PAGE> 28
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."
Albecca markets its wood moulding 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
Albecca's finest lines of wood moulding, allowing Albecca 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. Albecca markets one proprietary line of metal moulding, Clark, which
is one of the market leaders in metal moulding.
MATBOARD AND FOAM BOARD
Albecca 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. Albecca 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, Albecca launched its own
proprietary line of premium conservation matboard, under the Artique brand name,
in an effort to promote this 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. Albecca
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. Albecca's net sales of custom framing equipment
have not been material. All of the glass, equipment and other framing supplies
sold by Albecca are produced by third-party manufacturers.
SALES AND MARKETING
Albecca markets its products to custom frame shops principally through
Company-employed sales representatives, advertisements in trade magazines and
attendance at industry trade shows. Albecca also markets to consumers by
advertising in widely-distributed magazines that Albecca 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 Albecca'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.
Albecca's sales representatives update customers on Albecca's product
lines, advise customers on framing design and provide information on more
effective merchandising, design and selling techniques. 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
Albecca's products, trends in consumer demand and competitive activities in the
marketplace. Sales representatives are employed by Albecca and compensated
principally by salary, with commission and bonus components available based on
sales and other performance criteria.
22
<PAGE> 29
Albecca 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. Albecca believes the skill and
experience of its general managers has contributed to Albecca's ability to build
personal relationships with its retail custom framers.
Albecca 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 Albecca'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,
Albecca's premium branded products. Albecca believes consumers are more likely
to perceive value in premium branded products. In 1996, Albecca began to
extensively advertise its branded products in well-known publications that
Albecca 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. Albecca 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, Albecca targets sophisticated consumers with the economic
power to purchase its high quality, premium branded products. In addition,
Albecca provides its customers with direct mail literature as well as
advertisements suitable for inclusion in local publications.
DESIGN
Albecca's goal is to develop and produce the best-designed products in the
industry. Albecca 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, Albecca's design team extensively researches and studies
furniture, architectural and historical design elements and art and decorating
trends from around the world. Albecca incorporates these elements into branded
product lines introduced under one of Albecca's moulding collections.
Mr. Ponzio is Albecca'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 Albecca'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 Albecca'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.
Albecca designs all of its wood moulding collections and the Clark
collection of metal moulding. In addition, Albecca recently introduced Artique,
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.
Listed below is a brief description from Albecca'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 1998
rugs, Aubusson reflects the
delicate detail, carefully crafted
color and design of antique French
tapestries.
</TABLE>
23
<PAGE> 30
<TABLE>
<CAPTION>
NAME DESCRIPTION YEAR INTRODUCED
---- ----------- ---------------
<S> <C> <C>
Castillano......................... The splendor of Spain is captured 1996
in this rich, bold, distinctive
moulding. The pleasing proportions
and beautifully embossed patterns
exude tradition and fine quality.
Cortona............................ Like a comfortable piece of antique 1998
furniture or an 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 1998
countryside, this moulding 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 1998
Spanish moulding is 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 1996
17th century France lives again in
this collection of delicately
embossed profiles.
Kensington......................... The natural beauty and unique 1997
characteristics of 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 1996
distinctive collection of beautiful
mouldings using the same
time-honored techniques of
hand-finished waterguilding that
began centuries ago.
Prado.............................. Seemingly lit from within, the 1997
dark, rich glow of this moulding
collection reflects the accumulated
age of the beautiful monasteries of
Old World Europe.
Stradivarius....................... The graceful shapes and rich 1997
finishes of the Stradivarius violin
served as the inspiration for this
exquisitely designed moulding
collection.
</TABLE>
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<PAGE> 31
<TABLE>
<CAPTION>
NAME DESCRIPTION YEAR INTRODUCED
---- ----------- ---------------
<S> <C> <C>
Umbria............................. Borrowing its name from the 1998
tranquil Italian region, Umbria
embodies the strength, hand
craftsmanship and timeless
tradition of this region.
Vermeer............................ Named in honor of the Dutch master, 1998
Vermeer, these 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
Although Albecca produces wood moulding in thirteen Company-owned
manufacturing plants, most of the wood moulding sold by Albecca is produced by
third-party manufacturers. Albecca does not have supply contracts with any of
these suppliers. However, as an industry leader in design, and as one of the
largest distributors of wood moulding to retail custom framers, Albecca has
developed close working relationships with many of these 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, Albecca has seven pre-assembled frame
manufacturing plants in Europe and the U.S. Albecca distributes its products
from its light manufacturing/distribution centers. See "-- Distribution."
The following lists certain information regarding Albecca'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.......................................... Frames 1
Russia............................................... Frames 1
South Africa......................................... Mouldings 2
Sweden............................................... Mouldings 2
United States........................................ Mouldings and Frames 2
--
Total...................................... 20
</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 Albecca's high-quality wood moulding
products.
Wood, the principal raw material used in Albecca'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 Albecca. The primary
types of wood used by Albecca are North American oak and ash, as well as
European pine. Albecca 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 Albecca's short-term operating results, Albecca believes it could
replace suppliers without having a material adverse effect on Albecca. Over the
past three years, prices of Albecca's primary types of wood have remained
relatively stable.
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<PAGE> 32
Albecca does not manufacture any other products, but instead purchases them
from numerous other manufacturers and distributors. Albecca works with one
manufacturer to produce its proprietary line of Clark metal moulding. Albecca is
the only purchaser of metal picture frame moulding from this manufacturer.
Albecca also works with one manufacturer to produce its Artique brand of
matboard. Albecca generally does not have supply contracts with these suppliers,
but relationships with these suppliers to date have been satisfactory, on the
whole.
Albecca's manufacturing and sourcing staff oversees manufacturing and
production, negotiates purchases of raw materials and researches and identifies
new suppliers and third-party manufacturers. Albecca's products are manufactured
according to plans prepared each year which reflect prior years' experience,
current industry trends, economic conditions and Albecca's estimates of a
particular line's performance. Albecca separately negotiates with suppliers for
the purchase of required raw materials in accordance with Albecca's
specifications and limits its exposure to holding excess raw material inventory
by purchasing based on demand. Albecca believes that its policy of limiting its
commitments for purchases reduces its exposure to excess inventory and
obsolescence. Albecca is not responsible for procuring raw materials used by its
third-party manufacturers.
DISTRIBUTION
Albecca provides a complete line of framing materials and supplies, and
fills 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 consumers. Albecca has developed a user-friendly order and
fulfillment system in North America that includes features such as toll-free
telephone and fax ordering, customer service and technical representatives,
extended customer service hours, instant stocking information and next-day
shipping on most orders from Albecca's distribution centers. This system, and
advancements in framing technology, allow retail custom framers to offer
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 and other framing materials. Then, the retail
custom framer determines the proper amount and dimensions of each kind of
material, such as moulding, matboard and glass, needed to complete the framing
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 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 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 29 distribution
centers. The number and location of these distribution centers make Albecca the
only manufacturer with a broad-based North American distribution network.
Albecca's Chicago and Los Angeles distribution centers also serve as
distribution hubs that receive and process container-size deliveries of
Albecca's products and ship smaller quantities of products, generally weekly, to
the other distribution centers based on customer demand.
26
<PAGE> 33
In North America, Albecca operates distribution centers in the following
metropolitan areas:
Atlanta, Georgia
Boston, Massachusetts
Calgary, Alberta
Chicago, Illinois
Cincinnati, Ohio
Cleveland, Ohio
Dallas, Texas
Denver, Colorado
Detroit, Michigan
Edmonton, Alberta
Greensboro, North Carolina
Houston, Texas
Huntsville, Alabama
Lakeland, Florida
Los Angeles, California
Miami, Florida
Minneapolis, Minnesota
Montreal, Quebec
New Orleans, Louisiana
Newark, New Jersey
Philadelphia, Pennsylvania
Phoenix, Arizona
San Diego, California
San Francisco, California
Seattle, Washington
St. Louis, Missouri
Toronto, Ontario
Vancouver, British Columbia
Washington, D.C.
INTERNATIONAL
Outside North America, Albecca 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. Albecca'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, Albecca has developed a central
distribution center in Germany to improve response to European framers as well
as to better control distribution costs. This center began operations in August
1998.
Albecca 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
Italy....................................................... 1
Japan....................................................... 1
Korea....................................................... 1
Netherlands................................................. 4
New Zealand................................................. 3
Norway...................................................... 1
Russia...................................................... 1
South Africa................................................ 2
Sweden...................................................... 5
United Kingdom.............................................. 2
--
Total............................................. 36
</TABLE>
CUSTOMERS
In North America, Albecca's target customers are the approximately 20,000
custom framing retail store fronts that serve middle to upper income consumers.
To date, Albecca has served approximately 90% of these
27
<PAGE> 34
retail store fronts. Outside North America, Albecca targets the over 20,000
retail custom frame store fronts and home decorating centers.
MANAGEMENT INFORMATION SYSTEMS
Albecca believes that information and technology are essential to
maintaining its competitive position. Albecca's management information system is
designed to provide responsive and efficient order processing, inventory
control, financial reporting and management information for Albecca's sales,
marketing, procurement, distribution and financial analysis functions. Albecca's
management information system allows it to track inventory on a real time basis
throughout its North American distribution network. Albecca'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 Albecca's
headquarters in Norcross, Georgia. In addition, Albecca has introduced an
electronic data interchange system to facilitate processing customer orders and
inventory replenishment. Albecca believes that substantially all of its
information systems are Year 2000 compliant and plans to replace or upgrade
non-compliant systems before September 1999. Albecca believes that additional
costs incurred in connection with these replacements and upgrades will not have
a material impact on Albecca's financial condition or results of operations.
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 Albecca operates. Albecca extends credit based on an
evaluation of the customer's financial condition and history with Albecca.
Albecca monitors credit levels on an ongoing basis to minimize credit risk.
Albecca 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 Albecca to be a complete source supplier
to retail custom framers. In the U.S., Albecca'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 Albecca's inventory investment.
QUALITY CONTROL
A key factor in Albecca maintaining the 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. Albecca monitors the
quality of its raw materials before the manufacture of products and inspects
prototypes of each product before production runs are commenced. Albecca 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
Albecca's distribution centers. Albecca believes that its careful inspection
policy is an important element in maintaining the quality and reputation of its
products. In addition, Albecca 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.
COMPETITION
Albecca competes with over 300 North American and over 500 international
manufacturers and distributors of custom framing products. Albecca is one of the
largest manufacturers and distributors of wood moulding in North America, where
it estimates its largest competitor is The Williamson Company. The principal
manufacturers of metal moulding are Nielsen & Bainbridge 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
28
<PAGE> 35
Cardboard Company and Nielsen & Bainbridge which primarily supply their products
to custom framers through distributors. Albecca believes it is the largest
single matboard customer of both companies.
Albecca competes primarily on the basis of product design and quality,
on-time delivery, inventory availability, service and price. Albecca believes
its principal competitive strengths are leadership in design and premium,
branded products to the custom framing industry, although its designs are
commonly imitated in the industry; a wide variety of custom framing products; a
direct sales force regularly visiting retail custom framers to introduce new
products and assist with in-store merchandising; and strategically located
manufacturing/distribution centers for rapid, efficient response to customers.
Albecca experiences competition from smaller, regionally-focused distributors of
framing products who may have a long-term relationship with its customers, a
product line directed toward regional tastes, and local sales representation.
In the broader sense, Albecca competes in the larger home decorating
market, where consumers may forego 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 Albecca's
challenge is to enable the custom framing industry to capture more of those
sales.
TRADEMARKS
Albecca uses a number of trademarks to distinguish its brands, principally,
Larson-Juhl, Clark and Artique. Albecca has registered or applied for
registration of these trademarks in the U.S. and Canada and in numerous
countries in Europe, Asia and elsewhere. Mr. Ponzio has granted Albecca a
perpetual right to use the name "Craig Ponzio" to identify and brand Albecca's
premium custom framing products. Albecca regards its trademarks and other
proprietary rights as valuable assets in the marketing of its products, and on a
worldwide basis, seeks to protect them against infringement. There can be no
assurance that the actions taken by Albecca 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
Albecca'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.
Albecca also regards its moulding designs as critical to the success of its
marketing efforts, and seeks to protect those designs before their introduction
to the marketplace. However, after such introduction there are no practical
means to prevent others from copying or imitating such designs or specific
design elements.
EMPLOYEES
At August 30, 1998, Albecca had approximately 3,100 full-time team members,
or employees, of which approximately 2,400 were in operations, 310 were in sales
and marketing and 350 were in corporate and general administrative positions. In
certain of the European countries in which Albecca operates, Albecca's
relationships with its team members are as mandated by such countries' laws or
covered by social legislation governing employment practices. Management
believes that Albecca's relationship with its team members is good.
ENVIRONMENTAL MATTERS
Albecca 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. Albecca
believes that its operations currently comply in all material respects with
these laws and regulations. Based on the annual costs incurred by Albecca over
the past several years, management does not believe that compliance with these
laws and regulations will have a material adverse effect upon Albecca's
business, financial condition and results of operations. Albecca 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 Albecca to make additional capital
expenditures which, while not
29
<PAGE> 36
presently estimable with certainty, are not presently expected to have a
material adverse effect on Albecca's business, financial condition and results
of operations.
PROPERTIES AND FACILITIES
Albecca'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, Scheppmann and McKenzie, each of whom
is an executive officer of Albecca. Mr. Ponzio is also a director of Albecca.
Albecca's lease for this facility terminates in January 2009 and the annual rent
currently is $708,000. See "Certain Relationships and Related Transactions."
Albecca 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. Albecca also owns facilities
in Denver, Colorado and Waldorf, Maryland which are used as light
manufacturing/distribution centers. Albecca leases 27 other facilities in North
America which are used to manufacture and/or distribute Albecca's products.
These facilities vary in size from approximately 12,600 to 103,500 square feet
and have lease termination dates ranging from January 1999 to May 2006. See
"-- Manufacturing and Sourcing" and "-- Distribution."
Albecca owns 15 facilities and leases 30 facilities in 18 countries outside
of North America which are used to manufacture and/or distribute Albecca's
products. The leased facilities vary in size from approximately 1,350 to 105,000
square feet and have lease termination dates ranging from December 1998 to
December 2003. See "-- Manufacturing and Sourcing" and "-- Distribution."
Albecca believes that its properties and facilities are adequate for its
current needs. Albecca does not anticipate any material difficulty in replacing
such facilities or securing new facilities.
LEGAL PROCEEDINGS
Albecca is a party from time to time in actions incidental to its business.
Albecca 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 Albecca.
30
<PAGE> 37
MANAGEMENT
The following table sets forth the names, ages and principal positions of
Albecca's executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Craig A. Ponzio............................ 48 Chairman of the Board, President, Chief
Executive Officer and Director
June R. Ponzio............................. 36 Vice Chairman of the Board and Director
Philip H. Moise............................ 49 Director
William P. Trimarco........................ 39 President, International
Randall D. Fretz........................... 46 President, North America
Stephen M. Scheppmann...................... 43 Senior Vice President and Chief Financial
Officer
Stephen E. McKenzie........................ 36 Senior Vice President, Marketing
Patrick R. Cronin.......................... 51 Vice President, Human Resources
R. Bradley Goodson......................... 39 Vice President, Business Development and
Secretary
</TABLE>
Craig A. Ponzio has served as Albecca's Chairman of the Board, President,
Chief Executive Officer and a Director since 1981. He has been actively involved
with Albecca since 1973 and acquired Albecca in 1981. Mr. Ponzio oversees
Albecca's operations, including the development and execution of its strategy,
and is active in the identification and consummation of acquisitions. Mr. Ponzio
is Albecca's chief designer and provides leadership in all aspects of the design
process.
June R. Ponzio has served as Albecca'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.
Philip H. Moise has served as a Director since August 1998. Mr. Moise has
been a partner at the law firm of Nelson Mullins Riley & Scarborough, L.L.P.,
Atlanta, Georgia, since 1994, where he has served as the CEO of the firm's
Corporate, Securities and Tax Group. Immediately before joining that firm he was
a partner at Long, Aldgridge & Norman, a law firm also in Atlanta.
William P. Trimarco has served as Albecca's President, International since
January 1, 1999 with responsibility for the Company's International Operations.
Mr. Trimarco had served as Albecca's President, U.S. Operations from July 1997
to December 1998. Mr. Trimarco joined Albecca 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.
Randall D. Fretz has served as Albecca's President, North America since
January 1, 1999 with responsibility for the Company's North American operations.
Mr. Fretz joined Albecca in 1995 as President, Canada. Prior to joining Albecca,
he was the Division Director, Ray-Ban for Bausch & Lomb, Canada.
Stephen M. Scheppmann has served as Albecca's Senior Vice President and
Chief Financial Officer since December 1997, and prior thereto served as its
Vice President and Chief Financial Officer since joining Albecca in December
1988. From 1978 to 1988, he was employed by Arthur Andersen & Co.
Stephen E. McKenzie has served as Albecca's Senior Vice President,
Marketing since September 1998 and from September 1995 served as its Vice
President, Marketing. From 1991 until 1995, Mr. McKenzie held the positions of
Product Manager and Marketing Manager. Before joining Albecca in August 1991, he
was the buyer for framing and import products for a national retailer.
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<PAGE> 38
Patrick R. Cronin has served as Albecca's Vice President, Human Resources
since March 1991 with responsibility for the Company's U.S. human resource
activities. Prior to joining Albecca, Mr. Cronin was Vice President, Human
Resources for the Great Atlantic & Pacific Tea Co., Inc.
R. Bradley Goodson has served as Albecca's Vice President, Business
Development and Secretary since May 1998. Mr. Goodson joined Albecca in August
1994 and held the positions of Finance Manager and Business Development Manager.
His primary focus is Albecca'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 Albecca's directors and executive officers.
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 Albecca. The size
of the Board of Directors is currently fixed at three members, two of whom are
members of Albecca's management. Directors of Albecca are generally elected at
the annual meeting of shareholders. Directors of Albecca are elected or
appointed to serve until they resign or are removed, or until their successors
are elected and have qualified.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued for
services rendered to Albecca by Albecca's Chief Executive Officer and the four
most highly compensated other executive officers whose total salary and bonus
exceeded $100,000 (collectively, the "Named Executive Officers") during the year
ended August 30, 1998. Albecca did not grant any stock appreciation rights or
make any long-term incentive plan payouts during that period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS(1) COMPENSATION($) OPTIONS COMPENSATION($)
- --------------------------- ---- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Craig A. Ponzio, Chairman of
the Board, President and
Chief Executive Officer... 1998 680,000 -- 19,000 -- --
William P. Trimarco,
President, U.S.
Operations................ 1998 240,000 -- -- 34,062 --
Stephen M. Scheppmann,
Senior Vice President and
Chief Financial Officer... 1998 188,000 -- -- -- 100,000(2)
Stephen E. McKenzie, Senior
Vice President,
Marketing................. 1998 117,000 -- -- -- --
Patrick J. Cronin, Vice
President, Human
Resources................. 1998 131,000 -- -- -- --
</TABLE>
- ---------------
(1) A bonus may be paid to certain of the Named Executive Officers, however the
amount of bonus earned for the fiscal year ended August 30, 1998 has not
been allocated to the individuals through the date hereof.
(2) Represents the difference between the purchase price of the common stock
purchased on December 1, 1997 and the fair market value of such common
stock. See Note 6 of notes to Albecca's consolidated financial statements.
32
<PAGE> 39
OPTION GRANTS
The following table sets forth information concerning each grant of stock
options to Albecca's executive officers during the year ended August 30, 1998:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
NUMBER PERCENT ANNUAL RATES OF
OF OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ------------ ----------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
William P. Trimarco............. 34,062 100% 8.80 4/30/03 265,444 414,584
</TABLE>
- ---------------
(1) Represents option to purchase shares of Albecca's Class A common stock.
Options were granted at the fair market value of the common stock on the
date of grant as determined by the Board of Directors, and vested
immediately.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. The actual
stock price may increase or decrease over the term. Unless the market price
of the common stock appreciates over the option term, no value will be
realized from the option grants made to the executive officers.
1998 STOCK OPTION PLAN
In 1998, the Board of Directors and Albecca's shareholders approved the
Larson-Juhl 1998 Stock Option Plan. The purpose of the Plan is to advance the
interests of Albecca and its shareholders by affording certain employees and
directors of Albecca, as well as key consultants and advisors to Albecca, an
opportunity to acquire or increase their proprietary interests in Albecca. The
objective of the issuance of stock options under the Plan is to promote the
growth and profitability of Albecca because the optionees will be provided with
an additional incentive to achieve Albecca's objectives through participation in
its success and growth and by encouraging their continued association with or
service to Albecca.
Options under the Plan will be granted by the Compensation Committee of the
Board of Directors and may include incentive stock options and/or non-incentive
stock options. 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:
(1) 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 grant of shares first purchasable
under the option in any one year cannot exceed $100,000;
(2) 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 Albecca'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 110% of the fair market
value of such shares at the time of grant; and
(3) 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 the 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
cancelled are available in connection with future option grants.
33
<PAGE> 40
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 Albecca, except that for
any amendment to be effective as to ISOs, it must be approved by Albecca'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.
34
<PAGE> 41
PRINCIPAL SHAREHOLDERS
The authorized capital stock of Albecca 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 table sets forth certain
information regarding the beneficial ownership of Albecca's two classes of
Common Stock as of the date of this Prospectus with respect to: (1) each person
who owns beneficially more than 5% of the Common Stock and (2) all executive
officers and directors of Albecca 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(1)(2)
---------------------------------------- TOTAL
VOTING POWER
CLASS A CLASS B AFTER THE
COMMON STOCK COMMON STOCK OFFERING
----------------- -------------------- ------------
NUMBER PERCENT NUMBER PERCENT PERCENT
------- ------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C>
Craig A. Ponzio(3)............................ 34,000 .9% 16,626,000 100% 99.8%
June R. Ponzio(3)............................. 34,000 .9% 16,626,000 100% 99.8%
All executive officers and directors as a
Group (8 persons)........................... 374,000 100% 16,626,000 100% 100%
</TABLE>
- ---------------
(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. 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.
(3) The address for Craig A. Ponzio and June R. Ponzio is 3900 Steve Reynolds
Boulevard, Norcross, Georgia 30093. All shares of Common Stock attributable
to Mrs. Ponzio are owned of record by her husband, Mr. Ponzio. Mrs. Ponzio
disclaims beneficial ownership of such shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Albecca leases its corporate headquarters in Norcross, Georgia from L-J
Properties Inc., a company owned by Messrs. Ponzio, Trimarco, Scheppmann and
McKenzie. L-J Properties is owned 70% by Mr. Ponzio and 10% by each of Messrs.
Trimarco, Scheppmann and McKenzie. The lease commenced in August 1991 and
terminates in August 2001, subject to Albecca's option to extend the lease for
two 36-month periods. Albecca currently pays L-J Properties $708,000 per year in
rent, with certain annual increases determined by a formula set forth therein.
Albecca believes that the lease with L-J Properties is on terms at least as
favorable to Albecca as those obtainable from unaffiliated third parties in
Albecca's area of operations. In fiscal years 1996, 1997 and 1998 Albecca made
payments of $642,000, $661,000 and $680,000, respectively, to L-J Properties
under this lease.
On May 1, 1998, Albecca distributed $10.5 million of previously
undistributed S corporation earnings to its shareholders as of that date,
through the issuance of S corporation notes payable in full upon demand and
bearing interest at 11% per annum, with interest payable quarterly until the
notes are paid in full ("S Corp Notes"). On June 10, 1998, Albecca Inc. repaid,
using borrowings under its existing credit facility, $4.0 million of the S Corp
Notes plus accrued interest. On June 24, 1998, the holders of the S Corp Notes,
who constituted all of the existing shareholders and members of Albecca Inc. and
Larson-Juhl International LLC ("L-J International"), respectively, contributed
the then outstanding $6.5 million balance on such S Corp
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<PAGE> 42
Notes to L-J International in satisfaction of a $6.5 million capital call made
by L-J International on June 5, 1998. L-J International demanded repayment of
the S Corp Notes on June 24, 1998. Albecca Inc. repaid the S Corp Notes, plus
accrued interest, on June 24, 1998, using borrowings under the existing credit
facilities. On June 26, 1998, the members of L-J International contributed their
respective membership interests in L-J International to Albecca Inc., at which
time L-J International became a wholly-owned subsidiary of Albecca Inc. No
consideration was given to the members for their contribution since the
shareholders of Albecca Inc. also constituted all of the members of L-J
International.
Albecca used a portion of the net proceeds of the Offering to distribute an
additional $60.0 million of previously undistributed S corporation earnings to
its shareholders concurrently with the consummation of the Offering. The amount
of this distribution to Mr. Ponzio was $58.68 million, to Mr. Trimarco $720,000
and to Mr. Scheppmann $600,000. See "Use of Proceeds."
In May 1998 Albecca amended existing arrangements with Mr. Ponzio and Mr.
Cronin, two of Albecca's executive officers, relating to the payment of deferred
compensation amounts previously accrued in prior years. The aggregate amount of
such deferred payments was $2.8 million in 1998. Subject to certain exceptions,
payment of these amounts will be deferred and paid in annual installments of
$450,000 through 2003 and $550,000 in 2004. Of the accrued amount, Messrs.
Ponzio and Cronin are entitled to aggregate payments of $2,700,000 and $100,000,
respectively.
DESCRIPTION OF CERTAIN INDEBTEDNESS
Simultaneously with the consummation of the sale of the notes, Albecca
repaid all amounts outstanding under, and retired, its existing principal credit
facility, as described in "Use of Proceeds." As of November 29, 1998, Albecca
and the Subsidiary Guarantors have outstanding certain purchase money financing
obligations, which had an outstanding balance of $203.2 million. Such
obligations rank senior in right of payment to the notes and Subsidiary
Guarantees. In addition, the foreign subsidiaries have outstanding indebtedness
under various foreign credit facilities, term notes and purchase money financing
obligations, which had an aggregate outstanding balance of $61.8 million.
Indebtedness of the foreign subsidiaries is effectively senior to the notes and
the Subsidiary Guarantees.
The largest of Albecca's foreign credit facilities is the $7.5 million
credit facility entered into by L-J Canada to fund its Canadian operations.
Borrowings under the Canadian Facility bear interest at rates ranging from LIBOR
plus 0.75% to the Canadian prime rate and mature in August 2000. The Canadian
Facility is secured by all of the assets of L-J Canada. The Canadian Facility is
subject to certain customary financial and other covenants, including without
limitation: (1) financial reporting, (2) funded indebtedness to total
capitalization ratios, (3) leverage ratio, (4) tangible net worth and (5)
limitations on indebtedness, contingent obligations, liens, loans, repayments of
intercompany indebtedness, dividends, advances, investments, acquisitions,
mergers and sale of assets. As of November 29, 1998, approximately $2.3 million
was outstanding under the Canadian Facility.
Albecca's other foreign revolving credit facilities and term notes include
a series of credit facilities used to finance working capital needs and
acquisitions in the respective countries in which Albecca operates. These
facilities range in size from less than $100,000 to $3.6 million. The
indebtedness under these facilities generally bears interest at rates ranging
from 2.0% to 19.0% per annum, as of August 30, 1998, and matures on various
dates ranging through September 2017. Certain of these facilities are secured by
assets of the respective borrowers, including accounts receivable, inventory,
property or capital stock, and are generally subject to certain customary
financial and other covenants, including repayment of intercompany indebtedness
and payment of dividends.
As of the date of this Prospectus, the Company does not have a bank credit
facility in place to fund its U.S. operations, although Albecca plans to enter
into a senior bank credit facility to finance future working capital needs,
capital expenditures and complementary acquisitions. At present, Albecca has not
entered into any agreements, commitments or understandings with respect to such
a credit facility. The Indenture will permit Albecca and the Subsidiary
Guarantors to incur additional indebtedness, including Senior Debt,
36
<PAGE> 43
subject to certain limitations. See "Risk Factors -- Liquidity and Need for
Additional Financing" and "Description of the Notes -- Certain Covenants."
THE EXCHANGE OFFER
The following description is a summary of certain provisions of the
Registration Rights Agreement and does not restate that agreement in its
entirety. We urge you to read the Registration Rights Agreement, which has been
filed as an exhibit to the registration statement which includes this
Prospectus.
TERMS OF THE EXCHANGE OFFER
In connection with the issuance of the notes pursuant to a Purchase
Agreement dated as of August 11, 1998, by and among the Company and the Initial
Purchasers, the Initial Purchasers and their respective assignees became
entitled to the benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, the Company is required to file by
December 9, 1998, a registration statement for a registered exchange offer with
respect to an issue of notes. Under the Registration Rights Agreement, the
Company is required to:
(1) use its best efforts to cause such exchange offer registration
statement to become effective by February 8, 1999;
(2) use its best efforts to keep the exchange offer open for at least
20 business days, or longer if required by applicable law;
(3) use its best efforts to consummate the exchange offer by March 10,
1999;
(4) cause the exchange offer to comply with all applicable federal and
state securities laws. The exchange offer being made hereby, if commenced
and consummated within the time periods described in this paragraph, will
satisfy those requirements under the Registration Rights Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, all notes validly tendered and not withdrawn
before 5:00 p.m., New York City time, on the Expiration Date will be accepted
for exchange. Notes of the same class will be issued in exchange for an equal
principal amount at maturity of outstanding notes accepted in the exchange
offer. Notes may be tendered only in integral multiples of $1,000 of principal
amount at maturity. This Prospectus, together with the Letter of Transmittal, is
being sent to all registered holders as of , 1998. The exchange
offer is not conditioned upon any minimum principal amount at maturity of notes
being tendered in exchange. However, the obligation to accept notes for exchange
pursuant to the exchange offer is subject to certain conditions as set forth
herein under "-- Conditions."
Notes will be deemed to have been accepted as validly tendered when, as and
if the Trustee has given oral or written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of notes for the
purposes of receiving the notes and delivering notes to such holders.
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, including the exchange offer
No-Action Letters, the Company believes that the notes issued pursuant to the
exchange offer may be offered for resale, resold or otherwise transferred by
each holder thereof other than a broker-dealer who acquires such notes directly
from the Company for resale pursuant to Rule 144A under the Securities Act or
any other available exemption under the Securities Act and other than any holder
that is an "affiliate," as defined in Rule 405 under the Securities Act, of the
Company without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such notes are acquired in the
ordinary course of such holder's business and such holder is not engaged in, and
does not intend to engage in, a distribution of such notes and has no
arrangement with any person to participate in a
37
<PAGE> 44
distribution of such notes. By tendering the notes in the exchange offer, each
holder, other than a Participating Broker-Dealer, will represent to the Company
that:
(1) it is not an affiliate, as defined in Rule 405 under the
Securities Act, of the Company;
(2) it is not a broker-dealer tendering notes acquired for its own
account directly from the Company;
(3) any notes to be received by it will be acquired in the ordinary
course of its business; and
(4) it is not engaged in, and does not intend to engage in, a
distribution of such notes and has no arrangement or understanding to
participate in a distribution of the notes.
If a holder of notes is engaged in or intends to engage in a distribution
of the notes or has any arrangement or understanding with respect to the
distribution of the notes to be acquired pursuant to the exchange offer, such
holder may not rely on the applicable interpretations of the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Each Participating Broker-Dealer that receives notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of notes received in exchange for notes
where such notes were acquired by such Participating Broker-Dealer as a result
of market-making activities or other trading activities. The Company has agreed
that it will make this Prospectus available to any Participating Broker-Dealer
for a period of time not to exceed one year after the date on which the exchange
offer is consummated for use in connection with any such resale. See "Plan of
Distribution."
In the event that:
(1) any changes in law or the applicable interpretations of the staff
of the Commission do not permit the Company to effect the exchange offer;
or
(2) if any holder of Transfer Restricted Securities, as defined
herein, notifies the Company within 20 business days following the
consummation of the exchange offer that:
(a) such holder was prohibited by law or Commission policy from
participating in the exchange offer; or
(b) such holder may not resell the notes acquired by it in the
exchange offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such holder; or
(c) such holder is a broker-dealer and holds notes acquired
directly from the Company or one of its affiliates, then the Company
will (x) cause to be filed a shelf registration statement pursuant to
Rule 415 under the Act on or prior to 30 days after the date on which
the Company determines that it is not required to file the exchange
offer Registration Statement pursuant to clause (1) above or 75 days
after the date on which the Company receives the notice specified in
clause (2) above and will (y) use its best efforts to cause such Shelf
Registration Statement to become effective within 75 days after the date
on which the Company becomes obligated to file such Shelf Registration
Statement. If, after the Company has filed an Exchange Offer
Registration Statement, the Company is required to file and make
effective a Shelf Registration Statement solely because the exchange
offer will not be permitted under applicable federal law, then the
filing of the exchange offer registration statement will be deemed to
satisfy the requirements of clause (x) above. Such an event will have no
effect on the requirements of clause (y) above. The Company will use its
best efforts to keep the Shelf Registration Statement continuously
effective, supplemented and amended to the extent necessary to ensure
that it is available for sales of Transfer Restricted Securities by the
holders thereof for a period of at least two years following the date on
which such Shelf Registration
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<PAGE> 45
Statement first becomes effective under the Securities Act. The term
"Transfer Restricted Securities" means each note, until the earliest to
occur of (a) the date on which such note is exchanged in the exchange
offer and entitled to be resold to the public by the holder thereof
without complying with the prospectus delivery requirements of the Act,
(b) the date on which such note has been disposed of in accordance with
a Shelf Registration Statement, (c) the date on which such note is
disposed of by a broker-dealer pursuant to the "Plan of Distribution"
contemplated by the exchange offer registration statement or (d) the
date on which such note is distributed to the public pursuant to Rule
144 under the Act.
Any of the following will be considered a Registration Default:
(1) the Exchange Offer Registration Statement or the Shelf
Registration Statement is not filed with the Commission on or prior to the
date specified in the Registration Rights Agreement;
(2) any such Registration Statement has not been declared effective by
the Commission on or prior to the date specified for such effectiveness in
the Registration Rights Agreement;
(3) the exchange offer has not been consummated thirty days of the
effective date; or
(4) any Registration Statement required by the Registration Rights
Agreement is filed and declared effective but will thereafter cease to be
effective or fail to be usable for its intended purpose without being
succeeded within two days by a post-effective amendment to such
Registration Statement that cures such failure and that is itself declared
effective within five days of filing such post-effective amendment to such
Registration Statement, then the Company has agreed to pay Liquidated
Damages to each holder of New Transfer Restricted Securities. With respect
to the first 90-day period immediately following the occurrence of such
Registration Default the Liquidated Damages will equal $.05 per week per
$1,000 principal amount of Transfer Restricted Securities held by such
holder for each week or portion thereof that the Registration Default
continues. The amount of the Liquidated Damages will increase by an
additional $.05 per week per $1,000 in principal amount of Transfer
Restricted Securities with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.30 per week per $1,000 principal amount of Transfer
Restricted Securities. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
All accrued Liquidated Damages will be paid to the holder of the global
notes representing the notes by wire transfer of immediately available funds or
by federal funds check and to holders of certificated securities by mailing
checks to their registered addresses on each February 15 and August 15. All
obligations of the Company set forth in the preceding paragraph that are
outstanding with respect to any Transfer Restricted Security at the time such
security ceases to be a Transfer Restricted Security will survive until such
time as all such obligations with respect to such security will have been
satisfied in full.
Upon consummation of the exchange offer, subject to certain exceptions,
holders of notes who do not exchange their notes in the exchange offer will no
longer be entitled to registration rights and will not be able to offer or sell
their notes, unless such notes are subsequently registered under the Securities
Act, which, subject to certain limited exceptions, the Company will have no
obligation to do, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. See "Risk
Factors -- Risk Factors Relating to the Notes -- Consequences of Failure to
Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The term "Expiration Date" will mean , 1999, which is 20
business days following the commencement of the exchange offer, unless the
exchange offer is extended, if and as required by applicable law, in which case
the term "Expiration Date" will mean the latest date to which the exchange offer
is extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will notify the
holders of the notes by means of a press release or other public
39
<PAGE> 46
announcement prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
The Company reserves the right:
(1) to delay acceptance of any notes, to extend the exchange offer or
to terminate the exchange offer and not permit acceptance of notes not
previously accepted if any of the conditions set forth herein under
"-- Conditions" has occurred and has not been waived by the Company, by
giving oral or written notice of such delay, extension or termination to
the Exchange Agent; or
(2) to amend the terms of the exchange offer in any manner deemed by
it to be advantageous to the holders of the notes. Any such delay in
acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof to the Exchange
Agent. If the exchange offer is amended in a manner determined by the
Company to constitute a material change, the Company will promptly disclose
such amendment in a manner reasonably calculated to inform the holders of
the notes of such amendment.
PROCEDURES FOR TENDERING
To tender in the exchange offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either:
(1) certificates for such notes must be received by the Exchange Agent
along with the Letter of Transmittal;
(2) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such notes, if such procedure is available, into the
Exchange Agent's account at DTC (the "Book-Entry Transfer Facility")
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date; or
(3) the holder must comply with the guaranteed delivery procedures
described below. THE METHOD OF DELIVERY OF NOTES, LETTERS OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS
OF NOTES. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO
LETTERS OF TRANSMITTAL OR NOTES SHOULD BE SENT TO ALBECCA. Delivery of all
documents must be made to the Exchange Agent at its address set forth
below. Holders of notes may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect such tender for
such holders.
The tender by a holder of notes will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Only a holder of notes may tender such notes in the exchange offer. The
term "holder" with respect to the exchange offer means any person in whose name
notes are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered holder.
Any beneficial owner whose notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact such registered holder promptly and instruct such registered
holder to tender on his behalf. If such beneficial owner wishes to tender on his
own behalf, such beneficial owner must, prior to completing and executing the
Letter of Transmittal and delivering his notes, either make appropriate
arrangements to register ownership of the notes in such owner's name or obtain a
properly completed bond power from the registered holder. The transfer of
registered ownership may take considerable time.
40
<PAGE> 47
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution") unless the notes
tendered pursuant thereto are tendered:
(1) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal; or
(2) for the account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any notes listed therein, such notes must be endorsed or
accompanied by bond powers and a proxy which authorizes such person to tender
the notes on behalf of the registered holder, in each case as the name of the
registered holder or holders appears on the notes.
If the Letter of Transmittal or any notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility, including time of
receipt, and withdrawal of the tendered notes will be determined by the Company
in its sole discretion, which determination will be final and binding. The
Company reserves the absolute right to reject any and all notes not properly
tendered or any notes which, if accepted, would, in the opinion of counsel for
the Company, be unlawful. The Company also reserves the absolute right to waive
any irregularities or conditions of tender as to particular notes. The Company's
interpretation of the terms and conditions of the exchange offer, including the
instructions in the Letter of Transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of notes must be cured within such time as the Company will determine. Neither
the Company, the Exchange Agent nor any other person will be under any duty to
give notification of defects or irregularities with respect to tenders of notes,
nor will any of them incur any liability for failure to give such notification.
Tenders of notes will not be deemed to have been made until such irregularities
have been cured or waived. Any notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost to such holder by the Exchange
Agent to the tendering holders of notes, unless otherwise provided in the Letter
of Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion, subject
to the provisions of the Indenture, to:
(1) purchase or make offers for any notes that remain outstanding
subsequent to the Expiration Date; or
(2) to terminate the exchange offer in accordance with the terms of
the Registration Rights Agreement; and
(3) to the extent permitted by applicable law, purchase notes in the
open market, in privately negotiated transactions or otherwise. The terms
of any such purchases or offers could differ from the terms of the exchange
offer.
ACCEPTANCE OF NOTES FOR EXCHANGE; DELIVERY OF NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
all notes properly tendered will be accepted, promptly after the Expiration
Date, and the notes will be issued promptly after acceptance of the notes. See
"-- Conditions" below. For purposes of the exchange offer, notes will be deemed
to have been accepted as validly tendered for exchange when, as and if the
Company has given oral or written notice thereof to the Exchange Agent.
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<PAGE> 48
In all cases, issuance of notes that are accepted for exchange pursuant to
the exchange offer will be made only after timely receipt by the Exchange Agent
of certificates for such notes or a timely Book-Entry Confirmation of such notes
into the Exchange Agent's account at the Book-Entry Transfer Facility, a
properly completed and duly executed Letter of Transmittal and all other
required documents. If any tendered notes are not accepted for any reason set
forth in the terms and conditions of the exchange offer or if notes are
submitted for a greater principal amount than the holder desires to exchange,
such unaccepted or non-exchanged notes will be returned without expense to the
tendering holder, or, in the case of notes tendered by book-entry transfer
procedures described below, such non-exchanged notes will be credited to an
account maintained with such Book-Entry Transfer Facility, as promptly as
practicable after the expiration or termination of the exchange offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the notes at the Book-Entry Transfer Facility for purposes of the exchange
offer within two business days after the date of this Prospectus. Any financial
institution that is a participant in the Book-Entry Transfer Facility's systems
may make book-entry delivery of notes by causing the Book-Entry Transfer
Facility to transfer such notes into the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of notes may be
effected through book-entry transfer at the Book-Entry Transfer Facility, the
Letter of Transmittal or facsimile thereof with any required signature
guarantees and any other required documents must, in any case, be transmitted to
and received by the Exchange Agent at one of the addresses set forth below under
"-- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of notes desires to tender such notes, and the notes
are not immediately available, or time will not permit such holder's notes or
other required documents to reach the Exchange Agent before the Expiration Date,
or the procedures for book-entry transfer cannot be completed on a timely basis,
a tender may be effected if:
(1) the tender is made through an Eligible Institution;
(2) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Letter of
Transmittal and Notice of Guaranteed Delivery, substantially in the form
provided by the Company, by mail or hand delivery, setting forth the name
and address of the holder of notes and the amount of notes tendered,
stating that the tender is being made thereby and guaranteeing that within
three NYSE trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates for all physically tendered notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(3) the certificates for all physically tendered notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, and all
other documents required by the Letter of Transmittal are received by the
Exchange Agent within three NYSE trading days after the date of execution
of the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of notes may be withdrawn at any time prior to 5:00 p.m., New York
City time on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time on the
Expiration Date at one of the addresses set forth below under "-- Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the notes to be withdrawn, identify the notes to be withdrawn,
including the principal amount of such notes,
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<PAGE> 49
and where certificates for notes have been transmitted, specify the name in
which such notes are registered, if different from that of the withdrawing
holder.
If certificates for notes have been delivered or otherwise identified to
the Exchange Agent, then, prior to the release of such certificates, the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution unless such holder is an Eligible
Institution. If notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn notes and otherwise comply with the procedures of
such facility. All questions as to the validity, form and eligibility, including
time of receipt, of such notices will be determined by the Company, whose
determination will be final and binding on all parties.
Any notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer. Any notes which have been tendered
for exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder, or, in the case of notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described above, such
notes will be credited to an account maintained with such Book-Entry Transfer
Facility for the notes, as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer. Properly withdrawn notes may be
retendered by following one of the procedures described under "-- Procedures for
Tendering" and "-- Book-Entry Transfer" above at any time on or prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the exchange offer, notes will not be
required to be accepted for exchange, nor will notes be issued in exchange for
any notes, and the Company may terminate or amend the exchange offer as provided
herein before the acceptance of such notes, if because of any change in law, or
applicable interpretations thereof by the Commission, the Company determines
that it is not permitted to effect the exchange offer. The Company has no
obligation to, and will not knowingly, permit acceptance of tenders of notes
from affiliates, within the meaning of Rule 405 under the Securities Act, of the
Company or from any other holder or holders who are not eligible to participate
in the exchange offer under applicable law or interpretations thereof by the
Commission, or if the notes to be received by such holder or holders of notes in
the exchange offer, upon receipt, will not be tradable by such holder without
restriction under the Securities Act and the Exchange Act and without material
restrictions under the "blue sky" or securities laws of substantially all of the
states of the United States.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent
for the exchange offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Mail or Courier:
Corporate Trust Department Corporate Trust Department
P.O. Box 778 Two International Place, 4th Floor
Boston, Massachusetts 02102-0078 Boston, Massachusetts 02110
Attention: Kellie Mullen Attention: Kellie Mullen
By Facsimile:
Corporate Trust Department
(617) 664-5290
Attention: Kellie Mullen
For information call:
(617) 664-5587
</TABLE>
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<PAGE> 50
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the exchange offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
exchange offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, fax or in person by officers and regular employees
of the Company.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of the Prospectus and related documents to the beneficial
owners of the notes, and in handling and forwarding tenders for exchange.
The expenses to be incurred in connection with the exchange offer will be
paid by the Company, including fees and expenses of the Exchange Agent and
Trustee and accounting, legal, printing and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of notes pursuant to the exchange offer. If, however, certificates representing
notes for principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the notes tendered, or if tendered notes are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of notes pursuant to the exchange offer, then the amount of any such
transfer taxes, whether imposed on the registered holder or any other persons,
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
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<PAGE> 51
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the word
"Company" refers only to Albecca, Inc. and not to any of its subsidiaries.
The Company has issued the notes under an Indenture (the "Indenture") among
itself, the Subsidiary Guarantors and State Street Bank and Trust Company, as
trustee (the "Trustee"). The terms of the notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act").
The following description is a summary of the material provisions of the
Indenture and the Registration Rights Agreement. It does not restate that
agreement in its entirety. We urge you to read the Indenture and the
Registration Rights Agreement because they, and not this description, define
your rights as holders of these notes. We have filed copies of the Indenture and
the Registration Rights Agreement as exhibits to the registration statement
which includes this Prospectus.
BRIEF DESCRIPTION OF THE NOTES AND THE SUBSIDIARY GUARANTEES
THE NOTES
These notes:
- are general unsecured obligations of the Company;
- are guaranteed, jointly and severally, by the Subsidiary Guarantees;
- are subordinated in right of payment to all existing and future Senior
Debt of the Company; and
- are senior in right of payment to any future subordinated Indebtedness
of the Company.
THE SUBSIDIARY GUARANTEES
These notes are guaranteed by the following subsidiaries of the Company:
- Larson-Juhl US LLC;
- Larson-Juhl International LLC;
- Art Materials, Frames and Mouldings Company, Inc.;
- Robert F. de Castro, Inc.;
- Glass Corporation of America, Inc.;
- Art West, Inc.;
- Eastern Moulding, Inc.;
- Eastern Mouldings, Inc.;
- Larson-Juhl Australia L.L.C.;
- Larson-Juhl France L.L.C.;
- Larson-Juhl South Africa L.L.C.;
- Larson-Juhl Seoul L.L.C.;
- Larson-Juhl Korea L.L.C.; and
- Larson-Juhl Netherlands L.L.C.
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<PAGE> 52
The Subsidiary Guarantees of these notes:
- are general obligations of each Subsidiary Guarantor;
- are subordinated in right of payment to all existing and future Senior
Debt of each Subsidiary Guarantor; and
- are senior in right of payment to any future subordinated Indebtedness
of each Subsidiary Guarantor.
As of November 29, 1998, the Company and the Subsidiary Guarantors have
total Senior Debt of approximately $65.0 million. As indicated above and as
discussed in detail below under the subheading "Subordination," payments on the
notes and under the Subsidiary Guarantees will be subordinated to the payment of
Senior Debt. The Indenture permits us and the Subsidiary Guarantors to incur
additional Senior Debt.
As of the date of the Indenture, all but two of our subsidiaries are
"Restricted Subsidiaries." However, under certain circumstances, we are
permitted to designate certain of our subsidiaries as "Unrestricted
Subsidiaries." Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants in the Indenture. Unrestricted Subsidiaries will not
guarantee these notes.
None of the Company's foreign subsidiaries guarantee these notes. In the
event of a bankruptcy, liquidation or reorganization of any of these
non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the
holders of their debt and their trade creditors before they will be able to
distribute any of their assets to us. Albecca Inc. and the guarantor
subsidiaries generated 51% of our consolidated revenues in the twelve-month
period ended August 30, 1998 and held 39% of our consolidated assets as of
August 30, 1998. See footnote 15 to our Consolidated Financial Statements
included at the back of this Prospectus for more detail about the division of
our consolidated revenues and assets between our guarantor and non-guarantor
subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
The Company has issued notes with a maximum aggregate principal amount of
$200.0 million. The Company has issued notes in denominations of $1,000 and
integral multiples of $1,000. The notes will mature on August 15, 2008.
Interest on these notes will accrue at the rate of 10 3/4% per annum and is
payable semi-annually in arrears on February 15 and August 15, commencing on
February 15. The Company will make each interest payment to the Holders of
record of these notes on the immediately preceding February 1 and August 1.
Interest on these notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a Holder has given wire transfer instructions to the Company, the
Company will make all principal, premium and interest payments on those notes in
accordance with those instructions. All other payments on these notes will be
made at the office or agency of the Paying Agent and Registrar within the City
and State of New York unless the Company elects to make interest payments by
check mailed to the Holders at their address set forth in the register of
Holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee will initially act as Paying Agent and Registrar. The Company
may change the Paying Agent or Registrar without prior notice to the Holders of
the notes, and the Company or any of its Subsidiaries may act as Paying Agent or
Registrar.
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<PAGE> 53
TRANSFER AND EXCHANGE
A Holder may transfer or exchange notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any note selected
for redemption. Also, the Company is not required to transfer or exchange any
note for a period of 15 days before a selection of notes to be redeemed.
The registered Holder of a note will be treated as the owner of it for all
purposes.
SUBSIDIARY GUARANTEES
The Subsidiary Guarantors unconditionally, jointly and severally guarantee
the Company's obligations under these notes. Each Subsidiary Guarantee is
subordinated to the prior payment in full of all Senior Debt of that Subsidiary
Guarantor. The obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee is limited as necessary to prevent that Subsidiary Guarantee from
constituting a fraudulent conveyance under applicable law. See "Risk
Factors -- Fraudulent Conveyance Matters."
A Subsidiary Guarantor may not sell or otherwise dispose of all or
substantially all of its assets, or consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person), another
Person unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such consolidation
or merger assumes all the obligations of that Subsidiary Guarantor
pursuant to a supplemental indenture satisfactory to the Trustee; or
(b) the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the Indenture.
The Subsidiary Guarantee of a Subsidiary Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation), if the Company applies the Net Proceeds of that
sale or other disposition, in accordance with the applicable provisions of
the Indenture;
(2) in connection with any sale of all of the capital stock of a
Subsidiary Guarantor, if the Company applies the Net Proceeds of that sale
in accordance with the applicable provisions of the Indenture; or
(3) if the Company designates any Restricted Subsidiary that is a
Subsidiary Guarantor as an Unrestricted Subsidiary.
See "Redemption or Repurchase at Option of Holders -- Asset Sales."
SUBORDINATION
The payment of principal, premium and interest, if any, on these notes will
be subordinated to the prior payment in full of all Senior Debt of the Company.
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<PAGE> 54
The holders of Senior Debt will be entitled to receive payment in full of
all Obligations due in respect of Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Debt) before the Holders of notes will be entitled to receive any payment
with respect to the notes (except that Holders of notes may receive and retain
Permitted Junior Securities and payments made from the trust described under
"-- Legal Defeasance and Covenant Defeasance"), in the event of any distribution
to creditors of the Company:
(1) in a liquidation or dissolution of the Company;
(2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of the Company's assets and liabilities.
The Company also may not make any payment in respect of the notes (except
in Permitted Junior Securities or from the trust described under "-- Legal
Defeasance and Covenant Defeasance") if:
(1) a payment default on Designated Senior Debt occurs and is
continuing beyond any applicable grace period; or
(2) any other default occurs and is continuing on Designated Senior
Debt that permits holders of the Designated Senior Debt to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Company or the holders of any Designated Senior
Debt.
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such
default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until:
(1) 360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice; and
(2) all scheduled payments of principal, premium and interest on the
notes that have come due have been paid in full in cash.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of not less than 180 days.
The Company must promptly notify holders of Senior Debt if payment of the
notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of the Company, Holders of these
notes may recover less ratably than creditors of the Company who are holders of
Senior Debt. See "Risk Factors -- Subordination."
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<PAGE> 55
OPTIONAL REDEMPTION
After August 15, 2003, the Company may redeem all or a part of these notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon, if any, to the applicable redemption date, if redeemed
during the twelve-month period beginning on August 15 of the years indicated
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................................................ 105.375%
2004........................................................ 103.583%
2005........................................................ 101.792%
2006 and thereafter......................................... 100.00%
</TABLE>
In addition, notwithstanding the above, at any time on or before August 15,
2001, the Company may redeem up to 35% of the principal amount of the notes at a
redemption price of 110.75% of the principal amount plus accrued interest and
Liquidated Damages with the proceeds of one or more Equity Offerings; provided:
(1) at least 65% in the aggregate principal amount of the notes
originally issued remains outstanding; and
(2) the redemption must occur within 90 days of the closing of the
Equity Offering.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the notes.
CERTAIN COVENANTS
Change of Control
If a Change of Control occurs, each Holder of notes will have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that Holder's notes pursuant to the Change of
Control Offer. In the Change of Control Offer, the Company will offer a Change
of Control Payment in cash equal to 101% of the aggregate principal amount of
notes repurchased plus accrued and unpaid interest thereon, if any, to the date
of purchase. Within 30 days following any Change of Control, the Company will
mail a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase notes on the Change
of Control Payment Date specified in such notice, pursuant to the procedures
required by the Indenture and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the notes as a
result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the Trustee the notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of notes or portions thereof being purchased by the
Company.
The Paying Agent will promptly mail to each Holder of notes so tendered the
Change of Control Payment for such notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new note equal in principal amount to any unpurchased portion of the notes
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surrendered, if any; provided that each such new note will be in a principal
amount of $1,000 or an integral multiple thereof.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, the
Company will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of notes required by this covenant. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the notes to require that the
Company repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
The Company's outstanding Senior Debt currently prohibits the Company from
purchasing any notes, and also provides that certain change of control events
with respect to the Company would constitute a default under the agreements
governing the Senior Debt. Any future credit agreements or other agreements
relating to Senior Debt to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Company is prohibited from purchasing notes, the Company could seek the
consent of its senior lenders to the purchase of notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does not
obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing notes. In such case, the Company's failure to
purchase tendered notes would constitute an Event of Default under the Indenture
which would, in turn, constitute a default under such Senior Debt. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a limited body of case law interpreting the phrase "substantially all,"
there is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of notes to require the Company to
repurchase such notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is determined by the Company's Board of
Directors and evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee; and
(3) at least 75% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of cash. For purposes of this
provision, each of the following shall be deemed to be cash:
(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet), of the Company or any
Restricted Subsidiary (other than contingent liabilities and
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liabilities that are by their terms subordinated to the notes or any
Subsidiary Guarantee) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash (to the
extent of the cash received) within 180 days following the closing of
such Asset Sale.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or the Restricted Subsidiary may apply such Net Proceeds at its
option:
(1) to permanently repay or retire Senior Debt;
(2) to acquire all or substantially all of the assets of, or a
majority of, the Capital Stock of another Permitted Business; provided,
that such person becomes a Restricted Subsidiary;
(3) to make a capital expenditure; or
(4) to acquire other long-term assets that are used or useful in a
Permitted Business.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided above will constitute Excess Proceeds. When the aggregate amount of
Excess Proceeds exceeds $10.0 million, the Company is required to make an offer
to all Holders of notes and, all holders of other Indebtedness that is pari
passu with the notes (an "Asset Sale Offer") to purchase or redeem with the
Excess Proceeds the maximum principal amount of notes and such other pari passu
Indebtedness that may be purchased out of the Excess Proceeds. The offer price
in any Asset Sale Offer will be equal to 100% of principal amount plus accrued
and unpaid interest, if any, to the date of purchase, and will be payable in
cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer,
the Company may use such Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount of notes and such
other pari passu Indebtedness tendered in an Asset Sale Offer exceeds the amount
of Excess Proceeds, the Trustee shall select the notes and such other pari passu
Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
Restricted Payments
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company or any
of its Restricted Subsidiaries) or to the direct or indirect holders of the
Company's or any of its Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or to the Company
or a Restricted Subsidiary of the Company);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the Company or
any Restricted Subsidiary (other than any such Equity Interests owned by
the Company or any Restricted Subsidiary of the Company);
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the notes except a payment of interest or principal at the
Stated Maturity thereof; or
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(4) make any Restricted Investment
(all such payments and other actions set forth in clauses (1) through (4) are
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(2) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been incurred at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (b) and (c) of the next succeeding paragraph), is less
than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Indenture to the end of
the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit); plus
(b) 100% of the aggregate Qualified Proceeds received by the
Company from contributions to its common equity capital or from the
issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or
debt securities of the Company that have been converted into or
exchanged for such Equity Interests (other than Equity Interests (or
Disqualified Stock or debt securities) sold to a Subsidiary of the
Company); plus
(c) to the extent that any Restricted Investment that was made
after the date of the Indenture is sold for Qualified Proceeds or
otherwise liquidated or repaid, the lesser of (1) the Qualified Proceeds
with respect to such Restricted Investment (less the cost of
disposition, if any) and (2) the initial amount of such Restricted
Investment; plus
(d) upon the redesignation of an Unrestricted Subsidiary to a
Restricted Subsidiary, the lesser of (1) the fair market value of the
Subsidiary or (2) the aggregate amount of all investments made in the
Subsidiary; plus
(e) $1.0 million.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the
Company or any Subsidiary Guarantor in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Restricted
Subsidiary of the Company) of, Equity Interests of the Company (other than
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (3) (b) of
the preceding paragraph;
(3) the defeasance, redemption, repurchase, retirement or other
acquisition of subordinated Indebtedness in exchange for, or with the net
cash proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of the
Company to the holders of its common Equity Interests on a pro rata basis;
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(5) so long as no Default or Event of Default shall have occurred and
is continuing, the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any
Restricted Subsidiary of the Company held by any member of the Company's
(or any of its Subsidiaries') management, employees or consultants pursuant
to any management, employee or consultant equity subscription agreement or
plan or stock option agreement or stock plan; provided that the aggregate
price paid for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed (1) U.S. $1.0 million in any twelve-month period
and (2) in the aggregate, the sum of $5.0 million and the aggregate cash
proceeds received by the Company from the reissuance of Equity Interests by
the Company to members of management of the Company and its Subsidiaries
(provided that the cash proceeds referred to in this clause shall be
excluded from clause 3(b) of the preceding paragraph); and
(6) the payment of Permitted Quarterly Tax Distributions to the
holders of Capital Stock of the Company as described below.
As long as the Company is an S corporation or a substantially similar
pass-through entity for federal income tax purposes, the Company may make
distributions to its shareholders, during each Quarterly Payment Period, in an
aggregate amount not to exceed the Permitted Quarterly Tax Distribution in
respect of the related Estimation Period. If any portion of a Permitted
Quarterly Tax Distribution is not distributed during such Quarterly Payment
Period, subsequent Permitted Quarterly Tax Distributions shall be increased by
such undistributed portion.
Within 30 days following the Company's filing of Internal Revenue Service
Form 1120S for the immediately preceding taxable year (or within 30 days of a
redetermination of the taxable income of the Company as a result of a final
agreement with a tax authority), the Tax CPA shall file with the Trustee a
written statement indicating in reasonable detail the calculation of the True-up
Amount. In the case of a True-up Amount due to the shareholders, the Permitted
Quarterly Tax Distribution payable during the immediately following Quarterly
Payment Period shall be increased by such True-up Amount. In the case of a
True-up Amount due to the Company, the Permitted Quarterly Tax Distribution
payable during the immediately following Quarterly Payment Period shall be
reduced by such True-up Amount and the excess, if any, of such True-up Amount
over such Permitted Quarterly Tax Distribution shall be applied to reduce the
immediately following Permitted Quarterly Tax Distributions until such True-up
Amount is entirely offset.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors whose resolution with
respect thereto shall be delivered to the Trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $1.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this "Restricted Payments"
covenant were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and neither the Company nor any Subsidiary Guarantor will issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that the Company and any
Restricted Subsidiary may incur Indebtedness (including Acquired Debt), or issue
Disqualified Stock, if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
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Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 2.0 to 1.0, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Company or the Subsidiary Guarantors of
Indebtedness under Credit Facilities (or the guarantee of Company
Indebtedness by the Subsidiary Guarantors); to the extent that the
aggregate principal amount of all Indebtedness of the Company and the
Subsidiary Guarantors outstanding under this clause, after giving effect to
such incurrence, does not exceed an amount equal to $65.0 million less the
aggregate amount of all principal repayments (optional or mandatory)
thereunder constituting permanent reductions of such Indebtedness pursuant
to and in accordance with the covenant described under the caption "Asset
Sales");
(2) the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness represented by the notes and the Subsidiary Guarantees;
(3) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case, incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount not to exceed $7.5 million at any time outstanding;
(4) other indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date;
(5) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace,
Indebtedness (other than intercompany Indebtedness) that was permitted by
the Indenture to exist or be incurred;
(6) the incurrence of intercompany Indebtedness (A) between or among
the Company and any of its Wholly Owned Restricted Subsidiaries or (B) by a
Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary to
the Company or a Wholly Owned Restricted Subsidiary; provided, however,
that:
(a) if the Company or any Subsidiary Guarantor is the obligor on
such Indebtedness, such Indebtedness must be expressly subordinated to
the prior payment in full in cash of all Obligations with respect to the
notes, in the case of the Company, or the Subsidiary Guarantee of such
Subsidiary Guarantor, in the case of a Subsidiary Guarantor; and
(b) (1) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than
the Company or a Wholly Owned Restricted Subsidiary thereof and (2) any
sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Wholly Owned Restricted Subsidiary of the
Company; shall be deemed, in each case, to constitute an incurrence of
such Indebtedness by the Company or such Subsidiary, as the case may be,
that was not permitted by this clause (6);
(7) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging (A) interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding, (B) the value of foreign currencies purchased or received by
the Company in the ordinary course of business or (C) the price of raw
materials used by the Company or its Restricted Subsidiaries in a Permitted
Business;
(8) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
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connection with the disposition of any business, assets or Capital Stock of
a Restricted Subsidiary to the extent that the amount of any such
Indebtedness does not exceed 25% of the gross proceeds of such disposition;
(9) the guarantee by the Company or any of the Restricted Subsidiaries
of Indebtedness of the Company or a Restricted Subsidiary that was
permitted to be incurred by another provision of this covenant;
(10) the incurrence by the Company or any of its Restricted
Subsidiaries of Acquired Debt in an aggregate principal amount at any time
outstanding not to exceed $10.0 million;
(11) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within five business days of incurrence; and
(12) the incurrence by the Company or any Restricted Subsidiary of
additional Indebtedness (which may be Indebtedness under Credit Facilities)
in an aggregate principal amount (or accreted value, as applicable) at any
time outstanding, including all Indebtedness incurred to refund, refinance
or replace any Indebtedness incurred pursuant to this clause (12), not to
exceed $20.0 million.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (13) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company will be permitted to classify such item of Indebtedness on the date of
its incurrence in any manner that complies with this covenant, and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or the first paragraph of this covenant.
Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, except Permitted Liens unless the notes are
secured by such Lien on an equal and ratable basis.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to the Company or any of the Company's Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to the Company or any of the
Company's Restricted Subsidiaries;
(2) make loans or advances to the Company or any of the Company's
Restricted Subsidiaries;
(3) guarantee any Indebtedness of the Company or any Restricted
Subsidiary of the Company; or
(4) transfer any of its properties or assets to the Company or any of
the Company's Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the Indenture
and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings
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thereof, provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacement or refinancings
taken as a whole, are no more restrictive, with respect to such dividend
and other payment restrictions than those contained in such Existing
Indebtedness, as in effect on the date of the Indenture;
(2) the Indenture and the notes;
(3) applicable law or any applicable Rules, regulation or order;
(4) any agreement or instrument governing Indebtedness or Capital
Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the
extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted
by the terms of the Indenture to be incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (4) of the preceding paragraph;
(7) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced; or
(8) Contracts for the sale of assets containing customary restrictions
with respect to a Subsidiary pursuant to an agreement that has entered into
for the sale or disposition of all or substantially all of the Capital
Stock or the assets of such Subsidiary.
Merger, Consolidation, or Sale of Assets
The Company may not, directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not the Company is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of its properties or assets, in one or more related
transactions, to another Person; unless:
(1) either: (A) the Company is the surviving corporation; or (B) the
Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, conveyance
or other disposition shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than the Company) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of the Company under the notes and the Indenture pursuant
to agreements reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) except in the case of a merger of the Company with or into a
Wholly Owned Restricted Subsidiary of the Company, the Company or the
Person formed by or surviving any such consolidation or merger (if other
than the Company) will, on the date of such transaction after giving pro
forma effect thereto as if the same had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock."
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Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$2.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of
Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the holders of such
Affiliate Transaction (other than an increase of more than 10% in the
annual base compensation or a bonus in excess of two times the base
salary of Craig A. Ponzio) from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement, stock option or other compensation
agreement or plan and other reasonable fees, compensation, benefits and
indemnities paid or entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business of the Company or such
Restricted Subsidiary to or with the officers, directors or employees of
the Company or its Restricted Subsidiaries;
(2) transactions between or among the Company and/or its Restricted
Subsidiaries;
(3) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "-- Restricted Payments;"
(4) transactions with supplies or customers, in each case in the
ordinary course of business; and
(5) the current lease on the Company's Atlanta headquarters, any
payments thereunder, and any changes to the lease to the extent that such
changes comply with item (1) in the preceding paragraph.
Limitation on Layering Debt
The Company will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of the Company and senior in any respect in right of
payment to the notes. No Subsidiary Guarantor will incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate or
junior in right of payment to any Senior Debt of such Subsidiary Guarantor and
senior in any respect in right of payment to such Subsidiary Guarantor's
Subsidiary Guarantee.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses.
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Reports
Whether or not required by the SEC, so long as any notes are outstanding,
the Company will furnish to the Holders of notes, within the time periods
specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q
and 10-K if the Company were required to file such Forms,
including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the
annual information only, a report on the annual financial
statements by the Company's certified independent accountants; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if the Company were required to file such reports.
In addition, whether or not required by the SEC, the Company will file a
copy of all of the information and reports referred to in clauses (1) and
(2)above with the SEC for public availability within the time periods specified
in the SEC's rules and regulations (unless the SEC will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the
notes, whether or not prohibited by the subordination provisions
of the Indenture;
(2) default in payment when due of the principal of or premium, if
any, on the notes, whether or not prohibited by the subordination
provisions of the Indenture;
(3) failure by the Company or any of its Restricted Subsidiaries for
30 days after notice by the Trustee or by the Holders of at least
25% in principal amount of the notes then outstanding to comply
with the provisions described under the captions "-- Change of
Control," "-- Asset Sales," "-- Restricted Payments" or
"-- Incurrence of Indebtedness and Issuance of Preferred Stock";
(4) failure by the Company or any of its Restricted Subsidiaries for
60 days after notice by the Trustee or the Holders of at least 25%
in principal amount of the notes then outstanding to comply with
any of the other agreements in the Indenture or the notes;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date
of the Indenture, if that default:
(a) is caused by a failure to pay principal of or premium, if any,
or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such
default (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default
or the maturity of which has been so accelerated, aggregates
$7.5 million or more; and
(6) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $7.5 million, which
judgments are not paid, discharged or stayed for a period of 60
days;
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(7) except as permitted by the Indenture, any Subsidiary Guarantee
shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and
effect or any Subsidiary Guarantor, or any Person acting on behalf
of any Subsidiary Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to the
Company or any of its significant Subsidiaries.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Restricted Subsidiary
that is a Significant Subsidiary or any group of Restricted Subsidiaries that,
taken together, would constitute a Significant Subsidiary, all outstanding notes
will become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the Trustee or the Holders of
at least 25% in principal amount of the then outstanding notes may declare all
the notes to be due and payable immediately.
Holders of the notes may not enforce the Indenture or the notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture. Upon becoming aware of any Default or
Event of Default, the Company is required to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or the Guarantors under the notes, the Indenture, the Subsidiary
Guarantees, the Registration Rights Agreement or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
notes by accepting a note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the notes. The waiver may
not be effective to waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes and all obligations
of the Guarantors discharged with respect to their Subsidiary Guarantees ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on such notes
when such payments are due from the trust referred to below;
(2) the Company's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company and the Guarantors released with respect to
certain covenants that are described in the Indenture ("Covenant
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Defeasance") and thereafter any omission to comply with those covenants shall
not constitute a Default or Event of Default with respect to the notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest and Liquidated Damages on the outstanding notes on the
stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the notes are being defeased to
maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that (a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date
of the Indenture, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon such opinion
of counsel shall confirm that, the Holders of the outstanding notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel reasonably acceptable to the
Trustee confirming that the Holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing either: (a) on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to
such deposit); or (b) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or
any of its Restricted Subsidiaries is a party or by which the Company or
any of its Restricted Subsidiaries is bound;
(6) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(7) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors
of the Company or others; and
(8) the Company must deliver to the Trustee an Officers' Certificate
and an opinion of counsel, each stating that all conditions precedent
relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
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AMENDMENT, SUPPLEMENT AND WAIVER
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note
or alter the provisions with respect to the redemption of the notes (other
than provisions relating to the covenants described above under the caption
"-- Certain Covenants");
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the notes (except a rescission of
acceleration of the notes by the Holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment default
that resulted from such acceleration);
(5) make any note payable in money other than that stated in the
notes;
(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of notes to receive
payments of principal of or premium, if any, or interest on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the caption
"-- Certain Covenants"); or
(8) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the
Indenture relating to subordination or that adversely affects the rights of the
Holders of the notes will require the consent of the Holders of at least 75% in
aggregate principal amount of notes then outstanding. Notwithstanding the
preceding, without the consent of any Holder of notes, the Company and the
Trustee may amend or supplement the Indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of the Company's obligations to
Holders of notes in the case of a merger or consolidation or sale of all or
substantially all of the Company's assets;
(4) to make any change that would provide any additional rights or
benefits to the Holders of notes or that does not adversely affect the
legal rights under the Indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture
Act.
CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of the Company or any Guarantor, the
Indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise
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any of its rights or powers under the Indenture at the request of any Holder of
notes, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The notes were offered and sold to qualified institutional buyers in
reliance on Rule 144A. The notes will be issued in registered, global form in
minimum denominations of $1,000 principal amount at maturity and integral
multiples of $1,000 in excess thereof.
The Global Notes will be deposited upon issuance with the Trustee as
custodian for DTC, in New York, New York, and registered in the name of DTC or
its nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for notes
in certificated form except in the limited circumstances described below. See
"-- Exchange of Book-Entry for Certificated Notes."
In addition, transfer of beneficial interests in the Global Notes will be
subject to the applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of Euroclear and CEDEL), which may
change from time to time.
Initially, the Trustee will act as Paying Agent and Registrar with respect
to the notes. The notes may be presented for registration of transfer and
exchange at the offices of the Registrar.
DEPOSITARY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations which are called
Direct Participants and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Participants. The Direct Participants include
securities brokers and dealers, including the Initial Purchasers, banks, trust
companies, clearing corporations and certain other organizations, including
Euroclear and Cedel. Access to DTC's system is also available to other entities
that clear through, or maintain a direct or indirect custodial relationship
with, a Direct Participant which are collectively, the Indirect Participants.
DTC has advised the Company that, pursuant to DTC's procedures:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
the Direct Participants designated by the Initial Purchasers with portions
of the principal amount of the Global Notes that have been allocated to
them by the Initial Purchasers; and
(2) DTC will maintain records of the ownership interests of such
Direct Participants in the Global Notes and the transfer of ownership
interests by and between Direct Participants. DTC will not maintain records
of the ownership interests of, or the transfer of ownership interests by
and between, Indirect Participants or other owners of beneficial interests
in the Global Notes. Direct Participants and Indirect Participants must
maintain their own records of the ownership interests of, and the transfer
of ownership interests by and between, Indirect Participants and other
owners of beneficial interests in the Global Notes.
Investors in the U.S. Global Notes may hold their interests therein
directly through DTC if they are Direct Participants in DTC or indirectly
through organizations that are Direct Participants in DTC. Investors in the Reg
S Temporary Global Notes may hold their interests therein directly through
Euroclear or CEDEL or indirectly through organizations that are participants in
Euroclear or CEDEL. After the expiration of the 40-Day Restricted Period (but
not earlier), investors may also hold interests in the Reg S Permanent Global
Notes through organizations other than Euroclear and CEDEL that are Direct
Participants in the DTC system. Morgan Guaranty Trust Company of New York,
Brussels office is the operator and depository of Euroclear and Citibank, N.A.
is the operator and depository of CEDEL (each a "nominee" of Euroclear and
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CEDEL, respectively). Therefore, they will each be recorded on DTC's records as
the holders of all ownership interests held by them on behalf of Euroclear and
CEDEL, respectively. Euroclear and CEDEL must maintain on their own records the
ownership interests, and transfers of ownership interests by and between, their
own customers' securities accounts. DTC will not maintain such records. All
ownership interests in any Global Notes, including those of customers'
securities accounts held through Euroclear or CEDEL, may be subject to the
procedures and requirements of DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that they
own. This may limit or curtail the ability to transfer beneficial interests in a
Global Note to such persons. Because DTC can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
the ability of a person having a beneficial interest in a Global Note to pledge
such interest to persons or entities that are not Direct Participants in DTC, or
to otherwise take actions in respect of such interests, may be affected by the
lack of physical certificates evidencing such interests. For certain other
restrictions on the transferability of the notes see "-- Reg S Temporary and Reg
S Permanent Global Notes" and "-- Transfers of Interests in Global Notes for
Certificated Notes."
EXCEPT AS DESCRIBED IN "-- TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR
CERTIFICATED NOTES", OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Under the terms of the Indenture, the Company, the Guarantors and the
Trustee will treat the persons in whose names the notes are registered
(including notes represented by Global Notes) as the owners thereof for the
purpose of receiving payments and for any and all other purposes whatsoever.
Payments in respect of the principal, premium, Liquidated Damages, if any, and
interest on Global Notes registered in the name of DTC or its nominee will be
payable by the Trustee to DTC or its nominee as the registered holder under the
Indenture. Consequently, neither Albecca, the Trustee nor any agent of Albecca
or the Trustee has or will have any responsibility or liability for (A) any
aspect of DTC's records or any Direct Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interests in the Global Notes or for maintaining, supervising or reviewing any
of DTC's records or any Direct Participant's or Indirect Participant's records
relating to the beneficial ownership interests in any Global Note or (B) any
other matter relating to the actions and practices of DTC or any of its Direct
Participants or Indirect Participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
notes is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
Trustee, the Company or the Guarantors. Neither the Company, the Guarantors nor
the Trustee will be liable for any delay by DTC or its Direct Participants or
Indirect Participants in identifying the beneficial owners of the notes, and the
Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee as the registered owner of the
notes for all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect Participants
who hold an interest in the notes through Euroclear or CEDEL) who hold an
interest through a Direct Participant will be effected in accordance with the
procedures of such Direct Participant but generally will settle in immediately
available funds. Transfers between and among Indirect Participants who hold
interests in the notes through Euroclear and CEDEL will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes described herein, cross-market transfers between Direct Participants in
DTC, on the one hand, and Indirect Participants who hold interests in
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the notes through Euroclear or CEDEL, on the other hand, will be effected by
Euroclear's or CEDEL's respective Nominee through DTC in accordance with DTC's
rules on behalf of Euroclear or CEDEL; however, delivery of instructions
relating to crossmarket transactions must be made directly to Euroclear or
CEDEL, as the case may be, by the counterparty in accordance with the rules and
procedures of Euroclear or CEDEL and within their established deadlines
(Brussels time for Euroclear and UK time for CEDEL). Indirect Participants who
hold interest in the notes through Euroclear and CEDEL may not deliver
instructions directly to Euroclear's or CEDEL's Nominee. Euroclear or CEDEL
will, if the transaction meets its settlement requirements, deliver instructions
to its respective Nominee to deliver or receive interests on Euroclear's or
CEDEL's behalf in the relevant Global Note in DTC, and make or receive payment
in accordance with normal procedures for same-day fund settlement applicable to
DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the notes through Euroclear or CEDEL
purchasing an interest in a Global Note from a Direct Participant in DTC will be
credited, and any such crediting will be reported to Euroclear or CEDEL during
the European business day immediately following the settlement date of DTC in
New York. Although recorded in DTC's accounting records as of DTC's settlement
date in New York, Euroclear and CEDEL customers will not have access to the cash
amount credited to their accounts as a result of a sale of an interest in a Reg
S Permanent Global Note to a DTC Participant until the European business day for
Euroclear or CEDEL immediately following DTC's settlement date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of such portion of the aggregate principal amount of the notes
to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the notes, DTC
reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for legended notes in certificated form, and to
distribute such certificated forms of notes to its Direct Participants. See
"-- Transfers of Interests in Global Notes for Certificated Notes."
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the Reg S Permanent Global Notes and in
the U.S. Global Notes among Direct Participants, including Euroclear and CEDEL,
they are under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Company, the Guarantors, the Initial Purchasers or the Trustee shall have any
responsibility for the performance by DTC, Euroclear or CEDEL or their
respective Direct and Indirect Participants of their respective obligations
under the rules and procedures governing any of their operations.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
Reg S Temporary and Reg S Permanent Global Notes
An Indirect Participant who holds an interest in Reg S Temporary Global
Notes through Euroclear or CEDEL must provide Euroclear or CEDEL, as the case
may be, with a certificate in the form required by the Indenture certifying that
such Indirect Participant is either not a U.S. Person (as defined below) or has
purchased such interests in a transaction that is exempt from the registration
requirements under the Securities Act, and Euroclear or CEDEL, as the case may
be, must provide to the Trustee (or the Paying Agent, if other than the Trustee)
a certificate in the form required by the Indenture prior to any exchange of
such beneficial interests for beneficial interests in Reg S Permanent Global
Notes.
"U.S. Person" means:
(1) any individual resident in the United States;
(2) any partnership or corporation organized or incorporated under the
laws of the United States
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(3) any estate of which an executor or administrator is a U.S. Person
(other than an estate governed by foreign law and of which at least one
executor or administrator is a non-U.S. Person who has sole or shared
investment discretion with respect to its assets);
(4) any trust of which any trustee is a U.S. Person (other than a
trust of which at least one trustee is a non-U.S. Person who has sole or
shared investment discretion with respect to its assets and no beneficiary
of the trust (and no settler, if the trust is revocable) is a U.S. Person);
(5) any agency or branch of a foreign entity located in the United
States;
(6) any non-discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary for the benefit or account of a
U.S. Person;
(7) any discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated or (if
an individual) resident in the United States (other than such an account
held for the benefit or account of a non-U.S. Person); or
(8) any partnership or corporation organized or incorporated under the
laws of a foreign jurisdiction and formed by a U.S. person principally for
the purpose of investing in securities not registered under the Securities
Act (unless it is organized or incorporated and owned by "accredited
investors" within the meaning of Rule 501(a) under the Securities Act who
are not natural persons, estates or trusts); provided, however that the
term "U.S. Person" shall not include (A) a branch or agency of a U.S.
Person that is located and operating outside the United States for valid
business purposes as a locally regulated branch or agency engaged in the
banking or insurance business, (B) any employee benefit plan established
and administered in accordance with the law, customary practices and
documentation of a foreign country and (C) the international organizations
set forth in Section 902(o)(7) of Regulation S under the Securities Act and
any other similar international organizations, and their agencies,
affiliates and pension plans.
Transfers of Interests in One Global Note for Interests in Another Global Note
Prior to the expiration of the 40-Day Restricted Period, an Indirect
Participant who holds an interest in Reg S Temporary Global Notes through
Euroclear or CEDEL will not be permitted to transfer its interest to a U.S.
Person who takes delivery in the form of an interest in U.S. Global Notes. After
the expiration of the 40-Day Restricted Period, an Indirect Participant who
holds an interest in Reg S Global Notes will be permitted to transfer its
interest to a U.S. Person who takes delivery in the form of an interest in U.S.
Global Notes only upon receipt by the Trustee of a written certification from
the transferor to the effect that such transfer is being made in accordance with
the restrictions on transfer set forth under "-- Notice to Investors" and set
forth in the legend printed on the Reg S Permanent Global Notes.
Prior to the expiration of the 40-Day Restricted Period, a Direct or
Indirect Participant who holds an interest in U.S. Global Notes will not be
permitted to transfer its interests to any person that takes delivery thereof in
the form of an interest in the Reg S Temporary Global Notes. After the
expiration of the 40-Day Restricted Period, a Direct or Indirect Participant who
holds an interest in U.S. Global Notes may transfer its interests to a person
who takes delivery in the form of an interest in Reg S Permanent Global Notes
only upon receipt by the Trustee of a written certification from the transferor
to the effect that such transfer is being made in accordance with Rule 904 of
Regulation S.
Transfers involving an exchange of a beneficial interest in Reg S Global
Notes for a beneficial interest in U.S. Global Notes or vice versa will be
effected by DTC by means of an instruction originated by the Trustee through
DTC/Deposit Withdraw at Custodian (DWAC) system. Accordingly, in connection with
such transfer, appropriate adjustments will be made to reflect a decrease in the
principal amount of the one Global Note and a corresponding increase in the
principal amount of the other Global Note, as applicable. Any beneficial
interest in the one Global Note that is transferred to a person who takes
delivery in the form of the other Global Note will, upon transfer, cease to be
an interest in such first Global Note and become an interest in such other
Global Note and, accordingly, will thereafter be subject to all transfer
restrictions and other
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procedures applicable to beneficial interests in such other Global Note for as
long as it remains such an interest.
Transfers of Interests in Global Notes for Certificated Notes
An entire Global Note may be exchanged for definitive notes in registered,
certificated form without interest coupons ("Certificated Notes") if (1) DTC (x)
notifies the Company that it is unwilling or unable to continue as depositary
for the Global Notes and the Company thereupon fails to appoint a successor
depositary within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act, (2) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Certificated Notes or (3) there
shall have occurred and be continuing a Default or an Event of Default with
respect to the notes. In any such case, the Company will notify the Trustee in
writing that, upon surrender by the Direct and Indirect Participants of their
interest in such Global Note, Certificated Notes will be issued to each person
that such Direct and Indirect Participants and the DTC identify as being the
beneficial owner of the related notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
Neither the Company, the Guarantors nor the Trustee will be liable for any
delay by the holder of any Global Note or DTC in identifying the beneficial
owners of notes, and the Company and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the holder of the Global Note
or DTC for all purposes.
Transfers of Certificated Notes for Interests in Global Notes
Certificated Notes may only be transferred if the transferor first delivers
to the Trustee a written certificate (and, in certain circumstances, an opinion
of counsel) confirming that, in connection with such transfer, it has complied
with the restrictions on transfer described under "-- Notice to Investors."
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available same day
funds to the accounts specified by the holder of interests in such Global Note.
With respect to Certificated Notes, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available same day funds to the accounts specified by
the holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address. The Company expects that secondary
trading in the Certificated Notes will also be settled in immediately available
funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the Registration Rights Agreement, the Company agreed to file
with the Commission the Exchange Offer Registration Statement on the appropriate
form under the Securities Act with respect to the notes. Upon the effectiveness
of the Exchange Offer Registration Statement, the Company will offer to the
holders of Transfer Restricted Securities pursuant to the exchange offer who are
able to make certain representations the opportunity to exchange their Transfer
Restricted Securities for notes. If (1) the Company is not required to file the
Exchange Offer Registration Statement or permitted to consummate the exchange
offer because the exchange offer is not permitted by applicable law or
Commission policy or (2) any holder of Transfer Restricted Securities (as
defined herein) notifies the Company within the specified time period that (A)
it is prohibited by law or Commission policy from participating in the exchange
offer (other than due
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solely to the status of such holder as an affiliate of the Company within the
meaning of the Securities Act) or (B) that it may not resell the notes acquired
by it in the exchange offer to the public without delivering a prospectus and
the prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (C) that it is a broker-dealer and
owns notes acquired directly from the Company or an affiliate of the Company,
the Company will file with the Commission a Shelf Registration Statement to
cover resales of the notes by the Holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. The Company will use its best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission. For purposes of the foregoing, "Transfer Restricted
Securities" means each note until (1) the date on which such note has been
exchanged by a person other than a broker-dealer for a note in the exchange
offer, (2) following the exchange by a broker-dealer in the exchange offer of a
note for a note, the date on which such note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Exchange Offer Registration Statement, (3) the date
on which such note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (4) the date
on which such note is distributed to the public pursuant to Rule 144 under the
Securities Act.
The Registration Rights Agreement provides that (1) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to 120
days after the Closing, (2) the Company will use its best efforts to have the
Exchange Offer Registration Statement declared effective by the Commission on or
prior to 180 days after the Closing, (3) unless the exchange offer would not be
permitted by applicable law or Commission policy, the Company will commence the
exchange offer and use its best efforts to issue within 210 days after the Issue
Date notes in exchange for all notes tendered prior thereto in the exchange
offer and (4) if obligated to file the Shelf Registration Statement, the Company
will use its best efforts to file the Shelf Registration Statement with the
Commission on or prior to 75 days after such filing obligation arises and to
cause the Shelf Registration Statement to be declared effective by the
Commission on or prior to 150 days after such obligation arises. If (a) the
Company fails to file any of the Registration Statements required by the
Registration Rights Agreement on or before the date specified for such filing,
(b) any of such Registration Statement is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), or (c) the Company fails to consummate the
exchange offer within 210 days after the Issue Date, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
Liquidated Damages to each Holder of notes, with respect to such 90-day period
immediately following the occurrence of the first Registration Default in an
amount equal to $0.05 per week per $1,000 principal amount of notes held by such
Holder. The amount of the Liquidated Damages will increase by an additional
$0.05 per week per $1,000 principal amount of notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $0.30 per week per $1,000 principal
amount of notes. All accrued Liquidated Damages will be paid by the Company to
the Global Note Holder by wire transfer of immediately available funds or by
federal funds check and to Holders of Certificated Securities by wire transfer
to the accounts specified by them or by mailing checks to their registered
addresses if no such accounts have been specified. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of notes will be required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the exchange offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to the Company at 3900
Steve Reynolds Boulevard, Norcross, Georgia 30093, Attention: Chief Financial
Officer.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person or assumed in connection with the acquisition of any
asset used or useful in a Permitted Business acquired by such specified
Person; provided that such Indebtedness was not incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Subsidiary of such specified Person, or such acquisition, as the
case may be.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means:
(1) the sale, lease (other than an operating lease entered into in the
ordinary course of business), conveyance or other disposition of any assets
or rights (including, without limitation, by way of a sale and leaseback)
other than sales of inventory in the ordinary course of business consistent
with past practices (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described above under the caption "-- Certain
Covenants -- Change of Control" and/or the provisions described above under
the caption "-- Certain Covenants -- Merger, Consolidation or Sale of
Assets" and not by the provisions of the covenant described under the
caption "-- Certain Covenants -- Asset Sales"); and
(2) the sale by the Company and the issue or sale by any of the
Restricted Subsidiaries of the Company of Equity Interests of any of the
Company's Subsidiaries, in the case of either clause (1) or (2), whether in
a single transaction or a series of related transactions that have a fair
market value (as determined in good faith by the Board of Directors) in
excess of $1.0 million or for net cash proceeds in excess of $1.0 million.
Notwithstanding the foregoing, the following shall not be deemed to be Asset
Sales:
(1) a transfer of assets by the Company to a Wholly Owned Restricted
Subsidiary of the Company or by a Wholly Owned Restricted Subsidiary of the
Company to the Company or to a Wholly Owned Restricted Subsidiary of the
Company;
(2) an issuance of Equity Interests by a Restricted Subsidiary of the
Company to the Company or to a Wholly Owned Restricted Subsidiary of the
Company;
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(3) a Restricted Payment that is permitted by the covenant described
above under the caption "-- Certain Covenants -- Restricted Payments;"
(4) the sale and leaseback of any assets within 90 days of the
acquisition of such assets, provided that the sale price of such assets is
not materially less than the acquisition price of such assets; and
(5) the periodic clearance of aged, obsolete or discontinued
inventory.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) securities issued or unconditionally and fully guaranteed or
insured by the full faith and credit of the United States government or any
agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition;
(2) obligations issued or fully guaranteed by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Ratings Group or
Moody's Investors Service, Inc.;
(3) certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank
deposits, in each case with any lender party to the Credit Facilities or
with any domestic commercial bank having capital and surplus in excess of
$250.0 million;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (1) and (3) above,
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having one of the two of the highest ratings
obtainable from either Moody's or S&P and in each case maturing within one
year after the date of acquisition; and
(6) investments in funds investing exclusively in investments of the
types described in clauses (1) through (5) above.
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole to any "person" (as such term is used in
Section 13(d)(3) of the Exchange Act), other than the Principals and their
Related Parties;
(2) the adoption of a plan relating to the liquidation or dissolution
of the Company;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that (A)
any "person" (as defined above), other than the Principals and their
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Related Parties, becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly,
of 40% or more of the Voting Stock of the Company (measured by voting power
rather than number of shares) and (B) the Principals and their Related
Parties beneficially own, directly or indirectly, in the aggregate a lesser
percentage of the Voting Stock of the Company than such other "person";
(4) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors; or
(5) the Company consolidates with, or merges with or into, any Person,
or any Person consolidates with, or merges with or into, the Company, in
any such event pursuant to a transaction in which any of the outstanding
Voting Stock of the Company is converted into or exchanged for cash,
securities or other property, other than any such transaction where (A) the
Voting Stock of the Company outstanding immediately prior to such
transaction is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee Person and (B) either
(1) the "beneficial owners" (as defined above) of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly
through one or more subsidiaries, not less than a majority of the total
Voting Stock of the surviving or transferee corporation immediately after
such transaction or (2) if, immediately prior to such transaction the
Company is a direct or indirect subsidiary of any other Person (such other
Person, the "Holding Company"), then the "beneficial owners" (as defined
above) of the Voting Stock of such Holding Company immediately prior to
such transaction own, directly or indirectly through one or more
subsidiaries, not less than a majority of the Voting Stock of the surviving
or transferee corporation immediately after such transaction.
"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus
(1) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income of such Person and its
Restricted Subsidiaries); plus
(2) (A) if such Person is an S corporation or substantially similar
pass-through entity for U.S. federal income tax purposes, the amount of all
Permitted Quarterly Tax Distributions for such period (whether or not such
Permitted Quarterly Tax Distributions have actually been distributed), as
adjusted for any True-up Amount determined for such period, plus any
provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision
for taxes was included in computing such Consolidated Net Income, and (B)
if such Person is not an S corporation or substantially similar
pass-through entity for U.S. federal income tax purposes, any provision for
taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, to the extent that such provision for taxes
was included in computing such Consolidated Net Income; plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations), to the extent that any such expense was
deducted in computing such Consolidated Net Income; plus
(4) depreciation and amortization (including amortization of goodwill
and other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other non-cash charges (excluding any
such non-cash charge to the extent that it represents an accrual of or
reserve for cash charges in any future period or amortization of a prepaid
cash charge that was paid in a prior period) of such Person and its
Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash charges were deducted in computing such
Consolidated Net Income; minus
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(5) non-cash items increasing such Consolidated Net Income for such
period, in each case, on a consolidated basis and determined in accordance
with GAAP.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other noncash charges
of, a Restricted Subsidiary of a Person shall be added to Consolidated Net
Income to compute Consolidated EBITDA only to the extent (and in the same
proportion) that the Net Income of such Restricted Subsidiary was included in
calculating the Consolidated Net Income of such Person.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP and reduced
by the amount of Permitted Quarterly Tax Distributions for such period (whether
or not such Permitted Quarterly Tax Distributions have actually been
distributed), as adjusted for any True-up Amount determined for such period;
provided that:
(1) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the referent Person or a Restricted
Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its shareholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded; and
(4) the cumulative effect of a change in accounting principles shall
be excluded.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the date of the
Indenture immediately after consummation of the Offering; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were either
members of such Board at the time of such nomination or election or are
successor Continuing Directors appointed by such Continuing Directors (or
their successors).
"Credit Facilities" means, with respect to the Company or the Subsidiary
Guarantors, one or more debt facilities or commercial paper facilities with
banks or other institutional lenders providing for revolving credit loans, term
loans, receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time. Indebtedness under Credit Facilities outstanding on the
Issue Date shall be deemed to have been incurred on such date in reliance on the
exceptions provided by clause (1) of the definition of Permitted Liens.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (1) any Senior Debt outstanding under the
Credit Facilities and (2) any other Senior Debt permitted under the Indenture
the principal amount of which is $25.0 million or more and that has been
designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the
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happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the Holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the notes mature; provided, however, that a class of Capital Stock
shall not be Disqualified Stock hereunder solely as the result of any maturity
or redemption that is conditioned upon, and subject to, compliance with the
covenant described above under the caption "-- Certain Covenants -- Restricted
Payments;" and provided further, that Capital Stock issued to any plan for the
benefit of employees of the Company or its subsidiaries or by any such plan to
such employees shall not constitute Disqualified Stock solely because it may be
required to be repurchased by the Company in order to satisfy applicable
statutory or regulatory obligations.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an offering of common stock (other than
Disqualified Stock) of the Company, pursuant to an effective registration
statement filed with the Commission in accordance with the Securities Act, other
than an offering pursuant to Form S-8 (or any successor thereto).
"Estimation Period" means the period for which a shareholder who is an
individual is required to estimate for federal income tax purposes his
allocation of taxable income from a calendar year in connection with determining
his estimated federal income tax liability for such period.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations; provided, however, that in no event shall any amortization of
deferred financing costs incurred in connection with the Offering be
included in Fixed Charges); plus
(2) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries
(whether or not such Guarantee or Lien is called upon); plus
(4) the product of (a) (without duplication) (1) all dividends paid or
accrued in respect of Disqualified Stock which are not treated as interest
for tax purposes for such period and (2) all cash dividend payments on any
series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable
solely in Equity Interests (other than Disqualified Stock) of the Company,
times (b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on
a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Restricted
Subsidiaries for such period to the Fixed Charges of such Person and its
Restricted Subsidiaries for such period. In the event that the Company or any of
its Restricted Subsidiaries incurs, assumes, Guarantees, repays or redeems any
Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee, repayment or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period.
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In addition, for purposes of making the computation referred to above:
(1) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be deemed to have occurred on the first day of
the four-quarter reference period and Consolidated EBITDA for such
reference period shall be calculated without giving effect to clause (3) of
the proviso set forth in the definition of Consolidated Net Income and
shall reflect any pro forma expense and cost reductions attributable to
such acquisitions (to the extent such expense and cost reduction would be
permitted by the Commission under Article 11 of Regulation S-X to be
reflected in pro forma financial statements included in a registration
statement filed with the Commission);
(2) the Consolidated EBITDA attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded and
Consolidated EBITDA shall reflect any pro forma expense or cost reductions
relating to such discontinuance or disposition (to the extent such expense
or cost reductions would be permitted by the Commission to be reflected in
pro forma financial statements included in a registration statement filed
with the Commission);
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Subsidiaries following the
Calculation Date; and
(4) to the extent included in Consolidated EBITDA, all items which are
either extraordinary (as determined in accordance with GAAP) or
nonrecurring (including any gain from the sale or disposition of assets
outside the ordinary course of business or from the issuance or sale of any
Equity Interests, other than Disqualified Stock) shall be excluded.
"Foreign Subsidiary" means any Restricted Subsidiary organized or
incorporated in a jurisdiction outside of the United States.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture provided, however,
that all reports and other financial information provided by the Company to the
Holders, the Trustee and/or the Commission shall be prepared in accordance with
GAAP, as in effect on the date of such report or other financial information.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates, the value of foreign currencies, or
the price of raw materials.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
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(3) banker's acceptances;
(4) Capital Lease Obligations; or
(5) the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness that
does not require current payments of interest; and
(2) the principal amount thereof in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "-- Certain Covenants -- Restricted Payments."
"Issue Date" means the date on which notes are first issued and
authenticated under the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, and any option or other agreement to sell or give a security
interest therein).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with (a) any
Asset Sale (including, without limitation, dispositions pursuant to sale
and leaseback transactions) or (b) the extinguishment of any Indebtedness
of such Person or any of its Subsidiaries; and
(2) any extraordinary or nonrecurring gain (but not loss), together
with any related provision for taxes on such extraordinary or nonrecurring
gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under the Credit Facilities)
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secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
or (b) is directly or indirectly liable (as a Subsidiary Guarantor or
otherwise); and
(2) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries, including the stock of such Restricted
Subsidiary.
"Obligations" means, with respect to any Indebtedness, any principal,
interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Pari Passu Indebtedness" means Indebtedness that ranks pari passu in right
of payment to the notes.
"Paying Agent" means the depository and paying agent designated as such by
the Company in connection with a Change of Control Offer.
"Permitted Business" means the design, manufacture, distribution,
marketing, licensing and sale of framing-related products and supplies and other
interior accessories and furnishing products and related services.
"Permitted Investments" means:
(1) any Investment in the Company or in a Subsidiary Guarantor or a
Wholly Owned Foreign Subsidiary that is engaged in a Permitted Business;
(2) any Investment in Cash and Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary in a
Person, if as a result of such Investment:
(a) such Person becomes a Subsidiary Guarantor or a Wholly Owned
Foreign Subsidiary that is engaged in a Permitted Business; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Subsidiary Guarantor or a Wholly Owned
Foreign Subsidiary that is engaged in a Permitted Business;
(4) any Restricted Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "-- Certain
Covenants -- Asset Sales" or any transaction not constituting an Asset Sale
by reason of the $1.0 million threshold contained in the definition
thereof;
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company;
(6) Hedging Obligations entered into in the ordinary course of the
Company's or its Restricted Subsidiaries' Businesses and otherwise in
compliance with the Indenture;
(7) additional Investments not to exceed $5.0 million at any one time
outstanding; and
(8) Investments in securities of trade creditors or customers received
in settlement of obligations or pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such trade
creditors or customers.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially
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the same extent as, or to a greater extent than, the notes are subordinated to
Senior Debt pursuant to Article 10 of the Indenture, that have a final maturity
date and a weighted average life to maturity which is the same as or greater
than the notes and that are not secured by any collateral.
"Permitted Liens" means:
(1) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date (other than Liens to be
extinguished in connection with the application of the proceeds of the
Offering);
(2) Liens securing Senior Debt and Liens on assets of Restricted
Subsidiaries securing Guarantees of Senior Debt permitted to be incurred
under the Indenture;
(3) Liens securing the notes and the Subsidiary Guarantees;
(4) Liens of the Company or a Wholly Owned Restricted Subsidiary on
assets of any Restricted Subsidiary of the Company;
(5) Liens securing Permitted Refinancing Indebtedness which is
incurred to refinance any Indebtedness which has been secured by a Lien
permitted under the Indenture and which has been incurred in accordance
with the provisions of the Indenture; provided, however, that such Liens
(A) are not materially less favorable to Holders and are not materially
more favorable to the lienholders with respect to such Liens than the Liens
in respect of the Indebtedness being refinanced and (B) do not extend to or
cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so refinanced;
(6) Liens for taxes, assessments or governmental charges or claims
that are either (A) not delinquent or (B) being contested in good faith by
appropriate proceedings and as to which the Company or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(7) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, supplies, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent for
a period of more than 60 days or being contested in good faith, if such
reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made in respect thereof;
(8) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security or similar obligations, including any Lien
securing letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, performance and return-of-money bonds
and other similar obligations (exclusive of obligations for the payment of
borrowed money);
(9) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(10) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(11) any interest or title of a lessor under any lease, whether or not
characterized as capital or operating; provided that such Liens do not
extend to any property or assets which is not leased property subject to
such lease;
(12) Liens securing Capital Lease Obligations and purchase money
Indebtedness incurred in accordance with the covenant described under
"-- Certain Covenants -- Incurrence of Indebtedness and
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Issuance of Preferred Stock;" provided, however, that (A) the Indebtedness
shall not exceed the cost of such property or assets being acquired or
constructed and shall not be secured by any property or assets of the
Company or any Restricted Subsidiary of the Company other than the property
or assets of the Company or any Restricted Subsidiary of the Company other
than the property and assets being acquired or constructed and (B) the Lien
securing such Indebtedness shall be created within 90 days of such
acquisition or construction;
(13) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(14) Liens securing reimbursement obligations with respect to letters
of credit which encumber documents and other property relating to such
letters of credit and products and proceeds thereof;
(15) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of set-off;
(16) Liens securing Hedging Obligations which Hedging Obligations
relate to Indebtedness that is otherwise permitted under the Indenture;
(17) Liens securing Acquired Debt incurred in accordance with the
covenant described under "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock"; provided that (A) such Liens
secured such Acquired Debt at the time of and prior to the incurrence of
such Acquired Debt by the Company or a Restricted Subsidiary of the Company
and were not granted in connection with, or in anticipation of, the
incurrence of such Acquired Debt by the Company or a Restricted Subsidiary
of the Company and (B) such Liens do not extend to or cover any property or
assets of the Company or any of its Restricted Subsidiaries other than the
property or assets that secured the Acquired Debt prior to the time such
Indebtedness became Acquired Debt of the Company or a Restricted Subsidiary
of the Company and are not more favorable to the lienholders than those
securing the Acquired Debt prior to the incurrence of such Acquired Debt by
the Company or a Restricted Subsidiary of the Company;
(18) leases or subleases granted to others not interfering in any
material respect with the business of the Company or its Restricted
Subsidiaries; and
(19) liens securing Indebtedness of foreign subsidiaries incurred in
accordance with the provisions of the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock," provided that such Liens
relate solely to the assets of the foreign subsidiaries that incurred such
Indebtedness.
"Permitted Quarterly Tax Distributions" means quarterly distributions of
Tax Amounts determined on the basis of the estimated taxable income of the
Company for the related Estimation Period, provided however, that:
(1) prior to any distributions of Tax Amounts the Company shall
deliver an Officers' Certificate certifying that the Tax Amounts to be
distributed were determined pursuant to the terms of the Indenture and
stating to the effect that the Company qualifies as an S corporation or
substantially similar pass-through entity for federal income tax purposes;
and
(2) at the time of such distributions, the most recent audited
financial statements of the Company reflect that the Company was treated as
an S corporation or substantially similar pass-through entity for federal
income tax purposes for the period covered by such financial statements.
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"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, prepay, retire, renew, replace, defease or refund
Indebtedness of the Company or any of its Subsidiaries (other than such
Indebtedness described in clauses (1), (6), (7), (8), (9), (11) and (12) of the
covenant described above under the caption "-- Certain Covenants -- Incurrence
of Indebtedness and Issuance of Preferred Stock"); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, prepaid, retired, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith including premiums paid, if any, to the holders
thereof), such principal amount to be calculated as to foreign subsidiaries
on an aggregate consolidated basis in the case of a consolidated
refinancing of Indebtedness of foreign subsidiaries;
(2) such Permitted Refinancing Indebtedness has a final maturity date
at or later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, prepaid,
retired, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, prepaid,
retired, replaced, defeased or refunded is subordinated in right of payment
to the notes, such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and is subordinated in right of
payment to, the notes on terms at least as favorable to the Holders of
notes as those contained in the documentation governing the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness either is incurred by the Company or is incurred
by the Restricted Subsidiary who is the obligor on (or, in the case of a
consolidated refinancing of the Indebtedness of the foreign subsidiaries,
by all of the foreign subsidiaries which are obligors on) the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
In the case of Permitted Refinancing Indebtedness incurred by the Company
under a revolving credit facility or facilities to refinance, refund or replace
Indebtedness of foreign subsidiaries, and any successive Permitted Refinancing
Indebtedness incurred with respect thereto:
(a) such Permitted Refinancing Indebtedness shall include all
successive readvances, reborrowings and other Indebtedness thereafter
incurred under such facility or facilities up to the original principal
amount of such Permitted Refinancing Indebtedness; and
(b) such Indebtedness being refinanced shall be deemed to have been
outstanding on the Issue Date so long as the aggregate amount thereof at
the time of the refinancing does not exceed the aggregate amount of
Indebtedness of foreign subsidiaries outstanding on the Issue Date.
"Person" means any individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Principals" means Craig A. Ponzio and June R. Ponzio.
"Qualified Proceeds" means any of the following or any combination of the
following:
(1) cash;
(2) Cash Equivalents;
(3) long-term assets that are used or useful in a Permitted Business;
and
(4) the Capital Stock of any Person engaged primarily in a Permitted
Business if, in connection with the receipt by the Company or any
Restricted Subsidiary of the Company of such Capital Stock, (a) such Person
becomes a Wholly Owned Restricted Subsidiary and a Subsidiary Guarantor or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its
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assets to, or is liquidated into, the Company or any Wholly Owned
Restricted Subsidiary of the Company that is a Subsidiary Guarantor.
"Quarterly Payment Period" means the period commencing on the first day of
each month in which federal individual tax payments are due and ending on and
including the day of such month on which such payments are due (provided that
payments in respect of estimated state income taxes due in January may instead,
at the option of the Company, be paid during the last five days of the
immediately preceding December).
"Related Party" with respect to any Principal means:
(1) any controlling shareholder or a majority (or more) owned
Subsidiary of such Principal or, in the case of an individual, any spouse
or immediate family member of such Principal; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, shareholders, partners, owners or Persons beneficially
holding a majority (or more) controlling interest of which consist of such
Principal and/or such other Persons referred to in the immediately
preceding clause (1).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Senior Debt" means:
(1) all Indebtedness of the Company or any Subsidiary Guarantor
outstanding under Credit Facilities and all Hedging Obligations with
respect thereto;
(2) other Indebtedness of the Company or any of its Subsidiary
Guarantors permitted to be incurred under the terms of the Indenture,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment to
the notes; and
(3) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will
not include:
(a) any liability for federal, state, local or other taxes owed or
owing by the Company;
(b) any Indebtedness of the Company to any of its Subsidiaries or
other Affiliates;
(c) any trade payables; or
(d) that portion of any Indebtedness that is incurred in violation
of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date of the
Indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
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"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which
more than 50% of the total Voting Stock thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership:
(a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person; or
(b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantors" means, initially, each Subsidiary of the Company
(other than foreign subsidiaries and Unrestricted Subsidiaries) on the Issue
Date and thereafter each of the Subsidiaries of the Company that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture, and
their respective successors and assigns.
"Tax Amounts" with respect to any taxable period shall not exceed an amount
equal to (A) the product of (1) the taxable income of the Company for such
period (or as such amount may be subsequently adjusted based upon a
redetermination agreed upon with applicable tax authorities) as determined by
the Tax CPA and (2) the Tax Percentage, plus (B) the amount of any interest and
penalties assessed in connection with such a redetermination, reduced by (C) to
the extent not previously taken into account, any income tax benefit
attributable to the Company which could be realized (without regard to actual
realization) by its shareholders in the current or any prior taxable year, or
portion thereof, commencing on or after the date of the Indenture (including any
tax losses or tax credits), computed at the applicable Tax Percentage for the
year that such benefit is taken into account for purposes of this computation.
"Tax CPA" means a nationally recognized certified public accounting firm.
"Tax Percentage" means, for a particular taxable year, the highest
effective marginal combined rate of U.S. federal and state and local income tax,
imposed on an individual taxpayer, as certified by the Tax CPA in a certificate
filed with the Trustee. The rate of state and local income tax to be taken into
account for purposes of determining the Tax Percentage for a particular taxable
year shall be deemed to be the highest state and local marginal tax rate
applicable to any shareholder.
"True-up Amount" means;
(1) in respect of a particular taxable year, an amount determined by
the Tax CPA equal to the difference between the aggregate
Permitted Quarterly Tax Distributions actually distributed in
respect of such taxable year; and
(2) the actual Tax Amounts for such year.
The amount equal to the excess, if any, of the amount described in
clause (1) over the amount described in clause (2) above shall be
referred to as the "True-up Amount due to the Company" and the excess,
if any, of the amount described in clause (2) over the amount described
in clause (1) above shall be referred to as the "True-up Amount due to
the shareholders."
"True-up Determination Date" means the date on which the Tax CPA delivers a
statement to the Trustee indicating the True-up Amount.
"Unrestricted Subsidiary" means:
(1) HBA L.L.C. and HBA-MS Inc.; and
(2) any Subsidiary (other than the Subsidiary Guarantors as of the
date of the Indenture or any successor to any of them) of the
Company that is designated by the board of directors of the
Company as an Unrestricted Subsidiary pursuant to a board
resolution, but only to the extent that such Subsidiary: (A) has
no Indebtedness other than Non-Recourse Debt; (B) is not party
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to any agreement, contract, arrangement or understanding with the
Company or any Restricted Subsidiary unless the terms of any such
agreement, contract, arrangement or understanding are no less
favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not
Affiliates of the Company; (C) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation (x) to subscribe for additional Equity
Interests or (y) to maintain or preserve such Person's financial
condition or to cause such Person to achieve any specified levels of
operating results; and (d) has not guaranteed or otherwise directly
or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries. Any such designation
by the Board of Directors shall be evidenced to the Trustee by filing
with the Trustee a certified copy of the board resolution giving
effect to such designation and an officers' certificate certifying
that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements
as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date. The Board of
Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness and
issuance of preferred stock by a Restricted Subsidiary of the Company
of any outstanding Indebtedness or outstanding issue of preferred
stock of such Unrestricted Subsidiary and such designation shall only
be permitted if:
(a) such Indebtedness and preferred stock is permitted under the
covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock" calculated on a pro forma basis as if such
designation had occurred at the beginning of the four quarter
reference period;
(b) such Subsidiary becomes a Subsidiary Guarantor, and
(c) no Default or Event of Default would exist following such
designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (A) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (B) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Foreign Subsidiary" of any Person means a Foreign Subsidiary
of such Person all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares or shares required to be owned
by foreign nationals by applicable law) shall at the time be owned by such
Person or by one or more Wholly Owned Foreign Subsidiaries of such Person or by
such Person and one or more Wholly Owned Restricted Subsidiaries of such Person.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares or shares
required to be owned by foreign nationals by applicable law) shall at the time
be owned by such Person or by one or more Wholly Owned Restricted Subsidiaries
of such Person or by such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain United States federal income
tax consequences of the ownership and disposition of the notes. This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"),
regulations, rulings and decisions as in effect on the date of this Prospectus,
all of which are subject to change (possibly with retroactive effect) and to
differing interpretations. This summary deals only with holders that will
acquire their notes at original issuance and will hold notes as capital assets,
and does not address tax considerations applicable to investors that may be
subject to special tax rules, such as banks, tax-exempt entities, insurance
companies or dealers in securities or currencies, persons that will hold notes
as a position in a "straddle" or conversion transaction, or as part of a
"synthetic security" or other integrated financial transaction, or persons that
have a "functional currency" other than the U.S. dollar.
As used herein, the term "United States holder" means a beneficial owner of
a note that is a United States person or that otherwise is subject to United
States federal income taxation on a net income basis in respect of the notes
because such person is engaged in a trade or business in the United States and
income and gain received in respect of the notes is effectively connected with
the conduct of such trade or business. The term "United States person" means a
holder of a note who is a citizen or resident alien individual of the United
States, or that is a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, an estate the income of which is subject to United States federal
income taxation regardless of its source, or a trust if: (1) a U.S. court is
able to exercise primary supervision over the trust's administration and (2) one
or more United States persons have the authority to control all of the trust's
substantial decisions. The term "United States" means the United States of
America (including the States and the District of Columbia), its possessions,
territories and other areas subject to its jurisdiction.
Investors should consult their own tax advisors in determining the specific
tax consequences to them of holding and disposing of notes, including the
application to their particular situation of the United States federal income
tax considerations discussed below, as well as the application of state, local,
foreign and other tax laws.
The exchange offer is structured so that the exchange of notes (the
"Exchange") pursuant to the exchange offer will not be a taxable event for U.S.
federal income tax purposes. As a result, no material U.S. federal income tax
consequences will result to United States holders exchanging notes. A tendering
holder's tax basis in the notes received will be the same as such holder's tax
basis in its notes surrendered therefor. A tendering holder's holding period for
the notes received pursuant to the exchange offer will include its holding
period for the notes surrendered therefor.
UNITED STATES HOLDERS
Payments of Interest
Payments of interest on a note will be taxable to a United States holder as
ordinary interest income at the time that such payments are accrued or are
received (in accordance with the United States holder's method of tax
accounting).
Liquidated Damages
Any Liquidated Damages (described herein under "Description of the
Notes -- Registration Rights; Liquidated Damages") will be taxable to a United
States holder as ordinary income in accordance with such United States holder's
method of tax accounting.
Information Reporting and Backup Withholding
A noncorporate United States holder may be subject to information reporting
and to backup withholding at a rate of 31 percent with respect to payments of
principal and interest made on a note, or on proceeds of disposition of a note
before maturity, unless such United States holder provides proof of an
applicable
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exemption or a correct taxpayer identification number, and otherwise complies
with applicable requirements of the information reporting and backup withholding
rules.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or credit against the United States person's United States federal
income tax liability provided the required information is furnished to the IRS.
NON-UNITED STATES HOLDERS
Under current United States federal income tax law: (1) payments of
interest and principal to a holder who is not a United States holder (a
"non-United States holder") will not be subject to withholding of United States
federal income tax, provided that (a) the holder does not actually or
constructively (under the applicable attribution rules of the Code) own 10
percent or more of the total combined voting power of all classes of stock of
the Company entitled to vote, is not a bank receiving interest on the notes in
the ordinary course of its banking business as described in Section 881(c)(3)(A)
of the Code and is not a controlled foreign corporation for federal income tax
purposes related directly or indirectly to the Company through stock ownership
and (b) the beneficial owner provides to the Company or a paying agent a
statement signed under penalties of perjury that includes its name and address
and certifies that it is a non-United States holder in compliance with
applicable requirements or, with respect to payments made after December 31,
1999, satisfies certain documentary evidence requirements for establishing that
it is a non-United States holder; and (2) a non-United States holder will not be
subject to United States federal income tax on gain realized on the disposition
of a note. Notwithstanding the above, a non-United States holder that is subject
to United States federal income taxation on a net income basis with respect to
its income from a note generally will be subject to the same rules to which a
United States holder is subject with respect to the accrual of interest on a
note and with respect to gain or loss realized or recognized on the disposition
of a note. Such a non-United States holder that is a foreign corporation may
also be subject to a branch profits tax at the rate of 30 percent (or such lower
rate as may be specified by an applicable income tax treaty) on its effectively
connected earnings and profits for the taxable year, subject to various
adjustments. For this purpose, interest and gain received in respect of a note
will be included in the effectively connected earnings and profits of such
non-United States holder if such interest or gain is effectively connected with
the conduct by such holder of a trade or business in the United States.
Moreover, a non-United States holder who is an individual but who is not
otherwise subject to United States federal income taxation on a net basis with
respect to a note will nonetheless be subject to a 30 percent withholding tax on
any gain (other than that attributable to accrued interest) realized upon the
sale, exchange or retirement of a note if such individual is present in the
United States for a period or periods aggregating 183 days or more during the
calendar year (or taxable year if one has been established) in which such
disposition occurs, and either (1) such individual has a "tax home" (as defined
in Section 911(d)(3) of the Code) in the United States (unless such gain is
attributable to an office or other fixed place of business in a foreign country
maintained by such individual and has been subject to a foreign tax of at least
10 percent, or (2) the gain is attributable to an office or other fixed place of
business in the United States. Special rules might also apply to a non-United
States holder that is a qualified resident of a country with which the United
States has an income tax treaty. A note held by an individual holder who at the
time of death was a non-resident alien will not be subject to United States
federal estate tax so long as at the time of death such individual did not own
actually or constructively (under the applicable attribution rules of the Code)
10 percent or more of the total combined voting power of all classes of stock of
Albecca entitled to vote and was not subject to United States federal income
taxation on a net income basis with respect to its income from the note.
Information Reporting and Backup Withholding
United States information reporting requirements and backup withholding tax
will not apply to payments on, or proceeds from the disposition of, a note held
by a non-United States holder if the beneficial owner certifies its non-United
States status under penalties of perjury (or, with respect to payments made
after December 31, 1999, satisfies certain documentary evidence requirements for
establishing that it is a non-United States holder) or otherwise establishes an
exemption; provided that neither Albecca nor its payment
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agent has actual knowledge that the person is a United States person or that the
conditions of any other exemption are not in fact satisfied.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or credit against the non-United States person's United States federal
income tax liability, provided that the required information is furnished to the
IRS.
On October 7, 1997, the U.S. Treasury Department issued final Treasury
regulations (and subsequently released guidance regarding the effective date of
such Treasury regulations) (the "Treasury Regulations") governing information
reporting and the certification procedures regarding withholding and backup
withholding on certain amounts paid to non-United States persons after December
31, 1999. Such regulations, among other things, may change the certification
procedures relating to the receipt by intermediaries of payments on behalf of a
beneficial owner of a note. Furthermore, with respect to payments made after
December 31, 1999, for purposes of applying the rules set forth in this and the
two preceding paragraphs to an entity that is treated as fiscally transparent
(e.g., a partnership or certain trusts) for United States federal income
taxation purposes, the beneficial owner means each of the ultimate beneficial
owners of the entity. Prospective investors should consult their tax advisors
regarding the effect, if any, of such new Treasury Regulations on an investment
in the notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives notes for its own account pursuant to the
exchange offer must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such notes.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of notes received in exchange
for notes where such notes were acquired as a result of market-making activities
or other trading activities. Albecca has agreed that it will make this
Prospectus available to any Participating Broker-Dealer for a period of time not
to exceed one year after the date on which the exchange offer is consummated for
use in connection with any such resale. In addition, until such date, all
broker-dealers effecting transactions in the notes may be required to deliver a
prospectus.
Albecca will not receive any proceeds from any sale of notes by
broker-dealers. Notes received by broker-dealers for their own account pursuant
to the exchange offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the writing
of options on the notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such notes. Any broker-dealer that resells notes that were
received by it for its own account pursuant to the exchange offer and any broker
or dealer that participates in a distribution of such notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
Starting on the Expiration Date, Albecca will promptly send additional
copies of this Prospectus and any amendment or supplement to this Prospectus to
any broker-dealer that requests such documents in the Letter of Transmittal.
Albecca has agreed to pay all expenses incident to the exchange offer (including
the expenses of one counsel for the holders of the notes) other than commissions
or concessions of any brokers or dealers and will indemnify the holders of the
notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
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LEGAL MATTERS
The validity of the notes offered hereby will be passed upon for Albecca by
Nelson Mullins Riley & Scarborough, L.L.P., Atlanta, Georgia. Philip H. Moise, a
partner in the law firm of Nelson Mullins Riley & Scarborough, L.L.P., serves as
a director of Albecca.
EXPERTS
The consolidated 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.
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ALBECCA INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants -- Arthur
Andersen LLP........................................... F-2
Report of the Auditors -- BDO CampsObers.................. F-3
Consolidated Balance Sheets as of August 31, 1997, August
30, 1998 and November 29, 1998......................... F-4
Consolidated Statements of Operations for each of the
three years in the period ended August 30, 1998 and for
the quarters ended November 29, 1998 and November 30,
1997 (Unaudited)....................................... F-5
Consolidated Statements of Shareholders' Equity (Deficit)
for each of the three years in the period ended August
30, 1998 and the quarter ended November 29, 1998
(Unaudited)............................................ F-6
Consolidated Statements of Cash Flows for each of the
three years in the period ended August 30, 1998 and for
the quarters ended November 29, 1998 and November 30,
1997 (Unaudited)....................................... F-7
Notes to Consolidated Financial Statements................ F-8
</TABLE>
F-1
<PAGE> 93
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Albecca Inc.:
We have audited the accompanying consolidated balance sheets of ALBECCA
INC. (a Georgia corporation) and subsidiaries as of August 30, 1998 and August
31, 1997 and the related consolidated statements of operations, shareholders'
equity (deficit), and cash flows for each of the three years in the period ended
August 30, 1998. These financial statements are the responsibility of Albecca'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 6% and 5% at August 30, 1998 and August 31, 1997, respectively, and
total revenues of 5%, 6%, and 7% for each of the three years in the period ended
August 30, 1998. 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.
Our audits also included examining, on a test basis, evidence supporting the
translation of Larson-Juhl Netherlands B.V.'s financial statements from Dutch
guilders to U.S. dollars and from Part 9, Book 2 of the Dutch Civil Code to
generally accepted accounting principles. We believe that 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 financial position of Albecca Inc. and subsidiaries as of August 30, 1998
and August 31, 1997 and the results of their operations and their cash flows for
each of the three years in the period ended August 30, 1998 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 6, 1998
F-2
<PAGE> 94
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, the Netherlands for the three years ended August 30, 1998.
Albecca'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 August 30, 1998 and including those for 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
Albecca's affairs at August 30, 1998 and August 31, 1997 and of the results of
its operations and cash flows for the three years ended August 30, 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.
/s/ BDO CampsObers
Arnhem, The Netherlands
BDO CampsObers
Registered accountants
Arnhem, October 6, 1998
F-3
<PAGE> 95
ALBECCA INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 30, NOVEMBER 29,
1997 1998 1998
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 5,301 $ 54,884 $ 48,488
Accounts receivable, less allowances for doubtful accounts
of $5,378, $5,859 and $6,742, at August 31, 1997,
August 30, 1998 and November 29, 1998.................. 49,270 50,785 62,748
Inventories............................................... 68,209 75,819 77,349
Other current assets...................................... 4,879 7,024 7,138
-------- -------- --------
Total current assets.............................. 127,659 188,512 195,723
PROPERTY, PLANT, AND EQUIPMENT, net......................... 52,675 61,758 63,172
OTHER LONG-TERM ASSETS...................................... 28,355 55,652 58,884
-------- -------- --------
$208,689 $305,922 $317,779
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 28,079 $ 35,205 $ 30,345
Accounts payable.......................................... 28,296 28,165 30,247
Accrued liabilities....................................... 27,982 27,992 35,861
-------- -------- --------
Total current liabilities......................... 84,357 91,362 96,453
-------- -------- --------
LONG-TERM DEBT, less current maturities (Note 4)............ 80,647 227,564 234,628
-------- -------- --------
OTHER LONG-TERM LIABILITIES................................. 6,372 12,640 12,440
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (DEFICIT)(Notes 1 and 6):
Preferred stock, $0.01 par value; no shares authorized and
outstanding at August 31, 1997, 50,000,000 shares
authorized and no shares issued and outstanding at
August 30, 1998 and November 29, 1998.................. -- -- --
Common stock, $0.01 par value; 20,000,000 shares
authorized, 17,000,000 shares issued and outstanding at
August 31, 1997 and no shares issued and outstanding at
August 30, 1998 and November 29, 1998.................. 170 -- --
Class A common stock, $0.01 par value; no shares
authorized and outstanding at August 31, 1997,
250,000,000 shares authorized, 374,000 shares issued
and outstanding at August 30, 1998 and November 29,
1998................................................... -- 4 4
Class B common stock, $0.01 par value; no shares
authorized and outstanding at August 31, 1997,
100,000,000 shares authorized, 16,626,000 shares issued
and outstanding at August 30, 1998 and November 29,
1998................................................... -- 166 166
Additional paid-in capital................................ 582 7,326 7,326
Accumulated earnings (deficit)............................ 42,408 (24,029) (26,256)
Cumulative foreign currency translation adjustment........ (5,847) (9,111) (6,982)
-------- -------- --------
Total shareholders' equity (deficit).............. 37,313 (25,644) (25,742)
-------- -------- --------
$208,689 $305,922 $317,779
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 96
ALBECCA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED THREE MONTHS ENDED
------------------------------------ ---------------------------
AUGUST 25, AUGUST 31, AUGUST 30, NOVEMBER 30, NOVEMBER 29,
1996 1997 1998 1997 1998
---------- ---------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................... $300,788 $354,058 $381,137 $102,985 $103,575
Cost of sales........................... 173,964 200,750 216,081 58,866 58,935
-------- -------- -------- -------- --------
Gross profit.......................... 126,824 153,308 165,056 44,119 44,640
Operating expenses...................... 96,595 117,707 130,833 33,346 36,224
Restructuring charges (Note 12)......... -- -- 2,262 -- 117
-------- -------- -------- -------- --------
Operating income...................... 30,229 35,601 31,961 10,773 8,299
Costs of cancelled initial public equity
offering (Note 12).................... -- -- 1,273 -- --
Interest income......................... -- -- (116) -- (555)
Interest expense........................ 6,846 9,722 11,949 2,343 7,125
-------- -------- -------- -------- --------
Income before provision for income
taxes and minority interest........ 23,383 25,879 18,855 8,430 1,729
Provision for income taxes.............. 3,679 3,243 4,021 896 1,059
Minority interest....................... 300 146 471 166 197
-------- -------- -------- -------- --------
Net income.............................. $ 19,404 $ 22,490 $ 14,363 $ 7,368 $ 473
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 97
ALBECCA INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL ACCUMULATED
-------------------- ---------------- ------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
----------- ------ ------- ------ ---------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, August 27, 1995.... 17,000,000 $ 170 -- $-- -- $ -- $ 566 $ 28,848
Net income................ -- -- -- -- -- -- -- 19,404
Distributions to
shareholders............ -- -- -- -- -- -- -- (12,250)
Currency translation
adjustment.............. -- -- -- -- -- -- -- --
----------- ----- ------- --- ---------- ---- ------ --------
BALANCE, August 25, 1996.... 17,000,000 170 -- -- -- -- 566 36,002
Capital contributions..... -- -- -- -- -- -- 16 --
Net income................ -- -- -- -- -- -- -- 22,490
Distributions to
shareholders............ -- -- -- -- -- -- -- (16,084)
Currency translation
adjustment.............. -- -- -- -- -- -- -- --
----------- ----- ------- --- ---------- ---- ------ --------
BALANCE, August 31, 1997.... 17,000,000 170 -- -- -- -- 582 42,408
Compensation related to
nonqualified stock
options................. -- -- -- -- -- -- 244 --
Conversion of common stock
for Class A and Class B
common stock............ (17,000,000) (170) 374,000 4 16,626,000 166 -- --
Capital contributions
(Note 11)............... -- -- -- -- -- -- 6,500 --
Net income................ -- -- -- -- -- -- -- 14,363
Distributions to
shareholders............ -- -- -- -- -- -- -- (80,800)
Currency translation
adjustment.............. -- -- -- -- -- -- -- --
----------- ----- ------- --- ---------- ---- ------ --------
BALANCE, August 30, 1998.... -- -- 374,000 4 16,626,000 166 7,326 (24,029)
Net income (unaudited).... -- -- -- -- -- -- -- 473
Distributions to
shareholders
(unaudited)............. -- -- -- -- -- -- -- (2,700)
Currency translation
adjustment
(unaudited)............. -- -- -- -- -- -- -- --
----------- ----- ------- --- ---------- ---- ------ --------
BALANCE, November 29, 1998
(unaudited)............... -- $ -- 374,000 $ 4 16,626,000 $166 $7,326 $(26,256)
=========== ===== ======= === ========== ==== ====== ========
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY
TRANSLATION
ADJUSTMENT TOTAL
----------- --------
<S> <C> <C>
BALANCE, August 27, 1995.... $ (478) $ 29,106
Net income................ -- 19,404
Distributions to
shareholders............ -- (12,250)
Currency translation
adjustment.............. (917) (917)
------- --------
BALANCE, August 25, 1996.... (1,395) 35,343
Capital contributions..... -- 16
Net income................ -- 22,490
Distributions to
shareholders............ -- (16,084)
Currency translation
adjustment.............. (4,452) (4,452)
------- --------
BALANCE, August 31, 1997.... (5,847) 37,313
Compensation related to
nonqualified stock
options................. -- 244
Conversion of common stock
for Class A and Class B
common stock............ -- --
Capital contributions
(Note 11)............... -- 6,500
Net income................ -- 14,363
Distributions to
shareholders............ -- (80,800)
Currency translation
adjustment.............. (3,264) (3,264)
------- --------
BALANCE, August 30, 1998.... (9,111) (25,644)
Net income (unaudited).... -- 473
Distributions to
shareholders
(unaudited)............. -- (2,700)
Currency translation
adjustment
(unaudited)............. 2,129 2,129
------- --------
BALANCE, November 29, 1998
(unaudited)............... $(6,982) $(25,742)
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 98
ALBECCA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED THREE MONTHS ENDED
------------------------------------ ---------------------------
AUGUST 25, AUGUST 31, AUGUST 30, NOVEMBER 30, NOVEMBER 29,
1996 1997 1998 1997 1998
---------- ---------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 19,404 $ 22,490 $ 14,363 $ 7,368 $ 473
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest................................ 300 146 471 166 197
Depreciation and amortization.................... 5,302 6,885 8,213 1,818 2,174
Compensation related to nonqualified stock
options........................................ -- -- 244 -- --
Loss on disposal of property, plant and
equipment...................................... 199 393 32 65 142
Changes in operating assets and liabilities:
Accounts receivable............................ (568) 1,227 2,088 (7,051) (11,280)
Inventories.................................... 2,138 (1,218) 348 (1,569) 1,002
Other current assets........................... 1,155 (337) (870) (1,492) 164
Accounts payable............................... 6,403 (1,909) (2,436) 4,544 1,496
Accrued liabilities............................ (5,703) (2,846) (4,226) 670 8,093
Other.......................................... 2,010 (2,681) (2,393) 317 (516)
-------- -------- --------- -------- --------
Net cash provided by operating activities.... 30,640 22,150 15,834 4,836 1,945
-------- -------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment......... (5,461) (7,746) (8,378) (965) (616)
Acquisitions of businesses......................... (34,062) (18,408) (28,065) (19,042) (3,594)
Proceeds from sales of property, plant and
equipment........................................ 658 3,455 509 21 61
Changes in other long-term assets.................. 766 185 1,919 817 (380)
-------- -------- --------- -------- --------
Net cash used in investing activities........ (38,099) (22,514) (34,015) (19,169) (4,529)
-------- -------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issue of senior subordinated notes,
net of debt issue costs.......................... -- -- 193,241 -- --
Proceeds from revolving credit facilities.......... 76,849 68,249 109,861 40,118 12,295
Repayments of revolving credit facilities.......... (68,005) (52,951) (134,707) (19,251) (10,997)
Proceeds from long-term debt....................... 19,706 11,171 15,676 2,974 3,085
Repayments of long-term debt....................... (8,018) (8,897) (42,113) (2,177) (4,476)
Capital contribution............................... -- 16 -- -- --
Repayments of notes payable to shareholders........ -- -- (4,000) -- --
Distributions to shareholders...................... (12,250) (16,084) (70,300) (3,100) (2,700)
-------- -------- --------- -------- --------
Net cash provided by (used in) financing
activities................................. 8,282 1,504 67,658 18,564 (2,793)
-------- -------- --------- -------- --------
EFFECT OF EXCHANGE RATE ON CASH...................... 164 (202) 106 (1,198) (1,019)
-------- -------- --------- -------- --------
NET INCREASE (DECREASE) IN CASH...................... 987 938 49,583 3,033 (6,396)
CASH and cash equivalents, beginning of period....... 3,376 4,363 5,301 5,301 54,884
-------- -------- --------- -------- --------
CASH and cash equivalents, end of period............. $ 4,363 $ 5,301 $ 54,884 $ 8,334 $ 48,488
======== ======== ========= ======== ========
SUPPLEMENTAL INFORMATION:
Interest paid...................................... $ 7,144 $ 9,282 $ 10,983 $ 3,315 $ 1,203
======== ======== ========= ======== ========
Income taxes paid.................................. $ 2,378 $ 3,858 $ 3,520 $ 462 $ 587
======== ======== ========= ======== ========
Details of acquisitions (Note 2):
Fair value of assets acquired.................... $(49,814) $(35,611) $ (46,995) $(31,624) $ (4,599)
Liabilities assumed.............................. 12,205 17,149 18,029 12,559 946
-------- -------- --------- -------- --------
Cash paid........................................ (37,609) (18,462) (28,966) (19,065) (3,653)
Less cash acquired............................... 3,547 54 901 23 59
-------- -------- --------- -------- --------
Net cash paid for acquisitions............... $(34,062) $(18,408) $ (28,065) $(19,042) $ (3,594)
======== ======== ========= ======== ========
NON-CASH FINANCING ACTIVITIES:
Issuance of notes payable for shareholder
distributions (Note 11).......................... $ -- $ -- $ 10,500 $ -- $ --
======== ======== ========= ======== ========
Capital contribution of shareholder notes payable
(Note 11)........................................ $ -- $ -- $ 6,500 $ -- $ --
======== ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 99
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Albecca Inc. (the "Company" or "Albecca," formerly Larson-Juhl Inc.)
primarily does business under the Larson-Juhl name. The Company designs,
manufactures and distributes a complete line of branded custom framing products.
The Company operates in 20 countries, primarily in North America and Europe.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Albecca Inc. and its subsidiaries. All significant intercompany transactions are
eliminated. Minority interest represents minority shareholders' interests in
certain majority-owned subsidiaries.
COMBINATION AND REORGANIZATION
Through June 25, 1998, Albecca Inc. and Larson-Juhl International LLC were
owned and controlled by the same shareholders. Effective June 26, 1998, the
members of Larson-Juhl International LLC contributed their respective equity
interests to Albecca Inc., whereby Larson-Juhl International LLC became a wholly
owned subsidiary of the Company. The combination has been treated in a manner
similar to a pooling-of-interests, and as such, the accompanying financial
statements have been restated to include the financial statements of Larson-Juhl
International LLC for all periods presented.
FISCAL PERIOD
The Company ends its fiscal year on the last Sunday in August. The
Company's fiscal years ended August 25, 1996 and August 30, 1998 were 52-week
years. The fiscal year ended August 31, 1997 was a 53-week year.
USE OF ESTIMATES
The preparation of the consolidated 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.
CASH AND CASH EQUIVALENTS
The Company considers all investments with an original maturity of three
months or less to be cash equivalents.
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 for
inventories within the United States (approximately 28.9% and 32.2% of total
inventories at August 31, 1997 and August 30, 1998, respectively) and the
first-in, first-out method for inventories within foreign countries.
Additionally, cost 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 $3,608,000
and $3,169,000 higher at August 31, 1997 and August 30, 1998, respectively.
F-8
<PAGE> 100
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 30,
1997 1998
---------- ----------
<S> <C> <C>
Raw materials............................................... $11,991 $17,019
Work in process............................................. 3,028 2,774
Finished goods.............................................. 53,190 56,026
------- -------
$68,209 $75,819
======= =======
</TABLE>
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 31, AUGUST 30,
1997 1998
---------- ----------
<S> <C> <C>
Land and buildings.......................................... $29,251 $39,743
Machinery and equipment..................................... 31,433 33,586
Furniture and fixtures...................................... 8,402 9,581
------- -------
69,086 82,910
Less accumulated depreciation............................... 16,411 21,152
------- -------
$52,675 $61,758
======= =======
</TABLE>
Depreciation expense included in the accompanying consolidated statements
of operations for the years ended August 25, 1996, August 31, 1997, and August
30, 1998 was approximately $4,744,000, $5,900,000, and $6,762,000, respectively.
OTHER LONG-TERM ASSETS
Goodwill is amortized over 40 years using the straight-line method.
Trademarks, trade names, customer lists, and other intangible assets are stated
at cost, less accumulated amortization, and are amortized over 10 to 15 years
using the straight-line method. Bond issuance costs are amortized over the life
of the senior subordinated notes (10 years) using the effective interest method.
During 1995, the Company adopted the Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of." Under the provisions of this
statement, the Company has evaluated its long-lived assets for financial
impairment, and will continue to evaluate them as events or changes in
circumstances indicate that the carrying amount of such assets may not be fully
recoverable.
The Company evaluates the recoverability of long-lived assets by measuring
the carrying amount of the assets against the estimated undiscounted future cash
flows associated with them. At the time such evaluations indicate that the
future undiscounted cash flows of certain long-lived assets are not sufficient
to recover the carrying value of such assets, the assets are adjusted to their
fair values.
It is the Company's policy to amortize goodwill and other intangible assets
over future periods estimated to be benefited based on relevant factors, which
include market, economic and regulatory considerations.
F-9
<PAGE> 101
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company recorded an impairment charge of $330,000 related to goodwill
associated with its Greek operations during fiscal year 1998 as a direct result
of its decision to close its operations in Greece (Note 12).
Other long-term assets consist of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 30,
1997 1998
---------- ----------
<S> <C> <C>
Goodwill.................................................... $23,584 $44,056
Trademarks, trade names and customer lists.................. 5,880 6,065
Bond issuance costs......................................... -- 6,759
Other....................................................... 936 2,244
------- -------
30,400 59,124
Less accumulated amortization............................... 2,045 3,472
------- -------
$28,355 $55,652
======= =======
</TABLE>
INCOME TAXES
Albecca Inc. is an S corporation and two of its subsidiaries, Larson-Juhl
US LLC, and Larson-Juhl International LLC, are limited liability companies. Each
is treated as a pass-through entity under the Internal Revenue Code. They are
not 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 respective companies. The Company makes distributions to shareholders to pay
their income tax obligations as a result of the Company's status as an S
corporation. The provision for income taxes included in the accompanying
consolidated financial statements primarily relates to certain state and foreign
income taxes.
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' equity is translated at historical rates. Resulting
translation adjustments arising from these translations are reflected as a
separate component in shareholders' equity. All the accounts of foreign
subsidiaries' statements of operations are translated at average exchange rates
during the year. Gains or losses on foreign currency transactions are included
in income as incurred and are not material to the Company's statements 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.
The Company's UK subsidiary periodically enters into forward currency
exchange contracts to manage its exposure against foreign currency fluctuations
on inventory purchase transactions denominated in foreign currencies (primarily
Italian Lira and U.S. dollars). Forward exchange contracts related to inventory
purchase transactions are recognized as adjustments to the basis of the
underlying assets. At August 30, 1998, the Company's UK subsidiary had
L5,343,000 ($8,981,000) of forward exchange contracts maturing in two years or
less related to inventory purchase transactions. At August 30, 1998, such
contracts were for the purchase of 8,900,000 Italian Lira and $2,370,000. At
August 30, 1998, deferred gains and losses on foreign exchange contracts are not
material to the consolidated financial statements.
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 31, 1997 and August 30, 1998.
F-10
<PAGE> 102
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue at the time of shipment of products.
ADVERTISING
All costs associated with advertising and promoting products are expensed
in the period incurred. The amounts expensed for the years ended August 25,
1996, August 31, 1997 and August 30, 1998 were approximately $1,765,000,
$3,731,000 and $3,784,000.
RECENT ACCOUNTING PRONOUNCEMENTS
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 desegregates a business for
making operating decisions and assessing performance. The Company has adopted
SFAS No. 131 for its 1999 fiscal year which will not have a material impact on
its consolidated financial statements.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current period 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
consolidated financial statements reflect the operations of the acquired
businesses for the periods after their respective date of acquisition.
During April 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. Goodwill and other intangible assets of approximately $8,400,000 were
recorded in connection with the acquisition.
Additionally, during October 1997, the Company acquired all of the
outstanding stock of a distributor of custom framing products for approximately
$8,000,000 in cash. Goodwill and other intangible assets of approximately
$5,500,000 were recorded in connection with the acquisition. The Company also
acquired, during October 1997, the outstanding stock of four U.S. and
international manufacturers and distributors of custom framing products for
aggregate consideration of approximately $11,100,000 in cash, resulting in
goodwill and other intangible assets of approximately $7,400,000.
During November 1996, 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
other intangible assets of approximately $4,600,000.
F-11
<PAGE> 103
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During September 1995, 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 May 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 other 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 $14,200,000 in cash, resulting in goodwill and
other intangible assets of approximately $7,400,000.
The following unaudited pro forma summary results of operations are
presented assuming that the acquisitions completed during the years ended August
25, 1996, August 31, 1997 and August 30, 1998 had been consummated as of the
beginning of each period presented. The pro forma information is presented for
informational 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
intangible assets and additional interest expense on financing required for the
acquisitions (in thousands).
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------
AUGUST 25, AUGUST 31, AUGUST 30,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Pro forma net sales.................................... $378,138 $409,316 $394,856
======== ======== ========
Pro forma net income................................... $ 17,416 $ 20,983 $ 13,268
======== ======== ========
</TABLE>
3. ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 30,
1997 1998
---------- ----------
<S> <C> <C>
Accrued operating expenses.................................. $ 9,495 $ 6,833
Accrued payroll and benefits................................ 12,606 12,224
Accrued income taxes........................................ 627 1,128
Accrued interest............................................ 532 1,498
Accrued taxes (other than income)........................... 1,257 1,410
Other....................................................... 3,465 4,899
------- -------
$27,982 $27,992
======= =======
</TABLE>
During May 1998, Albecca amended certain bonus arrangements with
shareholders and certain members of management whereby the payment of accrued
amounts aggregating $7,028,000 would be deferred and paid in varying increments
through fiscal year 2005. Accruals related to these compensation arrangements of
approximately $2,608,000 and $4,420,000 as of August 30, 1998 are included as a
component of accrued payroll and benefits and other long-term liabilities,
respectively.
F-12
<PAGE> 104
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 30,
1997 1998
---------- ----------
<S> <C> <C>
10.75% senior subordinated notes, due August 2008, interest
paid semi-annually in arrears on February 15 and August 15
of each year commencing February 15, 1999................. $ -- $200,000
Revolving credit facility (the "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%..................... 49,507 --
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.......................................... 3,446 3,562
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.......................................... -- 3,185
Demand note payable in British Pounds, interest paid
quarterly at a base rate plus 2.0% (9.0% as of August 30,
1998), secured by certain accounts receivable, inventory
and equipment............................................. 3,374 2,942
Demand note payable in Dutch Guilders, interest paid
quarterly at a base rate plus 1.25% (4.75% as of August
30, 1998) secured by certain accounts receivable,
inventory and property.................................... 3,521 3,018
Other long-term notes, interest payable at a weighted
average rate of 7.34%, maturing at various dates through
2010, no individual note exceeding $2,500................. 48,878 50,062
-------- --------
108,726 262,769
Less current maturities..................................... 28,079 35,205
-------- --------
Long-term portion................................. $ 80,647 $227,564
======== ========
</TABLE>
Certain of the above facilities are subject to certain financial covenants
related to adjusted tangible net worth and cash flow (as defined). Additionally,
the notes in foreign currencies above generally restrict the foreign subsidiary
holding the applicable notes from the payment of dividends or repayments of
intercompany loans to Albecca Inc. or other subsidiaries. Certain revolving
facilities provide Albecca with additional borrowings of up to $17,402,000 as of
August 30, 1998. Albecca had outstanding letters of credit totaling $3,867,000
as of August 30, 1998.
On August 11, 1998, Albecca issued $200,000,000 of 10.75% senior
subordinated notes (the "Notes"). The Notes are subject to certain redemption
and repurchase terms, as defined. In addition, the Notes contain certain
covenants that limit, among other things, the ability of Albecca and its
subsidiaries to (1) pay dividends, redeem capital stock, or make certain other
restricted payments or investments; (2) incur additional indebtedness or issue
preferred equity interests; (3) merge, consolidate, or sell all or substantially
all of its assets; (4) create lines on assets, and; (5) enter into certain
transactions with affiliates.
The Company's payment obligations under the Notes are jointly and severally
guaranteed by the subsidiary guarantors, as defined. (Note 15). The subsidiary
guarantees are unconditional in nature. The indenture to the Notes provides that
no subsidiary guarantor may consolidate with or merge with or into another
entity unless the surviving entity of such a consolidation or merger assumes all
the obligations of the subsidiary guarantor.
F-13
<PAGE> 105
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Notes will not be redeemable at the Company's option prior to August
15, 2003. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, at the redemption prices listed
below plus accrued and unpaid interest and liquidated damages, if any, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on August 15 of the years indicated as follows:
<TABLE>
<S> <C>
2003........................................................ 105.375%
2004........................................................ 103.583%
2005........................................................ 101.792%
2006 and thereafter......................................... 100.000%
</TABLE>
The Credit Facility which was repaid from net proceeds from the sale of the
Notes included borrowings denominated in foreign currencies in the aggregate
amount of $26,180,000 as of August 31, 1997. Other long-term notes included
borrowings denominated in foreign currencies in the aggregate amounts of
$35,402,000 and $46,979,000 as of August 31, 1997 and August 30, 1998.
Aggregate maturities of long-term debt as of August 30, 1998 are as
follows: 1999, $35,205,000; 2000, $6,820,000; 2001, $6,468,000; 2002,
$4,073,000; 2003, $2,637,000; thereafter, $207,566,000.
5. GEOGRAPHIC INFORMATION
The following table presents information regarding Albecca's different
geographical regions based on the historical operations of Albecca (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------
AUGUST 25, AUGUST 31, AUGUST 30,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
United States........................................ $162,429 $165,514 $185,696
Canada............................................... 19,186 19,973 23,498
United Kingdom....................................... 25,021 47,806 46,968
France............................................... 41,937 37,698 36,267
Other International.................................. 52,215 83,067 88,708
-------- -------- --------
$300,788 $354,058 $381,137
======== ======== ========
Operating income:
United States........................................ $ 21,022 $ 24,425 $ 25,428
Canada............................................... 2,632 2,386 3,929
United Kingdom....................................... 880 4,227 1,353
France............................................... 2,948 2,391 595
Other International.................................. 2,747 2,172 656
-------- -------- --------
$ 30,229 $ 35,601 $ 31,961
======== ======== ========
</TABLE>
F-14
<PAGE> 106
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assets by geographical region consist of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 30,
1997 1998
---------- ----------
<S> <C> <C>
United States............................................... $ 37,518 $123,458
Canada...................................................... 14,808 11,928
United Kingdom.............................................. 45,166 44,498
France...................................................... 37,686 36,765
Other International......................................... 73,511 89,273
-------- --------
$208,689 $305,922
======== ========
</TABLE>
6. SHAREHOLDERS' EQUITY (DEFICIT)
STOCK SPLIT
On April 27, 1998, Albecca effected a 1.7-for-1 stock split of its common
stock. The accompanying consolidated financial statements and notes hereof
reflect this stock split as if it had occurred at the beginning of each period.
CONVERSION OF COMMON STOCK
On May 21, 1998 in anticipation of a proposed equity offering which was
later cancelled (Note 12), Albecca Inc. amended its articles of incorporation to
reclassify its common stock from a single class into two separate classes, Class
A common stock and Class B common stock. The two classes are identical except as
to their voting rights, with the Class A common stock carrying one vote per
share, and the Class B common stock carry ten votes per share. The holders of
each class are entitled to class voting rights in very limited circumstances
under the Georgia Business Corporate Code. Otherwise, the classes vote together
on all matters presented to the shareholders. If the Class B common stock is
transferred to anyone outside of a limited group of holders related to the
majority shareholder, it will automatically convert into Class A common stock.
Also, the holders of the Class B common stock may convert it into Class A common
stock at the their option.
Upon approval of the amendment by the Company's three shareholders, the
common stock held by two of the Company's shareholders representing 2.2% of the
common stock was converted into Class A common stock, and the common stock held
by the majority shareholder representing 97.8% of the common stock was converted
into Class B common stock.
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
$0.76 per share. As a result of this grant, Albecca recorded a compensation
charge of $455,000 representing the difference between the exercise price and
the fair value, based on management's estimate at the date of grant. This option
was exercised in January 1995.
In November 1995, 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 LLC 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.
Compensation expense under this program is recognized as deferred compensation
over the performance period based on the difference between the exercise price
and the fair value, if any. 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 LLC from the Company's majority
shareholder for
F-15
<PAGE> 107
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$300,000. No compensation expense was recognized for this award, as the exercise
price, in the opinion of management, exceeded its fair value at inception of the
program and through 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. Albecca's majority shareholder extended the program through fiscal year
2001 under the same terms and conditions as the original stock performance
program. As of August 31, 1997 and August 30, 1998, no deferred compensation was
accrued as the exercise price and, in the opinion of management, did not exceed
the fair value at those dates.
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
0.25% of member interest in Larson-Juhl International LLC 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 LLC 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 0.25% of member interest in Larson-Juhl International LLC 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 nonqualified 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 nonqualified option to acquire 34,062 shares of common
stock at $8.80 per share, expiring May 1, 2003. As a result of this grant, the
Company recorded a compensation charge of $144,000 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 Opinion 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 Opinion No. 25, however, the Company has computed for pro forma
disclosure purposes the value of all options granted during the years ended
August 31, 1997 and August 30, 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.............................................. Five years
Expected volatility......................................... --
</TABLE>
F-16
<PAGE> 108
ALBECCA INC.
NOTES TO CONSOLIDATED 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 for the years ended August 31,
1997 and August 30, 1998 would have decreased to the following pro forma amount
(in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 30,
1997 1998
---------- ----------
<S> <C> <C>
Net income:
As reported in the financial statements................... $22,490 $14,363
======= =======
Pro forma in accordance with SFAS No. 123................. $22,438 $14,158
======= =======
</TABLE>
7. 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 25, 1996, August 31, 1997, and August 30, 1998 were
approximately $642,000, $661,000, and $680,000, respectively.
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain operating facilities and equipment under
operating leases. Future minimum annual rentals under noncancelable leases as of
August 30, 1998 are as follows: 1999 -- $8,145,000; 2000 -- $6,707,000;
2001 -- $5,086,000; 2002 -- $3,282,000; 2003 -- $1,631,000; and
thereafter -- $1,094,000.
The total rent payments for the years ended August 25, 1996, August 31,
1997, and August 30, 1998 were approximately $6,462,000, $7,368,000, and
$8,531,000, respectively.
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.
9. BENEFIT PLANS
The Company sponsors a defined contribution 401(k) retirement investment
plan (the "Plan") for all of 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 25, 1996, August 31, 1997, and August 30, 1998 were approximately
$409,000, $419,000, and $408,000, respectively.
F-17
<PAGE> 109
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. QUARTERLY DATA (UNAUDITED)
The following table presents quarterly information regarding the Company's
historical operations for each quarter for each of the two years in the period
ended August 30, 1998 and the quarter ended November 29, 1998 (in thousands):
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
--------------------------------------------------------------------------------------
NOVEMBER 24, FEBRUARY 23, MAY 25, AUGUST 31, NOVEMBER 30, MARCH 1, MAY 31,
1996 1997 1997 1997 1997 1998 1998
------------ ------------ ------- ---------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $93,217 $92,799 $80,679 $87,363 $102,985 $96,829 $93,055
Cost of sales........ 54,275 54,126 44,213 48,136 58,866 54,602 52,349
------- ------- ------- ------- -------- ------- -------
Gross profit......... 38,942 38,673 36,466 39,227 44,119 42,227 40,706
Operating expenses... 28,395 29,909 28,601 30,802 33,346 34,646 32,019
Restructuring
charges............ -- -- -- -- -- -- --
------- ------- ------- ------- -------- ------- -------
Operating income..... 10,547 8,764 7,865 8,425 10,773 7,581 8,687
Costs of cancelled
initial public
equity offering.... -- -- -- -- -- -- --
Interest income...... -- -- -- -- -- -- --
Interest expense..... 2,262 2,466 2,323 2,671 2,343 2,370 2,759
------- ------- ------- ------- -------- ------- -------
Income (loss) before
provision for
income taxes and
minority
interest........... 8,285 6,298 5,542 5,754 8,430 5,211 5,928
Provision for income
taxes.............. 922 735 537 1,049 896 814 865
Minority interest.... 57 (23) 69 43 166 192 19
------- ------- ------- ------- -------- ------- -------
Net income
(loss)........... $ 7,306 $ 5,586 $ 4,936 $ 4,662 $ 7,368 $ 4,205 $ 5,044
======= ======= ======= ======= ======== ======= =======
<CAPTION>
FOR THE QUARTERS ENDED
-------------------------
AUGUST 30, NOVEMBER 29,
1998 1998
---------- ------------
<S> <C> <C>
Net sales............ $88,268 $103,575
Cost of sales........ 50,264 58,935
------- --------
Gross profit......... 38,004 44,640
Operating expenses... 30,822 36,224
Restructuring
charges............ 2,262 117
------- --------
Operating income..... 4,920 8,299
Costs of cancelled
initial public
equity offering.... 1,273 --
Interest income...... (116) (555)
Interest expense..... 4,477 7,125
------- --------
Income (loss) before
provision for
income taxes and
minority
interest........... (714) 1,729
Provision for income
taxes.............. 1,446 1,059
Minority interest.... 94 197
------- --------
Net income
(loss)........... $(2,254) $ 473
======= ========
</TABLE>
11. OTHER
On May 1, 1998, Albecca Inc. made a partial distribution of 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 (the "S Corp Notes").
On June 10, 1998, Albecca Inc. repaid $4,000,000 of the S Corp Notes, plus
accrued interest. On June 24, 1998, the holders of the S Corp Notes contributed
the remaining balance of the S Corp Notes to Larson-Juhl International LLC, a
related company under common ownership (Note 12). Albecca Inc. repaid the
remaining balance of $6,500,000 to Larson-Juhl International LLC on June 24,
1998.
12. NON-RECURRING ITEMS
RESTRUCTURING CHARGES
In June 1998, the Company initiated a plan to close its plastic moulding
manufacturing facility located in the United Kingdom and recorded a charge to
operations of approximately $1,800,000. This charge included $45,000 for the
write-down of a building to estimated realizable value from the future sale of
the building, $230,000 related to severance and other termination benefits for
59 team members terminated in connection with this plan, $465,000 of lease
termination and exit costs, and $730,000 for the write-off of non-current
assets. The write-off of non-current assets is related primarily to machinery
and equipment used in the manufacturing of plastic moulding which was dismantled
and will not be sold nor used by the Company due to direct competitive pressures
of plastic moulding on traditional moulding lines. This charge also included
additional reserves for uncollectable accounts receivable of $330,000 which have
been included in operating expenses in the accompanying consolidated statement
of operations for the year ended August 30, 1998.
During the fourth quarter of 1998, the Company initiated a plan to close
its sole distribution facility in Greece and recorded a charge to operations of
approximately $700,000. This charge included severance costs
F-18
<PAGE> 110
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for 14 team members aggregating $80,000, write-off of goodwill of $330,000,
additional reserves for uncollectable accounts receivable of $178,000 and other
exit costs of approximately $110,000. The charge related to the additional
reserves for uncollectable accounts receivable has been included in operating
expenses in the accompanying consolidated statement of operations for the year
ended August 30, 1998.
Additionally, during the fourth quarter of 1998, the Company initiated a
plan to close two duplicate facilities in the U.S., and recorded a charge to
operations of approximately $276,000 related to these closures, primarily
consisting of $234,000 for the severance and other termination benefits of 33
team members. These facilities were operated by the Company, but, as a result of
recent acquisitions, were deemed to be duplicative.
At August 30, 1998, approximately $468,000 of restructuring charges remained in
accrued liabilities representing severance and other termination costs of
approximately $327,000 to be paid through June 1999 and approximately $141,000
of lease termination and exit costs to be paid through June 1999. A summary of
the restructuring activity consists of the following:
<TABLE>
<S> <C>
Fiscal year 1998 restructuring provision.................... $2,262,000
Fiscal year 1998 activity:
Non-cash write-downs of property, equipment and
goodwill............................................... 1,523,000
Reduction of workforce and other cash outflows............ 271,000
----------
Balance at August 30, 1998.................................. $ 468,000
==========
</TABLE>
Revenue and net operating results from the activities that will not be
continued are not significant to the overall operations of the Company.
November 29, 1998 Activity (unaudited). During the quarter ended November
29, 1998, the Company recorded additional restructuring charges of $117,000
related to the plan discussed above and paid $242,000 primarily for severance
and other termination benefits. The Company expects to incur an additional
$200,000 in restructuring costs related to these closures during the second
quarter of 1999 which will be expensed as incurred or as the requirements of
accrual are met.
CANCELLED INITIAL PUBLIC EQUITY OFFERING
In July 1998, the Company cancelled a planned initial public equity
offering of its common stock. As a result of the decision not to complete the
offering, the Company wrote off the associated expenses incurred of
approximately $1,273,000, which are included as "costs of cancelled initial
public equity offering" in the accompanying consolidated statements of
operations. These costs related to SEC filing fees, accounting and legal fees,
and printing costs directly attributable to the cancelled initial public equity
offering.
13. SUBSEQUENT EVENTS
The Company made cash distributions of $2,700,000, and $1,600,000 on
September 11, 1998 and January 8, 1999, respectively, pursuant to the terms and
conditions of the Notes, to its shareholders to pay their estimated September
and January income tax obligations as a result of the Company's status as an S
corporation.
Subsequent to year-end, the Company filed a registration statement in
connection with a pending exchange offer in which its existing Notes due 2008
will be exchanged for new Notes with terms which are identical to the existing
Notes.
14. COMPREHENSIVE INCOME (UNAUDITED)
As of August 30, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for the reporting and
presentation of comprehensive income and its components in
F-19
<PAGE> 111
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a full set of general purpose financial statements The adoption of SFAS No. 130
had no effect on the Company's net income or shareholders' equity for the
quarters ended November 30, 1997 and November 29, 1998. The reconciliation of
net income to comprehensive net income is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------
NOVEMBER 30, 1997 NOVEMBER 29, 1998
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
Net income, as reported.............................. $ 7,368 $ 473
Comprehensive income: Foreign currency translation
adjustments..................................... (1,721) 2,129
------- ------
Total comprehensive income................. $ 5,647 $2,602
======= ======
</TABLE>
15. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
These condensed consolidating financial statements reflect Albecca Inc. and
Subsidiary Guarantors, which consist of all of the Company's Wholly-Owned
Restricted Subsidiaries other than the foreign subsidiaries, as defined under
the Indenture dated August 11, 1998. These nonguarantor foreign subsidiaries are
herein referred to as "Subsidiary Nonguarantors." The subsidiary guarantee of
each Subsidiary Guarantor will be subordinated to the prior payment in full of
all senior debt of such Subsidiary Guarantor. Separate financial statements of
the Subsidiary Guarantors are not presented because the Subsidiary Guarantees
are joint and several and full and unconditional and the Company believes the
condensed consolidating financial statements presented are more meaningful in
understanding the financial position of the Subsidiary Guarantors and the
separate financial statements are deemed not material to investors.
On August 2, 1998, the operating assets of Albecca Inc. were contributed to
a wholly owned subsidiary of Albecca Inc. This subsidiary, Larson-Juhl US LLC,
became a Subsidiary Guarantor at the date of the issue of the Notes. Therefore,
the historical operations and cash flows of this entity are reflected as a
Subsidiary Guarantor for the one-month period ending August 29, 1998 and as the
Albecca Inc. for the period through August 2, 1998. The operating assets of this
entity are reflected as a component of Albecca Inc. as of August 30, 1997 and as
Subsidiary Guarantor as of August 29, 1998.
F-20
<PAGE> 112
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
ALBECCA INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NOVEMBER 29, 1998 (UNAUDITED)
-----------------------------------------------------------------------
CONSOLIDATED
SUBSIDIARY SUBSIDIARY ELIMINATION CONSOLIDATED
ALBECCA INC. GUARANTORS NONGUARANTORS ENTRIES TOTAL
------------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............. $ 44,034 $ 541 $ 3,572 $ 341 $ 48,488
Accounts receivable, net............... -- 21,881 40,867 -- 62,748
Intercompany accounts receivable....... 88,898 8,126 3,081 (100,105) --
Inventories............................ -- 28,953 48,396 -- 77,349
Other current assets................... 6 2,348 4,784 -- 7,138
-------- ------- -------- --------- --------
Total current assets............ 132,938 61,849 100,700 (99,764) 195,723
PROPERTY, PLANT AND EQUIPMENT, net....... -- 9,659 53,513 -- 63,172
OTHER LONG-TERM ASSETS................... 6,681 17,239 34,964 -- 58,884
INVESTMENT IN SUBSIDIARIES............... 43,453 -- 5 (43,458) --
INTERCOMPANY LOANS RECEIVABLE............ -- -- -- -- --
-------- ------- -------- --------- --------
Total assets.................... $183,072 $88,747 $189,182 $(143,222) $317,779
======== ======= ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt... $ -- $ 2,121 $ 28,224 $ -- $ 30,345
Accounts payable....................... -- 7,153 23,832 (738) 30,247
Intercompany accounts payable.......... 962 194 7,083 (8,239) --
Accrued liabilities.................... 8,438 15,997 11,426 -- 35,861
-------- ------- -------- --------- --------
Total current liabilities....... 9,400 25,465 70,565 (8,977) 96,453
-------- ------- -------- --------- --------
LONG-TERM DEBT, less current maturities.. 200,000 3,180 31,448 -- 234,628
-------- ------- -------- --------- --------
INTERCOMPANY LOANS PAYABLE............... -- 1,878 88,898 (90,776) --
-------- ------- -------- --------- --------
OTHER LONG-TERM LIABILITIES.............. -- 4,502 7,938 -- 12,440
-------- ------- -------- --------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, $0.01 par value;
50,000,000 shares authorized and no
shares issued and outstanding at
November 29, 1998.................... -- -- -- -- --
Class A common stock, $0.01 par value;
250,000,000 shares authorized,
374,000 shares issued and outstanding
at November 29, 1998................. 4 -- -- -- 4
Class B common stock, $0.01 par value;
100,000,000 shares authorized,
16,626,000 shares issued and
outstanding at November 29, 1998..... 166 -- -- -- 166
Additional paid-in capital............. 8,912 37,520 4,347 (43,453) 7,326
Accumulated earnings (deficit)......... (35,410) 15,886 (6,732) -- (26,256)
Cumulative foreign currency translation
adjustment........................... -- 316 (7,282) (16) (6,982)
-------- ------- -------- --------- --------
Total shareholders' equity
(deficit)..................... (26,328) 53,722 (9,667) (43,469) (25,742)
-------- ------- -------- --------- --------
$183,072 $88,747 $189,182 $(143,222) $317,779
======== ======= ======== ========= ========
</TABLE>
F-21
<PAGE> 113
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
ALBECCA INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 30, 1998
-----------------------------------------------------------------------
CONSOLIDATED
SUBSIDIARY SUBSIDIARY ELIMINATION CONSOLIDATED
ALBECCA INC. GUARANTORS NONGUARANTORS ENTRIES TOTAL
------------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................ $ 49,188 $ 18 $ 5,678 $ -- $ 54,884
Accounts receivable, net................. 6 17,445 33,334 -- 50,785
Intercompany accounts receivable......... 373 7,024 539 (7,936) --
Inventories.............................. -- 28,322 47,497 -- 75,819
Other current assets..................... -- 2,254 4,770 -- 7,024
-------- ------- -------- --------- --------
Total current assets.............. 49,567 55,063 91,818 (7,936) 188,512
PROPERTY, PLANT AND EQUIPMENT, net......... -- 9,487 52,271 -- 61,758
OTHER LONG-TERM ASSETS..................... 6,703 17,315 31,634 -- 55,652
INVESTMENT IN SUBSIDIARIES................. 43,453 -- 3,580 (47,033) --
INTERCOMPANY LOANS RECEIVABLE.............. 84,941 -- 1,623 (86,564) --
-------- ------- -------- --------- --------
Total assets...................... $184,664 $81,865 $180,926 $(141,533) $305,922
======== ======= ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt..... $ -- $ 1,519 $ 33,686 $ -- $ 35,205
Accounts payable......................... -- 6,470 21,695 -- 28,165
Intercompany accounts payable............ -- 1,042 6,894 (7,936) --
Accrued liabilities...................... 2,784 15,477 9,731 -- 27,992
-------- ------- -------- --------- --------
Total current liabilities......... 2,784 24,508 72,006 (7,936) 91,362
-------- ------- -------- --------- --------
LONG-TERM DEBT, less current maturities.... 200,000 3,083 24,481 -- 227,564
-------- ------- -------- --------- --------
INTERCOMPANY LOANS PAYABLE................. -- 1,623 84,941 (86,564) --
-------- ------- -------- --------- --------
OTHER LONG-TERM LIABILITIES................ -- 4,443 8,197 -- 12,640
-------- ------- -------- --------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, $0.01 par value;
50,000,000 shares authorized and no
shares issued and outstanding at August
30, 1998............................... -- -- -- -- --
Class A common stock, $0.01 par value;
250,000,000 shares authorized, 374,000
shares issued and outstanding at August
30, 1998............................... 4 -- -- -- 4
Class B common stock, $0.01 par value;
100,000,000 shares authorized,
16,626,000 shares issued and
outstanding at August 30, 1998......... 166 -- -- -- 166
Additional paid-in capital............... 8,912 37,520 7,927 (47,033) 7,326
Accumulated earnings (deficit)........... (27,202) 10,492 (7,319) -- (24,029)
Cumulative foreign currency translation
adjustment............................. -- 196 (9,307) -- (9,111)
-------- ------- -------- --------- --------
Total shareholders' equity
(deficit)....................... (18,120) 48,208 (8,699) (47,033) (25,644)
-------- ------- -------- --------- --------
$184,664 $81,865 $180,926 $(141,533) $305,922
======== ======= ======== ========= ========
</TABLE>
F-22
<PAGE> 114
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
ALBECCA INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 31, 1997
-----------------------------------------------------------------------
CONSOLIDATED
SUBSIDIARY SUBSIDIARY ELIMINATION CONSOLIDATED
ALBECCA INC. GUARANTORS NONGUARANTORS ENTRIES TOTAL
------------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................ $ 399 $ 133 $ 4,769 $ -- $ 5,301
Accounts receivable, net................. 12,976 1,928 34,366 -- 49,270
Intercompany accounts receivable......... 429 -- 1,731 (2,160) --
Inventories.............................. 16,564 4,362 47,283 -- 68,209
Other current assets..................... 1,476 318 3,085 -- 4,879
------- ------- -------- -------- --------
Total current assets.............. 31,844 6,741 91,234 (2,160) 127,659
PROPERTY, PLANT AND EQUIPMENT, net......... 6,303 1,113 45,259 -- 52,675
OTHER LONG-TERM ASSETS..................... -- 418 27,937 -- 28,355
INVESTMENT IN SUBSIDIARIES................. 2,587 -- 700 (3,287) --
INTERCOMPANY LOANS RECEIVABLE.............. 37,063 -- 5,279 (42,342) --
------- ------- -------- -------- --------
Total assets...................... $77,797 $ 8,272 $170,409 $(47,789) $208,689
======= ======= ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt..... $ 149 $ 1,658 $ 26,272 $ -- $ 28,079
Accounts payable......................... 3,356 569 24,371 -- 28,296
Intercompany accounts payable............ 1,178 802 180 (2,160) --
Accrued liabilities...................... 16,622 534 10,826 -- 27,982
------- ------- -------- -------- --------
Total current liabilities......... 21,305 3,563 61,649 (2,160) 84,357
------- ------- -------- -------- --------
LONG-TERM DEBT, less current maturities.... 12,387 -- 68,260 -- 80,647
------- ------- -------- -------- --------
INTERCOMPANY LOANS PAYABLE................. -- 5,279 37,063 (42,342) --
------- ------- -------- -------- --------
OTHER LONG-TERM LIABILITIES................ -- 30 6,342 -- 6,372
------- ------- -------- -------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $0.01 par value; 20,000,000
shares authorized, 17,000,000 shares
issued and outstanding at August 31,
1997................................... 170 -- -- -- 170
Additional paid-in capital............... 1,742 700 1,427 (3,287) 582
Accumulated earnings (deficit)........... 42,190 (1,372) 1,590 -- 42,408
Cumulative foreign currency translation
adjustment............................. 3 72 (5,922) -- (5,847)
------- ------- -------- -------- --------
Total shareholders' equity
(deficit)....................... 44,105 (600) (2,905) (3,287) 37,313
------- ------- -------- -------- --------
$77,797 $ 8,272 $170,409 $(47,789) $208,689
======= ======= ======== ======== ========
</TABLE>
F-23
<PAGE> 115
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
ALBECCA INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 29, 1998 (UNAUDITED)
-----------------------------------------------------------------------
CONSOLIDATED
SUBSIDIARY SUBSIDIARY ELIMINATION CONSOLIDATED
ALBECCA INC. GUARANTORS NONGUARANTORS ENTRIES TOTAL
------------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ -- $52,091 $53,276 $(1,792) $103,575
Cost of sales.............................. -- 28,881 31,846 (1,792) 58,935
------- ------- ------- ------- --------
Gross profit............................. -- 23,210 21,430 -- 44,640
Operating expenses......................... 37 18,373 17,814 36,224
Restructuring charges...................... -- 117 -- -- 117
------- ------- ------- ------- --------
Operating income......................... (37) 4,720 3,616 -- 8,299
Costs of cancelled initial public equity
offering................................. -- -- -- -- --
Interest income............................ (555) -- -- -- (555)
Interest expense........................... 6,026 178 921 -- 7,125
------- ------- ------- ------- --------
Income (loss) before provision for income
taxes and minority interest............ (5,508) 4,542 2,695 -- 1,729
Provision for income taxes................. -- 123 936 -- 1,059
Minority interest.......................... -- -- 197 -- 197
------- ------- ------- ------- --------
Net income (loss)................. $(5,508) $ 4,419 $ 1,562 $ -- $ 473
======= ======= ======= ======= ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................... $(2,195) $ 571 $ 3,569 $ -- $ 1,945
------- ------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment.............................. -- (554) (62) -- (616)
Acquisitions of businesses............... -- -- (3,594) -- (3,594)
Proceeds from sales of property, plant
and equipment.......................... -- 21 40 -- 61
Changes in other long-term assets........ (259) -- (121) -- (380)
------- ------- ------- ------- --------
Net cash used in investing activities.... (259) (533) (3,737) -- (4,529)
------- ------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany loan balances.... -- 63 (63) -- --
Proceeds from revolving credit
facilities............................. -- -- 12,295 -- 12,295
Repayments of revolving credit
facilities............................. -- (57) (10,940) -- (10,997)
Proceeds from long-term debt............. -- 1,060 2,025 -- 3,085
Repayments of long-term debt............. -- (587) (3,889) -- (4,476)
Distributions to shareholders............ (2,700) -- -- -- (2,700)
------- ------- ------- ------- --------
Net cash provided by (used in) financing
activities............................. (2,700) 479 (572) -- (2,793)
------- ------- ------- ------- --------
EFFECT OF EXCHANGE RATE ON CASH............ -- 6 (1,025) -- (1,019)
------- ------- ------- ------- --------
NET INCREASE (DECREASE) IN CASH............ (5,154) 523 (1,765) -- (6,396)
Cash and cash equivalents, beginning of
period................................... 49,188 18 5,678 -- 54,884
------- ------- ------- ------- --------
Cash and cash equivalents, end of period... $44,034 $ 541 $ 3,913 $ -- $ 48,488
======= ======= ======= ======= ========
</TABLE>
F-24
<PAGE> 116
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
ALBECCA INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30, 1997 (UNAUDITED)
-----------------------------------------------------------------------
CONSOLIDATED
SUBSIDIARY SUBSIDIARY ELIMINATION CONSOLIDATED
ALBECCA INC. GUARANTORS NONGUARANTORS ENTRIES TOTAL
------------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 47,301 $ 2,217 $ 54,884 $ (1,417) $102,985
Cost of sales.............................. 25,926 1,315 33,042 (1,417) 58,866
-------- -------- -------- -------- --------
Gross profit............................. 21,375 902 21,842 -- 44,119
Operating expenses......................... 15,160 964 17,222 -- 33,346
-------- -------- -------- -------- --------
Operating income......................... 6,215 (62) 4,620 10,773
Interest expense........................... 47 165 2,131 -- 2,343
-------- -------- -------- -------- --------
Income (loss) before provision for income
taxes and minority interest............ 6,168 (227) 2,489 -- 8,430
Provision for income taxes................. 101 -- 795 -- 896
Minority interest.......................... -- -- 166 -- 166
-------- -------- -------- -------- --------
Net income (loss)................. $ 6,067 $ (227) $ 1,528 $ -- $ 7,368
======== ======== ======== ======== ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................... $ (6,870) $ 168 $ 11,538 $ -- $ 4,836
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment.............................. (130) (3) (832) -- (965)
Acquisitions of businesses............... (11,889) -- (7,153) -- (19,042)
Proceeds from sales of property, plant
and equipment.......................... -- -- 21 -- 21
Changes in other long-term assets........ 1,096 -- (279) -- 817
-------- -------- -------- -------- --------
Net cash used in investing activities.... (10,923) (3) (8,243) -- (19,169)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit
facilities............................. 35,323 138 4,657 -- 40,118
Repayments of revolving credit
facilities............................. (13,868) (535) (4,848) -- (19,251)
Proceeds from long-term debt............. 264 -- 2,710 -- 2,974
Repayments of long-term debt............. (1,225) -- (952) -- (2,177)
Repayments of notes payable to
shareholders........................... -- -- -- -- --
Distributions to shareholders............ (3,100) -- -- -- (3,100)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities............................. 17,394 (397) 1,567 -- 18,564
-------- -------- -------- -------- --------
EFFECT OF EXCHANGE RATE ON CASH............ -- 2 (1,200) -- (1,198)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH............ (399) (230) 3,662 -- 3,033
Cash and cash equivalents, beginning of
period................................... 399 133 4,769 -- 5,301
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period... $ 0 $ (97) $ 8,431 $ -- $ 8,334
======== ======== ======== ======== ========
</TABLE>
F-25
<PAGE> 117
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
ALBECCA INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 30, 1998
-----------------------------------------------------------------------
CONSOLIDATED
SUBSIDIARY SUBSIDIARY ELIMINATION CONSOLIDATED
ALBECCA INC. GUARANTORS NONGUARANTORS ENTRIES TOTAL
------------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $170,885 $ 22,690 193,218 $ (1,792) $381,137
Cost of sales.............................. 92,880 12,323 116,534 (1,792) 216,081
-------- -------- -------- -------- --------
Gross profit............................. 78,005 10,367 76,684 -- 165,056
Operating expenses......................... 53,182 8,319 69,332 -- 130,833
Restructuring charges...................... -- 276 1,986 -- 2,262
-------- -------- -------- -------- --------
Operating income......................... 24,823 1,772 5,366 -- 31,961
Costs of cancelled initial public equity
offering................................. 1,273 -- -- -- 1,273
Interest income............................ (116) -- -- -- (116)
Interest expense........................... 623 655 10,671 -- 11,949
-------- -------- -------- -------- --------
Income (loss) before provision for income
taxes and minority interest............ 23,043 1,117 (5,305) -- 18,855
Provision for income taxes................. 864 24 3,133 -- 4,021
Minority interest.......................... -- -- 471 -- 471
Equity in earnings of subsidiaries......... 16,044 -- -- (16,044) --
-------- -------- -------- -------- --------
Net income (loss)................. $ 38,223 $ 1,093 $ (8,909) $(16,044) $ 14,363
======== ======== ======== ======== ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................... $ 19,906 $ (564) $ (3,508) $ -- $ 15,834
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment.............................. (955) (62) (7,361) -- (8,378)
Acquisitions of businesses............... (20,989) -- (7,076) -- (28,065)
Proceeds from sales of property, plant
and equipment.......................... 37 54 418 -- 509
Changes in other long-term assets........ -- -- 1,919 -- 1,919
-------- -------- -------- -------- --------
Net cash used in investing activities.... (21,907) (8) (12,100) -- (34,015)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issue of senior
subordinated notes, net of debt issue
costs.................................. 193,241 $ -- -- -- 193,241
Changes in intercompany loan balances.... (57,478) 433 57,045 -- --
Proceeds from revolving credit
facilities............................. 87,685 327 21,849 -- 109,861
Repayments of revolving credit
facilities............................. (92,585) (64) (42,058) -- (134,707)
Proceeds from long-term debt............. 2,641 777 12,258 -- 15,676
Repayments of long-term debt............. (8,509) (763) (32,841) -- (42,113)
Repayments of notes payable to
shareholders........................... (4,000) -- -- -- (4,000)
Distributions to shareholders............ (70,300) -- -- -- (70,300)
-------- -------- -------- -------- --------
Net cash provided by financing
activities............................. 50,695 710 16,253 -- 67,658
-------- -------- -------- -------- --------
EFFECT OF EXCHANGE RATE ON CASH............ 95 (253) 264 -- 106
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH............ 48,789 (115) 909 -- 49,583
Cash and cash equivalents, beginning of
period................................... 399 133 4,769 -- 5,301
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period... $ 49,188 $ 18 $ 5,678 $ -- $ 54,884
======== ======== ======== ======== ========
</TABLE>
F-26
<PAGE> 118
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
ALBECCA INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31, 1997
----------------------------------------------------------------------
CONSOLIDATED
ALBECCA SUBSIDIARY SUBSIDIARY ELIMINATION CONSOLIDATED
INC. GUARANTORS NONGUARANTORS ENTRIES TOTAL
----------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales........................................ $165,514 $ 9,121 $183,788 $(4,365) $354,058
Cost of sales.................................... 88,294 5,246 111,575 (4,365) 200,750
-------- -------- -------- ------- --------
Gross profit................................... 77,220 3,875 72,213 -- 153,308
Operating expenses............................... 51,667 4,296 61,744 -- 117,707
-------- -------- -------- ------- --------
Operating income............................... 25,553 (421) 10,469 -- 35,601
Interest expense................................. 700 651 8,371 -- 9,722
-------- -------- -------- ------- --------
Income (loss) before provision for income taxes
and minority interest........................ 24,853 (1,072) 2,098 -- 25,879
Provision for income taxes....................... 843 -- 2,400 -- 3,243
Minority interest................................ -- -- 146 -- 146
-------- -------- -------- ------- --------
Net income (loss)....................... $ 24,010 $ (1,072) $ (448) $ -- $ 22,490
======== ======== ======== ======= ========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES..................................... $ 23,699 $ (1,940) $ 391 $ -- $ 22,150
-------- -------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment..... (880) (222) (6,644) -- (7,746)
Acquisitions of businesses..................... -- -- (18,408) -- (18,408)
Proceeds from sales of property, plant and
equipment.................................... 1,649 -- 1,806 -- 3,455
Changes in other long-term assets.............. 2 97 86 -- 185
-------- -------- -------- ------- --------
Net cash provided by (used in) investing
activities................................... 771 (125) (23,160) -- (22,514)
-------- -------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany loan balances.......... (17,724) 1,137 16,587 -- --
Proceeds from revolving credit facilities...... 55,934 1,027 11,288 -- 68,249
Repayments of revolving credit facilities...... (52,401) -- (550) -- (52,951)
Proceeds from long-term debt................... 8,211 -- 2,960 -- 11,171
Repayments of long-term debt................... (2,404) -- (6,493) -- (8,897)
Capital contribution........................... 16 -- -- -- 16
Distributions to shareholders.................. (16,084) -- -- -- (16,084)
-------- -------- -------- ------- --------
Net cash (used in) provided by financing
activities................................... (24,452) 2,164 23,792 -- 1,504
-------- -------- -------- ------- --------
EFFECT OF EXCHANGE RATE ON CASH.................. -- (9) (193) -- (202)
-------- -------- -------- ------- --------
NET INCREASE IN CASH............................. 18 90 830 -- 938
Cash and cash equivalents, beginning of period... 381 43 3,939 -- 4,363
-------- -------- -------- ------- --------
Cash and cash equivalents, end of period......... $ 399 $ 133 $ 4,769 $ -- $ 5,301
======== ======== ======== ======= ========
</TABLE>
F-27
<PAGE> 119
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
ALBECCA INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 25, 1996
-----------------------------------------------------------------------
CONSOLIDATED
SUBSIDIARY SUBSIDIARY ELIMINATION CONSOLIDATED
ALBECCA INC. GUARANTORS NONGUARANTORS ENTRIES TOTAL
------------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $162,429 $ 8,931 $133,898 $ (4,470) $300,788
Cost of sales.............................. 90,999 5,071 82,364 (4,470) 173,964
-------- ------- -------- ---------- --------
Gross profit............................. 71,430 3,860 51,534 -- 126,824
Operating expenses......................... 48,897 3,616 44,082 -- 96,595
-------- ------- -------- ---------- --------
Operating income......................... 22,533 244 7,452 -- 30,229
Interest expense........................... 1,455 416 4,975 -- 6,846
-------- ------- -------- ---------- --------
Income (loss) before provision for income
taxes and minority interest............ 21,078 (172) 2,477 -- 23,383
Provision for income taxes................. 785 (17) 2,911 -- 3,679
Minority interest.......................... -- -- 300 -- 300
-------- ------- -------- ---------- --------
Net income (loss)................. $ 20,293 $ (155) $ (734) $ -- $ 19,404
======== ======= ======== ========== ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................... $ 32,333 $(1,563) $ (130) $ -- $ 30,640
-------- ------- -------- ---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment.............................. 23,495 (353) (28,603) -- (5,461)
Acquisitions of businesses............... (34,062) -- -- -- (34,062)
Proceeds from sales of property, plant
and equipment.......................... 99 85 474 -- 658
Changes in other long-term assets........ 13,459 (148) (12,545) -- 766
-------- ------- -------- ---------- --------
Net cash provided by (used in)
investing activities............ 2,991 (416) (40,674) -- (38,099)
-------- ------- -------- ---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany loan balances.... -- 1,311 (1,311) -- --
Proceeds from revolving credit
facilities............................. 52,041 (15) 24,823 -- 76,849
Repayments of revolving credit
facilities............................. (68,005) -- -- -- (68,005)
Proceeds from long-term debt............. (5,116) 738 24,084 -- 19,706
Repayments of long-term debt............. (1,897) -- (6,121) -- (8,018)
Distributions to shareholders............ (12,250) -- -- -- (12,250)
-------- ------- -------- ---------- --------
Net cash provided by (used in) financing
activities............................. (35,227) 2,034 41,475 -- 8,282
-------- ------- -------- ---------- --------
EFFECT OF EXCHANGE RATE ON CASH............ -- (28) 192 -- 164
-------- ------- -------- ---------- --------
NET INCREASE IN CASH....................... 97 27 863 -- 987
Cash and cash equivalents, beginning of
period................................... 284 16 3,076 -- 3,376
-------- ------- -------- ---------- --------
Cash and cash equivalents, end of period... $ 381 $ 43 $ 3,939 $ -- $ 4,363
======== ======= ======== ========== ========
</TABLE>
F-28
<PAGE> 120
------------------------------------------------------
------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this Prospectus. You must not
rely on any unauthorized information. This Prospectus does not offer to sell or
buy any shares in any jurisdiction where it is unlawful. The information in this
Prospectus is current as of , 1998.
------------------------
TABLE OF CONTENTS*
------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 6
Where You Can Find More Information... 9
Use of Proceeds....................... 10
Capitalization........................ 11
Selected Consolidated Financial
Data................................ 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 13
Business.............................. 20
Management............................ 31
Certain Relationships and Related
Transactions........................ 35
Description of Certain Indebtedness... 36
The Exchange Offer.................... 37
Description of Notes.................. 45
Certain United States Federal Income
Tax Considerations.................. 82
Plan of Distribution.................. 84
Legal Matters......................... 85
Experts............................... 85
Index to Financial Statements......... F-1
</TABLE>
Until , 1998 (20 days after the date of this Prospectus) all
dealers that buy, sell or trade these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
$200,000,000
(ALBECCA LOGO)
10 3/4% SENIOR SUBORDINATED
NOTES DUE 2008
--------------------
PROSPECTUS
--------------------
, 1998
------------------------------------------------------
------------------------------------------------------
<PAGE> 121
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Albecca's Articles of Incorporation eliminate, subject to certain limited
exceptions, the personal liability of a director to Albecca or its shareholders
for monetary damage for any breach of duty as a director. There is no
elimination of liability for (1) a breach of duty involving appropriation of a
business opportunity of Albecca; (2) an act or omission which involves
intentional misconduct or a knowing violation of law; (3) any transaction from
which the director derives an improper personal benefit; or (4) 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 Albecca 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 Albecca or its shareholders to seek
injunctive or other equitable relief not involving payments in the nature of
monetary damages.
Albecca's bylaws contain certain provisions which provide indemnification
to directors of Albecca 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 Albecca 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 Albecca, Sections 14-2-852 and 14-2-857 of
the Code would require Albecca to indemnify such persons against expenses
(including attorney's fees) actually and reasonably incurred in connection
therewith. The Code expressly allows Albecca to provide for greater
indemnification rights to its officers and directors, subject to shareholder
approval.
The indemnification provisions in Albecca's bylaws require Albecca 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 Albecca) because he or she is or was a
director of Albecca, 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 Albecca also has the authority to extend to officers, employees and
agents the same indemnification rights held by directors, subject to all the
accompanying conditions and obligations. Indemnified persons would also be
entitled to have Albecca 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 Albecca pursuant to the foregoing provisions,
Albecca 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.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of Albecca as to which indemnification is being sought,
nor is Albecca aware of any pending or threatened litigation that may result in
claims for indemnification by any director, officer, employee or other agent.
II-1
<PAGE> 122
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --- -----------
<C> <C> <S>
3.1 -- Amended and Restated Articles of Incorporation of Albecca+
3.2 -- Amended and Restated Bylaws of Albecca+
4.1 -- Indenture dated August 11, 1998, among Albecca Inc. and
State Street Bank & Trust, as trustee, relating to the Notes
(the "Indenture")+
4.2 -- Form of 10 3/4% Senior Note due 2008 of Albecca Inc.
(included as Exhibit A of the Indenture filed as Exhibit
4.1)+
4.3 -- Subsidiary Guaranty+
4.4 -- Registration Rights Agreement, dated as of August 11, 1998,
among Albecca Inc. Donaldson Lufkin Jenrette Securities
Corporation and Morgan Stanley & Co. Incorporated+
5.1 -- Opinion of Nelson Mullins Riley & Scarborough, L.L.P.
10.1 -- 1998 Stock Option Plan
10.2 -- Lease Agreement, dated August 8, 1991, by and between L-J
Properties Inc. and Larson-Juhl Inc.+
10.3 -- Amendment No. 1 to Lease Agreement dated October 26, 1993,
by and between L-J Properties Inc. and Larson-Juhl Inc.+
10.4 -- Form of S Corp Note issued by Albecca in favor of its
existing shareholders+
12.1 -- Computation of Ratio of Earnings to Fixed Charges
21.1 -- Subsidiaries of Albecca+
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 (included in the signature pages to the
Registration Statement)+
25.1 -- Form T-1 with respect to the eligibility of State Street
Bank and Trust Company with respect to the Indenture+
27.1 -- Financial Data Schedule (for SEC use only)+
99.1 -- Form of Letter of Transmittal+
99.2 -- Form of Notice of Guaranteed Delivery+
99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and other Nominees+
99.4 -- Form of Letter to Client+
99.5 -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9+
</TABLE>
- ---------------
+ Previously filed
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts.
ITEM 22. UNDERTAKINGS.
Albecca hereby undertakes that:
(1) Prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the
II-2
<PAGE> 123
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(2) Every prospectus that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 124
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ATLANTA,
STATE OF GEORGIA, ON JANUARY 15, 1999.
ALBECCA INC.
By: /s/ CRAIG A. PONZIO
------------------------------------
Name: Craig A. Ponzio
Title: Chairman, President and
Chief Executive Officer
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO Chairman of the Board, January 15, 1999
- ----------------------------------------------------- President, Chief Executive
Craig A. Ponzio Officer and Director
(Principal Executive Officer)
* Vice Chairman of the Board and January 15, 1999
- ----------------------------------------------------- Director
June R. Ponzio
* Director January 15, 1999
- -----------------------------------------------------
Philip H. Moise
* Senior Vice President, Chief January 15, 1999
- ----------------------------------------------------- Financial Officer (Principal
Stephen M. Scheppmann Financial and Accounting
Officer)
* President, International January 15, 1999
- -----------------------------------------------------
William P. Trimarco
*By: /s/ CRAIG A. PONZIO
------------------------------------------------
Craig A. Ponzio, as
Attorney-in-fact
</TABLE>
II-4
<PAGE> 125
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE CO-REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ATLANTA, STATE OF GEORGIA, ON JANUARY 15, 1999.
LARSON-JUHL US LLC
By: /s/ CRAIG A. PONZIO
------------------------------------
Name: Craig A. Ponzio
Title: Chairman, President and
Chief Executive Officer
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO Chairman of the Board, January 15, 1999
- ----------------------------------------------------- President, Chief Executive
Craig A. Ponzio Officer and Director
(Principal Executive Officer)
* Senior Vice President, Chief January 15, 1999
- ----------------------------------------------------- Financial Officer (Principal
Stephen M. Scheppmann Financial and Accounting
Officer)
*By: /s/ CRAIG A. PONZIO
------------------------------------------------
Craig A. Ponzio, as
Attorney-in-fact
</TABLE>
II-5
<PAGE> 126
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE CO-REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ATLANTA, STATE OF GEORGIA, ON JANUARY 15, 1999.
LARSON-JUHL INTERNATIONAL LLC
By: /s/ CRAIG A. PONZIO
------------------------------------
Name: Craig A. Ponzio
Title: Chairman, President and
Chief Executive Officer
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO Chairman of the Board, January 15, 1999
- ----------------------------------------------------- President, Chief Executive
Craig A. Ponzio Officer and Director
(Principal Executive Officer)
* Senior Vice President, Chief January 15, 1999
- ----------------------------------------------------- Financial Officer (Principal
Stephen M. Scheppmann Financial and Accounting
Officer)
*By: /s/ CRAIG A. PONZIO
------------------------------------------------
Craig A. Ponzio, as
Attorney-in-fact
</TABLE>
II-6
<PAGE> 127
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE CO-REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ATLANTA, STATE OF GEORGIA, ON JANUARY 15, 1999.
ART MATERIALS, FRAMES AND
MOULDINGS COMPANY, INC.
By: /s/ CRAIG A. PONZIO
------------------------------------
Name: Craig A. Ponzio
Title: President
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO President and Director January 15, 1999
- ----------------------------------------------------- (Principal Executive Officer)
Craig A. Ponzio
* Treasurer (Principal Financial January 15, 1999
- ----------------------------------------------------- and Accounting Officer)
Stephen M. Scheppmann
*By: /s/ CRAIG A. PONZIO
------------------------------------------------
Craig A. Ponzio, as
Attorney-in-fact
</TABLE>
II-7
<PAGE> 128
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE CO-REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ATLANTA, STATE OF GEORGIA, ON JANUARY 15, 1999.
ROBERT F. DE CASTRO, INC.
By: /s/ CRAIG A. PONZIO
------------------------------------
Name: Craig A. Ponzio
Title: President
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO President and Director January 15, 1999
- ----------------------------------------------------- (Principal Executive Officer)
Craig A. Ponzio
* Treasurer (Principal Financial January 15, 1999
- ----------------------------------------------------- and Accounting Officer)
Stephen M. Scheppmann
*By: /s/ CRAIG A. PONZIO
------------------------------------------------
Craig A. Ponzio, as
Attorney-in-fact
</TABLE>
II-8
<PAGE> 129
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE CO-REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ATLANTA, STATE OF GEORGIA, ON JANUARY 15, 1999.
GLASS CORPORATION OF AMERICA, INC.
By: /s/ CRAIG A. PONZIO
------------------------------------
Name: Craig A. Ponzio
Title: Chairman, President and
Chief Executive Officer
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO President and Director January 15, 1999
- ----------------------------------------------------- (Principal Executive Officer)
Craig A. Ponzio
* Treasurer (Principal Financial January 15, 1999
- ----------------------------------------------------- and Accounting Officer)
Stephen M. Scheppmann
*By: /s/ CRAIG A. PONZIO
------------------------------------------------
Craig A. Ponzio, as
Attorney-in-fact
</TABLE>
II-9
<PAGE> 130
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE CO-REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ATLANTA, STATE OF GEORGIA, ON JANUARY 15, 1999.
ART WEST, INC.
By: /s/ CRAIG A. PONZIO
------------------------------------
Name: Craig A. Ponzio
Title: President
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO President and Director January 15, 1999
- ----------------------------------------------------- (Principal Executive Officer)
Craig A. Ponzio
* Treasurer (Principal Financial January 15, 1999
- ----------------------------------------------------- and Accounting Officer)
Stephen M. Scheppmann
*By: /s/ CRAIG A. PONZIO
------------------------------------------------
Craig A. Ponzio, as
Attorney-in-fact
</TABLE>
II-10
<PAGE> 131
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE CO-REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ATLANTA, STATE OF GEORGIA, ON JANUARY 15, 1999.
EASTERN MOULDING, INC.
By: /s/ CRAIG A. PONZIO
------------------------------------
Name: Craig A. Ponzio
Title: President
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO President and Director January 15, 1999
- ----------------------------------------------------- (Principal Executive Officer)
Craig A. Ponzio
* Treasurer (Principal Financial January 15, 1999
- ----------------------------------------------------- and Accounting Officer)
Stephen M. Scheppmann
*By: /s/ CRAIG A. PONZIO
------------------------------------------------
Craig A. Ponzio, as
Attorney-in-fact
</TABLE>
II-11
<PAGE> 132
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE CO-REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ATLANTA, STATE OF GEORGIA, ON JANUARY 15, 1999.
EASTERN MOULDINGS, INC.
By: /s/ CRAIG A. PONZIO
------------------------------------
Name: Craig A. Ponzio
Title: President
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO President and Director January 15, 1999
- ----------------------------------------------------- (Principal Executive Officer)
Craig A. Ponzio
* Treasurer (Principal Financial January 15, 1999
- ----------------------------------------------------- and Accounting Officer)
Stephen M. Scheppmann
*By: /s/ CRAIG A. PONZIO
------------------------------------------------
Craig A. Ponzio, as
Attorney-in-fact
</TABLE>
II-12
<PAGE> 133
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE CO-REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ATLANTA, STATE OF GEORGIA, ON JANUARY 15, 1999.
LARSON-JUHL AUSTRALIA L.L.C.
By: /s/ CRAIG A. PONZIO
------------------------------------
Name: Craig A. Ponzio
Title: President
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO President and Director January 15, 1999
- ----------------------------------------------------- (Principal Executive Officer)
Craig A. Ponzio
* Vice President, Finance January 15, 1999
- ----------------------------------------------------- (Principal Financial and
Stephen M. Scheppmann Accounting Officer)
*By: /s/ CRAIG A. PONZIO
------------------------------------------------
Craig A. Ponzio, as
Attorney-in-fact
</TABLE>
II-13
<PAGE> 134
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE CO-REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ATLANTA, STATE OF GEORGIA, ON JANUARY 15, 1999.
LARSON-JUHL FRANCE L.L.C.
By: /s/ CRAIG A. PONZIO
------------------------------------
Name: Craig A. Ponzio
Title: President
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO President and Director January 15, 1999
- ----------------------------------------------------- (Principal Executive Officer)
Craig A. Ponzio
* Vice President, Finance January 15, 1999
- ----------------------------------------------------- (Principal Financial and
Stephen M. Scheppmann Accounting Officer)
*By: /s/ CRAIG A. PONZIO
------------------------------------------------
Craig A. Ponzio, as
Attorney-in-fact
</TABLE>
II-14
<PAGE> 135
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE CO-REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ATLANTA, STATE OF GEORGIA, ON JANUARY 15, 1999.
LARSON-JUHL SOUTH AFRICA L.L.C.
By: /s/ CRAIG A. PONZIO
------------------------------------
Name: Craig A. Ponzio
Title: Chairman, President and
Chief Executive Officer
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO President and Director January 15, 1999
- ----------------------------------------------------- (Principal Executive Officer)
Craig A. Ponzio
* Vice President, Finance January 15, 1999
- ----------------------------------------------------- (Principal Financial and
Stephen M. Scheppmann Accounting Officer)
*By: /s/ CRAIG A. PONZIO
-------------------------------------------------
Craig A. Ponzio, as
Attorney-in-fact
</TABLE>
II-15
<PAGE> 136
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE CO-REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ATLANTA, STATE OF GEORGIA, ON JANUARY 15, 1999.
LARSON-JUHL KOREA L.L.C.
By: /s/ CRAIG A. PONZIO
------------------------------------
Name: Craig A. Ponzio
Title: President
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO President and Director January 15, 1999
- ----------------------------------------------------- (Principal Executive Officer)
Craig A. Ponzio
* Vice President, Finance January 15, 1999
- ----------------------------------------------------- (Principal Financial and
Stephen M. Scheppmann Accounting Officer)
*By: /s/ CRAIG A. PONZIO
------------------------------------------------
Craig A. Ponzio, as
Attorney-in-fact
</TABLE>
II-16
<PAGE> 137
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE CO-REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ATLANTA, STATE OF GEORGIA, ON JANUARY 15, 1999.
LARSON-JUHL SEOUL L.L.C.
By: /s/ CRAIG A. PONZIO
------------------------------------
Name: Craig A. Ponzio
Title: President
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO President and Director January 15, 1999
- ----------------------------------------------------- (Principal Executive Officer)
Craig A. Ponzio
* Vice President, Finance January 15, 1999
- ----------------------------------------------------- (Principal Financial and
Stephen M. Scheppmann Accounting Officer)
*By: /s/ CRAIG A. PONZIO
------------------------------------------------
Craig A. Ponzio, as
Attorney-in-fact
</TABLE>
II-17
<PAGE> 138
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE CO-REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ATLANTA, STATE OF GEORGIA, ON JANUARY 15, 1999.
LARSON-JUHL NETHERLANDS L.L.C.
By: /s/ CRAIG A. PONZIO
------------------------------------
Name: Craig A. Ponzio
Title: President
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>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG A. PONZIO President and Director January 15, 1999
- ----------------------------------------------------- (Principal Executive Officer)
Craig A. Ponzio
* Vice President, Finance January 15, 1999
- ----------------------------------------------------- (Principal Financial and
Stephen M. Scheppmann Accounting Officer)
*By: /s/ CRAIG A. PONZIO
------------------------------------------------
Craig A. Ponzio, as
Attorney-in-fact
</TABLE>
II-18
<PAGE> 139
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To Albecca Inc.:
We have audited, in accordance with generally auditing standards, the
consolidated financial statements of ALBECCA INC. (a Georgia corporation)
included in this registration statement and have issued our report thereon dated
November 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 Albecca'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
November 6, 1998
II-19
<PAGE> 140
SCHEDULE II
ALBECCA
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF YEAR EXPENSES DEDUCTIONS* OTHER** OF YEAR
---------- ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
For the fiscal year ended:
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
---------- ---------- ---------- -------- ----------
August 30, 1998: Allowance for
doubtful accounts................ $5,378,000 $3,756,000 $3,444,000 $169,000 $5,859,000
---------- ---------- ---------- -------- ----------
</TABLE>
- ---------------
* Principally charges for which reserves were provided, net of recoveries.
** Acquired through acquisition of businesses.
<PAGE> 141
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION
- ---- -----------
<C> <S> <C>
3.1 -- Amended and Restated Articles of Incorporation of Albecca+
3.2 -- Amended and Restated Bylaws of Albecca+
4.1 -- Indenture dated August 11, 1998, among Albecca Inc. and
State Street Bank & Trust, as trustee, relating to the Notes
(the "Indenture")+
4.2 -- Form of 10 3/4% Senior Note due 2008 of Albecca Inc.
(included as Exhibit A of the Indenture filed as Exhibit
4.1)+
4.3 -- Subsidiary Guaranty+
4.4 -- Registration Rights Agreement, dated as of August 11, 1998,
among Albecca Inc. Donaldson Lufkin Jenrette Securities
Corporation and Morgan Stanley & Co. Incorporated+
5.1 -- Opinion of Nelson Mullins Riley & Scarborough, L.L.P.
10.1 -- 1998 Stock Option Plan
10.2 -- Lease Agreement, dated August 8, 1991, by and between L-J
Properties Inc. and Larson-Juhl Inc.+
10.3 -- Amendment No. 1 to Lease Agreement dated October 26, 1993,
by and between L-J Properties Inc. and Larson-Juhl Inc.+
10.4 -- Form of S Corp Note issued by Albecca in favor of its
existing shareholders+
12.1 -- Computation of Ratio of Earnings to Fixed Charges
21.1 -- Subsidiaries of Albecca+
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 (included in the signature pages to the
Registration Statement)+
25.1 -- Form T-1 with respect to the eligibility of State Street
Bank and Trust Company with respect to the Indenture+
27.1 -- Financial Data Schedule (for SEC use only)+
99.1 -- Form of Letter of Transmittal+
99.2 -- Form of Notice of Guaranteed Delivery+
99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and other Nominees+
99.4 -- Form of Letter to Client+
99.5 -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9+
</TABLE>
- ---------------
+ Previously filed
<PAGE> 1
EXHIBIT 5.1
NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
999 Peachtree Street, N.E.
First Union Plaza, Suite 1400
Atlanta, Georgia 30309
Telephone: (404) 817-6000
January 15, 1999
Albecca Inc.
3900 Steve Reynolds Drive
Norcross, Georgia 30093
Ladies and Gentlemen:
We have acted as counsel to Albecca Inc., a Georgia corporation and
each of the entities listed on Exhibit A hereto (the "Subsidiary Guarantors")
(the "Company"), in connection with the filing of a Registration Statement on
Form S-4 (Reg. No. 333-67975) (the "Registration Statement") under the
Securities Act of 1933, as amended, relating to the proposed exchange (the
"Exchange Offer") of up to $200 million principal amount of 10 3/4%Senior
Subordinated Notes due 2008 (the "New Notes") for a like principal amount of the
Company's issued and outstanding 10 3/4% Senior Notes due 2008 (the "Old
Notes"), and the guarantee of the New Notes by the Subsidiary Guarantees. The
Old Notes were, and the New Notes will be, issued pursuant to the Indenture (the
"Indenture") dated as of August 11, 1998 among the Company, as issuer, and State
Street Bank and Trust Company, as trustee (the "Trustee"), which has been filed
as Exhibit 4.1 to the Registration Statement.
We have examined the Indenture, the form of certificate which will
evidence the New Notes, the Subsidiary Guarantee dated as of August 11, 1998, by
each of the Subsidiary Guarantors (the "Subsidiary Guarantee"), the Registration
Rights Agreement dated as of August 11, 1998 among the Company, the placement
agents named therein and the Trustee (the "Registration Rights Agreement") (the
Indenture, the Subsidiary Guarantee and the Registration Rights Agreement have
been filed as Exhibits to the Registration Statement), and certain corporate
records of the Company, and we have made such other investigations as we have
deemed appropriate in order to express the opinion set forth herein. We have
assumed that the execution and delivery of, and the performance of all
obligations under, the Indenture have been duly authorized by all requisite
action by the Trustee, and that the Indenture has been duly executed and
delivered by, and is a valid and binding agreement of, the Trustee, enforceable
against the Trustee in accordance with its terms.
This opinion is limited by and is in accordance with the January 1,
1992 edition of the Interpretive Standards applicable to Legal Opinions to Third
Parties in Corporate Transactions adopted by the Legal Opinion Committee of the
Corporate and Banking Law Section of the State Bar of Georgia (the "Interpretive
Standards").
<PAGE> 2
Albecca Inc.
January 14, 1999
Page 2
Based upon the foregoing, and the other limitations and qualifications
set forth herein, we are of the opinion that:
1. The Company is a corporation duly organized and validly
existing under the laws of the State of Georgia and the Subsidiary Guarantors
are duly organized and validly existing under the laws of the state set forth
across from their name on Exhibit A hereto.
2. The Indenture and the New Notes have been duly authorized by
the Company, and the New Notes, when executed, authenticated and delivered to
the holders of the Old Notes pursuant to the Exchange Offer in accordance with
the terms of the Indenture, will be valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as (i)
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting creditors' rights
generally, (ii) rights of acceleration, if applicable, and the availability of
equitable remedies may be limited by equitable principles of general
applicability, and (iii) to other limitations specified in the Interpretive
Standards.
3. The Subsidiary Guarantee has been duly authorized by each of
the Subsidiary Guarantors and is a valid and binding obligation of each of the
Subsidiary Guarantors enforceable against each of the Subsidiary Guarantors in
accordance with its terms, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws affecting creditors' rights generally, (ii) rights of acceleration, if
applicable, and the availability of equitable remedies may be limited by
equitable principals of general applicability, and (iii) to other limitations
specified in the Interpretive Standards.
While the Indenture and the Subsidiary Guarantee provide that they will
be governed by the substantive laws of the State of New York, we have assumed,
for purposes of our opinion, that the Indenture and the Subsidiary Guarantee
will be governed by the laws of the State of Georgia.
This opinion is given as of the date hereof, and we assume no
obligation to advise you after the date hereof of facts or circumstances that
come to our attention or changes in law that occur which could affect the
opinions contained herein. This letter is being rendered solely for the benefit
of the Company in connection with the matters addressed herein. This opinion may
not be furnished to or relied upon by any person or entity for any purpose
without our prior written consent.
We hereby consent to the inclusion of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
NELSON MULLINS RILEY &
SCARBOROUGH, L.L.P.
By: /s/ Philip H. Moise
----------------------
Philip H. Moise
<PAGE> 3
EXHIBIT A
<TABLE>
<CAPTION>
STATE OF
NAME OF SUBSIDIARY GUARANTOR INCORPORATION
- ---------------------------- -------------
<S> <C>
Larson-Juhl US LLC.......................................... Georgia
Larson-Juhl International LLC............................... Georgia
Art Materials, Frames and Mouldings Company, Inc. .......... Alabama
Robert F. de Castro, Inc.................................... Louisiana
Glass Corporation of America, Inc. ......................... Louisiana
Art West, Inc. ............................................. Arizona
Eastern Moulding, Inc. ..................................... Maryland
Eastern Mouldings, Inc. ................................... New Jersey
Larson-Juhl Australia L.L.C. ............................... Georgia
Larson-Juhl France L.L.C. .................................. Georgia
Larson-Juhl South Africa L.L.C. ............................ Georgia
Larson-Juhl Seoul L.L.C. ................................... Georgia
Larson-Juhl Korea L.L.C..................................... Georgia
Larson-Juhl Netherlands L.L.C. ............................. Georgia
</TABLE>
<PAGE> 1
EXHIBIT 10.1
ALBECCA INC.
LARSON-JUHL
1998 STOCK OPTION PLAN
As of November 1, 1998,
unless otherwise noted
<PAGE> 2
ALBECCA INC.
LARSON-JUHL
1998 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I - DEFINITIONS........................................................................................1
ARTICLE II - THE PLAN...........................................................................................2
2.1 Name............................................................................................2
2.2 Purpose.........................................................................................2
2.3 Effective Date..................................................................................3
ARTICLE III - PARTICIPANTS.......................................................................................3
ARTICLE IV - ADMINISTRATION.....................................................................................3
4.1 Duties and Powers of the Committee..............................................................3
4.2 Interpretation; Rules...........................................................................3
4.3 No Liability....................................................................................3
4.4 Majority Rule...................................................................................3
4.5 Company Assistance..............................................................................3
ARTICLE V - SHARES OF STOCK SUBJECT TO PLAN....................................................................3
5.1 Limitations.....................................................................................4
5.2 Adjustment and Ownership Changes................................................................4
ARTICLE VI - OPTIONS............................................................................................4
6.1 Types of Options Granted........................................................................4
6.2 Option Grant and Agreement......................................................................4
6.3 Optionee Limitations............................................................................5
6.4 $100,000 Limitation.............................................................................5
6.5 Exercise Price..................................................................................5
6.6 Exercise Period.................................................................................5
6.7 Option Exercise.................................................................................5
6.8 Nontransferability of Option....................................................................6
6.9 Termination of Employment or Service............................................................6
6.10 Employment Rights...............................................................................6
6.11 Certain Successor Options.......................................................................6
6.12 Right Not To Issue..............................................................................6
6.13 Restrictive Legends.............................................................................7
6.14 Company Right to Repurchase Options.............................................................7
ARTICLE VII - TERMINATION AND AGREEMENT..........................................................................7
7.1 Termination and Amendment.......................................................................7
7.2 Effect on Optionee's Rights.....................................................................7
ARTICLE VIII - RELATIONSHIP TO OTHER COMPENSATION PLANS...........................................................7
ARTICLE IX - MISCELLAREOUS......................................................................................7
9.1 Replacement or Amended Grants...................................................................7
9.2 Forfeiture for Competition......................................................................7
9.3 Plan Binding on Successors......................................................................7
9.4 Singular, Plural; Gender........................................................................7
9.5 Headings, etc., No Part of Plan.................................................................7
Exhibit A.......................................................................................................A-1
</TABLE>
- i -
<PAGE> 3
ALBECCA INC.
LARSON-JUHL
1998 STOCK OPTION PLAN
[The amendments to this Plan were effective November 1, 1998.]
ARTICLE I
DEFINITIONS
As used herein, the following terms have the following meanings unless
the context clearly indicates to the contrary:
"Affiliate" of a company shall mean a Parent or Subsidiary of the company, or
another entity under common control with the company.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the United States Internal Revenue Code of 1986, as amended,
including effective date and transition rules (whether or not codified). Any
reference herein to a specific section of the Code shall be deemed to include a
reference to any corresponding provision of future law.
"Committee" shall mean the committee of the Board designated by the Board as
the "Compensation Committee," which committee shall have the duties and
authority set forth herein in addition to any other authority expressly granted
by the Board. At any time that the Board shall not have appointed a committee
as described above, any reference herein to the Committee shall mean the Board.
"Company" shall mean Albecca Inc., a Georgia corporation.
"Director" shall mean a member of the Board.
"Employer" shall mean the entity that employs an Optionee.
"Exchange Act" shall mean the Securities Exchange Act of 1934. Any reference
herein to a specific section of the Exchange Act shall be deemed to include a
reference to any corresponding provision of future law.
"Exercise Price" shall mean the price at which an Optionee may purchase a share
of Stock under a Stock Option Agreement.
"Fair Market Value" on any date shall mean the fair market value as determined
in good faith by the Committee; provided, however, if there has been an Initial
Public Offering, "Fair Market Value" on any date shall mean (i) the closing
sales price of the Stock, regular way, on such date on the national securities
exchange having the greatest volume of trading in the Stock during the
thirty-day period preceding the day the value is to be determined or, if such
exchange was not open for trading on such date, the next preceding date on
which it was open; or (ii) if the Stock is not traded on any national
securities exchange, the average of the closing high bid and low asked prices
of the Stock on the over-the-counter market on the day such value is to be
determined, or in the absence of closing bids on such day, the closing bids on
the next preceding day on which there were bids; or (iii) if the Stock also is
not traded on the over-the-counter market, the fair market value as determined
in good faith by the Committee.
"Initial Public Offering" shall mean an underwritten public offering of the
Stock on a firm commitment basis that results in gross proceeds to the Company
of at least $15,000,000 and after which the Stock has been listed on, admitted
to or approved for trading on a national securities exchange, the NASDAQ Stock
Market or another similar trading market.
"Incentive Stock Option" shall mean an option to purchase any stock of the
Company, which complies with and is subject to the terms, limitations and
conditions of Section 422 of the Code and any regulations promulgated with
respect thereto.
<PAGE> 4
"Officer" shall mean a person who constitutes an officer of the Company for the
purposes of Section 16 of the Exchange Act, as determined by reference to such
Section 16 and to the rules, regulations, judicial decisions, and
interpretative or "no-action" positions with respect thereto of the Securities
and Exchange Commission, as the same may be in effect or set forth from time to
time.
"Option" shall mean an option, whether or not an Incentive Stock Option, to
purchase Stock granted pursuant to the provisions of Article VI hereof.
"Optionee" shall mean a person to whom an Option has been granted hereunder.
"Parent" shall mean any corporation or limited liability company (other than
the Employer) in an unbroken chain of corporations and limited liability
companies ending with the Employer if, at the time of the grant (or
modification) of the Option, each of the entities other than the Employer owns
either (i) stock possessing 50 percent or more of the total combined voting
power of the classes of stock of one of the other corporations or (ii) 50
percent or more of the total combined voting power of the membership interests
in one of the other limited liability companies, in such chain.
"Plan" shall mean the Company's 1998 Stock Option Plan, the terms of which are
set forth herein.
"Purchasable" shall refer to Stock which may be purchased by an Optionee under
the terms of this Plan on or after a certain date specified in the applicable
Stock Option Agreement.
"Qualified S Corporation Shareholder" means any natural person that is
permitted to own shares in a Subchapter S corporation under Code Section 1361,
and any Qualified Subchapter S Trust, within the meaning of Code Section
1361(d), established for the benefit of such a person.
"Section 16 Insider" shall mean any person who is subject to the provisions of
Section 16 of the Exchange Act, as provided in Rule 16a-2 promulgated pursuant
to the Exchange Act.
"Stock" shall mean the Class A Common Stock, $0.01 par value, of the Company
or, in the event that the outstanding shares of Stock are hereafter changed
into or exchanged for shares of a different stock or securities of the Company
or some other entity, such other stock or securities.
"Stock Option Agreement" shall mean an agreement between the Company and an
Optionee under which the Optionee may purchase Stock hereunder, a sample form
of which is attached hereto as Exhibit A (which form may be varied or replaced
by the Committee in granting an Option).
"Subsidiary" shall mean any corporation or limited liability company (other
than the Employer) in an unbroken chain of corporations and limited liability
companies beginning with the Employer if, at the time of the grant (or
modification) of the Option, each of the corporations and limited liability
companies other than the last corporation in the unbroken chain owns either (i)
stock possessing 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations or (ii) 50 percent of the
total combined voting power of all membership interests in one of the other
limited liability companies, in such chain.
"Team Member" shall mean an employee of the Employer.
ARTICLE II - THE PLAN
2.1 Name. This Plan shall be known as the Company's "1998 Stock Option
Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests of the
Team Member, the Company, its Subsidiaries and its shareholders by affording
certain Team Members and Directors of the Company and its Subsidiaries, as well
as key consultants and advisors to the Company or any Subsidiary, an
opportunity to acquire or increase their proprietary interests in the Company.
The objective of the issuance of Options is to promote the growth and
profitability of the Company and its Subsidiaries 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.
2
<PAGE> 5
2.3 Effective Date. The Plan shall become effective on May 1, 1998;
provided, however, that if the shareholders of the Company have not approved
the Plan on or prior to the first anniversary of such effective date, then all
options granted under the Plan shall be non-Incentive Stock Options.
ARTICLE III - PARTICIPANTS
The persons eligible to participate in the Plan shall consist of all persons
whose participation in the Plan the Committee determines to be in the best
interests of the Company which may include, but not be limited to, all
Directors and Team Members of the Company or any Subsidiary, as well as key
consultants and advisors to the Company or any Subsidiary.
ARTICLE IV - ADMINISTRATION
4.1 Duties and Powers of the Committee. The Plan shall be administered by
the Committee. The Committee shall select one of its members as its Chairman
and shall hold its meetings at such times and places as it may determine. The
Committee shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it may deem necessary, if any.
The Committee shall have the power to act by unanimous written consent in lieu
of a meeting, and to meet telephonically. In administering the Plan, the
Committee's actions and determinations shall be binding on all interested
parties. The Committee shall have the power to grant Options in accordance with
the provisions of the Plan and may grant Options singly, in combination, or in
tandem. Subject to the provisions of the Plan, the Committee shall have the
discretion and authority to determine those individuals to whom Options will be
granted, the number of shares of Stock subject to each Option, such other
matters as are specified herein, and any other terms and conditions of a Stock
Option Agreement. Without limitation of the foregoing, Options may be granted
subject to conditions based on the performance of the Company and/or the
Optionee, or any other factors the Committee deems relevant. The Committee
shall also have the discretion and authority to delegate to any Officer its
powers to grant Options under the Plan to any person who is a Team Member of
the Company but not an Officer or Director. To the extent not inconsistent with
the provisions of the Plan, the Committee may give an Optionee an election to
surrender an Option in exchange for the grant of a new Option, and shall have
the authority to amend or modify an outstanding Stock Option Agreement, or to
waive any provision thereof, provided that the Optionee consents to such
action. In performing its duties hereunder, the Committee shall act in good
faith in a reasonable manner for the benefit of the Company.
4.2 Interpretation; Rules. Subject to the express provisions of the Plan,
the Committee also shall have complete authority to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it, to
determine the form, details and provisions of each Stock Option Agreement
(which may or may not conform to the provisions of the sample Stock Option
Agreement attached hereto as Exhibit A), and to make all other determinations
necessary or advisable for the administration of the Plan, including, without
limitation, the amending or altering of the Plan and any Options granted
hereunder as may be required to comply with or to conform to any federal,
state, or local laws or regulations.
4.3 No Liability. Neither any member of the Board nor any member of the
Committee shall be liable to any person for any act or determination made in
good faith with respect to the Plan or any Option granted hereunder.
4.4 Majority Rule. A majority of the members of the Committee shall
constitute a quorum, and any action taken by a majority at a meeting at which a
quorum is present, or any action taken without a meeting evidenced by a writing
executed by all the members of the Committee, shall constitute the action of
the Committee.
4.5 Company Assistance. The Company shall supply information to the
Committee on all matters relating to eligible persons, their employment, death,
retirement, disability, or other termination of employment, and such other
pertinent facts as the Committee may require. The Company shall furnish the
Committee with such clerical and other assistance as is necessary in the
performance of its duties.
ARTICLE V - SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any adjustment pursuant to the provisions of
Section 5.2 hereof, the maximum number of shares of Stock that may be issued
hereunder shall be 2,600,000. Any or all shares of Stock subject to the Plan
may be
3
<PAGE> 6
issued in any combination of Incentive Stock Options or non-Incentive Stock
Options, and the amount of Stock subject to the Plan may be increased from time
to time in accordance with Article VIII. Shares subject to an Option may be
either authorized and unissued shares or shares issued and later acquired by
the Company. The shares covered by any unexercised portion of an Option that
has terminated for any reason (except as set forth in the following paragraph),
shall not be considered as having been optioned or issued in computing the
number of shares of Stock remaining available for option hereunder and such
shares may again be optioned under the Plan.
If Options are issued in respect of options to acquire stock of any entity
acquired, by merger or otherwise, by the Company (or any Subsidiary of the
Company), to the extent that such issuance shall not be inconsistent with the
terms, limitations and conditions of Code Section 422 or Rule 16b-3 under the
Exchange Act, the aggregate number of shares of Stock for which Options may be
granted hereunder shall automatically be increased by the number of shares
subject to the Options so issued; provided, however, that the aggregate number
of shares of Stock for which Options may be granted hereunder shall
automatically be decreased by the number of shares covered by any unexercised
portion of an Option so issued that has terminated for any reason, and the
shares subject to any such unexercised portion may not be optioned to any other
person.
5.2 Adjustment and Ownership Changes. (a) If (i) the outstanding shares of
Stock are changed into or exchanged for a different number or kind of shares or
other securities of the Company by reason of merger, consolidation,
reorganization, recapitalization, reclassification, combination or exchange of
shares, or stock split, (ii) there is an increase in the number of issued and
outstanding shares through the declaration of a stock dividend, (iii) any
spin-off, split-off or other distribution of assets materially affects the
price of the Company's stock, or (iv) there is any assumption and conversion to
the Plan by the Company of an acquired company's outstanding option grants,
then the terms of any outstanding option shall be adjusted accordingly by the
Committee. (b) If the Company shall be a party to any reorganization in which
it does not survive, including a merger, consolidation, or acquisition of the
stock or substantially all the assets of the Company, the Committee shall have
the right, at its discretion, to declare that all Options granted under the
Plan shall become exercisable immediately, notwithstanding the provisions of
the respective Stock Option Agreements regarding exercisability, or to notify
all Optionees that all Options granted under the Plan shall be assumed by the
successor corporation or substituted on an equitable basis with options issued
by such successor corporation. (c) If the Company is to be liquidated or
dissolved in connection with a reorganization described in Section 5.2(b), the
provisions of such Section shall apply. In all other instances, upon the
adoption of a plan of dissolution or liquidation of the Company the Committee
may, at its discretion, accelerate the exercisability of any one or more
Options. Whether or not such an acceleration occurs, all outstanding Options
shall be canceled to the extent they remain unexercised at the time such
transaction is consummated. (d) The adjustments described in paragraphs (a)
through (c) of this Section 5.2, and the manner of their application, shall be
determined solely by the Committee, and any such adjustment may provide for the
elimination of fractional share interests; provided, however, that any
adjustment made by the Committee shall be made in a manner that will not cause
an Incentive Stock Option to be other than an Incentive Stock Option under
applicable statutory and regulatory provisions. The adjustments required under
this Article V shall apply to any successors of the Company and shall be made
regardless of the number or type of successive events requiring such
adjustments.
ARTICLE VI - OPTIONS
6.1 Types of Options Granted. The Committee may, under this Plan, grant
either Incentive Stock Options or Options which do not qualify as Incentive
Stock Options. Within the limitations provided in this Plan, both types of
Options may be granted to the same person at the same time, or at different
times, under different terms and conditions, as long as the terms and
conditions of each Option are consistent with the provisions of the Plan. No
Incentive Stock Option may be granted more than ten years after the earlier to
occur of the effective date of the Plan or the date the Plan is approved by the
Company's shareholders.
6.2 Option Grant and Agreement. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of the Committee and
by a written Stock Option Agreement executed by the Company and the Optionee.
The terms of the Option shall be stated in the Stock Option Agreement,
including the Option's duration, time or times of exercise, exercise price and
whether the Option is intended to be an Incentive Stock Option. Separate Stock
Option Agreements may be used for Options intended to be Incentive Stock
Options and those not so intended, but any failure to
4
<PAGE> 7
use such separate agreements shall not invalidate, or otherwise adversely
affect the Optionee's interest in, the Options evidenced thereby.
6.3 Optionee Limitations. The Committee shall not grant an Incentive Stock
Option to any person who, at the time the Incentive Stock Option is granted:
(a) is not a Team Member of the Company or any of its Subsidiaries; or (b) owns
or is considered to own stock possessing at least 10% of the total combined
voting power of all classes of stock of the Company or any of its Parent or
Subsidiary corporations; provided, however, that this limitation shall not
apply if at the time an Incentive Stock Option is granted the Exercise Price is
at least 110% of the Fair Market Value of the Stock subject to such Option and
such Option by its terms would not be exercisable after five years from the
date on which the Option is granted. For the purpose of this subsection (b), a
person shall be considered to own: (i) the stock owned, directly or indirectly,
by or for his or her brothers and sisters (whether by whole or half blood),
spouse, ancestors and lineal descendants; (ii) the stock owned, directly or
indirectly, by or for a corporation, partnership, estate, or trust in
proportion to such person's stock interest, partnership interest or beneficial
interest therein; and (iii) the stock which such person may purchase under any
outstanding options of the Employer or of any Parent or Subsidiary of the
Employer.
6.4 $100,000 Limitation. Except as provided below, the Committee shall not
grant an Incentive Stock Option to, or modify the exercise provisions of
outstanding Incentive Stock Options held by, any person who, at the time the
Incentive Stock Option is granted (or modified), would thereby receive or hold
any Incentive Stock Options of the Employer and any Parent or Subsidiary of the
Employer, such that the aggregate Fair Market Value (determined as of the
respective dates of grant or modification of each option) of the stock with
respect to which such Incentive Stock Options are exercisable for the first
time during any calendar year is in excess of $100,000 (or such other limit as
may be prescribed by the Code from time to time); provided that the foregoing
restriction on modification of outstanding Incentive Stock Options shall not
preclude the Committee from modifying an outstanding Incentive Stock Option if,
as a result of such modification and with the consent of the Optionee, such
Option no longer constitutes an Incentive Stock Option; and provided that, if
the $100,000 limitation (or such other limitation prescribed by the Code)
described in this Section 6.4 is exceeded, the Incentive Stock Option, the
granting or modification of which resulted in the exceeding of such limit,
shall be treated as an Incentive Stock Option up to the limitation and the
excess shall be treated as an Option not qualifying as an Incentive Stock
Option.
6.5 Exercise Price. The Exercise Price of the Stock subject to each Option
shall be determined by the Committee. Subject to the provisions of Section
6.3(b) hereof, the Exercise Price of an Incentive Stock Option shall not be
less than the Fair Market Value of the Stock as of the date the Option is
granted (or in the case of an Incentive Stock Option that is subsequently
modified, on the date of such modification).
6.6 Exercise Period. The period for the exercise of each Option granted
hereunder shall be determined by the Committee, but the Stock Option Agreement
with respect to each Option intended to be an Incentive Stock Option shall
provide that such Option shall not be exercisable after the expiration of ten
years from the date of grant (or modification) of the Option.
6.7 Option Exercise. (a) Unless otherwise provided in the Stock Option
Agreement or Section 6.6 hereof, an Option may be exercised at any time or from
time to time during the term of the Option as to any or all full shares which
have become Purchasable under the provisions of the Option, but not at any time
as to fewer than 100 shares unless the remaining shares that have become so
Purchasable are fewer than 100 shares. The Committee shall have the authority
to prescribe in any Stock Option Agreement that the Option may be exercised
only in accordance with a vesting schedule during the term of the Option. (b)
An Option shall be exercised by (i) delivery to the Company at its principal
office of a written notice of exercise with respect to a specified number of
shares of Stock and (ii) payment to the Company at that office of the full
amount of the Exercise Price for such number of shares in accordance with
Section 6.7(c). In the discretion of the Committee, a Stock Option Agreement
may allow an Option to be exercised with the involvement of a stockbroker in
accordance with the federal margin rules set forth in Regulation T (in which
case the certificates representing the underlying shares will be delivered by
the Company directly to the stockbroker). (c) The Exercise Price is to be paid
in full in cash upon the exercise of the Option and the Company shall not be
required to deliver certificates for the shares purchased until such payment
has been made; provided, however, that the Committee may provide in a Stock
Option Agreement (or may otherwise determine in its sole discretion at the time
of exercise) that in lieu of cash, all or any portion of the Exercise Price may
be paid by tendering to the Company shares of Stock owned by the Optionee duly
endorsed for transfer, or by authorizing the Company to withhold shares of
Stock otherwise issuable upon exercise of the Option, in each case to be
credited against the Exercise Price at the Fair Market Value of such shares on
the date of exercise (however, no fractional shares may be so transferred, and
the Company shall not be obligated to make any cash
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<PAGE> 8
payments in consideration of any excess of the aggregate Fair Market Value of
shares transferred over the aggregate Exercise Price); provided further that
the Committee may provide in a Stock Option Agreement (or may otherwise
determine in its sole discretion at the time of exercise), subject to
compliance with applicable state and federal laws, rules and regulations, that
in lieu of cash or shares, all or a portion of the Exercise Price may be paid
by the Optionee's execution of a full recourse note equal to the Exercise Price
or relevant portion thereof, and that such note, among other things, must be
secured by the shares purchased using the note. (d) In addition to and at the
time of payment of the Exercise Price, the Optionee shall pay to the Company in
cash the full amount of any federal, state, and local income, employment, or
other withholding taxes applicable to the taxable income of such Optionee
resulting from such exercise; provided, however, that upon the irrevocable
written request of the Optionee and solely in the discretion of the Committee,
all or any portion of such tax obligations, together with additional taxes not
exceeding the actual additional taxes to be owed by the Optionee as a result of
such exercise, may be paid by tendering to the Company whole shares of Stock
owned by the Optionee duly endorsed for transfer, or by authorization to the
Company to withhold shares of Stock otherwise issuable upon exercise of the
Option, in either case in that number of shares having a Fair Market Value on
the date of exercise equal to the amount of such taxes thereby being paid, and
subject to such restrictions as to the approval and timing of any such election
as the Committee may from time to time determine to be necessary or appropriate
to satisfy the conditions of the exemption set forth in Rule 16b-3 under the
Exchange Act, if such rule is applicable. (e) The holder of an Option shall not
have any of the rights of a shareholder with respect to the shares of Stock
subject to the Option until such shares have been issued and transferred to the
Optionee upon the exercise of the Option.
6.8 Nontransferability of Option. No Option under the Plan shall be
transferable by an Optionee other than by will or the laws of descent and
distribution, and no Option shall be transferable by an Optionee who is a
Section 16 Insider prior to shareholder approval of the Plan; provided,
however, as long as the Company is classified as an S corporation under the
Code an Optionee may transfer his or her rights under an Option by will or the
laws of descent and distribution only to one Qualified S Corporation
Shareholder expressly designated by the Optionee in the applicable Stock Option
Agreement, the Company shall not be required to recognize the transfer to
anyone other than such person, the Committee may require that such person
execute and deliver to the Company, in a form satisfactory to the Committee, an
agreement to be bound by the terms of the Stock Option Agreement, and if more
than one person claims ownership of some or all of such rights after the
Optionee's death, the Committee may either determine to which of such persons
such rights shall be transferred, or may apply to a court of competent
jurisdiction for such a determination. During the lifetime of an Optionee,
Options shall be exercisable only by such Optionee (or by such Optionee's
guardian or legal representative, should one be appointed).
6.9 Termination of Employment or Service. The Committee shall have the
power to specify, with respect to the Options granted to a particular Optionee,
the effect upon such Optionee's right to exercise an Option upon termination of
such Optionee's employment or service under various circumstances, which effect
may include immediate or deferred termination of such Optionee's rights under
an Option, or acceleration of the date at which an Option may be exercised in
full; provided, however, that in no event may an Incentive Stock Option be
exercised after the expiration of ten years from the date of grant thereof.
6.10 Employment Rights. Nothing in the Plan or in any Stock Option
Agreement shall confer on any person any right to continue in the employ of the
Company or any of its Subsidiaries, or shall interfere in any way with the
right of the Company or any of its Subsidiaries to terminate such person's
employment at any time.
6.11 Certain Successor Options. To the extent not inconsistent with the
terms, limitations and conditions of Code Section 422 and any regulations
promulgated with respect thereto, an Option issued in respect of an option held
by an employee to acquire stock of any entity acquired, by merger or otherwise,
by the Company (or any Subsidiary of the Company) may contain terms that differ
from those stated in this Article VI, but solely to the extent necessary to
preserve for any such employee the rights and benefits contained in such
predecessor option, or to satisfy the requirements of Code Section 424(a).
6.12 Right Not To Issue. The Company shall not be required to issue shares
of Stock purchased upon the exercise of any Option granted hereunder or any
portion thereof, prior to fulfillment of all of the following conditions: (a)
The completion of any registration or other qualification of such shares which
the Committee shall deem necessary or advisable under any federal or state law
or under the rulings or regulations of the Securities and Exchange Commission
or any other governmental regulatory body; (b) The obtaining of any approval or
other clearance from any federal or state governmental agency or body which the
Committee shall determine to be necessary or advisable; (c) The lapse of such
reasonable period of time following the exercise of the Option as the Committee
from time to time may establish for
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reasons of administrative convenience; and (d) If the Company is classified as
an S corporation under the Code, a determination by the Committee that the
issuance of the shares would not terminate the Company's status as an S
corporation and would not make it potentially more difficult to maintain that
status in the future;
If all such conditions have not been met after an attempted exercise of the
Option, upon notice to the Optionee the attempted exercise shall be deemed to
have been rescinded; provided, however, the Committee shall take reasonable
steps to allow such conditions to be met so that the attempted exercise may be
consummated.
6.13 Restrictive Legends. Stock certificates issued and delivered to the
Optionees shall bear such restrictive legends as the Company shall deem
necessary or advisable pursuant to applicable federal and state securities
laws, or for purposes of the Plan and any applicable Stock Option Agreement.
6.14 Company Right to Repurchase Options The Company shall have such rights
to repurchase an Option as may be specified in the applicable Stock Option
Agreement.
ARTICLE VII - TERMINATION AND AMENDMENT
7.1 Termination and Amendment. The Board may at any time amend or
terminate the Plan; provided, however, that the Board (unless its actions are
approved or ratified by the shareholders of the Company within twelve months of
the date that the Board amends the Plan) may not amend the Plan to: (a)
Increase the total number of shares of Stock issuable pursuant to Incentive
Stock Options under the Plan, except as contemplated in Section 5.2 hereof; or
(b) Change the class of Team Members eligible to receive Incentive Stock
Options that may participate in the Plan.
7.2 Effect on Optionee's Rights. No such amendment or termination of the
Plan shall affect adversely an Optionee's rights under a Stock Option Agreement
without the consent of the Optionee or his or her legal representative.
ARTICLE VIII - RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option, incentive, or
other compensation plans in effect for the Company or any of its Subsidiaries;
nor shall the adoption of the Plan preclude the Company or any of its
Subsidiaries from establishing any other form of incentive or other
compensation plan for Team Members or Directors of the Company or any of its
Subsidiaries.
ARTICLE IX - MISCELLANEOUS
9.1 Replacement or Amended Grants. At the sole discretion of the
Committee, and subject to the terms of the Plan, the Committee may modify
outstanding Options or accept the surrender of outstanding Options and grant
new Options in substitution for them. No modification of an Option shall
adversely affect an Optionee's rights under a Stock Option Agreement, however,
without the consent of the Optionee or his or her legal representative.
9.2 Forfeiture for Competition. If an Optionee provides services to a
competitor of the Company or any of its Subsidiaries, whether as an employee,
officer, director, independent contractor, consultant, agent, investor,
financier or otherwise, as determined in the sole discretion of the Committee,
then that Optionee's rights under any Options outstanding hereunder shall be
forfeited and terminated, subject in each case to a determination to the
contrary by the Committee. The Committee shall cause notice of such forfeiture
to be given to the Optionee, but a delay in the giving of such notice shall not
affect such forfeiture.
9.3 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
9.4 Singular, Plural; Gender. Whenever used herein, nouns in the singular
shall include the plural, and the masculine pronoun shall include the feminine
gender.
9.5 Headings, etc., No Part of Plan. Headings of Articles and Sections
hereof are inserted for convenience and reference; they do not constitute part
of the Plan.
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Exhibit A to Albecca Inc. Larson-Juhl 1998 Stock Option Plan - Form of
Stock Option Agreement
ALBECCA INC.
LARSON-JUHL
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of this 1st day
of November, 1998, is by and between Albecca Inc., a Georgia corporation (the
"Company"), and _________ (the "Optionee").
WHEREAS, on May 1, 1998, the Board of Directors of the Company adopted, and the
shareholders of the Company approved, a stock option plan, as amended and
restated on November 1, 1998, and known as the Company's "1998 Stock Option
Plan" (the "Plan"); and
WHEREAS, the Committee has granted the Optionee a stock option to purchase the
number of shares of the Company's Class A Common Stock as set forth below, and
in consideration of the granting of that stock option the Optionee intends to
remain in the employ of the Company; and
WHEREAS, the Company and the Optionee desire to enter into a written agreement
with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage stock ownership,
and also in consideration of the mutual covenants contained herein, the parties
hereto agree as follows.
1. Incorporation of Plan. This option is granted pursuant to the
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of the Plan has
been delivered to, and receipt is hereby acknowledged by, the Optionee.
2. Grant of Option. Subject to the terms, restrictions, limitations and
conditions stated herein, the Company hereby evidences its grant to the
Optionee, not in lieu of salary or other compensation, of the right and option
(the "Option") to purchase all or any part of the number of shares of the
Company's Class A Common Stock set forth on Schedule A attached hereto and
incorporated herein by reference. The Option shall be exercisable in the
amounts and at the time specified on Schedule A. The Option shall expire and
shall not be exercisable on and after the date, if any, specified on Schedule
A, and shall terminate as provided herein. Schedule A states whether the Option
is intended to be an Incentive Stock Option.
3. Purchase Price. The price per share to be paid by the Optionee for the
shares subject to this Option (the "Exercise Price") shall be as specified on
Schedule A, which price shall be an amount not less than the Fair Market Value
of a share of Stock as of the Date of Grant (as defined in Section 14 below) if
the Option is an Incentive Stock Option.
4. Exercise Terms. The Optionee must exercise the Option for at least the
lesser of 100 shares or the number of shares of Purchasable Stock as to which
the Option remains unexercised, except as provided on Schedule A hereto. If
this Option is not exercised with respect to all or any part of the shares
subject to this Option prior to its expiration, the shares with respect to
which this Option was not exercised shall no longer be subject to this Option.
5. Option Non-Transferable. No Option under the Plan shall be
transferable by an Optionee other than by will or the laws of descent and
distribution, and no Option shall be transferable by an Optionee who is a
Section 16 Insider prior to shareholder approval of the Plan; provided,
however, as long as the Company is classified as an S corporation under the
Code an Optionee may transfer his or her rights under an Option by will or the
laws of descent and distribution only to one Qualified S Corporation
Shareholder expressly designated by the Optionee in the applicable Stock Option
Agreement, the Company shall not be required to recognize the transfer to
anyone other than such person, the Committee may require that such person
execute and deliver to the Company, in a form satisfactory to the Committee, an
agreement to be bound by the terms of the Stock Option Agreement, and if more
than one person claims ownership of some or all of such rights after the
Optionee's death, the Committee may either determine to which of such persons
such rights shall be transferred, or may apply to a court of competent
jurisdiction for such a determination. During the lifetime of an Optionee,
Options shall be exercisable only by such Optionee (or by such Optionee's
guardian or legal representative, should one be appointed).
6. Vesting. The Option shall vest, and the Stock covered by the Option
thereupon shall become Purchasable, upon the
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earliest of (a) the Optionee's death, (b) the termination of the Optionee's
employment with the Company or any of its Subsidiaries due to the Optionee's
Long Term Disability, (b) the Sale of the Company or Change in Control (as
hereinafter defined), (b) the Optionee attaining the age of 55 and the
expiration of at least five years since the first grant to the Optionee under
the Plan (whether pursuant to this Agreement or another Stock Option
Agreement), (e) the completion by the Optionee of 25 years of service with the
Company and its Subsidiaries and the expiration of at least five years since
the first grant to the Optionee under the Plan (whether pursuant to this
Agreement or another Stock Option Agreement), or (f) the fifth anniversary of
the Date of Grant of this Option.
7. Exercise of Option. To the extent vested, this Option may only be
exercised by the Optionee (or by the Optionee's administrators, executors or
personal representatives under Section 13 hereof) by a written notice (in
substantially the form of the Notice of Exercise attached hereto as Schedule B)
signed by the Optionee (or by such administrators, executors or personal
representatives) and delivered or mailed to the Company as specified in Section
20(c) hereof. Any such notice shall (a) specify the number of shares of Stock
which the Optionee (or such administrators, executors or personal
representatives, as the case may be) then elects to purchase hereunder, (b)
contain such information as may be reasonably required pursuant to Section 15
hereof, and (c) be accompanied by (i) a certified or cashier's check payable to
the Company in payment of the total Exercise Price applicable to such shares as
provided herein, or (ii) if there has been an Initial Public Offering, or if
the Committee so determines, shares of Stock owned by the Optionee duly
endorsed or accompanied by stock transfer powers, having a Fair Market Value
equal to the total Exercise Price applicable to the shares then being purchased
hereunder, or (iii) if there has been an Initial Public Offering, or if the
Committee so determines, a certified or cashier's check accompanied by the
number of shares of Stock whose Fair Market Value when added to the amount of
the check equals the total Exercise Price applicable to the shares then being
purchased hereunder. The Committee may determine, in its sole discretion at the
time of exercise, that in lieu of cash or shares, all or a portion of the
Exercise Price may be paid by the Optionee's execution of a full recourse note
equal to the Exercise Price or relevant portion thereof, and that such note,
among other things, must be secured by the shares purchased using the note.
Upon receipt of any such notice and accompanying payment, and subject to the
terms hereof, the Company agrees to issue to the Optionee (or such
administrators, executors or personal representatives, as the case may be)
stock certificates for the number of shares specified in such notice registered
in the name of the person exercising this Option. In addition to and at the
time of payment of the Exercise Price, the Optionee shall pay to the Company in
cash the full amount of any federal, state, and local income, employment, or
other withholding taxes applicable to the taxable income of such Optionee
resulting from such exercise; provided, however, that upon the irrevocable
written request of the Optionee and solely in the discretion of the Committee,
all or any portion of such tax obligations, together with additional taxes not
exceeding the actual additional taxes to be owed by the Optionee as a result of
such exercise, may be paid by tendering to the Company whole shares of Stock
owned by the Optionee duly endorsed for transfer, or by authorizing the Company
to withhold shares of Stock otherwise issuable upon exercise of the Option, in
either case in that number of shares having a Fair Market Value on the date of
exercise equal to the amount of such taxes thereby being paid, and subject to
such restrictions as to the approval and timing of any such election as the
Committee may from time to time determine to be necessary or appropriate to
satisfy the conditions of the exemption set forth in Rule 16b-3 under the
Exchange Act, if such rule is applicable.
8. Adjustment in Option. The number of Shares subject to this Option, the
Exercise Price and other matters are subject to adjustment during the term of
this Option in accordance with Section 5.2 of the Plan.
9. Company's Right to Purchase Option. (a) Upon an attempted exercise of
this Option under Section 7 hereof, the Company shall have the right, in lieu
of allowing the Option to be exercised, to repurchase the portion thereof
attempted to be exercised. If the Company exercises that right, it will pay the
Optionee $50,000 of the Option Value each year (such Option Value to be
determined as of the attempted exercise date), with the balance, if any, to be
paid at the end of 10 years, with interest on the unpaid Option Value at the
one-year U.S. Treasury bill rate. The first such payment shall be made within
30 days after the Option Purchase Notice, (as defined below) and the remaining
payments shall be made annually on each anniversary thereof. If after the
Option Purchase Notice is given the Optionee reaches age 55 or the Optionee
completes 25 years of service with the Company and its Subsidiaries, or at the
time of such exercise the Optionee is age 55 or older or has completed 25 years
of service, the above payment schedule shall no longer apply, and within 30
days after the Optionee giving the Company notice of reaching age 55 or
completing 25 years of service (the "55/25 Notice") the Company shall instead
pay the Optionee an amount equal to the greater of (i) the
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first $250,000 of the Option Value not previously paid to the Optionee or (ii)
1/6 of the Option Value not previously paid to the Optionee, and shall pay the
balance of the Option Value (if any) in five (5) equal annual installments
beginning on the first anniversary of the 55/25 Notice, together with interest
at the 1-year U.S. treasury bill rate plus 2%; provided, at no time after
receiving a 55/25 Notice shall the Company be obligated under this Option or
any other option granted under the Plan to pay the Optionee more than the
greater of (i) the first $250,000 of the aggregate Option Value not previously
paid to the Optionee under this Option and all such other options or (ii) 1/6
of the aggregate Option Value not previously paid to the Optionee under this
Option and all such other options, with the balance of the aggregate Option
Value, if any, under this Option or all such other options to be paid over such
five-year period at such interest rate. (b) If the Optionee's employment with
the Company or any of its Subsidiaries terminates for any reason (including
death or disability) other than the Optionee's Willful Misconduct (as defined
below) and thereafter the Optionee is not employed by either the Company or any
of its Subsidiaries, the Company shall have the right to purchase from the
Optionee all of the Option or any part of the Option designated by the
Committee, and upon the Company's exercise of such right the Optionee shall
sell the Option or designated portion thereof to the Company. The purchase
price for the Option or designated portion thereof shall be the applicable
Option Value, determined as of the time the Company exercises such right. The
Company shall pay such purchase price in 10 equal annual installments beginning
on the first anniversary of the Option Purchase Notice, together with interest
at the 1-year U.S. treasury bill rate. (c) At any time after the Optionee
reaches age 60, the Company shall have the right to purchase from the Optionee
all of the Option or any part of the Option designated by the Committee, and
upon the Company's exercise of such right the Optionee shall sell the Option or
designated portion thereof to the Company. The purchase price for the Option or
designated portion thereof shall be the applicable Option Value, determined as
of the time the Company exercises such right. The Company shall pay such
purchase price in 10 equal annual installments beginning on the first
anniversary of the Option Purchase Notice, together with interest at the 1-year
U.S. treasury bill rate plus 2%. (d) If the Optionee's employment status with
the Company or any of its Subsidiaries changes in such a way that the Committee
determines, in its sole discretion, that the Optionee's position with the
Company or any of its Subsidiaries is no longer entitled to "option status,"
then the Company shall have the right to purchase from the Optionee all of the
Option or any part of the Option designated by the Committee, and upon the
Company's exercise of such right the Optionee shall sell the Option or
designated portion thereof to the Company. The purchase price for the Option or
designated portion thereof shall be the applicable Option Value, determined as
of the time the Company exercises such right. The Company shall pay the first
20% of such purchase price within thirty days after the Option Purchase Notice,
and shall pay the balance of such purchase price, if any, in four (4) equal
annual installments beginning on the first anniversary of the Option Purchase
Notice, together with interest at the 1-year U.S. treasury bill rate. (e) If
exercised, any such purchase right shall be exercised by the Company giving
notice thereof to the Optionee (an "Option Purchase Notice"). The Company may
prepay in whole or part, at any time and from time to time, without penalty or
premium, any amount owed by the Company to the Optionee under subsection (a),
(b) (c) or (d) above. (f) The Company's rights under this Section 9 shall
terminate upon an Initial Public Offering.
10. Optionee's Right to Sell Stock to the Company. At any time from and
after six months after the date of an exercise of the Option, Optionee shall
have the following rights to require the Company to repurchase the Stock issued
upon such exercise of the Option: (a) At any time before the Optionee reaches
age 55 or before the Optionee completes 25 years of service with the Company
and its Subsidiaries, the Optionee shall have the right to sell all or part of
such Stock to the Company for its Fair Market Value as of the date of the Stock
Sale Notice (defined below), provided that the Optionee shall not have the
right to sell to the Company in any calendar year Stock having a Stock Value at
the time of sale of more than $50,000. The Company shall pay such purchase
price within thirty days after the Stock Sale Notice. (b) After the Optionee
reaches age 55 or the Optionee completes 25 years of service with the Company
and its Subsidiaries, the Optionee shall have the right to sell all (but not
less than all) of such Stock to the Company. The purchase price for such Stock
shall be its Fair Market Value as of the date of the Stock Sale Notice. The
Company shall pay the greater of (i) the first $250,000 of the purchase price
or (ii) 1/6 of the purchase price within thirty days after the Stock Sale
Notice, and shall pay the balance (if any) in five (5) equal annual
installments beginning on the first anniversary of the Stock Sale Notice,
together with interest at the 1-year U.S. treasury bill rate plus 2%. (c) If
the Optionee's employment with the Company or any of its Subsidiaries
terminates for any reason other than the Optionee's Willful Misconduct (and
other than the Optionee's death or Long Term Disability, which events are dealt
with in subsection (d) below), and thereafter the Optionee is not employed by
either the Company or any of its Subsidiaries, and the Optionee thereafter
exercises the Option pursuant to Section 12 hereof, the Optionee shall have the
right to sell all (but not less than all) of such Stock to the Company. The
purchase price for such Stock shall be its Fair Market Value as of the date of
the Stock Sale Notice. The Company shall pay the purchase price in 10 equal
annual installments beginning on the first anniversary of the Stock Sale
Notice, together with interest at the 1-year U.S. treasury bill rate. (d) If
the Optionee's employment with the Company or any of its Subsidiaries
terminates due to the Optionee's death or Long Term Disability, and the
Optionee's administrators, executors or personal representatives, as the case
may be, thereafter exercise the Option pursuant to Section 13 hereof, the
Optionee's administrators, executors or personal representatives, as the case
may be, shall have the right to sell all (but not less than all) of such Stock
to the Company. The purchase price for such Stock shall be its Fair Market
Value as of the date of the Stock Sale Notice. The Company shall pay the first
$250,000 of the purchase price within thirty days after the Stock
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Sale Notice, and shall pay the balance (if any) in five (5) equal annual
installments beginning on the first anniversary of the Stock Sale Notice,
together with interest at the 1-year U.S. treasury bill rate plus 2%. (e) If
exercised, any such sale right shall be exercised by the Optionee (or by the
Optionee's administrators, executors or personal representatives under
subsection (d) above) giving notice thereof to the Company (a "Stock Sale
Notice"). The transfer of the Stock to be sold shall be consummated within 30
days after the Stock Sale Notice by the tender to the Company by the Optionee
(or by the Optionee's administrators, executors or personal representatives
under subsection (d) above) of the certificates representing such Stock duly
endorsed for transfer to the Company or as the Company may direct. The Company
may prepay in whole or part, at any time and from time to time, without penalty
or premium, any amount owed by the Company to the Optionee under subsection
(a), (b) (c) or (d) above. (f) Optionee's rights under this Section 10 shall
terminate upon an Initial Public Offering.
11. Company's Right to Purchase Stock from the Optionee. (a) At any time
before an Initial Public Offering, the Company or Craig A. Ponzio (as the
Committee shall determine as to each proposed purchase) shall have the right to
purchase from the Optionee, and upon the Company's or Mr. Ponzio's exercise of
such right the Optionee shall sell to the Company or Mr. Ponzio, as the case
may be, all or any part of the Stock issued to the Optionee upon the exercise
of the Option. If exercised, any such repurchase right shall be exercised by
the Company or Mr. Ponzio, as the case may be, giving notice thereof to the
Optionee. The transfer of the Stock to be purchased shall be consummated within
30 days after such notice by the tender by the Optionee to the Company or Mr.
Ponzio, as the case may be, of the certificates representing such Stock duly
endorsed for transfer to the Company or Mr. Ponzio, as the case may be, or as
the Committee may direct. (b) The purchase price for such Stock shall be its
Fair Market Value as of the date of such notice. The Company or Mr. Ponzio, as
the case may be, shall pay the purchase price as if, instead of the Company or
Mr. Ponzio exercising the rights under this Section 11, the Optionee had
exercised his or her rights under Section 10(a), (b), (c) or (d), respectively,
depending on which section applies to the Optionee at the time of the
repurchase notice. (c) The Company's and Mr. Ponzio's rights under this Section
11 shall terminate upon an Initial Public Offering.
12. Termination of Employment. If the Optionee's employment with the
Company or any of its Subsidiaries terminates for any reason other than the
Optionee's Willful Misconduct (and other than the Optionee's death or Long Term
Disability, which events are dealt with in Section 13 below), and thereafter
the Optionee is not employed by either the Company or any of its Subsidiaries,
the Optionee may exercise this Option at any time after such termination and
prior to the expiration of this Option, to the extent of the number of shares
which were Purchasable hereunder at the date of such termination, subject to
the provisions of Section 21 hereof; provided, however, that if an Initial
Public Offering has occurred, this Option shall terminate and shall no longer
be exercisable at the end of three months after such termination .
13. Death or Disability of Optionee. (a) If the Optionee's employment with
the Company or any of its Subsidiaries terminates due to the Optionee's death,
the Optionee's administrators or executors may exercise this Option at any time
until the first anniversary of death or the expiration of this Option,
whichever comes first, to the extent of the number of shares which were
Purchasable hereunder at the time of such termination, subject to the
provisions of Section 21 hereof and the other terms of this Agreement;
provided, however, as long as the Company is classified as an S corporation
under the Code an Optionee may transfer his or her rights hereunder by will or
the laws of descent and distribution only to one Qualified S Corporation
Shareholder expressly designated by the Optionee in Schedule A attached hereto;
the Committee may require that such person execute and deliver to the Company,
in a form satisfactory to the Committee, an agreement to be bound by the terms
of this Agreement, including the terms of Section 16 hereof; the Company shall
not be required to recognize the transfer to anyone other than such person; and
if more than one person claims ownership of some or all of such rights after
the Optionee's death, the Committee may either determine to which of such
persons such rights shall be transferred, or may apply to a court of competent
jurisdiction for such a determination. (b) If the Optionee's employment with
the Company or any of its Subsidiaries terminates due to the Optionee's Long
Term Disability, the Optionee, or his or her personal representative, as the
case may be, may exercise this Option at any time after such termination and
prior to the expiration of this Option, to the extent of the number of shares
which were Purchasable hereunder at the time of such termination, subject to
the provisions of Section 21 hereof and the other terms of this Agreement;
provided, however, that if an Initial Public Offering occurs, this Option shall
terminate and shall no longer be exercisable after the first anniversary of
such termination.
14. Date of Grant. This Option was granted by the Board of Directors of
the Company on the date set forth in Schedule A (the "Date of Grant").
A-4
<PAGE> 14
15. Compliance with Regulatory Matters. The Optionee acknowledges that the
issuance of capital stock of the Company is subject to limitations imposed by
federal and state law and the Optionee hereby agrees that the Company shall not
be obligated to issue any shares of Stock upon exercise of this Option that
would cause the Company to violate a law or any rule, regulation, order or
consent decree of any regulatory authority (including without limitation the
Securities and Exchange Commission) having jurisdiction over the affairs of the
Company. The Optionee agrees that the Optionee will provide the Company with
such information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Stock complies with the provisions described
by this Section 15.
16. Restriction on Transfer of Shares. (a) Except as required or permitted
under Sections 10 and 11, no shares of Stock issued upon exercise of an Option
may be transferred by an Optionee other than by will or the laws of descent and
distribution (subject to subsection (b) below), nor may any such shares be
pledged or otherwise encumbered, unless and until (i) there has been an Initial
Public Offering, and (ii) the Company has completed any registration or other
qualification of such shares which the Committee shall deem necessary or
advisable under any federal or state law or under the rulings or regulations of
the Securities and Exchange Commission or any other governmental regulatory
body, and (iii) the Company has obtained any approval or other clearance from
any federal or state governmental agency or body which the Committee shall
determine to be necessary or advisable. Stock certificates issued and delivered
to the Optionees in respect of the Stock shall bear such restrictive legends as
the Company shall deem necessary or advisable pursuant to applicable federal
and state securities laws, or for purposes of the Plan and any applicable Stock
Option Agreement, including reference to these restrictions on transfer. (b) As
long as the Company is classified as an S corporation under the Code, and
unless the Committee shall specifically determine in writing otherwise, an
Optionee may transfer Stock issued upon exercise of an Option by will or the
laws of descent and distribution only to one Qualified S Corporation
Shareholder expressly designated by the Optionee in Schedule A attached hereto;
the Committee may require that such person execute and deliver to the Company,
in a form satisfactory to the Committee, an agreement to be bound by the terms
of this Agreement, including the terms of this Section 16; and the Company
shall not be required to recognize the transfer to anyone other than such
person; if more than one person claims ownership of some or all of such Stock
after the Optionee's death, the Committee may either determine to which of such
persons such Stock shall be transferred, or may apply to a court of competent
jurisdiction for such a determination. (c) In order to obtain certain tax
benefits afforded to Incentive Stock Options under Section 422 of the Code, the
shares purchased pursuant to the exercise of an Incentive Stock Option must not
be transferred by the Optionee except pursuant to the Optionee's will, or the
laws of descent and distribution, until the later of two years after the grant
of such Incentive Stock Option or one year after the transfer of the shares to
the Optionee upon exercise of such Incentive Stock Option. The Optionee is not
required to comply with the transfer restrictions stated in the preceding
sentence, but the failure to do so will prevent the Optionee from realizing
such tax benefits. (d) In the event of an Initial Public Offering, the Optionee
shall be bound by the terms of any lock-up restrictions requested by the
underwriter and imposed on the shareholders of the Company, and shall execute
and deliver any agreement prepared for that purpose. (e) Unless the Committee
shall expressly determine otherwise in writing, the Company shall not recognize
or give effect to any attempted transfer or other action taken in violation of
the above restrictions, and any such attempted transfer or other action shall
be void ab initio and of no legal effect..
17. Confidentiality. The Optionee shall not during his or her employment
with the Company and any of its Subsidiaries, and for a period of two years
after his or her employment in the case of Confidential Information, and at any
time after his or her employment in the case of Trade Secrets (for as long as
the information constitutes a Trade Secret), for whatever reason use personally
(except in the proper performance of his or her duties with the Company) or
divulge or communicate to any corporation, partnership, trust, limited
liability company, or other business entity or individual, except to those
officers and Team Members of the Company whose responsibility it is to know the
same, or as specifically directed by the Board or a court or other governmental
authority, any Confidential Information or Trade Secrets which may have been
disclosed to the Optionee or which may otherwise have come to his or her
attention after execution of this Agreement.
"Confidential Information" means all competitively sensitive information
relating to the past, current or future business of the Company or any of its
Subsidiaries (other than Trade Secrets and other than information in the public
domain on the date hereof or that enters the public domain after the date
hereof through no fault of the Optionee), including, without limitation: all
technical data; research and development information; engineering or other
data; designs, specifications, processes and formulae; manufacturing or
planning procedures, techniques or information; marketing plans, strategies and
forecasts; business and product development plans, strategies and forecasts;
financial statements, budgets, prices, costs and financial projections;
accounting procedures or financial information; names and details of consumers,
customers, suppliers and agents; Team Member details; and secret information;
together with the possible or likely function, purpose or application of that
information whether in the current activities of the Company or any of its
Subsidiaries or fields to which the activities of
A-5
<PAGE> 15
the Company or any of its Subsidiaries may reasonably extend from time to time;
any part of or improvements to that information, and any recommendation, test
or report of the Company or any of its Subsidiaries or any consultant or agent
in connection with that information; and whether such information is oral,
written, recorded or stored by electronic, magnetic, electromagnetic or other
form or process or otherwise in a machine readable form, translated from the
original form, recompiled, made into a compilation, wholly or partially copied,
modified, updated or otherwise altered, or originated or obtained by, or coming
into the possession, custody, control or knowledge of the Company or any of its
Subsidiaries either alone or jointly.
"Trade Secrets" means any information pertaining to the past, current or future
business of the Company or any of its Subsidiaries which (i) derives economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use, and (ii) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
18. Nonsolicitation. The Optionee acknowledges and recognizes the highly
competitive nature of the Company's business and accordingly agrees that, to
induce the Company to consummate the transactions contemplated by this
Agreement, Optionee shall not, without the prior written consent of the
Company, during Optionee's employment and for a period of two (2) years
thereafter: (i) solicit business substantially similar to the business of the
Company or any of its Subsidiaries from anyone who is or becomes an active or
prospective customer of the Company or any of its Subsidiaries with whom
Optionee had direct, material contact with during the last twelve (12) months
of Optionee's employment with the Company or its Subsidiaries; or (ii) solicit
for employment any Team Member of the Company or its Subsidiaries; and Optionee
shall not attempt to do any of the things (or directly or indirectly assist
anyone else in doing or attempting to do any of the things) specified in
subsections (i) or (ii) above. The parties agree that the restrictions set
forth in this Section 18 are fair and reasonable in light of the consideration
provided to Optionee, that the restrictions are necessary to protect the
Company's legitimate business interests, and that upon any violation of this
Section 18 the Company may cease making any payments to the Optionee otherwise
required under Section 9, 10 or 11.
19. Severability. The provisions of this Agreement are intended to be
reasonable and not to violate the public policies of the jurisdictions in which
it is to be enforced. If a judicial determination is made that any of the
provisions of this Agreement constitutes an unreasonable or otherwise
unenforceable restriction against the Optionee, such provision shall be
modified to the extent necessary to render such provision reasonable and
enforceable. Further, the provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
20. Sale of Shares to Third Party. If Mr. Ponzio or any succeeding
controlling shareholder of the Company (a "Controlling Shareholder") sells any
of the shares of the Company's common stock owned by the Controlling
Shareholder to anyone other than the Company, an Affiliate of the Company,
persons immediately related to the Controlling Shareholder, or Team Members of
the Company or an Affiliate of the Company (including sales as part of either a
sale of the Company or a firm underwritten public offering of such stock), then
(a) the Controlling Shareholder may, by giving the Optionee written notice to
that effect, require the Optionee to participate in the disposition of the
Stock issued upon an exercise of the Option on the same terms and conditions
and in the same percentage as the disposition of the common stock held by the
Controlling Shareholder, and (b) each Optionee may by giving the Controlling
Shareholder written notice to that effect, require the Controlling Shareholder
to make arrangements to allow the Optionee to participate in the disposition of
the Stock issued upon an exercise of the Option on the same terms and
conditions and in the same percentage as the disposition of the common stock
held by the Controlling Shareholder.
21. Termination of Option. In addition to any other provisions hereof, all
rights of the Optionee under the Option shall terminate (a) as to the unvested
portion thereof, if the Optionee's employment with the Company or any of its
Subsidiaries terminates for any reason and thereafter the Optionee is not
employed by either the Company or any of its Subsidiaries, immediately upon
such termination, (b) as to the entire Option, whether or not vested, if the
Optionee's employment with the Company or any of its Subsidiaries terminates
due to Willful Misconduct, immediately upon the later of such termination or
the Company's giving notice to the Optionee of such Willful Misconduct, (c) as
to the entire Option or the designated portion to be purchased, if the Company
gives an Option Purchase Notice, immediately upon the giving of the Option
Purchase Notice, (d) as to the entire Option, one year after the death of the
Optionee, or (e) as to the entire Option, immediately upon the expiration of
the Option. The termination of such rights shall not relieve the Optionee of
any of his or her obligations hereunder, which shall survive any such
termination.
A-6
<PAGE> 16
22. Definitions. For purposes of this Agreement: (a) "Long Term
Disability" means the Optionee qualifies for the Company's Group Long Term
Disability Plan, for the US management group, as amended from time to time and
in effect at the time of the long-term disability. Notwithstanding anything to
the contrary, any payments made to the Optionee pursuant to the Company's Long
Term Disability Plan will not reduce the amount to be paid to the Optionee
pursuant to the terms of this Agreement. In addition, any amounts paid to the
Optionee pursuant to the terms of this Agreement will not, where legally
allowable, reduce any qualifying payments made to the Optionee pursuant to the
Company's Long Term Disability Plan. (b) "Option Value" means the positive
difference, if any, between (i) the Fair Market Value per share of Stock
covered by the Option or the designated portion thereof, and (ii) the Option
Exercise Price per share of such Stock, determined in each case without regard
to the personal tax circumstances of or tax consequences to any Team Member.
(c) "Sale of the Company or Change in Control" means (i) a merger involving the
Company in which the Company is not the surviving entity, (ii) a merger
involving the Company in which the Company is the surviving entity but the
persons holding equity securities of the Company immediately before the merger
do not hold the power to elect a majority of the members of the Board of
Directors of the Company immediately after the merger, (iii) the transfer in a
single transaction or a series of related transactions (other than an Initial
Public Offering) of equity securities of the Company giving the holder thereof
the power to elect a majority of the members of the Board of Directors of the
Company, or (iv) the transfer in a single transaction or a series of related
transactions of all or substantially all of the assets of the Company. (d)
"Stock Value" means the positive difference, if any, between (i) the Fair
Market Value per share of Stock intended to be sold by the Optionee to the
Company, and (ii) the Option Exercise Price per share of such Stock, determined
in each case without regard to the personal tax circumstances of or tax
consequences to any Team Member. (e) "Willful Misconduct" means the commission
of a felony; theft or embezzlement; breach of confidentiality, non-competition
or non-solicitation restrictions imposed hereunder or otherwise in connection
with employment by the Company or any of its Subsidiaries; or any other action
which, in the opinion of the Committee, was taken with the intent or effect of
harming the Company or any of its Subsidiaries.
23. Miscellaneous. (a) This Agreement shall be binding upon the parties
hereto and their representatives, successors and permitted assigns. If the
Optionee or the Optionee's interests are represented by an administrator,
executor or personal representative, the rights and obligations of the Optionee
hereunder shall become the rights and obligations of such administrator,
executor, or personal representative during the period of such representation,
and all communication by the Company with, and Company performance with respect
to, such administrator, executive or personal representative, shall constitute
communication with and performance with respect to such Optionee. (b) This
Agreement is executed and delivered in, and shall be governed by the laws of,
the State of Georgia. (c) Any requests or notices to be given hereunder shall
be deemed given, and any elections or exercises to be made or accomplished
shall be deemed made or accomplished when personally delivered or, if given by
fax, when sent, or if mailed, five days after the date when sent by registered
or certified mail, postage prepaid, return receipt requested, addressed, if to
the Optionee, at the address set forth below and, if to the Company, at 3900
Steve Reynolds Boulevard, Norcross, Georgia 30093, Attention: Chief Executive
Officer, with a required copy to the Company at 3900 Steve Reynolds Boulevard,
Norcross, Georgia 30093, Attention: Chief Financial Officer. (d) This Agreement
may not be modified except in a writing executed by each of the parties hereto.
(e) Optionee agrees that the remedy of the Company and its Subsidiaries at law
for breach of any of the covenants set forth in Sections 16, 17 and 18 hereof
will be inadequate. In the event of such a breach or threatened breach by
Optionee, in addition to any other rights or remedies that the Company or its
Subsidiaries may have, the Company or its Subsidiaries shall be entitled to
temporary and permanent injunctive relief without the necessity of proving
actual or likely damages or harm and without waiting for actual damages or harm
to be incurred. (f) To the extent the Company has the right to purchase the
Option, or any portion thereof, or any Stock issued upon an exercise of the
Option, the Company may assign such right to its shareholders pro rata based on
their respective holdings of the Company's equity securities. To the extent the
Company is obligated to purchase any Stock issued upon an exercise of the
Option, the Company may permit such obligation to be assumed by its
shareholders pro rata based on their respective holdings of the Company's
equity securities. (g) The descriptive headings of the Sections of this
Agreement are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
A-7
<PAGE> 17
IN WITNESS WHEREOF, the Company has caused this Stock Option Agreement to be
executed on its behalf, and the Optionee has executed this Stock Option
Agreement, all as of the day and year first written above.
ALBECCA INC. OPTIONEE
By:
---------------------------- -------------------------------------
Name Name
---------------------------- ----------------------------
Title Address:
---------------------------- ----------------------------
-------------------------------------
A-8
<PAGE> 18
SCHEDULE A
TO STOCK OPTION AGREEMENT
BETWEEN ALBECCA INC.
AND
-------------------
1. Number of Shares Subject to Option: _____________ Shares.
2. This Option (Check one) [ ] is [ ] is not an Incentive Stock Option.
3. Option Exercise Price: _____________per Share.
4. Date of Grant:
5. Option Vesting Period: Pursuant to the terms and conditions of the
Larson-Juhl Stock Option Agreement.
6. Option Exercise Period: Notwithstanding any of the other terms and
conditions contained in the Larson-Juhl Stock Option Agreement, an
Incentive Stock Option shall not be exercisable after the expiration
of ten years from the date of grant (or modification) of the Option.
Notwithstanding any of the other terms and conditions contained in the
Larson-Juhl Stock Option Agreement, including, but not limited to
paragraphs 12, 13 and 15, an Option, that is not an Incentive Stock
Option, shall not be exercisable for the later of five years after a
determination by the Committee or five years after an Initial Public
Offering.
7. Designated Qualified S Corporation Shareholder: _____________________
(to be identified by Optionee)
<PAGE> 19
SCHEDULE B
NOTICE OF EXERCISE
The undersigned hereby notifies Albecca Inc. (the "Company") of his/her
election to exercise the undersigned's stock option to purchase ____________
shares of the Company's Class A Common Stock (the "Common Stock"), pursuant to
the Stock Option Agreement (the "Agreement") between the undersigned and the
Company dated ____________, _____. Accompanying this Notice is (1) a certified
or a cashier's check in the amount of $_________ payable to the Company, and/or
(2) _________ shares of the Company's Common Stock presently owned by the
undersigned and duly endorsed or accompanied by stock transfer powers, having
an aggregate Fair Market Value (as defined in the Company's 1998 Stock Option
Plan) as of the date hereof of $___________, such amounts being equal, in the
aggregate, to the purchase price per share set forth in Section 3 of the
Agreement multiplied by the number of shares being purchased hereby (in each
instance subject to appropriate adjustment pursuant to Section 5.2 of the
Plan).
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this
_____ day of _____________, _____.
OPTIONEE
------------------------------------------
Signature
------------------------------------------
Name and Position (if other than Optionee)
<PAGE> 1
EXHIBIT 12.1
ALBECCA INC.
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Fiscal Year
---------------------------- Three Months
(in thousands) Pro Forma Ended
1994 1995 1996 1997 1998 1998 November 29, 1998
------ ------ ------ ------ ------ -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings
Operating Income (A) 15,534 22,471 30,229 35,601 31,961 31,961 8,299
Interest Expense (B) 1,034 4,008 6,846 9,722 11,949 25,694* 7,125
====== ====== ====== ====== ====== ======= =================
Ratio of Earnings to Fixed
Charges (A/B) 15.0 5.6 4.4 3.7 2.7 1.2 1.2
</TABLE>
* Pro forma interest expense calculated based on assumption of full year's
interest on notes and the interest saved on payoff of the retired credit
facility.
<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
Atlanta, Georgia
January 14, 1999
<PAGE> 1
EXHIBIT 23.2
January 14, 1999
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting a part of this
amendment 1 to Registration Statement on Form S-4 of our report dated October
6, 1998 on the financial statements of Larson-Juhl Netherlands B.V. for the
year September 1, 1997 up to and including August 30, 1998 as well as our
reports on the financial statements of Larson-Juhl Netherlands B.V. for the
fiscal years 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.
Arnhem, The Netherlands
/s/ BDO CampsObers
- ------------------------
BDO CampsObers
Registeraccountants
M. Van Roekel RA
