<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 10, 1998
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AAI.FOSTERGRANT, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
RHODE ISLAND 5094 05--0419304
(State or other jurisdiction of (Primary SIC Code Number) (I.R.S. Employer Identification
incorporation or organization) No.)
</TABLE>
THE BONNEAU COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 6719 75--1280454
(State or other jurisdiction of (Primary SIC Code Number) (I.R.S. Employer Identification
incorporation or organization) No.)
</TABLE>
BONNEAU GENERAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6719 75--2572796
(State or other jurisdiction of (Primary SIC Code Number) (I.R.S. Employer Identification
incorporation or organization) No.)
</TABLE>
BONNEAU HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6719 51--0364025
(State or other jurisdiction of (Primary SIC Code Number) (I.R.S. Employer Identification
incorporation or organization) No.)
</TABLE>
F.G.G. INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6719 36--3956826
(State or other jurisdiction of (Primary SIC Code Number) (I.R.S. Employer Identification
incorporation or organization) No.)
</TABLE>
FANTASMA, LLC
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5094 11--3340245
(State or other jurisdiction of (Primary SIC Code Number) (I.R.S. Employer Identification
incorporation or organization) No.)
</TABLE>
FOSTER GRANT GROUP, L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5048 75--2572797
(State or other jurisdiction of (Primary SIC Code Number) (I.R.S. Employer Identification
incorporation or organization) No.)
</TABLE>
<PAGE> 2
FOSTER GRANT HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6719 05-0500108
(State or other jurisdiction of (Primary SIC Code Number) (I.R.S. Employer Identification
incorporation or organization) No.)
</TABLE>
O-RAY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6719 51--0364026
(State or other jurisdiction of (Primary SIC Code Number) (I.R.S. Employer Identification
incorporation or organization) No.)
</TABLE>
OPTI-RAY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEW YORK 6719 11--1812045
(State or other jurisdiction of (Primary SIC Code Number) (I.R.S. Employer Identification
incorporation or organization) No.)
</TABLE>
500 GEORGE WASHINGTON HIGHWAY
SMITHFIELD, RI 02917
(401) 231-3800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DUANE M. DESISTO, CHIEF FINANCIAL OFFICER
AAi.FOSTERGRANT, Inc.
500 George Washington Highway
Smithfield, RI 02917
(401) 231-3800
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
WITH COPIES TO:
MARGARET D. FARRELL, ESQ.
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, RI 02903
(401) 274-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
If the securities being registered on this Form are being 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 3/4% Series B Senior Notes due
2006.................................. $75,000,000(1) (2) (2) $22,125
- ----------------------------------------------------------------------------------------------------------------------------
Guarantees of the 10 3/4% Series B
Senior Notes due 2006................. -- -- -- None(3)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Equals the aggregate principal amount of the securities being registered.
(2) Pursuant to Rule 457(f)(2), the registration fee has been calculated using
the book value of the securities being registered.
(3) Pursuant to Rule 457(n).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
PROSPECTUS
[AAI.FOSTER GRANT LOGO]
OFFER TO EXCHANGE ITS 10 3/4% SERIES B SENIOR NOTES DUE 2006
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, FOR ANY AND ALL OF ITS OUTSTANDING
10 3/4% SERIES A SENIOR NOTES DUE 2006
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
AAi.FosterGrant, Inc. ("AAi" or the "Company") hereby offers, upon the terms
and subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (the "Letter of Transmittal" and, together with this
Prospectus, the "Exchange Offer"), to exchange $1,000 principal amount of its
10 3/4% Series B Senior Notes due 2006 (the "New Notes") which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a registration statement (the "Registration Statement") of which
this Prospectus is a part, for each $1,000 principal amount of its outstanding
10 3/4% Series A Senior Notes due 2006 (the "Old Notes"), of which $75,000,000
principal amount is outstanding as of the date hereof. See "The Exchange Offer."
The Old Notes and the New Notes are sometimes collectively referred to herein as
the "Notes."
Although the Notes are titled "Senior," the Company has not issued, and does
not have any current firm arrangements to issue, any significant additional
indebtedness to which the Notes would be senior. The Notes are general unsecured
obligations of the Company and rank pari passu in right of payment to all
existing and future unsubordinated indebtedness of the Company, including
indebtedness under the Senior Credit Facility (as defined). The obligations of
the Company under the Senior Credit Facility, however, are secured by the
accounts receivable and inventory of the Company and its Domestic Subsidiaries
(as defined). Accordingly, the Company's obligations under the Senior Credit
Facility will effectively rank senior in right of payment to the Notes to the
extent of the assets subject to such security interest. The Company's payment of
principal, premium, if any, interest and Liquidated Damages, if any, on the
Notes are fully and unconditionally guaranteed on a senior unsecured basis (the
"Subsidiary Guarantees") by all existing and future Domestic Subsidiaries of the
Company (the "Guarantors"). The Subsidiary Guarantees will rank pari passu in
right of payment with all existing and future unsecured and unsubordinated
indebtedness of the Guarantors but secured indebtedness of a Guarantor
(including the secured guarantees granted under the Senior Credit Facility) will
effectively rank senior in right of payment to the Notes to the extent of the
assets subject to such security interest. As of April 4, 1998, on a pro forma
basis after giving effect to the Acquisitions (as defined herein) and the
Offering (as defined) and the application of the net proceeds therefrom, the
Company and the Guarantors would have had approximately $76.4 million of
unsecured indebtedness outstanding (including $75.0 million principal amount of
the Old Notes) and the Company would have had approximately $60.0 million of
secured indebtedness available to be incurred under the Senior Credit Facility.
See "Description of Other Indebtedness." The terms of the Indenture (as defined)
will permit the Company and its subsidiaries to incur additional indebtedness
(including secured indebtedness), subject to certain limitations, but the
Company has no current or pending arrangements or agreements to incur any
additional significant indebtedness to which the Notes would rank subordinate or
pari passu in right of payment.
The Company will accept for exchange any and all validly tendered Old Notes
prior to 5:00 p.m., New York City time, on , 1998, unless extended by
the Company (such date, as it may be extended, the "Expiration Date"). The
Expiration Date will not be extended beyond the 30th business day after the date
of this Prospectus. The Old Notes may be tendered only in integral multiples of
$1,000. Tenders of the Old Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of the Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain customary
conditions. In the event the Company terminates the Exchange Offer and does not
accept for exchange any Old Notes, the Company will promptly return the Old
Notes to the holders thereof. The Company will not receive any proceeds from the
Exchange Offer. See "The Exchange Offer."
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO
HOLDERS OF THE OLD NOTES ON , 1998.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 4
The New Notes will be obligations of the Company evidencing the same debt
as the Old Notes and will be entitled to the benefits of the Indenture. See
"Description of Notes." The form and terms of the New Notes are generally the
same as the form and terms of the Old Notes in all material respects except that
the New Notes have been registered under the Securities Act and hence do not
include certain rights to registration thereunder and do not contain transfer
restrictions or terms with respect to certain special payments applicable to the
Old Notes. See "The Exchange Offer."
The New Notes are being offered hereunder in order to satisfy certain
obligations under the Registration Rights Agreement, dated as of June 21, 1998
(the "Registration Rights Agreement"), among the Company, the Guarantors, and
NationsBanc Montgomery Securities LLC, Prudential Securities Incorporated and
BancBoston Securities Inc. (the "Initial Purchasers"), a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The Exchange Offer is intended to satisfy the Company's obligations under
the Registration Rights Agreement to register the New Notes and exchange them
for the Old Notes under the Securities Act. Once the Exchange Offer is
consummated, the Company will have no further obligations to register any of the
Old Notes tendered for exchange except pursuant to a shelf registration
statement to be filed under certain limited circumstances specified in "The
Exchange Offer -- Purpose of the Exchange Offer." See "Risk
Factors -- Consequences to Non-Tendering Holders of the Old Notes." The Company
has agreed to pay the expenses of the Exchange Offer.
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in several no-action letters issued to
third parties (the "Exchange Offer No-Action Letters"), the Company believes
that the New Notes issued pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by Holders
thereof who are not affiliates of AAi (other than a broker-dealer who acquired
such Old Notes directly from the Company for resale pursuant to Rule 144A under
the Securities Act or any other available exemption under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act; provided that the Holder is acquiring the New Notes in its
ordinary course of business and has not engaged in, and does not intend to
engage in, any distribution (within the meaning of the Securities Act) of the
New Notes and has no arrangement or understanding with any person to participate
in a distribution of the New Notes. Persons wishing to exchange the Old Notes in
the Exchange Offer must represent to the Company that such conditions have been
met. However, any Holder who may be deemed an "affiliate" (as defined under Rule
405 of the Securities Act) of the Company or who tenders in the Exchange Offer
with the intention to participate, or for the purpose of participating, in a
distribution of the New Notes cannot rely on the interpretation by the staff of
the Commission set forth in the Exchange Offer No-Action Letters and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. See "The Exchange Offer -- Purpose of
the Exchange Offer." In addition, each broker-dealer that receives the New Notes
for its own account pursuant to the Exchange Offer in exchange for Old Notes
where such Old Notes were acquired by such broker-dealer for its own account as
a result of market-making activities or other trading activities (other than
acquisitions directly from the Company) must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging 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. 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 the New Notes received in exchange for the Old Notes where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (other than acquisitions directly from
the Company). The Company has agreed that, for a period of 180 days after the
Exchange Offer is consummated, it will, upon reasonable request, make this
Prospectus available promptly to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution." EXCEPT AS DESCRIBED IN THIS
PARAGRAPH, THIS PROSPECTUS MAY NOT BE USED FOR ANY OFFER TO RESELL, RESALE OR
OTHER TRANSFER OF THE NEW NOTES.
i
<PAGE> 5
The Old Notes were initially represented by a single Global Old Note (as
defined) in fully registered form, registered in the name of a nominee of The
Depository Trust Company ("DTC"), as depository. The New Notes exchanged for the
Old Notes represented by the Global Old Note will be represented by one or more
Global New Notes (as defined) in fully registered form, registered in the name
of the nominee of DTC. The Global New Notes will be exchangeable for New Notes
in registered form, in denominations of $1,000 and integral multiples thereof as
described herein. The New Notes in global form will trade in DTC's Same-Day
Funds Settlement System, and secondary market trading activity of such New Notes
will therefore settle in immediately available funds. See "Description of
Notes -- Book Entry, Delivery and Form."
The New Notes will bear interest at a rate equal to 10 3/4% per annum from
the last date on which interest was paid on the Old Notes surrendered in
exchange therefor, or if no interest has been paid, from the date of original
issue of such Old Notes. Interest on the Notes is payable semi-annually on
January 15 and July 15 of each year, commencing January 15, 1999.
The Notes are redeemable at the option of the Company, in whole or in part,
on or after July 15, 2002, at the redemption prices set forth herein, plus
accrued and unpaid interest thereon and liquidated damages, if any, payable
pursuant to Section 5 of the Registration Rights Agreement with respect to the
Old Notes ("Liquidated Damages") to the redemption date. Notwithstanding the
foregoing, at any time on or before July 15, 2001, the Company may redeem up to
35% of the original aggregate principal amount of the Notes with the net
proceeds of a public sale of common stock of the Company at the redemption
prices set forth herein, plus accrued and unpaid interest thereon, if any, to
the redemption date, provided that at least 65% of the original aggregate
principal amount of the Notes remains outstanding immediately after the
occurrence of such redemption, and provided, further, that such redemption shall
occur within 45 days of the date of the closing of such public sale. Upon a
Change of Control (as defined), the Company will be required to make an offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest thereon and Liquidated Damages, if any, to the date
of repurchase. There can be no assurance that the Company will have the
financial resources necessary or be permitted by its other debt agreements to
repurchase the Notes upon the occurrence of a Change of Control.
The Old Notes are designated for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") market. Prior to this
offering, there has been no public market for the Notes. The Company does not
intend to apply for listing or quotation of the Notes on any securities exchange
or stock market. As the Old Notes were issued and the New Notes are being issued
primarily to a limited number of institutions who typically hold similar
securities for investment, the Company does not expect that an active public
market for the Notes will develop. In addition, resales by certain holders of
the Notes of a substantial percentage of the aggregate principal amount of such
Notes could constrain the ability of any market maker to develop or maintain a
market for the Notes. To the extent that a market for the Notes should develop,
the market value of the Notes will depend on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition, performance and prospects of the Company. Such factors might cause
the Notes to trade at a discount from face value. See "Risk Factors -- Lack of a
Public Market for the Notes."
THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THE EXCHANGE OFFER. THE
COMPANY HAS AGREED TO PAY THE EXPENSES OF THE EXCHANGE OFFER. NO UNDERWRITER IS
BEING USED IN CONNECTION WITH THE EXCHANGE OFFER.
ii
<PAGE> 6
NOTE REGARDING FORWARD-LOOKING STATEMENTS
THE INFORMATION CONTAINED IN THIS OFFERING MEMORANDUM CONTAINS
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, WHICH ARE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "COULD," "SHOULD," "EXPECT,"
"ANTICIPATE," "INTEND," "PLAN," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF
OR OTHER VARIATIONS THEREOF. SUCH FORWARD-LOOKING STATEMENTS ARE NECESSARILY
BASED ON VARIOUS ASSUMPTIONS AND ESTIMATES AND ARE INHERENTLY SUBJECT TO VARIOUS
RISKS AND UNCERTAINTIES, INCLUDING RISKS AND UNCERTAINTIES RELATING TO THE
POSSIBLE INVALIDITY OF THE UNDERLYING ASSUMPTIONS AND ESTIMATES AND POSSIBLE
CHANGES OR DEVELOPMENTS IN SOCIAL, ECONOMIC, BUSINESS, INDUSTRY, MARKET, LEGAL
AND REGULATORY CIRCUMSTANCES AND CONDITIONS AND ACTIONS TAKEN OR OMITTED TO BE
TAKEN BY THIRD PARTIES, INCLUDING CUSTOMERS, SUPPLIERS, BUSINESS PARTNERS AND
COMPETITORS AND LEGISLATIVE, REGULATORY, JUDICIAL AND OTHER GOVERNMENTAL
AUTHORITIES AND OFFICIALS. IN ADDITION TO ANY RISKS AND UNCERTAINTIES
SPECIFICALLY IDENTIFIED IN THE TEXT SURROUNDING SUCH FORWARD-LOOKING STATEMENTS,
THE STATEMENTS IN "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS OFFERING
MEMORANDUM OR IN THE REPORTS AND OTHER INFORMATION REFERRED TO IN "AVAILABLE
INFORMATION" CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL AMOUNTS, RESULTS, EVENTS AND CIRCUMSTANCES TO DIFFER
MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS.
------------------------
Foster Grant(R) is a registered trademark of AAi and Tempo(TM) is a
trademark of AAi.
Disney(R), Winnie the Pooh(R), Mickey Mouse(R), and Minnie Mouse(R) are
registered trademarks of Disney Enterprises, Inc. and Mickey's Stuff for
Kids(TM) is a trademark of Disney Enterprises, Inc.
Revlon(R) and Almay(R) are registered trademarks of Revlon Consumer
Products Corporation.
Ironman Triathlon(R) is a registered trademark of World Triathlon
Corporation.
Barbie(R) is a registered trademark of Mattel, Inc.
Crayola(R) is a registered trademark of Binney & Smith Properties, Inc.
Sesame Street(R) and Elmo(R) are registered trademarks of Children's
Television Workshop.
Tweety(R) and Warner Bros.(R) are registered trademarks of Time Warner
Entertainment Company, L.P.
Hawaiian Tropic(R) is a registered trademark of Tanning Research
Laboratories, Inc.
Wet 'N Wild(R) is a registered trademark of AM Cosmetics.
iii
<PAGE> 7
SUMMARY
The following Summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. Unless otherwise indicated: (i) references to
"AAi" or the "Company" are to AAi.FosterGrant, Inc. and its direct and indirect
subsidiaries (including Foster Grant Holdings, Inc.), (ii) references to the
"Fantasma Acquisition" are to the Company's recent acquisition of an 80%
interest in Fantasma, LLC ("Fantasma") and (iii) references to the
"Acquisitions" are to AAi's recent acquisition of certain assets and liabilities
of Eyecare Products UK Ltd. ("Foster Grant UK") and Superior Jewelry Company
("Superior") and the Fantasma Acquisition. See "The Company."
THE COMPANY
AAi is a leading value-added distributor of optical products, costume
jewelry, watches, clocks and other accessories to mass merchandisers, variety
stores, chain drug stores and supermarkets in North America and the United
Kingdom. The Company sells its products in over 30,000 retail locations,
including Wal-Mart, Target, Kmart, Eckerd Drugstores, Walgreens, Rite Aid,
Albertsons, Dollar General and Family Dollar stores. The Company markets its
products under its own brand names such as Foster Grant as well as customers'
private labels. AAi also has the right to distribute products under numerous
licensed brand names, including Ironman Triathlon, Revlon, Mickey's Stuff for
Kids, Winnie the Pooh, Barbie and Crayola. The Company outsources all of its
manufacturing. On a pro forma basis after giving effect to the Acquisitions, the
Company would have generated net sales and EBITDA (as defined) of $182.0 million
and $19.1 million, respectively, for fiscal 1997 and $187.2 million and $20.8
million, respectively, for the twelve months ended April 4, 1998.
The Company's product lines contain a large number of stock keeping units
("SKUs") with low retail price points and typically represent a small percentage
of retailers' total sales. As a result, many of AAi's customers have chosen to
outsource the merchandising of these products to the Company. AAi's award-
winning service program provides retailers with customized displays and product
packaging and store-level merchandising designed to maximize sales and inventory
turnover. The Company employs over 1,500 field service representatives who
regularly visit program customers' stores to arrange, replenish and restock
displays, reorder product and attend to markdowns and allowances. By providing
retailers with in-store product management, the Company retains control of its
product marketing and pricing, allowing AAi to maximize product sales and
increase the floor space allocated to its product lines. In 1997, sales to
customers utilizing the Company's service program accounted for 73% of AAi's net
sales.
AAi has grown rapidly through strategic acquisitions and internal growth,
principally by expanding its product offerings, entering new domestic and
international markets, adding new customers, cross-selling existing product
lines to current customers and supporting its U.S.-based customers'
international expansion. In the last five years, net sales have grown at a
compounded annual rate of 22.9%, from $53.4 million in 1992 to $149.4 million in
1997.
INDUSTRY OVERVIEW
The Sunglass Association of America reports that 1997 domestic retail sales
of sunglasses totaled $2.6 billion. Accessories Magazine estimates that 1997
domestic retail sales of fashion jewelry and watches totaled $4.8 billion and
$3.0 billion, respectively. As a result of industry-wide consolidation among
mass merchandisers and discount retailers, a small number of large companies
dominate the Company's primary channels of distribution. These retailers have
sought to reduce their purchasing and administrative costs by limiting the
number of their suppliers and have utilized their market position to obtain
minimum sell-throughs, reduced in-store inventory levels and price concessions.
These retailers tend to require a high level of service, including customized
sales and service programs, reliable delivery services and electronic
interfaces. These trends have contributed to the growth of larger national and
regional distributors, such as AAi, that have the service organizations, product
offering, distribution technology and capital necessary to meet the demands of
these customers.
1
<PAGE> 8
COMPETITIVE STRENGTHS
In order to increase its sales and profitability, the Company relies on the
following competitive strengths:
Innovative Service Program. Since many of its product sales are impulse
driven, AAi believes that a well-positioned, visually appealing display is
critical to making the sale to the consumer. In addition, the SKU-intensive
nature of optical products and accessories and their low retail price points
have led many retailers to outsource the merchandising of such products. AAi has
responded by offering its customers a service program that includes store-level
merchandise mix planning and in-store display maintenance and inventory
stocking, balancing and reordering by the Company's field service
representatives. AAi's service program is consistently recognized as one of the
best in the mass retail industry. The Company has received several
vendor-of-the-year awards from its retail customers, including Wal-Mart, as well
as numerous Supplier Performance Awards by Retail Category (S.P.A.R.C.) from the
International Mass Retail Institute. As part of its service program, the Company
makes a significant investment in the design, production and installation of
display fixtures in its customers' retail stores. The Company believes that its
award-winning service program and store-level investment in display fixtures
solidify its customer relationships and create opportunities to cross-sell its
products and increase the Company's allotted display space.
Diverse Product Offering. AAi offers a comprehensive selection of
popularly priced optical products and accessories with over 15,000 SKUs. AAi's
product lines include sunglasses, reading glasses, costume jewelry, small
synthetic leather goods, handbags, hair accessories, cosmetic bags and key
rings. With the Fantasma Acquisition, the Company added watches and clocks to
its product lines. The substantial majority of the Company's products have
retail price points at less than $20, with 57% at $10 or less. The diversity of
AAi's product lines enables retailers to satisfy a substantial portion of their
optical products and accessories needs from a single source and allows the
Company to achieve operating efficiencies for low price point products.
Powerful Proprietary and Licensed Brand Names. Branded products provide
entry to new customers and retail channels and generally allow for higher gross
margins on product sales. The Company owns several brands, most notably Foster
Grant. In the 1998 annual Women's Wear Daily survey, the Foster Grant brand was
ranked the third most recognized name in accessories by consumers. In addition
to its own brands, AAi holds licenses for a variety of Disney, Sesame Street,
Warner Bros. and Mattel characters (e.g., Winnie the Pooh, Mickey Mouse, Minnie
Mouse, Elmo, Tweety, Barbie and others) as well as for several well-recognized
brands such as Ironman Triathlon, Revlon, Almay and Crayola for terms generally
ranging from one to three years. During 1997, the sales of the Company's own
branded products and licensed branded products represented approximately 29% and
15%, respectively, of AAi's net sales.
State-of-the-Art Distribution Capabilities. The Company's flexible
distribution systems are capable of processing virtually any small package. AAi
utilizes a high velocity fulfillment system that enables the Company to provide
its customers with short delivery times and high order fulfillment rates,
allowing retailers to maintain lower inventory levels. On average, the Company
ships over 98% of all restocking orders within 24 hours of receipt of the order.
AAi is currently expanding its Smithfield, Rhode Island distribution center and
installing an inventory management system that utilizes radio frequency and
bar-coding technologies to optimize supply chain operations, improve customer
service, increase inventory turns and lower operating costs. The Company
believes that its small package distribution capabilities provide a platform to
add complementary product lines without requiring significant capital investment
or additional fixed costs.
Efficient Low-Cost Sourcing. The Company outsources manufacturing for all
of its products. Approximately 75% of AAi's manufacturing is sourced to
manufacturers in Asia through its joint venture in Hong Kong, with the remainder
outsourced to independent domestic manufacturers. The Hong Kong joint venture
monitors the contract manufacturing process, maintains relations with
manufacturers, ensures quality control and serves as a sourcing agent to certain
U.S. and European customers. AAi's sourcing capabilities allow it to reliably
deliver competitively priced products to the retail market while retaining
considerable flexibility in its cost structure.
2
<PAGE> 9
Experienced Management Team. AAi's senior management team averages over 22
years in the industry and 18 years experience with the Company. Over the
Company's 26 year history, its senior management team has developed strong
relationships with suppliers and retailers. This team of seasoned managers has
led the Company's transition from a small costume jewelry manufacturer to a
leading distributor of optical products and accessories and has successfully
completed six acquisitions over the past three years.
BUSINESS STRATEGY
The Company's objective is to increase sales and profitability by enhancing
its position as a leading distributor of optical products and accessories. The
key elements of the Company's business strategy are:
Promote and Expand Branded Product Offering. Branded products enable the
Company to reach new customers and enter new distribution channels which, in
turn, present the Company with expanded cross-selling opportunities. The Company
intends to actively promote its Foster Grant name through advertising as well as
co-branding with licensed names. For example, AAi plans to roll out the Ironman
Triathlon by Foster Grant co-branded line of sunglasses in the fourth quarter of
1998. The Company also plans to pursue licensing and acquisition of additional
brands.
Expand Product Lines. AAi believes it can increase sales to existing
customers and access new distribution channels by expanding its product lines to
include other accessories and small package products. The Company intends to
achieve this goal by developing and acquiring new products and brands that
deepen and broaden its product offering. By diversifying its product lines, the
Company can enhance its capacity to provide regional and national retailers with
convenient "one-stop" shopping for optical products and accessories. In
addition, a diverse product offering provides cross-selling opportunities and
permits the Company to achieve operating efficiencies in distribution and
service programs.
Expand Internationally. The Company's goal is to grow with its customers,
particularly internationally, as they add new stores and expand into new
geographic markets. For example, during the past several years, Wal-Mart has
opened over 350 new stores in foreign markets, including Canada, Mexico, Germany
and Argentina. In response, the Company established operations in Canada and
Mexico to serve Wal-Mart and other potential customers in these markets. The
Company's international net sales have grown from $1.3 million in 1995 to $6.7
million in 1997.
Diversify Customer Base and Distribution Channels. Through its small
package distribution capabilities, diverse product offering and unique service
program, the Company has increased its customer base and sales to certain
existing customers desiring more centralized and efficient distribution. The
Company seeks to expand its distribution to additional retail channels such as
department stores through internal growth and strategic acquisitions.
Pursue Strategic Acquisitions. The Company intends to acquire
complementary businesses and product lines in order to diversify its product
offering, gain access to new customers and retail channels, penetrate
international markets, lower operating cost margins and improve service to
existing customers. For example, through the acquisitions in December 1996 and
March 1998 of the Foster Grant businesses, AAi expanded its optical product line
and extended operations to the United Kingdom. The June 1998 Fantasma
Acquisition added watches, clocks and several brand licenses to AAi's product
offering and provided the Company with access to new customers. The Company
seeks to leverage its purchasing power and distribution capabilities to improve
the financial performance of its acquired businesses and product lines.
3
<PAGE> 10
THE EXCHANGE OFFER
The Exchange Offer applies to the entire $75.0 million aggregate principal
amount outstanding of the Old Notes. The New Notes will be obligations of the
Company evidencing the same debt as the Old Notes and will be entitled to the
benefits of the same Indenture. See "Description of Notes." The form and terms
of the New Notes are generally the same as the form and terms of the Old Notes
in all material respects except that the New Notes have been registered under
the Securities Act and hence do not include certain rights to registration
thereunder and do not contain transfer restrictions or terms with respect to
certain special payments applicable to the Old Notes. See "Description of
Notes."
The Exchange Offer................. $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount
of Old Notes. As of the date hereof,
$75.0 million in aggregate principal
amount of Old Notes were outstanding. The
Company will issue the New Notes to
Holders (as defined in "Description of
Notes") on or promptly after the
Expiration Date.
Based on interpretations by the staff of
the Commission set forth in the Exchange
Offer No-Action Letters, the Company
believes that New Notes issued pursuant
to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold
and otherwise transferred by Holders
thereof who are not affiliates of the
Company (other than a broker-dealer who
acquired such Old Notes directly from the
Company for resale pursuant to Rule 144A
under the Securities Act or any other
available exemption under the Securities
Act) without compliance with the
registration and prospectus delivery
provisions of the Securities Act;
provided that the Holder is acquiring New
Notes in its ordinary course of business
and has not engaged in, and does not
intend to engage in, any distribution
(within the meaning of the Securities
Act) of the New Notes and has no
arrangement or understanding with any
person to participate in a distribution
of the New Notes. Persons wishing to
exchange Old Notes in the Exchange Offer
must represent to the Company that such
conditions have been met. However, any
Holder who is an affiliate of the Company
or who tenders in the Exchange Offer with
the intention to participate, or for the
purpose of participating, in a
distribution of the New Notes cannot rely
on the interpretation by the staff of the
Commission set forth in such Exchange
Offer No-Action Letters and must comply
with the registration and prospectus
delivery requirements of the Securities
Act in connection with any resale
transaction. See "The Exchange
Offer -- Purpose of the Exchange Offer."
Each broker-dealer that receives New
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 New Notes. The
Letter of Transmittal states that by so
acknowledging and by delivering a
prospectus, a broker-dealer will not be
deemed to admit that it is an
"underwriter" within the meaning of the
4
<PAGE> 11
Securities Act. 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 New Notes
received in exchange for Old Notes where
such Old Notes were acquired by such
broker-dealer for its own account as a
result of market-making activities or
other trading activities (other than
acquisitions directly from the Company).
The Company has agreed that, for a period
of 180 days after the Exchange Offer is
consummated, it will, upon reasonable
request, make this Prospectus available
promptly to any broker-dealer for use in
connection with any such resale. See
"Plan of Distribution."
Expiration Date.................... 5:00 p.m., New York City time, on
, 1998, unless the
Exchange Offer is extended by the Company
to the extent necessary to comply with
applicable federal and state securities
laws, in which case the term "Expiration
Date" means the latest date and time to
which the Exchange Offer is extended. The
Expiration Date will not be extended
beyond the 30th business day after the
date of this Prospectus.
Accrued Amounts on the Notes....... The New Notes will bear interest from the
last date on which interest was paid on
the Old Notes surrendered in exchange
therefor or, if no interest has been
paid, from the date of original issue of
such Old Notes.
Conditions to the Exchange Offer... The Exchange Offer is subject to certain
customary conditions. The conditions are
limited and relate in general to laws or
Commission policies that might impair the
ability of the Company to proceed with
the Exchange Offer. As of the date of
this Prospectus, none of these events had
occurred, and the Company believes their
occurrence to be unlikely. If any such
conditions do exist prior to the
Expiration Date, the Company may (i)
refuse to accept any Old Notes and return
all previously tendered Old Notes, (ii)
extend the Exchange Offer, or (iii) waive
such conditions. See "The Exchange
Offer -- Conditions."
Procedures for Tendering........... Each Holder of Old Notes wishing to
accept the Exchange Offer must complete,
sign and date the Letter of Transmittal,
or a facsimile thereof, in accordance
with the instructions contained herein
and therein, and mail or otherwise
deliver such Letter of Transmittal, or
such facsimile, together with such Old
Notes to be exchanged and any other
required documentation to IBJ Schroder
Bank & Trust Company, as Exchange Agent
(the "Exchange Agent"), at the address
set forth herein and therein or effect a
tender of such Old Notes pursuant to the
procedures for book-entry transfer as
provided for herein and therein. By
executing the Letter of Transmittal, each
Holder will represent to the Company
that, among other things, the New Notes
acquired pursuant to the Exchange Offer
are being obtained in the ordinary course
of business of the person receiving such
New Notes, whether or not such person is
the Holder, that neither the
5
<PAGE> 12
Holder nor any such other person has
engaged in, nor intends to engage in, any
distribution of the New Notes or has an
arrangement or understanding with any
person to participate in the distribution
of such New Notes and that neither the
Holder nor any such other person is an
"affiliate," as defined under Rule 405 of
the Securities Act, of the Company or any
of its subsidiaries. Each broker-dealer
that receives New Notes for its own
account in exchange for Old Notes, where
such Old Notes were acquired by such
broker-dealer as a result of market-
making activities or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with
any resale of such New 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 New Notes received in
exchange for Old Notes where such Old
Notes were acquired by such broker-dealer
as a result of market-making activities
or other trading activities (other than
acquisitions directly from the Company).
The Company has agreed that, for a period
of 180 days after the Exchange Offer is
consummated, it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale (other
than acquisitions directly from the
Company). See "The Exchange
Offer -- Procedures for Tendering" and
"Plan of Distribution."
Special Procedures for Beneficial
Owners............................. Any beneficial owner whose Old Notes are
registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and who wishes to tender
such Old Notes in the Exchange Offer
should contact such registered Holder
promptly and instruct such registered
Holder to tender on such beneficial
owner's behalf. If such beneficial owner
wishes to tender on such owner's own
behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering its Old Notes,
either make appropriate arrangements to
register ownership of the Old 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 and
it may not be possible to complete a
transfer initiated shortly before the
Expiration Date. See "The Exchange
Offer -- Procedures for Tendering."
Guaranteed Delivery Procedures..... Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are
not immediately available or who cannot
deliver their Old Notes, the Letter of
Transmittal or any other documents
required by the Letter of Transmittal to
the Exchange Agent, or cannot complete
the procedure for book-entry transfer
prior to 5:00 p.m. on the Expiration
Date, may tender their Old Notes
according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.................. Tenders may be withdrawn at any time
prior to 5:00 p.m., New York City time,
on the Expiration Date.
6
<PAGE> 13
Acceptance of Old Notes and
Delivery of New Notes.............. The Company will accept for exchange any
and all Old Notes which are properly
tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be
delivered promptly following the
Expiration Date. Any Old Notes not
accepted for exchange will be returned
without expense to the tendering Holder
thereof as promptly as practicable after
the expiration or termination of the
Exchange Offer. See "The Exchange
Offer -- Terms of the Exchange Offer."
Certain Tax Considerations......... The exchange pursuant to the Exchange
Offer will not be a taxable event for
federal income tax purposes. See "Certain
United States Federal Tax
Considerations."
Exchange Agent..................... IBJ Schroder Bank & Trust Company is
serving as Exchange Agent in connection
with the Exchange Offer.
TERMS OF NEW NOTES
The New Notes...................... $75.0 million principal amount of 10 3/4%
Series B Senior Notes due 2006.
Maturity Date...................... July 15, 2006.
Interest Rate and Payment Dates.... The New Notes will bear interest at a
rate of 10 3/4% per annum. Interest on
the New Notes will accrue from the last
date on which interest was paid on the
Old Notes surrendered in exchange
therefor, or if no interest has been
paid, from the date of original issue of
such Old Notes. Interest on the Notes is
payable semi-annually in cash in arrears
on January 15 and July 15 of each year,
commencing January 15, 1999.
Subsidiary Guarantees.............. The Notes are unconditionally guaranteed
on a senior basis by each of the existing
and future Domestic Subsidiaries of the
Company (each a "Subsidiary Guarantor"
and collectively, the "Subsidiary
Guarantors").
Ranking............................ Although the Notes are entitled "Senior,"
the Company has not issued, and does not
have any current firm arrangements to
issue, any significant additional
indebtedness to which the Notes would be
senior. The Notes are general unsecured
obligations of the Company and rank
senior in right of payment to all future
subordinated indebtedness of the Company
and pari passu in right of payment to all
existing and future unsubordinated
indebtedness of the Company, including
indebtedness under the Senior Credit
Facility. The Subsidiary Guarantees are
general unsecured obligations of the
Subsidiary Guarantors and rank senior in
right of payment to all future
subordinated indebtedness of the
Subsidiary Guarantors and pari passu in
right of payment to all existing and
future unsubordinated indebtedness of the
Subsidiary Guarantors, including
guarantees of indebtedness under the
Senior Credit Facility. Borrowings, if
any, under the
7
<PAGE> 14
Company's Senior Credit Facility are
secured by the accounts receivable and
inventory of the Company and are
guaranteed by the Subsidiary Guarantors,
which guarantees are secured by the
accounts receivable and inventory of the
Subsidiary Guarantors. Accordingly, the
Notes and the Subsidiary Guarantees are
effectively subordinated to the
borrowings outstanding under the Senior
Credit Facility and the guarantees of
such borrowings, respectively, to the
extent of the value of the assets
securing such borrowings and guarantees.
As of April 4, 1998, on a pro forma basis
after giving effect to the Acquisitions
and the Offering and the application of
the net proceeds therefrom, the Company
and its subsidiaries would have had $1.4
million of senior indebtedness
outstanding other than the Notes, all of
which would have been secured debt.
Optional Redemption................ The Notes may be redeemed at the option
of the Company, in whole or in part, on
or after July 15, 2002, at the redemption
prices set forth herein, plus accrued and
unpaid interest thereon and Liquidated
Damages, if any, to the date of
redemption. Notwithstanding the
foregoing, at any time on or before July
15, 2001, the Company may redeem up to
35% of the original aggregate principal
amount of the Notes with the net proceeds
of a public sale of Common Stock of the
Company at the redemption price set forth
herein, plus accrued and unpaid interest
thereon and Liquidated Damages, if any,
to the redemption date; provided, that
65% of the original aggregate principal
amount of Notes remains outstanding
immediately after the occurrence of such
redemption; and, provided, further, that
such redemption shall occur within 45
days of the date of the closing of such
public sale. See "Description of
Notes -- Optional Redemption."
Change of Control.................. Upon a Change of Control, the Company is
required to make an offer to repurchase
all outstanding Notes at a repurchase
price equal to 101% of the principal
amount thereof plus accrued and unpaid
interest thereon and Liquidated Damages,
if any, to the date of repurchase. See
"Description of Notes -- Repurchase at
the Option of Holders -- Change of
Control."
Covenants.......................... The Indenture contains certain covenants
that, among other things, limit the
ability of the Company and its
subsidiaries to incur additional
Indebtedness (as defined) and issue
preferred stock, enter into sale and
leaseback transactions, incur liens, pay
dividends or make certain other
restricted payments, apply net proceeds
from certain asset sales, enter into
certain transactions with affiliates,
merge or consolidate with any other
person, sell stock of subsidiaries, and
assign, transfer, lease, convey or
otherwise dispose of substantially all of
the assets of the Company. See
"Description of Notes -- Certain
Covenants."
8
<PAGE> 15
Exchange Rights.................... Holders of New Notes are not entitled to
any exchange rights with respect to the
New Notes. Holders of Old Notes are
entitled to certain exchange rights
pursuant to the Registration Rights
Agreement. Under the Registration Rights
Agreement, the Company is required to
offer to exchange the Old Notes for new
notes having substantially identical
terms which have been registered under
the Securities Act. This Exchange Offer
is intended to satisfy such obligation.
Once the Exchange Offer is consummated,
the Company will have no further
obligations to register any of the Old
Notes not tendered by the Holders for
exchange, except pursuant to a shelf
registration statement to be filed under
certain limited circumstances specified
in "The Exchange Offer -- Purpose of the
Exchange Offer." See "Risk
Factors -- Consequences to Non-Tendering
Holders of Old Notes."
Use of Proceeds.................... The Company will not receive any proceeds
from the Exchange Offer.
RISK FACTORS
SEE "RISK FACTORS" AS WELL AS OTHER INFORMATION AND DATA INCLUDED IN THIS
PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
EVALUATING AN INVESTMENT IN THE NOTES.
9
<PAGE> 16
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following pro forma statement of operations data and other data of AAi
for the year ended December 31, 1997 and for the three and twelve months ended
April 4, 1998 and balance sheet data as of April 4, 1998 have been derived from,
and are qualified by reference to, the Unaudited Pro Forma Combined Financial
Statements of AAi included elsewhere in this Prospectus. The pro forma financial
information and other data give effect to the Acquisitions and the sale of the
Old Notes (the "Offering") and the application of the net proceeds therefrom as
if they had occurred at the beginning of each of the periods indicated. The pro
forma adjustments are based upon available information and certain assumptions
that the Company believes are reasonable. The pro forma consolidated financial
data presented below should not be considered indicative of actual results that
would have been achieved had the Acquisitions been consummated on the dates
assumed and do not purport to indicate results of operations as of any future
date or for any future period. The pro forma consolidated financial data
presented below should be read in conjunction with "Use of Proceeds,"
"Capitalization," "Selected Historical Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1997 APRIL 4, 1998 APRIL 4, 1998
----------------- ------------------ -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $181,992 $47,527 $187,174
Cost of goods sold........................... 97,706 26,300 100,507
-------- ------- --------
Gross profit................................. 84,286 21,227 86,667
Operating expenses........................... 76,680 19,565 78,055
-------- ------- --------
Income from operations....................... 7,606 1,662 8,612
Interest expense(a).......................... (8,664) (2,163) (8,657)
Other (expense) income, net.................. (49) 58 (32)
-------- ------- --------
Income (loss) before taxes................... (1,107) (443) (77)
Income tax benefit (expense)................. 642 195 34
-------- ------- --------
Net income (loss)............................ $ (465) $ (248) $ (43)
======== ======= ========
Net loss applicable to common
shareholders(b)........................... $ (2,961) $ (931) $ (2,625)
======== ======= ========
OTHER DATA:
Depreciation and amortization................ $ 11,577 $ 3,351 $ 12,223
EBITDA(c).................................... 19,134 5,071 20,802
Capital expenditures......................... 8,445 9,596 16,303
Cash interest expense........................ 8,269 2,016 8,260
SELECTED RATIOS:
Ratio of EBITDA to cash interest expense..... 2.31x 2.52x 2.52x
Ratio of total debt to EBITDA................ 4.02x 3.77x 3.67x
Ratio of earnings to fixed charges(d)........ -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF
APRIL 4, 1998
-------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 52,226
Total assets.............................................. 134,219
Total debt(e)............................................. 76,422
Preferred securities(f)................................... 26,766
Total shareholders' deficit............................... (6,590)
</TABLE>
10
<PAGE> 17
- ---------------
(a) Reflects the estimated additional interest expense associated with the Notes
at a rate of 10.75% per annum.
(b) Reflects a reduction for accretion and noncash dividends on the Series A
Preferred Stock (as defined). See Note 9 of the Notes to the Company's
Consolidated Financial Statements.
(c) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with generally accepted accounting principals ("GAAP"), AAi
believes that EBITDA is accepted as a generally recognized measure of
performance in the distribution industry. Nevertheless, this measure should
not be considered in isolation or as a substitute for operating income, net
income, net cash provided by operating activities or any other measure for
determining AAi's operating performance or liquidity which is calculated in
accordance with GAAP.
(d) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges (excluding
accretion and noncash dividends on Series A Preferred Stock). Fixed charges
consist of interest expense, amortization of debt issuance costs, accretion
and noncash dividends on Series A Preferred Stock and the portion of rental
expense that is representative of the interest factor. On a pro forma basis,
earnings were insufficient to cover fixed charges by $7.2 million, $1.7
million and $6.4 million for the year ended December 31, 1997, the three
months ended April 4, 1998 and the twelve months ended April 4, 1998,
respectively.
(e) Includes the Notes and $1.4 million in various lease and other long-term
obligations.
(f) Does not include redeemable preferred stock of AAi's subsidiary, Foster
Grant Holdings, Inc. See Note 5 of the Notes to the Company's Consolidated
Financial Statements.
11
<PAGE> 18
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following table sets forth summary historical consolidated financial
information of AAi as of the end of and for each of the five years ended
December 31, 1997, for the three months ended March 31, 1997 and April 4, 1998
and as of April 4, 1998. The summary historical consolidated financial data as
of December 31, 1996 and 1997 and for each of the three years in the period
ended December 31, 1997 were derived from the Consolidated Financial Statements
of the Company, which have been audited by Arthur Andersen LLP, independent
public accountants, and are included elsewhere in this Prospectus. The summary
historical consolidated financial data as of December 31, 1993, 1994 and 1995
and for the years ended December 31, 1993 and 1994 were derived from audited
consolidated financial statements of the Company that are not included in this
Prospectus. The summary historical consolidated financial data as of April 4,
1998 and for the three months ended March 31, 1997 and April 4, 1998 are
unaudited, but have been prepared on the same basis as the audited Consolidated
Financial Statements, which, in the opinion of management, contain all
adjustments (consisting only of normal recurring adjustments) necessary for the
fair presentation of the information set forth therein. The results of operation
for the three months ended April 4, 1998 are not necessarily indicative of the
results that may be expected for the full year. The following table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, -----------------------
------------------------------------------------ March 31, April 4,(a)
1993 1994 1995 1996(a) 1997(a) 1997 1998
------- ------- ------- ------- -------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $68,703 $76,611 $88,050 $86,336 $149,411 $34,851 $42,703
Cost of goods sold............ 30,932 37,096 43,690 47,871 77,928 19,023 23,431
------- ------- ------- ------- -------- ------- -------
Gross profit.................. 37,771 39,515 44,360 38,465 71,483 15,828 19,272
Operating expenses............ 32,785 36,441 34,782 35,678 65,285 14,687 17,627
------- ------- ------- ------- -------- ------- -------
Income from operations........ 4,986 3,074 9,578 2,787 6,198 1,141 1,645
Interest expense.............. (491) (342) (1,031) (1,469) (4,214) (928) (1,178)
Other (expense) income........ 459 88 (80) (331) 31 (48) 76
------- ------- ------- ------- -------- ------- -------
Income before taxes........... 4,954 2,820 8,467 987 2,015 165 543
Income tax benefit
(expense).................. -- -- (42) 204 (1,177) (96) (239)
------- ------- ------- ------- -------- ------- -------
Net income(b)................. $ 4,954 $ 2,820 $ 8,425 $ 1,191 $ 838 $ 69 $ 304
======= ======= ======= ======= ======== ======= =======
Net income (loss) applicable
to common
shareholders(c)............ $ 4,954 $ 2,820 $ 8,425 $ 68 $ (1,658) $ (528) $ (379)
======= ======= ======= ======= ======== ======= =======
Pro forma net income (loss)
applicable to common
shareholders(d)............ $ 2,972 $ 1,692 $ 5,055 $ (530) $ (1,658) $ (528) $ (379)
======= ======= ======= ======= ======== ======= =======
OTHER DATA:
Depreciation and
amortization............... $ 473 $ 628 $ 783 $ 2,400 $ 9,894 $ 1,987 $ 2,972
EBITDA (e).................... 5,918 3,790 10,281 4,856 16,123 3,080 4,693
Capital expenditures (f)...... 680 1,552 1,555 1,572 7,583 1,492 9,073
Ratio of earnings to fixed
charges (g)................ 8.30x 5.69x 8.12x -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------ APRIL 4,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)... $ 4,003 $ 4,436 $ 7,795 $ 722 $ 5,222 $ (4,951)
Total assets................ 14,730 16,773 25,187 83,666 94,915 121,759
Total debt(h)............... 683 2,593 5,542 35,588 44,959 64,756
Preferred securities(i)..... -- -- -- 23,587 26,083 26,766
Total shareholders' equity
(deficit)................ 4,848 4,890 11,523 (4,179) (6,234) (6,590)
</TABLE>
12
<PAGE> 19
- ---------------
(a) Includes the results of operations of the acquired businesses from the
respective dates of acquisition: the Tempo Division of Allison Reed Group,
Inc. ("Tempo") in June 1996; Foster Grant Group L.P., The Bonneau Company,
Opti Ray, Inc. and Asian Buying Source, Inc. (collectively, "Foster Grant
US") in December 1996; Superior in July 1997; and Foster Grant UK in March
1998.
(b) Represents net income before (i) a reduction for accretion and noncash
dividends on the Series A Preferred Stock in the years ended December 31,
1996 and 1997 and the three months ended March 31, 1997 and April 4, 1998,
and (ii) a pro forma income tax provision in the years ended December 31,
1993 through 1996.
(c) Reflects a reduction from net income for accretion and noncash dividends on
the Series A Preferred Stock. See Note 9 of the Notes to Company's
Consolidated Financial Statements.
(d) The Company was an S corporation under Section 1362 of the Internal Revenue
Code until May 31, 1996. Pro forma income taxes, assuming the Company was
subject to C corporation income taxes, have been provided, in the
accompanying statement of operations for 1993, 1994, 1995 and 1996, at an
estimated statutory rate of 40%.
(e) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with GAAP, AAi believes that EBITDA is accepted as a generally
recognized measure of performance in the distribution industry.
Nevertheless, this measure should not be considered in isolation or as a
substitute for operating income, net income, net cash provided by operating
activities or any other measure for determining AAi's operating performance
or liquidity which is calculated in accordance with GAAP.
(f) Does not include capital assets acquired in connection with the acquisitions
of Tempo, Foster Grant US, Superior and Foster Grant UK.
(g) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges (excluding
accretion and noncash dividends on Series A Preferred Stock). Fixed charges
consist of interest expense, amortization of debt issuance costs, accretion
and noncash dividends on Series A Preferred Stock and the portion of rental
expense that is representative of the interest factor. Earnings were
insufficient to cover fixed charges by $0.9 million, $4.1 million, $1.3
million and $0.7 million for the years ended December 31, 1996 and 1997 and
the three months ended March 31, 1997 and April 4, 1998, respectively.
(h) Includes amounts outstanding under Revolving Credit Facility (as defined),
various long-term obligations and subordinated promissory notes payable to
shareholders at each applicable period.
(i) Does not include redeemable preferred stock of Foster Grant Holdings, Inc.
See Note 5 of the Notes to Company's Consolidated Financial Statements.
13
<PAGE> 20
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be carefully considered in evaluating the Company
and its business before tendering the Old Notes in exchange for the New Notes
offered hereby. The risk factors set forth below are generally applicable to the
New Notes as well as the Old Notes.
CONSEQUENCES TO NON-TENDERING HOLDERS OF OLD NOTES
Upon consummation of the Exchange Offer, the Company will have no further
obligation to register the Notes except pursuant to a shelf registration
statement to be filed under certain limited circumstance specified in "The
Exchange Offer -- Purpose of the Exchange Offer." Thereafter, subject to such
exception, any Holder of Old Notes who does not tender its Old Notes in the
Exchange Offer will continue to hold restricted securities which may not be
offered, sold or otherwise transferred, pledged or hypothecated except pursuant
to Rule 144 and 144A under the Securities Act or pursuant to any other exemption
from registration under the Securities Act relating to the disposition of
securities, in which case, an opinion of counsel must be furnished to the
Company that such an exemption is available. Based on interpretations by the
staff of the Commission, the Company believes that the New Notes issued pursuant
to the Exchange Offer in exchange for the Old Notes may be offered for resale,
resold or otherwise transferred by holders thereof (other than any such holder
which is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such New
Notes. Each broker-dealer that receives the New Notes for its own account in
exchange for the Old Notes, where such New Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The interpretations by the staff of the
Commission on which the Company has relied were based on the Exchange Offer
No-Action Letters. The Company has not sought, and does not intend to seek, its
own no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer. See "Plan of Distribution"
LEVERAGE
As a result of the sale of the Old Notes, the Company is highly leveraged.
On April 4, 1998, after giving pro forma effect to the Offering and the
application of the net proceeds therefrom, the Company would have had total
indebtedness of approximately $76.4 million (of which $75.0 million would have
consisted of the Notes and the balance would have consisted of other long-term
obligations) and shareholders' deficit of approximately $6.6 million. In
addition, the Company, through a subsidiary, has issued preferred stock which is
subject to mandatory redemption at an amount ranging from $1.0 million to $4.0
million upon certain events, but not later than February 28, 2000. See "Certain
Transactions" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations." On a pro forma basis after giving effect to the
Acquisitions, for the twelve months ended April 4, 1998, earnings were
insufficient to cover fixed charges by $6.4 million. Subject to certain
limitations in the Senior Credit Facility and the Indenture, the Company and its
subsidiaries will be permitted to incur substantial additional indebtedness in
the future. See "Capitalization," "Description of Notes" and "Description of
Senior Credit Facility."
The Company's ability to make scheduled payments of 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 expenditures will
depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based upon the current level of operations
and anticipated cost savings and revenue growth, the Company believes that cash
flow from operations and available cash, together with available borrowings
under the Senior Credit Facility, will be adequate to meet the Company's future
liquidity needs for at least the next several years. The Company may, however,
need to refinance all or a portion of the principal of the Notes on or prior to
maturity. There can be no assurance that the Company's business will generate
sufficient cash flow from operations, that
14
<PAGE> 21
anticipated cost savings and revenue growth will be realized or that future
borrowings will be available under the Senior Credit Facility in an amount
sufficient to enable the Company to service its indebtedness, including the
Notes, or to fund its other liquidity needs. In addition, there can be no
assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including, but not limited to: (i) making
it more difficult for the Company to satisfy its obligations with respect to the
Notes, (ii) increasing the Company's vulnerability to general adverse economic
and industry conditions, (iii) limiting the Company's ability to obtain
additional financing to fund future working capital, capital expenditures,
research and development and other general corporate requirements, (iv)
requiring the dedication of a substantial portion of the Company's cash flow
from operations to the payment of principal of, and interest on, its
indebtedness, thereby reducing the availability of such cash flow to fund
working capital, capital expenditures or other general corporate purposes, (v)
limiting the Company's flexibility in planning for, or reacting to, changes in
its business and the industry and (vi) placing the Company at a competitive
disadvantage vis-a-vis less leveraged competitors. In addition, the Indenture
and the Senior Credit Facility will contain financial and other restrictive
covenants that will limit the ability of the Company to, among other things,
borrow additional funds. Failure by the Company to comply with such covenants
could result in an event of default which, if not cured or waived, could have a
material adverse effect on the Company. In addition, the degree to which the
Company is leveraged could prevent it from repurchasing all of the Notes
tendered to it upon the occurrence of a Change of Control. See "Description of
Notes -- Repurchase at the Option of Holders -- Change of Control" and
"Description of Senior Credit Facility."
EFFECTIVE SUBORDINATION OF THE NOTES
The Notes and the Subsidiary Guarantees will be senior unsecured
obligations and will rank pari passu in right of payment with all other current
and future senior obligations of the Company and the Subsidiary Guarantors,
respectively. However, loans under the Senior Credit Facility will be secured by
the accounts receivable and inventory of the Company and will be guaranteed by
the Company's Domestic Subsidiaries, which guarantees will be secured by the
accounts receivable and inventory of such subsidiaries. Accordingly, the Notes
and the Subsidiary Guarantees will be effectively subordinated to all secured
indebtedness to the extent of the collateral and will rank pari passu in right
of payment with all other existing and future senior obligations of the Company
or the Guarantors, respectively. Upon an event of default under any such secured
indebtedness, the lenders of any secured indebtedness, including indebtedness
under the Senior Credit Facility, could elect to declare all amounts
outstanding, together with accrued and unpaid interest thereon, to be
immediately due and payable. If the Company or the Subsidiary Guarantors were
unable to repay those amounts, such lenders could proceed against the collateral
granted them to secure that indebtedness. There can be no assurance that the
assets of the Company or the relevant Subsidiary Guarantor remaining after
repayment in full of such secured indebtedness would be sufficient to repay the
holders of the Notes.
LIMITATION ON SUBSIDIARY GUARANTEES
Certain of the Company's operations are conducted through its subsidiaries.
However, only the Company's Domestic Subsidiaries will be guarantors of the
Notes. As a result, holders of indebtedness of, and trade creditors of, the
Company's foreign subsidiaries will generally be entitled to payment of their
claims from the assets of such subsidiaries before such assets will be made
available to the Company. On a pro forma basis after giving effect to the
Acquisitions, the Company's foreign subsidiaries would have held 8.1% of the
Company's consolidated assets as of April 4, 1998 and would have accounted for
4.9% of the Company's consolidated net sales for the twelve months ended April
4, 1998. See Note 18 of the Notes to the Company's Consolidated Financial
Statements included elsewhere herein.
LOSS OF CUSTOMERS; CUSTOMER CONCENTRATION AND CONSOLIDATION
During the years ended December 31, 1996 and 1997, three customers
accounted for approximately 57% and 39% of the Company's net sales,
respectively. These customers' accounts receivable balances represented
15
<PAGE> 22
approximately 34% and 45% of the Company's accounts receivable as of December
31, 1996 and 1997, respectively. In 1997, Wal-Mart accounted for approximately
25% of the Company's net sales. The loss of any significant customer, whether
through competition or otherwise, could have a material adverse effect on the
Company's business, financial condition and results of operations. A significant
portion of the Company's business activity is with mass merchandisers whose
ability to meet their financial obligations is dependent on economic conditions
affecting the retail industry. During recent years, many major retailers have
experienced significant financial difficulties and some, including customers of
the Company, have filed for bankruptcy protection. There can be no assurance
that the financial difficulties of the Company's significant customers would not
materially adversely affect the Company's business, financial condition and
results of operations. In addition, certain segments of the retail industry,
particularly mass merchandisers, variety stores, drug stores and supermarkets,
are experiencing significant consolidation. In 1997, the Company lost two
customers, one as a result of a merger into a retail chain that does not carry
costume jewelry and the other due to a retailer ceasing operations. Further
industry consolidation could result in the Company's loss of additional
customers that are acquired by retailers serviced by other suppliers as well as
further concentration of the Company's credit risks which could have a material
adverse effect on the Company's results of operations.
DEPENDENCE ON LICENSED BRANDS
A key element of the Company's marketing strategy is to utilize licensed
brand names and characters to expand its product offering and gain access to new
customers. Most of the Company's license agreements are non-exclusive, of short
duration and may be terminated if the Company fails to comply with any material
terms thereof. There can be no assurance that any of these relationships with
licensors will continue, that such agreements will be renewed or that the
Company will be able to obtain licenses for additional brands. If the Company
were unable in the future to obtain such licenses on terms it deems reasonable,
it would be required to modify its marketing plans and could be forced to rely
more heavily on its proprietary brands or generic product sales, which could
materially adversely affect its business, financial condition and results of
operations. See "Business - Business Strategy" and "-- Intellectual Property and
Licenses."
RISKS ASSOCIATED WITH ACQUISITIONS
General. As part of its operating history and growth strategy, the Company
has acquired and seeks to continue acquiring other businesses. The Company
continually seeks acquisition candidates in selected markets and from time to
time engages in exploratory discussions with potential acquisition candidates.
There can be no assurance, however, that the Company will be able to identify
and acquire targeted businesses or obtain financing for such acquisitions on
satisfactory terms. Furthermore, there can be no assurance that competition for
acquisition candidates will not escalate, thereby increasing the costs of making
acquisitions or making suitable acquisitions unattainable.
Limited Knowledge and Operating History. Notwithstanding its own due
diligence investigation, management has, and will have, limited knowledge about
the specific operating history, trends and customer buying patterns of
businesses acquired in its recent acquisitions or future acquisitions.
Consequently, no assurance can be given that the Company will be able to make
future acquisitions at favorable prices, that acquired lines of business will
perform as well as they had performed historically or that the Company will have
sufficient information to analyze accurately the markets in which it elects to
make acquisitions. Furthermore, additions by the Company of new products present
certain risks and uncertainties resulting from the Company's relative
unfamiliarity with these new products, the market for such new products, and the
financial and operating controls required to manage such new product offerings.
There can be no assurance that the Company will be successful in marketing these
or other additions to its product offering or that its existing customers will
accept such additions to the products currently purchased from the Company.
Integration. The process of integrating acquired businesses into the
Company's operations may result in unforeseen difficulties and may require a
disproportionate amount of resources and management attention. Although the
Company endeavors to integrate and assimilate the operations of acquired lines
of business in an effective and timely manner, no assurance can be given that
the Company will be successful in such integration attempts or that the Company
will be able to hire, train, retain and assimilate individuals employed
16
<PAGE> 23
at the acquired businesses. Further, no assurance can be given that the Company
will successfully integrate its recent acquisitions or any other future acquired
businesses into the Company's purchasing, marketing and management information
systems, or that the Company's management and financial controls, personnel,
computer systems and other corporate support systems will be adequate to manage
the increase in the size and scope of the Company's operations and acquisition
activity. Integration of acquisitions is often a complex process which may
entail material, non-recurring expenditures, including facility closing costs,
warehouse assimilation expenses, asset writedowns and severance payments. These
expenditures have in the past had, and may continue to have, an adverse impact
on the Company's results of operations.
Significant Future Charges to Earnings. On a pro forma basis after giving
effect to the Acquisitions, as of April 4, 1998, the Company would have had
$20.8 million of net intangible assets consisting principally of goodwill on its
balance sheet. The Company expects that amortization of these intangibles will
result in quarterly noncash charges of $411,000 for the next 28 quarters,
$329,000 for the next four quarters, $246,000 for the next four quarters,
$150,000 for the following 34 quarters, $146,000 for the following five quarters
and $133,000 for the final 75 quarters. The Company also anticipates that future
acquisitions will involve the recording of a significant amount of intangible
assets, particularly goodwill, on its balance sheet, which will be amortized
over varying periods of time. In addition, the Company anticipates incurring a
$2.6 million restructuring charge in the second quarter of 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "The Company" and Note 1 of the Notes to the Company's Consolidated
Financial Statements included elsewhere herein.
PLANNED SINGLE SITE DISTRIBUTION FACILITY
The Company distributes substantially all of its optical products from its
Dallas, Texas distribution facility and the remainder of its products from its
distribution center in Smithfield, Rhode Island. Upon completion of the
expansion of the Rhode Island distribution center scheduled for the fourth
quarter of 1998, the Company intends to close the Texas facility and consolidate
its distribution operations in Rhode Island. A disruption of the Company's
distribution operations for any reason, including theft, government intervention
or a natural disaster such as fire, earthquake, flood or other casualty could
cause the Company to limit or cease its operations, which would have a material
adverse effect on the Company's business, financial condition and results of
operations. Although the Company maintains business interruption insurance to
cover natural disasters, no assurance can be given that such insurance will
continue to be available to the Company on commercially reasonable terms, if at
all, or that such insurance would be sufficient to compensate the Company for
damages resulting from such casualty. In addition, no assurance can be given
that an interruption in the Company's operations would not result in permanent
loss of significant customers, which would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Property."
RELIANCE ON KEY PERSONNEL
The Company's long-term success and its growth strategy depend on its
existing management team. The Company maintains key man life insurance policies
on the lives of several of its key executives and has entered into employment
agreements with its executive officers. See "Management." However, the loss of
the services of any of the key executives could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company's continued growth and operations also depends to a significant extent
on its ability to retain other key employees and to attract new qualified
employees. Competition for highly skilled business, marketing and other
personnel is intense, particularly in the strong economic cycle currently
prevailing. The loss of one or more key employees or the Company's inability to
attract additional qualified employees could have an adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company may experience increased compensation costs in order to compete for
skilled employees.
17
<PAGE> 24
RELIANCE ON LIMITED NUMBER OF DELIVERY COMPANIES
The Company primarily relies on a single independent delivery company,
United Parcel Service ("UPS"). Although the Company is attempting to establish
multiple delivery services to deal with the possibility of a future disruption
in these services, there can be no assurance that the precautions taken by the
Company will be adequate or that alternate delivery services can be located or
developed by the Company in a timely manner. An interruption in service by UPS
may have a material adverse effect on the Company's business, financial
condition and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company has operations in Canada, Mexico and the United Kingdom and
intends to enter additional international markets in the future. No assurance
can be given that the Company will be able to maintain or increase its
international sales or that the Company's brands and products will be as popular
in the various foreign countries as they are in the United States. In addition,
the Company purchases a significant portion of its inventory from certain
suppliers in Asia through its Hong Kong joint venture. Consequently, the Company
is subject to the risks generally associated with conducting business abroad.
This includes risks relating to currency exchange rates, new and different
legal, tax, accounting and regulatory requirements, "local content" laws and
tariff regulations, difficulties in staffing and managing foreign operations,
political instability, trade restrictions and other factors. The Company's
business could be affected by economic events or political instability that
might affect exports, including duties, quotas and work stoppages. Although
there are other suppliers of the inventory items purchased and the Company
believes that these suppliers could provide similar inventory on fairly
comparable terms, a change in suppliers could cause a delay in the Company's
distribution process and a possible loss of sales, which would adversely affect
the Company's results of operations. As with other companies that denominate
purchases in dollars, declines in the dollar relative to foreign currencies
could, over time, increase the cost to the Company of merchandise purchased in
foreign countries, which could materially adversely affect the Company's
business, financial condition and results of operations.
UNPREDICTABILITY OF DISCRETIONARY CONSUMER SPENDING
The success of the Company's business depends to a significant extent upon
a number of factors relating to discretionary consumer spending, including
general economic conditions affecting disposable consumer income, such as
employment, business conditions, interest rates and taxation. Any significant
decline in such general economic conditions or uncertainties regarding future
economic prospects that adversely affect discretionary consumer spending
generally, or purchasers of accessories or optical products specifically, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
COMPETITION
The industries in which the Company operates are highly competitive and
price sensitive. The Company competes with other distributors, manufacturers who
distribute directly to retailers and vertically integrated retailers that
perform their own manufacturing as well as indirectly with alternate channels of
distribution to the consumer such as internet commerce. In addition, certain
manufacturers and distributors of upscale optical products and accessories have
manifested their intention to offer products in the popularly priced segment
($20 or less). Furthermore, many retailers require a new supplier to buy back
the retailer's existing inventory as a condition to changing vendors. These
inventory costs can be substantial and serve as a barrier to obtaining new
customers and entering new distribution channels. The Company is also under
continuous pressure from its major customers to reduce product costs. The
failure of the Company to compete effectively with respect to product costs or
other competitive factors could have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON COMPUTER SOFTWARE APPLICATIONS
The Company has made a substantial investment in the development and
enhancement of its computer and information systems. The Company anticipates
that it will continue to make enhancements and
18
<PAGE> 25
modifications to its computer systems as it executes its expansion plans and
increases the scope of its product and service offerings in response to customer
needs and new developments in technology. Such modifications may cause
disruptions in operations, delay the integration of acquisitions, or cost more
to design, implement or operate than currently budgeted. Any such disruptions,
delays or costs could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company is currently implementing a substantial information system
conversion which is scheduled to be completed by the first quarter of 1999. The
Company believes that with planned modifications to existing software and
successful conversion to the new software, the Year 2000 issue will not pose
significant operational problems for the Company's systems as so modified or
converted. Any delays or omissions by AAi or its agents to resolve such issues
may have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Year 2000."
SEASONALITY
Significant portions of the Company's business are seasonal. Sunglasses are
shipped primarily during the first half of the fiscal year as retailers build
inventory for the spring and summer selling seasons, while costume jewelry and
other accessories are shipped primarily during the second half of the fiscal
year as retailers build inventory for the holiday season. Reading glasses sales
are generally uniform throughout the year. Although the expansion of the
Company's optical product line has, in part, offset the seasonality of the
costume jewelry and other accessories product lines, the Company's financial
condition and results of operations are highly dependent on these two principal
shipping seasons. In addition, the Company's quarterly results could be
adversely impacted by the timing of customer orders and scheduled shipping
dates.
SUSCEPTIBILITY TO CHANGING CONSUMER PREFERENCES
The sunglasses and accessories industries are subject to changing consumer
preferences. A significant portion of the Company's sunglasses, costume jewelry
and small synthetic leather goods are susceptible to fashion trends. If the
Company misjudges the market for a particular product or is unable to respond
quickly to fashion trends, the Company's sales may be adversely affected which
may leave the Company with excess inventory. In addition, the Company may be
required to provide its customers with a higher level of markdowns and
allowances on slow moving products. While the Company has a limited ability to
modify slow-moving product lines to satisfy consumer preferences and otherwise
utilize excess inventory, the Company cannot ensure that any such actions will
be sufficient to redress a market misjudgment. Accordingly, a market misjudgment
could adversely affect the Company's business, financial condition and results
of operations.
CERTAIN REGULATORY MATTERS
Certain of the products sold by AAi must comply with quality control
standards set by various governmental entities, including the Food and Drug
Administration (the "FDA"). The FDA regulates the manufacture and sale of
ophthalmic products under the Federal Food, Drug and Cosmetic Act, as amended by
the 1976 Medical Device Amendments and certain subsequent amendments. Recently,
the FDA has become more restrictive in the regulatory process and has increased
its surveillance over existing products and manufacturing facilities. The FDA
has authority to suspend or remove a product from the market or to cause a
manufacturer to cease operations either at a facility or company-wide if it
deems a product or a manufacturing process to be outside regulatory guidelines.
Failure of the Company to comply with governmental standards could have a
material adverse effect on the Company's business, financial condition and
results of operations.
POSSIBLE INABILITY TO FUND A CHANGE OF CONTROL OFFER
Upon a Change of Control, the Company will be required to offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase. However, there can be no assurance that sufficient funds will be
available at the time of any Change of Control to make any required repurchases
of Notes tendered or that restrictions in the Senior Credit Facility will allow
the Company to make such required repurchases. Notwithstanding these provisions,
19
<PAGE> 26
the Company could enter into certain transactions, including certain
recapitalizations, that would not constitute a Change of Control but would
increase the amount of debt outstanding at such time. See "Description of
Notes -- Repurchase at the Option of Holders."
LACK OF A PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to holders of the Old Notes. The Old Notes
were offered and sold in July 1998 to a small number of institutional investors
and are eligible for trading at the PORTAL market. The Notes are a new issue of
securities for which there is no existing trading market. There can be no
assurance regarding the future development of a market for the Notes or the
ability of holders of the Notes to sell their Notes or the price at which such
holders may be able to sell their Notes. If such a market were to develop, the
Notes could trade at prices that may be higher or lower than the initial
offering price depending on many factors, including prevailing interest rates,
the Company's operating results and the market for similar securities. The
Initial Purchasers have advised the Company that they currently intend to make a
market in the New Notes. The Initial Purchasers are not obligated to do so,
however, and any market making with respect to the Notes may be discontinued at
any time without notice. Therefore, there can be no assurance as to the
liquidity of any trading market for the Notes or that an active trading market
for the Notes will develop. The Company does not intend to apply for listing or
quotation of the Notes on any securities exchange or stock market.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the Notes will not be
subject to similar disruptions. Any such disruptions may have an adverse effect
on holders of the Notes.
FRAUDULENT CONVEYANCE
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the Company
or any Subsidiary Guarantor, at the time it incurred the indebtedness evidences
by the Notes or its Subsidiary Guarantee, (i) (a) was or is insolvent or
rendered insolvent by reason of such occurrence or (b) was or is engaged in a
business or transaction for which the assets remaining with the Company or such
Subsidiary Guarantor constituted unreasonably small capital or (c) intended or
intends to incur, or believed or believes that it would incur, debts beyond its
ability to pay such debts as they mature, and (ii) the Company or such
Subsidiary Guarantor received or receives less than reasonably equivalent value
or fair consideration for the incurrence of such indebtedness, then the Notes
and the Subsidiary Guarantees, and any pledge or other security interest
securing such indebtedness, could be voided, or claims in respect of the Notes
or the Subsidiary Guarantees could be subordinated to all other debts of the
Company or such Subsidiary Guarantor, as the case may be. In addition, the
payment of interest and principal by the Company pursuant to the Notes or the
payment of amounts by a Subsidiary Guarantor pursuant to a Subsidiary Guarantee
could be voided and required to be returned to the person making such payment,
or to a fund for the benefit of the creditors of the Company or such Subsidiary
Guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or Subsidiary Guarantor would be
considered insolvent if (i) the sum of its debts, including contingent
liabilities, were greater than the saleable value of all of its assets at a fair
valuation or if the present fair saleable value of its assets were 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
(ii) it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, the Company and each Subsidiary Guarantor believes that,
after giving effect to the indebtedness incurred in connection with the Offering
and the Senior Credit Facility, it will not be insolvent, will not have
unreasonably small capital for the business in which it is engaged and will not
incur 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 the Company's or the Subsidiary
Guarantors' conclusions in this regard.
20
<PAGE> 27
THE COMPANY
The Company, which was founded in 1962 as a jewelry manufacturer, was
acquired by Gerald F. Cerce and Felix A. Porcaro, Jr. in 1972. Since that time,
through a series of acquisitions and internal growth, AAi has evolved from a
regional costume jewelry manufacturer into an international value-added
distributor of optical products, costume jewelry, watches, clocks and synthetic
leather goods with annual net sales of $182.0 million in 1997 on a pro forma
basis after giving effect to the Acquisitions.
In 1990, AAi partnered with Milagros Corporation Limited, a Hong Kong
corporation, to form a joint venture (consisting of three operating entities)
through which the Company outsources a majority of its manufacturing to
independent manufacturers located in Asia. The Hong Kong joint venture, in which
the Company currently holds a 49% interest, monitors contract manufacturing of
the Company's products, serves as sourcing agent to certain customers of AAi and
manufactures certain other accessories such as scarves, belts and beach towels
for distribution directly to retailers. Outsourcing product manufacturing allows
AAi to compete as a low cost supplier of its product lines and provides the
Company with flexibility in its cost structure. The Hong Kong joint venture had
1997 net sales of $37.0 million, of which $15.2 million or 41.1% were to the
Company.
In response to a major customer's North American expansion, the Company
established operations in Canada in 1994 and Mexico in 1996. The Company's
Mexican operations are conducted through a 55% owned joint venture with a local
costume jewelry manufacturer. The Company's Canadian operations and the Mexican
joint venture had 1997 net sales of $5.3 million and $1.4 million, respectively.
In December 1996, AAi acquired Foster Grant US, a major marketer and
distributor of sunglasses and reading glasses and owner of the domestic rights
to the Foster Grant trademark. This acquisition generated net sales of
approximately $66.2 million in 1997 and significantly expanded AAi's optical
product line. In March 1998, AAi acquired the European reading glasses and
sunglasses business of Foster Grant UK, and the rights to the Foster Grant
trademark in Europe, giving AAi worldwide rights to the Foster Grant brand.
On June 23, 1998, the Company acquired an 80% interest in Fantasma. The
other 20% interest in Fantasma is held by Roger Dreyer, President of that
company. Mr. Dreyer and another Fantasma officer have options to acquire in the
aggregate an additional 13% interest in Fantasma subject to satisfaction of
certain earnings targets in 1998, 1999 and 2000. The Company's acquisition of
Fantasma added watches and clocks to AAi's product lines and Disney and Warner
Bros. stores to its customer base.
AAi was incorporated in Rhode Island in December 1985 and is the successor
by merger to a Rhode Island corporation incorporated in 1962.
The Company's principal executive offices are located at 500 George
Washington Highway, Smithfield, Rhode Island 02917, and its telephone number is
(401) 231-3800.
21
<PAGE> 28
USE OF PROCEEDS
THE EXCHANGE OFFER
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the New Notes offered in the
Exchange Offer. In consideration for issuing the New Notes as contemplated in
this Prospectus, the Company will receive in exchange the Old Notes in like
principal amount, the form and terms of which are the same in all material
respects as the form and terms of the New Notes except that the New Notes have
been registered under the Securities Act and hence do not include certain rights
to registration thereunder or contain transfer restrictions or terms with
respect to Liquidated Damages. The Old Notes surrendered in exchange for the New
Notes will be retired and canceled and cannot be reissued. Accordingly, issuance
of the New Notes will not result in any proceeds to the Company or increase in
the indebtedness of the Company.
THE SALE OF THE OLD NOTES
The net proceeds received by the Company from the Offering, after deducting
the discount to the Initial Purchasers and related fees and expenses, were
approximately $72.0 million. The Company used the net proceeds as follows: (i)
$17.3 million was used to repay borrowings under term loans (the "Term Loans");
(ii) $52.3 million was used to repay borrowings under the Company's Revolving
Credit Facility (the "Revolving Credit Facility") under the Senior Credit
Facility (see "Description of Senior Credit Facility"); (iii) $2.2 million was
used to repay the entire debt due to certain common and preferred shareholders
under subordinated notes, less the advances made by the Company to certain
shareholders (see "Certain Transactions"); and (iv) $0.2 million was retained as
cash proceeds by the Company. The Company expects to use the balance of the net
proceeds from the sale of the Old Notes for general corporate purposes,
including working capital and capital expenditures. Pending use of such cash,
the balance of the net proceeds of the sale of the Old Notes will be invested in
cash equivalents.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on July 21, 1998 (the "Closing
Date") through the Initial Purchasers to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act). In connection with the sale of
the Old Notes, the Company, the Guarantors and the Initial Purchasers entered
into the Registration Rights Agreement pursuant to which the Company and the
Guarantors agreed to cause to be filed with the Commission within 45 days after
the Closing Date, and use their best efforts to cause to become effective on or
prior to 135 days after July 21, 1998, a registration statement with respect to
the Exchange Offer. However, if (i) the Company is not required to file an
Exchange Offer registration statement or to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) if any Holder of Old Notes shall notify the Company within 20
business days of the consummation of the Exchange Offer (A) that such Holder is
prohibited by applicable law or Commission policy from participating in the
Exchange Offer, or (B) that such Holder may not resell the New Notes acquired by
it in the Exchange Offer to the public without delivering a prospectus and that
the Prospectus contained in the Exchange Offer registration statement is not
appropriate or available for such resales by such holder, or (C) that such
Holder is a broker-dealer and holds Old Notes acquired directly from the Company
or one of its affiliates, then the Company and the Guarantors 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 Exchange Offer is being made by the Company to satisfy its obligations
pursuant to the Registration Rights Agreement. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. Once the Exchange Offer is consummated, the Company
will have no further obligations to register any of the Old Notes not tendered
by the Holders for exchange, except pursuant to a Shelf Registration Statement
filed under the limited circumstances described
22
<PAGE> 29
in the immediately preceding paragraph. Thereafter, any Holder of Old Notes who
does not tender its Old Notes in the Exchange Offer and which is not eligible to
use such a Shelf Registration Statement will continue to hold restricted
securities which may not be offered, sold or otherwise transferred, pledged or
hypothecated except pursuant to Rule 144 and Rule 144A under the Securities Act
or pursuant to any other exemption from registration under the Securities Act
relating to the disposition of securities.
Based on interpretations by the staff of the Commission set forth in
several no-action letters issued to third parties, including the Exchange Offer
No-Action Letters, the Company believes that New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by Holders thereof who are not affiliates of the Company
(other than a broker-dealer who acquired such Old Notes directly from the
Company for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act; provided
that the Holder is acquiring New Notes in its ordinary course of business and
has not engaged in, and does not intend to engage in, any distribution (within
the meaning of the Securities Act) of the New Notes and has no arrangement or
understanding with any person to participate in a distribution of the New Notes.
Persons wishing to exchange Old Notes in the Exchange Offer must represent to
the Company that such conditions have been met. However, any Holder who may be
deemed an "affiliate" (as defined under Rule 405 of the Securities Act) of the
Company or who tenders in the Exchange Offer with the intention to participate,
or for the purpose of participating, in a distribution of the New Notes cannot
rely on the interpretation by the staff of the Commission set forth in such
no-action letters, including the Exchange Offer No-Action Letters, and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. In addition, any such
resale transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K of the Securities Act.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer in exchange for Old Notes where such Old Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities (other than acquisitions directly from the Company) must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging 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. 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 New Notes received as aforesaid. The
Company has agreed that for a period of 180 days after the Exchange Offer is
consummated, it will, upon reasonable request, make this Prospectus available
promptly to such broker-dealers for use in connection with any such resale. See
"Plan of Distribution."
Except as set forth above, this Prospectus may not be used for an offer to
resell, or for a resale or other transfer of New Notes.
The Registration Rights Agreement provides that (i) the Company will file
an Exchange Offer registration statement with the Commission on or prior to 45
days after the Closing Date, (ii) the Company will use its best efforts to have
the Exchange Offer registration statement declared effective by the Commissions
on or prior to 135 days after the Closing Date, (iii) 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 on or prior to 30
business days after the date on which the Exchange Offer registration statement
was declared effective by the Commission, New Notes in exchange for all Old
Notes tendered prior thereto in the Exchange Offer and (iv) 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 30 days
after such filing obligation arises and to cause the Shelf Registration to be
declared effective by the Commission on or prior to 90 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 Statements 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 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer registration statement, or (d)
the Shelf Registration Statement or the Exchange Offer registration
23
<PAGE> 30
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 Transfer Restricted Securities, with
respect to the first 90-day period immediately following the occurrence of the
first Registration Default in an amount equal to $.05 per week per $1,000
principal amount of Transfer Restricted Securities held by such Holder. The
amount of the Liquidated Damages will increase by an additional $.05 per week
per $1,000 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 for all Registration Defaults of
$.30 per week per $1,000 principal amount of Transfer Restricted Securities. All
accrued Liquidated Damages will be paid by the Company on each interest payment
date to the Global Note Holder by wire transfer of immediately available funds
or by federal funds check and to Holders of certificated Notes 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. For
purposes of the foregoing, "Transfer Restricted Securities" means each Old Note
until (i) the date on which such Old Note has been exchanged by a person other
than a broker-dealer for a New Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of an Old Note for a New Note,
the date on which such New 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, (iii) the date on which
such Old Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iv) the date
on which such Old Note is distributed to the public pursuant to Rule 144 under
the Act.
TERMS OF THE EXCHANGE OFFER
General
Upon the terms and subject to the conditions of the Exchange Offer set
forth in this Prospectus and in the Letter of Transmittal, the Company will
accept any and all Old Notes validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. The Company will issue $1,000
principal amount of New Notes in exchange for each $1,000 principal amount of
outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or
all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000.
As of August 5, 1998, there was $75.0 million aggregate principal amount of
the Old Notes outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders as of , 1998.
In connection with the issuance of the Old Notes, the Company arranged for
the Old Notes to be issued and transferable in book-entry form through the
facilities of DTC, acting as depository. The New Notes exchanged for the Old
Notes will initially be issued and transferable in book-entry form through DTC.
See "Description of Notes -- Book-Entry Delivery and Form."
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of Old Notes for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Holder thereof as promptly as practicable
after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay the expenses, other than
certain applicable taxes, of the Exchange Offer. See "-- Fees and Expenses."
24
<PAGE> 31
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Company has the right to extend the Exchange Offer but only to the
extent necessary to comply with applicable federal and state securities laws or
if any action or proceeding is instituted or threatened in any court or by or
before any governmental agency with respect to the Exchange Offer which, in the
reasonable judgment of the Company, might impair the ability of the Company to
proceed with the Exchange Offer. In order to extend the Expiration Date, the
Company will notify the Exchange Agent and the record Holders of Old Notes of
any extension by oral or written notice, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date.
The Expiration Date will not be extended beyond the 30th business day after the
date of this Prospectus.
The Company reserves the right to delay accepting any Old Notes, to extend
the Exchange Offer, to amend the Exchange Offer or to terminate the Exchange
Offer and not accept Old Notes not previously accepted if the applicable
condition set forth herein under "Conditions" shall have occurred and shall not
have been waived by the Company by giving oral or written notice of such delay,
extension, amendment or termination to the Exchange Agent. Any such delay in
acceptance, extension, amendment or termination will be followed as promptly as
practicable by oral or written notice thereof. 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 such amendment and the Company will extend the Exchange
Offer as necessary to provide to such Holders a period of five to ten business
days after such amendment, depending upon the significance of the amendment and
the manner of disclosure to Holders of the Old Notes if the Exchange Offer would
otherwise expire during such five to ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
ACCRUED AMOUNTS ON THE NOTES
The New Notes will bear interest at a rate equal to 10 3/4% per annum from
the last date on which interest was paid on the Old Notes surrendered in
exchange therefor or, if no interest has been paid, from the date of original
issue of such Old Notes. Interest on the Notes is payable semi-annually on
January 15 and July 15 of each year, commencing on January 15, 1999.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a Holder of Old Notes must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the instructions to the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile,
together with the Old Notes and any other required documents, so that it is
received by the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
Any financial institution that is a participant in DTC (the "Book-Entry
Transfer Facility") may make book-entry delivery of the Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account in accordance with the Book-Entry Transfer Facility procedure
for such transfer. Although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account 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 or confirmed by the Exchange Agent at its address
set forth in "-- Exchange Agent" below prior to 5:00 p.m., New York City time,
on the Expiration Date. DELIVERY OF DOCUMENTS TO THE COMPANY IN ACCORDANCE WITH
ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a Holder 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.
25
<PAGE> 32
Delivery of all documents must be made to the Exchange Agent at its address
set forth below. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the above transactions
for such Holders.
The method of delivery of the tendered Old Notes, the Letter of Transmittal
and all other required documents to the Exchange Agent is at the election and
risk of the Holder. Instead of delivery by mail, it is recommended that the
Holder use an overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure timely delivery. No Letter of Transmittal or Old
Notes should be sent to the Company.
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "Holder" with respect to the Exchange Offer means any person in whose
name Old 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 HOLDER WHOSE OLD NOTES ARE REGISTERED IN THE NAME OF ITS
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 ITS BEHALF. IF SUCH BENEFICIAL HOLDER WISHES TO
TENDER ON ITS OWN BEHALF, SUCH BENEFICIAL HOLDER MUST, PRIOR TO COMPLETING AND
EXECUTING THE LETTER OF TRANSMITTAL AND DELIVERING ITS OLD NOTES, EITHER MAKE
APPROPRIATE ARRANGEMENTS TO REGISTER OWNERSHIP OF THE OLD NOTES IN SUCH HOLDER'S
NAME OR OBTAIN A PROPERLY COMPLETED BOND POWER FROM THE REGISTERED HOLDER. THE
TRANSFER OF RECORD OWNERSHIP MAY TAKE CONSIDERABLE TIME.
Signatures on a Letter of Transmittal (or a facsimile thereof) or a notice
of withdrawal, as the case may be, must be guaranteed by an Eligible Institution
(as defined below) unless the Old Notes tendered pursuant thereto are tendered
(i) by a registered Holder who has not completed the box entitled "Special
Payment Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal (or a facsimile thereof) or a notice
of withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by or through a 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
institution which falls within the definition of "Eligible Guarantor
Institution" contained in Rule 17Ad-15 promulgated by the Commission under the
Exchange Act (each an "Eligible Institution").
If the Letter of Transmittal (or facsimile thereof) is signed by a person
other than the registered Holder of the Old Notes tendered thereby, such Old
Notes must be endorsed or accompanied by appropriate bond powers signed as the
name of the registered Holder or Holders appears on the Old Notes, with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution.
If the Letter of Transmittal (or facsimile thereof) or any Old 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 acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
absolute right to reject any and all Old Notes not properly tendered or any Old
Notes the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to the Exchange Offer and/or
particular Old 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 Old Notes must be cured within such
time as the Company shall determine. None of the Company, the Exchange Agent nor
any other person shall be under any duty to give notification of
26
<PAGE> 33
defect or irregularities with respect to tenders of Old Notes, nor shall any of
them incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such defects or irregularities
have been cured or waived. Any Old Notes received by the Exchange Agent that are
not properly tendered and as to which any defects or irregularities have not
been cured or waived will be returned by the Exchange Agent to the tendering
Holder(s) of Old Notes, unless otherwise provided in the Letter of Transmittal,
as soon as practicable following the Expiration Date.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being acquired
in the ordinary course of such Holder's business, that such Holder has not
engaged in, nor intends to engage in, any distribution of the New Notes and has
no arrangement or understanding with any person to participate in the
distribution of such New Notes, and that such Holder is not an "affiliate" (as
defined under Rule 405 of the Securities Act) of the Company or any of its
subsidiaries. If the Holder is a broker-dealer that will receive New Notes for
is own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, such Holder by tendering
will acknowledge that it will deliver a Prospectus in connection with any resale
of such New Notes. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent, or cannot
complete the procedure for book-entry transfer, prior to 5:00 p.m. on the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Old Notes and the
principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed
Delivery, the Letter of Transmittal (or facsimile thereof) together with
the certificate(s) representing the Old Notes to be tendered in proper form
for transfer (or a confirmation of a book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility of Old Notes delivered
electronically) and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of a book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility of Old Notes delivered electronically) and all other documents
required by the Letter of Transmittal are received by the Exchange Agent
within three New York Stock Exchange trading days after the date of
execution of the Notice of Guaranteed Delivery. Upon request to the
Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who
wish to tender their Old Notes according to the guaranteed delivery
procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To
withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the principal amount of such
Old Notes), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be
27
<PAGE> 34
accompanied by documents of transfer sufficient to have the trustee with respect
to the Old Notes register the transfer of such Old Notes into the name of the
person withdrawing the tender, and (iv) specify the name in which any such Old
Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, which determination shall be
final and binding on all parties. Any Old Notes so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no New
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for payment will be returned to the Holder thereof without cost to such
Holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company may
terminate or amend the Exchange Offer as provided herein and will not be
required to accept for exchange, or exchange New Notes for, any Old Notes not
theretofore accepted for exchange, if any of the following conditions exist:
(a) the Exchange Offer, or the making of any exchange by a Holder,
violates applicable law or any applicable policy of the Commission; or
(b) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might impair the ability
of the Company to proceed with the Exchange Offer; or
(c) there shall have been adopted or enacted any law, statute, rule or
regulation which, in the reasonable judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer.
If any such conditions exist, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to exchanging Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of Holders to withdraw such Old
Notes (see "-- Withdrawal of Tenders") or (iii) waive certain of such conditions
with respect to the Exchange Offer and accept all properly tendered Old Notes
which have not been withdrawn or revoked. If such waiver constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver in
a manner reasonably calculated to inform Holders of Old Notes of such waiver.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, (i) if, because of any change in applicable law or applicable
policy thereof by the Commission the Company is not permitted to effect the
Exchange Offer, (ii) the Exchange Offer is not consummated within 135 days after
the date of original issue of the Old Notes or (iii) any Holder of Old Notes
notified the Company within 20 business days of the consummation of the Exchange
Offer that, for certain specified reasons, such Holder is precluded from
participating in the Exchange Offer, then the Company shall file a Shelf
Registration Statement. Thereafter, the Company's obligation to consummate the
Exchange Offer shall be terminated.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of
28
<PAGE> 35
Transmittal and requests for Notices of Guaranteed Delivery should be directed
to the Exchange Agent addressed as follows:
By registered or certified mail:
IBJ Schroder Bank & Trust-Company
Bowling Green Station
P.O. Box 84
New York, New York 10274-0084
Attention: Reorganization Operations Department
By hand or by overnight courier:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Securities Processing Window
Subcellar one, (SC-1)
By facsimile: (212) 858-2611
Attention: Customer Service
Confirm by telephone: (212) 858-2103
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by facsimile, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it 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
Old Notes, and in handling or forwarding tenders for exchange.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company, are estimated in the aggregate not to exceed $300,000,
and include fees and expenses of the Exchange Agent and Trustee under the
Indenture and accounting and legal fees.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old 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 Holder of the Old Notes tendered, or
if tendered Old 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 Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the Holder or any
other person(s)) 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.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
that is, face value as reflected in the Company's accounting records on the date
of the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized upon the consummation of the Exchange Offer. The issuance costs
incurred in connection with the Exchange Offer will be capitalized and amortized
over the term of the New Notes.
A copy of the Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
29
<PAGE> 36
CAPITALIZATION
The following table sets forth the Company's consolidated capitalization as
of April 4, 1998 on a historical basis and on an as adjusted basis after giving
effect to the Offering and the application of the net proceeds therefrom as if
they had occurred as of April 4, 1998.
<TABLE>
<CAPTION>
APRIL 4, 1998
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term obligations:
Current maturities of long-term obligations (a)........... $ 3,387 $ 669
Senior credit facility (b)................................ 47,066 --
Long-term obligations:
Senior credit facility.................................... 7,975 --
10 3/4% senior notes due 2006............................. -- 75,000
Subordinated promissory notes payable to shareholders..... 5,575 --
Other long-term obligations(a)............................ 753 753
------- -------
Total obligations......................................... 64,756 76,422
Redeemable preferred stock:
Redeemable preferred stock of a subsidiary................ 847 847
Preferred stock, $.01 par value, 200,000 authorized;
43,700 designated, issued and outstanding as Series A
Preferred Stock........................................ 26,766 26,766
------- -------
Total redeemable preferred stock.......................... 27,613 27,613
------- -------
Total shareholders' deficit................................. (6,590) (6,590)
------- -------
Total capitalization........................................ $85,779 $97,445
======= =======
</TABLE>
- ---------------
(a) Excludes approximately $1.2 million of deferred compensation.
(b) Represents borrowings of approximately $45.0 million outstanding under the
Revolving Credit Facility and approximately $2.0 million outstanding under
the Term Loans. The long-term portion represents the remaining amount
outstanding under the Term Loans.
30
<PAGE> 37
SELECTED PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Statements of Operations for the
year ended December 31, 1997 and the three and twelve months ended April 4, 1998
give effect to the Acquisitions and the Offering and the application of the net
proceeds therefrom as if each had occurred at the beginning of the earliest
period presented. The Unaudited Pro Forma Combined Statements of Operations do
not include the effects of the Company's acquisition of Donley Company in May
1998 as the Company has determined that its effects are not material. The
following Unaudited Pro Forma Combined Balance Sheet as of April 4, 1998 gives
effect to the Fantasma Acquisition and the Offering and the application of the
net proceeds therefrom.
The Unaudited Pro Forma Combined Financial Statements have been prepared
using the purchase method of accounting for the Acquisitions whereby the total
cost of each acquisition is allocated to the tangible and intangible assets
acquired and liabilities assumed based upon their respective fair values at the
effective dates of such acquisitions. Such allocations for the Fantasma
Acquisition have been made based upon currently available information and
management's estimates. Final allocations will be determined upon completion of
the analysis of the assets acquired and liabilities assumed.
The Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1997 is derived from the audited financial statements of the
Company for the year ended December 31, 1997, the unaudited financial statements
of Fantasma and Foster Grant UK for the year ended December 31, 1997 and the
unaudited financial statements of Superior for the six months ended June 30,
1997. The Unaudited Pro Forma Combined Statement of Operations for the twelve
months ended April 4, 1998 is derived from the unaudited financial statements of
the Company and Fantasma for the twelve months ended April 4, 1998, the
unaudited financial statements of Foster Grant UK for the eleven months ended
February 28, 1998 and the unaudited financial statements of Superior for the
three months ended June 30, 1997. The Unaudited Pro Forma Combined Statement of
Operations for the three months ended April 4, 1998 is derived from the
unaudited financial statements of the Company for the three months ended April
4, 1998, the unaudited financial statements of Fantasma for the three months
ended March 31, 1998 and the unaudited financial statements of Foster Grant UK
for the two months ended February 28, 1998. The historical financial information
included in the pro forma Statements of Operations for Superior, Fantasma and
Foster Grant UK for the above mentioned periods represents the operating results
of these entities prior to the Company's acquisition for each period presented.
The unaudited financial statements reflect all adjustments, consisting of normal
recurring adjustments, which in the opinion of management are necessary for a
presentation of results for the respective periods in accordance with the basis
of presentation described in Note 1 of the Notes to the Company's Consolidated
Financial Statements and similar statements found in the other entities'
unaudited financial statements.
The Unaudited Pro Forma Combined Financial Statements do not purport to
represent what the results of operations or financial position of the Company
would actually have been if any of the transactions had occurred on such dates
or to project the results of operations or financial positions of the Company
for any future date or period. The Unaudited Pro Forma Combined Financial
Statements set forth below should be read in conjunction with the respective
Consolidated Financial Statements and Notes thereto of the Company included
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
31
<PAGE> 38
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------
HISTORICAL PRO FORMA
-------------------------------------------- COMBINED
FOSTER FOR THE
AAI SUPERIOR(a) GRANT UK FANTASMA ADJUSTMENTS ACQUISITIONS
-------- ----------- -------- -------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $149,411 $6,314 $9,104 $17,163 $ -- $181,992
Cost of goods sold............ 77,928 2,939 4,089 12,750 -- 97,706
-------- ------ ------ ------- ------- --------
Gross profit.................. 71,483 3,375 5,015 4,413 -- 84,286
Operating expenses............ 65,285 2,940 4,336 3,572 53(b) 76,680
166(c)
328(d)
-------- ------ ------ ------- ------- --------
Income from operations........ 6,198 435 679 841 (547) 7,606
Interest expense.............. (4,214) (134) (112) (481) (754)(e) (5,695)
Other (expense) income, net... 31 21 (101) -- -- (49)
-------- ------ ------ ------- ------- --------
Income (loss) before taxes and
dividends and accretion on
preferred stock............. 2,015 322 466 360 (1,301) 1,862
Income tax benefit
(expense)................... (1,177) -- -- (145) 242(h) (1,080)
-------- ------ ------ ------- ------- --------
Net income (loss) before
dividends and accretion on
preferred stock............. 838 322 466 215 (1,059) 782
Dividends and accretion on
preferred stock............. 2,496 -- -- -- -- 2,496
-------- ------ ------ ------- ------- --------
Net income (loss) applicable
to common shareholders...... $ (1,658) $ 322 $ 466 $ 215 $(1,059) $ (1,714)
======== ====== ====== ======= ======= ========
OTHER OPERATING DATA:
Depreciation and
amortization................ $ 9,894 $ 319 $ 806 $ 11 $ 547 $ 11,577
EBITDA (i).................... 16,123 775 1,384 852 -- 19,134
Capital expenditures.......... 7,583 298 523 41 -- 8,445
Cash interest expense......... -- -- -- -- -- --
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------
PRO FORMA
COMBINED AS
PRO FORMA ADJUSTED FOR THE
EFFECTS OF OFFERING AND THE
THE OFFERING ACQUISITIONS
------------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $ -- $181,992
Cost of goods sold............ -- 97,706
------- --------
Gross profit.................. -- 84,286
Operating expenses............ -- 76,680
------- --------
Income from operations........ -- 7,606
Interest expense.............. (2,594)(f) (8,664)
(375)(g)
Other (expense) income, net... -- (49)
------- --------
Income (loss) before taxes and
dividends and accretion on
preferred stock............. (2,969) (1,107)
Income tax benefit
(expense)................... 1,722(h) 642
------- --------
Net income (loss) before
dividends and accretion on
preferred stock............. (1,247) (465)
Dividends and accretion on
preferred stock............. -- 2,496
------- --------
Net income (loss) applicable
to common shareholders...... $(1,247) $ (2,961)
======= ========
OTHER OPERATING DATA:
Depreciation and
amortization................ $ -- $ 11,577
EBITDA (i).................... -- 19,134
Capital expenditures.......... -- 8,445
Cash interest expense......... -- 8,269
SELECTED RATIOS:
Ratio of EBITDA to cash interest expense.............. 2.31x
Ratio of total debt to EBITDA......................... 4.02x
Ratio of earnings to fixed charges(j)................. --
</TABLE>
- ---------------
(a) Includes the results of operations from the beginning of the period reported
to July 1, 1997, the date of acquisition by AAi.
(b) Reflects the amortization of intangible assets associated with the
acquisition of certain assets of Foster Grant UK.
(c) Reflects the amortization of intangible assets associated with the
acquisition of certain assets of Superior.
(d) Reflects the amortization of intangible assets associated with the Fantasma
Acquisition.
(e) Reflects pro forma interest expense on debt used to finance the Acquisitions
calculated using an assumed interest rate of 8.96% per annum on the
Revolving Credit Facility and Term Loans.
(f) Reflects the estimated additional interest expense associated with the Notes
at a rate of 10.75% per annum.
(g) Reflects the estimated additional amortization of deferred financing costs
associated with the Offering.
(h) Reflects pro forma tax impact of pro forma adjustments stated at the
Company's effective tax rate.
(i) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with GAAP, AAi believes that EBITDA is accepted as a generally
recognized measure of performance in the distribution industry.
Nevertheless, this measure should not be considered in isolation or as a
substitute for operating income, net income, net cash provided by operating
activities or any other measure for determining AAi's operating performance
or liquidity which is calculated in accordance with GAAP.
(j) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges (excluding
accretion and noncash dividends on Series A Preferred Stock). Fixed charges
consist of interest expense, amortization of debt issuance costs, accretion
and noncash dividends on Series A Preferred Stock and the portion of rental
expense that is representative of the interest factor. On a pro forma basis,
earnings were insufficient to cover fixed charges by $7.2 million.
32
<PAGE> 39
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 4, 1998
------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
--------------------------- PRO FORMA COMBINED AS
FOSTER COMBINED PRO FORMA ADJUSTED FOR THE
GRANT FOR THE EFFECTS OF OFFERING AND THE
AAI UK(A) FANTASMA ADJUSTMENTS ACQUISITIONS THE OFFERING ACQUISITIONS
------- ------ -------- ----------- ------------ ------------ ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $42,703 $1,883 $ 2,941 $ -- $ 47,527 $ -- $47,527
Cost of goods sold................ 23,431 839 2,030 -- 26,300 -- 26,300
------- ------ ------- ------- -------- ------ -------
Gross profit...................... 19,272 1,044 911 -- 21,227 -- 21,227
Operating expenses 17,627 941 906 9(b) 19,565 -- 19,565
82(c)
------- ------ ------- ------- -------- ------ -------
Income from operations............ 1,645 103 5 (91) 1,662 -- 1,662
Interest expense.................. (1,178) (15) (102) (168)(d) (1,463) (606)(e) (2,163)
(94)(f)
Other (expense) income, net....... 76 (18) -- -- 58 -- 58
------- ------ ------- ------- -------- ------ -------
Income (loss) before taxes and
dividends and accretion on
preferred stock................. 543 70 (97) (259) 257 (700) (443)
Income tax benefit (expense)...... (239) -- -- 126(g) (113) 308(g) 195
------- ------ ------- ------- -------- ------ -------
Net income (loss) before dividends
and accretion on preferred
stock........................... 304 70 (97) (133) 144 (391) (248)
Dividends and accretion on
preferred stock................. 683 -- -- -- 683 -- 683
------- ------ ------- ------- -------- ------ -------
Net income (loss) applicable to
common shareholders............. $ (379) $ 70 $ (97) $ (133) $ (539) $ (391) $ (931)
======= ====== ======= ======= ======== ====== =======
OTHER OPERATING DATA:
Depreciation and amortization..... $ 2,972 $ 284 $ 4 $ 91 $ 3,351 -- $ 3,351
EBITDA (h)........................ 4,693 369 9 -- 5,071 -- 5,071
Capital expenditures.............. 9,073 521 2 -- 9,596 -- 9,596
Cash interest expense............. -- -- -- -- -- -- 2,016
SELECTED RATIOS:
Ratio of EBITDA to cash interest expense................................................................... 2.52x
Ratio of total debt to EBITDA.............................................................................. 3.77x
Ratio of earnings to fixed charges(i)...................................................................... --
</TABLE>
- ---------------
(a) Includes the results of operations from the beginning of the period reported
to March 5, 1998, the date of acquisition by AAi.
(b) Reflects the amortization of intangible assets associated with the
acquisition of certain assets of Foster Grant UK.
(c) Reflects the amortization of intangible assets associated with the Fantasma
Acquisition.
(d) Reflects pro forma interest expense on debt used to finance the acquisitions
calculated using an assumed interest rate of 9.00% per annum on the
Revolving Credit Facility and Term Loans.
(e) Reflects the estimated additional interest expense associated with the Notes
at a rate of 10.75% per annum.
(f) Reflects the estimated additional amortization of deferred financing costs
associated with the Offering.
(g) Reflects pro forma tax impact of pro forma adjustments stated at the
Company's effective tax rate.
(h) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with GAAP, AAi believes that EBITDA is accepted as a generally
recognized measure of performance in the distribution industry.
Nevertheless, this measure should not be considered in isolation or as a
substitute for operating income, net income, net cash provided by operating
activities or any other measure for determining AAi's operating performance
or liquidity which is calculated in accordance with GAAP.
(i) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges (excluding
accretion and noncash dividends on Series A Preferred Stock). Fixed charges
consist of interest expense, amortization of debt issuance costs, accretion
and noncash dividends on the Series A Preferred Stock and the portion of
rental expense that is representative of the interest factor. On a pro forma
basis, earnings were insufficient to cover fixed charges by $1.7 million.
33
<PAGE> 40
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED APRIL 4, 1998
--------------------------------------------------------
HISTORICAL
------------------------------------------
FOSTER
GRANT
AAI SUPERIOR(A) UK(A) FANTASMA ADJUSTMENTS
-------- ----------- ------ -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $157,263 $3,349 $8,334 $18,228 $ --
Cost of goods sold.............. 82,336 1,650 3,677 12,844 --
-------- ------ ------ ------- -------
Gross profit.................... 74,927 1,699 4,657 5,384 --
Operating expenses.............. 68,225 1,696 4,039 3,631 53(b)
83(c)
328(d)
-------- ------ ------ ------- -------
Income from operations.......... 6,702 3 618 1,753 (464)
Interest expense................ (4,464) (70) (97) (495) (912)(e)
Other (expense) income, net..... 59 7 (98) -- --
-------- ------ ------ ------- -------
Income (loss) before taxes and
dividends and accretion on
preferred stock............... 2,297 (60) 423 1,258 (1,376)
Income tax benefit (expense).... (1,320) -- -- (124) 325(h)
-------- ------ ------ ------- -------
Net income (loss) before
dividends and accretion on
preferred stock............... 977 (60) 423 1,134 (1,051)
Dividends and accretion on
preferred stock............... 2,582 -- -- -- --
-------- ------ ------ ------- -------
Net income (loss) applicable to
common shareholders........... $ (1,605) $ (60) $ 423 $ 1,134 $(1,051)
======== ====== ====== ======= =======
OTHER OPERATING DATA:
Depreciation and amortization... $ 10,879 $ 110 $ 757 $ 13 $ 464
EBITDA (i)...................... 17,640 120 1,278 1,766 --
Capital expenditures............ 15,164 174 671 294 --
Cash interest expense........... -- -- -- -- --
SELECTED RATIOS:
Ratio of EBITDA to cash interest expense..................................................
Ratio of total debt to EBITDA.............................................................
Ratio of earnings to fixed charges(j).....................................................
<CAPTION>
TWELVE MONTHS ENDED APRIL 4, 1998
-----------------------------------------------
PRO FORMA
PRO FORMA COMBINED AS
COMBINED PRO FORMA ADJUSTED FOR THE
FOR THE EFFECTS OF OFFERING AND THE
ACQUISITIONS THE OFFERING ACQUISITIONS
------------ ------------ -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $187,174 $ -- $187,174
Cost of goods sold.............. 100,507 -- 100,507
-------- ------- --------
Gross profit.................... 86,667 -- 86,667
Operating expenses.............. 78,055 -- 78,055
-------- ------- --------
Income from operations.......... 8,612 -- 8,612
Interest expense................ (6,038) (2,244)(f) (8,657)
(375)(g)
Other (expense) income, net..... (32) -- (32)
-------- ------- --------
Income (loss) before taxes and
dividends and accretion on
preferred stock............... 2,542 (2,619) (77)
Income tax benefit (expense).... (1,119) (1,153)(h) 34
-------- ------- --------
Net income (loss) before
dividends and accretion on
preferred stock............... 1,423 (1,466) (43)
Dividends and accretion on
preferred stock............... 2,582 -- 2,582
-------- ------- --------
Net income (loss) applicable to
common shareholders........... $ (1,159) $(1,466) $ (2,625)
======== ======= ========
OTHER OPERATING DATA:
Depreciation and amortization... $ 12,223 $ -- $ 12,223
EBITDA (i)...................... 20,802 -- 20,802
Capital expenditures............ 16,303 -- 16,303
Cash interest expense........... -- -- 8,260
SELECTED RATIOS:
Ratio of EBITDA to cash interest 2.52x
Ratio of total debt to EBITDA... 3.67x
Ratio of earnings to fixed charg --
</TABLE>
- ---------------
(a) Includes the results of operations of the acquired businesses from the
beginning of the period reported to the respective dates of acquisition by
AAi (Superior on July 1, 1997 and Foster Grant UK on March 5, 1998).
(b) Reflects the amortization of intangible assets associated with the
acquisition of certain assets of Foster Grant UK.
(c) Reflects the amortization of intangible assets associated with the
acquisition of Superior.
(d) Reflects the amortization of intangible assets associated with the Fantasma
Acquisition.
(e) Reflects pro forma interest expense on debt used to finance the acquisitions
calculated using an assumed average interest rate of 8.97% per annum on the
Revolving Credit Facility and Term Loans.
(f) Reflects the estimated additional interest expense associated with the Notes
at a rate of 10.75% per annum.
(g) Reflects the estimated additional amortization of deferred financing costs
associated with the Offering.
(h) Reflects pro forma tax impact of pro forma adjustments stated at the
Company's effective tax rate.
(i) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with GAAP, AAi believes that EBITDA is accepted as a generally
recognized measure of performance in the distribution industry.
Nevertheless, this measure should not be considered in isolation or as a
substitute for operating income, net income, net cash provided by operating
activities or any other measure for determining AAi's operating performance
or liquidity which is calculated in accordance with GAAP.
(j) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges (excluding
accretion and noncash dividends on Series A Preferred Stock). Fixed charges
consist of interest expense, amortization of debt issuance costs, accretion
and noncash dividends on the Series A Preferred Stock and the portion of
rental expense that is representative of the interest factor. On a pro forma
basis, earnings were insufficient to cover fixed charges by $6.4 million.
34
<PAGE> 41
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF APRIL 4, 1998
------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA PRO FORMA
--------------------------- PRO FORMA EFFECTS OF COMBINED
AAI CONSOLIDATED FANTASMA ADJUSTMENTS(a) COMBINED THE OFFERING(b) AS ADJUSTED
---------------- -------- -------------- --------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents... $ 439 $ -- $ -- $ 439 $ 3,911 $ 4,350
Accounts receivable......... 34,928 2,198 442 37,568 -- 37,568
Inventories................. 34,873 1,507 -- 36,380 -- 36,380
Prepaids.................... 609 103 -- 712 -- 712
Deferred tax assets, net.... 8,755 -- -- 8,755 -- 8,755
-------- ------ ------ -------- -------- --------
Total current assets.... 79,604 3,808 442 83,854 3,911 87,765
-------- ------ ------ -------- -------- --------
Property and equipment --
net....................... 18,177 65 -- 18,242 -- 18,242
Deferred costs -- net....... 1,703 -- -- 1,703 -- 1,703
Investments in affiliates... 1,486 -- -- 1,486 -- 1,486
Intangibles, net............ 17,340 -- 3,446 20,786 -- 20,786
Advances to
officers/shareholders..... 2,215 -- -- 2,215 (2,215) --
Other....................... 1,234 3 -- 1,237 3,000(c) 4,237
-------- ------ ------ -------- -------- --------
Total assets............ $121,759 $3,876 $3,888 $129,523 $ 4,696 $134,219
======== ====== ====== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
Borrowings under revolver... $ 45,041 $ -- $3,992 $ 49,033 $(49,033) $ --
Current maturities -- long
term obligations.......... 5,442 2,978 -- 8,420 (7,721) 699
Accounts payable............ 22,184 70 -- 22,254 -- 22,254
Accrued income taxes........ 2,100 -- -- 2,100 -- 2,100
Accrued expenses............ 9,788 698 -- 10,486 -- 10,486
-------- ------ ------ -------- -------- --------
Total current
liabilities........... 84,555 3,746 3,992 92,293 (56,754) 35,539
-------- ------ ------ -------- -------- --------
Notes....................... -- -- -- -- 75,000 75,000
Long term obligations
less current maturities... 9,917 -- -- 9,917 (7,975) 1,942
Deferred tax liabilities.... 689 -- -- 689 -- 689
Subordinated notes
payable................... 5,575 -- -- 5,575 (5,575) --
-------- ------ ------ -------- -------- --------
Total liabilities....... 100,736 3,746 3,992 108,474 4,696 113,170
Minority interest........... -- -- 26 26 -- 26
Redeemable preferred stock
-- subsidiary............. 847 -- -- 847 -- 847
Redeemable preferred
stock..................... 26,766 -- -- 26,766 -- 26,766
Common stock................ 6 -- -- 6 -- 6
Additional paid in
capital................... 270 183 (183) 270 -- 270
Cumulative foreign currency
translation adjustment.... (55) -- -- (55) -- (55)
Accumulated deficit......... (6,811) (53) 53 (6,811) -- (6,811)
-------- ------ ------ -------- -------- --------
Total shareholders' equity
(deficit)............... (6,590) 130 (130) (6,590) -- (6,590)
-------- ------ ------ -------- -------- --------
Total liabilities and
shareholders'
deficit............... $121,759 $3,876 $3,888 $129,523 $ 4,696 $134,219
======== ====== ====== ======== ======== ========
</TABLE>
- ---------------
(a) Reflects the Company's investment in Fantasma and related purchase
accounting adjustments.
(b) Reflects the impact of the sources and uses of funds related to the
Company's cash and debt from the Offering.
(c) Reflects deferred financing costs of $3.0 million associated with the
Offering.
35
<PAGE> 42
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth selected historical consolidated financial
information of AAi as of the end of and for each of the five years ended
December 31, 1997, for the three months ended March 31, 1997 and April 4, 1998
and as of April 4, 1998. The selected historical consolidated financial data as
of December 31, 1996 and 1997 and for each of the three years in the period
ended December 31, 1997, were derived from the Consolidated Financial Statements
of the Company, which have been audited by Arthur Andersen LLP, independent
public accountants, and are included elsewhere in this Prospectus. The selected
historical consolidated financial data as of December 31, 1993, 1994 and 1995
and for the years ended December 31, 1993 and 1994 were derived from audited
consolidated financial statements of the Company that are not included in this
Prospectus. The selected historical consolidated financial data as of April 4,
1998 and for the three months ended March 31, 1997 and April 4, 1998 are
unaudited, but have been prepared on the same basis as the audited Consolidated
Financial Statements, which, in the opinion of management, contain all
adjustments (consisting only of normal recurring adjustments) necessary for the
fair presentation of the information set forth therein. The results of operation
for the three months ended April 4, 1998 are not necessarily indicative of the
results that may be expected for the full year. The following table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, --------------------
---------------------------------------------------- MARCH 31, APRIL 4,
1993 1994 1995 1996(a) 1997(a) 1997 1998(a)
------- ------- ------- ------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $68,703 $76,611 $88,050 $86,336 $149,411 $34,851 $42,703
Cost of goods sold............................... 30,932 37,096 43,690 47,871 77,928 19,023 23,431
------- ------- ------- ------- -------- ------- -------
Gross profit..................................... 37,771 39,515 44,360 38,465 71,483 15,828 19,272
Operating expenses............................... 32,785 36,441 34,782 35,678 65,285 14,687 17,627
------- ------- ------- ------- -------- ------- -------
Income from operations........................... 4,986 3,074 9,578 2,787 6,198 1,141 1,645
Interest expense................................. (491) (342) (1,031) (1,469) (4,214) (928) (1,178)
Other (expense) income, net...................... 459 88 (80) (331) 31 (48) 76
------- ------- ------- ------- -------- ------- -------
Income before taxes.............................. 4,954 2,820 8,467 987 2,015 165 543
Income tax benefit (expense)..................... -- -- (42) 204 (1,177) (96) (239)
------- ------- ------- ------- -------- ------- -------
Net income....................................... 4,954 2,820 8,425 1,191 838 69 304
Dividends and accretion on preferred stock(b).... -- -- -- 1,123 2,496 597 683
------- ------- ------- ------- -------- ------- -------
Net income (loss) applicable to common
shareholders................................... 4,954 2,820 8,425 68 (1,658) (528) (379)
Pro forma income tax adjustment(c)............... (1,982) (1,128) (3,370) (598) -- -- --
------- ------- ------- ------- -------- ------- -------
Pro forma net income (loss) applicable to common
shareholders................................... $ 2,972 $ 1,692 $ 5,055 $ (530) $ (1,658) $ (528) $ (379)
======= ======= ======= ======= ======== ======= =======
OTHER DATA:
Depreciation and amortization.................... $ 473 $ 628 $ 783 $ 2,400 $ 9,894 $ 1,987 $ 2,972
EBITDA (d)....................................... 5,918 3,790 10,281 4,856 16,122 3,080 4,693
Capital expenditures (e)......................... 680 1,552 1,555 1,572 7,583 1,492 9,073
Ratio of earnings to fixed charges (f)........... 8.30x 5.69x 8.12x -- -- -- --
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------------------- APRIL 4,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)......................... $ 4,003 $ 4,436 $ 7,795 $ 722 $ 5,222 $ (4,951)
Total assets...................................... 14,730 16,773 25,187 83,666 94,915 121,759
Total debt(g)..................................... 683 2,593 5,542 35,588 44,959 64,756
Preferred securities(h)........................... -- -- -- 23,587 26,083 26,766
Total shareholders' equity(deficit)............... 4,848 4,890 11,523 (4,179) (6,234) (6,590)
</TABLE>
- ---------------
(a) Includes the results of operations of the acquired businesses from the
respective dates of acquisition: Tempo in June 1996, Foster Grant US in
December 1996, Superior in July 1997 and Foster Grant UK in March 1998.
(b) Reflects a reduction from net income for the accretion and noncash dividends
on Series A Preferred Stock. See Note 9 of the Notes to the Company's
Consolidated Financial Statements.
(c) The Company was an S corporation under Section 1362 of the Internal Revenue
Code until May 31, 1996. Pro forma income taxes, assuming the Company was
subject to C corporation income taxes, have been provided, in the
accompanying statement of operations for 1993, 1994, 1995 and 1996, at an
estimated statutory rate of 40%.
(d) "EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization. Although EBITDA is not a measure of performance calculated in
accordance with GAAP, AAi believes that EBITDA is accepted as a generally
recognized measure of performance in the distribution industry.
Nevertheless, this measure should not be considered in isolation or as a
substitute for operating income, net income, net cash provided by operating
activities or any other measure for determining AAi's operating performance
or liquidity which is calculated in accordance with GAAP.
(e) Does not include capital assets acquired in connection with the acquisitions
of the Foster Grant US, Tempo, Superior and Foster Grant UK.
(f) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of earnings before income taxes plus fixed charges (excluding
accretion and noncash dividends on Series A Preferred Stock). Fixed charges
consist of interest expense, amortization of debt issuance costs and the
portion of rental expense that is representative of the interest factor.
Earnings were insufficient to cover fixed charges by $0.9 million, $4.1
million, $1.3 million and $0.7 million for the years ended December 31, 1996
and 1997 and the three months ended March 31, 1997 and April 4, 1998,
respectively.
(g) Includes amounts outstanding under Revolving Credit Facility, various
long-term obligations and subordinated promissory notes payable to
shareholders at each applicable period.
(h) Does not include preferred stock of Foster Grant Holdings, Inc.
36
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
AAi is a value-added distributor of optical products, costume jewelry,
watches, clocks and other accessories primarily to mass merchandisers, variety
stores, chain drug stores and supermarkets in North America and the United
Kingdom. As a value-added distributor, the Company provides customized store
displays, merchandising management and a store-level field service force to
replenish and restock displays, reorder product and attend to markdowns and
allowances. Upon shipment to the customer the Company estimates agreed upon
future allowances, returns and discounts, taking into account historical
experience, and reflects revenue net of these estimates.
The Company believes its relationships with retailers is dependent upon its
ability to efficiently utilize allocated floor space to generate satisfactory
returns for its customers. To meet this end, the Company strives to consistently
deliver competitively priced products and service programs which provide
retailers with attractive gross margins and inventory turnover rates.
Certain segments of the retail industry, particularly mass merchandisers,
variety stores, drugstores and supermarkets, are experiencing significant
consolidation and in recent years many major retailers have experienced
financial difficulties. These industry wide developments have had and may
continue to have an impact on the Company's results of operations. For example,
net sales were adversely affected in 1997 by the loss of two customers, one as a
result of a merger into a retail chain that does not carry costume jewelry and
the other due to the retailer ceasing operations. In addition, also as a result
of financial pressures, many major retailers have sought to reduce inventory
levels in order to reduce their operating costs. For example, in 1996 certain
mass merchandisers adopted inventory management programs which adversely
impacted the Company's sales and net income in that year.
During the first quarter of 1998, the Company elected to change its fiscal
year end from December 31 to the Saturday closest to December 31. The Company
has also applied this change to its quarterly interim periods during 1998
whereby each interim period will end on the last Saturday of the thirteen week
period.
Net Sales. The Company offers optical products, costume jewelry, small
synthetic leather goods and other accessories, generally at retail price points
of $20 or less. In December 1996, the Company acquired Foster Grant US, a major
marketer and distributor of sunglasses and reading glasses, a product line in
which the Company had only minimal sales before the acquisition. Foster Grant US
represented approximately $66.0 million or 44.2% of the Company's net sales in
1997. Accordingly, the Company's product mix changed dramatically as a result of
this acquisition. Net sales of the Company's optical products accounted for
approximately 17.4% and 50.7% of the Company's net sales in 1996 and 1997,
respectively; net sales of the Company's costume jewelry accounted for
approximately 74.6% and 43.5% of the Company's net sales in 1996 and 1997,
respectively, and the balance represented sales of synthetic leather goods and
other accessories. Optical products generally have slightly higher gross margins
than the Company's other product lines.
Cost of Goods Sold. The Company outsources manufacturing for all of its
products, 75% of which is sourced to manufacturers in Asia through its joint
venture in Hong Kong, with the remainder outsourced to independent domestic
manufacturers. Accordingly, the principal element comprising the Company's cost
of goods sold is the price of manufactured goods purchased through the Company's
joint venture or from independent manufacturers. The Company believes
outsourcing manufacturing allows it to reliably deliver competitively priced
products to the retail market while retaining considerable flexibility in its
cost structure.
Operating Expenses. Operating expenses are comprised primarily of payroll
and occupancy costs related to the Company's selling, general and administrative
activities as well as depreciation and amortization. The Company incurs various
costs in connection with the acquisition of new customers and new stores for
existing customers, principally the cost of new product display fixtures and
costs related to the purchase of the customer's existing inventory. The Company
makes substantial investments in the design, production and installation of
display fixtures in connection with establishing and maintaining customer
relationships. The
37
<PAGE> 44
Company capitalizes the production cost of these display fixtures as long as it
retains ownership of them. These costs are amortized to selling expenses on a
straight-line basis over their estimated useful life, which is one to three
years. If the Company does not retain title to the displays, the display costs
are expensed as shipped. In addition, in connection with initial merchandise
shipments to new customers and new store locations, the Company may issue
credits to the customer for the cost to purchase the previous vendors' unsold
merchandise (buyback credits or stocklifting credits). These costs are expensed
as incurred unless there is an agreement regarding the term of relationship over
which the estimated gross margin from anticipated product sales is sufficient to
recover the Company's purchase of the previous vendor's unsold merchandise. In
the latter case, the costs are amortized over a period that matches these costs
with the related revenue.
Dividends and Accretion on Preferred Stock. The Company has 43,700 shares
of Series A Redeemable Convertible Preferred Stock ("Series A Preferred Stock")
outstanding, of which 34,200 were issued in May 1996 for gross proceeds of $18.0
million, and an additional 9,500 shares were issued for gross proceeds of $5.0
million in connection with the December 1996 acquisition of Foster Grant US.
Beginning on June 30, 2002, shares of the Series A Preferred Stock are
redeemable at the option of the holder for an amount equal to the original issue
price plus accrued and unpaid dividends yielding a 10% compounded annual rate of
return provided, however, that the right to require redemption is suspended as
long as any Restrictive Indebtedness (as defined) is outstanding. Net income
applicable to common shareholders represents net income less accretion of
original issuance costs and cumulative dividends due on the Series A Preferred
Stock. See "Description of Capital Stock."
RECENT SIGNIFICANT ACQUISITIONS
The Company has grown rapidly through strategic acquisitions in recent
years and expects to continue this strategy into the future. See "Risk
Factors--Risks Associated with Acquisitions."
In June 1998, the Company acquired 80% of the membership interests of
Fantasma for $3.5 million in cash. The remaining 20% membership interest of
Fantasma is held by Roger Dreyer, president of that company. Mr. Dreyer and
another officer of Fantasma have options to acquire in the aggregate an
additional 13% membership interest in Fantasma subject to satisfaction of
certain earnings targets in 1998, 1999 and 2000. AAi's acquisition of Fantasma
added watches and clocks to AAi's product lines and Disney and Warner Bros.
stores to its customer base. As a result of this transaction, the Company will
record approximately $3.4 million in intangible assets which will be amortized
over 10 years.
In March 1998, the Company acquired certain assets of Foster Grant UK for
the aggregate book value of certain acquired assets, including inventory items
of $3.3 million and accounts receivable of $1.7 million, less the aggregate
amount of trade payables assumed of $1.1 million and bank debt assumed of $1.7
million. In addition, the Company acquired the Foster Grant trademark in the
United Kingdom and Europe for $0.7 million, which amount is subject to upward
adjustment at the end of 1998 and 1999 based on annual sales, up to a maximum
additional payment of $0.7 million. As a result of this acquisition, the Company
recorded approximately $1.1 million of intangible assets which are being
amortized over 20 years.
In July 1997, the Company acquired the assets of Superior, a distributor of
costume jewelry to chain drug stores and mass merchandisers in the United
States. The Company paid $2.7 million in cash, including a contingent cash
payment of $875,000 and assumed certain liabilities in the amount of $4.1
million. The purchase price is subject to upward adjustment based on 1998
earnings attributable to Superior operations, up to a maximum amount of $2.0
million. As a result of this acquisition, the Company recorded approximately
$3.5 million of goodwill which is being amortized over 10 years.
In December 1996, the Company, through a newly-formed subsidiary, Foster
Grant Holdings, Inc. ("FG Holdings") acquired Foster Grant US, a marketer and
distributor of sunglasses, reading glasses and eyewear accessories in the United
States and Canada. The consideration consisted of $10.0 million in cash, assumed
liabilities in the amount of $34.0 million and 100 shares of redeemable
non-voting preferred stock of FG Holdings (the "FG Preferred Stock") initially
valued at $750,000. The redemption value of the FG Preferred Stock is subject to
upward adjustment, based on annual sales of the Foster Grant US operations
through the year ending January 1, 2000 or, upon the occurrence of certain
specified capital transactions, based upon the valuation of the Company at the
time of the transaction. The maximum redemption amount is $4.0 million.
38
<PAGE> 45
As a result of this acquisition, the Company recorded approximately $11.0
million of intangible assets which are being amortized over 40 years. Any
difference in the redemption amount from the carrying value of the FG Preferred
Stock immediately prior to redemption may be recorded as additional purchase
price.
EFFECTS OF ACQUISITIONS
Historically, the Company has selected acquisition candidates based, in
part, on the opportunity to improve their operating results. The Company seeks
to leverage its purchasing power, distribution capabilities and lower operating
costs to improve the financial performance of its acquired businesses. Results
of operations reported herein for each period only include the results of
operations for acquired businesses from their respective dates of acquisition.
Full year operating results, therefore, could differ materially from those
presented.
The Company has accounted for its acquisitions, and intends to account for
the Fantasma Acquisition, using the purchase method of accounting. As a result,
these acquisitions have affected, and will prospectively affect, the Company's
results of operations in certain significant respects. The aggregate acquisition
costs are allocated to the tangible and intangible assets acquired and
liabilities assumed by the Company based upon their respective fair values as of
the acquisition date. The cost of such assets are then amortized according to
the classes of assets and the useful lives thereof. The acquisitions
necessitating payment of purchase price in excess of the fair value of the net
assets acquired results in intangible assets consisting of goodwill and
trademarks which are being amortized on a straight-line basis over a period of
10 to 40 years. Similar future acquisitions or additional consideration paid for
existing acquisitions may result in additional amortization expense. In
addition, due to the effects of the increased borrowing to finance any future
acquisitions, the Company's interest expense may increase in future periods. As
of April 4, 1998, net intangible assets as a result of acquisitions was $21.2
million. Amortization of these intangibles will result in quarterly noncash
charges of $411,000 for the next 28 quarters, $329,000 for the next four
quarters, $246,000 for the next four quarters, $150,000 for the following 34
quarters, $146,000 for the following five quarters and $133,000 for the final 75
quarters.
CONSOLIDATION OF DISTRIBUTION OPERATIONS
In the second quarter of 1998, the Company adopted a plan to consolidate
distribution operations at its expanded Rhode Island facility and close its
Texas distribution center in the fourth quarter of 1998. AAi expects this
restructuring will generate permanent annual operating expense savings of
approximately $2.8 million commencing in 1999. The Company expects to record a
$2.6 million charge in the second quarter of 1998 in connection with closure of
the Texas distribution center. See Note 1 of the Notes to the Company's
Consolidated Financial Statements included elsewhere within.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items included in the Company's statement
of operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, --------------------
----------------------- MARCH 31, APRIL 4,
1995 1996 1997 1997 1998
----- ----- ----- --------- --------
<S> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......................... 49.6 55.4 52.2 54.6 54.9
----- ----- ----- ----- -----
Gross profit............................... 50.4 44.6 47.8 45.4 45.1
Operating expenses......................... 39.5 41.4 43.7 42.1 41.3
----- ----- ----- ----- -----
Income from operations..................... 10.9 3.2 4.1 3.3 3.8
Interest expense........................... 1.2 1.7 2.8 2.7 2.8
Other (expense) income, net................ (0.1) (0.4) -- (0.1) 0.2
----- ----- ----- ----- -----
Income before taxes and dividends and
accretion on preferred stock............. 9.6 1.1 1.3 0.5 1.2
Dividends and accretion on preferred
stock.................................... -- 1.3 1.7 1.7 1.5
</TABLE>
39
<PAGE> 46
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, --------------------
----------------------- MARCH 31, APRIL 4,
1995 1996 1997 1997 1998
----- ----- ----- --------- --------
<S> <C> <C> <C> <C> <C>
Income tax benefit (expense)............... -- 0.2 (0.7) (0.3) (0.6)
----- ----- ----- ----- -----
Net income (loss) applicable to common
shareholders............................. 9.6 -- (1.1) (1.5) (0.9)
Pro forma tax expense...................... (3.9) (0.7) -- -- --
----- ----- ----- ----- -----
Pro forma net income (loss) applicable to
common shareholders...................... 5.7% (0.7)% (1.1)% (1.5)% (0.9)%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended April 4, 1998 compared to Three Months Ended March 31, 1997
Net Sales. Consolidated net sales were $42.7 million for the three months
ended April 4, 1998 compared to $34.9 million for the three months ended March
31, 1997, an increase of 22.6% or $7.8 million. The increase was due, in part,
to an additional $4.0 million of sales attributable to the Superior acquisition
and the balance is attributable to increased international sales of costume
jewelry and the inclusion of an additional three business days in the 1998
reporting period.
Gross Profit. Gross profit reflects net sales less cost of goods sold.
Gross profit was $19.3 million for the three months ended April 4, 1998 compared
to $15.8 million for the three months ended March 31, 1997, an increase of 21.8%
or $3.5 million, which was primarily attributable to increased sales volume.
Gross margin decreased to 45.1% for the three months ended April 4, 1998, from
45.4% for the three months ended March 31, 1997, primarily due to an increase in
sales of costume jewelry which carries lower margins.
Operating Expenses. Operating expenses were $17.6 million for the three
months ended April 4, 1998 compared to $14.7 million for the three months ended
March 31, 1997, an increase of 20.0% or $2.9 million. The increase was due to
costs associated with acquisitions and expanded operations.
Interest Expense. Interest expense was $1.2 million for the three months
ended April 4, 1998 compared to $928,000 for the three months ended March 31,
1997, an increase of 26.9% or $250,000. This resulted from additional borrowings
under the Company's credit facilities to fund acquisitions and expanded
operations.
Income Tax (Expense) Benefit. Income tax expense was $239,000 for the
three months ended April 4, 1998 compared to $96,000 for the three months ended
March 31, 1997, an increase of 149.0% or $143,000. The Company's estimated
consolidated effective income tax rate is 44.0% for 1998 compared to a
consolidated effective income tax rate of 58.4% in 1997. The higher effective
rate in 1997 is due to the effect of nondeductible amortization of intangible
assets in that year, which is expected to be substantially less in 1998.
Net Income. As a result of the factors discussed above, net income was
$304,000 for the three months ended April 4, 1998 compared to $69,000 net income
for the three months ended March 31, 1997, an increase of 340.6% or $235,000.
Net Income (Loss) Applicable to Common Shareholders. Net loss applicable
to common shareholders was $379,000 for the three months ended April 4, 1998,
compared to a loss of $528,000 for the three months ended March 31, 1997, a
decrease of $149,000. The decrease was attributable to the $235,000 increase in
net income for the 1998 period which was partially offset by an increase of
$86,000 in dividends and accretion on Series A Preferred Stock due to the
compounding of accrued dividends.
Year Ended December 31, 1997 compared to Year Ended December 31, 1996
Net Sales. Consolidated net sales were $149.4 million for 1997 compared to
$86.3 million for 1996, an increase of 73.1% or $63.1 million. The increase was
primarily due to a full year of sales attributable to Foster Grant US operations
and six months of sales attributable to Superior operations in 1997, which
accounted for $60.6 million and $5.2 million of the increase, respectively. This
increase was partially offset by the loss of two customers in 1997, one as a
result of the customer's merger into a retailer that does not offer costume
jewelry and the other due to a retailer ceasing operations, which together
accounted for an estimated $5.1 million decrease in net sales.
40
<PAGE> 47
Gross Profit. Gross profit was $71.5 million in 1997 compared to $38.5
million in 1996, an increase of 85.8% or $33.0 million. Gross profit from sales
generated from the aforementioned acquisitions accounted for a $35.3 million
increase which was partially offset by the decline in gross profit on the two
lost customers. Gross profit increased as a percentage of net sales from 44.6%
to 47.8%, primarily as a result of an increase in the net sales of optical
products (which carry higher margins) and savings related to consolidated
purchasing efficiencies.
Operating Expenses. Operating expenses were $65.3 million or 43.7% of net
sales in 1997 compared to $35.7 million or 41.3% of net sales in 1996, an
increase of 83.0% or $29.6 million. The acquisitions accounted for 98.0% or
$29.0 million of the increase in operating expenses.
Interest Expense. Interest expense was $4.2 million in 1997 compared to
$1.5 million in 1996, an increase of 186.9% or $2.7 million. This resulted from
interest charged on additional borrowings under the Company's credit facilities
to fund acquisitions and expanded working capital and capital expenditure
requirements.
Income Tax (Expense) Benefit. Income tax expense was $1.2 million in 1997
compared to an income tax benefit of $204,000 in 1996, an increase of $1.4
million. The Company's consolidated effective income tax rate was 58.4% for
1997, reflecting the impact of nondeductible amortization of intangible assets
for income tax purposes. The Company was operated as a subchapter S corporation
under Section 1362 of the Internal Revenue Code until May 31, 1996, and as a
result, taxable income or loss of the Company was passed through to the
shareholders and reported on their individual tax returns. Accordingly, the
Company did not incur federal and state income taxes (except with respect to
certain states) for the period prior to June 1, 1996.
Net Income. As a result of the factors discussed above, net income was
$838,000 in 1997 compared to $1.2 million in 1996, a decrease of 29.6% or
$353,000.
Net Income (Loss) Applicable to Common Shareholders. Net loss applicable
to common shareholders was $1.7 million for the year ended December 31, 1997
compared to net income of $68,000 for the year ended December 31, 1996, an
increase of $1.8 million. The increased loss is primarily attributable to a $1.4
million increase in dividends and accretion on Series A Preferred Stock as well
as a $353,000 decrease in net income from 1996. The increase in dividends and
accretion on Series A Preferred Stock is due to an increased number of shares
(43,700) being outstanding for the entire year in 1997, as compared to fewer
shares (34,200) being outstanding for less than seven months in 1996.
Year Ended December 31, 1996 compared to Year Ended December 31, 1995
Net Sales. Consolidated net sales were $86.3 million for 1996 compared to
$88.1 million for 1995, a decrease of 2.0% or $1.8 million. The decrease in net
sales was due to reduced sales within the mass merchandiser and chain drugstore
channels of distribution, as a result of customers' desire to decrease in-store
inventories and increase inventory turnover rates. The product lines most
affected were costume jewelry and synthetic leather goods. This decrease was
partially offset by a $5.4 million increase in net sales of optical products as
a result of the Foster Grant US acquisition in mid-December 1996.
Gross Profit. Gross profit was $38.5 million in 1996 compared to $44.4
million in 1995, a decrease of 13.3% or $5.9 million. Gross margin decreased as
a percentage of net sales from 50.4% to 44.6% primarily due to discounting of
synthetic leather goods within the aforementioned channels and providing product
to the mass merchandiser channel of distribution at lower gross margins as part
of promotional programs.
Operating Expenses. Operating expenses were $35.7 million in 1996 compared
to $34.8 million in 1995, an increase of 2.6% or $0.9 million. This increase was
due to increased depreciation and amortization.
Interest Expense. Interest expense was $1.5 million in 1996 compared to
$1.0 million in 1995, an increase of 42.5% or $0.5 million. This resulted from
additional borrowings under the Company's credit facilities to fund acquisitions
and expanded operations.
Income Tax (Expense) Benefit. Income tax benefit was $204,000 in 1996 and
a provision of $42,000 was provided in 1995. The Company was operated as a
subchapter S corporation under Section 1362 of the Internal Revenue Code until
May 31, 1996, and as a result, the taxable income or loss of the Company was
41
<PAGE> 48
passed through to the shareholders and reported on their individual tax returns.
Accordingly, the Company did not incur federal and state income taxes (except
with respect to certain states) for periods prior to June 1, 1996.
Net Income. As a result of the factors discussed above, net income was
$1.2 million in 1996 compared to $8.4 million in 1995, a decrease of 85.9% or
$7.2 million.
Net Income (Loss) Applicable to Common Shareholders. Net income applicable
to common shareholders was $68,000 for the year ended December 31, 1996 compared
to net income of $8.4 million for the year ended December 31, 1995, a decrease
of $8.3 million. The decrease reflects the $7.2 million decrease in net income
and the absence of any dividends and accretion on Series A Preferred Stock in
1995.
LIQUIDITY AND CAPITAL RESOURCES
At April 4, 1998 the Company had cash and cash equivalents of $439,000 and
a working capital deficit of $5.0 million. To date, the Company has funded its
operations through credit facilities, equity issuances and cash generated from
operations.
The Company generated $3.5 million of cash from operations during 1997,
compared to $486,000 in 1996 and $1.8 million in 1995. The increase in cash
generated from operations in 1997 over 1996 was primarily attributable to the
increase in noncash expenses partially offset by cash used to reduce accounts
payable and accrued expenses. The decrease in cash generated from operations in
1996 as compared to 1995 was primarily attributable to a decrease in net income
partially offset by an increase in noncash expenses and accounts payable. During
the three months ended April 4, 1998, the Company used $4.8 million of cash to
fund operations.
The Company used $11.0 million of cash in investing activities during 1997,
compared to $15.2 million in 1996 and $2.1 million in 1995. Cash used in
investing activities decreased in 1997 as compared to 1996 as a result of a
decrease in cash used in acquisitions partially offset by an increase in
deferred costs and the purchases of property and equipment. Cash used in
investing activities increased in 1996 as compared to 1995 as a result of an
increase in cash used in acquisitions and deferred costs and purchases of
property and equipment. During the three months ended April 4, 1998, the Company
used $17.2 million of cash in investing activities. The uses included the $2.1
million purchase of the Company's Smithfield, Rhode Island headquarters, $4.6
million for display fixtures and $5.5 million to acquire certain assets of
Foster Grant UK and to acquire the Foster Grant trademark for the United Kingdom
and Europe. The Company anticipates additional capital expenditures in 1998 of
$5.2 million, consisting primarily of additional costs associated with the
expansion of its Smithfield, Rhode Island distribution facility and its
information system conversion. The Company expects its annual maintenance
capital expenditure level (excluding costs of display fixtures) to be
approximately $1.0 million for the next two years.
The Company generated $8.8 million of cash from financing activities during
1997, compared to $16.2 million in 1996 and $259,000 in 1995. Cash generated
from financing activities decreased in 1997 as compared to 1996 primarily as a
result of the Company's $22.5 million issuance of Series A Preferred Stock in
1996 partially offset by a 1996 cash distribution to the Company's shareholders
of $12.9 million and an increase in borrowings during 1997. During the three
months ended April 4, 1998, the Company generated $19.7 million of cash from
financing activities.
The Series A Preferred Stock is redeemable for an aggregate of $23.0
million. Shares of Series A Preferred Stock are convertible into Common Stock at
a rate of 10 for 1, adjustable for certain dilutive events. Conversion is at the
option of the shareholder, but is automatic upon the consummation of a Qualified
Public Offering (as defined). The holders of Series A Preferred Stock have the
right to require redemption for cash for any unconverted shares, beginning June
30, 2002, provided, however, that the right to require redemption is suspended
as long as any Restrictive Indebtedness (as defined) is outstanding. The Notes
constitute Restrictive Indebtedness. The redemption price of the Series A
Preferred Stock is an amount equal to the original issue price, $526.32 per
share, plus any accrued and unpaid dividends yielding a 10% compounded annual
rate of return. See "Description of Capital Stock."
42
<PAGE> 49
As described under "Recent Significant Acquisitions," in connection with
the purchase of Foster Grant US, the Company's wholly-owned subsidiary, FG
Holdings issued 100 shares of FG Preferred Stock, which are redeemable on
February 28, 2000, or earlier upon the occurrence of certain specified capital
transactions. The redemption price will range between $1.0 million and $4.0
million depending upon the net sales of sunglasses, reading glasses and
accessories by FG Holdings and AAi, and upon the total transaction value. See
"Certain Transactions".
The Company is continually engaged in evaluating potential acquisitions.
The Company expects that funding for future acquisitions may come from a variety
of sources, depending on the size and nature of any such acquisition. Potential
sources of capital include cash generated from operations, borrowings under the
Senior Credit Facility, or other external debt or equity financings. There can
be no assurance that such additional capital sources will be available to the
Company, if at all, on terms which the Company finds acceptable.
The Company has substantial indebtedness and significant debt service
obligations. As of April 4, 1998, on a pro forma basis after giving effect to
the Acquisitions and the Offering and the application of the net proceeds
therefrom, the Company would have had long-term indebtedness, including current
maturities, in the aggregate principal amount of $76.4 million. The Indenture
permits the Company to incur additional indebtedness, including secured
indebtedness, subject to certain limitations. See "Description of Notes--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
In addition, the Company has up to $60.0 million available for borrowings
under the Senior Credit Facility. Interest rates on the revolving loans under
the Senior Credit Facility are based, at the Company's option, on the Base Rate
(as defined) or LIBOR plus an applicable margin. The Senior Credit Facility
contains certain restrictions and limitations, including financial covenants
that require the Company to maintain and achieve certain levels of financial
performance and limit the payment of cash dividends and similar restricted
payments. See "Description of Senior Credit Facility."
The Company's ability to make scheduled payments of 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 expenditures will
depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based upon the current level of operations
and anticipated cost savings and revenue growth, the Company believes that cash
flow from operations and available cash, together with available borrowings
under the Senior Credit Facility, will be adequate to meet the Company's future
liquidity needs for at least the next several years. The Company may, however,
need to refinance all or a portion of the principal of the Notes on or prior to
maturity. There can be no assurance that the Company's business will generate
sufficient cash flow from operations, that anticipated cost savings and revenue
growth will be realized or that future borrowings will be available under the
Senior Credit Facility in an amount sufficient to enable the Company to service
its indebtedness, including the Notes, or to fund its other liquidity needs. In
addition, there can be no assurance that the Company will be able to effect any
such refinancing on commercially reasonable terms or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." See "Risk Factors."
IMPACT OF INFLATION
The Company believes that inflation has not had a material effect on its
results of operations or financial condition during the past three years.
SEASONALITY AND QUARTERLY INFORMATION
Significant portions of the Company's business are seasonal. Sunglasses are
shipped primarily during the first half of the fiscal year as retailers build
inventory for the spring and summer selling seasons, while costume jewelry and
other accessories are shipped primarily during the second half of the fiscal
year as retailers build inventory for the holiday season. Reading glasses sales
are generally uniform throughout the year. As a result of these shipping trends,
the Company's historical working capital requirements grow through the first
three
43
<PAGE> 50
quarters of the year to fund inventory purchases and the growth in accounts
receivable. Historically, in the fourth quarter, the Company's working capital
requirements have decreased as accounts receivable are collected.
The following table sets forth selected quarterly financial information.
This information is derived from unaudited financial statements of the Company
and includes, in the opinion of management, all normal and recurring adjustments
that management considers necessary for a fair statement of the results for such
periods. The operating results for any quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
1996 1997 1998
---------------------------------------- ---------------------------------------- -------
1ST Q 2ND Q 3RD Q 4TH Q 1ST Q 2ND Q 3RD Q 4TH Q 1ST Q
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales................ $17,372 $20,749 $24,659 $23,556 $34,851 $41,034 $34,213 $39,313 $42,703
</TABLE>
Quarterly results may also be materially affected by the timing and
magnitude of acquisitions, costs related to acquisitions, fluctuations in
product cost, changes in product mix, timing of customer orders and shipments
and general economic conditions.
YEAR 2000
The Company uses several application programs written over many years using
two-digit fields to define the applicable year, rather than four-digit year
fields. Programs that are time-sensitive may recognize a date using "00" as the
year 1900 rather than the year 2000. This misinterpretation of the year could
result in an incorrect computation or a computer shutdown.
The Company is currently implementing a substantial information system
conversion which is scheduled to be completed by the first quarter of 1999. The
Company believes that with planned modifications to existing software and
successful conversion to the new software, the Year 2000 issue will not pose
significant operational problems for the Company's systems as so modified or
converted. Any delays or omissions by AAi or its agents to resolve such issues
may have a material adverse effect on the Company's business, results of
operations and financial condition. See "Risk Factors--Dependence on Computer
Software Applications."
RECENT ACCOUNTING PRONOUNCEMENTS
In July 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for the reporting of information about operating segments by public
business enterprises in their annual and interim financial reports issued to
shareholders. SFAS No. 131 requires that a public business enterprise report
financial and descriptive information, including profit or loss, certain
specific revenue and expense items, and segment assets, about its reportable
operating segments. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision-makers in deciding how to
allocate resources and in assessing performance. The Company will adopt SFAS No.
131 in its financial statements for the fiscal year ending January 2, 1999. SFAS
No. 131 is a disclosure requirement and therefore will not have an effect on the
Company's financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 Reporting on the Costs of Start Up Activities,
(SOP 98-5). SOP 98-5 provides guidance on the financial reporting of start up
activities and organization costs to be expensed as incurred. The Company does
not believe that the adoption of SOP 98-5 will have a material impact on its
financial statements.
44
<PAGE> 51
BUSINESS
AAi is a leading value-added distributor of optical products, costume
jewelry, watches, clocks and other accessories to mass merchandisers, variety
stores, chain drug stores and supermarkets in North America and the United
Kingdom. The Company sells its products in over 30,000 retail locations,
including Wal-Mart, Target, Kmart, Eckerd Drugstores, Walgreens, Rite Aid,
Albertsons, Dollar General and Family Dollar stores. The Company markets its
products under its own brand names such as Foster Grant as well as customers'
private labels. AAi also has the right to distribute products under numerous
licensed brand names, including Ironman Triathalon, Revlon, Mickey's Stuff for
Kids, Winnie the Pooh, Barbie and Crayola. The Company outsources all of its
manufacturing. On a pro forma basis after giving effect to the Acquisitions, the
Company would have generated net sales and EBITDA of $182.0 million and $19.1
million, respectively, for fiscal 1997 and $187.2 million and $20.8 million,
respectively, for the twelve months ended April 4, 1998.
The Company's product lines contain a large number of SKUs with low retail
price points and typically represent a small percentage of retailers' total
sales. As a result, many of AAi's customers have chosen to outsource the
merchandising of these products to the Company. AAi's award-winning service
program provides retailers with customized displays and product packaging and
store-level merchandising designed to maximize sales and inventory turnover. The
Company employs over 1,500 field service representatives who regularly visit
program customers' stores to arrange, replenish and restock displays, reorder
product and attend to markdowns and allowances. By providing retailers with
in-store product management, the Company retains control of its product
marketing and pricing, allowing AAi to maximize product sales and increase the
floor space allocated to its product lines. In 1997, sales to customers
utilizing the Company's service program accounted for 73% of AAi's net sales.
AAi has grown rapidly through strategic acquisitions and internal growth,
principally by expanding its product offerings, entering new domestic and
international markets, adding new customers, cross-selling existing product
lines to current customers and supporting its U.S.-based customers'
international expansion. In the last five years, net sales have grown at a
compounded annual rate of 22.9%, from $53.4 million in 1992 to $149.4 million in
1997.
INDUSTRY OVERVIEW
The Sunglass Association of America reports that 1997 domestic retail sales
of sunglasses totaled $2.6 billion. Accessories Magazine estimates that 1997
domestic retail sales of fashion jewelry and watches totaled $4.8 billion and
$3.0 billion, respectively. As a result of industry-wide consolidation among
mass merchandisers and discount retailers, a small number of large companies
dominate the Company's primary channels of distribution. These retailers have
sought to reduce their purchasing and administrative costs by limiting the
number of their suppliers and have utilized their market position to obtain
minimum sell-throughs, reduced in-store inventory levels and price concessions.
These retailers tend to require a high level of service, including customized
sales and service programs, reliable delivery services and electronic
interfaces. These trends have contributed to the growth of larger national and
regional distributors, such as AAi, that have the service organizations, product
offering, distribution technology and capital necessary to meet the demands of
these customers.
COMPETITIVE STRENGTHS
In order to increase its sales and profitability, the Company relies on the
following competitive strengths:
Innovative Service Program. Since many of its product sales are impulse
driven, AAi believes that a well-positioned, visually appealing display is
critical to making the sale to the consumer. In addition, the SKU-intensive
nature of optical products and accessories and their low retail price points
have led many retailers to outsource the merchandising of such products. AAi has
responded by offering its customers a service program that includes store-level
merchandise mix planning and in-store display maintenance and inventory
stocking, balancing and reordering by the Company's field service
representatives. AAi's service program is consistently recognized as one of the
best in the mass retail industry. The Company has received several
vendor-of-the-year awards from its retail customers, including Wal-Mart, as well
as numerous Supplier
45
<PAGE> 52
Performance Awards by Retail Category (S.P.A.R.C.) from the International Mass
Retail Institute. As part of its service program, the Company makes a
significant investment in the design, production and installation of display
fixtures in its customers' retail stores. The Company believes that its
award-winning service program and store-level investment in display fixtures
solidify its customer relationships and create opportunities to cross-sell its
products and increase the Company's allotted display space.
Diverse Product Offering. AAi offers a comprehensive selection of
popularly priced optical products and accessories with over 15,000 SKUs. AAi's
product lines include sunglasses, reading glasses, costume jewelry, small
synthetic leather goods, handbags, hair accessories, cosmetic bags and key
rings. With the Fantasma Acquisition, the Company added watches and clocks to
its product lines. The substantial majority of the Company's products have
retail price points at less than $20, with 57% at $10 or less. The diversity of
AAi's product lines enables retailers to satisfy a substantial portion of their
optical products and accessories needs from a single source and allows the
Company to achieve operating efficiencies for low price point products.
Powerful Proprietary and Licensed Brand Names. Branded products provide
entry to new customers and retail channels and generally allow for higher gross
margins on product sales. The Company owns several brands, most notably Foster
Grant. In the 1998 annual Women's Wear Daily survey, the Foster Grant brand was
ranked the third most recognized name in accessories by consumers. In addition
to its own brands, AAi holds licenses for a variety of Disney, Sesame Street,
Warner Bros. and Mattel characters (e.g., Winnie the Pooh, Mickey Mouse, Minnie
Mouse, Elmo, Tweety, Barbie and others) as well as for several well-recognized
brands such as Ironman Triathlon, Revlon, Almay and Crayola for terms generally
ranging from one to three years. During 1997, the sales of the Company's own
branded products and licensed branded products represented approximately 29% and
15%, respectively, of AAi's net sales.
State-of-the-Art Distribution Capabilities. The Company's flexible
distribution systems are capable of processing virtually any small package. AAi
utilizes a high velocity fulfillment system that enables the Company to provide
its customers with short delivery times and high order fulfillment rates,
allowing retailers to maintain lower inventory levels. On average, the Company
ships over 98% of all restocking orders within 24 hours of receipt of the order.
AAi is currently expanding its Smithfield, Rhode Island distribution center and
installing an inventory management system that utilizes radio frequency and
bar-coding technologies to optimize supply chain operations, improve customer
service, increase inventory turns and lower operating costs. The Company
believes that its small package distribution capabilities provide a platform to
add complementary product lines without requiring significant capital investment
or additional fixed costs.
Efficient Low-Cost Sourcing. The Company outsources manufacturing for all
of its products. Approximately 75% of AAi's manufacturing is sourced to
manufacturers in Asia through its joint venture in Hong Kong, with the remainder
outsourced to independent domestic manufacturers. The Hong Kong joint venture
monitors the contract manufacturing process, maintains relations with
manufacturers, ensures quality control and serves as a sourcing agent to certain
U.S. and European customers. AAi's sourcing capabilities allow it to reliably
deliver competitively priced products to the retail market while retaining
considerable flexibility in its cost structure.
Experienced Management Team. AAi's senior management team averages over 22
years in the industry and 18 years experience with the Company. Over the
Company's 26 year history, its senior management team has developed strong
relationships with suppliers and retailers. This team of seasoned managers has
led the Company's transition from a small costume jewelry manufacturer to a
leading distributor of optical products and accessories and has successfully
completed six acquisitions over the past three years.
BUSINESS STRATEGY
The Company's objective is to increase sales and profitability by enhancing
its position as a leading distributor of optical products and accessories. The
key elements of the Company's business strategy are:
Promote and Expand Branded Product Offering. Branded products enable the
Company to reach new customers and enter new distribution channels which, in
turn, present the Company with expanded cross-selling opportunities. The Company
intends to actively promote its Foster Grant name through advertising as
46
<PAGE> 53
well as co-branding with licensed names. For example, AAi plans to roll out the
Ironman Triathlon by Foster Grant co-branded line of sunglasses in the fourth
quarter of 1998. The Company also plans to pursue licensing and acquisition of
additional brands.
Expand Product Lines. AAi believes it can increase sales to existing
customers and access new distribution channels by expanding its product lines to
include other accessories and small package products. The Company intends to
achieve this goal by developing and acquiring new products and brands that
deepen and broaden its product offering. By diversifying its product lines, the
Company can enhance its capacity to provide regional and national retailers with
convenient "one-stop" shopping for optical products and accessories. In
addition, a diverse product offering provides cross-selling opportunities and
permits the Company to achieve operating efficiencies in distribution and
service programs.
Expand Internationally. The Company's goal is to grow with its customers,
particularly internationally, as they add new stores and expand into new
geographic markets. For example, during the past several years, Wal-Mart has
opened over 350 new stores in foreign markets, including Canada, Mexico, Germany
and Argentina. In response, the Company established operations in Canada and
Mexico to serve Wal-Mart and other potential customers in these markets. The
Company's international net sales have grown from $1.3 million in 1995 to $6.7
million in 1997.
Diversify Customer Base and Distribution Channels. Through its small
package distribution capabilities, diverse product offering and unique service
program, the Company has increased its customer base and sales to certain
existing customers desiring more centralized and efficient distribution. The
Company seeks to expand its distribution to additional retail channels such as
department stores through internal growth and strategic acquisitions.
Pursue Strategic Acquisitions. The Company intends to acquire
complementary businesses and product lines in order to diversify its product
offering, gain access to new customers and retail channels, penetrate
international markets, lower operating cost margins and improve service to
existing customers. For example, through the acquisitions in December 1996 and
March 1998 of the Foster Grant businesses, AAi expanded its optical product line
and extended operations to the United Kingdom. The June 1998 Fantasma
Acquisition added watches, clocks and several brand licenses to AAi's product
offering and provided the Company with access to new customers. The Company
seeks to leverage its purchasing power and distribution capabilities to improve
the financial performance of its acquired businesses and product lines.
47
<PAGE> 54
DISTRIBUTION CHANNELS AND CUSTOMERS
AAi sells its products to over 200 customers, primarily in three
distribution channels: (1) mass merchandisers, (2) chain drug stores, combo
stores (stores combining general merchandise, food and drug items) and
supermarkets and (3) variety stores. To a lesser extent, AAi also distributes
its products through department stores, military post exchanges, card and gift
shops, specialty stores and catalogues.
PERCENTAGE OF 1997 REVENUE BY DISTRIBUTION CHANNEL
[AAI DISTRIBUTION PIE CHART]
The Company customizes its product and service program offerings to meet
the distinctive characteristics and requirements of each of these retail
distribution channels.
Mass Merchandisers. AAi's sales to mass merchandisers accounted for
approximately $83.9 million, or 56.1%, of net sales in 1997. These customers
include large discount retailers such as Wal-Mart, Target, Kmart, Fred Meyer,
Meijer, Ames, Hills and Zellers Canada. As a result of substantial
consolidation, mass merchandisers have increased leverage over their suppliers
and have utilized their market position to obtain minimum sell-throughs, reduced
in-store inventory levels and price concessions. The mass merchandisers have
begun to expand their market internationally, particularly in Mexico, Canada,
Europe and South America, which affords their suppliers access to these new
markets. These customers demand a high level of merchandise support as well as
national and, as they expand overseas, international distribution capability.
Chain Drug Stores/Combo Stores/Supermarkets. AAi's sales to this channel
accounted for approximately $43.7 million, or 29.1%, of net sales in 1997. These
customers include Eckerd Drugstores, Walgreens, Rite Aid, Thrifty Payless Drug,
Albertsons, Publix, Smith Food & Drug, Tesco (U.K.), Boots and Arbor Drugs. This
industry is experiencing substantial consolidation similar to that which
occurred in the mass merchandiser channel several years ago. This consolidation
activity presents both opportunities and risks for suppliers such as AAi, as the
Company may gain or lose accounts depending on whether its existing customer is
an acquiror or is acquired. These stores tend to be smaller than mass
merchandisers and attract a broader class of trade, which is often less price
sensitive and more convenience-oriented than the mass merchandiser or variety
store customer.
Variety Stores. AAi's sales to variety stores accounted for approximately
$14.8 million, or 9.9%, of net sales in 1997. These customers include national
and regional chains such as Family Dollar, Dollar General and Fred's. They tend
to be more price sensitive but less fashion driven than mass merchandisers and
cater to
48
<PAGE> 55
consumers with limited budgets for discretionary or impulse purchases. The
stores are generally smaller than the typical mass merchandiser outlet which
makes it difficult for suppliers without broad product lines to service this
channel profitably. The Company's extensive product lines enable it to provide
service programs on a cost-effective basis, which affords the Company a
significant competitive advantage in this market.
Department Stores and Others. The Company's sales to department stores,
armed forces' PX stores, boutique stores, gift shops, book stores and catalogue
sales accounted for $7.3 million, or 4.9%, of its 1997 net sales. These include
sales of its Tempo jewelry line to J.C. Penney as well as sales to customers
such as Waldenbooks, Avon, Sears Canada, OfficeMax, Montgomery Ward and The Bay.
Each of these channels has different characteristics and product and service
requirements and caters to different types of consumers. For example, department
stores generally offer higher-end products with higher price points and sales of
accessories at such outlets represent a larger percentage of total store sales.
These channels present opportunities for growth as the Company implements its
strategy to diversify its product lines through the acquisition of new products
and brands.
Three customers accounted for approximately 39% of the Company's net sales
in fiscal 1997. In 1997, Wal-Mart accounted for approximately 25% of the
Company's net sales. No other customer accounted for 10% or more of the
Company's total net sales in 1997.
PRODUCTS
The Company offers sunglasses, reading glasses, costume jewelry, small
synthetic leather goods and other accessories generally at retail price points
of $20 or less. In June 1998, the Company added watches and clocks to its
product lines with the acquisition of an 80% interest in Fantasma. The
percentage of net sales for each product category for 1995, 1996 and 1997 are
set forth in the following table:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Optical Products.................................. 10.0% 17.4% 50.6%
Costume Jewelry................................... 75.2 74.6 43.5
Small synthetic leather goods and other........... 14.8 8.0 5.9
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
Optical Products. The Company's optical product line includes sunglasses
and non-prescription reading glasses which are sold on both a program and
non-program basis. As a result of its acquisition of Foster Grant US, AAi has
become a leading seller of popularly priced sunglasses (retail price points of
$8 to $30). The Company is pursuing co-branding opportunities for its Foster
Grant name. For example, AAi plans to distribute the Ironman Triathlon by Foster
Grant co-branded line of sunglasses in the fourth quarter of 1998. The Company
also sells sunglasses under licensed brand names such as Mickey's Stuff for
Kids, Sesame Street and Revlon. The Company offers a variety of styles as well
as color options for both frames and lenses. Sunglasses have a significant
fashion component and positive or negative consumer response in any year can
impact not only that year's profitability but also sales for the following year
since retailers' orders tend to mirror the prior year's sales. Such sales are
also highly seasonal, with initial orders placed in the first quarter and,
depending on consumer response, restocking orders in the second quarter.
The Company also offers a variety of styles of non-prescription reading
glasses marketed under Foster Grant, Revlon or private labels at price points of
$6 to $13. The reading glasses business has no significant fashion component and
is non-cyclical and non-seasonal. Since magnification strength is the primary
purchasing consideration for this product line, proper stocking and restocking
is essential to maximizing sales. As a result, reading glasses are typically
marketed through the Company's service program.
Costume Jewelry. AAi offers a wide variety of ladies' and children's
costume jewelry with low retail price points (between $3 and $20), including
earrings, necklaces and bracelets. The Company's jewelry line includes private
labeled products and branded products distributed pursuant to arrangements with
licensors such as Disney Enterprises, Inc., Warner Bros. and Revlon Consumer
Products Corporation as well as under the Company's Tempo name. Tempo is the
opening retail price point costume jewelry line at J.C. Penney.
49
<PAGE> 56
Most of the Company's jewelry line is basic (non-seasonal) and approximately
one-third has a fashion or holiday component. The Company's costume jewelry line
is typically sold through its service program.
Small Synthetic Leather Goods and Other. Through a 1986 acquisition, AAi
expanded its product lines to include small synthetic leather goods with retail
price points of $6 to $10, such as small backpacks, handbags, wallets and
purses. Many of the lines of small accessories are designed to complement AAi's
costume jewelry and are likewise often sold under licensed brands such as
Revlon, Hawaiian Tropic and Wet 'N Wild. The bulk of these products are sold on
a non-program basis and are shipped direct from the Company's suppliers to the
customer. The Company recently added watches and clocks (with average retail
price points between $10 and $20) to its product lines.
DISTRIBUTION
The Company distributes its products primarily from its distribution
centers in Rhode Island (costume jewelry and other accessories) and Texas
(optical products). AAi is currently expanding its distribution center in
Smithfield, Rhode Island. The plant expansion will more than double the capacity
of the Rhode Island distribution center and, together with the scheduled systems
enhancements, will enable the Company to optimize supply chain operations,
improve customer service, increase inventory turns and lower operating costs and
will position the Company to add complementary product lines without incurring
significant added fixed costs or capital expenditures. AAi intends to
consolidate distribution at its Rhode Island facility in the fourth quarter of
1998.
AAi has made a substantial investment in the development and enhancement of
its computer and information systems. These systems enable the Company to
rapidly respond to marketplace demands, permitting the Company to restock
retailers' inventory on a just-in-time basis. The Company believes that this
technology-based system has been a significant factor in reducing its inventory
costs. In 1998, the Company plans to invest in new inventory management software
that utilizes voice recognition technology to increase order flow.
The Company's flexible distribution systems are capable of processing
virtually any small package. AAi's Rhode Island facility utilizes a high
velocity fulfillment system that allows the Company to provide its customers
short delivery times and high order fulfillment rates. AAi typically delivers
its products to its high volume customers on a bi-weekly basis and, on average,
ships over 98% of all restocking orders within 24 hours of receipt. A VNA (very
narrow aisle) facility configuration serviced by wire guided stock pickers
resupplies a rapid response order picking line. After receiving a customer
order, the Company's computer system automatically generates a list of the
ordered items, also known as a "picking" order, which the distribution staff
utilizes in packing the customer's shipment. With the planned improvements to
the Company's inventory management computer system, "picking" orders will be
arranged according to the location of the ordered items within the Company's
distribution center, improving the efficiency of employees in filling orders.
The Company delivers ordered items to customers using unaffiliated delivery
companies, primarily UPS.
In addition, the Company uses an electronic data interchange ("EDI") system
between the Company and certain of its major customers, particularly for the
distribution of its small synthetic leather goods. Using the EDI system, the
Company's computer system automatically generates orders based on point of sale
("POS") information received from customers and the products are sent directly
to the customer from the Hong Kong joint venture.
SERVICE PROGRAM
The Company believes that an attractive, well-positioned display is
critical to maximizing sales to the ultimate consumer. The SKU-intensive nature
of the Company's product line and the low retail price points (ranging from $3
to $20 on costume jewelry) relative to the required display space has led many
retailers to outsource the merchandising function to the Company for its product
lines. To better serve these customers, in 1982 the Company initiated an
innovative sales program through which AAi provides its program customers with
store-level management of its products. In 1997, the sales to customers who
utilize the Company's service program accounted for approximately 73% of net
sales.
50
<PAGE> 57
Program customers select the products to be sold in their stores and, in
consultation with AAi sales and service personnel, determine the initial order
and display requirements. Thereafter, based on POS information, the Company's
management adjusts product mix, generates display planograms and determines
discounts and markdowns. This information is transmitted to AAi's field service
representatives who regularly visit the retailers' stores to replenish and
restock displays, reorder product and attend to markdowns and allowances,
thereby providing customers with a real-time response to the market. The
frequency of service visits is dictated by the size of the store and the number
of the Company's products carried by the retailer. The Company has over 1,500
field service representatives.
SALES AND MARKETING
The Company's six sales managers have an average of over 20 years of
industry experience. The sales force is organized by both distribution channel
and product line. The product-based sales approach is dictated by customers
since most retailers divide their buyers' responsibilities by product. Sales
representatives service existing customers and are responsible for increasing
product penetration and solving customer problems.
The Company markets its products to the retailers by attending trade shows
and advertising in industry trade magazines. The Company also maintains
showrooms and sales offices domestically in New York City, New York, Cincinnati,
Ohio and Bentonville, Arkansas as well as internationally in Toronto, Canada,
Mexico City, Mexico, London, England and Hong Kong. The marketing staff is
responsible for sales and marketing efforts directed at new customers and for
negotiating contract terms for existing and prospective customers. Marketing
focuses on designing a customized product and service package for each customer
after determining the retailer's specific needs. Often, branded products provide
AAi with initial access to a new customer. The Company then leverages the
strength of the Company's field service and breadth of its product lines to
increase product penetration.
Since acquiring the Foster Grant brand, the Company has begun to advertise
directly to the end-consumer. In the 1998 annual Women's Wear Daily survey, the
Foster Grant brand was ranked the third most recognized name in accessories by
consumers. In 1997, the Company launched an Elvis Presley promotion that
featured a televised performance by the Flying Elvi, a skydiving team of Elvis
look-alikes, as well as a sweepstakes to win a pair of Foster Grants actually
worn by Elvis. For the 1998 sunglasses season, AAi has teamed with the Warner
Bros. TV Network for a summer retail promotion that combines the brand's classic
advertising theme, "Who's That Behind Those Foster Grants?" with a $1 million
sweepstakes.
INTELLECTUAL PROPERTY AND LICENSES
Proprietary Trademarks. The Company owns trademarks in the words and
designs used on or in connection with many of its products. The Company has
registered a variety of trademarks under which it sells a number of its
products, including Foster Grant. The level of copyright and trademark
protection available to the Company for proprietary words, phrases and designs
varies depending on several factors including the degree of originality and the
distinctiveness of the associated trademarks and design.
Licenses. In 1992, AAi began distributing licensed products pursuant to an
agreement with Disney Enterprises, Inc. The Company currently holds numerous
non-exclusive licenses from various licensors to market products with classic
cartoon characters and other images or under other brand names and trademarks.
Many of the Company's license agreements limit sales of products to certain
market categories. The Company pays each of these licensors a royalty on sales
of licensed products. The Company's material licenses generally are for a term
of one to three years. The license agreements generally require minimum annual
payments and certain quality control procedures and give the licensor the right
to approve products licensed by the Company. Typically, the licensor may
terminate the license if specified minimum levels of annual net sales for
licensed products are not met or for failure by the Company to comply with the
material terms of the license. Certain licenses require minimum advertising
expenditures by the Company and also require the Company to make lump-sum
payments in the event of a change of ownership. Accordingly, the Company's
licensing arrangements are dependent primarily upon maintaining a good
relationship between the Company and its licensors. The Company believes it has
good relationships with its licensors and has generally been able to obtain
renewals of expired licenses and to obtain the required approval for licensed
products.
51
<PAGE> 58
PRODUCT DESIGN, SOURCING AND ASSEMBLY
Product Design. AAi's in-house design staff develops new products in line
with the current and anticipated trends for each season. For licensed brands,
the Company works extensively with the licensor in approving each detail of the
new products. The Company believes that its future success will depend, in part,
on its ability to enhance its existing product lines and develop new styles and
products to meet an expanding range of customer requirements.
Sourcing and Assembly. The Company outsources manufacturing for all of its
products, 75% of which is sourced to manufacturers in Asia through its joint
venture in Hong Kong, with the remainder outsourced to independent domestic
manufacturers. The joint venture is co-owned with a Hong Kong investor who
provides on-site management. See "The Company." The joint venture monitors
production and ensures that products meet the Company's quality standards. The
Company also utilizes domestic manufacturers to accommodate short delivery lead
times or when otherwise necessary. The Company believes that the quality and
cost of the products manufactured by its suppliers provide it with a significant
competitive advantage. In addition, sourcing the majority of its products
through the joint venture enables the Company to better control costs, monitor
product quality, manage inventory and provide efficient order fulfillment.
COMPETITION
The optical products and accessories industries are highly competitive.
Although none of the Company's competitors compete across all of the Company's
product lines, there are numerous competitors for each of its product lines both
in the retail channels serviced by the Company and in its other channels of
distribution. Competitors include numerous accessory vendors, including those
with their own retail stores, smaller independent specialty manufacturers, and
in the case of costume jewelry and reading glasses, divisions or subsidiaries of
large companies with greater financial or other resources than those of the
Company. Certain of these competitors control licenses for widely recognized
images, such as cartoon or movie characters which could provide them with a
competitive advantage. The Company may also experience increased competition
from suppliers of upscale fashion accessories seeking to enter the mass
merchandise market.
There are significant costs associated with the design, production and
installation of display fixtures for new customers. Furthermore, many retailers
require a new supplier to buy back the retailer's existing inventory as a
condition to changing vendors. These inventory costs can be substantial and
serve as a barrier to entry for both competitors in attempting to reach the
Company's existing customers as well as for the Company in obtaining new
customers.
AAi competes on the basis of diversity and quality of its product designs,
the breadth of its product lines, product availability, price and reputation as
well as customer service and support programs. The Company has many competitors
with respect to one or more of its products but believes that there are few
competitors that distribute products with the same product diversity and service
quality as the Company.
EMPLOYEES
As of August 5, 1998, the Company had approximately 650 full-time employees
and 1,350 part-time employees, none of whom were represented by a labor union.
The Company considers its relationship with its employees to be good.
PROPERTY
The Company's principal executive office is located at 500 George
Washington Highway, Smithfield, Rhode Island. The Company's primary distribution
facilities are adjacent to the Company's recently expanded headquarters, which
together are 115,000 square feet. AAi is currently constructing a 65,000 square
foot, 40 foot clearance addition to its Smithfield, Rhode Island distribution
center, which will more than double the capacity of the Rhode Island facility.
The Company also leases a 200,000 square foot distribution center in Dallas,
Texas. Upon completion of the Rhode Island expansion (scheduled for the fourth
quarter of 1998), the Company plans to consolidate its distribution activities
and move the Texas operations to Rhode Island. For discussion of the costs and
savings associated with the consolidation of distribution operations, see
"Manage-
52
<PAGE> 59
ment's Discussion and Analysis of Financial Condition and Results of
Operations -- Consolidation of Distribution Operations."
The following table describes the material properties owned and leased by
the Company:
<TABLE>
<CAPTION>
USE
----------------------------------
<S> <C>
OWNED PROPERTY:
Smithfield, Rhode Island Warehousing & Distribution,
Product Showroom and Sales
Office and Office Administration
LEASED PROPERTIES:
Dallas, Texas(a) Warehousing & Distribution
Office Administration
New York, New York Product Showroom and Sales Office
Bentonville, Arkansas Product Showroom and Sales Office
Cincinnati, Ohio Sales Office
Warren Avenue, Providence, Rhode Island(b) Warehousing
Carpenter St., Providence, Rhode Island(b) Warehousing
Toronto Canada Product Showroom and Sales Office
Newcastle Under Lyme, Staffordshire, United Kingdom Warehousing & Distribution and
Office Administration
</TABLE>
- ---------------
(a) Upon completion of the expansion at AAi's Rhode Island facility, the Company
plans to move the Texas operations to Rhode Island and close the Texas
distribution center. The Texas facility was leased from a related party
until May 1998 when it was sold to an independent third party. See "Certain
Transactions."
(b) Leased to the Company from related parties. See "Certain Transactions."
LEGAL PROCEEDINGS
The Company is subject to legal proceedings in the ordinary course of
business. While the outcome of law suits or other proceedings cannot be
predicted with certainty, management does not expect these matters to have a
material adverse effect on the financial condition, results of operation or cash
flow of the Company.
53
<PAGE> 60
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Each director of the Company is elected for a period of one year at the
Company's annual meeting of shareholders and serves until his successor is duly
elected by the shareholders. Vacancies and newly created directorships resulting
from any increase in the number of authorized directors may be filled by a
majority vote of directors then remaining in office. The holders of the Series A
Preferred Stock (the "Preferred Holders") have the right, at their option, to
designate up to two directors to the Board of Directors, as well as the right to
vote on the election of directors at the annual meeting of shareholders. The
Company's shareholders have entered into an agreement that requires them to vote
to fix the number of directors of the Company at seven and elect as directors
two persons designated by the Preferred Holders and five persons designated by
certain management shareholders. In addition, Weston Presidio Capital II, L.P.,
the record holder of 17,100 shares (39.1%) of the Series A Preferred Stock, has
agreed to vote in favor of Martin E. Franklin (or in the event of his death or
disability, the designee of Marlin Capital, L.P.) as a director. See "Certain
Transactions -- Shareholders Agreement." Officers are elected by and serve at
the discretion of the Board of Directors.
The following table sets forth information with respect to each person who
is currently a director or executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Gerald F. Cerce...................... 51 Chairman, President and Chief
Executive Officer
John H. Flynn, Jr.................... 48 Director and Executive Vice President
-- Sales and Customer Service
Stephen J. Carlotti.................. 56 Director and Secretary (a)
Michael F. Cronin *.................. 45 Director (a), (b)
Martin E. Franklin *................. 34 Director
George Graboys....................... 65 Director (a), (b)
Felix A. Porcaro, Jr................. 43 Executive Vice President -- Marketing
and Product Development
Robert V. Lallo...................... 58 Executive Vice
President -- Distribution
Daniel A. Triangolo.................. 63 Executive Vice
President -- International
Duane M. DeSisto..................... 44 Treasurer, Assistant Secretary and
Chief Financial Officer
</TABLE>
- ---------------
* Designated by the Preferred Holders. All other directors were designated by
certain management shareholders pursuant to the Shareholders Agreement. See
"Certain Transactions -- Shareholders Agreement."
(a) Member of the Compensation Committee.
(b) Member of the Audit Committee.
The following is a brief summary of the background of each director and
executive officer. Unless otherwise indicated, each individual has served in his
current position for the past five years.
Gerald F. Cerce co-founded the Company in 1985 with Mr. Porcaro and has
served as the Company's Chairman of the Board since that time. Mr. Cerce also
served as Chairman of the Board of AAi's predecessor company, Femic, Inc., a
Rhode Island jewelry manufacturer which Mr. Cerce and Mr. Porcaro acquired in
1972. Mr. Cerce serves on the Board of Trustees of Bryant College and is a
former member of the Advisory Board of Citizens Savings Bank.
John H. Flynn, Jr. joined AAi's predecessor company in 1981 as Vice
President. He served as President and Chief Executive Officer of the Company
from 1985 to 1998 and has been a Director since 1985. As Executive Vice
President of Sales and Customer Service, Mr. Flynn directly manages all sales
and service operations for the Company in the U.S. Prior to joining the Company,
Mr. Flynn was a service director for K&M Associates, a costume jewelry
distributor, and also served as Vice President of Puccini Accessories where he
supervised all sales and service operations.
54
<PAGE> 61
Stephen J. Carlotti has been a Director of the Company since June 1996. He
is an attorney and has been a partner of the firm Hinckley, Allen & Snyder since
1992 and from 1972 to 1989. From 1989 to 1992, he served as Chief Operating
Officer and General Counsel of The Mutual Benefit Life Insurance Company. He is
also a director of WPI Group, Inc. (a manufacturer of hand held computers and
electronic components) and Fleet National Bank.
Michael F. Cronin has been a Director of the Company since June 1996. Mr.
Cronin also serves on the boards of directors of Casella Waste System, Inc. (a
refuse systems company), Tekni Plex, Inc. (a manufacturer of packaging
materials), Tweeter Home Entertainment Group, Inc. (a retailer of audio and
video consumer electronics products) and Physician Health Corporation (a
physician management company). Since 1991, Mr. Cronin has been the Managing
General Partner of Weston Presidio Capital, a venture capital investment firm.
Martin E. Franklin has been a Director of the Company since 1996. Mr.
Franklin is Chairman and Chief Executive Officer of Marlin Holdings, Inc. which
is the general partner of Marlin Capital, L.P., a private investment
partnership. He also serves as Chairman of the respective boards of directors of
Lumen Technologies, Inc. (formerly BEC Group, Inc.) and Bolle, Inc. In addition,
he is non-executive Chairman of Eyecare Products plc and a Director of Specialty
Catalog Corp. From May 1996 to March 1998, Mr. Franklin was Chairman and Chief
Executive Officer of BEC Group, Inc. ("BEC") and served as Chairman and Chief
Executive Officer of BEC's predecessor, Benson Eyecare Corporation from October
1992 to May 1996.
George Graboys has served as a Director of the Company since 1996. Mr.
Graboys served as Chief Executive Officer of Citizens Bank and Citizens
Financial Group, Inc. until he retired in October 1992. From January 1993 to
June 1995, Mr. Graboys was Adjunct Professor and Executive-in-Residence at the
University of Rhode Island School of Business. From March 1995 to June 1998, Mr.
Graboys served as Chairman of the Board of Governors for Higher Education. The
Board oversees the state's three institutions of higher education conducted on
eight campuses throughout the state.
Felix A. Porcaro, Jr. co-founded the Company with Mr. Cerce (his
brother-in-law)in 1985, and served as its Vice Chairman of the Board of
Directors until 1996. Mr. Porcaro is now the Executive Vice President of
Marketing and Product Development and is responsible for the design and
merchandising departments and all advertising and public relations activities.
Robert V. Lallo joined AAi's predecessor company in 1979 as Vice President.
He served as the Company's Chief Operating Officer from 1985 to 1998. As
Executive Vice President -- Distribution, Mr. Lallo is responsible for all
manufacturing, distribution and internal operations of the Company's facilities.
Prior to his association with AAi and its predecessor company, Mr. Lallo was
Production and Inventory Control Manager, Materials Manager and Director of
Operations for Uncas Manufacturing Company.
Daniel A. Triangolo has been the Executive Vice President of AAi's
international operations since 1995. Mr. Triangolo was the founder and President
of Danal Jewelry Corporation prior to its acquisition by AAi in 1983.
Duane M. DeSisto has served as the Company's Vice President and Chief
Financial Officer since 1995. Prior to joining AAi, Mr. DeSisto was Chief
Financial Officer of Zoll Medical Corporation for nine years.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive an annual fee of
$10,000, as well as reimbursement for their reasonable expenses. Messrs. Cerce
and Flynn do not receive any directors' fees.
55
<PAGE> 62
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued to the
Company's Chief Executive Officer and each of the other four most highly
compensated executive officers of the Company (together, the "Named Executive
Officers") for the year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION(a) COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) OPTIONS(#) COMPENSATION($)(b)
- --------------------------- ---------------------- ------------ ------------------
<S> <C> <C> <C>
Gerald F. Cerce,.................. $661,024 -- $211,988
Chairman, President and Chief
Executive Officer
John H. Flynn, Jr.,............... 299,898 -- 11,151
Executive Vice
President -- Sales and Customer
Service
Felix A. Porcaro, Jr.,............ 204,213 -- 14,695
Executive Vice President --
Product Development and
Marketing
Michael Aviles,................... 197,490 -- 90,950(d)
President Foster Grant
Division(c)
Daniel A. Triangolo,.............. 162,162 2,000 2,375
Executive Vice President --
International Division
</TABLE>
- ---------------
(a) The aggregate amount of perquisites and other personal benefits received
from the Company by each of the Named Executive Officers was less than the
lesser of $50,000 or 10% of the total of annual salary and bonus reported.
(b) Amounts represent the following: (1) medical payments reimbursed by the
Company to: Mr. Cerce ($4,909), Mr. Flynn ($6,343) and Mr. Porcaro
($10,279); (2) the Company's matching contributions under its Qualified
401(k) Plan and Non-Qualified 401(k) Excess Plan for Named Executive
Officers as follows: Mr. Cerce ($6,929), Mr. Flynn ($4,658), Mr. Porcaro
($4,266), Mr. Aviles ($950) and Mr. Triangolo, ($2,375); (3) premiums paid
by the Company for term life insurance purchased for the Named Executive
Officers and not made available generally to salaried employees in the
amount of $150 for each of Messrs. Cerce, Flynn and Porcaro; and (4) premium
of $200,000 paid with respect to life insurance purchased by the Company in
connection with Mr. Cerce's Supplemental Executive Retirement Plan.
(c) Mr. Aviles' employment with the Company terminated effective December 31,
1997.
(d) Includes a stay bonus of $90,000 paid in connection with the Company's
acquisition of Foster Grant US.
STOCK PLAN
The Company has established the 1996 Incentive Stock Plan (the "1996 Plan")
which provides for the grant of awards covering a maximum of 50,000 shares of
Common Stock to officers and other key employees of the Company and
non-employees who provide services to the Company or its subsidiaries. Awards
under the 1996 Plan may be granted in the form of incentive stock options,
non-qualified stock options, shares of common stock that are restricted, units
to acquire shares of Common Stock that are restricted, or in the form of stock
appreciation rights or limited stock appreciation rights. As of July 15, 1998,
incentive stock options to purchase 12,000 shares of Common Stock which have
been granted under the 1996 Plan were outstanding. The options have an exercise
price equal to the market value of the Common Stock at the time of the grant,
are immediately exercisable and will expire ten years after the date of grant.
To date, no non-qualified stock options, restricted shares, restricted units or
stock appreciation rights have been granted under the 1996 Plan.
The following table sets forth certain information concerning the grant of
stock options under the 1996 Plan to the Named Executive Officers during fiscal
1997. No options were granted to Messrs. Cerce, Flynn, Porcaro or Aviles in
fiscal 1997.
56
<PAGE> 63
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE OR
UNDERLYING GRANTED TO BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION GRANT DATE
NAME GRANTED FISCAL YEAR ($/Sh)(a) DATE VALUE (a)
---- ---------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Daniel A. Triangolo.............. 2,000 33.3% $50.00 12/29/2007 $41,200.00
</TABLE>
- ---------------
(a) Represents the fair value of the option granted and was estimated as of the
date of the grant using the Black-Scholes option-pricing model with the
following weighted average assumptions: expected volatility of 35.53%;
expected life of five years; and risk-free interest rate of 5.77%. No
dividends on Common Stock were assumed for purposes of this estimate.
The following table contains information with respect to aggregate stock
options held by the Named Executive Officers as of December 31, 1997. Messrs.
Cerce, Flynn and Porcaro do not hold any stock options. All such options were
exercisable as of such date. No stock options were exercised by any Named
Executive Officers during fiscal 1997.
AGGREGATE YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY
NAME AT FISCAL YEAR 1997 OPTION/SARS($)(a)
- ---- ------------------------------ --------------------
<S> <C> <C>
Michael Aviles (b).................................. 2,000 --
Daniel A. Triangolo................................. 4,000 --
</TABLE>
- ---------------
(a) Based on the December 31, 1997 price of the Common Stock being equal to the
exercise price of $50.00.
(b) Mr. Aviles' options expired during the first quarter of 1998.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements, dated as of May 31,
1996, with certain of its executive officers, including Messrs. Cerce, Flynn,
Porcaro, Lallo and DeSisto (collectively, the "Executives," each an
"Executive").
Each employment agreement provides that during the term of the contract the
Executive's base salary will not be reduced, will be increased on each
anniversary date of the agreement based upon the consumer price index and may be
increased based on the Company's performance and the Executive's particular
contributions. The employment agreements also stipulate that the Executives will
remain eligible for participation in the Company's Executive Bonus Plan and
other benefit programs, and that the Company will provide each Executive with an
automobile consistent with past practice. The employment agreement of Mr. Cerce
further provides for the reimbursement of certain membership and service fees as
well as reasonable expenses associated with the performance of his duties in New
York City and specifies that the Company will make all annual payments for his
Supplemental Employment Retirement Plan.
Mr. Cerce's agreement provides for an initial ten year term expiring on May
31, 2006, and the employment agreements of Messrs. Flynn, Porcaro, Lallo and
DeSisto each stipulate an initial three year term expiring on May 31, 1999, with
automatic renewals for successive one year terms thereafter (the "Employment
Period"). Upon prior written notice to the Executive, the Company may terminate
the agreement "with cause" for (a) the conviction of the Executive for a crime
involving fraud or moral turpitude; (b) deliberate dishonesty of the Executive
with respect to the Company or its subsidiaries; or, (c) except under certain
circumstances as specified in the agreement, the Executive's refusal to follow
the reasonable and lawful written instructions of the Board of Directors with
respect to the services to be rendered and the manner of rendering such services
by the Executive. In addition, an Executive may terminate his agreement at any
time by providing written notice to the Company, and the Company may terminate
the agreement at any time "without cause" by providing written notice to the
Executive. Mr. Cerce's agreement provides that the Company must provide such
written notice at least six months prior to termination. Termination "without
57
<PAGE> 64
cause" means termination for any reason other than "cause" as defined and
specifically includes the Company's material reduction of the Executive's duties
or authority, the disability of the Executive or the Executive's death.
Under the employment agreements, if the Company terminates an agreement
"without cause," the Company is obligated to provide the Executive monthly
severance benefits consisting of one-twelfth of the sum of Executive's then
current annual base salary and the Executive's most recent bonus and to continue
coverage under the Company's insurance programs and any ERISA benefit plans.
Such payments, insurance coverage and plan participation will continue for at
least two years from the date of the Executive's termination, and may be
extended for a longer period depending on the Executive's "Non-compete Period"
as described below. For Messrs. Cerce and Flynn, the maximum period for
severance benefits is five years, for Messrs. Lallo and DeSisto, the comparable
maximum period is four years, and for Mr. Porcaro, the comparable maximum period
is three years.
The employment agreements contain confidentiality provisions and provide
that during the Employment Period and after termination of the agreement, the
Company may restrict the Executive's subsequent involvement in Restricted
Business Activities for two years for Messrs. Cerce, Flynn and Lallo and for one
year for Messrs. Porcaro and DeSisto following the date of the termination (the
"Non-compete Period"). As used in the agreements, "Restricted Business
Activities" means the marketing and sale of ladies' and men's consumer soft
lines to retail stores, which the Company sold and marketed during the
Executive's employment with the Company. Other than with the written approval of
the Company, the Executive may not enter into or engage in or have a proprietary
interest in the Restricted Business Activities other than the ownership of (a)
the stock of the Company held by the Executive, and (b) no more than five
percent of the securities of any other company which is publicly held. The
Non-compete Period may be extended, at the Company's option, by three years for
Messrs. Cerce and Flynn and by two years for Messrs. Porcaro, Lallo and DeSisto,
provided that the Company continues to make the payments and provide the
benefits described in the preceding paragraph.
EXECUTIVE BONUS PLAN
The Company maintains an Executive Bonus Plan for the purpose of providing
incentives in the form of an annual cash bonus to officers and other key
employees. Awards are equal to a percentage of base salaries specified in an
annual plan by reference to the Company's target for sales and net income.
Bonuses awarded to senior executives are equal to 50% of compensation if the
sales and income targets are met. If the targets are not met, the amount of the
bonuses, if any, is subject to the discretion of the Board of Directors.
QUALIFIED 401(k) Plan
The Company has a qualified 401(k) plan (the "Qualified Plan") that permits
all employees to defer, on an elective basis, up to 15% of their salary or
wages. Presently, the Company matches 25% of the first 6% of compensation that
an employee defers under the Qualified Plan. The amount of elective deferrals
for any one employee under the Qualified Plan is limited by the Internal Revenue
Code of 1986, as amended (the "Code"). In addition, the amount that an executive
employee may defer is subject to nondiscrimination rules which may prevent the
executive from deferring the maximum amount. Further, the Qualified Plan may not
take into account compensation in excess of specified amounts for any employee
in computing contributions under the Qualified Plan. If an employee's elective
contributions are reduced or capped under the Qualified Plan, the amount of
matching employer contribution also is restricted.
NON-QUALIFIED EXCESS 401(k) Plan
In May 1997, the Company established the Non-Qualified Excess 401(k) Plan
(the "Non-Qualified Plan") effective as of June 1, 1997. The purpose of the
Non-Qualified Plan is to provide deferred compensation to a select group of
management or highly compensated employees of the Company as designated by the
Board of Directors. Presently, five individuals, including the Named Executive
Officers, participate in the Non-Qualified Plan. Under the Non-Qualified Plan, a
participant may elect to defer up to 15% of his or her compensation on an annual
basis. This amount is credited to the employee's deferred
58
<PAGE> 65
compensation account (the "Deferred Amount"). Under the Non-Qualified Plan, the
Company also credits the participant's deferred compensation account for the
amount of the matching contribution the Company would have made under the
Qualified Plan with respect to the Deferred Amount. All amounts contributed by
the employee and by the Company under the Non-Qualified Plan are immediately
vested.
A participant under the Non-Qualified Plan is entitled to receive a
distribution of his or her account upon retirement, death, disability or
termination of employment. An executive also is eligible to withdraw funds
credited to the executive's deferred compensation account in the event of
unforeseeable financial hardship. This policy is consistent with the ability of
an employee to obtain hardship withdrawals under the Qualified Plan.
The amount deferred under the Non-Qualified Plan is not includible in the
income of the executive until paid and, accordingly, the Company is not entitled
to a deduction for any liabilities established under the Non-Qualified Plan
until the amount credited to the participant's deferred compensation account is
paid to him or her.
The Company has established a grantor trust effective June 1, 1997 to hold
assets to be used for payment of benefits under the Non-Qualified Plan. In the
event of the Company's insolvency, any assets held by the trust are subject to
claims of general creditors of the Company under federal and state law.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company has entered into a Supplemental Executive Retirement Plan (the
"Supplemental Plan") with Mr. Cerce the purpose of which is to provide
supplemental retirement, death, disability and severance benefits to Mr. Cerce
in consideration for his performance of services as a key executive of the
Company. In order to fund the Company's obligations under the Supplemental Plan,
the Company has purchased an insurance policy insuring the life of Mr. Cerce
(the "Policy").
Under the terms and subject to the conditions contained in the Supplemental
Plan, upon Mr. Cerce's voluntary termination of employment for any reason on or
after age 60 ("Retirement") or by reason of disability, the Company will pay to
Mr. Cerce the existing cash surrender value of the Policy. At the discretion of
the Board of Directors of the Company, payment may be made either in a single
lump sum or in monthly installments over a ten year period; provided, however,
in the event that Retirement occurs within one year after a change of control,
the retirement benefit will be paid in a single lump sum.
In the event that Mr. Cerce dies while employed by the Company, the Company
will pay a death benefit to Mr. Cerce's surviving spouse or designated
beneficiary equal to the death benefit payable under the Policy. The death
benefit will be paid in monthly installments over a fifteen year period unless
Mr. Cerce's death occurs within one year after a change of control, in which
event, the death benefit will be paid in a single lump sum no later than ninety
days after his death.
In the event that Mr. Cerce's employment with the Company is terminated for
any reason other than Retirement, death or disability, Mr. Cerce will be
entitled to receive the existing cash surrender value of the Policy, payable at
the discretion of the Board of Directors of the Company in a single lump sum or
in monthly installments over a ten year period. However, if Mr. Cerce's
termination occurs within one year after a change of control, the severance
benefit will be paid in a single lump sum.
59
<PAGE> 66
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding beneficial
ownership of the Company's capital stock as of August 5, 1998, by (i) each
person who is known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock or Series A Preferred Stock; (ii) each of the
Company's directors and Named Executive Officers; and (iii) all directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
SERIES A COMMON STOCK
PREFERRED STOCK COMMON STOCK DILUTED (b)
------------------------ ------------------------ -----------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES SHARES SHARES
BENEFICIALLY PERCENT BENEFICIALLY PERCENT BENEFICIALLY PERCENT
NAME AND ADDRESS (A) OWNED OF CLASS OWNED OF CLASS OWNED OF CLASS
-------------------- ------------ -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Gerald F. Cerce(c).................... -- -- 323,953 53.3% 323,953 31.0%
Felix A. Porcaro, Jr.(c).............. -- -- 171,000 28.1 171,000 16.4
John H. Flynn, Jr..................... -- -- 28,500 4.7 28,500 2.7
Stephen J. Carlotti(d)(e)............. -- -- 36,094 5.9 36,094 3.5
Michael F. Cronin(f).................. 17,100 39.1% 19,000 3.1 190,000 18.2
Martin E. Franklin(g)................. 4,750 10.9 -- -- 47,500 4.5
George Graboys........................ -- -- -- -- -- --
David J. Syner(e)(h).................. -- -- 36,094 5.9 36,094 3.5
Daniel A. Triangolo(i)................ -- -- 4,000 * 4,000 *
Weston Presidio Capital II, L.P.(j)... 17,100 39.1 19,000 3.1 190,000 18.2
St. Paul Fire and Marine Insurance
Company(k).......................... 6,840 15.7 7,600 1.3 76,000 7.3
BancBoston Ventures, Inc.(l).......... 6,840 15.7 7,600 1.3 76,000 7.3
Marlin Capital, L.P.(m)............... 4,750 10.9 -- -- 47,500 4.5
National City Capital
Corporation(n)...................... 3,420 7.8 3,800 * 38,000 3.6
Brahman Group(o)...................... 3,117 7.1 -- -- 31,170 3.6
All executive officers and directors
as a group (10 persons)(p).......... 21,850 50.0 597,000 96.9 815,500 78.2
</TABLE>
- ---------------
* Less than one percent
(a) If applicable, beneficially owned shares include shares owned by the spouse,
children and certain other relatives of the director or officer, as well as
shares held by trusts of which the person is a trustee or in which he has a
beneficial interest. All information with respect to beneficial ownership
has been furnished by the respective directors and officers.
(b) Includes full conversion of all outstanding shares of Series A Preferred
Stock into Common Stock at the current ratio of 1 for 10.
(c) Messrs. Cerce's and Porcaro's business address is 500 George Washington
Highway, Smithfield, Rhode Island 02917.
(d) Mr. Carlotti's business address is 1500 Fleet Center, Providence, Rhode
Island 02903.
(e) Represents shares of Common Stock held by Mr. Carlotti and David J. Syner,
as trustees of the benefit of Mr. Cerce's children.
(f) Mr. Cronin's business address is 1 Federal Street, 21(st) Floor, Boston,
Massachusetts 02110. Includes 19,000 shares of Common Stock and 17,100
shares of Series A Preferred Stock held in the name of Weston Presidio
Capital II, L.P. of which Mr. Cronin is a general partner.
(g) Mr. Franklin's business address is 555 Theodore Fremd Avenue, Suite B-302,
Rye, New York 10580. Includes 4,750 shares of Series A Preferred Stock held
in the name of Marlin Capital, L.P., of which Mr. Franklin's majority-owned
company is the sole general partner.
(h) Mr. Syner's business address is 35 Sockanesset Crossroads, Cranston, Rhode
Island 02920.
(i) Represents shares that may be acquired pursuant to options which are or will
become exercisable within 60 days.
(j) The address of Weston Presidio Capital II, L.P. is 1 Federal Street, 21(st)
Floor, Boston, Massachusetts 02110.
(k) The address of St. Paul Fire and Marine Insurance Company is c/o St. Paul
Venture Capital, Inc., 8500 Normandale Lake Boulevard, Suite 1940,
Bloomington, Minnesota 55437.
(l) The address of BancBoston Ventures, Inc. is 175 Federal Street, 10th Floor,
Boston, Massachusetts 02110.
(m) The address of Marlin Capital, L.P. is 555 Theodore Fremd Avenue, Suite
B-302, Rye, New York 10580.
(n) The address of National City Capital Corporation is 1965 E. 6th Street,
Suite 1010, Cleveland, Ohio 44114.
(o) The Brahman Group includes Brahman Partners II, L.P., B.Y. Partners, L.P.
and Brahman Partners II Offshore Ltd., which are a "group" as that term is
used in Section 13(d)(3) of the Exchange Act of 1934, as amended (the
"Exchange Act"). The address for these shareholders is c/o Brahman Capital
Corp., 277 Park Avenue, New York, New York 10172.
(p) Includes 8,000 shares that may be acquired pursuant to options which are or
will become exercisable within 60 days.
All of the Company's shareholders are party to an agreement that requires
the parties thereto to vote to fix the number of directors of the Company at
seven and elect as directors two persons designated by the Preferred Holders and
five persons designated by certain management shareholders. See "Certain
Transactions -- Shareholders Agreement."
60
<PAGE> 67
CERTAIN TRANSACTIONS
NOTES PAYABLE TO PREFERRED SHAREHOLDERS
On May 31, 1996, in connection with the Company's sale of shares of its
Series A Preferred Stock, the Company issued subordinated promissory notes in
the aggregate amount of $2.0 million to certain Preferred Holders (Weston
Presidio Capital II, L.P., BancBoston Ventures, Inc., St. Paul Fire and Marine
Insurance Company and National City Capital Corporation). BancBoston Ventures,
Inc., an affiliate of BancBoston Securities Inc., one of the Initial Purchasers,
was a holder of a subordinated note in the principal amount of $400,000. The
subordinated notes bore interest at an annual rate of 7.04% and were due in
2002. These notes were repaid with a portion of the net proceeds from the sale
of the Old Notes. See "Use of Proceeds."
TERMINATION OF S CORPORATION STATUS
Until the issuance of its Series A Preferred Stock on May 31, 1996, the
Company was an S corporation under the Code and comparable state tax laws. As an
S corporation, earnings through the date of termination of S corporation status
were taxed directly to the S corporation shareholders (Messrs. Cerce, Flynn,
Lallo and Porcaro). Upon termination of its S corporation status, the Company
issued to the S corporation shareholders previously taxed undistributed earnings
in the aggregate amount of $13.3 million. Of the $13.3 million, $10.3 million
was paid in cash and $3.0 million was paid by the issuance of subordinated
promissory notes, which bore interest at an annual rate of 7.04% and were due in
2006. These notes were also repaid with a portion of the net proceeds of the
sale of the Old Notes. See "Use of Proceeds."
The Company has entered into an indemnification agreement with the S
Corporation shareholders relating to potential income tax liabilities resulting
from adjustments to reported S corporation taxable income. The S corporation
shareholders will continue to be liable for personal income taxes on the
Company's income for all periods during which the Company was an S corporation,
while the Company will be liable for all income taxes for subsequent periods.
The indemnification agreement provides that the Company will distribute to the S
corporation shareholders 40% of the amount of additional deductions permitted to
be taken by the Company as a C corporation for expenditures made while an S
corporation, which result from adjustments initiated by tax authorities.
During the first and second quarters of 1998, in connection with an income
tax audit, the Company made advances totaling $3.4 million to the S corporation
shareholders to pay a portion of the income tax owed by them with respect to the
Company's S corporation earnings. Upon completion of the sale of the Old Notes,
the shareholders repaid these advances.
LEASES OF RHODE ISLAND WAREHOUSE SITES
The Company has an operating lease agreement for warehouse facilities with
Sunrise Properties, LLC ("Sunrise Properties"), a Rhode Island limited liability
company, of which Mr. Porcaro and Linda Cerce, wife of Mr. Cerce and sister of
Mr. Porcaro, are members. The Company also has an operating lease agreement for
warehouse facilities with 299 Carpenter Street Associates, LLC, a Rhode Island
limited liability company of which Sunrise Properties and Messrs. Lallo and
Flynn are members. The leased properties are located at 4 Warren Avenue, North
Providence, Rhode Island and at 299 Carpenter Street, Providence, Rhode Island.
The present annual rental rates for the Warren Avenue and Carpenter Street
properties are $191,412 and $279,840, respectively. The Company is responsible
for real estate taxes and utilities. Each lease has a three year term ending on
December 31, 2001, and grants the Company an option to extend the lease for an
additional three year term at the greater of the then fair market rent or the
current rent adjusted for the cumulative increase in the consumer price index.
GUARANTY OF MORTGAGE NOTE
The Company has guaranteed a mortgage note payable by Sunrise Properties in
the aggregate amount of $200,000, the outstanding balance of which was
approximately $118,000 as of August 5, 1998. The mortgage note has a remaining
maturity of three years, and bears interest at a rate of 9.5% annually.
61
<PAGE> 68
LEASE OF DALLAS, TEXAS SITE
In December 1996, in conjunction with the purchase of Foster Grant US, the
Company entered into a property lease with BEC Group, Inc. (now named Lumen
Technologies, Inc.) ("BEC/Lumen"), the former owner of the Foster Grant US
office and distribution center. In March 1998, BEC/Lumen transferred the Texas
property to Bolle, Inc. an affiliated corporation at the time of transfer.
Martin E. Franklin, a director of the Company, is the chairman of Lumen
Technologies, Inc. and Bolle, Inc. Rental expense for this property was
approximately $494,000 in 1997. In May 1998, Bolle, Inc. sold the Texas property
to an independent third party. The Company gave notice of termination of the
lease effective December 1998.
SHAREHOLDERS AGREEMENT
The Company, the current shareholders and Daniel A. Triangolo, Duane M.
DeSisto and Thomas McCarthy are parties to a Tag-along, Transfer Restriction and
Voting Agreement (the "Shareholders Agreement") which requires the parties
thereto to vote to fix the number of directors at seven and to elect as
directors two persons nominated by the Preferred Holders and five persons
nominated by the other parties to the Shareholders Agreement (the "Management
Shareholders"). In a related Letter Agreement, Weston Presidio Capital II, L.P.,
a Preferred Holder, has agreed to use its best efforts to cause the nomination
of and to vote all of its shares of Series A Preferred Stock for the election of
Martin E. Franklin (or, in the event of his death or incapacity, the designee of
Marlin Capital, L.P.) as a director of the Company, for so long as the Preferred
Holders, in the aggregate, own at least 10% or 4,750 shares of Series A
Preferred Stock.
The Shareholders Agreement also provides that upon the death of a
Management Shareholder, the Company will purchase, at an appraised value
determined by an independent investment banker, all or a portion of the shares
owned by the Management Shareholder at his death. The Company has funded its
obligations under the Shareholders Agreement with life insurance policies on the
lives of the Management Shareholders in the aggregate amount of $27 million. The
Company's obligation to purchase shares upon the death of a Management
Shareholder is limited to the life insurance proceeds received upon the death of
such Management Shareholder. The Company may not decrease the amount of life
insurance coverage without the prior written consent of the affected Management
Shareholder.
The Shareholders Agreement terminates on the earlier of the following: (i)
the time immediately prior to the consummation of a Qualified Public Offering as
defined in the Articles of Incorporation (see "Description of Capital Stock") or
(ii) when no shares of the Series A Preferred Stock and no warrants issuable to
the Preferred Holders are outstanding, except as a result of the conversion,
exchange or exercise of the Series A Preferred Stock or warrants.
OWNERSHIP OF PREFERRED SHARES OF FG HOLDINGS BY BEC/LUMEN
In connection with the purchase of Foster Grant US, the Company's
wholly-owned subsidiary, FG Holdings, issued BEC/Lumen 100 shares of FG
Preferred Stock which represents all of the issued and outstanding shares of FG
Preferred Stock. By its terms, the FG Preferred Stock must be redeemed on
February 28, 2000 (the "FG Redemption Date") by payment of an amount ranging
from $10,000 to $40,000 per share (the "FG Redemption Amount"), determined with
reference to the combined net sales of sunglasses, reading glasses and
accessories by FG Holdings and the Company for the year ending January 1, 2000,
excluding an amount equal to the net sales by the Company for such items for the
year ending December 31, 1996.
The Certificate of Incorporation of FG Holdings also provides for early
redemption of the FG Preferred Stock if the Company completes either (i) an
initial public offering where the pre-money valuation of the Company equals or
exceeds $75.0 million, (ii) a merger or similar transaction where the
transaction value equals or exceeds $75.0 million or (iii) a private placement
of equity securities representing more than 50% of the outstanding capital stock
for consideration of not less than $37.5 million (each a "Redemption Event")
prior to the FG Redemption Date. Upon completion of a Redemption Event, in lieu
of the FG Redemption Amount, holders of FG Preferred Stock will receive a
payment ranging from $35,000 to $40,000 per share (the "Redemption Event
Amount"), to be determined with reference to, as the case may be, either the
pre-
62
<PAGE> 69
money valuation of the Company immediately prior to the initial public offering
or the proceeds of the merger or similar transaction or private equity
placement. If a Redemption Event occurs after the FG Redemption Date, in
addition to the FG Redemption Amount, holders of FG Preferred Stock will receive
a supplemental payment equal to the difference, if any, between the FG
Redemption Amount paid to such holders on the FG Redemption Date and Redemption
Event Amount that would have been received had the Redemption Event occurred on
or prior to the FG Redemption Date.
INITIAL PURCHASERS
BancBoston Ventures, Inc., an affiliate of BancBoston Securities Inc., one
of the Initial Purchasers, is the beneficial owner of 15.7% of the Company's
Series A Preferred Stock and 1.3% of the Common Stock and was a holder of a
$400,000 subordinated note. See "Security Ownership of Management and Certain
Beneficial Owners" and "Plan of Distribution." NationsBank, an agent and lender
under the Senior Credit Facility and lender of the Term Loans, is an affiliate
of NationsBanc Montgomery Securities LLC, one of the Initial Purchasers. The
Company used a portion of the net proceeds from the Offering to repay all of the
outstanding indebtedness under the subordinated notes, Senior Credit Facility
and the Term Loans. See "Use of Proceeds," "Description of Senior Credit
Facility" and "Plan of Distribution."
63
<PAGE> 70
DESCRIPTION OF SENIOR CREDIT FACILITY
The Company has a Senior Credit Facility provided by a group of banks and
other financial institutions led by NationsBank as a lender and as agent (the
"Agent"). The Agent is an affiliate of NationsBanc Montgomery Securities LLC,
one of the Initial Purchasers. The following summary of certain provisions of
the Senior Credit Facility does not purport to be complete and is subject to and
is qualified in its entirety by reference to the provisions of the Senior Credit
Facility.
The Senior Credit Facility currently provides for loans in an aggregate
principal amount not to exceed $60.0 million on a revolving credit basis (the
"Revolving Credit Facility") to fund permitted acquisitions, capital
expenditures and working capital needs. The Revolving Credit Facility includes a
$3.0 million letter of credit sublimit. Advances under the Revolving Credit
Facility are limited to up to 85% of eligible accounts receivable plus the
lesser of (i) 55% of eligible inventory (other than optical inventory) plus 65%
of eligible inventory consisting of optical inventory or (ii) $30.0 million (the
"Borrowing Base Requirements"). The full $60.0 million (subject to Borrowing
Base Requirements) is currently available under the Revolving Credit Facility.
The Senior Credit Facility has an initial expiration date of July 31, 2003, with
automatic annual renewals thereafter (subject to the lenders' continued credit
approval).
The Company's obligations under the Senior Credit Facility are guaranteed
by the Subsidiary Guarantors and are secured by the accounts receivable and
inventory of the Company and its Domestic Subsidiaries. The Notes and the
Subsidiary Guarantees are effectively subordinated to the obligations under the
Senior Credit Facility to the extent of the value of the assets securing the
Senior Credit Facility. See "Description of Notes -- Subordination" and "Risk
Factors -- Effective Subordination of the Notes."
Loans under the Senior Credit Facility bear interest, at the Company's
option, at either (i) a "Base Rate" equal to the Agent's prime lending rate,
plus up to 0.50% (determined based on the Company's fixed charge coverage
ratio); or (ii) a "LIBOR Rate," plus an applicable margin of between 1.50% and
2.25% (determined based on the Company's fixed charge coverage ratio).
The Senior Credit Facility contains a number of covenants that, among other
things, restrict the ability of the Company and its subsidiaries to dispose of
assets, incur additional indebtedness, incur guaranty obligations, repay other
indebtedness, including the Notes, or amend other debt instruments, pay
dividends, create liens on assets, enter into leases, make investments, make
acquisitions, engage in mergers or consolidations, make capital expenditures,
engage in certain transactions with subsidiaries and affiliates and otherwise
restrict corporate activities. In addition, the Senior Credit Facility requires
compliance with certain financial covenants, including requiring the Company to
maintain a minimum EBITDA level, funded debt to EBITDA ratio and fixed charge
coverage ratio, in each case tested at the end of each fiscal quarter of the
Company. The Company does not expect that such covenants will materially impact
the Company's ability to operate its business. In addition, the Senior Credit
Facility requires the Company to meet certain Borrowing Base Requirements in
order to draw under the Revolving Credit Facility. The Company is also obligated
to pay certain fees with respect to the Senior Credit Facility, including a
revolving credit unused line fee of 0.375% on the average daily unused amount.
64
<PAGE> 71
DESCRIPTION OF NOTES
GENERAL
The Notes are issued pursuant to the Indenture dated July 21, 1998 (the
"Indenture"), among the Company, the Guarantors and IBJ Schroder Bank & 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, as amended (the "Trust Indenture Act"). The Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and the Trust Indenture Act for a statement thereof. The following summary of
the material provisions of the Indenture and Registration Rights Agreement does
not purport to be complete and is qualified in its entirety by reference to the
Indenture and Registration Rights Agreement, including the definitions therein
of certain terms used below. The definitions of certain terms used in the
following summary are set forth below under the caption "--Certain Definitions."
For purposes of this "Description of Notes," the term "Company" refers only to
AAi.FosterGrant, Inc. and not to any of its Subsidiaries.
The Notes are general unsecured obligations of the Company and rank pari
passu in right of payment to all current and future unsubordinated Indebtedness
of the Company, including indebtedness under the Senior Credit Facility. The
obligations of the Company under the Senior Credit Facility, however, are
secured by the accounts receivable and inventory of the Company and are
guaranteed by the Guarantors, which guarantees are secured by the accounts
receivable and inventory of the Guarantors. Accordingly, the Notes and the
Subsidiary Guarantees are effectively subordinated to the borrowings outstanding
under the Senior Credit Facility and the guarantees of such borrowings,
respectively, to the extent of the value of the assets securing such borrowings
and guarantees. As of April 4, 1998, on a pro forma basis giving effect to the
Acquisitions and the Offering and the application of net proceeds therefrom, the
Company and its Subsidiaries would have had approximately $1.4 million senior
Indebtedness outstanding other than the Notes, all of which would have been
secured debt. The Indenture permits the incurrence of additional senior
Indebtedness (including secured Indebtedness) in the future.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $150.0 million, of
which $75.0 million were issued in the Offering. The Notes mature on July 15,
2006. Interest on the New Notes accrues at the rate of 10 3/4% per annum from
the last date of which interest was paid on the Old Notes surrendered in
exchange therefor, or if no interest has been paid, from the date of the
original issuance of such Old Notes. Interest on the New Notes is payable
semi-annually in arrears on January 15 and July 15, commencing on January 15,
1999, to Holders of record on the immediately preceding January 1 and July 1.
Notes having identical terms and conditions to the Notes offered hereby (the
"Additional Notes") may be issued from time to time after the date hereof,
subject to the provisions of the Indenture, including those described below
under the caption "--Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock." For purposes of this "Description of Notes,"
references to the Notes do not include Additional Notes. The Notes and any
Additional Notes subsequently issued under the Indenture would be treated as a
single class for all purposes under the Indenture, including, without
limitation, waivers, amendments, redemptions and offers to purchase. Interest is
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of and premium, interest and Liquidated Damages, if any, on the Notes
is payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the option of the Company, payment
of interest and Liquidated Damages, if any, may be made by check mailed to the
Holders of the Notes at their respective addresses set forth in the register of
Holders of Notes; provided that all payments of principal, premium, interest and
Liquidated Damages, if any, with respect to Notes the Holders of which have
given wire transfer instructions to the Company will be required to be made by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's office
or agency in New York is the office of the Trustee maintained for such purpose.
The Notes are issued in denominations of $1,000 and integral multiples thereof.
65
<PAGE> 72
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes are jointly and severally
guaranteed (the "Subsidiary Guarantees") by each of the Company's current and
future Domestic Subsidiaries (collectively, the "Guarantors"). The Subsidiary
Guarantee of each Guarantor ranks senior in right of payment to all future
subordinated Indebtedness of the Guarantors and ranks pari passu in right of
payment to all unsubordinated Indebtedness of such Guarantors and the amounts
for which the Guarantors are liable under the guarantees issued from time to
time with respect to unsubordinated Indebtedness. The guarantees by the
Guarantors of borrowings under the Senior Credit Facility are secured by the
accounts receivable and inventory of the Guarantors. Accordingly, the Subsidiary
Guarantees are effectively subordinated to such guarantees under the Senior
Credit Facility to the extent of the value of the assets securing such
guarantees. As of April 4, 1998, on a pro forma basis giving effect to the
Acquisitions and the Offering and the application of net proceeds therefrom, the
Guarantors would have had no senior Indebtedness, other than the Subsidiary
Guarantees, outstanding. The obligations of each Guarantor under its Subsidiary
Guarantee is limited so as not to constitute a fraudulent conveyance under
applicable law. See "Risk Factors -- Fraudulent Conveyance."
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, the Indenture and the Registration Rights Agreement;
and (ii) immediately after giving effect to such transaction, no Default or
Event of Default exists.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See " -- Repurchase
at the Option of Holders -- Asset Sales."
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to July 15,
2002. Thereafter, the Notes are subject to redemption at any time at the option
of the Company, in whole or in part, 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 and Liquidated Damages,
if any, thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on July 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................ 105.375%
2003........................................................ 102.688%
2004 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or before July 15, 2001, the
Company may redeem up to 35% of the aggregate principal amount of Notes
originally issued under the Indenture at a redemption price of 110.750% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date, with the net cash proceeds of a
public sale of common stock of the Company; provided that at least 65% of the
aggregate principal amount of Notes originally issued under the Indenture
remains outstanding immediately after the occurrence of such redemption
(excluding Notes held by the Company or any of its Subsidiaries); and provided,
further, that such redemption shall occur within 45 days after the date of the
closing of such public sale.
66
<PAGE> 73
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes has the
right to require the Company to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase (the
"Change of Control Payment"). Within ten days following a 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 date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), 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, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) 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 (iii) 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
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. 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 Change of Control provisions described above are applicable 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 Senior Credit Facility contains prohibitions of certain events that
would constitute a Change of Control and restricts the Company's ability to
repurchase the Notes. Any future credit agreements or other agreements relating
to senior Indebtedness 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
67
<PAGE> 74
from purchasing Notes, the Company could seek the consent of its 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
the Senior Credit Facility or other agreements relating to senior Indebtedness.
Furthermore, the exercise by the Holders of Notes of their right to require the
Company to repurchase the Notes could cause a default under such other senior
Indebtedness (even if the Change of Control itself does not or the terms of the
senior Indebtedness do not prohibit such repurchases) due to the financial
effect of such repurchases on the Company. Finally, the Company's ability to pay
cash to the Holders of Notes upon a repurchase may be limited by the Company's
then existing financial resources. See "Risk Factors -- Change of Control."
The Company is not 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 developing 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 Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 75% of the consideration therefor received by the Company
or such Subsidiary is in the form of cash or Cash Equivalents; provided that the
amount of (a) any liabilities (as shown on the Company's or such Subsidiary's
most recent balance sheet), of the Company or any Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Subsidiary from further liability and (b) any securities, notes or other
obligations received by the Company or any such Subsidiary from such transferee
that are contemporaneously (subject to ordinary settlement periods) converted by
the Company or such Subsidiary into cash (to the extent of the cash received)
shall be deemed to be cash for purposes of this provision; provided, further
that the provisions of this paragraph do not apply to transactions pursuant to
the Fantasma Agreement, as in effect on the date of the Indenture.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to permanently repay
Indebtedness of the Company under a Credit Facility or (b) to acquire all or
substantially all of the assets of, or a majority of the Voting Stock of,
another business, (c) to make a capital expenditure or (d) to acquire other
long-term assets. 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 in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company
will be required to make an offer to all Holders of Notes and all holders of
other Indebtedness that is pari passu with the Notes containing provisions
similar to those set forth in the Indenture with respect to offers to purchase
or redeem with the proceeds of sales of assets (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes and such other pari passu
Indebtedness that may be purchased out of the Excess
68
<PAGE> 75
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase, in accordance with the procedures set forth in
the Indenture and such other pari passu Indebtedness. To the extent that 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 into such Asset Sale Offer surrendered by Holders thereof
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 an Asset Sale Offer, the amount of Excess Proceeds shall be reset
at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any other payment or distribution on account of the Company's or any of
its Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company or any of
its Subsidiaries) or to the direct or indirect holders of the Company's or any
of its Subsidiaries' Equity Interests in their capacity as such (other than
dividends or distributions (a) payable in Equity Interests (other than
Disqualified Stock) of the Company or (b) to the Company or a Wholly Owned
Subsidiary of the Company); (ii) 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
direct or indirect parent of the Company (other than any such Equity Interests
owned by the Company or any Wholly Owned Subsidiary of the Company); (iii) make
any payment on or with respect to, or purchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness of the Company or any of its
Subsidiaries that is subordinated to the Notes or any Subsidiary Guarantee
thereof, except a payment of interest or principal at Stated Maturity; or (iv)
make any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made 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
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after
the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv), (v)(a) and (vi) of the next succeeding
paragraph), is less than the sum, without duplication, of (i) 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
(ii) 100% of the aggregate net cash proceeds received by the Company since
the date of the Indenture as a contribution to its common equity capital or
from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or Disqualified Stock or debt securities of the Company
that have been converted into such Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible debt securities) sold to a
Subsidiary of the Company), plus (iii) to the extent that any Restricted
Investment that was made after the date of the Indenture is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the cost
of disposition, if any) and (B) the initial amount of such Restricted
Investment, plus (iv) $3.0 million.
69
<PAGE> 76
The foregoing provisions do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at the date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of the Company or any Guarantor or
Equity Interests of the Company in exchange for, or out of the net cash proceeds
of the substantially concurrent sale (other than to a Subsidiary of the Company)
of, other Equity Interests of the Company (other than any 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 (c) (ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness of the Company or any Guarantor with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any
dividend by a Subsidiary of the Company to the holders of its common Equity
Interests on a pro rata basis; (v) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or
any Subsidiary of the Company held by any member of the Company's (or any of its
Subsidiaries') management pursuant to any stock purchase, stock redemption,
stock option or similar agreement; provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests in any
twelve-month period shall not exceed the sum of (a) any amounts available to the
Company under insurance policies insuring the lives of such member of management
and (b) $250,000 in any twelve-month period and no Default or Event of Default
shall have occurred and be continuing immediately after such transaction; and
(vi) repurchases of Capital Stock deemed to occur upon exercise of stock options
if such Capital Stock represents a portion of the exercise price of such
options.
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 Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
asset 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, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if such 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
the covenant "Restricted Payments" 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 Indenture provides that the Company will not, and will not permit any
of its 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 that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of 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 Indebtedness is incurred or such Disqualified Stock or
preferred stock is issued would have been at least 2 to 1, 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
or preferred stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The provisions of the first paragraph of this covenant do not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company or a Foreign Subsidiary of
Indebtedness (including letters of credit, with letters of credit being
deemed to have a principal amount equal to the maximum potential liability
of the Company and its Subsidiaries thereunder) under Credit Facilities and
the Guarantee thereof by the Guarantors; provided that the aggregate
principal amount of all Indebtedness of the Company and its Subsidiaries
(including letters of credit) outstanding under Credit Facilities after
giving
70
<PAGE> 77
effect to such incurrence does not exceed an amount equal to the greater of
(a) $60.0 million less the aggregate amount of all Net Proceeds of Asset
Sales applied to permanently repay any Indebtedness under a Credit Facility
pursuant to the covenant described above under the caption "--Repurchase at
the Option of Holders -- Asset Sales" or (b) the sum of 85% of the accounts
receivable plus 55% of the jewelry inventory, 65% of the optical inventory
and 55% of all other inventory, in each case of the Company and its
Subsidiaries net of reserves, as shown on the most recent balance sheet of
the Company and its Subsidiaries;
(ii) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes (other than any Additional Notes) and the Exchange Notes (other than
any Additional Notes) and the incurrence by the Guarantors of Indebtedness
represented by the Subsidiary Guarantees;
(iv) the incurrence by the Company or any of its 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 Subsidiary, in an aggregate principal amount, together with
any Attributable Debt with respect to the Smithfield Property permitted
under the caption "--Sale and Leaseback Transactions," not to exceed $10.0
million at any time outstanding, including any Permitted Refinancing
Indebtedness incurred pursuant to clause (v) below to refund, refinance or
replace any Indebtedness incurred pursuant to this clause (iv);
(v) the incurrence by the Company or any of its 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 be
incurred by the first paragraph of this covenant, or by clauses (ii), (iii)
or (iv) of this covenant;
(vi) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries; provided, however, that (a) if the Company is the obligor on
such Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the Notes 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
Subsidiary thereof and (2) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Subsidiary
thereof 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 (vi);
(vii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of (a) fixing or
hedging interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of this Indenture to be outstanding or (b)
limiting currency exchange rate risks in connection with transactions
entered into in the ordinary course of business;
(viii) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Subsidiary of the Company that was
permitted to be incurred by another provision of this covenant;
(ix) the incurrence by the Company of Indebtedness in connection with
a repurchase of Notes or Exchange Notes following a Change of Control;
provided that the principal amount of such Indebtedness does not exceed
101% of the aggregate principal amount of the Notes and the Exchange Notes
repurchased, and such Indebtedness (a) has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of
the Notes and the Exchange Notes and (b) does not mature prior to the
Stated Maturity of the Notes and the Exchange Notes;
(x) the incurrence of Indebtedness arising from agreements providing
for indemnification, adjustment of purchase price or similar obligations,
incurred in connection with the disposition of any business, assets or
Subsidiary of the Company (other than Guarantees of Indebtedness incurred
by any Person acquiring all or any portion of such business, assets or
Subsidiary for the purpose of financing such
71
<PAGE> 78
acquisition), provided that none of the foregoing results in Indebtedness
required to be reflected as Indebtedness on the balance sheet of the
Company or any such Subsidiary in accordance with GAAP and the maximum
aggregate liability in respect of all such Indebtedness shall at no time
exceed 100% of the gross proceeds actually received by the Company and its
Subsidiaries in connection with such disposition; and
(xi) the incurrence by the Company of additional Indebtedness in an
aggregate principal amount (or accreted value, as applicable) at any time
outstanding not to exceed $7.5 million.
For purposes of determining compliance with this 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 (i) through (xi) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness on the
date of its incurrence in any manner that complies with this covenant. Accrual
of interest, the accretion or amortization of original issue discount, the
payment of interest on any Indebtedness in the form of additional Indebtedness
with the same terms, and the payment of dividends on Disqualified Stock in the
form of additional shares of the same class of Disqualified Stock will not be
deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock
for purposes of this covenant; provided, in each such case, that the amount
thereof is included in Fixed Charges of the Company as accrued.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien securing Indebtedness, Attributable Debt or trade payables on
any asset now owned or hereafter acquired, except Permitted Liens.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, enter into any sale and leaseback transaction; provided
that the Company may enter into a sale and leaseback transaction if (i) the
Company could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the Fixed Charge Coverage Ratio set forth in the first paragraph of the covenant
described above under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock" and (b) incurred a Lien to secure such Indebtedness pursuant to
the covenant described above under the caption "--Liens," (ii) the gross cash
proceeds of such sale and leaseback transaction are at least equal to the fair
market value (as determined in good faith by the Board of Directors and set
forth in an Officers' Certificate delivered to the Trustee) of the property that
is the subject of such sale and leaseback transaction and (iii) the transfer of
assets in such sale and leaseback transaction is permitted by, and the Company
applies the proceeds of such transaction in compliance with, the covenant
described above under the caption "--Repurchase at the Option of
Holders -- Asset Sales." The foregoing provisions do not apply to a sale and
leaseback transaction relating to the Smithfield Property resulting in
Attributable Debt with respect to such transaction in an aggregate amount not to
exceed $5.0 million at any time outstanding.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any Indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries. However, the foregoing restrictions will not apply to
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the Senior Credit
Facility as in effect as of the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases,
72
<PAGE> 79
supplements, refundings, replacement or refinancings are no more restrictive,
taken as a whole, with respect to such dividend and other payment restrictions
than those contained in the Senior Credit Facility as in effect on the date of
the Indenture, (c) the Notes and the Subsidiary Guarantees, (d) applicable law,
(e) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its 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, (f) customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (g) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, (h) any
agreement for the sale or other disposition of a Subsidiary that restricts
distributions by that Subsidiary pending its sale or other disposition, (i)
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, (j) Liens securing Indebtedness otherwise
permitted to be incurred pursuant to the provisions of the covenant described
above under the caption "--Liens" that limits the right of the debtor to dispose
of the assets securing such Indebtedness, (k) provisions with respect to the
disposition or distribution of assets or property in joint venture agreements
and other similar agreements entered into in the ordinary course of business and
(l) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not, directly or indirectly,
consolidate or merge with or into (whether or not the Company is the surviving
corporation), or 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 (i) the Company is the surviving
corporation or 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; (ii) 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 Registration Rights
Agreement, the Notes and the Indenture pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Subsidiary of the
Company, the Company or 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 (a) will have
Consolidated Net Worth immediately after the transaction equal to or greater
than the Consolidated Net Worth of the Company immediately preceding the
transaction and (b) will, immediately after such transaction after giving pro
forma effect thereto and any related financing transaction 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." The Indenture also provides that the Company may not, directly or
indirectly, lease all or substantially all of its properties or assets, in one
or more related transactions, to any other Person. The provisions of this
covenant are not applicable to a sale, assignment, transfer, conveyance or other
disposition of assets between or among the Company and its Wholly Owned
Subsidiaries.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its 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,
73
<PAGE> 80
loan, advance or guarantee with, or for the benefit of, any Affiliate (each of
the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate
Transaction is on terms that are no less favorable to the Company or such
Subsidiary than those that would have been obtained in a comparable transaction
by the Company or such Subsidiary with an unrelated Person and (ii) 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
$1.0 million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above 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 $5.0 million, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing. Notwithstanding the foregoing, the following items shall not be deemed
to be Affiliate Transactions: (i) any employment agreement or benefit plan
entered into by the Company or any of its Subsidiaries in the ordinary course of
business and consistent with the past practice of the Company or such
Subsidiary, (ii) transactions between or among the Company and/or its
Subsidiaries, (iii) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of the Company, (iv) any sale or other issuance of Equity
Interests (other than Disqualified Stock) of the Company, (v) loans or advances
to employees in the ordinary course of business consistent with past practices
of the Company or its Subsidiaries in an aggregate amount at any time
outstanding not to exceed $1.0 million, (vi) transactions pursuant to Existing
Leases, (vii) purchases of Common Stock of deceased shareholders pursuant to the
Shareholders Agreement, (viii) reasonable indemnities of officers, directors and
employees of the Company or any Subsidiary permitted by applicable law and (ix)
Restricted Payments that are permitted by the provisions of the Indenture
described above under the caption "--Restricted Payments."
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Subsidiary of the Company to, transfer, convey, sell, lease or otherwise
dispose of any Equity Interests in any Wholly Owned Subsidiary of the Company to
any Person (other than the Company or a Wholly Owned Subsidiary of the Company),
unless (a) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in such Wholly Owned Subsidiary and (b) the cash Net
Proceeds from such transfer, conveyance, sale, lease or other disposition are
applied in accordance with the covenant described above under the caption
"--Repurchase at the Option of Holders -- Asset Sales," and (ii) will not permit
any Wholly Owned Subsidiary of the Company to issue any of its Equity Interests
(other than, if necessary, shares of its Capital Stock constituting directors'
qualifying shares) to any Person other than to the Company or a Wholly Owned
Subsidiary of the Company.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
is paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission 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 thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports, in
74
<PAGE> 81
each case within the time periods specified in the Commission's rules and
regulations. In addition, following the consummation of the Exchange Offer,
whether or not required by the rules and regulations of the Commission, the
Company will file a copy of all such information and reports with the Commission
for public availability within the time periods specified in the Commission's
rules and regulations (unless the Commission will not accept such a filing) and
make such information available to securities analysts and prospective investors
upon request. In addition, the Company and the Guarantors have agreed that, for
so long as any Notes remain outstanding, they will furnish to the Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of the Guarantors shall
acquire or create another Domestic Subsidiary after the date of the Indenture,
or if any Subsidiary of the Company becomes a Domestic Subsidiary, then such
newly acquired or created Domestic Subsidiary shall become a Guarantor and
execute a Supplemental Indenture and deliver an opinion of counsel, in
accordance with terms of the Indenture.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes; (ii) default in payment
when due of the principal of or premium, if any, on the Notes; (iii) failure by
the Company or any of its Subsidiaries to comply with the provisions described
under the captions "--Repurchase at the Option of Holders -- Change of Control,"
"--Repurchase at the Option of Holders -- Asset Sales," "--Certain
Covenants -- Restricted Payments," "--Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock" and "--Certain
Covenants -- Merger, Consolidation of Sale of Assets;" (iv) failure by the
Company or any of its Subsidiaries for 60 days after notice by the Trustee or
the Holders of at least 25% in principal amount of the then outstanding Notes to
comply with any of its other agreements in the Indenture or the Notes; (v)
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 Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness
or guarantee now exists, or is created after the date of the Indenture, which
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 $5.0 million or more; (vi) failure by the Company or any
of its Subsidiaries to pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; (vii) 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 Guarantor, or any Person
acting on behalf of any Guarantor, shall deny or disaffirm its obligations under
its Subsidiary Guarantee; and (viii) certain events of bankruptcy or insolvency
with respect to the Company or any of its Subsidiaries.
If any 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. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any of its Subsidiaries
that would constitute a Significant Subsidiary or any group of Subsidiaries
that, taken together, would constitute a Significant Subsidiary, all outstanding
Notes will become due and payable without further action or notice. 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
75
<PAGE> 82
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.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to July
15, 2002 by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to July 15, 2002 then the premium specified in the
Indenture shall also become immediately due and payable to the extent permitted
by law upon the acceleration of the Notes.
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, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator or shareholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or any Guarantor under the Notes, the Subsidiary Guarantees or the
Indenture 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. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
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 to have each
Guarantor's obligations discharged with respect to its Subsidiary Guarantee
("Legal Defeasance") except for (i) the rights of Holders of outstanding Notes
to receive payments in respect of the principal of, and premium, interest and
Liquidated Damages, if any, on such Notes when such payments are due from the
trust referred to below, (ii) 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, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) 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 Defeasance") and
thereafter any omission to comply with such obligations 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 the caption
"--Events of Default and Remedies" will no longer constitute an Event of Default
with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
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, and premium, interest and Liquidated Damages, if any,
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; (ii) in the case
of Legal Defeasance, the Company shall have
76
<PAGE> 83
delivered to the Trustee an opinion of counsel in the United States 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; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States 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; (iv) no Default or Event of Default shall have occurred and be
continuing 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 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; (v) 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 Subsidiaries is a party
or by which the Company or any of its Subsidiaries is bound; (vi) the Company
shall 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; (vii) the Company shall have
delivered 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 (viii) the
Company must deliver to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that all conditions precedent provided for relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
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.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Notes or the Subsidiary Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture, the Notes or
the Subsidiary Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) 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
"--Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, interest or Liquidated
Damages, if any, on the Notes (except a rescission
77
<PAGE> 84
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), (v) make any Note payable in money other than that
stated in the Notes, (vi) 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, interest or Liquidated Damages, if
any, on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders"), (viii) release any Guarantor
from any of its obligations under its Subsidiary Guarantee or the Indenture,
except in accordance with the terms of the Indenture or (ix) make any change in
the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company, the Guarantors (with respect to a Subsidiary Guarantee or the
Indenture to which it is a party) and the Trustee may amend or supplement the
Indenture, the Notes or any Subsidiary Guarantee to cure any ambiguity, defect
or inconsistency, to provide for uncertificated Notes in addition to or in place
of certificated Notes, to provide for the assumption of the Company's or any
Guarantor'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, to
provide for the issuance of Additional Notes in accordance with the provisions
set forth in the Indenture on the date thereof, 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
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
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, 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 (which shall not be cured), 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 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 AND FORM
The Old Notes have been issued to qualified institutional buyers in the
form of a permanent global certificate in definitive, fully registered form (the
"Global Note") and the New Notes will be issued in the form of a permanent
global certificate in definitive, fully registered form (the "Global New Note"
and, together with the Global Old Note, the "Global Notes"). The Global Old Note
was deposited on the date of the closing of the sale of the Old Notes with, or
on behalf of, DTC and registered in the name of the nominee of DTC. 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.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC
78
<PAGE> 85
only through the Participants or the Indirect Participants. The ownership
interests in, and transfers of ownership interests in, each security held by or
on behalf of DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised the Company that, pursuant to procedures established
by it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the principal
amount of the Global Notes and (ii) ownership of such interests in the Global
Notes will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by DTC (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other owners of
beneficial interest in the Global Notes).
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTEREST 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.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on a Global New Note registered in the name of DTC
or its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
the Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interest in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the Global Notes or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Company that its current practice, upon receipt of any payment in
respect of securities such as the Notes (including principal and interest), is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in the
principal amount of beneficial interest in the relevant security as shown on the
records of DTC unless DTC has reason to believe it will not receive payment on
such payment date. Payments by the Participants and the Indirect Participants to
the beneficial owners of Notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the Trustee or
the Company. Neither the Company nor the Trustee will be liable for any delay by
DTC or any of its 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 for all purposes.
Interest in the Global Notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its Participants. See "-- Same Day
Settlement and Payment."
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 Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the Notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Notes, DTC reserves the right
to exchange the Global Notes for legended Notes in certificated form, and to
distribute such Notes to its Participants.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global New Note is exchangeable for definitive New Notes in registered
certificated form ("Certificated Notes") if (i) DTC (x) notifies the Company
that it is unwilling or unable to continue as depositary for the Global New
Notes and the Company thereupon fails to appoint a successor depositary or (y)
has ceased to be a clearing agency registered under the Exchange Act, (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of the Certificated Notes or (iii) there shall have occurred and be
79
<PAGE> 86
continuing a Default or Event of Default with respect to the Notes. In addition,
beneficial interests in a Global New Note may be exchanged for Certificated
Notes upon request but only upon prior written notice given to the Trustee by or
on behalf of DTC in accordance with the Indenture. In all cases, Certificated
Notes delivered in exchange for any Global New Note or beneficial interests
therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the depositary (in accordance with
its customary procedures).
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 funds to the
accounts specified by the Global Note Holder. With respect to Notes in
certificated form, the Company will make all payments of principal, premium, if
any, interest and Liquidated Damages, if any, by wire transfer of immediately
available 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 Notes represented by the Global Notes are expected to be eligible
to trade in the Depositary's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such Notes will, therefore, be required by
the Depositary to be settled in immediately available funds. The Company expects
that secondary trading in any Certificated Notes will also be settled in
immediately available funds.
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, (i)
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, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"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 Stock of a Person shall be
deemed to be control.
"Asset Sale" means (i) the sale, lease, 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
(provided that the sale, conveyance or other disposition of all or substantially
all of the assets of the Company and its Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described above under the caption
"--Repurchase at the Option of Holders -- 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 Asset Sale
covenant), and (ii) the issue or sale by the Company or any of its Subsidiaries
of Equity Interests of any of the Company's Subsidiaries, in the case of either
clause (i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $1.0 million or (b)
for net proceeds in excess of $1.0 million. Notwithstanding the foregoing, the
following items shall not be deemed to be Asset Sales: (i) a transfer of assets
by the Company to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to
the Company or to another Wholly Owned Subsidiary, (ii) an issuance of Equity
Interests by a Wholly Owned Subsidiary to the Company or to another Wholly Owned
Subsidiary, and (iii) a Restricted Payment that is permitted by the covenant
described above under the caption "--Certain Covenants -- Restricted Payments."
80
<PAGE> 87
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"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 (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) 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 (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any lender party to the Senior
Credit Facility or with any domestic commercial bank having capital and surplus
in excess of $500.0 million and a Thompson Bank Watch Rating of "B" or better,
(iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, (v) commercial paper having the highest rating obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in
each case maturing within six months after the date of acquisition and (vi)
money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i) -- (v) of this definition.
"Change of Control" means the occurrence of any of the following: (i) 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 a Principal or a Related Party; (ii) the adoption of a plan
relating to the liquidation or dissolution of the Company; (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above) other
than the Principals, their Related Parties or a Permitted Group becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition), directly or indirectly, of more than 35% of the
Voting Stock of the Company (measured by voting power rather than number of
shares); or (iv) the first day on which a majority of the members of the Board
of Directors of the Company are not Continuing Directors.
"Consolidated Assets" means, with respect to any Person as of any date, the
total assets of such Person and its consolidated Subsidiaries as of such date,
calculated on a consolidated basis in accordance with GAAP.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) 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), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was deducted in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its 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, noncash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease
81
<PAGE> 88
Obligations, imputed interest with respect to Attributable Debt, 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 (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other noncash
expenses (excluding any such noncash expense to the extent that it represents an
accrual of or reserve for cash expenses in any future period or amortization of
a prepaid cash expense 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 noncash expenses were deducted in computing such Consolidated Net
Income, plus (v) Restructuring Charges, minus (vi) noncash items increasing such
Consolidated Net Income for such period (other than items that were accrued in
the ordinary course of business), in each case, on a consolidated basis and
determined in accordance with GAAP. Notwithstanding the foregoing, the provision
for taxes on the income or profits of, and the depreciation and amortization and
other noncash expenses of, a Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
that a corresponding amount would be permitted at the date of determination to
be dividended to the Company by such Subsidiary without prior governmental
approval (that has not been obtained), and without direct or indirect
restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its shareholders.
"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; provided
that (i) the Net Income (but not loss) of any Person that is not a 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 Wholly Owned Subsidiary thereof, (ii) the Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that 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 Subsidiary or its
shareholders, (iii) 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 (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common shareholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (a) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (b)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments) and (c)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Facilities" means, with respect to the Company or a Foreign
Subsidiary, one or more debt facilities (including, without limitation, the
Senior Credit Facility) or commercial paper facilities, in each case 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
82
<PAGE> 89
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 date on which Notes are first issued and authenticated under the
Indenture shall be deemed to have been incurred on such date in reliance on the
exception provided by clause (i) of the definition of Permitted Debt under the
caption "--Certain Covenants -- Limitation of Indebtedness and Issuance of
Preferred Stock."
"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.
"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, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is 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 any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require the Company to repurchase such Capital Stock
upon the occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described above
under the caption "--Certain Covenants -- Restricted Payments."
"Domestic Subsidiary" means, with respect to the Company, any Subsidiary of
the Company that was formed under the laws of the United States of America or
that guarantees or otherwise provides credit support for any Indebtedness of the
Company.
"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).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Senior Credit Facility) in
existence on the date of the Indenture (calculated in the case of contingent
Indebtedness on the basis of the maximum amount due under agreements existing as
of the date of the Indenture), until such Indebtedness is repaid.
"Existing Leases" means (i) that certain Lease effective January 1, 1998 by
and between Sunrise Properties LLC and the Company, covering the premises at 4
Warren Avenue, North Providence, Rhode Island; (ii) that certain Lease effective
January 1, 1998 by and between 299 Carpenter Street Associates, LLC and the
Company, covering the premises located at 299 Carpenter Street, Providence,
Rhode Island; and (iii) that certain Standard Net Commercial Lease dated
December 11, 1996, by and between Foster Grant Group L.P. and OCR Management
Corporation, covering the Texas Property.
"Fantasma Agreement" means and includes that certain Member Agreement dated
as of June 23, 1998 by and among the Company, Roger D. Dreyer and Houdini
Capital LTD and that certain Member Agreement dated as of June 23, 1998 by and
between the Company and Paul Michaels.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its 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, imputed interest with respect to Attributable Debt,
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) and (ii) the consolidated interest expense of such
Person and its Subsidiaries that was capitalized during such period, and (iii)
any interest expense on Indebtedness of another Person that is Guaranteed by
such Person or one of its Subsidiaries or secured by a Lien on assets of such
Person or one of its Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (a) all dividend payments, whether or not
in cash, on any series of preferred stock of such Person or any of its
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company (other than Disqualified Stock) or to the
83
<PAGE> 90
Company or a Subsidiary 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 Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
referent Person or any of its Subsidiaries incurs, assumes, Guarantees 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 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. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
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 Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the definition
of Consolidated Net Income, and (ii) the Consolidated Cash Flow 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
(iii) 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.
"Foreign Subsidiary" means any Subsidiary of the Company that is not a
Domestic Subsidiary.
"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.
"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, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantors" means (i) each current and future Domestic Subsidiary of the
Company and (ii) any other Subsidiary of the Company that executes a Subsidiary
Guarantee in accordance with the provisions of the Indenture, and their
respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency exchange rates.
"Indebtedness" means, with respect to any Person, (i) any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes,debentures or similar instruments or letters of credit
(or reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or 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, (ii) all indebtedness of others secured
by a Lien on any asset of such Person (whether or not such
84
<PAGE> 91
indebtedness is assumed by such Person) and (iii) 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 (i) the
accreted value thereof, in the case of any Indebtedness issued with original
issue discount, and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, 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 and
advances to customers in the ordinary course of business that are recorded as
accounts receivable of the lender), 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 Subsidiary of the
Company sells or otherwise disposes of any Equity Interests of any direct or
indirect Subsidiary of the Company such that, after giving effect to any such
sale or disposition, such Person is no longer a 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
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."
"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, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"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, (i) 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
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary gain (but not loss), together with any related provision
for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its 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
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.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Group" means, at any time prior to an initial public offering of
common stock of the Company, any group of investors that is deemed to be a
"person" (as such term is used in Section 13(d)(3) of the Exchange Act) by
virtue of the Shareholders Agreement, as the same may be amended, modified or
supplemented from time to time; provided that no single Person (together with
its Affiliates), other than the Principals and their Related Parties, is the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition, and beneficial ownership shall be determined
85
<PAGE> 92
without regard to the Shareholders Agreement, as the same may be amended,
modified or supplemented from time to time), directly or indirectly, of more
than 50% of the Voting Stock of the Company (measured by voting power rather
than number of shares) that is "beneficially owned" (as defined above) by such
Permitted Group.
"Permitted Investments" means (a) any Investment in the Company, in a
Wholly Owned Subsidiary or in a Guarantor; (b) any Investment in Cash
Equivalents; (c) any Investment by the Company or any Subsidiary of the Company
in a Person, if as a result of such Investment (i) such Person becomes a
Guarantor or a Wholly Owned Subsidiary or (ii) 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 Guarantor or a
Wholly Owned Subsidiary; (d) any Investment made as a result of the receipt of
noncash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--Repurchase at
the Option of Holders -- Asset Sales;" (e) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock) of
the Company; (f) other Investments in Subsidiaries of the Company that are not
Guarantors having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (f)
that are at the time outstanding, not to exceed 10% of the Company's
Consolidated Assets on the date of such Investment; (g) Investments existing on
the date of the Indenture; (h) receivables owing to the Company or any
Subsidiary of the Company if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms;
provided that such trade terms may include concessionary terms as the Company of
such Subsidiary deems reasonable under the circumstances; (i) loans or advances
to employees permitted by clause (v) under the caption "--Certain
Covenants -- Transactions with Affiliates;" (j) stock obligations or securities
received in settlement of debts created in the ordinary course of business and
owing to the Company or any of its Subsidiaries or in satisfaction of judgments;
and (k) other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect to
subsequent changes in value), when taken together with all other Investments
made pursuant to this clause (k) that are at the time outstanding, not to exceed
$5.0 million.
"Permitted Liens" means (i) Liens on assets of the Company or any of the
Guarantors or Foreign Subsidiaries securing obligations of such persons under
Credit Facilities that were permitted by the terms of the Indenture to be
incurred; (ii) Liens in favor of the Company; (iii) Liens on property of a
Person existing at the time such Person is merged with or into or consolidated
with the Company or any Subsidiary of the Company; provided that such Liens were
in existence prior to the contemplation of such merger or consolidation and do
not extend to any assets other than those of the Person merged into or
consolidated with the Company; (iv) Liens on property existing at the time of
acquisition thereof by the Company or any Subsidiary of the Company, provided
that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens to secure Indebtedness
(including Capital Lease Obligations) permitted by clause (iv) of the second
paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such Indebtedness; (vii)
Liens existing on the date of the Indenture; (viii) Liens on the Smithfield
Property incurred in connection with a sale and leaseback transaction permitted
under the terms of the Indenture; (ix) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (x)
Liens to secure Permitted Refinancing Indebtedness, provided that such Liens
extend only to the assets that secured the Indebtedness refinanced with the
proceeds of such Permitted Refinancing Indebtedness; (xi) statutory Liens of
landlords and Liens of carriers, warehouseman, mechanics, suppliers,
materialmen, repairmen and other Liens imposed by law incurred in the ordinary
course of business for sums not delinquent 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; (xii) Liens securing Hedging
Obligations; and (xiii) easements, rights-of-way, municipal and zoning
ordinances and similar
86
<PAGE> 93
charges, encumbrances, title defects or other irregularities that do not
materially interfere with the ordinary course of business of the Company and its
Subsidiaries; (xiv) Liens on assets of Subsidiaries securing Indebtedness of
such persons that was permitted by the terms of this Indenture to be incurred;
and (xv) Liens incurred in the ordinary course of business of the Company or any
Subsidiary of the Company with respect to obligations that do not exceed $5.0
million at any one time outstanding.
"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, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries (other than intercompany
Indebtedness); provided that: (i) 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 extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date 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, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
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 (iv) such Indebtedness is incurred either by
the Company or by the Subsidiary that is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Principals" means Gerald F. Cerce, John H. Flynn, Jr., Robert V. Lallo and
Felix A. Porcaro, Jr.
"Related Party" with respect to any Principal means (i) any controlling
shareholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (ii) any trust,
corporation, partnership or other entity, the beneficiaries, shareholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (i).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restructuring Charges" means any charges or write-offs associated with the
discontinuance of operations at the Company's Texas Property less any tax
benefit received from any such charge being deducted from the taxable income of
the Company or any of its Subsidiaries; provided, however, that such charges or
write-offs are charged within 12 months of the date of the Indenture and the
maximum amount of charges that may be treated as "Restructuring Charges" shall
be $2.6 million.
"Senior Credit Facility" means that certain Amended and Restated Financing
and Security Agreement, dated as of May 9, 1997, by and among the Company,
certain of its Subsidiaries, NationsBank, N.A., as agent, and the other lenders
party thereto, as amended by the Second Amended and Restated Financing and
Security Agreement, dated July 21, 1998, by and among the Company, its existing
Domestic Subsidiaries, NationsBank, N.A., as agent, and the other lenders party
thereto, providing for up to $60.0 million of revolving credit borrowings,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time.
"Shareholders Agreement" means the Tag-Along, Transfer Restriction and
Voting Agreement dated as of December 11, 1996, as amended, among the Company
and the shareholders and option holders party thereto.
"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 hereof.
87
<PAGE> 94
"Smithfield Property" means the real property and fixtures located at 500
George Washington Highway, Smithfield, Rhode Island, which are used by the
Company as an office and distribution facility.
"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.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
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 (ii) 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).
"Texas Property" means the real property and fixtures located at Valley
View Lane, Farmers Branch, Texas, which are leased by the Company.
"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 (i) 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 (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
88
<PAGE> 95
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of: (i) 4,800,000
shares of Common Stock, $.01 par value per share, of which 608,000 shares are
issued and outstanding; and (ii) 200,000 shares of Preferred Stock, $.01 par
value, issuable in one or more series with such voting powers, designations,
preferences and other special rights and such qualifications, limitations or
restrictions as may be stated in the resolution or resolutions adopted by the
Company's Board of Directors providing for the issue of such series and as
permitted by the Rhode Island Business Corporation Act. The Company has created
one series of Preferred Stock designated Series A Preferred Stock. 43,700 shares
of Series A Preferred Stock are designated for issuance, all of which are issued
and outstanding. The Series A Preferred Stock was issued pursuant to a
Securities Purchase Agreement dated May 31, 1996 by and among the Company,
Weston Presidio Capital II, L.P., and certain other investors and a Stock
Purchase Agreement dated as of November 13, 1996 by and among the Company, BEC
Group, Inc., Foster Grant Group, L.P. and FG Holdings.
COMMON STOCK
Each share of Common Stock has the same relative rights and is identical in
all respects to each other share of Common Stock. The holders of Common Stock
are entitled to one vote per share on all matters to be voted upon by them.
Subject to preferences that may be applicable to the holders of Preferred Stock,
if any, the holders of Common Stock are entitled to dividends only when and as
declared by the Board of Directors out of funds legally available therefor.
Holders of Common Stock may not cumulate their votes for election of directors.
Holders of Common Stock do not have preemptive rights to acquire any additional
shares of the Company.
In the event of a dissolution or liquidation of the Company, after payment
has been made to the holders of Preferred Stock for the full amounts to which
such holders are entitled, the holders of Common Stock share ratably in the
remaining assets available for distribution.
SERIES A PREFERRED STOCK
The rights, preferences and privileges of Series A Preferred Stock are
described below.
Conversion. Each share of Series A Preferred Stock is convertible into ten
shares of Common Stock, adjustable for certain dilutive events. Conversion is at
the option of the shareholder, but is automatic upon the consummation of an
initial public offering resulting in gross proceeds to the Company of at least
$20.0 million and at an offering price of at least 137.8% of the Initial
Conversion Price, if such public offering shall be consummated on or before May
31, 1999 and thereafter 175.0% of the Initial Conversion Price, in each case
adjusted for stock splits and dividends (a "Qualified Public Offering").
Redemption. Except as limited by the provisions of Restrictive
Indebtedness (as defined), the holders of Series A Preferred Stock have the
right to require redemption for cash of any unconverted shares, beginning June
30, 2002. The Company will redeem the Series A Preferred Stock equal to 5.0% of
the total number of shares issued and outstanding as of March 31, 2002 on the
last day of each March, June, September and December as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERCENTAGE
- ----------------------- ----------
<S> <C>
2002................................................. 15%
2003................................................. 35
2004................................................. 55
2005................................................. 75
2006................................................. 95
2007................................................. 100
</TABLE>
The Series A Preferred Stock will be redeemed at an amount equal to the
original stock price, $526.32 per share, plus any accrued and unpaid dividends,
yielding a 10.0% compounded annually rate of return (the "Redemption Amount").
As of April 4, 1998, cumulative dividends were approximately $4.3 million.
89
<PAGE> 96
Except as limited by the provisions of Restrictive Indebtedness, the
holders of the Series A Preferred Stock may require the Company to redeem all or
any portion of the Series A Preferred Stock upon the happening of certain events
including the following: (a) the sale by the Company of all or substantially all
its assets; (b) the merger of the Company with, or the consolidation of the
Company into, any other corporation as a result of which the shareholders of the
Company immediately prior to such merger or consolidation do not own stock
having more than 50% of the outstanding voting power (assuming conversion of all
convertible securities and exercise of all outstanding options and warrants) of
the surviving corporation; (c) the dissolution or liquidation of the Company;
(d) Mr. Cerce ceasing for any reason to be Chairman of, and actively involved in
the executive management of, the Company unless a replacement satisfactory to
the holders of two-thirds of the outstanding Series A Preferred Stock is in
place within 180 days; (e) except in the case of a Qualified Public Offering or
stock passing by death, more than 50% of the outstanding voting stock of the
Company becomes owned by persons or entities other than (i) holders of Series A
Preferred Stock and their transferees and (ii) the shareholders of record on the
date on which the Series A Preferred Stock was first issued by the Company; and
(f) the happening of any of certain events (a "Remedy Event") generally relating
to the financial condition of the Company or its failure to meet material
obligations which Remedy Event continues for thirty days following written
notice of the occurrence.
The Company may voluntarily redeem the Series A Preferred Stock at any time
at the Redemption Amount. If the Company voluntarily redeems the Series A
Preferred Stock, it must issue the holders of Series A Preferred Stock a warrant
to purchase Common Stock equal to the number of shares of Common Stock the
shareholder would have received upon conversion, at a strike price equal to the
redemption price at the time of redemption.
Notwithstanding the foregoing, at any time the Company has outstanding any
Indebtedness the terms of which restrict the Company's ability to redeem, in
whole or in part, the Series A Preferred Stock ("Restrictive Indebtedness"), the
Company's obligations to redeem any shares of Series A Preferred Stock are
suspended until 91 days after the date that such Restrictive Indebtedness is no
longer outstanding. Within ten (10) days after the expiration of 91 days after
the date of the payment of such Restrictive Indebtedness in full, the Company
must redeem such number of shares of Series A Preferred Stock as the Company
would have been obligated to redeem, on or prior to such date, but for the
provisions suspending the Company's redemption obligation. In no event may the
aggregate principal amount of Restrictive Indebtedness at any time exceed $150
million unless approved by the directors designated by the Preferred Holders.
Dividends. Dividends will not be paid on the Common Stock unless the
Series A Preferred Stock receives the same dividends that such shares of Series
A Preferred Stock would have received had they been converted into Common Stock
immediately prior to the record date for such dividend.
Liquidation Preferences. The holders of Series A Preferred Stock have
preference equal to the Redemption Amount in the event of a liquidation,
dissolution or winding up of the Company, either voluntary or involuntary, or a
merger or consolidation of the Company that has not been agreed to in writing by
the holders of two-thirds of the outstanding Series A Preferred Stock. If the
assets of the Company are insufficient to pay the full preferential amounts to
the holders of Series A Preferred Stock, the entire assets of the Company
legally available for distribution will be distributed ratably among the holders
of Series A Preferred Stock in accordance with the aggregate liquidation
preference of the shares of Series A Preferred Stock held by each of them. After
payment has been made to the holders of Series A Preferred Stock for the full
amounts to which they are entitled, the holders of Common Stock are entitled to
share ratably in the remaining assets without participation by the holders of
Series A Preferred Stock.
Voting Rights and Election of Directors. The holders of Series A Preferred
Stock are entitled to vote on all matters based on the number of votes equal to
the number of shares of Common Stock into which the Series A Preferred Stock are
convertible and are entitled to notice of any shareholders' meeting or
solicitation of shareholders' consents in the manner provided in the Bylaws of
the Company. In addition, the holders of a majority of shares of Series A
Preferred Stock, voting separately as a single class, are entitled to elect two
directors. Upon notice of a Remedy Event as described above, the number of
directors of the Company automatically increases to the minimum number
sufficient to permit the election of additional directors so that
90
<PAGE> 97
after such election a majority of the directors will have been elected by the
holders of the Series A Preferred Stock. Upon such increase, the directors will
be divided into two classes. One class will consist of a majority of all of the
directors and will be elected solely by the holders of Series A Preferred Stock,
voting separately as a single class, and the other class will consist of the
remaining directors. The holders of Series A Preferred Stock will be entitled to
elect a majority of the directors of the Company until the Remedy Event has been
cured or rectified to the written satisfaction of the holders of Series A
Preferred Stock. At such time, the right of the holders of Series A Preferred
Stock to elect a majority of the Board of Directors will cease, and the maximum
number of directors will be reduced to seven.
Other Rights. At any time when shares of Series A Preferred Stock are
outstanding, in addition to any other vote required by law or by the Articles of
Incorporation without the consent of the holders of two-thirds of the
outstanding Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting separately as a class, the Company may not do any of the
following: (i) create or authorize the creation of any additional class or
series of shares of stock, or issue any shares thereof; (ii) increase the
authorized amount of Series A Preferred Stock; (iii) increase the authorized
amount of any additional class or series of stock; or (iv) create or authorize
any instrument or security convertible into shares of Series A Preferred Stock
or into shares of any other class or series of stock, unless, in each case, the
same ranks junior to the Series A Preferred Stock as to the distribution of
assets on the liquidation, dissolution or winding up of the Company.
In addition, without the written consent or affirmative vote of the holders
of two-thirds of the outstanding Series A Preferred Stock, the Company may not
amend, alter or repeal its Articles of Incorporation or Bylaws in a manner that
is adverse to the holders of Series A Preferred Stock or for which the holders
of Series A Preferred Stock did not receive prior written notice; purchase or
set aside sums for the purchase of shares of stock other than Series A Preferred
Stock (with certain exceptions for the purchase of shares of Common Stock from
former employees); redeem or otherwise acquire any shares of Series A Preferred
Stock except as expressly authorized in the Articles of Incorporation, unless
pursuant to a purchase offer made pro rata to all holders of Series A Preferred
Stock; consent to any liquidation, dissolution or winding up of the Company; or
consolidate or merge with any other entity or entities or sell or transfer all
or a substantial portion of its assets. The Company may, however, effect a
merger in which the Company is the surviving corporation and the shareholders of
the Company immediately prior to the merger hold more than 50% of the
outstanding voting power of the surviving corporation (assuming conversion of
all convertible securities and exercise of all outstanding options and
warrants).
Further, the provisions of the Articles of Incorporation relating to the
Series A Preferred Stock may not be amended, modified or waived without the
written consent or affirmative vote the holders of two-thirds of the outstanding
Series A Preferred Stock; except that any amendment reducing or postponing the
payment of dividends or redemptions or postponing or increasing the amount of
the conversion price requires the written consent or the affirmative vote of 90%
of the then outstanding shares of Series A Preferred Stock.
91
<PAGE> 98
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
EXCHANGE OF OLD NOTES FOR NEW NOTES
The exchange of the Old Notes for the New Notes pursuant to the Exchange
Offer will not be treated as a taxable transaction for federal income tax
purposes because the New Notes do not differ materially in kind or extent from
the Old Notes. Accordingly, no gain or loss should be recognized by a Holder who
exchanges an Old Note for a New Note pursuant to the Exchange Offer, and each
New Note should be viewed as a continuation of the corresponding Old Note. For
purposes of determining gain or loss upon a subsequent sale or exchange of the
New Notes, a Holder's initial basis in the New Notes will be the same as such
Holder's adjusted basis in the Old Notes exchanged therefor, and the holding
period of a Holder for the New Note should include the period during which such
Holder held such corresponding Old Note.
Persons considering the exchange of the Old Notes for the New Notes are
urged to consult their tax advisors regarding the United States federal tax
consequences in light of their particular situations, as well as any tax
consequences that may arise under the laws of any foreign, state, local, or
other taxing jurisdiction.
PLAN OF DISTRIBUTION
Each broker-dealer who holds Old Notes that are Transfer Restricted
Securities that were acquired for its own account as a result of market-making
activities or other trading activities (other than Transfer Restricted
Securities acquired directly from the Company) may exchange such Old Notes
pursuant to the Exchange Offer; however, such broker-dealer may be deemed an
"underwriter" within the meaning of the Securities Act and must, therefore,
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer for such purpose. The Company has agreed
that for a period of 180 days after the Exchange Offer is consummated, it will,
upon reasonable request, make this Prospectus, as amended or supplemented,
available promptly to any broker-dealer for use in connection with any such
resale. The Company has agreed to pay the expenses incident to the Exchange
Offer and will indemnify the Holders of the Old Notes against certain
liabilities, including certain liabilities under the Securities Act, in
connection with the Exchange Offer.
The Company will not receive any proceeds from any sale of the New Notes by
broker-dealers. The New 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 New 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 New Notes. Any broker-dealer
that resells New 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 New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of the New Notes and any
commissions and 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.
LEGAL MATTERS
The legality of the New Notes will be passed upon for the Company by
Hinckley, Allen & Snyder, Providence, Rhode Island. Stephen J. Carlotti, a
partner of Hinckley, Allen & Snyder, is a director and Secretary of the Company
and, as trustee, is the holder of 5.9% of the Common Stock. See "Security
Ownership of Management and Certain Beneficial Owners."
92
<PAGE> 99
EXPERTS
The Consolidated Financial Statements of AAi as of December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 1997 and
the Consolidated Statements of Operations and Shareholders' Equity and Cash
Flows of Foster Grant Group L.P. for the eleven months ended November 30, 1996
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The Consolidated Financial Statements of Foster Grant Group L.P. as of, and
for the year ended December 31, 1995 included in this Prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
AVAILABLE INFORMATION
The Company and the Guarantors have filed with the Commission a
Registration Statement on Form S-4 (the "Exchange Offer Registration Statement,"
which term shall encompass all amendments, exhibits, annexes and schedules
thereto) pursuant to the Securities Act, and the rules and regulations
promulgated thereunder, covering the New Notes being offered hereby. This
Prospectus does not contain all the information set forth in the Exchange Offer
Registration Statement. For further information with respect to AAi, the
Guarantors and the Exchange Offer, reference is made to the Exchange Offer
Registration Statement. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Exchange Offer Registration Statement, reference is made to
the exhibit for a more complete description of the document or matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. The Exchange Offer Registration Statement, including the exhibits
thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at Seven World Trade
Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of such Web site is: http://www.sec.gov.
As a result of the Exchange Offer, the Company will become subject to the
informational requirements of the Exchange Act, and in accordance therewith will
be required to file periodic reports and other information with the Commission.
AAi has agreed that, whether or not it is required to do so by the rules and
regulations of the Commission, for so long as any of the Notes remain
outstanding, AAi will furnish (excluding exhibits and schedules) to the Trustee
and the holders of the Notes and will file with the Commission (unless the
Commission will not accept such a filing) as specified in the Commission's rules
and regulations: (i) all quarterly and annual financial information that would
be required to be contained in a filing with the Commission if AAi were required
to file such information, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
financial information only, a report thereon by AAi's independent public
accountants and (ii) any other information, documents and other reports which
are otherwise required pursuant to Section 13 and 15(d) of the Exchange Act. In
addition, for so long as any of the Notes remain outstanding, AAi has agreed to
make available upon request to any prospective purchaser of the Notes or
beneficial owner of the Notes in connection with any sale thereof the
information required by Rule 144A(d)(4) under the Securities Act other than
during any period in which AAi is subject to Section 13 to 15(d) of the Exchange
Act and in compliance with the requirements thereof. Any such request should be
directed to the Assistant Secretary of AAi at 500 George Washington Highway,
Smithfield, Rhode Island 02917.
93
<PAGE> 100
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AAi.FOSTERGRANT, INC.:
Report of Independent Public Accountants.................... F-1
Consolidated Balance Sheets as of December 31, 1996 and 1997
and April 4, 1998 (unaudited)............................. F-2
Consolidated Statements of Operations for the Three Years
Ended December 31, 1995, 1996 and 1997 and the Three
Months Ended March 31, 1997 (unaudited) and April 4, 1998
(unaudited)............................................... F-4
Consolidated Statements of Redeemable Preferred Stock and
Shareholders' Equity (Deficit) for the Years Ended
December 31, 1995, 1996 and 1997 and for the Three Months
Ended April 4, 1998 (unaudited)........................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997 and the Three Months
Ended March 31, 1997 (unaudited) and April 4, 1998
(unaudited)............................................... F-6
Notes to Consolidated Financial Statements.................. F-8
FOSTER GRANT GROUP L.P.:
Report of Independent Public Accountants.................... F-29
Consolidated Statement of Operations and Shareholder's
Equity Eleven Month Period Ended November 30, 1996........ F-30
Consolidated Statement of Cash Flows for the Eleven Month
Period Ended November 30, 1996............................ F-31
Notes to Consolidated Financial Statements.................. F-32
Report of Independent Accountants........................... F-35
Consolidated Balance Sheet as of December 31, 1995.......... F-36
Consolidated Statement of Operations for the year ended
December 31, 1995......................................... F-37
Consolidated Statement of Shareholder's Equity for the year
ended December 31, 1995................................... F-38
Consolidated Statement of Cash Flows for the year ended
December 31, 1995......................................... F-39
Notes to Consolidated Financial Statements.................. F-40
</TABLE>
94
<PAGE> 101
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
AAi.FosterGrant, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
AAi.FosterGrant, Inc. (a Rhode Island corporation) and subsidiaries as of
December 31, 1996 and 1997, and the related consolidated statements of
operations, redeemable preferred stock and shareholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
AAi.FosterGrant, Inc. and Subsidiaries as of December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years ended December 31, 1997, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 2, 1998, except with respect to
matters discussed in Notes 6, 7 and 18 as to
which the date is July 21, 1998
F-1
<PAGE> 102
AAI.FOSTERGRANT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ APRIL 4,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,477 $ 2,779 $ 439
Accounts receivable, less reserves of approximately
$13,082, $10,338 and $11,080 in 1996, 1997 and 1998,
respectively........................................... 14,245 18,323 34,928
Inventories............................................... 36,460 32,795 34,873
Prepaid expenses and other current assets................. 1,575 734 609
Deferred tax assets....................................... 1,505 8,993 8,755
------- ------- --------
Total current assets.............................. 55,262 63,624 79,604
------- ------- --------
Property and equipment, at cost:
Land...................................................... -- -- 1,233
Building and improvements................................. -- -- 3,371
Display fixtures.......................................... 5,695 11,009 15,624
Furniture, fixtures and equipment......................... 6,519 7,427 8,845
Leasehold improvements.................................... 2,759 2,819 1,431
Equipment under capital leases............................ 196 361 361
------- ------- --------
15,169 21,616 30,865
Less -- Accumulated depreciation and amortization......... 5,533 11,431 12,688
------- ------- --------
9,636 10,185 18,177
------- ------- --------
Other assets:
Advances to officers/shareholders......................... 52 53 2,215
Deferred costs, net of accumulated amortization of
approximately $650, $2,292 and $2,755 in 1996, 1997 and
1998, respectively..................................... 1,846 1,883 1,703
Investments in affiliates................................. 1,949 1,426 1,486
Intangible assets, net of accumulated amortization of
$237, $1,306 and $1,587 in 1996, 1997 and 1998,
respectively........................................... 14,251 16,600 17,340
Other assets.............................................. 670 1,144 1,234
------- ------- --------
18,768 21,106 23,978
------- ------- --------
Total assets...................................... $83,666 $94,915 $121,759
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 103
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ APRIL 4,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Borrowings under revolving note payable................... $25,873 $27,598 $ 45,041
Current maturities of long-term obligations............... 2,155 3,361 5,442
Accounts payable.......................................... 16,903 14,117 22,184
Accrued expenses.......................................... 8,985 11,221 9,788
Accrued income taxes...................................... 624 2,105 2,100
------- ------- --------
Total current liabilities......................... 54,540 58,402 84,555
------- ------- --------
Long-term obligations, less current maturities.............. 3,208 9,653 9,917
Deferred tax liabilities.................................... 554 689 689
Subordinated promissory notes payable to shareholders....... 5,205 5,487 5,575
Commitments and Contingencies
(Notes 7 and 15)
Redeemable preferred stock of a subsidiary.................. 751 835 847
Preferred stock, $.01 par value --
Authorized -- 200,000 shares
Designated, issued and outstanding -- 43,700 shares
of Series A Redeemable Convertible Preferred Stock,
stated
at redemption value.................................... 23,587 26,083 26,766
------- ------- --------
Shareholders' deficit:
Common stock, $.01 par value --
Authorized -- 4,800,000 shares
Issued and outstanding -- 608,000 shares............... 6 6 6
Additional paid-in capital................................ 270 270 270
Cumulative foreign currency translation adjustment........ 8 (78) (55)
Accumulated deficit....................................... (4,463) (6,432) (6,811)
------- ------- --------
Total shareholders' deficit....................... (4,179) (6,234) (6,590)
------- ------- --------
Total liabilities and shareholders' deficit............... $83,666 $94,915 $121,759
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 104
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
-------------------------------- ----------------------
MARCH 31, APRIL 4,
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 88,050 $ 86,336 $149,411 $ 34,851 $ 42,703
Cost of goods sold.................. 43,690 47,871 77,928 19,023 23,431
-------- -------- -------- -------- --------
Gross profit.............. 44,360 38,465 71,483 15,828 19,272
Selling expenses.................... 22,264 24,767 43,551 9,496 11,671
General and administrative
expenses.......................... 12,518 10,911 21,734 5,191 5,956
-------- -------- -------- -------- --------
Income from operations............ 9,578 2,787 6,198 1,141 1,645
Equity in earnings (losses) of
investments in affiliates......... 275 (345) (63) (80) 60
Minority interest in income of
consolidated subsidiary........... -- -- (83) (16) (13)
Interest expense.................... (1,031) (1,469) (4,214) (928) (1,178)
Other (expense) income, net......... (355) 14 177 48 29
-------- -------- -------- -------- --------
Income before income tax (expense)
benefit and dividends and
accretion on preferred stock... 8,467 987 2,015 165 543
Income tax (expense) benefit........ (42) 204 (1,177) (96) (239)
-------- -------- -------- -------- --------
Net income before dividends and
accretion on preferred stock... 8,425 1,191 838 69 304
Dividends and accretion on preferred
stock............................. -- 1,123 2,496 597 683
-------- -------- -------- -------- --------
Net income (loss) applicable to
common shareholders............ $ 8,425 $ 68 $ (1,658) $ (528) $ (379)
======== ======== ======== ======== ========
Pro forma income tax adjustment..... (3,370) (598) -- -- --
-------- -------- -------- -------- --------
Pro forma net income (loss)
applicable to common
shareholders...................... $ 5,055 $ (530) $ (1,658) $ (528) $ (379)
======== ======== ======== ======== ========
Basic and diluted net income (loss)
per share applicable to common
shareholders...................... $ 14.78 $ .11 $ (2.73) $ (.87) $ (.62)
======== ======== ======== ======== ========
Basic and diluted pro forma net
income (loss) per share applicable
to common shareholders............ $ 8.87 $ (.90)
======== ========
Basic and diluted weighted average
shares outstanding................ 570,000 591,000 608,000 608,000 608,000
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 105
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
REDEEMABLE
PREFERRED STOCK SHAREHOLDERS' EQUITY (DEFICIT)
------------------- ---------------------------------------------------------
SERIES A REDEEMABLE
CONVERTIBLE CUMULATIVE
PREFERRED STOCK COMMON STOCK FOREIGN RETAINED
------------------- --------------- ADDITIONAL CURRENCY EARNINGS
REDEMPTION PAR PAID-IN TRANSLATION (ACCUMULATED
SHARES VALUE SHARES VALUE CAPITAL ADJUSTMENT DEFICIT)
------ ---------- ------- ----- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994......... -- $ -- 570,000 $6 $112 $ -- $ 4,897
Payment for previously issued
common stock.................... -- -- -- -- 3 -- --
Foreign currency translation
adjustment...................... -- -- -- -- -- 7 --
Distributions to shareholders..... -- -- -- -- -- -- (1,802)
Net income........................ -- -- -- -- -- -- 8,425
Comprehensive net income for the
year ended December 31, 1995....
------ ------- ------- -- ---- ---- -------
Balance, December 31, 1995......... -- -- 570,000 6 115 7 11,520
Issuance of Series A Preferred
Stock, net of issuance costs of
$536,000........................ 43,700 22,464 -- -- -- -- --
Dividends and accretion on Series
A Preferred Stock............... -- 1,123 -- -- -- -- (1,123)
Issuance of common stock.......... -- -- 38,000 -- 100 -- --
Retirement of treasury stock...... -- -- -- -- (2) -- (123)
Proceeds from previously issued
common stock.................... -- -- -- -- 57 -- --
Foreign currency translation
adjustment...................... -- -- -- -- -- 1 --
Distributions to shareholders..... -- -- -- -- -- -- (15,926)
Net income........................ -- -- -- -- -- -- 1,191
Comprehensive net income for the
year ended December 31, 1996....
------ ------- ------- -- ---- ---- -------
Balance, December 31, 1996......... 43,700 23,587 608,000 6 270 8 (4,463)
Dividends and accretion on Series
A Preferred Stock............... -- 2,496 -- -- -- -- (2,496)
Foreign currency translation
adjustment...................... -- -- -- -- -- (86) --
Distributions to shareholders..... -- -- -- -- -- -- (311)
Net income........................ -- -- -- -- -- -- 838
Comprehensive net income for the
year ended December 31, 1997....
------ ------- ------- -- ---- ---- -------
Balance, December 31, 1997......... 43,700 26,083 608,000 6 270 (78) (6,432)
Dividends and accretion on Series
A Preferred Stock............... -- 683 -- -- -- -- (683)
Foreign currency translation
adjustment...................... -- -- -- -- -- 23 --
Net income........................ -- -- -- -- -- -- 304
Comprehensive net income for the
three months ended April 4,
1998............................
------ ------- ------- -- ---- ---- -------
Balance, April 4, 1998
(unaudited)....................... 43,700 $26,766 608,000 $6 $270 $(55) $(6,811)
====== ======= ======= == ==== ==== =======
<CAPTION>
SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------
TREASURY STOCK
--------------- TOTAL
SHAREHOLDERS' COMPREHENSIVE
SHARES COST EQUITY (DEFICIT) NET INCOME
------- ----- ---------------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994......... 47,538 $(125) $ 4,890 $ --
Payment for previously issued
common stock.................... -- -- 3
Foreign currency translation
adjustment...................... -- -- 7 7
Distributions to shareholders..... -- -- (1,802)
Net income........................ -- -- 8,425 8,425
------
Comprehensive net income for the
year ended December 31, 1995.... $8,432
------- ----- -------- ======
Balance, December 31, 1995......... 47,538 (125) 11,523
Issuance of Series A Preferred
Stock, net of issuance costs of
$536,000........................ -- -- --
Dividends and accretion on Series
A Preferred Stock............... -- (1,123)
Issuance of common stock.......... -- -- 100
Retirement of treasury stock...... (47,538) 125 --
Proceeds from previously issued
common stock.................... -- -- 57
Foreign currency translation
adjustment...................... -- -- 1 1
Distributions to shareholders..... -- -- (15,926)
Net income........................ -- -- 1,191 1,191
------
Comprehensive net income for the
year ended December 31, 1996.... $1,192
------- ----- -------- ======
Balance, December 31, 1996......... -- -- (4,179)
Dividends and accretion on Series
A Preferred Stock............... -- -- (2,496) --
Foreign currency translation
adjustment...................... -- -- (86) (86)
Distributions to shareholders..... -- -- (311)
Net income........................ -- -- 838 838
------
Comprehensive net income for the
year ended December 31, 1997.... $ 752
------- ----- -------- ======
Balance, December 31, 1997......... -- -- (6,234)
Dividends and accretion on Series
A Preferred Stock............... -- -- (683)
Foreign currency translation
adjustment...................... -- -- 23 23
Net income........................ -- -- 304 304
------
Comprehensive net income for the
three months ended April 4,
1998............................ $ 327
------- ----- -------- ======
Balance, April 4, 1998
(unaudited)....................... -- $ -- $ (6,590)
======= ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 106
AAI.FOSTERGRANT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED,
----------------------------- --------------------
MARCH 31, APRIL 4,
1995 1996 1997 1997 1998
------- -------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 8,425 $ 1,191 $ 838 $ 69 $ 304
Adjustments to reconcile net income to net cash provided
by (used in) operating activities --
Depreciation and amortization........................... 783 2,400 9,894 1,987 2,972
Equity in (losses) earnings of investments in
affiliates............................................ (275) 345 63 80 (60)
Minority interest in income of consolidated
subsidiary............................................ -- -- 83 16 13
Cumulative foreign currency translation adjustment...... 8 1 (86) (21) 23
Deferred compensation................................... 279 327 286 -- 88
Deferred interest on subordinated promissory notes
payable............................................... -- 205 282 88 88
Deferred taxes.......................................... -- (951) (353) -- 239
Changes in assets and liabilities, net of effect of
acquisitions --
Accounts receivable................................... (858) (5,087) (7,410) (12,515) (14,920)
Inventories........................................... (5,580) (463) 3,797 1,979 1,221
Prepaid expenses and other current assets............. 215 (477) 912 748 272
Accounts payable...................................... 1,187 3,502 (5,323) (3,958) 6,942
Accrued expenses...................................... (2,366) (1,097) (923) 978 (2,020)
Accrued income taxes.................................. -- 590 1,481 210 (6)
------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities....................................... 1,818 486 3,541 (10,339) (4,844)
------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash received........................ -- (9,844) (1,835) -- (5,487)
Purchase of property and equipment........................ (1,555) (1,572) (7,583) (1,492) (9,073)
Advances to officers/shareholders......................... 23 (32) (1) (40) (2,162)
Increase in deferred costs................................ -- (2,378) (1,655) -- (324)
Increase (decrease) in investments in affiliates.......... 109 (761) 460 587 (60)
Increase in other assets.................................. (681) (616) (404) (1,033) (90)
------- -------- -------- -------- --------
Net cash used in investing activities.............. (2,104) (15,203) (11,018) (1,978) (17,196)
------- -------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 107
AAI.FOSTERGRANT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED,
---------------------------- --------------------
MARCH 31, APRIL 4,
1995 1996 1997 1997 1998
------- -------- ------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving note payable............... 3,275 3,311 7,697 12,237 17,443
Proceeds from term note payable........................... -- -- -- -- 2,737
Proceeds from issuance of subordinated promissory notes
payable to shareholders................................. -- 2,000 -- -- --
Proceeds from issuance of long-term obligations........... 319 3,445 8,943 -- --
Payments on long-term obligations......................... (1,535) (2,292) (7,551) -- (480)
Distributions to shareholders............................. (1,803) (12,927) (310) -- --
Proceeds from issuance of common stock.................... -- 100 -- -- --
Proceeds from issuance of preferred stock, net of issuance
costs................................................... -- 22,464 -- -- --
Proceeds from previously issued common stock.............. 3 58 -- -- --
------- -------- ------- ------- -------
Net cash provided by financing activities.......... 259 16,159 8,779 12,237 19,700
------- -------- ------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (27) 1,442 1,302 (80) (2,340)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 62 35 1,477 1,477 2,779
------- -------- ------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 35 $ 1,477 $ 2,779 $ 1,397 $ 439
======= ======== ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Conversion of leasehold improvements to building
improvements............................................ $ -- $ -- $ -- $ -- $ 1,393
======= ======== ======= ======= =======
Acquisition of equipment under capital lease
obligations............................................. $ -- $ -- $ 362 $ -- $ --
======= ======== ======= ======= =======
Acquisition of inventory in exchange for issuance of note
payable................................................. $ 622 $ -- $ -- $ -- $ --
======= ======== ======= ======= =======
Distribution of notes payable to shareholders............. $ -- $ 3,000 $ -- $ -- $ --
======= ======== ======= ======= =======
Repayment of revolving note payable with term loan........ $ -- $ -- $ 5,972 $ -- $ --
======= ======== ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for --
Interest................................................ $ 1,015 $ 1,042 $ 4,074 $ 914 $ 1,040
======= ======== ======= ======= =======
Income taxes............................................ $ 12 $ 57 $ 50 $ 38 $ 98
======= ======== ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS RELATED TO
ACQUISITIONS:
During 1996, 1997 and 1998, the Company acquired Tempo,
Foster Grant US, Superior and Foster Grant UK as
described in Note 2.
These acquisitions are summarized as follows --
Fair value of assets acquired, excluding cash............. $ -- $ 48,635 $ 5,950 $ -- $ 7,260
Payments in connection with the acquisitions, net of cash
acquired................................................ -- (9,844) (1,835) -- (5,487)
------- -------- ------- ------- -------
Liabilities assumed and notes issued............... $ -- $ 38,791 $ 4,115 $ -- $ 1,773
======= ======== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 108
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
AAi.FosterGrant, Inc. and Subsidiaries (the Company) is a distributor of
optical products, costume jewelry and other accessories to mass merchandisers,
variety stores, chain drug stores and supermarkets in North America and the
United Kingdom.
In April 1998, the Company adopted a formal plan to close its Texas
distribution center in the fourth quarter of 1998. The Company expects to incur
approximately $2.6 million in costs in connection with this plant closing, which
is comprised of approximately $1.1 million in employee related costs and
approximately $1.5 million related to the write off of fixed assets which will
be abandoned. This charge will be recorded in the quarter ending July 4, 1998.
On July 21, 1998, the Company sold $75.0 million of 10 3/4% Senior Series A
Notes (the Notes) through a Rule 144A offering (see Note 18). The Company used
the proceeds from the offering of the Notes to repay its indebtedness under its
credit facilities with a bank and other obligations. The Company has agreed to
file and use its best efforts to have declared effective under the Securities
Act of 1933, as amended, a registration statement relating to an exchange offer
for the Notes, or in lieu thereof, or in certain circumstances, in addition
thereto, to file and use its best efforts to cause to be declared effective a
shelf registration statement for the Notes.
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies, as discussed below and elsewhere in
the notes to consolidated financial statements. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the results
of operations of the Company and its majority-owned subsidiaries. All
material intercompany balances and transactions have been eliminated in
consolidation.
(b) Interim Financial Statements
The accompanying consolidated financial statements as of April 4, 1998
and for the three-month periods ended March 31, 1997 and April 4, 1998 are
unaudited, but in the opinion of management, include all adjustments
consisting of normal recurring adjustments necessary for a fair
presentation of results for the interim periods. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted,
although the Company believes that the disclosures included are adequate to
make the information presented not misleading. Results for the three months
ended April 4, 1998 are not necessarily indicative of the results that may
be expected for the year ending January 2, 1999.
(c) Change in Fiscal Year-End
During the first quarter of 1998, the Company elected to change its
fiscal year-end from December 31, to the Saturday closest to December 31.
The Company has also applied this change to its quarterly periods during
1998 whereby each interim period will end on the last Saturday of the 13
week period.
F-8
<PAGE> 109
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(d) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash
equivalents.
(e) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following in 1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------ APRIL 4,
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Finished goods........................................ $30,564 $28,229 $32,852
Work-in-process and raw materials..................... 5,896 4,566 2,021
------- ------- -------
$36,460 $32,795 $34,873
======= ======= =======
</TABLE>
Finished goods inventory consists of material, labor and manufacturing
overhead.
(f) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations in amounts that allocate the cost of these assets on a
straight-line basis over their estimated useful lives as follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
- -------------------- ---------------------
<S> <C>
Building and improvements................................... 20 years
Display fixtures............................................ 1-3 years
Furniture, fixtures and equipment........................... 3-10 years
Leasehold improvements...................................... Term of lease
Equipment under capital leases.............................. Term of lease
</TABLE>
The Company has adopted the provisions of Statement of Position No.
98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use. The adoption of this pronouncement did not have a
material effect on the Company's financial position or financial results.
(g) Revenue Recognition
The Company recognizes revenue from product sales, net of estimated
agreed-upon future allowances and anticipated returns and discounts, taking
into account historical experience, upon shipment to the customer.
(h) Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk are principally accounts receivable. A
significant portion of its business activity is with domestic mass
merchandisers whose ability to meet their financial obligations is
dependent on economic conditions germane to the retail industry. During
recent years, many major retailers have experienced significant financial
difficulties and some have filed for bankruptcy protection; other retailers
have begun to consolidate within the industry. The Company sells to certain
customers in bankruptcy as well as those consolidating within the industry.
To reduce credit risk, the Company routinely assesses the financial
strength of its customers and purchases credit insurance as it deems
appropriate.
F-9
<PAGE> 110
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(i) Intangible Assets
Intangible assets consist of goodwill and trademarks, which are being
amortized on a straight-line basis over estimated useful lives of 10 to 40
years. At each balance sheet date, the Company evaluates the realizability
of intangible assets based on profitability and cash flow expectations for
the related asset or subsidiary. Based on its most recent analysis, the
Company does not believe an impairment of intangible assets exists at April
4, 1998. Amortization expense was approximately $0.2 million, $1.1 million,
$0.2 million and $0.3 million for the years ended December 31, 1996 and
1997 and the three months ended March 31, 1997 and April 4, 1998,
respectively. There was no amortization expense related to intangible
assets in 1995.
(j) Disclosure of Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, accounts receivable, accounts payable and debt. The carrying
amounts of the Company's financial instruments approximate fair value.
(k) Net Income (Loss) Per Share
In March 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per
Share. This statement established standards for computing and presenting
net income (loss) per share. This statement is effective for fiscal years
ending after December 15, 1997.
Basic net income (loss) per share applicable to common shareholders
was determined by dividing net income (loss) attributable to common
shareholders by the weighted average common shares outstanding during the
period. Diluted net income (loss) per share applicable to common
shareholders was determined by dividing net income (loss) applicable to
common shareholders by diluted weighted average shares outstanding. Diluted
weighted average shares reflects the dilutive effect, if any, of common
equivalent shares, which includes common stock options and convertible
preferred stock. Based on the treasury stock method, the common stock
options have no dilutive effect on earnings per share as the exercise price
for all options equals the fair market value of the Company's common stock
at the end of each applicable period. Accordingly, options to purchase a
total of 8,000, 14,000 and 12,000 common shares have been excluded from the
computation of diluted weighted average shares outstanding. The 437,000
shares of common stock issuable upon the conversion of the 43,700 share of
Series A Redeemable Convertible Preferred Stock (Series A Preferred Stock)
has also been excluded for all periods presented as they are antidilutive.
Accordingly, there is no difference between basic and diluted weighted
average shares outstanding for all periods presented.
Pro forma net income (loss) per share applicable to common
shareholders which reflects the effects of the pro forma tax provision (see
Note 4), was determined by dividing pro forma net income (loss) applicable
to common shareholders by the basic and diluted weighted average shares
outstanding.
(l) New Accounting Standards
In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information. SFAS No. 131 requires certain
financial and supplementary information to be disclosed on an annual and
interim basis for each reportable segment of an enterprise. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. Unless
impracticable, companies would be required to restate prior period
information upon adoption. The Company will adopt this statement in their
fiscal year end 1998 financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting
and reporting standards for derivative instruments,
F-10
<PAGE> 111
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
including certain derivative instruments embedded in other contracts, and
for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-up
Activities, (SOP-98-5). SOP 98-5 provides guidance on the financial
reporting of start-up activities and organization costs to be expensed as
incurred. The Company does not believe that the adoption of SOP 98-5 will
have a material impact on its financial statements.
(2) ACQUISITIONS
On March 5, 1998, the Company acquired certain assets and liabilities of
Eyecare Products UK Ltd. (Foster Grant UK), including the Foster Grant trademark
in territories not previously owned, for approximately $5.5 million in cash.
Foster Grant UK is a marketer and distributor of sunglasses and reading glasses
in Europe. The purchase price may be increased by approximately $0.7 million in
1998 and 1999 based on Foster Grant UK performance.
The acquisition has been accounted for using the purchase method of
accounting; accordingly, the results of operations of Foster Grant UK from the
date of the acquisition are included in the accompanying consolidated statements
of operations. The purchase price was allocated based on estimated fair values
of assets and liabilities at the date of acquisition. In connection with the
purchase price allocation, the Company recorded goodwill of approximately $1.1
million, which is being amortized on a straight-line basis over 20 years.
In July 1997, the Company acquired the assets of Superior Jewelry Company
(Superior), a distributor of costume jewelry to retail drug stores and discount
mass merchandisers in the United States. The Company paid approximately $1.8
million in cash and assumed certain liabilities in the amount of approximately
$4.1 million. The purchase price may be increased by up to an additional $3.0
million based on Superior's annual earnings during 1997 and 1998. Any increase
in purchase price will be recorded as goodwill when paid. Based on 1997
activity, the purchase price increased $0.9 million and is subject to an
additional $2.0 million upward adjustment based on 1998 annual earnings. This
amount has been accrued as of December 31, 1997.
The acquisition was accounted for using the purchase method of accounting;
accordingly, the results of operations of Superior from the date of the
acquisition are included in the accompanying consolidated statements of
operations. The purchase price was allocated based on estimated fair values of
assets and liabilities at the date of acquisition. In connection with the
purchase price allocation, the Company recorded goodwill of approximately $3.5
million, adjusted to include the additional purchase price for 1997 activity,
which is being amortized on a straight-line basis over 10 years.
In December 1996, the Company's subsidiary, Foster Grant Holdings, Inc. (FG
Holdings), acquired Foster Grant Group, L.P. (Foster Grant US), a subsidiary of
BEC Group, Inc. (BEC), and related entities. Foster Grant US is a marketer and
distributor of sunglasses, reading glasses and eyewear accessories located in
Dallas, Texas. The Company paid $10.0 million in cash and assumed certain
liabilities in the amount of approximately $34.0 million. In addition, FG
Holdings issued 100 shares of Series A redeemable nonvoting preferred stock (FG
Preferred Stock) initially valued at approximately $0.8 million. As discussed in
Note 9, the redemption value of this preferred stock is subject to upward
adjustment based on annual sales of the FG Holdings operations, as defined,
through the years ending January 1, 2000 or upon the occurrence of certain
specified capital transactions based upon the transaction value. The maximum
redemption amount, as amended, is $4.0 million. Any increase in the redemption
amount may be recorded as goodwill when paid. The $10.0 million cash investment
was financed by $5.0 million of borrowings through the Company's credit
F-11
<PAGE> 112
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
facility and a $5.0 million equity investment in the Company by an investment
group led by Marlin Capital, L.P., a related party to BEC (see Note 9).
The acquisition was accounted for using the purchase method of accounting;
accordingly, the results of operations of Foster Grant US from the date of the
acquisition are included in the accompanying consolidated statements of
operations. The original purchase price was allocated based on the preliminary
estimated fair values of assets and liabilities at the date of acquisition. In
connection with the purchase price allocation, the Company recorded intangible
assets of approximately $11.0 million, which are being amortized on a straight-
line basis over 40 years. During 1997, the preliminary purchase price allocation
was finalized. This resulted in (i) a reduction of certain asset carrying
amounts of approximately $4.9 million, (ii) an increase in certain liabilities
of approximately $2.2 million and (iii) a decrease in the valuation reserve
related to the deferred tax assets of approximately $7.0 million (see Note 4)
resulting in an immaterial increase in goodwill.
In June 1996, the Company acquired certain assets of the Tempo Division
(Tempo) of Allison Reed Group, Inc. The Company paid $1.0 million in cash,
assumed certain liabilities in the amount of $0.6 million and issued a $2.0
million non-interest-bearing term note payable to Allison Reed Group, Inc (see
Note 7). The payments on this note are subject to potential future downward
adjustments based on sales of Tempo; no such adjustment was made in 1996 or
1997. The acquisition was accounted for using the purchase method of accounting;
accordingly, the results of operation of Tempo from the date of the acquisition
are included in the accompanying consolidated statements of operations. The
purchase price was allocated entirely to intangible assets and is being
amortized on a straight-line basis over 10 years.
In June 1998, the Company acquired an 80% interest in Fantasma, LLC
(Fantasma) for approximately $3.5 million in cash. The remaining 20% interest in
Fantasma is held by a previous member of Fantasma. This member and an employee
of Fantasma have options to acquire up to an additional 13% interest if certain
earnings targets for Fantasma are met in 1998, 1999 and 2000. The acquisition
will be accounted for using the purchase method; accordingly, the results of
operations of Fantasma from the date of acquisition will be included in the
Company's consolidated statements of operations. The purchase price will be
allocated based on estimated fair market value of assets and liabilities at the
date of acquisition. In connection with the purchase price allocation, the
Company anticipates recording approximately $3.4 million of goodwill, which will
be amortized ratably over 10 years.
The following unaudited pro forma summary information presents the combined
results of operations of the Company, Foster Grant US, Tempo, Superior, Foster
Grant UK and Fantasma as if the acquisitions had occurred at the beginning of
1996, 1997 and 1998. This unaudited pro forma financial information is presented
for informational purposes only and may not be indicative of the results of
operations as they would have been if the Company, Foster Grant US, Tempo,
Superior and Foster Grant UK had been a single entity, nor is it necessarily
indicative of the results of operations that may occur in the future.
Anticipated efficiencies from the consolidation of the Company, Foster Grant US,
Tempo, Superior, Foster Grant UK and Fantasma have been excluded from the
amounts included in the unaudited pro forma summary presented below.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, ---------------------
-------------------- MARCH 31, APRIL 4,
1996 1997 1997 1998
-------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................................ $195,231 $181,992 $42,346 $47,527
Net loss applicable to common shareholders....... (13,497) (1,714) (886) (539)
Basic and diluted net loss per share applicable
to common shareholders......................... (22.84) (2.82) (1.46) (.89)
</TABLE>
F-12
<PAGE> 113
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(3) DEFERRED COSTS
In connection with initial merchandise shipments to new store locations,
the Company may issue credits to the customer for the cost to purchase the
previous vendors' unsold merchandise (buyback credits). Buyback credits are
expensed when incurred unless there is an agreement regarding the term of the
relationship over which the estimated gross profits from product sales are
sufficient to recover the amount of the previous vendors' unsold merchandise
purchased. In the latter case, the costs are amortized over a period that
matches these costs with the related revenue. During 1996, the Company began
entering into agreements with its customers regarding the term of their
relationships. The Company capitalized approximately $1.6 million and $2.5
million and $0.7 million of buyback credits during the years ended December 31,
1996 and 1997 and the three months ended April 4, 1998, respectively.
Amortization expense related to these credits was approximately $0.7 million,
$1.6 million and $0.5 million for the years ended December 31, 1996 and 1997 and
the three month period ended April 4, 1998, respectively. The Company directly
expensed buyback credits of approximately $1.2 million and $0.2 million in 1995
and 1996, respectively.
(4) INCOME TAXES
Income taxes, including pro forma computations, are provided using the
liability method of accounting in accordance with SFAS No. 109. A deferred tax
asset or liability is recorded for all temporary differences between financial
and tax reporting. Deferred tax expense (benefit) results from the net change
during the year of the deferred tax asset and liability.
The Company was an S corporation under Section 1362 of the Internal Revenue
Code until May 31, 1996 when it issued Series A Preferred Stock. As an S
corporation, the taxable income or loss of the Company was passed through to the
shareholders and reported on their individual federal and certain state tax
returns. Dividend distributions of approximately $1.8 million and $2.9 million
in 1995 and 1996, respectively, were made to the shareholders primarily to fund
payment of the taxes related to the Company's income. In addition, $10.3 million
of cash and $3.0 million of subordinated notes payable (See Note 8) were
distributed to the shareholders in 1996 to distribute the previously
undistributed after-tax earnings. During 1997, a cash distribution of $0.3
million was made to the S corporation shareholders to distribute a portion of
the remaining undistributed after-tax earnings.
During 1998, the Company made advances to the S Corporation shareholders to
pay a portion of the income tax owed by them with respect to the Company's S
Corporation earnings resulting from an income tax audit. The Company agreed to
make advances to these shareholders to pay their tax liabilities, the aggregate
amount of which will not exceed $3.4 million. At April 4, 1998, the Company
advanced approximately $2.2 million against these notes. These advances are
evidenced by promissory notes and bear interest at an annual rate equal to the
Applicable Federal Rate (5.26% at April 4, 1998). Principal and accrued interest
are payable on demand. These amounts have been included in long-term other
assets in the accompanying consolidated balance sheet as the Company expects
these advances to be repaid upon payment of its subordinated notes payable to
shareholders (see Note 8).
Pro forma income taxes, assuming the Company was subject to C corporation
income taxes, have been provided in the accompanying statements of operations
for 1995 and 1996 at an estimated statutory rate of 40%.
Upon termination of the S corporation election, deferred income taxes were
recorded for the tax effect of cumulative temporary differences between the
financial reporting and tax bases of certain assets and liabilities, primarily
deferred costs, accrued expenses and depreciation. These temporary differences
resulted in a net deferred income tax asset of approximately $1.9 million. The
Company recorded this tax asset as a deferred tax benefit in the tax provision.
F-13
<PAGE> 114
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The components of the income tax (expense) benefit are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ------- -------
<S> <C> <C> <C>
Current --
Federal................................................ $ -- $ -- $ (700)
State.................................................. (42) (51) (124)
---- ------- -------
(42) (51) (824)
Deferred --
Federal................................................ -- (1,394) (301)
State.................................................. -- (246) (52)
---- ------- -------
-- (1,640) (353)
---- ------- -------
Effect of change in tax status........................... -- 1,895 --
---- ------- -------
$(42) $ 204 $(1,177)
==== ======= =======
</TABLE>
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ----- ----
<S> <C> <C> <C>
Income tax provision at federal statutory rate.............. --% 34.0% 34.0%
Increase (decrease) in tax resulting from --
State tax provision, net of federal benefit............... 0.5 6.0 6.0
Nondeductible expenses.................................... -- -- 18.4
Effect of change in tax status............................ -- (61.0) --
---- ----- ----
Actual effective tax rate expense (benefit)....... 0.5% (21.0)% 58.4%
==== ===== ====
Pro forma adjustment........................................ 39.5 61.0
---- -----
Pro forma effective tax rate................................ 40.0% 40.0%
==== =====
</TABLE>
Deferred income taxes as of December 31, 1996 and 1997 related to the
following temporary differences (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- ------
<S> <C> <C>
Nondeductible reserves...................................... $ 6,960 $6,633
Nondeductible accruals...................................... 1,424 2,207
Net operating loss carryforwards............................ -- 703
Other....................................................... 197 402
------- ------
Gross deferred tax assets......................... 8,581 9,945
Less -- Valuation allowance................................. (7,076) (952)
------- ------
Net deferred tax assets........................... $ 1,505 $8,993
======= ======
Deferred customer acquisition costs......................... $ (779) $ (44)
Tax basis of property and equipment......................... 396 (740)
Other....................................................... (171) 95
------- ------
Deferred tax liabilities.......................... $ (554) $ (689)
======= ======
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be recognized. In connection
with the acquisition of Foster Grant US, the Company
F-14
<PAGE> 115
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
acquired various tax attributes that resulted in deferred tax assets. In the
initial purchase price allocation, the Company provided a valuation allowance
for a significant portion of these assets due to the uncertainty of their
realization. During 1997, based on the actual and anticipated results, the
Company determined that a significant portion of the valuation reserve was not
required. Accordingly, the Company reduced the valuation allowance by
approximately $7.0 million, resulting in an equal decrease in goodwill. The
Company has provided a valuation allowance for certain tax assets which may be
limited in their use. The Company has $1.8 million of net operating loss
carryforwards which expire through 2012.
The Company has entered into an indemnification agreement with the
shareholders of the Company prior to its conversion to a C corporation relating
to potential income tax liabilities resulting from adjustments to reported S
corporation taxable income. The shareholders will continue to be liable for
personal income taxes on the Company's income for all periods prior to the time
the Company ceased to be an S corporation, while the Company will be liable for
all income taxes subsequent to the time it ceased to be an S corporation. The
indemnification agreement provides that the Company shall distribute to the
individual shareholders 40% of the amount of additional deductions permitted to
be taken by the Company after its conversion to a C corporation for expenditures
made prior to becoming a C corporation, which result from adjustments in the
form of a final determination by tax authorities.
(5) REDEEMABLE NONVOTING PREFERRED STOCK OF A SUBSIDIARY
In connection with the purchase of Foster Grant US, the Company's wholly
owned subsidiary, FG Holdings, issued 100 shares of FG Preferred Stock, which
represents all of the issued and outstanding shares of FG Preferred Stock. The
FG Preferred Stock, as amended in June 1998 (Note 2), must be redeemed on
February 28, 2000 (the FG Redemption Date) by payment of an amount ranging from
$1.0 million to $4.0 million (the FG Redemption Amount), determined based on the
combined net sales of sunglasses, reading glasses and accessories by Foster
Grant US and the Company for the year ending January 1, 2000, excluding an
amount equal to the net sales by the Company for such items for the year ended
December 31, 1996. These increases in the redemption amount will be recorded as
goodwill when the final redemption amount is settled.
The FG Preferred Stock also provides for early redemption of the FG
Preferred Stock if the Company completes (i) an initial public offering where
the pre-money valuation of the Company equals or exceeds $75.0 million, (ii) a
merger or similar transaction where the transaction value equals or exceeds
$75.0 million, or (iii) a private placement of equity securities representing
more than 50% of the outstanding capital stock for consideration of not less
than $37.5 million (each a "Redemption Event") prior to the FG Redemption Date.
Upon completion of a Redemption Event, in lieu of the FG Redemption Amount,
holders of FG Preferred Stock will receive a payment ranging from $3.5 million
to $4.0 million (the Redemption Event Amount), to be determined with reference
to, as the case may be, either the pre-money valuation of the Company
immediately prior to the initial public offering or the proceeds of the merger
or similar transaction or private equity placement. If a Redemption Event occurs
after the FG Redemption Date, in addition to the FG Redemption Amount, holders
of FG Preferred Stock will receive a supplemental payment equal to the
difference, if any, between the FG Redemption Amount paid to such holders on the
FG Redemption Date and Redemption Event Amount that would have been received had
the Redemption Event occurred on or prior to the FG Redemption Date.
The value of FG Preferred Stock has been recorded as part of the initial
purchase of Foster Grant US and was based on the present value of management's
best estimate of the expected payment of $1.0 million upon redemption. The
accretion of the original value to the $1.0 million estimated redemption value
is being recorded as a charge to minority interest in income of subsidiaries in
the accompanying consolidated statements of operations. Accretion of this
discount for the year ended December 31, 1997 and the three
F-15
<PAGE> 116
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
months ended March 31, 1997 and April 4, 1998 was approximately $75,000, $19,000
and $21,000, respectively.
(6) CREDIT FACILITIES WITH A BANK
In March 1998, the Company amended its credit facility with a bank (the
Bank Agreement). The amended facility provides for (i) a $60.0 million revolving
credit facility, including a $3.0 million letter of credit facility and a $5.0
million multi-currency facility, and (ii) a term loan of $10.0 million. Use of
the proceeds from the facility are limited to refinancing existing term debt,
support letters of credit, fund working capital and finance permitted
acquisitions and tax distributions, as defined. In connection with this
amendment, the Company refinanced $5,972,000 of its borrowing outstanding under
the revolving letter of credit facility with the term loan.
Borrowings under the revolving credit arrangement are limited to the lesser
of $60.0 million or the borrowing base, which is defined as a percentage of
eligible accounts receivable and inventories, reduced by outstanding letters of
credit and amounts outstanding under the multi-currency facility. Revolving
credit borrowings bear interest at the bank's prime rate (8.5% at April 4, 1998)
plus .5% or LIBOR (5.85% at April 4, 1998) plus 2.25%. The Company has the
option of electing the rate; however, the use of the LIBOR is limited. The
revolving credit facility expires in January 2003. As of April 4, 1998, the
Company had approximately $7.7 million available under this revolving credit
facility.
If the Bank Agreement is terminated by the Company earlier than the
expiration date, the Company will be required to pay a termination fee of $0.5
million in the first year, $0.3 million in the second year and $0.1 million
thereafter. The termination fee will be waived if the debt is refinanced with
the bank or after the first year if it relates to an initial public offering of
the Company's stock. The Bank Agreement also requires an annual reduction in
outstanding principal equal to 50% of excess cash flow up to $2.0 million.
The three year term loan bears interest at the bank's prime rate (8.5% at
April 4, 1998) plus .5% or LIBOR (5.85% at April 4, 1998) plus 2.5%. The Company
has the option of electing the rate. The term loan agreement requires quarterly
principal payments of approximately $0.6 million in the first year, $0.9 million
in the second year and $1.0 million in the final year.
The credit facility is subject to certain restrictive covenants, including
minimum tangible net worth and limitations of capital expenditures. Amounts due
under this credit facility are secured by substantially all assets of the
Company.
On February 10, 1998, the Company entered into a new term loan facility
with the same bank for the purchase of the Company's building and related
improvements. Borrowings under this facility are limited to $3.3 million, bear
interest at the bank's prime rate (8.5% at April 4, 1998) plus .75% or LIBOR
(5.85% at April 4, 1998) plus 2.75% and are secured by substantially all assets
of the Company. At April 4, 1998, $2,718,000 was outstanding under this
facility. This facility expires on the earlier of August 3, 1998 or the
expiration date of the revolving credit facility. In June 1998, the Company
amended this facility to include an increase in the borrowing limit to
$7,250,000 and extend the expiration date to October 15, 1998.
F-16
<PAGE> 117
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(7) LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31, 1996 and
1997 and April 4, 1998 (in thousands):
<TABLE>
<CAPTION>
1996 1997 APRIL 4, 1998
------ ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Term loans with a bank (Note 6)............................. $2,333 $10,000 $12,718
Financing lease obligation, payable in monthly installments
of principal and interest of $6,500 through September
2000, interest at 8.75% per annum, secured by certain
office equipment.......................................... 244 190 169
Capital lease obligation, payable in monthly installments of
principal and interest of $10,903 through November 2000,
interest at 9.0% per annum................................ -- 335 309
Promissory notes, payable in monthly installments of
principal and interest through February 2000, interest at
7.07% to 9.9% per annum, secured by certain factory
equipment................................................. 247 159 126
Financing lease obligations, payable in monthly installments
of principal and interest through December 2001, interest
at 8.98% to 10.12% per annum, secured by certain factory
and office equipment...................................... 445 -- --
Financing lease obligations, payable in monthly installments
of principal and interest through January 2001, interest
at 8.76% to 8.82% per annum, secured by certain factory
and office equipment...................................... -- 604 587
Term loan payable in connection with Tempo acquisition...... 887 331 184
Deferred compensation....................................... 853 1,139 1,219
Other....................................................... 354 256 47
------ ------- -------
5,363 13,014 15,359
Less -- Current maturities.................................. 2,155 3,361 5,442
------ ------- -------
$3,208 $ 9,653 $ 9,917
====== ======= =======
</TABLE>
In connection with the acquisition of Tempo (see Note 2), the Company
entered into a note payable agreement with Allison Reed Group, Inc. whereby the
Company is obligated to pay $55,555 a month for 36 months. The present value of
this note, $1.8 million, was recorded as part of the initial purchase price
allocation. Payments under this note were subject to potential downward
adjustments based on sales of the Tempo division, as defined.
The Company has deferred compensation agreements with several key
employees. The agreements provide for deferred compensation based on increases
in net book value, as defined, and for one executive, the cash surrender value
of a life insurance policy owned by the Company. The amounts due under these
agreements are payable in a lump sum or in annual installments upon certain
defined events. During 1995, the Company charged to general and administrative
expenses approximately $0.2 million of expenses, relating to these agreements.
No amount was charged to expense during 1996, 1997 or the three months ended
April 4, 1998. All amounts are payable subsequent to January 2, 1999 and thus
have been classified as long-term obligations. At April 4, 1998, the cash
surrender value of the life insurance policy was approximately $0.9 million and
is included in other assets.
The Company has an obligation to four former employees under a nonqualified
deferred compensation plan. Payments of principal and interest are to be made
monthly through August 2007. The obligation at December 31, 1997 was $123,783,
of which $29,661 is due prior to January 2, 1999. These amounts are included as
deferred compensation in the table above.
F-17
<PAGE> 118
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(8) SUBORDINATED PROMISSORY NOTES PAYABLE TO SHAREHOLDERS
Coincident with the sale of Series A Preferred Stock (Note 9) and the
concurrent change in the Company's tax status (Note 4), the Company issued $2.0
million of subordinated notes payable to the preferred shareholders and made a
distribution of $3.0 million in subordinated notes payable to the original
common shareholders. These notes bear interest at an annual rate of 7.04%.
Approximately 50% of this interest is payable annually and the remaining balance
is deferred and is due with the principal on June 1, 2002 for the preferred
shareholders and June 1, 2006 for the original common shareholders, subject to
acceleration on the closing of an initial public offering. These amounts were
paid upon the closing of the offering of the Notes.
(9) PREFERRED STOCK
The Company has 200,000 shares of preferred stock, $.01 par value,
authorized and issuable in one or more series with such voting powers,
designations, preferences and other special rights and such qualifications,
limitations or restrictions, as may be stated in the resolution or resolutions
adopted by the Company's Board of Directors providing for the issue of such
series and as permitted by the Rhode Island Business Corporation Act. The
Company has created one series of preferred stock designated Series A Redeemable
Convertible Preferred Stock (Series A Preferred Stock). A total of 43,700 shares
of Series A Preferred Stock are designated for issuance, all of which are issued
and outstanding.
In May 1996, the Company sold 34,200 shares of Series A Preferred Stock for
gross proceeds of $18.0 million. In connection with the acquisition of Foster
Grant US (see Note 2) in December 1996, the Company issued an additional 9,500
shares of the Series A Preferred Stock for gross proceeds of $5.0 million.
The rights, preferences and privileges of Series A Preferred Stock, as
amended in June 1998, are as follows:
Conversion
Shares of the Series A Preferred Stock are convertible into common stock at
a rate of 10 shares of common stock for each share of Series A Preferred Stock,
adjustable for certain dilutive events. As amended by the Company's shareholders
in June 1998, conversion is at the option of the shareholder, but is automatic
upon the consummation of an initial public offering resulting in gross proceeds
to the Company of at least $20.0 million and at an offering price of at least
137.8% of the original conversion price if the offering is consummated on or
before May 31, 1999 and at least 175% of the original conversion price of the
offering is consummated after May 31, 1999.
F-18
<PAGE> 119
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Redemption
The holders of the Series A Preferred Stock have the right to require
redemption for cash of any unconverted shares, beginning June 30, 2002. The
Company will redeem the Series A Preferred Stock equal to 5% of the total number
of shares issued and outstanding as of March 31, 2002 on the last day of each
March, June, September and December as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERCENTAGE
------------ ----------
<S> <C>
2002........................................................ 15%
2003........................................................ 35
2004........................................................ 55
2005........................................................ 75
2006........................................................ 95
2007........................................................ 100
</TABLE>
The Series A Preferred Stock will be redeemed at an amount equal to the
original stock price, $526.32 per share, plus accrued and unpaid dividends
yielding a 10% compounded annual rate of return (the Redemption Amount).
Accordingly, the Series A Preferred Stock has been recorded at its redemption
value in the accompanying consolidated balance sheets.
The holders of the Series A Preferred Stock may require the Company to
redeem all or any portion of the Series A Preferred Stock upon certain events
such as the sale, merger or dissolution of the Company. In addition, the Company
may voluntarily redeem the Series A Preferred Stock at the Redemption Amount as
defined above. If the Company voluntarily redeems the Series A Preferred Stock,
it must issue the holders of Series A Preferred Stock a warrant to purchase
common stock equal to the number of shares the shareholder would have received
upon conversion, at a strike price equal to the redemption price at the time of
redemption.
In connection with the proposed issuance of the Notes the preferred
shareholders agreed, in June 1998, to suspend their redemption rights until 91
days after the date that any Restrictive Indebtedness, as defined, is no longer
outstanding. Restrictive Indebtedness is defined as indebtedness the terms of
which restrict the Company's ability to redeem, in whole or part, the Series A
Preferred Stock. Restrictive Indebtedness can not exceed $150.0 million or such
greater amount as may be approved by the directors designated by the preferred
shareholders.
Liquidation Preferences
The holders of Series A Preferred Stock have preference in the event of a
liquidation, dissolution or winding up of the corporation equal to the
Redemption Amount. If the assets of the Company are insufficient to pay the full
preferential amounts to the holders of Series A Preferred Stock, the assets
shall be distributed ratably among such shareholders in proportion to their
aggregate liquidation preference amounts.
Voting Rights and Dividends
The holders of the Series A Preferred Stock shall be entitled to vote on
all matters based on the number of votes equal to the number of shares into
which the shares of Series A Preferred Stock are convertible after December 1,
1996. The holders of a majority of the Series A Preferred Stock shares are
entitled to elect two directors. In certain events, defined as Remedy Events,
the number of directors of the Company automatically increases to the minimum
number sufficient to allow the holders of Series A Preferred Stock to elect a
majority of the directors. In June 1998, the preferred shareholders agreed to
change the definition of Remedy
F-19
<PAGE> 120
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Events to reduce the minimum amount of consolidated shareholders' equity which
the Company is required to maintain dollar for dollar by any payments of certain
subordinated notes payable to shareholders (see Note 8).
Dividends will not be paid on the common stock unless the Series A
Preferred Stock receives the same dividends that such shares would have received
had they been converted into common stock immediately prior to the record date
for such dividend.
(10) COMMON STOCK
In connection with the issuance of Series A Preferred Stock in May 1996
(see Note 9), the Board of Directors and shareholders voted to amend the
Company's Articles of Incorporation and Bylaws to increase the number of
authorized shares of common stock to 4,800,000 and change the no par value
common stock to $.01 par value common stock. In addition, the Company effected a
57-for-1 stock split for the shares then outstanding. The accompanying
consolidated financial statements have been retroactively adjusted to reflect
this stock split and the establishment of a par value.
(11) 1996 INCENTIVE STOCK PLAN
In May 1996, the Company adopted the 1996 Incentive Stock Plan (the Plan)
under which it may grant incentive stock options (ISOs), nonqualified stock
options (NSOs), restricted stock and other stock rights to purchase up to 50,000
shares of common stock. Under the Plan, ISOs may not be granted at less than
fair market value on the date of grant and generally vest in a method determined
by the Board of Directors, over a term not to exceed 10 years. All options have
been granted with exercise prices equal to the fair market value of the
Company's common shares as determined by the Board of Directors. Stock option
activity for each of the three years in the period ended December 31, 1997 and
the three-month period ended April 4, 1998, is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF WEIGHTED AVERAGE REMAINING
SHARE EXERCISE PRICE CONTRACTUAL LIFE
--------- ---------------- ----------------
<S> <C> <C> <C>
Outstanding, December 31, 1995............ -- $-- --
Granted................................. 8,000 50 10
------ --- ----
Outstanding, December 31, 1996............ 8,000 50 10
Granted................................. 6,000 50 10
------ --- ----
Outstanding, December 31, 1997............ 14,000 50 9.5
Canceled................................ (2,000) 50 --
------ --- ----
Outstanding, April 4, 1998................ 12,000 $50 9.25
====== === ====
Exercisable, April 4, 1998................ 12,000 $50 9.25
====== === ====
</TABLE>
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 requires the measurement of the fair value of stock
options to be included in the statement of operations or disclosed in the notes
to financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and elect the
disclosure-only alternative under SFAS No. 123.
F-20
<PAGE> 121
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Had compensation cost for the Company's stock plans been determined based
on the fair value at the grant dates, as prescribed in SFAS No. 123, the
Company's net income and net income per share applicable to common shareholders
would have been as follows:
<TABLE>
<CAPTION>
1996 1997
----- -------
<S> <C> <C>
Net income (loss) applicable to common shareholders (in
thousands)
As reported............................................... $ 68 $(1,659)
Pro forma................................................. $ (99) $(1,783)
Net income (loss) per share applicable to common
shareholders
As reported............................................... $ .11 $ (2.73)
Pro forma................................................. $(.17) $ (2.93)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants during the applicable period: dividend yield of 0.0% for all periods;
volatility of 35.53% for all periods; risk-free interest rates of 6.07% for
options granted during 1996 and 5.77% for options granted during 1997 and a
weighted average expected option term of 5 years for all periods. The weighted
average fair value per share of options granted during 1996 and 1997 was $20.87
and $20.60, respectively.
(12) INVESTMENTS
(a) Hong Kong
The Company has an ownership interest in four entities in Hong Kong. These
entities provide various services to the Company and each other in connection
with purchasing and distributing products. The Company accounts for these
investments using the equity method. The net investment in these entities is
recorded as investment in affiliates in the accompanying consolidated balance
sheets. The following table summarizes certain financial information for these
entities (in thousands):
<TABLE>
<CAPTION>
EQUITY IN
OWNERSHIP EARNINGS INVESTMENT
INTEREST SALES TO AAI (LOSSES) BALANCE
--------- ------------ --------- ----------
1995
----------------------------------------------------
<S> <C> <C> <C> <C>
AAi Hong Kong Limited........................... 49% $12,372 $275 $741
Honest Lion Limited............................. 50 -- -- 551
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------
<S> <C> <C> <C> <C>
AAi Hong Kong Limited........................... 49% $11,407 $ -- $741
Milagros (Far East) Limited..................... 49 254 (94) (29)
Honest Lion Limited............................. 50 -- (69) 743
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------------------
<S> <C> <C> <C> <C>
AAi Hong Kong Limited........................... 49% $ 2,969 $(70) $671
Milagros (Far East) Limited..................... 49 324 (10) (40)
Honest Lion Limited............................. 50 -- (50) 692
Milagros AAi Asia Limited....................... 49 11,878 67 100
</TABLE>
F-21
<PAGE> 122
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The following table summarizes certain unaudited consolidated
financial information of the four Hong Kong entities (in thousands):
<TABLE>
<CAPTION>
1996 1997 MARCH 31, 1998
------- ------- --------------
<S> <C> <C> <C>
Current assets.................................... $ 4,407 $ 5,687 $5,754
Noncurrent assets................................. 6,608 2,187 6,580
Current liabilities............................... 8,421 9,978 9,702
Noncurrent liabilities............................ 1,557 1,563 1,809
Net sales......................................... 24,454 37,037 6,114
Gross profit...................................... 4,847 1,876 1,441
Income (loss) from operations..................... (406) (64) 124
Net income........................................ (406) (64) 122
</TABLE>
(b) Mexico
In 1996, the Company acquired a 50% ownership in AAi Joske's S.A. de R.L.
De CV (Joske's), an entity engaged in the purchasing and distribution of
accessories in Mexico for $0.5 million of inventory. This investment was
accounted for under the equity method. In January 1997, the Company acquired an
additional 5% ownership interest in Joske's and accordingly has consolidated its
financial results in the Company's financial statements subsequent to December
31, 1996.
(13) EMPLOYEE BENEFIT PLANS
(a) Qualified 401(k) Plan
The Company has a defined contribution profit sharing plan covering
substantially all employees. Under the terms of the profit sharing plan,
contributions are made at the discretion of the Company.
The Company made contributions of $100,000 for the year ended December 31,
1995. No contributions were made for the years ended December 31, 1996 and 1997.
The profit sharing plan also allows eligible participants to make contributions
in accordance with Internal Revenue Code Section 401(k). The Company matches
employee contributions equal to 25% of the first 6% of compensation that an
employee defers. These matching contributions totaled approximately $79,000,
$87,000 and $95,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
(b) Non-Qualified Excess 401(k) Plan
In May 1997, the Company established the Non-Qualified Excess 401(k) Plan
(the "Non-Qualified Plan") effective as of June 1, 1997. The purpose of the
Non-Qualified Plan is to provide deferred compensation to a select group of
management or highly compensated employees of the Company as designated by the
Board of Directors. Under the Non-Qualified Plan, a participant may elect to
defer up to 15% of his or her compensation on an annual basis. This amount is
credited to the employee's deferred compensation account (the Deferred Amount).
Under the Non-Qualified Plan, the Company also credits the participant's
deferred compensation account for the amount of the matching contribution the
Company would have made under the qualified 401(k) Plan with respect to the
Deferred Amount. The matching contributions totaled approximately $10,000 for
the year ended December 31, 1997. All amounts contributed by the employee and by
the Company under the Non-Qualified Plan are immediately vested. A participant
under the Non-Qualified Plan is entitled to receive a distribution of his or her
account upon retirement, death, disability or termination of employment.
F-22
<PAGE> 123
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(14) RELATED PARTY TRANSACTIONS
The Company has operating lease agreements with Sunrise Properties, LLC and
299 Carpenter Street Associates, LLC, of which certain officers and shareholders
of the Company are partners. The related rental expense charged to operations
was approximately $500,500, $554,000, $471,000, $118,000 and $118,000 in the
years ended December 31, 1995, 1996 and 1997 and the three months ended March
31, 1997 and April 4, 1998, respectively.
The Company has guaranteed a mortgage note payable by Sunrise Properties,
LLC aggregating $200,000. As of December 31, 1997, the outstanding balance of
this note was approximately $130,000.
During 1984, the Company sold 5% of its shares to an officer in exchange
for a $100,000 non-interest-bearing promissory note. The proceeds from the note
are credited to the common stock account as received. During 1996, the remaining
balance under this promissory note was paid to the Company.
In conjunction with the purchase of Foster Grant US, the Company entered
into a lease of the building from which FG Holdings operates with BEC, the
former owners of Foster Grant US. A member of the Marlin Capital, L.P. (see Note
2) is the chief executive officer of BEC and a director of the Company. The
lease was established in December 1996 and extends for one year with automatic
renewal for successive one-year periods unless either party provides notice.
Rent expense was approximately $494,000, $124,000 and $124,000 in the year ended
December 31, 1997 and the three months ended March 31, 1997 and April 4, 1998,
respectively.
On May 31, 1996, the Company, and its shareholders, including the
management shareholders (Management Shareholders), entered into a tag-along,
transfer restriction and voting agreement (the Shareholders Agreement). The
Shareholders Agreement requires that any Management Shareholder wishing to
transfer or sell common stock of the Company to provide right of first refusal
and tag-along rights, on a pro rata basis, as defined, to all other
shareholders' party to the Shareholders Agreement upon receipt of a third party
offer to purchase the applicable restricted shares.
Upon the death of a Management Shareholder, the personal representative of
such Management Shareholder shall sell to the Company such Management
Shareholder's shares based on an appraisal value, as defined, provided that the
Company's obligation to purchase shares is limited to the amount of any proceeds
paid to the Company under insurance policies insuring the life of the Management
Shareholder.
The Shareholders Agreement shall terminate upon the earlier of a qualified
public offering as defined or when no shares of Series A Preferred Stock and
warrants are outstanding, except as a result of the conversion, exchange or
exercise of the Series A Preferred Stock or warrants.
(15) COMMITMENTS AND CONTINGENCIES
(a) Letters of Credit
At April 4, 1998, the Company had approximately $250,000 of
irrevocable letters of credit outstanding for the purchase of inventory.
F-23
<PAGE> 124
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(b) Operating Leases
In addition to the operating leases described in Note 14, the Company
also has operating leases for its other locations. Future minimum rental
payments are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $463
1999........................................................ 128
2000........................................................ 67
2001........................................................ 69
2002........................................................ 72
Thereafter.................................................. 177
----
$976
====
</TABLE>
The Company had an option to purchase its Smithfield, Rhode Island,
facility. This option became exercisable in April 1993, extends throughout
the term of the lease and provides for a purchase price of $2.3 million. On
February 10, 1998, the Company exercised its option to purchase its
Smithfield, Rhode Island facility. The Company is currently expanding this
facility and estimates the total cost of the facility upon completion of
its expansion to be approximately $5.0 million.
(c) Royalties
The Company has several royalty agreements that require payments based
on a percentage of certain net product sales. Minimum royalty obligations
relating to these agreements as of December 31, 1997 totaled approximately
$1.9 million, $1.4 million and $0.3 million for 1998, 1999 and 2000,
respectively.
(d) Supply Agreement
The Company has a supply agreement with a display manufacturer. The
agreement requires that the Company purchase 70% of Foster Grant US's
annual display purchases, as defined, from this supplier through December
2005. If the Company does not purchase 70% of Foster Grant US's displays
from this manufacturer, it is required to make a payment equal to 30% of
the annual shortfall. In addition, the Company and BEC are required to
cumulatively purchase $32.3 million of displays over the term of this
agreement. To the extent that total purchases do not meet this dollar
level, the Company is required to make a payment equal to 30% of $32
million, less the Company's purchases, BEC's purchases and any amounts paid
as a result of the annual shortfall discussed above. As of December 31,
1997, no amounts were due under this agreement as a result of a shortfall.
(16) SIGNIFICANT CUSTOMERS AND SUPPLIERS
During the years ended December 31, 1995, 1996 and 1997, one customer
accounted for approximately 23.8%, 26.8% and 24.7% of net sales, respectively.
This customer's accounts receivable balance represented approximately 17.1% and
23.6% of gross accounts receivable as of December 31, 1996 and 1997,
respectively. During 1995, another customer also accounted for approximately
11.4% of net sales.
The Company currently purchases a significant portion of its inventory from
certain suppliers in Asia. Although there are other suppliers of the inventory
items purchased, and management believes that these suppliers could provide
similar inventory at fairly comparable terms, a change in suppliers could cause
a delay in the Company's distribution process and a possible loss of sales,
which would adversely affect operating results.
F-24
<PAGE> 125
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(17) ACCRUED EXPENSES
Accrued expenses at December 31, 1996 and 1997 and April 4, 1998 consist of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- APRIL 4,
1996 1997 1998
------ ------- --------
<S> <C> <C> <C>
Accrued payroll and payroll related items............... $1,728 $ 2,010 $1,266
Other accrued expenses.................................. 7,257 9,211 8,522
------ ------- ------
$8,985 $11,221 $9,788
====== ======= ======
</TABLE>
(18) SUBSEQUENT EVENT -- NOTES OFFERING
On July 21, 1998, the Company sold the Notes (see Note 1) to certain
purchasers. Interest on the Notes is payable semiannually on each January 15 and
July 15, commencing January 15, 1999. The Notes are redeemable at the option of
the Company, in whole or in part, at any time on or after July 15, 2002, at
105.375% of their principal amount, plus accrued interest and Liquidated Damages
(as defined), if any, with such percentage declining ratably to 100% as of July
15, 2004 and thereafter. At any time on or prior to July 15, 2001 and subject to
certain conditions, up to 35% of the aggregate principal amount of the Notes may
be redeemed, at the option of the Company, with the proceeds of certain equity
offerings of the Company at 110.750% of the principal amount thereof, plus
accrued interest and Liquidated Damages, if any. The Notes are general unsecured
obligations of the Company, rank senior in right of payment to all future
subordinated indebtedness of the Company and rank pari passu in right of payment
to all existing and future unsubordinated indebtedness of the Company including
the bank credit facility described in Note 6. The bank credit facility is
secured by accounts receivable and inventory of the Company and its domestic
subsidiaries. Accordingly, the Company's obligations under the bank credit
facility will effectively rank senior in right of payment to the Notes to the
extent of the assets subject to such security interest. The Notes are
unconditionally guaranteed, on a senior basis, by each of the Company's current
and future Domestic Subsidiaries (as defined) (the "Guarantors"). The net
proceeds received by the Company from the issuance and sale of the Notes,
approximately $72.0 million, was used to repay outstanding indebtedness under
the credit facility with a bank (see Note 6) and the Subordinated Promissory
Notes to shareholders (see Note 8), net of amounts due the Company from certain
of these shareholders (see Note 4). The Indenture under which the Notes were
issued (the "Indenture") imposes certain limitations on the ability of the
Company, and its subsidiaries to, among other things, incur indebtedness, pay
dividends, prepay subordinated indebtedness, repurchase capital stock, make
investments, create liens, engage in transactions with shareholders and
affiliates, sell assets and engage in mergers and consolidations.
F-25
<PAGE> 126
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(19) SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
The following is summarized consolidating financial information for the
Company, segregating the Company and guarantor subsidiaries from nonguarantor
subsidiaries as they relate to the Notes. The guarantor subsidiaries are
domestic, wholly owned subsidiaries of the Company and the guarantees are full,
unconditional and joint and several. Separate financial statements of the
guarantor subsidiaries and the eliminating entries have not been included
because management believes that they are not material to investors.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------------------------------ ------------------------------------------
COMPANY AND COMPANY AND
GUARANTOR NONGUARANTOR GUARANTOR NONGUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATING BALANCE SHEETS
ASSETS
Current assets
Cash and cash equivalents...... $ 941 $ 536 $ 1,477 $ 2,536 $ 243 $ 2,779
Accounts receivable, net....... 13,926 319 14,245 17,534 789 18,323
Inventories.................... 36,036 424 36,460 32,469 326 32,795
Prepaid expenses and other
current assets............... 1,575 -- 1,575 458 276 734
Deferred tax assets............ 1,491 14 1,505 8,992 1 8,993
------- ------ ------- ------- ------ -------
Total current assets..... 53,969 1,293 55,262 61,989 1,635 63,624
Property and equipment, net..... 9,627 9 9,636 10,148 37 10,185
Other assets.................... 18,659 109 18,768 20,953 153 21,106
------- ------ ------- ------- ------ -------
$82,255 $1,411 $83,666 $93,090 $1,825 $94,915
======= ====== ======= ======= ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Borrowings under revolving note
payable...................... $25,873 $ -- $25,873 $27,598 $ -- $27,598
Current maturities of long-term
obligations.................. 2,155 -- 2,155 3,361 -- 3,361
Accounts payable............... 16,845 58 16,903 13,314 803 14,117
Accrued expenses............... 9,470 139 9,609 12,933 393 13,326
Due (from) to affiliate........ (1,590) 1,590 -- (354) 354 --
------- ------ ------- ------- ------ -------
Total current
liabilities............. 52,753 1,787 54,540 56,852 1,550 58,402
Long-term obligations, less
current maturities............. 3,208 -- 3,208 9,653 -- 9,653
Deferred tax liabilities........ 554 -- 554 689 -- 689
Subordinated promissory notes
payable to shareholders........ 5,205 -- 5,205 5,487 -- 5,487
Redeemable preferred stock of a
Subsidiary..................... 751 -- 751 835 -- 835
------- ------ ------- ------- ------ -------
Preferred stock................. 23,587 -- 23,587 26,083 -- 26,083
------- ------ ------- ------- ------ -------
Shareholders' equity
(deficit)...................... (3,803) (376) (4,179) (6,509) 275 (6,234)
------- ------ ------- ------- ------ -------
$82,255 $1,411 $83,666 $93,090 $1,825 $94,915
======= ====== ======= ======= ====== =======
<CAPTION>
APRIL 4, 1998
------------------------------------------
COMPANY AND
GUARANTOR NONGUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATING BALANCE SHEETS
ASSETS
Current assets
Cash and cash equivalents...... $ 170 $ 269 $ 439
Accounts receivable, net....... 30,144 4,784 34,928
Inventories.................... 31,565 3,308 34,873
Prepaid expenses and other
current assets............... 352 257 609
Deferred tax assets............ 8,755 -- 8,755
-------- ------- --------
Total current assets..... 70,986 8,618 79,604
Property and equipment, net..... 16,986 1,191 18,177
Other assets.................... 23,319 659 23,978
-------- ------- --------
$111,291 $10,468 $121,759
======== ======= ========
LIABILITIES AND SHAREHOLDERS' EQ
Current liabilities
Borrowings under revolving note
payable...................... $ 45,041 $ -- $ 45,041
Current maturities of long-term
obligations.................. 5,442 -- 5,442
Accounts payable............... 19,069 3,115 22,184
Accrued expenses............... 11,517 371 11,888
Due (from) to affiliate........ (5,706) 5,706 --
-------- ------- --------
Total current
liabilities............. 75,363 9,192 84,555
Long-term obligations, less
current maturities............. 9,917 -- 9,917
Deferred tax liabilities........ 689 -- 689
Subordinated promissory notes
payable to shareholders........ 5,575 -- 5,575
Redeemable preferred stock of a
Subsidiary..................... 847 -- 847
-------- ------- --------
Preferred stock................. 26,766 -- 26,766
-------- ------- --------
Shareholders' equity
(deficit)...................... (7,866) 1,276 (6,590)
-------- ------- --------
$111,291 $10,468 $121,759
======== ======= ========
</TABLE>
F-26
<PAGE> 127
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------------------------------------------
DECEMBER 31, 1995 DECEMBER 31, 1996
------------------------------------------ ------------------------------------------
COMPANY AND COMPANY AND
GUARANTOR NONGUARANTOR GUARANTOR NONGUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATING STATEMENTS OF OPERATIONS
Net sales................................. $ 86,786 $1,264 $ 88,050 $ 83,875 $2,461 $ 86,336
Cost of goods sold........................ 42,985 705 43,690 46,582 1,289 47,871
-------- ------ -------- -------- ------ --------
Gross profit.............................. 43,801 559 44,360 37,293 1,172 38,465
Selling, general and administrative
expense.................................. 33,866 916 34,782 34,425 1,253 35,678
-------- ------ -------- -------- ------ --------
Income from operations.................... 9,935 (357) 9,578 2,868 (81) 2,787
Interest expense.......................... (1,003) (23) (1,031) (1,375) (94) (1,469)
Other income (expense), net............... (80) -- (80) (337) 6 (331)
-------- ------ -------- -------- ------ --------
Income before income tax (expense) benefit
and dividends and accretion on preferred
stock.................................... 8,852 (385) 8,467 1,156 (169) 987
Income tax (expense) benefit.............. (42) -- (42) 204 -- 204
-------- ------ -------- -------- ------ --------
Net income (loss) before dividends and
accretion on preferred stock............. 8,810 (385) 8,425 1,360 (169) 1,191
Dividends and accretion on preferred
stock.................................... -- -- -- 1,123 -- 1,123
-------- ------ -------- -------- ------ --------
Net income (loss) applicable to common
shareholders............................. $ 8,810 $ (385) $ 8,425 $ 237 $ (169) $ 68
======== ====== ======== ======== ====== ========
CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash flows from operating activities...... $ 1,788 $ 30 $ 1,818 $ (318) $ 804 $ 486
Cash flows from investing activities:
Purchase of property and equipment....... (1,552) (3) (1,555) (1,569) (3) (1,572)
Acquisitions, net of cash acquired....... -- -- -- (9,620) (224) (9,844)
Other investing activities............... (546) (3) (549) (3,718) (69) (3,787)
-------- ------ -------- -------- ------ --------
Net cash used in investing
activities....................... (2,098) (6) (2,104) (14,907) (296) (15,203)
-------- ------ -------- -------- ------ --------
Cash flows from financing activities:
Net borrowings under revolving note
payable................................ 3,275 -- 3,275 3,311 -- 3,311
Proceeds from issuance of subordinated
promissory notes payable to
shareholders........................... -- -- -- 2,000 -- 2,000
Proceeds from issuance of long-term
obligations............................ 319 -- 319 3,445 -- 3,445
Payments on long-term obligations........ (1,535) -- (1,535) (2,292) -- (2,292)
Proceeds from issuance of preferred
stock, net of issuance costs........... -- -- -- 22,464 -- 22,464
Other financing activities............... (1,800) -- 1,800 (12,769) -- (12,769)
-------- ------ -------- -------- ------ --------
Net cash provided by financing
activities....................... 259 259 16,159 16,159
-------- ------ -------- -------- ------ --------
Net (decrease) increase in cash and cash
equivalents.............................. (51) 24 (27) 934 508 1,442
Cash and cash equivalents, beginning of
period................................... 59 3 62 7 28 35
-------- ------ -------- -------- ------ --------
Cash and cash equivalents, end of
period................................... $ 8 $ 27 $ 35 $ 941 $ 536 $ 1,477
======== ====== ======== ======== ====== ========
<CAPTION>
YEARS ENDED
------------------------------------------
DECEMBER 31, 1997
------------------------------------------
COMPANY AND
GUARANTOR NONGUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATING STATEMENTS OF OPERATIONS
Net sales................................. $142,715 $6,696 $149,411
Cost of goods sold........................ 74,861 3,067 77,928
-------- ------ --------
Gross profit.............................. 67,854 3,629 71,483
Selling, general and administrative
expense.................................. 62,523 2,762 65,285
-------- ------ --------
Income from operations.................... 5,331 867 6,198
Interest expense.......................... (4,127) (87) (4,214)
Other income (expense), net............... 151 (120) 31
-------- ------ --------
Income before income tax (expense) benefit
and dividends and accretion on preferred
stock.................................... 1,355 660 2,015
Income tax (expense) benefit.............. (1,171) (6) (1,177)
-------- ------ --------
Net income (loss) before dividends and
accretion on preferred stock............. 184 654 838
Dividends and accretion on preferred
stock.................................... 2,496 -- 2,496
-------- ------ --------
Net income (loss) applicable to common
shareholders............................. $ (2,312) $ 654 $ (1,658)
======== ====== ========
CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash flows from operating activities...... $ 2,518 $1,023 $ 3,541
Cash flows from investing activities:
Purchase of property and equipment....... (7,546) (37) (7,583)
Acquisitions, net of cash acquired....... (599) (1,236) (1,835)
Other investing activities............... (1,557) (43) (1,600)
-------- ------ --------
Net cash used in investing
activities....................... (9,702) (1,316) (11,018)
-------- ------ --------
Cash flows from financing activities:
Net borrowings under revolving note
payable................................ 7,697 -- 7,697
Proceeds from issuance of subordinated
promissory notes payable to
shareholders........................... -- -- --
Proceeds from issuance of long-term
obligations............................ 8,943 -- 8,943
Payments on long-term obligations........ (7,551) -- (7,551)
Proceeds from issuance of preferred
stock, net of issuance costs........... -- -- --
Other financing activities............... (310) -- (310)
-------- ------ --------
Net cash provided by financing
activities....................... 8,779 -- 8,779
-------- ------ --------
Net (decrease) increase in cash and cash
equivalents.............................. 1,595 (293) 1,302
Cash and cash equivalents, beginning of
period................................... 941 536 1,477
-------- ------ --------
Cash and cash equivalents, end of
period................................... $ 2,536 $ 243 $ 2,779
======== ====== ========
</TABLE>
F-27
<PAGE> 128
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MARCH 31, 1997 APRIL 4, 1998
------------------------------------------ ------------------------------------------
COMPANY AND COMPANY AND
GUARANTOR NONGUARANTOR GUARANTOR NONGUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATING STATEMENTS OF OPERATIONS
Net sales............................... $ 33,313 $1,538 $ 34,851 $38,627 $4,076 $42,703
Cost of goods sold...................... 18,239 784 19,023 21,583 1,848 23,431
-------- ------ -------- ------- ------ -------
Gross profit............................ 15,074 754 15,828 17,044 2,228 19,272
Selling general and administrative
expense............................... 14,001 686 14,687 16,045 1,582 17,627
-------- ------ -------- ------- ------ -------
Income from operations.................. 1,073 68 1,141 999 646 1,645
Interest expense........................ (901) (27) (928) (1,110) (68) (1,178)
Other income (expense), net............. (47) (1) (48) 108 (32) 76
-------- ------ -------- ------- ------ -------
Income before income taxes and dividends
and accretion on preferred stock...... 125 40 165 (3) 546 543
Income taxes benefit.................... (96) -- (96) (148) (91) (239)
-------- ------ -------- ------- ------ -------
Net income (loss) before dividends and
accretion on preferred stock.......... $ 29 $ 40 $ 69 $ (151) $ 455 $ 304
-------- ------ -------- ------- ------ -------
Dividends and accretion on preferred
stock................................. (597) -- 597 683 -- 683
-------- ------ -------- ------- ------ -------
Net Income (Loss) applicable to common
shareholders.......................... $ (568) $ 40 $ (528) $ (834) $ 455 $ (379)
======== ====== ======== ======= ====== =======
CONSOLIDATING STATEMENTS OF CASH FLOWS
Cash flows from operating activities.... $(10,037) $ (302) $(10,339) $(4,766) $ (78) $(4,844)
Cash flows from investing activities:
Purchase of property and equipment.... (1,465) (27) (1,492) (8,776) (297) (9,073)
Acquisitions, net of cash received.... -- -- -- (6,042) 555 (5,487)
Other investing activities............ (303) (183) (486) (2,482) (154) (2,636)
-------- ------ -------- ------- ------ -------
Net cash (used in) provided by
investing activities.......... (1,769) (209) (1,978) (17,300) 104 (17,196)
-------- ------ -------- ------- ------ -------
Cash flows from financing activities:
Net borrowings under revolving note
payable............................. 12,237 -- 12,237 17,443 -- 17,443
Proceeds from term note payable....... -- -- -- 2,737 -- 2,737
Payments on long-term obligations..... -- -- -- (480) -- (480)
-------- ------ -------- ------- ------ -------
Net cash provided by financing
activities.................... 12,237 -- 12,237 19,700 -- 19,700
-------- ------ -------- ------- ------ -------
Net increase (decrease) in
cash.......................... 431 (511) (80) (2,366) 26 (2,340)
Cash and cash equivalents, beginning of
period................................ 941 536 1,477 2,536 243 2,779
-------- ------ -------- ------- ------ -------
Cash and cash equivalents, end of
period................................ $ 1,372 $ 25 $ 1,397 $ 170 $ 269 $ 439
======== ====== ======== ======= ====== =======
</TABLE>
F-28
<PAGE> 129
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
AAi.FosterGrant, Inc. and Subsidiaries:
We have audited the accompanying consolidated statements of operations and
shareholder's equity and cash flows of Foster Grant Group L.P. (wholly-owned by
BEC Group, Inc.) for the eleven months ended November 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated statements of operations and
shareholder's equity and cash flows are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements of operations and shareholder's equity and cash
flows. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated statements of operations and shareholder's
equity and cash flows referred to above present fairly, in all material
respects, the consolidated results of operations and cash flows of Foster Grant
Group L.P. for the eleven months ended November 30, 1996 in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
June 19, 1998
F-29
<PAGE> 130
FOSTER GRANT GROUP L.P.
CONSOLIDATED STATEMENT OF OPERATIONS AND SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED
NOVEMBER 30, 1996
-----------------
<S> <C>
Net sales................................................... $ 72,527
--------
Costs and expenses:
Cost of sales.......................................... 51,771
Selling, general and administrative expenses........... 31,278
Non-recurring charges.................................. 7,412
Interest expense....................................... 2,231
Other income, net...................................... (100)
--------
Total costs and expenses.......................... 92,592
--------
Net loss.................................................... $(20,065)
========
Shareholder's Equity -
Beginning balance...................................... $ 34,095
Net loss............................................... (20,065)
--------
Ending balance......................................... $ 14,030
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 131
FOSTER GRANT GROUP L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED
NOVEMBER 30,
1996
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(20,065)
Adjustments to reconcile net loss to net cash provided
by operating
activities-
Non-recurring charges, net of payments............ 7,412
Depreciation and amortization..................... 8,488
Changes in current assets and liabilities:
Accounts receivable.................................... 11,538
Inventories............................................ 19,738
Other assets........................................... (1,039)
Accounts payable and accrued expenses.................. (7,558)
--------
Net cash provided by operating activities......... 18,514
--------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures................................... (3,980)
--------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayment of mortgages................................. (171)
Repayment of advances from parent...................... (13,445)
--------
Net cash used in financing activities............. (13,616)
--------
Net increase in cash.............................. $ 918
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE> 132
FOSTER GRANT GROUP L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS
(a) Business and Basis of Presentation
Foster Grant Group L.P. (the Company) was wholly owned by BEC Group, Inc.,
formerly known as Benson Eyecare Corporation (BEC), a publicly traded company,
until December 1996. The Company was organized as a partnership and its
operations were comprised of three previously separate corporations acquired by
BEC in 1993 and 1994. The accompanying financial statements include the accounts
of these companies and their wholly-owned subsidiaries. All significant
intercompany transactions, profits and accounts have been eliminated in
consolidation. Except for interest expense, no intercorporate charges have been
made since the Company was operated and managed as an autonomous entity.
(b) Subsequent Event
In December 1996, the common stock of the Company was sold to Foster Grant
Holdings, Inc. (FG Holdings), a wholly owned subsidiary of AAi.FosterGrant, Inc.
(AAi). AAi paid $10.0 million in cash and assumed certain liabilities in the
amount of approximately $34.0 million. The purchase price was financed by $5.0
million of borrowings through AAi's credit facility and a $5.0 million equity
investment in AAi by Marlin Group, a related party to BEC. In addition to the
$10.0 million in cash, FG Holdings also issued 100 shares of Series A redeemable
nonvoting preferred stock initially valued at approximately $0.8 million. The
redemption value of this preferred stock is subject to upward adjustment based
on annual sales of the Company, as defined, for the year ending January 1, 2000
or upon the completion of certain specific capital transactions. The maximum
redemption amount was reduced from $6.0 million to $4.0 million in June 1998.
Immediately prior to the sale of the common stock to FG Holdings, the
building in which the main operations of the Company were located and the
related mortgage payable were transferred to BEC. The Company subsequently
leased the building from BEC (Note 4).
The Company, under its new ownership, continues to be a distributor of
value priced sunglasses and reading glasses to mass merchandisers, variety
stores, chain drug stores and supermarkets in North America.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition
Revenue is recognized at time of shipment with estimates provided for
returns and allowances based upon historical experience. Certain sales are
subject to warranty against defects in material and workmanship for varying
periods. The Company provides for such potential future costs at the time sales
are recorded.
(b) Cost of Goods Sold
Cost of goods sold includes the cost of material, direct labor and overhead
relating to products sold.
(c) Major Customers
During the eleven months ended November 30, 1996, two customers accounted
for approximately 12% and 11% of net sales, respectively.
(d) Depreciation and Amortization
Depreciation of property and equipment is computed on a straight line basis
for financial reporting purposes over the estimated useful lives of the assets.
Useful lives range from three to five years for office equipment to 30 years for
buildings. Displays and fixtures are depreciated over their expected useful
lives, generally one to three years. Depreciation expense recorded for the
eleven months ended November 30, 1996 was $7,599,000.
F-32
<PAGE> 133
FOSTER GRANT GROUP L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Goodwill and intangible assets are amortized on a straight line basis over
estimated useful lives; which approximate 30 years for goodwill and 20 years for
trademarks, and from three to five years for other identifiable intangibles. At
each balance sheet date, the Company evaluates the realizability of goodwill and
other intangible assets based upon expectations of undiscounted cash flows.
Should this review indicate that goodwill or other intangible assets will not be
recoverable, the Company's carrying value of the goodwill or intangible assets
will be reduced by the estimated shortfall of discounted cash flows. Based upon
its most recent analysis the Company believes that no material impairment of
goodwill or intangible assets exists. Amortization of goodwill and intangible
assets recorded for the eleven months ended November 30 1996 was approximately
$889,000.
(e) Income Taxes
Deferred income taxes are provided on the difference in basis of assets and
liabilities between financial reporting and tax returns using enacted tax rates.
A valuation allowance is recorded when realization of deferred tax assets is not
assured.
During the eleven months ended November 30, 1996, the Company provided a
full valuation allowance on the deferred tax assets, consisting of net operating
losses and nondeductible reserves, generated during the period.
(f) New Account Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, establishes financial accounting and reporting
requirements for stock-based employee compensation plans. The Company adopted
the reporting requirements of SFAS No. 123 in 1996 noting that the
implementation of the new standard did not have a significant impact on its
financial position or results of operations.
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, establishes financial accounting standards
for the impairment of long-lived assets. The Company adopted SFAS No. 121 in
1996 (Note 3).
(g) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(3) NON-RECURRING CHARGES
During the eleven months ended November 30, 1996, the Company wrote-off (i)
approximately $4.2 million of display fixtures and (ii) approximately $3.2
million of barter credits for which it was determined during 1996 that the value
of the assets would not be realized.
F-33
<PAGE> 134
FOSTER GRANT GROUP L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(4) LEASE COMMITMENTS
The Company leases administrative office and warehouse facilities under
operating leases. Future minimum lease payments are as follows (in thousand):
<TABLE>
<S> <C>
1997........................................................ $468
1998........................................................ 342
1999........................................................ 74
2000........................................................ 3
----
$887
====
</TABLE>
Rent expense, including common area and other charges, during the eleven
months ended November 30, 1996 was approximately $711,000.
(5) RELATED PARTY TRANSACTIONS
During the eleven months ended November 30, 1996, the Company was party to
a revolving intercompany credit arrangement with BEC whereby interest was
charged at a rate of 8.0% on outstanding borrowings. Interest paid in connection
with this arrangement was approximately $2.2 million which is included in
interest expense in the accompanying statement of operations and shareholder's
equity. All income taxes were paid by BEC during 1996.
(6) STOCK OPTIONS
The employees of the Company participate in a stock option plan
administered by BEC.
(7) COMMITMENTS AND CONTINGENCIES
Supply Agreement
The Company has a supply agreement with a display manufacturer. The
agreement requires that the Company purchase 70.0% of its annual display
purchases, as defined, from this supplier through December 2005. If the Company
does not purchase 70.0% of its displays from this manufacturer, it is required
to make a payment equal to 30.0% of the annual shortfall. In addition, the
Company and BEC are required to cumulatively purchase $32.3 million of displays
over the term of this agreement. To the extent that total purchases do not meet
this dollar level, the Company is required to make a payment equal to 30.0% of
$32.3 million less the Company's purchases, BEC's purchases and any amounts paid
as a result of the annual shortfall discussed above. During the eleven months
ended November 30, 1996, the Company purchased $2.4 million of such displays.
Litigation
The Company is subject to various litigation incidental to the business.
Irrespective of any indemnification that may be received, the Company does not
believe that exposure on any matter will result in a significant impact on the
Company.
F-34
<PAGE> 135
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Foster Grant Group L.P. (wholly-owned by BEC Group, Inc.)
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of Foster Grant
Group L.P. and its subsidiaries (the "Company") at December 31, 1995, and the
results of their operations and their cash flows for the year in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
As discussed in Note 1, in December 1996, the Company's parent, BEC Group,
Inc. sold the common stock of the Company to Accessories Associates, Inc.
We have not audited the consolidated financial statements of Foster Grant
Group L.P. and its subsidiaries for any period subsequent to December 31, 1995.
PRICE WATERHOUSE LLP
Dallas, Texas
December 30, 1997
F-35
<PAGE> 136
FOSTER GRANT GROUP L.P.
(WHOLLY-OWNED BY BEC GROUP, INC.)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 499
Trade receivables, less allowance for doubtful accounts of
$1,281................................................. 16,585
Inventories, net.......................................... 37,401
Deferred taxes............................................ 10,291
Other current assets...................................... 2,935
--------
Total current assets.............................. 67,711
Property and equipment, net................................. 8,721
Goodwill, net............................................... 5,743
Intangible assets, net...................................... 8,660
Other assets................................................ 11,985
--------
Total assets...................................... $102,820
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term debt........................................... $ 132
Accounts payable.......................................... 18,431
Accrued compensation...................................... 714
Due to parent............................................. 33,745
Deferred taxes............................................ 6,770
Other accrued expenses.................................... 5,114
--------
Total current liabilities......................... 64,906
Mortgage payable............................................ 3,819
--------
Total liabilities................................. 68,725
--------
Commitments and contingencies
Shareholder's equity:
Investment by BEC......................................... 34,095
--------
Total shareholder's equity........................ 34,095
--------
Total liabilities and shareholder's equity........ $102,820
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE> 137
FOSTER GRANT GROUP L.P.
(WHOLLY-OWNED BY BEC GROUP, INC.)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net sales................................................... $ 96,399
Costs and expenses:
Cost of sales............................................. 54,638
Selling, general and administrative....................... 42,178
Special charges........................................... 11,560
Interest expense.......................................... 2,977
Other income, net......................................... (372)
--------
Total costs and expenses.......................... 110,981
--------
Loss before income taxes.................................... (14,582)
Income tax benefit.......................................... (4,869)
--------
Net loss.................................................... $ (9,713)
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE> 138
FOSTER GRANT GROUP L.P.
(WHOLLY-OWNED BY BEC GROUP, INC.)
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Balance as of December 31, 1994............................. $ 43,036
Common stock issued pursuant to contingency agreement in
connection with acquisition of Foster Grant by BEC..... 833
Net loss.................................................. (9,713)
Cumulative translation adjustment......................... (61)
--------
Balance as of December 31, 1995............................. $ 34,095
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE> 139
FOSTER GRANT GROUP L.P.
(WHOLLY-OWNED BY BEC GROUP, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $ (9,713)
Adjustments to reconcile net loss to net cash used by
operating activities:
Special charges, net of payments....................... 6,044
Depreciation and amortization.......................... 7,971
Bad debt expense....................................... 11
Loss on sale of property and equipment................. 46
Deferred tax benefit................................... (4,869)
Change in current assets and liabilities:
Accounts receivable....................................... 255
Inventories............................................... (16,470)
Other assets.............................................. (2,853)
Accounts payable.......................................... 2,265
Accrued expenses and other................................ (1,065)
--------
Net cash used by operating activities.................. (18,378)
--------
Cash flows from investing activities:
Capital expenditures...................................... (16,238)
Proceeds from sale of fixed assets........................ 7
--------
Net cash used by investing activities.................. (16,231)
--------
Cash flows from financing activities:
Proceeds from mortgages................................... 3,945
Advances from parent...................................... 31,020
--------
Net cash provided by financing activities.............. 34,965
--------
Effect on cash of changes in foreign exchange rates......... 26
--------
Net increase in cash........................................ 382
Cash and cash equivalents at beginning of year.............. 117
--------
Cash and cash equivalents at end of year.................... $ 499
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<PAGE> 140
FOSTER GRANT GROUP L.P.
(WHOLLY-OWNED BY BEC GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS)
1. SUBSEQUENT EVENTS
In December 1996, the common stock of the Company was sold to Foster Grant
Holdings, Inc. ("FG Holdings"), a wholly owned subsidiary of AAi.FosterGrant,
Inc. ("AAi"). AAi paid $10 million in cash and assumed certain liabilities in
the amount of approximately $34.0 million. The purchase price was financed by
$5.0 million of borrowings through AAi's credit facility and a $5.0 million
equity investment in AAi by Marlin Group, a related party to BEC Group, Inc.
("BEC"). In addition to the $10.0 million in cash, FG Holdings also issued 100
shares of Series A redeemable nonvoting preferred stock initially valued at
approximately $.8 million. The redemption value of this preferred stock is
subject to upward adjustment based on annual sales of the Company, as defined,
for the year ending January 1, 2000 or upon the completion of certain specific
capital transactions. The maximum redemption amount was reduced from $6.0
million to $4.0 million in June 1998.
Immediately prior to the sale of the common stock to AAi, the building in
which the main operations of the Company were located (Note 5) and the related
mortgage payable (Note 7) were transferred to BEC. The Company subsequently
leased the building from BEC.
2. BUSINESS AND BASIS OF PRESENTATION
Foster Grant Group L.P. (the "Company") is wholly owned by BEC (formerly
known as Benson Eyecare Corporation), a publicly traded company. The operations
of the Foster Grant Group L.P. are comprised primarily of three previously
separate companies (Opti-Ray Inc., The Bonneau Company, and International
Eyewear & Accessories) acquired by BEC in 1993 and 1994. The accompanying
financial statements include the accounts of these companies and their
wholly-owned subsidiaries. Except for interest expense, no intercorporate
charges have been made since the Company was operated and managed as an
autonomous entity.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions,
profits and accounts have been eliminated in consolidation.
Cash Equivalents
Cash equivalents include all temporary cash investments with original
maturities of three months or less. The carrying value is equal to market value.
Revenue Recognition
Revenue is recognized at time of shipment with estimates provided for
returns based upon historical experience.
Concentration of Credit Risk and Major Customers
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts receivable,
primarily to mass merchant customers in the retail industry. Trade receivables
arising from sales to customers are not collateralized and as a result
management continually monitors the financial condition of these customers to
reduce the risk of loss. During the year ended December 31, 1995 two customers
accounted for approximately 12% and 14% of net sales, respectively.
F-40
<PAGE> 141
FOSTER GRANT GROUP L.P.
(WHOLLY-OWNED BY BEC GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS)
(CONTINUED)
Foreign Currency Translation
All balance sheet accounts of foreign operations are translated at the
current exchange rate as of the end of the period. Results of operations are
translated at average currency exchange rates. The resulting translation
adjustment is recorded as a separate component of shareholders' equity.
Inventories
Inventories, which consist primarily of finished goods held for resale, are
stated at the lower of cost, determined on a first-in first-out basis, or
market. Costs include material, direct labor, and overhead.
Warranties
Certain sales are subject to warranty against defects in material and
workmanship for varying periods. The Company provides for such potential future
costs at the time the sales are recorded.
Property and Equipment
Property and equipment are stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation is
computed on a straight line basis for financial reporting purposes, and on an
accelerated basis for tax purposes, over the estimated useful lives of the
assets. Useful lives range from 3 to 5 years for office equipment to 30 years
for buildings. Asset cost and accumulated depreciation amounts are removed for
dispositions and retirements, with resulting gains and losses reflected in
earnings.
Displays
The Company capitalizes the cost of display fixtures shipped to customers.
The displays are depreciated over the expected useful lives of the displays,
generally one to three years. Depreciation expense recorded for the year ended
December 31, 1995 was $6,418. Displays costs of $9,912, net of depreciation, are
included in "Other Assets".
Goodwill and Intangible Assets
Goodwill represents the excess cost over the fair value of net assets
acquired in business combinations accounted for under the purchase method.
Intangible assets consist principally of trademarks and other identifiable
intangible assets.
Goodwill and intangible assets are amortized on a straight line basis over
estimated useful lives of 30 years for goodwill, 20 years for trademarks, and
from 3 to 5 years for other identifiable intangibles. At each balance sheet
date, the Company evaluates the realizability of goodwill and intangible assets
based upon expectations of undiscounted cash flows. Should this review indicate
that goodwill or intangible assets will not be recoverable, the Company's
carrying value of the goodwill or intangible assets will be reduced by the
estimated shortfall of discounted cash flows. Based upon its most recent
analysis, the Company believes that no material impairment of goodwill or
intangible assets exists. Amortization of goodwill recorded for the year ended
December 31, 1995 was $183.
F-41
<PAGE> 142
FOSTER GRANT GROUP L.P.
(WHOLLY-OWNED BY BEC GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS)
(CONTINUED)
Income Taxes
Deferred income taxes are provided on the difference in basis of assets and
liabilities between financial reporting and tax returns using enacted tax rates.
A valuation allowance is recorded when realization of deferred tax assets is not
assured.
New Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", establishes financial accounting and reporting
requirements for stock-based employee compensation plans. The Company adopted
the reporting requirements of SFAS 123 in 1996. There was no impact on its
financial position or results of operations as a result of this adoption.
SFAS No. 121, "Accounting for the Impairment of Long Lived Assets and for
Long Lived Assets to be Disposed of", establishes financial accounting standards
for the impairment of long lived assets. The Company adopted SFAS No. 121 in
1996. There was no significant effect on the financial statements of the Company
as a result of this adoption.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
4. SPECIAL CHARGES
Starting in the third quarter and culminating in the fourth quarter of
1995, the Company took actions to reorganize its distribution operations and
exit the display production business. Special charges of $11,560 for the year
included: (i) a $6,700 provision for realigning the in-house display function in
connection with the sale of the display manufacturing business to HMG Worldwide;
(ii) a $4,200 charge for reorganization and integration of the distribution
operations, including costs to terminate certain employees and close the
California distribution facility, resolution of distribution integration issues,
streamlining new Dallas warehousing operations, and reorganization of the SKU
numbering system; and (iii) $660 of deferred financing costs in connection with
a change in the Company's banking syndicate in September 1995.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995:
<TABLE>
<S> <C>
Land........................................................ $ 1,005
Buildings (See Note 1)...................................... 5,138
Machinery and equipment..................................... 3,208
Furniture and fixtures...................................... 496
-------
9,847
Less accumulated depreciation............................... (1,126)
-------
Net property and equipment............................. $ 8,721
=======
</TABLE>
F-42
<PAGE> 143
FOSTER GRANT GROUP L.P.
(WHOLLY-OWNED BY BEC GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS)
(CONTINUED)
Depreciation expense for the year ended December 31, 1995 was $606.
6. INTANGIBLE ASSETS
Intangible assets and accumulated amortization consist of the following at
December 31, 1995:
<TABLE>
<S> <C>
Trademarks.................................................. $ 9,358
Other identifiable intangible assets........................ 1,189
Less accumulated amortization............................... (1,887)
-------
Net intangible assets.................................. $ 8,660
=======
</TABLE>
Amortization expense for the year ended December 31, 1995 was $764.
7. MORTGAGE PAYABLE
The Company's mortgage payable is a $3,951 mortgage bearing interest at
LIBOR plus 1.85 basis points, secured by land and buildings in Dallas, Texas,
and guaranteed by BEC, with monthly principal and interest payments of $41 due
through April 2001. See Note 1.
8. INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires an asset and liability approach to
accounting for income taxes.
The income tax benefit consists of the following for the year ended
December 31, 1995:
<TABLE>
<S> <C>
Current:
Federal................................................... $ --
State and local........................................... --
Deferred.................................................... (4,869)
-------
$(4,869)
=======
</TABLE>
The Company's effective tax rate differs from the Federal statutory rate as
follows for the year ended December 31, 1995:
<TABLE>
<S> <C>
Expected tax benefit at statutory rate...................... (35.0)%
State income taxes.......................................... (1.0)%
Goodwill amortization....................................... 1.3%
Other, net.................................................. .7%
------
Income tax benefit.......................................... (34.0)%
======
</TABLE>
F-43
<PAGE> 144
FOSTER GRANT GROUP L.P.
(WHOLLY-OWNED BY BEC GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS)
(CONTINUED)
Significant components of deferred income taxes are as follows at December
31, 1995:
<TABLE>
<S> <C>
Loss carryforward........................................... $ 6,773
Accounts receivable......................................... 1,454
Inventories................................................. 1,138
Other, net.................................................. 926
-------
Deferred tax asset........................................ 10,291
-------
Displays.................................................... 3,843
Fixed assets................................................ 34
Intangible assets........................................... 2,893
-------
Deferred tax liability.................................... 6,770
-------
Net deferred tax asset.................................... $ 3,521
=======
</TABLE>
No valuation allowance has been established against deferred tax assets as
realization is considered to be more likely than not. Net operating loss
carryforwards amount to approximately $20 million at December 31, 1995. The
operating loss carryforwards will expire beginning in the year 2008.
9. LEASE COMMITMENTS
The Company leases administrative office and warehouse facilities under
operating leases. Future minimum lease payments are as follows:
<TABLE>
<S> <C>
1996................................................ $ 832
1997................................................ 468
1998................................................ 342
1999................................................ 74
2000................................................ 3
------
$1,719
======
</TABLE>
Rent expense including common area and other charges during 1995 was $739.
10. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1995, the Company was party to a
revolving intercompany credit arrangement with BEC whereby interest was charged
at a rate of 8%. Interest expense in connection with this arrangement was
approximately $3.0 million for the year ended December 31, 1995. Balances
related to this agreement have been disclosed under the captions "Due to Parent"
and "Interest Expense." All interest and income taxes were paid by BEC during
1995.
11. STOCK OPTIONS
The employees of the Company participate in a stock option plan
administered by BEC.
F-44
<PAGE> 145
FOSTER GRANT GROUP L.P.
(WHOLLY-OWNED BY BEC GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS)
(CONTINUED)
12. COMMITMENTS AND CONTINGENCIES
Supply Agreement
The Company has a supply agreement with HMG Worldwide. The agreement
requires that the Company purchase 70% of its annual display purchases, as
defined, from this supplier through December 2005. If the Company does not
purchase 70% of the Company's displays from this manufacturer, it is required to
make a payment equal to 30% of the annual shortfall. In addition, the Company
and BEC are required to cumulatively purchase $32.3 million of displays over the
term of this agreement. To the extent that total purchases do not meet this
dollar level, the Company is required to make a payment equal to 30% of $32.3
million, less the Company's purchases, BEC's purchases and any amounts paid as a
result of the annual shortfall discussed above. As of December 31, 1995, no
amounts were due under this agreement as a result of a shortfall. During the
period from September 30, 1995 through December 31, 1995, the Company purchased
$1.2 million of such displays. During the years ended December 31, 1996 and
1997, the Company purchased $2.4 million and $3.5 million of such displays,
respectively.
Litigation
The Company is subject to various litigation incidental to the business.
Irrespective of any indemnification that may be received, the Company does not
believe that exposure on any matter will result in a significant impact on the
Company.
F-45
<PAGE> 146
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL IN CONNECTION WITH THE
OFFERING COVERED BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL
CONSTITUTES AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NEW
NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE
HAS NOT BEEN A CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 14
The Company........................... 21
Use of Proceeds....................... 22
The Exchange Offer.................... 22
Capitalization........................ 30
Selected Pro Forma Financial
Information......................... 31
Selected Historical Financial
Information......................... 36
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 37
Business.............................. 45
Management............................ 54
Security Ownership of Management and
Certain Beneficial Owners........... 60
Certain Transactions.................. 61
Description of Senior Credit
Facility............................ 64
Description of Notes.................. 65
Description of Capital Stock.......... 89
Certain United States Federal Tax
Considerations...................... 92
Plan of Distribution.................. 92
Legal Matters......................... 92
Experts............................... 93
Available Information................. 93
Index to Consolidated Financial
Statements.......................... 94
</TABLE>
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
[AAI.FOSTER GRANT LOGO]
OFFER TO EXCHANGE
$75,000,000 OF ITS
10 3/4% SENIOR NOTES
DUE 2006,
WHICH HAVE BEEN
REGISTERED UNDER THE
SECURITIES ACT, FOR
$75,000,000 OF ITS
OUTSTANDING 10 3/4%
SENIOR NOTES DUE 2006
----------------------------------
PROSPECTUS
----------------------------------
, 1998
------------------------------------------------------
------------------------------------------------------
<PAGE> 147
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article SIXTH of the Company's Restated Articles of Incorporation provides
that a director shall not be liable to the Registrant or its shareholders for
breach of fiduciary duty as a director, other than liability for (a) breach of
the director's duty of loyalty to the Company or its shareholders, (b) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) unlawful payment of a dividend or unlawful stock purchase
or redemption, or (d) any transaction from which the director derived an
improper personal benefit.
Section 4.1 of the Rhode Island Business Corporation Act authorizes
indemnification of directors and officers of Rhode Island corporations. Article
XI of the Company's by-laws (i) authorizes the indemnification of directors and
officers (the "Indemnified Person") under specified circumstances to the fullest
extent authorized, (ii) provides for the advancement of expenses to the
Indemnified Persons for defending any proceedings related to the specified
circumstances and (iii) gives the Indemnified Persons the right to bring suit
against the Company to enforce the foregoing rights to indemnification and
advancement of expenses. The Company currently maintains one or more policies of
insurance under which the directors and officers of the Company are insured,
within the limits and subject to the limitations of the policies, against
certain expenses in connection with the defense of actions, suits, or
proceedings, and certain liabilities which might be imposed as a result of such
action, suits or proceedings, to which they are parties by reason of being or
having been such directors or officers.
The Purchase Agreement filed as Exhibit 4.2 to this Registration Statement
provides for indemnification of the Company, the Guarantors and their respective
directors and officers and certain other persons against certain liabilities,
including liabilities under the Exchange Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <C>
(a) Exhibits.
The Index to Exhibits to this Registration Statement is
incorporated herein by reference.
(b) Financial Statement Schedules.
Schedule II - Valuation and Qualifying Accounts
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake as follows:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
II-1
<PAGE> 148
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) shall not
apply if the registration statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrants' annual reports pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrants of expenses incurred or paid by a director, officer or
controlling person of the registrants in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrants will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Smithfield, State of Rhode Island, on August 10, 1998.
AAI.FOSTERGRANT, INC.
By: /s/ GERALD F. CERCE
----------------------------------
GERALD F. CERCE
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on August 10, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ GERALD F. CERCE President, Chief Executive Officer and
- ----------------------------------------------------- Chairman of the Board
GERALD F. CERCE (Principal Executive Officer)
/s/ DUANE M. DESISTO Chief Financial Officer
- ----------------------------------------------------- (Principal Financial Officer)
DUANE M. DESISTO
/s/ STEPHEN J. KOROTSKY Controller (Principal Accounting Officer)
- -----------------------------------------------------
STEPHEN J. KOROTSKY
* Director
- -----------------------------------------------------
STEPHEN J. CARLOTTI
/s/ MICHAEL F. CRONIN Director
- -----------------------------------------------------
MICHAEL F. CRONIN
/s/ JOHN H. FLYNN, JR. Director
- -----------------------------------------------------
JOHN H. FLYNN, JR.
/s/ MICHAEL E. FRANKLIN Director
- -----------------------------------------------------
MICHAEL E. FRANKLIN
/s/ GEORGE GRABOYS Director
- -----------------------------------------------------
GEORGE GRABOYS
BY: /s/ DUANE M. DESISTO
------------------------------------------------
DUANE M. DESISTO
(Attorney-in-fact for persons indicated by as asterisk)
</TABLE>
II-3
<PAGE> 150
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Smithfield, State of Rhode Island, on August 10, 1998.
THE BONNEAU COMPANY
By: /s/ GERALD F. CERCE
----------------------------------
GERALD F. CERCE
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on August 10, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ GERALD F. CERCE President and Director
- ----------------------------------------------------- (Principal Executive Officer)
GERALD F. CERCE
/s/ DUANE M. DESISTO Chief Financial Officer and Director
- ----------------------------------------------------- (Principal Financial Officer)
DUANE M. DESISTO
/s/ STEPHEN J. KOROTSKY Controller
- ----------------------------------------------------- (Principal Accounting Officer)
STEPHEN J. KOROTSKY
/s/ JOHN H. FLYNN, JR. Director
- -----------------------------------------------------
JOHN H. FLYNN, JR.
</TABLE>
II-4
<PAGE> 151
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Smithfield, State of Rhode Island, on August 10, 1998.
BONNEAU GENERAL INC.
By: /s/ GERALD F. CERCE
----------------------------------
GERALD F. CERCE
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on August 10, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ GERALD F. CERCE President and Director
- ----------------------------------------------------- (Principal Executive Officer)
GERALD F. CERCE
/s/ DUANE M. DESISTO Chief Financial Officer and Director
- ----------------------------------------------------- (Principal Financial Officer)
DUANE M. DESISTO
/s/ STEPHEN J. KOROTSKY Controller
- ----------------------------------------------------- (Principal Accounting Officer)
STEPHEN J. KOROTSKY
/s/ JOHN H. FLYNN, JR. Director
- -----------------------------------------------------
JOHN H. FLYNN, JR.
</TABLE>
II-5
<PAGE> 152
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Smithfield, State of Rhode Island, on August 10, 1998.
BONNEAU HOLDINGS, INC.
By: /s/ GERALD F. CERCE
----------------------------------
GERALD F. CERCE
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on August 10, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ GERALD F. CERCE President and Director
- ----------------------------------------------------- (Principal Executive Officer)
GERALD F. CERCE
/s/ DUANE M. DESISTO Chief Financial Officer and Director
- ----------------------------------------------------- (Principal Financial Officer)
DUANE M. DESISTO
/s/ STEPHEN J. KOROTSKY Controller
- ----------------------------------------------------- (Principal Accounting Officer)
STEPHEN J. KOROTSKY
/s/ JOHN H. FLYNN, JR. Director
- -----------------------------------------------------
JOHN H. FLYNN, JR.
</TABLE>
II-6
<PAGE> 153
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Smithfield, State of Rhode Island, on August 10, 1998.
F.G.G. INVESTMENTS, INC.
By: /s/ GERALD F. CERCE
----------------------------------
GERALD F. CERCE
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on August 10, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ GERALD F. CERCE President and Director
- ----------------------------------------------------- (Principal Executive Officer)
GERALD F. CERCE
/s/ DUANE M. DESISTO Chief Financial Officer
- ----------------------------------------------------- (Principal Financial Officer)
DUANE M. DESISTO
/s/ STEPHEN J. KOROTSKY Controller
- ----------------------------------------------------- (Principal Accounting Officer)
STEPHEN J. KOROTSKY
/s/ JOHN H. FLYNN, JR. Director
- -----------------------------------------------------
JOHN H. FLYNN, JR.
/s/ THOMAS M. STRAUSS Director
- -----------------------------------------------------
THOMAS M. STRAUSS
</TABLE>
II-7
<PAGE> 154
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Smithfield, State of Rhode Island, on August 10, 1998.
FANTASMA, LLC
By: /s/ ROGER D. DREYER
----------------------------------
ROGER D. DREYER
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on August 10, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ ROGER D. DREYER President
- ----------------------------------------------------- (Principal Executive Officer)
ROGER D. DREYER
/s/ DUANE M. DESISTO Treasurer
- ----------------------------------------------------- (Principal Financial Officer)
DUANE M. DESISTO
/s/ STEPHEN J. KOROTSKY Controller
- ----------------------------------------------------- (Principal Accounting Officer)
STEPHEN J. KOROTSKY
AAi.FosterGrant, Inc.
BY: /s/ GERALD F. CERCE Member
- ----------------------------------------------------
GERALD F. CERCE
PRESIDENT
Houdini Capital Ltd.
By: /s/ ROGER D. DREYER Member
- ----------------------------------------------------
ROGER D. DREYER
PRESIDENT
</TABLE>
II-8
<PAGE> 155
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Smithfield, State of Rhode Island, on August 10, 1998.
FOSTER GRANT GROUP, L.P.
By: /s/ GERALD F. CERCE
----------------------------------
GERALD F. CERCE
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on August 10, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ GERALD F. CERCE President and Chief Executive Officer
- ----------------------------------------------------- (Principal Executive Officer)
GERALD F. CERCE
/s/ DUANE M. DESISTO Chief Financial Officer
- ----------------------------------------------------- (Principal Financial Officer)
DUANE M. DESISTO
/s/ STEPHEN J. KOROTSKY Controller
- ----------------------------------------------------- (Principal Accounting Officer)
STEPHEN J. KOROTSKY
Bonneau General, Inc., General Partner
its General Partner
By: /s/ GERALD F. CERCE
- ----------------------------------------------------
GERALD F. CERCE
PRESIDENT
</TABLE>
II-9
<PAGE> 156
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Smithfield, State of Rhode Island, on August 10, 1998.
FOSTER GRANT HOLDINGS, INC.
By: /s/ GERALD F. CERCE
----------------------------------
GERALD F. CERCE
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on August 10, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ GERALD F. CERCE President and Director
- ----------------------------------------------------- (Principal Executive Officer)
GERALD F. CERCE
/s/ DUANE M. DESISTO Treasurer and Director
- ----------------------------------------------------- (Principal Financial Officer)
DUANE M. DESISTO
/s/ STEPHEN J. KOROTSKY Controller
- ----------------------------------------------------- (Principal Accounting Officer)
STEPHEN J. KOROTSKY
/s/ JOHN H. FLYNN, JR. Director
- -----------------------------------------------------
JOHN H. FLYNN, JR.
</TABLE>
II-10
<PAGE> 157
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Smithfield, State of Rhode Island, on August 10, 1998.
OPTI-RAY, INC.
By: /s/ GERALD F. CERCE
----------------------------------
GERALD F. CERCE
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on August 10, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ GERALD F. CERCE President and Director
- ----------------------------------------------------- (Principal Executive Officer)
GERALD F. CERCE
/s/ DUANE M. DESISTO Chief Financial Officer and Director
- ----------------------------------------------------- (Principal Financial Officer)
DUANE M. DESISTO
/s/ STEPHEN J. KOROTSKY Controller
- ----------------------------------------------------- (Principal Accounting Officer)
STEPHEN J. KOROTSKY
/s/ JOHN H. FLYNN, JR. Director
- -----------------------------------------------------
JOHN H. FLYNN, JR.
</TABLE>
II-11
<PAGE> 158
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Smithfield, State of Rhode Island, on August 10, 1998.
O-RAY HOLDINGS, INC.
By: /s/ GERALD F. CERCE
----------------------------------
GERALD F. CERCE
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on August 10, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ GERALD F. CERCE President and Director
- ----------------------------------------------------- (Principal Executive Officer)
GERALD F. CERCE
/s/ DUANE M. DESISTO Chief Financial Officer and Director
- ----------------------------------------------------- (Principal Financial Officer)
DUANE M. DESISTO
/s/ STEPHEN J. KOROTSKY Controller
- ----------------------------------------------------- (Principal Accounting Officer)
STEPHEN J. KOROTSKY
/s/ JOHN H. FLYNN, JR. Director
- -----------------------------------------------------
JOHN H. FLYNN, JR.
</TABLE>
II-12
<PAGE> 159
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Shareholders of
AAi.FosterGrant, Inc. and Subsidiaries:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of AAi.FosterGrant, Inc. and Subsidiaries
included in this registration statement and have issued our report thereon dated
February 2, 1998 (except with respect to matters discussed in Notes 6, 7 and 18
as to which the date is July 21, 1998). Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
Item 21(b) is the responsibility of the company's management and is presented
for purposes of complying with the Securities and Exchange Commission's 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
Boston, Massachusetts
February 2, 1998
<PAGE> 160
SCHEDULE II
AAi.FOSTERGRANT, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND FROM END OF
OF PERIOD EXPENSES RESERVES(1) OTHER(2) PERIOD
----------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Accounts Receivable Reserves:
December 31, 1995.................... $ 900 $12,538 $12,710 $ -- $ 728
December 31, 1996.................... 728 16,265 13,721 9,810 13,082
December 31, 1997.................... 13,082 27,477 31,130 909 10,338
</TABLE>
- ---------------
(1) Amounts deemed uncollectible.
(2) Reserves related to Accounts Receivable acquired in acquisitions.
S-1
<PAGE> 161
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1.1 Restated Articles of Incorporation of AAi.FOSTERGRANT, Inc.
3.1.2 Amended and Restated By-laws of AAi.FOSTERGRANT, Inc.
3.2.1 Restated Articles of Incorporation of The Bonneau Company
3.2.2 By-laws of The Bonneau Company
3.3.1 Certificate of Incorporation of Bonneau General, Inc.
3.3.2 By-laws of Bonneau General, Inc.
3.4.1 Certificate of Incorporation of Bonneau Holdings, Inc.
3.4.2 By-laws of Bonneau Holdings, Inc.
3.5.1 Restated Certificate of Incorporation of F.G.G. Investments,
Inc.
3.5.2 By-laws of F.G.G. Investments, Inc.
3.6.1 Certificate of Formation of Fantasma, LLC
*3.6.2 Amended and Restated Operating Agreement of Fantasma, LLC
3.7.1 Certificate of Limited Partnership of Foster Grant Group,
L.P.
3.7.2 Amended and Restated Agreement of Limited Partnership of
Foster Grant Group, L.P.
3.8.1 Restated Certificate of Incorporation of Foster Grant
Holdings, Inc.
3.8.2 Amended and Restated By-laws of Foster Grant Holdings, Inc.
3.9.1 Restated Certificate of Incorporation of Opti-Ray, Inc.
3.9.2 By-laws of Opti-Ray, Inc.
3.10.1 Certificate of Incorporation of O-Ray Holdings, Inc.
3.10.2 By-laws of O-Ray Holdings, Inc.
4.1 Indenture dated as of July 21, 1998, by and among
AAi.FOSTERGRANT, Inc. ("AAi"), its domestic subsidiaries
named therein (the "Guarantors") and IBJ Schroder Bank &
Trust Company, as Trustee, with respect to the Series A and
Series B 10 3/4% Senior Notes due 2006.
4.2 Purchase Agreement dated as of July 16, 1998, by and among
AAi, the Guarantors and NationsBanc Montgomery Securities
LLC, Prudential Securities Incorporated and BancBoston
Securities Inc. (the "Initial Purchasers").
4.3 Registration Rights Agreement dated as of July 21, 1998, by
and among AAi, the Guarantors and the Initial Purchasers.
4.4 Form of New Note (contained in Exhibit 4.1).
*5.1 Opinion of Hinckley, Allen & Snyder as to the legality of
the securities registered hereunder.
9.1 Letter Agreement of Weston Presidio Capital II, L.P.
regarding voting of the Preferred Stock of AAi dated
December 9, 1996.
9.2 Tag-Along Transfer Restriction and Voting Agreement among
AAi, Weston Presidio Capital, II, L.P. and certain other
investors and certain shareholders of the Company dated May
31, 1996, as amended on December 11, 1996.
10.1 Second Amended and Restated Financing and Security Agreement
by and among AAi, certain of its Subsidiaries, NationsBank,
N.A., as agent, and other lenders party thereto, dated July
21, 1998.
10.2 Agreement of Amendment, Termination & Modification between
AAi, Bolle, Inc., Foster Grant Group, LP and Foster Grant
Holdings, Inc. dated June 1998.
10.3 Stock Purchase Agreement by and among AAi, BEC Group, Inc.,
Foster Grant Group, L.P. and Foster Grant Holdings, Inc.,
dated May 31, 1996, as amended by a side letter dated
December 11, 1996.
10.4 Securities Purchase Agreement among AAi, Weston Presidio
Capital II, L.P. and certain other investors, dated May 31,
1996.
</TABLE>
<PAGE> 162
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.5 Registration Rights Agreement among AAi, Weston Presidio
Capital II, L.P. and certain other investors and certain
shareholders of the Company dated May 31, 1996, as amended
on December 11, 1996.
10.6 Fantasma, LLC Member Agreement by and among AAi, Roger D.
Dreyer and Houdini Capital LTD dated as of June 23, 1998.
10.7 Fantasma, LLC Member Agreement by and among AAi and Paul
Michaels dated as of June 23, 1998.
10.8 Incentive Stock Plan of AAi.
10.9 Employment Agreement between AAi and Gerald F. Cerce dated
May 31, 1996.
10.10 Employment Agreement between AAi and Duane M. DeSisto dated
May 31, 1996.
10.11 Employment Agreement between AAi and John H. Flynn, Jr.
dated May 31, 1996.
10.12 Employment Agreement between AAi and Robert V. Lallo dated
May 31, 1996.
10.13 Employment Agreement between AAi and Felix A. Porcaro, Jr.
dated May 31, 1996.
10.14 Supplemental Executive Retirement Plan between AAi and
Gerald F. Cerce dated September 29, 1994, as amended on
December 29, 1995 and May 31, 1996.
12.1 Computation of ratio of earnings to fixed charges.
21.1 Subsidiaries of AAi.
23.1 Consent of Hinckley, Allen & Snyder (contained in Exhibit
5.1).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney of certain directors and officers of the
Company.
24.2 Power of Attorney of certain directors and officers of The
Bonneau Company.
24.3 Power of Attorney of certain directors and officers of
Bonneau General, Inc.
24.4 Power of Attorney of certain directors and officers of
Bonneau Holdings, Inc.
24.5 Power of Attorney of certain directors and officers of
F.G.G. Investments, Inc.
*24.6 Power of Attorney of certain directors and officers of
Fantasma, LLC.
24.7 Power of Attorney of certain directors and officers of
Foster Grant Group, L.P.
24.8 Power of Attorney of certain directors and officers of
Foster Grant Holdings, Inc.
24.9 Power of Attorney of certain directors and officers of
Opti-Ray, Inc.
24.10 Power of Attorney of certain directors and officers of O-Ray
Holdings, Inc.
25.1 Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939, as amended, of IBJ Schroder
Bank & Trust Company, as Trustee.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal with respect to the Exchange
Offer.
99.2 Form of Letter of Guaranteed Delivery.
99.3 Form of Letter to Brokers, Dealers.
*99.4 Form of Exchange Agency Agreement between AAi and IBJ
Schroder Bank & Trust Company.
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
Exhibit 3.1.1
ID NUMBER: 36896
FILING FEE: $70.00
BUSINESS CORPORATION
-----------------
RESTATED ARTICLES OF INCORPORATION
OF
AAi.FOSTERGRANT, INC.
Pursuant to the provisions of Section 7-1.1-59 of the General Laws, 1956,
as amended, the undersigned corporation adopts the following Restated Articles
of Incorporation:
1. The name of the corporation is AAi.FOSTERGRANT, INC.
-----------------------------------------
2. The period of its duration is (if perpetual, so state) PERPETUAL
------------------
3. The specific purpose or purposes which the corporation is authorized to
pursue are: TO BUY, SELL, AND DISTRIBUTE OPTICAL PRODUCTS, JEWELRY, WATCHES,
CLOCKS AND OTHER ACCESSORIES AND SMALL PACKAGE PRODUCTS, AND TO TRANSACT ANY OR
ALL OTHER LAWFUL BUSINESS FOR WHICH CORPORATIONS MAY BE INCORPORATED UNDER THE
RHODE ISLAND BUSINESS CORPORATION ACT, AS THE SAME MAY BE FROM TIME TO TIME
AMENDED HEREAFTER.
4. The aggregate number of shares which the corporation has authority to
issue is:
(a) If only one class: Total number of shares _________ (If the
authorized shares consist of one class only state the par value of such shares
or a statement that all such shares are to be without par value.):
or
(b) If more than one class: Total number of shares of all classes of
stock: See below (State (A) the number of shares of each class thereof that are
to have par value and the par value of each share of each such class, and/or (B)
the number of such shares that are to be without par value, and (C) a statement
of all or any of the designations and the powers, preferences and rights,
including voting rights, and the qualifications, limitations or restrictions
thereof, which are permitted by the provisions of Chapter 7-1.1 of the General
Laws in respect of any class or classes of stock of the corporation insofar as
the same are fixed in the articles of incorporation, and a statement of any
authority vested in the board of directors to establish series and fix and
determine the variations in the relative rights and preferences as between
series):
5,000,000 SHARES, CONSISTING OF (i) 4,800,000 SHARES OF COMMON STOCK WITH A
PAR VALUE OF ONE CENT ($.01) PER SHARE (THE "COMMON STOCK"), AND (ii) 200,000
<PAGE> 2
SHARES OF PREFERRED STOCK WITH A PAR VALUE OF ONE CENT ($.01) PER SHARE (THE
"PREFERRED STOCK").
1. DESIGNATION AND AMOUNT. The Preferred Stock shall be divided into one
or more series. The designation of the first series of the Preferred Stock shall
be Series A Redeemable Convertible Preferred Stock (the "Series A Preferred
Stock"). The number of shares of Series A Preferred Stock shall be 43,700
subject to increase (but only as to shares of Preferred Stock authorized by the
Articles of Incorporation, as amended, with respect to which the powers,
designations, preferences and rights shall not then have been previously
designated) or decrease (but not below the number of shares thereof then
outstanding) from time to time by action of the Board of Directors.
The Series A Preferred Stock has been issued pursuant to a Securities
Purchase Agreement dated May 31, 1996 by and among the Corporation, Weston
Presidio Capital II, L.P., and certain other investors (as from time to time in
effect, the "Weston Presidio Purchase Agreement) and that certain Stock Purchase
Agreement dated as of November 13, 1996 by and among the Corporation, BEC Group,
Inc., Foster Grant Group, L.P., and Foster Grant Holdings, Inc. (as from time to
time in effect, the "Foster Grant Purchase Agreement"). The Weston Presidio
Purchase Agreement and the Foster Grant Purchase Agreement, as may be amended
from time to time, are hereinafter collectively referred to as the "Purchase
Agreements". A copy of the Purchase Agreements will be provided to any
registered holder of shares of capital stock of the Corporation following
written request directed to the Secretary of the Corporation at its registered
address.
The relative powers, preferences and rights, and relative participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, granted to or imposed on the Series A Preferred Stock are
set forth below:
2. DEFINITIONS. Certain capitalized terms are used in these Articles of
Amendment as specifically defined below in this Section 2. Except as the context
otherwise explicitly requires, (a) the capitalized term "Section" refers to
sections of these Articles of Amendment, (b) references to a particular Section
include all subsections thereof, (c) the word "including" shall be construed as
"including without limitation", (d) accounting terms not otherwise defined
herein have the meaning provided under generally accepted accounting principles,
(e) references to a particular statute or regulation include all rules and
regulations thereunder and any successor statute, regulation or rules, in each
case as from time to time in effect and (f) references to a particular Person
include such Person's successors and assigns to the extent not prohibited by
these Articles of Amendment and the Purchase Agreements. References to "the date
hereof" mean the effective date of these Articles of Amendment.
2.1. "ACCEPTED SHARES" is defined in Section 10.2.
2.2. "ADDITIONAL SHARES OF COMMON STOCK" is defined in Section 8.4.1(d).
2
<PAGE> 3
2.3. "BY-LAWS" means all written rules, regulations, procedures and
by-laws and all other similar documents, relating to the management, governance
or internal regulation of a Person other than an individual, or interpretive of
the Charter of such Person, each as from time to time amended or modified.
2.4. "CALCULATION DATE" is defined in Section 4.
2.5. "COMMON STOCK" means the common stock $0.01 par value, of the
Corporation.
2.6. "CORPORATION" as defined in the Preamble.
2.7. "CONVERSION PRICE" is defined in Section 8.1.
2.8. "CONVERTIBLE SECURITIES" is defined in Section 8.4.1(c).
2.9. "FUTURE SHARES" is defined in Section 10.1.
2.10. "FUTURE SHARES EXERCISE PERIOD" is defined in Section 10.1.
2.11. "INDEBTEDNESS" means (a) all debt for borrowed money and similar
monetary obligations evidenced by bonds, notes, debentures, capitalized lease
obligations, deferred purchase price of property (other than ordinary trade
payables ) or otherwise, whether direct or indirect; and (b) all liabilities
secured by any liens existing on property owned or acquired, whether or not the
liability secured thereby shall have been assumed.
2.12. "INVESTOR AGREEMENT" is defined in the Weston Presidio Purchase
Agreement.
2.13. "NOTICE OF PURCHASE" is defined in Section 10.2.
2.14. "OFFEREE" is defined in Section 10.1.
2.15. "OPTIONS" is defined in Section 8.4.1(a).
2.16. "ORGANIC CHANGE" is defined in Section 6.2.
2.17. "ORIGINAL ISSUE DATE" is defined in Section 8.4.1(b).
2.18. "PERSON" means an individual, partnership, corporation, company,
association, trust, joint venture, unincorporated organization, business trust,
limited liability company and any governmental department or agency or political
subdivision.
2.19. "PREFERENTIAL AMOUNT" is defined in Section 4.
3
<PAGE> 4
2.20. "PREFERRED DIRECTOR" is defined in Section 5.3.
2.21. "PREFERRED STOCK" is defined in Section 1.
2.22. "PROPORTIONATE PERCENTAGE" is defined in Section 10.1.
2.23. "PROPOSAL" is defined in Section 10.1.
2.24. "PURCHASE AGREEMENTS" is defined in Section 1.
2.25. "QUALIFIED PUBLIC OFFERING" is defined in Section 8.2.
2.26. "RELATED AGREEMENTS" is defined in the Weston Presidio Purchase
Agreement.
2.27. "REMEDY EVENT" is defined in Section 7.
2.28. "REMEDY NOTICE" is defined in Section 5.2.2.
2.29. "REQUIRED HOLDERS" means the holders of two-thirds of the
outstanding Series A Preferred Stock.
2.30. "SERIES A PREFERRED STOCK" is defined in Section 1.
2.31. "WARRANTS" is defined in Section 6.3.
3. DIVIDENDS. No dividends of cash or other property (other than
additional shares of Common Stock) shall be paid on the Common Stock unless the
shares of Series A Preferred Stock receive the same dividends that such shares
would have received had they been converted into Common Stock immediately prior
to the record date for such dividend.
4. LIQUIDATION PREFERENCE. In the event of (a) any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
or (b) unless agreed otherwise in writing by the Required Holders, a merger or
consolidation of the Corporation, distributions to the stockholders of the
Corporation shall be made in the following manner. The holders of Series A
Preferred Stock shall first be entitled to receive, prior and in preference to
any distribution of any of the assets of the Corporation to the holders of any
other series of Preferred Stock, Common Stock or other capital stock of the
Corporation by reason of their ownership of such stock, an amount per share
equal to the sum of (a) $526.32 plus (b) an amount in the form of a dividend
which would equal a 10% rate of return compounded annually on the amount in
clause (a) above from the date of original issuance of the Series A Preferred
Stock to the date of distribution (the "CALCULATION DATE") plus (c) accrued and
unpaid dividends, if any, on the Series A Preferred Stock due under Section 3
(such sum being referred to as the "PREFERENTIAL AMOUNT"). If the assets and
funds of the Corporation shall be insufficient to permit the payment of the full
Preferential Amount to the holders of
4
<PAGE> 5
Series A Preferred Stock, then the entire assets of the Corporation legally
available for distribution shall be distributed ratably among the holders of
Series A Preferred Stock in accordance with the aggregate liquidation preference
of the shares of Series A Preferred Stock held by each of them. After payment
has been made to the holders of Series A Preferred Stock of the full amounts to
which they are entitled, the holders of Common Stock shall be entitled to share
ratably in the remaining assets without participation by the holders of Series A
Preferred Stock.
5. VOTING RIGHTS; REPRESENTATIVE DIRECTORS; ETC.
5.1. VOTES PER SHARE; NOTICES. Except as otherwise provided herein
(including the election of Preferred Directors pursuant to Section 5.2.1 and a
majority of the members of the Corporation's Board of Directors pursuant to
Section 5.2.2) or required by law, the holders of Series A Preferred Stock (a)
prior to December 1, 1996, shall not vote on any matter submitted to the holders
of Common Stock and (b) from and after December 1, 1996, shall vote as a single
class with the holders of Common Stock and shall have such votes in respect of
each share of Series A Preferred Stock on any matter submitted to the holders of
Common Stock as the number of shares of Common Stock into which shares of Series
A Preferred Stock may then be converted. Record holders of Series A Preferred
Stock shall be entitled to notice of any stockholders' meeting or solicitation
of stockholders' consents in the manner provided in the Bylaws of the
Corporation for general notices.
5.2. PREFERRED DIRECTORS.
5.2.1. REPRESENTATIVE DIRECTORS. In addition to the rights set forth in
Section 5.2.2, the holders of a majority of the shares of Series A Preferred
Stock, voting separately as a single class, shall be entitled to elect two
directors. Except as provided in Section 5.2.2, the number of directors of the
Corporation shall not exceed seven.
5.2.2. MAJORITY DIRECTORS
(a) In the event that any Remedy Event shall occur, then, upon
notice to the Corporation given by the Required Holders (a "REMEDY NOTICE"), the
number of directors shall be increased as provided in Section 5.2.2(b) and the
holders of Series A Preferred Stock, voting separately as a single class, shall
become entitled to elect a majority of the Board of Directors of the Corporation
until any such Remedy Event shall have been rectified or cured to the written
satisfaction of the Required Holders, whereupon such right of the holders of the
Series A Preferred Stock to elect a majority of the Board of Directors of the
Corporation shall cease, and the maximum number of directors shall be reduced to
seven, subject to being again revived from time to time upon the reoccurrence of
the conditions above described.
(b) Immediately upon receipt by the Corporation of a Remedy Notice
pursuant to paragraph (a) above, the number of directors of the Corporation
5
<PAGE> 6
shall automatically be increased to the minimum number sufficient to permit the
election of additional directors so that after such election a majority of
directors will have been elected by the holders of the Series A Preferred Stock.
Upon such increase, the directors of the Corporation shall thereupon be divided
into classes. One class shall consist of a number of directors equal to a
majority of all of the directors and shall be elected solely by the holders of
Series A Preferred Stock, voting separately as a single class, and the other
class shall consist of the remaining directors and shall be elected by the
holders of the capital stock of the Corporation entitled to vote generally in
elections of directors. Subject to Section 7, any director then in office who
was elected pursuant to Section 5.2.1 shall automatically become a member of the
class of directors elected solely by the holders of Series A Preferred Stock.
5.3. TENURE. Each Director elected by the holders of Series A Preferred
Stock pursuant to Section 5.2 (a "PREFERRED DIRECTOR") shall serve for a term of
the lesser of (a) one year and until such Preferred Director's successor is
elected and qualified, or (b) until the right to elect such Preferred Director
ceases (at which time such Preferred Director will be deemed to be removed). So
long as the holders of Series A Preferred Stock are entitled to elect Preferred
Directors, any vacancy in the position of a Preferred Director may be filled
only by vote of the holders of a majority of the shares of Series A Preferred
Stock entitled to vote thereon. A Preferred Director may, during such Preferred
Director's term of office, be removed at any time, with or without cause, only
by the affirmative vote of the holders of a majority of the outstanding shares
of Series A Preferred Stock.
6. REDEMPTION.
6.1. MANDATORY REDEMPTION. Except as set forth in Section 6.3,
irrespective of any other redemptions or acquisitions of shares of the Series A
Preferred Stock, the Corporation will redeem at a price equal to the
Preferential Amount that number of shares of Series A Preferred Stock equal to
5% of the total number of issued and outstanding shares of Series A Preferred
Stock as of March 31, 2002 (or such lesser number as is then outstanding) on the
last day of each March, June, September and December, commencing in June, 2002.
6.2. MANDATORY CONTINGENT REDEMPTION. Upon the earliest to occur of:
(a) the sale by the Corporation of all or a substantial portion of
its assets,
(b) the merger of the Corporation with, or the consolidation of the
Corporation into, any other corporation as a result of which the stockholders of
the Corporation immediately prior to such merger or consolidation do not own
stock having more than 50% of the outstanding voting power (assuming conversion
of all convertible securities and exercise of all outstanding options and
warrants) of the surviving corporation,
(c) The dissolution or liquidation of the Corporation,
6
<PAGE> 7
(d) Gerald Cerce ceasing for any reason to be Chairman of, and
actively involved in the executive management of, the Corporation and a
replacement satisfactory to the Required Holders shall not be in place within
180 days,
(e) except as a result of a Qualified Public Offering and stock
passing by death, more than 50% of the outstanding voting stock of the
Corporation becomes owned by Persons other than (i) holders of Series A
Preferred Stock and their transferees and (ii) stockholders of record on the
Original Issue Date (the foregoing events described in clauses (a) through (e)
shall constitute an "ORGANIC CHANGE"), or
(f) a Remedy Event,
each holder of Series A Preferred Stock may require the Corporation to redeem
all or any portion of the then outstanding shares of the Series A Preferred
Stock of such holder, at the holder's option either (A) at a price equal to the
preferential Amount or (B) at a price equal to the sum of (1) the Conversion
Price PLUS (2) accrued and unpaid dividends, if any, on the Series A Preferred
Stock due under Section 3, together with, for purposes only of this clause (B),
Warrants on the same terms as described in Section 6.3.
6.3. VOLUNTARY REDEMPTION. Pursuant to the consent or vote of a majority
of the disinterested directors of the Corporation, the Corporation may redeem at
the Preferential Amount pro rata from all holders of Series A Preferred Stock an
aggregate number of shares of Series A Preferred Stock specified in the notice
delivered pursuant to Section 6.4. Such redemption shall take place at the time
and on the date set forth in such notice. At the closing of such redemption, the
Corporation shall deliver to each holder of Series A Preferred Stock whose
shares are being redeemed warrants in substantially the form of Exhibit 2.1A to
the Weston Presidio Purchase Agreement (the "WARRANTS") to purchase the number
of shares of Common Stock into which the shares of Series A Preferred Stock so
redeemed could at the time have been converted at a purchase price per share
equal to the aggregate cash consideration received by the holder in connection
with the redemption divided by such number of shares of Common Stock. The number
of shares for which each Warrant shall be exercisable shall be reduced in
proportion to the mandatory redemption of Series A Preferred Stock under Section
6.1. At the option of the Corporation, any redemption under this Section 6.3 may
be applied against, and shall relieve the Corporation of, the next succeeding
redemption obligations under Section 6.1 to the extent of the shares redeemed
under this Section 6.3.
6.4. NOTICE OF REDEMPTION: PRO RATA TREATMENT. Written notice of
redemption of Series A Preferred Stock pursuant to Sections 6.1 and 6.3 shall be
given not fewer than 30 days prior to the redemption date by first class mail,
postage prepaid, to each holder of record of shares of the Series A Preferred
Stock, at such holder's address on the books of the Corporation. Each such
notice shall state: (a) the
7
<PAGE> 8
redemption date; (b) the number of shares of the Series A Preferred Stock to be
redeemed; (c) the Preferential Amount; (d) the place or places where
certificates for such shares are to be surrendered for payment of the
Preferential Amount; and (e) that dividends on the shares to be redeemed will
cease to accrue on such redemption date. Redemptions under Sections 6.1 and 6.3
shall be made pro rata among all holders of Series A Preferred Stock.
6.5. SPECIFIC PERFORMANCE. If any holder becomes obligated so to deliver
any shares of Series A Preferred Stock to the Corporation upon any redemption
under this Section 6 and fails to deliver the certificate therefor in accordance
with these Articles of Amendment, the Corporation may, at its option, in
addition to all other remedies it may have, cancel on its books such certificate
representing such shares to be redeemed.
6.6. SUSPENSION OF REDEMPTION OBLIGATION. Notwithstanding any provision
of this Section 6 to the contrary, if at any time the Corporation shall have
outstanding any Indebtedness (as hereinafter defined) the terms of which
restrict the Corporation's ability to redeem, in whole or in part, the Series A
Preferred Stock ("Restrictive Indebtedness"), then in such event the
Corporation's obligations under Section 6.1 and Section 6.2 to redeem any shares
of Series A Preferred Stock shall be suspended until ninety-one (91) days after
the date that such Restrictive Indebtedness is no longer outstanding. The
Corporation shall notify the holders of the Series A Preferred Stock in writing
within ten (10) days of its incurrence of any Restrictive Indebtedness which
under this Section 6.6 would require the suspension of its redemption
obligations under Sections 6.1 and 6.2 hereof. Within ten days after the
expiration of ninety-one (91) days after the date of the payment of such
Restrictive Indebtedness in full, the Corporation shall issue a written notice
of redemption in accordance with Section 6.5 hereof for such number of shares of
Series A Preferred Stock as the Corporation would have been obligated to redeem,
pursuant to the provisions of Sections 6.1 or 6.2 hereof, on or prior to such
notice date, but for the provisions of this Section 6.6. Nothing in this Section
6.6 shall affect or impair the rights granted the holders of Series A Preferred
Stock pursuant to Section 5 hereof, nor shall it affect or impair any of the
provisions relating to conversion set forth in Section 8 hereof. Notwithstanding
any other provision of this Section 6 to the contrary, unless approved by the
Preferred Directors, the aggregate principal amount of Restrictive Indebtedness
shall not exceed at any time $150 million. For purposes of this Section 6.6,
"Indebtedness" shall mean (i) any obligation of the Corporation or its
subsidiaries for borrowed money, (ii) any obligation of the Corporation or its
subsidiaries evidenced by bonds, debentures, notes or similar instruments, and
(iii) any reimbursement obligation of the Corporation or its subsidiaries with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of the Corporation and/or its subsidiaries, in each case, other
than any obligation owed to a Person who directly or indirectly is controlling
or controlled by or under direct or indirect common control with the
Corporation.
7. REMEDY EVENT. The term "REMEDY EVENT" shall mean the occurrence and
continuance of any of the following events for a period exceeding
8
<PAGE> 9
30 days (unless otherwise specified below) after written notice of the
occurrence of such event has been furnished to the Corporation at its registered
address:
(a) The Corporation shall fail to make any payment in respect of
dividends on or redemptions of any shares of Series A Preferred Stock as the
same shall become due.
(b) The Corporation shall fail to perform or observe any of the
material covenants, agreements or other provisions set forth in these Articles
of Amendment.
(c) Any written representation or warranty of or with respect to the
Corporation made in, or pursuant to the express requirements of, the Weston
Presidio Purchase Agreement shall prove to have been false in any material
respect on the date as of which it was made without reference to whether such
representation or warranty was made with knowledge or without knowledge.
(d) The Corporation or any of its Subsidiaries shall fail to make any
required payment on any indebtedness exceeding $100,000 in principal amount of
(or guaranteed by) the Corporation or any of its Subsidiaries or with respect to
any share of capital stock (whether because funds are not legally available
therefor or otherwise), or the Corporation or any of its Subsidiaries shall fail
to perform or observe any of the covenants or provisions required to be
performed or observed by it pursuant to any senior lending agreement (as from
time to time in effect), and (i) such failure shall continue, without having
been duly cured, waived or consented to, beyond the period of grace, if any,
therein specified or (ii) any security interest in or other lien on any property
securing any such indebtedness shall be enforced, unless contested in good faith
by the Corporation by appropriate proceedings or (iii) any such indebtedness
shall become due and payable prior to stated maturity.
(e) The Corporation shall fail to keep reserved a sufficient number
of shares of Common Stock for issuance upon conversion of the Series A Preferred
Stock or shall fail to issue an amount of shares of Common Stock upon the
conversion by the holders thereof of the Series A Preferred Stock.
(f) An Organic Change shall occur.
(g) The sum of (i) consolidated stockholders' equity of the
Corporation and its subsidiaries, and (ii) (to the extent not included in the
stockholders' equity) the Series A Preferred Stock and (iii) up to $5 million
outstanding in respect of notes issued by the Corporation on the Original Issue
Date to its stockholders on such date and to the initial purchasers of the
Series A Preferred Stock, all determined in accordance with generally accepted
accounting principles consistently applied, shall at any time be less than
$19,500,000 (the "Minimum Amount") provided, however, that the Minimum Amount
shall be reduced dollar for dollar by any payments with respect of the principal
balance of the notes referred to in clause (iii) hereof.
9
<PAGE> 10
(h) A final judgment which, in the aggregate with other outstanding
final judgments against the Corporation or any of its Subsidiaries, exceeds
$500,000 above insurance coverage shall be rendered against the Corporation or
any of its Subsidiaries and, within 30 days after entry thereof, such judgment
shall not have been discharged or stayed pending appeal, or within 30 days after
expiration of such stay such judgment shall not have been discharged.
(i) The Corporation or any of its Subsidiaries or their Affiliates
shall fail to perform or observe any other covenant, other agreement or
provision to be performed or observed by it under the Purchase Agreements or any
Investor Agreement to which the Corporation is a party and such failure shall
not be rectified or cured to the satisfaction of the Required Holders within 30
days after actual knowledge by an executive officer of the Corporation;
PROVIDED, HOWEVER, that the breach by an employee of any employment agreement
between the Corporation and such employee shall not in any event constitute a
Remedy Event.
(j) The Corporation or any of its subsidiaries owning at least 20% of
the assets, or contributing over the past fiscal year at least 20% of the cash
flow, of the Corporation and its subsidiaries on a consolidated basis shall:
(i) commence a voluntary case under Title 11 of the United States
as from time to time in effect, or authorize, by appropriate proceedings of its
board of directors or other governing body, the commencement of such a voluntary
case;
(ii) have filed against it a petition commencing an involuntary
case under such Title 11 and such petition is not dismissed within 30 days;
(iii) seek relief as a debtor under any applicable law, other
than such Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors, or consent to or acquiesce in such relief;
(iv) have entered against it any order by a court of competent
jurisdiction (A) finding it to be bankrupt or insolvent, (B) ordering or
approving its liquidation, reorganization or any modification or alteration of
the rights of its creditors, or (C) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its property; or
(v) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint or consent to the appointment of a
receiver or other custodian for all or a substantial part of its property.
8. CONVERSION
8.1. RIGHT OF CONVERSION. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof at any time at the office of
the Corporation or any transfer agent for the Series A Preferred Stock into the
number of shares of the Common Stock of the Corporation obtained by dividing
$526.32 by
10
<PAGE> 11
the then effective conversion price of the Series A Preferred Stock (as from
time to time adjusted by this Section 8, the "CONVERSION PRICE"). The initial
Conversion Price shall be $52.63 per share. All calculations under this Section
8 shall be made to the nearest one hundredth of a cent.
8.2. AUTOMATIC CONVERSION. Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price at any time upon the closing of an underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, with managing underwriters reasonably satisfactory to the Required
Holders, covering the offer and sale of Common Stock for the account of the
Corporation to the public generally providing net proceeds to the Corporation
(after underwriter commissions and discounts, but before other offering
expenses) of not less than $20,000,000 and at a price per share of Common Stock
equal to 137.8% of the initial Conversion Price if such underwritten public
offering shall be consummated on or before May 31, 1999, and thereafter 175% of
the initial Conversion Price, in each case adjusted for stock splits and stock
dividends after the Original Issue Date (a "QUALIFIED PUBLIC OFFERING").
8.3. MECHANICS OF CONVERSION. Before any holder of Series A Preferred
Stock shall be entitled to convert the same into shares of Common Stock and to
receive certificates therefor, such holder shall surrender the Series A
Preferred Stock certificates, duly endorsed, at the office of the Corporation or
of any transfer agent for the Series A Preferred Stock, and shall give written
notice to the Corporation at such office that such holder elects to convert the
same; PROVIDED, HOWEVER, that in the event of an automatic conversion pursuant
to Section 8.2, the outstanding shares of Series A Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; and PROVIDED, FURTHER that the
Corporation shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon such automatic conversion unless the certificates
evidencing such shares of Series A Preferred Stock are either delivered to the
Corporation or its transfer agent as provided above, or the holder notifies the
Corporation or its transfer agent that such certificates have been lost, stolen
or destroyed and executes an agreement reasonably satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. The Corporation shall, as soon as practicable
after such delivery, or execution of such agreement in the case of a lost
certificate, issue and deliver at such office to such holder of Series A
Preferred Stock, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled as aforesaid and a check
payable to the holder in the amount of any cash amounts payable as the result of
a conversion into fractional shares of Common Stock plus all accrued and unpaid
dividends on such holder's Series A Preferred Stock so converted. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A Preferred Stock
to be converted, or in the case of automatic conversion immediately upon closing
of the Qualified Public Offering, and the person entitled to receive the shares
of Common Stock issuable
11
<PAGE> 12
upon such conversion shall be treated for all purposes as the record holder of
such shares of Common Stock on such date.
8.4. ADJUSTMENT OF CONVERSION PRICE DUE TO ISSUANCE OF ADDITIONAL SHARES.
The Conversion Price shall be subject to adjustment as follows:
8.4.1. SPECIAL DEFINITIONS.
(a) "OPTIONS" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(b) "ORIGINAL ISSUE DATE" shall mean the date on which the Series A
Preferred Stock is first issued by the Corporation.
(c) "CONVERTIBLE SECURITIES" shall mean any indebtedness, shares or
other securities convertible into or exchangeable for Common Stock.
(d) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of
Common Stock issued (or, pursuant to Section 8.4.5, deemed to be issued) by the
Corporation after the Original Issue Date, other than shares of Common Stock
issued or issuable (or, pursuant to Section 8.4.5, deemed to be issued) at any
time:
(i) upon conversion of the Series A Preferred Stock authorized
herein or upon exercise or conversion of the Warrants or the other options and
warrants set forth in Exhibit 4.3.1 to the Weston Presidio Purchase Agreement;
(ii) as a stock dividend, stock split or similar distribution on
the Series A Preferred Stock or any other event for which adjustment is made
pursuant to Section 8.4.3;
(iii) pursuant to a stock option, stock bonus or other employee
stock plan permitted by Section 5.14 of the Weston Presidio Purchase Agreement
or approved by the Preferred Directors at a meeting or by unanimous written
consent of the Board of Directors or approved by the Required Holders, which
approval shall specify the numbers of Common Stock available for distribution
under any such plan; or
(iv) by way of dividend or other distribution on shares of
Common Stock excluded from the definition of Additional Shares of Common Stock
by the foregoing clauses (i), (ii), (iii) or this clause (iv); or
(v) in connection with sales of Common Stock or other Future
Shares to the holders of the Series A Preferred Stock pursuant to the exercise
by such holders of their rights under Section 10.1.
8.4.2. NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the Conversion
Price shall be made in respect of the issuance of Additional Shares of Common
12
<PAGE> 13
Stock (a) unless the consideration per share (determined pursuant to Section
8.4.6) for an Additional Share of Common Stock issued or deemed to be issued by
the Corporation is less than the applicable Conversion Price in effect on the
date of, and immediately prior to, such issue or (b) if prior to such issuance
the Required Holders give a written waiver of such adjustment.
8.4.3. ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES OF
COMMON STOCK. In the event the Corporation shall issue Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section 8.4.5) for a consideration per share less than the
applicable Conversion Price of the Series A Preferred Stock in effect on the
date of and immediately prior to such issue, then and in such event, the
applicable Conversion Price shall be reduced, concurrently with such issue
(calculated to the nearest one hundredth of a cent), to a new Conversion Price
obtained by dividing (a) an amount equal to the sum of (i) the number of shares
of Common Stock outstanding immediately prior to such issue multiplied by the
then applicable Conversion Price and (ii) the consideration, if any, deemed
received by the Corporation upon such issue by (b) the total number of shares of
Common Stock deemed to be outstanding immediately after such issue; PROVIDED,
HOWEVER, that, for purposes of any calculation under this Section 8.4.3, all
shares of Common Stock outstanding and issuable upon conversion of outstanding
Options, Convertible Securities and the Series A Preferred Stock immediately
prior to giving affect to such calculation shall be deemed to be outstanding. In
no event will the Conversion Price be adjusted as the result of any issuance of
any Additional Shares of Common Stock to any amount higher than the Conversion
Price in effect immediately prior to such issuance.
8.4.4. ADJUSTMENTS FOR SUBDIVISIONS, STOCK DIVIDENDS, COMBINATIONS OR
CONSOLIDATION OF COMMON STOCK. In the event the outstanding shares of Common
Stock shall be increased by way of stock issued as a dividend for no
consideration of subdivided (by stock split or otherwise) into a greater number
of shares of Common Stock, the respective Conversion Prices then in effect
shall, concurrently with the effectiveness of such increase or subdivision, be
proportionately decreased. In the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Common Stock, the respective Conversion Prices then
in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
8.4.5. DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK - OPTIONS AND
CONVERTIBLE SECURITIES. Except as provided in Section 8.4.3 or Section 8.4.4, in
the event the Corporation at any time after the Original Issue Date shall issue
any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options
13
<PAGE> 14
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date; PROVIDED, HOWEVER, that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 8.4.6) of such Additional Shares of
Common Stock would be less than the applicable Conversion Price in effect on the
date of, and immediately prior to, such issue, or such record date, as the case
may be; and PROVIDED, FURTHER, that in any such case in which Additional Shares
of Common Stock are deemed to be issued:
(a) no further adjustment in the applicable Conversion Price shall
be made upon the subsequent issue of shares of Common Stock upon the exercise of
such Options or conversion or exchange of such Convertible Securities of upon
the subsequent issue of each Convertible Securities or Options;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or any increase in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the applicable Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon shall, upon any such increase becoming
effective, be recomputed to reflect such increase insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities;
(c) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the applicable Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon shall remain in effect upon and after such
expiration, but the Additional Shares of Common Stock deemed issued as the
result of the original issue of such Option or rights shall not be deemed issued
for the purposes of any subsequent adjustment to the Conversion Price;
(d) in the event of any changes in the number of shares of Common
Stock issuable upon the exercise, conversion or exchange of such Options or
Convertible Securities, including a change resulting from the anti-dilution
provisions thereof, the Conversion Price then in effect shall be readjusted to
the Conversion Price that would have been in effect if the adjustment which was
made upon the issuance of such Options or Convertible Securities had been made
upon the basis of such change;
(e) no readjustment pursuant to clauses (b) or (d) above shall have
the effect of increasing the applicable Conversion Price to an amount which
exceeds the lower of (i) the applicable Conversion Price on the original
adjustment date, or (ii) the applicable Conversion Price that resulted from the
issuance or
14
<PAGE> 15
deemed issuance of other Additional Shares of Common Stock between the original
adjustment date and such readjustment date; and
(f) in the event the Corporation amends the terms of any Options or
Convertible Securities (whether such Options or Convertible Securities were
outstanding on the Original Issue Date or were issued after the Original Issue
Date), then such Options or Convertible Securities, as so amended, shall be
deemed to have been issued after the Original Issue Date and the provisions of
this Section 8.4.5 shall apply.
8.4.6. DETERMINATION OF CONSIDERATION. For purposes of this Section 8.4,
the consideration received by the Corporation for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(a) CASH AND PROPERTY: Such consideration shall:
(i) insofar as it consists of cash, be computed at the aggregate
amount of net cash proceeds received by the Corporation excluding amounts paid
or payable for accrued interest or accrued dividends;
(ii) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as determined in
good faith by the Board of Directors of the Corporation; and
(iii) in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (i) and (ii) above, which is allocated
to the Additional shares of Common Stock as determined in good faith by the
Board of Directors.
(b) OPTIONS AND CONVERTIBLE SECURITIES: The consideration per share
received by the Corporation for Additional Shares of Common Stock deemed to have
been issued pursuant to Section 8.4.5, relating to Options and Convertible
Securities, shall be determined by dividing
(i) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus, subject to Section 8.4.5(b), the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(ii) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision contained
therein
15
<PAGE> 16
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or the conversion of exchange of such Convertible Securities.
8.4.7. OTHER DILUTIVE EVENTS. In case any event shall occur as to which the
other provisions of this Section 8.4 are not strictly applicable, but the
failure to make any adjustment in the Conversion Price would not fairly protect
the conversion rights represented by the Series A Preferred Stock in accordance
with the intention of this Section 8, then, upon request of the Required
Holders, the Board of Directors of the Corporation shall appoint a firm of
independent public accountants of recognized national standing (which may be the
regular auditors of the Corporation) to give their opinion as to the adjustment,
if any, on a basis consistent with the intention of this Section 8, necessary to
preserve without dilution the conversion rights represented by the Series A
Preferred Stock. Upon receipt of such opinion, the Corporation will promptly
furnish a copy thereof to the holders of the Series A Preferred Stock and the
Conversion Price shall be adjusted in accordance therewith to the extent
recommended by such accountants. The fees and expenses of such accountants shall
be paid by the Corporation; PROVIDED, HOWEVER, that if such accountants opine
that the total adjustment per share of Series A Preferred Stock is less than 10%
of the previous per share Conversion Price, such fees and expenses will be paid
by the holders of the Series A Preferred Stock.
8.5. OTHER DISTRIBUTIONS. In the event the Corporation shall declare a
distribution payable in securities of the Corporation (other than shares of
Common Stock), securities of other entities, securities evidencing indebtedness
issued by the Corporation or other entities, assets (including cash dividends)
or options or rights, then, in each such case for the purpose of this Section 8,
the holders of the Series A Preferred Stock shall be entitled to a proportionate
share of any such distribution as though they were the holders of the number of
shares of Common Stock of the Corporation into which their shares of such Series
A Preferred Stock were convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
8.6. SUBSEQUENT EVENTS. In the event of any recapitalization,
consolidation or merger of the Corporation or its successor which does not
require redemption of the Series A Preferred Stock pursuant to Section 6.2, the
shares of Series A Preferred Stock shall be convertible into such shares or
other interests as the Series A Preferred Stock would have been entitled if the
Series A Preferred Stock had been converted into Common Stock immediately prior
to such event.
8.7. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 8,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment is
based. The Corporation shall, upon the written request at any time of any holder
of Series A Preferred Stock, furnish or cause to be furnished to such holder a
certificate
16
<PAGE> 17
setting forth (a) all such adjustments and readjustments previously made, (b)
the Conversion Price at the time in effect, and (c) the number of shares of
Common Stock and the amount, if any, of other property which at such time would
be received upon the conversion of Series A Preferred Stock.
8.8. ISSUE TAX. The issuance of certificates for shares of Common Stock
upon conversion of Series A Preferred Stock shall be made without charge to the
holders thereof for any issuance tax; PROVIDED, HOWEVER, that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than the name of the holder of the Series A Preferred Stock which is being
converted.
9. COVENANTS.
9.1. SPECIAL RESTRICTIONS. At any time when shares of Series A Preferred
Stock are outstanding, except where the vote or written consent of the holders
of a greater number of shares of the Corporation is required by law or by the
Articles of Incorporation, as amended, and in addition to any other vote
required by law or the Articles of Incorporation, as amended, without the
consent of the Required Holders, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class, the Corporation
will not:
(a) create or authorize the creation of any additional class or
series of shares of stock, or issue any shares thereof, unless the same ranks
junior to the Series A Preferred Stock as to the distribution of assets on the
liquidation, dissolution or winding up of the Corporation or increase the
authorized amount of the Series A Preferred Stock or increase the authorized
amount of any additional class or series of shares of stock unless the same
ranks junior to the Series A Preferred Stock as the distribution of assets on
the liquidation, dissolution or winding up of the Corporation, or create or
authorize any instrument or security convertible into shares of Series A
Preferred Stock or into shares of any other class or series of stock unless the
same ranks junior to the Series A Preferred Stock as to the distribution of
assets on the liquidation, dissolution or winding up of the Corporation, whether
any such creation, authorization or increase shall be by means of amendment to
the Articles of Incorporation or by merger, consolidation or otherwise:
(b) amend, alter or repeal its Articles of Incorporation or By-Laws
in a manner that is adverse to the holders of Series A Preferred Stock in any
respect or for which the holders of Series A Preferred Stock did not receive
prior written notice;
(c) purchase or set aside any sums for the purchase of any shares of
stock other than the Series A Preferred Stock, except for the purchase of shares
of Common Stock from former employees of the Corporation who acquired such
shares directly from the Corporation or the Stock Option Plan (as defined in the
Weston Presidio Purchase Agreement), if each such purchase is made pursuant to
contractual rights held by the Corporation relating to the termination of
17
<PAGE> 18
employment of any such former employee and the total purchase price does not
exceed $200,000 plus any applicable life insurance payments for all such
purchases from each such former employee;
(d) redeem or otherwise acquire any shares of Series A Preferred
Stock except as expressly authorized in Section 6 or pursuant to a purchase
offer made pro rata to all holders of the shares of Series A Preferred Stock on
the basis of the aggregate number of outstanding shares of Series A Preferred
Stock then held by each such holder;
(e) consent to any liquidation, dissolution or winding up of the
Corporation; or
(f) consolidate or merge into or with any other entity or entities
or sell or transfer all or substantially all its assets, except that the
Corporation may, without the consent of the holders of at least a majority of
the then outstanding shares of Series A Preferred Stock, effectuate a merger in
which (i) the Corporation is the surviving corporation and (ii) the stockholders
of the Corporation immediately prior to the merger hold more than 50% of the
outstanding voting power of the surviving corporation (assuming conversion fall
convertible securities and exercise of all outstanding options and warrants).
9.2. NO IMPAIRMENT. The Corporation will not by amendment of its Articles
of Incorporation or through any reorganization, recapitalization, transfer of
all or a substantial portion of its assets, consolidation, merger, dissolution,
issue or sale of securities, closing of transfer books or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed under these Articles of Amendment by the
Corporation, but will at all times in good faith assist in carrying out all the
provisions of these Articles of Amendment and in taking all such action as may
be necessary or appropriate in order to protect the conversion and other rights
of the holders of Series A Preferred Stock against impairment.
9.3. RESERVATION OF SHARES. So long as any share of Series A Preferred
Stock shall remain outstanding, the Corporation shall at all times reserve and
keep available, free from preemptive rights, out of its authorized capital
stock, for the purpose of issuance upon conversion of the Series A Preferred
Stock, the full number of shares of Common Stock then issuable upon exercise of
all outstanding shares of Series A Preferred Stock. If the Corporation's Common
Stock shall be listed on any national stock exchange, the Corporation at its
expense shall include in its listing application all of the shares of Common
Stock reserved for issuance upon conversion of the Series A Preferred Stock
(subject to issuance or notice of issuance to the exchange) and will similarly
procure the listing of any further Common Stock reserved for issuance upon
conversion of the Series A Preferred Stock at any subsequent time as a result of
adjustments in the outstanding Common Stock or otherwise.
18
<PAGE> 19
9.4. VALIDITY OF SHARES. The Corporation will from time to time take all
such action as may be required to assure that all shares of Common Stock which
may be issued upon conversion of any share of the Series A Preferred Stock will,
upon issuance, be legally and validly issued, fully paid and non-assessable and
free from all taxes, liens and charges with respect to the issuance thereof.
Without limiting the generality of the foregoing, the Corporation will from time
to time take all such action as may be required to assure that the par value per
share, if any, of the Common Stock is at all times equal to or less than the
lowest quotient obtained by dividing the then current par value of the Series A
Preferred Stock by the number of shares of Common Stock into which each shares
of Series A Preferred Stock can, from time to time, be converted.
9.5. NOTICE OF CERTAIN EVENTS. If at any time:
(a) the Corporation shall declare any dividend or distribution
payable to the holders of its Common Stock;
(b) the Corporation shall offer for subscription pro rata to the
holders of Common Stock any additional shares of stock of any class or any other
rights;
(c) any recapitalization of the Corporation, or consolidation or
merger of the Corporation with, or sale of all or substantially all of its
assets to, another corporation or business organization shall occur; or
(d) a voluntary or involuntary dissolution, liquidation or winding
up of the Corporation shall occur;
then, in any one or more of such cases, the Corporation shall give the
registered holders of the Preferred Stock written notice, by registered mail, of
the date on which a record shall be taken for such dividend, distribution or
subscription rights or for determining stockholders entitled to vote upon such
recapitalization, consolidation, merger, sale, dissolution, liquidation or
winding up and of the date when any such transaction shall take place, as the
case may be. Such notice shall also specify the date as of which the holders of
Common Stock of record shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such recapitalization,
consolidation, merger, sale, dissolution, liquidation or winding up, as the case
may be. Such written notice shall be given 20 days prior to the record date with
respect thereto.
9.6. NO REISSUANCE OF PREFERRED STOCK. No shares of Series A Preferred
Stock acquired by the Corporation by reason of redemption, purchase, conversion
or otherwise shall be reissued, and all such shares shall be canceled, retired
and eliminated from the shares which the Corporation shall be authorized to
issue. The Corporation may from time to time take such appropriate corporate
action as may be necessary to reduce the authorized number of shares of
Preferred Stock accordingly.
19
<PAGE> 20
10. PREEMPTIVE RIGHTS.
10.1. RIGHT OF FIRST OFFER. Until the closing, including the closing under
any over-allotment option, under a Qualified Public Offering, the Corporation
shall not issue or sell any Common Stock (including securities convertible into,
or options, warrants or other rights to purchase Common Stock, but excluding the
shares described in Section 10.7) (collectively, the "FUTURE SHARES") to any
Person (an "OFFEREE") without first providing each holder of Series A Preferred
Stock the right to subscribe for its Proportionate Percentage of the Future
Shares at a price and on such other terms which are at least as favorable as
shall have been offered or are proposed to be offered by the Corporation to such
Offeree and which shall have been specified by the Corporation in a notice
delivered to each holder of Series A Preferred Stock (the "PROPOSAL"); PROVIDED,
HOWEVER, that the holder of Series A Preferred Stock shall have the option to
purchase Future Shares with cash, regardless of the method of purchase offered
to such Offeree. The Proposal by its terms shall remain open and irrevocable for
a period of 30 days from the date it is delivered by the Corporation to each
holder of Series A Preferred Stock (the "FUTURE SHARES EXERCISE PERIOD"). The
Proposal shall also certify that the Corporation has either (a) received a bona
fide offer from a prospective purchaser, who shall be identified in such
certification, and that the Corporation in good faith believes a binding
agreement of sale is obtainable for consideration having a fair market, cash
equivalent or present value set forth in such certification; or (b) intends in
good faith to make an offering of its securities to prospective purchasers, who
shall be identified to the extent possible in such certification at the price
and on the terms set forth in such certification.
"PROPORTIONATE PERCENTAGE" means, for any holder of Series A Preferred
Stock, the percentage of Future Shares covered by the Proposal equal to (i) the
number of shares of Common Stock into which the shares of Series A Preferred
Stock held by such holder would then be convertible divided by (ii) the total
number of shares of Common Stock outstanding at the time of delivery of the
Proposal PLUS the aggregate number of shares of Common Stock into which all
shares of Series A Preferred Stock would then be convertible.
10.2. NOTICE. Notice of each holder of Series A Preferred Stock's
intention to accept the Proposal made pursuant to Section 10.1 shall be
evidenced by writing signed by such holder and delivered to the Corporation
prior to the end of the Future Shares Exercise Period (the "NOTICE OF PURCHASE")
setting forth that portion of the Future Shares such holder elects to purchase
(the "ACCEPTED SHARES"). The failure of a holder to deliver such a Notice of
Purchase shall constitute a rejection of the Proposal.
10.3. FULL ACCEPTANCE. In the event that each holder of Series A Preferred
Stock elects to purchase all of the shares offered to such holder in the
Proposal, the Corporation shall sell to each such holder, pursuant to Section
10.6, the number of Accepted Shares set forth in such holder's Notice of
Purchase.
20
<PAGE> 21
10.4. PARTIAL ACCEPTANCE. In the event that one or more holders of
Series A Preferred Stock do not elect to purchase all of the shares offered to
such holders in the Proposal, the Corporation shall sell to each such holder,
pursuant to Section 10.6, the number of Accepted Shares, if any, set forth in
such holder's Notice of Purchase. Holders of Series A Preferred Stock may
purchase pursuant to Section 10.6 any remaining shares offered in the Proposal
not purchased by the other holders of Series A Preferred Stock pro rata based on
the respective Proportionate Percentages of such holders wishing to purchase
additional shares, or as they may otherwise agree.
10.5. NO FRACTIONAL SHARES. For the purpose of avoiding fractions as to
Future Shares, the Corporation may adjust upward or downward by not more than
one full share the number of Future Shares which any holder of Series A
Preferred Stock would otherwise be entitled to purchase.
10.6. SALE OF SHARES. No later than 30 days after the expiration of the
Future Shares Exercise Period, the Corporation shall deliver to each holder of
Series A Preferred Stock who has submitted a Notice of Purchase to the
Corporation a notice indicating the number of Future Shares which the
Corporation shall sell to such holder pursuant to this Section 10 and the terms
and conditions of such sale, which shall be in all respects (including unit
price and interest rates) the same as specified in the proposal. The sale to
such holders of such Future Shares shall take place not later than 10 days after
receipt of such notice.
Any sale to an Offeree of Future Shares that were not selected for purchase
by the holders of Series A Preferred Stock as provided above shall take place
not later than 90 days after the expiration of the Future Shares Exercise
Period. Such sale shall be upon terms and conditions in all respects (including
unit price and interest rates) which are no more favorable to such Offeree or
less favorable to the Corporation than those set forth in the Proposal. Any
refused Future Shares not purchased by the Offeree as contemplated by the
Proposal within the 90-day period specified above shall remain subject to this
Section 10.
10.7. EXCLUSION OF CERTAIN SHARES. Notwithstanding any contrary provision
of this Section 10, Future Shares shall not include:
10.7.1. shares of Common Stock issuable upon conversion of the Series A
Preferred Stock or upon exercise or conversion of the Warrants.
10.7.2. shares of Common Stock issued pursuant to the exercise of options
granted under a stock option plan described in Section 8.4.1(d).
10.7.3. shares of Common Stock issued in connection with mergers permitted
by Section 5.9 of the Weston Presidio Purchase Agreement or otherwise permitted
to be issued by Section 5.14 of the Weston Presidio Purchase Agreement.
10.7.4. shares of Common Stock issued to the original holders of Series A
Preferred Stock pursuant to the Purchase Agreements.
21
<PAGE> 22
11. AMENDMENTS. The provisions of these terms of the Series A Preferred
Stock may not be amended, modified or waived without the written consent or
affirmative vote of the Required Holders; PROVIDED, HOWEVER, that any amendment
reducing or postponing the payment of dividends or redemptions or postponing or
increasing the amount of the Conversion Price shall require the written consent
or affirmative vote of holders of 90% of the then outstanding shares of Series A
Preferred Stock. Except to the extent required by law, the vote of the holders
of any other class of capital stock of the Corporation is not required for the
amendment, modification or waiver of the terms of these Articles of Amendment.
12. The Corporation may issue such additional series of Preferred Stock
as the Board of Directors may establish by the adoption of a resolution or
resolutions relating thereto, each such additional series to have such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the issue of such
series adopted by the Board of Directors pursuant to authority to do so, which
authority is hereby granted to the Board of Directors. Unless otherwise
expressly set forth in the designation therefor, no series of Preferred Stock
shall have the right to vote as a class in connection with the issuance of any
additional series of Preferred Stock, whether such additional series shall have
rights greater, lesser or identical to the rights of any existing series of
Preferred Stock.
5. Existing provisions limiting or denying to shareholders the preemptive
right to acquire additional or treasury shares of the corporation are: The
pre-emptive rights set forth in Rhode Island General Laws, (1956), as amended,
Section 7-1.1-24 are denied to the stockholders.
6. Existing provisions of the charter for the regulation of the internal
affairs of the corporation are:
a. WRITTEN CONSENT OF SHAREHOLDERS. Except as otherwise provided by the
Rhode Island Business Corporation Act, as amended, (the "Act"), any action
required or permitted to be taken at a meeting of shareholders by the Act, by
these Articles of Incorporation or by the By-laws of the Corporation may be
taken without a meeting upon the written consent of less than all of the
shareholders entitled to vote thereon if the shareholders who so consent would
be entitled to cast at least the minimum number of votes which would be required
to take such action at a meeting at which all shareholders entitled to vote
thereon are present.
b. ELIMINATION OF DIRECTORS' LIABILITY. A director of the Corporation
shall not be personally liable to the Corporation or its shareholders for
monetary damages for breach of the director's duty as a director, except for (i)
liability for any breach of the director's duty of loyalty to the Corporation or
its shareholders, (ii) liability for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
liability imposed pursuant to the
22
<PAGE> 23
provisions of Section 43 of the Act, or (iv) liability for any transaction from
which the director derived an improper personal benefit (unless said transaction
is permitted by Section 37.1 of the Act). If the Act is amended to authorized
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Act. Any repeal or
modification of this Section (b) of Article 6 by the Corporation shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
c. INDEMNIFICATION.
(i) BY-LAW AND INDEMNITY AGREEMENTS: STATUTORY PROVISIONS. The Board
of Directors of the Corporation may include provisions in its By-laws, or may
authorize agreements to be entered into with each director, officer, employee or
other agent of the Corporation (an "Indemnified Person") for the purpose of
indemnifying an Indemnified Person in the manner and to the extent permitted by
Section 4.1 of the Act.
(ii) BY-LAW AND INDEMNITY AGREEMENTS: OTHER PROVISIONS. In addition
to the authority conferred upon the Board of Directors of the Corporation by
Paragraph c(i) hereof, the Board of Directors of the Corporation may include
provisions in its By-laws, or may authorize agreements to be entered into with
each Indemnified Person, for the purpose of indemnifying such person in the
manner and to the extent provided herein:
(1) The By-law provisions or agreements authorized hereby may
provide that the Corporation shall, subject to the provisions of this Section
(c) of Article 6, pay, on behalf of an Indemnified Person any Loss or Expenses
arising from any claim or claims which are made against the Indemnified Person
(whether individually or jointly with other Indemnified Persons) by reason of
any Covered Act of the Indemnified Person.
(2) For the purposes of this Section (c) of Article 6, when used
herein:
(a) "Loss" means any amount which an Indemnified Person is legally
obligated to pay for any claim for Covered Acts and shall include, without being
limited to, damages, settlements, fines, penalties or, with respect to employee
benefit plans, excise taxes;
(b) "Expenses" means any expenses incurred in connection with the
defense against any claim for Covered Acts, including, without being limited to,
legal, accounting or investigative fees and expenses; and
(c) "Covered Act" means any act or omission of an Indemnified Person
in the Indemnified Person's capacity as a official capacity with the
Corporation.
23
<PAGE> 24
(3) The By-law provisions or agreements authorized hereby may cover
Loss or Expenses arising from any claims made against a retired Indemnified
Person, the estate, heirs or legal representative of a deceased Indemnified
Person or the legal representative of an incompetent, insolvent or bankrupt
Indemnified Person, where the Indemnified Person was an Indemnified Person at
the time the Covered Act upon which such claims are based occurred.
(4) Any By-law provisions or agreements authorized hereby may
provide for the advancement of Expenses to an Indemnified Person prior to the
final disposition of any action, suit or proceeding, or any appeal therefrom,
involving such Indemnified Person and based on the alleged commission by such
Indemnified Person of a Covered Act, subject to an undertaking by or on behalf
of such Indemnified Person to repay the same to the Corporation if the Covered
Act involves a claim for which indemnification is not permitted under clause
(e), below, and the final disposition of such action, suit, proceeding or appeal
results in an adjudication adverse to such director or officer.
(5) The By-law provisions or agreements authorized hereby may not
indemnify an Indemnified Person from and against any Loss, and the Corporation
shall not reimburse for any Expenses, in connection with any claim or claims
made against an Indemnified Person: (1) any breach of the Indemnified Person's
duty of loyalty to the Corporation or its shareholders; (2) acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of law; (3) action contravening Section 43 of the Act; (4) the realization by
the Indemnified Person of profits subject to the provisions of Section 16(b) of
the Securities Exchange Act of 1934; or (5) a transaction from which the person
seeking indemnification derived improper personal benefit (unless the
transaction is permitted by Section 37.1 of the Act).
(6) The By-law provisions or agreements authorized hereby may
contain such other terms and conditions as the Board of Directors, in its sole
discretion, determines to be consistent with the provisions of this Article.
d. DISTRIBUTION OF CAPITAL SURPLUS. The Board of Directors shall have the
authority to make distributions to shareholders from the capital surplus of the
Corporation without the approval of the holders of shares of any class.
e. AMENDMENT OF BY-LAWS. The Board of Directors may from time to time
make, amend, supplement or repeal the By-laws; PROVIDED, HOWEVER, that the
shareholders may change or repeal any By-law adopted by the Board of Directors;
and PROVIDED, FURTHER, that no amendment or supplement to the By-laws adopted by
the Board of Directors shall vary or conflict with any amendment or supplement
adopted by the shareholders.
f. AMENDMENT OF ARTICLES OF INCORPORATION. The Corporation reserves the
right to amend, alter, change or repeal any provision contained in these
Articles of Incorporation, in the manner now or hereafter prescribed by statute,
and all rights conferred upon shareholders herein are granted subject to this
reservation.
24
<PAGE> 25
7. The restated charter correctly sets forth without change the
corresponding provisions of the charter as heretofore amended, and supersedes
the original charter and all amendments thereto.
8. The restated charter correctly sets forth without change the
corresponding provisions of the charter as heretofore amended, and supersedes
the original charter and all amendments thereto.
Dated: August 4, 1998 AAi.FOSTERGRANT, Inc.
By /s/ Gerald F. Cerce
--------------------------
Gerald F. Cerce, President
and /s/ Duane M. DeSisto
--------------------------
Duane M. DeSisto,
Assistant Secretary
STATE OF RHODE ISLAND
SC.
COUNTY OF PROVIDENCE
At Smithfield, RI in said county on this 4th day of August, 1998,
personally appeared before me Duane M. DeSisto, who being by me first duly
sworn, declared that he is the Assistant Secretary of AAi.FOSTERGRANT, Inc.,
that he signed the foregoing document as Secretary of the corporation, and that
the statements therein contained are true.
/s/ Laurie C. Wilkins
------------------------------
Notary Public
My Commission Expires: _______
(NOTARIAL SEAL)
25
<PAGE> 1
Exihibit 3.1.2
AMENDED AND RESTATED BY-LAWS
OF
AAi. FOSTER GRANT, INC.
ARTICLE I
OFFICES
SECTION 1. RHODE ISLAND OFFICE. The office of Accessories Associates,
Inc. (the "Corporation") within the State of Rhode Island shall be in the Town
of Smithfield.
SECTION 2. OTHER OFFICES. The Corporation may also have an office or
offices and keep the books and records of the Corporation, except as otherwise
may be required by law, in such other place or places, either within or without
the State of Rhode Island, as the Board of Directors of the Corporation (the
"Board") may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of holders of shares of
capital stock of the Corporation shall be held at the office of the Corporation
in the State of Rhode Island or at such other place, within or without the State
of Rhode Island, as may from time to time be fixed by the Board or specified or
fixed in the respective notices or waivers of notice thereof.
SECTION 2. ANNUAL MEETINGS. An annual meeting of shareholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting (an "Annual Meeting") shall be
held at 11:00 a.m. on the third Tuesday in the month of May of each year or on
such other date and at such other time as may be fixed by the Board. If the
Annual Meeting shall not be held on the day designated, the Board shall call a
special meeting of shareholders as soon as practicable for the election of
directors. Failure to hold the Annual Meeting at the designated time shall not
work a forfeiture or dissolution of the Corporation.
SECTION 3. SPECIAL MEETINGS. Special meetings of shareholders, unless
otherwise provided by law, may be called at any time by the Board pursuant to a
resolution adopted by a majority of the then authorized number of directors (as
determined in accordance with Section 2 of Article III of these By-laws), or by
the Chairman or the President. Any such call must specify the matter or matters
to be acted upon at such meeting and only such matter or matters shall be acted
upon thereat.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise may be required by
law, notice of each meeting of shareholders, whether an Annual Meeting or a
special meeting, shall be in writing, shall state the place, date and hour of
the meeting and, in the case of a special meeting,
1
<PAGE> 2
shall state the purpose or purposes of the meeting and indicate that the notice
is being issued by or at the direction of the person or persons calling the
meeting, and a copy of such notice shall be delivered or sent by mail, not less
than 10 or more than 60 days before the date of said meeting, to each
shareholder entitled to vote at such meeting. If mailed, such notice shall be
directed to such shareholder at his address as it appears on the stock records
of the Corporation, unless he shall have filed with the Secretary a written
request that notices to him be mailed to some other address, in which case it
shall be directed to him at such other address. Notice of an adjourned meeting
need not be given if the time and place to which the meeting is to be adjourned
was announced at the meeting at which the adjournment was taken, unless (i) the
adjournment is for more than 30 days, or (ii) the Board shall fix a new record
date for such adjourned meeting after the adjournment.
SECTION 5. QUORUM. At each meeting of shareholders of the Corporation,
the holders of shares having a majority of the voting power of the capital stock
of the Corporation issued and outstanding and entitled to vote thereat shall be
present or represented by proxy to constitute a quorum for the transaction of
business, except as otherwise provided by law.
SECTION 6. ADJOURNMENTS. In the absence of a quorum at any meeting of
shareholders or any adjournment or adjournments thereof, holders of shares
having a majority of the voting power of the capital stock present or
represented by proxy at the meeting may adjourn the meeting from time to time
until a quorum shall be present or represented by proxy. At any such adjourned
meeting at which a quorum shall be present or represented by proxy, any business
may be transacted which might have been transacted at the meeting as originally
called if a quorum had been present or represented by proxy thereat.
SECTION 7. ORDER OF BUSINESS. (a) At any Annual Meeting, only such
business shall be conducted as shall have been brought before the Annual Meeting
(i) by or at the direction of the Board of Directors, or (ii) by any shareholder
who complies with the procedures set forth in this Section 7.
(b) For business properly to be brought before an Annual Meeting by a
shareholder, the shareholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 30 days nor more than 60 days prior to
the Annual Meeting; PROVIDED, HOWEVER, that in the event that less than 40 days
notice or prior public disclosure of the date of the Annual Meeting is given or
made to shareholders, notice by the shareholder to be timely must be received
not later than the close of business on the tenth day following the day on which
such notice of the date of the Annual Meeting was mailed or such public
disclosure was made. To be in proper written form, a shareholder's notice to the
Secretary shall set forth in writing as to each matter the shareholder proposes
to bring before the Annual Meeting: (i) a brief description of the business
desired to be brought before the Annual Meeting and the reasons for conducting
such business at the Annual Meeting; (ii) the name and address, as they appear
on the Corporation's books, of the shareholder proposing such business; (iii)
the class and number of shares of the Corporation which are beneficially owned
by the shareholder; and (iv) any material interest of the shareholder in such
business. Notwithstanding anything in these By-laws to the contrary, no business
shall be conducted at an Annual Meeting except in accordance with the procedures
set forth in this Section 7. The chairman of an Annual Meeting shall, if the
facts warrant, determine and declare to the Annual Meeting that business was not
properly brought before the Annual Meeting in accordance with the provisions of
this Section 7 and, if he should so determine, he shall so declare to the Annual
Meeting and any such business not properly brought before the Annual Meeting
shall not be transacted. Notwithstanding anything in these By-
2
<PAGE> 3
laws to the contrary, the Corporation shall include any such proposals in its
proxy statement only if the shareholder has fully complied with all requirements
of Rule 4a-8 of the Securities Exchange Act of 1934, as amended (as in effect as
of the effective date of these By-laws or as subsequently amended, including any
successor regulation).
SECTION 8. VOTING. (a) Except as otherwise provided in the Articles of
Incorporation or in any Preferred Stock of the Corporation ("Preferred Stock"),
at each meeting of shareholders, every shareholder of the Corporation shall be
entitled to one vote for every share of capital stock standing in his name on
the stock records of the Corporation (i) at the time fixed pursuant to Section 6
of Article VII of these By-laws as the record date for the determination of
shareholders entitled to vote at such meeting, or (ii) if no such record date
shall have been fixed, then at the close of business on the day next preceding
the day on which notice thereof shall be given. At each meeting of shareholders,
all matters (except in cases where a larger vote is required by law or by the
Articles of Incorporation of the Corporation or these By-laws) shall be decided
by a majority of the votes cast at such meeting by the holders of shares of
capital stock present or represented by proxy and entitled to vote thereon, a
quorum being present.
(b) No share of common stock or Preferred Stock of the Corporation
shall be voted at any meeting of shareholders or counted in determining the
total number of outstanding shares at any given time if (i) the consideration
for the shares has not been fully paid to the Corporation or (ii) if the shares
are Treasury shares or are shares held directly or indirectly by another
corporation if a majority of shares entitled to vote for the election of
directors of such other corporation is held by the Corporation. Nothing
contained herein shall be construed as limiting the right of any corporation to
vote stock, including but not limited to its own stock, held in a fiduciary
capacity.
(c) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxy as the By-laws of the
other corporation may prescribe, or, in the absence of such provision, as the
board of directors of the other corporation may determine; or, in the absence of
such provision or determination, as the president or vice-president, secretary
or assistant secretary of the other corporation may by proxy, duly executed and
sealed, designate.
(d) Shares held by an administrator, executor, guardian, or conservator
may be voted by him, either in person or by proxy, without a transfer of such
shares into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him without a transfer of such shares into his name. It shall not
be necessary for the fiduciary to obtain a court order authorizing him to vote
such shares. The general proxy of a fiduciary shall be given the same weight and
effect as the general proxy of an individual or corporation.
3
<PAGE> 4
(e) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
be contained in an appropriate order of the court by which the receiver was
appointed.
(f) A shareholder whose shares are pledged shall be entitled to vote
such shares until his shares have been transferred into the name of the pledgee,
and thereafter only the pledgee shall be entitled to vote the shares so
transferred.
SECTION 9. ACTION BY CONSENT. Any action required or permitted to be
taken at a meeting of shareholders may be taken without a meeting if all the
shareholders entitled to vote thereon consent thereto in writing. In addition to
the foregoing, except as otherwise provided by the Rhode Island Business
Corporation Act, any action required or permitted to be taken at a meeting of
the shareholders by the Act, the Certificate of Incorporation or these By-Laws,
may be taken without a meeting upon the written consent of less than all the
shareholders entitled to vote thereon if the shareholders who so consent would
be entitled to cast at least the minimum number of votes which would be required
to take such action at a meeting at which all shareholders entitled to vote
thereon are present. Prompt notice of such action shall be given to all
shareholders who would have been entitled to vote upon the action if such
meeting were held. The written consent of shareholders to any action shall be
filed with the minutes of proceedings of shareholders.
SECTION 10. INSPECTORS. For each election of directors by the
shareholders and in any other case in which it shall be advisable, in the
opinion of the Board, that the voting upon any matter shall be conducted by
inspectors of election, the Board shall appoint two inspectors of election. If,
for any such election of directors or the voting upon any such other matter, any
inspector appointed by the Board shall be unwilling or unable to serve, or if
the Board shall fail to appoint inspectors, the chairman of the meeting shall
appoint the necessary inspector or inspectors. The inspectors so appointed,
before entering upon the discharge of their duties, shall be sworn faithfully to
execute the duties of inspectors with strict impartiality, and according to the
best of their ability, and the oath so taken shall be subscribed by them. Such
inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each of the shares represented
at the meeting, the existence of a quorum, and the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all shareholders.
On request of the chairman of the meeting or any shareholder entitled to vote
thereat, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and shall execute a certificate of any
fact found by them. No director or candidate for the office of director shall
act as an inspector of election of directors. Inspectors need not be
shareholders.
4
<PAGE> 5
ARTICLE III
DIRECTORS
SECTION 1. POWERS. The business of the Corporation shall be managed
under the direction of the Board. The Board may exercise all such authority and
powers of the Corporation and do all such lawful acts and things as are not by
law or otherwise directed or required to be exercised or done by the
shareholders.
SECTION 2. NUMBER, ELECTION AND TERMS. The authorized number of
directors shall be seven and PROVIDED, HOWEVER, that such number may be
increased pursuant to vote of the holders of, adopted pursuant to the Articles
of Incorporation, establishing the Preferred Stock as therein provided.
SECTION 3. NOMINATIONS OF DIRECTORS; ELECTION. Nominations for the
election of directors may be made by the Board or a committee appointed by the
Board, or by any shareholder entitled to vote generally in the election of
directors who complies with the procedures set forth in this Section 3.
Directors shall be at least 21 years of age. Directors need not be shareholders.
At each meeting of shareholders for the election of directors at which a quorum
is present, the persons receiving a plurality of the votes cast shall be elected
directors. All nominations by shareholders shall be made pursuant to timely
notice in proper written form to the Secretary of the Corporation. To be timely,
a shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 30 days nor more
than 60 days prior to the meeting; PROVIDED, HOWEVER, that in the event that
less than 40 days notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the shareholder to be timely must be
so received not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. To be in proper written form, such shareholder's notice
shall set forth in writing (i) as to each person whom the shareholder proposes
to nominate for election or re-election as a director, all information relating
to such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, including,
without limitation, such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected; and (ii) as to
the shareholder giving the notice, the (x) name and address, as they appear on
the Corporation's books, of such shareholder and (y) the class and number of
shares of the Corporation which are beneficially owned by such shareholder. At
the request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the
Corporation the information required to be set forth in a shareholder's notice
of nomination which pertains to the nominee.
SECTION 4. PLACE OF MEETINGS. Meetings of the Board shall be held at
the Corporation's office in the State of Rhode Island or at such other place,
within or without such State, as the Board may from time to time determine or as
shall be specified or fixed in the notice or waiver of notice of any such
meeting.
5
<PAGE> 6
SECTION 5. REGULAR MEETINGS. Regular meetings of the Board shall be
held in accordance with a yearly meeting schedule as determined by the Board; or
such meetings may be held on such other days and at such other times as the
Board may from time to time determine. Notice of regular meetings of the Board
need not be given except as otherwise required by these By-laws.
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board may be
called by the Chairman or President and shall be called by the Secretary at the
request of any two of the other directors.
SECTION 7. NOTICE OF MEETINGS. Notice of each special meeting of the
Board (and of each regular meeting for which notice shall be required), stating
the time, place and purposes thereof, shall be mailed to each director,
addressed to him at his residence or usual place of business, or shall be sent
to him by telex, cable or telegram so addressed, or shall be given personally or
by telephone, on 24 hours' notice.
SECTION 8. QUORUM AND MANNER OF ACTING. The presence of at least a
majority of the authorized number of directors shall be necessary and sufficient
to constitute a quorum for the transaction of business at any meeting of the
Board. If a quorum shall not be present at any meeting of the Board, a majority
of the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present. Except where a different vote is required or permitted by law or these
By-laws or otherwise, the act of a majority of the directors present at any
meeting at which a quorum shall be present shall be the act of the Board. Any
action required or permitted to be taken by the Board may be taken without a
meeting if all the directors consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents thereto by the
directors shall be filed with the minutes of the proceedings of the Board. Any
one or more directors may participate in any meeting of the Board by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall be deemed to constitute presence in person at a meeting of
the Board.
SECTION 9. RESIGNATION. Any director may resign at any time by giving
written notice to the Corporation; PROVIDED, HOWEVER, that written notice to the
Board, the Chairman of the Board, the President or the Secretary shall be deemed
to constitute notice to the Corporation. Such resignation shall take effect upon
receipt of such notice or at any later time specified therein and, unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective.
SECTION 10. REMOVAL OF DIRECTORS. Subject to the rights of the holders
of the Preferred Stock, any director may be removed from office with or without
cause by a vote of majority in number of the entire Board of Directors.
SECTION 11. COMPENSATION OF DIRECTORS. The Board may provide for the
payment to any of the directors, other than officers or employees of the
Corporation, of a
6
<PAGE> 7
specified amount for services as director or member of a committee of the Board,
or of a specified amount for attendance at each regular or special Board meeting
or committee meeting, or of both, and all directors shall be reimbursed for
expenses of attendance at any such meeting; PROVIDED, HOWEVER, that nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEES OF THE BOARD
SECTION 1. APPOINTMENT AND POWERS OF AUDIT COMMITTEE. The Board may, by
resolution adopted by the affirmative vote of a majority of the authorized
number of directors, designate an Audit Committee of the Board, which shall
consist of such number of members as the Board shall determine. The Audit
committee shall (i) make recommendations to the Board as to the independent
accountants to be appointed by the Board; (ii) review with the independent
accountants the scope of their examination; (iii) receive the reports of the
independent accountants and meet with representatives of such accountants for
the purpose of reviewing and considering questions relating to their examination
and such reports; (iv) review, either directly or through the independent
accountants, the internal accounting and auditing procedures of the Corporation;
and (v) perform such other functions as may be assigned to it from time to time
by the Board. The Audit Committee may determine its manner of acting and fix the
time and place of its meetings, unless the Board shall otherwise provide. A
majority of the members of the Audit Committee shall constitute a quorum for the
transaction of business by the committee and the act of a majority of the
members of the committee present at a meeting at which a quorum shall be present
shall be the act of the committee.
SECTION 2. COMPENSATION COMMITTEE; OTHER COMMITTEES. The Board may, by
resolution adopted by the affirmative vote of a majority of the authorized
number of directors, designate members of the Board to constitute a Compensation
Committee and such other committees of the Board as the Board may determine.
Such committees shall in each case consist of such number of directors as the
Board may determine, and shall have and may exercise, to the extent permitted by
law, such powers as the Board may delegate to them in the respective resolutions
appointing them. Each such committee may determine its manner of acting and fix
the time and place of its meetings, unless the Board shall otherwise provide. A
majority of the members of any such committee shall constitute a quorum for the
transaction of business by the committee and the act of a majority of the
members of such committee present at a meeting at which a quorum shall be
present shall be the act of the committee.
SECTION 3. ACTION BY CONSENT; PARTICIPATION BY TELEPHONE OR SIMILAR
EQUIPMENT. Unless the Board shall otherwise provide, any action required or
permitted to be taken by any committee may be taken without a meeting if all
members of the committee consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents thereto by the
members of the committee shall be filed with the minutes of the proceedings of
the committee. Unless the Board shall otherwise provide, any one or more members
of any such committee may participate in any meeting of the committee by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can
7
<PAGE> 8
hear each other. Participation by such means shall constitute presence in person
at a meeting of the committee.
SECTION 4. CHANGES IN COMMITTEES; RESIGNATIONS; REMOVALS. Subject to
the provisions of the Preferred Stock, the Board shall have power, by the
affirmative vote of a majority of the authorized number of directors, at any
time to change the members of, to fill vacancies in, and to discharge any
committee of the Board. The Chairman of the Board may designate one or more
directors as alternate members of any committee who may act in the place and
stead of members who temporarily cannot attend any such meeting. Any member of
any such committee may resign at any time by giving notice to the Corporation;
PROVIDED, HOWEVER, that notice to the Board, the Chairman of the Board, the
President, the chairman of such committee or the Secretary shall be deemed to
constitute notice to the Corporation. Such resignation shall take effect upon
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective. Any member of any such committee may be removed
at any time, either with or without cause, by the affirmative vote of a majority
of the authorized number of directors at any meeting of the Board called for
that purpose.
ARTICLE V
OFFICERS
SECTION 1. NUMBER AND QUALIFICATION. The Corporation shall have such
officers as may be necessary or desirable for the business of the Corporation.
Each officer of the Corporation shall have a title set forth below or as may be
prescribed by the Board and shall hold his office for such term as may be
prescribed by the Board PROVIDED, HOWEVER, that the term for the Chairman of the
Board and Vice Chairman of the Board shall automatically terminate upon the
termination of such officer's term as a director of the Corporation. There shall
be elected from among the officers of the Corporation, persons having the titles
and exercising the duties (as prescribed by the By-laws or by the Board) of
Chairman of the Board and Chief Executive Officer, Vice Chairman of the Board,
President, one or more Executive Vice Presidents, one or more Vice Presidents,
the Treasurer and the Secretary, and such other persons having such other titles
and such other duties as the Board may prescribe. The same person may hold more
than one office other than the offices of Chairman of the Board and Vice
Chairman of the Board. The Chairman of the Board and the Vice Chairman of the
Board shall be elected from among the directors. The Chairman of the Board may
appoint one or more deputies, associates or assistant officers or such other
agents as may be necessary or desirable for the business of the Corporation. In
case one or more deputies, associates or assistant officers shall be appointed,
the officer such appointee assists may delegate to the appointee the authority
to perform such of the officer's duties as the officer may determine.
SECTION 2. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Corporation; PROVIDED HOWEVER, that notice to the Board,
Chairman of the Board, the President or the Secretary shall be deemed to
constitute notice to the Corporation. Such resignation shall take effect upon
receipt of such notice or at any later time specified therein; and,
8
<PAGE> 9
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 3. REMOVAL. Any officer or agent may be removed, either with or
without cause, at any time, by the Board at any meeting called for that purpose;
PROVIDED, HOWEVER, that the Chairman of the Board, Vice Chairman of the Board
and President may remove any agent appointed by him. Any removal shall be
without prejudice to the contract rights, if any, of the person so removed.
SECTION 4. VACANCIES. Any vacancy among the officers, whether caused by
death, resignation, removal or any other cause, shall be filled in the manner
prescribed for election or appointment to such office.
SECTION 5. CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER. The
Chairman of the Board and Chief Executive Officer shall, if present, preside at
all meetings of the Board and, if present, at all meetings of the shareholders.
He shall perform the duties incident to the office of the Chairman of the Board
and, under the direction of the Board, shall have actual management of the
operations, business and affairs of the Corporation.
SECTION 6. VICE CHAIRMAN OF THE BOARD. Subject to the Chairman of the
Board of Directors, the Executive Committee and the Board of Directors itself,
the Vice Chairman of the Board of Directors shall preside at all meetings of the
Board of Directors in the Chairman's absence, and shall, in general, during the
Chairman's absence perform all duties incident to the office of Chairman of the
Board but shall not act as Chief Executive Officer. The Vice Chairman of the
Board have such other duties as may be assigned to him by the Board of Directors
or the Executive Committee.
SECTION 7. PRESIDENT. The President shall have such powers and perform
such duties as provided in these By-laws or as the Board of Directors, the
Chairman, or in the absence of the Chairman, the Vice Chairman, may assign to
him. He shall at all times see that all resolutions or determinations of the
Board are carried into effect. He shall perform the duties incident to the
office of the President and all such other duties as are specified in these
By-laws or as shall be assigned to him from time to time by the Board. In the
event that there is a vacancy in the position of President, which shall not have
been filled as provided in the By-laws, the Board of Directors may designate one
or more of the principal officers of the Corporation to perform such duties as
may be required of the President by the By-laws or by law. In the absence of the
Chairman of the Board and the Vice Chairman of the Board, the President shall
preside at all meetings of the Board of Directors and all meetings of the
shareholders.
SECTION 8. EXECUTIVE VICE-PRESIDENT AND VICE PRESIDENT. There may be
one or more Executive Vice-Presidents and as many Vice-Presidents as the Board
of Directors may elect or appoint. Any Executive Vice-President and each
Vice-President shall have such power and perform such duties as the Board of
Directors may prescribe or as the Chairman may delegate to him.
9
<PAGE> 10
SECTION 9. TREASURER AND CHIEF FINANCIAL OFFICER. The Treasurer and
Chief Financial Officer shall have charge and custody of, and be responsible
for, all funds and securities of the Corporation, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation,
shall deposit all moneys and other valuables to the credit of the Corporation in
such depositories as may be designated pursuant to these By-laws, shall receive,
and give receipts for, moneys due and payable to the Corporation from any source
whatsoever, shall disburse the funds of the Corporation and shall render to all
regular meetings of the Board, or whenever the Board may require, an account of
all his transactions as Treasurer. He shall, in general, perform all the duties
incident to the office of Treasurer and all such other duties as may be assigned
to him from time to time by the Chairman or such other officer to whom the
Treasurer reports.
SECTION 10. SECRETARY. The Secretary shall, if present, act as
secretary of, and keep the minutes of, all meetings of the Board, the Executive
Committee and other committees of the Board and the shareholders in one or more
books provided for that purpose, shall see that all notices are duly given in
accordance with these By-laws and as required by law, shall be custodian of the
seal of the Corporation and shall affix and attest the seal to all documents to
be executed on behalf of the Corporation under its seal. He shall, in general,
perform all the duties incident to the office of Secretary and all such other
duties as may be assigned to him from time to time by the President or such
other officer to whom the Secretary reports.
SECTION 11. BONDS OF OFFICERS. If required by the Board, any officer of
the Corporation shall give a bond for the faithful discharge of his duties in
such amount and with such surety or sureties as the Board may require.
SECTION 12. COMPENSATION. The salaries of the officers shall be fixed
from time to time by the Compensation Committee of the Board; PROVIDED, HOWEVER,
that the Chairman may fix or delegate to others the authority to fix the
salaries of any agents appointed by the Chairman. No officer shall be prevented
from receiving his salary by reason of the fact that he is also a director of
the Corporation.
SECTION 13. OFFICERS OF OPERATING COMPANIES OR DIVISIONS. The Chairman
shall have the power to appoint, remove, and prescribe the terms of office,
responsibilities, duties and salaries of, the officers of the operating
companies or divisions, other than those who are officers of the Corporation.
ARTICLE VI
CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC.
SECTION 1. CONTRACTS. The Board may authorize any officer or officers,
agent or agents, in the name and on behalf of the Corporation, to enter into any
contract or to execute and deliver any instrument, which authorization may be
general or confined to specific instances; and, unless so authorized by the
Board, no officer, agent or employee shall have any power or authority to bind
the Corporation by any contract or engagement or to pledge its credit or to
render it liable pecuniarily for any purpose or for any amount.
10
<PAGE> 11
SECTION 2. CHECKS, ETC. All checks, drafts, bills of exchange or other
orders for the payment of money out of the funds of the Corporation, and all
notes or other evidences of indebtedness of the Corporation, shall be signed in
the name and on behalf of the Corporation in such manner as shall from time to
time be authorized by the Board, which authorization may be general or confined
to specific instances.
SECTION 3. LOANS. No loan shall be contracted on behalf of the
Corporation, and no negotiable paper shall be issued in its name, unless
authorized by the Board, which authorization may be general or confined to
specific instances. All bonds, debentures, notes and other obligations or
evidences of indebtedness of the Corporation issued for such loans shall be
made, executed and delivered as the Board shall authorize.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as may be selected by or in
the manner designated by the Board. The Board or its designees may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of the Certificate of Incorporation or these
By-laws, as them may deem advisable.
ARTICLE VII
CAPITAL STOCK
SECTION 1. STOCK CERTIFICATES. Each shareholder shall be entitled to
have, in such form as shall be approved by the Board, a certificate or
certificates signed by the Chairman of the Board or President and by either the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
(except that, when any such certificate is countersigned by a transfer agent or
registered by a registrar other than the Corporation or an employee of the
Corporation, the signatures of any such officers may be facsimiles, engraved or
printed), which may be sealed with the seal of the Corporation (which seal may
be a facsimile, engraved or printed), certifying the number of shares of capital
stock of the Corporation owned by such shareholder. In the event any officer who
has signed or whose facsimile signature has been placed upon any such
certificate shall have ceased to be such officer before such certificate is
issued, such certificate may be issued by the Corporation with the same effect
as if he were such officer at the date of its issue.
SECTION 2. LISTS OF SHAREHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make or cause to be prepared or made, at least 10 days before every meeting
of shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
shareholder and the number of shares of capital stock registered in the name of
each shareholder. Such list shall be open to the examination of any shareholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the
11
<PAGE> 12
meeting for the duration thereof, and may be inspected by any shareholder of the
Corporation who is present.
SECTION 3. STOCK LEDGER. The stock ledger of the Corporation shall be
the only evidence as to who are the shareholders entitled to examine the stock
ledger, the list required by Section 2 of this Article VII or the books of the
Corporation, or to vote in person or by proxy at any meeting of shareholders.
SECTION 4. TRANSFERS OF CAPITAL STOCK. Transfers of shares of capital
stock of the Corporation shall be made only on the stock ledger of the
Corporation by the holder of record thereof, by his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation, or by the transfer agent of the Corporation, and only on
surrender of the certificate or certificates representing such shares, properly
endorsed or accompanied by a duly executed stock transfer power. The Board may
make such additional rules and regulations as it may deem advisable concerning
the issue and transfer of certificates representing shares of the capital stock
of the Corporation.
SECTION 5. LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
SECTION 6. FIXING OF RECORD DATE. In order that the Corporation may
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
dividends or other distributions or allotments of any rights, or entitled to
exercise any rights in respect to any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than 60 days nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting; PROVIDED,
HOWEVER, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 7. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner, and to hold liable for
calls and assessments a person registered on its books as the owner of shares,
and shall not be bound to recognize any equitable or other claim to or interest
in such shares on the part of any other person, whether or not the Corporation
shall have express or other notice thereof, except as otherwise provided by law.
12
<PAGE> 13
ARTICLE VIII
FISCAL YEAR
The Corporation's fiscal year-end shall be the Saturday closest to
December 31st.
ARTICLE IX
SEAL
The Corporation's seal shall be circular in form and shall include the
words "Accessories Associates, Inc., Rhode Island, 1985, Corporate Seal."
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required by law, the Articles of Incorporation
or these By-Laws to be given to any director, member of a committee or
shareholder, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether signed before or after the time stated in such
written waiver, shall be deemed equivalent to such notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when such person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the grounds that
the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the shareholders, directors,
or members of a committee of directors need be specified in any written waiver
of notice.
ARTICLE XI
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. (a) Each person who was or is made
a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or the
person of whom he or she is the legal representative, is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action or inaction in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Rhode Island Business Corporation Act, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure
13
<PAGE> 14
to the benefit of his or her heirs, executors and administrators; PROVIDED,
HOWEVER, that, except as provided in this Article XI, the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this Article XI shall be a contract
right and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that, if the Rhode Island Business Corporation Act requires,
the payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer of the Corporation (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
SECTION 2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under SECTION 1
is not paid in full by the Corporation within 30 days after a written claim has
been received by the Corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceedings in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Rhode Island Business Corporation Act for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification or
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Rhode Island Business
Corporation Act, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel, or its shareholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article XI shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Articles of Incorporation, By-laws, agreement, vote of
shareholders or disinterested directors or otherwise.
SECTION 4. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability
14
<PAGE> 15
or loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the Rhode Island Business
Corporation Act.
ARTICLE XII
AMENDMENTS
These By-laws or any of them may be amended or supplemented in any
respect at any time, either (i) at any meeting of shareholders, provided that
any amendment or supplement proposed to be acted upon at any such meeting shall
have been described or referred to in the notice of such meeting; or (ii) at any
meeting of the Board, provided that any amendment or supplement proposed to be
acted upon at any such meeting shall have been described or referred to in the
notice of such meeting or an announcement with respect thereto shall have been
made at the last previous Board meeting, and provided further that no amendment
or supplement adopted by the Board shall vary or conflict with any amendment or
supplement adopted by the shareholders.
15
<PAGE> 1
Exhibit 3.2.1
RESTATED ARTICLES OF INCORPORATION
OF
THE BONNEAU COMPANY
ARTICLE I
The Bonneau Company, pursuant to the provisions of Article 4.07 of the
Texas Business Corporation Act, hereby adopts these Restated Articles of
Incorporation, which accurately copy the Articles of Incorporation, as restated
and amended by these Restated Articles of Incorporation, are set forth below and
contain no other changes in any provisions.
ARTICLE II
The following amendments to the Articles of Incorporation were adopted
by written consent of the sole shareholder of the corporation on October 15,
1991:
This amendment deletes all of Article IV of the original Articles of
Incorporation and replaces it with:
The aggregate number of shares which the corporation has
authority to issue is One Hundred Thousand (100,000) shares of One
Dollar ($1.00) par value per share. The shares are designated as common
stock and have identical rights and privileges in every respect.
This amendment deletes all of Article V of the original Articles of
Incorporation and replaces it with the following:
Any action required by applicable law to be taken at any
annual or special meeting of the shareholders, or any action which may
be taken at any annual or special meeting of the shareholders, may be
taken without a meeting, without prior notice, and without a vote, if a
consent or consents in writing, setting forth the actions so taken, is
signed by the holders of shares having not less than the minimum number
of votes necessary to take such action at a meeting at which the
holders of all shares entitled to vote on the action were present and
voted.
<PAGE> 2
This Amendment deletes all of Article VI of the original Articles of
Incorporation and replaces it with the following:
No holder of any share of the corporation, whether now or
hereafter authorized, or other person shall have any pre-emptive or
preferential right to purchase, receive or subscribe to (a) any
unissued or treasury shares of any class of stock of the corporation,
(b) any obligations, evidences of indebtedness or other securities of
the corporation convertible into or exchangeable for, or carrying or
accompanied by, any rights to receive, purchase or subscribe to, any
such treasury or unissued shares, (c) any warrant or option for the
purchase of any of the foregoing securities, or (d) any of the
securities that may be issued or sold by the corporation.
This amendment deletes all of Article VII of the original Articles of
Incorporation and replaces it with the following:
Cumulative voting by the shareholders of the corporation at
any election for directors is expressly prohibited. The shareholders
entitled to vote for directors in such election shall be entitled to
cast one vote per directorship for each share held, and no more.
This amendment deletes all of Article VIII of the original Articles of
Incorporation and replaces it with the following:
The corporation will not commence business until it has
received for the issuance of its shares consideration of the value of
One Thousand Dollars ($1,000,000), consisting of money, labor done, or
property actually received.
The following amendments are in addition to the original Articles of
Incorporation and the full text of these provisions added reads as follows:
ARTICLE IX
To the fullest extent permitted by Article 2.02-1 of the Texas
Business Corporation Act, as amended from time to time, the corporation
shall indemnify the directors and officers of the corporation.
2
<PAGE> 3
ARTICLE X
The street address of the registered office of the corporation is c/o
The Prentice-Hall Corporation System, Inc., 400 North St. Paul, Dallas, Texas
75201, and the name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE XI
Subject to changes authorized by the Bylaws of the corporation, the
number of directors constituting the board of directors is twelve (12), and the
names and addresses of the persons who are presently serving as directors until
their successors are elected and qualified are:
Edwin V. Bonneau 1601 Valleyview Lane
Farmers Branch, Texas 75234
Barbara Bonneau 1601 Valleyview Lane
Farmers Branch, Texas 75234
Steven P. Watten 633 Raven
Coppell, Texas 75019
A. Rene Watten 633 Raven
Coppell, Texas 75019
Shannon Bonneau 1601 Valleyview Lane
Farmers Branch, Texas 75234
Marsha Bonneau 1601 Valleyview Lane
Farmers Branch, Texas 75234
J. Dan Heard 1601 Valleyview Lane
Farmers Branch, Texas 75234
Kelly Heard 1601 Valleyview Lane
Farmers Branch, Texas 75234
Todd Bonneau 1601 Valleyview Lane
Farmers Branch, Texas 75234
Julie Bonneau 1601 Valleyview Lane
Farmers Branch, Texas 75234
3
<PAGE> 4
ARTICLE XII
To the extent permitted by the Texas Miscellaneous Corporation Laws
Act, as amended from time to time, the directors of the corporation shall not be
liable to the corporation or its shareholders for monetary damages for an act or
omission in the director's capacity as a director.
ARTICLE III
Each statement made by these Restated Articles of Incorporation has
been effected in conformity with the provisions of the Texas Business
Corporation Act. These Restated Articles of Incorporation and each amendment
made by these Restated Articles of Incorporation were adopted by the sole
shareholder of the corporation on October ___, 1991.
ARTICLE IV
The number of shares of the corporation outstanding at the time of the
adoption was one thousand (1,000); and the number of shares entitled to a vote
on the amendments was one thousand (1,000).
ARTICLE V
The holder of all of the shares outstanding and entitled to vote on the
amendments has signed a consent in writing adopting the amendments.
ARTICLE VI
The Articles of Incorporation and all amendments and supplements to
them are superseded by the following Restated Articles of Incorporation, which
accurately copy the entire text of the articles, as well as incorporate the
amendments set forth above:
4
<PAGE> 5
ARTICLES OF INCORPORATION
OF
THE BONNEAU COMPANY
ARTICLE I
NAME
The name of the corporation is THE BONNEAU COMPANY.
ARTICLE II
DURATION
The period of its duration is perpetual.
ARTICLE III
PURPOSE
The corporation is organized for the purpose of engaging in the
business of any or all lawful business for which corporations may be
incorporated under the Texas Business Corporation Act. The corporation shall
have all powers now or that hereafter may be conferred upon corporations
organized under the Texas Corporation Act by law.
ARTICLE IV
SHARES
The aggregate number of shares which the corporation has authority to
issue is One Hundred Thousand (100,000) share of One Dollar ($1.00) par value
per share. The shares are designated as common stock and have identical rights
and privileges in every respect.
5
<PAGE> 6
ARTICLE V
SHAREHOLDERS MEETINGS
Any action required by applicable law to be taken at any annual or
special meeting of shareholders, or any action which may be taken at any annual
or special meeting of shareholders, may be taken without a meeting, without
prior notice, and without a vote, if a consent or consents in writing, setting
forth the action so taken, is signed by the holders of shares having not less
than the minimum number of votes necessary to take such action at a meeting at
which the holders of all shares entitled to vote on the action were present and
votes.
ARTICLE VI
DENIAL OF PREEMPTIVE RIGHTS
No holder of any share of the corporation, whether now or hereafter
authorized, or other person shall have any preemptive or preferential right to
purchase, receive or subscribe to (a) any unissued or treasury shares of any
class of stock of the corporation, (b) any obligations, evidences of
indebtedness or other securities of the corporation convertible into or
exchangeable for, or carrying or accompanied by, any rights to receive, purchase
or subscribe to, any such treasury or unissued shares, (c) any warrant or option
for the purchase of any of the foregoing securities, or (d) any other securities
that may be issued or sold by the corporation.
ARTICLE VII
NONCUMULATIVE VOTING
Cumulative voting by the shareholders of the corporation at any
election for directors is expressly prohibited. The shareholders entitled to
vote for directors in such election shall be entitled to cast one vote per
directorship for each share held, and no more.
6
<PAGE> 7
ARTICLE VIII
COMMENCEMENT OF BUSINESS
The corporation will not commence business until it has received for
the issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00), consisting of money, labor done, or property actually received.
ARTICLE IX
MANDATORY INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
To the fullest extent permitted by Article 2.02-1 of the Texas Business
Corporation Act, as amended from time to time, the corporation shall indemnify
the directors and officers of the corporation.
ARTICLE X
REGISTERED OFFICE AND AGENT
The street address of the registered office of the corporation is c/o
The Prentice-Hall Corporation System, Inc., 400 North St. Paul, Dallas, Texas
75201 and the name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE XI
DIRECTORS
Subject to changes authorized by the Bylaws of the corporation, the
number of directors constituting the board of directors is twelve (12), and the
names and addresses of the persons who are presently serving as directors until
their successors are elected and qualified are:
Edwin V. Bonneau 1601 Valleyview Lane
Farmers Branch, Texas 75234
Barbara Bonneau 1601 Valleyview Lane
Farmers Branch, Texas 75234
7
<PAGE> 8
Steven P. Watten 633 Raven
Coppell, Texas 75019
A. Rene Watten 633 Raven
Coppell, Texas 75019
Shannon Bonneau 1601 Valleyview Lane
Farmers Branch, Texas 75234
Marsha Bonneau 1601 Valleyview Lane
Farmers Branch, Texas 75234
J. Dan Heard 1601 Valleyview Lane
Farmers Branch, Texas 75234
Kelly Heard 1601 Valleyview Lane
Farmers Branch, Texas 75234
Todd Bonneau 1601 Valleyview Lane
Farmers Branch, Texas 75234
Julia Bonneau 1601 Valleyview Lane
Farmers Branch, Texas 75234
ARTICLE XII
LIMITATION OF LIABILITY OF DIRECTORS
To the extent permitted by the Texas Miscellaneous Corporation Laws
Act, as amended from time to time, the directors of the corporation shall not be
liable to the corporation or its shareholders for monetary damages for an act or
omission in the director's capacity as a director.
THE BONNEAU COMPANY
By: /s/ Edwin B. Bonneau
-------------------------------------
Edwin V. Bonneau, President
8
<PAGE> 1
Exhibit 3.2.2
BYLAWS OF
THE BONNEAU COMPANY
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of The Bonneau
Company (the "Corporation") shall be in Dallas County, Texas.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Texas as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
SHAREHOLDERS
SECTION 1. TIME AND PLACE OF MEETINGS. Meetings of the shareholders
shall be held at such time and at such place, within or without the State of
Texas, as shall be determined by the Board of Directors.
SECTION 2. ANNUAL MEETINGS. Annual meetings of shareholders shall be
held on the second Tuesday of February at 12:00 P.M., noon, at a location to be
determined by the Board of Directors, or at such time as shall be otherwise
determined by the Board of Directors. At each annual meeting the shareholders
shall elect a Board of Directors and transact such other business as may
properly be brought before the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders may
be called at any time by the Chief Executive Officer or the Board of Directors,
and shall be called by the Chief Executive Officer or the Secretary at the
request in writing of the holders of not less than ten percent (10%) of the
voting power represented by all the shares issued, outstanding and entitled to
be voted at the proposed special meeting, unless the Articles of Incorporation
provide for a different percentage, in which event such provision shall govern.
Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at special meetings shall be confined to the purposes stated
in the notice of the meeting.
SECTION 4. NOTICE. Written or printed notice stating the place, day and
hour of any shareholders' meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) nor more than sixty (60) days before the date of the meeting,
either personally or by mail, by or at the direction of the Chief Executive
Officer, the Secretary or the officer or person calling the meeting, to each
shareholder entitled to vote at such meeting. If mailed, such notice shall
<PAGE> 2
be deemed to be delivered when deposited with the United States postal Service,
postage prepaid, addressed to the shareholder at his address as it appears on
the share transfer records of the Corporation.
SECTION 5. CLOSING OF SHARE TRANSFER RECORDS AND FIXING RECORD DATES
FOR MATTERS OTHER THAN CONSENTS TO ACTION. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any distribution or
share dividend, or in order to make a determination of shareholders for any
other proper purpose (other than determining shareholders entitled to consent to
action by shareholders proposed to be taken without a meeting of shareholders),
the Board of Directors of the Corporation may provide that the share transfer
records shall be closed for a stated period but not to exceed, in any case,
sixty (60) days. If the share transfer records shall be closed for the purpose
of determining shareholders, such records shall be closed for at least ten (10)
days immediately preceding such meeting. In lieu of closing the share transfer
records, the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than sixty (60) days and, in the case of a meeting of shareholders, not less
than ten (10) days prior to the date on which the particular action requiring
such determination of shareholders is to be taken. If the share transfer records
are not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a distribution (other than a distribution
involving a purchase or redemption by the Corporation of any of its own shares)
or share dividend, the date on which notice of the meeting is mailed or the date
on which the resolution of the Board of Directors declaring such distribution or
share dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment thereof except where the
determination has been made through the closing of share transfer records and
the stated period of closing has expired.
SECTION 6. FIXING RECORD DATES FOR CONSENTS TO ACTION. Unless a record
date shall have previously been fixed or determined pursuant to this SECTION 6,
whenever action by shareholders is proposed to be taken by consent in writing
without a meeting of shareholders, the Board of Directors may fix a record date
for the purpose of determining shareholders entitled to consent to that action
which record date shall not precede, and shall not be more than ten (10) days
after, the date upon which the resolution fixing the record date is adopted by
the Board of Directors. If no record date has been fixed by the Board of
Directors and the prior action of the Board of Directors is not required by the
Texas Business Corporation Act (herein called the "Act"), the record date for
determining shareholders entitled to consent to action in writing without a
meeting shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office, its principal place of business, or an
officer or agent of the Corporation having custody of the records in which
proceedings of meetings of shareholders are recorded. Delivery shall be by hand
or
2
<PAGE> 3
by certified or registered mail, return receipt requested. Delivery to the
Corporation's principal place of business shall be addressed to the president or
the chief executive officer of the Corporation. If no record date shall have
been fixed by the board of Directors and prior action of the Board of Directors
is required by the Act, the record date for determining shareholders entitled to
consent to action in writing without a meeting shall be at the close of business
on the date on which the Board of Directors adopts a resolution taking such
prior action.
SECTION 7. LIST OF SHAREHOLDERS. The officer or agent of the
corporation having charge of the share transfer books for shares of the
corporation shall make, at least ten (10) days before each meeting of the
shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of voting shares held by each, which list, for a
period of ten (10) days prior to such meeting, shall be kept on file at the
registered office or principal place of business of the Corporation and shall be
subject to inspection by any shareholder at any time during the usual business
hours of the Corporation. Such list shall also be produced and kept open at the
time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting. The original share transfer
records shall be prima facie evidence as to who are the shareholders entitled to
examine such list or transfer records or to vote at any meeting of shareholders.
Failure to comply with the requirements of this SECTION 7 shall not affect the
validity of any action taken at such meeting.
SECTION 8. QUORUM. A quorum shall be present at a meeting of
shareholders if the holders of shares having a majority of the voting power
represented by all issued and outstanding shares entitled to vote at the meeting
are present in person or represented by proxy at such meeting, unless otherwise
provided by the Articles of Incorporation in accordance with the Act. Once a
quorum is present at a meeting of shareholders, the shareholders represented in
person or by proxy at the meeting may conduct such business as may properly be
brought before the meeting until it is adjourned, and the subsequent withdrawal
from the meeting of any shareholder or the refusal of any shareholder
represented in person or by proxy to vote shall not affect the presence of a
quorum at the meeting. If, however, a quorum shall not be present at any meeting
of shareholders, the shareholders entitled to vote, present or in person or
represented by proxy, shall have power to adjourn the meeting, without notice
other than announcement at the meeting, until such time and to such place as may
be determined by a vote of the holders of a majority of the shares represented
in person or by proxy at such meeting until a quorum shall be present. At such
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally noticed.
SECTION 9. VOTING. When a quorum is present at any meeting, the vote of
the holders of a majority of the shares entitled to vote, present in person or
represented by proxy at such meeting, shall decide any matter brought before
such meeting, other than the election of directors or a matter for which the
affirmative vote of the holders of a specified portion of the holders of the
shares entitled to vote is required by the Act, and shall be the
3
<PAGE> 4
act of the shareholders, unless otherwise provided by the Articles of
Incorporation or these Bylaws in accordance with the Act.
Unless otherwise provided in the Articles of Incorporation or these
Bylaws in accordance with the Act, directors of the Corporation shall be elected
by a plurality of the votes cast by the holders of shares entitled to vote in
the election of directors at a meeting of shareholders at which a quorum is
present.
At every meeting of the shareholders, each shareholder shall be
entitled to such number of votes, in person or by proxy, for each share having
voting power held by such shareholder, as is specified in the Articles of
Incorporation (including the resolution of the Board of Directors (or a
committee thereof) creating such shares), except to the extent that the voting
rights of the shares of any class or series are limited or denied by the
Articles of Incorporation. At each election of directors, every shareholder
shall be entitled to cast, in person or by proxy, the number of votes to which
the shares owned by him are entitled for as many persons as there are directors
to be elected and for whose election he has a right to vote. Cumulative voting
is prohibited by the Articles of Incorporation. Every proxy must be executed in
writing by the shareholder. A telegram, telex, cablegram, or similar
transmission by the shareholder, or a photographic, photostatic, facsimile, or
similar reproduction of a writing executed by the shareholder, shall be treated
as an execution in writing for the purposes of this SECTION 9. No proxy shall be
valid after eleven (11) months from the date of its execution unless otherwise
provided therein. Each proxy shall be revocable unless (i) the proxy form
conspicuously states that the proxy is irrevocable, and (ii) the proxy is
coupled with an interest, as defined in the Act and other Texas law.
Shares standing in the name of another corporation may be voted by
such officer, agent or proxy as the bylaws of such corporation may prescribe or,
in the absence of such provision, as the board of directors of such corporation
may determine.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name as trustee.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without being transferred into his name, if such authority is
contained in an appropriate order of the court that appointed the receiver.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
4
<PAGE> 5
Treasury shares, shares of the Corporation's stock owned by another
corporation the majority of the voting stock of which is owned or controlled by
the Corporation, and shares of its own stock held by the Corporation in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
SECTION 10. ACTION BY CONSENT. Any action required or permitted to be
taken at a meeting of the shareholders may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, shall be signed by all of the shareholders entitled to vote
with respect to the action that is the subject of the consent.
In addition, if the Articles of Incorporation so provide, any action
required or permitted to be taken at a meeting of the shareholders may be taken
without a meeting, without prior notice, and without a vote if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take such action at a meeting at which the holders of
all shares entitled to vote on the action were present and voted. Prompt notice
of the taking of any action by shareholders without a meeting by less than
unanimous written consent shall be given to those shareholders who did not
consent in writing to the action.
Every written consent shall bear the date of signature of each
shareholder who signs the consent. No written consent shall be effective to
take the action that is the subject of the consent unless, within sixty (60)
days after the date of the earliest dated consent delivered to the Corporation
as set forth below in this SECTION 10, the consent or consents signed by the
holders of shares having not less than the minimum number of votes that would be
necessary to take the action that is the subject of the consent are delivered to
the Corporation by delivery to its registered office, its principal place of
business, or an officer or agent of the Corporation having custody of the
records in which proceedings of meetings of shareholders are recorded. Delivery
shall be by hand or certified or registered mail, return receipt requested.
Delivery to the Corporation's principal place of business shall be addressed to
the President or the Chief Executive Officer of the Corporation. A telegram,
telex, cablegram, or similar transmission by a shareholder, or a photographic,
photostatic, facsimile, or similar reproduction of a writing signed by a
shareholder, shall be regarded as signed by the shareholder for the purposes of
this SECTION 10.
SECTION 11. PRESENCE AT MEETINGS BY MEANS OF COMMUNICATIONS EQUIPMENT.
Shareholders may participate in and hold a meeting of the shareholders by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in a meeting pursuant to this SECTION 11 shall constitute presence in person at
such meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
5
<PAGE> 6
ARTICLE III
DIRECTORS
SECTION 1. NUMBER OF DIRECTORS. The number of directors of the
Corporation shall be fixed at twelve, but may be changed from time to time by
resolution of the Board of Directors, but in no case shall the number of
directors be less than one. No decrease in the number of directors shall have
the effect of reducing the term of any incumbent director. Directors shall be
elected at each annual meeting of the shareholders by the holders of shares
entitled to vote in the election of directors, except as provided in SECTION 2
of this ARTICLE III, and each director shall hold office until the annual
meeting of shareholders following his election or until his successor is elected
and qualified. Directors need not be residents of the State of Texas or
shareholders of the Corporation.
SECTION 2. VACANCIES. Subject to other provisions of this SECTION 2,
any vacancy occurring in the Board of Directors may be filled by election at an
annual or special meeting of the shareholders called for that purpose or by the
affirmative vote of a majority of the remaining directors, though the remaining
directors may constitute less than a quorum of the Board of Directors as fixed
by SECTION 9 of this ARTICLE III. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office. Any directorship to
be filled by reason of an increase in the number of directors shall be filled by
election at an annual meeting or at a special meeting of shareholders called for
that purpose or may be filled by the Board of Directors for a term of office
continuing only until the next election of one or more directors by the
shareholders; provided that the Board of Directors may not fill more than two
such directorships during the period between any two successive annual meetings
of shareholders. Shareholders holding a majority of shares then entitled to vote
at an election of directors may, at any time and with or without cause,
terminate the term of office of all or any of the directors by a vote at any
annual or special meeting called for that purpose. Such removal shall be
effective immediately upon such shareholder action even if successors are not
elected simultaneously, and the vacancies on the Board of Directors caused by
such action shall be filled only by election by the shareholders.
Notwithstanding the foregoing, whenever the holders of any class of
series of shares are entitled to elect one or more directors by the provisions
of the Articles of Incorporation, only the holders of shares of that class or
series shall be entitled to vote for or against the removal of any director
elected by the holders of shares of that class or series; and any vacancies in
such directorships and any newly created directorships of such class or series
to be filled by reason of an increase in the number of such directors may be
filled by the affirmative vote of a majority of the directors elected by such
class or series then in office or by a sole remaining director so elected, or by
the vote of the holders of the outstanding shares of such class or series, and
such directorships shall not in any case be filled by the vote of the remaining
directors or the holders of the outstanding shares as a whole, unless otherwise
provided in the Articles of Incorporation.
6
<PAGE> 7
SECTION 3. GENERAL POWERS. The powers of the Corporation shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, its Board of Directors,
which may do or cause to be done all such lawful acts and things, as are not by
the Act, the Articles of incorporation or these Bylaws directed or required to
be exercised or done by the shareholders.
SECTION 4. PLACE OF MEETINGS. The Board of Directors of the corporation
may hold meetings, both regular and special, either within or without the State
of Texas.
SECTION 5. ANNUAL MEETINGS. The first meeting of each newly elected
Board of Directors shall be held, without further notice, immediately following
the annual meeting of shareholders at the same place, unless by the majority
vote or unanimous consent of the directors then elected and serving, such time
or place shall be changed.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held with or without notice at such time and place as the Board of
Directors may determine by resolution.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chief Executive Officer and shall be
called by the Secretary on the written request of a majority of the incumbent
directors. The person or persons authorized to call special meetings of the
Board of Directors may fix the place for holding any special meeting of the
Board of Directors called by such person or persons. Notice of any special
meeting shall be given at least twenty-four (24) hours previous thereto if given
either personally (including written notice delivered personally or telephone
notice) or by telex, telecopy, telegram or other means of immediate
communication, and at least seventy-two (72) hours previous thereto if given by
written notice mailed or otherwise transmitted to each director at the address
of his business or residence. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting. Any director may
waive notice of any meeting, as provided in SECTION 2 of ARTICLE IV of these
Bylaws. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
SECTION 8. QUORUM AND VOTING. At all meetings of the Board of
Directors, the presence of a majority of the number of directors fixed in the
manner provided in SECTION 1 of this ARTICLE III shall constitute a quorum for
the transaction of business. At all meetings of committees of the Board of
Directors (if one or more be designated in the manner described in SECTION 9 of
this ARTICLE III), the presence of a majority of the number of directors fixed
from time to time by resolution of the Board of Directors to serve as members of
such committees shall constitute a quorum for the transaction of business. The
affirmative vote of at least a majority of the directors present and entitled to
vote at any
7
<PAGE> 8
meeting of the Board of Directors or a committee of the Board of Directors at
which there is a quorum shall be the act of the Board of Directors or the
committee, except as may be otherwise specifically provided by the Act, the
Articles of Incorporation or these Bylaws. Directors with an interest in a
business transaction of the Corporation and directors who are directors or
officers or have a financial interest in any other corporation, partnership,
association or other organization with which the Corporation is transacting
business may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee of the Board of Directors to authorize
such business transaction. If a quorum shall not be present at any meeting of
the Board of Directors or a committee thereof, a majority of the directors
present thereat may adjourn the meeting, without notice other than announcement
at the meeting, until such time and to such place as may be determined by such
majority of directors, until a quorum shall be present.
SECTION 9. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors
may, by resolution passed by a majority of the whole Board of Directors,
designate from among its members one or more committees, each of which shall be
composed of one or more of its members, and may designate one or more of its
members as alternate members of any committee, who may, subject to any
limitations imposed by the Board of Directors, replace absent or disqualified
members at any meeting of that committee. Any such committee, to the extent
provided in the resolution of the Board of Directors designating the committee
or in the Articles of Incorporation or these Bylaws, shall have and may exercise
all of the authority of the Board of Directors of the Corporation, except where
action of the Board of Directors is required by the Act or by the Articles of
Incorporation. Any member of a committee of the Board of Directors may be
removed, for or without cause, by the affirmative vote of a majority of the
whole Board of Directors. If any vacancy or vacancies occur in a committee of
the Board of Directors caused by death, resignation, retirement,
disqualification, removal from office or otherwise, the vacancy or vacancies
shall be filled by the affirmative vote of a majority of the whole Board of
Directors. Such committee or committees shall have such name or names as may be
designated by the Board of Directors and shall keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
SECTION 10. COMPENSATION OF DIRECTORS. Unless otherwise provided by
resolution of the Board of Directors, directors, as members of the Board of
Directors or of any committee thereof, shall not be entitled to receive any
stated salary for their services. Nothing herein contained, however, shall be
construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor or from receiving reimbursement for
reasonable expenses incurred by a director in connection with the director's
position as a director.
SECTION 11. ACTION BY UNANIMOUS CONSENT. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent, setting
forth the action so taken, is signed by all the members of the Board of
Directors or the committee, as the case may be, and such
8
<PAGE> 9
written consent shall have the same force and effect as a unanimous vote at a
meeting of the Board of Directors.
SECTION 12. PRESENCE AT MEETINGS BY MEANS OF COMMUNICATIONS EQUIPMENT.
Members of the Board of Directors of the Corporation or any committee designated
by the Board of Directors, may participate in and hold a meeting of such board
or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this SECTION 12 shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE IV
NOTICES
SECTION 1. FORM OF NOTICE. Whenever under the provisions of the Act,
the Articles of Incorporation or these Bylaws, notice is required to be given to
any director or shareholder, and no provision is made as to how such notice
shall be given, it shall not be construed to mean personal notice exclusively,
but any such notice may be given in writing, by mail, postage prepaid, or by
telex, telecopy, telegram or other means of immediate communication, addressed
or transmitted to such director or shareholder at such address as appears on the
books of the Corporation. Any notice required or permitted to be given by mail
shall be deemed to be given at the time when the same be thus deposited, postage
prepaid, with the United States Postal Service as aforesaid. Any notice required
or permitted to be given by telex, telecopy, telegram or other means of
immediate communication shall be deemed to be given at the time of actual
delivery.
SECTION 2. WAIVER. Whenever the provisions of the Act, the Articles of
Incorporation or these Bylaws, any notice is required to be given to any
director or shareholder of the Corporation, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time stated in such notice, shall be equivalent to the giving of such notice.
SECTION 3. NOTICE UNNECESSARY. Whenever under the provisions of the
Act, the Articles of Incorporation or these Bylaws, any notice is required to be
given to any shareholder, such notice need not be given to the shareholder if
(l) notice of two consecutive annual meetings and all notices of meetings held
during the period between those annual meetings, if any, or (2) all (but in no
event less than two) payments (if sent by first class mail) of distributions or
interest on securities during a 12-month period have been mailed to that person,
addressed at his address as shown on the records of the Corporation, and have
been returned undeliverable. Any action or meeting taken or held without notice
to such a person shall have the same force and effect as if the notice had been
duly given. If such a person delivers to the Corporation a written notice
setting forth
9
<PAGE> 10
his then current address, the requirement that notice be given to that person
shall be reinstated.
ARTICLE V
OFFICERS
SECTION 1. GENERAL. The elected officers of the Corporation shall be a
President and a Secretary. The Board of Directors may also elect or appoint a
Chairman of the Board, one or more Vice Presidents, one or more Assistant Vice
President, one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers, all of whom shall also be officers. Two or more offices
may be held by the same person.
SECTION 2. ELECTION. The Board of Directors shall elect the officers of
the Corporation at each annual meeting of the Board of Directors. The Board of
Directors may appoint such other officers and agents as it shall deem necessary
and shall determine the salaries of all officers and agents from time to time.
The officers shall hold office until their successors are chosen and qualified.
No officer need be a member of the Board of Directors. Any officer elected or
appointed by the Board of Directors may be P removed, with or without cause, at
any time by a majority vote of the whole Board. Election or appointment of an
officer or agent shall not of itself create contract rights.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board, if any,
shall be the chief Executive Officer of the Corporation and, subject to the
provisions of these Bylaws, shall have general supervision of the affairs of the
Corporation and shall have general and active control of all its business. He
shall preside, when present, at all meetings of shareholders and at all meetings
of the Board of Directors. He shall have general authority to execute bonds,
deeds and contracts in the name of the Corporation and affix the corporate seal
thereto; to sign stock certificates; to cause the employment or appointment of
such employees and agents of the Corporation as the proper conduct of operations
may require, and to fix their compensation, subject to the provisions of these
Bylaws; to remove or suspend any employee or agent who shall have been employed
or appointed under his authority or under authority of an officer subordinate to
him; to suspend for cause, pending final action by the authority which shall
have elected or appointed him, any officer subordinate to the Chairman of the
Board; and, in general, to exercise all the powers and authority usually
appertaining to the chief executive officer of a corporation, except as
otherwise provided in these Bylaws.
SECTION 4. PRESIDENT. In the absence of a Chairman of the Board, the
President shall be the ranking and Chief Executive Officer of the Corporation,
and shall have the duties and responsibilities, and the authority and power, of
the Chairman of the Board. The President shall be the Chief Operating Officer of
the Corporation and as such shall have, subject to review and approval of the
Chairman of the Board, if one be elected, the responsibility for the operation
of the Corporation and the authority of the Chairman of the Board.
10
<PAGE> 11
SECTION 5. VICE PRESIDENTS. In the absence of the President or in the
event of his inability or refusal to act, the Vice president, if any (or in the
event there be more than one, the Vice Presidents in the order designated or, in
the absence of any designation, then in the order of their election), shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
President shall perform such other duties and have such other powers as the
Operating Officer may from time to time prescribe. The Vice President in charge
of finance, if any, shall also perform the duties and assume the
responsibilities described in SECTION 9 of this Article for the Treasurer, and
shall report directly to the Chief Executive Officer of the Corporation.
SECTION 6. ASSISTANT VICE PRESIDENTS. In the absence of a Vice
President or in the event of his inability or refusal to act, the Assistant Vice
President, if any (or, if there be more than one, the Assistant Vice Presidents
in the order designated or, in the absence of any designation, then in the order
of their election), shall perform the duties and exercise the powers of that
Vice President, and shall perform such other duties and have such other powers
as the Board of Directors, the Chief Executive Officer, the Chief Operating
Officer or the Vice President under whose supervision he is appointed may from
time to time prescribe.
SECTION 7. SECRETARY. The Secretary shall attend and record minutes of
the proceedings of all meetings of the Board of Directors and any committees
thereof and all meetings of the shareholders. He shall file the records of such
meetings in one or more books to be kept by him for that purpose. The Secretary
shall also keep at the Corporation's registered office or principal place of
business a record of the original issuance of shares issued by the Corporation
and a record of each transfer of those shares that have been presented to the
Corporation for registration or transfer. He shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or the Chief Executive Officer, under Whose supervision he shall
be. He shall have custody of the corporate seal of the Corporation and he, or an
Assistant Secretary, shall have authority to affix the same to any instrument
requiring it, and when so affixed, it may be attested by his signature or by the
signature of such Assistant Secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his signature. The Secretary shall keep and account for
all books, documents, papers and records of the Corporation, except those for
which some other office or agent is properly accountable. He shall have
authority to sign stock certificates and shall generally perform all the duties
usually appertaining to the office of the secretary of a corporation
SECTION 8. ASSISTANT SECRETARIES. In the absence of the Secretary or in
the event of his inability or refusal to act, the Assistant Secretary, if any
(or, if there be more than one, the Assistant Secretaries in the order
designated or, in the absence of any designation, then in the order of their
election), shall perform the duties and exercise the powers of the
11
<PAGE> 12
Secretary and shall perform such other duties and have such other powers as the
Board of Directors, the Chief Executive Officer or the Secretary may from time
to time prescribe.
SECTION 9. TREASURER. The Treasurer, if any (or the Vice president in
charge of finance, if one be elected), shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the Chief Executive Officer and the Board of Directors, at its regular meetings,
or when the Board of Directors so requires, an account of all his transactions
as Treasurer and of the financial condition of the Corporation. If required by
the Board of Directors, he shall give the Corporation a bond (which shall be
renewed every six years) in such sum and with such surety or sureties as shall
be satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration of the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation. The Treasurer shall be under the
supervision of the Vice President in charge of finance, if any, and he shall
perform such other duties as may be prescribed by the Board of Directors, the
Chief Executive Officer or any such Vice President in charge of finance.
SECTION 10. ASSISTANT TREASURERS. In the absence of the Treasurer or in
the event of his inability or refusal to act, the Assistant Treasurer, if one be
elected (or, if there shall be more than one, the Assistant Treasurer in the
order designated or, in the absence of any designation, then in the order of
their election), shall perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors, the Chief Executive Officer or the Treasurer may from time
to time prescribe.
SECTION 11. BONDING. If required by the Board of Directors, all or
certain of the officers shall give the Corporation a bond, in such form, in such
sum and with such surety or sureties as shall be satisfactory to the Board of
Directors, for the faithful performance of the duties of their office and for
the restoration to the Corporation, in case of their death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in their possession or under their control
belonging to the Corporation.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
SECTION 1. FORM OF CERTIFICATES. The Corporation shall deliver
certificates representing all shares to which the shareholders are entitled.
Certificates representing
12
<PAGE> 13
shares of the Corporation shall be in such form as shall be approved and adopted
by the Board of Directors and shall be approved and adopted by the Board of
Directors and shall be numbered consecutively and entered in the share transfer
records of the Corporation as they are issued. Each certificate shall state on
the face thereof that the Corporation is organized under the laws of the State
of Texas, the name of the registered holder, the number and class of shares, and
the designation of the series, if any, which said certificate represents, and
either the par value of the shares or a statement that the shares are without
par value. Each certificate shall also set forth on the back thereof a full or
summary statement of matters required by the Act or the Articles of
Incorporation to be described on certificates representing shares, and shall
contain a conspicuous statement on the face thereof referring to the matters set
forth on the back thereof. Certificates shall be signed by the Chairman of the
Board, President or any Vice President and the Secretary or any Assistant
Secretary, and may be sealed with the seal of the Corporation. Either the seal
of the Corporation or the signatures of the Corporation's officers or both may
be facsimiles. In case any officer or officers who have signed, or whose
facsimile signature or signatures have been used on such certificate or
certificates, shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the Corporation or its agents, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed the certificate or certificates or whose
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the Corporation.
SECTION 2. LOST CERTIFICATES. The corporation may direct that a new
certificate be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing the issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of the lost or destroyed certificate, or his
legal representative, to advertise the same in such manner as it shall require
and/or give the Corporation a bond in such form, in such sums, and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
SECTION 3. TRANSFER OF SHARES. Shares of stock shall be transferable
only on the share transfer records of the Corporation by the holder thereof in
person or by his duly authorized attorney. Subject to any restrictions on
transfer set forth in the Articles of Incorporation, these Bylaws or any
agreement among shareholders to which this Corporation is a party or has notice,
upon surrender to the Corporation or to the transfer agent of the Corporation of
a certificate representing shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation or the transfer agent of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
13
<PAGE> 14
SECTION 4. REGISTERED SHAREHOLDERS. Except as otherwise provided in the
Act or other Texas law, the Corporation shall be entitled to regard the person
in whose name any shares issued by the corporation are registered in the share
transfer records of the Corporation at any particular time (including, without
limitation, as of the record date fixed pursuant to SECTION 5 or SECTION 6 of
ARTICLE II hereof) as the owner of those shares and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof.
ARTICLE VII
INDEMNIFICATION OF OFFICERS AND DIRECTORS
SECTION 1. GENERAL. The Corporation shall indemnify persons who are or
were a director, officer, employee or agent of the Corporation, or persons who
are not or were not directors, officers, employees or agents of the Corporation
but who are or were serving at the request of the Corporation as a director,
officer, trustee, employee, agent or similar functionary of another foreign or
domestic corporation, trust, partnership, joint venture, sole proprietorship,
employee benefit plan or other enterprise (such persons collectively referred
herein as "Corporate Functionaries") against any and all liability and
reasonable expense that may be incurred by them in connection with or resulting
from (a) any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, (b) an
appeal in such an action, suit or proceeding, or (c) any inquiry or
investigation that could lead to such an action, suit or proceeding, all to the
full extent permitted by Article 2.02-1 of the Act. The rights of
indemnification provided for in this ARTICLE VII shall be in addition to all
rights to which any Corporate Functionary may be entitled under any agreement or
vote of shareholders or as a matter of law or otherwise.
SECTION 2. INSURANCE. The Corporation may purchase or maintain
insurance on behalf of any Corporate Functionary against any liability asserted
against him and incurred by him in such a capacity `or arising out of his status
as a Corporate Functionary, whether or not the Corporation would have the power
to indemnify him or her against the liability under the Act' or these Bylaws;
provided, however, that if the insurance or other arrangement is with a person
or entity that is not regularly engaged in the business of providing insurance
coverage, the insurance or arrangement may provide for payment of a liability
with respect to which the Corporation would not have the power to indemnify the
person only if including coverage for the additional liability has been approved
by the shareholders of the Corporation. Without limiting the power of the
Corporation to procure or maintain any kind of insurance or arrangement, the
Corporation may, for the benefit of persons indemnified by the Corporation, (i)
create a trust fund, (ii) establish any form of self-insurance, (iii) secure its
indemnification obligations by grant of any security interest or other lien on
the assets of the Corporation, or (iv) establish a letter of credit, guaranty or
surety arrangement. Any such insurance or other arrangement may be procured,
maintained or established within the Corporation or its affiliates or with any
14
<PAGE> 15
insurer or other person deemed appropriate by the Board of Directors of the
Corporation regardless of whether all or part of the stock or other securities
thereof are owned in whole or in part by the corporation. In the absence of
fraud, the judgment of the Board of Directors of the Corporation as to the terms
and conditions of such insurance or other arrangement and the identity of the
insurer or other person participating in an arrangement shall be conclusive, and
the insurance or arrangement shall not be voidable and shall not subject the
directors approving the insurance or arrangement to liability, on the ground,
regardless of whether directors participating in approving such insurance or
other arrangement shall be beneficiaries thereof.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. DISTRIBUTIONS AND SHARE DIVIDENDS. Distributions or share
dividends to the shareholders of the Corporation, subject to the provisions of
the Act and the Articles of Incorporation and any agreements or obligations of
the Corporation, if any, may be declared by the Board of Directors at any
regular or special meeting. Distributions may be declared and paid in cash or in
property (other than shares or rights to acquire shares of the corporation),
provided that all such declarations and payments of distributions, and all
declarations and issuances of share dividends, shall be in strict compliance
with all applicable laws and the Articles of Incorporation.
SECTION 2. RESERVES. There may be created by resolution of the Board of
Directors out of the surplus of the Corporation such reserve or reserves as the
Board of Directors from time to time, in its discretion, deems proper to provide
for contingencies, or to equalize distributions or share dividends, or to repair
or maintain any property of the Corporation, or for such other proper purpose as
the Board shall deem beneficial to the Corporation, and the Board may increase,
decrease or abolish any reserve in the same manner in which it was created.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
SECTION 4. SEAL. The Corporation shall have a seal which may be used by
causing it or a facsimile thereof to be impressed or affixed or in any manner
reproduced. Any officer of the Corporation shall have authority to affix the
seal to any document requiring it.
SECTION 5. RESIGNATION. Any director, officer or agent of the
Corporation may resign or giving written notice to the President or the
Secretary. The resignation shall take effect at the time specified therein, or
immediately if no time is specified therein. Unless specified in such notice,
the acceptance of such resignation shall not be necessary to make it effective.
15
<PAGE> 16
ARTICLE IX
AMENDMENTS TO BYLAWS
Unless otherwise provided by the Articles of Incorporation or a bylaw
adopted by the shareholders of the Corporation, these Bylaws may be amended or
repealed, or new Bylaws may be adopted, at any meeting of the shareholders of
the Corporation or of the Board of Directors at which a quorum is present, by
the affirmative vote of the holders of a majority of the shares or the
Directors, as the case may be, present at such meeting.
16
<PAGE> 1
Exhibit 3.3.1
CERTIFICATE OF INCORPORATION
OF
BONNEAU GENERAL, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware" or the
"General Corporation Law"), hereby certifies that:
FIRST: The name of the corporation (hereinafter referred to as the
"Corporation") is:
Bonneau General, Inc.
SECOND: The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 32 Loockerman
Square, Suite L-100, City of Dover, 19904, County of Kent; and the name of the
registered agent of the Corporation in the State of Delaware is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which Corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is One Thousand Five Hundred (1,500) shares, par value
$.001 per share. All such shares are of one class and are shares of Common
Stock.
FIFTH: The name and the mailing address of the incorporator is as
follows:
NAME MAILING ADDRESS
---- ---------------
Robert L. Lawrence c/o Kane Kessler, P.C.
1350 Avenue of the Americas, 26th Fl.
New York, New York 10019
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware
<PAGE> 2
may, on the application in a summary way of this Corporation or of any creditor
or stockholder thereof or on the application of any receiver or receivers
appointed for this Corporation under the provisions of Section 291 of Title 8 of
the Delaware Code or on the application of any receiver or receivers appointed
for this Corporation under Section 279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors.
The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the By-Laws.
The phrase "whole Board" and the phrase "total number of directors"
shall be deemed to have the same meaning to wit, the total number of
directors which the Corporation would have if there were no vacancies.
No election of directors need be by written ballot.
2. After the original or other By-laws of the Corporation have
been adopted, amended, or repealed, as the case may be, in accordance
with the provisions of Section 109 of the General Corporation Law of
the State of Delaware, and, after the Corporation has received any
payment for any of its stock, the power to adopt, amend, or repeal the
By-laws of the Corporation may be exercised by the Board of Directors
of the Corporation; provided, however, that any provision for the
classification of Directors of the Corporation for staggered terms
pursuant to the provisions of subsection (d) of Section 141 of the
General Corporation Law of the State of Delaware shall be set forth in
an initial By-laws or in a By-law adopted by the stockholders entitled
to vote of the Corporation unless provisions for such classification
shall be set forth in this Certificate of Incorporation.
3. Whenever the Corporation shall be authorized to issue only
one class of stock, each outstanding share shall entitle the holder
thereof to notice of, and the right to vote at, any meeting of
stockholders. Whenever the Corporation shall be authorized to issue
more than one class of stock, no outstanding share of any class of
stock which is denied voting power under the provisions of the
2
<PAGE> 3
certificate of incorporation shall entitle the holder thereof to the
right to vote at any meeting of stockholders except as the provisions
of paragraph (2) of subsection (b) of Section 242 of the General
Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied
voting power shall entitle the holder thereof to vote upon the increase
or decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of subsection
(b) of Section 102 of the General Corporation Law of the State of Delaware, as
the same may be amended and supplemented.
TENTH: The Corporation shall, to the fullest extent permitted by the
General Corporation Law, as the same may be amended and supplemented, indemnify
any and all persons whom it shall have the power to indemnify under the General
Corporation Law from and against any and all of the expenses, liabilities or
other matters referred to in or covered by the General Corporation Law, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this Certificate
of Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on December 21, 1994.
/s/ Robert L. Lawrence
-------------------------------------
ROBERT L. LAWRENCE, Incorporator
3
<PAGE> 1
Exhibit 3.3.2
BYLAWS
OF
BONNEAU GENERAL, INC.
(a Delaware corporation)
--------------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in
the corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
<PAGE> 2
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificate shares, the corporation
shall send to the registered owner thereof any written notice prescribed by the
General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but script or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the
2
<PAGE> 3
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting. In order that the corporation
may determine the stockholders entitled to consent to corporate action in
writing without a meeting, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which date shall not be
more than ten days after the date upon which the resolution fixing the record
date is adopted by the Board of Directors. If no record date has been fixed by
the Board of Directors, the record date for determining the stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is required by the General Corporation
Law, shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation by delivery
to its registered office in the State of Delaware, its principal place of
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
the General Corporation Law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action. In order that the corporation may determine
the stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to exercise
any rights in respect of any change, conversion, or exchange of stock, or for
the purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of
3
<PAGE> 4
incorporation confers such rights where there are two or more classes or series
of shares of stock or upon which or upon whom the General Corporation Law
confers such rights notwithstanding that the certificate of incorporation may
provide for more than one class or series of shares of stock, one or more of
which are limited or denied such rights thereunder; provided, however, that no
such right shall vest in the event of an increase or a decrease in the
authorized number of shares of stock of any class or series which is otherwise
denied voting rights under the provisions of the certificate of incorporation,
except as any provision of law may otherwise require.
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corporation, and each successive annual meeting shall be held on a date
within thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the
directors or by an officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in
4
<PAGE> 5
the United States Mail. If a meeting is adjourned to another time, not more than
thirty days hence, and/or to another place, and if an announcement of the
adjourned time and/or place is made at the meeting, it shall not be necessary to
give notice of the adjourned meeting unless the directors, after adjournment,
fix a new record date for the adjourned meeting. Notice need not be given to any
stockholder who submits a written waiver of notice signed by him before or after
the time stated therein. Attendance of a stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote any any meeting of
stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A
5
<PAGE> 6
duly executed proxy shall be irrevocable if it states that it is irrevocable
and, if, and only as long as, it is coupled with an interest sufficient in law
to support an irrevocable power. A proxy may be made irrevocable regardless of
whether the interest with which it is coupled is an interest in the stock itself
or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question, or matter determined by him or them and execute a
certificate of any fact found by him or them.
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holders thereof to one
vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if
6
<PAGE> 7
a consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Action taken pursuant to this paragraph shall be subject to the provisions of
Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the director of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of 2 persons. Thereafter the number of
directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be 2. The number of
directors may be increased or decreased by action of the stockholders or of the
directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the
7
<PAGE> 8
remaining directors then in office, although less than a quorum, or by the sole
remaining director.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of Chairman of the Board, if any, the Vice-Chairman of the Board, if
any, of the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits as written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objection, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
8
<PAGE> 9
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all person participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise by provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
9
<PAGE> 10
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director. Any number of offices may be held by the
same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
10
<PAGE> 11
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Laws, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
11
<PAGE> 1
Exhibit 3.4.1
CERTIFICATE OF INCORPORATION
OF
BONNEAU HOLDINGS, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware" or the
"General Corporation Law"), hereby certifies that:
FIRST: The name of the corporation (hereinafter referred to as the
"Corporation") is:
Bonneau Holdings, Inc.
SECOND: The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 1105 North
Market Street, Suite 1300, Wilmington, Delaware 19899, County of New Castle; and
the name of the registered agent of the Corporation in the State of Delaware is
Delaware Corporate Management, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which Corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is One Thousand Five Hundred (1,500) shares, par value
$.001 per share. All such shares are of one class and are shares of Common
Stock.
FIFTH: The name and the mailing address of the incorporator is as
follows:
NAME MAILING ADDRESS
Robert L. Lawrence c/o Kane Kessler, P.C.
1350 Avenue of the Americas, 26th Fl.
New York, New York 10019
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware
<PAGE> 2
may, on the application in a summary way of this Corporation or of any creditor
or stockholder thereof or on the application of any receiver or receivers
appointed for this Corporation under the provisions of Section 291 of Title 8 of
the Delaware Code or on the application of any receiver or receivers appointed
for this Corporation under Section 279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors.
The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the By-Laws.
The phrase "whole Board" and the phrase "total number of directors"
shall be deemed to have the same meaning to wit, the total number of
directors which the Corporation would have if there were no vacancies.
No election of directors need be by written ballot.
2. After the original or other By-laws of the
Corporation have been adopted, amended, or repealed, as the case may
be, in accordance with the provisions of Section 109 of the General
Corporation Law of the State of Delaware, and, after the Corporation
has received any payment for any of its stock, the power to adopt,
amend, or repeal the By-laws of the Corporation may be exercised by the
Board of Directors of the Corporation; provided, however, that any
provision for the classification of Directors of the Corporation for
staggered terms pursuant to the provisions of subsection (d) of Section
141 of the General Corporation Law of the State of Delaware shall be
set forth in an initial By-laws or in a By-law adopted by the
stockholders entitled to vote of the Corporation unless provisions for
such classification shall be set forth in this Certificate of
Incorporation.
3. Whenever the Corporation shall be authorized to issue
only one class of stock, each outstanding share shall entitle the
holder thereof to notice of, and the right to vote at, any meeting of
stockholders. Whenever the Corporation shall be authorized to issue
more than one class of stock, no outstanding share of any class of
stock which is denied voting power under the provisions of the
2
<PAGE> 3
certificate of incorporation shall entitle the holder thereof to the
right to vote at any meeting of stockholders except as the provisions
of paragraph (2) of subsection (b) of Section 242 of the General
Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied
voting power shall entitle the holder thereof to vote upon the increase
or decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of subsection
(b) of Section 102 of the General Corporation Law of the State of Delaware, as
the same may be amended and supplemented.
TENTH: The Corporation shall, to the fullest extent permitted by the
General Corporation Law, as the same may be amended and supplemented, indemnify
any and all persons whom it shall have the power to indemnify under the General
Corporation Law from and against any and all of the expenses, liabilities or
other matters referred to in or covered by the General Corporation Law, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this Certificate
of Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on December 21, 1994.
/s/ Robert L. Lawrence
---------------------------------------
ROBERT L. LAWRENCE, Incorporator
3
<PAGE> 1
Exhibit 3.4.2
BYLAWS
OF
BONNEAU HOLDINGS, INC.
(a Delaware corporation)
--------------------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in
the corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any class or series or any of any such
partly paid stock shall be set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertified
shares in place of any certificate therefore issued by it, alleged to have been
lost, stolen, or destroyed, and the Board of Directors may require the owner of
the lost, stolen, or destroyed certificate, or his legal representative, to give
the corporation a bond sufficient to indemnify the corporation against any claim
that may be made against it on account of the alleged loss, theft, or
destruction of any such certificate or the issuance of any such new certificate
or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or
<PAGE> 2
transfer of any uncertificated shares, the corporation shall send to the
registered owner thereof any written notice prescribed by the General
Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but script or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
any his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may fix
a record date, which record
<PAGE> 3
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which date shall not be more than ten
days after the date upon which the resolution fixing the said record date is
adopted by the Board of Directors. If no record date has been fixed by the Board
of Directors, the record date for determining the stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by the General Corporation Law, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by the General
Corporation Law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the resolution
taking such prior action. In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion, or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action, If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise require.
7. STOCKHOLDER MEETINGS.
<PAGE> 4
- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corporation, and each successive annual meeting shall held on a date within
thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transaction at, nor the purpose of, any regular or special
meeting of the stockholders need be specified in any written waiver of notice.
<PAGE> 5
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, any may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by any one of the following officers in the order of seniority and if
present and acting -the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, a Vice-President, or, if none of the foregoing is
in office and present and acting, by a chairman to be chosen by the
stockholders. The Secretary of the corporation, or in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present the Chairman of the meeting shall appoint
a secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that its is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if
<PAGE> 6
any, shall determine the number of shares of stock outstanding and the voting
power of each, the shares of stock represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots,
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots, or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the person
presiding at the meeting, the inspector or inspectors, if any, shall make a
report in writing of any challenge, question, or matter determined by him or
them and execute a certificate of any fact found by him or them.
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holders thereof to one
vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETING. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
votes. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
<PAGE> 7
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of 3 persons. Thereafter the number of
directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the
directors, of, if the number is not fixed, the number shall be 3. The number of
directors may be increased or decreased by action of the stockholders or of the
director.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. Notice
<PAGE> 8
need not be given to any director or to any member of a committee of directors
who submits a written waiver of notice signed by him before or after the time
stated therein. Attendance of any such person at a meeting shall constitute a
waiver of notice of such meeting, except when he attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors need be specified in any written
waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by
majority of the whole Board, designate one or more committees, each committee to
consists of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they
<PAGE> 9
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board, shall have and may exercise the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation with
the exception of any authority the delegation of which is prohibited by Section
141 of the General Corporation Law, and may authorize the seal of the
corporation to be affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director. Any number of offices may be held by the
same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
<PAGE> 10
ARTICLE IV
CORPORATION SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
<PAGE> 1
Exhibit 3.5.1
RESTATED CERTIFICATE OF INCORPORATION
OF
F.G.G. INVESTMENTS, INC.
F.G.G. Investments, Inc., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is F.G.G. Investments, Inc. and
the name under which the corporation was originally incorporated is Foster Grant
Trademark Inc. The date of filing of its original Certificate of Incorporation
with the Secretary of State was December 14, 1993.
2. This Restated Certificate of Incorporation only restates and
integrates and does not further amend the provision of the Certificate of
Incorporation of this corporation as heretofore amended or supplemented and
there is not discrepancy between those provisions and the provisions of this
Restated Certificate of Incorporation.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is hereby restated without further amendments or changes
to read as herein set forth in full:
I
ARTICLE FIRST: The name of the Corporation is F.G.G. Investments, Inc.
(hereinafter called the "Corporation").
II
ARTICLE SECOND: The address of the registered office of the Corporation
in the State of Delaware is 1105 N. Market St., Suite 1300, Wilmington, Delaware
19899, County of New Castle, and the name of its registered agent at such
address is Delaware Corporate Management, Inc.
III
ARTICLE THIRD: The nature of the business or purposes to be conducted
or promoted by the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
<PAGE> 2
IV
ARTICLE FOURTH: The Corporation is authorized to issue one class of
capital stock to be designated "Common Stock". The number of shares of Common
Stock which the Corporation shall have authority to issue is 3,000 shares, $1.00
par value per share. Each share of Common Stock of the Corporation shall have
identical rights and privileges in every respect.
V
ARTICLE FIFTH: The period of duration of the Corporation is perpetual.
VI
ARTICLE SIXTH: In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors of the Corporation is expressly
authorized to adopt, alter, amend or repeal the Bylaws of the Corporation except
as otherwise provided in the Bylaws.
VII
ARTICLE SEVENTH: Elections of directors need not be by written ballot.
VIII
ARTICLE EIGHTH: To the fullest extent permitted by Delaware law, no
director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for an act or omission in such director's
capacity as a director of the Corporation. Specifically, a director of the
Corporation shall not be personally liable to the Corporation of its stockholder
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts of omissions not in good faith or
which involve intentional misconduct or knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, of (iv) for any transaction
from which the director derived an improper personal benefit. The foregoing
elimination of liability to the Corporation or its stockholders for monetary
damages is not exclusive of any other rights or limitations of liability or
indemnity to which a director may be entitled under any other provision of the
Certificate of Incorporation or Bylaws of the Corporation, contract or
agreement, vote of stockholder and/or disinterested directors, or otherwise.
IX
ARTICLE NINTH: Meetings of the stockholders of the Corporation may be
held within or without the State of Delaware, as the Bylaws may provide. Unless
otherwise required by applicable law, the books and records of the Corporation
may be kept either within or outside the State of Delaware at such place or
places as may be designated from time to time by the Board of Directors or in
the Bylaws of the Corporation.
X
ARTICLE TENTH: The Corporation reserves the right to amend, alter,
change, or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholder herein are granted subject to such reservation.
<PAGE> 3
4. This Restated Certificate of Incorporation was duly adopted by
unanimous written consent of the Board of Directors of the
Corporation in accordance with the applicable provisions of
Section 141 and 245 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, said F.G.G. Investments, Inc. has caused this
Certificate to be signed by Duane M. DeSisto, its Vice President, this 4th day
of August, 1998.
F.G.G. Investments, Inc.
By: /s/ Duane M. DeSisto
---------------------
Title: Vice President
-----------------
<PAGE> 1
Exhibit 3.5.2
BYLAWS
OF
F.G.G. INVESTMENTS, INC.
TABLE OF CONTENTS
*************
I. OFFICES
1.01 Registered Office
1.02 Other Offices
II. SHAREHOLDERS
2.01 Place and Manner of Meetings
2.02 Annual Meeting
2.03 Voting List
2.04 Special Meetings
2.05 Notice
2.06 Quorum
2.07 Majority Vote; Withdrawal of Quorum
2.08 Method of Voting
2.09 Fixing Record Dates for Matters Other than
Consents to Action; Closing Transfer Books
2.10 Fixing Record Dates for Consents to Action
2.11 Action Without Meeting
III. DIRECTIONS
3.01 Management
3.02 Number; Qualification; Election; Term
3.03 Change in Number
3.04 Removal
3.05 Vacancies
3.06 Election of Directors
3.07 Place and Manner of Meetings
3.08 First Meetings
3.09 Regular Meetings
3.10 Special Meetings
3.11 Action Without Meeting
<PAGE> 2
3.12 Quorum; Majority Vote
3.13 Compensation
3.14 Procedure
3.15 Interested Directors, Officers and Shareholders
IV. COMMITTEES OF THE BOARD OF DIRECTORS
4.01 Designation
4.02 Authority
4.03 Procedure
4.04 Removal
4.05 Responsibility
V. OFFICERS
5.01 Number
5.02 Election
5.03 Other Officers
5.04 Term
5.05 Removal
5.06 Vacancies
5.07 Compensation
5.08 President
5.09 Vice President
5.10 Secretary
5.11 Assistant Secretary
5.12 Treasurer
5.13 Assistant Treasurer
5.14 Filling of Offices
VI. INDEMNIFICATION
6.01 Policy of Indemnification and Advancement
of Expenses
6.02 Definitions
6.03 Non-Exclusive; Continuation
6.04 Indemnification of Employees or Agents
6.05 Insurance or Other Arrangement
VII. CERTIFICATES AND SHAREHOLDERS
7.01 Certificates
7.02 Replacement of Lost or Destroyed Certificates
7.03 Transfer of Shares
7.04 Registered Shareholders
2
<PAGE> 3
7.05 Preemptive Rights
7.06 Restriction on Transfer of Shares
VIII. NOTICE
8.01 Method
8.02 Waiver
IX. GENERAL PROVISIONS
9.01 Distributions, Share Dividends and Reserves
9.02 Books and Records
9.03 Checks and Notes
9.04 Fiscal Year
9.05 Seal
9.06 Resignation
9.07 Amendment of Bylaws
9.08 Table of Contents; Headings
9.09 Construction
3
<PAGE> 4
BYLAWS
OF
F.G.G. INVESTMENTS, INC.
ARTICLE I
OFFICES
1.01 REGISTERED OFFICE AND AGENT. The registered office and
registered agent of the corporation shall be as designated with the Secretary of
State of the State of Delaware and the office of the Recorder of the County of
such county, as they may be changed from time to time.
1.02 OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of Delaware, as the board of
directors may from time to time determine, or as the business of the corporation
may require.
ARTICLE II
SHAREHOLDERS
2.01 PLACE AND MANNER OF MEETINGS. All meetings of the shareholders
shall be held at such time and place, within or without the State of Delaware,
as shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof. Shareholders may participate in such meetings by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting as provided herein shall constitute presence in person at such meeting,
except where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
2.02 ANNUAL MEETING. An annual meeting of the shareholders,
commencing with the year following the adoption of these Bylaws, shall be held
on the first Tuesday during the month of April, if not a legal holiday, and if a
legal holiday, then on the next secular day following, at 10:00 a.m., or at such
other date and time as shall be designated from time to time by the board of
directors and stated in the notice of the meeting, at which time the
shareholders shall elect a board of directors, and transact such other business
as may properly be brought before the meeting.
<PAGE> 5
2.03 VOTING LIST. At least ten days before each meeting of
shareholders a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, with the residence of each and the
number of voting shares held by each, shall be prepared by the officer or agent
having charge of the stock transfer books. Such list, for a period of ten days
prior to the meeting, shall be kept on file at a place within the city where the
meeting is to be held and shall be subject to the inspection by any shareholder
for any purpose germane to the meeting, at any time during usual business hours.
Such list shall also be produced and kept open at the time and place of the
meeting during the whole time thereof, and shall be subject to the inspection of
any shareholder who may be present.
2.04 SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, or by these Bylaws, may be called by the
president, the board of directors, or the holders of not less than one-tenth of
all the shares entitled to vote at the meetings. Business transacted at all
special meetings shall be confined to the objects stated in the notice of the
meeting.
2.05 NOTICE. Written or printed notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which, the meeting is called, shall be delivered not less than ten nor more
than sixty days before the date of the meeting either personally or by mail, by
or at the direction of the president, the secretary or the officer or person
calling the meeting, to each shareholder of record entitled to vote at the
meeting, provide that such notice may be waived as provided in Section 6.02 of
these Bylaws. If mailed, such notice shall be deemed to be delivered when
deposited in the mail addressed to the shareholder at his address as it appears
on the stock transfer books of the corporation. With postage thereon prepaid.
Any notice required to be given to any shareholder hereunder or under the
Certificate of Incorporation need not be given to the shareholder if (A) notice
of two consecutive annual meetings of the corporation and all notices of
meetings held during the period between those annual meetings, if any, or (B)
all (but in no event less than two) payments (if sent by first class mail) of
distributions or interest on securities during a twelve-month period have been
mailed to that person, addressed at his address as shown on the share transfer
records of the corporation, and have been returned undeliverable. Any action or
meeting taken or held without notice to such person shall have the same force
and effect as if the notice had been duly given.
2.06 QUORUM. The holders of a majority of the shares issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy shall be requisite and shall constitute a quorum at all meetings of the
shareholders for the transaction of business except as otherwise provided by
statute, _____ the Certificate of Incorporation or by these Bylaws. If a quorum
is
2
<PAGE> 6
not present or represented at a meeting of the shareholders, the shareholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, until a quorum is present or
represented. At such adjourned meeting, at which a quorum is present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
2.07. MAJORITY VOTE; WITHDRAWAL OF QUORUM. When a quorum is present
at any meeting, the vote of the holders of a majority of the shares having
voting power, present in person or represented by proxy, shall decide any matter
brought before such meeting, unless the matter is one upon which, by express
provision of the statutes or of the Certificate of Incorporation, or of these
Bylaws, a different vote is required, in which case such express provision shall
govern and control the decision of such matter. The shareholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
2.08 METHOD OF VOTING. Each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, except to the extent that the voting rights of the shares of any
class or classes are limited or denied by the Certificate of Incorporation. At
any meeting of the shareholders each shareholder having the right to vote may
vote either in person or by proxy executed in writing by the shareholder or by
his duly authorized attorney-in-fact, and being dated not more than eleven
months prior to said meeting, unless said proxy shall provide for a longer
period. A telegram, telex, cablegram, or similar transmission by the
shareholder, or a photographic, photostatic, facsimile, or similar reproduction
of a writing executed by the shareholder, shall be treated as an execution in
writing for purposes of the immediately preceding sentence. Each proxy shall be
filed with the secretary of the corporation prior to or at the time of the
meeting. Voting for directors shall be in accordance with Section 3.06 of these
Bylaws. Any vote may be taken VIVA VOCE or by show of hands unless someone
entitled to vote objects, in which case written ballots be used.
2.09 FIXING RECORD DATES FOR MATTERS OTHER THAN CONSENTS TO ACTION;
CLOSING TRANSFER BOOKS. The board of directors may fix in advance a record date
for the purpose of determining shareholders entitled to notice of or to vote at
a meeting of the shareholders, the record date to be not less than ten nor more
than sixty days prior to said meeting; or the board of directors may close the
stock transfer books for such purpose for a period of not less than ten nor more
than sixty days prior to such meeting. In the absence of any action by the board
of directors, the date upon which the notice of the meeting is mailed shall be
the record date.
3
<PAGE> 7
2.10 FIXING RECORD DATES FOR CONSENTS TO ACTION. Unless a record
date shall have previously been fixed or determined pursuant to Section 2.09
hereof, whenever action by shareholders is proposed to be taken by consent in
writing without a meeting of shareholders, if provided for by the Certificate of
Incorporation, the board of directors may fix a record date for purposes of
determining shareholders entitled to consent to that action, which record date
shall not precede, and shall not be more than ten days after, the date upon
which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors and the
prior action of the board of directors is not required by the statutes, the
record date for determining shareholders entitled to consent to Acton in writing
without a meeting shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office, its principal place of
business, or an officer of the corporation having custody of the books in which
proceedings of meetings of shareholders are recorded. Delivery shall be by hand
or by certified or registered mail, return receipt requested. Delivery to the
corporation's principal place of business shall be addressed tot he president or
the principal executive officer of the corporation. If no record date has been
fixed by the board of directors and prior action of the board of directors is
required by statute, the record date for determine shareholders entitled to
consent to action in writing without a meeting shall be at the close of business
on the date on which the board of directors adopts a resolution taking such
prior action.
2.11 ACTION WITHOUT MEETING. Any action required by statute to be
taken at a meeting of the shareholders, or any action which may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof, and
such consent shall have the same force and effect as a unanimous vote of the
shareholders. If the Certificate of Incorporation of the corporation so
provides, any action required by statute to be taken at any annual or special
meeting of shareholders, or any action which may be taken at any annual or
special meeting of shareholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing setting forth
the action so taken, shall be signed by the holder or holders of shares having
note less than the minimum number of votes that would be necessary to take such
action at a meeting at which the holders of all shares entitled to vote on the
action were present and votes. Every written consent pursuant to this Section
shall be signed dated and delivered in the manner required by, and shall be
effective at the time and remain effective for the period specified by the
statues. A telegram, telex, cablegram, or similar transmission by a shareholder,
or a photographic, photostatic, facsimile, or similar reproduction of a writing
signed by a shareholder, shall be regarded as signed by the shareholder for
purposes of this Section. Prompt notice of the taking of any action by
shareholders without a
4
<PAGE> 8
meeting by less than unanimous written consent shall be given to those
shareholders who did not consent in writing to the action.
ARTICLE III
DIRECTORS
3.01 MANAGEMENT. The powers of the corporation shall be exercised
by or under authority of, and the business and affairs of the corporation shall
be managed by the board of directors who may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the shareholders.
3.02 NUMBER; QUALIFICATION; ELECTION; TERM. The number of directors
which shall constitute the whole board shall be not less than one (1) nor more
than seven (7). The number of directors which shall constitute the initial board
of directors shall be the number fixed by the Certificate of Incorporation.
Thereafter, within the limits above specified, the number of directors shall be
determined by resolution of the board of directors.
3.03 CHANGE IN NUMBER. The number of directors provided for in
Section 3.02 may be increased or decreased from time to time by amendment to
these Bylaws, but no decrease shall have the effect of shortening the term of
any incumbent director. Any directorship to be filled by reason of an increase
in the number of directors shall be filled (A) by election at an annual meeting
or at a special meeting of shareholders called for that purpose, or (B) by the
board of directors for a term of office continuing only until the next election
of one or more directors by the shareholders; provided, however, that the board
of directors may not fill more than two such directorships during the period
between any two successive annual meetings of shareholders.
3.04 REMOVAL. Any director may be removed either for or without
cause at any special or annual meeting of shareholders, by the affirmative vote
of a majority in number of shares of the shareholders present in person or by
proxy at such meeting and entitled to vote for the election of such director if
notice of intention to act upon such matter shall have been given in the notice
calling such meeting.
3.05 VACANCIES. Any vacancy occurring in the board of directors (by
death, resignation, retirement, removal or otherwise) may be filled (A) by
election at an annual or special meeting of shareholders called for that
purpose, or (B) by an affirmative vote of a majority of the remaining directors,
though less than a quorum of the board of directors. A director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
5
<PAGE> 9
3.06 ELECTION OF DIRECTORS. Unless otherwise provided by the
Certificate of Incorporation, directors shall be elected by plurality of the
votes cast by the holders of shares entitled to vote in the election of
directors at a meeting of shareholders at which a quorum is present. Cumulative
voting shall not be permitted.
3.07 PLACE AND MANNER OF MEETINGS. Meetings of the board of
directors, regular or special, may be held either within or without the State of
Delaware. Members of the board of directors may participate in such meetings by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other and
participation in a meeting as provided herein shall constitute present in person
at such meeting, except where a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
3.08 FIRST MEETING. The first meeting of each newly elected board s
hall be held without further notice immediately following the annual meeting of
shareholders, and at the same place, unless by unanimous consent of the
directors then elected and serving such time or place shall be changed.
3.09 REGULAR MEETINGS. Regular meetings of the board of directors
may be held without notice at such time and place as shall from time to time be
determined by the board.
3.10 SPECIAL MEETINGS. Special meetings of the board of directors
may be called by the president on three days' notice to each director, either
personally or by mail or by telegram. Special meetings shall be called by the
president or secretary in like manner and on like notice on the written request
of two directors. Except as otherwise expressly provided by statute, or by the
Certificate of Incorporation, of by these Bylaws, neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in a
notice or waiver of notice.
3.11 ACTION WITHOUT MEETING. Any action required by statute to be
taken at a meeting of the board of directors, or any action which may be taken
at a meeting of the board of directors, may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all
the members of the board of directors. Such consent shall have the same force
and effect as an unanimous vote at a meeting.
3.12 QUORUM; MAJORITY VOTE. At all meetings of the board of
directors a majority of the number of directors fixed by these Bylaws shall
constitute a quorum for the transaction of business unless a greater number is
required by
6
<PAGE> 10
law or by the Certificate of Incorporation. The act of a majority of the
directors present at any meeting at which a quorum is present shall be the act
of the board of directors unless the act of a greater number is required by
statute, by the certificate of Incorporation or by these Bylaws. If a quorum
shall not be present at any meeting of the board of directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum is present.
3.13 COMPENSATION. By resolution of the board of directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors and may be paid a fixed sum for attendance at each
meeting of the board of directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of the executive committee
or of special or standing committees may, by resolution to he board of
directors, be allowed like compensation for attending committee meetings.
3.14 PROCEDURE. The board of directors shall keep regular minutes
of its proceedings. The minutes shall be placed in the minute book of the
corporation.
3.15 INTERESTED DIRECTORS, OFFICERS AND SHAREHOLDERS.
(A) VALIDITY. Any contract or other transaction between the
corporation and any of its directors, officers or shareholders (or any
corporation or firm in which any of them are directly or indirectly interested)
shall be valid for all purposes notwithstanding the presence of such director,
officer or shareholder at the meeting authorizing such contract or transaction
or his participation in such meeting or authorization.
(B) DISCLOSURE, APPROVAL. The foregoing shall, however, apply only
if the interest of each such director, officer o shareholder is known or
disclosed:
1. To the board of directors and it nevertheless
authorizes or ratifies the contract or transaction by a majority of the
directors present, each such interested director to be counted in determining
whether a quorum is present but not in calculating the majority necessary to
carry the vote; or
2. To the shareholders and they nevertheless authorize
or ratify the contract or transaction by a majority of the shares present, each
such interested person to be counted for quorum and voting purposes.
(C) NON-EXCLUSIVE. This provision shall not be construed __
invalidate any contract or transaction which would be valid in the absence of
this provision.
7
<PAGE> 11
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
4.01 DESIGNATION. The board of directors may, by resolution adopted
by a majority of the whole board, designate from its members one or more
committees, each of which shall be comprised of one or more of its members, and
may designate one or more of its members as alternate members of any committee,
who may, subject to any limitations imposed by the board of directors, replaced
absent or disqualified members at any meeting of that committee.
4.02 AUTHORITY. Any such committee, to the extent provided in such
resolution or the Certificate of Incorporation, shall have and may exercise all
of the authority of the board of directors in the management of the business and
affairs of the corporation, subject to the limitations set forth in the Delaware
General Corporation Law, and shall have power to authorize the seal of the
corporation to be affixed to all papers which may require it.
4.03 PROCEDURE. Each such committee shall keep regular minutes of
its proceedings and report the same to the board of directors when required.
4.04 REMOVAL. Any member of any such committee may be removed by
the board of directors by the affirmative vote of a majority of the whole board,
whenever in its judgment the best interests of the corporation will be served
thereby.
4.05 RESPONSIBILITY. The designation of on or more committees and
the delegation of authority to any such committee shall no operate to relieve
the board of directors, or any member thereof, of any responsibility imposed
upon it or him by law.
ARTICLE V
OFFICERS
5.01 NUMBER. The officers of the corporation shall consist of a
president and a secretary, each of whom shall be elected by the board of
directors. Such offices may be held by the same person.
5.02 ELECTION. The board of directors, at its first meeting after
each annual meeting of shareholders, shall elect officers for the ensuing year
or until their successors are elected, none of whom need be a member of the
board, a shareholder or a resident of Delaware.
8
<PAGE> 12
5.03 OTHER OFFICERS. The board of directors may elect or appoint
such other officers and agents as it shall deem necessary, who shall be
appointed for such terms and shall exercise such powers and perform such duties
as shall be determined from time to time by the board. Any two or more offices
may be held by the same person.
5.04 TERM. Each officers of the corporation shall hold office until
his successor is chosen and qualified in his stead or until his death or until
his resignation or removal from office.
5.05 REMOVAL. Any officer or agent or member of a committee elected
or appointed by the board of directors may be removed by the board of directors
whenever in its judgment the best interests of the corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent or
member of a committee shall not of itself create contract rights.
5.06 VACANCIES. Any vacancy in any office because of death,
resignation, removal or otherwise, may be filled by the board of directors for
the unexpired portion of the term.
5.07 COMPENSATION. The compensation of all officers and agents
shall be fixed by the board of directors.
5.08 PRESIDENT. The president shall be the chief executive officer
of the corporation, and subject to the control of the board of directors, shall
in general supervise and control all of the business and affairs of the
corporation and shall see that all orders and resolutions of the board are
carried into effect. He shall, when present, preside at all meetings of the
shareholders and of the board of directors. The president may execute, with the
secretary or any other proper officer of the corporation thereunto authorized by
the board of directors, certificates for shares of the corporation, any deeds,
mortgages, bonds, contracts or other instruments which the board of directors
has authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the board of directors or by these
Bylaws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed, and in general shall perform all
duties incident to the office of president, and such other duties as maybe
prescribed by the board of directors from time to time.
5.09 VICE-PRESIDENT. The vice-presidents in the order of their
seniority, unless otherwise determined by the board of directors shall, in the
absence or disability of the president perform the duties and have the authority
and exercise the powers of the president. They shall perform such other duties
and have
9
<PAGE> 13
such other authority and powers as the board of directors may from time to time
prescribe or as the president may from time to time delegate.
5.10 SECRETARY. The secretary shall attend all sessions of the
board of directors and all meetings of the shareholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose and shall
perform like duties for the executive committee when required, or any other
committee, if requested. He shall give, or cause to be given, notice of the
meetings of the board of directors and shareholders where such notices are
required by these Bylaws to be given. He shall keep in safe custody the seal of
the corporation, and when authorized by the board or the executive committee,
affix the same to any instrument requiring it and, when so affixed, it shall be
attested by his signature or by the signature of the treasurer or an assistant
secretary.
The secretary shall be under the supervision of the president. He shall
perform such other duties and have such other authority and powers as the board
of directors may from time to time prescribe or as the president may from time
to time delegate.
5.11 ASSISTANT SECRETARY. The assistant secretaries in the order of
their seniority unless otherwise determined by the board of directors, shall, in
the absence or disability of the secretary, perform the duties and have the
authority and exercise the powers of the secretary. They shall perform such
other duties and have such other powers as the board of directors may from time
to time prescribe, or as the president may from time to time delegate.
5.12 TREASURER.
(A) The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements of the corporation, and shall deposit all moneys and other
valuable effects in the name and to the credit of the corporation in such
depositories as may be designated by the board of directors.
(B) He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and directors, at the regular
meetings of the board, or whenever they may require it, an account of all his
transactions as treasurer and of the financial condition of the corporation.
(C) If required by the board of directors, he shall give the
corporation a bond in such form, in such sum and with such surety or sureties as
shall be satisfactory to the board for the faithful performance of the duties of
his office and for the restoration to the corporation, in case of his death,
resignation,
10
<PAGE> 14
retirement or removal from office, of all books, reports, vouchers, money, or
other property of whatever kind in the his possession or under his control
belonging to the corporation.
(D) He shall perform such other duties and have such other
authority and powers as the board of directors may from time to time prescribe,
or as the president may from time to time delegate.
5.13 ASSISTANT TREASURER. The assistant treasurer in the order of
their seniority, unless otherwise determined by the board of directors, shall,
in the absence or disability of the treasurer, perform the duties and have the
authority and exercise the powers of the treasurer. They shall perform such
other duties and have such other powers a the board of directors may from time
to time prescribe or other president may from time to time delegate.
5.14. FILLING OF OFFICES. The board of directors of the corporation
shall not be required to fill the offices of vice-president, assistant
secretary, and assistant treasurer, or to name an executive committee or any
other committee until, in the opinion of the board, there is a need for such
offices, committees, or any of them, to be filled.
ARTICLE VI
INDEMNIFICATION
6.01 POLICY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. To the
full ex tent permitted by Delaware law, the corporation shall indemnify any
director or officer of the corporation against judgments, penalties (including
excise and similar taxes), fines, settlements and reasonable expenses (including
court costs and attorneys' fees) actually incurred by any such person who was,
is or is threatened to be made a named defendant or respondent in a proceeding
because the person is or was a director or officer of the corporation and shall
advance to such person such reasonable expenses as are incurred by such person
in connection therewith.
6.02 DEFINITIONS. For purposes of this Article VI:
(i) "Director" means any person who is or was a director
of the corporation and any person who, while a director of the corporation, is
or was serving at the request of the corporation as a director, officer,
partner, venture, proprietor, trustee, employee, agent, or similar functionary
of the corporation or of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise.
11
<PAGE> 15
(ii) "Officer" means any person who is or was an officer
of the corporation and any person who, while an officer of the corporation, is
or was serving at the request of the corporation as a director, officer,
partner, venture, proprietor, trustee, employee, agent or similar functionary of
the corporation or of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise.
(iii) "Proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that cold lead to such an action,
suit, or proceeding.
6.03 NON-EXCLUSIVE; CONTINUATION. The indemnification provided by
this Article VI shall not be deemed exclusive of any other rights to which the
person claiming indemnification may be entitled under any agreement, any vote of
shareholders or disinterested directors of the corporation or otherwise both as
disinterested directors of the corporation or otherwise both as to any action in
his or her official capacity and as to any action in another capacity while
holding such office, and shall continue as to a person who shall have ceased to
be a director, officer or employee of the corporation engaged in any other
enterprise at the request of the corporation and shall inure to the benefit of
the heirs, executors and administrators of such person.
6.04 INDEMNIFICATION OF EMPLOYEES OR AGENTS. The corporation may
indemnify and advance expenses to an employee or agent who is not a director or
officer to such further extent, consistent with law and upon the satisfaction of
any requirements imposed by such law, as may be provided by general or specific
action of the board of directors, or contract or as permitted or required by
common law.
6.05 INSURANCE OR OTHER ARRANGEMENT. The corporation shall have the
power to purchase and maintain insurance or another arrangement on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or who is or was serving at the request of the corporation as a director,
officer, employee or agent or any other capacity in another corporation, or a
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in such capacity,
arising out of such person's acting as such, whether or not such person is
indemnified against such liability by the provisions of this Article VI.
12
<PAGE> 16
ARTICLE VII
CERTIFICATES AND SHAREHOLDERS
7.01 CERTIFICATES. Certificates in the form determined by the board
of directors shall be delivered representing all shares in which shareholders
are entitled. Such certificates shall be consecutively numbered, and shall be
entered in the books of the corporation as they are issued. Each certificate
shall state on the face thereof the holder's name, the number and class of
shares, the par value of shares or a statement that such shares are without par
value, and such other matters as may be required by the laws of the State of
Delaware. They shall be signed by the president or a vice-president and the
secretary or assistant secretary, and may be sealed with the seal of the
corporation or a facsimile thereof. If any certificate is countersigned by a
transfer agent or registered by a registrar other than the corporation or an
employee of the corporation, the signature of such officer may be a facsimile.
In the event any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar be fore such certificate is issued,
it may be issued by the corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
7.02 REPLACEMENT OF LOST OR DESTROYED CERTIFICATES. The board of
directors may direct a new certificate representing shares to be issued in place
of any certificate theretofore issued by the corporation alleged to have been
lost or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate to be lost or destroyed. When authorizing such issue of
a new certificate, the board of directors, in its discretion and as a condition
precedent to the issuance thereof, may prescribe such terms and conditions a it
deems expedient, and may require such indemnities as it deems adequate, to
protect the corporation from any claim that may be made against it with respect
to any such certificate alleged to have been lost or destroyed.
7.03 TRANSFER OF SHARES. Shares of stock shall be transferable only
on the books of the corporation by the holder thereof in person or by his duly
authorized attorney, Upon surrender, to the corporation or its transfer agent,
of a certificate re presenting shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, the corporation or
its transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
7.04 REGISTERED SHAREHOLDERS. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof, and accordingly shall not be required to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it has express or other notice thereof, except as
otherwise provided by law.
7.05 PREEMPTIVE RIGHTS. No shareholder or any other person shall
have any preemptive right whatsoever.
13
<PAGE> 17
7.06 RESTRICTION ON TRANSFER OF SHARES. No shareholder including
the heirs, assigns, executors, or administrators of a deceased shareholder shall
voluntarily or involuntarily sell or assign shares of the corporation to any
person or persons, firms, or other corporations not a shareholder, or pledge the
same or any part thereof by endorsement resulting i delivery to a transferee who
is not a shareholder, without first offering such stock for sale to the
corporation and the other shareholders in the following manner.
(A) Such shareholder shall give written notice by registered or
certified mail to the secretary of the corporation of his intention to sell such
shares. Said notice shall specify his intention to sell such shares. Said notice
shall specify the number of shares to be sold, the price per share, and the
terms upon which the sale is to be made. The corporation shall have thirty (30)
day from the receipt of such notice within which to exercise its option to
purchase all or any full number of the shares so offered. Such purchase may be
authorized by the board of directors without any action by the shareholders of
the corporation.
(B) In the event that the corporation shall fail to purchase all
of such shares within the said thirty (30) day period, the secretary of the
corporation shall within ten (10) days thereafter, give written notice to each
of the shareholders of record, stating the number of shares offered for sale but
not purchased by the corporation, and the price per share, and the terms upon
which the sale is being made. Such notice shall be sent by mail addressed to
each shareholder at his last address as it appears on the books of the
corporation. Within thirty (30) day after the mailing of said notices any
shareholder desiring to purchase part or all of such shares shall deliver by
mail or otherwise to the secretary of the corporation a written offer for the
number of shares desired by him, accompanied by the purchase price therefor with
authorization to pay such purchase price against delivery of such shares.
(C) If the shareholders offer to purchase more than the total
number of shares available for purchase by them, then the shareholders offering
to purchase shall be entitled to purchase any proportion of said shares as the
number of shares of the corporation which he holds bears to the total number of
shares held by all shareholders offering to purchase. In the event that the
proportion of said shares to which any shareholder should be entitled to
purchase is more than the number of shares he desires to purchase, each
remaining shareholder desiring to purchase additional shares shall be entitled
to purchase such proportion of the overplus as the number of shares which he
holds bears to the total number of shares held by all shareholders desiring to
participate.
(D) If none or only a part of the shares offered for sale is
purchased by the corporation or shareholders, or both, then its shareholder who
offered the
14
<PAGE> 18
same for sale shall have thereafter the right, at any time during the period of
six (6) months after the expiration of the thirty (30) day period referred to in
paragraph (B) above, to sell said shares not so purchased to such person or
persons as he desire; PROVIDED, HOWEVER, that he shall not sell such shares at a
lower price or on terms more favorable to the purchaser than those specified in
the written notice he gave to the corporation nor shall he sell such shares
after the expiration of the six month period without first giving written notice
as hereinabove required.
(E) No shares of stock shall be sold or transferred on the boos of
the corporation until these provisions have been complied with, but the board of
directors may, in any particular instance, waive the requirements.
ARTICLE VIII
NOTICE
8.01 METHOD. Whenever by statute or the Certificate of
Incorporation or these Bylaws, notice is required to be given to any shareholder
or director, and no provision is made as to how the notice shall be given, it
shall not be construed to mean personal notice, but any such notice may be given
in writing, postage prepaid, addressed to the director or shareholder at the
address appearing on the books of the corporation, or by any other method
permitted by law. Any notice required or permitted to be given by mail shall be
deemed given at the time when the same is thus deposited in the United States
mails. Notice to directors may also be given by telegram, with such notice being
deemed to have been given when the telegram is delivered to the telegraph
company.
8.02 WAIVER. Whenever, by statute or the Certificate of
Incorporation or these Bylaws, notice is required to be given to any shareholder
or director, a waiver thereof in writing signed by the person or persons
entitled to such notice, whether before or after the time stated in such notice,
shall be equivalent to the giving of such notice. Attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends for the express purpose of objecting to the transaction of any
business on the rounds that the meeting is not lawfully called or convened.
ARTICLE IX
GENERAL PROVISIONS
9.01 DISTRIBUTION, SHARE DIVIDENDS AND RESERVES.
(A) DECLARATION AND PAYMENT. Subject to statute and the
Certificate of Incorporation, distributions and share dividends may be
authorized
15
<PAGE> 19
by the board of directors at any regular or special meeting and made by the
corporation. Distributions may be paid in cash or in property of the
corporation, and share dividends may be paid in authorized but unissued shares
or in treasury shares of the corporation. The authorization and payment of
distributions and share dividends shall be at the discretion of the board of
directors.
(B) RECORD DATE. The board of directors may fix in
advance a record date for the purpose of determining shareholders entitled to
receive any distribution or share dividend by the corporation, such record date
to be not more than sixty days prior to the payment of such distribution or
share dividend. In the absence of any action by the board of directors, the date
upon which the board of directors adopts the resolution authorizing the
distribution or share dividend shall be the record date.
(C) RESERVES. By resolution the board of directors may
create such reserve or reserves out of the surplus of the corporation or
designate or allocate any part or all of the surplus of the corporation in any
manner for any proper purpose or purposes, and may increase, decrease or abolish
any such reserve, designation or allocation in the same manner.
9.02 BOOKS AND RECORDS. The corporation shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders, its board of directors, and each committee of its board of
directors, and shall keep at its registered office or principal place of
business, or at the office of its transfer agent or registrar, a record of the
original issuance of shares issued by the corporation and a record of each
transfer of those shares that have been presented to the corporation for
registration of transfer. Such records shall contain the names and addresses of
all past and current shareholders and the number and class of the shares issued
by the corporation held by each of them.
9.03. CHECKS AND NOTES. All checks or demands for money and notes of
the corporation shall be signed by such officer or officers or such other person
or persons as the board of directors may from time to time designate.
9.04 FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
9.05 SEAL. The corporate seal shall have inscribed thereon the name
of the corporation and shall be in such form as the board of directors may
prescribe. Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced otherwise.
16
<PAGE> 20
9.06 RESIGNATION. Any director, officer or agent may resign by
giving written notice to the president or the secretary. The resignation shall
take effect at the time specified therein. Unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
9.07 AMENDMENT OF BYLAWS. These Bylaws may be repealed, altered or
amended at any meeting of the board of directors at which a quorum is present,
by the affirmative vote of a majority of the directors present at such meeting,
provided notice of the proposed repeal, alteration or amendment is contained in
the notice of such meeting, unless (A) the power to repeal, alter or amend the
Bylaws is exclusively reserved to the shareholders in whole or part by the
Certificate of Incorporation or by statute, or (B) the shareholders in amending,
repealing or adopting a particular bylaw expressly provide that the board of
directors may not amend or repeal that by law.
9.08 TABLE OF CONTENTS; HEADINGS. The table of contents and
headings used in these Bylaws have been inserted for convenience only and do not
constitute matter to be construed in interpretation.
9.09 CONSTRUCTION. Whenever the context so requires, the masculine
shall include the feminine and neuter, and the singular shall include the
plural, and conversely. If any portion of these Bylaws shall be invalid or
inoperative, then, so far as is reasonable and possible:
(A) The remainder of these Bylaws shall be considered
valid and operative; and
(B) Effect shall be given to the intent manifested by the
portion held invalid or inoperative.
17
<PAGE> 1
Exhibit 3.6.1
CERTIFICATE OF FORMATION
OF
FANTASMA, LLC
The undersigned, an authorized natural person, for the purpose of
forming a limited liability company, under the provisions and subject to the
requirements of the State of Delaware (particularly Chapter 18, Title 6 of the
Delaware Code and the acts amendatory thereof and supplemental thereto, and
known, identified, and referred to as the "Delaware Limited Liability Company
Act"), hereby certifies that:
FIRST: The name of the limited liability company (hereinafter called
the "limited liability company") is Fantasma, LLC.
SECOND: The address of the registered office and the name and the
address of the registered agent of the limited liability company required to be
maintained by Section 18-104 of the Limited Liability Company Act of the State
of Delaware are Corporation Service Company, 1013 Centre Road, Wilmington,
Delaware 19805.
THIRD: The nature of the business to be conducted by, and the purposes
of, the limited liability company are to engage in any lawful act or activity
for which a limited liability company may be organized under the Limited
Liability Company Act of the State of Delaware.
FOURTH: No member of the limited liability company may bind the limited
liability company except in accordance with the limited liability company
agreement of the limited liability company as in effect from time to time.
<PAGE> 2
FIFTH: The limited liability company shall indemnify and hold harmless
each member, each manager and each officer of the limited liability company, to
the fullest extent permitted by law.
Executed on August 22, 1996.
/S/ Samantha Kimm
--------------------------------
Samantha Kimm, Authorized Person
2
<PAGE> 1
Exhibit 3.7.1
CERTIFICATE OF LIMITED PARTNERSHIP
OF
FOSTER GRANT GROUP, L.P.
This Certificate of Limited Partnership of FOSTER GRANT GROUP, L.P.
(the "Limited Partnership") is being executed by the undersigned for the purpose
of forming a limited partnership pursuant to the Delaware Revised Uniform
Limited Partnership Act.
1. The name of the limited partnership is: Foster Grant Group,
L.P.
2. The address of the registered office of the limited
partnership in Delaware is 32 Loockerman Square, Suite L-100, Dover, Delaware
19904. The limited partnership's registered agent at that address is The
Prentice-Hall Corporation System, Inc.
3. The names and addresses of the general partner is:
NAME ADDRESS
---- -------
Bonneau General, Inc. 32 Loockerman Square,
Suite L-100
Dover, Delaware 19904
IN WITNESS WHEREOF, the undersigned, constituting all of the general
partners of the Partnership, have caused this Certificate of Limited Partnership
to be duly executed as of the 23rd day of December, 1994.
BONNEAU GENERAL, INC.
By: /S/ Peter H. Trembath
------------------------
Name: Peter H. Trembath
Title: Secretary
<PAGE> 1
Exhibit 3.7.2
AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP
OF
FOSTER GRANT GROUP, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of Foster Grant
Group, L.P. is made as of the 30th day of December, 1994, by and among Bonneau
General, Inc., a Delaware corporation, as General Partner, Bonneau Holdings,
Inc., a Delaware corporation, and O-Ray Holdings, Inc., a Delaware corporation,
as the Limited Partners, and the Persons who become limited partners of the
Partnership in accordance with the provisions hereof and whose names are set
forth as Limited Partners on Schedule A attached hereto.
WITNESSETH:
WHEREAS, the General Partner has heretofore formed the Partnership by
filing a Certificate of Limited Partnership with the Office of the Secretary of
State of the State of Delaware on December 23, 1994 and entered into an
Agreement of Limited Partnership of the Partnership, dated as of December 23,
1994 (the "Original Partnership Agreement") with the Initial Limited Partner;
and
WHEREAS, the parties hereto desire to continue the Partnership as a limited
partnership under the Act and this Agreement and to admit O-Ray Holdings, Inc.
as a limited partner of the Partnership; and
WHEREAS, the parties hereto desire to provide for the governance of the
Partnership and to set forth in detail their respective rights and duties
relating to the Partnership and to amend and restate the Original Partnership
Agreement in its entirety.
NOW, THEREFORE, in consideration of the mutual promises and obligations
contained herein, the parties, intending to he legally bound, hereby amend and
restate the Original Partnership Agreement in its entirety and hereby agree as
follows:
<PAGE> 2
ARTICLE I
DEFINED TERMS
Section 1.01. DEFINITIONS. Unless the context otherwise requires, the terms
defined in this Article I shall, for the purposes of this Agreement, have the
meanings herein specified.
"Act" means the Delaware Revised Uniform Limited Partnership Act, 6 DEL.C.
ss.17-l0l, ET SEQ., as amended from time to time.
"Additional Units" has the meaning set forth in Section 4.03 (a).
"Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Capital Account as of the end of the
relevant Partnership Fiscal Year, after giving effect to the following
adjustments:
(i) Credit to such Capital Account any amounts which such Partner is
obligated to restore or is deemed to be obligated to restore pursuant to the
penultimate sentences of Sections 1.704-2 (g) (i) and 1.704-2 (i) (5) of the
Regulations; and
(ii) Debit to such Capital Account the items described in
Sections 1.704-1 (b) (2) (ii) (d) (4), 1.704-1 (b) (2) (ii) (d) (5) and 1.704-1
(b) (2) (ii) (d) (6) of the Regulations.
"Affiliate" means any Person that directly or indirectly controls, is
controlled by, or is under common control with, the Person in question. As used
in this definition, the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, by
contract or otherwise.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership of the Partnership, as amended, modified, supplemented or restated
from time to time.
"Bankruptcy" means, with respect to any Partner, (i) the filing by a
Partner of a voluntary petition seeking liquidation, reorganization, arrangement
or readjustment, in any form, of its debts under Title 11 of the United States
Code (or corresponding provisions of future laws) or any other federal or state
insolvency law, or the filing by a Partner of an answer consenting to or
acquiescing in any such petition, (ii) the making by a Partner of any assignment
for the benefit of its creditors or the admission by a Partner in writing of its
inability to pay its debts as they mature, (iii) the filing of an involuntary
petition under Title 11 of the United States Code (or corresponding provisions
of future laws), an application for the appointment of a receiver for the assets
of a Partner, or an involuntary petition seeking liquidation, reorganization,
arrangement or readjustment of its debts under any other federal or state
insolvency law, provided that the same shall not have been vacated, set aside or
stayed within a 60-day period after the occurrence of
2
<PAGE> 3
such event or (iv) the entry against it of a final and nonappealable order for
relief under any bankruptcy, insolvency or similar law now or hereafter in
effect.
"Capital Account" means, with respect to any Partner, the account
maintained for such Partner in accordance with the provisions of Section 4.05.
"Capital Contribution" means, with respect to any Partner, the assets,
liabilities, properties and business contributed to the Partnership by such
Partner pursuant to Sections 4.01, 4.02, 4.03 and 4.04.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership and any and all amendments thereto and certificates of correction or
restatements thereof filed on behalf of the Partnership with the Off ice of the
Secretary of State of the State of Delaware.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any corresponding federal tax statute enacted after the date of this
Agreement. A reference to a specific section (ss) of the Code refers not
only to such specific section but also to any corresponding provision of any
federal tax statute enacted after the date of this Agreement, as such specific
section or such corresponding provision is in effect on the date of application
of the provisions of this Agreement containing such reference.
"Covered Person" has the meaning set forth in Section 12.01 (a).
"Disabling Conduct" shall mean conduct that constitutes fraud, willful
misconduct, bad faith or gross negligence.
"General Partner" means Bonneau General, Inc. and includes any Person who
becomes an additional or successor general partner of the Partnership pursuant
to the provisions of this Agreement.
"Guaranty" means the Subsidiary Guaranty Agreement, among BEC Distribution,
Inc., Bonneau General, Inc., Bonneau Holdings, Inc., Foster Grant Group, L.P.,
Omega Optical Co., Inc., Omega Optical Co., L.P., Omega Optical General, Inc.,
Omega Optical Holdings, Inc., Optical Radiation Corporation, O-Ray Holdings,
Inc., The Bonneau Company, ORC Caribe and NationsBank, National Association
(Carolinas), as agent (the "Agent").
"Indemnified Person" has the meaning set forth in Section 12.02 (a).
"Initial Limited Partner" means Bonneau Holdings, Inc. in its capacity as a
limited partner of the Partnership.
"Limited Partner" means the Initial Limited Partner, O-Ray Holdings, Inc.
and any other Person named as a limited partner of the Partnership on Schedule A
hereto and includes any Person admitted as an additional limited partner of the
Partnership or a substituted limited partner
3
<PAGE> 4
of the Partnership pursuant to the provisions of this Agreement, and "Limited
Partners" means two or more of such Persons when acting in their capacities as
limited partners of the Partnership.
"Liquidating Trustee" means the General Partner, or if there is no General
Partner, a Person or Persons who may be approved by a Majority Vote.
"Majority Vote" means the written approval of, or the affirmative vote by,
the holders of a majority of the Outstanding Units.
"Management Fee" has the meaning set forth in Section 7.01 (a).
"Net Cash Flow" means, for each Partnership Fiscal Year or other period of
the partnership, the gross cash receipts of the Partnership from all sources,
but excluding all Capital Contributions and any amounts that are held by the
Partnership as a collection agent or in trust for others or that are otherwise
not unconditionally available to the partnership, less all amounts paid by or
for the account of the Partnership during the same Partnership Fiscal Year or
period (including, without limitation, payments of principal and interest on any
Partnership indebtedness and payments of the Management Fee, and less any
amounts determined by the General Partner to be necessary to provide a
reasonable reserve for working-capital needs or to provide funds for any other
contingencies of the Partnership. Net Cash Flow shall be determined in
accordance with the cash receipts and disbursements method of accounting and
otherwise in accordance with generally accepted accounting principles.
"Net Profits and Net Losses" mean the annual income and loss, respectively,
of the Partnership for a Partnership Fiscal Year as determined in accordance
with principles applied in determining income, gains, expenses, deductions, or
losses, as the case may be, reported by the Partnership for federal income tax
purposes on its partnership tax return and computed with the following
adjustments:
(i) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Net Profits or Net Losses
shall be added to such taxable income or loss;
(ii) Any expenditures of the Partnership described in Code Section 705
(a) (2) (B) or treated as Code Section 705 (a) (2) (B) expenditures pursuant to
Regulations Section 1.704-1 (b) (2) (iv) (i), and not otherwise taken into
account in computing Net Profits or Net Losses shall be subtracted from such
taxable income or loss;
(iii) In the event the book value of any Partnership asset is adjusted
pursuant to the terms of this Agreement for purposes of determining the
Partners' Capital Accounts, the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset for purposes of
computing Net Profits or Net Losses.
(iv) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by
4
<PAGE> 5
reference to the book value (utilized for purposes of maintaining the Partners'
Capital Accounts) of the property disposed of, notwithstanding that the adjusted
tax basis of such property differs from such book value; and
(v) In lieu of the depreciation, amortization and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account the book depreciation for such Partnership Fiscal
Year or other period utilized for purposes of maintaining the Partners' Capital
Accounts.
"Nonrecourse Deductions" has the meaning set forth in Section 1.704-2 (b)
(1) of the Regulations.
"Nonrecourse Liability" has the meaning set forth in Section 1.704-2 (b)
(3) of the Regulations.
"Outstanding Units" means the number of Units shown on the books and
records of the Partnership to be outstanding other than Units held by the
Partnership.
"Partner" means any General Partner or Limited Partner, and "Partners"
means two or more such Persons.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Section 1.704-2 (i) (3) of the Regulations.
"Partner Nonrecourse Debt" has the meaning set forth in Section 1.704-2 (b)
(4) of the Regulations.
"Partner Nonrecourse Deductions" has the meaning set forth in Sections
1.704-2 (i) (l) and 1.704-2 (i) (2) of the Regulations.
"Partnership" means Foster Grant Group, L.P., the limited partnership
heretofore formed and continued under and pursuant to the Act and this
Agreement.
"Partnership Fiscal Year" shall mean the fiscal year ending each December
31st.
"Partnership Minimum Gain" has the meaning set forth in Regulations Section
1.704-2 (b) (2) and 1.704-2 (d).
"Person" includes any individual, corporation, association, partnership
(general or limited), joint venture, trust, estate, limited liability company or
other legal entity or organization.
"Record Date" means the date established by the General Partner as the
record date for purposes of any entitlement hereunder.
5
<PAGE> 6
"Record Holder" means the Limited Partner or assignee in whose name a Unit
is registered on the books and records of the Partnership or on Schedule A
hereto and, as applied to the General Partner's interest in the Partnership, the
owner thereof, in each case as of the close of business on any Record Date.
"Security Agreement" means the Subsidiary Security Agreement, among BEC
Distribution, Inc., Bonneau General, Inc., Bonneau Holdings, Inc., Foster Grant
Group, L.P., Omega Optical Co., Inc., Omega Optical Co., L.P., Omega Optical
General, Inc., Omega Optical Holdings, Inc., Optical Radiation Corporation,
O-Ray Holdings, Inc., The Bonneau Company, Opti-Ray, Inc. and the Agent.
"Substituted Limited Partner" means a Person who is admitted to the
Partnership as a Limited Partner pursuant to this Agreement in place of a
Limited Partner or an assignee, and who is a Record Holder or named as a Limited
Partner on Schedule A to this Agreement.
"Successor" means any Person who becomes (i) an assignee of a General
Partner's interest in the Partnership, or part thereof (whether or not such
assignee becomes an additional or successor General Partner pursuant to this
Agreement), (ii) an assignee of a Limited Partner's interest in the Partnership,
or part thereof (whether or not such assignee becomes a Limited Partner pursuant
to this Agreement) and (iii) an assignee of a Successor, in each case upon
approval of the General Partner, as provided in Section 11.02.
"Tax Matters Partner" has the meaning set forth in Section 10.06 (a).
"Term" has the meaning set forth in Section 2.08.
"Treasury Regulations" means the income-tax regulations promulgated under
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations):
"Unit" means an interest of a Limited Partner or an assignee in the
Partnership representing such fractional part of the interests of all Limited
Partners or assignees pursuant to this Agreement as is equal to the quotient of
one divided by the number of Outstanding Units.
ARTICLE II
CONTINUATION AND PURPOSES
Section 2.01. CONTINUATION. The parties hereto hereby continue the
Partnership as a limited partnership under and pursuant to the provisions of
the Act and agree that the rights, duties and liabilities of the Partners shall
be as provided in the Act, except as otherwise provided herein.
6
<PAGE> 7
Section 2.02. NAME. The name of the Partnership heretofore formed and
continued hereby is "Foster Grant Group, L.P.," unless and until the name of the
Partnership is changed by the General Partner, in its sole discretion, and an
appropriate amendment to the Certificate of Limited Partnership is filed as
required by the Act. The Partnership's business may be conducted under the name
of the Partnership or any other name or names deemed advisable by the General
Partner, including the name of the General Partner or any Affiliate thereof. The
words "Limited Partnership," "L.P." or similar words or letters shall be
included in the Partnership's name where necessary for the purposes of complying
with the laws of any jurisdiction that so requires.
Section 2.03. PRINCIPAL PLACE OF BUSINESS. The principal place of business
of the Partnership shall be located at 1601 Valley View Lane, Dallas, Texas
75234. The General Partner may hereafter change the principal place of business
of the Partnership to such other place or places as the General Partner may
determine from time to time in its sole discretion. The General Partner shall
give notice of any such change to the Limited Partners. The Partnership may
maintain such other offices at such other places as the General Partner deems
advisable.
Section 2.04. REGISTERED OFFICE; REGISTERED AGENT. The address of the
registered office of the Partnership in the State of Delaware is c/o The
Prentice-Hall Corporation System, Inc., 32 Loockerman Square, Suite L-l00,
Dover, Delaware 19904. The registered agent of the Partnership at that address
shall be The Prentice Hall Corporation System, Inc. At any time, the General
Partner may designate another registered agent and/or registered office and
amend the Certificate of Limited Partnership accordingly.
Section 2.06. PURPOSES. The purpose and business of the Partnership shall
be any business which may lawfully be conducted by a limited partnership formed
pursuant to the Act, including primarily, but without limitation, the
manufacture, purchase, distribution, marketing and sale of optical and
optical-related products; the carrying on of any business relating thereto or
arising therefrom; and anything incidental or necessary to the foregoing.
Section 2.07. POWERS. The Partnership shall have the power to do any and
all acts necessary, appropriate, proper, advisable, incidental or convenient to
or for the furtherance of the purposes and business described herein and for the
protection and benefit of the Partnership, and shall have, without limitation,
any and all of the powers that may be exercised on behalf of the Partnership by
the General Partner pursuant to Article VIII. The Partnership, and the General
Partner on behalf of the Partnership, may enter into, deliver and perform (i)
the Third Amended and Restated Loan and Security Agreement among Benson Eyecare
Corporation ("Borrower"), BEC Distribution, Inc., Bonneau Holdings, Inc.,
Bonneau General, Inc., Foster Grant Group, L.P., Omega Optical Co., Inc., Omega
Optical Co., L.P., Omega Optical Holdings, Inc., Omega Optical General, Inc.,
Optical Radiation Corporation, Opti-Ray, Inc., O-Ray Holdings, Inc., ORC Caribe,
The Bonneau Company (collectively, the "Guarantors") and NationsBank, National
Association (Carolinas) and each other lender executing and delivering a
signature page thereto (the "Lenders"), and the other financial institutions
from time to time parties thereto, and NationsBank, National Association
(Carolinas) (the "Agent") (the "Facility A Credit Agreement"), (ii) the Third
Amended and Restated Loan and Security Agreement (Facility B), among the
7
<PAGE> 8
Borrower, the Guarantors, the Lenders and the Agent, (iii) the Security
Agreement, (iv) the Guaranty, (v) the Intellectual Property Security Agreement
(as defined in the Facility A Credit Agreement) and (vi) all such further
instruments, certificates and documents to which the Partnership is a party or
is required to deliver in connection with the foregoing documents (with such
changes thereto as the persons executing the above-mentioned documents shall
deem necessary, desirable or appropriate, as evidenced by his or their execution
thereof) without any further act, vote or approval of any Partner
notwithstanding any other provision of this Agreement, the Act or other
applicable law, rule or regulation. The General Partner is hereby authorized to
enter into the agreements described in the preceding sentence on behalf of the
Partnership, but such authorization shall not be deemed a restriction on the
power of the General Partner to enter into other Agreements on behalf of the
Partnership.
Section 2.08. TERM. The term of the Partnership ("Term") commenced on the
date the Certificate of Limited Partnership was filed in the Office of the
Secretary of State of the State of Delaware and shall continue until the 31st
day of December, 2025, unless dissolved before such date in accordance with the
provisions of this Agreement.
ARTICLE III
NAMES AND ADDRESSES OF PARTNERS
Section 3.01. GENERAL PARTNER. The name and mailing address of the General
Partner are set forth on Schedule A attached hereto and made a part hereof.
Section 3.02. LIMITED PARTNERS. The names and addresses of the Limited
Partners are set forth on Schedule A attached hereto and made a part hereof. A
Person shall be deemed admitted as a Limited Partner at the time such Person (i)
executes this Agreement or a counterpart of this Agreement and (ii) is named as
a Limited Partner on Schedule A hereto. Any reference in this Agreement to
Schedule A shall he deemed to be a reference to Schedule A as amended and in
effect from time to time.
ARTICLE IV
CAPITAL CONTRIBUTIONS,
SALE OF UNITS AND CAPITAL ACCOUNTS
Section 4.01. GENERAL PARTNER INITIAL CAPITAL CONTRIBUTION. The General
Partner has made a contribution to the capital of the Partnership of the assets,
properties and business, subject to the liabilities, referred to opposite such
General Partner's name on Schedule A hereto. The agreed value of such General
Partner's Capital Contribution is set forth in the books and records of the
Partnership. The agreed percentage to which such General Partner's Capital
Contribution represents to all Capital Contributions made to the Partnership is
set forth opposite such General Partner's name on Schedule A hereto.
8
<PAGE> 9
Section 4.02. LIMITED PARTNER INITIAL CAPITAL CONTRIBUTIONS. The Limited
Partners have made Capital Contributions of the assets, properties and business,
subject to the liabilities referred to opposite such Limited Partner's name on
Schedule A hereto. The agreed value of each of the Limited Partners Capital
Contribution is set forth in the books and records of the Partnership. The
agreed percentage to which each of the Limited Partners Capital Contribution
represents to all Capital Contributions made to the Partnership is set forth
opposite such Limited Partner's name on Schedule A hereto.
Section 4.03. SALE OF ADDITIONAL LIMITED PARTNER INTERESTS.
(a) The General Partner and the Partnership are hereby authorized to
raise additional Partnership capital by offering and selling, or causing to be
offered and sold, additional limited partner interests in the Partnership
("Additional Units") in such amounts and on such terms as the General Partner in
its sole discretion may determine. Each Person who subscribes for any of the
Additional Units shall be admitted as a Limited Partner at the time such Person
(i) executes this Agreement or a counterpart of this Agreement and (ii) is named
as a Limited Partner on Schedule A hereto or the books and records of the
Partnership. Each such Person shall pay in cash to the Partnership, as its
Capital Contribution, the purchase price for such Additional Units upon its
subscription therefor.
(b) The General Partner, in its individual capacity, may purchase for
cash such number of Additional Units as the General Partner, in its sole
discretion, may desire to purchase, provided, however, if the price of such
Additional Units is less than the book value of such Units, as determined from
the financial statements of the Partnership as of the end of its last fiscal
year, such purchase shall require a Majority Vote of the Limited Partners. Each
Additional Unit held by the General Partner shall represent an interest in the
Partnership as a Limited Partner that shall include all rights and obligations
of a Limited Partner. As the holder of Additional Units, the General Partner
shall be admitted to the Partnership as a Limited Partner of the Partnership.
Section 4.04. ADDITIONAL CAPITAL CONTRIBUTIONS.
(a) If the General Partner determines, in its sole discretion, that
the Partnership requires additional capital contributions from the Partners,
then written notice thereof shall promptly be given to all Partners. Upon the
date specified in such notice, which date shall not be less than thirty (30)
days after the date such notice is delivered or mailed, as the case may be, in
accordance with Section 16.01, the Partners shall contribute to the Partnership
in their PRO RATA share, based on their respective Capital Contributions, of the
total amount of additional capital required by the Partnership. The General
Partner shall cause all such Capital Contributions to be reflected on Schedule A
to this Agreement.
Section 4.05. CAPITAL ACCOUNTS. An individual Capital Account shall be
established and maintained for each Partner and each Successor who hereafter
owns an interest in the Partnership. The original Capital Account established
for any Successor shall be in the same amount as, and shall replace, the Capital
Account of the Person whom such Successor succeeds,
9
<PAGE> 10
and, for purposes of this Agreement, such Successor shall be deemed to have made
the Capital Contribution of the Person whom such Successor succeeds. To the
extent a Successor acquires less than the entire interest in the Partnership of
the Person it succeeds, the original Capital Account of such Successor and its
capital Contribution shall be in proportion to the interest it acquires, and the
Capital Account of the Person who retains a partial interest in the Partnership,
and the amount of its Capital contribution, shall be reduced in proportion to
the interest it retains.
The Capital Account of each Partner or Successor shall be maintained in
accordance with the following provisions:
Each Partner's Capital Account shall be:
(i) Increased by
(A) Capital Contributions actually made by the Partner to
the Partnership upon formation of the Partnership;
(B) Additional Capital Contributions actually made by the
Partner to the Partnership subsequent to the formation of the
Partnership;
(C) Allocations to the Partner of the Net Profits of the
Partnership; and
(D) Other items properly added to Capital Accounts pursuant
to the Code and the Regulations thereunder:
and
(ii) Decreased by
(A) The amount of money and the fair market value of
property distributed to the Partner by the Partnership;
(B) Allocations to the Partner of expenditures of the
Partnership which are not deductible in computing taxable income
and not chargeable to capital account;
(C) Allocations to the Partner of Net Losses of the
Partnership; and
(D) Other items properly deducted from Capital Accounts
pursuant to the Code and the Regulations thereunder.
10
<PAGE> 11
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1 (b), and shall be interpreted and applied in a
manner consistent with such Regulations. In the event the General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto (including, without limitation, debits or
credits relating to liabilities that are secured by contributed or distributed
property or that are assumed by the Partnership or the Partners) are computed in
order to comply with such Regulations, the General Partner may make such
modification, provided that it is not likely to have a material effect on the
amounts distributable to any Partner pursuant to Section 13.04 hereof upon the
dissolution and liquidation of the Partnership. The General Partner also shall
(x) make any adjustments that are necessary or appropriate to maintain equality
between the Capital Accounts of the Partners and the amount of Partnership
capital reflected on the Partnership's balance sheet, as computed for book
purposes, in accordance with Regulations Section 1.704-1 (b) (2) (iv) (1) and
(y) make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Section 1.704-1 (b) of the
Regulations.
Section 4.06. STATUS OF CAPITAL CONTRIBUTIONS.
(a) Except as otherwise provided in this Agreement, the amount of a
Partner's or a Successor's Capital Contribution may be returned to it, in whole
or in part, at any time, but only upon (i) the consent of the General Partner
(which consent the General Partner may withhold in its sole discretion) and (ii)
the approval of a majority in interest in the capital of the Partnership among
all Partners. Any such return of Capital Contribution shall be PRO RATA to all
Partners and Successors in accordance with their then proportionate interests in
Partnership capital. Notwithstanding the foregoing, no return of a Partner's or
a Successor's Capital Contribution shall be made hereunder if such distribution
would not comply with the requirements of ss.17-607 of the Act or other
applicable law. Under circumstances requiring a return of any Capital
Contribution, no Partner or Successor shall have the right to demand or receive
property other than cash except as may be specifically provided in this
Agreement.
(b) No Partner or Successor shall receive any interest, salary, or
drawing with respect to its Capital Contribution or its Capital Account or for
services rendered on behalf of the Partnership or otherwise in its capacity as a
Partner or Successor, except as otherwise specifically provided in this
Agreement.
(c) Except as provided in the Act or in this Agreement, no Limited
Partner shall be liable for the debts, liabilities, contracts or any other
obligations of the Partnership. Except as provided in the Act or this Agreement,
a Limited Partner shall be liable only to make its Capital Contribution pursuant
to Section 4.02, Section 4.03 and Section 4.04 (a), to make any additional
Capital Contribution to the Partnership. No General Partner shall have any
personal liability for the repayment of any Capital Contribution of any Limited
Partner.
Section 4.07. ADVANCES. If any Partner or Successor shall advance any funds
to the Partnership in excess of its Capital Contribution, the amount of such
advance shall neither increase its Capital Account nor entitle it to any
increase in its share of the distributions of the
11
<PAGE> 12
Partnership. The amount of any such advance shall be a debt obligation of the
Partnership to such Partner or Successor and shall be repaid to it by the
Partnership with such interest and upon such other terms and conditions as shall
be mutually determined by such Partner or Successor and the General Partner. Any
such advance shall be payable and collectible only out of the Partnership
assets, and the Partners shall not be personally obligated to repay any part
thereof. No Person who makes any nonrecourse loan to the Partnership shall have
or acquire, as a result of making such loan, any direct or indirect interest in
the profits, capital, or property of the Partnership, other than as a secured
creditor.
ARTICLE V
ALLOCATIONS
Section 5.01.
(a) NET PROFITS AND NET LOSSES. After giving effect to the special
allocations set forth in this Section 5.0l, all Net Profits and Net Losses of
the Partnership for each calendar or fiscal year (as the case may be) shall be
allocated among the General Partner and the Limited Partners in shares
proportionate to their respective Capital Contributions, as set forth in Article
IV and Schedule A hereof. Notwithstanding anything to the contrary above, the
General Partner must be allocated not less than one percent (1%) of each
material item of income, gain, loss, deduction or credit throughout the term of
the Partnership.
(b) SPECIAL ALLOCATIONS. The following special allocations shall be
made in the following order:
(i) MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Section 1.704-2 (f) of the Regulations, notwithstanding any other provision of
this Section 5.0l, if there is a net decrease in Partnership Minimum Gain during
any Partnership Fiscal Year, each Partner shall be specifically allocated items
of Partnership income and gain for such Partnership Fiscal Year (and, if
necessary, subsequent Partnership Fiscal Years) in an amount equal to such
Partners' share of the net decrease in Partnership Minimum Gain, determined in
accordance with Regulations Section l.704-2 (g). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Partner pursuant thereto. The items to be so allocated
shall be determined in accordance with Sections 1.704-2 (f) (6) and 1.704-2 (j)
(2) of the Regulations. This Section 5.01 (b) (i) is intended to comply with the
minimum gain chargeback requirement in Section 1.704-2 (f) of the Regulations
and shall be interpreted consistently therewith.
(ii) PARTNER MINIMUM GAIN CHARGEBACK. Except as otherwise
provided in Section 1.704-2 (i) (4) of the Regulations, notwithstanding any
other provisions of this Section 5.01, if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership
Accounting Year, each Partner who has a share of the Partner Nonrecourse Debt
Minimum Gain attributable to such Partner Nonrecourse Debt,
12
<PAGE> 13
determined in accordance with Section 1.704-2 (i) (5) of the Regulations, shall
be specifically allocated items of Partnership income and gain for such
Partnership Fiscal Year (and, if necessary, subsequent partnership Fiscal Years)
in an amount equal to such Partner's share of the net decrease in Partner
Minimum Gain attributable to such partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2 (i) (4). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be so allocated to each Partner pursuant thereto. The items to be so
allocated shall be determined in accordance with Sections 1.704-2 (i) (4) and
1.704-2 (j) (2) of the Regulations. This Section 5.01 (b) (ii) is intended to
comply with the minimum gain chargeback requirement in Section 1.704-2 (i) (4)
of the Regulations and shall be interpreted consistently therewith.
(iii) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any
Partnership Fiscal Year shall be specifically allocated among the Partners in
proportion to their respective Capital Contributions, as set forth in Article IV
and Schedule A hereof.
(iv) PARTNER NONRECOURSE DEDUCTIONS. Any Partner Nonrecourse
Deductions for any Partnership Fiscal Year shall be specifically allocated to
the Partner who bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with Section 1.704-2 (i) (1) of the Regulations.
(v) QUALIFIED INCOME OFFSET. In the event any Partner
unexpectedly receives any adjustments, allocations, or distributions described
in Regulations Section 1.704-1 (b) (2) (ii) (d) (4), l.470-1 (b) (2) (ii) (d)
(5) or 1.704-1 (b) (2) (ii) (d) (6) of the Regulations, items of Partnership
income and gain shall be specifically allocated to each such Partner in an
amount and manner sufficient to eliminate, to the extent required by the
Regulations, the Adjusted Capital Account Deficit of such Partner as quickly as
possible, provided that an allocation Pursuant to this Section 5.0l (b) (v)
shall be made if and only to the extent that such Partner would have an Adjusted
Capital Account Deficit after all other allocations provided for in Section 5.01
of this Agreement have been tentatively made as if this Section were not in the
Agreement.
(vi) GROSS INCOME ALLOCATION. In the event any Partner has a
deficit Capital Account at the end of any Partnership Fiscal Year that is in
excess of the sum of (A) the amount, if any, such Partner is obligated to
restore, and (B) the amount such Partner is deemed to be obligated to restore
pursuant to the penultimate sentences of Sections l.704-2 (g) (i) and 1.704-2
(i) (5) of the Regulations, each such Partner shall be specifically allocated
items of Partnership income and gain in the amount of such excess as quickly as
possible, provided that an allocation pursuant to this Section 5.0l (b) (vi)
shall made if and only to the extent that such Partner would have a deficit
Capital Account in excess of such sum after all other allocations provided for
in Section 5.01 of this Agreement have been tentatively made as if Section 5.01
(b) (v) hereof and this Section 5.01 (b) (vi) were not in this Agreement.
(vii) CURATIVE ALLOCATIONS. Notwithstanding any other provision
of this Agreement, the allocations pursuant to Sections 5.01 (b) (i) through
5.0l (b) (vi) (the
13
<PAGE> 14
"Regulatory Allocations") shall be taken into account in allocating items of
income, gain, loss and deduction among the Partners so that, to the extent
possible, the net amount of such allocations of other items and the Regulatory
Allocations to each Partner shall be equal to the net amount that would have
been allocated to each Partner if the Regulatory Allocations have not occurred.
(c) CODE SECTION 704 (C). Income, gain, loss and deduction with
respect to any property contributed to the capital of the Partnership shall,
solely for tax purposes, be allocated among the Partners in accordance with
Section 704 (c) of the Code and the Regulations thereunder.
ARTICLE VI
DISTRIBUTIONS
Section 6.01. NET CASH FLOW. Except as otherwise provided in Article
XIII (relating to the dissolution of the Partnership), any distribution of the
Net Cash Flow of the Partnership during any fiscal year of the Partnership shall
be made to the Partners in shares proportionate to their respective Capital
Contributions, as set forth in Article IV and Schedule A hereof.
Section 6.02. DISTRIBUTION RULES. All distributions Pursuant to
Section 6.01 shall be at such times and in such amounts as shall be determined
by the General Partner, in its sole discretion.
Section 6.03. RESTRICTED DISTRIBUTIONS. Notwithstanding any provision
to the contrary contained in this Agreement, the Partnership, and the General
Partner on behalf of the Partnership, shall not make a distribution to any
Partner on account of its interest in the Partnership if such distribution would
violate Section 17-607 of the Act or other applicable law.
ARTICLE VII
FEES PAYABLE TO GENERAL PARTNER
Section 7.01. GENERAL PARTNER'S FEES.
(a) The Partnership shall pay annually to the General Partner, as
compensation for its services in the management and administration of the
Partnership, a fee (the "Management Fee") until such time as the General Partner
ceases to be a general partner of the Partnership or the Partnership is
dissolved; provided, however, that so long as the General Partner does not
withdraw from the Partnership or otherwise cease to fulfill its duties under
this Agreement, the annual Management Fee may be increased or decreased by
Majority Vote of the Limited Partners but shall not be less than $1,000 per
month plus reimbursement of expenses incurred in connection with rendering
services to the Partnership.
14
<PAGE> 15
(b) The Management Fee shall be payable by the Partnership within
thirty (30) days after demand therefor by the General Partner, which demand
shall be submitted by the General Partner to the Partnership and each Partner
annually within sixty (60) days following December 1 of each year during the
Term of the Partnership.
Section 7.02. REIMBURSEMENT OF EXPENSES. In addition to the fees
payable to the General Partner pursuant to Section 7.0l, the Partnership shall
reimburse the General Partner for all ordinary and reasonably necessary
out-of-pocket expenses incurred by the General Partner on behalf of the
Partnership.
ARTICLE VIII
MANAGEMENT
Section 8.01. MANAGEMENT AND CONTROL OF THE PARTNERSHIP. The General
Partner shall have full, exclusive and complete discretion to manage and control
the business and affairs of the Partnership, to make all decisions affecting the
business and affairs of the Partnership and to take all such actions as it deems
necessary or appropriate to accomplish the purpose of the Partnership as set
forth herein. No Limited Partner or assignee, as such, shall have any authority,
right or power to bind the Partnership, to manage or control, or to participate
in the management or control of, the business and affairs of the Partnership in
any manner whatsoever.
Section 8.02. POWERS OF GENERAL PARTNER.
(a) Except as otherwise expressly provided herein, the General
Partner (acting on behalf of the Partnership), shall have the right, power and
authority, in the management of the business and affairs of the Partnership, to
do or cause to be done any and all acts, at the expense of the Partnership, as
the case may be, deemed by the General Partner to be necessary or appropriate to
effectuate the business, purposes and objectives of the Partnership. The power
and authority of the General Partner shall include, without limitation, the
power and authority.
(1) To acquire, own, lease, sublease, manage, finance, hold,
deal in, request, re-zoning of, control or dispose of any interest or
rights in personal property or real property;
(2) To negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take any
other action with respect to any lease, contract or security agreement
in respect of any assets of the Partnership;
15
<PAGE> 16
(3) To pay, collect, compromise, litigate, arbitrate, or
otherwise adjust or settle any and all other claims or demands of or
against the Partnership or to hold such proceeds against the payment
of contingent liabilities;
(4) To borrow money or to obtain credit in such amounts, at
such rate of interest and upon such other terms and conditions as the
General partner deems appropriate, recourse or nonrecourse, from
banks, other lending institutions or any other Person, including the
Partners, and pursuant to indentures, loan agreements or any other
type of instrument, for any purpose of the Partnership and to secure
payment of the principal of any such indebtedness and the interest
thereon by mortgage, pledge, conveyance or assignment in trust of or
grant security interest in the whole or any part of any or all of the
property and assets of the Partnership;
(5) To make, execute, assign, acknowledge and file on behalf
of the Partnership any and all documents or instruments of any kind
which the General Partner may deem necessary or appropriate in
carrying out the purposes and business of the Partnership; and any
Person dealing with the General Partner shall not be required to
determine or inquire into its authority or power to bind the
Partnership or to execute, acknowledge or deliver any and all
documents in connection therewith;
(6) To assume obligations, enter into contracts, including
contracts of guaranty or suretyship, incur liabilities, lend money and
otherwise use the credit of the Partnership, and to secure any and all
obligations, contracts or liabilities of the partnership by mortgage,
pledge or other encumbrances of all or any part of the property and
income of the Partnership;
(7) To invest funds of the Partnership;
(8) To employ and engage suitable agents, employees,
advisors, consultants and counsel (including any custodian, investment
advisor, accountant, attorney, corporate fiduciary, bank or other
reputable financial institution, or any other agents, employees or
Persons who may serve in such capacity for the General Partner or any
Affiliate of the General Partner) to carry out any activities that the
General Partner is authorized or required to carry out under this
Agreement (subject to the supervision and control of the General
partner), including, without limitation, a Person who may be engaged
to undertake some or all of the general management, property
management, financial accounting and record-keeping or other duties of
the General Partner and to indemnify such Persons against liabilities
incurred by them in acting in such capacity as on behalf of the
Partnership;
(9) To employ and retain Persons as may be necessary or
appropriate for the conduct of the Partnership's business (subject to
the supervision
16
<PAGE> 17
and control of the General Partner), including employees and agents
who may be designated as officers with titles including but not
limited to "chairman," "chief executive officer," "president," "vice
president," "treasurer," "secretary," "assistant secretary," "general
manager," "director" and "chief financial officer," as and to the
extent authorized by the General Partner.
(10) To register, qualify, list or report, or cause to be
registered, qualified, listed or reported, this Agreement, the Units
issued in connection herewith or the Partnership pursuant to the
Securities Act of 1933, the Exchange Act, any other securities laws of
the United States, the securities laws of any State of the United
States, the laws of any other jurisdiction, the laws of any securities
exchange or pursuant to an automated quotation system of a registered
securities association as the General Partner deems appropriate.
(11) To qualify the Partnership to do business in any state,
territory, dependency or foreign country;
(12) To sell or dispose of all or a portion of the
Partnership's assets for the benefit of the partners at the times and
on terms determined by the General Partner, in its sole discretion;
(13) To form or cause to be formed, and to own the stock of
one or more corporations, and to form or cause to be formed and to
participate in partnerships, joint ventures, limited liability
companies, trusts and other entities; and
(14) To possess and exercise any additional rights and
powers of a General Partner under the partnership laws of the State of
Delaware, including, without limitation, the Act and the Delaware
Uniform Partnership Law (and any other applicable laws, to the extent
not expressly prohibited by this Agreement).
The expression of any power or authority of the General Partner in
this Agreement shall not in any way limit or exclude any other power or
authority which is not specifically or expressly set forth in this Agreement.
Notwithstanding any of the foregoing, the Partnership shall be operated in such
a manner as the General Partner deems reasonable and necessary or appropriate to
preserve the limited liability of the Limited Partners.
Section 8.03. OUTSIDE BUSINESS. Any Partner or Affiliate thereof may
engage in or possess an interest in other business ventures of any nature or
description, independently or with others, similar or dissimilar to the business
of the Partnership and neither the Partnership nor any of the Partners shall
have any rights by virtue of this Agreement in and to such independent ventures
or the income or profits derived therefrom, and the pursuit of any such venture,
even if competitive with the business of the Partnership, shall not be deemed
wrongful or improper. No Partner or Affiliate thereof shall be obligated to
present any particular investment opportunity to the Partnership even if such
opportunity is of a character which, if presented to the Partnership,
17
<PAGE> 18
could be taken by the Partnership, and any Partner or Affiliate shall have the
right to take for its own account (individually or as a partner or fiduciary) or
to recommend to others any such particular investment opportunity.
Section 8.04. RELATIONSHIPS WITH AFFILIATES. The Partnership may enter
into any agreement or contract with the General Partner, any Person who is an
Affiliate of the General Partner, any Limited Partner, any Affiliate of a
Limited Partner, or any agent of the General Partner or the Partnership without
the prior approval of any other Partners.
Section 8.05. TITLE TO ASSETS OF THE PARTNERSHIP. Title to assets of
the Partnership, whether real, personal or mixed, tangible or intangible, shall
be deemed to be owned by the Partnership as an entity, and no Partner,
individually or collectively, shall have any ownership interest in such assets
of the Partnership or any portion thereof. Title to any or all of the assets of
the Partnership may be held in the name of the Partnership, the General Partner
or in the name of one or more nominees, as the General Partner may determine.
The General Partner declares and warrants that any assets of the Partnership for
which legal title is held in the name of the General Partner shall be held in
trust by the General Partner for the use and benefit of the Partnership in
accordance with the terms and provisions of this Agreement. All assets of the
Partnership shall be recorded as the property of the Partnership on its books
and records, irrespective of the name in which legal title to such assets of the
Partnership is held.
Section 8.06. PURCHASE OR SALE OF UNITS. The General Partner may, on
behalf of and for the account of the Partnership, purchase or otherwise acquire
Units and, following any such purchase or acquisition, may sell or otherwise
dispose of any such Units in accordance with applicable law.
Section 8.07. RESOLUTION OF CONFLICTS OF INTEREST.
(a) Unless otherwise expressly provided herein, (i) whenever a
conflict of interest exists or arises between the General Partner or any of its
Affiliates, on the one hand, and the Partnership or a Limited Partner, on the
other, or (ii) whenever this Agreement or any other agreement contemplated
herein or therein provides that the General Partner shall act in a manner which
is, or provides terms which are, fair and reasonable to the partnership, or any
Limited Partner, the General Partner shall resolve such conflict of interest,
taking such action or provide such terms, considering in each case the relative
interest of each party (including its own interest) to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such
interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles. In the absence of bad
faith by the General Partner, the resolution, action or terms so made, taken or
provided by the General Partner shall not constitute a breach of this Agreement
or any other agreement contemplated herein or of any duty or obligation of the
General Partner at law or in equity or otherwise.
(b) Whenever in this Agreement the General Partner is permitted
or required to make a decision (i) in its "sole discretion" or "discretion" or
under a grant of similar authority or latitude, the General Partner shall be
entitled to consider only such interests and
18
<PAGE> 19
factors as it desires, including its own interests, and shall have no duty or
obligation to give any consideration to any interest of or factors affecting the
Partnership or the Limited Partners, or (ii) in its "good faith" or under
another expressed standard, the General Partner shall act under such express
standard and shall not be subject to any other or different standards imposed by
this Agreement or any other agreement contemplated herein or by the relevant
provisions of law or in equity or otherwise.
Section 8.08 MERGER. The Partnership may merge with, or consolidate
into, another business entity (as defined in Section 17-211 (a) of the Act) upon
the approval by the General Partner and a Majority Vote of the Limited Partners.
In accordance with Section 17-211 of the Act (including Section 17-211 (g)),
notwithstanding anything to the contrary contained in this Agreement, an
agreement of merger or consolidation approved by the General Partner and a
Majority Vote of the Limited Partners, may (A) effect any amendment to this
Agreement, or (B) effect the adoption of a new partnership agreement for the
Partnership if it is the surviving or resulting limited partnership of the
merger or consolidation. Any amendment to this Agreement or adoption of a new
partnership agreement made pursuant to the foregoing sentence shall be effective
at the effective time or date of the merger or consolidation. The provisions of
Section 8.08 shall not be construed to limit the accomplishment of a merger or
of any of the matters referred to herein by any other means otherwise permitted
by law.
ARTICLE IX
LIMITED PARTNERS
Section 9.01. LIABILITY OF LIMITED PARTNERS. Except as otherwise
expressly required by law, a Limited Partner, in its capacity as such, shall
have no liability in excess of (i) the amount of its Capital Contribution, (ii)
its share of any undistributed profits and assets of the Partnership, (iii) its
obligation to make other payments expressly provided for in this Agreement and
(iv) the amount of any distributions wrongfully distributed to it. It is the
intent of the parties hereto that no distribution to any Limited Partner shall
be deemed a return of any money or other property in violation of the Act. The
payment of any such money or distribution of any such property to a Limited
Partner shall be deemed to be a compromise within the meaning of Section 17-502
(b) of the Act, and the Limited Partner receiving any such money or property
shall not be required to return any such money or property to any Person, the
Partnership or any creditor of the Partnership. However, if any court of
competent jurisdiction holds that, notwithstanding the provisions of this
Agreement, any Limited Partner is obligated to return such money or property,
such obligation shall be the obligation of such Limited Partner and not of the
General Partner.
Section 9.02. NO MANAGEMENT BY LIMITED PARTNERS. No Limited Partner,
in its capacity as such, shall take part in the day-to-day management, operation
or control of the business and affairs at the Partnership. The Limited Partner
shall not have any right, power, or authority to transact any business in the
name of the Partnership or to act for or on behalf of or to
19
<PAGE> 20
bind the Partnership. A Limited Partner shall have no rights other than those
specifically provided herein or granted by law.
Section 9.03. EMPLOYEES, AGENTS OR OFFICERS OF THE PARTNERSHIP OR A
GENERAL PARTNER. A Limited Partner or an employee, agent, director or officer of
a Limited Partner may also be an employee, agent, director or officer of the
Partnership or a General Partner. The existence of these relationships and
acting in such capacities will not result in a Limited Partner being deemed to
be participating in the control of the business of the Partnership or otherwise
affect the liability of the Limited Partner or the Person so acting.
ARTICLE X
BOOKS, RECORDS AND FINANCIAL STATEMENTS
Section 10.01. RECORDS AND ACCESS TO RECORDS. At all times during the
continuation of the Partnership, the General Partner shall keep or cause to be
kept full and true books of account maintained in accordance with generally
accepted accounting principles consistently applied in which shall be entered
fully and accurately each transaction of the Partnership. Such books of account,
together with a copy of this Agreement and of the Certificate of Limited
Partnership, and any amendments thereto, shall at all times be maintained at the
principal place of business of the Partnership and shall be open to inspection
and examination at reasonable times by all Partners and their duly authorized
representatives for any purpose reasonably related to such Partner's interest as
a partner in the Partnership.
Section 10.02. CONFIDENTIALITY PROVISIONS AND LIMITATIONS ON ACCESS.
Notwithstanding any other provision of this Agreement, the General Partner may,
to the maximum extent permitted by applicable law, keep confidential from the
Limited Partners any information the disclosure of which the General Partner
reasonably believes is not in the best interest of the Partnership or is adverse
to the interests of the Partnership or which the Partnership or the General
Partner is required by law or by an agreement with any Person to keep
confidential.
Section 10.03. BANK OR BROKERAGE ACCOUNT. All funds of the Partnership
shall be deposited in the Partnership name in such bank or brokerage account or
accounts as shall be designated by the General Partner. Withdrawals from any
such bank or brokerage account or accounts shall be made upon such signature or
signatures as the General Partner may designate.
Section 10.04. RIGHT TO MAKE SECTION 754 ELECTION. The General Partner
may, in its sole discretion, make or revoke, on behalf of the Partnership, an
election in accordance with ss.754 of the Code, so as to adjust the basis of
Partnership property in the case of a distribution of property within the
meaning of ss.734 of the Code, and in the case of a transfer of a Partnership
interest within the meaning of ss.743 of the Code. Each of the Partners
shall, upon request of the General Partner, supply the information necessary to
give effect to such an election.
20
<PAGE> 21
Section 10.05. TAX MATTERS PARTNER.
(a) The General Partner is hereby designated as the "Tax Matters
Partner" of the Partnership within the meaning of ss.6231 (a) (7) of the Code
and shall have the power to manage and control, on behalf of the Partnership,
any administrative proceeding at the Partnership level with the Internal Revenue
Service relating to the determination of any item of Partnership income, gain,
loss, deduction, or credit for federal income tax purposes.
(b) The Tax Matters Partner shall comply with all statutory
provisions of the Code applicable to a "tax matters partner" and shall, without
limitation, within thirty (30) days of the receipt of any notice from the
Internal Revenue Service in any administrative proceeding at the Partnership
level relating to the determination of any Partnership item of income, gain,
loss, deduction, or credit, mail a copy of such notice to each Partner.
ARTICLE XI
ASSIGNABILITY, ADMISSION AND WITHDRAWAL OF PARTNERS
Section 11.01. ASSIGNABILITY OF A GENERAL PARTNER'S INTEREST IN THE
PARTNERSHIP. A General Partner may not sell, transfer, assign, pledge, encumber,
mortgage, or otherwise hypothecate (hereinafter in this Article XI collectively
referred to as "assign" or "assignment") the whole or any part of its interest
as a General Partner in the Partnership without the prior Majority Vote of the
Limited Partners. An assignee of all or part of the interest of a General
Partner in the Partnership shall be admitted to the Partnership as a general
partner of the Partnership only if a Majority Vote of the Limited Partners
approves in writing the admission of such assignee as an additional or successor
General Partner. If such vote is obtained, the admission shall be effective upon
the filing of an amendment to the Certificate of Limited Partnership with the
Secretary of State of the State of Delaware which indicates that such Person has
been admitted to the Partnership as a general partner of the Partnership, and
shall occur, and for all purposes shall be deemed to have occurred, immediately
prior to the time the assignor ceases to be a general partner of the
Partnership. Upon the filing of an amendment to the Certificate of Limited
Partnership with the Secretary of State of the State of Delaware which indicates
that a General Partner is no longer a general partner of the Partnership, such
General Partner shall at that time cease to be a general partner of the
Partnership.
Section 11.02. ASSIGNABILITY OF A LIMITED PARTNER'S INTEREST IN THE
PARTNERSHIP. No Limited Partner may assign the whole or any part of its interest
in the Partnership without the prior written consent of the General Partner,
which consent shall not be unreasonably withheld (taking into account the best
interests of the Partnership). If the prior written consent of the General
Partner is obtained for any such assignment, such assignment shall,
nevertheless, not entitle the assignee to become a Substituted Limited Partner
or to be entitled to exercise or receive any of the rights, powers or benefits
of a Limited Partner other than the right to receive distributions to which the
assigning Limited Partner would be entitled, unless the assigning Limited
Partner designates, in a written instrument delivered to the General Partner,
its assignee
21
<PAGE> 22
to become a Substituted Limited partner and the General Partner, in its sole
discretion, consents to the admission of such assignee as a Limited Partner;
and provided further, that such assignee shall not become a Substituted Limited
Partner without having first executed an instrument reasonably satisfactory to
the General Partner accepting and adopting the terms and provisions of this
Agreement, including a counterpart signature page to this Agreement, and
without having paid to the Partnership a fee sufficient to cover all reasonable
expenses of the Partnership in connection with its admission as a Substituted
Limited Partner. Upon the occurrence of all of such events, the General Partner
shall cause the Partnership's books and records and Schedule A hereto to
reflect such assignment or substitution, as the case may be.
Section 11.03. RECOGNITION OF ASSIGNMENT BY PARTNERSHIP. No
assignment, or any part thereof, that is in violation of Article XI shall be
valid or effective, and neither the Partnership nor the General Partner shall
recognize the same for the purpose of allocating profits and losses pursuant to
Section 5.01 or making distributions of Partnership Net Cash Flow pursuant to
Section 6.01 with respect to such Partnership interest, or part thereof. Neither
the Partnership nor the General Partner shall incur any liability as a result of
refusing to make any such distributions to the transferee of any such invalid
assignment.
Section 11.04. EFFECTIVE DATE OF ASSIGNMENT. Any valid assignment of a
Limited Partner's interest in the Partnership, or part thereof, pursuant to the
foregoing provisions of Section 11.02 shall be effective as of the close of
business on the day on which the General Partner gives its written consent to
such assignment whether or not the name of the assignee shall have been
reflected on the Partnership books and records as of such date. The Partnership
shall, from the effective date of such assignment, thereafter pay all further
distributions of Net Cash Flow, on account of the Partnership interest (or part
thereof) so assigned, to the assignee of such interest, or part thereof. As
between any partner and its assignee, profits and losses for the fiscal year of
the Partnership in which such assignment occurs shall be apportioned for federal
income tax purposes in accordance with any manner permitted under ss.706 (d) of
the Code as such Partner and its assignee may agree to.
Section 11.05. DEATH, INCOMPETENCY, BANKRUPTCY OR DISSOLUTION OF A
LIMITED PARTNER. The death, incompetency, bankruptcy, dissolution or other
cessation to exist as a legal entity of a Limited Partner shall not, in and of
itself, dissolve the Partnership. In any such event, the legal representative or
successor of such Limited Partner may exercise all of the rights of such Limited
Partner for the purpose of settling its estate or administering its property,
subject to the terms and conditions of this Agreement, including any power of an
assignee to become a Limited Partner.
Section 11.06. WITHDRAWAL FROM THE PARTNERSHIP. Except as provided in
this Agreement, a General Partner or a Limited Partner may not withdraw as a
general partner of the Partnership or as a limited partner of the Partnership,
as the case may be.
(a) A General Partner may elect to withdraw from the Partnership
upon giving at least sixty (60) day's prior written notice of its intention to
do so to all other Partners (General and Limited). Such withdrawal shall be
effective on the date specified in such notice
22
<PAGE> 23
("Withdrawal Date"). The Partnership shall be dissolved effective on the
Withdrawal Date unless the Limited Partners by Majority Vote elect a successor
General Partner prior to such Withdrawal Date. Such successor General Partner
shall be deemed admitted to the Partnership immediately prior to the Withdrawal
Date and shall continue the Partnership without dissolution. A successor General
Partner shall be admitted as a general partner of the Partnership upon the
filing of an amendment to the Certificate of Limited Partnership with the
Secretary of State of the State of Delaware which indicates that the successor
General Partner has been admitted as a general partner of the Partnership and
that the withdrawn General Partner is no longer a general partner of the
Partnership.
(b) The withdrawal of a General Partner shall not in any way
relieve the General Partner of any Partnership liabilities incurred or accrued
prior to the Withdrawal Date.
Section 11.07. REMOVAL OF GENERAL PARTNER. A General Partner may be
removed as a general partner of the Partnership with or without cause upon (i)
the approval of Limited Partners having, in the aggregate, not less than eighty
per cent (80%) of the Outstanding Units, and (ii) the election by such Limited
Partners having not less than eighty percent (80%) of the Outstanding Units of a
successor General Partner. Upon any such election, all Partners shall be bound
thereby and shall be deemed to have approved thereof. Such successor General
Partner shall be deemed admitted to the Partnership immediately prior to the
removal of the predecessor General Partner and shall continue the Partnership
without dissolution. A successor General Partner shall be admitted as a general
partner of the Partnership upon the filing of an amendment to the Certificate of
Limited Partnership with the Secretary of State of the State of Delaware which
indicates that the successor General Partner has been admitted as a general
partner of the Partnership and that the removed General Partner is no longer a
general partner of the Partnership.
Section 11.08. PLEDGE OF A GENERAL AND LIMITED PARTNERS' INTEREST IN
THE PARTNERSHIP. The General Partner may assign and pledge its entire interest
in the Partnership or any lesser percentage of its interest in the Partnership
pursuant to an assignment of partnership interests, to be entered into by and
between the Limited Partner and NationsBank, National Association (Carolinas),
as Agent, and otherwise perform its obligations thereunder, without any further
act, vote or approval of any Partner, notwithstanding any other provision of
this Agreement, the Act or other applicable law. A Limited Partner may assign
and pledge its entire interest in the Partnership or any lesser percentage of
its interest in the Partnership pursuant to an assignment of partnership
interests, to be entered into by and between the General Partner and
NationsBank, National Association (Carolinas), as Agent, and otherwise perform
its obligations thereunder, if prior written consent of the General Partner is
obtained for any such assignment and pledge, notwithstanding any other provision
of this Agreement, the Act or other applicable law. None of the Partners shall
cease to be a partner of the Partnership or to have the power to exercise any
rights or powers of a partner of the Partnership upon the assignment or pledge
of all of its partnership interest in the Partnership in accordance with this
Section 11.08. The pledge of, or granting of a security interest, lien or other
encumbrance in accordance with this Section 11.08 in or against, any or all of
the partnership interest of a Partner in the Partnership shall not cause
23
<PAGE> 24
such Partner to cease to be a partner of the Partnership or to have the power to
exercise any rights or powers of a partner of the Partnership.
ARTICLE XII
EXCULPATION AND INDEMNIFICATION OF
THE GENERAL PARTNER AND OTHER INDEMNIFIED PERSONS
Section 12.01. EXCULPATORY PROVISIONS.
(a) Notwithstanding any other terms of this Agreement, whether
express or implied, or obligation or duty at law or in equity, neither the
General Partner, the Limited Partner, nor any of their respective officers and
directors of the Partnership (individually, a "Covered Person" and collectively,
the "Covered Persons") shall be liable to the Partnership or any Partner for any
act or omission (in relation to the Partnership, this Agreement, any related
document or any transaction or investment contemplated hereby or thereby) taken
or omitted in good faith by a Covered person and in the reasonable belief that
such act or omission is in or is not contrary to the best interests of the
Partnership and is within the scope of authority granted to such Covered Person
by this Agreement, provided that such act or omission does not constitute
Disabling Conduct.
(b) A Covered Person may rely and shall incur no liability in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond, debenture,
paper, document, signature or writing reasonably believed by it to be genuine,
and may rely on a certificate signed by an officer of any Person in order to
ascertain any fact with respect to such Person or within such Person's knowledge
and may rely on an opinion of counsel selected by such Covered Person with
respect to legal matters unless such Covered Person acts in bad faith.
Section 12.02. INDEMNIFICATION OF GENERAL PARTNER AND OTHER
INDEMNIFIED PERSONS.
(a) To the fullest extent permitted by law, the Partnership shall
indemnify and hold harmless the General Partner, the Limited Partner and all
directors, officers and shareholders of the General Partner and all officers of
the Partnership (individually, an "Indemnified Person" and collectively, the
"Indemnified Persons") from and against any and all losses, claims, demands,
liabilities, expenses (including all fees and expenses), judgments, fines,
settlements and other amounts arising from any and all claims, demands, actions,
suits or proceedings, civil, criminal, administrative or investigative, in which
the Indemnified Person may be involved, or threatened to be involved, as a party
or otherwise, by reason of its management or the affairs of the Partnership, or
the General Partner or its status as a General Partner, director, officer or
shareholder thereof or its status as an officer of the Partnership or a Person
serving at the request of the Partnership, the General Partner in another entity
in a similar capacity, which relates to or arises out of the Partnership, its
property, its business or affairs, and regardless of whether the liability or
expense accrued at or relates to, in whole or in part, any time before, on or
24
<PAGE> 25
after the date hereof. The negative disposition of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of NOLO
CONTENDERE, or its equivalent, shall not, of itself, create a presumption that
the Indemnified Person acted in a manner contrary to the standard set forth in
Section 12.02 (b) below. Any indemnification pursuant to Section 12.02 shall be
made only out of the assets of the Partnership.
(b) An Indemnified Person shall not be entitled to
Indemnification under Section 12.02 with respect to any claim, issue or matter
in which it has engaged in Disabling Conduct.
(c) To the fullest extent permitted by law, expenses (including
legal fees) incurred by an Indemnified Person in defending any claim, demand,
action, suit or proceeding may, from time to time, be advanced by the
Partnership prior to the final disposition of such claim, demand, action, suit
or proceeding upon receipt by the Partnership of an undertaking by or on behalf
of the Indemnified Person to repay such amount if it shall be determined that
the Indemnified Person is not entitled to be indemnified as authorized in
Section 12.02.
(d) The indemnification provided by Section 12.02 shall be in
addition to any other rights to which the Indemnified Person may be entitled
under any agreement, by law or vote of the Partners as a matter of law or
otherwise, both as to action in the Indemnified Person's capacity as the General
Partner, director, officer or shareholder thereof, or as an officer of the
Partnership and, as to action in any other capacity, shall continue as to an
Indemnified Person who has ceased to serve in such capacity and shall inure to
the benefit of the heirs, successors, assigns and administrators of an
Indemnified Person.
(e) The General Partner and the Partnership may purchase and
maintain insurance, to the extent and in such amounts as the General Partner
shall, in its sole discretion, deem reasonable, on behalf of Indemnified Persons
and such other Persons as the General Partner shall determine, against any
liability that may be asserted against or expenses that may be incurred by such
Person in connection with activities of the Partnership or such indemnitees,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement. The
General Partner and the Partnership may enter into indemnity contracts with
Indemnified Persons and adopt written procedures pursuant to which arrangements
are made for the advancement of expenses and the funding of obligations under
Section 12.02 and containing such other Procedures regarding indemnification as
are appropriate.
(f) In no event may any Indemnified Person subject the Limited
Partners to personal liability by reason of any indemnification of an
Indemnified Person under this Agreement or otherwise.
(g) An Indemnified Person shall not be denied indemnification in
whole or in part under Section 12.02 because the Indemnified Person had an
interest in the transaction with respect to which the indemnification applies if
the transaction is otherwise permitted by the terms of this Agreement.
25
<PAGE> 26
(h) The provisions of Section 12.02 are for the benefit of the
Indemnified Persons and their heirs, successors, assigns, administrators and
personal representatives and shall not be deemed to be for the benefit of any
other Persons. The provisions of Section 12.02 shall not be amended in any way
that would adversely affect the Indemnified Person without the consent of the
Indemnified Person.
Section 12.03. DUTIES OF A GENERAL PARTNER AND OTHERS CONTROLLING A
GENERAL PARTNER. To the extent that, at law or in equity, an Indemnified Person
has duties (including fiduciary duties) and liabilities relating thereto to the
Partnership or to the Partners, the General Partner and any other Indemnified
Person acting in connection with the Partnership's business or affairs, shall
not be liable to the Partnership or to any Partner for its good faith reliance
on the provisions of this Agreement. The provisions of this Agreement, to the
extent that they restrict the duties and liabilities of an Indemnified Person
otherwise existing at law or in equity, are agreed by the Partners to replace
such other duties and liabilities of such Indemnified Person.
ARTICLE XIII
DISSOLUTION AND TERMINATION
Section 13.01. NO DISSOLUTION. The Partnership shall not be dissolved
by the admission of additional Limited Partners or Substituted Limited Partners
or by the admission of additional General Partners or successor General Partners
in accordance with the terms of this Agreement.
Section 13.02. EVENTS CAUSING DISSOLUTION. The Partnership shall be
dissolved and its affairs shall be wound up upon the occurrence of any of the
following events:
(a) The expiration of the term of the Partnership, as provided in
Section 2.08;
(b) The withdrawal, removal or bankruptcy of the General Partner
or assignment by the General Partner of its entire interest in the Partnership
when the assignee is not admitted to the Partnership as an additional or
successor General Partner in accordance with Section ll.0l, or the occurrence of
any other event that results in the General Partner ceasing to be a general
partner of the Partnership under the Act, provided, the Partnership shall not be
dissolved and required to be wound up in connection with any of the events
specified in this clause (b) if (i) at the time of the occurrence of such event
there is at least one remaining general partner of the Partnership who is hereby
authorized to and does carry on the business of the Partnership, or (ii) within
ninety (90) days after the occurrence of such event, all remaining Partners
agree in writing to continue the business of the Partnership and to the
appointment, effective as of the date of such event, if required, of one or more
additional general partners of the Partnership.
(c) A written determination by the General Partner to dissolve
the Partnership;
26
<PAGE> 27
(d) The affirmative vote of holders of seventy-five percent (75%)
or more of the Outstanding Units to dissolve the Partnership;
(e) The sale by the Partnership of all or substantially all of
the Partnership's assets; or
(f) The entry of a decree of judicial dissolution under Section
17-802 of the Act.
Section 13.03. NOTICE OF DISSOLUTION. Upon the dissolution of the
Partnership, the General Partner or the Liquidating Trustee, as the case may be,
shall promptly notify the Partners of such dissolution.
Section 13.04. LIQUIDATION. Upon dissolution of the Partnership, the
General Partner, or, in the event that the dissolution is caused by an event
described in Section 13.02 (b) and there is no other General Partner, a Person
or Persons who may be approved by a Majority Vote as the Liquidating Trustee,
shall immediately commence to wind up the Partnership's affairs; provided,
however, that a reasonable time shall be allowed for the orderly liquidation of
the assets of the Partnership and the discharge of liabilities to creditors so
as to enable the partners to minimize the normal losses attendant upon a
liquidation. The Partners shall continue to share profits and losses during
liquidation in the same proportions as specified in Article V as before
liquidation. Each Partner shall be furnished with a statement prepared by the
Partnership's certified public accountant that shall set forth the assets and
liabilities of the Partnership as of the date of dissolution. The proceeds of
liquidation shall be distributed, as realized, in the following order and
priority:
(a) To creditors of the Partnership, including Partners who are
creditors, to the extent otherwise permitted by law, in satisfaction of the
liabilities of the Partnership (whether by payment or the making of reasonable
provision for payment thereof); and
(b) To distribute to the Partners the remaining proceeds of
liquidation in accordance with the Capital Account balances of the Partners
unless otherwise agreed pursuant to a Majority Vote and the consent of the
General Partner.
Section 13.05. METHODS OF LIQUIDATION. The Partnership may be
liquidated by either:
(a) Selling the Partnership assets and distributing the net
proceeds therefrom in the manner provided in Section l3.04. Any net gain or loss
realized by the Partnership on the sale or other disposition of Partnership
assets in the process of liquidation of the Partnership shall be allocated to
the Partners in the ratios specified for allocating Net Profits or Net Losses in
Article V; or
(b) If any property is distributed in kind, immediately prior to
such distribution, the Capital Accounts of the Partners shall be adjusted to
reflect the manner in which
27
<PAGE> 28
the unrealized income, gain, loss and deduction inherent in such property (that
has not been reflected in the Capital Accounts previously) would have been
allocated among the Partners as provided in Article V if there had been a
taxable disposition of such property for the fair market value of such property.
Section 13.06. TERMINATION OF PARTNERSHIP. The Partnership shall
terminate when all of the assets of the Partnership, after payment of or due
provision for all debts, liabilities and obligations of the Partnership, shall
have been distributed to the partners in the manner provided for in Article XIII
and the Certificate of Limited Partnership shall have been canceled in the
manner required by the Act.
ARTICLE XIV
ARBITRATION
Section 14.01. DISPUTE RESOLUTION. To the fullest extent permitted by
the Act and other applicable law, any controversy or claim arising out of or
relating to this Agreement, or any breach thereof, shall be settled by
arbitration pursuant to the commercial Arbitration Rules of the American
Arbitration Association ("AAA"), as amended and in effect on the date that
demand for arbitration is filed with the AAA. The parties hereto agree that any
such controversy shall be submitted to three (3) arbitrators. Each party shall
select one arbitrator. The two arbitrators selected shall then choose a third
arbitrator. The arbitrator's ruling shall be binding and conclusive upon the
parties hereto to the fullest extent permitted by law. Any arbitration shall
occur at the offices of the AAA, New York City, or in Wilmington, Delaware, and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof. The arbitrators shall be governed by and shall apply the substantive
law of the State of Delaware in making their award and their ruling shall be
binding and conclusive upon the parties hereto. The expenses of the arbitration
shall be borne equally by the parties to the arbitration, provided that each
party shall pay for and bear the cost of its or its own experts, evidence and
legal counsel, unless otherwise determined by the Arbitrators.
ARTICLE XV
POWER OF ATTORNEY
Section 15.01. APPOINTMENT OF GENERAL PARTNER. Each Limited Partner
hereby irrevocably constitutes and appoints the General Partner and any
Liquidating Trustee as its true and lawful attorney-in-fact, in its name, place
and stead, to make, execute, acknowledge and file the following documents, to
the extent consistent with the other provisions of this Agreement;
(a) This Agreement, and, to the extent required by law, the
Certificate of Limited Partnership;
28
<PAGE> 29
(b) Any fictitious or assumed-name certificates required to be
filed on behalf of the Partnership;
(c) Any application or registration to do business in any State
or Country other than, or in addition to, the State of Delaware;
(d) Deeds, notes, mortgages, pledges, security instruments of any
kind and nature, leases and such other instruments as may be necessary to carry
on the business of the Partnership; provided that no such instrument shall
increase the personal liability of the Limited Partners;
(e) All certificates and other instruments that the General
Partner deems appropriate or necessary to form and qualify, or continue the
qualification of, the Partnership as a limited partnership in the State of
Delaware and all jurisdictions in which the Partnership may intend to conduct
business or own property.
(f) Any duly adopted amendment to or restatement of this
Agreement or the Certificate of Limited Partnership;
(g) All conveyances and other instruments or documents that the
General Partner deems appropriate or necessary to effect or reflect the
dissolution, liquidation and termination of the Partnership pursuant to the
terms of this Agreement (including a certificate of cancellation);
(h) Any and all financing statements, continuation statements,
mortgages or other documents necessary to grant to or perfect for secured
creditors of the Partnership, including the General Partner and its Affiliates,
a security interest, mortgage, pledge or lien on all or any of the assets of the
Partnership; and
(i) All other instruments as the attorneys-in-fact or any of them
may deem necessary or advisable to carry out fully the provisions of this
Agreement in accordance with its terms.
Section 15.02. POWER COUPLED WITH INTEREST. It is expressly intended
by each Limited Partner that the power of attorney granted by Section 15.0l is
coupled with an interest, shall be irrevocable, and shall survive and not be
affected by the subsequent disability or incapacity of such Limited Partner (or
if such Limited Partner is a corporation, partnership, trust, association,
limited liability company or other legal entity, by the dissolution or
termination thereof).
29
<PAGE> 30
ARTICLE XVI
MISCELLANEOUS
Section 16.01. NOTICES. All notices provided for in this Agreement
shall be in writing, duly signed by the party giving such notice, and shall be
personally delivered, or mailed by first-class, registered or certified mail,
return receipt requested, postage prepaid, or transmittal by telegram, telefax
or telecopier, as follows:
(a) If given to the Partnership, in care of the General Partner
at its mailing address set forth on Schedule A attached hereto or at such other
address as the Partnership may hereafter designate by bitten notice to the
Partnership;
(b) If given to a General Partner, at its mailing address set
forth on Schedule A attached hereto or at such other address as such General
Partner may hereafter designate by written notice to the Partnership; or
(c) If given to any Limited Partner, at the address set forth
opposite its name on Schedule A attached hereto, or at such other address as
such Limited Partner may hereafter designate by written notice to the
Partnership.
Each notice, demand, request or communication that shall be delivered,
mailed or transmitted in the manner described above shall be deemed sufficiently
given, served, sent or received for all purposes when delivered in person or
when sent to a Person at the address on Schedule A attached hereto by
first-class mail or by other means of written communication.
Section 16.02. AMENDMENTS.
(a) Except as provided in (b) of Section 16.02, no amendment to
this Agreement shall be effective or binding upon the parties hereto without the
written consent of the General Partner and a Majority Vote; provided, however,
that any modification or amendment that would: (i) increase the amount of the
capital contributions to be made by any Limited Partner, (ii) increase the
liability of the Limited Partners or (iii) materially adversely affect the
rights of the Limited Partners under this Agreement shall require the consent of
the General Partner and each Limited Partner. Upon receipt of a written proposal
executed by Limited partners having, in the aggregate, seventy-five percent
(75%) or more of the Outstanding Units for the adoption of an amendment of this
Agreement, or should the General Partner desire to propose such an amendment,
the General Partner shall adopt and implement a plan whereby the Limited
Partners may vote for or against the adoption of such an amendment.
(b) Notwithstanding anything herein to the contrary, the General
Partner may amend this Agreement without the consent of any Limited Partner;
30
<PAGE> 31
(1) to reflect the addition or substitution of Limited
Partners (made in accordance with the terms hereof) or the reduction
of the Capital Accounts upon the return of capital to Limited
Partners;
(2) to add to the representations, duties or obligations of
the General Partner or surrender any right or power granted to the
General Partner herein, for the benefit of the Limited Partners;
(3) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to add any other provisions with respect to matters or
questions arising under this Agreement which will not be inconsistent
with the provisions of the Agreement;
(4) to delete or add any provision from or to this Agreement
requested to be so deleted or added by a state regulatory agency, the
deletion or addition of which provision is deemed by such regulatory
agency to be for the benefit or protection of the Limited Partners;
and
(5) to modify any provision of this Agreement, if, in the
opinion of counsel to the Partnership and the General Partner, such
modification is necessary to prevent the Partnership or the General
Partner from in any manner being subject to the provisions of the
Investment Company Act, to prevent the Partnership from being treated
for tax purposes as an association taxable as a corporation, rather
than being taxable as a partnership, or to prevent the Partnership
from being treated as a "publicly traded partnership" as defined in
the Code.
Section 16.03. FISCAL YEAR. The fiscal year of the Partnership shall
end on December of each year or as otherwise determined by the General Partner
and shall be in compliance with the requirements of the Code.
Section 16.04. SECURITIES ACT INVESTMENT COVENANT. Each Partner
represents and warrants that it is acquiring its interest in the Partnership for
its own account, and not with a view to resale or distribution thereof within
the meaning of the Securities Act of 1933, as amended, and that no such interest
will be sold, transferred, hypothecated, or assigned by it in contravention of
the Securities Act of 1933, as amended, or any state Blue Sky or securities
statute.
Section 16.05. FAILURE TO PURSUE REMEDIES. The failure of any party to
seek redress for violation of, or to insist upon the strict performance of, any
provision of this Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
Section 16.06. HEADINGS. The headings in this Agreement are included
for convenience and identification only and are in no way intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement or any
provision hereof.
31
<PAGE> 32
Section 16.07. CUMULATIVE REMEDIES. The rights and remedies provided
by this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive its right to use any or all other remedies.
Said rights and remedies are given in addition to any other rights the parties
may have by law, statute, ordinance or otherwise.
Section 16.08. BINDING EFFECT. This Agreement shall be binding upon
and inure to the benefit of all the parties and, to the extent permitted by this
Agreement, their successors, legal representatives, and assigns.
Section 16.09. INTERPRETATION. Throughout this Agreement and any
amendment hereto, nouns, pronouns and verbs shall be construed as masculine,
feminine, neuter, singular or plural, whichever shall be applicable. All
references herein to "Articles," "Sections" and "Paragraphs" shall refer to
Corresponding provisions of this Agreement.
Section 16.10. SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
Section 16.11. COUNTERPARTS. This Agreement may be executed in any
number of counterparts with the same effect as if all Partners had signed the
same document. All counterparts shall be construed together and shall constitute
one instrument.
Section 16.12. GOVERNING LAW. This Agreement and the rights of the
parties hereunder shall be interpreted in accordance with the laws of the State
of Delaware, and all rights and remedies shall be governed by such laws without
regard to principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above stated.
GENERAL PARTNER:
Bonneau General, Inc.
By: /s/ Martin E. Franklin
------------------------
Name: Martin E. Franklin
Title: Chief Executive Officer
32
<PAGE> 33
LIMITED PARTNERS:
Bonneau Holdings, Inc.
By: /s/ Peter Trembath
-------------------------
Name: Peter Trembath
Title: Secretary
O-Ray Holdings, Inc.
By: /s/ Peter Trembath
-------------------------
Name: Peter Trembath
Title: Secretary
33
<PAGE> 1
Exhibit 3.8.1
RESTATED CERTIFICATE OF INCORPORATION
OF
FOSTER GRANT HOLDINGS, INC.
Foster Grant Holdings, Inc., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Foster Grant Holdings, Inc. and
the name under which the corporation was originally
incorporated is Foster Grant Holdings Inc. The date of filing
of its original Certificate of Incorporation with the
Secretary of State was October 31, 1996.
2. This Restated Certificate of Incorporation only restates and
integrates and does not further amend the provision of the
Certificate of Incorporation of this corporation as heretofore
amended or supplemented and there is not discrepancy between
those provisions and the provisions of this Restated
Certificate of Incorporation.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is hereby restated without further
amendments or changes to read as herein set forth in full:
FIRST: The name of the Corporation (hereinafter referred to
as the "Corporation") is:
FOSTER GRANT HOLDINGS, INC.
SECOND: The address, including street, number, city and
county, of the registered office of the Corporation in the State of Delaware is
1013 Centre Road, Wilmington, Delaware 19805, County of New Castle; and the name
of the registered agent of the Corporation in the State of Delaware is
Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
<PAGE> 2
FOURTH: The aggregate number of shares of capital Shares
which the Corporation has authority to issue is Twenty Thousand (20,000),
consisting of (i) 10,000 shares of Common Shares with a par value of one cent
($.01) per share (the "Common Shares"), and (ii) 10,000 shares of Preferred
Shares with a par value of one dollar ($1.00) per share (the "Preferred
Shares").
1. DESIGNATION AND AMOUNT: The Preferred Shares shall be divided into one
or more series. The designation of the first series of the Preferred Shares
shall be Series A Redeemable Non Voting Preferred Shares (maximum redemption
price $60,000 per share) (the "Series A Preferred Shares"). The number of shared
of Series A Preferred Shares shall initially be 100 subject to increase (but
only as to shares of Preferred Shares authorized by the Certificate of
Incorporation, as amended, with respect to which the powers, designations,
preferences and rights shall not then have been previously designated) or
decrease (but not below the number of shares thereof then outstanding) from time
to time by action of the Board of Directors.
The Series A Preferred Shares have been issued pursuant to a Stock
Purchase Agreement by and among the Corporation, BEC, FGG, and AAi dated
November 13, 1996 (as from time to time in effect, the "Purchase Agreement"). A
copy of the Purchase Agreement will be provided to any registered holder of
shares of capital Share of the Corporation following written request directed to
the Secretary of the Corporation at its registered address.
The relative powers, preferences and rights, and relative
participating, optional or other special rights, and the qualification,
limitations or restrictions thereof, granted to or imposed on the Series A
Preferred Shares are set forth below:
2. DEFINITIONS. Certain capitalized terms are used in this Certificate of
Amendment as specifically defined below in this Section 2. Except as the context
otherwise explicitly requires, (a) the capitalized term "Section" refers to
section of this Certificate of Amendment, (b) references to a particular Section
include all subsections thereof, (c) the word "including" shall be construed as
"including without limitation", (d) accounting terms not otherwise defined
herein have the meaning provided under generally accepted accounting principles,
(e) references to a particular Person include such Person's successors and
assigns to the extent not prohibited by this Certificate of Amendment and the
Purchase Agreement. References to "the date hereof" mean the effective date of
this Certificate of Amendment.
2.1 "AAi" means Accessories Associates, Inc., a Rhode Island
corporation with a principal business address at 500 George
Washington Highway, Smithfield, Rhode Island 02917.
2.2 "BEC" means BEC Group, Inc., a Delaware corporation with its
executive offices located at 555 Theodore Fremd Avenue, Rye,
New York 10580.
2.3 "BY-LAWS" means all written rules, regulations, procedures and
by-laws and all other similar documents, relating to the
management, governance or internal regulation of a Person
other than an individual, or interpretive of the Charter of
such Person, each as from time to time amended or modified.
2.4 "COMMON SHARES" means the Common Shares $0.01 par value, of
the Corporation.
2.5 "CORPORATION" as defined in the Preamble.
2.6 "FGG" means Foster Grant Group L.P., a Delaware limited
partnership with a principal business address of 1601 Valley
View Lane, Dallas, Texas 75234.
<PAGE> 3
2.7 "HOLDER" means BEC or such other person to whom such Holder
shall have assigned or transferred Series A Preferred Shares.
2.8 "PERSON" means an individual, partnership, corporation,
company, association, trust, joint venture, unincorporated
organization business trust, limited liability company and any
governmental department or agency or political subdivision.
2.9 "PURCHASE AGREEMENT" has the meaning set forth in Section 1.
2.10 "RECORDS DATE" means the date as set by the Corporation for
determining Holders of Series A Preferred Shares entitled to
vote under Section 7.
2.11 "REDEMPTION AMOUNT" has the meaning set forth in Section 5.
2.12 "REDEMPTION DATE" has the meaning set forth in Section 5.
2.13 "REQUIRED HOLDERS" means the holder of two-thirds of the
outstanding Series A Preferred Shares on the Record Date.
2.14 "SERIES A" Preferred Shares" has the meaning set forth in
Section 1.
3. DIVIDENDS. No dividends of cash or other property shall be paid on the
Series A Preferred shares.
4. VOTING RIGHTS: REPRESENTATIVE DIRECTORS, ETC.
4.1 VOTES PER SHARE: NOTICES Except as otherwise provided herein
or required by law, the holders of Series A Preferred Shares shall not
vote on any matter submitted to the holders of Common Shares. Record
Holders of Series A Preferred Shares shall be entitled to notice of any
Shareholders' meeting or solicitation of Shareholders' consents in the
manner provided in the Bylaws of the Corporation for general notices.
5. REDEMPTION RIGHTS
5.1 MANDATORY REDEMPTION. Except as otherwise provided in this
Certificate of Amendment, the Series A Preferred Shares shall be
redeemed by the Corporation in immediately available funds on February
28, 2000 (the "Redemption Date") by payment of an amount determined by
reference to the combined net sales of sun glasses, reading glasses,
and accessories by FGG and AAi for the year ending January 1, 2000,
determined in accordance with generally accepted accounting principles
consistently applied, and excluding an amount equal to the net sales of
AAi of sunglasses, reading glasses, and accessories for the year ending
December 31, 1996 (the "Redemption Amount"). On or before February 28,
2000, the Holder shall deliver to AAi at its principal offices, all
Series A Preferred Shares owned by such Holder endorsed in blank for
transfer or with blank stock powers attached. The Redemption Amount per
share shall be calculated pursuant to the formula set forth below. The
amounts payable to the Holder upon redemption shall be pro-rated for
net sales between the amounts specified below.
<TABLE>
<CAPTION>
NET SALES REDEMPTION AMOUNTS PER SHARE
--------- ----------------------------
<S> <C>
Less than $90,000,000 $10,000
$90,000,000 but
less than $110,000,000 $20,000
$110,000,000 or more $40,000
</TABLE>
<PAGE> 4
5.2 EARLY REDEMPTION. Subsection 5.1 notwithstanding, in the event
that at any time on or prior to the Redemption date (i) AAi completes
an initial public offering of its common stock (an "IPO") where the
Pre-Money Valuation (as hereinafter defined) equals or exceeds
$75,000,000 or (ii) a Transaction (as hereinafter defined) is
consummated where the Transaction Amount (as hereinafter defined)
equals or exceeds &75,000,000 (or $37,500,000 in the event of an Equity
Transaction (as hereinafter defined) (both an IPO and a Transaction
are sometimes referenced herein as a "Redemption Event"), Subsection
5.1 shall not be operative, and the Redemption Amount will be
calculated as specified in this Subsection 5.2 (the "Redemption Event
Amount"). For purposes of this Section 5, "Transaction" shall mean (x)
AAi effects a capital reorganization or reclassification of its stock
(other than a change in par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or the consolidation
or merger of AAi with or into another person (other than a
consolidation or merger in which AAi is the continuing corporation and
which does not result in any change in the AAi common stock, or in
change in ownership of the AAi common stock which constitutes an Equity
Transaction, or sells or otherwise disposes of all or substantially all
of its properties and assets as an entirety to any other person or
persons or (y) at least 50% of the shares of AAi common stock (an
"Equity Transaction"). If the Redemption Event is an IPO, the per share
Redemption Even Amount will be based upon the Pre-Money Valuation (as
hereinafter defined) of AAi immediately prior to the IPO according to
the formula set forth below. For this purpose, "Pre-Money Valuation"
shall be calculated by dividing the gross IPO proceeds by the
percentage of the total issued and outstanding AAi common stock owned
by the public immediately after and as a result of such IPO, excluding,
however, from such calculation any common stock sold by persons who
were holders of AAi common stock immediately prior to the IPO. The
amounts payable to the Holder upon redemption shall be pro-rated for
Pre-Money Valuations between the amounts specified below provided,
however, that in no even shall the Redemption Event Amount exceed
$40,000 per share.
<TABLE>
<CAPTION>
PRE-MONEY VALUATION REDEMPTION EVENT AMOUNT PER SHARE
------------------- ---------------------------------
<S> <C>
$75,000,000 $35,000
More than $75,000,000 $35,000, plus an additional
$0.025 for each dollar that
the Pre-Money Valuation is in excess
of $75,000,000
</TABLE>
If the Redemption Event is a Transaction, the Redemption Event
Amount will be based on the gross dollar value of the consideration
(the "Transaction Consideration") (i) received in the Transaction
(other than an Equity Transaction) by holders of the common and
convertible preferred stock of AAi or (ii) by AAi in the event the
Transaction involves an Equity Transaction. In the event of a
Transaction, the per share Redemption Event Amount will be calculated
according to the formula set forth below. The amounts payable to the
Holder upon redemption shall be pro-rated for Transaction Consideration
that is between the amounts specified below provided, however, that in
no event shall the Redemption Event Amount exceed $40,000 per share.
<TABLE>
<CAPTION>
TRANSACTION CONSIDERATION REDEMPTION EVENT AMOUNT PER SHARE
------------------------- ---------------------------------
<S> <C>
$75,000,000 ($37,500,000 $35,000
in the even of an Equity
Transaction)
</TABLE>
<PAGE> 5
More than $75,000,000 $35,000,000, plus an additional
(more than $37,500,000 in the $0.025 for each dollar that the
event of an Equity Transaction) Transaction Consideration is in
excess of $75,000,000 (or in the
event of an Equity Transaction,
$35,000, plus an additional
$0.50 for each dollar that the
Transaction Consideration is in
excess of $37,500,000)
On or before the tenth day following notice delivered in
accordance with Subsection 5.6 hereof, the Holder shall deliver to AAi
at its principal offices, all Series A Preferred Shares owned by such
Holder endorsed in blank for transfer or with blank stock powers
attached. The Redemption Event Amount pursuant to this Subsection 5.2
shall be payable by AAi in immediately available funds within ten (10)
days of the later of (i) the completion of a Redemption Event, or (ii)
delivery by Holder of all of its Series A Preferred Shares.
5.3 SUPPLEMENTAL PAYMENT. Subsection 5.2 notwithstanding, if (i) a
Redemption Event occurs after the Redemption Date, and (ii) the per
share Redemption Amount received by the Holder pursuant to Section 5.1
was less than the per share Redemption Event Amount that would have
been received had the Redemption Event occurred on or prior to the
Redemption Date pursuant to Section 5.2, the Corporation shall pay the
persons who were Holders on the Redemption Date an amount equal to the
difference, if any, between the per share Redemption Amount paid to
such Holders on the Redemption Date and the per share Redemption Event
Amount that would have been received had the Redemption Even occurred
on or prior to the Redemption Date (the "Supplemental Payment"). The
Corporation's obligation to pay the Supplemental Payment shall survive
the redemption of the Series A Preferred Shares pursuant to Subsection
5.1, and shall be payable in immediately available funds within ten
(10) days following the completion of a Redemption Event pursuant to
this Subsection 5.3.
5.4 RIGHT OF INSPECTION. On request, the Corporation will
provide Holder with an opportunity at Holder's sole cost and expense to
inspect the Corporation's books and records upon reasonable notice
during normal business hours and for a reasonable period of time in
order to determine the accuracy of the Corporation's determination of
the Redemption Amount or the Redemption Event Amount. In the event of
any dispute over the Redemption Amount or the Redemption Event Amount,
the parties shall first attempt to resolve such dispute through mutual
consultation. If such dispute cannot be resolved within thirty (30)
days of the Holder's written notice, the dispute shall be submitted to
an independent certified accountant acceptable to the parties for
resolution. The determination of such accountant shall be final and
binding on the parties.
5.5 NOTICE OF REDEMPTION. Written notice of Redemption pursuant to
Subsection 5.1 shall be given by the Corporation not fewer than thirty
(30) days prior the redemption Date by first class mail, postage
prepaid, to each Holder of record of Series A preferred Shares at the
address of such Holder on the books of the Corporations. Each such
notice shall state: (a) the Redemption Date; (b) the number of shares
of the Series A Preferred Stock to be redeemed; (c) the Redemption
Amount; and (d) the place of places where certificates for such shares
are to be surrendered for payment of the Redemption Event Amount.
5.6 NOTICE OF EARLY REDEMPTION. Written notice of a Redemption
Event pursuant to Subsection 5.2 shall be given by the Corporation not
more than ten (10) days following the completion of the Redemption Even
by first class mail, postage prepaid, to each Holder of record of
Series A Preferred Shares at the Address of such Holder on the books of
the Corporation. Each such notice state: (a) the date of the Redemption
Event; (b) the number of shares of the Series A Preferred to be
redeemed; (c) the Redemption Event Amount; and (d) the place or places
where certificates for such shares are to be surrendered for payment of
the Redemption Event Amount.
<PAGE> 6
5.7 NOTICE OF SUPPLEMENTAL PAYMENT. Written notice of the
completion of Redemption Event pursuant to Subsection 5.3 shall be
given by the Corporation not more than five (5) days following the
completion of the Redemption Event by first class mail, postage prepaid
to each former Holder of Series A Preferred Shares on the Redemption
Date at the last known address of such Holder on the books of the
Corporation. Such notice shall state (a) the date of the completion of
the Redemption Event; (b) the number of Series A Preferred Shares
previously redeemed; (c) the Redemption Amount; (e) the Redemption
Event Amount; and (f) the Supplemental Payment, if any.
5.8 SPECIFIC PERFORMANCE. If any Holder becomes obligated so to
deliver any shares of Series A Preferred Shares to the Corporation upon
any redemption under Section 5 hereof and fails to deliver the
certificate therefor in accordance with this Certificate of Amendment,
the Corporation may, at its option, irrevocably deposit or set aside
funds sufficient to pay (i) the Redemption Amount (if such redemption
is pursuant to Section 5.1 hereof) or (ii) the Redemption Event Amounts
(if such redemption is pursuant to Section 5.2 hereof) against delivery
of such certificates and in addition to all other remedies it may have,
cancel on its books such certificate representing such shares to be
redeemed.
6. COVENANTS
6.1 SPECIAL RESTRICTIONS. At any time when shares of Series A
Preferred Shares are outstanding, the Corporation will not without the
approval of the Required Holders:
6.2 consent to any liquidation, dissolution or winding up of the
Corporation; or
6.3 consolidate or merge into or with any other entity or entities
or sell or transfer all or substantially all its assets, except that
the Corporation may, without the consent of the holders of the then
outstanding shares of Series A Preferred Shares effectuate a merger in
which (i) the Corporation is the surviving corporation and (ii) the
Shareholders of the Corporation immediately prior to the merger hold
more than 50% of the outstanding voting power of the surviving
corporation (assuming conversion of all convertible securities and
exercise of all outstanding options and warrants).
6.4 NO IMPAIRMENT. The Corporation will not by amendment of its
Certificate of Incorporation or through any reorganization,
recapitalization, transfer of all or a substantial portion of its
assets, consolidation, merger, dissolution, issue or sale of
securities, closing of transfer books or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed under this Certificate of Amendment
by the Corporation, but will at all times in good faith assist in
carrying out all the provisions of this Certificate of Amendment and in
taking all such action as may be necessary or appropriate in order to
protect the conversion and other rights of the Holders against
impairment.
7. AMENDMENTS. The provisions of these terms of the Series A Preferred
Shares may not be amended, modified or waived without the written consent or
affirmative vote of the Required Holders. Except to the extent required by law,
the vote of the holders of any other class of capital shares of the Corporation
is not required for the amendment, modification or waiver of the terms of this
Certificate of Amendment.
8. ADDITIONAL SHARES. The Corporation may issue such additional series of
Preferred Shares as the Board of Directors may establish by the adoption of a
resolution or resolution relating thereto, each such additional series to have
such voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights and
qualification,
<PAGE> 7
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issue of the such series adopted by
the Board of Directors. Unless otherwise expressly set forth in the designation
therefor, no series of Preferred Shares shall have the right to vote as a class
in connection with the issuance of any additional series of Preferred Shares,
whether such additional series shall have rights greater, lesser or identical to
the rights of any existing series of Preferred Shares.
FIFTH The Corporation is to have perpetual Existence.
SIXTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholder or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of any receiver of receivers appointed for this Corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholder of this Corporation, as the case
may be, and also on this Corporation.
SEVENTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the
affairs of the Corporation shall be bested in its Board of Directors.
The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the By-laws.
The phrase "whole Board" and the phrase "total number of directors"
shall be deemed to have the same meaning to wit, the total number of
directors which the Corporation would have if there were no vacancies.
No election of directors need be by written ballot.
2. After the original or other By-laws of the
Corporation have been adopted, amended, or repealed, as the case may
be, in accordance with the provisions of Section 109 of the General
Corporation Law of the State of Delaware, and, after the Corporation
has received any payment for any of its stock, the power to adopt,
amend, or repeal the By-laws of the Corporation may be exercised by the
Board of Directors of the Corporation; provided, however that any
provision for the classification of directors of the Corporation for
staggered terms pursuant to the provisions of subsection (d) of Section
141 of the General Corporation Law of the State of Delaware shall be
set forth in the initial By-laws or in by-laws adopted by the
stockholders entitled to voted of the Corporation unless provisions for
such classification shall be set forth in this Certificate of
Incorporation.
3. Whenever the Corporation shall be authorized to issue
only one class of stock, each outstanding share shall entitle the
holder thereof to notice of, and the right to vote at, any meeting of
stockholders. Whenever the Corporation shall be authorized to issue
more than one class of stock, no outstanding share of any class of
stock which is denied voting power under the provisions of the
certificate of incorporation shall entitle
<PAGE> 8
the holder thereof to the right to vote at any meeting of the
stockholders except as the provisions of paragraph (2) of the
subsection (b) of section 242 of the General Corporation law of the
State of Delaware shall otherwise require; provided, that no share of
any such class which is otherwise denied voting power shall entitle the
holder thereof to vote upon the increase of decrease in the number of
authorized shared of said class.
EIGHTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of subsection
(b) of Section 102 of the General Corporation Law of the State of Delaware, as
the same may be amended an supplemented.
NINTH: The Corporation shall, to the fullest extent permitted by the
General Corporation Law, as the same may be amended and supplemented, indemnify
any and all persons whom it shall have the power to indemnify under the General
Corporation Law from and against any and all of the expenses, liabilities or
other matters referred to in or covered by the General Corporation Law, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
TENTH: No director or the Corporation shall have any personal
liability to the Corporation or to any of its stockholders for monetary damages
for breach of fiduciary duty as a director; provided, however, that this
provision eliminating such personal liability of a director shall not eliminate
or limit the liability of a director (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the General corporation Law of Delaware, or
(iv) for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Las as so amended. Any repeal or modification of this Article Tenth
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification with respect to acts or omissions occurring prior to such repeal
or modification.
ELEVENTH: The board of Directors shall have the power to make, add to,
delete from, alter and repeal the Corporation's By-laws.
TWELFTH: The Corporation expressly elects not to be governed by Section
203 of the Delaware General Corporation Law.
THIRTEENTH: From time to time any of the provisions of this Certificate
of Incorporation may be amended, altered or repealed after authorization by the
Board of Directors and the affirmative vote of the holders of record of a
majority of all of the issued and outstanding shares of the Corporation entitled
to vote in respect thereof, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted in the manner
and at the time prescribed by said laws, and all rights at any time conferred
upon the stockholders of the Corporation by this Certificate of Incorporation
are granted subject to the provisions of this Article Thirteenth.
<PAGE> 9
4. This Restated Certificate of Incorporation was duly adopted by the
written consent of the Board of Directors of the Corporation in
accordance with the applicable provisions of Sections 141 and 245
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Foster Grant Holdings, Inc. has caused this
Certificate to be signed by Duane M. DeSisto, its Vice President, this 4th day
of August, 1998.
Foster Grant Holdings, Inc.
By: /s/ Duane M. DeSisto
-------------------------------
Title: Vice President
----------------------------
<PAGE> 1
Exhibit 3.8.2
AMENDED AND RESTATED
BY-LAWS
OF
FOSTER GRANT HOLDINGS, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Subject to change by resolution of the
Board of Directors, the annual meeting of the Stockholders of the Corporation
for the purpose of electing directors and for the transaction of such other
business as may be brought before the meeting shall be held on a date fixed,
from time to time, by the directors of the Corporation, and each successive
annual meeting shall be held on a date within thirteen months after the date of
the preceding annual meeting. The meeting may be held at such time and such
place within or without the State of Delaware as shall be fixed by the Board of
Directors and stated in the notice of the meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may
be called at any time by the President, a majority of the Board of Directors or
the Chairman of the Board or by a majority of the stockholders of record of all
shares entitled to vote. Special meetings shall be held on the date and at the
time and place either within or without the State of Delaware as specified in
the notice thereof.
SECTION 3. NOTICE OF MEETINGS. Except as otherwise expressly required
by law or the Certificate of Incorporation of the Corporation, written notice
stating the place and time of the meeting and the purpose or purposes of such
meeting, shall be given by the Secretary to each stockholder entitled to vote
thereat at his address as it appears on the records of the Corporation not less
than ten nor more than sixty days prior to the meeting. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy; and if any stockholder shall, in
person or by attorney thereunto duly authorized, waived notice of any meeting,
in writing or by telephone or facsimile, whether before or after such meeting be
held, the notice thereof need not be given to him. The attendance of any
stockholder at a meeting, in person or by proxy, without protesting prior to the
conclusion of the meeting the lack of notice of such meeting, shall constitute a
<PAGE> 2
waiver of notice by him. Notice of any adjourned meeting of stockholders need
not be given except as provided in SECTION 5 of this Article I.
SECTION 4. QUORUM. Subject to the provisions of law in respect of the
vote that shall be required for a specific action, the number of shares the
holders of which shall be present or represented by proxy at any meeting of
stockholders in order to constitute a quorum for the transaction of any business
shall be at least a majority of all the shares issued and outstanding and
entitled to vote at such meeting. Where a separate vote by a class or classes is
required, a majority of the outstanding shares of such class or classes, present
in person or represented by proxy, shall constitute a quorum entitled to take
action with respect to that vote on that matter and the affirmative vote of the
majority of shares of such class or classes present in person or represented by
proxy at the meeting shall be the act of such class.
SECTION 5. ADJOURNMENT. At any meeting of stockholders, whether or not
there shall be a quorum present, the holders of a majority of the shares voting
at the meeting, whether present in person at the meeting or represented by proxy
at the meeting, may adjourn the meeting from time to time. Except as provided by
law, notice of such adjourned meeting need not be given otherwise than by
announcement of the time and place of such adjourned meeting at the meeting at
which the adjournment is taken. At any adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally called.
SECTION 6. ORGANIZATION. The Chairman of the Board or, in his absence
or non-election, the Vice Chairman or, in his absence or non-election, the
President or, in the absence of both the foregoing officers, a Vice President
shall call meetings of the stockholders to order and shall act as Chairman of
such meetings. In the absence of all of the foregoing officers, holders of a
majority in number of the shares of the capital stock of the Corporation present
in person or represented by proxy and entitled to vote at such meeting shall
elect a Chairman, who may be the Secretary of the Corporation. The Secretary of
the Corporation shall act as secretary of all meetings of the stockholders; but
in the absence of the Secretary, the Chairman may appoint any person to act as
secretary of the meeting.
SECTION 7. VOTING. Each stockholder shall, except as otherwise provided
by law or by the Certificate of Incorporation, at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
capital stock entitled to vote held by such stockholder, but no proxy shall be
voted on after three years from its date, unless said proxy provides for a
longer period. Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Any other action shall be authorized by a
vote of a majority
2
<PAGE> 3
of the votes cast except where the General Corporation Law prescribes a
different percentage of votes and/or a different exercise of voting power, and
except as may be otherwise prescribed by the provisions of the Certificate of
Incorporation and these By-laws. In the election of directors, and for any other
action, voting need not be by ballot, unless the Board of Directors in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in his or her discretion, may require that any votes cast at such
meeting shall be cast by written ballot.
SECTION 8. STOCKHOLDERS LIST. The officer of the Corporation who has
charge of the stock ledger of the Corporation shall prepare and make a complete
list of the stockholders entitled to vote at any meeting of stockholders,
arranged in alphabetical order with the address of each and the number of shares
held by each, shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, for a period of
at least ten days prior to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole thereof and may be inspected by any stockholder who is present.
The stock ledger of the Corporation shall be the only evidence as to who are the
stockholders entitled to examine the ledger, the list required by this Section 8
of Article I or the books of the Corporation, or to vote in person or by proxy
at any meeting of stockholders.
SECTION 9. ADDRESS OF STOCKHOLDERS. Each stockholder shall designate to
the Secretary of the Corporation an address at which notices of meetings and all
other corporate notices may be served upon or mailed to him, and if any
stockholder shall fail to designate such address, corporate notices may be
served upon him by mail directed to him at his last known post office address.
SECTION 10. INSPECTORS OF ELECTION The Board of Directors may at any
time appoint one or more persons to serve as Inspectors of Election at the next
succeeding annual meeting of stockholders or at any other meeting or meetings
and the Board of Directors may at any time fill any vacancy in the office of
Inspector. If the Board of Directors fails to appoint Inspectors, his office
becomes vacant and be not filled by the Board of Directors, the Chairman of any
meeting of the stockholders may appoint one or more temporary Inspectors for
such meeting. All proxies shall be filed with the Inspectors for such meeting.
All proxies shall be filed with the Inspectors of Election of the meeting before
being voted upon.
SECTION 11. ACTION BY CONSENT. Any action required by the General
Corporation Law to be taken at any annual or special meeting of
3
<PAGE> 4
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The property, affairs and business of the
Corporation shall be managed by or under the direction of the Board of
Directors. The Board of Directors shall have the power and authority to
authorize the officers of the Corporation to enter into such agreements as the
Board of Directors shall deem appropriate including the power and authority to
authorize the seal of the Corporation to be affixed to all papers that may
require it.
SECTION 2. NUMBER, QUALIFICATION AND TERM OF OFFICE. The Number of
directors shall be fixed at three (3) members. Directors shall be elected by a
majority of the common shareholders at the annual shareholder meeting. Directors
need not be stockholders. Each director shall hold office for the term for which
he is appointed or elected and until his successor shall have been elected and
shall qualify, or until his death or until he shall resign or shall have been
removed in the manner hereinafter provided. Directors need not be elected by
ballot, except upon demand of any stockholder. The Chairman of the Board, if one
be elected, and the Vice Chairman of the Board, if one be elected, shall be
chosen from among the directors. The number of directors may be increased or
decreased only by amendment to these By-laws.
SECTION 3. QUORUM AND MANNER OF ACTION. Except as otherwise provided by
law or these By-laws, a majority of the entire Board of Directors shall be
required to constitute a quorum for the transaction of business at any meeting,
and the act of a majority of the entire Board of Directors shall be the act of
the Board of Directors. In the absence of a quorum, a majority of the directors
present may adjourn any meeting from time to time until a quorum be had. Notice
of any adjourned meeting need not be given. The directors shall act only as a
board and individual directors shall have no power as such. In the event that
the Board of Directors shall be unable to take action on any matter because of a
deadlock, upon the motion of any director the matter shall be submitted to a
vote of the stockholders. Any action so approved by a majority
4
<PAGE> 5
vote of the stockholders shall be the action of the Board of Directors, however,
any director who voted against the action taken by the stockholders prior to the
submission of such matter to the stockholders may, within 10 days following such
stockholder vote, dissent in writing to such action to the Secretary of the
Corporation, who shall enter such dissent in the minutes of the Corporation.
SECTION 4. PLACE OF MEETING, ETC. The Board of Directors may hold its
meetings, have one or more offices and keep the books and records of the
Corporation at such place or places within or without the State of Delaware as
the Board may from time to time determine or as shall be specified or fixed in
the respective notices or waivers of notice thereof.
SECTION 5. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held for the election of officers and the transaction of
other business as soon as practicable after each annual meeting of stockholders,
and other regular meetings of said Board shall be held at such times and places
as said Board shall direct. No notice shall be required for any regular meeting
of the Board of Directors but a copy of every resolution fixing or changing the
time or place of regular meetings shall be mailed to every director at least
three days before the first meeting held in pursuance thereof.
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President. The Secretary or
any Assistant Secretary shall give notice of the time and place of each special
meeting by mailing a written notice of the same to each director at his last
known post office address at least three (3) business days before the meeting or
by causing the same to be delivered personally or to be transmitted by
telecopies, overnight mail, telegraph, cable, wireless, telephone or orally at
least twenty-four hours before the meeting to each director. In the event the
Secretary or Assistant Secretary shall fail to give the notice of a Special
Meeting called in accordance with this Section, the person who called such
meeting shall be empowered to give notice of such meeting in accordance with the
immediately preceding sentence.
SECTION 7. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting, written consent thereto is signed by all members of the Board
or of such committee, as the case may be, and such written consent is filed with
the minutes of proceedings of the Board or committee.
SECTION 8. ORGANIZATION. At each meeting of the Board of Directors, the
Chairman of the Board or in his absence, the Vice Chairman of the Board, or in
his absence, the President, or in his absence or non-election, a director chosen
by a majority of the directors present shall act as Chairman. The Secretary or,
in his absence, an Assistant Secretary or, in the absence of both
5
<PAGE> 6
the Secretary and an Assistant Secretary, any person appointed by the Chairman
shall act as Secretary of the meeting.
SECTION 9. RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice to the Board of Directors, the President or
the Secretary of the Corporation. The resignation of any director shall take
effect at the time specified therein; and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
SECTION 10. REMOVAL OF DIRECTORS. Except as otherwise provided by law,
any director may be removed with or without case, by the affirmative vote of a
majority of the Board of Directors.
SECTION 11. VACANCIES. Any vacancy in the Board of Directors, caused by
death resignation, removal, disqualification, an increase in the number of
directors or any other cause shall be filled by a majority vote of the directors
then in office, though not less than a quorum, or by a sole remaining director,
and the directors so chosen shall hold office until the next annual election of
directors and until their successors are duly elected and qualified, or until
their earlier resignation or removal.
SECTION 12. COMPENSATION OF DIRECTORS. Directors may receive such
reasonable sums for their services and expenses as may be directed by resolution
of the Board; provided that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for their services and expenses.
SECTION 13. COMMITTEES. By resolution or resolutions passed by a
majority of the whole Board at any meeting of the Board of Directors, the
directors may designate one or more committees of the Board of Directors, each
committee to consist of two or more directors. To the extent provided in said
resolution or resolutions, unless otherwise provided by law, such committee or
committees shall have and may exercise all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation,
including the power and authority to authorize the seal of the Corporation to be
affixed to all papers that may require it. No committee, however, shall have the
power to declare dividends or to authorize the issuance of shares of capital
stock of the Corporation. Further, the Board of Directors may designate one or
more directors as alternate members of a committee who may replace an absent or
disqualified member at any meeting. If an alternative member of a committee is
not selected by the Board of Directors, and in the absence or disqualification
of a member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a
6
<PAGE> 7
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. A
committee may make such rules for the conduct of its business and may appoint
such committees and assistants as it shall from time to time deem necessary. A
majority of the members of a committee shall constitute a quorum for the
transaction of business of such committee. Regular meetings of a committee shall
be held at such times as such committee shall from time to time by resolution
determine. No notice shall be required for any regular meeting of a committee
but a copy of every resolution fixing or changing the time or place of at least
three days before the first meeting held in pursuance thereof. Special meetings
of a committee may be called by the Chairman of such committee or the Secretary
of such committee, or any two members thereof. The Secretary of the Corporation
or the Secretary of such committee shall give notice of the time and place of
each special meting by mail at least two days before such meeting or by
telegraph, cable, wireless, telephone or orally at least twenty-four hours
before the meeting to each member of such committee.
SECTION 14. PARTICIPATION IN MEETINGS. Members of the Board of
Directors or of any committee may participate in any meeting of the Board or
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 15. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted by such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts to his
or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at
7
<PAGE> 8
a meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE III
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be a Chairman
of the Board, a Vice Chairman of the Board, a Chief Executive Officer, a Chief
Financial Officer and a Secretary. In addition, the Board may elect one or more
Vice Presidents, Treasurers, Assistant Treasurers, Assistant Secretaries and
such other officers as may be appointed in accordance with the provisions of
Section 3 of this Article III. Any number of offices may be held by the same
person, as the directors may determine.
SECTION 2. ELECTION, TERM OF OFFICE AND QUALIFICATION. The officers
shall be elected annually by the Board of Directors at their first meeting after
each annual meeting of the stockholders of the Corporation. Each officer, except
such officers as may be appointed in accordance with the provisions of Section 3
of this Article, shall hold office until his successor shall have been duly
elected and qualified, or until his death or until he shall have resigned or
shall have become disqualified or shall have been removed in the manner
hereinafter provided.
SECTION 3. SUBORDINATE OFFICERS. The Board of Directors or the Chief
Executive Officer may from time to time appoint such other officers (including,
without limitation, a Treasurer, Assistant Treasurers, or Assistant Secretaries)
and such agents and employees of the Corporation as may be deemed necessary or
desirable. Such officers, agents and employees shall hold office for such period
and upon such terms and conditions, have such authority and perform such duties
as in these By-laws provided or as the Board of Directors or the Chief Executive
Officer may from time to time prescribe. The Board of Directors or the Chief
Executive Officer may from time to time authorize any officer to appoint and
remove agents and employees and to prescribe the powers and duties thereof.
SECTION 4. REMOVAL. Any officer may be removed, either with or without
cause, by the affirmative vote of a majority of the Board of Directors.
SECTION 5. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors, the Chief Executive Officer or the
Secretary. Any such resignation shall take effect at the date of receipt of such
notice or at any later time specified therein; and unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
8
<PAGE> 9
SECTION 6. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in these By-laws for
regular election or appointment to such office.
SECTION 7. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be
the Chief Executive Officer of the Corporation and shall preside, if present, at
all meetings of the stockholders and shall preside, if present, at all meetings
of the stockholders and at all meetings of the Board of Directors and shall
perform such other duties and have such other powers as from time to time may be
assigned by the Board of Directors or prescribed by these By-laws.
SECTION 8. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board
shall, at the request of the Chairman of the Board or in his absence or
disability, perform the duties of the Chairman of the Board and when so acting
shall, have all the powers of, and be subject to all restrictions upon, the
Chairman of the Board and shall perform such other duties and have such other
powers as from time to time may be assigned to him by the Chairman of the Board
or prescribed by these By-laws.
SECTION 9. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
have general direction of the affairs of the Corporation and general supervision
over its several officers, subject, however, to the control of the Board of
Directors, and in general shall perform such duties and, subject to the other
provisions of these By-laws, have such powers incident to the office of Chief
Executive Officer and perform such other duties and have such other powers as
from time to time may be assigned to him by the Board of Directors.
SECTION 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
be responsible to the Board of Directors and the Chief Executive Officer for all
financial control and internal audit of the Corporation and its subsidiaries. He
shall perform such other duties as may be assigned to him by the Board of
Directors, the Chief Executive Officer or prescribed by these By-laws, and shall
be responsible to a designated Vice President only for the routine
administrative matters pertaining to the duties of his office. The Chief
Financial Officer shall, in the absence of an appointed Treasurer, perform the
duties and functions of the Treasurer.
SECTION 11. VICE PRESIDENT. A Vice President may sign with the Chief
Financial Officer or the Secretary or an Assistant Secretary certificates of
stock of the Corporation and shall have such other powers and shall perform such
other duties as from time to time may be assigned to him by the Board of
Directors or the Chief Executive Officer or prescribed by these By-laws.
9
<PAGE> 10
SECTION 12. SECRETARY. The Secretary shall keep or cause to be kept, in
books provided for the purpose, the minutes of the meetings of the stockholders,
the Board of Directors and any committee when so required, shall see that all
notices are duly given in accordance with the provisions of these By-laws and as
required by law, shall be custodian of the records and the seal of the
Corporation and see that the seal is affixed to all documents, the execution of
which on behalf of the Corporation under its seal is duly authorized in
accordance with the provisions of these By-laws, shall keep or cause to be kept
a register of the post office address of each stockholder, may sign with the
Chairman of the Board, the Chief Executive Officer or any Vice President
certificates of stock of the Corporation, and in general shall perform such
duties and have such powers incident to the office of Secretary and shall
perform such other duties and have such other powers as from time to time may be
assigned to him by the Board of Directors or the Chief Executive Officer or
prescribed by these By-laws.
SECTION 13. ASSISTANT SECRETARY. Any Assistant Secretary shall, at the
request of the Secretary or in his absence or disability, perform the duties of
the Secretary and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the Secretary and shall perform such other duties and
have such other powers as from time to time may be assigned to him by the Chief
Executive officer, the Secretary or the Board of Directors or prescribed by
these Bylaws.
SECTION 14. TREASURER. The Treasurer, if any, shall have charge and
custody of, and be responsible for, all funds and securities of the Corporation,
and deposit all such funds in the name of the Corporation in such banks, trust
companies or other depositories as shall be selected in accordance with the
provisions of these By-laws, shall at all reasonable times exhibit his books of
account and records, and cause to be exhibited the books of account and records
of any corporation controlled by the Corporation to any of the directors of the
Corporation upon application during business hours at the office of the
Corporation, or such other corporation, where such books and records are kept,
shall, if called upon to do so, receive and give receipts for moneys due and
payable to the Corporation from any source whatsoever, may sign with the
Chairman of the Board, the Chief Executive Officer or any Vice President
certificates of stock of the Corporation, and in general shall perform such
duties and have such powers incident to the office of Treasurer and such other
duties and have such other powers as from time to time may be assigned to him by
the Board of Directors or the Chief Executive Officer or prescribed by these
By-laws.
SECTION 15. ASSISTANT TREASURER. Any Assistant Treasurer shall, at the
request of the Treasurer or in his absence or disability, perform the duties of
the Treasurer and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the Treasurer and shall perform such duties
10
<PAGE> 11
and have such other powers as from time to time may be assigned to him by the
Chief Executive Officer, the Treasurer or the Board of Directors or prescribed
by these By-laws.
SECTION 16. OTHER OFFICERS. Such officers as the Board of Directors may
choose shall perform such duties and have such powers as may be appropriate to
such officer or as from time to time may be assigned to them by the Board of
Directors. The Board of Directors may delegate to any other officer of the
Corporation the power to choose such other officers and to prescribe their
respective duties and powers.
SECTION 17. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors. No officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation.
SECTION 18. AUTHORITY OF OFFICERS. The officers of the Corporation
shall have such duties and authority as set forth in these By-laws and as shall
be determined from time to time by the Board of Directors.
ARTICLE IV
SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES OF STOCK. Certificates of Stock. Certificates
for shares of the capital stock of the Corporation shall be in such form not
inconsistent with law as shall be approved by the Board of Directors. They shall
be numbered in order of their issue and shall be signed by the Chairman of the
Board or the President or any Vice President and the Treasurer or any Assistant
Treasurer, or the Secretary or any Assistant Secretary of the Corporation, and
the seal of the Corporation shall be affixed thereto. Any of or all the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent or registrar who shall have signed or whose facsimile signature shall have
been placed upon any such certificate or certificates shall cease to be such
officer or officers of the Corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature shall have
been used thereon had not ceased to be such officer or officers of the
Corporation.
SECTION 2. TRANSFER OF STOCK. Transfer of shares of the capital stock
of the Corporation shall be made only on the books of the Corporation by the
holder thereof, or by his attorney thereunto authorized by a power of attorney
11
<PAGE> 12
duly executed and filed with the Secretary of the Corporation, or a transfer
agent of the Corporation, if any, on surrender of the certificate or
certificates for such shares properly endorsed. A person in whose name shares of
stock stand on the books of the Corporation shall be deemed the owner thereof as
regards the Corporation, and the Corporation shall not be bound to recognize any
equitable or other claim to or interest in such shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Delaware.
SECTION 3. LOST, DESTROYED AND MUTILATED CERTIFICATES. The holder of
any stock issued by the Corporation shall immediately notify the Corporation of
any loss, destruction or mutilation of the certificate therefor or the failure
to receive a certificate of stock issued by the Corporation, and the Board of
Directors or the Secretary of the Corporation may, in its or his discretion,
cause to be issued to such holder a new certificate or certificates of stock,
upon compliance with such rules, regulations and/or procedures as may be
prescribed or have been prescribed by the Board of Directors with respect to the
issuance of new certificates in lieu of such lost, destroyed or mutilated
certificate or certificates of stock issued by the Corporation which are not
received, including reasonable indemnification to indemnify it against any claim
that may be made against it on account of the alleged loss, theft or destruction
of any such certificate or the issuance of such new certificate.
SECTION 4. TRANSFER AGENT AND REGISTRAR; REGULATIONS. The Corporation
shall, if and whenever the Board of Directors shall so determine, maintain one
or more transfer offices or agencies, each in the charge of a transfer agent
designated by the Board of Directors, where the shares of the capital stock of
the Corporation shall be directly transferable, and also one or more registry
offices, each in the charge of a registrar designated by the Board of Directors,
where such shares of stock shall be registered, and no certificate for shares of
the capital stock of the Corporation, in respect of which a Registrar and/or
Transfer Agent shall have been designated, shall be valid unless countersigned
by such Transfer Agent and registered by such Registrar, if any. The Board of
Directors shall also make such additional rules and regulations as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of the capital stock of the Corporation.
SECTION 5. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meting of stockholders or any adjournment thereof, to express
consent to corporate action in writing without a meeting, to receive payment of
any dividend or other distribution or allotment of any rights, to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date which shall not be more than sixty nor less than ten days
12
<PAGE> 13
before the date of such meeting, nor more than sixty days prior to any other
action, and only such stockholders as shall be stockholders of record of the
date so fixed shall be entitled to such notice of and to vote at such meeting
and any adjournment thereof, to express consent to any such corporate action, to
receive payment of such dividend or to receive such allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
stock on the books of the Corporation after any such record date fixed as
aforesaid. If the stock transfer books are to be closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting in the
case of a merger or consolidation, the books shall be closed at least twenty
days before such meeting.
SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
ARTICLE V
GENERAL PROVISIONS
SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall end on
such date of each year as shall be determined by the Board of Directors of the
Corporation.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice of any nature is
required by law, the provisions of the Certificate of Incorporation or these
By-laws to be given, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
SECTION 3. QUALIFYING IN FOREIGN JURISDICTION. The Board of Directors
shall have the power at any time and from time to time to take or cause to be
taken any and all measures which they may deem necessary for qualification to do
business as a foreign corporation in any one or more foreign jurisdictions and
for withdrawal therefrom.
SECTION 4. REGISTERED OFFICE. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
13
<PAGE> 14
SECTION 5. OTHER OFFICES. The Corporation may also have offices at such
other places, both within and without the State of Delaware as the Board of
Directors may from time to time determine.
SECTION 6. PROXIES. Except as otherwise provided in these By-laws or in
the Certificate of Incorporation of the Corporation, and unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board may
appoint from time to time an attorney or attorneys, or agent or agents, of the
Corporation, on behalf and in the name of the Corporation, to cast the votes
which the Corporation may be entitled to cast as a stockholder or otherwise in
any other corporation any of whose stock or other securities may be held by the
Corporation, at meetings of the holders of the stock or other securities of such
other corporation, or to consent in writing to any action by such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause to
be executed on behalf and in the name of the Corporation and under its corporate
seal, or otherwise, all such written proxies or other instruments as he may deem
necessary or proper in the premises.
SECTION 7. SEAL. The Board of Directors shall provide a suitable seal
containing the name of the Corporation, which seal shall be in the charge of the
Secretary and which may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. If and when so directed by the
Board of Directors, a duplicate of the seal may be kept and be used by an
officer of the Corporation designated by the Board.
SECTION 8. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
SECTION 9. DISBURSEMENTS. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons at the Board of Directors may from time to time designate.
14
<PAGE> 15
ARTICLE VI
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER
THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article VI, the Corporation shall indemnify any person (to the full extent
permitted by the laws of the State of Delaware, as amended from time to time)
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 (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise,
against expenses (Including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN
THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VI, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit,
proceeding or claim by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprises
against expenses (including attorney's fees and expenses) actually and
reasonably incurred by him and to the extent permitted by applicable law in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to
15
<PAGE> 16
indemnification for such expenses and amounts which the Court of Chancery or
such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under
this Article VI (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section l or Section 2 of this Article VI, as the case may be. Such
determination and determinations under Section 5 or 6 of this Article VI shall
be made (i) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders. To the extent, however, that a director
or officer, employee or agent of the Corporation has been successful on the
merits or otherwise in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees and expenses)
actually and reasonably incurred by him in connection therewith, without the
necessity of authorization in the specific case.
SECTION 4. GOOD FAITH DEFINED.
(a) For purposes of any determination under Section 3 of
this Article VI, a person shall be deemed to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, or, with respect to any criminal action or proceeding, to have
had no reasonable cause to believe his conduct was unlawful, if his action is
based on the records or books of account of the Corporation or another
enterprise, or on information supplied to him by the officers of the Corporation
or another enterprise or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public account or
by an appraiser or other expert selected with reasonable care by the Corporation
or another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise of which such person is or was serving
at the request of the Corporation as a director, officer, agent or employee.
(b) References in this Article VI to "penalties" include
any excise taxes assessed on a person with respect to an employee benefit plan;
references in this Article VI to "serving at the request of the Corporation"
include any service as a director or officer (or if appropriate an employee or
agent) or former director or officer (or if appropriate a former employee or
agent) of the Corporation which imposes duties on, or involves
16
<PAGE> 17
services by, such person with respect to an employee benefit plan or its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the participants or beneficiaries of such an employee benefit plan shall be
deemed to have acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Corporation.
(c) The provisions of this Section 4 shall not be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in Sections l or
2 of this Article VI, as the case may be.
SECTION 5. INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON
APPLICATION; ETC. Except as otherwise provided in the proviso to Section 2 of
this Article VI:
(a) Any indemnification under Section l or 2 of this
Article VI shall be made no later than 45 days after receipt by the Corporation
of the written request by the director, officer, employee or agent or the former
director, officer, employee or agent, unless a determination is made within said
45-day period in accordance with Section 3 of this Article VI that such person
has not met the applicable standard of conduct set forth in Section l or 2 of
this Article VI.
(b) The right to indemnification under Section l or 2 of
this Article VI or advances under Section 6 of this Article VI shall be
enforceable by the director, officer, employee or agent or former director,
officer, employee or agent in any court of competent jurisdiction. The burden of
proving that indemnification is not appropriate shall be on the Corporation.
Neither the absence of any prior determination that indemnification is proper in
the circumstances, nor a prior determination that indemnification is not proper
in the circumstance, shall be a defense to the action or create a presumption
that the director or officer, or former director or officer, has not met the
applicable standard of conduct. The expenses (including attorneys' fees and
expenses) incurred by the director, officer, employee or agent in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such action (or in any action or claim brought by him to recover
under any insurance policy or policies referred to in Section 9 of this Article
VI) shall also be indemnified by the Corporation.
(c) If any person is entitled under any provision of this
Article VI to indemnification by the Corporation for some or a portion of
expenses, judgments, fines, penalties or amounts paid in settlement incurred by
him, but not, however, for the total amount thereof, the corporation shall
17
<PAGE> 18
nevertheless indemnify such person for the portion of such expense, judgments,
fines, penalties and amounts to which he is entitled.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses (including attorneys'
fees and expenses) incurred by an officer, director, employee or agent or a
former officer, director, employee or agent in defending a civil or criminal
action or investigating a threatened or pending action, suit or proceeding may
be paid by the Corporation in advance of the final disposition of such action,
suit or proceeding as authorized by the Board of Directors in the specific case
upon receipt of an undertaking by or on behalf of the director, officer,
employee or agent to repay such amount unless it shall ultimately be determined
that he is entitled to be indemnified by the Corporation as authorized in this
Article VI; provided, however, that if he seeks to enforce his rights in a court
of competent jurisdiction pursuant to Section 5(b) of this Article VI, said
understanding to repay shall not be applicable or enforceable unless and until
there is a final court determination that he is not entitled to indemnification
as to which all rights of approval have been exhausted or have expired.
SECTION 7. CERTAIN PERSONS NOT ENTITLED TO INDEMNIFICATION.
Notwithstanding any other provision of this Article VI, no person shall be
entitled to indemnification under this Article VI or to advances under Section 6
of this Article VI with respect to any action, suit, proceeding or claim brought
or made by him against the Corporation, other than an action, suit, proceeding
or claim seeking, or defending such person's right to, indemnification and/or
expense advances pursuant to this Article VI or otherwise.
SECTION 8. NON-EXCLUSIVITY AND SURVIVAL OF INDEMNIFICATION. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
By-law, agreement, contract, vote of stockholders or disinterested directors or
pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office, it being the policy of the
Corporation that indemnification and expense advances to the persons specified
in Section l and 2 of this Article VI shall be made to the fullest extent
permitted by law and, accordingly, in the event of any change in law, by
legislation or otherwise, permitting greater indemnification and/or expense
advances to any such person, the provisions of this Article VI shall be
construed so as to require such greater indemnification and/or expense advances.
The provisions of this Article VI shall not be deemed to preclude the
indemnification of any person who is not specified in Sections l or 2 of this
Article VI but whom the Corporation has the power or obligation to indemnify
under the provisions of the General Corporation Law of the State of Delaware, or
otherwise. The indemnification and advancement of expenses provided by or
granted pursuant
18
<PAGE> 19
to this Article VI shall continue as to a person who has ceased to be a director
or officer (or if appropriate an employee or agent) and shall inure to the
benefit of the heirs, executors and administrators of such person.
SECTION 9. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, employee benefit plan, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power or the obligation to indemnify him against such liability under the
provisions of this Article VI or the provisions of Section 145 of the General
Corporation Law of the State of Delaware. The Corporation shall not be obligated
under this Article VI to make any payment in connection with any claim made
against any person if and to the extent that such person has actually received
payment therefore under any insurance policy or policies.
SECTION 10. MEANING OF "CORPORATION" FOR PURPOSES OF ARTICLE VI. For
purposes of this Article VI, references to "the Corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees or agents, so that any person who
is or was a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article VI with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
SECTION 11. LIMITATION ON ACTIONS. No legal action shall be brought and
no cause of action shall be asserted by or on behalf of the Corporation or any
affiliate of the Corporation against any person who is or was a director or
officer of the Corporation after the expiration of two years from the date of
accrual of such cause of action, and any claim or cause of action of the
Corporation or its affiliates shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such shorter period shall govern.
SECTION 12. SEVERABILITY. The provisions of this Article VI shall be
severable in the event that any provision hereof (including any provision within
a single section, subsection, clause, paragraph or sentence) is held invalid,
void or otherwise unenforceable on any ground by any court of competent
jurisdiction. In the event of any such holding, the remaining
19
<PAGE> 20
provisions of this Article VI shall continue in effect and be enforceable to the
fullest extent permitted by law.
ARTICLE VII
AMENDMENTS
These By-laws may be altered, amended or repealed, in whole or in part,
or new By-laws may be adopted by either the stockholders or by the Board of
Directors, provided, however, that notice of such alteration, amendment, repeal
or adoption of new By-laws be contained in the notice of such meeting of
stockholders or Board of Directors, as the case may be. All such amendments must
be approved by either the holders of a majority of the outstanding capital stock
entitled to vote thereon or by a majority of the entire Board of Directors.
20
<PAGE> 1
Exhibit 3.9.1
RESTATED CERTIFICATE OF INCORPORATION
OF
OPTI-RAY, INC.
UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW
* * * * *
WE, THE UNDERSIGNED, Gerald F. Cerce and Duane M. DeSisto , being
respectively the President and Assistant Secretary hereby certify:
1. The name of the corporation is Opti-Ray, Inc.
2. The certificate of incorporation was filed by the department
of state on the 21st of November, 1964.
3. The text of the certificate of incorporation is hereby
restated without amendment or changes to read as herein set
forth in full:
WE, THE UNDERSIGNED, all being of full age, at least two thirds in
number being citizens of the United States, and at least one being a resident of
the State of New York, and at least one of the persons named as a director being
a citizen of the United Sates and a resident of the State of New York, for the
purpose of forming a Stock Corporation pursuant to article two of the Stock
Corporation Law, do hereby make, subscribe, acknowledge and file this
certificate as follows:
FIRST: The name of the proposed corporation shall be OPTI-RAY, INC.
SECOND: The purposes for which it is to be formed are the following:
a. To purchase, sell, lease, manufacture, deal in and
deal with every kind of goods, wares and merchandise, and every kind of personal
property, whether made of wood, metal, glass, plastics or other material or any
combination thereof, including patents and patent rights, chattels, easements,
privileges and franchises which may lawfully be purchased, sold, produced or
dealt in by corporations under the Statutes of the State of New York. (Article
II of the Stock Corporation Law.)
b. To take, buy, exchange, lease or otherwise acquire
real estate and any interest or right therein, and to hold, own, operate,
control, maintain, manage and develop the same and to construct, maintain,
alter, manage and control directly or through ownership of stock in any other
corporation any and all kinds of buildings, stores, offices, warehouses, mills,
shops, factories, machinery and plants, and any and all other structures and
erections which may at any time be necessary, useful, incidental or advantageous
for the purpose of this corporation.
<PAGE> 2
c. To sell, assign and transfer, convey, lease, or
otherwise alienate or dispose of, and to mortgage or otherwise encumber the
lands, buildings, real and personal property, of the corporation wherever
situated, and any and all legal and equitable interests therein.
d. To apply for, purchase, acquire, hold and dispose of
the stocks, bonds and other evidences of the indebtedness of any corporation,
domestic or foreign, and to issue in exchange therefor its stocks, bonds or
other obligations, and to exercise in respect thereof all the rights, powers and
privileges of individual owners, including the right to vote thereon; and to aid
in any manner permitted by law any corporation of which any bonds or other
securities or evidences of indebtedness or stocks are held by this corporation,
and do any acts or things designed to protect, preserve, improve or enhance the
value of any such bonds or other securities or evidence of indebtedness or
stock.
e. To do any or all of the foregoing in all parts of the
world and wither as principal or agent; to do everything necessary, suitable or
proper for the accomplishments of any of the purposes or the attainment of any
of the objects or the furtherance of any of the powers hereinabove set forth,
either alone or in association with other corporations, firms or individuals,
and to do every other act or thing incidental or appurtenant to or growing out
of or connected with the aforesaid business or powers or any part thereof.
f. This corporation shall have the power to conduct its
business in all branches in the State of New York or any other State of the
United States and in all foreign countries and generally to do all acts and
things and to exercise all the powers, now or hereafter authorized by law,
necessary to carry on the business of this corporation or to promote any of the
objects for which this corporation is formed.
g. To apply for, purchase, register, or in any manner to
acquire, and to hold, own, use, operate and introduce, and to sell, lease,
assign, pledge, or in any manner dispose of any and all inventions, improvements
and processes, labels, designs, brands, or other rights, trademarks, copyrights,
and patents, and to work, operate, or develop the same and to carry on any
business, manufacturing or otherwise, which may directly or indirectly
effectuate these objects or any of them.
h. The foregoing and following clauses shall be
construed as objects and powers in furtherance and not in limitation or the
general powers conferred by the laws of the State of New York; and it is hereby
expressly provided that the foregoing and following enumeration of specific
powers shall not be held to limit or restrict in any manner the powers of this
corporation, and that this corporation may do all and everything necessary,
suitable or proper for the accomplishment of any of the purposes of objects
hereinabove enumerated either alone or in association with other corporations,
firms, or individuals, to the same extent and as fully as individuals might or
could do as principals, agents, contractors or otherwise.
i. Nothing in this certificate contained, however, shall
authorize the corporation to carry on any business or exercise any powers in any
state or country which a similar corporation organized under the laws of such
state of country could not carry on or exercise, or to engage within or without
the State of New York in the business of a lighting or a transportation
corporation or in the common carrier business, or to issue bills, notes or other
evidence of debt for circulation as money.
j. To do any or all of the things herein set forth to
the same extent as natural persons might or could do and in any part of the
world, as principals, agents, contractors, or otherwise, and either alone or in
company with others.
k. To purchase, insofar as the same may be done without
impairing the capital of the corporation, except as otherwise permitted by law,
and to hold, pledge and reissue shares of
<PAGE> 3
its own capital stock; but such stock, so acquired and held, shall not be
entitled to vote nor to receive dividends.
l. To acquire the goodwill, rights and property, and the
whole or any part of the assets, tangible or intangible, and to undertake or in
any way assume the liabilities of any person, firm, association, or corporation
engaged in any business which this corporation may carry on to pay for the said
goodwill, rights, property, and assets in cash, the stock of this company, bonds
or otherwise, or by undertaking the whole or any part of the liabilities of the
transferor; to hold or in any manner to dispose of the whole or any part of the
property so purchased; to conduct in any lawful manner the whole or any part of
any business so acquired; and to exercise all the powers necessary or convenient
in and about the conduct of management of such business.
m. To make, manufacture, fabricate, purchase, sell,
trade in, export and import all types of general wares, goods, plastics, glass,
merchandise and personal property.
n. To borrow money for its corporate purposes and to
make, accept, endorse, execute and issue promissory notes, bills of exchange,
bonds, debentures or other obligations from time to time for the purchase of
property of for any purpose in or about the business of the corporation, and if
deemed proper to secure the payment of any such obligations by mortgage, pledge,
deed of trust or otherwise.
THIRD: The aggregate number of shares which the corporation shall
have authority to issue is 10,000 preferred shares at a par value of $.01 per
share and 200 common shares at no par values per share. The capital of the
corporation shall be at least equal to the sum of the aggregate par value of all
issued shares having par value, plus the aggregate amount of consideration
received by the corporation for the issuance of shares without par value, plus
such amounts as, from time to time, by resolution of the Board of Directors, may
be transferred thereto.
FOURTH: A statement of the preferences, privileges and restrictions
granted to or imposed upon the respective classes of shares or the holder
thereof is as follows:
(a) DIVIDENDS
The holders of preferred shares shall be entitled to receive
out of any funds of this corporation at the time legally available for the
declaration of dividends, dividends at the rate of 6% per annum of the par value
thereof, and no more, payable in cash annually, but only if, as and when
declared by the Board of Directors. No dividends shall be paid on common stock
in any one year unless such proffered dividend has been declared and paid
simultaneously, but said preferred dividend shall be non-cumulative.
(b) REDEMPTION
This corporation, at the option of the Board of directors, may
redeem in whole or from time to time any part of the preferred shares as
follows: Any time hereafter, the preferred shares may be redeemed in whole or in
part at par value, such sum being hereinafter sometimes referred to as the
redemption price. In case of the redemption of only a part of the preferred
shares, the Board of Directors shall effect such redemption pro rata. Such
redemption price may, at the option of the Board of Directors, be paid in cash
or in equal installments for a five-year period represented by notes of the
corporation payable at the end of each succeeding year at 6% per annum.
<PAGE> 4
(c) NOTICE OF REDEMPTION
At least thirty days previous notice by mail, postage prepaid,
shall be given to the holders of record of the preferred shares to be redeemed,
such notice to be addressed to each such shareholder at his or her post office
address as shown by the records of the corporation. On or after the date fixed
for redemption and stated in such notice, each holder of preferred shares called
for redemption shall surrender his or her certification evidencing such shares
to this corporation and shall thereupon be entitled to receive payment of the
redemption price, or notes, as the case may be. In case less than all the shares
represented by any such surrendered certificates are redeemed, a new certificate
shall be issued representing the unredeemed shares. The notices called for by
this paragraph (c) may be waived by each shareholder whose preferred shares are
to be redeemed.
If such notice or subsequent notice of redemption shall have
been duly given, and if on the date fixed for redemption funds necessary for the
redemption shall be available therefore on notes tendered, then notwithstanding
that the certificates evidencing any preferred shares so called for redemption
shall not have been surrendered, all rights with respect to the shares so called
for redemption shall forthwith after the date fixed for redemption cease and
terminate and the said shares deemed to be no longer outstanding and the holders
thereof shall cease to be shareholders with respect to such shares and shall
have no rights with respect thereto except the right to payment of the
redemption price of the shares without interest or delivery of the proceeds to
the holder of the certificates therefor. Any moneys deposited by this
corporation pursuant to this paragraph (c) and unclaimed at the end of six years
from the date fixed for redemption shall be repaid to this corporation and any
notes remaining shall be canceled.
(d) LIQUIDATION
In the event of voluntary liquidation, dissolution or winding
up of this corporation, the holders of preferred shares shall be entitled to
receive out of the assets of this corporation, whether such assets are capital
or surplus of any nature, an amount equal to one hundred percent of the par
value of such preferred shares, before any payment shall be made or any assets
distributed to the holders of common shares.
In the even of an involuntary liquidation, dissolution or
winding up of this corporation the holders of the preferred shares shall be
entitle to receive, out of the assets of this corporation, whether such assets
are capital or surplus or any nature, an amount equal to one hundred percent of
the par value of such preferred shares, before any payment shall be made or any
assets distributed to the holders of common shares.
(e) COMMON STOCK
The holders of common shares issued and outstanding, except
where otherwise provided by law or by this Certificate of Incorporation, shall
have an possess the exclusive right to notice of shareholders' meetings and the
exclusive voting rights and powers, and holders of the preferred shares shall
not be entitled to any notice of the shareholders' meetings or to vote upon the
election of directors or upon any question affecting the management or affairs
of this corporation, except where such notice or vote is required by law of by
this Certificate of Incorporation.
FIFTH: The Secretary of State is designated as agent of the
corporation upon whom process against it may be served. The post office address
within the State of New York to which the Secretary of Sate shall mail a copy of
any process against the corporation served upon him is c/o The Prentice-Hall
Corporation System, Inc., 500 Central Avenue, Albany, New York 12206-2290. The
name and the address of the registered agent of the corporation are The
Prentice-Hall Corporation System, Inc., 500 Central Avenue, Albany, New York
12206-2290. Said registered agent is to be the agent upon which process against
the corporation may be served.
<PAGE> 5
SIXTH: The office of the Corporation is to be located in the Borough
of Manhattan, County, City and State of New York.
SEVENTH: The duration of the Corporation shall be perpetual.
EIGHTH: Any and every person made a party to any action, suit or
proceeding by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that, he, his testator or intestate, is or was a
director or officer of this corporation or of any corporation which he served as
such, at the request of this corporation, will be indemnified by the corporation
to the full extent permitted by law, against any and all reasonable expenses,
including attorneys' fees, actually and necessarily incurred by him in
connection with the defense of such action or in connection with any appeal
therein, except in relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such officer or director has breached his duty
to the corporation, and that any and every person made a party to any action,
suit or proceeding other than one by or in the right of the corporation to
procure a judgment in its favor, whether civil or criminal, including an action
by or in the right of any other corporation of any type or kind, domestic or
foreign, which any director or officer of the corporation served in any capacity
at the request of the corporation, by reason of the fact that he, his testator,
or intestate, was a director or officer of the corporation, or served such other
corporation in any capacity, will be indemnified by the corporation to the full
extent permitted by law, against judgments, fines, amounts paid in settlement,
and reasonable expenses.
4. This restatement of the certificate of incorporation was
authorized by the unanimous written consent of the Board of Directors and the
Stockholders of the Corporation on August 4, 1998.
IN WITNESS WHEREOF, we have signed this certificate on the 4th of
August, 1998, and we affirm the statements contained therein as true under
penalties of perjury.
/s/ Gerald F. Cerce
--------------------------
Gerald F. Cerce, President
/s/ Duane M. DeSisto
-------------------------------------
Duane M. DeSisto, Assistant Secretary
<PAGE> 1
Exhibit 3.9.2
B Y - L A W S
OF
OPTI-RAY, INC.
ARTICLE 1.
MEETING OF STOCKHOLDERS.
Sec. l. ANNUAL MEETINGS. The annual meeting of the Stockholders shall
be held at the principal office of the Corporation, on the 2nd day of January,
of each year, at l0:00 o'clock in the fore noon of that day. If the day so
designated falls upon a Sunday or a legal holiday, then the meeting shall be
held upon the first secular day thereafter. The Secretary shall serve
personally, or send through the post office, at least ten days before such
meeting a notice thereof, addressed to each stockholder at his last known post
office address, and publish notice thereof as required by law; but at any
meeting at which all stockholders shall be present, or of which all stockholders
not present have waived notice in writing, the giving of notice as above
required may be dispensed with.
Sec. 2. QUORUM. At all meetings of stockholders, except where it is
otherwise provided by law, it shall be necessary that stockholders, representing
in person or by proxy 75% of the capital stock, shall be present to constitute a
quorum.
Sec. 3. SPECIAL MEETINGS. Special Meetings of Stockholders other than
those regulated by statute, maybe called at any time by a majority of the
Directors, upon ten days' notice to each stockholder of record, such notice to
contain a statement of
<PAGE> 2
the business to be transacted at such meeting, and to be served personally or
sent through the Post Office, addressed to each of such stockholders of record
at his last known Post Office address; but at any meeting at which all
stockholders shall be present, or of which stockholders not present have waived
notice in writing, the giving of notice as above described may be dispensed
with. The Board of Directors shall also, in like manner, call a special meeting
of stockholders whenever so requested in writing by stockholders representing
not less than one-half of the capital stock of the company. No business other
than that specified in the call for the meeting, shall be transacted at any
special meeting of the stockholders.
Sec. 4. VOTING. At all meetings of the Stockholders all questions, the
manner of deciding which is not specifically regulated by statute, shall be
determined by a majority vote of the Stockholders present in person or by proxy;
provided, however, that any qualified voter may demand a stock vote, in which
case each Stockholder present, in person or by proxy, shall be entitled to cast
one vote for each share of stock owned or represented by him. All voting shall
be viva voce, except that a stock vote shall be by ballot, each of which shall
state the name of the Stockholder voting and the number of shares owned by him,
and in addition, if such ballot be cast by proxy, the name of the proxy shall be
stated. The casting of all votes at special meetings of Stockholders shall be
governed by the provisions of the Corporation Laws of this state.
Sec. 5. ORDER OF BUSINESS. The order of business at all meetings of the
stockholders shall be as follows:
l. Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading or minutes of preceding meeting.
4. Reports of Officers.
2
<PAGE> 3
5. Reports of Committees.
6. Election of Inspectors of Election.
7. Election of Directors.
8. Unfinished Business.
9. New Business.
ARTICLE II.
D I R E C T O R S
Sec. l. NUMBER. The affairs and business of this Corporation shall be
managed by a Board of three (3) Directors, who need not be stockholders of
record, and at least one of such Directors shall be a resident of the State of
New York and a citizen of the United States.
Sec. 2. HOW ELECTED. At the annual meeting of Stockholders, the three
persons receiving 8 plurality of the votes cast shall be directors and shall
constitute the Board of Directors for the ensuing year.
Sec. 3. TERM OF OFFICE. The term of office of each of the Directors
shall be one year, and thereafter until his successor has been elected.
Sec. 4. DUTIES OF DIRECTORS. The Board of Directors shall have the
control and general management of the affairs and business of the Corporation.
Such Directors shall in all cases act as a Board, regularly convened, by a
majority and they may adopt such rules and regulations for the conduct of their
meetings and the management of the Corporation, as they may deem proper, not
inconsistent with these BY-LAWS and the Laws of the State of New York.
Sec. 5. DIRECTORS' MEETINGS. Regular meetings of the Board of Directors
shall be held immediately following the annual meeting of the Stockholders, and
at such other times as the Board of Directors may determine. Special meetings of
the
3
<PAGE> 4
Board of Directors may be called by the President at any time, and shall be
called by the President or the Secretary upon the written request of directors.
Sec. 6. NOTICE OF MEETINGS. Notice of meetings, other than the regular
annual meeting shall be given by service upon each Director in person, or by
mailing to him at his last known Post Office address, at least ten days before
the date therein designated for such meeting, including the day of mailing, of
a written or printed notice thereof specifying the time and place of such
meeting, and the business to be brought before the meeting and no business other
than that specified in such notice shall be transacted at any special meeting.
At any meeting at which every member of the Board of Directors shall be present,
although held without notice, any business may be transacted which might have
been transacted if the meeting had been duly called.
Sec. 7. QUORUM. At any meeting of the Board of Directors, a majority of
the Board shall constitute a quorum for the transaction of business; but in the
event of a quorum not being present, a less number may adjourn the meeting to
some future time, not more than five days later.
Article III.
O F F I C E R S
Sec. l. NUMBER. The officers of this Corporation shall be:
l. President.
2. Vice-President.
3. Secretary.
4. Treasurer.
5.
Sec. 2. ELECTION. All officers of the Corporation shall be elected
annually by the Board of Directors at its meeting held immediately after the
meeting of stockholders, and shall hold office for the term of one year or until
their successors are duly elected.
4
<PAGE> 5
Sec. 3. DUTIES OF OFFICERS. The duties and powers of the officers of
the Corporation shall be as follows:
PRESIDENT.
The President shall preside at all meetings of the Board of Directors
and Stockholders.
He shall present at each annual meeting of the Stockholders and
Directors a report of the condition of the business of the Corporation.
He shall cause to be called regular and special meetings of the
Stockholders and, Directors in accordance with these By-Laws.
He shall appoint and remove, employ and discharge, and fix the
compensation of all servants, agents employees and clerks of the Corporation
other than the duly appointed officers, subject to the approval of the Board of
Directors.
He shall sign and make all contracts and agreements in the name of the
Corporation, and see that they are properly carried out.
He shall see that the books, reports, statements and certificates
required by the statutes are properly kept, made and filed according to law.
He shall sign all certificates of stock, notes, drafts or bills of
exchange, warrants or other orders for the payment of money duly drawn by the
Treasurer.
He shall enforce these By-Laws and perform all the duties incident to
the position and office, and which are required by law.
VICE-PRESIDENT.
During the absence and inability of the President to render and perform
his duties or exercise his powers, as set forth in these By-Laws or in the acts
under which this Corporation is organized, the same shall be performed and
exercised by the Vice-President;
5
<PAGE> 6
and when so acting, he shall have all the powers and be subject to all
responsibilities hereby given to or imposed upon such President.
SECRETARY.
The Secretary shall keep the minutes of the meetings of the Board of
Directors and of the Stockholders in appropriate books.
He shall give and serve all notices of the Corporation.
He shall be custodian of the records and of the seal, and affix the
latter when required.
He shall keep the stock and transfer books in the manner prescribed by
law, so as to show at all times the amount of capital-stock, the manner and the
time the same was paid in, the names of the owners thereof, alphabetically
arranged, their respective places of residence, their post office addresses, the
number of shares owned by each, the time at which each person became such owner,
and the amount paid thereon; and keep such stock and transfer books open daily
during business hours at the office of the Corporation, subject to the
inspection of any Stockholder of the Corporation, and permit such Stockholder to
make extracts from said books to the extent and as prescribed by law.
He shall sign all certificates of stock.
He shall present to the Board of Directors at their stated meetings all
communications addressed to him officially by the President or any officer or
shareholder of the Corporation.
He shall attend to all correspondence and perform all the duties
incident to the office of Secretary.
TREASURER.
The Treasurer shall have the care and custody of and be responsible for
all the funds and securities of the Corporation, and deposit all such funds in
the name of the
6
<PAGE> 7
Corporation in such bank or banks, trust company or trust companies or safe
deposit vaults as the Board of Directors may designate.
He shall sign, make, and endorse in the name of the Corporation, all
checks, drafts, warrants and orders for the payment of money and pay out and
dispose of same and receipt therefor, under the direction of the President or
the Board of Directors.
He shall exhibit at all reasonable times his books and accounts to any
director or stockholder of the Corporation upon application at the office of the
Corporation during business hours.
He shall render a statement of the condition of the finances of the
Corporation at each regular meeting of the Board of Directors, and at such other
times as shall be required of him, and a full financial report, at the annual
meeting of the stockholders.
He shall keep at the office of the Corporation, correct books of
account of all its business and transactions and such other books of account as
the Board of Directors may require.
He shall do and perform all duties appertaining to the office of
Treasurer.
Sec. 4. BOND. The Treasurer shall, if required by the Board of
Directors, give to the Corporation such security for the faithful discharge of
his duties as the Board may direct.
Sec. 5. VACANCIES, HOW FILLED. All vacancies in any office, shall be
filled by the Board of Directors without undue delay, at its regular meeting, or
at a meeting specially called for that purpose.
Sec. 6. COMPENSATION OF OFFICERS. The officers shall receive such
salary or compensation as may be determined by the Board of Directors.
Sec. 7. REMOVAL OF OFFICERS. The Board of Directors may remove any
officer, by a majority vote, at any time, with or without cause.
7
<PAGE> 8
ARTICLE IV.
Sec. l. SEAL. The seal of the Corporation shall be as follows:
ARTICLE V.
CERTIFICATES OF STOCK
Sec. l. DESCRIPTION OF STOCK CERTIFICATES. The certificates of stock
shall be numbered and registered in the order in which they are issued. They
shall be bound in a book and shall be issued in consecutive order therefrom,
and in the margin thereof shall be entered the name of the person owning the
shares therein represented, with the number of shares and the date thereof. Such
certificates shall exhibit the holder's name and the number of shares. They
shall be signed by the President or Vice-President, and countersigned by the
Secretary or Treasurer and sealed with the seal of the Corporation.
Sec. 2. TRANSFER OF STOCK. The stock of the Corporation shall be
assigned and transferable on the books of the Corporation only by the person in
whose name it appears on said books, or his legal representatives. In case of
transfer by attorney, the power of attorney, duly executed and acknowledged,
shall be deposited with the Secretary. In all cases of transfer, the former
certificate must be surrendered up and canceled before a new certificate be
issued. No transfer shall be made upon the books of the Corporation within ten
days next preceding the annual meeting of the Shareholders.
8
<PAGE> 9
ARTICLE VI.
DIVIDENDS
Sec. 1. WHEN DECLARED. The Board of Directors shall by vote declare
dividends from the surplus profits of the Corporation whenever, in their
opinion, the condition of the Corporation's affairs will render it expedient for
such dividends to be declared.
ARTICLE VII.
BILLS, NOTES, ETC.
Sec. 1. HOW MADE. All bills payable, notes, checks or other negotiable
instruments of the Corporation shall be made in the name of the Corporation, and
shall be signed by such officer or officers as the Board of Directors shall from
time to time direct. No officer or agent of the Corporation, either singly or
jointly with others, shall have the power to make any bill payable, note, check,
draft or warrant or other negotiable instrument, or endorse the same in the name
of the Corporation, or contract or cause to be contracted any debt or liability
in the name or in behalf of the Corporation, except as herein expressly
prescribed and provided.
ARTICLE VIII.
AMENDMENTS.
Sec. l. HOW AMENDED. These By-Laws may be altered, amended, repealed or
added to by an affirmative vote of the stockholders representing a majority
of the whole capital stock, at an annual meeting or at a special meeting called
for that purpose, provided that a written notice shall have been sent to each
stockholder of record at his last known post office address, at least ten days
before the date of such annual or special meeting, which notice shall state the
alterations, amendments or changes which are proposed to be made in such
By-Laws. Only such changes as have been specified in the notice shall be made.
If, however, all the stockholders shall be present at any regular or
9
<PAGE> 10
special meeting, these By-Laws may be amended by a unanimous vote, without any
previous notice.
10
<PAGE> 1
Exhibit 3.10.1
CERTIFICATE OF INCORPORATION
OF
O-RAY HOLDINGS, INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purpose hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware" or the
"General Corporation Law"), hereby certifies that:
FIRST: The name of the corporation (hereinafter referred to as the
"Corporation") is:
O-Ray Holdings, Inc.
SECOND: The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 32 Loockerman
Square, Suite L-100, City of Dover, 19904, County of Kent; and the name of the
registered agent of the Corporation in the State of Delaware is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which Corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is One Thousand Five Hundred (1,500) shares, par value
$.001 per share. All such shares are of one class and are shares of Common
Stock.
FIFTH: The name and the mailing address of the incorporator is as
follows:
NAME MAILING ADDRESS
---- ---------------
Robert L. Lawrence c/o Kane Kessler, P.C.
1350 Avenue of the Americas, 26th Fl.
New York, New York 10019
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware
<PAGE> 2
may, on the application in a summary way of this Corporation or of any creditor
or stockholder thereof or on the application of any receiver or receivers
appointed for this Corporation under the provisions of Section 291 of Title 8 of
the Delaware Code or on the application of any receiver or receivers appointed
for this Corporation under Section 279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the
affairs of the Corporation shall be bested in its Board of Directors.
The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the By-Laws.
The phrase "whole Board" and the phrase "total number of directors"
shall be deemed to have the same meaning to wit, the total number of
directors which the Corporation would have if there were no vacancies.
No election of directors need be by written ballot.
2. After the original or other By-laws of the Corporation have
been adopted, amended, or repealed, as the case may be, in accordance
with the provisions of Section 109 of the General Corporation Law of
the State of Delaware, and, after the Corporation has received any
payment for any of its stock, the power to adopt, amend, or repeal the
By-laws of the Corporation may be exercised by the Board of Directors
of the Corporation; provided, however, that any provision for the
classification of Directors of the Corporation for staggered terms
pursuant to the provisions of subsection (d) of Section 141 of the
General Corporation Law of the State of Delaware shall be set forth in
an initial By-law or in a By-law adopted by the stockholders entitled
to vote of the Corporation unless provisions for such classification
shall be set forth in this Certificate of Incorporation.
3. Whenever the Corporation shall be authorized to issue only
one class of stock, each outstanding share shall entitle the holder
thereof to notice of, and the right to vote at, any meeting of
stockholders. Whenever the Corporation shall be authorized to issue
more than one class of stock, no outstanding share of any class of
stock which is denied voting power under the provisions of the
2
<PAGE> 3
certificate of incorporation shall entitle the holder thereof to the
right to vote at any meeting of stockholders except as the provisions
of paragraph (2) of subsection (b) of Section 242 of the General
Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied
voting power shall entitle the holder thereof to vote upon the increase
or decrease in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of subsection
(b) of Section 102 of the General Corporation Law of the State of Delaware, as
the same may be amended and supplemented.
TENTH: The Corporation shall, to the fullest extent permitted by the
General Corporation Law, as the same may be amended and supplemented, indemnify
any and all persons whom it shall have the power to indemnify under the General
Corporation Law from and against any and all of the expenses, liabilities or
other matters referred to in or covered by the General Corporation Law, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this Certificate
of Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on December 27, 1994.
/S/ Robert L. Lawrence
--------------------------------
ROBERT L. LAWRENCE, Incorporator
3
<PAGE> 1
Exhibit 3.10.2
BYLAWS
OF
O-RAY HOLDINGS, INC.
(a Delaware corporation)
---------------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in the
corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In the case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one class
of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the General
Corporation Law, the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated
<PAGE> 2
shares, the corporation shall send to the registered owner thereof any written
notice prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the corporation or with a transfer agent or a registrar, if any,
and, in the case of shares represented by certificates, on surrender of the
certificate or certificates for such shares of stock properly endorsed and the
payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to consent
to corporate action in writing
<PAGE> 3
without a meeting, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which date shall not be more than ten
days after the date upon which the resolution fixing the record date is adopted
by the Board of Directors. If no record date has been fixed by the Board of
Directors, the record date for determining the stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is required by the General Corporation Law, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by the General
Corporation Law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the resolution
taking such prior action. In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion, or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise required.
7. STOCKHOLDER MEETINGS
- TIME. The annual meeting shall be held on the date and at the time fixed,
from time to time, by the directors, provided, that the first annual meeting
shall be held on a date within thirteen months after the organization of the
corporation, and each successive annual meeting shall be held on a date within
thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
<PAGE> 4
- PLACE. Annual meetings and special meetings shall be held at such place,
within or without the State of Delaware, as the directors may, from time to
time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the directors
or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
<PAGE> 5
The stock ledger shall be the only evidence as to who are the stockholders
entitled to examine the stock ledger, the list required by this section or the
books of the corporation, or to vote at any meeting of stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided over
by one of the following officers in the order of seniority and if present and
acting - the Chairman of the Board, if any, the Vice-Chairman of the Board, if
any, the President, a Vice-President, or, if none of the foregoing is in office
and present and acting, by a chairman to be chosen by the stockholders. The
Secretary of the corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the Chairman of the meeting shall appoint a secretary of
the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person or
persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need not,
appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question, or matter determined by him or them and execute a
certificate of any fact found by him or them.
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holders thereof to one
vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy
<PAGE> 6
at the meeting and entitled to vote on the election of directors. Any other
action shall be authorized by a majority of the votes cast except where the
General Corporation Law prescribed a different percentage of votes and/or a
different exercise of voting power, and except as may be otherwise prescribed by
the provisions of the certificate of incorporation and these Bylaws. In the
election of directors, and for any other action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. An action required by the General
Corporation Law to be taken at any annual or special meeting of stockholders, or
any action which may be taken at any annual or special meeting of stockholders,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Action taken pursuant to this paragraph shall be subject to the provisions of
Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the corporation
shall be managed by or under the director of the Board of Directors of the
corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of 3 persons. Thereafter the number of
directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be 3. The number of
directors may be increased or decreased by action of the stockholders or of the
directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of
<PAGE> 7
directors and/or for the removal of one or more directors and for the filling of
any vacancy in that connection, newly created directorships and any vacancies in
the Board of Directors, including unfilled vacancies resulting from the removal
of directors for cause or without cause, may be filled by the vote of a majority
of the remaining directors then in office, although less than a quorum, or by
the sole remaining director.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the State
of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which the time
and place have been fixed. Special meetings may be called by or at the direction
of Chairman of the Board, if any, the Vice-Chairman of the Board, if any, of the
President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for
regular meetings for which the time and place have been fixed., Written, oral,
or any other mode of notice of the time and place shall be given for special
meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits as written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objection, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by
<PAGE> 8
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if present
and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the
Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise by provided by the General
Corporation Law, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, be resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a Secretary,
a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of
Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive
Vice-President, one or more other Vice-Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers with such
titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director. Any number of offices may be held by the
same person, as the directors may determine.
<PAGE> 9
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform such
duties in the management and operation of the corporation as shall be prescribed
in the resolutions of the Board of Directors designating and choosing such
officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Laws, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
<PAGE> 1
EXHIBIT 4.1
EXECUTION COPY
- --------------------------------------------------------------------------------
AAI.FOSTERGRANT, INC.
SERIES A AND SERIES B
10 3/4 % SENIOR NOTES DUE 2006
INDENTURE
----------
Dated as of July 21, 1998
----------
----------
IBJ Schroder Bank & Trust Company
Trustee
----------
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS-REFERENCE TABLE*
(a) TRUST INDENTURE
ACT SECTION INDENTURE SECTION
310(a)(1).............................................................. 7.10
(a)(2) ................................................................ 7.10
(a)(3)................................................................. N.A.
(a)(4)................................................................. N.A.
(a)(5)................................................................. 7.10
(i)(b)................................................................. 7.10
(ii)(c)................................................................ N.A.
311(a)................................................................. 7.11
(b).................................................................... 7.11
(iii(c)................................................................ N.A.
312(a)................................................................. 2.05
(b).................................................................... 10.02
(iv)(c)................................................................ 10.02
313(a)................................................................. 7.06
(b)(2)................................................................. 7.07
(v)(c)................................................................. 7.06
(vi)(d)................................................................ 7.06
314(a)................................................................. 4.03
(c)(1)................................................................. 10.03
(c)(2)................................................................. 10.03
(c)(3)................................................................. N.A.
(vii)(e)............................................................... 10.04
(f).................................................................... NA
315 (a)................................................................ 7.01
(b).................................................................... 7.05
(A)(c)................................................................. 7.01
(d).................................................................... 7.01
(e).................................................................... 6.11
316(a)(last sentence).................................................. 2.09
(a)(1)(A).............................................................. 6.05
(a)(1)(B).............................................................. 6.04
(a)(2)................................................................. N.A.
(b).................................................................... 6.07
(B)(c)................................................................. 2.12
317(a)(1).............................................................. 6.08
(a)(2)................................................................. 6.09
(b) ................................................................... 2.04
318(a)................................................................. 10.01
(b).................................................................... N.A.
(c).................................................................... 10.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
2
<PAGE> 3
TABLE OF CONTENTS
PAGE
----
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE....................... 1
SECTION 1.01. DEFINITIONS................................................... 1
SECTION 1.02. OTHER DEFINITIONS............................................. 14
SECTION 1.03. PROVISIONS OF THE TIA......................................... 15
SECTION 1.04. RULES OF CONSTRUCTION......................................... 15
ARTICLE 2. THE NOTES........................................................ 16
SECTION 2.01. FORM AND DATING............................................... 16
SECTION 2.02. EXECUTION AND AUTHENTICATION.................................. 17
SECTION 2.03. REGISTRAR AND PAYING AGENT.................................... 18
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST........................... 18
SECTION 2.05. HOLDER LISTS.................................................. 19
SECTION 2.06. TRANSFER AND EXCHANGE......................................... 19
SECTION 2.07. REPLACEMENT NOTES............................................. 31
SECTION 2.08. OUTSTANDING NOTES............................................. 31
SECTION 2.09. TREASURY NOTES................................................ 31
SECTION 2.10. TEMPORARY NOTES............................................... 32
SECTION 2.11. CANCELLATION.................................................. 32
SECTION 2.12. DEFAULTED INTEREST............................................ 32
ARTICLE 3. REDEMPTION AND PREPAYMENT........................................ 32
SECTION 3.01. NOTICES TO TRUSTEE............................................ 32
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED............................. 32
SECTION 3.03. NOTICE OF REDEMPTION.......................................... 33
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION................................ 34
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE................................... 34
SECTION 3.06. NOTES REDEEMED IN PART........................................ 34
SECTION 3.07. OPTIONAL REDEMPTION........................................... 34
SECTION 3.08. MANDATORY REDEMPTION.......................................... 35
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS........... 35
ARTICLE 4. COVENANTS........................................................ 36
SECTION 4.01. PAYMENT OF NOTES.............................................. 37
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY............................... 37
SECTION 4.03. REPORTS....................................................... 37
SECTION 4.04. COMPLIANCE CERTIFICATE........................................ 38
SECTION 4.05. TAXES......................................................... 38
SECTION 4.06. STAY, EXTENSION AND USURY LAWS................................ 39
SECTION 4.07. RESTRICTED PAYMENTS........................................... 39
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES................................................ 40
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF
PREFERRED STOCK............................................. 41
SECTION 4.10. ASSET SALES................................................... 43
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.................................. 44
i
<PAGE> 4
SECTION 4.12. LIENS......................................................... 45
SECTION 4.13. CORPORATE EXISTENCE........................................... 45
SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.................... 45
SECTION 4.15. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS................. 46
SECTION 4.16. LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS
IN WHOLLY OWNED SUBSIDIARIES................................ 46
SECTION 4.17. PAYMENTS FOR CONSENT.......................................... 47
SECTION 4.18. ADDITIONAL SUBSIDIARY GUARANTEES.............................. 47
ARTICLE 5. SUCCESSORS....................................................... 47
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS...................... 47
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED............................. 48
ARTICLE 6. DEFAULTS AND REMEDIES............................................ 48
SECTION 6.01. EVENTS OF DEFAULT............................................. 48
SECTION 6.02. ACCELERATION.................................................. 49
SECTION 6.03. OTHER REMEDIES................................................ 50
SECTION 6.04. WAIVER OF PAST DEFAULTS....................................... 50
SECTION 6.05. CONTROL BY MAJORITY........................................... 51
SECTION 6.06. LIMITATION ON SUITS........................................... 51
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT................. 51
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.................................... 51
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.............................. 52
SECTION 6.10. PRIORITIES.................................................... 52
SECTION 6.11. UNDERTAKING FOR COSTS......................................... 52
ARTICLE 7. TRUSTEE ......................................................... 53
SECTION 7.01. DUTIES OF TRUSTEE............................................. 53
SECTION 7.02. RIGHTS OF TRUSTEE............................................. 54
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.................................. 54
SECTION 7.04. TRUSTEE'S DISCLAIMER.......................................... 54
SECTION 7.05. NOTICE OF DEFAULTS............................................ 55
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.................... 55
SECTION 7.07. COMPENSATION AND INDEMNITY.................................... 55
SECTION 7.08. REPLACEMENT OF TRUSTEE........................................ 56
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.............................. 57
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION................................. 57
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY............. 57
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE......................... 57
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT
DEFEASANCE.................................................. 57
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE................................ 58
SECTION 8.03. COVENANT DEFEASANCE........................................... 58
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.................... 58
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE
HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS............... 60
SECTION 8.06. REPAYMENT TO COMPANY.......................................... 60
SECTION 8.07. REINSTATEMENT................................................. 60
ii
<PAGE> 5
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER................................. 61
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES........................... 61
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.............................. 61
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT........................... 63
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS............................. 63
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.............................. 63
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC............................... 63
ARTICLE 10. SUBSIDIARY GUARANTEES........................................... 63
SECTION 10.01. GUARANTEE.................................................... 64
SECTION 10.02. LIMITATION ON GUARANTOR LIABILITY............................ 64
SECTION 10.03. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE............... 65
SECTION 10.04. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS........... 65
SECTION 10.05. RELEASES FOLLOWING SALE OF ASSETS............................ 66
ARTICLE 11. MISCELLANEOUS................................................... 66
SECTION 11.01. TRUST INDENTURE ACT CONTROLS................................. 66
SECTION 11.02. NOTICES...................................................... 66
SECTION 11.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER
HOLDERS OF NOTES........................................... 68
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT........... 68
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION................ 68
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.................................. 68
SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND STOCKHOLDERS................................. 68
SECTION 11.08. GOVERNING LAW................................................ 69
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS................ 69
SECTION 11.10. SUCCESSORS................................................... 69
SECTION 11.11. SEVERABILITY................................................. 69
SECTION 11.12. COUNTERPART ORIGINALS........................................ 69
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC............................. 69
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Exhibit E FORM OF SUBSIDIARY GUARANTEE
Exhibit F FORM OF SUPPLEMENTAL INDENTURE
iii
<PAGE> 6
INDENTURE dated as of July 21, 1998 among AAi.FosterGrant, Inc., a
Rhode Island corporation (the "Company"), the guarantors listed on the signature
pages hereto (the "Guarantors") and IBJ Schroder Bank & Trust Company, as
trustee (the "Trustee").
The Company, the Guarantors and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders of
the 10 3/4 % Series A Senior Notes due 2006 (the "Series A Notes") and the
10 3/4 % Series B Senior Notes due 2006 (the "Series B Notes" and together, with
the Series A Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"144A Global Note" means a global note in the form of Exhibit A-1
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person, (i)
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, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Additional Notes" means up to $75.0 million in aggregate principal
amount of Notes (other than the Initial Notes) issued under this Indenture in
accordance with Sections 2.02 and 4.09 hereof.
"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 Stock of a Person shall be
deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange
of or for beneficial interests in any Global Note, the rules and procedures of
the Depositary, Euroclear and Cedel that apply to such transfer or exchange.
"Asset Sale" means (i) the sale, lease, 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
(provided that the sale, conveyance or other disposition of all or substantially
all of the assets of the Company and its Subsidiaries taken as a whole will be
governed by the provisions
<PAGE> 7
of Section 4.14 hereof and/or Section 5.01 hereof and not by Section 4.10
hereof, and (ii) the issue or sale by the Company or any of its Subsidiaries of
Equity Interests of any of the Company's Subsidiaries, in the case of either
clause (i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $1.0 million or (b)
for net proceeds in excess of $1.0 million. Notwithstanding the foregoing, the
following items shall not be deemed to be Asset Sales: (i) a transfer of assets
by the Company to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to
the Company or to another Wholly Owned Subsidiary, (ii) an issuance of Equity
Interests by a Wholly Owned Subsidiary to the Company or to another Wholly Owned
Subsidiary, and (iii) a Restricted Payment that is permitted by Section 4.07
hereof.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company, or
any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"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 (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) 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 (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof (provided that the full
faith and credit of the United States is pledged in support thereof) having
maturities of not more than six months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any lender party to the Senior Credit Facility or with any domestic
commercial bank having capital and surplus in excess of $500.0 million and a
Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Corporation and in each case maturing within
six months after the date of acquisition and (vi) money market funds at least
95% of the assets of which constitute Cash Equivalents of the kinds described in
clauses (i)--(v) of this definition.
2
<PAGE> 8
"Cedel" means Cedel Bank, SA.
"Change of Control" means the occurrence of any of the following: (i)
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 a Principal or a Related Party; (ii) the adoption of a plan
relating to the liquidation or dissolution of the Company; (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above) other
than the Principals, their Related Parties or a Permitted Group becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition), directly or indirectly, of more than 35% of the
Voting Stock of the Company (measured by voting power rather than number of
shares); or (iv) the first day on which a majority of the members of the Board
of Directors of the Company are not Continuing Directors.
"Company" means AAi.FosterGrant, Inc., and any and all successors
thereto.
"Consolidated Assets" means, with respect to any Person as of any date,
the total assets of such Person and its consolidated Subsidiaries as of such
date, calculated on a consolidated basis in accordance with GAAP.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) 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), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was deducted in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its 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, noncash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
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 (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other noncash expenses (excluding any such noncash expense to the extent that it
represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense 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 noncash expenses were deducted in computing
such Consolidated Net Income, plus (v) Restructuring Charges, minus (vi) noncash
items increasing such Consolidated Net Income for such period (other than items
that were accrued in the ordinary course of business), in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other noncash expenses of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent that a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Subsidiary without prior governmental approval (that has not been obtained), and
3
<PAGE> 9
without direct or indirect restriction pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its shareholders.
"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;
provided that (i) the Net Income (but not loss) of any Person that is not a
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 Wholly Owned Subsidiary thereof, (ii) the Net
Income of any Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that 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
Subsidiary or its shareholders, (iii) 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 (iv) the cumulative effect of a change in
accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common shareholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (a) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of this Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (b)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments) and (c)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of this Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Credit Facilities" means, with respect to the Company or a Foreign
Subsidiary, one or more debt facilities (including, without limitation, the
Senior Credit Facility) or commercial paper facilities, in each case 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 date on which Notes are
first issued and authenticated under this Indenture shall be deemed to have been
incurred on such date in reliance on the exception provided by clause (i) of
Section 4.09(b) hereof.
4
<PAGE> 10
"Custodian" means the Trustee, as custodian with respect to the Notes
in global form, or any successor entity thereto.
"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.
"Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof, in the
form of Exhibit A-1 hereto except that such Note shall not bear the Global Note
Legend and shall not have the "Schedule of Exchanges of Interests in the Global
Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"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, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is 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 any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require the Company to repurchase such Capital Stock
upon the occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with Section 4.07 hereof.
"Domestic Subsidiary" means, with respect to the Company, any
Subsidiary of the Company that was formed under the laws of the United States of
America or that guarantees or otherwise provides credit support for any
Indebtedness of the Company.
"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).
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the Notes issued in the Exchange Offer pursuant
to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in
the Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Senior Credit Facility) in
existence on the date of this Indenture (calculated
5
<PAGE> 11
in the case of contingent Indebtedness on the basis of the maximum amount due
under agreements existing as of the date of this Indenture), until such
Indebtedness is repaid.
"Existing Leases" means (i) that certain Lease effective January 1,
1998 by and between Sunrise Properties LLC and the Company, covering the
premises at 4 Warren Avenue, North Providence, Rhode Island; (ii) that certain
Lease effective January 1, 1998 by and between 299 Carpenter Street Associates,
LLC and the Company, covering the premises located at 299 Carpenter Street,
Providence, Rhode Island; and (iii) that certain Standard Net Commercial Lease
dated December 11, 1996, by and between Foster Grant Group L.P. and OCR
Management Corporation, covering the Texas Property.
"Fantasma Agreement" means and includes that certain Member Agreement
dated as of June 23, 1998 by and among the Company, Roger D. Dreyer and Houdini
Capital LTD and that certain Member Agreement dated as of June 23, 1998 by and
between the Company and Paul Michaels.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) the consolidated interest expense of such
Person and its 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, imputed interest with respect to Attributable Debt,
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) and (ii) the consolidated interest expense of such
Person and its Subsidiaries that was capitalized during such period, and (iii)
any interest expense on Indebtedness of another Person that is Guaranteed by
such Person or one of its Subsidiaries or secured by a Lien on assets of such
Person or one of its Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (a) all dividend payments, whether or not
in cash, on any series of preferred stock of such Person or any of its
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company (other than Disqualified Stock) or to the
Company or a Subsidiary 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 Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
referent Person or any of its Subsidiaries incurs, assumes, Guarantees 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 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. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
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 Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the definition
of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be
6
<PAGE> 12
excluded, and (iii) 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.
"Foreign Subsidiary" means any Subsidiary of the Company that is not a
Domestic Subsidiary.
"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 this Indenture.
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A-1 hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.
"Global Note Legend" means the legend set forth in Section 2.06(g)(ii)
hereof, which is required to be placed on all Global Notes issued under this
Indenture.
"Government Securities" means direct Obligations of, or Obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"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, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantors" means (i) each current and future Domestic Subsidiary of
the Company and (ii) any other Subsidiary of the Company that executes a
Subsidiary Guarantee in accordance with the provisions of this Indenture, and
their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or currency exchange rates.
"Holder" means a Person in whose name a Note is registered.
"IAI Global Note" means the global Note in the form of Exhibit A-1
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold to Institutional Accredited Investors.
"Indebtedness" means, with respect to any Person, (i) any indebtedness
of such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an
7
<PAGE> 13
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, (ii) 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 (iii) 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 (i) the accreted value thereof, in the case of any
Indebtedness issued with original issue discount, and (ii) the principal amount
thereof, together with any interest thereon that is more than 30 days past due,
in the case of any other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.
"Initial Notes" means $75,000,000 in aggregate principal amount of
Notes issued under this Indenture on the date hereof.
"Initial Purchasers" means NationsBanc Montgomery Securities LLC,
Prudential Securities Incorporated and BancBoston Securities Inc.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who is not also a QIB.
"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 and
advances to customers in the ordinary course of business that are recorded as
accounts receivable of the lender), 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 Subsidiary of the
Company sells or otherwise disposes of any Equity Interests of any direct or
indirect Subsidiary of the Company such that, after giving effect to any such
sale or disposition, such Person is no longer a 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
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of Section 4.07 hereof.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
"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
8
<PAGE> 14
in the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"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, (i) 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
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary gain (but not loss), together with any related provision
for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its 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
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-U.S. Person" means a Person who is not a U.S. Person.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of
Section 11.05 hereof. The counsel may be an employee of or counsel to the
Company, any Subsidiary of the Company or the Trustee.
"Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).
9
<PAGE> 15
"Permitted Group" means, at any time prior to an initial public
offering of common stock of the Company, any group of investors that is deemed
to be a "person" (as such term is used in Section 13(d)(3) of the Exchange Act)
by virtue of the Shareholders Agreement, as the same may be amended, modified or
supplemented from time to time; provided that no single Person (together with
its Affiliates), other than the Principals and their Related Parties, is the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is currently exercisable or is exercisable only upon the occurrence
of a subsequent condition, and beneficial ownership shall be determined without
regard to the Shareholders Agreement, as the same may be amended, modified or
supplemented from time to time), directly or indirectly, of more than 50% of the
Voting Stock of the Company (measured by voting power rather than number of
shares) that is "beneficially owned" (as defined above) by such Permitted Group.
"Permitted Investments" means (a) any Investment in the Company, in a
Wholly Owned Subsidiary or in a Guarantor; (b) any Investment in Cash
Equivalents; (c) any Investment by the Company or any Subsidiary of the Company
in a Person, if as a result of such Investment (i) such Person becomes a
Guarantor or a Wholly Owned Subsidiary or (ii) 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 Guarantor or a
Wholly Owned Subsidiary; (d) any Investment made as a result of the receipt of
noncash consideration from an Asset Sale that was made pursuant to and in
compliance with Section 4.10 hereof; (e) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock) of
the Company; (f) other Investments in Subsidiaries of the Company that are not
Guarantors having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (f)
that are at the time outstanding, not to exceed 10% of the Company's
Consolidated Assets on the date of such Investment; (g) Investments existing on
the date of this Indenture; (h) receivables owing to the Company or any
Subsidiary of the Company if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms;
provided that such trade terms may include concessionary terms as the Company of
such Subsidiary deems reasonable under the circumstances; (i) loans or advances
to employees permitted by clause (v) of Section 4.11 hereof; (j) stock
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any of its Subsidiaries
or in satisfaction of judgments; and (k) other Investments in any Person having
an aggregate fair market value (measured on the date each such Investment was
made and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (k) that are at
the time outstanding, not to exceed $5.0 million.
"Permitted Liens" means (i) Liens on assets of the Company or any of
the Guarantors or Foreign Subsidiaries securing obligations of such Persons
under Credit Facilities that was permitted by the terms of this Indenture to be
incurred; (ii) Liens in favor of the Company; (iii) Liens on property of a
Person existing at the time such Person is merged with or into or consolidated
with the Company or any Subsidiary of the Company; provided that such Liens were
in existence prior to the contemplation of such merger or consolidation and do
not extend to any assets other than those of the Person merged into or
consolidated with the Company; (iv) Liens on property existing at the time of
acquisition thereof by the Company or any Subsidiary of the Company, provided
that such Liens were in existence prior to the contemplation of such
acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens to secure Indebtedness
(including Capital Lease Obligations) permitted by Section 4.09(b)(iv) hereof
covering only the assets acquired with such Indebtedness; (vii) Liens existing
on the date of this
10
<PAGE> 16
Indenture; (viii) Liens on the Smithfield Property incurred in connection with a
sale and leaseback transaction permitted under the terms of this Indenture; (ix)
Liens for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (x) Liens to secure Permitted Refinancing Indebtedness,
provided that such Liens extend only to the assets that secured the Indebtedness
refinanced with the proceeds of such Permitted Refinancing Indebtedness; (xi)
statutory Liens of landlords and Liens of carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen and other Liens imposed by law incurred in the
ordinary course of business for sums not delinquent 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; (xii) Liens securing
Hedging Obligations; (xiii) easements, rights-of-way, municipal and zoning
ordinances and similar charges, encumbrances, title defects or other
irregularities that do not materially interfere with the ordinary course of
business of the Company and its Subsidiaries; (xiv) Liens on assets of
Subsidiaries securing Indebtedness of such persons that was permitted by the
terms of this Indenture to be incurred; and (xv) Liens incurred in the ordinary
course of business of the Company or any Subsidiary of the Company with respect
to obligations that do not exceed $5.0 million at any one time outstanding.
"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, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries (other than intercompany
Indebtedness); provided that: (i) 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 extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date 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, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
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 (iv) such Indebtedness is incurred either by
the Company or by the Subsidiary that is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
"Principals" means Gerald F. Cerce, John H. Flynn, Jr., Robert V. Lallo
and Felix A. Porcaro, Jr.
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) hereof to be placed on all Notes issued under this Indenture except
where otherwise permitted by the provisions of this Indenture.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
11
<PAGE> 17
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of July 21, 1998, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time and, with respect to any Additional
Notes, one or more registration rights agreements between the Company and the
other parties thereto, as such agreement(s) may be amended, modified or
supplemented from time to time, relating to rights given by the Company to the
purchasers of Additional Notes to register such Additional Notes under the
Securities Act.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Note" means a Regulation S Temporary Global Note
or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global Note in
the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global Note in
the form of Exhibit A-2 hereto bearing the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee, issued in a denomination equal to the outstanding principal amount
of the Notes initially sold in reliance on Rule 903 of Regulation S.
"Related Party" with respect to any Principal means (i) any controlling
shareholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (ii) any trust,
corporation, partnership or other entity, the beneficiaries, shareholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (i).
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private
Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Period" means the 40-day restricted period as defined in
Regulation S.
"Restructuring Charges" means any charges or write-offs associated with
the discontinuance of operations at the Company's Texas Property less any tax
benefit received from any
12
<PAGE> 18
such charge being deducted from the taxable income of the Company or any of its
Subsidiaries; provided, however, that such charges or write-offs are charged
within 12 months of the date of this Indenture and the maximum amount of charges
that may be treated as "Restructuring Charges" shall be $2.6 million.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Facility" means that certain Amended and Restated
Financing and Security Agreement, dated as of May 9, 1997, by and among the
Company, certain of its Subsidiaries, NationsBank, N.A., as agent, and the other
lenders party thereto, as amended by the Second Amended and Restated Financing
and Security Agreement, dated as of the date hereof, by and among the Company,
its existing Domestic Subsidiaries and NationsBank, N.A., as agent and the other
lenders party thereto, providing for up to $60.0 million of revolving credit
borrowings, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, modified, renewed, refunded, replaced or refinanced from time to time.
"Shareholders Agreement" means the Tag-Along, Transfer Restriction and
Voting Agreement dated as of December 11, 1996, as amended, among the Company
and the shareholders and option holders party thereto.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"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
hereof.
"Smithfield Property" means the real property and fixtures located at
500 George Washington Highway, Smithfield, Rhode Island, which are used by the
Company as an office and distribution facility.
"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.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or
13
<PAGE> 19
trustees 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 (ii) 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 Guarantee" means the Guarantee by each Guarantor of the
Company's payment obligations under this Indenture and the Notes, executed
pursuant to the provisions of this Indenture.
"Texas Property" means the real property and fixtures located at Valley
View Lane, Farmers Branch, Texas, which are leased by the Company.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Global Note" means a permanent global Note in the form of
Exhibit A-1 attached hereto that bears the Global Note Legend and that has the
"Schedule of Exchanges of Interests in the Global Note" attached thereto, and
that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Definitive Note" means one or more Definitive Notes that
do not bear and are not required to bear the Private Placement Legend.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"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 (i) 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 (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
14
<PAGE> 20
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined in
Term Section
<S> <C>
"Affiliate Transaction"......................................... 4.11
"Asset Sale Offer".............................................. 3.09
"Authentication Order".......................................... 2.02
"Change of Control Offer"....................................... 4.14
"Change of Control Payment"..................................... 4.14
"Change of Control Payment Date" ............................... 4.14
"Covenant Defeasance"........................................... 8.03
"Event of Default".............................................. 6.01
"Excess Proceeds"............................................... 4.10
"incur"......................................................... 4.09
"Legal Defeasance".............................................. 8.02
"Offer Amount".................................................. 3.09
"Offer Period".................................................. 3.09
"Paying Agent".................................................. 2.03
"Payment Default"............................................... 6.01
"Permitted Debt"................................................ 4.09
"Purchase Date"................................................. 3.09
"Registrar"..................................................... 2.03
"Restricted Payments"........................................... 4.07
</TABLE>
SECTION 1.03 PROVISIONS OF THE TIA.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes and the Subsidiary Guarantees means the Company
and the Guarantors, respectively, and any successor obligor upon the Notes and
the Subsidiary Guarantees, respectively.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
15
<PAGE> 21
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) references to sections of or rules under the
Securities Act shall be deemed to include substitute, replacement of
successor sections or rules adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
SECTION 2.01. FORM AND DATING.
(a) General. The Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A-1 hereto. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Note shall be dated the date of its authentication.
The Notes shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company, the
Guarantors and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby. However,
to the extent any provision of any Note conflicts with the express provisions of
this Indenture, the provisions of this Indenture shall govern and be
controlling.
(b) Global Notes. Notes issued in global form shall be
substantially in the form of Exhibit A-1 attached hereto (including the Global
Note Legend thereon and the "Schedule of Exchanges of Interests in the Global
Note" attached thereto). Notes issued in definitive form shall be substantially
in the form of Exhibits A-1 or A-2 attached hereto (but without the Global Note
Legend thereon and without the "Schedule of Exchanges of Interests in the Global
Note" attached thereto). Each Global Note shall represent such of the
outstanding Notes as shall be specified therein and each shall provide that it
shall represent the aggregate principal amount of outstanding Notes from time to
time endorsed thereon and that the aggregate principal amount of outstanding
Notes represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Note to reflect the amount of any increase or decrease in the aggregate
principal amount of outstanding Notes represented thereby shall be made by the
Trustee or the Note Custodian, at the direction of the Trustee, in accordance
with instructions given by the Holder thereof as required by Section 2.06
hereof.
(c) Temporary Global Notes. Notes offered and sold in reliance on
Regulation S shall be issued initially in the form of the Regulation S Temporary
Global Note, which shall be deposited on behalf of the purchasers of the Notes
represented thereby with the Trustee, at its New York office, as custodian for
the Depositary, and registered in the name of the Depositary or the nominee of
the Depositary for the accounts of designated agents holding on behalf of
Euroclear or Cedel Bank, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The Restricted
16
<PAGE> 22
Period shall be terminated upon the receipt by the Trustee of (i) a written
certificate from the Depositary, together with copies of certificates from
Euroclear and Cedel Bank certifying that they have received certification of
non-United States beneficial ownership of 100% of the aggregate principal amount
of the Regulation S Temporary Global Note (except to the extent of any
beneficial owners thereof who acquired an interest therein during the Restricted
Period pursuant to another exemption from registration under the Securities Act
and who will take delivery of a beneficial ownership interest in a 144A Global
Note or an IAI Global Note bearing a Private Placement Legend, all as
contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers' Certificate
from the Company. Following the termination of the Restricted Period, beneficial
interests in the Regulation S Temporary Global Note shall be exchanged for
beneficial interests in Regulation S Permanent Global Notes pursuant to the
Applicable Procedures. Simultaneously with the authentication of Regulation S
Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary
Global Note. The aggregate principal amount of the Regulation S Temporary Global
Note and the Regulation S Permanent Global Notes may from time to time be
increased or decreased by adjustments made on the records of the Trustee and the
Depositary or its nominee, as the case may be, in connection with transfers of
interest as hereinafter provided.
d) Euroclear and Cedel Procedures Applicable. The provisions of
the "Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in the Regulation S Temporary Global Note and the
Regulation S Permanent Global Notes that are held by Participants through
Euroclear or Cedel Bank.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Notes and may
be in facsimile form.
If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers (an "Authentication Order"), authenticate Notes for original issue up
to the aggregate principal amount stated in paragraph 4 of the Notes, plus up to
$75.0 million of Additional Notes issued pursuant to this Section 2.02 and
Section 4.09 hereof. The aggregate principal amount of Notes outstanding at any
time may not exceed such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be
17
<PAGE> 23
presented for payment ("Paying Agent"). The Registrar shall keep a register of
the Notes and of their transfer and exchange. The Company may appoint one or
more co-registrars and one or more additional paying agents. The term
"Registrar" includes any co-registrar and the term "Paying Agent" includes any
additional paying agent. The Company may change any Paying Agent or Registrar
without notice to any Holder. The Company shall notify the Trustee in writing of
the name and address of any Agent not a party to this Indenture. If the Company
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such. The Company or any of its Subsidiaries may act as
Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Custodian with respect to the Global Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
will promptly notify the Trustee of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, and premium,
interest and Liquidated Damages, if any, on any Note and remaining unclaimed for
two years after such principal, and premium, interest and Liquidated Damages, if
any, has become due and payable shall be paid to the Company on its request or
(if then held by the Company) shall be discharged from such trust; and the
Holder of such Note shall thereafter, as an unsecured creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times
(national edition) and The Wall Street Journal (national edition), notice that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such notification or
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in
18
<PAGE> 24
writing, a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of the Holders of Notes and the Company shall
otherwise comply with TIA ss. 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes. A Global Note may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, the Depositary or any such nominee to a successor
Depositary or a nominee of such successor Depositary. All Global Notes shall be
exchanged by the Company for Definitive Notes if (i) the Company delivers to the
Trustee notice from the Depositary that it is unwilling or unable to continue to
act as Depositary or that it is no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by the
Company within 120 days after the date of such notice from the Depositary or
(ii) the Company in its sole discretion determines that the Global Notes (in
whole but not in part) should be exchanged for Definitive Notes and delivers a
written notice to such effect to the Trustee; provided that in no event shall
the Regulation S Temporary Global Note be exchanged by the Company for
Definitive Notes prior to (x) the expiration of the Restricted Period and (y)
the receipt by the Registrar of any certificates required pursuant to Rule
903(c)(3)(ii)(B) under the Securities Act. Upon the occurrence of either of the
preceding events in (i) or (ii) above, Definitive Notes shall be issued in such
names as the Depositary shall instruct the Trustee. Global Notes also may be
exchanged or replaced, in whole or in part, as provided in Sections 2.07 and
2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu
of, a Global Note or any portion thereof, pursuant to this Section 2.06 or
Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form
of, and shall be, a Global Note. A Global Note may not be exchanged for another
Note other than as provided in this Section 2.06(a), however, beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.06(b),(c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global
Notes. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions of
this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global
Note. Beneficial interests in any Restricted Global Note may be
transferred to Persons who take delivery thereof in the form of a
beneficial interest in the same Restricted Global Note in accordance
with the transfer restrictions set forth in the Private Placement
Legend; provided, however, that prior to the expiration of the
Restricted Period, transfers of beneficial interests in the Temporary
Regulation S Global Note may not be made to a U.S. Person or for the
account or benefit of a U.S. Person (other than an Initial Purchaser).
Beneficial interests in any Unrestricted Global Note may be transferred
to Persons who take delivery thereof in the form of a beneficial
interest in an Unrestricted Global Note. No written orders or
instructions shall be required to be delivered to the Registrar to
effect the transfers described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial
Interests in Global Notes. In connection with all transfers and
exchanges of beneficial interests that are not subject to Section
2.06(b)(i) above, the transferor of such beneficial interest must
deliver to the Registrar either (A) (1)
19
<PAGE> 25
a written order from a Participant or an Indirect Participant given to
the Depositary in accordance with the Applicable Procedures directing
the Depositary to credit or cause to be credited a beneficial interest
in another Global Note in an amount equal to the beneficial interest to
be transferred or exchanged and (2) instructions given in accordance
with the Applicable Procedures containing information regarding the
Participant account to be credited with such increase or (B) (1) a
written order from a Participant or an Indirect Participant given to
the Depositary in accordance with the Applicable Procedures directing
the Depositary to cause to be issued a Definitive Note in an amount
equal to the beneficial interest to be transferred or exchanged and (2)
instructions given by the Depositary to the Registrar containing
information regarding the Person in whose name such Definitive Note
shall be registered to effect the transfer or exchange referred to in
(1) above; provided that in no event shall Definitive Notes be issued
upon the transfer or exchange of beneficial interests in the Regulation
S Temporary Global Note prior to (x) the expiration of the Restricted
Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903 under the Securities Act. Upon
consummation of an Exchange Offer by the Company in accordance with
Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii)
shall be deemed to have been satisfied upon receipt by the Registrar of
the instructions contained in the Letter of Transmittal delivered by
the Holder of such beneficial interests in the Restricted Global Notes.
Upon satisfaction of all of the requirements for transfer or exchange
of beneficial interests in Global Notes contained in this Indenture and
the Notes or otherwise applicable under the Securities Act, the Trustee
shall adjust the principal amount of the relevant Global Note(s)
pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another
Restricted Global Note. A beneficial interest in any Restricted Global
Note may be transferred to a Person who takes delivery thereof in the
form of a beneficial interest in another Restricted Global Note if the
transfer complies with the requirements of Section 2.06(b)(ii) above
and the Registrar receives the following:
(A) if the transferee will take delivery in the
form of a beneficial interest in the 144A Global Note, then
the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (1)
thereof;
(B) if the transferee will take delivery in the
form of a beneficial interest in the Regulation S Temporary
Global Note or the Regulation S Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (2) thereof; and
(C) if the transferee will take delivery in the
form of a beneficial interest in the IAI Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications and certificates and an
Opinion of Counsel required by item (3) thereof, if
applicable.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in the Unrestricted
Global Note. A beneficial interest in any Restricted Global Note may be
exchanged by any holder thereof for a beneficial interest in an
Unrestricted Global Note or transferred to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note if the exchange or transfer complies with the requirements of
Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the
Registration Rights Agreement and the holder of the beneficial
20
<PAGE> 26
interest to be transferred, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution
of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement or pursuant to any other
effective registration statement under the Securities Act and
a certificate to the effect set forth in Exhibit B hereto is
received by the Registrar;
(C) such transfer is effected by a Restricted
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global Note proposes to
exchange such beneficial interest for a beneficial
interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(a)
thereof; or
(2) if the holder of such beneficial
interest in a Restricted Global Note proposes to
transfer such beneficial interest to a Person who
shall take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (4)
thereof;
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable
to the Registrar to the effect that such exchange or transfer
is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be exchanged
for, or transferred to Persons who take delivery thereof in the form of, a
beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive
Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a Restricted Global
Note proposes to exchange such beneficial interest for a Restricted Definitive
Note or to transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Restricted Definitive Note, then, upon receipt by the
Registrar of the following documentation:
21
<PAGE> 27
(A) if the holder of such beneficial interest in
a Restricted Global Note proposes to exchange such beneficial
interest for a Restricted Definitive Note, a certificate from
such holder in the form of Exhibit C hereto, including the
certifications in item (2)(a) thereof;
(B) if such beneficial interest is being
transferred to a QIB in accordance with Rule 144A, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (1) thereof;
(C) if such beneficial interest is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904, a certificate to the
effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof;
(D) if such beneficial interest is being
transferred pursuant to an exemption from the registration
requirements of the Securities Act in accordance with Rule
144, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being
transferred to an Institutional Accredited Investor in
reliance on an exemption from the registration requirements of
the Securities Act other than those listed in subparagraphs
(B) through (D) above, a certificate to the effect set forth
in Exhibit B hereto, including the certifications,
certificates and an Opinion of Counsel required by item (3)
thereof, if applicable;
(F) if such beneficial interest is being
transferred to the Company or any of its Subsidiaries, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(b) thereof; or
(G) if such beneficial interest is being
transferred pursuant to an effective registration statement
under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to Section
2.06(h) hereof, and the Company shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions a
Definitive Note in the appropriate principal amount. Any Definitive
Note issued in exchange for a beneficial interest in a Restricted
Global Note pursuant to this Section 2.06(c)(i) shall be registered in
such name or names and in such authorized denomination or denominations
as the holder of such beneficial interest shall instruct the Registrar
through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such Definitive Notes
to the Persons in whose names such Notes are so registered. Any
Definitive Note issued in exchange for a beneficial interest in a
Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear
the Private Placement Legend and shall be subject to all restrictions
on transfer contained therein.
(ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not be
exchanged for a Definitive Note or transferred to a Person who takes delivery
thereof in the form of a Definitive Note prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule
22
<PAGE> 28
903(c)(3)(ii)(B) under the Securities Act, except in the case of a transfer
pursuant to an exemption from the registration requirements of the Securities
Act other than Rule 903 or Rule 904.
(iii) Beneficial Interests in Restricted Global Notes to
Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted
Global Note may exchange such beneficial interest for an Unrestricted Definitive
Note or may transfer such beneficial interest to a Person who takes delivery
thereof in the form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement and
the holder of such beneficial interest, in the case of an exchange, or
the transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a Person
who is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement or pursuant to any other effective registration statement and
a certificate to the effect set forth in Exhibit B hereto is received
by the Registrar;
(C) such transfer is effected by a Restricted
Broker-Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in
a Restricted Global Note proposes to exchange such beneficial
interest for a Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in the form
of Exhibit C hereto, including the certifications in
item (1)(b) thereof; or
(2) if the holder of such beneficial interest in
a Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the
form of a Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in the form
of Exhibit B hereto, including the certifications in item (4)
thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar so
requests or if the Applicable Procedures so require, an Opinion of Counsel in
form reasonably acceptable to the Registrar to the effect that such exchange or
transfer is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no longer
required in order to maintain compliance with the Securities Act.
(iv) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any holder of a beneficial interest in an
Unrestricted Global Note proposes to exchange such beneficial interest for a
Definitive Note or to transfer such beneficial interest to a Person who takes
delivery thereof in the form of a Definitive Note, then, upon satisfaction of
the conditions set forth in Section 2.06(b)(iii) hereof, the Trustee shall cause
the aggregate principal amount of the applicable
23
<PAGE> 29
Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and
the Company shall execute and the Trustee shall authenticate and deliver to the
Person designated in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(iv) shall be registered in such name
or names and in such authorized denomination or denominations as the holder of
such beneficial interest shall instruct the Registrar through instructions from
the Depositary and the Participant or Indirect Participant. The Trustee shall
deliver such Definitive Notes to the Persons in whose names such Notes are so
registered. Any Definitive Note issued in exchange for a beneficial interest
pursuant to this Section 2.06(c)(iv) shall not bear the Private Placement
Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial
Interests.
(i) Restricted Definitive Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes
to exchange such Note for a beneficial interest in a Restricted Global Note or
to transfer such Restricted Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in a Restricted Global Note, then,
upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note
proposes to exchange such Note for a beneficial interest in a
Restricted Global Note, a certificate from such Holder in the form of
Exhibit C hereto, including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being
transferred to a QIB in accordance with Rule 144A, a certificate to the
effect set forth in Exhibit B hereto, including the certifications in
item (1) thereof;
(C) if such Restricted Definitive Note is being
transferred to a Non-U.S. Person in an offshore transaction in
accordance with Rule 903 or Rule 904, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (2)
thereof;
(D) if such Restricted Definitive Note is being
transferred pursuant to an exemption from the registration requirements
of the Securities Act in accordance with Rule 144, a certificate to the
effect set forth in Exhibit B hereto, including the certifications in
item (3)(a) thereof;
(E) if such Restricted Definitive Note is being
transferred to an Institutional Accredited Investor in reliance on an
exemption from the registration requirements of the Securities Act
other than those listed in subparagraphs (B) through (D) above, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications, certificates and an Opinion of Counsel required by item
(3) thereof, if applicable;
(F) if such Restricted Definitive Note is being
transferred to the Company or any of its Subsidiaries, a certificate to
the effect set forth in Exhibit B hereto, including the certifications
in item (3)(b) thereof; or
24
<PAGE> 30
(G) if such Restricted Definitive Note is being
transferred pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or cause to be
increased the aggregate principal amount of, in the case of clause (A) above,
the appropriate Restricted Global Note, in the case of clause (B) above, the
144A Global Note, in the case of clause (C) above, the Regulation S Global Note,
and in all other cases, the IAI Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange
such Note for a beneficial interest in an Unrestricted Global Note or transfer
such Restricted Definitive Note to a Person who takes delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement and
the Holder, in the case of an exchange, or the transferee, in the case
of a transfer, certifies in the applicable Letter of Transmittal that
it is not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an affiliate
(as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement or pursuant to any other effective registration statement and
a certificate to the effect set forth in Exhibit B hereto is received
by the Registrar;
(C) such transfer is effected by a Restricted
Broker-Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes
proposes to exchange such Notes for a beneficial interest in
the Unrestricted Global Note, a certificate from such Holder
in the form of Exhibit C hereto, including the certifications
in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes
proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of a beneficial interest in the
Unrestricted Global Note, a certificate from such Holder in
the form of Exhibit B hereto, including the certifications in
item (4) thereof;
and, in each such case set forth in this subparagraph (D), if
the Registrar so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable
to the Registrar to the effect that such exchange or transfer
is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
25
<PAGE> 31
Upon satisfaction of the conditions of any of the subparagraphs in this Section
2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase or cause
to be increased the aggregate principal amount of the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests
in Unrestricted Global Notes. A Holder of an Unrestricted Definitive
Note may exchange such Note for a beneficial interest in an
Unrestricted Global Note or transfer such Definitive Notes to a Person
who takes delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note at any time. Upon receipt of a request for
such an exchange or transfer, the Trustee shall cancel the applicable
Unrestricted Definitive Note and increase or cause to be increased the
aggregate principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a beneficial
interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above
at a time when an Unrestricted Global Note has not yet been issued, the Company
shall issue and, upon receipt of an Authentication Order in accordance with
Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted
Global Notes in an aggregate principal amount equal to the principal amount of
Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive
Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance
with the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by his attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this
Section 2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive
Notes. Any Restricted Definitive Note may be transferred to and
registered in the name of Persons who take delivery thereof in the form
of a Restricted Definitive Note if the Registrar receives the
following:
(A) if the transfer will be made pursuant to
Rule 144A, then the transferor must deliver a certificate in
the form of Exhibit B hereto, including the certifications in
item (1) thereof;
(B) if the transfer will be made pursuant to
Rule 903 or Rule 904, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof; and
(C) if the transfer will be made pursuant to any
other exemption from the registration requirements of the
Securities Act, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications,
certificates and an Opinion of Counsel required by item (3)
thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted
Definitive Notes. Any Restricted Definitive Note may be exchanged by
the Holder thereof for an Unrestricted Definitive Note or transferred
to a Person or Persons who take delivery thereof in the form of an
Unrestricted Definitive Note if:
26
<PAGE> 32
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with the
Registration Rights Agreement and the Holder, in the case of
an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is
not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to
the Shelf Registration Statement in accordance with the
Registration Rights Agreement or pursuant to any other
effective registration statement and a certificate to the
effect set forth in Exhibit B hereto is received by the
Registrar;
(C) any such transfer is effected by a
Restricted Broker-Dealer pursuant to the Exchange Offer
Registration Statement in accordance with the Registration
Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted
Definitive Notes proposes to exchange such Notes for
an Unrestricted Definitive Note, a certificate from
such Holder in the form of Exhibit C hereto,
including the certifications in item (1)(d) thereof;
or
(2) if the Holder of such Restricted
Definitive Notes proposes to transfer such Notes to a
Person who shall take delivery thereof in the form of
an Unrestricted Definitive Note, a certificate from
such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph
(D), if the Registrar so requests, an Opinion of
Counsel in form reasonably acceptable to the Company
to the effect that such exchange or transfer is in
compliance with the Securities Act and that the
restrictions on transfer contained herein and in the
Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted
Definitive Notes. A Holder of Unrestricted Definitive Notes may
transfer such Notes to a Person who takes delivery thereof in the form
of an Unrestricted Definitive Note. Upon receipt of a request to
register such a transfer, the Registrar shall register the Unrestricted
Definitive Notes pursuant to the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) they are not
broker-dealers, (y) they are not participating in a distribution of the Exchange
Notes and (z) they are not affiliates (as defined in Rule 144) of the Company,
and accept for exchange in the Exchange Offer and (ii) Definitive Notes in an
aggregate principal amount equal to the principal amount of the Restricted
Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with
the issuance of such Notes, the Trustee shall cause the aggregate principal
amount of the applicable
27
<PAGE> 33
Restricted Global Notes to be reduced accordingly, and the Company shall execute
and the Trustee shall authenticate and deliver to the Persons designated by the
Holders of Definitive Notes so accepted Definitive Notes in the appropriate
principal amount.
(g) Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B)
below, each Global Note and each Definitive Note (and all
Notes issued in exchange therefor or substitution thereof)
shall bear the legend in substantially the following form:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN
ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (SUBJECT TO THE DELIVERY OF
SUCH EVIDENCE, IF REQUIRED UNDER THE INDENTURE PURSUANT TO
WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER JURISDICTION. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF
THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER
EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c)
OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT
OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS),
SUBJECT TO THE RECEIPT BY THE REGISTRAR OF A CERTIFICATION OF
THE TRANSFEROR AND AN OPINION OF COUNSEL TO THE EFFECT THAT
SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (2) TO
THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL
AND EACH SUBSEQUENT HOLDER IS REQUIRED TO NOTIFY ANY PURCHASER
FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTION SET FORTH IN (A) ABOVE."
28
<PAGE> 34
(B) Notwithstanding the foregoing, any Global
Note or Definitive Note issued pursuant to subparagraphs
(b)(iv), (c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii),
(e)(iii) or (f) to this Section 2.06 (and all Notes issued in
exchange therefor or substitution thereof) shall not bear the
Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a
legend in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR
THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT
TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT
(I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE
REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS
GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT
TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE
MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO
SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF AAI.FOSTERGRANT, INC."
(iii) Regulation S Temporary Global Note Legend. The
Regulation S Temporary Global Note shall bear a legend in substantially
the following form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL
NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE
FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS
DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS
OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes. At such time
as all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate Global
Notes and Definitive Notes upon receipt of an Authentication Order or
at the Registrar's request.
29
<PAGE> 35
(ii) No service charge shall be made to a holder of a
beneficial interest in a Global Note or to a Holder of a Definitive
Note for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than
any such transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.14
and 9.05 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive
Notes shall be the valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as
the Global Notes or Definitive Notes surrendered upon such registration
of transfer or exchange.
(v) The Company shall not be required (A) to issue, to
register the transfer of or to exchange any Notes during a period
beginning at the opening of business 15 days before the day of any
selection of Notes for redemption under Section 3.02 hereof and ending
at the close of business on the day of selection, (B) to register the
transfer of or to exchange any Note so selected for redemption in whole
or in part, except the unredeemed portion of any Note being redeemed in
part or (C) to register the transfer of or to exchange a Note between a
record date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the Company may deem
and treat the Person in whose name any Note is registered as the
absolute owner of such Note for the purpose of receiving payment of
principal of and interest on such Notes and for all other purposes, and
none of the Trustee, any Agent or the Company shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and
Definitive Notes in accordance with the provisions of Section 2.02
hereof.
(viii) All certifications, certificates and Opinions of
Counsel required to be submitted to the Registrar pursuant to this
Section 2.06 to effect a registration of transfer or exchange may be
submitted by facsimile.
SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee or the Company and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements are met. If required by the Trustee or the Company, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
30
<PAGE> 36
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under
Section4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that the Trustee actually knows are so owned shall be so disregarded.
SECTION 2.10. TEMPORARY NOTES.
Until certificates representing Notes are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Company
considers appropriate for temporary Notes and as shall be reasonably acceptable
to the Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate Definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
31
<PAGE> 37
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. The Company shall notify the Trustee in writing of
the amount of defaulted interest proposed to be paid on each Note and the date
of the proposed payment. The Company shall fix or cause to be fixed each such
special record date and payment date, provided that no such special record date
shall be less than 10 days prior to the related payment date for such defaulted
interest. At least 15 days before the special record date, the Company (or, upon
the written request of the Company, the Trustee in the name and at the expense
of the Company) shall mail or cause to be mailed to Holders a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select the Notes to be redeemed
or purchased among the Holders of the Notes in compliance with the requirements
of the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a pro rata basis, by lot or in
accordance with any other method the Trustee considers fair and appropriate. In
the event of partial redemption by lot, the particular Notes to be redeemed
shall be selected, unless otherwise provided herein, at least 30 but not more
than 60 days prior to the redemption date by the Trustee from the outstanding
Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.
32
<PAGE> 38
The notice shall identify the Notes to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with
Section 3.03 hereof, Notes called for redemption become irrevocably due and
payable on the redemption date at the redemption price. A notice of redemption
may not be conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
One Business Day prior to the redemption date, the Company
shall deposit with the Trustee or with the Paying Agent money sufficient to pay
the redemption price of and accrued interest on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the
33
<PAGE> 39
preceding paragraph, interest shall be paid on the unpaid principal, from the
redemption date until such principal is paid, and to the extent lawful on any
interest not paid on such unpaid principal, in each case at the rate provided in
the Notes and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company
shall issue and, upon receipt of an Authentication Order, the Trustee shall
authenticate for the Holder at the expense of the Company a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) The Notes shall not be redeemable at the Company's option
prior to July 15, 2002. Thereafter, the Notes shall be subject to redemption at
any time at the option of the Company, in whole or in part, 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 and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on July 15th of the
years indicated below:
YEAR PERCENTAGE
---- ----------
2002..................................................... 105.375%
2003..................................................... 102.688%
2004 and thereafter...................................... 100.000%
(b) Notwithstanding the foregoing, at any time on or before
July 15, 2001, the Company may redeem up to 35% of the aggregate principal
amount of Notes originally issued under this Indenture at a redemption price of
110.750% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date, with the net cash
proceeds of a public sale of common stock of the Company; provided that at least
65% of the aggregate principal amount of Notes originally issued under this
Indenture remains outstanding immediately after the occurrence of such
redemption (excluding Notes held by the Company or any of its Subsidiaries); and
provided, further, that such redemption shall occur within 45 days after the
date of the closing of such public sale.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption
or sinking fund payments with respect to the Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the
Company shall be required to commence an offer to all Holders to purchase Notes
(an "Asset Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the
34
<PAGE> 40
"Offer Period"). No later than five Business Days after the termination of the
Offer Period (the "Purchase Date"), the Company shall purchase the principal
amount of Notes required to be purchased pursuant to Section 4.10 hereof (the
"Offer Amount") or, if less than the Offer Amount has been tendered, all Notes
tendered in response to the Asset Sale Offer. Payment for any Notes so purchased
shall be made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date
and on or before the related interest payment date, any accrued and unpaid
interest shall be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no additional interest shall be
payable to Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company
shall send, by first class mail, a notice to the Trustee and each of the
Holders, with a copy to the Trustee. The notice shall contain all instructions
and materials necessary to enable such Holders to tender Notes pursuant to the
Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice,
which shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Company defaults in making such payment, any
Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer may only elect to have all of such Note purchased and may not
elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, or
transfer by book-entry transfer, to the Company, a depositary, if appointed by
the Company, or a Paying Agent at the address specified in the notice prior to
the expiration of the Offer Period;
(g) that Holders shall be entitled to withdraw their election if
the Company, the depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered
by Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
35
<PAGE> 41
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the
extent lawful, accept for payment, on a pro rata basis to the extent necessary,
the Offer Amount of Notes or portions thereof tendered pursuant to the Asset
Sale Offer, or if less than the Offer Amount has been tendered, all Notes
tendered, and shall deliver to the Trustee an Officers' Certificate stating that
such Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.09. The Company, the Depositary or
the Paying Agent, as the case may be, shall promptly (but in any case not later
than five days after the Purchase Date) mail or deliver to each tendering Holder
an amount equal to the purchase price of the Notes tendered by such Holder and
accepted by the Company for purchase, and the Company shall promptly issue a new
Note, and the Trustee, upon written request from the Company shall authenticate
and mail or deliver such new Note to such Holder, in a principal amount equal to
any unpurchased portion of the Note surrendered. Any Note not so accepted shall
be promptly mailed or delivered by the Company to the Holder thereof. The
Company shall publicly announce the results of the Asset Sale Offer on the
Purchase Date. The Company shall 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 Notes in connection with an Asset Sale Offer and, to the extent
inconsistent with the provisions of this Indenture, such laws and regulations
shall govern.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Company
or a Subsidiary thereof, holds as of 11:00 a.m. Eastern Time on the due date
money deposited by the Company in immediately available funds and designated for
and sufficient to pay all principal, premium, if any, and interest then due.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at the
rate equal to 1% per annum in excess of the then applicable interest rate on the
Notes to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable grace period)
at the same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the
City of New York, an office or agency (which may be an office of the Trustee or
an affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served.
36
<PAGE> 42
The Company shall give prompt written notice to the Trustee of the location, and
any change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of
the Trustee as one such office or agency of the Company in accordance with
Section 2.03 hereof.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the
SEC, so long as any Notes are outstanding, the Company shall furnish to the
Trustee and Holders of Notes (i) 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 thereon
by the Company's certified independent accountants and (ii) 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 each case within the time periods specified in
the SEC's rules and regulations. In addition, following the consummation of the
Exchange Offer, whether or not required by the rules and regulations of the SEC,
the Company shall file a copy of all such information and reports 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.
(b) In addition, for so long as any Notes remain outstanding, the
Company and the Guarantors shall furnish to the Trustee and Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company and each Guarantor (to the extent that such
Guarantor is so required under the TIA) shall deliver to the Trustee, within 90
days after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company and the Guarantors have
kept, observed, performed and fulfilled its obligations under this Indenture,
and further stating, as to each such Officer signing such certificate, that to
the best of his or her knowledge the Company and the Guarantors have kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may
37
<PAGE> 43
have knowledge and what action the Company and the Guarantors are taking or
propose to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action the Company and the Guarantors are taking or propose to take with respect
thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company and each of the Guarantors covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that may affect the covenants or the performance of this Indenture;
and the Company and each of the Guarantors (to the extent that it may lawfully
do so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it shall not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any other payment or distribution on account of the Company's or any of its
Subsidiaries' Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company or any of its
Subsidiaries) or to the direct or indirect holders of the Company's or any of
its Subsidiaries' Equity Interests in their capacity as such (other than
dividends or distributions (a) payable in Equity Interests (other than
Disqualified Stock) of the Company or (b) to the Company or a Wholly Owned
Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire
for value (including, without limitation, in connection with any
38
<PAGE> 44
merger or consolidation involving the Company) any Equity Interests of the
Company or any direct or indirect parent of the Company (other than any such
Equity Interests owned by the Company or any Wholly Owned Subsidiary of the
Company); (iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness of the Company
or any of its Subsidiaries that is subordinated to the Notes or any Subsidiary
Guarantee thereof, except a payment of interest or principal at Stated Maturity;
or (iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made 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 Section 4.09 hereof; and (c)......such
Restricted Payment, together with the aggregate amount of all other Restricted
Payments made by the Company and its Subsidiaries after the date of this
Indenture (excluding Restricted Payments permitted by clauses (ii), (iii), (iv),
(v)(a) and (vi) of the next succeeding paragraph), is less than the sum, without
duplication, of (i) 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 this 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 (ii) 100%
of the aggregate net cash proceeds received by the Company since the date of
this Indenture as a contribution to its common equity capital or from the issue
or sale of Equity Interests of the Company (other than Disqualified Stock) or
Disqualified Stock or debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or Disqualified Stock
or convertible debt securities) sold to a Subsidiary of the Company), plus (iii)
to the extent that any Restricted Investment that was made after the date of
this Indenture is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (B) the initial amount of
such Restricted Investment, plus (iv) $3.0 million.
The foregoing provisions shall not prohibit (i) the payment of
any dividend within 60 days after the date of declaration thereof, if at the
date of declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of the Company or any Guarantor or
Equity Interests of the Company in exchange for, or out of the net cash proceeds
of the substantially concurrent sale (other than to a Subsidiary of the Company)
of, other Equity Interests of the Company (other than any 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 (c) (ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness of the Company or any Guarantor with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any
dividend by a Subsidiary of the Company to the holders of its common Equity
Interests on a pro rata basis; (v) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or
any Subsidiary of the Company held by any member of the Company's (or any of its
Subsidiaries') management pursuant to any stock purchase, stock
39
<PAGE> 45
redemption, stock option or similar agreement; provided that the aggregate price
paid for all such repurchased, redeemed, acquired or retired Equity Interests in
any twelve-month period shall not exceed the sum of (a) any amounts available to
the Company under insurance policies insuring the lives of such member of
management and (b) $250,000 in any twelve-month period and no Default or Event
of Default shall have occurred and be continuing immediately after such
transaction; and (vi) repurchases of Capital Stock deemed to occur upon exercise
of stock options if such Capital Stock represents a portion of the exercise
price of such options.
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
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any asset or securities that are required to be valued by this
Section 4.07 shall be determined by the Board of Directors whose resolution with
respect thereto shall be delivered to the Trustee, such determination to be
based upon an opinion or appraisal issued by an accounting, appraisal or
investment banking firm of national standing if such 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 Section 4.07 were computed, together with a copy
of any fairness opinion or appraisal required by this Indenture.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Subsidiary to (i)(a) pay dividends or make any other distributions to the
Company or any of its Subsidiaries (1) on its Capital Stock or (2) with respect
to any other interest or participation in, or measured by, its profits, or (b)
pay any Indebtedness owed to the Company or any of its Subsidiaries, (ii) make
loans or advances to the Company or any of its Subsidiaries or (iii) transfer
any of its properties or assets to the Company or any of its Subsidiaries.
However, the foregoing restrictions shall not apply to encumbrances or
restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the date of this Indenture, (b) the Senior Credit Facility as in
effect as of the date of this Indenture, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive, taken as a whole, with respect to such
dividend and other payment restrictions than those contained in the Senior
Credit Facility as in effect on the date of this Indenture, (c) the Notes and
the Subsidiary Guarantees, (d) applicable law, (e) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
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 this Indenture to
be incurred, (f) customary non-assignment provisions in leases entered into in
the ordinary course of business and consistent with past practices, (g) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (h) any agreement for the sale or other disposition of a
Subsidiary that restricts distributions by that Subsidiary pending its sale or
other disposition, (i) 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, (j) Liens securing
Indebtedness
40
<PAGE> 46
otherwise permitted to be incurred pursuant to Section 4.12 hereof that limits
the right of the debtor to dispose of the assets securing such Indebtedness, (k)
provisions with respect to the disposition or distribution of assets or property
in joint venture agreements and other similar agreements entered into in the
ordinary course of business and (l) restrictions on cash or other deposits or
net worth imposed by customers under contracts entered into in the ordinary
course of business.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
(a) The Company shall not, and shall not permit any of its
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 the Company shall not issue any Disqualified Stock and shall not
permit any of its Subsidiaries to issue any shares of preferred stock; provided,
however, that the Company may incur Indebtedness (including Acquired Debt) or
issue shares of 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 Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2 to 1, 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 or
preferred stock had been issued, as the case may be, at the beginning of such
four-quarter period.
(b) The provisions of Section 4.09(a) hereof shall not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company or a Foreign Subsidiary
of Indebtedness (including letters of credit, with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of the Company and its Subsidiaries thereunder) under Credit
Facilities and the Guarantee thereof by the Guarantors; provided that
the aggregate principal amount of all Indebtedness of the Company and
its Subsidiaries (including letters of credit) outstanding under Credit
Facilities after giving effect to such incurrence does not exceed an
amount equal to the greater of (a) $60.0 million less the aggregate
amount of all Net Proceeds of Asset Sales applied to permanently repay
any Indebtedness under a Credit Facility pursuant to Section 4.10
hereof or (b) the sum of 85% of the accounts receivable plus 55% of the
jewelry inventory, 65% of the optical inventory and 55% of all other
inventory, in each case of the Company and its Subsidiaries net of
reserves, as shown on the most recent balance sheet of the Company and
its Subsidiaries;
(ii) the incurrence by the Company and its Subsidiaries of
the Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness
represented by the Notes (other than any Additional Notes) and the
Exchange Notes (other than any Additional Notes) and the incurrence by
the Guarantors of Indebtedness represented by the Subsidiary
Guarantees;
(iv) the incurrence by the Company or any of its
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 Subsidiary, in an
aggregate principal amount, together with any Attributable Debt with
respect to the Smithfield Property permitted pursuant to Section 4.15
hereof, not to exceed $10.0 million at any
41
<PAGE> 47
time outstanding, including any Permitted Refinancing Indebtedness
incurred pursuant to clause (v) below to refund, refinance or replace
any Indebtedness incurred pursuant to this clause (iv);
(v) the incurrence by the Company or any of its
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 this Indenture to be incurred by Section 4.09(a) hereof, or by
clauses (ii), (iii) or (iv) of this Section 4.09(b);
(vi) the incurrence by the Company or any of its
Subsidiaries of intercompany Indebtedness between or among the Company
and any of its Subsidiaries; provided, however, that (a) if the Company
is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations
with respect to the Notes 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 Subsidiary thereof
and (2) any sale or other transfer of any such Indebtedness to a Person
that is not either the Company or a Subsidiary thereof 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 (vi);
(vii) the incurrence by the Company or any of its
Subsidiaries of Hedging Obligations that are incurred for the purpose
of (a) fixing or hedging interest rate risk with respect to any
floating rate Indebtedness that is permitted by the terms of this
Indenture to be outstanding or (b) hedging currency exchange rate risks
in connection with transactions entered into in the ordinary course of
business;
(viii) the guarantee by the Company or any of the Guarantors
of Indebtedness of the Company or a Subsidiary of the Company that was
permitted to be incurred by another provision of this Section 4.09;
(ix) the incurrence by the Company of Indebtedness in
connection with a repurchase of Notes or Exchange Notes following a
Change of Control; provided that the principal amount of such
Indebtedness does not exceed 101% of the aggregate principal amount of
the Notes and the Exchange Notes repurchased, and such Indebtedness (a)
has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Notes and the Exchange Notes
and (b) does not mature prior to the Stated Maturity of the Notes and
the Exchange Notes;
(x) the incurrence of Indebtedness arising from
agreements providing for indemnification, adjustment of purchase price
or similar obligations, incurred in connection with the disposition of
any business, assets or Subsidiary of the Company (other than
Guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or Subsidiary for the purpose of
financing such acquisition), provided that none of the foregoing
results in Indebtedness required to be reflected as Indebtedness on the
balance sheet of the Company or any such Subsidiary in accordance with
GAAP and the maximum aggregate liability in respect of all such
Indebtedness shall at no time exceed 100% of the gross proceeds
actually received by the Company and its Subsidiaries in connection
with such disposition; and
(xi) the incurrence by the Company of additional
Indebtedness in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding not to exceed $7.5 million.
42
<PAGE> 48
For purposes of determining compliance with this 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 (i) through (xi)
above or is entitled to be incurred pursuant to Section 4.09(a) hereof, the
Company shall, in its sole discretion, classify such item of Indebtedness on the
date of its incurrence in any manner that complies with this Section 4.09.
Accrual of interest, the accretion or amortization of original issue discount,
the payment of interest on any Indebtedness in the form of additional
Indebtedness with the same terms, and the payment of dividends on Disqualified
Stock in the form of additional shares of the same class of Disqualified Stock
will not be deemed to be an incurrence of Indebtedness or an issuance of
Disqualified Stock for purposes of this Section 4.09; provided, in each such
case, that the amount thereof is included in Fixed Charges of the Company as
accrued.
SECTION 4.10. ASSET SALES
The Company shall not, and shall not permit any of its
Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 75% of the consideration therefor received by the Company
or such Subsidiary is in the form of cash or Cash Equivalents; provided that the
amount of (a) any liabilities (as shown on the Company's or such Subsidiary's
most recent balance sheet), of the Company or any Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Subsidiary from further liability and (b) any securities, notes or other
obligations received by the Company or any such Subsidiary from such transferee
that are contemporaneously (subject to ordinary settlement periods) converted by
the Company or such Subsidiary into cash (to the extent of the cash received)
shall be deemed to be cash for purposes of this provision; provided, further
that the provisions of this paragraph shall not apply to transactions pursuant
to the Fantasma Agreement, as in effect on the date of this Indenture.
Within 270 days after the receipt of any Net Proceeds from an
Asset Sale, the Company may apply such Net Proceeds, at its option, (a) to
permanently repay Indebtedness of the Company under a Credit Facility or (b) to
acquire all or substantially all of the assets of, or a majority of the Voting
Stock of, another business, (c) to make a capital expenditure or (d) to acquire
other long-term assets. 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 this Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the first sentence of this paragraph shall be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Company shall be required to make an offer to all Holders of Notes and all
holders of other Indebtedness that is pari passu with the Notes containing
provisions similar to those set forth in this Indenture with respect to offers
to purchase or redeem with the proceeds of sales of assets (an "Asset Sale
Offer") to purchase the maximum principal amount of Notes and such other pari
passu Indebtedness that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
of purchase, in accordance with the procedures set forth in this Indenture and
such other pari passu Indebtedness. To the extent that 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 this Indenture. If
the aggregate principal amount of Notes and such other pari passu Indebtedness
tendered into such Asset Sale Offer surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select
43
<PAGE> 49
the Notes and such other pari passu Indebtedness to be purchased on a pro rata
basis. Upon completion of an Asset Sale Offer, the amount of Excess Proceeds
shall be reset at zero.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its
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 of the foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to the
Company or such Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) 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 $1.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above 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 $5.0
million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing. Notwithstanding the foregoing, the
following items shall not be deemed to be Affiliate Transactions: (i) any
employment agreement or benefit plan entered into by the Company or any of its
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Subsidiary, (ii) transactions between or among
the Company and/or its Subsidiaries, (iii) payment of reasonable directors fees
to Persons who are not otherwise Affiliates of the Company, (iv) any sale or
other issuance of Equity Interests (other than Disqualified Stock) of the
Company, (v) loans or advances to employees in the ordinary course of business
consistent with past practices of the Company or its Subsidiaries in an
aggregate amount at any time outstanding not to exceed $1.0 million, (vi)
transactions pursuant to Existing Leases, (vii) purchases of Common Stock of
deceased shareholders pursuant to the Shareholders Agreement, (viii) reasonable
indemnities of officers, directors and employees of the Company or any
Subsidiary permitted by applicable law and (ix) Restricted Payments that are
permitted by Section 4.07 hereof.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien securing Indebtedness, Attributable Debt or trade payables on any
asset now owned or hereafter acquired, except Permitted Liens.
SECTION 4.13. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its corporate existence, and the corporate, partnership or other existence of
each of its Subsidiaries, in accordance with the respective organizational
documents (as the same may be amended from time to time) of the Company or any
such Subsidiary and (ii) the rights (charter and statutory), licenses and
franchises of the Company and its Subsidiaries; provided, however, that the
Company shall not be required to preserve any such right, license or franchise,
or the corporate, partnership or other existence of any of its Subsidiaries, if
the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Notes.
44
<PAGE> 50
SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Holder of
Notes shall have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
of purchase (the "Change of Control Payment"). Within ten days following a
Change of Control, the Company shall mail a notice to the Trustee and each
Holder describing the transaction or transactions that constitute the Change of
Control and stating: (1) that the Change of Control Offer is being made pursuant
to this Section 4.14 and that all Notes tendered will be accepted for payment;
(2) the purchase price and the purchase date, which shall be no earlier than 30
days and no later than 60 days from the date such notice is mailed (the "Change
of Control Payment Date"); (3) that any Note not tendered will continue to
accrue interest; (4) that, unless the Company defaults in the payment of the
Change of Control Payment, all Notes accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest after the Change of Control
Payment Date; (5) that Holders electing to have any Notes purchased pursuant to
a Change of Control Offer will be required to surrender the Notes, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Notes
completed, to the Paying Agent at the address specified in the notice prior to
the expiration of the Change of Control Offer; (6) that Holders will be entitled
to withdraw their election if the Paying Agent receives, not later than the
expiration of the Change of Control Offer, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes delivered for purchase, and a statement that such Holder is
withdrawing his election to have the Notes purchased; and (7) that Holders whose
Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount or an integral
multiple thereof. The Company shall 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 and, to the extent
inconsistent with the provisions of this Indenture, such laws and regulations
shall govern.
(b) On the Change of Control Payment Date, the Company shall, to
the extent lawful, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) 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 (iii) 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 shall promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee shall
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 surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
(c) The Company shall 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 this Section 4.14 and Section 3.09 hereof and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
45
<PAGE> 51
SECTION 4.15. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company may enter into a sale and leaseback transaction if (i) the Company
could have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the Fixed Charge
Coverage Ratio set forth in Section 4.09(a) hereof and (b) incurred a Lien to
secure such Indebtedness pursuant to Section 4.12 hereof , (ii) the gross cash
proceeds of such sale and leaseback transaction are at least equal to the fair
market value (as determined in good faith by the Board of Directors and set
forth in an Officers' Certificate delivered to the Trustee) of the property that
is the subject of such sale and leaseback transaction and (iii) the transfer of
assets in such sale and leaseback transaction is permitted by, and the Company
applies the proceeds of such transaction in compliance with, Section 4.10
hereof. The foregoing provisions will not apply to a sale and leaseback
transaction relating to the Smithfield Property resulting in Attributable Debt
with respect to such transaction in an aggregate amount not to exceed $5.0
million at any time outstanding.
SECTION 4.16. LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS IN
WHOLLY OWNED SUBSIDIARIES.
The Company (i) shall not, and shall not permit any Subsidiary
of the Company to, transfer, convey, sell, lease or otherwise dispose of any
Equity Interests in any Wholly Owned Subsidiary of the Company to any Person
(other than the Company or a Wholly Owned Subsidiary of the Company), unless (a)
such transfer, conveyance, sale, lease or other disposition is of all the Equity
Interests in such Wholly Owned Subsidiary and (b) the cash Net Proceeds from
such transfer, conveyance, sale, lease or other disposition are applied in
accordance with Section 4.10 hereof and (ii) shall not permit any Wholly Owned
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Subsidiary of
the Company.
SECTION 4.17. PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
or is paid to all Holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
SECTION 4.18. ADDITIONAL SUBSIDIARY GUARANTEES
If the Company or any of the Guarantors shall acquire or
create another Domestic Subsidiary after the date of this Indenture, or if any
Subsidiary of the Company becomes a Domestic Subsidiary of the Company after the
date of the Indenture, then such newly acquired or created Domestic Subsidiary
shall become a Guarantor and execute a Supplemental Indenture in the form
attached hereto as Exhibit F and deliver an Opinion of Counsel to the Trustee to
the effect that such Supplemental Indenture has been duly authorized, executed
and delivered by such Subsidiary and constitutes a valid and binding obligation
of such Subsidiary, enforceable against such Subsidiary in accordance with its
terms (subject to customary exceptions).
46
<PAGE> 52
ARTICLE 5.
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company may not, directly or indirectly, consolidate or
merge with or into (whether or not the Company is the surviving corporation), or
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 (i) the Company is the surviving corporation or 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; (ii) 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 Registration Rights Agreement, the Notes and this Indenture
pursuant to a Supplemental Indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction no Default or Event of Default
exists; and (iv) except in the case of a merger of the Company with or into a
Wholly Owned Subsidiary of the Company, the Company or 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 (a) shall have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (b) shall, immediately after such
transaction after giving pro forma effect thereto and any related financing
transaction 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
Section 4.09(a) hereof. The Company also may not, directly or indirectly, lease
all or substantially all of its properties or assets, in one or more related
transactions, to any other Person. This Section 5.01 shall not be applicable to
a sale, assignment, transfer, conveyance or other disposition of assets between
or among the Company and its Wholly Owned Subsidiaries.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under this Indenture with the same
effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Notes except in the case
of a sale of all of the Company's assets that meets the requirements of Section
5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
47
<PAGE> 53
(a) the Company defaults in the payment when due of interest on,
or Liquidated Damages, if any, with respect to, the Notes and such default
continues for a period of 30 days;
(b) the Company defaults in the payment when due of principal of
or premium, if any, on the Notes;
(c) the Company or any of its Subsidiaries fails to comply with
any of the provisions of Section 4.07, 4.09, 4.10, 4.14 or 5.01 hereof;
(d) the Company or any of its Subsidiaries fails to comply with
any of its other agreements in this Indenture or the Notes for 60 days after
notice by the Trustee or the Holders of at least 25% in principal amount of the
then outstanding Notes;
(e) a default occurs 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 Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries), whether such Indebtedness or guarantee now exists, or is created
after the date of this Indenture, which default (i) 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 (ii) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of 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 $5.0 million or more;
(f) a final judgment or final judgments for the payment of money
are entered by a court or courts of competent jurisdiction against the Company
or any of its Significant Subsidiaries or any group of Subsidiaries that, taken
as a whole, would constitute a Significant Subsidiary and such judgment or
judgments remain undischarged for a period (during which execution shall not be
effectively stayed) of 60 days, provided that the aggregate of all such
undischarged judgments exceeds $5.0 million;
(g) the Company or any of its Significant Subsidiaries or any
group of Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary pursuant to or within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against
it in an involuntary case,
(iii) consents to the appointment of a custodian of it or
for all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due;
or
(h) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary in an involuntary
case;
48
<PAGE> 54
(ii) appoints a custodian of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary or for all or
substantially all of the property of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary; or
(iii) orders the liquidation of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days; or
(i) except as permitted by this 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
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee.
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default
specified in clause (g) or (h) of Section 6.01 hereof with respect to the
Company or any of its Significant Subsidiaries or any group of Subsidiaries
that, taken as a whole, would constitute a Significant Subsidiary) 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. Notwithstanding the foregoing, if an Event of Default specified in
clause (g) or (h) of Section 6.01 hereof occurs with respect to the Company, any
of its Significant Subsidiaries or any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes will
become due and payable without further action or notice. The Holders of a
majority in principal amount of the then outstanding Notes by written notice to
the Trustee may on behalf of all of the Holders rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events or Default (except nonpayment of principal, interest
or premium that has become due solely because of the acceleration) have been
cured or waived.
If an Event of Default occurs on or after July 15, 2002 by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of the Company with the intention of avoiding payment of the premium that the
Company would have had to pay if the Company then had elected to redeem the
Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an
equivalent premium shall also become and be immediately due and payable, to the
extent permitted by law, anything in this Indenture or in the Notes to the
contrary notwithstanding. If an Event of Default occurs prior to July 15, 2002
by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then, upon acceleration of the
Notes, an additional premium shall also become and be immediately due and
payable in an amount, for each of the years beginning on July 15th of the years
set forth below, as set forth below (expressed as a percentage of the principal
amount):
YEAR PERCENTAGE
---- ----------
1998.............................................. 116.125%
1999.............................................. 113.438%
2000.............................................. 110.750%
2001.............................................. 108.063%
49
<PAGE> 55
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal, premium and
Liquidated Damages, if any, and interest on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Note in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal
amount of the then outstanding Notes by notice to the Trustee may on behalf of
the Holders of all of the Notes waive an existing Default or Event of Default
and its consequences hereunder, except a continuing Default or Event of Default
in the payment of the principal of, premium and Liquidated Damages, if any, or
interest on, the Notes (including in connection with an offer to purchase)
(provided, however, that the Holders of a majority in aggregate principal amount
of the then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and
50
<PAGE> 56
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal, premium and
Liquidated Damages, if any, and interest on such Note, on or after the
respective due dates expressed in the Note (including in connection with an
offer to purchase), or to bring suit for the enforcement of any such payment on
or after such respective dates, shall not be impaired or affected without the
consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b)
hereof occurs and is continuing, the Trustee is authorized to recover judgment
in its own name and as trustee of an express trust against the Company for the
whole amount of principal of, premium and Liquidated Damages, if any, and
interest remaining unpaid on the Notes and interest on overdue principal and, to
the extent lawful, interest and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the Holders of the Notes allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Notes), its creditors or its property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
51
<PAGE> 57
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article 6,
it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07 hereof, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium and Liquidated Damages, if any, and interest,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium and Liquidated Damages, if
any and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely
by the express provisions of this Indenture and the Trustee need
perform only those duties that are specifically set forth in this
Indenture and no others, and no implied covenants or obligations shall
be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee
52
<PAGE> 58
shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section 7.01;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
53
<PAGE> 59
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner of Notes and may otherwise deal with the Company or any Affiliate of
the Company with the same rights it would have if it were not Trustee. However,
in the event that the Trustee acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue as trustee or resign. Any Agent may do the same with like rights and
duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture, the Notes or
the Subsidiary Guarantees, it shall not be accountable for the Company's use of
the proceeds from the Notes or any money paid to the Company or upon the
Company's direction under any provision of this Indenture, it shall not be
responsible for the use or application of any money received by any Paying Agent
other than the Trustee, and it shall not be responsible for any statement or
recital herein or any statement in the Notes or any other document in connection
with the sale of the Notes or pursuant to this Indenture other than its
certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and
if it is known actually to the Trustee, the Trustee shall mail to Holders of
Notes a notice of the Default or Event of Default within 90 days after it
becomes known to the Trustee. Except in the case of a Default or Event of
Default in payment of principal of, premium or Liquidated Damages, if any, or
interest on any Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes. Notwithstanding
anything to the contrary expressed in this Indenture, the Trustee shall not be
deemed to have knowledge of any Default or Event of Default hereunder, except in
the case of an Event of Default under Section 6.1(a) or (b) hereof (provided
that the Trustee is the Paying Agent), unless and until a Responsible Officer
shall have actual knowledge thereof or shall have received notice, at its
Corporate Trust Office as specified in Section 11.02 hereof, from the Company or
any Holder of Notes that such a Default or an Event of Default has occurred.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA ss. 313(a) (but if no
event described in TIA ss. 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by mail all
reports as required by TIA ss. 313(c).
54
<PAGE> 60
A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Notes are listed in accordance with TIA ss. 313(d).
The Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time such
compensation for its acceptance of this Indenture and services hereunder as the
Company and the Trustee shall agree. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee and its officers,
directors, shareholders, agents and employees (each an "Indemnified Party") for
and hold each Indemnified Party harmless against any and all losses, liabilities
or expenses incurred by it arising out of or in connection with the acceptance
or administration of its duties under this Indenture, including the costs and
expenses of enforcing this Indenture against the Company and the Guarantors
(including this Section 7.07) and defending itself against any claim (whether
asserted by the Company and the Guarantors or any Holder or any other Person) or
liability in connection with the exercise or performance of any of its powers or
duties hereunder, except to the extent any such loss, liability or expense may
be attributable to its negligence or bad faith. The Trustee and its officers,
directors, shareholders, agents and employees, in its capacity as Paying Agent,
Registrar and Custodian, and agent for services of notices shall have the full
benefit of the foregoing indemnity. An Indemnified Party shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by an
Indemnified Party to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Indemnified
Party shall cooperate in the defense. An Indemnified Party may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall
survive the satisfaction and discharge of this Indenture.
To secure the Company's payment and indemnity obligations in
this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money
or property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss.
313(b)(2) to the extent applicable.
55
<PAGE> 61
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of Notes of a majority in principal amount of the then outstanding Notes
may remove the Trustee by so notifying the Trustee and the Company in writing.
The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of Notes of at least 10% in principal amount of the then
outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note
who has been a Holder of a Note for at least six months, fails to comply with
Section 7.10 hereof, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
56
<PAGE> 62
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $100.0 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding
Notes upon compliance with the conditions set forth below in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company and the Guarantors shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be deemed to have been discharged from their obligations with respect to all
outstanding Notes and Subsidiary Guarantees on the date the conditions set forth
below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal
Defeasance means that the Company and each Guarantor shall be deemed to have
paid and discharged the entire Indebtedness represented by the outstanding Notes
and Subsidiary Guarantees, which shall thereafter be deemed to be "outstanding"
only for the purposes of Section 8.05 hereof and the other Sections of this
Indenture referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes, the Subsidiary Guarantees and this Indenture (and
the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following provisions
which shall survive until otherwise terminated or discharged hereunder: (a) the
rights of Holders of outstanding Notes to receive payments in respect of the
principal of, and premium, interest and Liquidated Damages, if any, on such
Notes when such payments are due from the trust referred to below, (b) the
Company's obligations with respect to the Notes under Article 2 and Section 4.02
hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's obligations in connection therewith and (d) this Article 8.
Subject to compliance with this Article 8, the Company may exercise its option
under this Section 8.02 notwithstanding the prior exercise of its option under
Section 8.03 hereof.
57
<PAGE> 63
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company and each Guarantor shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be released from their obligations under the covenants contained in Sections
4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17 and 4.18, hereof with
respect to the outstanding Notes on and after the date the conditions set forth
in Section 8.04 hereof are satisfied (hereinafter, "Covenant Defeasance"), and
the Notes and Subsidiary Guarantees shall thereafter be deemed not "outstanding"
for the purposes of any direction, waiver, consent or declaration or act of
Holders (and the consequences of any thereof) in connection with such covenants,
but shall continue to be deemed "outstanding" for all other purposes hereunder
(it being understood that such Notes and Subsidiary Guarantees shall not be
deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes and Subsidiary
Guarantees, the Company and the Guarantors may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 6.01 hereof, but, except as specified above, the remainder of this
Indenture and such Notes and Subsidiary Guarantees shall be unaffected thereby.
In addition, upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, subject to the satisfaction of the conditions
set forth in Section 8.04 hereof, Sections 6.01(d) through 6.01(f) and Section
6.01(i) hereof shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.02 or 8.03 hereof to the outstanding Notes and Subsidiary
Guarantees:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) 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, and premium, interest
and Liquidated Damages, if any, 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;
(b) in the case of Legal Defeasance under Section 8.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (i) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (ii) since the date of this 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;
58
<PAGE> 64
(c) in the case of Covenant Defeasance under Section 8.03 hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel in the
United States 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;
(d) no Default or Event of Default shall have occurred and be
continuing 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 insofar
as Events of Default under Section 6.01(g) or (h) hereof are concerned, at any
time in the period ending on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) the Company shall 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;
(g) the Company shall have delivered 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
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as
Paying Agent) as the Trustee may determine, to the Holders of such Notes of all
sums due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money or non-callable
59
<PAGE> 65
Government Securities held by it as provided in Section 8.04 hereof which, in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee (which may
be the opinion delivered under Section 8.04(a) hereof), are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, and
premium, interest and Liquidated Damages, if any, on any Note and remaining
unclaimed for two years after such principal, and premium, interest and
Liquidated Damages, if any, has become due and payable shall be paid to the
Company on its request or (if then held by the Company) shall be discharged from
such trust; and the Holder of such Note shall thereafter, as an unsecured
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease; provided, however,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in the
New York Times (national edition) and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United
States dollars or non-callable Government Securities in accordance with Section
8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee
or Paying Agent is permitted to apply all such money in accordance with Section
8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company
makes any payment of principal of, or premium, interest or Liquidated Damages,
if any, on any Note following the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Notes to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company,
the Guarantors (with respect to a Subsidiary Guarantee or the Indenture to which
it is a party) and the Trustee may amend or supplement this Indenture, the Notes
or any Subsidiary Guarantees without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place
of certificated Notes or to alter the provisions of Article 2 hereof (including
the related definitions) in a manner that does not materially adversely affect
any Holder;
60
<PAGE> 66
(c) to provide for the assumption of the Company's obligations to
Holders of Notes by a successor to the Company pursuant to Article 5 hereof or
of a Guarantor's obligations by a successor to the Guarantor pursuant to Section
10.04 hereof;
(d) 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 this Indenture of any such Holder;
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
(f) to provide for the issuance of Additional Notes in accordance
with the limitations set forth in this Indenture on the date hereof; or
(g) to reflect the release of any Guarantor from its Subsidiary
Guarantee pursuant to Section 10.05 hereof or to add a Domestic Subsidiary as a
Guarantor pursuant to Section 4.18 hereof.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
Supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company and
the Guarantors in the execution of any amended or Supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into such amended or Supplemental
Indenture that affects its own rights, duties or immunities under this Indenture
or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, this Indenture,
the Notes or the Subsidiary Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of this Indenture, the Notes
or the Subsidiary Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Notes).
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
Supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02
hereof, the Trustee shall join with the Company in the execution of such amended
or Supplemental Indenture unless such amended or Supplemental Indenture directly
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or Supplemental Indenture.
It shall not be necessary for the consent of the Holders of
Notes under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
9.02 becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the
61
<PAGE> 67
amendment, supplement or waiver. Any failure of the Company to mail such notice,
or any defect therein, shall not, however, in any way impair or affect the
validity of any such amended or Supplemental Indenture or waiver. Subject to
Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal
amount of the Notes then outstanding voting as a single class may waive
compliance in a particular instance by the Company or the Guarantors with any
provision of this Indenture, the Notes or the Subsidiary Guarantees. However,
without the consent of each Holder affected, an amendment or waiver under this
Section 9.02 may not (with respect to any Notes held by a non-consenting
Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Note or alter the provisions with respect to the redemption of the Notes except
as provided with respect to Sections 4.10 and 4.14 hereof;
(c) reduce the rate of or change the time for payment of interest
on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, interest or Liquidated Damages, if any, 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);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating
to waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of or premium, interest or Liquidated Damages, if any, on
the Notes;
(g) waive a redemption payment with respect to any Note (other
than a payment required by Section 4.10 or 4.14 hereof);
(h) release any Guarantor from any of its obligations under its
Subsidiary Guarantee or this Indenture, except in accordance with the terms of
this Indenture; or
(i) make any change in the foregoing amendment and waiver
provisions.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes
shall be set forth in a amended or Supplemental Indenture that complies with the
TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same Indebtedness as the consenting Holder's Note, even if notation of the
consent is not made on any Note. However, any such Holder of a Note or
subsequent Holder of a Note may revoke the consent as to its Note if the Trustee
receives written notice of revocation before the date the amendment, supplement
or waiver becomes effective. An amendment, supplement or waiver becomes
effective in accordance with its terms and thereafter binds every Holder.
62
<PAGE> 68
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter authenticated. The
Company in exchange for all Notes may issue and the Trustee shall, upon receipt
of an Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or Supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or Supplemental Indenture until the Board
of Directors approves it. In executing any amended or Supplemental Indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon, in addition to the documents required
by Section 11.04 hereof, an Officer's Certificate and an Opinion of Counsel
stating that the execution of such amended or Supplemental Indenture is
authorized or permitted by this Indenture.
ARTICLE 10.
SUBSIDIARY GUARANTEES
SECTION 10.01. GUARANTEE.
Subject to this Article 10, each of the Guarantors hereby,
jointly and severally, unconditionally guarantees to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its successors
and assigns, irrespective of the validity and enforceability of this Indenture,
the Notes or the Obligations of the Company hereunder or thereunder, that: (a)
the principal of and premium, interest and Liquidated Damages, if any, on the
Notes, if lawful, and all other Obligations of the Company to the Holders or the
Trustee hereunder or thereunder shall be promptly paid in full or performed, all
in accordance with the terms hereof and thereof; and (b) in case of any
extension of time of payment or renewal of any Notes or any of such other
Obligations, the same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. Failing payment when due of any amount
so guaranteed or any performance so guaranteed for whatever reason, the
Guarantors shall be jointly and severally obligated to pay the same immediately.
Each Guarantor agrees that this is a guarantee of payment and not a guarantee of
collection.
The Guarantors hereby agree that their Obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of a Guarantor.
Each Guarantor hereby waives diligence, presentment, demand of payment, filing
of claims with a court in the event of insolvency or bankruptcy of the Company,
any right to require a proceeding first against the Company, protest, notice and
all demands whatsoever and covenant
63
<PAGE> 69
that this Subsidiary Guarantee shall not be discharged except by complete
performance of the Obligations contained in the Notes and this Indenture.
If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guarantors or any custodian, trustee,
liquidator or other similar official acting in relation to either the Company or
the Guarantors, any amount paid by either to the Trustee or such Holder, this
Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated
in full force and effect.
Each Guarantor agrees that it shall not be entitled to any
right of subrogation in relation to the Holders in respect of any Obligations
guaranteed hereby until payment in full of all Obligations guaranteed hereby.
Each Guarantor further agrees that, as between the Guarantors, on the one hand,
and the Holders and the Trustee, on the other hand, (x) the maturity of the
Obligations guaranteed hereby may be accelerated as provided in Article 6 hereof
for the purposes of this Subsidiary Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
Obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such Obligations as provided in Article 6 hereof for the
purposes of this Subsidiary Guarantee, such Obligations (whether or not due and
payable) shall forthwith become due and payable by the Guarantors for the
purpose of this Subsidiary Guarantee. The Guarantors shall have the right to
seek contribution from any non-paying Guarantor so long as the exercise of such
right does not impair the rights of the Holders under the Subsidiary Guarantee.
SECTION 10.02. LIMITATION ON GUARANTOR LIABILITY.
Each Guarantor, and by its acceptance of Notes, each Holder,
hereby confirms that it is the intention of all such parties that the Subsidiary
Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance
for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar federal or state law to the
extent applicable to any Subsidiary Guarantee. To effectuate the foregoing
intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree
that the Obligations of such Guarantor under its Subsidiary Guarantee and this
Article 10 shall be limited to the maximum amount as will, after giving effect
to such maximum amount and all other contingent and fixed liabilities of such
Guarantor that are relevant under such laws, and after giving effect to any
collections from, rights to receive contribution from or payments made by or on
behalf of any other Guarantor in respect of the Obligations of such other
Guarantor under this Article 10, result in the Obligations of such Guarantor
under its Subsidiary Guarantee not constituting a fraudulent transfer or
conveyance.
SECTION 10.03. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
To evidence its Subsidiary Guarantee set forth in Section
10.01 hereof, each Guarantor hereby agrees that a notation of such Subsidiary
Guarantee substantially in the form included in Exhibit E shall be endorsed by
an Officer of such Guarantor on each Note authenticated and delivered by the
Trustee and that this Indenture shall be executed on behalf of such Guarantor by
an Officer of such Guarantor.
Each Guarantor hereby agrees that its Subsidiary Guarantee set
forth in Section 10.01 hereof shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such
Subsidiary Guarantee.
64
<PAGE> 70
If an Officer whose signature is on this Indenture or on the
Subsidiary Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which a Subsidiary Guarantee is endorsed, the
Subsidiary Guarantee shall be valid nevertheless.
The delivery of any Note by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Subsidiary Guarantee set forth in this Indenture on behalf of the Guarantors.
In the event that the Company or any of its Guarantors
acquires or creates another Domestic Subsidiary subsequent to the date of this
Indenture or if any Subsidiary of the Company shall become a Domestic
Subsidiary, if required by Section 4.18 hereof, the Company shall cause such
newly acquired or created Subsidiary to execute a Supplemental Indenture to this
Indenture and a Subsidiary Guarantee in accordance with Section 4.18 hereof and
this Article 10, to the extent applicable.
SECTION 10.04. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
No Guarantor may consolidate with or merge with or into
(whether or not such Guarantor is the surviving Person) another corporation,
Person or entity whether or not affiliated with such Guarantor unless:
(i) subject to Section 10.05 hereof, the Person formed by
or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor, pursuant to a
Supplemental Indenture in form and substance reasonably satisfactory to
the Trustee, under the Notes, this Indenture and the Registration
Rights Agreement; and
(ii) immediately after giving effect to such transaction,
no Default or Event of Default exists.
In case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor Person, by Supplemental Indenture,
executed and delivered to the Trustee and satisfactory in form to the Trustee,
of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Guarantor, such successor Person shall succeed to and be
substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Such successor Person thereupon may cause to be signed
any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in
all respects have the same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance with the
terms of this Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.
Except as set forth in Articles 4 and 5 hereof, and
notwithstanding clauses (a) and (b) above, nothing contained in this Indenture
or in any of the Notes shall prevent any consolidation or merger of a Guarantor
with or into the Company or another Guarantor, or shall prevent any sale or
conveyance of the property of a Guarantor as an entirety or substantially as an
entirety to the Company or another Guarantor.
SECTION 10.05. RELEASES FOLLOWING SALE OF ASSETS.
In the event of a sale or other disposition of all of the
assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale
or other disposition of all of the capital stock of any Guarantor,
65
<PAGE> 71
then such Guarantor (in the event of a sale or other disposition, by way of such
a merger, consolidation or otherwise, of all of the capital stock of such
Guarantor) or the corporation acquiring the property (in the event of a sale or
other disposition of all of the assets of such Guarantor) shall be released and
relieved of any Obligations under its Subsidiary Guarantee; provided that the
Net Proceeds of such sale or other disposition are applied in accordance with
the applicable provisions of this Indenture, including without limitation,
Section 4.10 hereof. Upon delivery by the Company to the Trustee of an Officers'
Certificate and an Opinion of Counsel to the effect that such sale or other
disposition was made by the Company in accordance with the applicable provisions
of this Indenture, including without limitation Section 4.10 hereof, the Trustee
shall execute any documents reasonably required in order to evidence the release
of any Guarantor from its Obligations under its Subsidiary Guarantee.
Any Guarantor not released from its Obligations under its
Subsidiary Guarantee shall remain liable for the full amount of principal of and
interest on the Notes and for the other Obligations of any Guarantor under this
Indenture as provided in this Article 10.
ARTICLE 11.
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA ss. 318(c), the imposed duties shall
control.
SECTION 11.02. NOTICES.
Any notice or communication by the Company, any Guarantor or
the Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the others' address
If to the Company and/or any Guarantor:
AAi.FosterGrant, Inc.
500 George Washington Hwy.
Smithfield, RI 02917
Telecopier No.: (401) 231-3212
Attention: Chief Financial Officer
With a copy to:
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, RI
Telecopier No.: (401) 277-9600
Attention: Stephen J. Carlotti
If to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
66
<PAGE> 72
New York, NY 10004
Telecopier No.: (212) 858-2952
Attention: Corporate Finance Department
The Company, any Guarantor or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by hand,
if personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on the
register kept by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA ss. 313(c), to the extent required by the
TIA. Failure to mail a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 11.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA ss. 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
67
<PAGE> 73
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
SHAREHOLDERS.
No past, present or future director, officer, employee,
incorporator or shareholder of the Company or any Guarantor, as such, shall have
any liability for any Obligations of the Company or such Guarantor under the
Notes, the Subsidiary Guarantees, this Indenture or for any claim based on, in
respect of, or by reason of, such Obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
SECTION 11.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
68
<PAGE> 74
SECTION 11.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes
shall bind its successors. All agreements of the Trustee in this Indenture shall
bind its successors.
SECTION 11.11. SEVERABILITY.
In case any provision in this Indenture, the Notes or the
Subsidiary Guarantees shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 11.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
69
<PAGE> 75
SIGNATURES
Dated as of July 21, 1998
AAI.FOSTERGRANT, INC.
BY: /s/ Gerald F. Cerce
---------------------------------
Name: Gerald F. Cerce
Title: President and Chief
Executive Officer
GUARANTORS:
FOSTER GRANT HOLDINGS, INC.
BY: /s/ Gerald F. Cerce
---------------------------------
Name: Gerald F. Cerce
Title: President
THE BONNEAU COMPANY
BY: /s/ Gerald F. Cerce
---------------------------------
Name: Gerald F. Cerce
Title: President
OPTI-RAY, INC.
BY: /s/ Gerald F. Cerce
---------------------------------
Name: Gerald F. Cerce
Title: President
BONNEAU GENERAL, INC.
BY: /s/ Gerald F. Cerce
---------------------------------
Name: Gerald F. Cerce
Title: President
BONNEAU HOLDINGS, INC.
BY: /s/ Gerald F. Cerce
---------------------------------
Name: Gerald F. Cerce
Title: President
<PAGE> 76
O-RAY HOLDINGS, INC.
BY: /s/ Gerald F. Cerce
---------------------------------
Name: Gerald F. Cerce
Title: President
F.G.G. INVESTMENTS, INC.
BY: /s/ Gerald F. Cerce
---------------------------------
Name: Gerald F. Cerce
Title: President
FOSTER GRANT GROUP, L.P.
BY: /s/ Gerald F. Cerce
---------------------------------
Name: Gerald F. Cerce
Title: President and Chief
Executive Officer
FANTASMA, LLC
BY: /s/ Gerald F. Cerce
---------------------------------
Name: Gerald F. Cerce
Title: Chairman
<PAGE> 77
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Terence Rawlins
--------------------------------
Name: TERENCE RAWLINS
Title: ASSISTANT VICE PRESIDENT
<PAGE> 78
EXHIBIT A-1
(Face of Note)
================================================================================
CUSIP/CINS _________
10 3/4 % Series A Senior Notes due 2006
No. ___ $____________
AAI.FOSTERGRANT, INC.
promises to pay to _________________________________________________________
or registered assigns,
the principal sum of ________________________________________________________
on July 15, 2006.
Interest Payment Dates: January 15, and July 15
Record Dates: January 1, and July 1
DATED: JULY 21, 1998
AAI.FOSTERGRANT, INC.
BY:
------------------------------
Name:
Title:
BY:
------------------------------
Name:
Title:
(SEAL)
This is one of the Global Notes referred to in the Indenture:
IBJ SCHRODER BANK & TRUST COMPANY,
as Trustee
By:
-------------------------------
================================================================================
A1-1
<PAGE> 79
(Back of Note)
10 3/4 % Series A Senior Notes due 2006
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF REQUIRED UNDER
THE INDENTURE PURSUANT TO WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5
OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION
UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR
THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c)
OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), SUBJECT TO THE
RECEIPT BY THE REGISTRAR OF A CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF
COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES
ACT, (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER
WILL AND EACH SUBSEQUENT HOLDER IS REQUIRED TO NOTIFY ANY PURCHASER FROM IT OF
THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTION SET FORTH IN (A) ABOVE.
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF AAI.FOSTERGRANT, INC.
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
A1-2
<PAGE> 80
1. INTEREST. AAi.FosterGrant, Inc., a Rhode Island corporation
(the "Company"), promises to pay interest on the principal amount of this Note
at 10 3/4 % per annum from July 21, 1998 until maturity and shall pay the
Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and Liquidated
Damages semi-annually on January 15 and July 15 of each year, or if any such day
is not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"). Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be January 15, 1999. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the January 1st or July
1st next preceding the Interest Payment Date, even if such Notes are canceled
after such record date and on or before such Interest Payment Date, except as
provided in Section 2.12 of the Indenture with respect to defaulted interest.
The Notes will be payable as to principal, premium and Liquidated Damages, if
any, and interest at the office or agency of the Company maintained for such
purpose within or without the City and State of New York, or, at the option of
the Company, payment of interest and Liquidated Damages may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Company or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, IBJ Schroder Bank &
Trust Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Notes under an Indenture
dated as of July 21, 1998 (the "Indenture") among the Company, the Guarantors
named therein and 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, as amended (15 U.S. Code secs. 77aaa-77bbbb). The Notes
are subject to all such terms, and Holders are referred to the Indenture and
such Act for a statement of such terms. To the extent any provision of this Note
conflicts with the express provisions of the Indenture, the provisions of the
indenture shall govern and be controlling. The Notes are obligations of the
Company limited to $150.0 million in aggregate principal amount.
A1-3
<PAGE> 81
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph 5,
the Notes will not be redeemable at the Company's option prior to July 15, 2002.
Thereafter, the Notes will be subject to redemption, in whole or in part, 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 and Liquidated Damages, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on July
15th of the years indicated below:
YEAR PERCENTAGE
---- ----------
2002.................................................. 105.375%
2003.................................................. 102.688%
2004 and thereafter................................... 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time on or before July 15, 2001, the Company may redeem up
to 35% of the aggregate principal amount of Notes originally issued under the
Indenture at a redemption price of 110.750% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date, with the net cash proceeds of a public sale of common stock of
the Company; provided that at least 65% of the aggregate principal amount of
Notes originally issued under the Indenture remains outstanding immediately
after the occurrence of such redemption (excluding Notes held by the Company or
any of its Subsidiaries) and that such redemption shall occur within 45 days of
the date of the closing of such public sale.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption or sinking fund payments with respect to
the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, the Company shall
be required to make an offer (a "Change of Control Offer") to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of each Holder's
Notes at a purchase price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date of purchase (the "Change of Control Payment"). Within 10
days following any Change of Control, the Company shall mail a notice to each
Holder setting forth the procedures governing the Change of Control Offer as
required by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sale,
within five days of each date on which the aggregate amount of Excess Proceeds
exceeds $5.0 million, the Company shall commence an offer to all Holders of
Notes and all holders of other Indebtedness that is pari passu with the Notes
containing provisions similar to those set forth in the Indenture with respect
to offers to purchase or redeem with the proceeds of sales of assets (an "Asset
Sale Offer") pursuant to Section 3.09 of the Indenture and such other pari passu
Indebtedness to purchase the maximum principal amount of Notes (including any
Additional Notes) and such other pari passu Indebtedness that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to 100%
of the principal amount
A1-4
<PAGE> 82
thereof plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the date of purchase. To the extent that the aggregate amount of
Notes (including any Additional Notes) and such other pari passu Indebtedness
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use such Excess Proceeds for any purpose not otherwise prohibited by
the Indenture. If the aggregate principal amount of Notes and other pari passu
Indebtedness tendered into such Asset Sale Offer surrendered by Holders thereof
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. Holders
of Notes that are the subject of an offer to purchase will receive an Asset Sale
Offer from the Company prior to any related purchase date and may elect to have
such Notes purchased by completing the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes or
portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in 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 need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture, the Notes or the Subsidiary Guarantees may be amended
or supplemented with the consent of the Holders of at least a majority in
principal amount of the then outstanding Notes and Additional Notes, if any,
voting as a single class, and any existing default or compliance with any
provision of the Indenture, the Notes or the Subsidiary Guarantees may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Notes and Additional Notes, if any, voting as a single class.
Without the consent of any Holder of Notes, the Company, the Guarantors (with
respect to a Subsidiary Guarantee or the Indenture to which it is a party) may
amend or supplement the Indenture, the Notes or any Subsidiary Guarantee to cure
any ambiguity, defect or inconsistency, to provide for uncertificated Notes in
addition to or in place of certificated Notes, to provide for the assumption of
the Company's or any Guarantor's obligations to Holders of the Notes in case of
a merger or consolidation or sale of all or substantially all of the Company's
Assets, to provide for the issuance of Additional Notes in accordance with the
limitations set forth in the Indenture on the date thereof, to make any change
that would provide any additional rights or benefits to the Holders of the Notes
or that does not adversely affect the legal rights under the Indenture of any
such Holder, to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act or to
reflect the release or addition of a Guarantor in accordance with the terms of
the Indenture.
A1-5
<PAGE> 83
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default
for 30 days in the payment when due of interest on, or Liquidated Damages, if
any, with respect to, the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (ii) default in payment when due of the principal
of or premium, if any, on the Notes; (iii) failure by the Company or any of its
Subsidiaries to comply with Sections 4.07, 4.09, 4.10, 4.14 and 5.01 of the
Indenture; (iv) failure by the Company or any of its Subsidiaries for 60 days
after notice by the Trustee or the Holders of at least 25% in principal amount
of the then outstanding Notes to comply with any of its other agreements in the
Indenture or the Notes; (v) 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 Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which 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 $5.0 million or more; (vi) failure
by the Company or any of its Subsidiaries to pay final judgments aggregating in
excess of $5.0 million, which judgments are not paid, discharged or stayed for a
period of 60 days; (vii) 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
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee; and (viii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Subsidiaries. If any 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. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any of its Subsidiaries
that would constitute a Significant Subsidiary or any group of Subsidiaries
that, taken together, would constitute a Significant Subsidiary, all outstanding
Notes will become due and payable without further action or notice. Holders of
the Notes may not enforce the Indenture or the Notes except as provided in the
Indenture. 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, and the Company is required upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or shareholder of the Company or any Guarantor as such, shall not
have any liability for any obligations of the Company or any Guarantor under the
Notes, the Subsidiary Guarantees or the Indenture 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 the issuance of the Notes.
A1-6
<PAGE> 84
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of July 21, 1998, among the Company and the parties named on
the signature pages thereof (the "Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
AAi.FosterGrant, Inc.
500 George Washington Highway
Smithfield, Rhode Island 02917
Attention: Chief Financial Officer
A1-7
<PAGE> 85
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Date: ___________
Your Signature: _________________________
(Sign exactly as your name appears on the
face of this Note)
SIGNATURE GUARANTEE.
A1-8
<PAGE> 86
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.14 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.14
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the
amount you elect to have purchased: $________
Date: Your Signature: ___________________
(Sign exactly as your name appears
on the Note)
Tax Identification No: ____________
Signature Guarantee.
A1-9
<PAGE> 87
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE(1)
The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a part
of another Global Note or Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
<CAPTION>
Principal Amount Signature of
Amount of decrease Amount of increase of this Global Note authorized officer
in Principal Amount in Principal Amount following such of Trustee or
Date of Exchange of this Global Note of this Global Note decrease (or increase) Note Custodian
- ---------------- ------------------- ------------------- --------------------- ------------------
<S> <C>
</TABLE>
- ----------
(1) This should be included only if the Note is issued in global form.
A1-10
<PAGE> 88
EXHIBIT A-2
(Face of Regulation S Temporary Global Note)
================================================================================
CUSIP/CINS _________
10 3/4 % Series A Senior Notes due 2006
No. ____ $__________
AAi.FosterGrant, Inc.
promises to pay to _____________________________________________________________
or registered assigns,
the principal sum of ___________________________________________________________
on July 15, 2006.
Interest Payment Dates: January 15, and July 15
Record Dates: January 1, and July 1
Dated: July 21, 1998
AAi.FosterGrant, Inc.
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
(SEAL)
This is one of the Global Note referred to in the Indenture:
IBJ Schroder Bank & Trust Company,
as Trustee
By:
----------------------------------
================================================================================
A2-1
<PAGE> 89
(Back of Regulation S Temporary Global Note)
10 3/4% Series A Senior Notes due 2006
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (SUBJECT TO THE DELIVERY OF SUCH EVIDENCE, IF REQUIRED UNDER
THE INDENTURE PURSUANT TO WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED
THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5
OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION
UNDER THE SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR
THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c)
OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), SUBJECT TO THE
RECEIPT BY THE REGISTRAR OF A CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF
COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES
ACT, (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER
WILL AND EACH SUBSEQUENT HOLDER IS REQUIRED TO NOTIFY ANY PURCHASER FROM IT OF
THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTION SET FORTH IN (A) ABOVE.
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO
A2-2
<PAGE> 90
THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV)
THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR
WRITTEN CONSENT OF AAI.FOSTERGRANT, INC.
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. AAi.FosterGrant, Inc., a Rhode Island corporation
(the "Company"), promises to pay interest on the principal amount of this Note
at 10 3/4 % per annum from July 21, 1998 until maturity and shall pay the
Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and Liquidated
Damages semi-annually on January 15 and July 15 of each year, or if any such day
is not a Business Day, on the next succeeding Business Day (each an "Interest
Payment Date"). Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be January 15, 1999. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
Until this Regulation S Temporary Global Note is exchanged for one or
more Regulation S Permanent Global Notes, the Holder hereof shall not be
entitled to receive payments of interest hereon; until so exchanged in full,
this Regulation S Temporary Global Note shall in all other respects be entitled
to the same benefits as other Notes under the Indenture.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the January 1st or July
1st next preceding the Interest Payment Date, even if such Notes are canceled
after such record date and on or before such Interest Payment Date, except as
provided in Section 2.12 of the Indenture with respect to defaulted interest.
The Notes will be payable as to principal, premium and Liquidated Damages, if
any, and interest at the office or agency of the Company maintained for such
purpose within or without the City and State of New York, or, at the option of
the Company, payment of interest and Liquidated Damages may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Company or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, IBJ Schroder Bank &
Trust Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
A2-3
<PAGE> 91
4. INDENTURE. The Company issued the Notes under an Indenture
dated as of July 21, 1998 (the "Indenture") among the Company, the Guarantors
named therein and 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, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes
are subject to all such terms, and Holders are referred to the Indenture and
such Act for a statement of such terms. To the extent any provision of this Note
conflicts with the express provisions of the Indenture, the provisions of the
indenture shall govern and be controlling. The Notes are obligations of the
Company limited to $150.0 million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph 5,
the Notes will not be redeemable at the Company's option prior to July 15, 2002.
Thereafter, the Notes will be subject to redemption, in whole or in part, 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 and Liquidated Damages, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on July
15th of the years indicated below:
YEAR PERCENTAGE
---- ----------
2002.................................................. 105.375%
2003.................................................. 102.688%
2004 and thereafter................................... 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time on or before July 15, 2001, the Company may redeem up
to 35% of the aggregate principal amount of Notes originally issued under the
Indenture at a redemption price of 110.750% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date, with the net cash proceeds of a public sale of common stock of
the Company; provided that at least 65% of the aggregate principal amount of
Notes originally issued under the Indenture remains outstanding immediately
after the occurrence of such redemption (excluding Notes held by the Company or
any of its Subsidiaries) and that such redemption shall occur within 45 days of
the date of the closing of such public sale.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption or sinking fund payments with respect to
the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, the Company shall
be required to make an offer (a "Change of Control Offer") to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of each Holder's
Notes at a purchase price in cash equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date of purchase (the "Change of Control Payment"). Within 10
days following any Change of Control, the Company shall mail a notice to each
Holder setting forth the procedures governing the Change of Control Offer as
required by the Indenture.
A2-4
<PAGE> 92
(b) If the Company or a Subsidiary consummates any Asset Sale,
within five days of each date on which the aggregate amount of Excess Proceeds
exceeds $5.0 million, the Company shall commence an offer to all Holders of
Notes and all holders of other Indebtedness that is pari passu with the Notes
containing provisions similar to those set forth in the Indenture with respect
to offers to purchase or redeem with the proceeds of sales of assets (an "Asset
Sale Offer") pursuant to Section 3.09 of the Indenture and such other pari passu
Indebtedness to purchase the maximum principal amount of Notes (including any
Additional Notes) and such other pari passu Indebtedness that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to 100%
of the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon, to the date of purchase. To the extent that the
aggregate amount of Notes (including any Additional Notes) and such other pari
passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Company may use such Excess Proceeds for any purpose not
otherwise prohibited by the Indenture. If the aggregate principal amount of
Notes and other pari passu Indebtedness tendered into such Asset Sale Offer
surrendered by Holders thereof 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. Holders of Notes that are the subject of an offer
to purchase will receive an Asset Sale Offer from the Company prior to any
related purchase date and may elect to have such Notes purchased by completing
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes or
portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in 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 need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
This Regulation S Temporary Global Note is exchangeable in whole or in
part for one or more Global Notes only (i) on or after the termination of the
40-day restricted period (as defined in Regulation S) and (ii) upon presentation
of certificates (accompanied by an Opinion of Counsel, if applicable) required
by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary
Global Note for one or more Global Notes, the Trustee shall cancel this
Regulation S Temporary Global Note.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture, the Notes or the Subsidiary Guarantees may be amended
or supplemented with the consent of the Holders of at least a majority in
principal amount of the then outstanding Notes and Additional
A2-5
<PAGE> 93
Notes, if any, voting as a single class, and any existing default or compliance
with any provision of the Indenture, the Notes or the Subsidiary Guarantees may
be waived with the consent of the Holders of a majority in principal amount of
the then outstanding Notes and Additional Notes, if any, voting as a single
class. Without the consent of any Holder of Notes, the Company, the Guarantors
(with respect to a Subsidiary Guarantee or the Indenture to which it is a party)
may amend or supplement the Indenture, the Notes or any Subsidiary Guarantee to
cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes
in addition to or in place of certificated Notes, to provide for the assumption
of the Company's or any Guarantor's obligations to Holders of the Notes in case
of a merger or consolidation or sale of all or substantially all of the
Company's Assets, to provide for the issuance of Additional Notes in accordance
with the limitations set forth in the Indenture on the date thereof, to make any
change that would provide any additional rights or benefits to the Holders of
the Notes or that does not adversely affect the legal rights under the Indenture
of any such Holder, to comply with the requirements of the SEC in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act or to reflect the release or addition of a Guarantor in accordance with the
terms of the Indenture.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default
for 30 days in the payment when due of interest on, or Liquidated Damages, if
any, with respect to, the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (ii) default in payment when due of the principal
of or premium, if any, on the Notes; (iii) failure by the Company or any of its
Subsidiaries to comply with Sections 4.07, 4.09, 4.10, 4.14 and 5.01 of the
Indenture; (iv) failure by the Company or any of its Subsidiaries for 60 days
after notice by the Trustee or the Holders of at least 25% in principal amount
of the then outstanding Notes to comply with any of its other agreements in the
Indenture or the Notes; (v) 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 Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which 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 $5.0 million or more; (vi) failure
by the Company or any of its Subsidiaries to pay final judgments aggregating in
excess of $5.0 million, which judgments are not paid, discharged or stayed for a
period of 60 days; (vii) 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
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Subsidiary Guarantee; and (viii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Subsidiaries. If any 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. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any of its Subsidiaries
that would constitute a Significant Subsidiary or any group of Subsidiaries
that, taken together, would constitute a Significant Subsidiary, all outstanding
Notes will become due and payable without further action or notice. Holders of
the Notes may not enforce the Indenture or the Notes except as provided in the
Indenture. 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, and the Company is required upon becoming
A2-6
<PAGE> 94
aware of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or shareholder of the Company or any Guarantor as such, shall not
have any liability for any obligations of the Company or any Guarantor under the
Notes, the Subsidiary Guarantees or the Indenture 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 the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of July 21, 1998, among the Company and the parties named on
the signature pages thereof (the "Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
AAi.FosterGrant, Inc.
500 George Washington Highway
Smithfield, Rhode Island 02917
Attention: Chief Financial Officer
A2-7
<PAGE> 95
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Date: ___________
Your Signature: _________________________
(Sign exactly as your name appears on the
face of this Note)
SIGNATURE GUARANTEE.
A2-8
<PAGE> 96
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.14 of the Indenture, check the box below:
[ ] Section 4.10 [ ] Section 4.14
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the
amount you elect to have purchased: $________
Date: Your Signature: ___________________
(Sign exactly as your name appears
on the Note)
Tax Identification No: ____________
Signature Guarantee.
A2-9
<PAGE> 97
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE1/
The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a part
of another Global Note or Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
<CAPTION>
Principal Amount Signature of
Amount of decrease Amount of increase of this Global Note authorized officer
in Principal Amount in Principal Amount following such of Trustee or
Date of Exchange of this Global Note of this Global Note decrease (or increase) Note Custodian
- ---------------- ------------------- ------------------- --------------------- ------------------
<S> <C>
</TABLE>
- ----------
(1) This should be included only if the Note is issued in global form.
A2-10
<PAGE> 98
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
AAi.FosterGrant, Inc.
500 George Washington Highway
Smithfield, Rhode Island 02917
IBJ Schroder Bank & Trust Company
Re: 10 3/4 % Series A Senior Notes
------------------------------
Reference is hereby made to the Indenture, dated as of July 21, 1998
(the "INDENTURE"), among AAi.FosterGrant, Inc., as issuer (the "COMPANY"), the
Guarantors named therein and IBJ Schroder Bank & Trust Company, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
______________, (the "TRANSFEROR") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "TRANSFER"),
to __________ (the "TRANSFEREE"), as further specified in Annex A hereto. In
connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN
THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "SECURITIES ACT"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN
THE TEMPORARY REGULATION S GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A
DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected
pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act
and, accordingly, the Transferor hereby further certifies that (i) the Transfer
is not being made to a person in the United States and (x) at the time the buy
order was originated, the Transferee was outside the United States or such
Transferor and any Person acting on its behalf reasonably believed and believes
that the Transferee was outside the United States or (y) the transaction was
executed in, on or through the facilities of a designated offshore securities
market and neither such Transferor nor any Person acting on its behalf knows
that the transaction was prearranged with a buyer in the United States, (ii) no
directed selling efforts have been made in contravention of the requirements of
Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act , (iii) the
transaction is not part of a plan or scheme to evade the
B-1
<PAGE> 99
registration requirements of the Securities Act and (iv) if the proposed
transfer is being made prior to the expiration of the Restricted Period, the
transfer is not being made to a U.S. Person or for the account or benefit of a
U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed
transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will be subject to the restrictions on
Transfer enumerated in the Private Placement Legend printed on the Regulation S
Global Note, the Temporary Regulation S Global Note and/or the Definitive Note
and in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION
OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is
being effected in compliance with the transfer restrictions applicable to
beneficial interests in Restricted Global Notes and Restricted Definitive Notes
and pursuant to and in accordance with the Securities Act and any applicable
blue sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) [ ] such Transfer is being effected to the Company or a
subsidiary thereof;
or
(c) [ ] such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;
or
(d) [ ] such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that it has not engaged in any
general solicitation within the meaning of Regulation D under the Securities Act
and the Transfer complies with the transfer restrictions applicable to
beneficial interests in a Restricted Global Note or Restricted Definitive Notes
and the requirements of the exemption claimed, which certification is supported
by (1) a certificate executed by the Transferee in the form of Exhibit D to the
Indenture and (2) if such Transfer is in respect of a principal amount of Notes
at the time of transfer of less than $250,000, an Opinion of Counsel provided by
the Transferor or the Transferee (a copy of which the Transferor has attached to
this certification), to the effect that such Transfer is in compliance with the
Securities Act. Upon consummation of the proposed transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the IAI Global Note and/or the Definitive Notes and
in the Indenture and the Securities Act.
4. [ ] Check if Transferee will take delivery of a beneficial interest in
an Unrestricted Global Note or of an Unrestricted Definitive Note.
B-2
<PAGE> 100
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
----------------------------------
[Insert Name of Transferor]
By:
------------------------------
Name:
Title:
Dated: ___, _____
B-3
<PAGE> 101
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) 144A Global Note (CUSIP ), or
(ii) Regulation S Global Note (CUSIP ), or
(iii) IAI Global Note (CUSIP ); or
(b) [ ] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) 144A Global Note (CUSIP _________), or
(ii) Regulation S Global Note (CUSIP _________), or
(iii) IAI Global Note (CUSIP _________), or
(iv) Unrestricted Global Note (CUSIP _________), or
(b) [ ] a Restricted Definitive Note; or
(c) [ ] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B-4
<PAGE> 102
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
AAi.FosterGrant, Inc.
500 George Washington Highway
Smithfield, Rhode Island 02917
IBJ Schroder Bank & Trust Company
Re: 10 3/4 % Series A Senior Notes
------------------------------
Reference is hereby made to the Indenture, dated as of July 21, 1998
(the "INDENTURE"), among AAi.FosterGrant, Inc., as issuer (the "COMPANY"), the
Guarantors named therein and IBJ Schroder Bank & Trust Company, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
____________, (the "OWNER") owns and proposes to exchange the Note[s]
or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "EXCHANGE"). In connection with
the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN AN UNRESTRICTED GLOBAL NOTE.
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer, (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to the
Global Notes and pursuant to and in accordance with the United States Securities
Act of 1933, as amended (the "SECURITIES ACT"), (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest in an Unrestricted Global Note is being acquired in
compliance with any applicable blue sky securities laws of any state of the
United States.
(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the Definitive Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and
C-1
<PAGE> 103
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest is being acquired in compliance with any applicable blue sky
securities laws of any state of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note with an equal principal amount, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the Owner's
own account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Definitive Note
issued will continue to be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Definitive Note and in
the Indenture and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
of the Owner's Restricted Definitive Note for a beneficial interest in the
[CHECK ONE] 144A Global Note, Regulation S Global Note, IAI Global Note with an
equal principal amount, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer and (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, and in compliance with any applicable blue sky securities
laws of any state of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial interest
issued will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.
C-2
<PAGE> 104
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
-----------------------------------
[Insert Name of Owner]
By:
-------------------------------
Name:
Title:
Dated: ______________, ____
C-3
<PAGE> 105
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
AAi.FosterGrant, Inc.
500 George Washington Highway
Smithfield, Rhode Island 02917
IBJ Schroder Bank & Trust Company
Re: 10 3/4% Series A Senior Notes
------------------------------
Reference is hereby made to the Indenture, dated as of July 21, 1998
(the "INDENTURE"), among AAi.FosterGrant, Inc., as issuer (the "COMPANY"), the
Guarantors named therein and IBJ Schroder Bank & Trust Company, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
In connection with our proposed purchase of $____________
aggregate principal amount of:
(a) a beneficial interest in a Global Note, or
(b) a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the
Notes or any interest therein is subject to certain restrictions and conditions
set forth in the Indenture and the undersigned agrees to be bound by, and not to
resell, pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "SECURITIES ACT").
2. We understand that the offer and sale of the Notes
have not been registered under the Securities Act, and that the Notes and any
interest therein may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell the Notes or any
interest therein, we will do so only (A) to the Company or any subsidiary
thereof, (B) in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined therein), (c) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company a signed letter substantially in the form of this letter and, if such
transfer is in respect of a principal amount of Notes, at the time of transfer
of less than $250,000, an Opinion of Counsel in form reasonably acceptable to
the Company to the effect that such transfer is in compliance with the
Securities Act, (D) outside the United States in accordance with Rule 904 of
Regulation S under the Securities Act, (E) pursuant to the provisions of Rule
144(k) under the Securities Act or (F) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing the Definitive Note or beneficial
D-1
<PAGE> 106
interest in a Global Note from us in a transaction meeting the requirements of
clauses (A) through (E) of this paragraph a notice advising such purchaser that
resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the
Notes or beneficial interest therein, we will be required to furnish to you and
the Company such certifications, legal opinions and other information as you and
the Company may reasonably require to confirm that the proposed sale complies
with the foregoing restrictions. We further understand that the Notes purchased
by us will bear a legend to the foregoing effect. We further understand that any
subsequent transfer by us of the Notes or beneficial interest therein acquired
by us must be effected through one of the Initial Purchasers.
4. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of our investment in the Notes,
and we and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
5. We are acquiring the Notes or beneficial interest
therein purchased by us for our own account or for one or more accounts (each of
which is an institutional "accredited investor") as to each of which we exercise
sole investment discretion.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
-----------------------------------
[Insert Name of Owner]
By:
-------------------------------
Name:
Title:
Dated: ______________, ____
D-2
<PAGE> 107
EXHIBIT E
FORM OF NOTATION OF SUBSIDIARY GUARANTEE
For value received, each Guarantor (which term includes any successor
Person under the Indenture) has, jointly and severally, unconditionally
guaranteed, to the extent set forth in the Indenture and subject to the
provisions in the Indenture dated as of July 21, 1998 (the "Indenture") among
AAi.FosterGrant, Inc., the Guarantors listed on Schedule I thereto and IBJ
Schroder Bank & Trust Company, as trustee (the "Trustee"), (a) the due and
punctual payment of the principal of and premium, interest and Liquidated
Damages, if any, on the Notes (as defined in the Indenture), whether at
maturity, by acceleration, redemption or otherwise, the due and punctual payment
of interest on overdue principal and premium, and, to the extent permitted by
law, interest and Liquidated Damages, if any, and the due and punctual
performance of all other obligations of the Company to the Holders or the
Trustee all in accordance with the terms of the Indenture and (b) in case of any
extension of time of payment or renewal of any Notes or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. The obligations of the Guarantors to the
Holders of Notes and to the Trustee pursuant to this Subsidiary Guarantee and
the Indenture are expressly set forth in Article 10 of the Indenture and
reference is hereby made to the Indenture for the precise terms of the
Subsidiary Guarantee. Each Holder of a Note, by accepting the same, (a) agrees
to and shall be bound by such provisions and (b) appoints the Trustee
attorney-in-fact of such Holder for such purpose; provided, however, that the
Indebtedness evidenced by this Subsidiary Guarantee shall cease to be subject in
right of payment upon any defeasance of this Note in accordance with the
provisions of the Indenture.
[Name of Guarantor(s)]
By:
------------------------------------
Name:
Title:
E-1
<PAGE> 108
EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
________________, among __________________ (the "Guaranteeing Subsidiary"), a
subsidiary of (or its permitted successor) AAi.FosterGrant, Inc., a Rhode Island
corporation (the "Company"), the Company, the other Guarantors (as defined in
the Indenture referred to herein) and IBJ Schroder Bank & Trust Company, as
trustee under the indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of July 21, 1998 providing for
the issuance of an aggregate principal amount of up to $150.0 million of 10 3/4
% Senior Notes due 2006 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiary shall execute and deliver to the Trustee a Supplemental
Indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally
guarantee all of the Company's Obligations under the Notes and the Indenture on
the terms and conditions set forth herein (the "Subsidiary Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby
agrees to be bound by the terms of the Indenture as a Guarantor and agrees to be
subject to the provisions of the Indenture applicable to Guarantors as though
originally a signatory and party to the Indenture.
3 EXECUTION AND DELIVERY. Each Guaranteeing Subsidiary agrees
that the Subsidiary Guarantees shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such
Subsidiary Guarantee.
4. NO RECOURSE AGAINST OTHERS. No past, present or future
director, officer, employee, incorporator, or shareholder of the Guaranteeing
Subsidiary, as such, shall have any liability for any obligations of the Company
or any Guaranteeing Subsidiary under the Notes, any Subsidiary Guarantees, the
Indenture or this Supplemental Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of the
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. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the SEC that such a waiver is against public policy.
F-1
<PAGE> 109
5. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW
YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT
THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
6. COUNTERPARTS The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
7. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
8. THE TRUSTEE. The Trustee shall not be responsible in any
manner whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which recitals are made solely by the Guaranteeing Subsidiary and the
Company.
F-2
<PAGE> 110
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: _______________, ____
[Guaranteeing Subsidiary]
By:
-------------------------------
Name:
Title:
AAi.FosterGrant, Inc.
By:
-------------------------------
Name:
Title:
[EXISTING GUARANTORS]
By:
-------------------------------
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY
as Trustee
By:
-------------------------------
Name:
Title:
<PAGE> 111
SCHEDULE I
SCHEDULE OF GUARANTORS
The following schedule lists each Guarantor under the Indenture as of
the Closing Date:
1. Foster Grant Holdings, Inc.
2. The Bonneau Company
3. Opti-Ray, Inc.
4. Bonneau General, Inc.
5. Bonneau Holdings, Inc.
6. O-Ray Holdings, Inc.
7. F.G.G. Investments, Inc.
8. Foster Grant Group, L.P.
9. Fantasma, LLC
F-2
<PAGE> 1
Exhibit 4.2
EXECUTION COPY
AAI.FOSTERGRANT, INC.
$75,000,000
10 3/4% SENIOR NOTES DUE 2006
PURCHASE AGREEMENT
July 16, 1998
NationsBanc Montgomery Securities LLC
Prudential Securities Incorporated
BancBoston Securities Inc.
c/o NationsBanc Montgomery Securities LLC
100 North Tryon Street
Charlotte, North Carolina 28255
Ladies and Gentlemen:
AAi.FosterGrant, Inc., a Rhode Island corporation (the "Company"), proposes
to issue and sell to you (the "Initial Purchasers") $75,000,000 in aggregate
principal amount of its 10 3/4% Senior Notes due 2006 (the "Notes"). The Notes
will be fully and unconditionally guaranteed (the "Subsidiary Guarantees" and,
collectively with the Notes, the "Securities") on a senior unsecured basis,
jointly and severally, by each domestic subsidiary of the Company listed on the
signature page hereto (the "Subsidiary Guarantors" and, together with the
Company, the "Issuers"). The Securities are to be issued pursuant to an
indenture, dated as of July 21, 1998 (the "Indenture"), by and among the
Company, the Subsidiary Guarantors and IBJ Schroder Bank & Trust Company, as
Trustee (the "Trustee").
The sale of the Securities to the Initial Purchasers will be made without
registration of the Securities under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon exemptions from the registration
requirements of the Securities Act. You have advised the Issuers that you will
offer and sell the Securities purchased by you hereunder in accordance with
Section 3 hereof as soon as you deem advisable.
<PAGE> 2
In connection with the sale of the Securities, the Issuers have prepared a
preliminary offering memorandum, dated June 24, 1998 (the "Preliminary
Memorandum") and a final offering memorandum, dated July 16, 1998 (the "Final
Memorandum"). Each of the Preliminary Memorandum and the Final Memorandum sets
forth certain information concerning the Issuers and the Securities. The Issuers
hereby confirm that they have authorized the use of the Preliminary Memorandum
and the Final Memorandum, and any amendment or supplement thereto, in connection
with the offer and sale of the Securities by the Initial Purchasers. Unless
stated to the contrary, all references herein to the Final Memorandum are to the
Final Memorandum at the time of execution and delivery of this Agreement (the
"Execution Time") and are not meant to include any amendment or supplement
subsequent to the Execution Time.
The Initial Purchasers and their direct and indirect transferees will be
entitled to the benefits of the Registration Rights Agreement, substantially in
the form attached hereto as EXHIBIT A (the "Registration Rights Agreement"),
pursuant to which the Issuers will agree to use their best efforts to commence
an offer to exchange (the "Exchange Offer") the Securities for Exchange
Securities (the "Exchange Securities") that have been registered under the
Securities Act, and that otherwise are identical in all respects to the
Securities, or to cause a shelf registration statement to become effective under
the Securities Act and to remain effective for the period designated in such
Registration Rights Agreement.
1. REPRESENTATIONS AND WARRANTIES. All representations and warranties of the
Company and its subsidiaries are made on the date hereof.
The Company and the Subsidiary Guarantors, jointly and severally, represent
and warrant to the Initial Purchasers that (it being understood that
representations made on the date hereof as to parties other than the Company and
its subsidiaries as of such date shall be made to the best knowledge of the
Issuers and the Subsidiary Guarantors):
(a) The Preliminary Memorandum, at the date thereof, did not contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. The Final Memorandum, at the date hereof, does
not, and at the Closing Date will not (and any amendment or supplement thereto,
at the date thereof and at the Closing Date, will not), contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however that the Issuers make no
representation or warranty as to the information relating to the Initial
Purchasers contained in or omitted from the Preliminary Memorandum or the Final
Memorandum, or any amendment or supplement thereto, in reliance upon and in
2
<PAGE> 3
conformity with information furnished in writing to the Issuers by or on behalf
of the Initial Purchasers specifically for inclusion therein. No stop order
preventing the use of the Preliminary Memorandum or the Final Memorandum, or any
amendment or supplement thereto, or any order asserting that any of the
transactions contemplated by this Agreement are subject to the registration
requirements of the Securities Act, has been issued.
(b) Neither the Issuers, nor any of their "Affiliates" (as defined in Rule
501(b) of Regulation D under the Securities Act ("Regulation D")), nor any
person acting on their behalf has, directly or indirectly, made offers or sales
of any security, or solicited offers to buy any security, under circumstances
that would require the registration of the Securities under the Securities Act.
Neither the Issuers, nor any of their Affiliates, nor any person acting on their
behalf has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with any offer or sale of the
Securities, provided, that the Issuers make no representation in this sentence
regarding the Initial Purchasers. The Securities satisfy the eligibility
requirements of Rule 144A(d)(3) under the Securities Act. The Final Memorandum
and each amendment or supplement thereto, as of its date, contains the
information specified in Rule 144A(d)(4) under the Act. The Issuers have been
advised by the National Association of Securities Dealers, Inc. ("NASD") Private
Offerings, Resales and Trading through the Automated Linkages Market ("PORTAL")
that the Securities have been designated PORTAL eligible securities in
accordance with the rules and regulations of the NASD.
(c) None of the Issuers nor any of their respective Affiliates or any
person acting on its or their behalf (other than the Initial Purchasers, as to
whom the Issuers make no representation) has engaged or will engage in any
directed selling efforts within the meaning of Regulation S under the Securities
Act ("Regulation S") with respect to the Securities. The Securities offered and
sold in reliance on Regulation S have been and will be offered and sold only in
offshore transactions. The sale of the Securities pursuant to Regulation S is
not part of a plan or scheme to evade the registration provisions of the
Securities Act. No registration under the Securities Act of the Securities is
required for the sale of the Securities to the Initial Purchasers as
contemplated hereby or for the Exempt Resales (as defined below) assuming the
accuracy of, and compliance with, the Initial Purchasers' representations,
warranties and agreements set forth in Section 3 of this Agreement. The
Securities sold pursuant to Regulation S will initially be represented by a
temporary global security as required by Rule 903 of Regulation S.
(d) Neither the Company nor any of its subsidiaries is, or will be after
giving effect to the offering and sale of the Securities and the application of
the proceeds therefrom as
3
<PAGE> 4
described in the Final Memorandum, an "investment company" within the meaning of
the Investment Company Act of 1940, as amended (the "Investment Company Act").
(e) Assuming (i) that the representations and warranties and covenants of
the Initial Purchasers contained in Section 3 hereof are true and correct and
(ii) that the Initial Purchasers comply with their agreements contained in
Section 3 hereof, (A) registration under the Securities Act of the Securities or
qualification of the Indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), is not required in connection with the offer and
sale of the Securities to the Initial Purchasers in the manner contemplated by
the Final Memorandum or this Agreement and (B) initial resales of the Securities
by the Initial Purchasers on the terms and in the manner set forth in the Final
Memorandum and Section 3 hereof are exempt from the registration requirements of
the Securities Act.
(f) Since the respective dates as of which information is given in the
Preliminary Memorandum and the Final Memorandum, except as otherwise stated
therein, (i) there has been no material adverse change in the condition
(financial or otherwise), results of operations, affairs or business prospects
of the Company and its subsidiaries considered as a whole, whether or not
arising in the ordinary course of business and (ii) there have been no material
transactions entered into by the Company or any of its subsidiaries
(collectively, a "Material Adverse Change").
(g) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of Rhode Island with corporate power
and authority to own, lease and operate its properties and conduct its business
as described in the Preliminary Memorandum and the Final Memorandum; and the
Company is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which the conduct of its business
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not, singly or in the aggregate,
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), results of operations, affairs or business prospects
of the Company and its subsidiaries considered as a whole (a "Material Adverse
Effect").
(h) All of the outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable.
(i) Except as set forth in the Final Memorandum and except for rights or
options held by the Company to acquire capital stock or other equity interests
of subsidiaries, there are not currently, and will not be as a result of the
Offering, any outstanding subscriptions,
4
<PAGE> 5
rights, warrants, calls, commitments of sale or options to acquire, or
instruments convertible into or exchangeable for, any capital stock or other
equity interest of the Company or any subsidiary.
(j) Attached as SCHEDULE A hereto is a complete and accurate list of each
subsidiary of the Company. Each of the subsidiaries of the Company has been duly
organized and is validly existing and in good standing under the laws of the
jurisdiction of its organization, has the requisite power and authority to own,
lease and operate its properties and conduct its business as described in the
Preliminary Memorandum and the Final Memorandum and is duly qualified as a
foreign organization to transact business and is in good standing in each
jurisdiction in which the conduct of its business requires such qualification,
except to the extent that the failure to be so qualified or be in good standing
would not, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect. All of the issued and outstanding capital stock of each
subsidiary of the Company owned by the Company has been duly authorized and
validly issued and is fully paid and nonassessable, and, except as described in
the Preliminary Memorandum and the Final Memorandum or pursuant to the Senior
Credit Facility (as defined in the Final Memorandum), all shares of capital
stock of each such subsidiary which are owned by the Issuers, directly or
through subsidiaries, are free and clear of any mortgage, pledge, lien,
encumbrance, claim or equity.
(k) Each of the Issuers has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and each of
the Registration Rights Agreement, the Indenture and the Senior Credit Facility
to which it is a party and to consummate the transactions contemplated hereby
and thereby, including, without limitation, the corporate power and authority to
issue, sell and deliver the Securities as provided herein.
(l) This Agreement has been duly authorized, executed and delivered by each
of the Issuers and constitutes the valid and binding agreement of each of the
Issuers, enforceable against each of the Issuers in accordance with its terms,
except that (i) enforcement thereof may be subject to (A) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law) and (ii) the
enforceability of any indemnification or contribution provisions thereof may be
limited under applicable securities laws or the public policies underlying such
laws.
(m) The Notes have been duly authorized by the Company, and, when executed
and authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Initial Purchasers in accordance with this
Agreement, will constitute the valid
5
<PAGE> 6
and binding obligations of the Company enforceable against the Company in
accordance with their terms, and will be entitled to the benefits, of the
Indenture, except that enforcement thereof may be subject to (A) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
(n) The Subsidiary Guarantees endorsed on the Notes have been duly
authorized by each Subsidiary Guarantor and when the Notes are executed and
authenticated in accordance with the provisions of the Indenture and delivered
to the Initial Purchasers in accordance with this Agreement, the Subsidiary
Guarantees will constitute the valid and binding obligation of each of the
Subsidiary Guarantors enforceable against each of the Subsidiary Guarantors in
accordance with their terms and will be entitled to the benefits of the
Indenture except that enforcement thereof may be subject to (A) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
(o) The Indenture has been duly authorized by each of the Issuers. When the
Securities are delivered and paid for pursuant to this Agreement on the Closing
Date, the Indenture will have been duly executed and delivered by each of the
Issuers and, assuming the due execution and delivery thereof by the Trustee,
will constitute a valid and binding agreement of each of the Issuers,
enforceable against each of the Issuers in accordance with its terms, except
that enforcement thereof may be subject to (A) bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally and (B)
general principles of equity (regardless of whether enforceability is considered
in a proceeding in equity or at law).
(p) The Exchange Securities have been duly authorized by each of the
Issuers and, when duly executed, authenticated, issued and delivered, will be
validly issued and outstanding, and will constitute the valid and binding
obligations of each of the Issuers, entitled to the benefits of the Indenture
and enforceable against each of the Issuers in accordance with their terms
except that enforcement thereof may be subject to (A) bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally and (B)
general principles of equity (regardless of whether enforceability is considered
in a proceeding in equity or at law).
6
<PAGE> 7
(q) The Registration Rights Agreement has been duly authorized by each of
the Issuers and, when duly executed and delivered by each of the Issuers
(assuming the due execution and delivery by the Initial Purchasers), will
constitute a valid and binding agreement of each of the Issuers, enforceable
against each of the Issuers in accordance with its terms except that (i)
enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws now or hereafter
in effect relating to or affecting creditors' rights generally and (B) general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law) and (ii) the enforceability of any
indemnification or contribution provisions thereof may be limited under
applicable securities laws or the public policies underlying such laws.
(r) On the Closing Date, the Senior Credit Facility and the guarantee of
the obligations thereunder by the Subsidiary Guarantors (a) shall have been duly
authorized, executed and delivered by the Company and each Subsidiary Guarantor
and will constitute the valid and binding agreement of the Company and each
Subsidiary Guarantor, enforceable against the Company and each Subsidiary
Guarantor, as applicable, in accordance with their terms except that (i)
enforcement thereof may be subject to (A) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws now or hereafter
in effect relating to or affecting creditors' rights generally and (B) general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law) and (ii) the enforceability of any
indemnification or contribution provisions thereof may be limited under
applicable securities laws or public policies; and (b) shall be in full force
and effect. On the Closing Date, no event of default or event which, with the
giving of notice or passage of time or both, would constitute an event of
default shall have occurred under the Senior Credit Facility or the guarantees
thereof by the Subsidiary Guarantors and all conditions to the extension of
credit thereunder still have been satisfied without waiver.
(s) The industry and market-related data included in the Final Memorandum
are based on or derived from sources which the Company believes to be reliable
and accurate in all material respects.
(t) Neither the Company nor any of its subsidiaries is in breach or
violation of any of the terms or provisions of any bond, debenture, note,
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which any of them or their
property is or may be bound or to which any of the properties or assets of the
Company or any of its subsidiaries are subject, nor is the Company or any of its
subsidiaries in violation of the provisions of its respective charter, by-laws
or other organizational documents or any statute or any judgment, order, rule or
regulation of any court or
7
<PAGE> 8
governmental agency or body having jurisdiction over the Company, any of its
subsidiaries or any of their properties or assets (except to the extent any such
conflict, breach, violation or default is cured at or prior to the Closing Date
and within the grace period applicable thereto or would not, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect). To the
best knowledge of the Issuers, there exists no condition that, with notice, the
passage of time or otherwise, would constitute a default under (i) any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any of the
properties or assets of the Company or any of its subsidiaries are subject,
except for such defaults which would not, singly or in the aggregate, have a
Material Adverse Effect or (ii) the respective charter, by-laws or other
organizational documents of the Company or any of its subsidiaries.
(u) The execution, delivery and performance of this Agreement, the
Indenture, the Registration Rights Agreement and the Senior Credit Facility by
the Issuers (to the extent each is a party thereto), and the consummation of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance and sale of the Securities) does not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any bond, debenture, note, indenture, mortgage, deed of trust or
other agreement or instrument to which the Company or any of its subsidiaries is
a party or by which any of them or their property is or may be bound or to which
any of the properties or assets of the Company or any of its subsidiaries are
subject, nor will such actions result in any violation of the provisions of the
charter, by-laws or other organizational documents of the Company or any of its
subsidiaries or any statute to which they may be subject or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their properties or assets
(except to the extent any such conflict, breach, violation or default singly or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect); and except for such consents, approvals, authorizations, orders,
filings or registrations as may be required under applicable state securities
and Blue Sky laws in connection with the purchase and distribution of the
Securities by the Initial Purchasers or as set forth in the Registration Rights
Agreement, no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is required for
the execution, delivery and performance of this Agreement, the Indenture, the
Registration Rights Agreement and the Senior Credit Facility by the Issuers (to
the extent each is a party thereto), the consummation of the transactions
contemplated hereby and thereby, and the issuance and sale of the Securities and
Exchange Securities by the Issuers, except such as have been or will be obtained
and made on or prior to the Closing Date or such the failure to obtain would
not, singly or in the aggregate, have a Material Adverse Effect.
8
<PAGE> 9
(v) As of the Closing Date, the Securities and the Indenture will conform
in all material respects to the descriptions thereof contained in the Final
Memorandum. As of the Closing Date, the provisions of the Registration Rights
Agreement and the Senior Credit Facility, to the extent that such provisions are
summarized in the Final Memorandum, will conform in all material respects to the
descriptions thereof contained in the Final Memorandum.
(w) Except as set forth in the Preliminary Memorandum and the Final
Memorandum, there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending or, to the
knowledge of the Issuers, threatened against or affecting the Company or any of
its subsidiaries, which would reasonably be expected to result in a Material
Adverse Change or, singly or in the aggregate, would reasonably be expected to
have a Material Adverse Effect or materially and adversely affect the offering
of the Securities.
(x) The Company and each of its subsidiaries has good and marketable title
to all real property and all personal property owned by it and used in the
conduct of the business of the Company or such subsidiary, in each case free and
clear of all liens, encumbrances and defects except as are described in the
Preliminary Memorandum and Final Memorandum or do not materially and adversely
affect the value of such property to the Company or such subsidiary, and do not
interfere with the use made and proposed to be made of such property by the
Company or such subsidiary to an extent that such interference would, singly or
in the aggregate, reasonably be expected to have a Material Adverse Effect. All
leases to which the Company or any of its subsidiaries is a party material to
the business of the Company and its subsidiaries, taken as a whole, and
described in the Final Memorandum are in full force and effect, and to the
knowledge of the Issuers no default has occurred or is continuing thereunder
which could, singly or in the aggregate, reasonably be expected to have a
Material Adverse Effect or materially and adversely affect the offering of the
Securities, and the Company and its subsidiaries enjoy peaceful and undisturbed
possession under all such leases to which any of them is a party as lessee (with
such exceptions as do not materially interfere with the use made by the Company
or such subsidiary). The Company and its subsidiaries possess adequate
certificates, authorizations or permits issued by the appropriate state, federal
or foreign regulatory agencies or bodies necessary to conduct the business now
operated by them, and neither the Company nor any of its subsidiaries has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authority or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would, singly or in
the aggregate, reasonably be expected to have a Material Adverse Effect.
9
<PAGE> 10
(y) Each of the accountants who have certified or will certify the
financial statements of the Company and its subsidiaries included in the Final
Memorandum are independent public accountants within the meaning of the
Securities Act and the rules and regulations thereunder. The financial
statements included in the Preliminary Memorandum and the Final Memorandum
present fairly in all material respects the consolidated financial position of
the Company and its subsidiaries, on a consolidated basis, and Foster Grant
Group L.P. as at the dates indicated and the results of their respective
operations and the changes in their consolidated financial position for the
periods specified subject, in the case of interim period financial statements,
to normal year-end adjustments; said financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis during the periods involved, except as indicated therein and except, in
the case of interim period financial statements, for the absence of certain
footnotes required by such accounting principles, and comply as to form in all
material respects with the requirements applicable to such financial statements
included in registration statements on Form S-1 under the Securities Act. The
Company and each of its subsidiaries maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
The pro forma financial statements included in the Preliminary Memorandum
and the Final Memorandum have been prepared on a basis consistent with the
historical financial statements of (i) the Company and its subsidiaries, (ii)
Fantasma. LLC ("Fantasma") , (iii) Superior Jewelry Company ("Superior") and
(iv) Eyecare Products UK Ltd. ("Foster Grant UK") and give effect to assumptions
used in the preparation thereof on a reasonable basis and in good faith and
present fairly the historical and proposed transactions contemplated by the
Preliminary Memorandum and the Final Memorandum; and such pro forma financial
statements comply as to form in all material respects with the requirements
applicable to pro forma financial statements included in registration statements
on Form S-1 under the Act. The other pro forma financial and statistical
information and data included in the Preliminary Memorandum and the Final
Memorandum are, in all material respects, accurately presented and prepared on a
basis consistent with the pro forma financial statements.
10
<PAGE> 11
The historical and pro forma financial statements included in the
Preliminary Memorandum and the Final Memorandum constitute all of the financial
statements that would be required to be included in a registration statement on
Form S-1 under the Securities Act.
(z) Neither the Company nor any of its subsidiaries is now or, after giving
effect to the issuance of the Securities and the application of the proceeds
thereof, will be (i) insolvent, (ii) left with unreasonably small capital with
which to engage in its anticipated businesses or (iii) incurring debts beyond
its ability to pay such debts as they become due.
(aa) Except as would not reasonably be expected to have a Material Adverse
Effect, the Company and its subsidiaries own, or otherwise possess the right to
use, all patents, trademarks, service marks, trade names and copyrights, all
applications and registrations for each of the foregoing, and all other
proprietary rights and confidential information used in the conduct of their
respective businesses as currently conducted; and neither the Company nor any of
its subsidiaries has received any notice or is otherwise aware, of any
infringement of or conflict with the rights of any third party with respect to
any of the foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected to have a
Material Adverse Effect.
(bb) The Company and its subsidiaries are (i) in compliance with any and
all applicable foreign, federal, state and local laws and regulations relating
to the protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental Laws"),
(ii) have received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(cc) There is (i) no significant unfair labor practice complaint pending
against the Company or any of its subsidiaries nor, to the best knowledge of the
Issuers, threatened against any of them, before the National Labor Relations
Board, any state or local labor relations board or any foreign labor relations
board, and no significant grievance or significant arbitration proceeding
arising out of or under any collective bargaining agreement is so pending
against the Company or any of its subsidiaries or, to the best knowledge of the
Issuers, threatened against any of them, (ii) no significant strike, labor
dispute, slowdown or stoppage pending against the Company or any of its
subsidiaries nor, to the best knowledge of the Issuers, threatened against
11
<PAGE> 12
the Company or any of its subsidiaries and (iii) to the best knowledge of the
Issuers, no union representation question existing with respect to the employees
of the Company or any of its subsidiaries. To the best knowledge of the Issuers,
no collective bargaining organizing activities are taking place with respect to
the Company or any of its subsidiaries. None of the Company or any of its
subsidiaries has violated (i) any federal, state or local law or foreign law
relating to discrimination in hiring, promotion or pay of employees, (ii) any
applicable wage or hour laws or (iii) any provision of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or the rules and regulations
thereunder, except those violations that could not reasonably be expected to
have a Material Adverse Effect.
(dd) The Company has filed all material tax returns required to be filed by
the Company or any of its subsidiaries in all jurisdictions and paid all taxes
shown due thereon, including withholding taxes, penalties and interest,
assessments, fees and other charges due or claimed to be due from such entities
other than those being contested in good faith and for which adequate reserves
have been provided or those currently payable without penalty or interest. To
the knowledge of the Issuers, there are no material proposed additional tax
assessments against the Company or any of its subsidiaries, or the assets or
property of the Company or any of its subsidiaries, except those tax assessments
for which adequate reserves have been established.
(ee) Each of the Company and its subsidiaries maintains or is entitled to
the benefits of insurance covering its properties, operations, personnel and
businesses, insuring against such losses and risks as are consistent with
industry practice. None of the Company or any of its subsidiaries has received
notice from any insurer or agent of such insurer that substantial capital
improvements or other expenditures will have to be made in order to continue
such insurance.
(ff) The Company has (i) initiated a review and assessment of all areas
within its and each of its subsidiaries' business and operations (including
those affected by suppliers, vendors and customers) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Company or any of its subsidiaries (or suppliers,
vendors and customers) may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999), (ii) developed a plan and timeline for addressing the Year
2000 Problem on a timely basis, and (iii) to date, implemented that plan in
accordance with that timetable. Based on the foregoing, the Company believes
that all computer applications (including those of its suppliers, vendors and
customers) that are material to its or any of its subsidiaries' business and
operations are reasonably expected on a timely basis to be able to perform
properly date-sensitive functions for all dates before and
12
<PAGE> 13
after January 1, 2000 (that is, be "Year 2000 Compliant"), except to the extent
that a failure to do so could not reasonably be expected to have Material
Adverse Effect.
(gg) Neither the Company nor any of its subsidiaries, nor, to any Issuers'
knowledge, any director, officer, agent, employee, shareholder or other person,
in any such case, acting on behalf of the Company or any of its subsidiaries,
has used any corporate funds during the last five years for any unlawful
contribution, gift, entertainment or other unlawful expense relating to
political activity; made any unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or made any bribe, payoff, influence payment, kickback or other payment
that is unlawful.
(hh) The execution and delivery of this Agreement, the Registration Rights
Agreement, the Indenture and the Senior Credit Facility and the sale of the
Securities to be purchased by Eligible Purchasers will not involve any
prohibited transaction within the meaning of Section 406 of ERISA or Section
4975 of the Internal Revenue Code of 1986. The representation made by the
Company in the preceding sentence is made in reliance upon and subject to the
accuracy of, and compliance with, the representations and covenants made or
deemed made by Eligible Purchasers as set forth in the Final Memorandum under
the caption "Notice to Investors."
(ii) Neither the Company nor any of its subsidiaries has taken, and none of
them will take, any action that would cause this Agreement or the issuance or
sale of the Securities and Exchange Securities to violate Regulation G, T, U or
X of the Board of Governors of the Federal Reserve System or analogous foreign
laws and regulations.
(jj) The Company and its subsidiaries have complied with all provisions of
Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida) relating to
doing business with the Government of Cuba or with persons or Affiliates located
in Cuba.
(kk) Other than as set forth on SCHEDULE B hereto, neither the Company nor
any subsidiary is a party to any contract or agreement that would be required to
be filed with the SEC (as defined below) as an exhibit to a registration
statement on Form S-1 pursuant to entries (2), (4) and (10) of the Exhibit Table
of Item 601 of Regulation S-K under the Securities Act.
(ll) Neither the Company nor any subsidiary is a "public utility" or a
"holding company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended (the "Public Utility Holding Company Act").
13
<PAGE> 14
2. PURCHASE AND SALE. On the basis of the representations and warranties
contained in, and subject to the terms and conditions of, this Agreement, the
Issuers agree to sell to each of the Initial Purchasers and each of the Initial
Purchasers agrees to purchase the aggregate principal amount of Securities set
forth opposite its name as shown in SCHEDULE C hereto, at a purchase price equal
to 97% of the principal amount thereof.
The Issuers shall not be obligated to deliver any of the Securities to be
delivered except upon payment for all the Securities to be purchased as provided
herein.
3. SALE AND RESALE OF THE SECURITIES BY THE INITIAL PURCHASER. Each of the
Initial Purchasers represents and warrants to the Issuers that:
(a) It is a qualified institutional buyer ("QIB") as defined in Rule 144A
under the Securities Act, as such may be amended from time to time ("Rule 144A")
and it will offer the Securities to be purchased hereunder for resale only upon
the terms and conditions set forth in this Agreement and in the Final
Memorandum.
(b) It (i) will not solicit offers for, or offer or sell, the Securities by
means of any form of general solicitation or general advertising within the
meaning of Regulation D or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act, and (ii) will solicit offers for
the Securities only from, and will offer, sell or deliver (the "Exempt Resales")
the Securities, as part of its initial offering, only to the following persons
(each an "Eligible Purchaser") (A) persons whom such Initial Purchaser
reasonably believes to be QIBs or, if any such person is buying for one or more
institutional accounts for which such person is acting as fiduciary or agent,
only when such person has represented to such Initial Purchaser that each such
account is a QIB, to whom notice has been given that such sale or delivery is
being made in reliance on Rule 144A, and (B) persons outside the United States
in offshore transactions in reliance on and in compliance with Regulation S.
(c) With respect to Securities sold in reliance on Regulation S, (i)
neither such Initial Purchaser nor any of its Affiliates nor anyone acting on
its behalf has offered or sold, or will offer or sell, any Securities by means
of any directed selling efforts (as defined in Rule 902 of Regulation S) in the
United States and any such persons has complied and will comply with the
offering restrictions requirements of Regulation S in connection with the
offering and (ii) at or prior to confirmation of all sales of Securities made in
reliance on Regulation S, it will have sent to each distributor, dealer or
person receiving a selling concession, fee or other remuneration that purchases
the Securities from it during the restricted period a confirmation or notice to
substantially the following effect:
14
<PAGE> 15
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933 (the "Securities Act") and may not be offered or
sold within the United States or to, or for the account or benefit of, U.S.
persons (i) as part of a distribution thereof at any time or (ii) otherwise
until 40 days after the later of the date of the commencement of the
offering and the closing date, except in either case in accordance with an
exemption from or in a transaction not subject to the Securities Act. Terms
used above have the meanings given them by Regulation S."
The sale of the Securities to non-U.S. persons in offshore transactions is not
part of a plan or scheme to avoid the registration requirements of the
Securities Act.
(d) (i) It has not solicited, and will not solicit, offers to purchase any
of the Securities from, (ii) it has not sold, and will not sell, any of the
Securities to, and (iii) it has not distributed, and will not distribute, the
Preliminary Memorandum or the Final Memorandum to, any person or entity in any
jurisdiction outside of the United States except, in each case, in compliance in
all material respects with all applicable laws of such jurisdiction. For
purposes of this Agreement, "United States" means the United States of America,
its territories, its possessions (including the Commonwealth of Puerto Rico),
and other areas subject to its jurisdiction.
(e) Unless prohibited by applicable law, (i) it will furnish to each person
to whom it offers any Securities, a copy of the Preliminary Memorandum (as
amended or supplemented) or Final Memorandum or (unless delivery of such
Preliminary Memorandum is required by applicable law) shall inform each such
person that a copy of such Preliminary Memorandum or the Final Memorandum will
be available upon request and (ii) it will furnish to each person to whom it
sells Securities a copy of the Final Memorandum (as then amended or supplemented
by applicable law) and shall inform each such person that a copy of such Final
Memorandum will be available upon request.
(f) It will comply in all material respects with the advice contained in
the Blue Sky Memorandum related to the state securities laws.
4. DELIVERY OF AND PAYMENT FOR THE NOTES. Delivery of and payment for the
Securities shall be made at the office of Latham & Watkins, 885 Third Avenue,
New York, New York at 9:00 A.M., New York City time, on July 21, 1998, or at
such other date or place as shall be determined by agreement between the Initial
Purchasers and the Company. This date and time are sometimes referred to as the
"Closing Date." On the Closing Date, the Issuers shall
15
<PAGE> 16
deliver or cause to be delivered the Securities to the Initial Purchasers for
the account of the Initial Purchasers against payment to or upon the order of
the Company of the purchase price by wire transfer in federal (same-day) funds.
Time shall be of the essence, and delivery at the time and place specified
pursuant to this Agreement is a further condition of the obligation of the
Initial Purchasers hereunder. Upon delivery, the Securities shall be in
definitive fully registered form and registered in the name of Cede & Co., as
nominee of the Depository Trust Company ("DTC"), or such other name or names and
in such denominations as the Initial Purchasers shall request in writing not
less than one business day prior to the Closing Date. For the purpose of
expediting the checking and packaging of the Securities, the Issuers shall make
the Securities available for inspection by the Initial Purchasers in New York,
New York, not later than 2:00 P.M., New York City time, on the business day
prior to the Closing Date.
5. FURTHER AGREEMENTS OF THE ISSUERS. The Issuers jointly and severally
agree with each Initial Purchaser as set forth below in this Section 5:
(a) The Issuers will furnish to the Initial Purchasers, and those persons
identified by the Initial Purchasers to the Issuers, without charge, as many
copies of the Preliminary Memorandum and the Final Memorandum and any
supplements and amendments thereto as they may reasonably request.
(b) Prior to making any amendment or supplement to the Preliminary
Memorandum or the Final Memorandum, the Issuers shall furnish a copy thereof to
the Initial Purchasers and counsel to the Initial Purchasers and will not effect
any such amendment or supplement to which the Initial Purchasers shall
reasonably object by notice to the Company after a reasonable period to review.
The Issuers consent to the use of the Preliminary Memorandum and the Final
Memorandum, and any amendments and supplements thereto required pursuant hereto,
by the Initial Purchaser in connection with Exempt Resales.
(c) If, at any time prior to completion of the distribution of the
Securities by the Initial Purchasers, any event shall occur or condition exist
as a result of which it is necessary, in the opinion of counsel for the Initial
Purchasers or counsel for the Issuers, to amend or supplement the Final
Memorandum in order that the Final Memorandum will not include an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein not misleading in light of the circumstances
existing at the time it is delivered to an Eligible Purchaser, or if it is
necessary to amend or supplement the Final Memorandum to comply with applicable
law, the Issuers will (i) notify the Initial Purchasers, (ii) promptly prepare
such amendment or supplement as may be necessary to correct such untrue
statement or omission or so that the Final Memorandum, as so amended or
supplemented, will comply with applicable
16
<PAGE> 17
law and (iii) furnish to the Initial Purchasers such number of copies of such
amendment or supplement as they may reasonably request.
(d) So long as any Securities are outstanding and are "Restricted
Securities" within the meaning of Rule 144(a)(3) under the Securities Act and
during any period in which the Issuers are not subject to Section 13 or 15(d) of
the Exchange Act of 1934, as amended (the "Exchange Act"), the Issuers will
furnish to holders of the Securities and prospective purchasers of Securities
designated by such holders, upon request of such holders or such prospective
purchasers, the information, if any, required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
(e) So long as the Securities and Exchange Securities are outstanding, the
Issuers will furnish to the Initial Purchasers copies of any annual reports,
quarterly reports and current reports filed with the Securities and Exchange
Commission ("SEC") on Forms 10-K, 10-Q and 8-K, or such other similar forms as
may be designated by the SEC, and such other documents, reports and information
as shall be furnished by the Issuers to the Trustee or to the holders of the
Securities and Exchange Securities pursuant to the Indenture.
(f) The Issuers will use their best efforts to qualify the Securities for
sale under the securities or Blue Sky laws of such jurisdictions as the Initial
Purchasers reasonably designate and to continue such qualifications in effect so
long as reasonably required for the distribution of the Securities. The Issuers
will also arrange for the determination of the eligibility for investment of the
Securities under the laws of such jurisdictions as the Initial Purchasers
reasonably request. Notwithstanding the foregoing, the Issuers shall not be
obligated to qualify as a foreign corporation in any jurisdiction in which they
are not so qualified or to file a general consent to service of process or to
subject themselves to taxation in respect of doing business in any jurisdiction
in which they are not otherwise subject.
(g) The Issuers will use their best efforts to permit the Securities to be
designated PORTAL securities in accordance with the rules and regulations
adopted by the NASD relating to trading in the PORTAL market and to permit the
Securities to be eligible for clearance and settlement through DTC.
(h) Except following the effectiveness of any Registration Statement (as
defined in the Registration Rights Agreement) and except for such offers as may
be made as a result of, or subsequent to, filing such Registration Statement or
amendments thereto prior to the effectiveness thereof, the Issuers will not, and
will cause their Affiliates not to, solicit any offer to buy or offer to sell
the Securities by means of any form of general solicitation or general
17
<PAGE> 18
advertising (as those terms are used in Regulation D under the Securities Act)
or in any manner involving a public offering within the meaning of Section 4(2)
of the Securities Act.
(i) The Company will apply the net proceeds from the sale of the Securities
as set forth in the Final Memorandum under "Use of Proceeds."
(j) The Issuers will take such steps as shall be necessary to ensure that
neither the Company nor any of its subsidiaries shall become (i) an "investment
company" within the meaning of the Investment Company Act or (ii) a "holding
company" or a "subsidiary company" or an "affiliate" of a holding company within
the meaning of the Public Utility Holding Company Act.
(k) The Company and its subsidiaries will not, and will cause their
Affiliates not to, take any action that would require the registration under the
Securities Act of the Securities (other than pursuant to the Registration Rights
Agreement) including, without limitation, (i) engaging in any directed selling
efforts (within the meaning of Regulation S) during any applicable restricted
period or (ii) offering any other securities in a manner that would be
integrated with the transactions contemplated hereby.
(l) Prior to the consummation of the Exchange Offer or the effectiveness of
an applicable shelf registration statement if, in the reasonable judgment of the
Initial Purchasers, the Initial Purchasers or any of their Affiliates are
required to deliver an offering memorandum in connection with sales of, or
market-making activities with respect to, the Securities, (A) the Issuers will
periodically amend or supplement the Final Memorandum so that the information
contained in the Final Memorandum complies with the requirements of Rule 144A of
the Securities Act, (B) the Issuers will amend or supplement the Final
Memorandum when necessary to reflect any material changes in the information
provided therein so that the Final Memorandum will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances existing as
of the date the Final Memorandum is so delivered, not misleading and (C) the
Issuers will provide the Initial Purchasers with copies of each such amended or
supplemented Final Memorandum, as the Initial Purchasers may reasonably request.
The Issuers hereby expressly acknowledge that the indemnification and
contribution provisions of Section 8 hereof are specifically applicable and
relate to each offering memorandum, registration statement, prospectus,
amendment or supplement referred to in this Section 5(l).
18
<PAGE> 19
(m) Not to voluntarily claim, and to resist actively any attempts to claim,
the benefit of any usury laws against the holders of any Securities.
(n) To cause the Exchange Offer to be made in the appropriate form to
permit registered Exchange Securities to be offered in exchange for the
Securities and to comply with all applicable federal and state securities laws
in connection with the Exchange Offer.
(o) To comply with all of their agreements set forth in the Registration
Rights Agreement and all agreements set forth in the representation letters of
the Issuers to DTC relating to the approval of the Notes by DTC for "book-entry"
transfer.
(p) The Issuers will do all things reasonably necessary to satisfy the
closing conditions set forth in Section 7 hereof.
6. EXPENSES. The Issuers, jointly and severally, agree to pay (a) the costs
incident to the authorization, issuance, sale and delivery of the Securities and
Exchange Securities and any issue or stamp taxes payable in that connection; (b)
the costs incident to the preparation and printing of the Preliminary
Memorandum, the Final Memorandum and any amendments, supplements and exhibits
thereto; (c) the costs of distributing the Preliminary Memorandum, the Final
Memorandum and any amendment or supplement thereto; (d) the fees and expenses of
qualifying the Securities and Exchange Securities under the securities laws of
the several jurisdictions as provided in Section 5(f) and of preparing, printing
and distributing a Blue Sky Memorandum (including reasonable related fees and
expenses of counsel to the Initial Purchasers, which will be $5,000); (e) the
cost of printing the Securities and the Exchange Securities; (f) the fees and
expenses of the Trustee and any agent of the Trustee and the fees and
disbursements of any counsel for the Trustee in connection with the Indenture
and the Securities and Exchange Securities; (g) any fees paid to rating agencies
in connection with the rating of the Securities and Exchange Securities; (h) the
costs and expenses of DTC and its nominee, including its book-entry system; (i)
all expenses and listing fees incurred in connection with the application for
quotation of the Securities on the PORTAL market; and (j) all other costs and
expenses incident to the performance of the obligations of the Issuers under
this Agreement.
7. CONDITIONS OF INITIAL PURCHASER'S OBLIGATIONS. The obligations of the
Initial Purchasers to purchase the Securities shall be subject to the
satisfaction of the following conditions:
(a) The representations and warranties on the part of the Issuers contained
herein at the Execution Time and the Closing Date and the statements of the
Issuers made in any
19
<PAGE> 20
certificates pursuant to the provisions hereof shall be accurate, and the
Issuers shall have performed all of their obligations hereunder in all material
respects.
(b) The Initial Purchasers shall not have discovered and disclosed to the
Company on or prior to the Closing Date that the Final Memorandum or any
amendment or supplement thereto contains an untrue statement of a fact which, in
the opinion of Latham & Watkins, counsel for the Initial Purchasers, is material
or omits to state a fact which, in the opinion of such counsel, is material and
is necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(c) The Final Memorandum shall have been printed and copies distributed to
the Initial Purchasers as soon as practicable but in no event later than on the
Business Day following the date of this Agreement or at such later date and time
as to which the Initial Purchasers may agree, and no stop order suspending the
qualification or exemption from qualification of the Securities in any
jurisdiction referred to in Section 5(f) shall have been issued and no
proceeding for that purpose shall have been commenced or shall be pending or
threatened.
(d) No action shall have been taken and no statute, rule, regulation or
order shall have been enacted, adopted or issued by any governmental agency
which would, as of the Closing Date, prevent the issuance of the Securities; no
action, suit or proceeding shall have been commenced and be pending against or
affecting or, to the knowledge of the Company, threatened against, the Company
or any of its subsidiaries before any court or arbitrator or any governmental
body, agency or official that, singly or in the aggregate, if adversely
determined, would reasonably be expected to result in a Material Adverse Effect;
and no stop order shall have been issued by the SEC or any governmental agency
of any jurisdiction referred to in Section 5(f) preventing the use of the Final
Memorandum, or any amendment or supplement thereto, or which would reasonably be
expected to have a Material Adverse Effect.
(e) Since the dates as of which information is given in the Final
Memorandum and other than as set forth in the Final Memorandum, (i) there shall
not have been any Material Adverse Change, or any development that is reasonably
likely to result in a Material Adverse Change, or any material change in the
long-term debt, or material increase in the short-term debt, from that set forth
in the Final Memorandum; (ii) no dividend or distribution of any kind shall have
been declared, paid or made by the Company on any class of its capital stock;
(iii) the Company and its subsidiaries shall not have incurred any liabilities
or obligations, direct or contingent, that are material, individually or in the
aggregate, to the Company and its subsidiaries, taken as a whole, and that are
required to be disclosed on a balance sheet or notes
20
<PAGE> 21
thereto in accordance with generally accepted accounting principles and are not
disclosed on the latest balance sheet or notes thereto included in the Final
Memorandum.
(f) The Initial Purchasers shall have received a certificate, dated the
Closing Date, signed on behalf of the Company by (i) Gerald F. Cerce, Chairman,
and (ii) Duane M. DeSisto, Chief Financial Officer, confirming that (A) such
officers have participated in conferences with other officers and
representatives of the Issuers, representatives of the independent public
accountants of the Issuers and representatives of counsel to the Issuers at
which the contents of the Final Memorandum and related matters were discussed
and (B) the matters set forth in paragraphs (a), (c) (d) and (e) of this Section
7 are true and correct as of the Closing Date.
(g) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Securities, the Exchange
Securities, the Indenture, the Registration Rights Agreement, the Final
Memorandum, the Senior Credit Facility and all other legal matters relating to
this Agreement and the transactions contemplated hereby and thereby, shall be
reasonably satisfactory in all material respects to counsel for the Initial
Purchasers, and the Issuers shall have furnished to such counsel all documents
and information that they may reasonably request to enable them to pass upon
such matters.
(h) Hinckley, Allen & Snyder, counsel for the Issuers, shall have furnished
to the Initial Purchasers its written opinion (containing customary limitations
and approvals that shall be reasonably satisfactory in all material respects to
the Initial Purchasers' counsel), addressed to the Initial Purchasers and dated
the Closing Date, in form and substance reasonably satisfactory to the Initial
Purchasers, to the effect that:
(i) The Company and each Subsidiary Guarantor is validly existing and
in good standing under the laws of its jurisdiction of organization. The Company
and each of the Subsidiary Guarantors is duly qualified to do business and in
good standing as foreign organization in each U.S. jurisdiction with respect to
which it has certified to us that they own property, maintain business or have
employees (except where failure to so qualify would not, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect).
(ii) Assuming, (A) the accuracy of and compliance with the
representations, warranties and covenants of the Issuers set forth in Section 1
of this Agreement, (B) the accuracy of and compliance with the Initial
Purchasers' representations, warranties and covenants set forth in Section 3 of
this Agreement, (C) the accuracy of the representations and warranties of each
of the purchasers to whom the Initial Purchasers initially resell the
Securities,
21
<PAGE> 22
as specified under the caption "Notice to Investors" in the Preliminary
Memorandum and the Final Memorandum, (D) the compliance by the Initial
Purchasers with the offering and transfer procedures and restrictions described
in the Final Memorandum and (E) if required by applicable law, receipt by the
purchasers to whom the Initial Purchasers initially resell the Securities of a
copy of the Final Memorandum prior to such sale, it is not necessary in
connection with the offer, issuance, sale and delivery of the Securities to the
Initial Purchasers, and the initial reoffer, resale and delivery of the
Securities by the Initial Purchasers, as contemplated by this Agreement and the
Final Memorandum, to register the Securities under the Securities Act, or to
qualify the Indenture under the Trust Indenture Act, it being understood that no
opinion is expressed as to any subsequent resale of Securities or any resale of
Securities by any person other than the Initial Purchasers.
(iii) Each of the Company and the Subsidiary Guarantors has the
corporate power and authority to execute and deliver, and to consummate the
transactions contemplated by, this Agreement, the Registration Rights Agreement,
the Indenture and the Senior Credit Facility; the Company has the corporate
power and authority to issue and deliver the Notes as contemplated by this
Agreement; and the Subsidiary Guarantors have the corporate power and authority
to issue and deliver the Subsidiary Guarantees as contemplated by this
Agreement.
(iv) The execution and delivery of this Agreement have been duly
authorized by all requisite corporate action of the Company and each Subsidiary
Guarantor, and this Agreement has been duly executed and delivered by the
Company and each Subsidiary Guarantor.
(v) The execution and delivery of the Indenture have been duly
authorized by all requisite corporate action of the Company and each Subsidiary
Guarantor; and the Indenture has been duly executed and delivered by the Company
and each Subsidiary Guarantor, and assuming due authorization, execution and
delivery by the Trustee, is a valid and binding agreement of the Company and
each Subsidiary Guarantor, enforceable against the Company and each Subsidiary
Guarantor in accordance with its terms, except that enforcement thereof may be
subject to (A) bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally and (B) general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law) and the exercise of discretionary authority of any court before which a
proceeding may be brought.
22
<PAGE> 23
(vi) The execution and delivery of the Securities have been duly
authorized by all requisite corporate action of the Company and each of the
Subsidiary Guarantors; the Notes have been duly executed by the Company and the
Subsidiary Guarantees have been duly executed by each of the Subsidiary
Guarantors and assuming due authentication by the Trustee, when delivered by the
Company and the Subsidiary Guarantors and paid for by the Initial Purchasers in
accordance with the terms of this Agreement, the Notes and the Subsidiary
Guarantees will be valid and binding obligations of the Company and each of the
Subsidiary Guarantors respectively, entitled to the benefits of the Indenture,
enforceable against the Company and each of the Subsidiary Guarantors in
accordance with their terms, except that enforcement thereof may be subject to
(A) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (B) general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law) and
the exercise of discretionary authority of any court before which a proceeding
may be brought.
(vii) The execution and delivery of the Exchange Securities have been
duly authorized by all requisite corporate action of the Company and each of the
Subsidiary Guarantors.
(viii) The execution and delivery of the Registration Rights Agreement
have been duly authorized by all requisite corporate action of the Company and
each of the Subsidiary Guarantors; the Registration Rights Agreement has been
duly executed and delivered by the Company and each of the Subsidiary Guarantors
and, assuming due authorization, execution and delivery by the Initial
Purchasers, the Registration Rights Agreement is a valid and binding agreement
of the Company and each of the Subsidiary Guarantors enforceable against the
Company and each of the Subsidiary Guarantors in accordance with its terms,
except that (i) enforcement thereof may be subject to (A) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law) and the
exercise of discretionary authority of any court before which a proceeding may
be brought and (ii) the validity and enforceability of any indemnification or
contribution provisions thereof may be limited under applicable securities laws
or public policies.
(ix) The execution and delivery of the Senior Credit Facility have
been duly authorized by all requisite corporate action of the Company and each
of the Subsidiary Guarantors; the Senior Credit Facility has been duly executed
and delivered by the Company and each of the Subsidiary Guarantors and, assuming
due authorization, execution and
23
<PAGE> 24
delivery by the other parties thereto, the Senior Credit Facility is a valid and
binding agreement of the Company and each of the Subsidiary Guarantors
enforceable against the Company and each of the Subsidiary Guarantors in
accordance with its terms, except that enforcement thereof may be subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (B) general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law) and
the exercise of discretionary authority of any court before which a proceeding
may be brought.
(x) The execution and delivery by the Company and each of the
Subsidiary Guarantors of this Agreement, the Indenture, the Registration Rights
Agreement and the Senior Credit Facility, the consummation by the Company and
the Subsidiary Guarantors of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and sale of the Securities and the
Exchange Securities) and by the Final Memorandum will not (A) to the knowledge
of such counsel, result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any bond, debenture, note,
indenture, mortgage, deed of trust or other agreement or instrument set forth on
Schedule B except any breach or violation or default which would not, singly or
in the aggregate, have a Material Adverse Effect or (B) result in any violation
of the provisions of the (1) charter, bylaws or other organizational documents
of the Company or any of its subsidiaries, (2) to the knowledge of such counsel,
any applicable law, rule or regulation (other than Securities Laws (as defined
below) as to which an opinion is given in paragraph (ii) above) with respect to
the Company or any of its subsidiaries or (3) to the knowledge of such counsel,
any rule or regulation (other than Securities Laws (as defined below) as to
which an opinion is given in paragraph (ii) above) or order of any court or
governmental agency having jurisdiction over the Company or any of its
subsidiaries except, in the case of (2) and (3), a violation which would not,
singly or in the aggregate, have a Material Adverse Effect; and, to the
knowledge of such counsel, except for such consents, approvals or authorizations
of, or filings, registrations or qualifications with, governmental authorities
as may be required under the Securities Act and the rules and regulations
thereunder, the Trust Indenture Act and the rules and regulations thereunder or
applicable states securities or Blue Sky laws, rules or regulations (all of such
laws, rules and regulations are collectively referred to herein as "Securities
Laws") in connection with the purchase and distribution of the Securities by the
Initial Purchasers and as set forth in, and in order to consummate the
transactions contemplated by, the Registration Rights Agreement, no consent,
approval, authorization or order of, or filing or registration with, any such
court or governmental agency or body is required in connection with the
execution and delivery by the Company and the Subsidiary Guarantors of this
Agreement, the Indenture, the Registration Rights Agreement or the Senior Credit
Facility, the
24
<PAGE> 25
consummation by the Company and the Subsidiary Guarantors of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
sale of the Securities and Exchange Securities) by the Company and the
Subsidiary Guarantors, except such as have been obtained and made or have been
disclosed in the Final Memorandum or such the failure to obtain would not,
singly or in the aggregate, have a Material Adverse Effect.
(xi) The descriptions in the Final Memorandum of the Indenture, the
Securities, the Registration Rights Agreement and the Senior Credit Facility are
accurate summaries of such documents in all material respects. The statements
under the captions "Business -- Intellectual Property and Licenses,"
"Description of Notes" and "Plan of Distribution" in the Final Memorandum, to
the extent they constitute a summary of the legal matters, documents or
proceedings referred to therein, have been reviewed by such counsel and fairly
present in all material respects such legal matters, documents and proceedings.
(xii) Trademarks of the Company and its subsidiaries which are
registered in the United States and/or Canada in the name of the Company or its
subsidiaries are set forth in Exhibit 1, a copy of which is attached hereto and
incorporated herein by reference. To the knowledge of such counsel, neither the
Company nor any of its subsidiaries has received any notice of any infringement
of or claim of any conflict with the rights of any third party with respect to
any of such registered trademarks which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect on the Company.
(xiii) To such counsel's knowledge, no legal or governmental
proceedings are pending to which the Company or any of its subsidiaries is a
party that would be required under the Securities Act to be described in a
registration statement on Form S-1 or a prospectus contained therein delivered
at the time of the confirmation of the sale of an offering of securities
registered under the Securities Act that are not described in the Final
Memorandum, or, to such counsel's knowledge, that seek to restrain, enjoin,
prevent the consummation of or otherwise challenge the issuance or sale of the
Securities to the Initial Purchasers or the consummation of the transactions
described in the Final Memorandum under the caption "Use of Proceeds."
(xiv) Neither the Company nor any of its subsidiaries is (i) subject
to registration and regulation as an "investment company" within the meaning of
the Investment Company Act, or (ii) a "holding company" or a "subsidiary
company" or an "affiliate" of a holding company within the meaning of the Public
Utility Holding Company Act.
25
<PAGE> 26
(xv) When the Securities are issued and delivered pursuant to this
Agreement, such Securities will not be of the same class (within the meaning of
Rule 144A(d)(3) under the Securities Act) as securities of the Company or any of
its subsidiaries that are listed on a national securities exchange registered
under Section 6 of the Exchange Act or quoted on an automated inter-dealer
quotation system.
(xvi) Assuming the Initial Purchasers purchase the Securities in
accordance with Rule 144A under the Securities Act, neither the issuance or sale
of the Securities nor the application by the Company of the net proceeds thereof
as set forth in the Final Memorandum will violate Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System.
(xvii) To the best of such counsel's knowledge, no stop order
preventing the use of the Preliminary Memorandum or the Final Memorandum, or any
amendment or supplement thereto, or any order asserting that any of the
transactions contemplated by this Agreement are subject to the registration
requirements of the Securities Act, has been issued.
In rendering such opinion, such counsel may state that its opinion (i) as
to the laws of the State of New York is made in reliance on the opinion of
Latham & Watkins and (ii) is otherwise limited to matters governed by the
Federal laws of the United States of America, the laws of the State of Rhode
Island, the laws of the Commonwealth of Massachusetts and the General
Corporation Law of the State of Delaware.
In addition, such counsel shall also state that such counsel has
participated in conferences with officers and representatives of the Issuers,
representatives of the independent public accountants for the Issuers and the
Initial Purchasers and its counsel at which the contents of the Final Memorandum
and related matters were discussed and, although such counsel is not passing
upon and does not assume any responsibility for, the accuracy, completeness or
fairness of the statements contained in the Final Memorandum, and has not made
any independent check or verification thereof, on the basis of the foregoing, no
facts have come to the attention of such counsel that lead such counsel to
believe that the Final Memorandum, as of its date or the Closing Date, contained
an untrue statement of a material fact or omitted to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which there were made, not misleading (it being understood that such
counsel need express no belief or opinion with respect to the financial
statements or other financial data included therein).
26
<PAGE> 27
(i) The Initial Purchasers shall have received on the Closing Date an
opinion of Latham & Watkins, counsel for the Initial Purchasers, dated the
Closing Date and addressed to the Initial Purchasers, in form and substance
reasonably satisfactory to the Initial Purchasers.
(j) The Issuers and the Trustee shall have entered into the Indenture and
the Initial Purchasers shall have received counterparts, conformed as executed,
thereof.
(k) The Issuers and the Initial Purchasers shall have entered into the
Registration Rights Agreement and the Initial Purchasers shall have received
counterparts, conformed as executed, thereof.
(l) Prior to or concurrently with the issue and sale of the Securities, the
Issuers shall have entered into the Senior Credit Facility (the form and
substance of which shall be reasonably acceptable to the Initial Purchasers) and
the Initial Purchasers shall have received counterparts, conformed as executed,
thereof and of all other documents and agreements entered into in connection
therewith. There shall exist at and as of the Closing Date no conditions that
would constitute a default (or an event that with notice or the lapse of time,
or both, would constitute a default) under the Senior Credit Facility. On the
Closing Date, the Senior Credit Facility shall be in full force and effect and
shall not have been modified except as contemplated by the Final Memorandum.
(m) At the Execution Time and at the Closing Date, Arthur Andersen LLP,
independent accountants for the Company, and Price Waterhouse LLP, independent
accountants for Foster Grant Group L.P., shall have each furnished to the
Initial Purchasers customary comfort letters, dated respectively as of the
Execution Time and as of the Closing Date, in form and substance reasonably
satisfactory to the Initial Purchasers, confirming that they are independent
accountants within the meaning of the Securities Act and the Exchange Act and
the applicable rules and regulations thereunder and Rule 101 of the Code of
Professional Conduct of the American Institute of Certified Public Accountants
(the "AICPA"), with respect to the financial statements and certain financial
information of the Company and its subsidiaries, and Foster Grant Group L.P.
(n) (i) None of the Company or any of its subsidiaries shall have sustained
since the date of the latest financial statements included in the Final
Memorandum losses or interferences with their businesses, taken as a whole, from
fire, explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Final Memorandum and (ii)
since such date there shall not have been any change in the capital stock or
27
<PAGE> 28
long-term debt of the Company or any of its subsidiaries, other than immaterial
changes in short-term borrowings to finance working capital in the ordinary
course of business, or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company or its
subsidiaries, taken as a whole, otherwise than as set forth or contemplated in
the Final Memorandum, the effect of which, in any such case described in clause
(i) or (ii), is, in the reasonable judgment of the Initial Purchasers, so
material and adverse as to make it impracticable or inadvisable to proceed with
the offering or the delivery of the Securities being delivered on the Closing
Date on the terms and in the manner contemplated herein and in the Final
Memorandum.
(o) Subsequent to the execution and delivery of this Agreement there shall
not have occurred any of the following: (i) trading in securities generally on
the New York Stock Exchange or The NASDAQ Stock Market's National Market or in
the over-the-counter market shall have been suspended or materially limited, or
minimum prices shall have been established on such exchange by the SEC, or by
such exchange or by any other regulatory body or governmental authority having
jurisdiction, (ii) a banking moratorium shall have been declared by Federal or
state authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving the
United States or there shall have been a declaration of a national emergency or
war by the United States or (iv) there shall have occurred such a material
adverse change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the United States
shall be such) as to make it, in the reasonable judgment of the Initial
Purchasers, impracticable or inadvisable to proceed with the offering or
delivery of the Securities being delivered on the Closing Date on the terms and
in the manner contemplated herein and in the Final Memorandum.
(p) As of the Closing Date, no "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Securities Act (i) will have imposed (or will have informed the Company or any
Subsidiary Guarantor that it is considering imposing) any condition (financial
or otherwise) on the Company's or any Subsidiary Guarantor's retaining any
rating assigned to the Company or any Subsidiary Guarantor, any securities of
the Company or any Subsidiary Guarantor or (ii) will have indicated to the
Company or any Subsidiary Guarantor that it is considering (a) the downgrading,
suspension, or withdrawal of, or any review for a possible change that does not
indicate the direction of the possible change in, any rating so assigned or (b)
any change in the outlook for any rating of the Company, any Subsidiary
Guarantor or any securities of the Company or any Subsidiary Guarantor.
28
<PAGE> 29
(q) Prior to or concurrently with the issue and sale of the Securities, the
amendment to the relative powers, preferences and rights and the qualifications,
limitations and restrictions thereof, granted to or imposed on the Company's
Series A Redeemable Convertible Preferred Stock as set forth on Exhibit 2 hereto
(the "Amendment") shall have been duly and validly approved by the shareholders
of the Company and the Initial Purchasers shall have received evidence
reasonably satisfactory to the Initial Purchasers and their legal counsel of the
filing of the Amendment with the Rhode Island Secretary of State and its
effectiveness.
(r) Latham & Watkins shall have been furnished with such documents, in
addition to those set forth above, as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in this
Section 7 and in order to evidence the accuracy, completeness or satisfaction in
all material respects of any of the representations, warranties or conditions
herein contained.
(s) Prior to the Closing Date, the Issuers shall have furnished to the
Initial Purchasers such further information, certificates and documents as the
Initial Purchasers may reasonably request.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchasers.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Issuers jointly and severally agree to indemnify and hold harmless
the Initial Purchasers, the directors, officers, employees and agents
(including, without limitation, attorneys) of the Initial Purchasers and each
person who controls any Initial Purchaser within the meaning of either the
Securities Act or the Exchange Act against any and all losses, claims, damages
or liabilities, joint or several, to which they or any of them may become
subject under the Securities Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the Preliminary Memorandum, the Final Memorandum or any
information provided by the Issuers to any holder or prospective purchaser of
the Securities pursuant to Section 5(e), or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agree to reimburse each such
indemnified party, as
29
<PAGE> 30
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action: provided, however, that the Issuers will not be liable in
any such case to any Initial Purchaser to the extent that any such loss, claim,
damage, liability or action arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission relating
to such Initial Purchaser made in the Preliminary Memorandum or the Final
Memorandum, or in any amendment thereof or supplement thereto, in reliance upon
and in conformity with written information furnished to the Issuers by or on
behalf of such Initial Purchaser specifically for inclusion therein; provided
that the indemnification contained in this paragraph (a) with respect to the
Preliminary Memorandum shall not inure to the benefit of the Initial Purchasers
(or to the benefit of any person controlling the Initial Purchasers) on account
of any such loss, claim, damage, liability or expense arising from the sale of
the Securities by the Initial Purchasers to any person if a copy of the Final
Memorandum (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) shall not have been delivered or sent to
such person and each untrue statement of a material fact contained in, and each
omission or alleged omission of a material fact from, such Preliminary
Memorandum was corrected in the Final Memorandum (as so amended or supplemented)
and it shall have been determined that any Initial Purchaser and each person, if
any, who controls such Initial Purchasers would not have incurred such losses,
claims, damages, liabilities and expenses had the Final Memorandum been
delivered or sent.
(b) Each Initial Purchaser agrees severally and not jointly to indemnify
and hold harmless the Issuers, their directors, officers, employees and agents
(including, without limitation, attorneys), and each person who controls the
Issuers within the meaning of either the Securities Act or the Exchange Act, to
the same extent as the foregoing indemnity from the Issuers to each Initial
Purchaser, but only with reference to written information relating to such
Initial Purchaser furnished to the Issuers by or on behalf of the Initial
Purchaser specifically for inclusion in the Preliminary Memorandum or the Final
Memorandum (or in any amendment or supplement thereto). This indemnity agreement
will be in addition to any liability which any Initial Purchaser may otherwise
have. The Issuers and the Initial Purchasers acknowledge that the statements set
forth in the last paragraph of the cover page, the statements that the Initial
Purchasers intend to make a market in the Notes, the statement preceding the
caption "Note Regarding Forward-Looking Statements" regarding transactions that
stabilize the price of the Notes and the statements under the headings "Plan of
Distribution" in the Preliminary Memorandum and the Final Memorandum constitute
the only information furnished in writing by or on behalf of the Initial
Purchasers for inclusion in the Preliminary Memorandum or the Final Memorandum
(or any amendment or supplement thereto).
30
<PAGE> 31
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof,
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however that such counsel shall be
reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate counsel if (i) the
use of counsel chosen by the indemnifying party to represent the indemnified
party would, in the opinion of legal counsel to the indemnified party, present
such counsel with a conflict of interest, (ii) the actual or potential
defendants in, or targets of, any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have been informed in
writing by legal counsel that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of the institution
of such action or (iv) the indemnifying party shall authorize the indemnified
party to employ separate counsel at the expense of the indemnifying party. It is
understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for (i) all
Initial Purchasers and all persons, if any, who control any Initial Purchaser
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act and (ii) all Issuers, their directors and officers and each
person, if any, who controls any Issuer within the meaning of either such
Section, and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Initial Purchasers and
such control persons of the Initial Purchasers, such firm shall be designated in
writing by NationsBanc Montgomery Securities LLC. An indemnifying party will
not, without
31
<PAGE> 32
the prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 8 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, the Issuers, on the one hand, and the Initial Purchasers,
on the other hand, agree to contribute to the aggregate losses, claims, damages
and liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending same) (collectively "Losses") to
which the Issuers and one or more of the Initial Purchasers may be subject in
such proportion as is appropriate to reflect the relative benefits received by
the Issuers, on the one hand, and by such Initial Purchaser, on the other hand,
from the offering of the Securities; provided, however, that in no case shall
any Initial Purchaser be responsible for any amount in excess of the purchase
discount or commission applicable to the Securities purchased by the such
Initial Purchaser hereunder. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the Issuers and the Initial
Purchasers shall contribute in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Issuers, on the
one hand, and of such Initial Purchaser, on the other hand, in connection with
the statements or omissions which resulted in such Losses as well as any other
relevant equitable considerations. Benefits received by the Issuers shall be
deemed to be equal to the total net proceeds from the offering (before deducting
expenses) of the Securities, and benefits received by any Initial Purchaser
shall be deemed to be equal to the total purchase discounts and commissions
received by such Initial Purchaser from the Issuers in connection with the
purchase of the Securities hereunder. Relative fault shall be determined by
reference to whether any alleged untrue statement or omission relates to
information provided by the Issuers or the Initial Purchasers. The Issuers and
the Initial Purchasers agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation that does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (d), no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8,
each person who controls an Initial Purchaser within the meaning of either the
Securities Act or the Exchange Act and each partner, director, officer, employee
and agent of an Initial Purchaser shall have the same rights to contribution as
such Initial Purchaser, and each person who controls the
32
<PAGE> 33
Issuers within the meaning of either the Securities Act or the Exchange Act and
each director, officer, employee and agent of the Issuers shall have the same
rights to contribution as the Issuers, subject in each case to the applicable
terms and conditions of this paragraph (d).
9. TERMINATION. The obligations of the Initial Purchasers hereunder may be
terminated by the Initial Purchasers by notice given to and received by the
Company prior to delivery of and payment for the Securities if, prior to that
time, any of the events described in Sections 7(o) or 7(p) shall have occurred
or if the Initial Purchasers shall decline to purchase the Securities for any
reason permitted under this Agreement.
10. REIMBURSEMENT OF INITIAL PURCHASER'S EXPENSES. If (a) the Issuers shall
fail to tender the Securities for delivery to the Initial Purchasers otherwise
than for any reason permitted under this Agreement or (b) the Initial Purchasers
shall decline to purchase the Securities for any reason permitted under this
Agreement (except the occurrence of any of the events described in Section 7(o)
hereof), the Issuers shall reimburse the Initial Purchasers for the reasonable
fees and expenses of their counsel and for such other reasonable out-of-pocket
expenses as shall have been incurred by them in connection with this Agreement
and the proposed purchase of the Securities, and upon demand the Issuers shall
pay the full amount thereof to the Initial Purchasers.
11. NOTICES, ETC. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Initial Purchasers, shall be delivered or sent by mail, telex
or facsimile transmission to NationsBanc Montgomery Securities LLC, 100 North
Tryon Street, 20th Floor, Charlotte, North Carolina 28255, Attention: Scott
Holmes, with a copy to Latham & Watkins, 885 Third Avenue, New York, New York
10022, Attention: Kirk A. Davenport;
(b) if to the Issuers, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the Final
Memorandum, Attention: Duane M. DeSisto, with a copy to Hinckley, Allen &
Snyder, 1500 Fleet Center, Providence, Rhode Island 02903-2393, Attention:
Stephen J. Carlotti.
Any such statements, requests, notices or agreements shall take effect at
the time of receipt thereof. The Issuers shall be entitled to act and rely upon
any request, consent, notice or agreement given or made on behalf of the Initial
Purchasers.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to
33
<PAGE> 34
the benefit of and be binding upon the Initial Purchasers, the Issuers and their
respective successors. This Agreement and the terms and provisions hereof are
for the sole benefit of only those persons, except that the representations,
warranties, indemnities and agreements of the Issuers contained in this
Agreement shall also be deemed to be for the benefit of directors, officers,
employees and agents (including, without limitation, attorneys) of the Initial
Purchasers and the person or persons, if any, who control an Initial Purchasers
within the meaning of Section 15 of the Securities Act and the representations,
warranties, indemnities and agreements of the Initial Purchasers contained
herein shall also be deemed to be for the benefit of directors, officers,
employees and agents (including without limitation, attorneys) of the Issuers
and the person or persons who control any of the Issuers within the meaning of
Section 15 of the Securities Act. Nothing in this Agreement is intended or shall
be construed to give any person, other than the persons referred to in this
Section 12, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein.
13. SURVIVAL. The respective indemnities, representations, warranties and
agreements of the Issuers and the Initial Purchasers contained in this Agreement
or made by or on behalf on them, respectively, pursuant to this Agreement, shall
survive the delivery of and payment for the Securities and shall remain in full
force and effect, regardless of any investigation made by or on behalf of any of
them or any person controlling any of them.
14. DEFINITION OF "BUSINESS DAY." For purposes of this Agreement, "business
day" means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a
day on which banking institutions in The City of New York, New York or The City
of Charlotte, North Carolina are authorized or obligated by law, executive order
or regulation to close.
15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
17. HEADINGS. The headings herein are inserted for convenience of reference
only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
34
<PAGE> 35
[Signature page follows]
35
<PAGE> 36
If the foregoing correctly sets forth the agreement between the Issuers and
the Initial Purchasers, please indicate your acceptance in the space provided
for that purpose below.
Very truly yours,
AAI.FOSTERGRANT, INC.
By: /s/ Gerald F. Cerce
--------------------------------------------
Name: Gerald F. Cerce
Title: President and Chief Executive Officer
GUARANTORS:
FOSTER GRANT HOLDINGS, INC.
By: /s/ Gerald F. Cerce
--------------------------------------------
Name: Gerald F. Cerce
Title: President
THE BONNEAU COMPANY
By: /s/ Gerald F. Cerce
--------------------------------------------
Name: Gerald F. Cerce
Title: President
OPTI-RAY, INC.
By: /s/ Gerald F. Cerce
--------------------------------------------
Name: Gerald F. Cerce
Title: President
BONNEAU GENERAL, INC.
By: /s/ Gerald F. Cerce
--------------------------------------------
Name: Gerald F. Cerce
Title: President
<PAGE> 37
BONNEAU HOLDINGS, INC.
By: /s/ Gerald F. Cerce
--------------------------------------------
Name: Gerald F. Cerce
Title: President
O-RAY HOLDINGS, INC.
By: /s/ Gerald F. Cerce
--------------------------------------------
Name: Gerald F. Cerce
Title: President
F.G.G. INVESTMENTS, INC.
By: /s/ Gerald F. Cerce
--------------------------------------------
Name: Gerald F. Cerce
Title: President
FOSTER GRANT GROUP, L.P.
By: /s/ Gerald F. Cerce
--------------------------------------------
Name: Gerald F. Cerce
Title: President and Chief Executive Officer
FANTASMA, LLC
By: /s/ Gerald F. Cerce
--------------------------------------------
Name: Gerald F. Cerce
Title: Chairman
<PAGE> 38
The foregoing Purchase Agreement
is hereby confirmed and accepted
as of the date first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ J. Scott Holmes
-----------------------------
Name: J. Scott Holmes
Title: Principal
PRUDENTIAL SECURITIES INCORPORATED
By:
-----------------------------
Name:
Title:
BANCBOSTON SECURITIES INC.
By:
-----------------------------
Name:
Title:
<PAGE> 39
The foregoing Purchase Agreement
is hereby confirmed and accepted
as of the date first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
By:
-----------------------------
Name:
Title:
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ Timothy O'Neill
----------------------------
Name: Timothy O'Neill
Title: Director
BANCBOSTON SECURITIES INC.
By:
----------------------------
Name:
Title:
<PAGE> 40
The foregoing Purchase Agreement
is hereby confirmed and accepted
as of the date first above written.
NATIONSBANC MONTGOMERY SECURITIES LLC
By:
-----------------------------
Name:
Title:
PRUDENTIAL SECURITIES INCORPORATED
By:
----------------------------
Name:
Title:
BANCBOSTON SECURITIES INC.
By: /s/ Gregory C. Foy
----------------------------
Name: Gregory C. Foy
Title: Managing Director
<PAGE> 41
EXHIBIT A
Amendment
<PAGE> 42
1. "SECTION 6.6 - SUSPENSION OF REDEMPTION OBLIGATION. Notwithstanding any
provision of this Section 6 to the contrary, if at any time the Corporation
shall have outstanding any Indebtedness (as hereinafter defined) the terms of
which restrict the Corporation's ability to redeem, in whole or in part, the
Series A Preferred Stock ("Restrictive Indebtedness"), then in such event the
Corporation's obligations under Section 6.1 and Section 6.2 to redeem any
shares of Series A Preferred Stock shall be suspended until ninety-one (91) days
after the date that such Restrictive Indebtedness is no longer outstanding. The
Corporation shall notify the holders of the Series A Preferred Stock in writing
within ten (10) days of its incurrence of any Restrictive Indebtedness which
under this Section 6.6 would require the suspension of its redemption
obligations under Sections 6.1 and 6.2 hereof. Within ten days after the
expiration of ninety-one (91) days after the date of the payment of such
Restrictive Indebtedness in full, the Corporation shall issue a written notice
of redemption in accordance with Section 6.5 hereof for such number of shares
of Series A Preferred Stock as the Corporation would have been obligated to
redeem, pursuant to the provisions of Sections 6.1 or 6.2 hereof, on or prior to
such notice date, but for the provisions of this Section 6.6. Nothing in this
Section 6.6 shall affect or impair the rights granted the holders of Series A
Preferred Stock pursuant to Section 5 hereof, nor shall it affect or impair any
of the provisions relating to conversion set forth in Section 8 hereof.
Notwithstanding any other provision of this Section 6 to the contrary, unless
approved by the Preferred Directors, the aggregate principal amount of
Restrictive Indebtedness shall not exceed at any time $150 million. For
purposes of this Section 6.6, "Indebtedness" shall mean (i) any obligation of
the Corporation or its subsidiaries for borrowed money, (ii) any obligation of
the Corporation or its subsidiaries evidenced by bonds, debentures, notes or
similar instruments, and (iii) any reimbursement obligation of the Corporation
or its subsidiaries with respect to letters of credit, bankers' acceptances or
similar facilities issued for the account of the Corporation and/or its
subsidiaries, in each case, other than any obligation owed to a Person who
directly or indirectly is controlling or controlled by or under direct or
indirect common control with the Corporation."
2. "7(g) The sum of (i) consolidated stockholders' equity of the Corporation
and its subsidiaries, and (ii) (to the extent not included in the stockholders'
equity) the Series A Preferred Stock and (iii) up to $5 million outstanding in
respect of notes issued by the Corporation on the Original Issue Date to its
stockholders on such date and to the initial purchasers of the Series A
Preferred Stock, all determined in accordance with generally accepted
accounting principles consistently applied, shall at any time be less than
$19,500,000 ( the "Minimum Amount") provided, however, that the Minimum Amount
shall be reduced dollar for dollar by any payments with respect of the
principal balance of the notes referred to in clause (iii) hereof."
4
<PAGE> 43
3. "8.2 AUTOMATIC CONVERSION. Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price at any time upon the closing of an underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, with managing underwriters reasonably satisfactory to the Required
Holders, covering the offer and sale of Common Stock for the account of the
Corporation to the public generally providing net proceeds to the Corporation
(after underwriter commissions and discounts, but before other offering
expenses) of not less than $20,000,000 and at a price per share of Common Stock
equal to 137.8% of the initial Conversion Price if such underwritten public
offering shall be consummated on or before May 31, 1999, and thereafter 175% of
the initial Conversion Price, in each case adjusted for stock splits and stock
dividends after the Original Issue Date (a "QUALIFIED PUBLIC OFFERING")."
5
<PAGE> 44
EXHIBIT B
Registration Rights Agreement
<PAGE> 45
EXHIBIT B
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of July 21, 1998
by and among
AAi.FosterGrant, Inc.
The Guarantors Signatories Hereto
and
NationsBanc Montgomery Securities LLC
Prudential Securities Incorporated
and
BancBoston Securities Inc.
================================================================================
<PAGE> 46
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of July 21, 1998, by and among AAi.FosterGrant, Inc., a Rhode
Island corporation (the "COMPANY"), the Guarantors signatories hereto (each a
"GUARANTOR" and, collectively, the "GUARANTORS"), and NationsBanc Montgomery
Securities LLC, Prudential Securities Incorporated and BancBoston Securities
Inc. (each an "INITIAL PURCHASER" and, collectively, the "INITIAL PURCHASERS"),
each of whom has agreed to purchase the Company's 10 3/4% Senior Notes due 2006
(the "SERIES A NOTES") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to that certain Purchase Agreement,
dated July 16, 1998 (the "PURCHASE AGREEMENT"), by and among the Company, the
Guarantors and the Initial Purchasers. In order to induce the Initial Purchasers
to purchase the Series A Notes, the Company and the Guarantors have agreed to
provide the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the obligations of the Initial
Purchasers set forth in Section 7 of the Purchase Agreement. Capitalized terms
used herein and not otherwise defined shall have the meaning assigned to them in
the Indenture, dated July 21, 1998, among the Company, the Guarantors and IBJ
Schroder Bank & Trust Company, as Trustee, relating to the Series A Notes and
the Series B Notes (the "INDENTURE").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144 of the Act.
BROKER-DEALER: Any broker or dealer registered under the Exchange Act.
BUSINESS DAY: Any day except a Saturday, Sunday or other day in the
City of New York on which banks are authorized or ordered to close.
CERTIFICATED SECURITIES: Definitive Notes, as defined in the Indenture.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer,
2
<PAGE> 47
(b) the maintenance of such Exchange Offer Registration Statement as
continuously effective and the keeping of the Exchange Offer open for a period
not less than the period required pursuant to Section 3(b) hereof and (c) the
delivery by the Company to the Registrar under the Indenture of Series B Notes
in the same aggregate principal amount as the aggregate principal amount of
Series A Notes tendered by Holders thereof pursuant to the Exchange Offer.
CONSUMMATION DEADLINE: As defined in Section 3(b) hereof.
EFFECTIVENESS DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE OFFER: The exchange and issuance by the Company of a principal
amount of Series B Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial Purchasers
propose to sell the Series A Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act and pursuant to Regulation S
under the Act.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
HOLDERS: As defined in Section 2 hereof.
INDEMNIFIED HOLDER: As defined in Section 8(a) hereof.
INDEMNIFIED PARTY: As defined in Section 8(c) hereof.
INDEMNIFYING PARTY: As defined in Section 8(c) hereof.
INDENTURE: The Indenture, dated as of the Closing Date, among the
Company, the Guarantors and the Trustee, pursuant to which the Notes are to be
issued, as such Indenture is amended or supplemented from time to time in
accordance with the terms therein.
LIQUIDATED DAMAGES: As defined in Section 5 hereof.
MANAGING UNDERWRITERS: As defined in Section 10 hereof.
NOTES: Series A and Series B Notes.
3
<PAGE> 48
PROSPECTUS: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company and
the Guarantors relating to (a) an offering of Series B Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
REGULATION S: Regulation S promulgated under the Act.
RESTRICTED BROKER-DEALER: Any Broker-Dealer that holds Series B Notes
that were acquired in the Exchange Offer in exchange for Series A Notes that
such Broker-Dealer acquired for its own account as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its affiliates).
RULE 144: Rule 144 promulgated under the Act.
SERIES B NOTES: The Company's 10 3/4 % Series B Senior Notes due 2006
to be issued pursuant to tHe Indenture in the Exchange Offer or as contemplated
by Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77a-77b) as in
effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Note, until the earliest to occur
of (a) the date on which such Note is exchanged in the Exchange Offer for a
Series B Note 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 Series A Note is disposed of
by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (d) the date on which such Series A Note is distributed to
the public pursuant to Rule 144 under the Act.
4
<PAGE> 49
TRUSTEE: IBJ Schroder Bank & Trust Company and any of its successors.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities (a
"HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company and the Guarantors shall (i) cause the Exchange
Offer Registration Statement to be filed with the Commission as soon as
practicable after the Closing Date, but in no event later than 45 days after the
Closing Date (such 45th day being the "FILING DEADLINE"), (ii) use their best
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest possible time, but in no event later than 135 days after the
Closing Date (such 135th day being the "EFFECTIVENESS DEADLINE"), (iii) in
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting (i) registration of the Series B Notes to be offered
in exchange for the Series A Notes that are Transfer Restricted Securities and
(ii) resales of Series B Notes by Broker-Dealers that tendered into the Exchange
Offer Series A Notes that such Broker-Dealers acquired for its own account as a
result of market-making activities or other trading activities (other than
Series A Notes acquired directly from the Company or any of its Affiliates) as
contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall use their respective best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in no event shall
such period be less than 20 Business Days. The Company and the Guarantors shall
cause the Exchange Offer to comply with all applicable federal and state
securities laws. No securities other than the Series B Notes and the guarantees
thereof shall be included in the Exchange Offer Registration Statement. The
Company and the Guarantors shall use their respective best efforts to cause the
Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 30 Business Days thereafter (such 30th day being the "CONSUMMATION
DEADLINE").
5
<PAGE> 50
(c)
(i) The Company and the Guarantors shall include a "Plan
of Distribution" section in the Prospectus contained in the Exchange Offer
Registration Statement and indicate therein that any Broker-Dealer who holds
Transfer Restricted Securities that were acquired for the account of such
Broker-Dealer as a result of market-making activities or other trading
activities (other than Transfer Restricted Securities acquired directly from the
Company or any Affiliate of the Company) may exchange such Transfer Restricted
Securities pursuant to the Exchange Offer; however, such Broker-Dealer may be
deemed to be an "underwriter" within the meaning of the Act and must, therefore,
deliver a prospectus meeting the requirements of the Act in connection with its
initial resale of any Series B Notes received by such Broker-Dealer in the
Exchange Offer, and that the Prospectus contained in the Exchange Offer
Registration Statement may be used to satisfy such prospectus delivery
requirement. Such "Plan of Distribution" section shall also contain all other
information with respect to such sales by such Broker-Dealers that the
Commission may require in order to permit such sales pursuant thereto, but such
"Plan of Distribution" shall not name any such Broker-Dealer or disclose the
amount of Transfer Restricted Securities held by any such Broker-Dealer, except
to the extent required by the Commission as a result of a change in policy,
rules or regulations after the date of this Agreement.
(ii) To the extent necessary to ensure that the Exchange
Offer Registration Statement is available for sales of Series B Notes by
Broker-Dealers, upon the reasonable request of any Broker-Dealer who certifies
in writing to the Company that it anticipates it will be a Restricted
Broker-Dealer, the Company and the Guarantors agree to use their respective best
efforts to keep the Exchange Offer Registration Statement continuously
effective, supplemented and amended as required by the provisions of Section
6(c) hereof and in conformity with the requirements of this Agreement, the Act
and the policies, rules and regulations of the Commission as announced from time
to time, for a period of 180 days from the date on which the Exchange Offer is
Consummated (unless extended pursuant to Section 6(d) hereof), or such shorter
period as will terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold pursuant thereto. The Company and the
Guarantors shall promptly provide sufficient copies of the latest version of
such Prospectus to such Broker-Dealers promptly upon request, at any time during
such period.
SECTION 4. SHELF REGISTRATION
(a) SHELF REGISTRATION. If (i) the Exchange Offer is not permitted
by applicable law (after the Company and the Guarantors have complied with the
procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer
Restricted Securities shall notify the Company within 20 Business Days following
the Consummation Deadline 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 Series B Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration
6
<PAGE> 51
Statement is not appropriate or available for such resales by such Holder or (C)
such Holder is a Broker-Dealer and holds Series A Notes acquired directly from
the Company or any of its Affiliates, then the Company and the Guarantors shall:
(x) cause to be filed, on or prior to 30 days after the earlier of (i)
the date on which the Company determines that the Exchange Offer Registration
Statement cannot be filed as a result of clause (a)(i) above and (ii) the date
on which the Company receives the notice specified in clause (a)(ii) above,
(such earlier date, the "FILING DEADLINE"), a shelf registration statement
pursuant to Rule 415 under the Act (which may be an amendment to the Exchange
Offer Registration Statement (the "SHELF REGISTRATION STATEMENT")), relating to
all Transfer Restricted Securities, and
(y) shall use their respective best efforts to cause such Shelf
Registration Statement to become effective on or prior to 90 days after the
earlier of (i) the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above and
(ii) the date on which the Company receives the notice specified in clause
(a)(ii) above (such 90th day the "EFFECTIVENESS DEADLINE").
If, after the Company and the Guarantors have filed an Exchange Offer
Registration Statement that satisfies the requirements of Section 3(a) above,
the Company and the Guarantors are required to file and make effective a Shelf
Registration Statement solely because the Exchange Offer is not permitted under
applicable federal law (i.e., clause (a)(i) above), then the filing of the
Exchange Offer Registration Statement shall be deemed to satisfy the
requirements of clause (x) above; provided that, in such event, the Company and
the Guarantors shall remain obligated to meet the Effectiveness Deadline set
forth in clause (y).
The Company and the Guarantors shall use their respective best efforts
to keep any Shelf Registration Statement required by this Section 4(a)
continuously effective, supplemented and amended as required by and subject to
the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for sales of Transfer Restricted Securities by the Holders
thereof entitled to the benefit of this Section 4(a), and to ensure that it
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, until
the Transfer Restricted Securities are available for sale under Rule 144(k)
under the Act (as extended pursuant to Section 6(d)), or such shorter period as
will terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold pursuant thereto.
(b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH
THE SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder agrees in
writing to be bound by all the provisions of this Agreement applicable to such
Holder and furnishes to the Company in writing, within 20 days after receipt of
a request therefor, the information specified in Item 507 or 508 of Regulation
S-
7
<PAGE> 52
K, as applicable, of the Act for use in connection with any Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. No Holder of
Transfer Restricted Securities shall be entitled to Liquidated Damages pursuant
to Section 5 hereof unless and until such Holder shall have provided all such
agreement and information. Each selling Holder agrees to promptly furnish
additional information required to be disclosed in order to make the information
previously furnished to the Company by such Holder not materially misleading.
(c) BLACK OUT PERIOD. During any consecutive 365 day period, the
Company may suspend the effectiveness of the Shelf Registration Statement on two
occasions for a period of not more than 45 consecutive days if there is a
possible acquisition or business combination or other transaction, business
development or event involving the Company that may require disclosure in the
Shelf Registration Statement and the Board of Directors of the Company
determines in the exercise of its reasonable judgment that such disclosure is
not in the best interests of the Company and its shareholders or obtaining any
financial statements relating to an acquisition or business combination required
to be included in the Shelf Registration Statement would be impracticable. In
such a case, the Company shall promptly notify the Holders of the suspension of
the Shelf Registration Statements' effectiveness, provided that such notice
shall not require the Company to disclose the possible acquisition or business
combination or other transaction, business development or event if the Board of
Directors of the Company determines in good faith that such acquisition or
business combination or other transaction, business development or event should
remain confidential. Upon the abandonment, consummation or termination of the
possible acquisition or business combination or other transaction, business
development or event, or the availability of the required financial statements
with respect to a possible acquisition or business combination, the suspension
of the use of the Shelf Registration Statement pursuant to this Section 4(c)
shall cease and the Company shall promptly comply with Section 6(c)(ii) hereof
and notify the Holders that disposition of Transfer Restricted Securities may be
resumed.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation Deadline
or (iv) any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose during the periods specified in this Agreement
without being succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself declared
effective immediately (each such event referred to in clauses (i) through (iv),
a "REGISTRATION DEFAULT"), then the Company and the Guarantors hereby jointly
and severally agree to pay to each Holder of Transfer Restricted Securities
affected thereby Liquidated Damages in an amount equal to $.05 per week per
$1,000 in principal amount of Transfer Restricted Securities held by such Holder
for each week or portion thereof that the Registration
8
<PAGE> 53
Default continues for the first 90-day period immediately following the
occurrence of such Registration Default ("LIQUIDATED DAMAGES"). The amount of
the Liquidated Damages shall 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 in principal
amount of Transfer Restricted Securities; provided that the Company and the
Guarantors shall in no event be required to pay Liquidated Damages for more than
one Registration Default at any given time. Notwithstanding anything to the
contrary set forth herein, (1) upon filing of the Exchange Offer Registration
Statement and/or, if applicable, the Shelf Registration Statement, in the case
of (i) above, (2) upon the effectiveness of the Exchange Offer Registration
Statement and/or, if applicable, the Shelf Registration Statement, in the case
of (ii) above, (3) upon consummation of the Exchange Offer, in the case of (iii)
above, or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange Offer
Registration Statement and/or, if applicable, the Shelf Registration Statement
to again be declared effective or made usable in the case of (iv) above, the
Liquidated Damages payable with respect to the Transfer Restricted Securities as
a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued Liquidated Damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. All obligations of the Company and the Guarantors 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
shall survive until such time as all such obligations with respect to such
Transfer Restricted Security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) EXCHANGE OFFER REGISTRATION STATEMENT. In connection with the
Exchange Offer, the Company and the Guarantors shall (x) comply with all
applicable provisions of Section 6(c) below, (y) use their respective best
efforts to effect such exchange and to permit the resale of Series B Notes by
Broker-Dealers that tendered in the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of its market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof and (z) comply with
all of the following provisions:
(i) If, following the Closing Date, there has been
announced a change in Commission policy with respect to exchange offers
such as the Exchange Offer, that in the reasonable opinion of counsel
to the Company raises a substantial question as to whether the Exchange
Offer is permitted by applicable federal law, the Company and the
Guarantors hereby agree to seek a no-action letter or other favorable
decision from the Commission allowing the Company and the Guarantors to
Consummate an Exchange
9
<PAGE> 54
Offer for such Transfer Restricted Securities. The Company and the
Guarantors hereby agree to pursue the issuance of such a decision to
the Commission staff level. In connection with the foregoing, the
Company and the Guarantors hereby agree to take all such other actions
as may be requested by the Commission or otherwise required in
connection with the issuance of such decision, including without
limitation (A) participating in telephonic conferences with the
Commission, (B) delivering to the Commission staff an analysis prepared
by counsel to the Company setting forth the legal bases, if any, upon
which such counsel has concluded that such an Exchange Offer should be
permitted and (C) diligently pursuing a resolution (which need not be
favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange
Offer, each Holder of Transfer Restricted Securities (including,
without limitation, any Holder who is a Broker- Dealer) shall furnish,
upon the request of the Company, prior to the Consummation of the
Exchange Offer, a written representation to the Company and the
Guarantors (which may be contained in the letter of transmittal
contemplated by the Exchange Offer Registration Statement) to the
effect that (A) it is not an Affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the
Series B Notes to be issued in the Exchange Offer and (C) it is
acquiring the Series B Notes in its ordinary course of business. As a
condition to its participation in the Exchange Offer, each Holder using
the Exchange Offer to participate in a distribution of the Series B
Notes shall acknowledge and agree that, if the resales are of Series B
Notes obtained by such Holder in exchange for Series A Notes acquired
directly from the Company or an Affiliate thereof, it (1) could not,
under Commission policy as in effect on the date of this Agreement,
rely on the position of the Commission enunciated in MORGAN STANLEY AND
CO., INC. (available June 5, 1991) and EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988), as interpreted in the
Commission's letter to SHEARMAN & STERLING dated July 2, 1993, and
similar no-action letters (including, if applicable, any no-action
letter obtained pursuant to clause (i) above) and (2) must comply with
the registration and prospectus delivery requirements of the Act in
connection with a secondary resale transaction and that such a
secondary resale transaction must be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation
S-K.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company and the Guarantors shall provide a
supplemental letter to the Commission (A) stating that the Company and
the Guarantors are registering the Exchange Offer in reliance on the
position of the Commission enunciated in EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988), MORGAN STANLEY AND CO., INC.
(available June 5, 1991), as interpreted in the Commission's letter to
SHEARMAN & STERLING dated July 2, 1993, and, if applicable, any
no-action letter obtained pursuant to clause (i) above, (B)
10
<PAGE> 55
including a representation that neither the Company nor any Guarantor
has entered into any arrangement or understanding with any Person to
distribute the Series B Notes to be received in the Exchange Offer and
that, to the best of the Company's and each Guarantor's information and
belief, each Holder participating in the Exchange Offer is acquiring
the Series B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Series B Notes received in the Exchange Offer and
(C) any other undertaking or representation required by the Commission
as set forth in any no-action letter obtained pursuant to clause (i)
above, if applicable.
(b) SHELF REGISTRATION STATEMENT. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall comply with all the
provisions of Section 6(c) below and shall use their respective best efforts to
effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 4(b) hereof), and pursuant thereto the Company and the
Guarantors shall prepare and file with the Commission a Registration Statement
relating to the registration on any appropriate form under the Act, which form
shall be available for the sale of the Transfer Restricted Securities in
accordance with the intended method or methods of distribution thereof within
the time periods and otherwise in accordance with the provisions hereof.
(c) GENERAL PROVISIONS. In connection with any Registration
Statement and any related Prospectus required by this Agreement, the Company and
the Guarantors shall:
(i) use their respective best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 or 4 of this
Agreement, as applicable. Upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained
therein (A) to contain an untrue statement of material fact or omit to
state any material fact necessary to make the statements therein not
misleading or (B) not to be effective and usable for resale of Transfer
Restricted Securities during the periods required by this Agreement,
the Company and the Guarantors shall file promptly an appropriate
amendment to such Registration Statement curing such defect and, if
Commission review is required, use their respective best efforts to
cause such amendment to be declared effective as soon as practicable;
(ii) prepare and file with the Commission such amendments
and post-effective amendments to the applicable Registration Statement
as may be necessary to keep such Registration Statement effective for
the applicable period set forth in Section 3 or 4 hereof; cause the
Prospectus to be supplemented by any required Prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the Act,
and to comply fully with Rules 424, 430A and 462, as applicable, under
the Act in a timely manner; and comply with the provisions of the Act
with respect to the disposition of all securities
11
<PAGE> 56
covered by such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement
to the Prospectus;
(iii) advise the Initial Purchasers, and in the case of a
Shelf Registration Statement, each selling Holder promptly and, if
requested by such Holder, confirm such advice in writing, (A) when the
Prospectus or any Prospectus supplement or post-effective amendment has
been filed and, with respect to any applicable Registration Statement
or any post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus
or for additional information relating thereto, (C) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation
of any proceeding for any of the preceding purposes and (D) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making
of any additions to or changes in the Registration Statement in order
to make the statements therein not misleading, or that requires the
making of any additions to or changes in the Prospectus in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification
or exemption from qualification of the Transfer Restricted Securities
under state securities or Blue Sky laws, then the Company and the
Guarantors shall use their respective best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time;
(iv) subject to Section 6(c)(i) hereof, if any fact or
event contemplated by Section 6(c)(iii)(D) hereof shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(v) furnish to each Initial Purchaser, and in the case of
a Shelf Registration Statement, to each Holder in connection with such
exchange or sale, if any, before filing with the Commission, a copy of
any Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of
12
<PAGE> 57
such Registration Statement), which documents shall be subject to the
review and comment of such Initial Purchasers, and, in the case of a
Shelf Registration Statement, such Holders in connection with such
sale, if any, for a period of at least three Business Days, and the
Company and the Guarantors shall not file any such Registration
Statement or Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such documents
incorporated by reference) to which such Initial Purchasers, or, in the
case of a Shelf Registration Statement, such Holders shall reasonably
object within three Business Days after the receipt thereof. An Initial
Purchaser or selling Holder shall be deemed to have reasonably objected
to such filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains an untrue
statement of material fact or omits to state any material fact
necessary to make the statements therein not misleading or fails to
comply with the applicable requirements of the Act;
(vi) promptly prior to the filing of any document that is
to be incorporated by reference into a Registration Statement or
Prospectus, provide a copy of such document to each Initial Purchaser,
and in the case of a Shelf Registration Statement, to the
representative of the Holders included within the coverage of the Shelf
Registration Statement, if any, make the Company's and the Guarantors'
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such Initial Purchasers or the
representative of the Holders may reasonably request;
(vii) in the case of a Shelf Registration Statement make
available, at reasonable times, for inspection by a representative of
the Holders and an attorney and accountant retained by such Holders, in
a manner designed to permit underwriters to satisfy their due diligence
investigation under the Act, all financial and other records and
pertinent corporate documents of the Company and the Guarantors
customarily inspected by underwriters in primary underwritten offerings
and cause the Company's and the Guarantors' officers, directors and
employees to supply all information reasonably requested by and
customarily supplied in connection with primary underwritten offerings
to, any such representative, attorney or accountant in connection with
such Shelf Registration Statement or any post-effective amendment
thereto subsequent to the filing thereof and prior to its
effectiveness; PROVIDED, HOWEVER, that any records, information or
documents that are designated by the Company or any of the Guarantors
as confidential at the time of delivery of such records, information or
documents shall be kept confidential by such persons, unless (i) such
records, information or documents are in the public domain or otherwise
publicly available, (ii) disclosure of such records, information or
documents is required by court or administrative order or (iii)
disclosure of such records, information or documents, in the opinion of
counsel to such Person, is otherwise required by law (including,
without limitation, pursuant to the requirements of the Act).
13
<PAGE> 58
(viii) if requested by the Initial Purchasers or in the case
of a Shelf Registration Statement, by any Holder of Notes included
within the coverage of the Shelf Registration Statement, promptly
include in any Registration Statement or related Prospectus, pursuant
to a supplement or post-effective amendment if necessary, such
information as such Initial Purchasers or such Holders may reasonably
request to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer
Restricted Securities; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the
Company and the Guarantors are notified of the matters to be included
in such Prospectus supplement or post-effective amendment;
(ix) furnish to each Holder of Notes included within the
coverage of the Shelf Registration Statement, without charge, at least
one conformed copy of the Shelf Registration Statement, as first filed
with the Commission, and of each amendment thereto, without documents
incorporated by reference therein or exhibits thereto, unless a Holder
so requests in writing.
(x) deliver to the Initial Purchasers, and to any other
Holder that so requests, without charge, at least one conformed copy of
the Exchange Offer Registration Statement and any post-effective
amendment thereto, including financial statements and schedules,
without documents incorporated therein by reference or exhibits
thereto, unless the Initial Purchasers or any such Holder so request in
writing.
(xi) deliver to each Holder of Notes included within the
coverage of the Shelf Registration Statement, without charge, as many
copies of the Prospectus (including each preliminary prospectus)
included in the Shelf Registration Statement and any amendment or
supplement thereto as such Persons reasonably may request; the Company
and the Guarantors hereby consent, subject to the provisions of this
Agreement, to the use (in accordance with law) of the Prospectus and
any amendment or supplement thereto by each selling Holder in
connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement
thereto;
(xii) deliver to the Initial Purchasers or any Restricted
Broker-Dealer, without charge, as many copies of the final prospectus
included in the Exchange Offer Registration Statement and any amendment
or supplement thereto as such Person may reasonably request; the
Company and the Guarantors hereby consent, subject to the provisions of
this Agreement, to the use (in accordance with law) of the prospectus
or any amendment or supplement thereto by the Initial Purchasers, if
necessary, any Restricted Broker-Dealer and such other Persons required
to deliver a prospectus following the Exchange Offer in connection with
the offering and sale of the Notes covered by the Prospectus, or any
amendment or supplement thereto, included in such Exchange Offer
Registration Statement;
14
<PAGE> 59
(xiii) upon the request of any Holder of Notes included
within the coverage of the Shelf Registration Statement, enter into
such agreements (including underwriting agreements) and make such
representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition
of the Transfer Restricted Securities pursuant to any Shelf
Registration Statement contemplated by this Agreement as may be
reasonably requested by any such Holder in connection with any sale or
resale pursuant to any Shelf Registration Statement, and in such
connection the Company and the Guarantors shall:
(A) upon the request of any Holder, furnish (or
in the case of paragraphs (2) and (3) below, use their
respective best efforts to cause to be furnished) to each
Holder, upon the effectiveness of the Shelf Registration
Statement:
(1) a certificate, dated such date,
signed on behalf of the Company and the Guarantors by
(x) a principal operating or executive officer of the
Company and the Guarantors and (y) a principal
financial or accounting officer of the Company and
the Guarantors, confirming, as of the date thereof,
the matters set forth in paragraphs (a), (c), (d) and
(e) of Section 7 of the Purchase Agreement and such
matters customarily given in underwritten offerings;
(2) an opinion, dated the date of
effectiveness of the Shelf Registration Statement, of
counsel for the Company and the Guarantors covering
matters customarily covered in opinions requested in
underwritten offerings and similar to those set forth
in Section 7(h) of the Purchase Agreement, and in any
event including a statement to the effect that such
counsel has participated in conferences with officers
and representatives of the Company and the Guarantors
and representatives of the independent public
accountants for the Company and the Guarantors and
has considered the matters required to be stated
therein and the statements contained therein, and
although such counsel is not passing upon and does
not assume the responsibility for, the accuracy,
completeness or fairness of such statements; and has
not made any independent check or verification
thereof, that such counsel advises that, on the basis
of the foregoing, no facts have come to the attention
of such counsel that lead such counsel to believe
that the Shelf Registration Statement, at the time
such Shelf Registration Statement or any
post-effective amendment thereto became effective,
contained an untrue statement of a material fact or
omitted to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading, or that the Prospectus
contained in such Shelf Registration Statement as of
its date, contained an untrue statement of a material
fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of
the circumstances under which
15
<PAGE> 60
they were made, not misleading. Without limiting the
foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not
independently verified, the accuracy, completeness or
fairness of the financial statements and other
financial data included in any Registration Statement
contemplated by this Agreement or the related
Prospectus; and
(3) a customary comfort letter, dated
as of the date of effectiveness of the Shelf
Registration Statement, from the Company's
independent accountants, in the customary form and
covering matters of the type customarily covered in
comfort letters to underwriters in connection with
underwritten offerings, and affirming the matters set
forth in the comfort letters delivered pursuant to
Section 7(n) of the Purchase Agreement, subject to
receipt of appropriate documentation, if required by,
and only if permitted by, Statement of Auditing
Standards No. 72; and
(B) deliver such other documents and
certificates as may be reasonably requested by the
representative of the selling Holders to evidence compliance
with the matters covered in clause (A) above and with any
customary conditions contained in any agreement entered into
by the Company and the Guarantors pursuant to this clause
(xiii);
(xiv) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may request and do any and all
other acts or things necessary or advisable to enable the disposition
in such jurisdictions of the Transfer Restricted Securities covered by
the applicable Registration Statement; provided, however, that neither
the Company nor any Guarantor shall be required to register or qualify
as a foreign corporation where it is not now so qualified or to take
any action that would subject it to the service of process in suits or
to taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so
subject;
(xv) issue, upon the request of any Holder of Series A
Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to
the aggregate principal amount of Series A Notes surrendered to the
Company by such Holder in exchange therefor or being sold by such
Holder; such Series B Notes to be registered in the name of such Holder
or in the name of the purchaser(s) of such Series B Notes, as the case
may be; in return, the Series A Notes held by such Holder shall be
surrendered to the Company for cancellation;
16
<PAGE> 61
(xvi) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any restrictive
legends; and to register such Transfer Restricted Securities in such
denominations and such names as the selling Holders may request at
least two Business Days prior to the closing of any such sale of
Transfer Restricted Securities;
(xvii) use their respective best efforts to cause the
disposition of the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to Consummate the disposition of such
Transfer Restricted Securities, subject to the proviso contained in
clause (xiv) above;
(xviii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration
Statement covering such Transfer Restricted Securities and provide the
Trustee under the Indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with The
Depository Trust Company;
(xix) otherwise use their respective best efforts to comply
with all applicable rules and regulations of the Commission, and make
generally available to their security holders with regard to any
applicable Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term is
defined in paragraph (c) of Rule 158 under the Act);
(xx) in the case of a Shelf Registration Statement, make
appropriate officers of the Company available to the selling Holders
for meetings with prospective purchasers of the Transfer Restricted
Securities and prepare and present to potential investors customary
"road show" material in a manner consistent with other new issuances of
other securities similar to the Transfer Restricted Securities;
(xxi) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required by this Agreement and, in connection therewith, cooperate with
the Trustee and the Holders to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in accordance
with the terms of the TIA; and execute, and use best efforts to cause
the Trustee to execute, all documents that may be required to effect
such changes and all other forms and documents required to be filed
with the Commission to enable such Indenture to be so qualified in a
timely manner; and
17
<PAGE> 62
(xxii) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of
Section 13 or Section 15(d) of the Exchange Act.
(d) RESTRICTIONS ON HOLDERS. Each Holder agrees by acquisition of
a Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "RECOMMENCEMENT
DATE"). Each Holder receiving a Suspension Notice hereby agrees that it will
either (i) destroy any Prospectuses, other than permanent file copies, then in
such Holder's possession which have been replaced by the Company with more
recently dated Prospectuses or (ii) deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the Prospectus covering such Transfer Restricted Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by a number of days equal to the
number of days in the period from and including the date of delivery of the
Suspension Notice to the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
All expenses incident to the Company's and the Guarantors' performance
of or compliance with this Agreement shall be borne by the Company, regardless
of whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses, (ii) all fees and
expenses of compliance with federal securities and state Blue Sky or securities
laws, (iii) all expenses of printing (including printing certificates for the
Series B Notes to be issued in the Exchange Offer and printing of Prospectuses,
messenger and delivery services and telephone, (iv) all fees and disbursements
of counsel for the Company and the Guarantors and in the event of a Shelf
Registration Statement, the reasonable fees and disbursements of one firm of
counsel for the Holders of Transfer Restricted Securities (who shall be Latham &
Watkins, unless another firm shall be chosen by the Holders of a majority in
principal amount of the Transfer Restricted Securities for whose benefit such
Shelf Registration Statement is being prepared) and fees and disbursements of
the Trustee and counsel, (v) all application and filing fees in connection with
listing the Series B Notes on a national securities exchange or automated
quotation system pursuant to the requirements hereof and (vi) all fees and
disbursements of independent certified public accountants of the Company and the
Guarantors (including the expenses of any special audit and comfort letters
required by or incident to such performance) but excluding fees and expenses of
counsel to the underwriters and underwriting
18
<PAGE> 63
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of the Series B Notes by a Holder.
The Company shall, in any event, bear its and the Guarantors' internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors agree, jointly and severally,
to indemnify and hold harmless (i) each Holder, (ii) each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) any Holder (any of the persons referred to in this clause (ii)
being hereinafter referred to as a "controlling person") and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "INDEMNIFIED HOLDER") from
and against any and all losses, claims, damages, liabilities, judgments,
(including without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action that
could give rise to any such losses, claims, damages, liabilities or judgments)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary prospectus or Prospectus
(or any amendment or supplement thereto) provided by the Company to any holder
or any prospective purchaser of Series B Notes, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by an untrue
statement or omission or alleged untrue statement or omission that is based upon
information relating to any of the Holders furnished in writing to the Company
by any of the Holders.
(b) Each Holder of Transfer Restricted Securities agrees,
severally and not jointly, to indemnify and hold harmless the Company and the
Guarantors, and their respective directors, officers, employees, agents and
representatives, and each person, if any, who controls (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) the Company or the
Guarantors, to the same extent as the foregoing indemnity from the Company and
the Guarantors to each of the Indemnified Holders, but only with reference to
information relating to such Indemnified Holder furnished in writing to the
Company by such Indemnified Holder expressly for use in any Registration
Statement. In no event shall any Indemnified Holder be liable or responsible for
any amount in excess of the amount by which the total amount received by such
Indemnified Holder with respect to its sale of Transfer Restricted Securities
pursuant to a Registration Statement exceeds the amount of any damages that such
Indemnified Holder has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission.
19
<PAGE> 64
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the Indemnified Party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the Indemnifying Party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the Indemnified Party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), an Indemnified Holder shall not be required to
assume the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Indemnified Holder). Any Indemnified Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the Indemnified
Party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the Indemnifying Party, (ii) the Indemnifying Party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the Indemnified Party or (iii) the named parties to
any such action (including any impleaded parties) include both the Indemnified
Party and the Indemnifying Party, and the Indemnified Party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
Indemnifying Party (in which case the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of the Indemnified Party).
In any such case, the Indemnifying Party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all Indemnified Parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by a majority of the Indemnified Holders, in the case of the parties
indemnified pursuant to Section 8(a), and by the Company, in the case of parties
indemnified pursuant to Section 8(b). The Indemnifying Party shall indemnify and
hold harmless the Indemnified Party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than 50 days after the Indemnifying Party
shall have received a request from the Indemnified Party for reimbursement for
the fees and expenses of counsel (in any case where such fees and expenses are
at the expense of the Indemnifying Party) and, prior to the date of such
settlement, the Indemnifying Party shall have failed to comply with such
reimbursement request. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the Indemnified Party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
Indemnified Party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the Indemnified Party from all liability on claims
that are or could
20
<PAGE> 65
have been the subject matter of such action and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of the Indemnified Party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an Indemnified Party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Guarantors, on the one hand, and the Holders, on the other hand, from their
sale of Transfer Restricted Securities or (ii) if the allocation provided by
clause 8(d)(i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of the Company and the Guarantors, on
the one hand, and of the Indemnified Holder, on the other hand, in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of the Company and the Guarantors, on the one
hand, and of the Indemnified Holder, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or such Guarantors, on the one
hand, or by the Indemnified Holder, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and judgments referred to above shall
be deemed to include, subject to the limitations set forth in the second
paragraph of Section 8(a), any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim.
The Company, the Guarantors and each Holder agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any matter, including any
action that could have given rise to such losses, claims, damages, liabilities
or judgments. Notwithstanding the provisions of this Section 8, no Holder or its
related Indemnified Holders shall be required to contribute, in the aggregate,
any amount in excess of the amount by which the total received by such Holder
with respect to the sale of its Transfer Restricted Securities pursuant to a
Registration Statement exceeds the sum of (A) the amount paid by such Holder for
such Transfer Restricted Securities plus (B) the amount of any damages which
such Holder has otherwise been required to pay by reason of such
21
<PAGE> 66
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Holders' obligations to contribute
pursuant to this Section 8(c) are several in proportion to the respective
principal amount of Transfer Restricted Securities held by each of the Holders
hereunder and not joint.
SECTION 9. RULE 144A AND RULE 144
The Company and each Guarantor agrees with each Holder, for so long as
any Transfer Restricted Securities remain outstanding and during any period in
which the Company or such Guarantor (i) is not subject to Section 13 or 15(d) of
the Exchange Act, to make available, upon request of any Holder, to such Holder
or beneficial owner of Transfer Restricted Securities in connection with any
sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A and (ii) is subject to
Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby
in a timely manner in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144.
SECTION 10. UNDERWRITTEN REGISTRATIONS
If any of the Transfer Restricted Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering ("MANAGING UNDERWRITERS") will be selected by the
Holders of a majority in aggregate principal amount of such Transfer Restricted
Securities included in such offering; provided, however, that the Managing
Underwriters shall be reasonably satisfactory to the Company.
No Person may participate in any underwritten registration hereunder
unless such Person (i) agrees to sell such Person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
SECTION 11. MISCELLANEOUS
(a) REMEDIES. The Company and the Guarantors acknowledge and agree
that any failure by the Company and/or the Guarantors to comply with their
respective obligations under Sections 3 and 4 hereof may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it will not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
22
<PAGE> 67
Purchasers or any Holder may obtain such relief as may be required to
specifically enforce the Company's and the Guarantors' obligations under
Sections 3 and 4 hereof. The Company and the Guarantors further agree to waive
the defense in any action for specific performance that a remedy at law would be
adequate.
(b) NO INCONSISTENT AGREEMENTS. Neither the Company nor any
Guarantor shall, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's and the Guarantors' securities under any agreement in effect on
the date hereof.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given, unless (i) in the case
of Section 5 hereof and this Section 10(c)(i), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities and
(ii) in the case of all other provisions hereof, the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities (excluding Transfer Restricted Securities held by
the Company or its Affiliates). Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose Transfer Restricted Securities are being tendered
pursuant to the Exchange Offer, and that does not affect directly or indirectly
the rights of other Holders whose Transfer Restricted Securities are not being
tendered pursuant to such Exchange Offer, may be given by the Holders of a
majority of the outstanding principal amount of Transfer Restricted Securities
subject to such Exchange Offer.
(d) THIRD PARTY BENEFICIARY. The Holders of Transfer Restricted
Securities participating in the Exchange Offer shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect their rights or the
rights of Holders hereunder.
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company or the Guarantors:
AAi.FosterGrant, Inc.
23
<PAGE> 68
500 George Washington Hwy.
Smithfield, RI 02917
Telecopier No.: (401) 231-3212
Attention: Chief Financial Officer
With a copy to:
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, RI
Telecopier No.: (401) 277-9600
Attention: Stephen J. Carlotti
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice shall be delivered to the Initial
Purchasers in the form attached hereto as Exhibit A.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders; provided, that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Transfer Restricted
Securities in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Transfer Restricted
Securities in any manner, whether by operation of law or otherwise, such
Transfer Restricted Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Transfer Restricted Securities such
Holder shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement, including the restrictions on
resale set forth in this Agreement and, if applicable, the Purchase Agreement,
and such Holder shall be entitled to receive the benefits hereof.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
24
<PAGE> 69
(h) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) ENTIRE AGREEMENT. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
25
<PAGE> 70
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AAI.FOSTERGRANT, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President and Chief
Executive Officer
FOSTER GRANT HOLDINGS, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President
THE BONNEAU COMPANY
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President
OPTI-RAY, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President
BONNEAU GENERAL, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President
26
<PAGE> 71
BONNEAU HOLDINGS, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President
O-RAY HOLDINGS, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President
F.G.G. INVESTMENTS, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President
FOSTER GRANT GROUP, L.P.
By: BONNEAU HOLDINGS, INC., GENERAL
PARTNER
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President and Chief
Executive Officer
FANTASMA, LLC
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President
27
<PAGE> 72
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ J. Scott Holmes
------------------------------
Name: J. Scott Holmes
Title: Principal
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ Timothy O'Neill
------------------------------
Name: Timothy O'Neill
Title: Director
BANCBOSTON SECURITIES INC.
By: /s/ Gregory C. Foy
------------------------------
Name: Gregory C. Foy
Title: Managing Director
28
<PAGE> 73
EXHIBIT A
NOTICE OF FILING OF REGISTRATION STATEMENT
To: NationsBanc Montgomery Securities LLC
Prudential Securities Incorporated
BancBoston Securities Inc.
From: AAi.FosterGrant, Inc.
Re: 10 3/4% Series A Senior Notes Due 2006
Date: ____________, 199__
For your information only (NO ACTION REQUIRED):
Today, ________________, 199__, we filed [an Exchange
Registration Statement] [a Shelf Registration Statement] with the Securities and
Exchange Commission. We currently expect this registration statement to be
declared effective by __________________________, 199__.
A-1
<PAGE> 74
SCHEDULE A
Subsidiaries
Company Name Jurisdiction Of Organization
------------ ----------------------------
1. Foster Grant Holdings, Inc. Delaware
2. The Bonneau Company Texas
3. Opti-Ray, Inc. New York
4. Bonneau General, Inc. Delaware
5. Bonneau Holdings, Inc. Delaware
6. O-Ray Holdings, Inc. Delaware
7. F.G.G. Investments, Inc. Delaware
8. Foster Grant Group, L.P. Delaware
9. Fantasma, LLC (80%) Delaware
10. AAi Company of Canada Nova Scotia
Canada
11. Vendome Accessories Limited (51%) Nova Scotia
Canada
12. AAi Foster Grant Limited United Kingdom
<PAGE> 75
13. AAi/Joske's, S. de R. L. de C.V. (55%) Mexico
<PAGE> 76
SCHEDULE B
MATERIAL CONTRACTS
<PAGE> 77
SCHEDULE B
This Schedule B gives effect to the Offering and the documents related thereby.
1. Indenture between the Company, its Domestic Subsidiaries and IBJ
Schroder Bank & Trust Company, as trustee, to be dated July 21, 1998.
2. Registration Rights Agreement between the Company, the Domestic
Subsidiaries and Initial Purchasers to be dated July 21, 1998.
3. Amended and Restated Financing and Security Agreement by and among the
Company, certain of its Subsidiaries, NationsBank, N.A. as agent, and
other lenders party thereto dated as of May 9, 1997, as amended by the
Second Amended and Restated Financing and Security Agreement by and
among the Company, its Domestic Subsidiaries, NationsBank, N.A., as
agent, and other lenders party hereto to be dated July 21, 1998.
4. Fantasma LLC Member Agreement by and among the Company, Roger D. Dreyer
and Houdini Capital LTD dated as of June 23, 1998.
5. Fantasma LLC Member Agreement by and among the Company and Paul
Michaels dated as of June 23, 1998.
6. Agreement of Amendment, Termination & Modification between the Company,
Bolle Inc., Foster Grant, Foster Grant Group, LP and Foster Grant
Holdings, Inc. dated June 1998.
7. Stock Purchase Agreement by and among the Company, BEC Group, Inc.,
Foster Grant Group, L.P. and Foster Grant Holdings, Inc., dated May 31,
1996, as amended by a side letter dated December 11, 1996.
8. Letter Agreement of Weston Presidio Capital II, L.P. regarding voting
of the Company's Preferred Stock dated December 9, 1996.
9. Securities Purchase Agreement among the Company, Weston Presidio II,
L.P. and certain other investors, dated May 31, 1996, as amended on
December 11, 1996.
10. Tag-Along Transfer Restriction and Voting Agreement among the Company,
Weston Presidio Capital II, L.P. and certain other investors and
certain shareholders of the Company dated May 31, 1996, as amended on
December 11, 1996.
<PAGE> 78
11. Registration Rights Agreement among the Company, Weston Presidio
Capital II, L.P. and certain other investors and certain shareholders
of the Company dated May 31, 1996.
12. The Company's Incentive Stock Plan.
13. Employment Agreement between the Company and Gerald F. Cerce dated May
31, 1996.
14. Employment Agreement between the Company and John H. Flynn, Jr. dated
May 31, 1996.
15. Employment Agreement between the Company and Duane M. DeSisto dated May
31, 1996.
16. Employment Agreement between the Company and Robert Lallo dated May 31,
1996.
17. Employment Agreement between the Company and Felix Porcaro dated
May 31, 1996.
18. Supplement Executive Retirement Plan between the Company and Gerald F.
Cerce dated September 29, 1994, as amended.
<PAGE> 79
SCHEDULE C
AAI.FOSTERGRANT, INC.
Initial Purchaser Amount
- ----------------- ------
NationsBanc Montgomery Securities LLC ...........................$56,250,000.00
Prudential Securities Incorporated...............................$11,250,000.00
BancBoston Securities Inc........................................$ 7,500,000.00
$75,000,000.00
==============
<PAGE> 1
EXHIBIT 4.3
EXECUTION COPY
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of July 21, 1998
by and among
AAi.FosterGrant, Inc.
The Guarantors Signatories Hereto
and
NationsBanc Montgomery Securities LLC
Prudential Securities Incorporated
and
BancBoston Securities Inc.
================================================================================
<PAGE> 2
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of July 21, 1998, by and among AAi.FosterGrant, Inc., a Rhode
Island corporation (the "COMPANY"), the Guarantors signatories hereto (each a
"GUARANTOR" and, collectively, the "GUARANTORS"), and NationsBanc Montgomery
Securities LLC, Prudential Securities Incorporated and BancBoston Securities
Inc. (each an "INITIAL PURCHASER" and, collectively, the "INITIAL PURCHASERS"),
each of whom has agreed to purchase the Company's 10 3/4 % Senior Notes due 2006
(the "SERIES A NOTES") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to that certain Purchase Agreement,
dated July 16, 1998 (the "PURCHASE AGREEMENT"), by and among the Company, the
Guarantors and the Initial Purchasers. In order to induce the Initial Purchasers
to purchase the Series A Notes, the Company and the Guarantors have agreed to
provide the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the obligations of the Initial
Purchasers set forth in Section 7 of the Purchase Agreement. Capitalized terms
used herein and not otherwise defined shall have the meaning assigned to them in
the Indenture, dated July 21, 1998, among the Company, the Guarantors and IBJ
Schroder Bank & Trust Company, as Trustee, relating to the Series A Notes and
the Series B Notes (the "INDENTURE").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144 of the Act.
BROKER-DEALER: Any broker or dealer registered under the Exchange Act.
BUSINESS DAY: Any day except a Saturday, Sunday or other day in the
City of New York on which banks are authorized or ordered to close.
CERTIFICATED SECURITIES: Definitive Notes, as defined in the Indenture.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer,
2
<PAGE> 3
(b) the maintenance of such Exchange Offer Registration Statement as
continuously effective and the keeping of the Exchange Offer open for a period
not less than the period required pursuant to Section 3(b) hereof and (c) the
delivery by the Company to the Registrar under the Indenture of Series B Notes
in the same aggregate principal amount as the aggregate principal amount of
Series A Notes tendered by Holders thereof pursuant to the Exchange Offer.
CONSUMMATION DEADLINE: As defined in Section 3(b) hereof.
EFFECTIVENESS DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE OFFER: The exchange and issuance by the Company of a principal
amount of Series B Notes (which shall be registered pursuant to the Exchange
Offer Registration Statement) equal to the outstanding principal amount of
Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial Purchasers
propose to sell the Series A Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act and pursuant to Regulation S
under the Act.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
HOLDERS: As defined in Section 2 hereof.
INDEMNIFIED HOLDER: As defined in Section 8(a) hereof.
INDEMNIFIED PARTY: As defined in Section 8(c) hereof.
INDEMNIFYING PARTY: As defined in Section 8(c) hereof.
INDENTURE: The Indenture, dated as of the Closing Date, among the
Company, the Guarantors and the Trustee, pursuant to which the Notes are to be
issued, as such Indenture is amended or supplemented from time to time in
accordance with the terms therein.
LIQUIDATED DAMAGES: As defined in Section 5 hereof.
MANAGING UNDERWRITERS: As defined in Section 10 hereof.
NOTES: Series A and Series B Notes.
3
<PAGE> 4
PROSPECTUS: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company and
the Guarantors relating to (a) an offering of Series B Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
REGULATION S: Regulation S promulgated under the Act.
RESTRICTED BROKER-DEALER: Any Broker-Dealer that holds Series B Notes
that were acquired in the Exchange Offer in exchange for Series A Notes that
such Broker-Dealer acquired for its own account as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its affiliates).
RULE 144: Rule 144 promulgated under the Act.
SERIES B NOTES: The Company's 10 3/4 % Series B Senior Notes due 2006
to be issued pursuant to tHe Indenture in the Exchange Offer or as contemplated
by Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77a-77b) as in
effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Note, until the earliest to occur
of (a) the date on which such Note is exchanged in the Exchange Offer for a
Series B Note 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 Series A Note is disposed of
by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (d) the date on which such Series A Note is distributed to
the public pursuant to Rule 144 under the Act.
4
<PAGE> 5
TRUSTEE: IBJ Schroder Bank & Trust Company and any of its successors.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities (a
"HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company and the Guarantors shall (i) cause the Exchange
Offer Registration Statement to be filed with the Commission as soon as
practicable after the Closing Date, but in no event later than 45 days after the
Closing Date (such 45th day being the "FILING DEADLINE"), (ii) use their best
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest possible time, but in no event later than 135 days after the
Closing Date (such 135th day being the "EFFECTIVENESS DEADLINE"), (iii) in
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting (i) registration of the Series B Notes to be offered
in exchange for the Series A Notes that are Transfer Restricted Securities and
(ii) resales of Series B Notes by Broker-Dealers that tendered into the Exchange
Offer Series A Notes that such Broker-Dealers acquired for its own account as a
result of market-making activities or other trading activities (other than
Series A Notes acquired directly from the Company or any of its Affiliates) as
contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall use their respective best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in no event shall
such period be less than 20 Business Days. The Company and the Guarantors shall
cause the Exchange Offer to comply with all applicable federal and state
securities laws. No securities other than the Series B Notes and the guarantees
thereof shall be included in the Exchange Offer Registration Statement. The
Company and the Guarantors shall use their respective best efforts to cause the
Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 30 Business Days thereafter (such 30th day being the "CONSUMMATION
DEADLINE").
5
<PAGE> 6
(c)
(i) The Company and the Guarantors shall include a "Plan
of Distribution" section in the Prospectus contained in the Exchange Offer
Registration Statement and indicate therein that any Broker-Dealer who holds
Transfer Restricted Securities that were acquired for the account of such
Broker-Dealer as a result of market-making activities or other trading
activities (other than Transfer Restricted Securities acquired directly from the
Company or any Affiliate of the Company) may exchange such Transfer Restricted
Securities pursuant to the Exchange Offer; however, such Broker-Dealer may be
deemed to be an "underwriter" within the meaning of the Act and must, therefore,
deliver a prospectus meeting the requirements of the Act in connection with its
initial resale of any Series B Notes received by such Broker-Dealer in the
Exchange Offer, and that the Prospectus contained in the Exchange Offer
Registration Statement may be used to satisfy such prospectus delivery
requirement. Such "Plan of Distribution" section shall also contain all other
information with respect to such sales by such Broker-Dealers that the
Commission may require in order to permit such sales pursuant thereto, but such
"Plan of Distribution" shall not name any such Broker-Dealer or disclose the
amount of Transfer Restricted Securities held by any such Broker-Dealer, except
to the extent required by the Commission as a result of a change in policy,
rules or regulations after the date of this Agreement.
(ii) To the extent necessary to ensure that the Exchange
Offer Registration Statement is available for sales of Series B Notes by
Broker-Dealers, upon the reasonable request of any Broker-Dealer who certifies
in writing to the Company that it anticipates it will be a Restricted
Broker-Dealer, the Company and the Guarantors agree to use their respective best
efforts to keep the Exchange Offer Registration Statement continuously
effective, supplemented and amended as required by the provisions of Section
6(c) hereof and in conformity with the requirements of this Agreement, the Act
and the policies, rules and regulations of the Commission as announced from time
to time, for a period of 180 days from the date on which the Exchange Offer is
Consummated (unless extended pursuant to Section 6(d) hereof), or such shorter
period as will terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold pursuant thereto. The Company and the
Guarantors shall promptly provide sufficient copies of the latest version of
such Prospectus to such Broker-Dealers promptly upon request, at any time during
such period.
SECTION 4. SHELF REGISTRATION
(a) SHELF REGISTRATION. If (i) the Exchange Offer is not permitted
by applicable law (after the Company and the Guarantors have complied with the
procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer
Restricted Securities shall notify the Company within 20 Business Days following
the Consummation Deadline 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 Series B Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration
6
<PAGE> 7
Statement is not appropriate or available for such resales by such Holder or (C)
such Holder is a Broker-Dealer and holds Series A Notes acquired directly from
the Company or any of its Affiliates, then the Company and the Guarantors shall:
(x) cause to be filed, on or prior to 30 days after the earlier of (i)
the date on which the Company determines that the Exchange Offer Registration
Statement cannot be filed as a result of clause (a)(i) above and (ii) the date
on which the Company receives the notice specified in clause (a)(ii) above,
(such earlier date, the "FILING DEADLINE"), a shelf registration statement
pursuant to Rule 415 under the Act (which may be an amendment to the Exchange
Offer Registration Statement (the "SHELF REGISTRATION STATEMENT")), relating to
all Transfer Restricted Securities, and
(y) shall use their respective best efforts to cause such Shelf
Registration Statement to become effective on or prior to 90 days after the
earlier of (i) the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above and
(ii) the date on which the Company receives the notice specified in clause
(a)(ii) above (such 90th day the "EFFECTIVENESS DEADLINE").
If, after the Company and the Guarantors have filed an Exchange Offer
Registration Statement that satisfies the requirements of Section 3(a) above,
the Company and the Guarantors are required to file and make effective a Shelf
Registration Statement solely because the Exchange Offer is not permitted under
applicable federal law (i.e., clause (a)(i) above), then the filing of the
Exchange Offer Registration Statement shall be deemed to satisfy the
requirements of clause (x) above; provided that, in such event, the Company and
the Guarantors shall remain obligated to meet the Effectiveness Deadline set
forth in clause (y).
The Company and the Guarantors shall use their respective best efforts
to keep any Shelf Registration Statement required by this Section 4(a)
continuously effective, supplemented and amended as required by and subject to
the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for sales of Transfer Restricted Securities by the Holders
thereof entitled to the benefit of this Section 4(a), and to ensure that it
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, until
the Transfer Restricted Securities are available for sale under Rule 144(k)
under the Act (as extended pursuant to Section 6(d)), or such shorter period as
will terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold pursuant thereto.
(b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH
THE SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder agrees in
writing to be bound by all the provisions of this Agreement applicable to such
Holder and furnishes to the Company in writing, within 20 days after receipt of
a request therefor, the information specified in Item 507 or 508 of Regulation
S-
7
<PAGE> 8
K, as applicable, of the Act for use in connection with any Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. No Holder of
Transfer Restricted Securities shall be entitled to Liquidated Damages pursuant
to Section 5 hereof unless and until such Holder shall have provided all such
agreement and information. Each selling Holder agrees to promptly furnish
additional information required to be disclosed in order to make the information
previously furnished to the Company by such Holder not materially misleading.
(c) BLACK OUT PERIOD. During any consecutive 365 day period, the
Company may suspend the effectiveness of the Shelf Registration Statement on two
occasions for a period of not more than 45 consecutive days if there is a
possible acquisition or business combination or other transaction, business
development or event involving the Company that may require disclosure in the
Shelf Registration Statement and the Board of Directors of the Company
determines in the exercise of its reasonable judgment that such disclosure is
not in the best interests of the Company and its shareholders or obtaining any
financial statements relating to an acquisition or business combination required
to be included in the Shelf Registration Statement would be impracticable. In
such a case, the Company shall promptly notify the Holders of the suspension of
the Shelf Registration Statements' effectiveness, provided that such notice
shall not require the Company to disclose the possible acquisition or business
combination or other transaction, business development or event if the Board of
Directors of the Company determines in good faith that such acquisition or
business combination or other transaction, business development or event should
remain confidential. Upon the abandonment, consummation or termination of the
possible acquisition or business combination or other transaction, business
development or event, or the availability of the required financial statements
with respect to a possible acquisition or business combination, the suspension
of the use of the Shelf Registration Statement pursuant to this Section 4(c)
shall cease and the Company shall promptly comply with Section 6(c)(ii) hereof
and notify the Holders that disposition of Transfer Restricted Securities may be
resumed.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation Deadline
or (iv) any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose during the periods specified in this Agreement
without being succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself declared
effective immediately (each such event referred to in clauses (i) through (iv),
a "REGISTRATION DEFAULT"), then the Company and the Guarantors hereby jointly
and severally agree to pay to each Holder of Transfer Restricted Securities
affected thereby Liquidated Damages in an amount equal to $.05 per week per
$1,000 in principal amount of Transfer Restricted Securities held by such Holder
for each week or portion thereof that the Registration
8
<PAGE> 9
Default continues for the first 90-day period immediately following the
occurrence of such Registration Default ("LIQUIDATED DAMAGES"). The amount of
the Liquidated Damages shall 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 in principal
amount of Transfer Restricted Securities; provided that the Company and the
Guarantors shall in no event be required to pay Liquidated Damages for more than
one Registration Default at any given time. Notwithstanding anything to the
contrary set forth herein, (1) upon filing of the Exchange Offer Registration
Statement and/or, if applicable, the Shelf Registration Statement, in the case
of (i) above, (2) upon the effectiveness of the Exchange Offer Registration
Statement and/or, if applicable, the Shelf Registration Statement, in the case
of (ii) above, (3) upon consummation of the Exchange Offer, in the case of (iii)
above, or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange Offer
Registration Statement and/or, if applicable, the Shelf Registration Statement
to again be declared effective or made usable in the case of (iv) above, the
Liquidated Damages payable with respect to the Transfer Restricted Securities as
a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued Liquidated Damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. All obligations of the Company and the Guarantors 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
shall survive until such time as all such obligations with respect to such
Transfer Restricted Security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) EXCHANGE OFFER REGISTRATION STATEMENT. In connection with the
Exchange Offer, the Company and the Guarantors shall (x) comply with all
applicable provisions of Section 6(c) below, (y) use their respective best
efforts to effect such exchange and to permit the resale of Series B Notes by
Broker-Dealers that tendered in the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of its market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof and (z) comply with
all of the following provisions:
(i) If, following the Closing Date, there has been
announced a change in Commission policy with respect to exchange offers
such as the Exchange Offer, that in the reasonable opinion of counsel
to the Company raises a substantial question as to whether the Exchange
Offer is permitted by applicable federal law, the Company and the
Guarantors hereby agree to seek a no-action letter or other favorable
decision from the Commission allowing the Company and the Guarantors to
Consummate an Exchange
9
<PAGE> 10
Offer for such Transfer Restricted Securities. The Company and the
Guarantors hereby agree to pursue the issuance of such a decision to
the Commission staff level. In connection with the foregoing, the
Company and the Guarantors hereby agree to take all such other actions
as may be requested by the Commission or otherwise required in
connection with the issuance of such decision, including without
limitation (A) participating in telephonic conferences with the
Commission, (B) delivering to the Commission staff an analysis prepared
by counsel to the Company setting forth the legal bases, if any, upon
which such counsel has concluded that such an Exchange Offer should be
permitted and (C) diligently pursuing a resolution (which need not be
favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange
Offer, each Holder of Transfer Restricted Securities (including,
without limitation, any Holder who is a Broker- Dealer) shall furnish,
upon the request of the Company, prior to the Consummation of the
Exchange Offer, a written representation to the Company and the
Guarantors (which may be contained in the letter of transmittal
contemplated by the Exchange Offer Registration Statement) to the
effect that (A) it is not an Affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the
Series B Notes to be issued in the Exchange Offer and (C) it is
acquiring the Series B Notes in its ordinary course of business. As a
condition to its participation in the Exchange Offer, each Holder using
the Exchange Offer to participate in a distribution of the Series B
Notes shall acknowledge and agree that, if the resales are of Series B
Notes obtained by such Holder in exchange for Series A Notes acquired
directly from the Company or an Affiliate thereof, it (1) could not,
under Commission policy as in effect on the date of this Agreement,
rely on the position of the Commission enunciated in MORGAN STANLEY AND
CO., INC. (available June 5, 1991) and EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988), as interpreted in the
Commission's letter to SHEARMAN & STERLING dated July 2, 1993, and
similar no-action letters (including, if applicable, any no-action
letter obtained pursuant to clause (i) above) and (2) must comply with
the registration and prospectus delivery requirements of the Act in
connection with a secondary resale transaction and that such a
secondary resale transaction must be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation
S-K.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company and the Guarantors shall provide a
supplemental letter to the Commission (A) stating that the Company and
the Guarantors are registering the Exchange Offer in reliance on the
position of the Commission enunciated in EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988), MORGAN STANLEY AND CO., INC.
(available June 5, 1991), as interpreted in the Commission's letter to
SHEARMAN & STERLING dated July 2, 1993, and, if applicable, any
no-action letter obtained pursuant to clause (i) above, (B)
10
<PAGE> 11
including a representation that neither the Company nor any Guarantor
has entered into any arrangement or understanding with any Person to
distribute the Series B Notes to be received in the Exchange Offer and
that, to the best of the Company's and each Guarantor's information and
belief, each Holder participating in the Exchange Offer is acquiring
the Series B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Series B Notes received in the Exchange Offer and
(C) any other undertaking or representation required by the Commission
as set forth in any no-action letter obtained pursuant to clause (i)
above, if applicable.
(b) SHELF REGISTRATION STATEMENT. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall comply with all the
provisions of Section 6(c) below and shall use their respective best efforts to
effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 4(b) hereof), and pursuant thereto the Company and the
Guarantors shall prepare and file with the Commission a Registration Statement
relating to the registration on any appropriate form under the Act, which form
shall be available for the sale of the Transfer Restricted Securities in
accordance with the intended method or methods of distribution thereof within
the time periods and otherwise in accordance with the provisions hereof.
(c) GENERAL PROVISIONS. In connection with any Registration
Statement and any related Prospectus required by this Agreement, the Company and
the Guarantors shall:
(i) use their respective best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 or 4 of this
Agreement, as applicable. Upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained
therein (A) to contain an untrue statement of material fact or omit to
state any material fact necessary to make the statements therein not
misleading or (B) not to be effective and usable for resale of Transfer
Restricted Securities during the periods required by this Agreement,
the Company and the Guarantors shall file promptly an appropriate
amendment to such Registration Statement curing such defect and, if
Commission review is required, use their respective best efforts to
cause such amendment to be declared effective as soon as practicable;
(ii) prepare and file with the Commission such amendments
and post-effective amendments to the applicable Registration Statement
as may be necessary to keep such Registration Statement effective for
the applicable period set forth in Section 3 or 4 hereof; cause the
Prospectus to be supplemented by any required Prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the Act,
and to comply fully with Rules 424, 430A and 462, as applicable, under
the Act in a timely manner; and comply with the provisions of the Act
with respect to the disposition of all securities
11
<PAGE> 12
covered by such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement
to the Prospectus;
(iii) advise the Initial Purchasers, and in the case of a
Shelf Registration Statement, each selling Holder promptly and, if
requested by such Holder, confirm such advice in writing, (A) when the
Prospectus or any Prospectus supplement or post-effective amendment has
been filed and, with respect to any applicable Registration Statement
or any post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus
or for additional information relating thereto, (C) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation
of any proceeding for any of the preceding purposes and (D) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making
of any additions to or changes in the Registration Statement in order
to make the statements therein not misleading, or that requires the
making of any additions to or changes in the Prospectus in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification
or exemption from qualification of the Transfer Restricted Securities
under state securities or Blue Sky laws, then the Company and the
Guarantors shall use their respective best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time;
(iv) subject to Section 6(c)(i) hereof, if any fact or
event contemplated by Section 6(c)(iii)(D) hereof shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(v) furnish to each Initial Purchaser, and in the case of
a Shelf Registration Statement, to each Holder in connection with such
exchange or sale, if any, before filing with the Commission, a copy of
any Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of
12
<PAGE> 13
such Registration Statement), which documents shall be subject to the
review and comment of such Initial Purchasers, and, in the case of a
Shelf Registration Statement, such Holders in connection with such
sale, if any, for a period of at least three Business Days, and the
Company and the Guarantors shall not file any such Registration
Statement or Prospectus or any amendment or supplement to any such
Registration Statement or Prospectus (including all such documents
incorporated by reference) to which such Initial Purchasers, or, in the
case of a Shelf Registration Statement, such Holders shall reasonably
object within three Business Days after the receipt thereof. An Initial
Purchaser or selling Holder shall be deemed to have reasonably objected
to such filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains an untrue
statement of material fact or omits to state any material fact
necessary to make the statements therein not misleading or fails to
comply with the applicable requirements of the Act;
(vi) promptly prior to the filing of any document that is
to be incorporated by reference into a Registration Statement or
Prospectus, provide a copy of such document to each Initial Purchaser,
and in the case of a Shelf Registration Statement, to the
representative of the Holders included within the coverage of the Shelf
Registration Statement, if any, make the Company's and the Guarantors'
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such Initial Purchasers or the
representative of the Holders may reasonably request;
(vii) in the case of a Shelf Registration Statement make
available, at reasonable times, for inspection by a representative of
the Holders and an attorney and accountant retained by such Holders, in
a manner designed to permit underwriters to satisfy their due diligence
investigation under the Act, all financial and other records and
pertinent corporate documents of the Company and the Guarantors
customarily inspected by underwriters in primary underwritten offerings
and cause the Company's and the Guarantors' officers, directors and
employees to supply all information reasonably requested by and
customarily supplied in connection with primary underwritten offerings
to, any such representative, attorney or accountant in connection with
such Shelf Registration Statement or any post-effective amendment
thereto subsequent to the filing thereof and prior to its
effectiveness; PROVIDED, HOWEVER, that any records, information or
documents that are designated by the Company or any of the Guarantors
as confidential at the time of delivery of such records, information or
documents shall be kept confidential by such persons, unless (i) such
records, information or documents are in the public domain or otherwise
publicly available, (ii) disclosure of such records, information or
documents is required by court or administrative order or (iii)
disclosure of such records, information or documents, in the opinion of
counsel to such Person, is otherwise required by law (including,
without limitation, pursuant to the requirements of the Act).
13
<PAGE> 14
(viii) if requested by the Initial Purchasers or in the case
of a Shelf Registration Statement, by any Holder of Notes included
within the coverage of the Shelf Registration Statement, promptly
include in any Registration Statement or related Prospectus, pursuant
to a supplement or post-effective amendment if necessary, such
information as such Initial Purchasers or such Holders may reasonably
request to have included therein, including, without limitation,
information relating to the "Plan of Distribution" of the Transfer
Restricted Securities; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the
Company and the Guarantors are notified of the matters to be included
in such Prospectus supplement or post-effective amendment;
(ix) furnish to each Holder of Notes included within the
coverage of the Shelf Registration Statement, without charge, at least
one conformed copy of the Shelf Registration Statement, as first filed
with the Commission, and of each amendment thereto, without documents
incorporated by reference therein or exhibits thereto, unless a Holder
so requests in writing.
(x) deliver to the Initial Purchasers, and to any other
Holder that so requests, without charge, at least one conformed copy of
the Exchange Offer Registration Statement and any post-effective
amendment thereto, including financial statements and schedules,
without documents incorporated therein by reference or exhibits
thereto, unless the Initial Purchasers or any such Holder so request in
writing.
(xi) deliver to each Holder of Notes included within the
coverage of the Shelf Registration Statement, without charge, as many
copies of the Prospectus (including each preliminary prospectus)
included in the Shelf Registration Statement and any amendment or
supplement thereto as such Persons reasonably may request; the Company
and the Guarantors hereby consent, subject to the provisions of this
Agreement, to the use (in accordance with law) of the Prospectus and
any amendment or supplement thereto by each selling Holder in
connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement
thereto;
(xii) deliver to the Initial Purchasers or any Restricted
Broker-Dealer, without charge, as many copies of the final prospectus
included in the Exchange Offer Registration Statement and any amendment
or supplement thereto as such Person may reasonably request; the
Company and the Guarantors hereby consent, subject to the provisions of
this Agreement, to the use (in accordance with law) of the prospectus
or any amendment or supplement thereto by the Initial Purchasers, if
necessary, any Restricted Broker-Dealer and such other Persons required
to deliver a prospectus following the Exchange Offer in connection with
the offering and sale of the Notes covered by the Prospectus, or any
amendment or supplement thereto, included in such Exchange Offer
Registration Statement;
14
<PAGE> 15
(xiii) upon the request of any Holder of Notes included
within the coverage of the Shelf Registration Statement, enter into
such agreements (including underwriting agreements) and make such
representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition
of the Transfer Restricted Securities pursuant to any Shelf
Registration Statement contemplated by this Agreement as may be
reasonably requested by any such Holder in connection with any sale or
resale pursuant to any Shelf Registration Statement, and in such
connection the Company and the Guarantors shall:
(A) upon the request of any Holder, furnish (or
in the case of paragraphs (2) and (3) below, use their
respective best efforts to cause to be furnished) to each
Holder, upon the effectiveness of the Shelf Registration
Statement:
(1) a certificate, dated such date,
signed on behalf of the Company and the Guarantors by
(x) a principal operating or executive officer of the
Company and the Guarantors and (y) a principal
financial or accounting officer of the Company and
the Guarantors, confirming, as of the date thereof,
the matters set forth in paragraphs (a), (c), (d) and
(e) of Section 7 of the Purchase Agreement and such
matters customarily given in underwritten offerings;
(2) an opinion, dated the date of
effectiveness of the Shelf Registration Statement, of
counsel for the Company and the Guarantors covering
matters customarily covered in opinions requested in
underwritten offerings and similar to those set forth
in Section 7(h) of the Purchase Agreement, and in any
event including a statement to the effect that such
counsel has participated in conferences with officers
and representatives of the Company and the Guarantors
and representatives of the independent public
accountants for the Company and the Guarantors and
has considered the matters required to be stated
therein and the statements contained therein, and
although such counsel is not passing upon and does
not assume the responsibility for, the accuracy,
completeness or fairness of such statements; and has
not made any independent check or verification
thereof, that such counsel advises that, on the basis
of the foregoing, no facts have come to the attention
of such counsel that lead such counsel to believe
that the Shelf Registration Statement, at the time
such Shelf Registration Statement or any
post-effective amendment thereto became effective,
contained an untrue statement of a material fact or
omitted to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading, or that the Prospectus
contained in such Shelf Registration Statement as of
its date, contained an untrue statement of a material
fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of
the circumstances under which
15
<PAGE> 16
they were made, not misleading. Without limiting the
foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not
independently verified, the accuracy, completeness or
fairness of the financial statements and other
financial data included in any Registration Statement
contemplated by this Agreement or the related
Prospectus; and
(3) a customary comfort letter, dated
as of the date of effectiveness of the Shelf
Registration Statement, from the Company's
independent accountants, in the customary form and
covering matters of the type customarily covered in
comfort letters to underwriters in connection with
underwritten offerings, and affirming the matters set
forth in the comfort letters delivered pursuant to
Section 7(n) of the Purchase Agreement, subject to
receipt of appropriate documentation, if required by,
and only if permitted by, Statement of Auditing
Standards No. 72; and
(B) deliver such other documents and
certificates as may be reasonably requested by the
representative of the selling Holders to evidence compliance
with the matters covered in clause (A) above and with any
customary conditions contained in any agreement entered into
by the Company and the Guarantors pursuant to this clause
(xiii);
(xiv) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may request and do any and all
other acts or things necessary or advisable to enable the disposition
in such jurisdictions of the Transfer Restricted Securities covered by
the applicable Registration Statement; provided, however, that neither
the Company nor any Guarantor shall be required to register or qualify
as a foreign corporation where it is not now so qualified or to take
any action that would subject it to the service of process in suits or
to taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so
subject;
(xv) issue, upon the request of any Holder of Series A
Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to
the aggregate principal amount of Series A Notes surrendered to the
Company by such Holder in exchange therefor or being sold by such
Holder; such Series B Notes to be registered in the name of such Holder
or in the name of the purchaser(s) of such Series B Notes, as the case
may be; in return, the Series A Notes held by such Holder shall be
surrendered to the Company for cancellation;
16
<PAGE> 17
(xvi) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any restrictive
legends; and to register such Transfer Restricted Securities in such
denominations and such names as the selling Holders may request at
least two Business Days prior to the closing of any such sale of
Transfer Restricted Securities;
(xvii) use their respective best efforts to cause the
disposition of the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to Consummate the disposition of such
Transfer Restricted Securities, subject to the proviso contained in
clause (xiv) above;
(xviii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration
Statement covering such Transfer Restricted Securities and provide the
Trustee under the Indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with The
Depository Trust Company;
(xix) otherwise use their respective best efforts to comply
with all applicable rules and regulations of the Commission, and make
generally available to their security holders with regard to any
applicable Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term is
defined in paragraph (c) of Rule 158 under the Act);
(xx) in the case of a Shelf Registration Statement, make
appropriate officers of the Company available to the selling Holders
for meetings with prospective purchasers of the Transfer Restricted
Securities and prepare and present to potential investors customary
"road show" material in a manner consistent with other new issuances of
other securities similar to the Transfer Restricted Securities;
(xxi) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required by this Agreement and, in connection therewith, cooperate with
the Trustee and the Holders to effect such changes to the Indenture as
may be required for such Indenture to be so qualified in accordance
with the terms of the TIA; and execute, and use best efforts to cause
the Trustee to execute, all documents that may be required to effect
such changes and all other forms and documents required to be filed
with the Commission to enable such Indenture to be so qualified in a
timely manner; and
17
<PAGE> 18
(xxii) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of
Section 13 or Section 15(d) of the Exchange Act.
(d) RESTRICTIONS ON HOLDERS. Each Holder agrees by acquisition of
a Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "RECOMMENCEMENT
DATE"). Each Holder receiving a Suspension Notice hereby agrees that it will
either (i) destroy any Prospectuses, other than permanent file copies, then in
such Holder's possession which have been replaced by the Company with more
recently dated Prospectuses or (ii) deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the Prospectus covering such Transfer Restricted Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by a number of days equal to the
number of days in the period from and including the date of delivery of the
Suspension Notice to the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
All expenses incident to the Company's and the Guarantors' performance
of or compliance with this Agreement shall be borne by the Company, regardless
of whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses, (ii) all fees and
expenses of compliance with federal securities and state Blue Sky or securities
laws, (iii) all expenses of printing (including printing certificates for the
Series B Notes to be issued in the Exchange Offer and printing of Prospectuses,
messenger and delivery services and telephone, (iv) all fees and disbursements
of counsel for the Company and the Guarantors and in the event of a Shelf
Registration Statement, the reasonable fees and disbursements of one firm of
counsel for the Holders of Transfer Restricted Securities (who shall be Latham &
Watkins, unless another firm shall be chosen by the Holders of a majority in
principal amount of the Transfer Restricted Securities for whose benefit such
Shelf Registration Statement is being prepared) and fees and disbursements of
the Trustee and counsel, (v) all application and filing fees in connection with
listing the Series B Notes on a national securities exchange or automated
quotation system pursuant to the requirements hereof and (vi) all fees and
disbursements of independent certified public accountants of the Company and the
Guarantors (including the expenses of any special audit and comfort letters
required by or incident to such performance) but excluding fees and expenses of
counsel to the underwriters and underwriting
18
<PAGE> 19
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of the Series B Notes by a Holder.
The Company shall, in any event, bear its and the Guarantors' internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors agree, jointly and severally,
to indemnify and hold harmless (i) each Holder, (ii) each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) any Holder (any of the persons referred to in this clause (ii)
being hereinafter referred to as a "controlling person") and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "INDEMNIFIED HOLDER") from
and against any and all losses, claims, damages, liabilities, judgments,
(including without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action that
could give rise to any such losses, claims, damages, liabilities or judgments)
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary prospectus or Prospectus
(or any amendment or supplement thereto) provided by the Company to any holder
or any prospective purchaser of Series B Notes, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by an untrue
statement or omission or alleged untrue statement or omission that is based upon
information relating to any of the Holders furnished in writing to the Company
by any of the Holders.
(b) Each Holder of Transfer Restricted Securities agrees,
severally and not jointly, to indemnify and hold harmless the Company and the
Guarantors, and their respective directors, officers, employees, agents and
representatives, and each person, if any, who controls (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) the Company or the
Guarantors, to the same extent as the foregoing indemnity from the Company and
the Guarantors to each of the Indemnified Holders, but only with reference to
information relating to such Indemnified Holder furnished in writing to the
Company by such Indemnified Holder expressly for use in any Registration
Statement. In no event shall any Indemnified Holder be liable or responsible for
any amount in excess of the amount by which the total amount received by such
Indemnified Holder with respect to its sale of Transfer Restricted Securities
pursuant to a Registration Statement exceeds the amount of any damages that such
Indemnified Holder has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission.
19
<PAGE> 20
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the Indemnified Party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the Indemnifying Party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the Indemnified Party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), an Indemnified Holder shall not be required to
assume the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Indemnified Holder). Any Indemnified Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the Indemnified
Party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the Indemnifying Party, (ii) the Indemnifying Party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the Indemnified Party or (iii) the named parties to
any such action (including any impleaded parties) include both the Indemnified
Party and the Indemnifying Party, and the Indemnified Party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
Indemnifying Party (in which case the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of the Indemnified Party).
In any such case, the Indemnifying Party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all Indemnified Parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by a majority of the Indemnified Holders, in the case of the parties
indemnified pursuant to Section 8(a), and by the Company, in the case of parties
indemnified pursuant to Section 8(b). The Indemnifying Party shall indemnify and
hold harmless the Indemnified Party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than 50 days after the Indemnifying Party
shall have received a request from the Indemnified Party for reimbursement for
the fees and expenses of counsel (in any case where such fees and expenses are
at the expense of the Indemnifying Party) and, prior to the date of such
settlement, the Indemnifying Party shall have failed to comply with such
reimbursement request. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the Indemnified Party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
Indemnified Party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the Indemnified Party from all liability on claims
that are or could
20
<PAGE> 21
have been the subject matter of such action and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of the Indemnified Party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an Indemnified Party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Guarantors, on the one hand, and the Holders, on the other hand, from their
sale of Transfer Restricted Securities or (ii) if the allocation provided by
clause 8(d)(i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of the Company and the Guarantors, on
the one hand, and of the Indemnified Holder, on the other hand, in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of the Company and the Guarantors, on the one
hand, and of the Indemnified Holder, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or such Guarantors, on the one
hand, or by the Indemnified Holder, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and judgments referred to above shall
be deemed to include, subject to the limitations set forth in the second
paragraph of Section 8(a), any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim.
The Company, the Guarantors and each Holder agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any matter, including any
action that could have given rise to such losses, claims, damages, liabilities
or judgments. Notwithstanding the provisions of this Section 8, no Holder or its
related Indemnified Holders shall be required to contribute, in the aggregate,
any amount in excess of the amount by which the total received by such Holder
with respect to the sale of its Transfer Restricted Securities pursuant to a
Registration Statement exceeds the sum of (A) the amount paid by such Holder for
such Transfer Restricted Securities plus (B) the amount of any damages which
such Holder has otherwise been required to pay by reason of such
21
<PAGE> 22
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Holders' obligations to contribute
pursuant to this Section 8(c) are several in proportion to the respective
principal amount of Transfer Restricted Securities held by each of the Holders
hereunder and not joint.
SECTION 9. RULE 144A AND RULE 144
The Company and each Guarantor agrees with each Holder, for so long as
any Transfer Restricted Securities remain outstanding and during any period in
which the Company or such Guarantor (i) is not subject to Section 13 or 15(d) of
the Exchange Act, to make available, upon request of any Holder, to such Holder
or beneficial owner of Transfer Restricted Securities in connection with any
sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A and (ii) is subject to
Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby
in a timely manner in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144.
SECTION 10. UNDERWRITTEN REGISTRATIONS
If any of the Transfer Restricted Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering ("MANAGING UNDERWRITERS") will be selected by the
Holders of a majority in aggregate principal amount of such Transfer Restricted
Securities included in such offering; provided, however, that the Managing
Underwriters shall be reasonably satisfactory to the Company.
No Person may participate in any underwritten registration hereunder
unless such Person (i) agrees to sell such Person's Transfer Restricted
Securities on the basis reasonably provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
SECTION 11. MISCELLANEOUS
(a) REMEDIES. The Company and the Guarantors acknowledge and agree
that any failure by the Company and/or the Guarantors to comply with their
respective obligations under Sections 3 and 4 hereof may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it will not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
22
<PAGE> 23
Purchasers or any Holder may obtain such relief as may be required to
specifically enforce the Company's and the Guarantors' obligations under
Sections 3 and 4 hereof. The Company and the Guarantors further agree to waive
the defense in any action for specific performance that a remedy at law would be
adequate.
(b) NO INCONSISTENT AGREEMENTS. Neither the Company nor any
Guarantor shall, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's and the Guarantors' securities under any agreement in effect on
the date hereof.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given, unless (i) in the case
of Section 5 hereof and this Section 10(c)(i), the Company has obtained the
written consent of Holders of all outstanding Transfer Restricted Securities and
(ii) in the case of all other provisions hereof, the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities (excluding Transfer Restricted Securities held by
the Company or its Affiliates). Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose Transfer Restricted Securities are being tendered
pursuant to the Exchange Offer, and that does not affect directly or indirectly
the rights of other Holders whose Transfer Restricted Securities are not being
tendered pursuant to such Exchange Offer, may be given by the Holders of a
majority of the outstanding principal amount of Transfer Restricted Securities
subject to such Exchange Offer.
(d) THIRD PARTY BENEFICIARY. The Holders of Transfer Restricted
Securities participating in the Exchange Offer shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect their rights or the
rights of Holders hereunder.
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company or the Guarantors:
AAi.FosterGrant, Inc.
23
<PAGE> 24
500 George Washington Hwy.
Smithfield, RI 02917
Telecopier No.: (401) 231-3212
Attention: Chief Financial Officer
With a copy to:
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, RI 02906
Telecopier No.: (401) 277-9600
Attention: Stephen J. Carlotti
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
Upon the date of filing of the Exchange Offer or a Shelf Registration
Statement, as the case may be, notice shall be delivered to the Initial
Purchasers in the form attached hereto as Exhibit A.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders; provided, that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Transfer Restricted
Securities in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Transfer Restricted
Securities in any manner, whether by operation of law or otherwise, such
Transfer Restricted Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Transfer Restricted Securities such
Holder shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement, including the restrictions on
resale set forth in this Agreement and, if applicable, the Purchase Agreement,
and such Holder shall be entitled to receive the benefits hereof.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
24
<PAGE> 25
(h) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) ENTIRE AGREEMENT. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
<PAGE> 26
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
AAI.FOSTERGRANT, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President and Chief
Executive Officer
GUARANTORS
FOSTER GRANT HOLDINGS, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President
THE BONNEAU COMPANY
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President
OPTI-RAY, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President
BONNEAU GENERAL, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President
<PAGE> 27
BONNEAU HOLDINGS, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President
O-RAY HOLDINGS, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President
F.G.G. INVESTMENTS, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President
FOSTER GRANT GROUP, L.P.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: President AND Chief
Executive Officer
FANTASMA, LLC
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
Title: Chairman
<PAGE> 28
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ J. Scott Holmes
------------------------------
Name: J. Scott Holmes
Title: Principal
PRUDENTIAL SECURITIES INCORPORATED
By: /s/
------------------------------
Name:
Title:
BANCBOSTON SECURITIES INC.
By: /s/
------------------------------
Name:
Title:
<PAGE> 29
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/
------------------------------
Name:
Title:
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ Timothy O'Neill
------------------------------
Name: Timothy O'Neill
Title: Director
BANCBOSTON SECURITIES INC.
By: /s/
------------------------------
Name:
Title:
<PAGE> 30
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/
------------------------------
Name:
Title:
PRUDENTIAL SECURITIES INCORPORATED
By: /s/
------------------------------
Name:
Title:
BANCBOSTON SECURITIES INC.
By: /s/ Gregory C. Foy
------------------------------
Name: Gregory C. Foy
Title: Managing Director
<PAGE> 31
EXHIBIT A
NOTICE OF FILING OF REGISTRATION STATEMENT
To: NationsBanc Montgomery Securities LLC
Prudential Securities Incorporated
BancBoston Securities Inc.
From: AAi.FosterGrant, Inc.
Re: 10 3/4% Series A Senior Notes Due 2006
Date: ____________, 199__
For your information only (NO ACTION REQUIRED):
Today, ________________, 199__, we filed [an Exchange
Registration Statement] [a Shelf Registration Statement] with the Securities and
Exchange Commission. We currently expect this registration statement to be
declared effective by __________________________, 199__.
A-1
<PAGE> 1
EXHIBIT 9.1
Weston Presidio Capital II, L.P.
40 William Street
Suite 300
Wellesley, MA 02181
December 9, 1996
Marlin Capital, L.P.
and the other Investors
(as such term is defined herein)
555 Theodore Fremd Avenue
Suite B-302
Rye, NY 10580
Dear Sirs:
In consideration for the investment of $5,000,000 in Series A
Redeemable Convertible Preferred Stock ("Series A Preferred Stock") of
Accessories Associates, Inc. ("AAi") by Marlin Capital, L.P., First Global
Investments Ltd., Ionic Holdings LDC, New Henley Overseas Investments, Oracle
Investments Ltd., Brahman Partners II, L.P., B.Y. Partners, L.P., Quota Fund NV,
Genesis Cap. Fund and Brahman Partners II Offshore Ltd. (collectively, the
"Investors"), Weston Presidio Capital II, L.P. ("WPC") does hereby agree
annually and any time a vote of Series A Preferred Stock is taken for the
election of directors to (i) use best efforts to cause the nomination of and
(ii) vote all of its shares of Series A Preferred Stock (including any and all
securities with rights to elect directors of AAi issued upon conversion,
exchange, recapitalization, stock split, dividend or other change of or with
respect to the Series A Preferred) held and controlled by WPC for the election
of Martin E. Franklin (or, in the event of his death or incapacity, the designee
of Marlin Capital, L.P.) as a director of AAi, for so long as the Investors, in
the aggregate, are the holders of no less than the lesser of (a) ten percent
(10%) of the Series A Preferred Stock or (b) 4,750 shares of Series A Preferred
Stock. WPC agrees not to take any action which would have the effect of limiting
or otherwise reducing its ability to ensure the election of Martin Franklin (or
Marlin's designee, as set forth above) as a director of AAi.
Weston Presidio Capital II, L.P.
By: /s/ Michael Cronin
------------------------------
Michael Cronin
Title: General Partner
<PAGE> 1
EXHIBIT 9.2
TAG-ALONG, TRANSFER RESTRICTION AND VOTING AGREEMENT
This Agreement, dated as of May 31, 1996, is among Accessories
Associates, Inc., a Rhode Island corporation (the "COMPANY"), Weston Presidio
Capital II, L.P., and the other Investors listed in SCHEDULE A (collectively,
and together with their permitted successors and assigns, the "INVESTORS"), and
the other stockholders and stock option holders of the Company listed from time
to time in SCHEDULE B. The parties agree as follows:
1. DEFINITIONS. Except as the context otherwise explicitly requires, (a) the
capitalized term "Section" refers to sections of this Agreement, (b) the
capitalized term "Exhibit" refers to exhibits to this Agreement, (c) references
to a particular Section include all subsections thereof and (d) the word
"including" shall be construed as "including without limitation". Accounting
terms used in this Agreement and not otherwise defined herein shall have the
meanings provided in GAAP. Certain capitalized terms are used in this Agreement
as specifically defined in this Section 1 as follows:
1.1. "APPRAISED VALUE" means the per share value of Common Stock based on
the fair market value of the Company as a going concern, without any discount
for a minority stock position, as determined by written opinion of an investment
banker selected as follows. Such investment banker shall be selected by the
holders of a majority of the Tag-Along Shares from among three nominees
submitted by the persons from whom the Restricted Stock is to be purchased, each
of which shall be a recognized independent investment banking firm. The holders
of a majority of the Tag-Along Shares shall give notice to the Selling
Stockholder of their selection no later than 10 days after receipt of the
proposed nominees. The fees and expenses of such investment banker shall be paid
one half by the Company and one half by the Selling Stockholder. The investment
banker shall deliver its written opinion to the Company and the Selling
Stockholder no later than 30 days after its selection.
1.2. "COMMON STOCK" means the Company's Common Stock, $0.01 par value.
1.3. "COMPANY" is defined in the preamble.
1.4. "INVESTOR" is defined in the preamble.
1.5. "LIFE INSURANCE" is defined in Section 2.5.
1.6. "OUTSIDE OFFER" is defined in Section 2.1.1.
1.7. "PREFERRED STOCK" means the Company's Series A Redeemable
Convertible Preferred Stock, par value $0.01 per share.
<PAGE> 2
1.8. "PROPORTIONATE SHARE" means a fraction, the numerator of which is
the number of shares of Common Stock (on an as converted basis) owned by the
subject Investor and the denominator of which is the aggregate number of shares
of Common Stock (on an as converted basis) owned by all Investors.
1.9. "PROPOSED BUYER" is defined in Section 3.
1.10. "PROPOSED SALE" is defined in Section 3.1.
1.11. "PURCHASE AGREEMENT" means the Securities Purchase Agreement dated
as of May 31, 1996, as from time to time in effect, among the Company and the
Investors.
1.12. "RESTRICTED SHARES" means all shares of any class of capital stock
of the Company owned by any Restricted Stockholder, and all shares of capital
stock issued with respect to, in exchange for or upon conversion of any such
shares; PROVIDED, HOWEVER, that once any such shares shall have been sold in a
sale which complies with Sections 2.1 or 2.2, they shall cease to be Restricted
Shares.
1.13. "RESTRICTED STOCKHOLDERS" means all stockholders and option holders
of the Company listed from time to time as Restricted Stockholders in Schedule
B, all other persons who become party to this Agreement pursuant to Section 2.3,
transferees pursuant to Section 2.2 and their permitted successors and assigns,
but in no event including any Investor.
1.14. "RESTRICTED STOCK TRANSFEREE" is defined in Section 2.3.
1.15. "SELLING STOCKHOLDER" means a Restricted Stockholder selling
Restricted Shares under Section 2 or 3.
1.16. "TAG-ALONG NOTICE" is defined in Section 3.1.
1.17. "TAG-ALONG SHARES" means all shares of any class of capital stock of
the Company issued to the Investors, and all shares of capital stock issued with
respect to, in exchange for or upon conversion of any such shares or upon
conversion of the Preferred Stock or upon exercise of the Warrants; PROVIDED,
HOWEVER, that once any such shares shall have been sold in a sale that complies
with Section 3, they shall cease to be Tag-Along Shares.
1.18. "TRANSFER" means sell, assign, encumber, pledge, hypothecate, give
away or dispose of or transfer in any other manner, whether voluntarily,
involuntarily, by operation of law, pursuant to judicial process, divorce
decree, property settlement, bankruptcy or otherwise.
1.19. "WARRANTS" means the Warrants issuable to the Investors pursuant to
the Purchase Agreement in connection with the redemption of Preferred Stock.
2
<PAGE> 3
2. TRANSFER RESTRICTIONS AND PURCHASE RIGHTS.
2.1. TRANSFERS OF RESTRICTED SHARES. The Restricted Stockholders will not
Transfer Restricted Shares or allow the power to vote Restricted Shares to be
exercised by anyone else (except through ordinary proxies, revocable at the
option of such Restricted Stockholder) except that a Restricted Stockholder may
(a) make a Transfer permitted by Sections 2.2, 2.3 or 2.5 or (b) make a sale on
the following terms and in compliance with the tag-along rights provisions in
Section 3:
2.1.1. OUTSIDE OFFER. The Selling Stockholder wishing to
Transfer Restricted Shares shall prepare an offer (the "OUTSIDE OFFER")
that sets forth the number of Restricted Shares proposed to be sold, the
minimum purchase price, the proposed method of sale and the proposed
purchaser or type of purchaser.
2.1.2. INVESTOR PURCHASE OFFER. The Selling Stockholder shall
offer to sell the Restricted Shares described in the Outside Offer to the
Investors pro rata according to their Proportionate Shares by delivering
to each such Investor a copy of the Outside Offer and a written offer to
sell to such Investors all of such Restricted Shares on the terms
contained in the Outside Offer. If any Investors elect to purchase
Restricted Shares, they shall purchase such shares in accordance with
Section 2.4.
2.1.3. REMAINING SHARES. If, within 20 days after receipt by the
Investors of the Outside Offer from the Selling Stockholder, the Investors
do not elect to purchase all of such Restricted Shares, then the Selling
Stockholder may Transfer any remaining Restricted Shares in accordance
with the terms of the Outside Offer during the 90-day period immediately
following the 20-day notice period referred to above in this Section
2.1.3, subject, however, to the tag-along rights provided in Section 3 in
favor of each Investor who has notified the Selling Stockholder in writing
within such 20-day notice period of its interest in exercising its
tag-along rights with respect to any such sale. If such shares are not so
purchased during such 90-day period, they shall again become subject to
this Section 2.1.
2.2. TRANSFERS BY OPERATION OF LAW OR IN VIOLATION OF AGREEMENT. If a
Restricted Stockholder is subject to a Transfer of Restricted Stock by any
bankruptcy or insolvency law or proceeding, any divorce proceeding, or otherwise
by operation of law or court order or decree (except as a result of death, in
which case Section 2.3 shall apply), or if any Transfer of Restricted Stock is
made or attempted contrary to this Agreement, or if an offer to sell Restricted
Stock is not delivered to the Company and the Investors as and when required by
this Agreement, the Company and the Investors shall have the right to purchase
any or all of such shares of Restricted Stock from such Restricted Stockholder,
such Restricted Stockholder's legal representative or such Restricted
Stockholder's transferees at any time before or after the Transfer, at the
Appraised Value.
3
<PAGE> 4
2.3. CERTAIN PERMITTED TRANSFERS.
2.3.1. TRANSFERS TO IMMEDIATE FAMILY. Subject to Section 2.5,
any Restricted Stockholder may transfer (including by gift, by will or by
the laws of intestate succession) any of such Restricted Stockholder's
Restricted Shares to members of such Restricted Stockholder's immediate
family or to a trust for the benefit of members of such Restricted
Stockholder's immediate family or to a trust controlled by such Restricted
Stockholder (each of the foregoing persons being referred to as a
"RESTRICTED STOCK TRANSFEREE") so long as (a) each Restricted Stock
Transferee executes a counterpart of this Agreement as a Restricted
Stockholder, (b) Restricted Shares are not held by more than 10 members
(including trusts as members) of the same immediate family, and (c) for
purposes of Section 2.2, all Restricted Shares owned by or for the benefit
of a single immediate family shall be deemed owned at all times by the
original Restricted Stockholder within each immediate family.
2.3.2. PUBLIC OFFERING. A Selling Stockholder may sell any
Restricted Shares in a public offering registered under the federal
Securities Act of 1933, as amended, or in a transaction permitted by Rule
144 thereunder, whereupon the shares shall no longer be Restricted Shares.
2.4. PURCHASES OF COMMON STOCK.
2.4.1. ELECTION BY COMPANY AND INVESTORS. In the event of
purchases under Section 2.2, the Company shall have the right to determine
whether to purchase any or all shares of Restricted Stock available for
purchase by delivering written notice of the number of shares to be
purchased to the Selling Stockholder and the Investors within 30 days
after the Company's actual knowledge of when such right arises. The
Selling Stockholder shall not vote as a director on the question whether
the Company should purchase his or her Restricted Stock or any matter
relating thereto, but for purposes of establishing a quorum he or she
shall attend any directors meetings at which such question or matter is
considered. Promptly after a determination by the Board of Directors of
the Company not to purchase all such shares, the Company shall make the
right to purchase any shares it does not purchase available to the
Investors on the basis of their Proportionate Shares. Investors may
purchase any remaining Restricted Stock not purchased by the Company and
the other Investors pro rata based on the respective Proportionate Shares
of Investors wishing to purchase additional shares, or as they may
otherwise agree.
2.4.2. CLOSING ON STOCK SALES. The acceptance of any offer or
exercise of any right to purchase hereunder shall be by notice given in
accordance with Section 6.2 and shall specify a date of closing not
earlier than 10 business days nor later than 15 business days after the
receipt of such notice. At the closing, the purchaser shall pay the
purchase price by certified or bank check drawn on immediately available
funds and payable to the order of the Selling Stockholder. Certificates
for the Restricted Shares to be purchased, duly endorsed or accompanied by
duly executed stock powers, in each case with signatures guaranteed, shall
be delivered at the closing by the seller. In addition, the purchaser may
reasonably request
4
<PAGE> 5
waivers of any tax liens and evidence of good title and authority of any
representative before tendering payment.
2.5. SPECIAL PROVISIONS REGARDING PURCHASE OF SHARES OF A DECEASED
RESTRICTED STOCKHOLDER.
2.5.1. LIFE INSURANCE. The Restricted Stockholders have
transferred to the Company and the Company now owns and is the beneficiary
of the life insurance policies on the lives of the Restricted Stockholders
in the amount set forth on Schedule C (the "LIFE INSURANCE"). Effective as
of the date hereof, the Restricted Stockholders in the Company terminated
that certain Voting Trust and Certificate Holders Agreement dated as of
April 30, 1992, as amended, and in connection therewith, the Restricted
Stockholders transferred the Life Insurance to the Company. The Company
shall pay, and is solely responsible for the payment of, all premiums with
respect to the Life Insurance. The Company may not decrease the Life
Insurance without the prior written consent of the affected Restricted
Stockholder.
2.5.2. PURCHASE OF RESTRICTED SHARES HELD BY A RESTRICTED
STOCKHOLDER UPON SUCH STOCKHOLDERS DEATH. Notwithstanding anything in this
Agreement to the contrary, following the death of a Restricted Stockholder,
the personal representative of such Restricted Stockholder and any
Restricted Stock Transferee shall, within 30 days of the appointment of the
personal representative, submit to the holders of a majority of the
Tag-Along Shares a list of three nominees to determine Appraised Value. The
list of nominees shall be determined by the holders of a majority of the
Restricted Shares then owned by such personal representative and the
Restricted Stock Transferees. Within 10 days of the receipt of the report
of the appraiser, the personal representative and the Restricted Stock
Transferees shall sell to the Company a number of Restricted Shares equal
to the greater of the following:
(a) If the proceeds of the Life Insurance equal or exceed
the Appraised Value of the Restricted Shares owned by
such personal representative and each such Restricted
Stock Transferee, then all of the shares owned by such
personal representative and the Restricted Stock
Transferee shall be sold for an amount equal to the
Appraised Value; or
(b) If the proceeds of the Life Insurance are less than
the Appraised Value of all of the Restricted Shares owned
by such personal representative and each such Restricted
Stock Transferee, then a number of shares equal to the
ratio that the proceeds of the Life Insurance bear to the
Appraised Value of all such shares to be allocated
amongst the personal representative and each such
Restricted Stock Transferee in a proportion that the
number of shares owned by such person bears to the total
number of
5
<PAGE> 6
shares owned by such personal representative and each
Restricted Stock Transferee.
The closing of such sale shall be held at the principal offices of the
Company at which time the personal representative and each Restricted Stock
Transferee shall deliver the Restricted Shares duly endorsed or accompanied by
duly executed stock powers, in each case with signatures guaranteed, free and
clear of all liens and encumbrances. In addition, the Company may request
waivers of any tax liens and evidence of good title and authority of any
representative before tendering payment. The Company shall pay the purchase
price by certified or bank check drawn on immediately available funds and
payable to the order of each such personal representative and Restricted Stock
Transferee.
3. TAG-ALONG RESTRICTIONS. A Restricted Stockholder may sell any Restricted
Shares in accordance with Section 2.1 to any other Person (the "PROPOSED BUYER")
only if the Investors who notified the Selling Stockholder of their interest in
exercising tag-along rights as contemplated by Section 2.1.3 are offered the
chance to participate in such sale in the manner and on the terms set forth in
this Section 3.
3.1. OFFER. A notice (the "TAG-ALONG NOTICE") shall be delivered by the
Selling Stockholder to each such Investor. The Tag-Along Notice shall include:
(a) A copy of a bona fide offer from the Proposed Buyer, which shall
set forth the complete terms of the proposed sale, including the number of
Restricted Shares proposed to be purchased, the purchase price, the name
and address of the Proposed Buyer and the other principal terms of the
proposed transaction (the "PROPOSED SALE");
(b) An offer by the Selling Stockholder to include in the Proposed
Sale to the Proposed Buyer, at the option of such Investors, that number of
the Investors' Tag-Along Shares as is determined in accordance with Section
3.2, on the same terms and conditions as the Selling Stockholder shall sell
the Restricted Shares; and
(c) An agreement from the Proposed Buyer to purchase such number of
the Investors' Tag-Along Shares as shall be includable in such Proposed
Sale pursuant to Section 3.2.
3.2. TIME AND MANNER OF EXERCISE. If any of the Investors desires to
accept the offer contained in the Tag-Along Notice, such Investor shall notify
the Selling Stockholder in writing within 20 days after receipt of the Tag-Along
Notice. If none of the Investors has so accepted such offer in writing, they
shall be deemed to have waived all of their rights with respect to the Proposed
Sale, and the Selling Stockholder shall thereafter be free to sell the
Restricted Shares specified in the Tag-Along Notice pursuant to the Proposed
Sale. Any acceptance by any Investor of the offer contained in the Tag-Along
Notice shall be irrevocable except as hereinafter provided. Each Investor who
has elected to participate in such Proposed Sale shall be entitled to sell in
the Proposed Sale, on the same terms and conditions as the Selling Stockholder,
such number of its Tag-Along Shares equal to the proportion (rounded to the
nearest whole share) of
6
<PAGE> 7
all shares to be included in the Proposed Sale equal to a fraction, the
numerator of which is the total number of Tag-Along Shares of Investors who
notified the Restricted Stockholder of their interest in exercising tag-along
rights as contemplated by Section 2.1.3 (on an as converted basis) immediately
before the Proposed Sale and the denominator of which is the sum of the total
number of Restricted Shares to be sold pursuant to the Proposed Sale plus the
total number of such Tag-Along Shares (on an as converted basis).
3.3. TIME AND MANNER OF CLOSING. Each of the Investors participating in
any Proposed Sale shall take such actions and execute such documents and
instruments as shall be reasonably necessary in order to consummate the Proposed
Sale expeditiously on the same terms as the Selling Stockholder. If at the end
of 180 days following the date on which the Tag-Along Notice was given the
Selling Stockholder has not completed the Proposed Sale in accordance with the
terms hereof, the Investors shall be released from their obligations hereunder.
All costs and expenses incurred by the Selling Stockholder in connection with
any sale, including without limitation all attorneys' fees and disbursements and
any finders' or brokerage fees or commissions, shall be allocated pro rata among
the Selling Stockholder and the Investors according to the number of shares sold
by each. The portion of such costs and expenses allocable to each Investor shall
be remitted to the Selling Stockholder at the Closing on notice thereof
demonstrating reasonable supporting calculations. At the closing of any sale
under this Section 3.3, each Investor shall deliver certificates representing
the Tag-Along Shares to be sold by it, duly endorsed for transfer and (if
requested in writing by the Proposed Buyer) with signature guaranteed, free and
clear of all liens and encumbrances, and with any stock transfer tax stamps
affixed, against delivery of the applicable purchase price. Any shares sold to
the Proposed Buyer in accordance with this Section 3.3 shall no longer be
subject to this Agreement.
4. VOTING AGREEMENT. Each party hereto agrees (a) to cause the Board of
Directors to consist of seven directors until a Remedy Event (as defined in the
Company's Certificate of Incorporation) occurs and thereafter to consist of the
number of directors contemplated by such Certificate of Incorporation and (b) to
vote all shares of the Company's capital stock owned by such party, as the case
may be, (i) to refrain from violating the rights of the Investors as set forth
in the Purchase Agreement and the Investor Agreements (each as defined in the
Purchase Agreement) or the rights of the other Investors under the Warrants,
(ii) to elect as directors two persons nominated by the Investors, and five
directors nominated by the Restricted Stockholders and (iii) after a Remedy
Event has occurred, to elect as additional directors of the Company such persons
nominated by the Investors as is contemplated by the Certificate of
Incorporation and to continue to vote for such persons (or any successors
nominated by the Investors, as the case may be) as directors of the Company as
is contemplated by the Certificate of Incorporation, provided that the foregoing
clause (b) shall not prevent any party from voting on any other matter that may
properly be taken up by the stockholders of the Company.
5. LEGEND. Each certificate evidencing Restricted Shares shall contain the
following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN TRANSFER RESTRICTIONS AS SET FORTH IN A TAG-ALONG, TRANSFER
RESTRICTION AND VOTING AGREEMENT
7
<PAGE> 8
DATED AS OF MAY 31, 1996 A COPY OF WHICH IS ON FILE IN THE OFFICES
OF THE CORPORATION AND WILL BE FURNISHED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON WRITTEN REQUEST
6. GENERAL.
6.1. REMEDIES. The parties shall have all remedies for breach of this
Agreement available to them provided by law or equity. Without limiting the
generality of the foregoing, in addition to all other rights and remedies
available at law or in equity, the parties shall be entitled to obtain specific
performance of the obligations of each party to this Agreement and immediate
injunctive relief. In the event any action or proceeding is brought in equity to
enforce the same, neither the Company nor any party will urge, as a defense,
that an adequate remedy at law exists.
6.2. NOTICES. All notices or other communications required or permitted to
be delivered hereunder shall be in writing and shall be delivered to each of the
parties at their respective addresses as set forth in Schedules A or B. Any
party to this Agreement may at any time change the address to which notice to
such party shall be delivered by giving notice of such change to the other
parties and such notice shall be deemed given when received by the other
parties. Notices shall be deemed effectively given when personally delivered or
sent to the recipient at the address set forth above by telex or a facsimile
transmission, one business day after having been delivered to a receipted,
nationally recognized courier, properly addressed or five business days after
having been deposited into the United States mail, postage prepaid, PROVIDED,
that any notice to any party outside of the United States shall be sent by
telecopy and confirmed by overnight or two-day courier.
6.3. AMENDMENTS, WAIVER AND CONSENTS. Any provision in this Agreement to
the contrary notwithstanding, changes in or additions to this Agreement may be
made, and compliance with any covenant or provision herein set forth may be
omitted or waived, if the Company (a) shall obtain consent thereto in writing
from Investors holding an aggregate of at least a majority of the Tag-Along
Shares, on an as converted basis and (b) shall, in each such case, deliver
copies of such consent in writing to any parties who did not execute the same;
PROVIDED, HOWEVER, that any such amendment or waiver adversely effecting the
Restricted Stockholders in a manner distinct from the effect of such amendment
or waiver on the Investors shall require the written consent of the Restricted
Stockholders holding a majority of the Restricted Shares.
6.4. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the personal representatives, successors and assigns of
the respective parties hereto. The Company shall not have the right to assign
its rights or obligations hereunder or any interest herein without obtaining the
prior written consent of the Investors holding an aggregate of at least a
majority of the Tag-Along Shares, on an as converted basis. The Restricted
Stockholders and the Investors may assign or transfer their rights under this
Agreement to the extent permitted herein and by the other agreements between the
respective parties and the Company.
6.5. TERMINATION. This Agreement shall terminate on the first to occur of
(a) the time immediately prior to the consummation of a Qualified Public
Offering (as defined in the Certificate
8
<PAGE> 9
of Designation for the Company's Preferred Stock issued to the Investors on or
about the date hereof) or (b) when no shares of the Preferred Stock and no
Warrants are outstanding, except as a result of the conversion, exchange or
exercise of the Preferred Stock or Warrants.
6.6. SEVERABILITY. If any provision of this Agreement shall be found by
any court of competent jurisdiction to be invalid or unenforceable, the parties
waive such provision to the extent that it is found to be invalid or
unenforceable. Such provision shall, to the maximum extent allowable by law, be
modified by such court so that it becomes enforceable and, as modified, shall be
enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.
6.7. HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
6.8. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
and contemporaneous understandings, whether written or oral.
6.9. COUNTERPARTS. This Agreement may be executed in counterparts, all of
which together shall constitute one and the same instrument.
6.10. CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the laws (other than the conflict of laws rules) of The
Commonwealth of Massachusetts.
The parties hereto have executed this Agreement under seal as of the date
first above written.
ACCESSORIES ASSOCIATES, INC.
By /s/ Gerald F. Cerce
--------------------------------
Title: Chairman
WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
By /s/ Michael F. Cronin
--------------------------------
General Partner:
9
<PAGE> 10
BANCBOSTON VENTURES, INC.
By /s/ Charles Grant
--------------------------------
Title: Vice President
ST. PAUL FIRE AND MARINE
INSURANCE COMPANY
By /s/ Everett V. Cox
--------------------------------
Title: Authorized Representative
NATIONAL CITY CAPITAL CORPORATION
By /s/ Carl E. Baldassarre
--------------------------------
Title: Managing Director
10
<PAGE> 11
SCHEDULE A TO TAG-ALONG,
TRANSFER RESTRICTION AND
VOTING AGREEMENT
----------------
Number of Preferred Number of Common
Stock Shares Held Stock Shares Held
Investors and Address on Date Hereof on Date Hereof
- --------------------- ------------------- -----------------
Weston Presidio Capital II, L.P. 17,100 19,000
40 William Street - Suite 300
Wellesley, MA 02181
Telephone: (617) 237-4700
Telecopy: (617) 237-6270
BancBoston Ventures, Inc. 6,840 7,600
100 Federal Street - 31st Floor
Boston, Massachusetts 02110
Telephone: (617) 434-2442
Telecopy: (617) 434-1153
St. Paul Fire and Marine 6,840 7,600
Insurance Company
c/o St. Paul Venture Capital, Inc.
8500 Normandale Lake Blvd.
Suite 1940
Bloomington, Minnesota 55437
Telephone: (612) 830-7474
Telecopy: (612) 830-7475
National City Capital Corporation 3,420 3,800
1965 E. 6th Street ------ ------
Suite 1010
Cleveland, OH 44114
Telephone: (216) 575-9482
Telecopy: (216) 575-9965
TOTAL: 34,200 38,000
11
<PAGE> 12
SCHEDULE B TO TAG-ALONG
TRANSFER RESTRICTION AND
VOTING AGREEMENT
----------------
Restricted Stockholders Number of Common Stock
and Address Shares Held on Date Hereof
- ----------------------- --------------------------
John H. Flynn, Jr. 28,500 shares
52 Second Street
Newport, RI 02840
Felix A. Porcaro, Jr. 171,000 shares
5 Lori Ellen Drive
Lincoln, RI 02865
Robert V. Lallo 28,500 shares
132 Division Street
East Greenwich, RI 02818
Gerald F. Cerce 342,000 shares
143 Meeting Street
Providence, RI 02906
12
<PAGE> 13
SCHEDULE C TO TAG-ALONG
TRANSFER RESTRICTION AND
VOTING AGREEMENT
LIFE INSURANCE POLICIES
INSURED POLICY NUMBER/AMOUNT
- ------- --------------------
A. Gerald F. Cerce Fidelity Kemper/$8,820,000
143 Meeting Street #FL0419936
Providence, RI 02906
Mass Mutual/$4,380,000
#8828803
Fidelity Kemper/$3,000,000
#FL0430618
B. Felix Porcaro, Jr. Prudential/$3,000,000
5 Lori Ellen Drive #79658599
Lincoln, RI 02865
Mass Mutual/$2,190,000
#8828807
Pacific Mutual/$2,910,000
#1A2304136-0
C. Robert V. Lallo Fidelity Kemper/$735,000
132 Division Street #FL0419920
E. Greenwich, RI 01818
Mass Mutual/$365,000
#8828804
Fidelity Kemper/$250,000
#FL0430617
D. John H. Flynn, Jr. Fidelity Kemper/$735,000
52 Second Street #FL0419937
Newport, RI 02840
Mass Mutual/$365,000
#8828812
Fidelity Kemper/$250,000
#FL0430616
13
<PAGE> 14
EXHIBIT 9.2
FIRST AMENDMENT TO TAG-ALONG, TRANSFER RESTRICTION
AND VOTING RIGHTS AGREEMENT
This First Amendment to Tag-Along, Transfer Restriction and Voting
Agreement made and entered into as of this 11th day of December, 1996 by and
between Accessories Associates, Inc., a Rhode Island corporation (the
"Company"), Weston Presidio Capital II, L.P. and the other Investors executing
this First Amendment (collectively, and together with their permitted successors
and assigns the "Investors") and the other Stockholders and Stock Optionholders
of the Company listed in Schedule B.
RECITALS
On May 31, 1996, the Company and Weston Presidio Capital II, L.P,
BancBoston Ventures, Inc., St. Paul Fire and Marine Insurance Company and
National City Corporation (the "Initial Investors") together with the persons
listed in Schedule B attached hereto entered into a Tag-Along, Transfer
Restriction and Voting Agreement (the "Agreement") granting to the Initial
Investors certain tag-along rights and transfer restrictions. The Initial
Investors have authorized the issuance of ninety-five hundred (9,500) additional
shares of the Company's Series A Redeemable Convertible Preferred Stock, par
value $0.01 per share (the "Shares"). The Company proposes to issue the
ninety-five hundred (9,500) Shares in the amounts indicated to the persons
listed hereto on Schedule C hereto (collectively referred to as the "Subsequent
Investors"). As consideration in part for their purchase of the Shares, the
Subsequent Investors have requested to become parties to the Tag-Along, Transfer
Restriction and Voting Agreement. The Company, the Initial Investors and the
persons listed on Schedule B are willing to do so.
NOW THEREFORE, in consideration of the promises and agreements herein
contained and for other good and valuable consideration, the receipt and
sufficiency whereof is hereby acknowledged, it is agreed as follows:
1. Effective upon the execution of this Agreement, each Subsequent
Investor shall become, and shall be, a party to the Agreement and the term
"Investors" wherever set forth in the Agreement shall be deemed to include each
of the Initial Investors and the Subsequent Investors.
2. Except as modified herein, the Agreement is hereby ratified, confirmed
and approved.
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this agreement as of the day
and date first above written.
ACCESSORIES ASSOCIATES, INC.
By: /s/ Gerald F. Cerce
---------------------------------------
INITIAL INVESTORS:
WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
General Partner
By: /s/ Michael F. Cronin
----------------------------------
BANCBOSTON VENTURES, INC.
By: /s/ Charles Grant
---------------------------------------
ST. PAUL FIRE AND MARINE
INSURANCE COMPANY
By: /s/ Everett V. Cox
---------------------------------------
NATIONAL CITY CAPITAL CORPORATION
By: /s/ Carl E. Baldassarre
---------------------------------------
2
<PAGE> 16
SUBSEQUENT INVESTORS:
MARLIN CAPITAL, L.P.
By: MARLIN HOLDINGS, INC.,
General Partner
By: /s/ Ian Ashken
----------------------------
FIRST GLOBAL INVESTMENTS LIMITED
By: /s/ Elizabeth LePoidevin
---------------------------------
IONIC HOLDINGS L.D.C.
By: /s/ Elizabeth LePoidevin
---------------------------------
NEW HENLEY OVERSEAS INVESTMENTS,
INC.
By: /s/ Elias S. Zilkha
---------------------------------
ORACLE INVESTMENTS AND HOLDINGS,
LIMITED
By: /s/ Elizabeth LePoidevin
---------------------------------
BRAHMAN PARTNERS II, L.P.
By: /s/ Peter A. Hochfelder
---------------------------------
3
<PAGE> 17
B.Y. PARTNERS, L.P.
By: /s/ Peter A. Hochfelder
---------------------------------
QUASAR INTERNATIONAL PARTNERS CV
By: /s/ Peter A. Hochfelder
---------------------------------
BRAHMAN PARTNERS II OVERSHORE LTD.
By: /s/ Peter A. Hochfelder
---------------------------------
SCHEDULE B PERSONS
/s/ Gerald F. Cerce
-------------------------------------
Gerald F. Cerce
/s/ John H. Flynn, Jr.
-------------------------------------
John H. Flynn, Jr.
/s/ Robert V. Lallo
-------------------------------------
Robert V. Lallo
/s/ Felix A. Poccaro
-------------------------------------
Felix A. Poccaro
/s/ Michael Aviles
-------------------------------------
Michael Aviles
4
<PAGE> 18
/s/ Duane M. DeSisto
----------------------------------
Duane M. DeSisto
/s/ Thomas E. McCarthy
----------------------------------
Thomas E. McCarthy
/s/ Daniel A. Triangolo
----------------------------------
Daniel A. Triangolo
5
<PAGE> 19
SCHEDULE B
Stockholders/Optionholders Number of Common Shares
Address Held on Option
Gerald F. Cerce 342,000
143 Meeting Street
Providence, RI 02906
John H. Flynn 28,500
52 Second Street
Newport, RI 02840
Robert V. Lallo 28,500
132 Division Street
East Greenwich, RI 02818
Felix A. Poccaro, Jr. 171,000
5 Lori Ellen Drive
Lincoln, RI 02865
Michael Aviles* 2,000
Duane M. DeSisto* 2,000
Thomas E. McCarthy* 2,000
Daniel A. Triangolo* 2,000
*Options Only
6
<PAGE> 20
SCHEDULE C
INVESTOR NO. OF SHARES
- -------- -------------
Marlin Capital, L.P. P-5 4,750
c/o Marlin Capital Holdings, Inc.
555 Theodore Fremd Avenue
Rye, New York 10580
New Henley Overseas Investments Corp. 237
53rd East Street
Urbanizacion Obarrio
P.O. Box 7284
Panama 5, Panama
First Global Capital Holdings Limited 237
La Motte Chambers
La Motte Street
St. Heuer, Jersey
Channel Islands JE11BJ
Oracle Investments and Holdings Limited 237
La Motte Chambers
La Motte Street
St. Heuer, Jersey
Channel Islands JE11BJ
7
<PAGE> 21
INVESTORS NO. OF SHARES
- --------- -------------
Ionic Holdings LDC 238
La Motte Chambers
La Motte Street
St. Heuer Jersey
Channel Islands, JE11BJ
Brahman Partners II, L.P. 1,672
c/o Brahman Capital Corp.
277 Park Avenue - 26th Floor
New York, New York 10017
B.Y. Partners, L.P. 989
c/o Brahman Capital Corp.
277 Park Avenue - 26th Floor
New York, New York 10017
Quota Fund N.V. 684
c/o Brahman Capital Corp.
277 Park Avenue - 26th Floor
New York, New York 10017
Genisis Capital Fund L.P. 152
c/o Brahman Capital Corp.
277 Park Avenue - 26th Floor
New York, New York 10017
Brahman Partners II Offshore Ltd. 304
c/o Brahman Capital Corp.
277 Park Avenue - 26th Floor
New York, New York 10017
8
<PAGE> 1
Exhibit 10.1
------------
SECOND AMENDED AND RESTATED
FINANCING AND SECURITY AGREEMENT
BY AND AMONG
AAi.FOSTERGRANT, INC.
AND
NATIONSBANK, N.A., AGENT
AND
NATIONSBANK, N.A., AND OTHER LENDERS
DATED: JULY 21, 1998
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I DEFINITIONS 2
Section 1.1 Certain Defined Terms. 2
Section 1.2 Accounting Terms and Other Definitional Provisions. 29
ARTICLE II THE CREDIT FACILITIES 29
Section 2.1 The Revolving Credit Facility. 29
2.1.1 Revolving Credit Facility. 29
2.1.2 Procedure for Making Advances Under the Revolving Loan;
Lender Protection Loans. 30
2.1.3 Borrowing Base. 31
2.1.4 Borrowing Base Report. 32
2.1.5 Revolving Credit Notes. 33
2.1.6 Mandatory Prepayments of Revolving Loan. 33
2.1.7 Optional Prepayments of Revolving Loan. 34
2.1.8 The Collateral Account. 34
2.1.9 Revolving Loan Account. 35
2.1.10 Revolving Credit Unused Line Fee. 35
2.1.11 Early Termination Fee. 36
2.1.12 Required Availability under the Revolving Credit Facility. 36
Section 2.2 The Letter of Credit Facility. 37
2.2.1 Letters of Credit. 37
2.2.2 Letter of Credit Fees. 37
2.2.3 Terms of Letters of Credit. 37
2.2.4 Procedure for Letters of Credit. 38
2.2.5 Participations in the Letters of Credit. 38
2.2.6 Payments by the Lenders to the Agent. 38
Section 2.3 Interest. 39
2.3.1 Applicable Interest Rates. 39
2.3.2 Selection of Interest Rates. 40
2.3.3 Inability to Determine LIBOR Base Rate. 42
2.3.4 Indemnity. 42
2.3.5 Payment of Interest. 43
Section 2.4 General Financing Provisions. 44
2.4.1 Communications and Inter-Company Advances. 44
2.4.2 Use of Proceeds of the Loan. 44
2.4.3 Field Examination Fees. 44
2.4.4 Computation of Interest and Fees. 45
2.4.5 Payments. 45
2.4.6 Liens; Setoff. 45
2.4.7 Requirements of Law. 46
2.4.8 Funds Transfer Services. 46
2.4.9 Guaranty. 47
<PAGE> 3
2.4.10 No Novation. 50
Section 2.5 Settlement Among Lenders. 51
2.5.1 Revolving Loan. 51
2.5.2 Settlement Procedures as to Revolving Loan. 51
2.5.3 Settlement of Other Obligations. 53
2.5.4 Presumption of Payment. 54
ARTICLE III THE COLLATERAL 55
Section 3.1 Debt and Obligations Secured. 55
Section 3.2 Grant of Liens. 55
Section 3.3 Collateral Disclosure List. 55
Section 3.4 Inventory and Receivables. 56
3.4.1 Chattel Paper, Promissory Notes, etc. 56
3.4.2 Trademarks. 56
Section 3.5 Record Searches. 57
Section 3.6 Costs. 57
Section 3.7 Release. 57
Section 3.8 Inconsistent Provisions. 58
ARTICLE IV REPRESENTATIONS AND WARRANTIES 58
Section 4.1 Representations and Warranties. 58
4.1.1 Ownership Interests. 58
4.1.2 Good Standing. 58
4.1.3 Power and Authority. 58
4.1.4 Binding Agreements. 59
4.1.5 No Conflicts. 59
4.1.6 No Defaults, Violations. 59
4.1.7 Compliance with Laws. 59
4.1.8 Margin Stock. 60
4.1.9 Investment Company Act; Margin Securities. 60
4.1.10 Litigation. 60
4.1.11 Financial Condition. 60
4.1.12 Full Disclosure. 61
4.1.13 Indebtedness for Borrowed Money. 61
4.1.14 Taxes. 61
4.1.15 ERISA. 62
4.1.16 Title to Properties. 62
4.1.17 Patents, Trademarks, Etc. 62
4.1.18 Employee Relations. 62
4.1.19 Presence of Hazardous Materials or Hazardous Materials
Contamination. 63
ii
<PAGE> 4
4.1.20 Perfection and Priority of Collateral. 63
4.1.21 Places of Business and Location of Collateral. 63
4.1.22 Business Names and Addresses. 64
4.1.23 Inventory. 64
4.1.24 Accounts. 64
4.1.25 Compliance with Eligibility Standards. 64
4.1.26 Original Financing Agreement. 65
4.1.27 Year 2000. 65
Section 4.2 Survival; Updates of Representations and Warranties. 65
ARTICLE V CONDITIONS PRECEDENT 65
Section 5.1 Conditions to the Initial Advance and Initial Letter of Credit. 65
5.1.1 Organizational Documents - Borrower, Foster Grant and Fantasma. 66
5.1.2 Opinion of Obligors' Counsel. 67
5.1.3 Organizational Documents - Corporate Guarantors. 67
5.1.4 Consents, Licenses, Approvals, Etc. 68
5.1.5 Notes. 68
5.1.6 Financing Documents and Collateral. 68
5.1.7 Other Financing Documents. 69
5.1.8 Other Documents, Etc. 69
5.1.9 Payment of Fees. 69
5.1.10 Collateral Disclosure List. 69
5.1.11 Recordings and Filings. 69
5.1.12 Insurance Certificate. 69
5.1.13 Landlord's Waivers. 69
5.1.14 Bailee Acknowledgements. 70
5.1.15 Field Examination. 70
5.1.16 Credit Insurance. 70
5.1.17 Senior Notes. 70
Section 5.2 Conditions to all Extensions of Credit. 70
5.2.1 Compliance. 70
5.2.2 Borrowing Base. 70
5.2.3 Default. 71
5.2.4 Representations and Warranties. 71
5.2.5 Material Adverse Change. 71
5.2.6 Legal Matters. 71
ARTICLE VI COVENANTS OF THE BORROWER 71
Section 6.1 Affirmative Covenants. 71
6.1.1 Financial Statements. 71
6.1.2 Recordkeeping, Rights of Inspection, Field Examination, Etc. 73
6.1.3 Existence. 74
6.1.4 Compliance with Laws. 74
6.1.5 Preservation of Properties. 75
6.1.6 Line of Business. 75
6.1.7 Insurance. 75
6.1.8 Taxes. 75
iii
<PAGE> 5
6.1.9 ERISA. 76
6.1.10 Notification of Events of Default and Adverse Developments. 76
6.1.11 Hazardous Materials; Contamination. 77
6.1.12 Disclosure of Significant Transactions. 78
6.1.13 Financial Covenants. 78
6.1.14 Collection of Receivables. 79
6.1.15 Assignments of Receivables. 80
6.1.16 Government Accounts. 80
6.1.17 Inventory. 81
6.1.18 Insurance With Respect to and Inventory. 81
6.1.19 Credit Insurance. 82
6.1.20 Maintenance of the Collateral. 82
6.1.21 Defense of Title and Further Assurances. 82
6.1.22 Business Names; Locations. 83
6.1.23 Subsequent Opinion of Counsel as to Recording Requirements. 83
6.1.24 Use of Premises and Equipment. 83
6.1.25 Protection of Collateral. 84
Section 6.2 Negative Covenants. 84
6.2.1 Capital Structure, Merger, Acquisition or Sale of Assets. 84
6.2.2 Subsidiaries. 85
6.2.3 Issuance of Stock. 85
6.2.4 Purchase or Redemption of Securities, Distribution
Restrictions; Payment of Indebtedness for Borrowed Money. 85
6.2.5 Indebtedness. 86
6.2.6 Investments, Loans and Other Transactions. 86
6.2.7 Capital Expenditures. 87
6.2.8 Subordinated Indebtedness. 88
6.2.9 Liens. 88
6.2.10 Transactions with Affiliates. 88
6.2.11 Other Businesses. 89
6.2.12 ERISA Compliance. 89
6.2.13 Prohibition on Hazardous Materials. 89
6.2.14 Method of Accounting; Fiscal Year. 89
6.2.15 Compensation. 90
6.2.16 Transfer of Collateral. 90
6.2.17 Sale and Leaseback. 90
6.2.18 Disposition of Collateral. 90
ARTICLE VII DEFAULT AND RIGHTS AND REMEDIES 90
Section 7.1 Events of Default. 90
7.1.1 Failure to Pay. 91
7.1.2 Breach of Representations and Warranties. 91
7.1.3 Failure to Comply with Covenants. 91
7.1.4 Default Under Other Financing Documents or Obligations. 91
7.1.5 Receiver; Bankruptcy. 91
7.1.6 Involuntary Bankruptcy, etc. 92
7.1.7 Judgment. 92
7.1.8 Execution; Attachment. 92
7.1.9 Default Under Other Borrowings. 92
7.1.10 Challenge to Agreements. 92
iv
<PAGE> 6
7.1.11 Change in Ownership. 93
7.1.12 Liquidation, Termination, Dissolution, Change in
Management, etc. 93
Section 7.2 Remedies. 93
7.2.1 Acceleration. 93
7.2.2 Further Advances. 93
7.2.3 Uniform Commercial Code. 94
7.2.4 Specific Rights With Regard to Collateral. 94
7.2.5 Application of Proceeds. 95
7.2.6 Performance by Agent. 96
7.2.7 Other Remedies. 96
Section 7.3 Consent. 96
ARTICLE VIII THE AGENT 97
Section 8.1 Appointment. 97
Section 8.2 Nature of Duties. 97
8.2.1 In General. 97
8.2.2 Express Authorization. 97
Section 8.3 Rights, Exculpation, Etc. 98
Section 8.4 Reliance. 99
Section 8.5 Indemnification. 99
Section 8.6 NationsBank Individually. 100
Section 8.7 Successor Agent. 100
8.7.1 Resignation. 100
8.7.2 Appointment of Successor. 100
8.7.3 Successor Agent. 100
Section 8.8 Collateral Matters. 101
8.8.1 Release of Collateral. 101
8.8.2 Confirmation of Authority, Execution of Releases. 101
8.8.3 Absence of Duty. 102
Section 8.9 Agency for Perfection. 102
Section 8.10 Exercise of Remedies. 102
Section 8.11 Consents. 102
Section 8.12 Circumstances Where Consent of all of the Lenders
is Required. 103
Section 8.13 Dissemination of Information. 104
v
<PAGE> 7
Section 8.14 Discretionary Advances. 104
ARTICLE IX MISCELLANEOUS 104
Section 9.1 Notices. 104
Section 9.2 Amendments; Waivers. 105
Section 9.3 Cumulative Remedies. 106
Section 9.4 Severability. 107
Section 9.5 Assignments by Lenders. 107
Section 9.6 Participations by Lenders. 108
Section 9.7 Disclosure of Information by Lenders. 108
Section 9.8 Successors and Assigns. 108
Section 9.9 Continuing Agreements. 109
Section 9.10 Enforcement Costs. 109
Section 9.11 Applicable Law; Jurisdiction. 109
9.11.1 Applicable Law. 109
9.11.2 Submission to Jurisdiction. 109
9.11.3 Appointment of Agent for Service of Process. 110
9.11.4 Consent to Service of Process. 110
Section 9.12 Duplicate Originals and Counterparts. 110
Section 9.13 Headings. 110
Section 9.14 No Agency. 111
Section 9.15 Date of Payment. 111
Section 9.16 Entire Agreement. 111
Section 9.17 Waiver of Trial by Jury. 111
Section 9.18 Liability of the Agent and the Lenders. 111
vi
<PAGE> 8
SECOND AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT (this
"Agreement") is made as of the 21st day of July, 1998, by and among
AAi.FOSTERGRANT, INC. (formerly known as Accessories Associates, Inc.),
a corporation organized and existing under the laws of the State of Rhode Island
("the Borrower");
FOSTER GRANT GROUP, L.P., a limited partnership organized under the
laws of the State of Delaware ("Foster Grant") and FANTASMA, LLC, a limited
liability company organized under the laws of the State of Delaware
("Fantasma");
F.G.G. INVESTMENTS, INC., a corporation organized and existing under the
laws of the State of Delaware, THE BONNEAU COMPANY, a corporation organized and
existing under the laws of the State of Texas, BONNEAU HOLDINGS, INC., a
corporation organized and existing under the laws of the State of Delaware,
BONNEAU GENERAL, INC., a corporation organized and existing under the laws of
the State of Delaware, FOSTER GRANT HOLDINGS, INC., a corporation organized and
existing under the laws of the State of Delaware, and O-RAY HOLDINGS, INC., a
corporation organized and existing under the laws of the State of Delaware (the
"Corporate Guarantors"):
NATIONSBANK, N.A., a national banking association ("NationsBank") and
each other financial institution which is a party to this Agreement, whether by
execution of this Agreement or otherwise (collectively, the "Lenders" and
individually, a "Lender"); and
NATIONSBANK, N.A., a national banking association, in its capacity as
both collateral and administrative agent for each of the Lenders (the "Agent").
RECITALS
A. The Borrower, together with certain other related entities, the Agent
and NationsBank (as sole Lender) entered into an Amended and Restated Financing
and Security Agreement dated May 9, 1997 (the same, as amended by First
Amendment to Amended and Restated Financing and Security Agreement dated March
4, 1998, the "Original Financing Agreement"). The Original Financing Agreement
provides for some of the agreements between the Borrower and the other related
entities party thereto and the Lenders with respect to the "Credit Facilities"
(as that term is defined in the Original Financing Agreement), including the
Revolving Credit Facility (as that term is defined in the Original Financing
Agreement) in an amount not to exceed $60,000,000 and the Letter of Credit
Facility which is part of the Revolving Credit Facility.
B. In connection with the sale of senior debt by the Borrower, the
Obligors (as hereinafter defined) have requested that the Lenders agree to
recast the Credit Facilities to consist of a revolving credit facility in the
maximum principal amount of $60,000,000, including a letter
<PAGE> 9
of credit facility in the amount of $3,000,000 to be used by the Borrower for
the Permitted Uses described in this Agreement and guaranteed by the Guarantors.
C. The Lenders are willing to make the recast credit facilities
available to the Borrower upon the terms and subject to the conditions set forth
in this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Agent, the
Borrower, Foster Grant or Fantasma and the Lenders agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINED TERMS.
As used in this Agreement, the terms defined in the Preamble and
Recitals hereto shall have the respective meanings specified therein, and the
following terms shall have the following meanings:
"Account" individually and "Accounts" collectively mean all presently
existing or hereafter acquired or created accounts, accounts receivable,
contract rights, notes, drafts, instruments, acceptances, Chattel Paper, leases
and writings evidencing a monetary obligation or a security interest in, or a
lease of, goods, all rights to receive the payment of money or other
consideration under present or future contracts (including, without limitation,
all rights to receive payments under presently existing or hereafter acquired or
created letters of credit), or by virtue of merchandise sold or leased, services
rendered, loans and advances made or other considerations given, by or set forth
in or arising out of any present or future chattel paper, note, draft, lease,
acceptance, writing, bond, insurance policy, instrument, document or general
intangible, and all extensions and renewals of any thereof, all rights under or
arising out of present or future contracts, agreements or general interest in
merchandise which gave rise to any or all of the foregoing, including all goods,
all claims or causes of action now existing or hereafter arising in connection
with or under any agreement or document or by operation of law or otherwise, all
collateral security of any kind (including, without limitation, real property
mortgages and deeds of trust) and letters of credit given by any Person with
respect to any of the foregoing, all books and records in whatever media (paper,
electronic or otherwise) recorded or stored, with respect to any or all of the
foregoing and all rights of access to all equipment and general intangibles
necessary or beneficial to retain, access and/or process the information
contained in those books and records, and all proceeds (cash and non-cash) of
the foregoing.
"Account Debtor" means any Person who is obligated on a Receivable and
"Account Debtors" mean all Persons who are obligated on the Receivables.
"Additional Obligor" means any Person (a) that becomes a Subsidiary of
the Borrower in connection with a Permitted Acquisition and has executed and
delivered an Additional Obligor
2
<PAGE> 10
Joinder Supplement and (b) any other Person that has executed and delivered an
Additional Obligor Joinder Supplement that has been accepted and approved by the
Agent.
"Additional Obligor Joinder Supplement" means an Additional Obligor
Joinder Supplement in substantially the form attached hereto as EXHIBIT "D",
with the blanks appropriately completed and executed and delivered by the
Additional Obligor and accepted by the Borrower.
"Affiliate" means, with respect to any designated Person, any other
Person, (a) directly or indirectly controlling, directly or indirectly
controlled by, or under direct or indirect common control with the Person
designated, (b) directly or indirectly owning or holding five percent (5%) or
more of any equity interest in such designated Person, or (c) five percent (5%)
or more of whose stock or other equity interest is directly or indirectly owned
or held by such designated Person. For purposes of this definition, the term
"control" (including with correlative meanings, the terms "controlling",
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through ownership of voting securities or
other equity interests or by contract or otherwise.
"Agent" means the Person defined as the "Agent" in the preamble of this
Agreement and shall also include any successor Agent appointed pursuant to
Section 8.7 (Successor Agent).
"Agent's Obligations" shall mean any and all Obligations payable solely
to and for the exclusive benefit of the Agent by any or all of the Borrower,
Foster Grant and Fantasma under the terms of this Agreement and/or any of the
other Financing Documents, including, without limitation, any and all Field
Examination Fees.
"Agreement" means this Second Amended and Restated Financing and
Security Agreement (which amends and restates the Original Financing Agreement),
as amended, restated, supplemented or otherwise modified in writing in
accordance with the provisions of Section 9.2 (Amendments; Waivers).
"AAi Group" means collectively each of the Borrower, AAi Company of
Canada, AAi Foster Grant Limited and Fantasma and each of the Foster Group, and
their respective successors and assigns.
"Applicable Interest Rate" means (a) the LIBOR Rate, or (b) the Base
Rate, as the case may be.
"Applicable Margin" means the applicable rate per annum to be added to
the LIBOR Base Rate or the Prime Rate, as set forth in Section 2.3.1 (Applicable
Interest Rates).
"Asset Disposition" means the disposition of any or all of the Assets of
any of the Borrower, Foster Grant or Fantasma, whether by sale, lease, transfer
or other disposition (including any such disposition effected by way of merger
or consolidation) other than Permitted Asset Dispositions.
3
<PAGE> 11
"Assets" means at any date all assets that, in accordance with GAAP
consistently applied, should be classified as assets on a consolidated balance
sheet of the Borrower and its Subsidiaries.
"Assignee" means any Person to which any Lender assigns all or any
portion of its interests under this Agreement, any Commitment, and any Loan, in
accordance with the provisions of Section 9.5 (Assignments by Lenders), together
with any and all successors and assigns of such Person; "Assignees" means the
collective reference to all Assignees.
"Assignment of Credit Insurance" means (a) that certain assignment of
credit insurance as collateral dated May 9, 1997 (and as amended, restated,
reissued, supplemented or otherwise modified in writing at any time and from
time to time) from the Borrower to the Agent for the benefit of the Lenders
ratably and the Agent, which assignment of credit insurance assigns to the Agent
all of the right, title and interest of the Borrower in, and to, that certain
Accounts Servicing and Purchase Agreement dated November 27, 1995 (as amended,
restated, reissued, supplemented or otherwise modified in writing at any time
and from time to time) between the Borrower and Congress Talcott Corporation (b)
that certain assignment of credit insurance as collateral dated May 9, 1997 (and
as amended, restated, reissued, supplemented or otherwise modified in writing at
any time and from time to time) from Foster Grant to the Agent for the benefit
of the Lenders ratably and the Agent, which assignment of credit insurance
assigns to the Agent all of the right, title and interest of Foster Grant in,
and to, that certain Accounts Servicing and Purchase Agreement dated November
27, 1995 (as amended, restated, reissued, supplemented or otherwise modified in
writing at any time and from time to time) between Foster Grant and Congress
Talcott Corporation and (c) any subsequent assignment of credit insurance as
collateral executed by Fantasma (and as amended, restated, reissued,
supplemented or otherwise modified in writing at any time and from time to time)
from Fantasma to the Agent for the benefit of the Lenders ratably and the Agent,
which assignment of credit insurance shall assign to the Agent all of the right,
title and interest of Fantasma in, and to, any Accounts Servicing and Purchase
Agreement (as amended, restated, reissued, supplemented or otherwise modified in
writing at any time and from time to time).
"Assignment of Trademarks" means that certain collateral assignment of
trademarks as security dated as of the Original Closing Date from BEC and Foster
Grant to the Agent for the benefit of the Lenders ratably and the Agent, as
amended, restated, supplemented or otherwise modified in writing at any time and
from time to time, including, but not limited to, an amendment of even date
herewith limiting the Agent's rights thereunder to non-exclusive use of the
trademarks in the disposition of the Inventory to which such trademarks are
attached.
"Assignment of Trademarks (Borrower)" means that certain collateral
assignment of trademarks as security dated May 9, 1997 from Borrower to the
Agent for the benefit of the Lenders ratably and the Agent, as amended,
restated, supplemented or otherwise modified in writing at any time and from
time to time, including, but not limited to, an amendment of even date herewith
limiting the Agent's rights thereunder to non-exclusive use of the trademarks in
the disposition of the Inventory to which such trademarks are attached.
"Bankruptcy Code" means the United States Bankruptcy Code, as amended
from time to time, and any successor Laws.
4
<PAGE> 12
"Base Rate" means the sum of (a) the Prime Rate, plus (b) the Applicable
Margin.
"Base Rate Loan" means any Loan for which interest is to be computed
with reference to the Base Rate.
"BEC" means F.G.G. Investments, Inc., a corporation organized and
existing under the laws of the State of Delaware formerly known as "BEC
Distribution, Inc.", and its successors and assigns.
"BEC Licensing Agreements" means all of the licensing agreements by and
between Foster Grant, as licensee, and BEC, as licensor, pursuant to which BEC
grants to Foster Grant a non-exclusive license to use certain Trademarks owned
by BEC and necessary or desirable for the successful operation of Foster Grant's
business, all as amended, restated, supplemented or otherwise modified.
"Bonneau Company" means The Bonneau Company, a corporation organized and
existing under the laws of the State of Texas, and its successors and assigns.
"Bonneau General" means Bonneau General, Inc., a corporation organized
and existing under the laws of the State of Delaware, and its successors and
assigns.
"Bonneau Holdings" means Bonneau Holdings, Inc., a corporation organized
and existing under the laws of the State of Delaware, and its successors and
assigns.
"Borrowing Base" has the meaning described in Section Borrowing Base.
(Borrowing Base).
"Borrowing Base Deficiency" has the meaning described in Section 2.1.3
(Borrowing Base).
"Borrowing Base Report" has the meaning described in Section 2.1.4
(Borrowing Base Report).
"Business Day" means any day other than a Saturday, Sunday or other day
on which (a) in the case of NationsBank (as Agent and Lender), commercial banks
in the State are authorized or required to close and (b) in the case of the
Lenders other than NationsBank, those Lenders are open for the transaction of
business at the addresses stated after their names on the signature pages of
this Agreement.
"Buybacks" means collective reference to displays, racks, trade fixtures
and inventory which a Secured Debtor, in the ordinary course of its business,
purchases from a customer as an inducement to the customer to discontinue the
sale of the inventory purchased.
"Capital Expenditure" means an expenditure (whether payable in cash or
other property or accrued as a liability) for Fixed or Capital Assets,
including, without limitation, the entering into of a Capital Lease.
5
<PAGE> 13
"Capital Lease" means with respect to any Person any lease of real or
personal property, for which the related Lease Obligations have been or should
be, in accordance with GAAP consistently applied, capitalized on the balance
sheet of that Person.
"Cash Equivalents" means (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit with
maturities of one (1) year or less from the date of acquisition of, or money
market accounts maintained with, the Agent, any Affiliate of the Agent, or any
other domestic commercial bank having capital and surplus in excess of One
Hundred Million Dollars ($100,000,000.00) or such other domestic financial
institutions or domestic brokerage houses to the extent disclosed to, and
approved by, the Agent and (c) commercial paper of a domestic issuer rated at
least either A-1 by Standard & Poor's Corporation (or its successor) or P-1 by
Moody's Investors Service, Inc. (or its successor) with maturities of six (6)
months or less from the date of acquisition.
"Chattel Paper" means a writing or writings which evidence both a
monetary obligation and a security interest in or lease of specific goods; any
returned, rejected or repossessed goods covered by any such writing or writings
and all proceeds (in any form including, without limitation, accounts, contract
rights, documents, chattel paper, instruments and general intangibles) of such
returned, rejected or repossessed goods; and all proceeds (cash and non-cash) of
the foregoing.
"Closing Date" means the Business Day, in any event not later than July
__, 1998, on which the Agent shall be satisfied that the conditions precedent
set forth in Section 5.1 (Conditions to Initial Advance) have been fulfilled or
otherwise waived by the Agent.
"Collateral" means all property of each and every Secured Debtor subject
from time to time to the Liens of this Agreement, any of the Security Documents
and/or any of the other Financing Documents, together with any and all cash and
non-cash proceeds and products thereof.
"Collateral Account" has the meaning described in Section 2.1.8 (The
Collateral Account).
"Collateral Disclosure List" has the meaning described in Section 3.3
(Collateral Disclosure List).
"Collection" means each check, draft, cash, money, instrument, item, and
other remittance in payment or on account of payment of the Accounts or
otherwise with respect to any Collateral, including, without limitation, cash
proceeds of any returned, rejected or repossessed goods, the sale or lease of
which gave rise to an Account, and other proceeds of Collateral; and
"Collections" means the collective reference to all of the foregoing.
"Commitment" means with respect to each Lender, such Lender's Revolving
Credit Commitment or Letter of Credit Commitment, as the case may be, and
"Commitments" means the collective reference to the Revolving Credit Commitments
and the Letter of Credit Commitments of all of the Lenders.
6
<PAGE> 14
"Committed Amount" means with respect to each Lender, such Lender's
Revolving Loan Committed Amount or Letter of Credit Committed Amount, as the
case may be, and "Committed Amounts" means collectively the Revolving Loan
Committed Amount and the Letter of Credit Committed Amount of each of the
Lenders.
"Compliance Certificate" means a periodic Compliance Certificate
described in Section 6.1.1 (Financial Statements).
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with any Obligor within the meaning
of Section 414(b) or (c) of the Internal Revenue Code.
"Consolidated Net Income" means, for any period, the net income (or net
loss) of the Borrower and its Subsidiaries for such period, after all expenses,
taxes and other proper charges, determined in accordance with GAAP and after
eliminating (a) all intercompany items, (b) all earnings attributable to equity
interests in Persons other than Subsidiaries unless actually received by the
Borrower or its Subsidiaries, (c) all income arising from the forgiveness,
adjustment or negotiated settlement of any Indebtedness, (d) any extraordinary
items of income or expense (including any one-time charges or write-offs
associated with the discontinuance of operations at the Texas Property) and (e)
any increase or decrease of income arising from any change in the method of
accounting for any item from that employed in the preparation of the financial
statements.
"Copyrights" means and includes, in each case whether now existing or
hereafter arising, all of each of the Borrower's, Foster Grant's and Fantasma's
rights, title and interest in and to (a) all copyrights, rights and interests in
copyrights, works protectable by copyright, copyright registrations, copyright
applications, and all renewals of any of the foregoing and (b) all rights
corresponding to any of the foregoing throughout the world.
"Corporate Guarantor" means BEC, Bonneau Company, Bonneau Holdings,
Bonneau General, Foster Holdings and O-Ray Holdings, as the case may be and each
of their respective successors and assigns, and "Corporate Guarantors" means
BEC, Bonneau Company, Bonneau Holdings, Bonneau General, Foster Holdings and
O-Ray Holdings and each of their respective successors and assigns.
"Corporate Guaranty" means that certain guaranty of payment dated as of
the Original Closing for the benefit of the Lenders ratably and the Agent to the
Agent, as agent, from the Corporate Guarantors, as the same may from time to
time be amended, restated, supplemented or otherwise modified.
"Credit Facility" means with respect to each Lender, such Lender's Pro
Rata Share of the Revolving Credit Facility or the Letter of Credit Facility, as
the case may be, and "Credit Facilities" means collectively the Revolving Credit
Facility and Letter of Credit Facility of each of the Lenders and any and all
other credit facilities now or hereafter extended under or secured by this
Agreement.
7
<PAGE> 15
"Default" means an event that, with the giving of notice or lapse of
time, or both, would constitute an Event of Default under the provisions of this
Agreement.
"Early Termination Fee" has the meaning described in Section 2.1.11
(Early Termination Fee).
"EBITDA" means for any period, the Consolidated Net Income of the
Borrower and its Subsidiaries for such period after all expenses except
depreciation, interest, amortization and taxes.
"Eligible Inventory" means all of the Secured Debtors' Inventory held
for sale in the ordinary course of business, valued at the lowest of (i) net
acquisition cost (exclusive of purchase accounting) or (ii) any ceiling prices
which may be established by any Law of any Governmental Authority, EXCLUDING,
however, any Inventory which consists of:
(a) any goods located outside of the United
States except for goods in transit subject to negotiable bills of lading
which have been delivered and negotiated to the Agent,
(b) any goods located outside of a state, in
which the Agent has properly and unavoidably perfected the security
interests of the Agent and the Lenders by filing in that state, free and
clear of all other Liens,
(c) any goods not in the actual possession of
a Secured Debtor, except to the extent provided in subsection (a) above
or (d) below,
(d) any goods in the possession of a bailee,
warehouseman, consignee or similar third party, except to the extent
that such bailee, warehouseman, consignee or similar third party has
entered into an agreement with the Agent in which such bailee,
warehouseman, consignee or similar third party consents and agrees to
the Lien of the Agent and the Lenders on such goods and to such other
terms and conditions as may be reasonably required by the Agent,
(e) any goods located on premises leased or
rented to a Secured Debtor or otherwise not owned by a Secured Debtor,
unless, the Agent has received a waiver and consent from the lessor,
landlord and/or owner, in form and substance reasonably satisfactory to
the Agent and from any mortgagee of such lessor, landlord or owner to
the extent required by the Agent,
(f) any goods the sale or other disposition of
which has given rise to a Receivable,
(g) any goods which fail to meet in any
material respect all standards and requirements imposed by any
Governmental Authority over such goods, their production, storage, use
or sale,
8
<PAGE> 16
(h) Buybacks, work-in-process (other than
finished goods which are not carded or packaged and for which the Agent
has received any information requested), supplies, displays, packaging
and promotional materials, and
(i) any goods which the Agent in the good
faith exercise of its sole and absolute discretion has deemed to be
ineligible because the Agent otherwise considers the collateral value to
the Agent and the Lenders to be impaired or its or their ability to
realize such value to be insecure.
In the event of any dispute under the foregoing criteria, as to whether goods
are, or have ceased to be, Eligible Inventory, the decision of the Agent in the
good faith exercise of its sole and absolute discretion shall control.
"Eligible Receivable" and "Eligible Receivables" mean, at any time of
determination thereof, the unpaid portion of each account receivable in United
States Dollars of each of the Borrower, Foster Grant and Fantasma, provided each
account receivable conforms and continues to conform to the following criteria
to the satisfaction of the Agent:
(a) the account arose in the ordinary course
of business of a Secured Debtor from a bona fide outright sale of goods
by a Secured Debtor or from services performed by a Secured Debtor;
(b) the account is a valid, legally
enforceable obligation of the Account Debtor and requires no further act
on the part of any Person under any circumstances to make the account
payable by the Account Debtor;
(c) the account is based upon an enforceable
order or contract, written or oral, for goods shipped or for services
performed, and the same were shipped or performed in accordance with
such order or contract;
(d) if the account arises from the sale of
goods, the goods the sale of which gave rise to the account have been
shipped or delivered to the Account Debtor on an absolute sale basis
(except for the effect of seasonal accounts and returns, to the extent
the same arise in the ordinary course of business) and not on a bill and
hold sale basis, a consignment sale basis, a guaranteed sale basis, or
on the basis of any other similar understanding;
(e) if the account arises from the performance
of services, such services have been fully rendered and do not relate to
any warranty claim or obligation;
(f) the account is evidenced by an invoice or
other documentation in form reasonably acceptable to the Agent, dated no
later than the date of shipment or performance and containing only terms
normally offered by a Secured Debtor;
9
<PAGE> 17
(g) the amount shown on the books of any
Secured Debtor and on any invoice, certificate, schedule or statement
delivered to the Agent is owing to the Secured Debtor, as applicable,
and no partial payment has been received unless reflected with that
delivery;
(h) meets the requirements of either (i) the
account is covered by the credit insurance acceptable to the Agent and
covered by the Assignment of Credit Insurance; or (ii) the account is
not covered by the credit insurance acceptable to the Agent, and is not
past due more than ninety (90) days after its due date (which shall not
be later than thirty (30) days after the invoice date) or (iii) the
account is net of any applicable reserve;
(i) the Account Debtor has not returned,
rejected or refused to retain, or otherwise notified the Secured Debtor
of any dispute concerning, or claimed nonconformity of, any of the goods
or services from the sale or furnishing of which the account arose,
provided that the account shall be excluded from Eligible Receivables
only to the extent of the amount owing with respect to those returned,
rejected or refused goods or services;
(j) the account is not subject to any present
or contingent (and no facts exist which are the basis for any future)
offset, claim, deduction or counterclaim, dispute or defense in law or
equity on the part of such Account Debtor, or any claim for credits,
allowances, or adjustments by the Account Debtor because of returns
outside of the ordinary course of business, inferior, or damaged goods
or unsatisfactory services, or for any other reason including, without
limitation, those arising on account of a breach of any express or
implied representation or warranty (provided that the account shall be
excluded from Eligible Receivables only to the extent the Account Debtor
is refusing to pay because of those returned, inferior, or damaged goods
or unsatisfactory services);
(k) the Account Debtor is not a partner or
Affiliate of a Secured Debtor or an employee, officer, director of
shareholder of a Secured Debtor or any partner or Affiliate of a Secured
Debtor;
(l) the Account Debtor is not incorporated or
primarily conducting business or otherwise located in any jurisdiction
outside of the United States of America or any other country approved by
the Agent;
(m) unless the Account Debtor has obtained
adequate financing under Chapter 11 of the Bankruptcy Code (or similar
bankruptcy laws of other jurisdictions) and is operating as a going
concern, the Account Debtor with respect to such account is not
insolvent or the subject of any bankruptcy or insolvency proceedings of
any kind or of any other proceeding or action, threatened or pending;
10
<PAGE> 18
(n) the Account Debtor is not a Governmental
Authority, unless the applicable Secured Debtor, is in compliance with
Section 0 (Government Accounts);
(o) no Secured Debtor is indebted in any
manner to the Account Debtor (as creditor, lessor, supplier or
otherwise), with the exception of customary credits, adjustments and/or
discounts given to an Account Debtor by the Secured Debtors in the
ordinary course of their business;
(p) the account does not arise from services
under or related to any warranty obligation of any of the Secured
Debtors or out of service charges, finance charges or other fees for the
time value of money;
(q) the account is not evidenced by chattel
paper or an instrument of any kind and is not secured by any letter of
credit;
(r) except for the Assignment of Credit
Insurance, the title of the Secured Debtor to the account is absolute
and is not subject to any prior assignment, claim, Lien, or security
interest;
(s) no bond or other undertaking by a
guarantor or surety has been or is required to be obtained, supporting
the performance of the Secured Debtor in respect of any its agreements
with the Account Debtor;
(t) no bond or other undertaking by a
guarantor or surety has been or is required to be obtained, supporting
the account and any of the Account Debtor's obligations in respect of
the account;
(u) the Secured Debtor has the full and
unqualified right and power to assign and grant a security interest in,
and Lien on, the account to the Agent and the Lenders as security and
collateral for the payment of the Obligations;
(v) the account does not arise out of a
contract with, or order from, an Account Debtor that, by its terms,
forbids or makes void or unenforceable the assignment or grant of a
security interest by the Secured Debtor to the Agent and the Lenders of
the account arising from such contract or order;
(w) the account is subject to a Lien in favor
of the Lender, which Lien is perfected as to the account by the filing
of financing statements and which Lien upon such filing constitutes a
first priority security interest and Lien;
(x) the goods giving rise to the account were
not, at the time of the sale thereof, subject to any Lien, except those
in favor of the Agent and the Lenders;
11
<PAGE> 19
(y) the Agent in the good faith exercise of
its discretion has not deemed the account ineligible because of
uncertainty as to the creditworthiness of the Account Debtor or because
the Agent otherwise considers the collateral value of such account to
the Agent and the Lenders to be impaired or its or their ability to
realize such value to be insecure.
In determining the amount receivable, the Agent shall be satisfied that
the Secured Debtors have made appropriate allowances for returns, discounts,
claims, credits, charges, accrued rebates or other allowances, offsets,
deductions, counterclaims, disputes or other defenses and reserves. In the event
of any dispute, under the foregoing criteria, as to whether an account is, or
has ceased to be, an Eligible Receivable, the decision of the Agent in the good
faith exercise of its discretion shall control.
"Enforcement Costs" means all expenses, charges, costs and fees
whatsoever (including, without limitation, reasonable outside counsel attorney's
fees and expenses) of any nature whatsoever paid or incurred by or on behalf of
the Agent and/or any of the Lenders in connection with (a) any or all of the
Obligations, this Agreement and/or any of the other Financing Documents, (b) the
creation, perfection, collection, maintenance, preservation, defense,
protection, realization upon, disposition, sale or enforcement of all or any
part of the Collateral, this Agreement or any of the other Financing Documents,
including, without limitation, those costs and expenses more specifically
enumerated in Section 3.6 (Costs) and/or Section 9.10 (Enforcement Costs), and
(c) the monitoring, administration, processing and/or servicing of any or all of
the Obligations, the Financing Documents, and/or the Collateral.
"Equipment" means all equipment, machinery, computers, chattels, tools,
parts, machine tools, furniture, furnishings, fixtures and supplies of every
nature, presently existing or hereafter acquired or created and wherever
located, whether or not the same shall be deemed to be affixed to real property,
together with all accessions, additions, fittings, accessories, special tools,
and improvements thereto and substitutions therefor and all parts and equipment
which may be attached to or which are necessary or beneficial for the operation,
use and/or disposition of such personal property.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurodollar Business Day" means any Business Day on which dealings in
United States Dollar deposits are carried out on the London interbank market and
on which commercial banks are open for domestic and international business
(including dealings in Dollar deposits) in London, England.
"Eurodollar Lending Office" means with respect to each Lender such
branch or office of that Lender as designated by that Lender, as applicable,
from time to time as the branch or office at which the LIBOR Loans are to be
made or maintained.
"Event of Default" has the meaning described in ARTICLE VII (Defaults
and Rights and Remedies).
12
<PAGE> 20
"Fantasma Agreements" means and includes that certain Member Agreement
dated as of June 23, 1998 by and among the Borrower, Roger D. Dreyer and Houdini
Capital LTD and that certain Member Agreement dated as of June 23, 1998 by and
between the Borrower and Paul Michaels.
"Federal Funds Rate" means for any day of determination, the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a Business Day) by the Federal Reserve Bank for the
next preceding Business Day) by the Federal Reserve Bank of Richmond or, if such
rate is not so published for any day that is a Business Day, the average of
quotations for such day on such transactions received by the Agent from three
(3) Federal funds brokers of recognized standing selected by the Agent.
"Fees" means the collective reference to each fee payable to the Agent,
for its own account or for the ratable benefit of the Lenders, under the terms
of this Agreement or under the terms of any of the other Financing Documents,
including, without limitation, any and all Revolving Credit Unused Line Fees,
any and all Letter of Credit Fees, the Early Termination Fee any and all Field
Examination Fees.
"Field Examination Fee" and "Field Examination Fees" have the meanings
described in Section 2.4.3 (Field Examination Fees).
"Financial Institution" means bank, finance company or other Person or
other Governmental Authority that in the ordinary course of business makes or
purchases interests in commercial credit facilities.
"Financing Documents" means at any time collectively this Agreement, the
Notes, the Security Documents, the Letter of Credit Documents and any other
instrument, agreement or document previously, simultaneously or hereafter
executed and delivered by the Borrower, Foster Grant or Fantasma, any Obligor
and/or any other Person, singly or jointly with another Person or Persons,
evidencing, securing, guarantying or in connection with this Agreement, any
Note, any of the Security Documents, and/or any of the Obligations.
"Fixed or Capital Assets" of a Person at any date means all assets which
would, in accordance with GAAP consistently applied, be classified on the
balance sheet of such Person as property, plant or equipment at such date and
displays included in other Assets which are depreciated in accordance with GAAP
consistently applied to the Borrower and its Subsidiaries.
"Fixed Charge Coverage Ratio" means for the period of any determination
thereof the ratio of (a) EBITDA to (b) Fixed Charges.
"Fixed Charges" means for any period of determination thereof, the
scheduled or required payments (including, without limitation, principal and
interest) made in cash on all Indebtedness for Borrowed Money of the Borrower
and its Subsidiaries, plus Capital Expenditures made in cash (and Permitted
Acquisitions to the extent not included in Capital Expenditures) of the Borrower
and its Subsidiaries, plus cash payments of Taxes.
13
<PAGE> 21
"Foreign Exchange Protection Agreement" means any foreign exchange,
currency spot, foreign exchange forward contracts and other similar agreements
and arrangements between any Obligor and a Person, acceptable to the Agent in
its reasonable credit judgement, providing for the transfer or mitigation of
foreign exchange currency risks either generally or under specific
contingencies.
"Foreign Exchange Exposure" means at any time and from time to time of
determination, the amount of the obligations and liabilities of any or all of
the Obligors with respect to each Foreign Exchange Protection Agreement with a
Person who is the Agent, a Lender or an Affiliate of the Agent or any Lender
arising as a result of a determination of the amount of Dollars required at such
time to purchase such amount of the foreign currency covered by such Foreign
Exchange Protection Agreement at the spot rate.
"Foster Group" means collectively each of Foster Grant, each of the
Corporate Guarantors and Opti-Ray, Inc., and their respective successors and
assigns.
"Foster Holdings" means Foster Grant Holdings, Inc., a corporation
organized and existing under the laws of the State of Delaware, and its
successors and assigns.
"Funded Debt" means Indebtedness for Borrowed Money MINUS any obligation
under a employee stock ownership plan or other similar employee benefit plan.
"GAAP" means generally accepted accounting principles in the United
States of America in effect on the date of this Agreement.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any department, agency or instrumentality thereof.
"Gross Receivables" means, at any time of determination thereof, the
amount equal to the sum of (a) the amount shown under the caption "Trade
Receivables" in the most recent balance sheet of the Borrower and its
Subsidiaries on a consolidated basis furnished to the Agent in accordance with
Section 6.1.1(c) (Monthly Statements and Certificates), but only to the extent
such Trade Receivables are shown to the Agent's reasonable satisfaction to be
owing to the Secured Debtors, plus (b) the Secured Debtors' reserve for returns
for the same date as the balance sheet and prepared in accordance with GAAP
applied on a consistent basis to the Borrower and its Subsidiaries.
"Guarantors" means the Corporate Guarantors, Foster Grant and Fantasma.
"Hazardous Materials" means (a) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act of 1976, as amended from time to time,
and regulations promulgated thereunder; (b) any "hazardous substance" as defined
by the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended from time to time, and regulations promulgated thereunder; (c)
any substance the presence of which on any property now or hereafter owned,
acquired or operated by any of the Borrower, Foster Grant or Fantasma
14
<PAGE> 22
is prohibited by any Law similar to those set forth in this definition; and (d)
any other substance which by Law requires special handling in its collection,
storage, treatment or disposal.
"Hazardous Materials Contamination" means the contamination (whether
presently existing or occurring after the date of this Agreement) by Hazardous
Materials of any property owned, operated or controlled by any of the Borrower,
Foster Grant or Fantasma or for which any of the Borrower, Foster Grant or
Fantasma has responsibility, including, without limitation, improvements,
facilities, soil, ground water, air or other elements on, or of, any property
now or hereafter owned, acquired or operated by any of the Borrower, Foster
Grant or Fantasma, and any other contamination by Hazardous Materials for which
any of the Borrower, Foster Grant or Fantasma is, or is claimed to be,
responsible.
"Headquarters Property" means (a) that certain real estate known as 500
George Washington Highway, Smithfield, Rhode Island, and includes, without
limitation, the office and warehouse buildings now thereon, all other buildings,
structures and improvements now or hereafter located thereon, the rights,
alleys, ways, tenements, easements, appurtenances, passages, riparian rights,
liberties, advantages, accessions and privileges now or hereafter appertaining
thereto, condemnation awards and the rents, royalties, issues, profits,
revenues, income, accounts and other benefits thereof, or derived from or
arising out of the use or enjoyment of all or any portion thereof, or from any
lease, sublease, contract of sale or other agreement pertaining thereto, (b) all
building materials, fixtures, equipment (including, without limitation,
conveyors, shelving and racks), whether now owned or hereafter acquired, which
is used in the construction of, or is placed upon or used in connection with the
maintenance, use, occupancy or enjoyment of, such real estate and/or the
expansions or improvements now or hereafter located thereon, and (c) Borrower's
interest in all building materials and fixtures located on, contained in or upon
or attached to those buildings, together with all replacements thereof,
substitutions therefor and additions thereto and all proceeds thereof.
"Indebtedness" of a Person means at any date the total Liabilities of
such Person at such time determined in accordance with GAAP consistently
applied.
"Indebtedness for Borrowed Money" of a Person means at any time the sum
at such time of (a) Indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, (b) any obligations of such
Person in respect of letters of credit, banker's acceptances or similar
obligations issued or created for the account of such Person, (c) Lease
Obligations of such Person with respect to Capital Leases, (d) all liabilities
secured by any Lien on any property owned by such Person, to the extent attached
to such Person's interest in such property, even though such Person has not
assumed or become personally liable for the payment thereof, (e) obligations of
third parties which are being guarantied or indemnified against by such Person
or which are secured by the property of such Person; (f) any obligation of such
Person under a employee stock ownership plan or other similar employee benefit
plan; (g) any obligation of such Person or a Commonly Controlled Entity to a
Multi-employer Plan; and (h) any obligations, liabilities or indebtedness,
contingent or otherwise (on an estimated "marked-to market" basis), under or in
connection with, each Foreign Exchange Protection Agreement and each Interest
Rate Protection Agreement, net of liabilities owed to the respective Obligor or
Obligors by the counterparties on any such Foreign Exchange Protection Agreement
and/or
15
<PAGE> 23
Interest Rate Protection Agreement; but excluding trade and other accounts
payable in the ordinary course of business in accordance with the Obligors'
customary trade terms and which are not overdue (as determined in accordance
with the Obligors' customary trade practices) or which are being disputed in
good faith by such Person and for which adequate reserves are being provided on
the books of such Person in accordance with GAAP.
"Indenture" means that certain Indenture dated as of July __, 1998 (as
amended, supplemented or otherwise modified from time to time), between the
Borrower, the Borrower's domestic Subsidiaries, and the Trustee.
"Instrument" means a negotiable instrument (as defined under Article 3
of the Uniform Commercial Code), a "certificated security" (as defined under
Article 8 of the Uniform Commercial Code), or any other writing which evidences
a right to payment of money and is not itself a security agreement or lease and
is of a type which is in the ordinary course of business negotiated by transfer
and delivery with any necessary indorsement.
"Interest Payment Date" means the first day of each calendar month
commencing on August 1, 1998 and continuing thereafter until the Obligations
have been irrevocably paid in full.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the Income Tax Regulations issued and proposed to
be issued thereunder.
"Interest Period" means as to any LIBOR Loan, the period commencing on
and including the date such LIBOR Loan is made (or on the effective date of the
Borrower's election to convert any Base Rate Loan to a LIBOR Loan in accordance
with the provisions of this Agreement) and ending on and including the day which
is 30, 60, 90 or 180 days thereafter, as selected by the Borrower in accordance
with the provisions of this Agreement, and thereafter, each period commencing on
the last day of the then preceding Interest Period for such LIBOR Loan and
ending on and including the day which is 30, 60, 90 or 180 days thereafter, as
selected by the Borrower in accordance with the provisions of this Agreement;
provided, however that:
(a) the first day of any Interest Period shall
be a Eurodollar Business Day;
(b) if any Interest Period would end on a day
that shall not be a Eurodollar Business Day, such Interest Period shall
be extended to the next succeeding Eurodollar Business Day unless such
next succeeding Eurodollar Business Day would fall in the next calendar
month, in which case, such Interest Period shall end on the next
preceding Eurodollar Business Day; and
(c) no Interest Period shall extend beyond the
Revolving Credit Expiration Date.
"Interest Rate Election Notice" has the meaning described in Section
2.3.2(e) (Selection of Interest Rates).
16
<PAGE> 24
"Interest Rate Protection Agreement" means any interest rate exchange,
swap, cap, future, protection, floor, collar or similar agreements between any
Obligor and any Person, acceptable to the Agent in its reasonable credit
judgement, providing for the transfer or mitigation of interest rate risks
either generally or under specific contingencies.
"Interest Rate Protection Reserve" means at any time of determination,
the aggregate of the obligations of any or all of the Obligors under all
Interest Rate Protection Agreements to which any Obligor is a party with a
Person who is the Agent, a Lender or an Affiliate of the Agent or any of the
Lenders in the event of a termination of any such Interest Rate Protection
Agreements on an estimated "marked-to market" basis.
"Inventory" means all inventory of each of the Secured Debtors and all
right, title and interest of each of the Secured Debtors in and to all of its
now owned and hereafter acquired goods, merchandise and other personal property
furnished under any contract of service or intended for sale or lease,
including, without limitation, all raw materials, work-in-progress, finished
goods and materials and supplies of any kind, nature or description which are
used or consumed in the any of the Secured Debtors' business or are or might be
used in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, merchandise and other licenses, warranties,
franchises, general intangibles, personal property and all documents of title or
documents relating to the same and all proceeds (cash and non-cash) of the
foregoing.
"Item of Payment" means each check, draft, cash, money, instrument,
item, and other remittance in payment or on account of payment of the
Receivables or otherwise with respect to any Collateral, including, without
limitation, cash proceeds of any returned, rejected or repossessed goods, the
sale or lease of which gave rise to a Receivable, and other proceeds of
Collateral; and "Items of Payment" means the collective reference to all of the
foregoing.
"Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any Governmental Authority or political
subdivision or agency thereof, or any court or similar entity established by any
thereof.
"Lease Obligations" of a Person means for any period the rental
commitments of such Person for such period under leases for real and/or personal
property (net of rent from subleases thereof, but including taxes, insurance,
maintenance and similar expenses which such Person, as the lessee, is obligated
to pay under the terms of said leases, except to the extent that such taxes,
insurance, maintenance and similar expenses are payable by sublessees),
including rental commitments under Capital Leases.
"Lender" and "Lenders" shall have meaning set forth at the beginning of
this Agreement. "Lender" and "Lenders" shall also include, without limitation,
each other Person which becomes a party to this Agreement as a "Lender", whether
by execution of this Agreement or otherwise.
"Letter of Credit" and "Letters of Credit" shall have the meanings
described in Section 2.2.1 (Letters of Credit).
17
<PAGE> 25
"Letter of Credit Agreement" means the collective reference to each
letter of credit application and agreement substantially in the form of the
Agent's then standard form of application for letter of credit or such other
form as may be approved by the Agent, executed and delivered by the Borrower in
connection with the issuance of a Letter of Credit, as the same may from time to
time be amended, restated, supplemented or modified; and "Letter of Credit
Agreements" means all of the foregoing in effect at any time and from time to
time.
"Letter of Credit Documents" means any and all drafts under or
purporting to be under a Letter of Credit, any Letter of Credit Agreement, and
any other instrument, document or agreement executed and/or delivered by the
Borrower or any other Person under, pursuant to or in connection with a Letter
of Credit or any Letter of Credit Agreement.
"Letter of Credit Facility" means the facility established pursuant to
Section 2.2 (Letter of Credit Facility).
"Letter of Credit Fee" and "Letter of Credit Fees" have the meanings
described in Section 2.2.2 (Letter of Credit Fees).
"Letter of Credit Obligations" means the collective reference to all
Obligations of any one or more of the Borrower, Foster Grant and Fantasma with
respect to the Letters of Credit and the Letter of Credit Agreements.
"Liabilities" means at any date all liabilities that in accordance with
GAAP consistently applied should be classified as liabilities on a balance sheet
of the Borrower and its Subsidiaries on a consolidated basis.
"LIBOR Base Rate" means for any Interest Period with respect to any
LIBOR Loan, the rate per annum (rounded upward, if necessary, to the nearest
next 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in United States Dollars at
approximately 11:00 a.m. (London time) two (2) Eurodollar Business Days prior to
the first day of such Interest Period for a term comparable to such Interest
Period. If for any reason such rate is not available, the term "LIBOR Base Rate"
shall mean, for any LIBOR Loan for any Interest Period therefor, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Reuters Screen LIBO Page as the London interbank offered rate for deposits in
United States Dollars at approximately 11:00 a.m. (London time) two (2)
Eurodollar Business Days prior to the first day of such Interest Period;
PROVIDED, HOWEVER, if more than one rate is specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such rates. For
purposes of this definition, Telerate Page 3750 refers to the British Bankers
Association Libor Rates (determined at approximately 11:00 a.m. (London time))
that are published by Dow Jones Telerate, Inc.
"LIBOR Loan" means any Loan for which interest is to be computed with
reference to the LIBOR Rate.
18
<PAGE> 26
"LIBOR Rate" means for any Interest Period with respect to any LIBOR
Loan, (a) the Applicable Margin, PLUS (b) the per annum rate of interest
calculated pursuant to the following formula:
LIBOR BASE RATE
-------------------------
1.00 - Reserve Percentage
"Lien" means any mortgage, deed of trust, deed to secure debt, grant,
pledge, security interest, assignment, encumbrance, judgment, lien,
hypothecation, provision in any instrument or other document for confession of
judgment, cognovit or other similar right or remedy, claim or charge of any
kind, whether perfected or unperfected, avoidable or unavoidable, including,
without limitation, any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction,
excluding the precautionary filing of any financing statement by any lessor in a
true lease transaction, by any bailor in a true bailment transaction or by any
consignor in a true consignment transaction under the Uniform Commercial Code of
any jurisdiction or the agreement to give any financing statement by any lessee
in a true lease transaction, by any bailee in a true bailment transaction or by
any consignee in a true consignment transaction.
"Line of Business" has the meaning described in Section 6.1.6 (Line of
Business).
"Loan" means the Revolving Loan.
"Loan Notice" has the meaning described in Section 2.1.2 (Procedure for
Making Advances).
"Lockbox" has the meaning described in Section 2.1.8 (The Collateral
Account).
"Material Adverse Effect" means an effect, either in any case or in the
aggregate, which would result in a material adverse change (a) in the business,
condition, affairs or operations of the Borrower and its Subsidiaries taken as a
whole, (b) to any of the material properties or assets of the Borrower and its
Subsidiaries on a consolidated basis, (c) in the right or ability of the
Borrower and its Subsidiaries on a consolidated basis to carry on a substantial
portion of their operations as now conducted or proposed to be conducted, or (d)
to the value of, or the ability of the Agent or any of the Lenders to realize
upon, the Collateral in any material respect.
"Maximum Amount" means an amount equal to ninety five percent (95%) of
the amount by which (a) the present fair saleable value of a Guarantor's assets
exceeds (b) the total liabilities of such Guarantor (including the maximum
amount reasonably expected to come due in respect of contingent liabilities
other than contingent liabilities of such Guarantor hereunder), in each case
determined on the date of the first advance under the Revolving Loan under this
Agreement or on the day any demand is made under this Agreement or the Corporate
Guaranty, whichever date results in the higher amount.
"Multi-employer Plan" means a Plan that is a multi-employer plan as
defined in Section 4001(a)(3) of ERISA.
19
<PAGE> 27
"Net Book Value of Receivables" means, at any time of determination
thereof, the amount shown under the caption "Trade Receivables-Net" in the most
recent balance sheet of the Borrower and its Subsidiaries on a consolidated
basis furnished to the Agent in accordance with Section 0 (Financial Statements)
and prepared in accordance with GAAP applied on a consistent basis to the
Borrower and its Subsidiaries, but only to the extent such Trade Receivables are
shown to the Agent's reasonable satisfaction to be owing to the Borrower or one
of its Subsidiaries.
"Net Proceeds" means gross proceeds (cash and non-cash) or other
consideration paid to, or received by, any of the Borrower, Foster Grant or
Fantasma from any Asset Disposition (including, without limitation, issuance or
assumption of Indebtedness or the issuance of Securities), net of customary and
reasonable settlement costs, fees and expenses of such Asset Disposition.
"Net Outstandings" of any Lender means, at any time, the sum of (a) all
amounts paid by such Lender (other than pursuant to Section 8.5
(Indemnification)) to the Agent in respect to the Revolving Loan or otherwise
under this Agreement, minus (b) all amounts paid by the Agent to such Lender
which are received by the Agent and which, pursuant to this Agreement, are paid
over to such Lender for application in reduction of the outstanding principal
balance of the Revolving Loan.
"Non-Ratable Loan" means an advance under the Revolving Loan made by
NationsBank in accordance with the provisions of Section 2.5.2(c) (Non-Ratable
Loans and Payments).
"Note" means any Revolving Credit Note, and "Notes" means collectively
each Revolving Credit Note, and any other promissory note which may from time to
time evidence all or any portion of the Obligations.
"Obligations" means all present and future indebtedness, duties,
obligations, and liabilities, whether now existing or contemplated or hereafter
arising, of any one or more of the Borrower, Foster Grant or Fantasma to the
Lenders and/or the Agent under, arising pursuant to, in connection with and/or
on account of the provisions of this Agreement, each Note, each Security
Document, and/or any of the other Financing Documents, and/or the Loan,
including, without limitation, the principal of, and interest on, each Note,
late charges, the Fees, Enforcement Costs, and prepayment fees (if any), letter
of credit fees or fees charged with respect to any guaranty of any letter of
credit, any Interest Rate Protection Agreement with the Agent, any Lender or any
Affiliate of the Agent or any of the Lenders, and any Foreign Exchange
Protection Agreement with the Agent, any Lender or any Affiliate of the Agent or
any of the Lenders; also means all other present and future indebtedness,
liabilities and obligations, whether now existing or contemplated or hereafter
arising, of any one or more of the Obligors to the Agent and/or to NationsBank
or its Affiliates of any nature whatsoever regardless of whether such debts,
obligations and liabilities be direct, indirect, primary, secondary, joint,
several, joint and several, fixed or contingent; and also means any and all
renewals, extensions, substitutions, amendments, restatements and rearrangements
of any such debts, obligations and liabilities.
20
<PAGE> 28
"Obligors" means the Borrower and the Guarantors and "Obligor" means any
of the Borrower or any Guarantor.
"Offering Memorandum" means Borrower's Offering Memorandum dated July
__, 1998, pursuant to which the Senior Notes are offered.
"Offering Transaction" means the sale of the Senior Notes as described
in the Offering Memorandum.
"O-Ray Holdings" means O-Ray Holdings, Inc., a corporation organized and
existing under the laws of the State of Delaware, and its successors and
assigns.
"Original Closing Date" means December 12, 1996.
"Outstanding Letter of Credit Obligations" has the meaning described in
Section 2.2.3 (Terms of Letters of Credit).
"Patents" means and includes, in each case whether now existing or
hereafter arising, all of each of the Borrower's, Foster Grant's and Fantasma's
rights, title and interest in and to (a) any and all patents and patent
applications, (b) any and all inventions and improvements described and claimed
in such patents and patent applications, (c) reissues, divisions, continuations,
renewals, extensions and continuations-in-part of any patents and patent
applications and (d) all rights corresponding to any of the foregoing throughout
the world.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Acquisitions" means the acquisition or purchase of, or
investment in, any Person, any operating division or unit of any Person engaged
substantially in the Line of Business, or the stock or assets of any Person;
provided, however that (a) the aggregate purchase price of, investment in,
and/or expenditures relating to, acquisitions, purchases, or investments cannot
exceed in any fiscal year the amount by which the Borrowing Base is increased as
a result of such acquisition, purchase or investment by more than Seven Million
Dollars ($7,000,000), (b) such acquisition, purchase or investment cannot
otherwise constitute or give rise to a Default or an Event of Default, (c) the
Borrower shall have furnished financial projections to the Agent and the Lenders
which give effect to such acquisition, purchase or investment and which indicate
that such acquisition, purchase and/or investment could not or would not cause a
Default or Event of Default, (d) all Accounts, Inventory, Chattel Paper,
Instruments, rights to non-exclusive use of the Trademarks in the disposition of
the Inventory to which such Trademarks are attached and any real property and
fixtures so acquired (except those which are held by a Person organized under
the Laws of a country other than the United States or securing debt that was
incurred prior to the acquisition and not in contemplation thereof), whether
acquired directly or indirectly through the acquisition of stock of another
Person, shall be subject to a first priority security interest, perfected by
filing or possession, in favor of the Agent and the Lenders securing the
Obligations and the Agent's Obligations, and (e) a Phase I environmental
assessment of any real property to be acquired or purchased by any of the
Borrower, Foster Grant or
21
<PAGE> 29
Fantasma or owned by any Person to be acquired or purchased by any of the
Borrower, Foster Grant or Fantasma or owned by any Person in which any of the
Borrower, Foster Grant or Fantasma intends to make an investment, has been
performed by a reputable and recognized environmental consulting firm reasonably
acceptable to the Lender and has revealed no Material Hazardous Materials
Contamination or Material violations of any Environmental Laws.
"Permitted Affiliate Distributions" shall mean (a) an amount permitted
to be paid under Section 5.10.6 of the Securities Purchase Agreement, (b)
dividends provided for on the date of this Agreement under the Borrower's
preferred stock, (c) distributions or dividends by, or transfer of assets by,
any Subsidiary to its parent or, if different, to the Borrower, (d) the
following distributions by Foster Grant to any partner of Foster Grant or by
Fantasma to any member of Fantasma, that is not within the scope of the
preceding subsection (c) (and any further distribution of such amounts by any
such partner to any direct or indirect shareholders of such partner):
(i) Distributions to each of its
partners/members in an amount sufficient to cover that
partner's/member's actual tax liability due and payable by such
partner/member as a result of income attributed to such
partner/member by virtue of its ownership interest in the
partnership/limited liability company;
(ii) Distributions to Foster Holdings to
enable Foster Holdings to pay actual out-of-pocket expenses
reasonably incurred by Foster Holdings in connection with the
preparation of financial statements and compliance with all
financial reporting requirements; but only to the extent such
expenses are payable to Persons other than Affiliates of any
Obligor or any member of the AAi Group; and
(iii) Distributions by Foster Grant to
BEC to pay royalties due BEC with respect to any Trademarks
licensed to Foster Grant by BEC; and
(e) redemption of preferred stock of FosterGrant Holdings, redemption of the
Borrower's Series A Preferred Stock and redemption or purchase of the Borrower's
or any Subsidiary's stock or other ownership interest on death, disability or
termination of employment of shareholders under stockholder and other
agreements; (f) payments by any Subsidiary under tax sharing arrangements with
the Borrower and other Subsidiaries; and (g) payments by any Obligor to another
Obligor.
"Permitted Asset Disposition" means the following Asset Dispositions:
(a) an Asset Disposition (excluding any Asset
Disposition permitted under subsections (b), (c) or (d) below), for which the
sum of (i) the Net Proceeds to be paid to or received by any or all of the
Obligor (individually and collectively) with respect to such Asset Disposition,
plus (ii) the aggregate amount of all Net Proceeds paid to or received by any or
all of the Obligor (individually and collectively) with respect to all other
Asset Dispositions (excluding all Asset Dispositions permitted under subsections
(b), (c) or (d) below) made during the then current fiscal year, is less than or
equal to Five Hundred Thousand Dollars ($500,000) for such fiscal year,
22
<PAGE> 30
(b) sales of Inventory (including, without
limitation, the liquidation of slow moving and obsolete Inventory) in the
ordinary course of business,
(c) the licensing of business names, Patents,
Trademarks and/or Copyrights, in the ordinary course of business,
(d) sales or other dispositions of worn, used,
surplus or obsolete Equipment in the ordinary course of business, including,
without limitation, dispositions of conveyors, racks and shelving at formerly
leased locations,
(e) sales, liquidations or other dispositions
of Buybacks in the ordinary course of business, and
(f) sales of membership interests in Fantasma
to existing members in accordance with the Fantasma Agreements.
provided that no Asset Dispositions shall be permitted at any time following the
occurrence and during the continuance of an Event of Default.
"Permitted Liens" means:
(a) Liens existing as of the date hereof and
as set forth in SCHEDULE 4.1.20 attached hereto, including, but not limited to,
renewals and extensions that do not increase the amount secured by or subject to
the lien, PROVIDED, HOWEVER, that any such Lien that is released after the date
hereof may not thereafter re-attach or otherwise become permitted by this
Section item (a);
(b) Liens imposed by law for Taxes of any
Governmental Authority for claims not yet due or which (i) the Borrower, Foster
Grant and Fantasma, as appropriate, is contesting in good faith by appropriate
proceedings diligently conducted and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with GAAP, (ii)
the Borrower, Foster Grant and Fantasma, as appropriate, has the financial
ability to pay, with all penalties and interest, at all times without materially
and adversely affecting the Borrower, Foster Grant and Fantasma, and (iii) are
not, and will not be with appropriate filing, the giving of notice and/or the
passage of time, entitled to priority over any Lien of the Agent and the
Lenders;
(c) Liens in respect of purchase money
indebtedness in connection with the acquisition of tangible personal property
and real property; PROVIDED that (i) the original principal balance of the
Indebtedness secured by such Lien constitutes not more than 80% of the purchase
price of the property acquired and (ii) such Lien extends only to the property
acquired with the proceeds of the Indebtedness so secured;
(d) statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and other Liens imposed by law or
created in the ordinary course of business and in existence less than ninety
(90) days from the date of creation thereof for amounts not yet due or which are
being contested in good faith by appropriate
23
<PAGE> 31
proceedings diligently conducted and with respect to which adequate reserves or
other appropriate provisions are being maintained in accordance with GAAP;
(e) Liens incurred or deposits made in the
ordinary course of business (including, without limitation, surety bonds and
appeal bonds) in connection with workers' compensation, unemployment insurance
and other types of social security benefits or to secure the performance of
tenders, bids, leases, contracts (other than for the repayment of Indebtedness),
statutory obligations and other similar obligations or arising as a result of
progress payments under government contracts;
(f) leases, subleases, licenses, easements
(including, without limitation, reciprocal easement agreements and utility
agreements), rights-of-way, covenants, contests, reservations, encroachments,
variations and zoning and other restrictions, charges or encumbrances (whether
or not recorded), which do not interfere with the ordinary conduct of the
business of the Borrower, Foster Grant and Fantasma and do not impair the use of
the property to which they attach to the extent that such interference or
impairment could reasonably be expected to have a Material Adverse Effect;
(g) Liens incurred in connection with Capital
Lease obligations permitted hereunder;
(h) Liens imposed by environmental laws which
(i) the Borrower, Foster Grant or Fantasma, as appropriate, is contesting in
good faith by appropriate proceedings diligently conducted and with respect to
which adequate reserves or other appropriate provisions are being maintained in
accordance with GAAP and (ii) the Borrower, Foster Grant or Fantasma, as
appropriate, has the financial ability to pay, with all penalties and interest,
at all times without materially and adversely affecting the Borrower; and
(i) Liens granted on the assets of any
Subsidiary of any of Borrower, Foster Grant or Fantasma, which Subsidiary is
organized under the laws of a jurisdiction other than the United States.
"Permitted Senior Note Purchases" means the collective reference to each
purchase by the Borrower of Senior Notes provided, however that (i) the
aggregate purchase price of all such purchases (net of cash proceeds received on
resales of the same) cannot exceed Five Million Dollars ($5,000,000) in the
aggregate unless the Agent and the Lenders have given their prior written
consent to such excess, (ii) such purchase cannot otherwise constitute or give
rise to a Default or an Event of Default and shall not be made at any time when
a Default or Event of Default exists; and (iii) the Borrower has furnished
financial projections in form and content reasonably acceptable to the Agent and
the Lenders which give effect to such purchase and which indicate that such
purchase could not or would not cause a Default or Event of Default.
"Permitted Uses" means (a) re-evidence, without novation, of amounts
outstanding under the Original Financing Agreement, (b) the furnishing of
working capital (including the sale of inventory) to AAi/Joske's S. de R.L. de
C.V. in an aggregate amount outstanding not to exceed $750,000, (c) the
furnishing of working capital to Vendome Accessories Ltd. in an aggregate
24
<PAGE> 32
amount outstanding not to exceed $250,000, (d) loans and advances to the
Subsidiaries and for other general corporate purposes other than those not
permitted under this Agreement, (e) Permitted Affiliate Distributions and (f)
Permitted Acquistions.
"Person" means and includes an individual, a corporation, a partnership,
a joint venture, a limited liability company or partnership, a trust, an
unincorporated association, a Governmental Authority, or any other organization
or entity.
"Plan" means any pension plan that is covered by Title IV of ERISA and
in respect of which any Obligor or a Commonly Controlled Entity is an "employer"
as defined in Section 3 of ERISA.
"Post-Default Rate" means with respect to the principal balance of any
of the Obligations, the then Applicable Interest Rate, plus two percent (2%) per
annum.
"Prepayment" means a Revolving Loan Mandatory Prepayment or a Revolving
Loan Optional Prepayment, as the case may be, and "Prepayments" mean
collectively all Revolving Loan Mandatory Prepayments and all Revolving Loan
Optional Prepayments.
"Pricing Ratio" means the Fixed Charge Coverage Ratio.
"Prime Rate" means the floating and fluctuating per annum prime
commercial lending rate of interest of the Agent, as established and declared by
the Agent at any time or from time to time. The Prime Rate shall be adjusted
automatically, without notice, as of the effective date of any change in such
prime commercial lending rate. The Prime Rate does not necessarily represent the
lowest rate of interest charged by the Agent or any of the Lenders to borrowers.
"Pro Rata Share" means at any time and as to any Lender, the percentage
derived by dividing the unpaid principal amount of the Loan and Letter of Credit
Obligations owing to that Lender by the aggregate unpaid principal amount of all
Loan and Letter of Credit Obligations then outstanding; or if no Loan or Letter
of Credit Obligations are outstanding, by dividing the total amount of such
Lender's Commitments by the total amount of the Commitments of the Agent and all
of the Lenders.
"Receivable" means each of the Secured Debtors' now owned and hereafter
owned, acquired or created Accounts, Chattel Paper and Instruments; and
"Receivables" means all of each of the Secured Debtors' now or hereafter owned,
acquired or created Accounts, Chattel Paper and Instruments, and all cash and
non-cash proceeds and products thereof.
"Reportable Event" means any of the events set forth in Section 4043(c)
of ERISA or the regulations thereunder.
"Requisite Lenders" means at any time of determination one or more of
the Lenders holding at least sixty-six and two-thirds percent (66-2/3%) of the
Commitments.
"Reserve Percentage" means, at any time, the then current maximum rate
for which reserves (including any basic, supplemental, marginal and emergency
reserves) are required to be
25
<PAGE> 33
maintained by member banks of the Federal Reserve System under Regulation D of
the Board of Governors of the Federal Reserve System against "Eurocurrency
liabilities", as that term is defined in Regulation D. The LIBOR Rate shall be
adjusted automatically on and as of the effective date of any change in the
Reserve Percentage.
"Responsible Officer" means the Chairman, Chief Executive Officer or
Chief Financial Officer of the Borrower or, with respect to financial matters,
the Chief Financial Officer of the Borrower.
"Revolving Credit Commitment" means the agreement of a Lender relating
to the making the Revolving Loan and advances thereunder subject to and in
accordance with the provisions of this Agreement; and "Revolving Credit
Commitments" means the collective reference to the Revolving Credit Commitment
of each of the Lenders.
"Revolving Credit Commitment Period" means the period of time from the
Closing Date to the Business Day preceding the Revolving Credit Termination
Date.
"Revolving Credit Committed Amount" has the meaning described in Section
2.1.1 (Revolving Credit Facility).
"Revolving Credit Expiration Date" means July 31, 2003, extending
automatically for successive periods of one (1) year each, unless any of the
Lenders in the exercise of its sole and absolute discretion has notified the
Borrower or the Borrower in the exercise of its sole and absolute discretion has
notified the Agent, no later than the date which is sixty (60) days immediately
preceding the next scheduled Revolving Credit Expiration Date, of its intention
to terminate the Revolving Credit Facility as of the next scheduled Revolving
Credit Expiration Date. Neither the Borrower nor any of the Lenders has any
obligation or commitment to extend the Revolving Credit Expiration Date for any
successive one (1) year period.
"Revolving Credit Facility" means the facility established by the
Lenders pursuant to Section 2.1 (Revolving Credit Facility).
"Revolving Credit Note" and "Revolving Credit Notes" have the meanings
described in Section 2.1.5 (Revolving Credit Notes).
"Revolving Credit Pro Rata Share" has the meaning described in Section
2.1.1 (Revolving Credit Facility).
"Revolving Credit Termination Date" means the earlier of (a) the
Revolving Credit Expiration Date, or (b) the date on which the Revolving Credit
Commitments are terminated pursuant to Section 7.2 (Remedies) or otherwise.
"Revolving Credit Unused Line Fee" and "Revolving Credit Unused Line
Fees" have the meanings described in Section 2.1.10 (Revolving Credit Unused
Line Fee).
"Revolving Loan" has the meaning described in Section 2.1.1 (Revolving
Credit Facility).
26
<PAGE> 34
"Revolving Loan Account" has the meaning described in Section 2.1.9
(Revolving Loan Account).
"Revolving Loan Mandatory Prepayment" and "Revolving Loan Mandatory
Prepayments" have the meanings described in Section 2.1.6 (Mandatory Prepayments
of Revolving Loan).
"Revolving Loan Optional Prepayment" and "Revolving Loan Optional
Prepayments" have the meanings described in Section 2.1.7 (Optional Prepayments
of Revolving Loan).
"Secured Debtor" means any of the Borrower, Foster Grant, Fantasma or
any Additional Obligor and "Secured Debtors" means the Borrower, Foster Grant,
Fantasma and all Additional Obligors, collectively.
"Securities" means the collective reference to each and every
certificated or uncertificated security which constitutes a "security" under the
provisions of Title 8 of the Uniform Commercial Code, and all proceeds (cash and
non-cash) of the foregoing.
"Securities Purchase Agreement" means that certain Securities Purchase
Agreement dated May 31, 1996, among the Borrower, Weston Presidio Capital II,
L.P., and certain other "Investors."
"Security Documents" means collectively any assignment, pledge
agreement, security agreement, mortgage, deed of trust, deed to secure debt,
financing statement and any similar instrument, document or agreement under or
pursuant to which a Lien is now or hereafter granted to, or for the benefit of,
the Agent and/or the Lenders on any real or personal property of any Person to
secure all or any portion of the Obligations, all as the same may from time to
time be amended, restated, supplemented or otherwise modified, including,
without limitation, this Agreement, the Corporate Guaranty, the Assignment of
Credit Insurance, the Assignment of Trademarks and the Assignment of Trademarks
(Borrower).
"Security Procedures" means the rules, policies and procedures adopted
and implemented by the Agent and its Affiliates at any time and from time to
time with respect to security procedures and measures relating to electronic
funds transfers, all as the same may be amended, restated, supplemented,
terminated, or otherwise modified at any time and from time to time by the Agent
in its sole and absolute discretion.
"Senior Notes" means any and all 10 3/4% Senior Notes due 2006 to be
issued from time to time under the Indenture, in the principal amount of
$75,000,000.
"Senior Notes Documents" means, collectively, the Indenture and the
Senior Notes.
"Settlement Date" means each Business Day after the Closing Date
selected by the Agent in its sole discretion subject to and in accordance with
the provisions of Section 2.5.2(a) (Settlement Procedures; In General) as of
which a Settlement Report is delivered by the Agent and on which settlement is
to be made among the Lenders in accordance with the provisions of Section 2.5.2
(Settlement Procedures as to Revolving Loan).
27
<PAGE> 35
"Settlement Report" means each report prepared by the Agent and
delivered to each Lender and setting forth, among other things, as of the
Settlement Date indicated thereon and as of the next preceding Settlement Date,
the aggregate outstanding principal balance of the Revolving Loan, each Lender's
Revolving Credit Pro Rata Share thereof, each Lender's Net Outstandings and all
Non-Ratable Loans made, and all payments of principal, interest and Fees
received by the Agent from the Borrower during the period beginning on such next
preceding Settlement Date and ending on such Settlement Date.
"State" means the State of Maryland.
"Subordinated Indebtedness" means all Indebtedness, incurred at any time
by any one or more of the Borrower, Foster Grant or Fantasma, which is in
amounts, subject to repayment terms, and subordinated to the Obligations, as set
forth in one or more written agreements, all in form and substance satisfactory
to the Agent in its sole and absolute discretion.
"Subsidiary" means any corporation, company or other entity the majority
of the voting shares or interests of which at the time are owned directly by any
of the Borrower, Foster Grant and Fantasma and/or by one or more Subsidiaries of
any of the Borrower, Foster Grant and Fantasma.
"Taxes" means all taxes and assessments whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character
(including all penalties or interest thereon), which at any time may be
assessed, levied, confirmed or imposed by any Governmental Authority on any or
all of the Borrower, Foster Grant or Fantasma or any of its or their properties
or assets or any part thereof or in respect of any of its or their franchises,
businesses, income or profits.
"Texas Property" means the real property and fixtures located at Valley
View Lane, Farmers Branch, Texas, which are leased by Foster Grant.
"Total Revolving Credit Committed Amount" has the meaning described in
Section 2.1.1 (Revolving Credit Facility).
"Trademarks" means and includes in each case whether now existing or
hereafter arising, all of each of the Borrower's, Foster Grant's or Fantasma's
rights, title and interest in and to (a) any and all trademarks (including
service marks), trade names and trade styles, and applications for registration
thereof and the goodwill of the business symbolized by any of the foregoing, (b)
any and all licenses of trademarks, service marks, trade names and/or trade
styles, whether as licensor or licensee, (c) any renewals of any and all
trademarks, service marks, trade names, trade styles and/or licenses of any of
the foregoing and (d) all rights corresponding to any of the foregoing
throughout the world.
"Trustee" has the meaning given to such term in the Indenture.
"Uniform Commercial Code" means, unless otherwise provided in this
Agreement, the Uniform Commercial Code as adopted by and in effect from time to
time in the State or in any other jurisdiction, as applicable.
28
<PAGE> 36
"Wire Transfer Procedures" means the rules, policies and procedures
adopted and implemented by the Agent and its Affiliates at any time and from
time to time with respect to electronic funds transfers, including, without
limitation, the Security Procedures, all as the same may be amended, restated,
supplemented, terminated or otherwise modified at any time and from time to time
by the Agent in its sole and absolute discretion.
"Year 2000 Problem" has the meaning set forth in Section 4.1.27 (Year
2000).
Section 1.2 ACCOUNTING TERMS AND OTHER DEFINITIONAL PROVISIONS.
Unless otherwise defined herein, as used in this Agreement and in any
certificate, report or other document made or delivered pursuant hereto,
accounting terms not otherwise defined herein, and accounting terms only partly
defined herein, to the extent not defined, shall have the respective meanings
given to them under GAAP. Unless otherwise defined herein, all terms used herein
which are defined by the Uniform Commercial Code shall have the same meanings as
assigned to them by the Uniform Commercial Code unless and to the extent varied
by this Agreement. The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and article,
section, subsection, schedule and exhibit references are references to articles,
sections or subsections of, or schedules or exhibits to, as the case may be,
this Agreement unless otherwise specified. As used herein, the singular number
shall include the plural, the plural the singular and the use of the masculine,
feminine or neuter gender shall include all genders, as the context may require.
Reference to any one or more of the Financing Documents shall mean the same as
the foregoing may from time to time be amended, restated, substituted, extended,
renewed, supplemented or otherwise modified. Reference in this Agreement and the
other Financing Documents to the "Obligor", the "Obligors", "each Obligor" or
otherwise with respect to any one or more of the Obligors shall mean each and
every Obligor and any one or more of the Obligors, jointly and severally, unless
a specific Obligor is expressly identified.
ARTICLE II
THE CREDIT FACILITIES
Section 2.1 THE REVOLVING CREDIT FACILITY.
2.1.1 REVOLVING CREDIT FACILITY.
Subject to and upon the provisions of this Agreement, the
Lenders collectively, but severally, establish a revolving credit facility in
favor of the Borrower. The aggregate of all advances under the Revolving Credit
Facility is sometimes referred to in this Agreement collectively as the
"Revolving Loan".
The amount set forth below opposite each Lender's name is
herein called such Lender's "Revolving Credit Committed Amount" and the total of
each Lender's Revolving Credit Committed Amount is herein called the "Total
Revolving Credit Committed Amount".
29
<PAGE> 37
The proportionate share set forth below opposite each Lender's name is herein
called such Lender's "Revolving Credit Pro Rata Share":
Revolving Credit Revolving Credit
Lender Committed Amount Pro Rata Share
------ ---------------- ----------------
NationsBank $27,692,340 46%
LaSalle $18,461,520 31%
PNC $13,846,140 23%
Total Revolving Credit $60,000,000 100%
Committed Amount
Neither the Agent nor any of the Lenders shall be
responsible for the Revolving Credit Commitment of any other Lender, nor will
the failure of any Lender to perform its obligations under its Revolving Credit
Commitment in any way relieve any other Lender from performing its obligations
under its Revolving Credit Commitment.
During the Revolving Credit Commitment Period, the
Borrower may request advances under the Revolving Credit Facility in accordance
with the provisions of this Agreement; provided that after giving effect to the
Borrower's request:
(a) the outstanding principal balance of each
Lender's Pro Rata Share of the Revolving Loan and of the Letter of
Credit Obligations would not exceed the lesser of (i) such Lender's
Revolving Credit Committed Amount or (ii) such Lender's Pro Rata Share
of the then most current Borrowing Base; and,
(b) the aggregate outstanding principal balance of
the Revolving Loan and all Letter of Credit Obligations would not exceed
the lesser of (i) the Total Revolving Credit Committed Amount or (ii)
the then most current Borrowing Base.
If at any time the unpaid principal balance of the
Revolving Loan exceeds the Total Revolving Credit Committed Amount in effect
from time to time, the Borrower shall pay such excess to the Agent for the
benefit of the Lenders ON DEMAND.
2.1.2 PROCEDURE FOR MAKING ADVANCES UNDER THE REVOLVING
LOAN; LENDER PROTECTION LOANS.
The Borrower may borrow under the Revolving Credit
Facility on any Business Day. Advances under the Revolving Loan shall be
deposited to a demand deposit account of the Borrower with the Agent or shall be
otherwise applied as directed by the Borrower, which direction the Agent may
require to be in writing. Not later than 1:30 p.m. (Baltimore City Time) on the
date of the requested borrowing, the Borrower shall give the Agent
30
<PAGE> 38
oral or written notice (a "Loan Notice") of the amount and (if requested by the
Agent) the purpose of the requested borrowing. Any oral Loan Notice shall be
confirmed in writing by the Borrower within three (3) Business Days after the
making of the requested advance under the Revolving Loan. Upon receipt of any
such Loan Notice, the Agent shall promptly notify each Lender of the amount of
each advance to be made by such Lender on the requested borrowing date.
Not later than 2:30 p.m. (Baltimore City Time) on each
requested borrowing date for the making of advances under the Revolving Loan,
each Lender shall, if it has received timely notice from the Agent of the
Borrower's request for such advances, make available to the Agent, in funds
immediately available to the Agent at the Agent's office set forth in Notices.
(Notices), such Lender's Pro Rata Share of the advances to be made on such date.
In addition, the Borrower hereby irrevocably authorizes
the Lenders at any time and from time to time, without further request from or
notice to the Borrower, to make advances under the Revolving Loan which the
Agent, in its sole and absolute discretion, deems necessary or appropriate to
protect the interests of the Agent and/or any or all of the Lenders under this
Agreement, including, without limitation, advances under the Revolving Loan made
to cover debit balances in the Revolving Loan Account, principal of, and/or
interest on, the Loan, any of the Obligations any Letter of Credit Obligations,
and/or Enforcement Costs, prior to, on, or after the termination of other
advances under this Agreement, regardless of whether the outstanding principal
amount of the Revolving Loan which the Lenders may advance hereunder exceeds the
Total Revolving Credit Committed Amount. The Agent agrees to give the Borrower
notice of any such advances made by the Lenders promptly after the making of any
such advance; the Agent agrees to use its best efforts to give such notice to
the Borrower on the same day that any such advance is made.
2.1.3 BORROWING BASE.
As used in this Agreement, "Borrowing Base" means at any
time, an amount equal to the aggregate of
(a) eighty-five percent (85%) of the amount of
Eligible Receivables,
PLUS
(b) the lesser of
(i) (A) fifty-five percent (55%) of the
amount of Eligible Inventory (other than optical
Inventory)
PLUS
(B) sixty-five (65%) of the amount
of Eligible Inventory consisting of optical
Inventory; or
(ii) Thirty Million Dollars
($30,000,000)
31
<PAGE> 39
LESS
(c) the Interest Rate Protection Reserve and
the Foreign Exchange Exposure.
The Borrowing Base shall be computed based on the
Borrowing Base Report most recently delivered to and accepted by the Agent in
its discretion. In the event the Borrower fails to furnish a Borrowing Base
Report required by Section 2.1.4 (Borrowing Base Report), or in the event the
Agent believes that a Borrowing Base Report is no longer accurate, the Agent
may, in its good faith discretion exercised from time to time and without
limiting other rights and remedies under this Agreement, direct the Lenders to
suspend the making of or limit advances under the Revolving Loan. The Borrowing
Base shall be subject to reduction by amounts credited to the Collateral Account
since the date of the most recent Borrowing Base Report and by the amount of any
Receivable or any Inventory which was included in the Borrowing Base but which
the Agent in good faith determines fails to meet the respective criteria
applicable from time to time for Eligible Receivables or Eligible Inventory.
If at any time the total of the aggregate principal
amount of the Revolving Loan and Outstanding Letter of Credit Obligations
exceeds the Borrowing Base, a borrowing base deficiency ("Borrowing Base
Deficiency") equal to the amount of such excess shall exist. Each time a
Borrowing Base Deficiency exists, the Borrower at the sole and absolute
discretion of the Agent exercised from time to time shall pay the Borrowing Base
Deficiency ON DEMAND to the Agent for the benefit of the Lenders from time to
time.
Without implying any limitation on the Agent's discretion
with respect to the Borrowing Base, the criteria for Eligible Receivables and
for Eligible Inventory contained in the respective definitions of Eligible
Receivables and of Eligible Inventory are in part based upon the business
operations of the Borrower, Foster Grant and Fantasma existing on or about the
Closing Date and upon information and records furnished to the Agent by the
Borrower. If at any time or from time to time hereafter, the business operations
of the Borrower, Foster Grant and Fantasma change or such information and
records furnished to the Agent is incorrect or misleading, the Agent in its good
faith discretion, may at any time and from time to time during the duration of
this Agreement change such criteria or add new criteria; provided, however, if
the inclusion of new criteria would immediately result in a reduction to the
Borrowing Base of $500,000 or more, the Agent agrees to give the Borrower no
less than two (2) Business Days prior notice thereof. The Agent shall
communicate such changed or additional criteria to the Borrower from time to
time either orally or in writing.
2.1.4 BORROWING BASE REPORT.
The Borrower will furnish to the Agent no less frequently
than the 10th Business Day after the last day of each month and at such other
times as may be requested by the Agent or any of the Lenders a report of the
Borrowing Base (each a "Borrowing Base Report"; collectively, the "Borrowing
Base Reports") in the form required from time to time by the Agent,
appropriately completed and duly signed. The Borrowing Base Report shall contain
the amount and payments on the Receivables (with a detailed breakdown as between
Gross Receivables and Net Book Value of Receivables, unless the Agent consents
otherwise from time to time), the
32
<PAGE> 40
value of Inventory, and the calculations of the Borrowing Base, all in such
detail, and accompanied by such supporting and other information, as the Agent
may from time to time request. Upon the Agent's request and upon the creation of
any Receivables, or at such intervals as the Agent may require, the Borrower
will provide the Agent with (a) confirmatory assignment schedules; (b) copies of
Account Debtor invoices; (c) evidence of shipment or delivery; and (d) such
further schedules, documents and/or information regarding the Receivables and
the Inventory as the Agent may reasonably require. The items to be provided
under this subsection shall be in form satisfactory to the Agent, and certified
as true and correct by a Responsible Officer, and delivered to the Agent from
time to time solely for the Agent's convenience in maintaining records of the
Collateral. The Borrower's failure to deliver any of such items to the Agent
shall not affect, terminate, modify, or otherwise limit the Liens of the Agent
and the Lenders in the Collateral.
2.1.5 REVOLVING CREDIT NOTES.
The obligation of the Borrower to pay each Lender's Pro
Rata Share of the Revolving Loan, with interest, shall be evidenced by a series
of promissory notes (as from time to time extended, amended, restated,
supplemented or otherwise modified, collectively the "Revolving Credit Notes"
and individually a "Revolving Credit Note") substantially in the form of EXHIBIT
"A" attached hereto and made a part hereof, with appropriate insertions. Each
Lender's Revolving Credit Note shall be dated as of the Closing Date, shall be
payable to the order of such Lender at the times provided in the Revolving
Credit Note, and shall be in the principal amount of such Lender's Revolving
Credit Pro Rata Share. The Borrower acknowledges and agrees that, if the
outstanding principal balance of the Revolving Loan outstanding from time to
time exceeds the aggregate face amount of the Revolving Credit Notes, the excess
shall bear interest at the rates provided from time to time for advances under
Revolving Loan evidenced by the Revolving Credit Notes and shall be payable,
with accrued interest, ON DEMAND. The Revolving Credit Notes shall not operate
as a novation of any of the Obligations or nullify, discharge, or release any
such Obligations or the continuing contractual relationship of the parties
hereto in accordance with the provisions of this Agreement.
2.1.6 MANDATORY PREPAYMENTS OF REVOLVING LOAN.
Subject to the provisions of Section 2.1.11 (Early
Termination Fee) and Section 2.3.4 (Indemnity), the Borrower shall make the
mandatory prepayments of the Revolving Loan (each a "Revolving Loan Mandatory
Prepayment" and collectively, the "Revolving Loan Mandatory Prepayments") in the
following amounts and at the following times:
(a) The Borrower shall make a Revolving Loan
Mandatory Prepayment at any time and from time to time in such amounts
requested by the Agent pursuant to Section 2.1.3 (Borrowing Base) in
order to cover any Borrowing Base Deficiency; and
(b) The Borrower shall make a Revolving Loan
Mandatory Prepayment on such dates and in such amounts to achieve
compliance with the provisions of Section 2.1.12 (Required
Availability).
33
<PAGE> 41
2.1.7 OPTIONAL PREPAYMENTS OF REVOLVING LOAN.
Subject to the provisions of Section 2.1.11 (Early
Termination Fee) and Section 2.3.4 (Indemnity), the Borrower shall have the
option at any time and from time to time prepay (each a "Revolving Loan Optional
Prepayment" and collectively the "Revolving Loan Optional Prepayments") the
Revolving Loan, in whole or in part without premium or penalty.
2.1.8 THE COLLATERAL ACCOUNT.
The Borrower, Foster Grant and Fantasma will deposit, or
cause to be deposited, all Items of Payment to a bank account designated by the
Agent and from which the Agent alone has power of access and withdrawal (the
"Collateral Account"). Each deposit shall be made not later than the next
Business Day after the date of receipt of the Items of Payment. The Items of
Payment shall be deposited in precisely the form received, except for the
endorsements of the Borrower, Foster Grant or Fantasma where necessary to permit
the collection of any such Items of Payment, which endorsement the Borrower,
Foster Grant and Fantasma hereby jointly and severally agree to make. In the
event the Borrower, Foster Grant and Fantasma fail to do so, the Borrower,
Foster Grant and Fantasma hereby authorize the Agent to make the endorsement in
the name of any or all of the Borrower, Foster Grant and Fantasma. Prior to such
a deposit, the Borrower, Foster Grant and Fantasma will not commingle any Items
of Payment with any of the Borrower's, Foster Grant's or Fantasma's other funds
or property, but will hold them separate and apart in trust and for the account
of the Agent for the benefit of the Lenders ratably and the Agent.
In addition, if so directed by the Agent, the Borrower,
Foster Grant and Fantasma shall direct the mailing of all Items of Payment from
their Account Debtors to one or more post-office boxes designated by the Agent,
or to such other additional or replacement post-office boxes pursuant to the
request of the Agent from time to time (collectively, the "Lockbox") monitored
by the Agent or by a commercial bank chosen by the Borrower and accepted by the
Agent in writing, which acceptance shall not be unreasonably withheld. The Agent
shall have unrestricted and exclusive access (through such commercial bank, if
applicable) to the Lockbox.
The Borrower, Foster Grant and Fantasma hereby authorize
the Agent to inspect all Items of Payment, endorse all Items of Payment in the
name of any or all of the Borrower, Foster Grant and Fantasma, and deposit such
Items of Payment in the Collateral Account. The Agent reserves the right,
exercised in its sole and absolute discretion from time to time, to provide to
the Collateral Account credit prior to final collection of an Item of Payment
and to disallow credit for any Item of Payment which is unsatisfactory to the
Agent. In the event Items of Payment are returned to the Agent for any reason
whatsoever, the Agent may, in the exercise of its discretion from time to time,
forward such Items of Payment a second time. Any returned Items of Payment shall
be charged back to the Collateral Account, the Revolving Loan Account, or other
account, as appropriate.
The Agent will apply the whole or any part of the
collected funds credited to the Collateral Account against the Revolving Loan
(or with respect to Items of Payment which are not proceeds of Accounts or
Inventory or after a Default or an Event of Default, against any of the
Obligations) or credit such collected funds to a depository account of any or
all of the
34
<PAGE> 42
Borrower, Foster Grant or Fantasma with the Agent, the order and method of such
application to be in the sole discretion of the Agent.
IN CONSIDERATION FOR THE AGENT'S AGREEMENT TO CREDIT THE
COLLATERAL ACCOUNT AS OF THE BUSINESS DAY ON WHICH THE AGENT RECEIVES ITEMS OF
PAYMENT AND TO REIMBURSE THE AGENT FOR THE COST OF DELAYS IN THE COLLECTION AND
CLEARANCE OF ITEMS OF PAYMENT, THE BORROWER, FOSTER GRANT AND FANTASMA HEREBY
CONSENT AND AGREE THAT IN COMPUTING INTEREST ON THE OBLIGATIONS ALL ITEMS OF
PAYMENT SHALL BE DEEMED RECEIVED BY THE AGENT ONE (1) BUSINESS DAY AFTER THE
AGENT'S ACTUAL RECEIPT THEREOF.
2.1.9 REVOLVING LOAN ACCOUNT.
The Agent will establish and maintain a loan account on
its books (the "Revolving Loan Account") to which the Agent will (a) DEBIT (i)
the principal amount of each advance under the Revolving Loan made by the
Lenders hereunder as of the date made, (ii) the amount of any interest accrued
on the Revolving Loan as and when due, and (iii) any other amounts due and
payable by the Borrower to the Agent and/or the Lenders from time to time under
the provisions of this Agreement in connection with the Revolving Loan,
including, without limitation, Enforcement Costs, Fees, late charges, and
service, collection and audit fees, as and when due and payable, and (b) CREDIT
all payments made by the Borrower to the Agent on account of the Revolving Loan
as of the date made including, without limitation, funds credited to the
Revolving Loan Account from the Collateral Account. The Agent may debit the
Revolving Loan Account for the amount of any Item of Payment that is returned to
the Agent unpaid. All credit entries to the Revolving Loan Account are
conditional and shall be readjusted as of the date made if final and
indefeasible payment is not received by the Agent in cash or solvent credits.
Any and all periodic or other statements or reconciliations, and the information
contained in those statements or reconciliations, of the Revolving Loan Account
shall be final, binding and conclusive upon the Borrower in all respects, absent
manifest error, unless the Agent receives specific written objection thereto
from the Borrower within ninety (90) Business Days after such statement or
reconciliation shall have been sent by the Agent.
2.1.10 REVOLVING CREDIT UNUSED LINE FEE.
The Borrower shall pay to the Agent for the ratable
benefit of the Lenders a monthly revolving credit facility fee (collectively,
the "Revolving Credit Unused Line Fees" and individually, a "Revolving Credit
Unused Line Fee") in an amount equal to three-eighths of one percent (.375%) per
annum on the average daily unused and undisbursed portion of the Total Revolving
Credit Committed Amount in effect from time to time accruing during each
calendar month, minus the average amount by which borrowings under the Revolving
Loan were reduced due to the operation of Section 2.1.12 (Required
Availability). The accrued and unpaid portion of the Revolving Credit Unused
Line Fee shall be paid in arrears by the Borrower to the Agent on the first day
of each month, commencing on the first such date following the date hereof, and
on the Revolving Credit Termination Date.
35
<PAGE> 43
2.1.11 EARLY TERMINATION FEE.
In the event of the termination by, or on behalf of, the
Borrower, of the Revolving Credit Commitments at any time prior to the Revolving
Credit Expiration Date (as extended from time to time in accordance with the
provisions of this Agreement), the Borrower shall pay a fee (the "Early
Termination Fee") equal to following amount at the following times:
- -------------------------------------------------------------------------------
Period Early Termination Fee
- -------------------------------------------------------------------------------
Closing Date, through and including, day $500,000
preceding the first anniversary date of the
Closing Date
- -------------------------------------------------------------------------------
First anniversary date of the Closing Date, $300,000
through and including, day preceding the
second anniversary date of the Closing Date
- -------------------------------------------------------------------------------
At any time on or after the second anniversary $100,000
date of the Closing Date
- -------------------------------------------------------------------------------
Payment of the Revolving Loan in whole or in part by or
on behalf of the Borrower, by court order or otherwise, following and as a
result of the institution of any bankruptcy proceeding by or against the
Borrower, shall be deemed to be a prepayment of the Revolving Loan subject to
the Early Termination Fee provided in this subsection.
Notwithstanding the foregoing, the Borrower shall not be
required to pay the Early Termination Fee in connection with a termination of
the Revolving Credit Commitments if the repayment of all Obligations is from (a)
the proceeds of an issuance of common stock by Foster Holdings, (b) the proceeds
of an issuance of common stock by the Borrower, (c) a replacement credit
facility extended by NationsBank, or its successors, to the Borrower, which
generates sufficient proceeds and is in fact used to repay all Obligations
(including all Letter of Credit Obligations) in full and, if, in connection with
such repayment of all Obligations, all Letters of Credit are terminated or (d) a
replacement credit facility extended by another lender to the Borrower on terms
and conditions that the Agent and the Lenders did not offer to the Borrower
after having been provided a copy of such other lender's commitment and having
had not less than thirty (30) days to review, approve and commit to in writing a
comparable credit facility.
2.1.12 REQUIRED AVAILABILITY UNDER THE REVOLVING CREDIT
FACILITY.
(a) The Borrower shall not at any time after the
Closing Date permit the outstanding principal amount of the Revolving Loan plus
the Outstanding Letter of Credit Obligations to exceed an amount equal to the
lesser of (i) the Total Revolving Credit Committed Amount or (ii) the Borrowing
Base, minus (A) on the Closing Date One Million Dollars ($1,000,000) or (B)
after the Closing Date Seven Hundred Fifty Thousand Dollars ($750,000).
(b) The Borrower shall make a Revolving Loan
Mandatory Prepayment pursuant to the provisions of Section 2.1.6 (Mandatory
Prepayments of Revolving Loan) to the extent necessary to achieve compliance
with this Section.
36
<PAGE> 44
Section 2.2 THE LETTER OF CREDIT FACILITY.
2.2.1 LETTERS OF CREDIT.
Subject to and upon the provisions of this Agreement, and
as a part of the Revolving Credit Commitments, the Borrower, upon the prior
approval of the Agent, may obtain standby and documentary letters of credit (as
the same may from time to time be amended, supplemented or otherwise modified,
each a "Letter of Credit" and collectively the "Letters of Credit") from the
Agent from time to time from the Closing Date until the Business Day preceding
the Revolving Credit Termination Date. The Borrower will not be entitled to
obtain a Letter of Credit hereunder unless (a) after giving effect to the
request, the outstanding principal balance of the Revolving Loan and of the
Letter of Credit Obligations would not exceed the lesser of (i) the Total
Revolving Credit Committed Amount, or (ii) the most current Borrowing Base, and
(b) the sum of the aggregate face amount of the then outstanding Letters of
Credit (including the face amount of the requested Letter of Credit) does not
exceed Three Million Dollars ($3,000,000). The Agent confirms that the amount
available for borrowing under the Revolving Credit Facility is not reduced
except to the extent Letters of Credit and/or Letter of Credit Obligations are
outstanding.
2.2.2 LETTER OF CREDIT FEES.
Prior to or simultaneously with the opening of each
Letter of Credit, the Borrower shall pay to the Agent for the ratable benefit of
the Lenders, a letter of credit fee (each a "Letter of Credit Fee" and
collectively the "Letter of Credit Fees") in an amount equal to two hundred
fifty (250) basis points per annum of the face amount of the Letter of Credit.
The Letter of Credit Fees shall be paid upon the opening of each Letter of
Credit and upon each anniversary thereof. In addition, the Borrower shall pay to
the Agent, for its own account, any and all additional issuance, negotiation,
processing, transfer or other fees to the extent and as and when required by the
provisions of any Letter of Credit Agreement. All such additional fees are
included in and are a part of the "Fees" payable by the Borrower under the
provisions of this Agreement and are for the sole and exclusive benefit of the
Agent and are a part of the Agent's Obligations.
2.2.3 TERMS OF LETTERS OF CREDIT.
Each Letter of Credit shall (a) be opened pursuant to a
Letter of Credit Agreement, and (b) expire on a date not later than the Business
Day preceding the Revolving Credit Expiration Date; provided, however, if any
Letter of Credit does have an expiration date later than the Business Day
preceding the Revolving Credit Termination Date, as of the Business Day
preceding the Revolving Credit Termination Date an advance of the Revolving Loan
Credit Facility shall be made by the Lenders in the face amount of such Letter
of Credit (or Letters of Credit) and the proceeds thereof shall be deposited in
an account titled in the name of the Agent as trustee for the Borrower. The
proceeds of the trustee account referred to in the immediately preceding
sentence shall be held as collateral for the Letter of Credit (or Letters of
Credit) and in the event of a draw under the Letter of Credit (or Letters of
Credit) used to pay any such draw. The aggregate face amount of all Letters of
Credit at any one time outstanding and issued by the Agent pursuant to the
provisions of this Agreement, plus the amount of any unpaid Letter of
37
<PAGE> 45
Credit Fees accrued or scheduled to accrue thereon, and less the aggregate
amount of all drafts issued under or purporting to have been issued under such
Letters of Credit that have been paid by the Agent, is herein called the
"Outstanding Letter of Credit Obligations".
2.2.4 PROCEDURE FOR LETTERS OF CREDIT.
The Borrower shall give the Agent written notice at least
three (3) Business Days prior to the date on which a Letter of Credit is
requested to be opened of its request for a Letter of Credit. Such notice shall
be accompanied by a duly executed and delivered Letter of Credit Agreement. Upon
receipt of the Letter of Credit Agreement and the Letter of Credit Fee, the
Agent shall process such Letter of Credit Agreement in accordance with its
customary procedures and open such Letter of Credit on the Business Day
specified in such notice.
2.2.5 PARTICIPATIONS IN THE LETTERS OF CREDIT.
Each Lender hereby irrevocably authorizes the Agent to
issue Letters of Credit in accordance with the provisions of this Agreement. As
of the date each Letter of Credit is opened or issued by the Agent pursuant to
the provisions of this Agreement, each Lender shall have an undivided
participating interest in (i) the rights and obligations of the Agent under such
Letter of Credit, and (ii) the Outstanding Letter of Credit Obligations of the
Borrower with respect to such Letter of Credit, in an amount equal to each
Lender's Revolving Credit Pro Rata Share of such Outstanding Letter of Credit
Obligations.
2.2.6 PAYMENTS BY THE LENDERS TO THE AGENT.
If the Borrower fails to pay to the Agent any Current
Letter of Credit Obligations as and when due and payable, the Agent shall
promptly notify each of the Lenders and shall demand payment from each of the
Lenders such Lender's Revolving Credit Pro Rata Share of such unpaid Current
Letter of Credit Obligations. In addition, if any amount paid to the Agent on
account of Current Letter of Credit Obligations is rescinded or required to be
restored or turned over by the Agent upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or upon or as a
result of the appointment of a receiver, intervenor, trustee, conservator or
similar officer for the Borrower, or is otherwise not indefeasibly covered by an
advance under the Revolving Loan, the Agent shall promptly notify each of the
Lenders and shall demand payment from each of the Lenders of its Revolving
Credit Pro Rata Share of its portion of the Current Letter of Credit Obligations
to be remitted to the Borrower.
Each of the Lenders irrevocably and unconditionally
agrees to honor any such demands for payment under this Section and promises to
pay to the Agent's account on the same Business Day as demanded the amount of
its Revolving Credit Pro Rata Share of the Current Letter of Credit Obligations
in immediately available funds, without any setoff, counterclaim or deduction of
any kind. Any payment by a Lender hereunder shall in no way release, discharge
or lessen the obligation of the Borrower to pay Current Letter of Credit
Obligations to the Agent in accordance with the provisions of this Agreement.
The obligation of each of the Lenders to remit the
amounts of its Revolving Credit Pro Rata Share of Current Letter of Credit
Obligations for the account of the Agent
38
<PAGE> 46
pursuant to this Section shall be unconditional and irrevocable under any and
all circumstances and may not be terminated, suspended or delayed for any reason
whatsoever, provided that all payments of such amounts by each of the Lenders
shall be without prejudice to the rights of each of the Lenders with respect to
the Agent's alleged willful misconduct. Any claim any Lender may have against
the Agent as a result of the Agent's alleged willful misconduct may be brought
by such Lender in a separate action against the Agent but may not be used as a
defense to payment under the provisions of this Section.
No failure of any Lender to remit the amount of its
Revolving Credit Pro Rata Share of Current Letter of Credit Obligations to the
Agent pursuant to this Section shall affect the obligations of the Agent under
any Letter of Credit, and if any Lender does not remit to the Agent the amount
of its Revolving Credit Pro Rata Share of Current Letter of Credit Obligations
on the same day as demanded, then without limiting such Lender's obligation to
transmit funds on the same Business Day as demanded, such Lender shall be
obligated to pay, on demand of the Agent and without setoff, counterclaim or
deduction of any kind whatsoever interest on the unpaid amount at the Federal
Funds Rate for each day from the date such amount shall be due and payable to
the Agent until the date such amount shall have been paid in full to the Agent
by such Lender.
Section 2.3 INTEREST.
2.3.1 APPLICABLE INTEREST RATES.
(a) Each Loan shall bear interest until maturity
(whether by acceleration, declaration, extension or otherwise) at either the
Base Rate or the LIBOR Rate, as selected and specified by the Borrower in an
Interest Rate Election Notice furnished to the Agent in accordance with the
provisions of Section 2.3.2(e) (Selection of Interest Rates), or as otherwise
determined in accordance with the provisions of this Section 2.3 (Interest), and
as may be adjusted from time to time in accordance with the provisions of
Section 2.3.3 (Inability to Determine LIBOR Base Rate).
(b) Notwithstanding the foregoing, following the
occurrence and during the continuance of an Event of Default, at the option of
the Agent, all Loan and other Obligations shall bear interest at the
Post-Default Rate.
(c) With resect to the Revolving Loans, the
Applicable Margin for (i) LIBOR Loans shall be two (2%) per annum, and (ii) Base
Rate Loans shall be one-quarter (.25%) per annum.
(d) Changes in the Applicable Margin shall be made
not more frequently than quarterly based on the Borrower's Pricing Ratio,
determined by the Agent in the exercise of its sole and absolute discretion from
the monthly reports required by Section 6.1.1(c)) (Monthly Statements and
Certificates) commencing with the statements for the period ending October 3,
1998. The Applicable Margin shall vary depending upon the Borrower's Pricing
Ratio, as follows:
39
<PAGE> 47
- -------------------------------------------------------------------------------
Applicable Margin for
Applicable Margin for Base Rate Revolving
Pricing Ratio LIBOR Revolving Loans Loans
- -------------------------------------------------------------------------------
Greater than 1.0 to 1.0
but less than 1.15 to 1.0 225 basis points 50 basis points
- -------------------------------------------------------------------------------
Greater than 1.15 to
1.0 but less than 1.6 to 1.0 200 basis points 25 basis points
- -------------------------------------------------------------------------------
Greater than 1.6 to 1.0
but less than 2.0 to 1.0 175 basis points 0 basis points
- -------------------------------------------------------------------------------
Greater than 2.0 to 1.0 150 basis points 0 basis points
- -------------------------------------------------------------------------------
2.3.2 SELECTION OF INTEREST RATES.
(a) The Borrower may select the initial
Applicable Interest Rate or Applicable Interest Rates to be charged on the Loan.
(b) From time to time after the date of this
Agreement as provided in this Section, by a proper and timely Interest Rate
Election Notice furnished to the Agent in accordance with the provisions of
Section 2.3.1(c)(e), the Borrower may select an initial Applicable Interest Rate
or Applicable Interest Rates for the Loan or may convert the Applicable Interest
Rate and, when applicable, the Interest Period, for any existing Loan to any
other Applicable Interest Rate or, when applicable, any other Interest Period.
(c) The Borrower's selection of an Applicable
Interest Rate and/or an Interest Period, the Borrower's election to convert an
Applicable Interest Rate and/or an Interest Period to another Applicable
Interest Rate or Interest Period, and any other adjustments in an interest rate
are subject to the following limitations:
(i) the Borrower shall not at any time
select or change to an Interest Period that extends beyond the
Revolving Credit Expiration Date,
(ii) except as otherwise provided in
Section 2.3.4 (Indemnity), no change from the LIBOR Rate to the
Base Rate shall become effective on a day other than a Business
Day and on a day which is the last day of the then current
Interest Period, no change of an Interest Period shall become
effective on a day other than the last day of the then current
Interest Period, and no change from the Base Rate to the LIBOR
Rate shall become effective on a day other than a day which is a
Eurodollar Business Day.
(iii) any Applicable Interest Rate change
for any Loan to be effective on a date on which any principal
payment on account of such Loan is scheduled to be paid shall be
made only after such payment shall have been made,
40
<PAGE> 48
(iv) no more than eight (8) different
LIBOR Rates may be outstanding at any time and from time to time,
(v) the first day of each Interest
Period shall be a Eurodollar Business Day,
(vi) as of the effective date of a
selection, there shall not exist a Default or an Event of
Default, and
(vii) the minimum principal amount of a
LIBOR Loan shall be Five Hundred Thousand Dollars ($500,000).
(d) If a request for an advance under the Loan
is not accompanied by an Interest Rate Election Notice or does not otherwise
include a selection of an Applicable Interest Rate and, if applicable, an
Interest Period, or if, after having made a selection of an Applicable Interest
Rate and, if applicable, an Interest Period, the Borrower fails or is not
otherwise entitled under the provisions of this Agreement to continue such
Applicable Interest Rate or Interest Period, the Borrower shall be deemed to
have selected the Base Rate as the Applicable Interest Rate until such time as
the Borrower has selected a different Applicable Interest Rate and specified an
Interest Period in accordance with, and subject to, the provisions of this
Section.
(e) The Lenders will not be obligated to make
advances of the Loan, to convert the Applicable Interest Rate on advances of the
Loan to another Applicable Interest Rate, or to change Interest Periods, unless
the Agent shall have received an irrevocable written or telephonic notice (an
"Interest Rate Election Notice") from the Borrower specifying the following
information:
(i) the amount to be borrowed or
converted,
(ii) a selection of the Base Rate or the
LIBOR Rate,
(iii) the length of the Interest Period
if the Applicable Interest Rate selected is the LIBOR Rate, and
(iv) the requested date on which such
election is to be effective.
Any telephonic notice must be confirmed in writing within three (3) Business
Days. Each Interest Rate Election Notice must be received by the Agent not later
than 1:30 p.m. (Baltimore City time) on the Business Day of any requested
borrowing or conversion in the case of a selection of the Base Rate and not
later than 1:30 p.m. (Baltimore City time) on the third Business Day before the
effective date of any requested borrowing or conversion in the case of a
selection of the LIBOR Rate.
41
<PAGE> 49
2.3.3 INABILITY TO DETERMINE LIBOR BASE RATE.
In the event that (a) the Agent shall have determined
that, by reason of circumstances affecting the London interbank eurodollar
market, adequate and reasonable means do not exist for ascertaining the LIBOR
Base Rate for any requested Interest Period with respect to a Loan the Borrower
has requested to be made as or to be converted to a LIBOR Loan or (b) the Agent
shall determine that the LIBOR Base Rate for any requested Interest Period with
respect to a Loan the Borrower has requested to be made as or to be converted to
a LIBOR Loan does not adequately and fairly reflect the cost to the Agent and/or
any of the Lenders of funding or converting such Loan, the Agent shall give
telephonic notice, followed by prompt written notice, or written notice of such
determination to the Borrower at least one (1) Business Day prior to the
proposed date for funding or converting such Loan. If such notice is given, any
request for a LIBOR Loan shall be made as or converted to a Base Rate Loan.
Until such notice has been withdrawn by the Agent, the Borrower will not request
that any Loan be made as or converted to a LIBOR Loan.
2.3.4 INDEMNITY.
The Borrower agrees to indemnify and reimburse the Agent
and each of the Lenders and to hold the Agent and each of the Lenders harmless
from any loss, cost (including administrative costs) or expense which the Agent
and/or any of the Lenders may sustain or incur as a consequence of (a) a default
by the Borrower in payment when due of the principal amount of or interest on
any LIBOR Loan, (b) the failure of the Borrower to make, or convert the
Applicable Interest Rate of, a Loan after the Borrower has given a Loan Notice
or an Interest Rate Election Notice, (c) the failure of the Borrower to make any
prepayment of a LIBOR Loan after the Borrower has given notice of such intention
to make such a prepayment, and/or (d) the making by the Borrower of a prepayment
of a LIBOR Loan on a day which is not the last day of the Interest Period for
such LIBOR Loan, calculated as provided in the following paragraph, including,
without limitation, any such loss or expense arising from the reemployment of
funds obtained by the Agent and/or any of the Lenders to maintain any LIBOR Loan
or from fees payable to terminate the deposits from which such funds were
obtained. This agreement and covenant of the Borrower shall survive termination
or expiration of this Agreement and payment of the other Obligations.
Contemporaneously with any prepayment of principal of a
LIBOR Loan on a date which is not the last date of the applicable Interest
Period, a prepayment fee shall be due and payable to the Lenders in an amount
equal to the PRODUCT of
(A) the amount so prepaid
MULTIPLIED BY
(B) THE DIFFERENCE (but not less than zero) of
(i) the constant maturity 360-day interest yield (as of
the first day of the then effective Interest Period and
expressed as a decimal) for a United States Treasury
bill, note, or bond (a "Treasury obligation") selected by
the Lender, in an aggregate amount comparable to the
amount prepaid,
42
<PAGE> 50
and having, as of the first day of the then effective
Interest Period, a remaining term approximately equal to
the original Interest Period,
MINUS
(ii) the 360-day interest yield (as of the Business Day
immediately preceding the prepayment date and expressed
as a decimal) on such Treasury obligation and having, as
of the Business Day immediately preceding the prepayment
date, a remaining term until maturity approximately equal
to the unexpired portion of the Interest Period,
MULTIPLIED BY
(C) THE QUOTIENT of
(y) the number of calendar days in the unexpired portion
of the Interest Period, DIVIDED BY
(x) 360.
The applicable yields on the Treasury obligations described above shall be
determined based upon the Federal Reserve statistical release H.15 published for
the applicable determination dates set forth above. Any Treasury obligation
selected when the related Interest Period is one year or less shall be United
States Treasury Bills. Neither the Agent nor any of the Lenders shall be
obligated or required to have actually reinvested the prepaid amount of the
LIBOR Loan in any such Treasury obligation as a condition precedent to the
Borrower's being obligated to pay a prepayment fee as outlined above. Neither
the Agent nor any of the Lenders shall be obligated to accept any prepayment of
principal unless it is accompanied by the prepayment fee, if any, due in
connection therewith as calculated pursuant to the provisions of this paragraph.
No prepayment fee payable in connection herewith shall in any event or under any
circumstances be deemed or construed as a penalty.
2.3.5 PAYMENT OF INTEREST.
(a) Unpaid and accrued interest on any advance of
the Revolving Loan which consists of a Base Rate Loan shall be paid monthly, in
arrears, on the first day of each calendar month, commencing on the first such
date after the date of this Agreement, and on the first day of each calendar
month thereafter, and at maturity (whether by acceleration, declaration,
extension or otherwise).
(b) Unpaid and accrued interest on any LIBOR Loan
shall be paid on the last Business Day of each Interest Period for such LIBOR
Loan and at maturity (whether by acceleration, declaration, extension or
otherwise); provided, however that any and all unpaid and accrued interest on
any LIBOR Loan prepaid prior to expiration of the then current Interest Period
for such LIBOR Loan shall be paid immediately upon prepayment; and provided
further, further that with respect to any LIBOR Loan for which the Interest
Period is one hundred and eighty (180) days, unpaid and accrued interest shall
be paid quarterly of the first day of each quarterly period during such Interest
Period.
43
<PAGE> 51
Section 2.4 GENERAL FINANCING PROVISIONS.
2.4.1 COMMUNICATIONS AND INTER-COMPANY ADVANCES.
(a) Neither the Agent nor any of the Lenders
assumes any responsibility or liability for any errors, mistakes, and/or
discrepancies in the oral, telephonic, written or other transmissions of any
instructions, orders, requests and confirmations between the Agent and the
Borrower, Foster Grant or Fantasma or the Agent and any of the Lenders in
connection with the Credit Facilities, any Loan, any Letter of Credit or any
other transaction in connection with the provisions of this Agreement.
(b) Without implying any limitation on the joint
and several nature of the Obligations, the Lenders agree that, notwithstanding
any other provision of this Agreement, the Obligors may create reasonable
inter-company indebtedness between or among the Obligors with respect to the
allocation of the benefits and proceeds of the advances and Credit Facilities
under this Agreement. Each of the Obligors hereby waives all rights of
counterclaim, recoupment and offset between or among themselves arising on
account of that indebtedness and otherwise. None of the Borrower, Foster Grant
and Fantasma shall evidence the inter-company indebtedness or rights of
contribution by note or other instrument, and shall not secure such indebtedness
or rights of contribution with any Lien or security, even though any such Lien
and security shall be part of the Collateral. Notwithstanding anything contained
in this Agreement to the contrary, the amount covered by each of the Obligors
under the Obligations (including, without limitation, Section 2.4.9 (Guaranty))
shall be limited to an aggregate amount (after giving effect to any collections
from, rights to receive contribution from or payments made by or on behalf of
any other of the Obligors in respect of the Obligations) which, together with
other amounts owing by the Obligors to the Agent and the Lenders under the
Obligations, is equal to the largest amount that would not be subject to
avoidance under the Bankruptcy Code or any applicable provisions of any
applicable, comparable state or other Laws.
2.4.2 USE OF PROCEEDS OF THE LOAN.
The proceeds of the Loan shall be used by the Borrower
for Permitted Uses, and for no other purposes except as may otherwise be agreed
by the Agent in writing. The Borrower understands and agrees that payment of
management bonuses may not be paid with the proceeds of the Loan at any time
following the occurrence and during the continuance of a Default or an Event of
Default. The Borrower shall use the proceeds of the Loan promptly.
2.4.3 FIELD EXAMINATION FEES.
The Borrower shall cause to be paid to the Agent for the
exclusive benefit of the Agent a field examination and loan administration fee
(collectively, the "Field Examination Fees" and individually a "Field
Examination Fee"), which Field Examination Fees shall be payable quarterly on
the first day of each calendar quarter commencing on the first such date
following the Closing Date, and continuing until the last such date prior to
which all Obligations arising out of, or under, the Credit Facilities then
outstanding have been paid in full. Each Field Examination Fee shall be in the
amount equal to the sum of (a) Fifteen Thousand Dollars ($15,000), plus (b) all
reasonable out-of-pocket expenses, if any, reasonably incurred by the Agent in
connection with the conduct and review of the field examination conducted during
such quarter. The Borrower
44
<PAGE> 52
agrees that it shall be required to pay a Field Examination Fee to the Agent for
each quarterly period regardless of whether the Agent actually conducts a field
examination during or with respect to such quarterly period, but that no
additional fees for field examination (other than out-of-pocket expenses) or
loan administration shall be payable by the Borrower.
2.4.4 COMPUTATION OF INTEREST AND FEES.
All applicable Fees and interest shall be calculated on
the basis of a year of 360 days for the actual number of days elapsed. Any
change in the interest rate on any of the Obligations resulting from a change in
the Base Rate shall become effective as of the opening of business on the day on
which such change in the Base Rate is announced.
2.4.5 PAYMENTS.
All payments of the Obligations, including, without
limitation, principal, interest, Prepayments, and Fees, shall be paid by the
Borrower without setoff or counterclaim to the Agent (except as otherwise
provided herein) at the Agent's office specified in Section 9.1 (Notices) in
immediately available funds not later than 1:30 p.m. (Baltimore City Time) on
the due date of such payment. All payments received by the Agent after such time
shall be deemed to have been received by the Agent for purposes of computing
interest and Fees and otherwise as of the next Business Day. Payments shall not
be considered received by the Agent until such payments are paid to the Agent in
immediately available funds. Alternatively, at its discretion, the Agent may
charge any deposit account of the Borrower at the Agent or any Affiliate of the
Agent with all or any part of any amount due to the Agent and/or any of the
Lenders under this Agreement or under any of the other Financing Documents to
the extent that the Borrower shall have not otherwise tendered payment to the
Agent. All payments shall be applied first to any unpaid Fees, second to any and
all accrued and unpaid late charges and Enforcement Costs, third to any and all
accrued and unpaid interest on the Agent's Obligations, fourth to the then
unpaid principal balance of the Agent's Obligations, fifth to any and all
accrued and unpaid interest on the other Obligations, and then to the then
unpaid principal balance of the other Obligations, all in such order and manner
as shall be determined by Agent in its sole and absolute discretion.
2.4.6 LIENS; SETOFF.
The Borrower, Foster Grant and Fantasma hereby grant to
the Agent and to the Lenders a continuing Lien for all of the Obligations
(including, without limitation, the Agent's Obligations) upon any and all
monies, Securities, and other personal property of the Borrower, Foster Grant
and Fantasma and the proceeds thereof, now or hereafter held or received by or
in transit to, the Agent, any of the Lenders, and/or any Affiliate of the Agent
and/or any of the Lenders, from or for the Borrower, Foster Grant and Fantasma,
and also upon any and all depository accounts (whether general or special) and
credits of the Borrower, Foster Grant and Fantasma, if any, with the Agent, any
of the Lenders or any Affiliate of the Agent or any of the Lenders, at any time
existing, excluding any depository accounts held by the Borrower, Foster Grant
and Fantasma in their capacity as trustee for other Persons who are not one of
them or Affiliates of one of them. Without implying any limitation on any other
rights the Agent and/or the Lenders may have under the Financing Documents or
applicable Laws, during the continuance of an Event of Default, the Agent is
hereby authorized by the Borrower, Foster Grant and
45
<PAGE> 53
Fantasma at any time and from time to time, at the Agent's option, without
notice to, or consent of, the Obligors, to set off, appropriate, seize, freeze
and apply any or all items hereinabove referred to against all Obligations
(including, without limitation, the Agent's Obligations) then outstanding, all
in such order and manner as shall be determined by the Agent in its sole and
absolute discretion.
2.4.7 REQUIREMENTS OF LAW.
In the event that any Lender shall have determined in
good faith that (a) the adoption of any Laws regarding capital adequacy, or (b)
any change in such Laws or in the interpretation or application thereof or (c)
compliance by such Lender or any corporation controlling such Lender with any
request or directive regarding capital adequacy (whether or not having the force
of law) from any central bank or Governmental Authority, does or shall have the
effect of reducing the rate of return on the capital of such Lender or any
corporation controlling such Lender, as a consequence of the obligations of the
such Lender hereunder to a level below that which such Lender or any corporation
controlling such Lender would have achieved but for such adoption, change or
compliance (taking into consideration the policies of such Lender and the
corporation controlling such Lender, with respect to capital adequacy) by an
amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Borrower of a written request therefor and a
statement of the basis for such determination, the Borrower shall pay to such
Lender ON DEMAND such additional amount or amounts in order to compensate such
Lender or its controlling corporation for such reduction.
2.4.8 FUNDS TRANSFER SERVICES.
(a) The Borrower, Foster Grant and Fantasma have
requested that the Agent and its Affiliates make available to the Borrower,
Foster Grant and Fantasma electronic funds transfer services and related
security measures in connection with the Obligations. Each of the Borrower
Foster Grant and Fantasma acknowledge that the Agent has made available to the
Borrower, Foster Grant and Fantasma its Wire Transfer Procedures, a copy of
which is attached to this Agreement as EXHIBIT "B" and which include a
description of security procedures regarding funds transfers executed by the
Agent or an Affiliate bank at the request of the Borrower, Foster Grant and
Fantasma (the "Security Procedures"). The Borrower, Foster Grant and Fantasma
and the Agent agree that the Security Procedures are commercially reasonable.
Each Borrower, Foster Grant and Fantasma further acknowledges that the full
scope of the Security Procedures which the Agent or such Affiliate bank offers
and strongly recommends for funds transfers is available only if the Borrower,
Foster Grant and Fantasma communicate directly with the Agent or such Affiliate
bank as applicable in accordance with said procedures. If the Borrower, Foster
Grant or Fantasma attempts to communicate by any other method or otherwise not
in accordance with the Security Procedures, the Agent or such Affiliate bank, as
applicable, shall not be required to execute such instructions, but if the Agent
or such Affiliate bank, as applicable, does so, the Borrower, Foster Grant and
Fantasma will be deemed to have refused the Security Procedures that the Agent
or such Affiliate bank as applicable offers and strongly recommends, and the
Borrower, Foster Grant and Fantasma will be bound by any funds transfer, whether
or not authorized, which is issued in any Borrower's, Foster Grant's or
Fantasma's name and accepted by the Agent or such Affiliate bank, as applicable,
in good faith. The Agent or such Affiliate bank, as applicable, may modify Wire
Transfer Procedures including,
46
<PAGE> 54
without limitation, the Security Procedures at such time or times and in such
manner as the Agent or such Affiliate bank, as applicable, in its sole
discretion, deems appropriate to meet prevailing standards of good banking
practice. By continuing to use the Agent's or such Affiliate bank's, as
applicable, wire transfer services after receipt of any modification of the Wire
Transfer procedures including, without limitation, the Security Procedures, each
of the Borrower, Foster Grant and Fantasma agrees that the Security Procedures,
as modified, are likewise commercially reasonable. Each of the Borrower, Foster
Grant and Fantasma further agrees to establish and maintain procedures to
safeguard the Security Procedures and any information related thereto. Neither
the Agent nor any Affiliate of the Agent is responsible for detecting any error
in payment order sent by any of the Borrower, Foster Grant and Fantasma to the
Agent or any of the Lenders.
(b) The Agent or such Affiliate bank, as
applicable, will generally use the Fedwire funds transfer system for domestic
funds transfers, and the funds transfer system operated by the Society for
Worldwide International Financial Telecommunication (SWIFT) for international
funds transfers. International funds transfers may also be initiated through the
Clearing House InterBank Payment System (CHIPs) or international cable. However,
the Agent or such Affiliate bank, as applicable, may use any means and routes
that the Agent or such Affiliate bank, as applicable, in its sole discretion,
may consider suitable for the transmission of funds. Each payment order, or
cancellation thereof, carried out through a funds transfer system or a
clearinghouse will be governed by all applicable funds transfer system rules and
clearing house rules and clearing arrangements, whether or not the Agent or such
Affiliate bank, as applicable, is a member of the system, clearinghouse or
arrangement and each of the Borrower, Foster Grant and Fantasma acknowledges
that the Agent's or such Affiliate bank's, as applicable, right to reverse,
adjust, stop payment or delay posting of an executed payment order is subject to
the laws, regulations, rules, circulars and arrangements described herein.
2.4.9 GUARANTY.
(a) Each of the Obligors hereby
unconditionally and irrevocably, guarantees to the Agent and the Lenders:
(i) the due and punctual payment in
full (and not merely the collectibility) by the other Obligors of the
Obligations, including unpaid and accrued interest thereon, in each case
when due and payable, all according to the terms of this Agreement, the
Notes and the other Financing Documents;
(ii) the due and punctual payment in
full (and not merely the collectibility) by the other Obligors of all
other sums and charges which may at any time be due and payable in
accordance with this Agreement, the Notes or any of the other Financing
Documents;
(iii) the due and punctual performance by
the other Obligors of all of the other terms, covenants and conditions
contained in the Financing Documents; and
(iv) all the other Obligations of the
other Obligors.
47
<PAGE> 55
(b) The obligations and liabilities of each
Obligor as a guarantor under this Section 2.4.9 (Guaranty) shall be absolute and
unconditional and joint and several, irrespective of the genuineness, validity,
priority, regularity or enforceability of this Agreement, any of the Notes or
any of the Financing Documents or any other circumstance which might otherwise
constitute a legal or equitable discharge of a surety or guarantor. Each Obligor
in its capacity as a guarantor expressly agrees that the Agent and the Lenders
may, in their sole and absolute discretion, without notice to or further assent
of such Obligor and without in any way releasing, affecting or in any way
impairing the joint and several obligations and liabilities of such Obligor as a
guarantor hereunder:
(i) waive compliance with, or any
defaults under, or grant any other indulgences under or with respect to
any of the Financing Documents;
(ii) modify, amend, change or terminate
any provisions of any of the Financing Documents in accordance with the
provisions of this Agreement including, without limitation, the
agreements of necessary parties;
(iii) grant extensions or renewals of or
with respect to the Credit Facilities, the Notes or any of the other
Financing Documents;
(iv) effect any release, subordination,
compromise or settlement in connection with this Agreement, any of the
Notes or any of the other Financing Documents;
(v) agree to the substitution,
exchange, release or other disposition of the Collateral or any part
thereof, or any other collateral for the Loan or to the subordination of
any lien or security interest therein;
(vi) make advances for the purpose of
performing any term, provision or covenant contained in this Agreement,
any of the Notes or any of the other Financing Documents with respect to
which the Obligors shall then be in default;
(vii) make future advances pursuant to
the Financing Agreement or any of the other Financing Documents;
(viii) assign, pledge, hypothecate or
otherwise transfer the Commitments, the Obligations, the Notes, any of
the other Financing Documents or any interest therein, all as and to the
extent permitted by the provisions of this Agreement;
(ix) deal in all respects with the other
Obligors as if this Section 2.4.9 were not in effect;
48
<PAGE> 56
(x) effect any release, compromise or
settlement with any of the other Obligors, whether in their capacity as
a Obligor or as a guarantor under this Section 2.4.9, or any other
guarantor; and
(xi) provide debtor-in-possession
financing or allow use of cash collateral in proceedings under the
Bankruptcy Code, it being expressly agreed by all Obligors that any such
financing and/or use would be part of the Obligations.
(c) The obligations and liabilities of each
Obligor, as guarantor under this Section 2.4.9, shall be primary, direct and
immediate, shall not be subject to any counterclaim, recoupment, set off,
reduction or defense based upon any claim that a Obligor may have against any
one or more of the other Obligors, the Agent, any one or more of the Lenders
and/or any other guarantor and shall not be conditional or contingent upon
pursuit or enforcement by the Agent or other Lenders of any remedies it may have
against the Obligors with respect to this Agreement, the Notes or any of the
other Financing Documents, whether pursuant to the terms thereof or by operation
of law. Without limiting the generality of the foregoing, the Agent and the
Lenders shall not be required to make any demand upon any of the Obligors, or to
sell the Collateral or otherwise pursue, enforce or exhaust its or their
remedies against the Obligors or the Collateral either before, concurrently with
or after pursuing or enforcing its rights and remedies hereunder. Any one or
more successive or concurrent actions or proceedings may be brought against each
Obligor under this Section 2.4.9, either in the same action, if any, brought
against any one or more of the Obligors or in separate actions or proceedings,
as often as the Agent may deem expedient or advisable. Without limiting the
foregoing, it is specifically understood that any modification, limitation or
discharge of any of the liabilities or obligations of any one or more of the
Obligors, any other guarantor or any Obligor under any of the Financing
Documents, arising out of, or by virtue of, any bankruptcy, arrangement,
reorganization or similar proceeding for relief of debtors under federal or
state law initiated by or against any one or more of the Obligors, in their
respective capacities as Obligors and guarantors under this Section 2.4.9, or
under any of the Financing Documents shall not modify, limit, lessen, reduce,
impair, discharge, or otherwise affect the liability of each Obligor under this
Section 2.4.9 in any manner whatsoever, and this Section 2.4.9 shall remain and
continue in full force and effect. It is the intent and purpose of this Section
2.4.9 that each Obligor shall and does hereby waive all rights and benefits
which might accrue to any other guarantor by reason of any such proceeding, and
the Obligors agree that they shall be liable for the full amount of the
obligations and liabilities under this Section 2.4.9, regardless of, and
irrespective to, any modification, limitation or discharge of the liability of
any one or more of the Obligors, any other guarantor or any Obligor under any of
the Financing Documents, that may result from any such proceedings.
(d) Each Obligor, as guarantor under this
Section 2.4.9, hereby unconditionally, jointly and severally, irrevocably and
expressly waives:
(i) presentment and demand for payment
of the Obligations and protest of non-payment;
49
<PAGE> 57
(ii) notice of acceptance of this
Section 2.4.9 and of presentment, demand and protest thereof;
(iii) notice of any default hereunder or
under the Notes or any of the other Financing Documents and notice of
all indulgences;
(iv) notice of any increase in the
amount of any portion of or all of the indebtedness guaranteed by this
Section 2.4.9;
(v) demand for observance, performance
or enforcement of any of the terms or provisions of this Section 2.4.9,
the Notes or any of the other Financing Documents;
(vi) all errors and omissions in
connection with the Lender's administration of all indebtedness
guaranteed by this Section 2.4.9, except errors and omissions resulting
from acts of bad faith;
(vii) any right or claim of right to
cause a marshalling of the assets of any one or more of the other
Obligors;
(viii) any act or omission of the Agent or
the Lenders which changes the scope of the risk as guarantor hereunder;
and
(ix) all other notices and demands
otherwise required by law which the Obligor may lawfully waive.
(e) Within ten (10) days following any request
of the Agent so to do, each Obligor will furnish the Agent and the Lenders and
such other persons as the Agent may direct with a written certificate, duly
acknowledged stating in detail whether or not any credits, offsets or defenses
exist with respect to this Section 2.4.9.
(f) Notwithstanding any provision contained
herein to the contrary, the maximum amount payable hereunder by each Guarantor
shall at no time exceed the Maximum Amount of such Guarantor. Each Guarantor
understands, agrees and confirms that the Agent and the Lenders may enforce this
Section up to the full amount of the Obligations against each Guarantor (subject
to the proviso in the preceding sentence) without proceeding against any other
Guarantor or any security for the Obligations, or under any other guaranty
covering all or a portion of the Obligations. All payments by each Guarantor
under this Section shall be made on the same basis as payments by the Borrower
under this Agreement.
2.4.10 NO NOVATION.
The Obligors acknowledge and agree that the Notes
delivered on the date of this Agreement have been delivered in substitution for
the Notes delivered under the terms of the Original Financing Agreement and that
the execution and delivery of the Notes delivered on the date of this Agreement
are not intended to and shall not cause a novation with respect to any or all of
the Obligations.
50
<PAGE> 58
Section 2.5 SETTLEMENT AMONG LENDERS.
2.5.1 REVOLVING LOAN.
It is agreed that each Lender's Net Outstandings are
intended by the Lenders to be equal at all times to such Lender's Revolving
Credit Pro Rata Share of the aggregate outstanding principal amount of the
Revolving Loan outstanding. Notwithstanding such agreement, the several and not
joint obligation of each Lender to fund the Revolving Loan made in accordance
with the terms of this Agreement ratably in accordance with such Lender's
Revolving Credit Pro Rata Share and each Lender's right to receive its ratable
share of principal payments on the Revolving Loan in accordance with its
Revolving Credit Pro Rata Share, the Lenders agree that in order to facilitate
the administration of this Agreement and the Financing Documents that settlement
among them may take place on a periodic basis in accordance with the provisions
of this Section 2.5.
2.5.2 SETTLEMENT PROCEDURES AS TO REVOLVING LOAN.
(a) IN GENERAL. To the extent and in the manner
hereinafter provided in this Section 2.5.2, settlement among the Lenders as to
the Revolving Loan may occur periodically on Settlement Dates determined from
time to time by the Agent, which may occur before or after the occurrence or
during the continuance of a Default or Event of Default and whether or not all
of the conditions set forth in 5.1.17 (Conditions to All Extensions of Credit)
have been met. On each Settlement Date payments shall be made by or to
NationsBank and the other Lenders in the manner provided in this Section 2.5.2
in accordance with the Settlement Report delivered by the Agent pursuant to the
provisions of this Section 2.5.2 in respect of such Settlement Date so that as
of each Settlement Date, and after giving effect to the transactions to take
place on such Settlement Date, each Lender's Net Outstandings shall equal such
Lender's Revolving Credit Pro Rata Share of the Revolving Loan outstanding.
(b) SELECTION OF SETTLEMENT DATES. If the Agent
elects, in its discretion, but subject to the consent of NationsBank, to settle
accounts among the Lenders with respect to principal amounts of Revolving Loan
less frequently than each Business Day, then the Agent shall designate periodic
Settlement Dates which may occur on any Business Day after the Closing Date;
provided, however, that the Agent shall designate as a Settlement Date any
Business Day which is an Interest Payment Date; and provided further, that a
Settlement Date shall occur at least once during each seven-day period. The
Agent shall designate a Settlement Date by delivering to each Lender a
Settlement Report not later than 12:00 noon (Baltimore City Time) on the
proposed Settlement Date, which Settlement Report shall be with respect to the
period beginning on the next preceding Settlement Date and ending on such
designated Settlement Date.
(c) NON-RATABLE LOANS AND PAYMENTS. Between
Settlement Dates, the Agent shall request and NationsBank may (but shall not be
obligated to) advance to the Borrower out of NationsBank's own funds, the entire
principal amount of any advance under the Revolving Loan requested or deemed
requested pursuant to Section 2.1.2 (Procedure for Making Advances) (any such
advance under the Revolving Loan being referred to as a "Non-Ratable Loan"). The
making of each Non-Ratable Loan by NationsBank shall be deemed to be a purchase
51
<PAGE> 59
by NationsBank of a 100% participation in each other Lender's Revolving Credit
Pro Rata Share of the amount of such Non-Ratable Loan. All payments of
principal, interest and any other amount with respect to such Non-Ratable Loan
shall be payable to and received by the Agent for the account of NationsBank.
Upon demand by NationsBank, with notice to the Agent, each other Lender shall
pay to NationsBank, as the repurchase of such participation, an amount equal to
100% of such Lender's Revolving Credit Pro Rata Share of the principal amount of
such Non-Ratable Loan. Any payments received by the Agent between Settlement
Dates which in accordance with the terms of this Agreement are to be applied to
the reduction of the outstanding principal balance of Revolving Loan, shall be
paid over to and retained by NationsBank for such application, and such payment
to and retention by NationsBank shall be deemed, to the extent of each other
Lender's Revolving Credit Pro Rata Share of such payment, to be a purchase by
each such other Lender of a participation in the advance under the Revolving
Loan (including the repurchase of participations in Non-Ratable Loans) made by
NationsBank. Upon demand by another Lender, with notice thereof to the Agent,
NationsBank shall pay to the Agent, for the account of such other Lender, as a
repurchase of such participation, an amount equal to such other Lender's
Revolving Credit Pro Rata Share of any such amounts (after application thereof
to the repurchase of any participations of NationsBank in such other Lender's
Revolving Credit Pro Rata Share of any Non-Ratable Loans) paid only to
NationsBank by the Agent.
(d) NET DECREASE IN OUTSTANDINGS. If on any
Settlement Date the increase, if any, in the dollar amount of any Lender's Net
Outstandings which is required to comply with the first sentence of Section
2.5.1 (Revolving Loan) is less than such Lender's Revolving Credit Pro Rata
Share of amounts received by the Agent but paid only to NationsBank since the
next preceding Settlement Date, such Lender and the Agent, in their respective
records, shall apply such Lender's Revolving Credit Pro Rata Share of such
amounts to the increase in such Lender's Net Outstandings, and NationsBank shall
pay to the Agent, for the account of such Lender, the excess allocable to such
Lender.
(e) NET INCREASE IN OUTSTANDINGS. If on any
Settlement Date the increase, if any, in the dollar amount of any Lender's Net
Outstandings which is required to comply with the first sentence of Section
2.5.1 (Revolving Loan) exceeds such Lender's Revolving Credit Pro Rata Share of
amounts received by the Agent but paid only to NationsBank since the next
preceding Settlement Date, such Lender and the Agent, in their respective
records, shall apply such Lender's Revolving Credit Pro Rata Share of such
amounts to the increase in such Lender's Net Outstandings, and such Lender shall
pay to the Agent, for the account of NationsBank, any excess.
(f) NO CHANGE IN OUTSTANDINGS. If a Settlement
Report indicates that no advance under the Revolving Loan has been made during
the period since the next preceding Settlement Date, then such Lender's
Revolving Credit Pro Rata Share of any amounts received by the Agent but paid
only to NationsBank shall be paid by NationsBank to the Agent, for the account
of such Lender. If a Settlement Report indicates that the increase in the dollar
amount of a Lender's Net Outstandings which is required to comply with the first
sentence of Section 2.5.1 (Revolving Loan) is exactly equal to such Lender's
Revolving Credit Pro Rata Share of amounts received by the Agent but paid only
to NationsBank since the next preceding Settlement Date, such Lender and the
Agent, in their respective records, shall apply such Lender's
52
<PAGE> 60
Revolving Credit Pro Rata Share of such amounts to the increase in such Lender's
Net Outstandings.
(g) RETURN OF PAYMENTS. If any amounts
received by NationsBank in respect of the Obligations are later required to be
returned or repaid by NationsBank to the Obligors or any other Obligor or their
respective representatives or successors in interest, whether by court order,
settlement or otherwise, in excess of the NationsBank's Revolving Credit Pro
Rata Share of all such amounts required to be returned by all Lenders, each
other Lender shall, upon demand by NationsBank with notice to the Agent, pay to
the Agent for the account of NationsBank, an amount equal to the excess of such
Lender's Revolving Credit Pro Rata Share of all such amounts required to be
returned by all Lenders over the amount, if any, returned directly by such
Lender.
(h) PAYMENTS TO AGENT, LENDERS.
(i) Payment by any Lender to the Agent
shall be made not later than 2:00 p.m. (Baltimore City Time) on
the Business Day such payment is due, provided that if such
payment is due on demand by another Lender, such demand is made
on the paying Lender not later than 10:00 a.m. (Baltimore City
Time) on such Business Day. Payment by the Agent to any Lender
shall be made by wire transfer, promptly following the Agent's
receipt of funds for the account of such Lender and in the type
of funds received by the Agent, provided that if the Agent
receives such funds at or prior to 12:00 p.m. noon (Baltimore
City Time), the Agent shall pay such funds to such Lender by 2:00
p.m. (Baltimore City Time) on such Business Day. If a demand for
payment is made after the applicable time set forth above, the
payment due shall be made by 2:00 p.m. (Baltimore City Time) on
the first Business Day following the date of such demand.
(ii) If a Lender shall, at any time,
fail to make any payment to the Agent required hereunder, the
Agent may, but shall not be required to, retain payments that
would otherwise be made to such Lender hereunder and apply such
payments to such Lender's defaulted obligations hereunder, at
such time, and in such order, as the Agent may elect in its sole
discretion.
(iii) With respect to the payment of any
funds under this Section 2.5.2, whether from the Agent to a
Lender or from a Lender to the Agent, the party failing to make
full payment when due pursuant to the terms hereof shall, upon
demand by the other party, pay such amount together with interest
on such amount at the Federal Funds Rate.
2.5.3 SETTLEMENT OF OTHER OBLIGATIONS.
All other amounts received by the Agent on account of, or
applied by the Agent to the payment of, any Obligation owed to the Lenders
(including, without limitation, Fees
53
<PAGE> 61
payable to the Lenders and proceeds from the sale of, or other realization upon,
all or any part of the Collateral following an Event of Default) that are
received by the Agent not later than 11:00 a.m. (Baltimore City Time) on a
Business Day will be paid by the Agent to each Lender on the same Business Day,
and any such amounts that are received by the Agent after 11:00 a.m. (Baltimore
City Time) will be paid by the Agent to each Lender on the following Business
Day. Unless otherwise stated herein, the Agent shall distribute Fees payable to
the Lenders ratably to the Lenders based on each Lender's Revolving Credit Pro
Rata Share and shall distribute proceeds from the sale of, or other realization
upon, all or any part of the Collateral following an Event of Default ratably to
the Lenders based on the amount of the Obligations then owing to each Lender.
2.5.4 PRESUMPTION OF PAYMENT.
(a) Unless the Agent shall have received notice
from a Lender prior to 2:30 p.m. (Baltimore City Time) on the date of the
requested date for the making of advances under the Revolving Loan that such
Lender will not make available to the Agent, such Lender's Revolving Credit Pro
Rata Share of the advances to be made on such date, the Agent may assume that
such Lender has made such amount available to the Agent on such date in
accordance with this Section 2.5, and the Agent, in its sole discretion may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount on behalf of such Lender.
(b) If and to the extent such Lender shall not
have so made available to the Agent its Revolving Credit Pro Rata Share of the
advances under the Revolving Loan made on such date, and the Agent shall have so
made available to the Borrower a corresponding amount on behalf of such Lender,
such Lender shall, on demand, pay to the Agent such corresponding amount,
together with interest thereon, at the Federal Funds Rate, for each day from the
date such corresponding amount shall have been so available by the Agent to the
Borrower until the date such amount shall have been repaid to the Agent. Such
Lender shall not be entitled to payment of any interest which accrues on the
amount made available by the Agent to the Borrower for the account of such
Lender until such time as such Lender reimburses the Agent for such amount,
together with interest thereon, as provided in this Section 2.5.4.
(c) A certificate of the Agent submitted to any
Lender with respect to any amounts owing to the Agent by such Lender under this
Section 2.5 shall be conclusive and binding on such Lender, absent manifest
error.
(d) Unless the Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the Agent
that the Borrower will not make such payment in full, the Agent may assume that
the Borrower has made such payment in full to the Agent on such date and the
Agent in its sole discretion may, in reliance upon such assumption, cause to be
distributed to each Lender on such due date an amount equal to the amount then
due such Lender. If and to the extent the Borrower shall not have so made such
payment in full to the Agent and the Agent shall have distributed to any Lender
all or any portion of such amount, such Lender shall repay to the Agent on
demand the amount so distributed to such Lender, together with interest thereon
at the Federal Funds Rate, for each day from the date
54
<PAGE> 62
such amount is distributed to such Lender until the date such Lender repays such
amount to the Agent.
ARTICLE III
THE COLLATERAL
Section 3.1 DEBT AND OBLIGATIONS SECURED.
All property and Liens assigned, pledged or otherwise granted under or
in connection with this Agreement (including, without limitation, those under
Section 3.2 (Grant of Liens)) or any of the Financing Documents shall secure (a)
the payment of all of the Obligations, including, without limitation, any and
all Agent's Obligations, and (b) the performance, compliance with and observance
by the the Borrower, Foster Grant and Fantasma of the provisions of this
Agreement and all of the other Financing Documents or otherwise under the
Obligations. The security interest and Lien of each Lender in such property
shall rank equally in priority with the interest of each other Lender, but the
security interest and Lien of the Agent with respect to the Agent's Obligations
shall be superior and paramount to the security interest and Lien of the
Lenders.
Section 3.2 GRANT OF LIENS.
Each of the Borrower, Foster Grant and Fantasma hereby assigns, pledges
and grants to the Agent, for the ratable benefit of the Lenders and for the
benefit of the Agent with respect to the Agent's Obligations, and agrees that
the Agent and the Lenders shall have a perfected and continuing security
interest in, and Lien on, (a) all of the Borrower's, Foster Grant's and
Fantasma's Accounts, Inventory, Chattel Paper and Instruments, whether now owned
or existing or hereafter acquired or arising, (b) all returned, rejected or
repossessed goods, the sale or lease of which shall have given or shall give
rise to an Account, (c) all insurance policies relating to the foregoing, (d)
all books and records in whatever media (paper, electronic or otherwise)
recorded or stored, with respect to the foregoing and all rights of access to
all equipment and general intangibles necessary or beneficial to retain, access
and/or process the information contained in those books and records, and (e) all
cash and non-cash proceeds and products of the foregoing. Each of the Borrower,
Foster Grant and Fantasma further agrees that the Agent, for the ratable benefit
of the Lenders and for the benefit of the Agent with respect to the Agent's
Obligations, shall have in respect thereof all of the rights and remedies of a
secured party under the Uniform Commercial Code as well as those provided in
this Agreement, under each of the other Financing Documents and under applicable
Laws.
Section 3.3 COLLATERAL DISCLOSURE LIST.
On or prior to the Closing Date, the Borrower, Foster Grant and Fantasma
shall deliver to the Agent a list (the "Collateral Disclosure List") which shall
contain such information with respect to each of the Borrower's, Foster Grant's
and Fantasma's business and real and personal property as the Agent may
reasonably require and shall be certified by a Responsible Officer of each of
the Borrower, Foster Grant and Fantasma as applicable, all in the form provided
to the Borrower by the Agent. Promptly after demand by the Agent, the Borrower,
Foster Grant or
55
<PAGE> 63
Fantasma, as appropriate, shall furnish to the Agent an update of the
information contained in the Collateral Disclosure List at any time and from
time to time as may be requested by the Agent.
Section 3.4 INVENTORY AND RECEIVABLES.
The Borrower, Foster Grant or Fantasma acknowledge and agree that it is
the intention of the parties to this Agreement that the Agent, for the ratable
benefit of the Lenders and for the benefit of the Agent with respect to the
Agent's Obligations, shall have a first priority, perfected Lien, in form and
substance satisfactory to the Agent and its counsel, on all of the Borrower's,
Foster Grant's and Fantasma's Inventory and Receivables of any kind and nature
whatsoever, whether now owned or hereafter acquired, subject only to the
Permitted Liens, if any. In furtherance of the foregoing:
3.4.1 CHATTEL PAPER, PROMISSORY NOTES, ETC.
(a) On the Closing Date and without implying any
limitation on the scope of Section 3.2 (Grant of Liens), each of the Borrower,
Foster Grant and Fantasma shall deliver to the Agent, for the ratable benefit of
the Lenders and for the benefit of the Agent with respect to the Agent's
Obligations, all originals of all of the Borrower's, Foster Grant's and
Fantasma's Chattel Paper and Instruments and, if the Agent so requires, shall
execute and deliver a separate pledge, assignment and security agreement in form
and content acceptable to the Agent, which pledge, assignment and security
agreement shall assign, pledge and grant a Lien to the Agent, for the ratable
benefit of the Lenders and for the benefit of the Agent with respect to the
Agent's Obligations on all of each of the Borrower's, Foster Grant's and
Fantasma's Chattel Paper and Instruments.
(b) In the event that any of the Borrower, Foster
Grant or Fantasma shall acquire after the Closing Date any Chattel Paper or
Instruments, the Borrower, Foster Grant and Fantasma, as applicable, shall
promptly so notify the Agent and deliver the originals of all of the foregoing
to the Agent promptly and in any event within ten (10) days of each acquisition.
(c) All Chattel Paper and Instruments shall be
delivered to the Agent endorsed and/or assigned as required by the pledge,
assignment and security agreement and/or as the Agent may reasonably require
and, if applicable, shall be accompanied by blank irrevocable and unconditional
stock or bond powers and/or notices as the Agent may require.
3.4.2 TRADEMARKS.
On the Closing Date, the Borrower, Foster Grant
and Fantasma shall execute and deliver all Financing Documents and take all
actions requested in good faith by the Agent in order to perfect a first
priority assignment of Trademarks, including, without limitation, any Trademarks
acquired by Foster Grant from BEC which assignment shall limit the Agent's
rights thereunder to non-exclusive use of the Trademarks in the disposition of
Inventory to which such Trademarks are attached.
56
<PAGE> 64
Section 3.5 RECORD SEARCHES.
As of the Closing Date and thereafter at the time any Financing Document
is executed and delivered by the Borrower, Foster Grant and Fantasma pursuant to
this Section, the Agent shall have received, in form and substance satisfactory
in good faith to the Agent, such Lien or record searches with respect to all of
the Borrower, Foster Grant and Fantasma and/or any other Person, as appropriate,
and the property covered by such Financing Document showing that the Lien of
such Financing Document will be a perfected first priority Lien on the property
covered by such Financing Document subject only to Permitted Liens or to such
other matters as the Agent may approve.
Section 3.6 COSTS.
The Borrower, Foster Grant and Fantasma agree to pay, as part of the
Enforcement Costs and to the fullest extent permitted by applicable Laws, on
demand all costs, fees and expenses incurred by the Agent and/or any of the
Lenders in connection with the taking, perfection, preservation, protection
and/or release of a Lien on the Collateral, including, without limitation:
(a) customary fees and expenses incurred by the
Agent and/or any of the Lenders in preparing the Financing Documents from time
to time (including, without limitation, reasonable attorneys' fees incurred in
connection with preparing any of the Financing Documents, including, any
amendments and supplements thereto);
(b) all filing and/or recording taxes or fees;
(c) all costs of Lien and record searches;
(d) reasonable attorneys' fees in connection with
all legal opinions required; and
(e) all related costs, fees and expenses.
Section 3.7 RELEASE.
Upon the payment and performance of all Obligations of the Borrower,
Foster Grant and Fantasma and all obligations and liabilities of each other
Person, other than the Agent and the Lenders, under this Agreement and all other
Financing Documents, the termination and/or expiration of all of the
Commitments, all Letters of Credit and all Outstanding Letter of Credit
Obligations, upon the Borrower's request and at the Borrower's sole cost and
expense, the Agent shall release and/or terminate any Financing Document but
only if and provided that there is no commitment or obligation (whether or not
conditional) of the Agent and/or any of the Lenders to re-advance amounts which
would be secured thereby and/or no commitment or obligation of the Agent to
issue any Letter of Credit or return or restore any payment of any Current
Letter of Credit Obligations.
57
<PAGE> 65
Section 3.8 INCONSISTENT PROVISIONS.
In the event that the provisions of any Financing Document directly
conflict with any provision of this Agreement, the provisions of this Agreement
govern.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 REPRESENTATIONS AND WARRANTIES.
Each of the Borrower, Foster Grant and Fantasma, for themselves and for
each other, represent and warrant to the Agent and the Lenders, as follows:
4.1.1 OWNERSHIP INTERESTS.
None of the Borrower, Foster Grant or Fantasma has any
ownership interest, legal, beneficial or otherwise, in any other Person except
as listed on the Collateral Disclosure List furnished to the Agent or before the
Closing Date, which correctly indicates the nature and amount of all ownership
interests held by any of them in any other Person.
4.1.2 GOOD STANDING.
(a) The Borrower (i) is a corporation duly formed
and existing under the laws of the state in which it is formed, (ii) has the
corporate power to own its property and to carry on its business as now being
conducted, and (iii) is duly qualified to do business and is in good standing in
each jurisdiction in which the character of the properties owned by it therein
or in which the transaction of its business makes such qualification necessary,
except where failure to do so would not have a Material Adverse Effect.
(b) Foster Grant (i) is a limited partnership duly
formed, and existing under the laws of the state in which it is formed, (ii) has
the limited partnership power to own its property and to carry on its business
as now being conducted, and (iii) is duly qualified to do business and is in
good standing in each jurisdiction in which the character of the properties
owned or leased by it therein or in which the transaction of its business makes
such qualification necessary, except where failure to do so would not have a
Material Adverse Effect.
(c) Fantasma (i) is a limited liability company
duly formed and existing and the laws of the state in which it is formed, (ii)
has the power and authority to own its property and to carry on its business as
not being conducted and (iii) is duly qualified to do business and is in good
standing in each jurisdiction in which the character of the properties owned or
leased by it therein or in which the transaction of its business makes such
qualification necessary, except where failure to do so would not have a Material
Adverse Effect.
4.1.3 POWER AND AUTHORITY.
Each of the Borrower, Foster Grant and Fantasma has full
the requisite corporate power or partnership authority, as appropriate, and
authority to execute and deliver this Agreement and the other Financing
Documents, to make the borrowings and request Letters of
58
<PAGE> 66
Credit under this Agreement, and to incur and perform the Obligations under this
Agreement and the other Financing Documents, all of which have been duly
authorized by all proper and necessary corporate or partnership action, as
appropriate. No consent or approval of shareholders, partners, members or any
creditors of any of the Borrower, Foster Grant and Fantasma, and no consent,
approval, filing or registration with or notice to any Governmental Authority on
the part of any of the Borrower, Foster Grant and Fantasma, is required as a
condition to the execution, delivery, validity or enforceability of this
Agreement and the other Financing Documents, the performance by any of the
Borrower, Foster Grant and Fantasma of the Obligations, or if required the same
has been duly obtained.
4.1.4 BINDING AGREEMENTS.
This Agreement and the other Financing Documents executed
and delivered by the Borrower, Foster Grant or Fantasma have been properly
executed and delivered and constitute the valid and legally binding obligations
of the Borrower, Foster Grant or Fantasma and are fully enforceable against each
of the Borrower, Foster Grant or Fantasma in accordance with their respective
terms, subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of creditors and
secured parties, and general principles of equity regardless of whether applied
in a proceeding in equity or at law.
4.1.5 NO CONFLICTS.
Except as set forth in SCHEDULE 4.1.5, neither the
execution, delivery and performance of the terms of this Agreement or of any of
the other Financing Documents, the consummation of the transactions contemplated
by this Agreement will conflict with, violate or be prevented by (a) any of the
Borrower's, Foster Grant's or Fantasma's charter, bylaws, operating agreements
or partnership agreement, (b) any existing material mortgage, indenture,
contract or agreement binding on any of the Borrower, Foster Grant or Fantasma
or affecting its property, or (c) any Laws.
4.1.6 NO DEFAULTS, VIOLATIONS.
(a) No Default or Event of Default has occurred
and is continuing.
(b) None of the Borrower, Foster Grant or Fantasma
is in default under or with respect to any obligation under any existing
mortgage, indenture, contract or agreement binding on it or affecting its
property in any respect which could be materially adverse to the business,
operations, property or financial condition of any of the Borrower, Foster Grant
or Fantasma, or which could materially adversely affect the ability of any of
the Borrower, Foster Grant or Fantasma to perform its obligations under this
Agreement or the other Financing Documents, to which any of the Borrower, Foster
Grant or Fantasma is a party.
4.1.7 COMPLIANCE WITH LAWS.
None of the Borrower, Foster Grant or Fantasma is in
violation of any applicable Laws (including, without limitation, any Laws
relating to employment practices, to
59
<PAGE> 67
environmental, occupational and health standards and controls) or order, writ,
injunction, decree or demand of any court, arbitrator, or any Governmental
Authority affecting any of the Borrower, Foster Grant or Fantasma or any of its
properties, the violation of which, considered in the aggregate, could
materially adversely affect the business, operations or properties of any of the
Borrower, Foster Grant or Fantasma.
4.1.8 MARGIN STOCK.
None of the proceeds of the Loan will be used, directly
or indirectly, by any of the Borrower, Foster Grant or Fantasma or any other
Affiliate of any of the Borrower, Foster Grant or Fantasma for the purpose of
purchasing or carrying, or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry, any "margin
security" within the meaning of Regulation G (12 CFR Part 207), or "margin
stock" within the meaning of Regulation U (12 CFR Part 221), of the Board of
Governors of the Federal Reserve System or for any other purpose which might
make the transactions contemplated in this Agreement a "purpose credit" within
the meaning of said Regulation G or Regulation U, or cause this Agreement to
violate any other regulation of the Board of Governors of the Federal Reserve
System or the Securities Exchange Act of 1934 or the Small Business Investment
Act of 1958, as amended, or any rules or regulations promulgated under any of
such statutes.
4.1.9 INVESTMENT COMPANY ACT; MARGIN SECURITIES.
None of the Borrower, Foster Grant or Fantasma is an
investment company within the meaning of the Investment Company Act of 1940, as
amended, nor is it, directly or indirectly, controlled by or acting on behalf of
any Person which is an investment company within the meaning of said Act. None
of the Borrower, Foster Grant or Fantasma is engaged principally, or as one of
its important activities, in the business of extending credit for the purpose of
purchasing or carrying "margin security" within the meaning of Regulation G (12
CFR Part 207), or "margin stock" within the meaning of Regulation U (12 CFR Part
221), of the Board of Governors of the Federal Reserve System.
4.1.10 LITIGATION.
Except as otherwise disclosed on Schedule 4.1.10 attached
to and made a part of this Agreement, there are no proceedings, actions or
investigations pending or, so far as any of the Borrower, Foster Grant or
Fantasma knows, threatened before or by any court, arbitrator or any
Governmental Authority which, in any one case or in the aggregate, if determined
adversely to the interests of any of the Borrower, Foster Grant or Fantasma,
would have a Material Adverse Effect.
4.1.11 FINANCIAL CONDITION.
The audited consolidated and consolidating financial
statements of the Borrower dated December 31, 1997, are complete and correct in
all material respects and fairly present the financial position of the Borrower
on a consolidated basis as of the date and for the period referred to and have
been prepared in accordance with GAAP applied on a consistent basis throughout
the period involved. There are no liabilities, direct or indirect, fixed or
contingent, of any of the Borrower, Foster Grant or Fantasma as of the date of
such financial statements
60
<PAGE> 68
required by GAAP to be reflected therein that are not reflected therein or in
the notes thereto. There has been no material adverse change in the financial
condition or operations of any of the Borrower, Foster Grant or Fantasma since
the date of such financial statements and to the Borrower's, Foster Grant's and
Fantasma's knowledge no such material adverse change is pending or threatened.
None of the Borrower, Foster Grant or Fantasma has guaranteed the obligations
of, or made any investment in or advances to, any Person, except as disclosed in
such financial statements and except for the guaranty of the Senior Notes by
Foster Grant and Fantasma.
4.1.12 FULL DISCLOSURE.
The financial statements referred to in Section 4.1.11
(Financial Condition), the Financing Documents (including, without limitation,
this Agreement), and the statements, reports or certificates furnished by any of
the Borrower, Foster Grant or Fantasma in connection with the Financing
Documents (a) do not contain any untrue statement of a material fact and (b)
when taken in their entirety, do not omit any material fact necessary to make
the statements contained therein not misleading. There is no fact known to any
of the Borrower, Foster Grant or Fantasma which it has not disclosed to the
Agent and the Lenders in writing prior to the date of this Agreement with
respect to the transactions contemplated by the Financing Documents which
materially and adversely affects or which the Borrower, Foster Grant or Fantasma
believe will materially adversely affect the condition, financial or otherwise,
results of operations, business, or assets of any of the Borrower, Foster Grant
or Fantasma.
4.1.13 INDEBTEDNESS FOR BORROWED MONEY.
Except for the Obligations and the Senior Notes and
except as set forth in SCHEDULE 4.1.13 attached to and made a part of this
Agreement, none of the Borrower, Foster Grant or Fantasma have any Indebtedness
for Borrowed Money. The Agent has received photocopies of all promissory notes
evidencing any Indebtedness for Borrowed Money set forth in SCHEDULE 4.1.13,
together with any and all subordination agreements, other agreements, documents,
or instruments securing, evidencing, guarantying or otherwise executed and
delivered in connection therewith.
4.1.14 TAXES.
Except for Taxes for which the failure to pay has not
resulted in an Event of Default under this Agreement or for which the failure to
pay would otherwise not have a Material Adverse Effect, each of the Borrower,
Foster Grant and Fantasma has filed all returns, reports and forms for Taxes
which, to the knowledge of the Borrower, Foster Grant and Fantasma, are required
to be filed, and has paid all Taxes as shown on such returns or on any
assessment received by it, to the extent that such Taxes have become due, unless
and to the extent only that such Taxes, assessments and governmental charges are
currently contested in good faith and by appropriate proceedings by the
Borrower, Foster Grant or Fantasma, such Taxes are not the subject of any Liens
other than Permitted Liens, and adequate reserves therefor have been established
as required under GAAP. All tax liabilities of the Borrower, Foster Grant and
Fantasma were as of the date of unaudited financial statements referred to in
Section 4.1.11 (Financial Condition), and are now, adequately provided for on
the books of the Borrower and its
61
<PAGE> 69
Subsidiaries. No tax liability has been asserted by the Internal Revenue Service
or any state or local authority against any of the Borrower, Foster Grant or
Fantasma for Taxes in excess of those already paid which would have a Material
Adverse Effect or otherwise constitute an Event of Default.
4.1.15 ERISA.
With respect to any "pension plan" as defined in SECTION
3(2) of ERISA, which plan is now or previously has been maintained or
contributed to by any Obligor and/or by any commonly controlled entity: (a) no
"accumulated funding deficiency" as defined in Code ss.412 or ERISA ss.302 has
occurred, whether or not that accumulated funding deficiency has been waived;
(b) no Reportable Event has occurred; (c) no termination of any plan subject to
Title IV of ERISA has occurred; (d) no Obligor nor any commonly controlled
entity (as defined under ERISA) has incurred a "complete withdrawal" within the
meaning of ERISA ss.4203 from any Multi-employer Plan; (e) no Obligor nor any
commonly controlled entity has incurred a "partial withdrawal" within the
meaning of ERISA ss.4205 with respect to any Multi-employer Plan; (f) no
Multi-employer Plan to which an Obligor or any commonly controlled entity has an
obligation to contribute is in "reorganization" within the meaning of ERISA
ss.4241 nor has notice been received by any Obligor or any commonly controlled
entity that such a Multi-employer Plan will be placed in "reorganization".
4.1.16 TITLE TO PROPERTIES.
The Borrower, Foster Grant or Fantasma have good and
marketable title (fee, leasehold or otherwise) to all of their respective
properties, including, without limitation, the Collateral and the properties and
assets reflected in the balance sheets described in Section 4.1.11 (Financial
Condition). The Borrower, Foster Grant or Fantasma have legal, enforceable and
uncontested rights to use freely such property and assets, including, without
limitation, rights to use Trademarks owned by BEC and licensed to the Borrower
in accordance with the terms of such license. All of such properties, including,
without limitation, the Collateral which were purchased, were purchased for fair
consideration and reasonably equivalent value in the ordinary course of business
of both the seller and the Borrower, Foster Grant or Fantasma and not, by way of
example only, as part of a bulk sale.
4.1.17 PATENTS, TRADEMARKS, ETC.
Each of the Borrower, Foster Grant or Fantasma owns,
possesses, or has the right to use all necessary Patents, licenses, Trademarks,
Copyrights, permits and franchises to own its properties and to conduct its
business as now conducted, without known conflict with the rights of any other
Person. Any and all obligations to pay royalties or other charges with respect
to such properties and assets are properly reflected on the financial statements
described in Section 4.1.11 (Financial Condition).
4.1.18 EMPLOYEE RELATIONS.
Except as disclosed on SCHEDULE 4.1.18 attached hereto
and made a part hereof, (a) no Obligor nor any of the Obligor's employees is
subject to any collective bargaining agreement, (b) no petition for
certification or union election is pending with respect to the
62
<PAGE> 70
employees of any Obligor and no union or collective bargaining unit has sought
such certification or recognition with respect to the employees of a Obligor,
(c) there are no strikes, slowdowns, work stoppages or controversies pending or,
to the best knowledge of the Borrower, Foster Grant and Fantasma after due
inquiry, threatened between any of them and its employees, and (d) none of
Borrower, Foster Grant or Fantasma is subject to any material employment
contract, severance agreement, commission contract, consulting agreement or
bonus agreement. Hours worked and payments made to the employees of any one or
more of the Borrower, Foster Grant or Fantasma have not been in violation of the
Fair Labor Standards Act or any other applicable law dealing with such matters.
All payments due from any one or more of the Borrower, Foster Grant or Fantasma
or for which any claim may be made against an Obligor, on account of wages and
employee and retiree health and welfare insurance and other benefits have been
paid or accrued in accordance with GAAP as a liability on its books. The
consummation of the transactions contemplated by this Agreement or any of the
other Financing Documents will not, give rise to a right of termination or right
of renegotiation on the part of any union under any collective bargaining
agreement to which any Obligor is a party or by which it is bound.
4.1.19 PRESENCE OF HAZARDOUS MATERIALS OR HAZARDOUS
MATERIALS CONTAMINATION.
To the best of each of the Borrower's, Foster Grant's or
Fantasma's knowledge, except as disclosed on SCHEDULE 4.1.19 attached hereto and
made a part hereof, (a) no Hazardous Materials are located on any real property
owned, controlled or operated by of any of the Borrower, Foster Grant or
Fantasma or for which any of the Borrower, Foster Grant or Fantasma is, or is
claimed to be, responsible, except for reasonable quantities of necessary
supplies for use by of the Borrower, Foster Grant or Fantasma in the ordinary
course of its current line of business and stored, used and disposed in
accordance with applicable Laws; and (b) no property owned, controlled or
operated by any of the Borrower, Foster Grant or Fantasma or for which any of
the Borrower, Foster Grant or Fantasma has, or is claimed to have,
responsibility has ever been used as a manufacturing, storage, or dump site for
Hazardous Materials nor is affected by Hazardous Materials Contamination at any
other property.
4.1.20 PERFECTION AND PRIORITY OF COLLATERAL.
The Agent and the Lenders have, or upon execution and
recording of this Agreement and the Security Documents will have, and will
continue to have as security for the Obligations, a valid and perfected Lien on
and security interest in all Collateral, free of all other Liens, claims and
rights of third parties whatsoever except Permitted Liens, including, without
limitation, those described on SCHEDULE 4.1.20.
4.1.21 PLACES OF BUSINESS AND LOCATION OF COLLATERAL.
The information contained in the Collateral Disclosure
List is complete and correct. The Collateral Disclosure List completely and
accurately identifies the address of (a) the chief executive office of each of
the Borrower, Foster Grant or Fantasma, (b) any and each other place of business
of each of the Borrower, Foster Grant or Fantasma, (c) the location of all books
and records pertaining to the Collateral, and (d) each location, other than the
foregoing, where any of the Collateral is located.
63
<PAGE> 71
4.1.22 BUSINESS NAMES AND ADDRESSES.
Except as disclosed in SCHEDULE 4.1.22 attached hereto
and made a part hereof, in the five (5) years preceding the date hereof, none of
the Borrower, Foster Grant or Fantasma has changed its name, identity or
corporate structure, has conducted business under any name other than its
current name, and has conducted its business in any jurisdiction, other than
those disclosed on the Collateral Disclosure List.
4.1.23 INVENTORY.
The Inventory of the Borrower, Foster Grant and Fantasma
is (a) of good and merchantable quality, (b) not stored with a bailee,
warehouseman, carrier, or similar party, (c) not on consignment, sale on
approval, or sale or return, and (d) located at the places of business set forth
on the Collateral Disclosure List. No goods offered for sale by any of the
Borrower, Foster Grant or Fantasma are consigned to or held on sale or return
terms by that Person.
4.1.24 ACCOUNTS.
With respect to all Accounts and to the best of the
Borrower's, Foster Grant's and Fantasma's knowledge (a) they are genuine, and in
all respects what they purport to be, and are not evidenced by a judgment, an
Instrument, or Chattel Paper (unless such judgment has been assigned and such
Instrument or Chattel Paper has been endorsed and delivered to the Agent for the
benefit of itself and the Lenders); (b) they represent bona fide transactions
completed in accordance with the terms and provisions contained in the invoices,
purchase orders and other contracts relating thereto, and the underlying
transaction therefor is in accordance with all applicable Laws; (c) the amounts
shown on the respective books and records of the Borrower, Foster Grant or
Fantasma, with respect thereto are actually and absolutely owing to that entity
and are not contingent or subject to reduction for any reason other than regular
discounts, credits or adjustments allowed by that entity in the ordinary course
of its business; (d) no payments have been or shall be made thereon except
payments turned over to the Agent by the Borrower, Foster Grant or Fantasma; (e)
all Account Debtors thereon have the capacity to contract; and (f) the goods
sold, leased or transferred or the services furnished giving rise thereto are
not subject to any Liens except the security interest granted to the Agent and
the Lenders by this Agreement and Permitted Liens.
4.1.25 COMPLIANCE WITH ELIGIBILITY STANDARDS.
Each Account and all Inventory included in the
calculation of the Borrowing Base does and will at all times meet and comply
with all of the standards for Eligible Receivables and Eligible Inventory. With
respect to those Accounts which the Agent has deemed Eligible Receivables (a)
there are no facts, events or occurrences which in any way impair the validity,
collectibility or enforceability thereof or tend to reduce the amount payable
thereunder; and (b) there are no proceedings or actions known to any of the
Borrower, Foster Grant or Fantasma which are threatened or pending against any
Account Debtor which might result in any material adverse change in the
Borrowing Base.
64
<PAGE> 72
4.1.26 ORIGINAL FINANCING AGREEMENT.
No Default or Event of Default (including, without
limitation, those with respect to representations and warranties) existed under
the Original Financing Agreement or under any of the other Financing Documents
immediately before the execution and delivery of this Agreement.
4.1.27 YEAR 2000.
The Borrower has (a) initiated a review and assessment of
all areas within its and each of its Subsidiaries' businesses and operations
(including those affected by suppliers, vendors and customers) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by such of the Borrower, Foster Grant or Fantasma or any of
its Subsidiaries (or suppliers, vendors and customers) may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999), (b) developed a plan and
timeline for addressing the Year 2000 Problem on a timely basis, and (c) to
date, implemented that plan in accordance with that timetable. Based on the
foregoing, the Borrower believes that all computer applications (including those
of its suppliers, vendors and customers) that are material to its or any of its
Subsidiaries' business and operations are reasonably expected on a timely basis
to be able to perform properly date-sensitive functions for all dates before and
after January 1, 2000 (that is, be "Year 2000 compliant"), except to the extent
that a failure to do so could not reasonably expected to have a Material Adverse
Effect.
Section 4.2 SURVIVAL; UPDATES OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties contained in or made under or in
connection with this Agreement and the other Financing Documents shall survive
the Closing Date, the making of any advance under the Loan, the issuance of any
Letter of Credit, and extension of credit made hereunder, and the incurring of
any other Obligations and shall be deemed to have been made at the time of each
request for, and again at the time the making of, each advance under the Loan or
the issuance of each Letter of Credit, except that the representations and
warranties which relate to financial statements which are referred to in Section
4.1.11 (Financial Condition), shall also be deemed to cover financial statements
furnished from time to time to the Agent and the Lenders pursuant to Section
6.1.1 (Financial Statements).
ARTICLE V
CONDITIONS PRECEDENT
Section 5.1 CONDITIONS TO THE INITIAL ADVANCE AND INITIAL LETTER OF
CREDIT.
The making of the initial advance under the Loan and the issuance of the
initial Letter of Credit is subject to the fulfillment on or before the Closing
Date of the following conditions precedent in a manner satisfactory in form and
substance to the Agent and its counsel:
65
<PAGE> 73
5.1.1 ORGANIZATIONAL DOCUMENTS - BORROWER, FOSTER GRANT
AND FANTASMA.
The Agent shall have received for each of Borrower,
Foster Grant and Fantasma, as applicable:
(a) a certificate of good standing certified
by the Secretary of State, or other appropriate Governmental Authority, of the
state of incorporation or formation of the Borrower, Foster Grant and Fantasma,
as appropriate;
(b) a certified copy from the appropriate
Governmental Authority under which Foster Grant is organized, of Foster Grant's
recorded limited partnership certificate and all recorded amendments thereto;
(c) a certificate of qualification to do
business for the Borrower, Foster Grant and Fantasma certified by the Secretary
of State or other Governmental Authority of each state in which each such entity
conducts business;
(d) a certificate dated as of the Closing Date
by the Secretary or an Assistant Secretary of the Borrower covering:
(i) true and complete copies of the
Borrower's corporate charter, bylaws, and all amendments thereto;
(ii) true and complete copies of the
resolutions of its Board of Directors authorizing (i) the
execution, delivery and performance of the Financing Documents to
which it is a party, (ii) the borrowings hereunder, and (iii) the
granting of the Liens contemplated by this Agreement and the
Financing Documents to which the Borrower is a party;
(iii) the incumbency, authority and
signatures of the officers of the Borrower authorized to sign
this Agreement and the other Financing Documents to which the
Borrower is a party; and
(iv) the identity of the Borrower's
current directors, common stock holders and other equity holders,
as well as their respective percentage ownership interests.
(e) a certificate of the partners (both
general and limited) of Foster Grant, dated as of the Closing Date:
(i) stating that attached to the
certificate is a true and complete copy of Foster Grant's
Partnership Agreement, with all amendments, modifications,
restatements, substitutions, extensions and renewals thereto;
66
<PAGE> 74
(ii) authorizing (A) the execution,
delivery and performance of the Financing Documents to which
Foster Grant, is a party, (B) any and all Obligations, (C) the
granting of the Liens contemplated by this Agreement and the
Security Documents to which Foster Grant is a party, and (D) any
and all other actions or agreements taken with respect to the
Obligations or the Collateral by any general partner of Foster
Grant at any time;
(iii) setting forth the identity and
signatures of the general partners of Foster Grant and of other
Responsible Officers then authorized to sign this Agreement and
the other Financing Documents and the Security Documents to which
Foster Grant is a party; and
(iv) identifying Foster Grant's current
partners and other equity holders, as well as their respective
percentage ownership interests.
(f) a certificate of the Secretary of
Fantasma, dated as of the Closing Date:
(i) stating that attached to the
certificate is a true and complete copy of Fantasma's Operating
Agreement, with all amendments, modifications, restatements,
substitutions, extensions and renewals thereto;
(ii) authorizing (A) the execution,
delivery and performance of the Financing Documents to which
Fantasma, is a party, (B) any and all Obligations, (C) the
granting of the Liens contemplated by this Agreement and the
Security Documents to which Fantasma is a party, and (D) any and
all other actions or agreements taken with respect to the
Obligations or the Collateral by the members of Fantasma at any
time;
(iii) setting forth the identity and
signatures of the members of Fantasma and of other Responsible
Officers then authorized to sign this Agreement and the other
Financing Documents and the Security Documents to which Fantasma
is a party; and
(iv) identifying Fantasma's current
members, as well as their respective percentage ownership
interests.
5.1.2 OPINION OF OBLIGORS' COUNSEL.
The Agent shall have received the favorable opinion of
counsel for the Obligors addressed to the Agent and the Lenders in form
satisfactory to the Agent.
5.1.3 ORGANIZATIONAL DOCUMENTS - CORPORATE GUARANTORS.
The Agent shall have received for each Corporate
Guarantor:
67
<PAGE> 75
(a) a certificate of good standing certified
by the Secretary of State, or other appropriate Governmental Authority, of the
state of incorporation for such Corporate Guarantor;
(b) a certificate of qualification to do
business certified by the Secretary of State or other Governmental Authority of
each state in which such Corporate Guarantor conducts business; and
(c) a certificate dated as of the Closing Date
by the Secretary or an Assistant Secretary of such Corporate Guarantor covering:
(i) true and complete copies of such
Corporate Guarantor's corporate charter, bylaws, and all
amendments thereto;
(ii) true and complete copies of the
resolutions of the Board of Directors of such Corporate Guarantor
authorizing the execution, delivery and performance of the
Financing Documents to which such Corporate Guarantor is a party
and the granting of the Liens contemplated by any of the
Financing Documents to which such Corporate Guarantor is a party;
(iii) the incumbency, authority and
signatures of the officers of such Corporate Guarantor authorized
to sign the Corporate Guaranty and all other Financing Documents
to which such Corporate Guarantor is a party; and
(iv) the identity of such Corporate
Guarantor's current directors, common stock holders and other
equity holders, as well as their respective percentage ownership
interests.
5.1.4 CONSENTS, LICENSES, APPROVALS, ETC.
Except as set forth in SCHEDULE 5.1.4, the Agent shall
have received copies of all material consents, licenses and approvals, required
in connection with the execution, delivery, performance, validity and
enforceability of the Financing Documents, and such consents, licenses and
approvals shall be in full force and effect.
5.1.5 NOTES.
The Agent shall have received for delivery to each of the
Lenders the Revolving Credit Notes, each conforming to the requirements hereof
and executed by a Responsible Officer of the Borrower and attested by a duly
authorized representative of the Borrower.
5.1.6 FINANCING DOCUMENTS AND COLLATERAL.
68
<PAGE> 76
Each Obligor shall have executed and delivered the
Financing Documents to be executed by it, and shall have delivered original
Chattel Paper, Instruments and related Collateral and all opinions, and other
documents contemplated by ARTICLE III (The Collateral).
5.1.7 OTHER FINANCING DOCUMENTS.
In addition to the Financing Documents to be delivered by
the Obligors, the Agent shall have received the Financing Documents duly
executed and delivered by Persons other than the Obligors.
5.1.8 OTHER DOCUMENTS, ETC.
The Agent shall have received such other certificates,
opinions, documents and instruments confirmatory of or otherwise relating to the
transactions contemplated hereby as may have been reasonably requested by the
Agent.
5.1.9 PAYMENT OF FEES.
The Agent and the Lenders shall have received payment of
any Fees due on or before the Closing Date.
5.1.10 COLLATERAL DISCLOSURE LIST.
Each of the Borrower, Foster Grant and Fantasma shall
have delivered the Collateral Disclosure List required under the provisions of
Section 3.3 (Collateral Disclosure List) duly executed by a Responsible Officer
of the Borrower, Foster Grant or Fantasma, as appropriate.
5.1.11 RECORDINGS AND FILINGS.
The Borrower, Foster Grant and Fantasma and such other
Persons, as appropriate, shall have: (a) executed and delivered all Financing
Documents (including, without limitation, UCC-1 and UCC-3 statements) required
to be filed, registered or recorded in order to create, in favor of the Agent
and the Lenders, a perfected Lien in the Collateral (subject only to the
Permitted Liens) in form and in sufficient number for filing, registration, and
recording in each office in each jurisdiction in which such filings,
registrations and recordations are required, and (b) delivered such evidence as
the Agent may reasonably require that all necessary filing fees and all
recording and other similar fees, and all Taxes and other expenses related to
such filings, registrations and recordings will be or have been paid in full.
5.1.12 INSURANCE CERTIFICATE.
The Agent shall have received an insurance certificate in
accordance with the provisions of Section 6.1.7 (Insurance) and Section 6.1.18
(Insurance With Respect to Equipment and Inventory).
5.1.13 LANDLORD'S WAIVERS.
Except as otherwise agreed by the Agent, the Agent shall
have received a landlord's waiver from each landlord of each and every business
premise leased by each of the
69
<PAGE> 77
Borrower, Foster Grant and Fantasma and on which any of the Collateral is or may
hereafter be located, which landlords' waivers must be reasonably acceptable to
the Agent and its counsel in their sole and absolute discretion.
5.1.14 BAILEE ACKNOWLEDGEMENTS.
The Agent shall have received an agreement acknowledging
the Liens of the Agent and the Lenders from each bailee, warehouseman, consignee
or similar third party which has possession of any of the Collateral, which
agreements must be reasonably acceptable to the Agent and its counsel in their
sole and absolute discretion.
5.1.15 FIELD EXAMINATION.
The Agent shall have completed a field examination and
audit of each of the Borrower's, Foster Grant's and Fantasma's business,
operations and income, the results of which field examination and audit shall be
in all respects acceptable to the Agent in its sole and absolute discretion and
shall include reference discussions with key customers and vendors.
5.1.16 CREDIT INSURANCE.
The Agent shall have received a copy of all agreements
related to the credit insurance covered by the Assignment of Credit Insurance,
all of which shall be in form and content satisfactory to the Agent, together
with the fully executed duplicate originals of the Assignment of Credit
Insurance.
5.1.17 SENIOR NOTES.
The Agent shall have received a certificate signed by a
Responsible Officer, certifying to the Agent and the Lenders that the Borrower
(a) has received the proceeds of sale of the Senior Notes, in accordance with,
and pursuant to, the terms and conditions of the Senior Note Documents, and has
applied the same to such purposes as has been previously disclosed to the Agent
and the Lenders, and (b) has delivered to the Agent and the Lenders a true and
correct photocopy of all Senior Note Documents.
Section 5.2 CONDITIONS TO ALL EXTENSIONS OF CREDIT.
The making of all advances under the Loan and the issuance of all
Letters of Credit is subject to the fulfillment of the following conditions
precedent in a manner satisfactory in form and substance to the Agent and its
counsel:
5.2.1 COMPLIANCE.
Each of the Borrower, Foster Grant or Fantasma shall have
complied and shall then be in compliance with all terms, covenants, conditions
and provisions of this Agreement and the other Financing Documents that are
binding upon it.
5.2.2 BORROWING BASE.
The Borrower, Foster Grant and Fantasma shall have
furnished all Borrowing Base Reports required by Section 2.1.4 (Borrowing Base
Report), there shall exist no
70
<PAGE> 78
Borrowing Base Deficiency, and as evidence thereof, the Borrower, Foster Grant
and Fantasma shall have furnished to the Agent such reports, schedules,
certificates, records and other papers as may be requested by the Agent, and the
Borrower, Foster Grant and Fantasma shall be in compliance with the provisions
this Agreement both immediately before and immediately after the making of the
advance requested.
5.2.3 DEFAULT.
There shall exist no Event of Default or Default
hereunder.
5.2.4 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each of the
Borrower, Foster Grant and Fantasma contained among the provisions of this
Agreement shall be true in all material respects and with the same effect as
though such representations and warranties had been made at the time of the
making of, and of the request for, each advance under the Loan or the issuance
of each Letter of Credit, except that the representations and warranties which
relate to financial statements which are referred to in Section 4.1.11
(Financial Condition), shall also be deemed to cover financial statements
furnished from time to time to the Agent pursuant to Section 6.1.1 (Financial
Statements).
5.2.5 MATERIAL ADVERSE CHANGE.
No material adverse change shall have occurred in the
condition (financial or otherwise), operations or business of any of the
Borrower, Foster Grant and Fantasma that would, in the good faith judgment of
the Agent, materially impair the ability of that entity to pay or perform any of
the Obligations.
5.2.6 LEGAL MATTERS.
All legal documents incident to each advance under the
Loan and each of the Letters of Credit shall be reasonably satisfactory to
counsel for the Agent.**
ARTICLE VI
COVENANTS OF THE BORROWER
Section 6.1 AFFIRMATIVE COVENANTS.
So long as any of the Obligations (or any the Commitments therefor)
shall be outstanding hereunder, the Borrower agrees with the Agent and the
Lenders as follows:
6.1.1 FINANCIAL STATEMENTS.
The Borrower shall furnish to the Agent and the Lenders:
(a) ANNUAL STATEMENTS AND CERTIFICATES. The
Borrower shall furnish to the Agent and the Lenders as soon as available, but in
no event no later one hundred twenty (120) days after the close of each fiscal
year of the Borrower thereafter, (i) a copy of the annual consolidated and
consolidating financial statement in reasonable detail satisfactory to the
71
<PAGE> 79
Agent relating to the Borrower and its Subsidiaries on a consolidated basis,
prepared in accordance with GAAP and examined and certified by independent
certified public accountants satisfactory to the Agent, which financial
statement shall include a balance sheet as of the end of such fiscal year and
statements of income, cash flows and changes in equity for such fiscal year and
(ii) a Compliance Certificate, in substantially the form attached to this
Agreement as EXHIBIT "C", as may be amended by the Agent from time to time,
containing a detailed computation of each financial covenant which is applicable
for the period reported, a certification that no material change has occurred to
the information contained in the Collateral Disclosure List (except as set forth
in a schedule attached to the certification), each prepared by a Responsible
Officer of the Borrower in a format acceptable to the Agent. The Borrower shall
furnish to the Agent and the Lenders as soon as available, but in no event later
than June 30 of each calendar year, a management letter for the then preceding
fiscal year in the form prepared by the Borrower's independent certified public
accountants.
(b) ANNUAL OPINION OF ACCOUNTANT. The Borrower
shall furnish to the Agent and the Lenders as soon as available, but in no event
more than one hundred twenty (120) days after the close of the Borrower's fiscal
year, a letter or opinion of the accountant who examined and certified the
annual financial statement relating to the Borrower stating whether anything in
such accountant's examination has revealed the occurrence of a Default or an
Event of Default hereunder, and, if so, stating the facts with respect thereto.
(c) MONTHLY STATEMENTS AND CERTIFICATES. The
Borrower shall furnish to the Agent and the Lenders as soon as available, but in
no event more than thirty (30) days after the close of each fiscal month of the
Borrower consolidated and consolidating balance sheets of the Borrower as of the
close of such period, income, cash flows and changes in equity statements for
such period (which statements shall be preliminary for the month of December and
shall be followed by final statements no later than (60) days after the close of
such month), and a detailed computation of each financial covenant in this
Agreement which is applicable for the period reported, all as prepared and
certified by a Responsible Officer of the Borrower and accompanied by a
certificate of that officer stating whether any event has occurred which
constitutes a Default or an Event of Default hereunder, and, if so, stating the
facts with respect thereto.
(d) MONTHLY REPORTS. The Borrower shall
furnish, or cause to be furnished, to the Agent and the Lenders within fifteen
(15) Business Days after the end of each fiscal month, a report containing the
following information for each of the Borrower, Foster Grant and Fantasma:
(i) a detailed aging schedule of all
Receivables by Account Debtor, in such detail, and accompanied by
such supporting information, as the Agent may from time to time
reasonably request;
(ii) a detailed aging of all accounts
payable by supplier, in such detail, and accompanied by such
supporting information, as the Agent may from time to time
reasonably request;
72
<PAGE> 80
(iii) a listing of all Inventory by
component, category and location, in such detail, and accompanied
by such supporting information as the Agent may from time to time
reasonably request; and
(iv) such other information as the Agent
may reasonably request.
(e) ANNUAL BUDGET AND PROJECTIONS. The
Borrower shall furnish to the Agent and the Lenders (i) as soon as available,
but in no event later than the 10th day before the end of each fiscal year a
budget and pro forma financial statements on a month-to-month basis for the
following fiscal year, and (ii) as soon as available, but in no event later than
March 31 of each year, three year projections.
(f) CONSOLIDATING SCHEDULES. The Borrower
shall furnish or cause to be furnished to the Agent and the Lenders as soon as
available, but in no event later than September 15 of each calendar year, copies
of all tax returns filed by the Borrower on a consolidated basis.
(g) ADDITIONAL REPORTS AND INFORMATION. The
Borrower shall furnish to the Agent and the Lenders promptly, such additional
information, reports or statements as the Agent may from time to time reasonably
request with respect to the Borrower and its Subsidiaries.
(h) CERTAIN INFORMATION FURNISHED TO TRUSTEE.
The Borrower will furnish to the Agent and the Lenders, at the same time sent to
the Trustee, at least one (l) copy of all financial statements, reports, and
other information sent by the Borrower to the holders of the Senior Notes and
the Trustee pursuant to Section 4.03 (a) of the Indenture as in effect on the
Closing Date.
6.1.2 RECORDKEEPING, RIGHTS OF INSPECTION, FIELD
EXAMINATION, ETC.
(a) Each of the Borrower, Foster Grant and
Fantasma shall maintain (i) a standard system of accounting in accordance with
GAAP, and (ii) proper books of record and account in which full, true and
correct entries are made of all dealings and transactions in relation to its
properties, business and activities.
(b) Each of the Borrower, Foster Grant and
Fantasma shall permit authorized representatives of the Agent, who may be
accompanied by the Lenders at their own expense, to visit and inspect the
properties of any of the Borrower, Foster Grant or Fantasma, to review, audit,
check and inspect the Collateral at any time with reasonable notice prior to the
occurrence of a Default or Event of Default or without notice following and
during the continuance of a Default or an Event of Default, to review, audit,
check and inspect any of the Borrower's, Foster Grant's and Fantasma's other
books of record at any time with reasonable notice prior to the occurrence of a
Default or Event of Default or without notice following and during the
continuance of a Default or an Event of Default and to make abstracts and
photocopies thereof, and to discuss the affairs, finances and accounts of any of
Borrower, Foster Grant and Fantasma, with the officers, directors, employees and
other representatives of any or all of the
73
<PAGE> 81
Borrower, Foster Grant and Fantasma and its or their accountants, all at such
times during normal business hours and other reasonable times and as often as
the Agent may reasonably request.
(c) Without implying any limitation on
subsection (b) above, through and including the period ending December 31, 1997,
the Borrower, Foster Grant and Fantasma shall permit authorized representatives
of the Agent to conduct a quarterly appraisal of each such entity's Inventory,
all at such times during normal business hours as may be reasonably requested by
the Agent.
(d) Each of the Borrower, Foster Grant and
Fantasma hereby irrevocably authorizes and directs all accountants and auditors
employed by any of the Borrower, Foster Grant or Fantasma at any time prior to
the repayment in full of the Obligations to exhibit and deliver to the Agent
copies of any and all of the financial statements, trial balances, management
letters, or other accounting records of any nature of any of Borrower, Foster
Grant or Fantasma in the accountant's or auditor's possession, and to disclose
to the Agent any information they may have concerning the financial status and
business operations of any of the Borrower, Foster Grant or Fantasma; provided,
however, that the Agent agrees that any and all such accountants and/or auditors
shall first be given a reasonable opportunity to consult with the Borrower,
Foster Grant and Fantasma prior to responding to any request from the Agent, and
provided further that the accountants may decline to provide information which
accountants generally may not provide to third parties even if so directed by
their clients. Further, each of the Borrower, Foster Grant and Fantasma hereby
authorizes all Governmental Authorities to furnish to the Agent copies of
reports or examinations relating to any of the Borrower, Foster Grant and
Fantasma, whether made by the Borrower, Foster Grant or Fantasma or otherwise.
(e) Any and all costs and expenses reasonably
incurred by, or on behalf of, the Agent in connection with the conduct of any of
the foregoing shall be part of the Enforcement Costs and shall be payable to the
Agent upon demand. The Borrower, Foster Grant and Fantasma acknowledge and agree
that such reasonable expenses may include, but shall not be limited to, any and
all out-of-pocket costs and expenses of the Agent's employees and agents
reasonably incurred in, and when, travelling to any of the Borrower's, Foster
Grant's or Fantasma's facilities.
6.1.3 EXISTENCE.
Each of the Borrower, Foster Grant and Fantasma shall
maintain its corporate, partnership or limited liability existence, as
appropriate, in good standing in the jurisdiction in which it is organized or
incorporated, as appropriate, and in each other jurisdiction where it is
required to register or qualify to do business if the failure to do so in such
other jurisdiction might have a Material Adverse Effect.
6.1.4 COMPLIANCE WITH LAWS.
Each of the Borrower, Foster Grant and Fantasma shall
comply with all applicable Laws and observe the valid requirements of
Governmental Authorities, the noncompliance with or the nonobservance of which
might have a Material Adverse Effect.
74
<PAGE> 82
6.1.5 PRESERVATION OF PROPERTIES.
Each of the Borrower, Foster Grant and Fantasma will at
all times (a) maintain, preserve, protect and keep its properties, whether owned
or leased, in reasonably satisfactory operating condition, working order and
repair (ordinary wear and tear excepted), and from time to time will make all
proper repairs, maintenance, replacements, additions and improvements thereto
needed to maintain such properties in reasonably satisfactory operating
condition, working order and repair, except to the extent the same is the
subject of a Permitted Asset Disposition, and (b) do or cause to be done all
things necessary to preserve and to keep in full force and effect its material
franchises, leases of real and personal property, trade names, patents,
trademarks and permits which are necessary for the orderly continuance of its
business.
6.1.6 LINE OF BUSINESS.
The Borrower will continue to engage substantially only
in the business of distributing and selling personal and fashion accessories
including, but not limited to, jewelry, sunglasses, reading glasses, key chains,
small leather goods, handbags and watches and clocks. Foster Grant will continue
to engage substantially only in the business of distributing and selling
sunglasses, reading glasses, watches, clocks, accessories and related consumer
goods.
6.1.7 INSURANCE.
(a) Each of the Borrower, Foster Grant and
Fantasma will at all times maintain with "A" or better rated insurance companies
such insurance as is required by applicable Laws and such other insurance, in
such amounts, of such types and against such risks, hazards, liabilities,
casualties and contingencies as are usually insured against in the same
geographic areas by business entities engaged in the same or similar business.
Without limiting the generality of the foregoing, each of the Borrower, Foster
Grant and Fantasma will keep adequately insured all of its property against loss
or damage resulting from fire or other risks insured against by extended
coverage and maintain public liability insurance against claims for personal
injury, death or property damage occurring upon, in or about any properties
occupied or controlled by it, or arising in any manner out of the businesses
carried on by it, all in such amounts not less than the Agent shall reasonably
determine from time to time.
(b) Each of the Borrower, Foster Grant and
Fantasma shall deliver to the Agent on the Closing Date (and thereafter on each
date there is a material change in the insurance coverage) a certificate of a
Responsible Officer of the Borrower, Foster Grant and Fantasma, as applicable,
containing a detailed list of the insurance then in effect and stating the names
of the insurance companies, the types, the amounts and rates of the insurance,
dates of the expiration thereof and the properties and risks covered thereby.
Within thirty (30) days after notice in writing from the Agent, the Borrower,
Foster Grant and Fantasma will obtain such additional insurance as the Agent may
reasonably request.
6.1.8 TAXES.
Except to the extent that the validity or amount thereof
is being contested in good faith and by appropriate proceedings, each of the
Borrower, Foster Grant and Fantasma will pay and discharge all Taxes prior to
the date when any interest or penalty would accrue for
75
<PAGE> 83
the nonpayment thereof. The Agent agrees that the failure of any of Borrower,
Foster Grant or Fantasma to pay and discharge Taxes in an amount not greater
than Fifty Thousand Dollars ($50,000), individually or in the aggregate, shall
not constitute a violation of this Section 6.1.8. Each of the Borrower, Foster
Grant and Fantasma shall furnish to the Agent at such times as the Agent may
require proof reasonably satisfactory to the Agent of the making of payments or
deposits required by applicable Laws including, without limitation, payments or
deposits with respect to amounts withheld by any of the Borrower, Foster Grant
and Fantasma from wages and salaries of employees and amounts contributed by any
of the Borrower, Foster Grant and Fantasma on account of federal and other
income or wage taxes and amounts due under the Federal Insurance Contributions
Act, as amended.
6.1.9 ERISA.
Each of the Borrower, Foster Grant and Fantasma will, and
will cause each of its Affiliates which is a Corporate Guarantor to, comply with
the funding requirements of ERISA with respect to employee pension benefit plans
for its respective employees. Upon the Agent's request, the Borrower, Foster
Grant and Fantasma will deliver to the Agent a copy of the most recent actuarial
report, financial statements and annual report completed with respect to any
"defined benefit plan", as defined in ERISA.
6.1.10 NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE
DEVELOPMENTS.
Each of the Borrower, Foster Grant and Fantasma shall
promptly notify the Agent upon obtaining knowledge of the occurrence of:
(a) any Event of Default;
(b) any Default;
(c) any litigation instituted or threatened
against any of the Borrower, Foster Grant or Fantasma and of the entry of any
judgment or Lien (other than any Permitted Liens) against any of the assets or
properties of any of the Borrower, Foster Grant or Fantasma where the claims
against any of the Borrower, Foster Grant or Fantasma exceed One Million Dollars
($1,000,000) and are not covered by insurance;
(d) any event, development or circumstance whereby
the financial statements furnished hereunder fail in any material respect to
present fairly, in accordance with GAAP, the financial condition and operational
results of the Borrower and its Subsidiaries;
(e) any judicial, administrative or arbitral
proceeding pending against any of the Borrower, Foster Grant and Fantasma and
any judicial or administrative proceeding known by any of the Borrower, Foster
Grant and Fantasma to be threatened against any of the Borrower, Foster Grant
and Fantasma which, if adversely decided, could have a Material Adverse Effect;
(f) the receipt by any of the Borrower, Foster
Grant and Fantasma of any notice, claim or demand from any Governmental
Authority which alleges that
76
<PAGE> 84
any of the Borrower, Foster Grant and Fantasma is in violation of any of the
terms of, or has failed to comply with any applicable Laws regulating its
operation and business, including, but not limited to, the Occupational Safety
and Health Act and the Environmental Protection Act; provided that any such
violation would constitute a Material Adverse Effect; and
(g) any other development in the business or
affairs of any of the Borrower, Foster Grant and Fantasma which may have a
Material Adverse Effect; in each case describing in detail reasonably
satisfactory to the Agent the nature thereof and the action the Borrower, Foster
Grant and Fantasma propose to take with respect thereto.
6.1.11 HAZARDOUS MATERIALS; CONTAMINATION.
Each of the Borrower, Foster Grant and Fantasma agree to:
(a) give notice to the Agent immediately upon
acquiring knowledge of the presence of any Hazardous Materials or any Hazardous
Materials Contamination on any property owned, operated or controlled by any of
the Borrower, Foster Grant and Fantasma or for which any of the Borrower, Foster
Grant and Fantasma is, or is claimed to be, responsible (provided that such
notice shall not be required for Hazardous Materials placed or stored on such
property in accordance with applicable Laws in the ordinary course (including,
without limitation, quantity) of Borrower's, Foster Grant's and Fantasma's line
of business expressly described in this Agreement), with a full description
thereof;
(b) promptly comply with any Laws requiring the
removal, treatment or disposal of Hazardous Materials or Hazardous Materials
Contamination and provide the Agent with satisfactory evidence of such
compliance;
(c) provide the Agent, within thirty (30) days
after a demand by the Agent, with a bond, letter of credit or similar financial
assurance evidencing to the Agent's reasonable satisfaction that the necessary
funds are available to pay the cost of removing, treating, and disposing of such
Hazardous Materials or Hazardous Materials Contamination and discharging any
Lien which may be established as a result thereof on any property owned,
operated or controlled by any of the Borrower, Foster Grant and Fantasma or for
which any of the Borrower, Foster Grant and Fantasma is, or is claimed to be,
responsible; and
(d) as part of the Obligations, defend, indemnify
and hold harmless the Agent, each of the Lenders and each of their respective
agents, employees, trustees, successors and assigns from any and all claims
which may now or in the future (whether before or after the termination of this
Agreement) be asserted as a result of the presence of any Hazardous Materials or
any Hazardous Materials Contamination on any property owned, operated or
controlled by any of the Borrower, Foster Grant and Fantasma for which any of
the Borrower, Foster Grant and Fantasma is, or is claimed to be, responsible.
Each of the Borrower, Foster Grant and Fantasma acknowledges and agrees that
this indemnification shall survive the termination of this Agreement and the
Commitments and the payment and performance of all of the other Obligations.
77
<PAGE> 85
6.1.12 DISCLOSURE OF SIGNIFICANT TRANSACTIONS.
Each of the Borrower, Foster Grant and Fantasma shall
deliver to the Agent a written notice describing in detail each transaction by
it involving the purchase, sale, lease, or other acquisition or loss or casualty
to or disposition of an interest in Fixed or Capital Assets (other than displays
sold in the ordinary course of business), which exceeds Five Hundred Thousand
Dollars ($500,000.00), said notices to be delivered to the Agent within thirty
(30) days of the occurrence of each such transaction.
6.1.13 FINANCIAL COVENANTS.
(a) FIXED CHARGE COVERAGE RATIO. The Borrower and
its Subsidiaries on a consolidated basis will maintain, tested on the last
Business Day of each of the Borrower's fiscal quarters beginning on the last
Business Day of the fiscal quarter ending closest to December 31, 1998, for the
four (4) quarter period ending on such date, a Fixed Charge Coverage Ratio of
not less than the following:
--------------------------------------------------------
FISCAL QUARTER ENDING CLOSEST TO: RATIO
--------------------------------------------------------
December 31, 1998 through and 1.00 to 1.0
including September 30, 1999
--------------------------------------------------------
December 31, 1999 through and 1.20 to 1.0
including September 30, 2000
--------------------------------------------------------
December 31, 2000 through and 1.25 to 1.0
including September 30, 2001
--------------------------------------------------------
December 31, 2001 through and 1.30 to 1.0
including September 30, 2002
--------------------------------------------------------
December 31, 2002 through and 1.35 to 1.0
including September 30, 2003
--------------------------------------------------------
December 31, 2003 and thereafter 1.40 to 1.0
--------------------------------------------------------
(b) LEVERAGE RATIO. The Borrower and its
Subsidiaries on a consolidated basis will at all times maintain, tested as of
the last Business Day of each of Borrower's fiscal quarters beginning with the
fiscal quarter ending closest to December 31, 1998, as of the last day of each
of the Borrower's fiscal quarters for the four (4) quarter period ending on such
date, a ratio of Funded Debt to EBITDA so that it is not more than the
following:
78
<PAGE> 86
---------------------------------------------------------
FISCAL QUARTER ENDING CLOSEST TO: RATIO
---------------------------------------------------------
December 31, 1998 through and 6.20 to 1.0
including September 30, 1999
---------------------------------------------------------
December 31, 1999 through and 3.50 to 1.0
including September 30, 2000
---------------------------------------------------------
December 31, 2000 through and 3.25 to 1.0
including September 30, 2001
---------------------------------------------------------
December 31, 2001 through and 3.00 to 1.0
including September 30, 2002
---------------------------------------------------------
December 31, 2002 through and 2.75 to 1.0
including September 30, 2003
---------------------------------------------------------
December 31, 2003 and thereafter 2.50 to 1.0
(applicable if the Revolving Credit
Termination Date has not sooner
occurred)
---------------------------------------------------------
(c) EBITDA. The Borrower and its Subsidiaries on a
consolidated basis will maintain, tested on the last Business Day of each of the
Borrower's fiscal quarters beginning on the last Business Day of the fiscal
quarter ending closest to December 31, 1998 for the four (4) quarter period
ending on such date, EBITDA of not less than the following:
=========================================================
FISCAL QUARTER ENDING CLOSEST TO: AMOUNT
---------------------------------------------------------
December 31, 1998 $13,250,000
---------------------------------------------------------
March 31, 1999 $24,750,000
---------------------------------------------------------
June 30, 1999 $27,000,000
---------------------------------------------------------
September 30, 1999 $29,250,000
---------------------------------------------------------
December 31, 1999 $31,500,000
---------------------------------------------------------
Thereafter $34,000,000
---------------------------------------------------------
6.1.14 COLLECTION OF RECEIVABLES.
Until such time that the Agent shall notify the Borrower,
Foster Grant and Fantasma of the revocation of such privilege, the Borrower,
Foster Grant and Fantasma shall at their own expense have the privilege for the
account of, and in trust for, the Agent and the Lenders of collecting their
Receivables and receiving in respect thereto all Items of Payment and
79
<PAGE> 87
shall otherwise completely service all of the Receivables including (a) the
billing, posting and maintaining of complete records applicable thereto, (b) the
taking of such action with respect to the Receivables as the Agent may request
or in the absence of such request, as each of the Borrower, Foster Grant and
Fantasma may deem advisable; and (c) the granting, in the ordinary course of
business, to any Account Debtor, any rebate, refund or adjustment to which the
Account Debtor may be lawfully entitled, and may accept, in connection
therewith, the return of goods, the sale or lease of which shall have given rise
to a Receivable and may take such other actions relating to the settling of any
Account Debtor's claim as may be commercially reasonable. The Agent may, at its
option, at any time or from time to time after and during the continuance of a
Default hereunder, revoke the collection privilege given in this Agreement to
any one or more of the Borrower, Foster Grant and Fantasma by either giving
notice of its assignment of, and Lien on the Collateral to the Account Debtors
or giving notice of such revocation to the Borrower, Foster Grant and Fantasma.
The Agent shall not have any duty to, and the Borrower, Foster Grant and
Fantasma hereby release the Agent and the Lenders from all claims of loss or
damage caused by the delay or failure to collect or enforce any of the
Receivables or to preserve any rights against any other party with an interest
in the Collateral. The Agent shall be entitled at any time and from time to time
to confirm and verify Receivables.
6.1.15 ASSIGNMENTS OF RECEIVABLES.
Each of the Borrower, Foster Grant and Fantasma will
promptly, upon request, execute and deliver to the Agent written assignments, in
form and content acceptable to the Agent, of specific Receivables or groups of
Receivables; provided, however, the Lien and/or security interest granted to the
Agent, for the ratable benefit of the Lenders and for the benefit of the Agent
with respect to the Agent's Obligations, under this Agreement shall not be
limited in any way to or by the inclusion or exclusion of Receivables within
such assignments. Receivables so assigned shall secure payment of the
Obligations and are not sold to the Agent and/or the Lenders whether or not any
assignment thereof, which is separate from this Agreement, is in form absolute.
The Borrower, Foster Grant and Fantasma agree that neither any assignment to the
Lender nor any other provision contained in this Agreement or any of the other
Financing Documents shall impose on the Agent or the Lenders any obligation or
liability of any of the Borrower, Foster Grant and Fantasma with respect to that
which is assigned and the Borrower, Foster Grant and Fantasma hereby agree
jointly and severally to indemnify the Agent and the Lenders and hold the Agent
and the Lenders harmless from any and all claims, actions, suits, losses,
damages, costs, expenses, fees, obligations and liabilities which may be
incurred by or imposed upon the Agent and/or any of the Lenders by virtue of the
assignment of and Lien on any of the Borrower's, Foster Grant's or Fantasma's
rights, title and interest in, to, and under the Collateral.
6.1.16 GOVERNMENT ACCOUNTS.
The Borrower, Foster Grant and Fantasma will immediately
notify the Agent if any of the Receivables arise out of contracts with the
United States or with any other Governmental Authority, and, as appropriate,
execute any Instruments and take any steps required by the Agent in order that
all moneys due and to become due under such contracts shall be assigned to the
Agent, for the ratable benefit of the Lenders and for the benefit of the Agent
80
<PAGE> 88
with respect to the Agent's Obligations, and notice thereof given to the
Governmental Authority under the Federal Assignment of Claims Act or any other
applicable Laws.
6.1.17 INVENTORY.
With respect to the Inventory, the Borrower, Foster Grant
and Fantasma will: (a) as soon as possible upon demand by the Agent from time to
time, prepare and deliver to the Agent designations of Inventory specifying the
Borrower's, Foster Grant's or Fantasma's standard cost, which generally
represents average cost, of Inventory, and such other matters and information
relating to the Inventory as the Agent may reasonably request; (b) keep correct
and accurate records itemizing and describing the kind, type, quality and
quantity of Inventory, consistent with past practices, the Borrower's, Foster
Grant's or Fantasma's cost therefor and the selling price thereof, all of which
records shall be available to the officers, employees or agents of the Agent
upon demand for inspection and copying thereof; (c) except for Inventory located
with freight forwarders in the ordinary course of shipment, not store any
Inventory with a bailee, warehouseman or similar Person without the Agent's
prior written consent, which consent may be conditioned on, among other things,
delivery by the bailee, warehouseman or similar Person to the Agent of warehouse
receipts, in form acceptable to the Agent, in the name of the Agent evidencing
the storage of Inventory and the interests of the Agent and the Lenders therein;
and (d) permit the Agent and its agents or representatives to inspect and
examine the Inventory and to check and test the same as to quality, quantity,
value and condition at any time or times hereafter during the Borrower's, Foster
Grant's or Fantasma's usual business hours or at other reasonable times,
provided that, absent an Event of Default, the Agent shall take reasonable steps
not to interfere with the conduct of the Borrower's, Foster Grant's or
Fantasma's business except to the extent reasonably necessary to complete the
Agent's activities. The Borrower, Foster Grant and Fantasma shall be permitted
to sell their Inventory in the ordinary course of business until the occurrence
of a Default or an Event of Default.
6.1.18 INSURANCE WITH RESPECT TO AND INVENTORY.
The Borrower, Foster Grant and Fantasma will (a) maintain
hazard insurance with fire and extended coverage and naming the Agent as an
additional insured with loss payable to the Agent as its respective interest may
appear on the Inventory in an amount at least equal to the lesser amount of the
outstanding principal amount of the Obligations or the fair market value of the
Inventory (but in any event sufficient to avoid any co-insurance obligations)
and with a specific endorsement to each such insurance policy pursuant to which
the insurer agrees to give the Agent at least thirty (30) days written notice
before any alteration or cancellation of such insurance policy and that no act
or default of any of the Borrower, Foster Grant and Fantasma shall affect the
right of the Agent to recover under such policy in the event of loss or damage;
(b) file with the Agent, upon its request, a detailed list of the insurance then
in effect and stating the names of the insurance companies, the amounts and
rates of the insurance, dates of the expiration thereof and the properties and
risks covered thereby; and (c) within thirty (30) days after notice in writing
from the Agent, obtain such additional insurance as the Agent may reasonably
request.
81
<PAGE> 89
6.1.19 CREDIT INSURANCE.
The Borrower and Foster Grant shall at all times
maintain, subject to the Lien of the Assignment of Credit Insurance, credit
insurance with a responsible insurer on insurance terms and other terms
substantially no less favorable than that credit insurance covered by the
Assignment of Credit Insurance on the date of this Agreement. No later than
thirty (30) days after the date of this Agreement, Fantasma shall obtain for its
accounts, and thereafter shall at all times maintain, subject to the Lien of the
Assignment of Credit Insurance, credit insurance with a responsible insurer on
insurance terms and other terms substantially no less favorable than the
Borrower's and Foster Grant's credit insurance covered by the Assignment of
Credit Insurance on the date of this Agreement.
6.1.20 MAINTENANCE OF THE COLLATERAL.
(a) The Borrower, Foster Grant and Fantasma will
maintain the Collateral in satisfactory order, saving and excepting ordinary
wear and tear, and will not permit anything to be done to the Collateral that
may materially impair the value thereof.
(b) The Agent, or an agent designated by the
Agent, shall be permitted to enter the premises of each of the Borrower, Foster
Grant and Fantasma and examine, audit and inspect the Collateral at any
reasonable time and from time to time without notice. Absent an Event of
Default, the Agent shall take reasonable steps not to interfere with the conduct
of the Borrower's, Foster Grant's or Fantasma's business except to the extent
reasonably necessary to complete the Agent's activities.
(c) The Agent shall not have any duty to, and the
Borrower, Foster Grant and Fantasma hereby release the Agent and the Lenders
from all claims of loss or damage caused by the delay or failure to collect or
enforce any of the Receivables or to, preserve any rights against any other
party with an interest in the Collateral.
6.1.21 DEFENSE OF TITLE AND FURTHER ASSURANCES.
At their expense, the Borrower, Foster Grant and Fantasma
will defend the title to the Collateral (and any part thereof), and will
immediately execute, acknowledge and deliver any financing statement, renewal,
affidavit, deed, assignment, continuation statement, security agreement,
certificate or other document which the Agent may require in order to perfect,
preserve, maintain, continue, protect and/or extend the Lien or security
interest granted to the Agent, for the ratable benefit of the Lenders and for
the benefit of the Agent with respect to the Agent's Obligations, under this
Agreement, under any of the other Financing Documents and the first priority of
that Lien, subject only to the Permitted Liens. The Borrower, Foster Grant and
Fantasma will from time to time do whatever the Agent may require by way of
obtaining, executing, delivering, and/or filing financing statements, landlords'
or mortgagees' waivers, notices of assignment and other notices and amendments
and renewals thereof and the Borrower, Foster Grant and Fantasma will take any
and all steps and observe such formalities as the Agent may require, in order to
create and maintain a valid Lien upon, pledge of, or security interest in, the
Collateral, subject to the Permitted Liens. The Borrower, Foster Grant and
Fantasma shall pay to the Agent on demand all taxes, costs and expenses incurred
by the Agent in connection with the preparation, execution, recording and filing
of any such document or instrument. To the
82
<PAGE> 90
extent that the proceeds of any of the Accounts or Receivables of the Borrower,
Foster Grant or Fantasma are expected to become subject to the control of, or in
the possession of, a party other than the Borrower, Foster Grant or Fantasma or
the Agent, the Borrower, Foster Grant and Fantasma shall cause all such parties
to execute and deliver on the Closing Date security documents, financing
statements or other documents as requested by the Agent and as may be necessary
to evidence and/or perfect the security interest of the Agent, for the ratable
benefit of the Lenders and for the benefit of the Agent with respect to the
Agent's Obligations, in those proceeds. The Borrower, Foster Grant and Fantasma
agree that a copy of a fully executed security agreement and/or financing
statement shall be sufficient to satisfy for all purposes the requirements of a
financing statement as set forth in Article 9 of the applicable Uniform
Commercial Code. Each of the Borrower, Foster Grant and Fantasma hereby
irrevocably appoints the Agent as the Borrower's, Foster Grant's and Fantasma's
attorney-in-fact, with power of substitution, in the name of the Agent or in the
name of the Borrower, Foster Grant and Fantasma or otherwise, for the use and
benefit of the Agent for itself and the Lenders, but at the cost and expense of
the Borrower, Foster Grant and Fantasma and without notice to the Borrower,
Foster Grant and Fantasma, to execute and deliver any and all of the instruments
and other documents and take any action which the Lender may require pursuant to
the foregoing provisions of this Section 6.1.21.
6.1.22 BUSINESS NAMES; LOCATIONS.
Each of the Borrower, Foster Grant and Fantasma will
notify the Agent not less than thirty (30) days prior to (a) any change in the
name under which the Borrower, Foster Grant or Fantasma conducts its business,
(b) any change of the location of the chief executive office of the applicable
party, and (c) the opening of any new place of business or the closing of any
existing place of business, and any change in the location of the places where
the Collateral, or any part thereof, or the books and records, or any part
thereof, are kept.
6.1.23 SUBSEQUENT OPINION OF COUNSEL AS TO RECORDING
REQUIREMENTS.
In the event that any of the Borrower, Foster Grant and
Fantasma shall transfer its principal place of business or the office where it
keeps its records pertaining to the Collateral, upon the Agent's request the
Borrower, Foster Grant or Fantasma, as applicable, will provide to the Agent a
subsequent opinion of counsel as to the filing, recording and other requirements
with which the Borrower, Foster Grant or Fantasma, as applicable, have complied
to maintain the Lien and security interest in favor of the Agent, for the
ratable benefit of the Lenders and for the benefit of the Agent with respect to
the Agent's Obligations, in the Collateral.
6.1.24 USE OF PREMISES AND EQUIPMENT.
The Borrower, Foster Grant and Fantasma agree that until
the Obligations are fully paid and all of the Commitments and the Letters of
Credit have been terminated or have expired, the Agent (a) after and during the
continuance of a Default or an Event of Default, may use any of the Borrower's,
Foster Grant's and Fantasma's owned or leased lifts, hoists, trucks and other
facilities or equipment for handling or removing the Collateral; and (b) shall
have, and is hereby granted, a right of ingress and egress to the places where
the Collateral is located, and may
83
<PAGE> 91
proceed over and through any of the Borrower's, Foster Grant's and Fantasma's
owned or leased property.
6.1.25 PROTECTION OF COLLATERAL.
The Borrower, Foster Grant and Fantasma agree that the
Agent may at any time following an Event of Default take such steps as the Agent
deems reasonably necessary to protect the interest of the Agent and the Lenders
in, and to preserve the Collateral, including, the hiring of such security
guards or the placing of other security protection measures as the Agent deems
appropriate, may employ and maintain at any of the Borrower's, Foster Grant's
and Fantasma's premises a custodian who shall have full authority to do all acts
necessary to protect the interests of the Agent and the Lenders in the
Collateral and may lease warehouse facilities to which the Agent may move all or
any part of the Collateral to the extent commercially reasonable. The Borrower,
Foster Grant and Fantasma agree to cooperate fully with the Agent's efforts to
preserve the Collateral and will take such actions to preserve the Collateral as
the Agent may reasonably direct. All of the Agent's expenses of preserving the
Collateral, including any reasonable expenses relating to the compensation and
bonding of a custodian, shall part of the Enforcement Costs.
Section 6.2 NEGATIVE COVENANTS.
So long as any of the Obligations or the Commitments or Letters of
Credit therefor shall be outstanding hereunder, the Borrower, Foster Grant and
Fantasma agree with the Agent and the Lenders that without the prior written
consent of the Agent:
6.2.1 CAPITAL STRUCTURE, MERGER, ACQUISITION OR SALE OF
ASSETS.
(a) None of the Borrower, Foster Grant and
Fantasma will enter into any merger or consolidation or amalgamation (other than
with another Obligor or Subsidiary), or windup or dissolve themselves (or suffer
any liquidation or dissolution) or enter into an Asset Disposition (except for
Permitted Asset Dispositions) or acquire all or substantially all the assets of
any Person (except for Permitted Acquisitions). Any consent of the Agent to an
Asset Disposition (other than a Permitted Asset Disposition) may be conditioned
on a specified use of the proceeds of disposition.
(b) Notwithstanding the provisions of subsection
(a) above, the Lenders agree that the Borrower may acquire all or a portion of
the member interest of Fantasma, or other ownership interests of a Subsidiary,
not owned by the Borrower.
(c) Notwithstanding the provisions of subsection
(a) above, the Lenders agreement to mergers, consolidations, reorganizations and
restructurings, and other circumstances permitted by Section 6.2.1(a), by and
among the Borrower, the other Obligors and/or Subsidiaries, shall be conditioned
upon the following: (i) the Lenders are given at least fifteen (15) days prior
written notice of any such proposed merger, consolidation, reorganization and
restructuring and such information with respect to such transaction as may be
reasonably requested by any of the Lenders, (ii) the merger, consolidation,
reorganization and/or restructuring would not otherwise constitute or give rise
to a Default or an Event of Default, (iii)
84
<PAGE> 92
the Borrower shall furnish such information as any of the Lenders may request to
reconcile any actual changes to the then most current financial statements of
the Borrower available to the Lenders and any actual and projected changes to
financial covenants under this Agreement and to the financial condition and
operations of the Borrower, Foster Grant and Fantasma and each other member of
the AAi Group affected by any such merger, consolidation, reorganization or
restructuring, (iv) that the Lien of the Agent and the Lenders in the Collateral
shall continue without impairment, (v) each Obligor, and each successor to any
Obligor shall execute and deliver to the Agent any and all such confirmations,
ratifications, affirmations and such other agreements as the Agent may
reasonably request to confirm, reaffirm, preserve, ratify or validate the
Obligations and/or to preserve, maintain, protect or perfect any and all Liens
of the Agent and the Lenders, and (vi) the Agent shall be satisfied that the
closing and consummation of the proposed transaction will not have a Material
Adverse Effect.
6.2.2 SUBSIDIARIES.
None of the Borrower, Foster Grant and Fantasma will
create or acquire any Subsidiaries other than the Subsidiaries identified on the
Collateral Disclosure List, except (a) to the extent necessary to close and
consummate any merger, consolidation, reorganization, restructuring or other
circumstances permitted under the provisions of Section 6.2.1 (Capital
Structure, etc.) or (b) where upon such creation or acquisition all Accounts,
Inventory, Chattel Paper, Instruments, rights to non-exclusive use of Trademarks
in the disposition of the Inventory to which such Trademarks are attached and
any real property and fixtures acquired are pledged to the Lenders.
6.2.3 ISSUANCE OF STOCK.
None of the Obligors other than the Borrower, as
appropriate, will issue, or grant any option or right to purchase, any of its
capital stock, limited liability membership interest or partnership interests,
except to the extent necessary to close and consummate any merger,
consolidation, reorganization, restructuring, or other circumstances permitted
under the provisions of Section 6.2.1 (Capital Structure, etc.) and except for
the issuance or transfer of stock or interests such that the Borrower owns
(directly or indirectly) no less than fifty one percent (51%) of all such stock
or interests. The Borrower will not issue or grant any option or right to
purchase, any Disqualified Stock (as defined in the Indenture).
6.2.4 PURCHASE OR REDEMPTION OF SECURITIES, DISTRIBUTION
RESTRICTIONS; PAYMENT OF INDEBTEDNESS FOR BORROWED MONEY.
Except as permitted in Section 6.2.1 (Capital Structure,
etc.), Foster Grant will neither make any distribution by reduction of capital
or otherwise in respect of, any partnership or other equity interests in Foster
Grant nor set aside any funds for any such purpose, except for Permitted
Affiliate Distributions made at a time when there is no Event of Default. Except
for Permitted Affiliate Distributions made at a time when there is no Event of
Default, the Borrower, will not purchase, redeem or otherwise acquire any shares
of its capital stock or warrants now or hereafter outstanding, declare or pay
any dividends thereon (other than stock dividends), apply any of its property or
assets to the purchase, redemption or other retirement of, set apart any sum for
the payment of any dividends on, or for the purchase, redemption, or other
85
<PAGE> 93
retirement of, make any distribution by reduction of capital or otherwise in
respect of, any shares of any class of capital stock, or any warrants, make any
distribution to stockholders or set aside any funds for any such purpose, except
to the extent necessary to close and consummate a merger, consolidation,
reorganization, restructuring or other circumstances permitted by the provisions
of Section 6.2.1 (Capital Structure, etc.). In addition, the Borrower shall not
prepay, purchase or redeem any Indebtedness for Borrowed Money other than the
Obligations (except through the issuance of Exchange Notes for its Senior Notes
and except for Permitted Senior Note Purchases). Notwithstanding the foregoing,
and provided there shall exist no Default or Event of Default, the Borrower may
distribute to certain of its shareholders an amount sufficient to cover that
shareholder's actual tax liability due and payable as a result of income of the
Borrower that is attributed to such shareholder as a result of the Borrower
having been an S corporation under the Internal Revenue Code.
6.2.5 INDEBTEDNESS.
None of the Borrower, Foster Grant and Fantasma will
create, incur, assume or suffer to exist any Indebtedness for Borrowed Money,
except:
(a) the Obligations;
(b) accounts payable arising in the ordinary
course;
(c) Indebtedness secured by Permitted Liens;
(d) intercompany debt among the Borrower and its
Subsidiaries incurred in the ordinary course of business and not otherwise
prohibited by this Agreement and intercompany loans among the Borrower and its
Subsidiaries;
(e) the Senior Notes and any Subordinated
Indebtedness;
(f) Indebtedness of the Obligors existing on the
date hereof and reflected on the financial statements furnished pursuant to
Section 4.1.11 (Financial Condition);
(g) endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business;
(h) other Indebtedness in the aggregate not to
exceed $5,000,000; and
(i) Indebtedness incurred in connection with
Permitted Acquisitions.
6.2.6 INVESTMENTS, LOANS AND OTHER TRANSACTIONS.
Except for the Permitted Uses and except for Permitted
Senior Note Purchases, investments of one Obligor in another Obligor, and as
otherwise provided in this Agreement, none of the Borrower, Foster Grant and
Fantasma will (a) make, assume, acquire or continue to hold any investment in
any real property (unless used in connection with their business
86
<PAGE> 94
and treated as a Fixed or Capital Asset of any Obligor) or any Person, whether
by stock purchase, capital contribution, acquisition of Indebtedness of such
Person or otherwise (including, without limitation, investments in any joint
venture or partnership), (b) guaranty or otherwise become contingently liable
for the Indebtedness or obligations of any Person (other than another Obligor),
or (c) make any loans or advances, or otherwise extend credit to any Person,
except:
(i) loans existing on the date of this
Agreement and reflected on the consolidated balance sheet of the
Borrower and its Subsidiaries furnished to the Agent;
(ii) loans made to officers or employees
under 401(k) and other qualified pension plans;
(iii) any advance to an officer or
employee of any of the Borrower, Foster Grant and Fantasma for
travel or other business expenses in the ordinary course of
business, provided that the aggregate amount of all such advances
by all of the Borrower, Foster Grant and Fantasma (taken as a
whole) outstanding at any time shall not exceed One Hundred
Thousand Dollars ($100,000);
(iv) the endorsement of negotiable
instruments for deposit or collection or similar transactions in
the ordinary course of business;
(v) any investment in Cash Equivalents,
which are pledged to the Agent, for the ratable benefit of the
Lenders and for the benefit of the Agent with respect to the
Agent's Obligations, as collateral and security for the
Obligations;
(vi) trade credit extended to customers
in the ordinary course of business;
(vii) indebtedness permitted under
Section 6.2.5 (Indebtedness);
(viii) loans to shareholders partners and
limited liability company members evidencing Permitted Affiliate
Distributions;
(ix) Permitted Acquisitions; and
(x) acquisitions of investments in
connection with the bankruptcy or reorganization of customers and
suppliers.
6.2.7 CAPITAL EXPENDITURES.
The Borrower, Foster Grant and Fantasma will not,
directly or indirectly (by way of the acquisition of the securities of a Person
or otherwise), make any Capital Expenditures (excluding, however, any Buybacks
otherwise included as a Capital Expenditure) in
87
<PAGE> 95
the aggregate for the Borrower, Foster Grant and Fantasma (taken as a whole) in
any fiscal year exceeding $10,000,000, except the purchase and sale/leaseback of
the Headquarter's Property.
6.2.8 SUBORDINATED INDEBTEDNESS.
None of the Borrower, Foster Grant and Fantasma will
make:
(a) any payment of principal of, or interest on,
any of the Subordinated Indebtedness, if a Default or an Event of Default then
exists hereunder or would result from such payment;
(b) any payment of the principal or interest due
on the Subordinated Indebtedness as a result of acceleration thereunder or a
mandatory prepayment thereunder;
(c) any amendment or modification of or supplement
to the documents evidencing or securing the Subordinated Indebtedness that would
accelerate payments, increase the principal amount or increase the interest rate
or other amounts payable thereunder; and
(d) payment of principal or interest on the
Subordinated Indebtedness other than when due (without giving effect to any
acceleration of maturity or mandatory prepayment) except that the Borrower may
offset the amount of any sums payable under the Subordinated Indebtedness
against amounts owed by the holders of the Subordinated Indebtedness.
6.2.9 LIENS.
Each of the Borrower, Foster Grant and Fantasma agrees
that it (a) will not create, incur, assume or suffer to exist any Lien upon any
of its properties or assets, whether now owned or hereafter acquired, except for
Liens securing the Obligations and Permitted Liens, (b) will not agree to,
assume or suffer to exist any provision in any instrument or other document for
confession of judgment, cognovit or other similar right or remedy, (c) will not
allow or suffer to exist any Permitted Liens to be superior to Liens securing
the Obligations, (d) will not enter into any contracts for the consignment of
goods, will not execute or suffer the filing of any financing statements or the
posting of any signs giving notice of consignments, and will not, as a material
part of its business, engage in the sale of goods belonging to others, and (e)
will not allow or suffer to exist the failure of any Lien described in the
Security Documents to attach to, and/or remain at all times perfected on, any of
the property described in the Security Documents.
6.2.10 TRANSACTIONS WITH AFFILIATES.
None of the Borrower, Foster Grant and Fantasma will
enter into or participate in any transaction including, without limitation,
leases of real property (a) with any Affiliate (other than another Obligor),
except as permitted in Section 6.2.6 (Investments, etc.) and except in the
ordinary course on reasonable and arm's length basis and which does not
otherwise violate the provisions of this Agreement or the other Financing
Documents, or (b) except in the ordinary course of business, with the officers,
directors, employees and other representatives of
88
<PAGE> 96
any of the Borrower, Foster Grant and Fantasma, (c) except Permitted Uses, or
(d) existing real estate leases.
6.2.11 OTHER BUSINESSES.
None of the Borrower, Foster Grant and Fantasma will
engage directly or indirectly in any substantial respect in any business other
than the Line of Business.
6.2.12 ERISA COMPLIANCE.
None of the Borrower, Foster Grant and Fantasma nor any
Commonly Controlled Entity shall: (a) engage in or permit any "prohibited
transaction" (as defined in ERISA); (b) cause any "accumulated funding
deficiency" as defined in ERISA and/or the Internal Revenue Code; (c) terminate
any pension plan in a manner which could result in the imposition of a Lien on
the property of any of the Borrower, Foster Grant and Fantasma pursuant to
ERISA; (d) terminate or consent to the termination of any Multi-employer Plan;
or (e) incur a complete or partial withdrawal with respect to any Multi-employer
Plan. The Borrower, Foster Grant and Fantasma will not permit with respect to
any employee benefit plan or plans covered by Title IV of ERISA (a) any
prohibited transaction or transactions under ERISA or the Internal Revenue Code,
which results, or may result, in any material liability of any of the Borrower,
Foster Grant and Fantasma and/or any of their Affiliates which is a Guarantor,
or (b) any Reportable Event if, upon termination of the plan or plans with
respect to which one or more such Reportable Events shall have occurred, there
is or would be any material liability of any of the Borrower, Foster Grant and
Fantasma and/or any of their Affiliates which is a guarantor to the PBGC.
6.2.13 PROHIBITION ON HAZARDOUS MATERIALS.
None of the Borrower, Foster Grant and Fantasma shall
place, manufacture or store or permit to be placed, manufactured or stored any
Hazardous Materials on any property owned, operated or controlled by any of the
Borrower, Foster Grant and Fantasma or for which any of the Borrower, Foster
Grant and Fantasma is responsible other than Hazardous Materials placed or
stored on such property in accordance with applicable Laws in the ordinary
course of the Borrower's, Foster Grant's and Fantasma's business expressly
described in this Agreement.
6.2.14 METHOD OF ACCOUNTING; FISCAL YEAR.
(a) The Borrower shall not change the method of
accounting employed in the preparation of any financial statements furnished to
the Agent under the provisions of Section 6.1.1 (Financial Statements), unless
required to conform to GAAP or unless prior thereto the Borrower has given the
Agent no less than sixty (60) days prior written notice thereof and the
Borrower's, certified public accountants shall confirm the changes are in
accordance with GAAP, shall furnish such information as the Agent may request to
reconcile to the good faith satisfaction of the Agent the changes with the
Borrower's, prior financial statements, with the Borrowing Base, and with the
financial and other covenants under this Agreement, and the Agent and the
Borrower shall have entered into an agreement acknowledging the same.
89
<PAGE> 97
(b) The Borrower, Foster Grant and Fantasma will
not change their fiscal year from a year ending on the last Saturday of the
calendar year closest to December 31st.
6.2.15 COMPENSATION.
None of the Borrower, Foster Grant and Fantasma will pay
any bonuses, fees, compensation, commissions, salaries, drawing accounts, or
other payments (cash and non-cash), whether direct or indirect, to any
stockholders, partners or members of any of the Borrower, Foster Grant and
Fantasma or any Affiliate of any of them, other than Permitted Affiliate
Distributions and reasonable compensation for actual services rendered by
partners, stockholders or Affiliates in their capacity as officers or employees,
except for reasonable compensation in transactions not prohibited by Section
6.2.10 (Transactions with Affiliates) and obligations under existing agreements
that have been previously disclosed to the Agent and the Lenders..
6.2.16 TRANSFER OF COLLATERAL.
None of the Borrower, Foster Grant and Fantasma will
transfer, or permit the transfer, to another location of any of the Collateral
or the books and records related to any of the Collateral, except to a place
where the Agent has previously perfected the security interest of the Agent and
the Lenders in the Collateral by filing of financing statements.
6.2.17 SALE AND LEASEBACK.
None of the Borrower, Foster Grant and Fantasma will
directly or indirectly enter into any arrangement to sell or transfer all or any
substantial part of its fixed assets and thereupon or within one year thereafter
rent or lease the assets so sold or transferred; provided, however, the
sale/leaseback of the Headquarter's Property is specifically permitted.
6.2.18 DISPOSITION OF COLLATERAL.
None of the Borrower, Foster Grant and Fantasma will
sell, discount, allow credits or allowances, transfer, assign, extend the time
for payment on, convey, lease, assign, transfer or otherwise dispose of the
Collateral, except, prior to an Event of Default, Permitted Asset Dispositions,
other dispositions expressly permitted elsewhere in this Agreement, the sale of
Inventory (including, without limitation, the liquidation of slow moving and
obsolete Inventory) in the ordinary course of business.
ARTICLE VII
DEFAULT AND RIGHTS AND REMEDIES
Section 7.1 EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall
constitute an "Event of Default" under the provisions of this Agreement:
90
<PAGE> 98
7.1.1 FAILURE TO PAY.
The failure of the Borrower to pay any of the Obligations
as and when due and payable in accordance with the provisions of this Agreement,
the Notes and/or any of the other Financing Documents, and, except in the case
of the failure make any payment of principal and in the case of the failure to
pay any Obligation at its maturity (whether by acceleration or otherwise), such
failure continues uncured for a period of five (5) days;
7.1.2 BREACH OF REPRESENTATIONS AND WARRANTIES.
Any representation or warranty made in this Agreement or
in any report, statement, schedule, certificate, opinion (including any opinion
of counsel for the Borrower, Foster Grant and Fantasma), financial statement or
other document furnished in connection with this Agreement, any of the other
Financing Documents, or the Obligations, shall prove to have been false or
misleading when made (or, if applicable, when reaffirmed) in any material
respect.
7.1.3 FAILURE TO COMPLY WITH COVENANTS.
The failure of the Borrower, Foster Grant and Fantasma to
perform, observe or comply with any covenant, condition or agreement contained
in this Agreement and, only with respect to a failure under Sections 6.1.1(a)
(Recordkeeping), 6.1.3 (Existence), Section 6.1.4 (Compliance with Laws),
Section 6.1.5 (Preservation of Properties), Section 6.1.7(a) (Insurance),
Section 6.1.8 (Taxes) which does not relate to Taxes due or claimed to be due in
excess of $50,000 in the aggregate, Section 6.1.9 (ERISA), Section 6.1.7(a)
(Inventory), Section 6.1.18(a) (Insurance with Respect to Equipment and
Inventory) or Section 6.1.20(a) (Maintenance of the Collateral), if the
Borrower, Foster Grant and Fantasma after discovering such failure, fail to
diligently and continuously pursue the cure of such failure or such failure
continues uncured thirty (30) days after discovery.
7.1.4 DEFAULT UNDER OTHER FINANCING DOCUMENTS OR
OBLIGATIONS.
A default shall occur under any of the other Financing
Documents or under any other Obligations, and such default is not cured within
any applicable grace period provided therein.
7.1.5 RECEIVER; BANKRUPTCY.
Any of the Obligors or any general partner of any of the
Obligors shall (a) apply for or consent to the appointment of a receiver,
trustee or liquidator of itself or any of its property, (b) admit in writing its
inability to pay its debts as they mature, (c) make a general assignment for the
benefit of creditors, (d) be adjudicated a bankrupt or insolvent, (e) file a
voluntary petition in bankruptcy or a petition or an answer seeking or
consenting to reorganization or an arrangement with creditors or to take
advantage of any bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such law,
or take corporate action for the purposes of effecting any of the foregoing, or
(f) by any act indicate its consent to, approval of or acquiescence in any such
proceeding or the appointment of any receiver of or trustee for any of its
property, or suffer any such receivership, trusteeship or proceeding to continue
undischarged for a period of ninety (90) days, or (g) by any act indicate its
91
<PAGE> 99
consent to, approval of or acquiescence in any order, judgment or decree by any
court of competent jurisdiction or any Governmental Authority enjoining or
otherwise prohibiting the operation of a material portion of any Obligor's, or
any general partner's business or the use or disposition of a material portion
of any Obligor's, or any general partner's assets.
7.1.6 INVOLUNTARY BANKRUPTCY, ETC.
(a) An order for relief shall be entered in any
involuntary case brought against any Obligor or any general partner of any
Obligor under the Bankruptcy Code, or (b) any such case shall be commenced
against any Obligor or any general partner of any Obligor and shall not be
dismissed within ninety (90) days after the filing of the petition, or (c) an
order, judgment or decree under any other Law is entered by any court of
competent jurisdiction or by any other Governmental Authority on the application
of a Governmental Authority or of a Person other than any Obligor or any general
partner of any Obligor (i) adjudicating any Obligor or any general partner of
any Obligor bankrupt or insolvent, or (ii) appointing a receiver, trustee or
liquidator of any Obligor or any general partners of any Obligor, or of a
material portion of any Obligor's or any general partner's of any Obligor's
assets, or (iii) enjoining, prohibiting or otherwise limiting the operation of a
material portion of any Obligor's or any general partner of any Obligor's
business or the use or disposition of a material portion of any Obligor's or any
general partner of any Obligor's assets, and such order, judgment or decree
continues unstayed and in effect for a period of thirty (30) days from the date
entered.
7.1.7 JUDGMENT.
Unless adequately insured in the opinion of the Agent,
the entry of a final judgment for the payment of money involving more than One
Million Dollars ($1,000,000) against any Obligor or any general partner of any
Obligor, and the failure by such Obligor or general partner to discharge the
same, or cause it to be discharged, within thirty (30) days from the date of the
order, decree or process under which or pursuant to which such judgment was
entered, or to secure a stay of execution pending appeal of such judgment.
7.1.8 EXECUTION; ATTACHMENT.
Any execution or attachment shall be levied against the
Collateral, or any part thereof, and such execution or attachment shall not be
set aside, discharged or stayed within forty-five (45) days after the same shall
have been levied.
7.1.9 DEFAULT UNDER OTHER BORROWINGS.
Default shall be made with respect to any Indebtedness
for Borrowed Money of any of the Obligors (other than the Loan) in excess of
$1,000,000 in the aggregate, if the effect of such default is to accelerate the
maturity of such Indebtedness for Borrowed Money or to permit the holder or
obligee thereof or other party thereto to cause such Indebtedness for Borrowed
Money to become due prior to its stated maturity.
7.1.10 CHALLENGE TO AGREEMENTS.
Any Obligor or any general partner of any Obligor shall
challenge the validity and binding effect of any provision of any of the
Financing Documents or shall state its
92
<PAGE> 100
intention to make such a challenge of any of the Financing Documents or any of
the Financing Documents shall for any reason (except to the extent permitted by
its express terms) cease to be effective or to create a valid and perfected
first priority Lien (except for Permitted Liens) on, or security interest in,
any of the Collateral purported to be covered thereby.
7.1.11 CHANGE IN OWNERSHIP.
Any change shall occur in the ownership of any of Foster
Grant or Fantasma, except as otherwise permitted by the provisions of Section
6.2.1 (Capital Structure, etc.), and except the acquisition of stock or other
ownership interests of Subsidiaries by the Borrower, Foster Grant or Fantasma.
7.1.12 LIQUIDATION, TERMINATION, DISSOLUTION, CHANGE IN
MANAGEMENT, ETC.
Any of the Borrower, Foster Grant or Fantasma shall
liquidate, dissolve or terminate its existence except as permitted by 6.2.1
(Capital Structure, etc.) or as a result of the acquisition of stock or other
ownership interests of Subsidiaries by the Borrower, Foster Grant or Fantasma.
Section 7.2 REMEDIES.
Upon the occurrence of any Default or Event of Default, and in the event
such Default or Event of Default is not cured or otherwise remedied to the
satisfaction of the Requisite Lenders on or before such date the Agent exercises
any rights or remedies, the Agent may, in the exercise of its sole and absolute
discretion from time to time, and shall, at the direction of the Requisite
Lenders of the Lenders, at any time thereafter exercise any one or more of the
following rights, powers or remedies:
7.2.1 ACCELERATION.
The Agent may, and shall, at the direction of the
Requisite Lenders, declare any or all of the Obligations to be immediately due
and payable, notwithstanding anything contained in this Agreement or in any of
the other Financing Documents to the contrary, without presentment, demand,
protest, notice of protest or of dishonor, or other notice of any kind, all of
which the Obligors hereby waive.
7.2.2 FURTHER ADVANCES.
The Agent may, and shall, at the direction of the
Requisite Lenders, from time to time without notice to the Obligors suspend,
terminate or limit any further advances, loans or other extensions of credit
under the Commitment, under this Agreement and/or under any of the other
Financing Documents. Further, upon the occurrence of an Event of Default or
Default specified in Sections 7.1.5 (Receiver; Bankruptcy) or 7.1.6 (Involuntary
Bankruptcy, etc.) above, the Revolving Credit Commitments, the Letter of Credit
Commitments and any agreement in any of the Financing Documents to provide
additional credit and/or to issue Letters of Credit shall immediately and
automatically terminate and the unpaid principal amount of the Notes (with
accrued interest thereon) and all other Obligations then outstanding, shall
immediately become
93
<PAGE> 101
due and payable without further action of any kind and without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived
by the Obligors.
7.2.3 UNIFORM COMMERCIAL CODE.
The Agent shall have all of the rights and remedies of a
secured party under the applicable Uniform Commercial Code and other applicable
Laws. Upon demand by the Agent, the Borrower, Foster Grant and Fantasma shall
assemble the Collateral and make it available to the Agent, at a place
designated by the Agent. The Agent or its agents may without notice from time to
time enter upon any of the Borrower's, Foster Grant's or Fantasma's premises to
take possession of the Collateral, to remove it, to render it unusable, to
process it or otherwise prepare it for sale, or to sell or otherwise dispose of
it.
Any written notice of the sale, disposition or other
intended action by the Agent with respect to the Collateral which is sent in the
manner set forth in 0 (Notices), or such other address of the Obligors which may
from time to time be shown on the Agent's records, at least ten (10) days prior
to such sale, disposition or other action, shall constitute commercially
reasonable notice to the Obligors. The Agent may alternatively or additionally
give such notice in any other commercially reasonable manner. Nothing in this
Agreement shall require the Agent to give any notice not required by applicable
Laws.
If any consent, approval, or authorization of any state,
municipal or other Governmental Authority or of any other Person or of any
Person having any interest therein, should be necessary to effectuate any sale
or other disposition of the Collateral, the Borrower, Foster Grant and Fantasma
agree to execute all such applications and other instruments, and to take all
other action, as may be required in connection with securing any such consent,
approval or authorization.
7.2.4 SPECIFIC RIGHTS WITH REGARD TO COLLATERAL.
In addition to all other rights and remedies provided
hereunder or as shall exist at law or in equity from time to time, the Agent may
(but shall be under no obligation to), without notice to any of the Borrower,
Foster Grant and Fantasma, and each of the Borrower, Foster Grant and Fantasma
hereby irrevocably appoints the Agent as its attorney-in-fact, with power of
substitution, in the name of the Agent and/or any or all of the Lenders and/or
in the name of any or all of the Borrower, Foster Grant and Fantasma or
otherwise, for the use and benefit of the Agent and the Lenders, but at the cost
and expense of the Borrower, Foster Grant and Fantasma and without notice to the
Borrower, Foster Grant and Fantasma:
(a) request any Account Debtor obligated on any of
the Accounts to make payments thereon directly to the Agent, with the Agent
taking control of the cash and non-cash proceeds thereof;
(b) compromise, extend or renew any of the
Collateral or deal with the same as it may deem advisable;
94
<PAGE> 102
(c) make exchanges, substitutions or surrenders of
all or any part of the Collateral;
(d) copy, transcribe, or remove from any place of
business of any of the Borrower, Foster Grant and Fantasma all books, records,
ledger sheets, correspondence, invoices and documents, relating to or evidencing
any of the Collateral or without cost or expense to the Agent or the Lenders,
make such use of any of the Borrower's, Foster Grant's or Fantasma's place(s) of
business as may be reasonably necessary to administer, control and collect the
Collateral;
(e) repair, alter or supply goods if necessary to
fulfill in whole or in part the purchase order of any Account Debtor;
(f) demand, collect, receipt for and give
renewals, extensions, discharges and releases of any of the Collateral;
(g) institute and prosecute legal and equitable
proceedings to enforce collection of, or realize upon, any of the Collateral;
(h) settle, renew, extend, compromise, compound,
exchange or adjust claims in respect of any of the Collateral or any legal
proceedings brought in respect thereof;
(i) endorse or sign the name of any of the
Borrower, Foster Grant and Fantasma upon any Items of Payment, certificates of
title, Instruments, Securities, stock powers, documents, documents of title,
financing statements, assignments, notices or other writing relating to or part
of the Collateral and on any proof of claim in Bankruptcy against an Account
Debtor;
(j) notify the Post Office authorities to change
the address for the delivery of mail to the Borrower, Foster Grant and Fantasma
to such address or Post Office Box as the Agent may designate and receive and
open all mail addressed to any of the Borrower, Foster Grant and Fantasma; and
(k) take any other action necessary or beneficial
to realize upon or dispose of the Collateral or to carry out the terms of this
Agreement.
7.2.5 APPLICATION OF PROCEEDS.
Any proceeds of sale or other disposition of the
Collateral will be applied by the Agent to the payment first of any and all
Agent's Obligations, then to any and all Enforcement Costs, and any balance of
such proceeds will be remitted to the Lenders in like currency and funds
received ratably in accordance with their respective Pro Rata Shares of such
balance. Each Lender shall apply any such proceeds received from the Agent to
its Obligations in such order and manner as such Lender shall determine. If the
sale or other disposition of the Collateral fails to fully satisfy the
Obligations, the Borrower, Foster Grant and Fantasma shall remain liable to the
Agent and the Lenders for any deficiency.
95
<PAGE> 103
7.2.6 PERFORMANCE BY AGENT.
If the Borrower, Foster Grant and Fantasma shall fail to
pay the Obligations or otherwise fail to perform, observe or comply with any of
the conditions, covenants, terms, stipulations or agreements contained in this
Agreement or any of the other Financing Documents, the Agent without notice to
or demand upon the Borrower, Foster Grant and Fantasma and without waiving or
releasing any of the Obligations or any Default or Event of Default, may (but
shall be under no obligation to) at any time thereafter make such payment or
perform such act for the account and at the expense of the Borrower, Foster
Grant and Fantasma, and may enter upon the premises of the Borrower, Foster
Grant and Fantasma for that purpose and take all such action thereon as the
Agent may consider necessary or appropriate for such purpose and each of the
Borrower, Foster Grant and Fantasma hereby irrevocably appoints the Agent as its
attorney-in-fact to do so, with power of substitution, in the name of the Agent,
in the name of any or all of the Lenders, or in the name of any or all of the
Borrower, Foster Grant and Fantasma or otherwise, for the use and benefit of the
Agent, but at the cost and expense of the Borrower, Foster Grant and Fantasma
and without notice to the Borrower, Foster Grant and Fantasma. All sums so paid
or advanced by the Agent together with interest thereon from the date of
payment, advance or incurring until paid in full at the Post-Default Rate and
all costs and expenses, shall be deemed part of the Enforcement Costs, shall be
paid by the Borrower, Foster Grant and Fantasma to the Agent on demand, and
shall constitute and become a part of the Agent's Obligations.
7.2.7 OTHER REMEDIES.
The Agent may from time to time proceed to protect or
enforce the rights of the Agent and/or any of the Lenders by an action or
actions at law or in equity or by any other appropriate proceeding, whether for
the specific performance of any of the covenants contained in this Agreement or
in any of the other Financing Documents, or for an injunction against the
violation of any of the terms of this Agreement or any of the other Financing
Documents, or in aid of the exercise or execution of any right, remedy or power
granted in this Agreement, the Financing Documents, and/or applicable Laws. The
Agent and each of the Lenders is authorized to offset and apply to all or any
part of the Obligations all moneys, credits and other property of any nature
whatsoever of any or all of the Borrower, Foster Grant and Fantasma now or at
any time hereafter in the possession of, in transit to or from, under the
control or custody of, or on deposit with, the Agent, any of the Lenders or any
Affiliate of the Agent or any of the Lenders.
Section 7.3 CONSENT.
For purposes of the affirmative and negative covenants set forth in
ARTICLE VI (Covenants of the Borrower), except for compliance with Section
6.1.13 (Financial Covenants), the Agent and the Lenders, by their execution of
this Agreement, consent to the events, circumstances and transactions expressly
set forth in the Preliminary Offering Memorandum dated June 24, 1998 by the
Borrower.
96
<PAGE> 104
ARTICLE VIII
THE AGENT
Section 8.1 APPOINTMENT.
Each Lender hereby designates and appoints NationsBank as its agent
under this Agreement and the Financing Documents, and each Lender hereby
irrevocably authorizes the Agent to take such action or to refrain from taking
such action on its behalf under the provisions of this Agreement and the
Financing Documents and to exercise such powers as are set forth herein or
therein, together with such other powers as are reasonably incidental thereto.
The Agent agrees to act as such on the express conditions contained in this
ARTICLE VIII. The provisions of this ARTICLE VIII are solely for the benefit of
the Agent and the Lenders and neither the Borrower, Foster Grant and Fantasma
nor any Person shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement,
the Agent shall act solely as an administrative representative of the Lenders
and does not assume and shall not be deemed to have assumed any obligation
toward or relationship of agency or trust with or for the Lenders, the Borrower,
Foster Grant and Fantasma or any Person. The Agent may perform any of its duties
hereunder, or under the Financing Documents, by or through its agents or
employees.
Section 8.2 NATURE OF DUTIES.
8.2.1 IN GENERAL.
The Agent shall have no duties, obligations or
responsibilities except those expressly set forth in this Agreement or in the
Financing Documents. The duties of the Agent shall be mechanical and
administrative in nature. The Agent shall not have by reason of this Agreement a
fiduciary relationship in respect of any Lender. Each Lender shall make its own
independent investigation of the financial condition and affairs of the
Borrower, Foster Grant and Fantasma in connection with the extension of credit
hereunder and shall make its own appraisal of the credit worthiness of the
Borrower, Foster Grant and Fantasma, and the Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Lender
with any credit or other information with respect thereto, whether coming into
its possession before the Closing Date or at any time or times thereafter,
except as expressly set forth in Section 8.13 (Dissemination of Information). If
the Agent seeks the consent or approval of any of the Lenders to the taking or
refraining from taking of any action hereunder, then the Agent shall send notice
thereof to each Lender. The Agent shall promptly notify each Lender any time
that the applicable percentage of the Lenders have instructed the Agent to act
or refrain from acting pursuant hereto.
8.2.2 EXPRESS AUTHORIZATION.
The Agent is hereby expressly and irrevocably authorized
by each of the Lenders, as agent on behalf of itself and the other Lenders:
(a) To receive on behalf of each of the Lenders
any payment or collection on account of the Obligations and to distribute to
each Lender its Pro Rata Share of all such payments and collections so received
as provided in this Agreement;
97
<PAGE> 105
(b) To receive all documents and items to be
furnished to the Lenders under the Financing Documents (nothing contained herein
shall relieve the Borrower, Foster Grant and Fantasma of any obligation to
deliver any item directly to the Lenders to the extent expressly required by the
provisions of this Agreement);
(c) To act or refrain from acting in this
Agreement and in the other Financing Documents with respect to those matters so
designated for the Agent;
(d) To act as nominee for and on behalf of the
Lenders in and under this Agreement and the other Financing Documents;
(e) To arrange for the means whereby the funds of
the Lenders are to be made available to the Borrower, Foster Grant and Fantasma;
(f) To distribute promptly to the Lenders, if
required by the terms of this Agreement, all written information, requests,
notices, Loan Notices, payments, Prepayments, documents and other items received
from the Borrower, Foster Grant and Fantasma or other Person;
(g) To amend, modify, or waive any provisions of
this Agreement or the other Financing Documents on behalf of the Lenders subject
to the requirement that certain of the Lenders' consent be obtained in certain
instances as provided in 0 (Circumstances Where Consent Required);
(h) To deliver to the Borrower, Foster Grant and
Fantasma and other Persons, all requests, demands, approvals, notices, and
consents received from any of the Lenders;
(i) To exercise on behalf of each Lender all
rights and remedies of the Lenders upon the occurrence of any Event of Default
and/or Default specified in this Agreement and/or in any of the other Financing
Documents or applicable Laws;
(j) To execute any of the Security Documents and
any other documents on behalf of the Lenders as the secured party for the
benefit of the Agent and the Lenders; and
(k) To take such other actions as may be requested
by the Requisite Lenders.
Section 8.3 RIGHTS, EXCULPATION, ETC.
Neither the Agent nor any of its officers, directors, employees or
agents shall be liable to any Lender for any action taken or omitted by them
hereunder or under any of the Financing Documents, or in connection herewith or
therewith, except that the Agent shall be obligated on the terms set forth
herein for performance of its express obligations hereunder, and except that the
Agent shall be liable with respect to its own gross negligence or willful
misconduct. The Agent shall not be liable for any apportionment or distribution
of payments made by it in good faith and
98
<PAGE> 106
if any such apportionment or distribution is subsequently determined to have
been made in error the sole recourse of any Lender to whom payment was due but
not made, shall be to recover from other the Lenders any payment in excess of
the amount to which they are determined to be entitled (and such other Lenders
hereby agree to return to such Lender any such erroneous payments received by
them). The Agent shall not be responsible to any Lender for any recitals,
statements, representations or warranties herein or for the execution,
effectiveness, genuineness, validity, enforceability, collectible, or
sufficiency of this Agreement or any of the Financing Documents or the
transactions contemplated thereby, or for the financial condition of any Person.
The Agent shall not be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any of the Financing Documents or the financial condition of any
Person, or the existence or possible existence of any Default or Event of
Default. The Agent may at any time request instructions from the Lenders with
respect to any actions or approvals which by the terms of this Agreement or of
any of the Financing Documents the Agent is permitted or required to take or to
grant, and the Agent shall be absolutely entitled to refrain from taking any
action or to withhold any approval and shall not be under any liability
whatsoever to any Person for refraining from any action or withholding any
approval under any of the Financing Documents until it shall have received such
instructions from the applicable percentage of the Lenders. Without limiting the
foregoing, no Lender shall have any right of action whatsoever against the Agent
as a result of the Agent acting or refraining from acting under this Agreement
or any of the other Financing Documents in accordance with the instructions of
the applicable percentage of the Lenders and notwithstanding the instructions of
the Lenders, the Agent shall have no obligation to take any action if it, in
good faith believes that such action exposes the Agent to any liability.
Section 8.4 RELIANCE.
The Agent shall be entitled to rely upon any written notices,
statements, certificates, orders or other documents or any telephone message or
other communication (including any writing, telex, telecopy or telegram)
believed by it in good faith to be genuine and correct and to have been signed,
sent or made by the proper Person, and with respect to all matters pertaining to
this Agreement or any of the Financing Documents and its duties hereunder or
thereunder, upon advice of counsel selected by it. The Agent may deem and treat
the original Lenders as the owners of the respective Notes for all purposes
until receipt by the Agent of a written notice of assignment, negotiation or
transfer of any interest therein by the Lenders in accordance with the terms of
this Agreement. Any interest, authority or consent of any holder of any of the
Notes shall be conclusive and binding on any subsequent holder, transferee, or
assignee of such Notes. The Agent shall be entitled to rely upon the advice of
legal counsel, independent accountants, and other experts selected by the Agent
in its sole discretion.
Section 8.5 INDEMNIFICATION.
Each Lender, severally, agrees to reimburse and indemnify the Agent for
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, advances or disbursements including,
without limitation, Enforcement Costs, of any kind or nature whatsoever which
may be imposed on, incurred by, or asserted against the Agent in any way
relating to or arising out of this Agreement or any of the Financing Documents
or any
99
<PAGE> 107
action taken or omitted by the Agent under this Agreement for any of the
Financing Documents, in proportion to each Lender's Pro Rata Share, all of the
foregoing as they may arise, be asserted or be imposed from time to time;
provided, however, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, advances or disbursements resulting from the Agent's gross
negligence or willful misconduct. The obligations of the Lenders under this
Section 8.5 shall survive the payment in full of the Obligations and the
termination of this Agreement.
Section 8.6 NATIONSBANK INDIVIDUALLY.
With respect to its Commitments and the Loan made by it, and the Notes
issued to it, NationsBank shall have and may exercise the same rights and powers
hereunder and is subject to the same obligations and liabilities as and to the
extent set forth herein for any other Lender. The terms "the Lenders" or
"Requisite Lenders" or any similar terms shall, unless the context clearly
otherwise indicates, include NationsBank in its individual capacity as a Lender
or one of the Requisite Lenders. NationsBank and its Affiliates may lend money
to, accept deposits from and generally engage in any kind of banking, trust or
other business with the Borrower, Foster Grant and Fantasma, any Affiliate of
any of them, or any other Person or any of their officers, directors and
employees as if NationsBank were not acting as the Agent pursuant hereto and the
Agent may accept fees and other consideration from the Borrower, Foster Grant
and Fantasma, any Affiliate of the Borrower, Foster Grant and Fantasma or any of
their officers, directors and employees (in addition to the Agency Fees or other
arrangements fees heretofore agreed to between the Borrower, Foster Grant and
Fantasma and the Agent) for services in connection with this Agreement or
otherwise without having to account for or share the same with the Lenders.
Section 8.7 SUCCESSOR AGENT.
8.7.1 RESIGNATION.
The Agent may resign from the performance of all its
functions and duties hereunder at any time by giving at least thirty (30)
Business Days' prior written notice to the Borrower, Foster Grant and Fantasma
and the Lenders. Such resignation shall take effect upon the acceptance by a
successor Agent of appointment pursuant to Section 8.7.2 (Appointment of
Successor) or as otherwise provided below.
8.7.2 APPOINTMENT OF SUCCESSOR.
Upon any such notice of resignation pursuant to Section
8.7.1 (Resignation), the Requisite Lenders shall appoint a successor to the
Agent. If a successor to the Agent shall not have been so appointed within said
thirty (30) Business Day period, the Agent retiring, upon notice to the
Borrower, Foster Grant and Fantasma, shall then appoint a successor Agent who
shall serve as the Agent until such time, as the Requisite Lenders appoint a
successor the Agent as provided above.
8.7.3 SUCCESSOR AGENT.
Upon the acceptance of any appointment as the Agent under
the Financing Documents by a successor Agent, such successor to the Agent shall
thereupon succeed to and
100
<PAGE> 108
become vested with all the rights, powers, privileges and duties of the Agent
retiring, and the Agent retiring shall be discharged from its duties and
obligations under the Financing Documents. After any Agent's resignation as the
Agent under the Financing Documents, the provisions of this ARTICLE VIII shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was the Agent under the Financing Documents.
Section 8.8 COLLATERAL MATTERS.
8.8.1 RELEASE OF COLLATERAL.
The Lenders hereby irrevocably authorize the Agent, at
its option and in its discretion, to release any Lien granted to or held by the
Agent upon any property covered by this Agreement or the Financing Documents:
(a) upon termination of the Commitments and
payment and satisfaction of all Obligations;
(b) constituting property being sold or disposed
of if the Borrower certifies to the Agent that the sale or disposition is made
in compliance with the provisions of this Agreement (and the Agent may rely in
good faith conclusively on any such certificate, without further inquiry);
(c) constituting property leased to the Borrower,
Foster Grant and Fantasma under a lease which has expired or been terminated in
a transaction permitted under this Agreement or is about to expire and which has
not been, and is not intended by the Borrower, Foster Grant and Fantasma to be,
renewed or extended; or
(d) constituting property covered by Permitted
Liens with lien priority superior to those Liens in favor or for the benefit of
the Lenders.
In addition during any fiscal year of the Borrower (x)
the Agent may release Collateral having a book value of not more than 5% of the
book value of all Collateral, (y) the Agent, with the consent of Requisite
Lenders, may release Collateral having a book value of not more than 25% of the
book value of all Collateral and (z) the Agent, with the consent of the Lenders
having 90% of (i) the Commitments and (ii) the Loan, may release all the
Collateral.
8.8.2 CONFIRMATION OF AUTHORITY, EXECUTION OF RELEASES.
Without in any manner limiting the Agent's authority to
act without any specific or further authorization or consent by the Lenders as
set forth in Section 8.8.1 (Release of Collateral), each Lender agrees to
confirm in writing, upon request by the Borrower, Foster Grant and Fantasma, the
authority to release any property covered by this Agreement or the Financing
Documents conferred upon the Agent under Section 8.8.1 (Release of Collateral).
So long as no Event of Default is then continuing, upon receipt by the Agent of
confirmation from the requisite percentage of the Lenders, of its authority to
release any particular item or types of property covered by this Agreement or
the Financing Documents, and upon at least five (5) Business Days prior written
request by the Borrower, Foster Grant and Fantasma, the Agent shall (and is
hereby irrevocably authorized by the Lenders to) execute such documents as may
be necessary to
101
<PAGE> 109
evidence the release of the Liens granted to the Agent for the benefit of the
Lenders herein or pursuant hereto upon such Collateral; PROVIDED, HOWEVER, that
(i) the Agent shall not be required to execute any such document on terms which,
in the Agent's opinion, would expose the Agent to liability or create any
obligation or entail any consequence other than the release of such Liens
without recourse or warranty, and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any Liens upon (or obligations of
any Person, in respect of), all interests retained by any Person, including,
without limitation, the proceeds of any sale, all of which shall continue to
constitute part of the property covered by this Agreement or the Financing
Documents.
8.8.3 ABSENCE OF DUTY.
The Agent shall have no obligation whatsoever to any
Lender, the Borrower, Foster Grant and Fantasma or any other Person to assure
that the property covered by this Agreement or the Financing Documents exists or
is owned by the Borrower, Foster Grant and Fantasma or is cared for, protected
or insured or has been encumbered or that the Liens granted to the Agent on
behalf of the Lenders herein or pursuant hereto have been properly or
sufficiently or lawfully created, perfected, protected or enforced or are
entitled to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure or fidelity, or to continue
exercising, any of the rights, authorities and powers granted or available to
the Agent in this Section 8.8.3 (Absence of Duty) or in any of the Financing
Documents, it being understood and agreed that in respect of the property
covered by this Agreement or the Financing Documents or any act, omission or
event related thereto, the Agent may act in any manner it may deem appropriate,
in its discretion, given the Agent's own interest in property covered by this
Agreement or the Financing Documents as one of the Lenders and that the Agent
shall have no duty or liability whatsoever to any of the other the Lenders.
Section 8.9 AGENCY FOR PERFECTION.
Each Lender hereby appoints the Agent and each other Lender as agent for
the purpose of perfecting the Lenders' Liens in Collateral which, in accordance
with Article 9 of the Uniform Commercial Code in any applicable jurisdiction or
otherwise, can be perfected only by possession. Should any Lender (other than
the Agent) obtain possession of any such Collateral, such Lender shall notify
the Agent thereof, and, promptly upon the Agent's request therefor, shall
deliver such Collateral to the Agent or in accordance with the Agent's
instructions.
Section 8.10 EXERCISE OF REMEDIES.
Each Lender agrees that it will not have any right individually to
enforce or seek to enforce this Agreement or any Financing Document or to
realize upon any collateral security for the Loan, it being understood and
agreed that such rights and remedies may be exercised only by the Agent.
Section 8.11 CONSENTS.
(a) In the event the Agent requests the consent of
a Lender and does not receive a written denial thereof, or a written notice from
a Lender that due cause
102
<PAGE> 110
consideration of the request requires additional time, in each case, within ten
(10) Business Days after such Lender's receipt of such request, then such Lender
will be deemed to have given such consent.
(b) In the event the Agent requests the consent of
a Lender and such consent is denied, then NationsBank may, at its option,
require such Lender to assign its interest in the Loan to NationsBank for a
price equal to the then outstanding principal amount thereof PLUS accrued and
unpaid interest, fees and costs and expenses due such Lender under the Financing
Documents, which principal, interest, fees and costs and expenses will be paid
on the date of such assignment. In the event that NationsBank elects to require
any Lender to assign its interest to NationsBank, NationsBank will so notify
such Lender in writing within thirty (30) days following such Lender's denial,
and such Lender will assign its interest to NationsBank no later than five (5)
days following receipt of such notice.
Section 8.12 CIRCUMSTANCES WHERE CONSENT OF ALL OF THE LENDERS IS
REQUIRED.
Notwithstanding anything to the contrary contained herein, no amendment,
modification, change or waiver shall be effective without the consent of all of
the Lenders to:
(a) extend the maturity of the principal of, or
interest on, any Note or of any of the other Obligations;
(b) reduce the principal amount of any Note or of
any of the other Obligations or the rate of interest thereon, except as
expressly permitted therein;
(c) change the date of payment of principal of, or
interest on, any Note or of any of the other Obligations;
(d) change the method of calculation utilized in
connection with the computation of interest and Fees;
(e) change the manner of pro rata application by
the Agent of payments made by the Borrower, Foster Grant and Fantasma, or any
other payments required hereunder or under the other Financing Documents;
(f) modify this Section, Section 8.8.1 (Release of
Collateral), Section 8.14 (Discretionary Advances) or the definition of
"Requisite Lenders";
(g) release or subordinate any material portion of
any Collateral or Financing Document (except to the extent provided herein or
therein); or
(h) change the definition of "Borrowing Base."
Additionally, no change may be made to the amount of a Lender's
Commitment or to the Lender's percentage of all Commitments without the prior
written consent of that Lender. Nothing in this Section 8.12 (Circumstances
Where Consent Required) is, however, intended to or shall imply any limitation
on the right of the Agent alone to exercise that discretion and
103
<PAGE> 111
otherwise to make those determinations provided for the Agent in the definitions
of "Eligible Inventory" and "Eligible Receivables" and provided for the Agent
elsewhere in this Agreement.
Section 8.13 DISSEMINATION OF INFORMATION.
The Agent will provide the Lenders with any information received by the
Agent from the Borrower, Foster Grant and Fantasma which is required to be
provided to the Agent or to the Lenders hereunder; PROVIDED, HOWEVER, that the
Agent shall not be liable to any one or more the Lenders for any failure to do
so, except to the extent that such failure is attributable to the Agent's gross
negligence or willful misconduct.
Section 8.14 DISCRETIONARY ADVANCES.
The Agent may, in its sole discretion, make, for the account of the
Lenders on a pro rata basis, advances under the Revolving Loan of up to ten
percent (10%) in excess of the Borrowing Base but not in excess of the
limitation set forth in aggregate Revolving Credit Commitments for a period of
not more than thirty (30) consecutive days.
ARTICLE IX
MISCELLANEOUS
Section 9.1 NOTICES.
All notices, requests and demands to or upon the parties to this
Agreement shall be in writing and shall be deemed to have been given or made
when delivered by hand on a Business Day, or two (2) days after the date when
deposited in the mail, postage prepaid by registered or certified mail, return
receipt requested, or when sent by overnight courier, on the Business Day next
following the day on which the notice is delivered to such overnight courier,
addressed as follows:
Obligors: c/o AAi.FosterGrant, Inc.
500 George Washington Highway
Smithfield, Rhode Island 02917
Attention: Mr. Gerald F. Cerce
with a copy to:
AAi.FosterGrant, Inc.
500 George Washington Highway
Smithfield, Rhode Island 02917
Attention: Mr. Duane M. DeSisto
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, Rhode Island 02903
Attention: Stephen J. Carlotti, Esquire
104
<PAGE> 112
Agent: NATIONSBANK, N. A.
NationsBank Business Credit
100 S. Charles Street
Baltimore, Maryland 21201
Attn: Mr. Stephen V. Rieger
with a copy to:
Frederick W. Runge, Jr., Esquire
Miles & Stockbridge P. C.
10 Light Street
Baltimore, Maryland 21202
Lenders: NATIONSBANK, N. A.
NationsBank Business Credit
100 S. Charles Street
Baltimore, Maryland 21201
Attn: Mr. Stephen V. Rieger
By written notice, each party to this Agreement may change the address to which
notice is given to that party, provided that such changed notice shall include a
street address to which notices may be delivered by overnight courier in the
ordinary course on any Business Day.
Section 9.2 AMENDMENTS; WAIVERS.
This Agreement and the other Financing Documents may not be amended,
modified, or changed in any respect except by an agreement in writing signed by
the Agent, the Requisite Lenders and the Borrower, Foster Grant and Fantasma,
and to the extent provided in Section 8.12 (Circumstances Where Consent
Required) by an agreement in writing signed by all of the Lenders and the
Borrower, Foster Grant and Fantasma. No waiver of any provision of this
Agreement or of any of the other Financing Documents, nor consent to any
departure by the Borrower, Foster Grant and Fantasma therefrom, shall in any
event be effective unless the same shall be in writing. No course of dealing
between the Borrower, Foster Grant and Fantasma and the Agent and/or any of the
Lenders and no act or failure to act from time to time on the part of the Agent
and/or any of the Lenders shall constitute a waiver, amendment or modification
of any provision of this Agreement or any of the other Financing Documents or
any right or remedy under this Agreement, under any of the other Financing
Documents or under applicable Laws.
Without implying any limitation on the foregoing, and subject to the
provisions of Section 8.12 (Circumstances Where Consent Required):
(a) Any waiver or consent shall be effective only
in the specific instance, for the terms and purpose for which given, subject to
such conditions as the Agent may specify in any such instrument.
(b) No waiver of any Default or Event of Default
shall extend to any subsequent or other Default or Event of Default, or impair
any right consequent thereto.
105
<PAGE> 113
(c) No notice to or demand on the Borrower, Foster
Grant and Fantasma in any case shall entitle the Borrower, Foster Grant and
Fantasma to any other or further notice or demand in the same, similar or other
circumstance.
(d) No failure or delay by the Lender to insist
upon the strict performance of any term, condition, covenant or agreement of
this Agreement or of any of the other Financing Documents, or to exercise any
right, power or remedy consequent upon a breach thereof, shall constitute a
waiver, amendment or modification of any such term, condition, covenant or
agreement or of any such breach or preclude the Agent from exercising any such
right, power or remedy at any time or times.
(e) By accepting payment after the due date of any
amount payable under this Agreement or under any of the other Financing
Documents, the Agent shall not be deemed to waive the right either to require
prompt payment when due of all other amounts payable under this Agreement or
under any of the other Financing Documents, or to declare a default for failure
to effect such prompt payment of any such other amount.
Section 9.3 CUMULATIVE REMEDIES.
The rights, powers and remedies provided in this Agreement and in the
other Financing Documents are cumulative, may be exercised concurrently or
separately, may be exercised from time to time and in such order as the Agent
shall determine, subject to the provisions of this Agreement, and are in
addition to, and not exclusive of, rights, powers and remedies provided by
existing or future applicable Laws. In order to entitle the Agent to exercise
any remedy reserved to it in this Agreement, it shall not be necessary to give
any notice, other than such notice as may be expressly required in this
Agreement. Without limiting the generality of the foregoing and subject to the
terms of this Agreement, the Agent may:
(a) proceed against any one or more of the
Borrower, Foster Grant and Fantasma with or without proceeding against any other
Person (including, without limitation, any one or more of the Corporate
Guarantors) who may be liable (by endorsement, guaranty, indemnity or otherwise)
for all or any part of the Obligations;
(b) proceed against any one or more of the
Borrower, Foster Grant and Fantasma with or without proceeding under any of the
other Financing Documents or against any Collateral or other collateral and
security for all or any part of the Obligations;
(c) without reducing or impairing the obligation
of the Borrower, Foster Grant and Fantasma and without notice, release or
compromise with any guarantor or other Person liable for all or any part of the
Obligations under the Financing Documents or otherwise;
(d) without reducing or impairing the obligations
of the Borrower, Foster Grant and Fantasma and without notice thereof: (i) fail
to perfect the Lien in any or all Collateral or to release any or all the
Collateral or to accept substitute Collateral, (ii) approve the making of
advances under the Revolving Loan under this Agreement, (iii) waive any
106
<PAGE> 114
provision of this Agreement or the other Financing Documents, (iv) exercise or
fail to exercise rights of set-off or other rights, or (v) accept partial
payments or extend from time to time the maturity of all or any part of the
Obligations.
Section 9.4 SEVERABILITY.
In case one or more provisions, or part thereof, contained in this
Agreement or in the other Financing Documents shall be invalid, illegal or
unenforceable in any respect under any Law, then without need for any further
agreement, notice or action:
(a) the validity, legality and enforceability of
the remaining provisions shall remain effective and binding on the parties
thereto and shall not be affected or impaired thereby;
(b) the obligation to be fulfilled shall be
reduced to the limit of such validity;
(c) if such provision or part thereof pertains to
repayment of the Obligations, then, at the sole and absolute discretion of the
Agent, all of the Obligations of the Borrower, Foster Grant and Fantasma to the
Agent and the Lenders shall become immediately due and payable; and
(d) if the affected provision or part thereof does
not pertain to repayment of the Obligations, but operates or would prospectively
operate to invalidate this Agreement in whole or in part, then such provision or
part thereof only shall be void, and the remainder of this Agreement shall
remain operative and in full force and effect.
Section 9.5 ASSIGNMENTS BY LENDERS.
Any Lender may, with the consent of the Agent (which consent shall not
be unreasonably withheld or denied), but without the consent of the Borrower,
Foster Grant and Fantasma, assign to (x) if there shall exist no Event of
Default, any Financial Institution, other than those Financial Institutions
listed on SCHEDULE 9.5 attached hereto, or (y) if there shall exist an Event of
Default, any Financial Institution or other Person, other than those Financial
Institutions and Persons listed on SCHEDULE 9.5 attached hereto (each an
"Assignee" and collectively, the "Assignees") all or a portion of such Lender's
Pro Rata Share of the Commitments; provided that, (i) except as provided in item
(ii) below, after giving effect to such assignment, NationsBank or an Affiliate,
or a successor of either, shall be the collateral agent with respect to this
Agreement, NationsBank and each assignee must continue to hold a proportionate
share of the commitments at least equal to Five Million Dollars ($5,000,000),
and (ii) the Borrower, Foster Grant and Fantasma may, for a period of ninety
(90) days after notice to the Borrower, Foster Grant and Fantasma of an
assignment which does not meet the requirements of item (i), prepay all of the
Obligations without payment of the Early Termination Fee, but only if the
Borrower, Foster Grant and Fantasma have within thirty (30) days following
receipt of such notice, notified the Agent and the assigning Lender of the
Borrower's, Foster Grant's and Fantasma's intention to do so. Upon request
following an assignment made in accordance with this Section, the Borrower,
Foster
107
<PAGE> 115
Grant and Fantasma shall issue new Notes to the assigning Lender and its
Assignee reflecting such assignment, in exchange for the existing Note held by
the assigning Lender. Any Lender (other than NationsBank) which elects to make
such an assignment shall pay to the Agent, for the exclusive benefit of the
Agent, an administrative fee for processing each such assignment in the amount
of Three Thousand Five Hundred Dollars ($3,500.00). Such Lender and its Assignee
shall notify the Agent and the Borrower, Foster Grant and Fantasma in writing of
the date on which the assignment is to be effective (the "Adjustment Date"). On
or before the Adjustment Date, the assigning Lender, the Agent, the Borrower,
Foster Grant and Fantasma and the respective Assignee shall execute and deliver
a written assignment agreement in a form acceptable to the Agent, which shall
constitute an amendment to this Agreement to the extent necessary to reflect
such assignment. In addition, notwithstanding the foregoing, any Lender may at
any time pledge all or any portion of such Lender's rights under this Agreement,
any of the Commitments or any of the Obligations to a Federal Reserve Bank.
Section 9.6 PARTICIPATIONS BY LENDERS.
Any Lender may at any time sell to one or more financial institutions
participating interests in any of such Lender's Obligations or Commitments;
provided, however, that (a) no such participation shall relieve such Lender from
its obligations under this Agreement or under any of the other Financing
Documents to which it is a party, (b) such Lender shall remain solely
responsible for the performance of its obligations under this Agreement and
under all of the other Financing Documents to which it is a party, and (c) the
Borrower, Foster Grant and Fantasma, the Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and the other Financing
Documents.
Section 9.7 DISCLOSURE OF INFORMATION BY LENDERS.
In connection with any sale, transfer, assignment or participation by
any Lender in accordance with Section 9.6 (Participations by Lenders) or Section
9.7 (Disclosure of Information), each Lender shall have the right to disclose to
any actual or potential purchaser, assignee, transferee or participant all
financial records, information, reports, financial statements and documents
obtained in connection with this Agreement and/or any of the other Financing
Documents or otherwise.
Section 9.8 SUCCESSORS AND ASSIGNS.
This Agreement and all other Financing Documents shall be binding upon
and inure to the benefit of the Borrower, Foster Grant and Fantasma, the Agent
and the Lenders and their respective heirs, personal representatives, successors
and assigns, except that the Borrower, Foster Grant and Fantasma shall not have
the right to assign its rights hereunder or any interest herein without the
prior written consent of the Agent and the Requisite Lenders of the Lenders.
108
<PAGE> 116
Section 9.9 CONTINUING AGREEMENTS.
All covenants, agreements, representations and warranties made by the
Obligors in this Agreement, in any of the other Financing Documents, and in any
certificate delivered pursuant hereto or thereto shall survive the making by the
Lenders of the Loan, the issuance of Letters of Credit by the Agent and the
execution and delivery of the Notes, shall be binding upon the Obligors
regardless of how long before or after the date hereof any of the Obligations
were or are incurred, and shall continue in full force and effect so long as any
of the Obligations are outstanding and unpaid. From time to time upon the
Agent's request, and as a condition of the release of any one or more of the
Security Documents, the Obligors and other Persons obligated with respect to the
Obligations shall provide the Agent with such acknowledgments and agreements as
the Agent may require to the effect that there exists no defenses, rights of
setoff or recoupment, claims, counterclaims, actions or causes of action of any
kind or nature whatsoever against the Agent, any or all of the Lenders, and/or
any of its or their agents and others, or to the extent there are, the same are
waived and released.
Section 9.10 ENFORCEMENT COSTS.
The Borrower, Foster Grant and Fantasma agree to pay to the Agent on
demand all reasonable Enforcement Costs. Enforcement Costs shall be immediately
due and payable at the time advanced or incurred, whichever is earlier. Without
implying any limitation on the foregoing, the Borrower, Foster Grant and
Fantasma agree, as part of the Enforcement Costs, to pay upon demand any and all
stamp and other Taxes and fees payable or determined to be payable in connection
with the execution and delivery of this Agreement and the other Financing
Documents and to save the Agent and the Lenders harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or
omission to pay any Taxes or fees referred to in this Section. The provisions of
this Section shall survive the execution and delivery of this Agreement, the
repayment of the other Obligations and shall survive the termination of this
Agreement.
Section 9.11 APPLICABLE LAW; JURISDICTION.
9.11.1 APPLICABLE LAW.
As a material inducement to the Agent and the Lenders to
enter into this Agreement, the Obligors acknowledge and agree that the Financing
Documents, including, this Agreement, shall be governed by the Laws of the
State, as if each of the Financing Documents and this Agreement had each been
executed, delivered, administered and performed solely within the State even
though for the convenience and at the request of the Obligors, one or more of
the Financing Documents may be executed elsewhere. The Agent and the Lenders
acknowledge, however, that remedies under certain of the Financing Documents
that relate to property outside the State may be subject to the laws of the
state in which the property is located.
9.11.2 SUBMISSION TO JURISDICTION.
The Obligors irrevocably submit to the jurisdiction of
any state or federal court sitting in the State over any suit, action or
proceeding arising out of or relating to this
109
<PAGE> 117
Agreement or any of the other Financing Documents. The Obligors irrevocably
waive, to the fullest extent permitted by law, any objection that it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum. Final
judgment in any such suit, action or proceeding brought in any such court shall
be conclusive and binding upon the Obligors and may be enforced in any court in
which the Obligors are subject to jurisdiction, by a suit upon such judgment,
provided that service of process is effected upon the Obligors in one of the
manners specified in this Section or as otherwise permitted by applicable Laws.
9.11.3 APPOINTMENT OF AGENT FOR SERVICE OF PROCESS.
The Obligors hereby irrevocably designate and appoint
Prentice Hall Corporation as the Obligors' authorized agent to receive on the
Obligors' behalf service of any and all process that may be served in any suit,
action or proceeding of the nature referred to in this Section in any state or
federal court sitting in the State. If such agent shall cease so to act, the
Obligors shall irrevocably designate and appoint without delay another such
agent in the State satisfactory to the Agent and shall promptly deliver to the
Agent evidence in writing of such other agent's acceptance of such appointment
and its agreement that such appointment shall be irrevocable.
9.11.4 CONSENT TO SERVICE OF PROCESS.
The Obligors hereby consent to process being served in
any suit, action or proceeding of the nature referred to in this Section by (a)
the mailing of a copy thereof by registered or certified mail, postage prepaid,
return receipt requested, to the Obligors at the Obligors' address designated in
or pursuant to Section 9.1 (Notices), and (b) serving a copy thereof upon the
agent, if any, designated and appointed by the Obligors as the Obligor's agent
for service of process by or pursuant to this Section. The Obligors irrevocably
agree that such service (y) shall be deemed in every respect effective service
of process upon the Obligors in any such suit, action or proceeding, and (z)
shall, to the fullest extent permitted by law, be taken and held to be valid
personal service upon the Obligors. Nothing in this Section shall affect the
right of the Agent to serve process in any manner otherwise permitted by law or
limit the right of the Agent otherwise to bring proceedings against the Obligors
in the courts of any jurisdiction or jurisdictions.
Section 9.12 DUPLICATE ORIGINALS AND COUNTERPARTS.
This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument.
Section 9.13 HEADINGS.
The headings in this Agreement are included herein for convenience only,
shall not constitute a part of this Agreement for any other purpose, and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof.
110
<PAGE> 118
Section 9.14 NO AGENCY.
Nothing herein contained shall be construed to constitute the Obligors
as the agent of the Agent or any of the Lenders for any purpose whatsoever or to
permit the Obligors to pledge any of the credit of the Agent or any of the
Lenders. Neither the Agent nor any of the Lenders shall be responsible or liable
for any shortage, discrepancy, damage, loss or destruction of any part of the
Collateral wherever the same may be located and regardless of the cause thereof.
Neither the Agent nor any of the Lenders shall, by anything herein or in any of
the Financing Documents or otherwise, assume any of the Obligors' obligations
under any contract or agreement assigned to the Agent and/or the Lenders, and
neither the Agent nor any of the Lenders shall be responsible in any way for the
performance by the Obligors of any of the terms and conditions thereof.
Section 9.15 DATE OF PAYMENT.
Should the principal of or interest on the Notes become due and payable
on other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and in the case of principal, interest shall be payable
thereon at the rate per annum specified in the Notes during such extension.
Section 9.16 ENTIRE AGREEMENT.
This Agreement is intended by the Agent, the Lenders and the Obligors to
be a complete, exclusive and final expression of the agreements contained
herein. Neither the Agent, the Lenders nor the Obligors shall hereafter have any
rights under any prior agreements pertaining to the matters addressed by this
Agreement but shall look solely to this Agreement for definition and
determination of all of their respective rights, liabilities and
responsibilities under this Agreement.
Section 9.17 WAIVER OF TRIAL BY JURY.
THE OBLIGORS, THE AGENT AND THE LENDERS HEREBY JOINTLY AND SEVERALLY
WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE OBLIGOR AND THE
AGENT AND/OR ANY OR ALL OF THE LENDERS MAY BE PARTIES, ARISING OUT OF OR IN ANY
WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY OF THE FINANCING DOCUMENTS, OR (C)
THE COLLATERAL. THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST
PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT.
This waiver is knowingly, willingly and voluntarily made by the
Obligors, the Agent and the Lenders, and the Obligors, the Agent and the Lenders
hereby represent that no representations of fact or opinion have been made by
any individual to induce this waiver of trial by jury or to in any way modify or
nullify its effect. The Obligors, the Agent and the Lenders further represent
that they have been represented in the signing of this Agreement and in the
making of this waiver by independent legal counsel, selected of their own free
will, and that they have had the opportunity to discuss this waiver with
counsel.
Section 9.18 LIABILITY OF THE AGENT AND THE LENDERS.
111
<PAGE> 119
The Borrower, Foster Grant and Fantasma hereby agree that neither the
Agent nor any of the Lenders shall be chargeable for any negligence, mistake,
act or omission of any accountant, examiner, agency or attorney employed by the
Agent and/or any of the Lenders in making examinations, investigations or
collections, or otherwise in perfecting, maintaining, protecting or realizing
upon any lien or security interest or any other interest in the Collateral or
other security for the Obligations, except for acts of willful misconduct or
gross negligence.
By inspecting the Collateral or any other properties of the Borrower,
Foster Grant and Fantasma or by accepting or approving anything required to be
observed, performed or fulfilled by the Borrower, Foster Grant and Fantasma or
to be given to the Agent and/or any of the Lenders pursuant to this Agreement or
any of the other Financing Documents, neither the Agent nor any of the Lenders
shall be deemed to have warranted or represented the condition, sufficiency,
legality, effectiveness or legal effect of the same, and such acceptance or
approval shall not constitute any warranty or representation with respect
thereto by the Agent and/or the Lenders.
IN WITNESS WHEREOF, each of the parties hereto have executed and
delivered this Agreement under their respective seals as of the day and year
first written above.
WITNESS: AAI.FOSTERGRANT, INC. (formerly known as
Accessories Associates, Inc.)
/s/ Paula Zampini By: /s/ Duane M. DeSisto (Seal)
- ------------------------- ------------------------------
Duane M. DeSisto
Chief Financial Officer
WITNESS: FOSTER GRANT GROUP, L.P.
By: Bonneau General, Inc.
General Partner
/s/ Paula Zampini By: /s/ Duane M. DeSisto (Seal)
- ------------------------- -------------------------
Duane M. DeSisto
Chief Financial Officer
WITNESS: FANTASMA LLC
/s/ Paula Zampini By: /s/ Duane M. DeSisto (Seal)
- ------------------------- ------------------------------
Duane M. DeSisto
Treasurer
112
<PAGE> 120
WITNESS OR ATTEST: F.G.G. INVESTMENTS, INC.
/s/ Paula Zampini By: /s/ Duane M. DeSisto (Seal)
- ------------------------- ------------------------------
Duane DeSisto
Chief Financial Officer
WITNESS OR ATTEST: THE BONNEAU COMPANY
/s/ Paula Zampini By: /s/ Duane M. DeSisto (Seal)
- ------------------------- ------------------------------
Duane DeSisto
Chief Financial Officer
WITNESS OR ATTEST: BONNEAU GENERAL, INC.
/s/ Paula Zampini By: /s/ Duane M. DeSisto (Seal)
- ------------------------- ------------------------------
Duane DeSisto
Chief Financial Officer
WITNESS OR ATTEST: BONNEAU HOLDINGS, INC.
/s/ Paula Zampini By: /s/ Duane M. DeSisto (Seal)
- ------------------------- ------------------------------
Duane DeSisto
Chief Financial Officer
WITNESS OR ATTEST: FOSTER GRANT HOLDINGS, INC.
/s/ Paula Zampini By: /s/ Duane M. DeSisto (Seal)
- ------------------------- ------------------------------
Duane DeSisto
Chief Financial Officer
WITNESS OR ATTEST: O-RAY HOLDINGS, INC.
/s/ Paula Zampini By: /s/ Duane M. DeSisto (Seal)
- ------------------------- ------------------------------
Duane DeSisto
Chief Financial Officer
113
<PAGE> 121
WITNESS: NATIONSBANK, N.A.
in its capacity as Agent
/s/ Mary J. Kliensmith By: /s/ Stephen V. Rieger (Seal)
- ------------------------- ------------------------------
Stephen V. Rieger
Vice President
WITNESS: NATIONSBANK, N.A.
in its capacity as a Lender
/s/ Mary J. Kliensmith By: /s/ Stephen V. Rieger (Seal)
- ------------------------- ------------------------------
Stephen V. Rieger
Vice President
WITNESS OF ATTEST: LASALLE BUSINESS CREDIT, INC.
/s/ John C. Bain By: /s/ J. David Kommalan (Seal)
- ------------------------- ---------------------------
Name: J. David Kommalan
Title: First Vice President
WITNESS: PNC BUSINESS CREDIT
/s/ By: /s/ Wallace G. Clements (Seal)
- ------------------------- ---------------------------
Name: Wallace G. Clements
Title: Vice President
114
<PAGE> 122
AGREED AND ACCEPTED
AAi COMPANY OF CANADA
By: /s/ Duane M. DeSisto
-----------------------
Duane M. DeSisto
Chief Financial Officer
AGREED AND ACCEPTED
AAi FOSTER GRANT LIMITED
By: /s/ Duane M. DeSisto
-----------------------
Duane M. DeSisto
Chief Financial Officer
115
<PAGE> 123
LIST OF EXHIBITS
A. Revolving Credit Note
B. Wire Transfer Procedures
C. Form of Compliance Certificate
D. Additional Obligor Joinder Supplement
116
<PAGE> 124
LIST OF SCHEDULES
Schedule 4.1.5 - No Conflicts
Schedule 4.1.10 - Litigation
Schedule 4.1.13 - Indebtedness for Borrowed Money
Schedule 4.1.18 - Employee Relations
Schedule 4.1.19 - Hazardous Materials
Schedule 4.1.20 - Permitted Liens
Schedule 4.1.22 - Business Names and Addresses
Schedule 5.1.4 - Consents, Licenses, Approvals, Etc.
Schedule 9.5 - Financial Institutions
117
<PAGE> 1
EXHIBIT 10.2
AGREEMENT OF AMENDMENT, TERMINATION AND MODIFICATION
This AGREEMENT OF AMENDMENT, TERMINATION AND MODIFICATION, dated as of
June ___, 1998, is by and among BOLLE INC. (as assignee of BEC GROUP, INC.), a
Delaware corporation with offices at 555 Theodore Fremd Avenue, Rye, New York
10580 ("Bolle"), FOSTER GRANT GROUP, L.P., a Delaware limited partnership with
offices at 1601 Valley View Lane, Dallas, Texas 75234 ("FGG"), FOSTER GRANT
HOLDINGS, INC., a Delaware corporation with offices at 1601 Valley View Lane,
Dallas, Texas 75234 ("FGH") and AAi.FOSTERGRANT, INC. (fka ACCESSORIES
ASSOCIATES, INC.), a Rhode Island corporation with offices at 500 George
Washington Highway, Smithfield, Rhode Island 02917 ("AAi").
WHEREAS, Bolle, FGG, FGH, and AAi entered into that certain Stock
Purchase Agreement dated as of November 13, 1996 (the "Agreement");
WHEREAS, in conjunction with the Agreement, FGH issued 100 shares of
FGH Series A Preferred Stock to Bolle;
WHEREAS, in conjunction with Bolle's purchase of FGH Series A Preferred
Stock, AAi and Bolle entered into that certain Exchange and Registration Rights
Agreement dated as of December 11, 1996 (the "Rights Agreement");
WHEREAS, the parties now desire to amend the Agreement, terminate the
Rights Agreement, and modify certain rights, preferences and privileges
concerning the AAi Series A Redeemable Convertible Preferred Stock.
NOW THEREFORE, the parties hereto, intending to be legally bound
hereby, in consideration of the mutual promises and agreements contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, agree as follows:
1. THE AGREEMENT. Bolle, FGG, FGH, and AAi hereby agree that effective as
of the date hereof the Agreement is amended as set forth below. All terms used
herein and defined in the Agreement have the same meaning herein as provided in
the Agreement except as otherwise specified.
(a) Section 1 of the Agreement is hereby amended to add a new
definition as follows:
"Effective Date" means June 24, 1998.
<PAGE> 2
(b) Section 2.4 of the Agreement is hereby amended and restated in
its entirety as follows:
"2.4 LITIGATION LIABILITIES.
(a) In connection with the Purchaser's purchase of the Shares, the
Purchaser will, subject to Section 2.4(b) below, assume any and all
liabilities of the Foster Grant Group and/or the Partnership other than
the Excluded Liabilities, including (without limitation) liabilities
arising out of any litigation pending, threatened or commenced against
any member of the Foster Grant Group or the Partnership or pending,
threatened or commenced against the Seller and relating to the Foster
Grant Group or its business and not referred to in Section 2.3
hereinabove, including any litigation or administrative or governmental
proceeding (i) pending prior to the Closing Date or (ii) arising out of
or relating to any events occurring prior to the Closing Date,
including, without limitation, liabilities resulting from any past or
present violation of any environmental laws (the liabilities described
in this Section 2.4(a) are referred to as the "Litigation
Liabilities"). No such assumption of liability shall release Seller
from any breach of any representations or warranties made by Seller
herein. Without limiting the generality of the foregoing, Purchaser,
and after the Closing, the members of the Foster Grant Group and the
Partnership, shall, subject to Section 2.4(c) below, be solely
responsible for defending against any such Litigation Liabilities and
shall have sole direction of any defense thereof; provided, that
Purchaser shall consult periodically with Seller and its counsel
regarding the status of individual claims or cases and the Purchaser
shall not enter into any settlement agreement or otherwise compromise
or settle any Litigation Liability, claim or case without the prior
written consent of Seller, which approval shall not be withheld or
delayed unreasonably.
(b) Notwithstanding the provisions of Section 2.4(a) above, from
and after the last to occur of (x) the Effective Date, or (y) the
payment by Purchaser of $100,000 to Seller, Seller will undertake and
defend AAi, Purchaser, the members of the Foster Grant Group and/or the
Partnership against any Litigation Liabilities, and will pay directly
any costs or expenses relating to or arising from Litigation
Liabilities (including, without limitation, defense costs, attorneys'
fees, amounts assessed as damages and settlement costs) ("Litigation
Costs"), except to the extent Litigation Costs were, in fact, paid by
Foster Grant, AAi or Purchaser prior to the Effective Date; provided,
however, that Purchaser and AAi will, at its expense, cooperate fully
with Seller in the defense of any such Litigation Liabilities, shall
make available any books or records useful for the defense of any such
Litigation Liabilities and shall be solely responsible for accounts
payable together with interest thereon for goods sold and delivered to
the Partnership and its affiliates by Dioptics, Inc. From and after the
date, Seller shall be responsible for all Litigation Liabilities and
Litigation Costs pursuant to this Section 2.4(b).
2
<PAGE> 3
Seller shall have the right to compromise and settle any Litigation
Liability without the consent of Purchaser; provided, however, that no
such settlement or compromise shall include an injunction or any court
order affecting the conduct of Purchaser's business unless Purchaser
shall have given its prior written consent which consent may be
withheld in Purchaser's sole discretion. To the extent such Litigation
Liabilities are indemnified against by applicable insurance policies,
Seller shall be released of liability to the extent any such Litigation
Liability is paid by the insurance company issuing any such policy.
(c) Any other provision of this Section 2.4 notwithstanding, AAi
and Purchaser will have sole responsibility for defending against
litigation claims arising out of or relating to the Al-Site/Magnivision
litigation, Civil Action No. 97-8351, brought in the United States
District Court for the Central District of California (the "Magnivision
Litigation"), and AAi, Purchaser and Seller will use their best efforts
to cooperatively share any direct out-of-pocket costs and expenses
incurred by the law firm of Lyon & Lyon LLP relating to the Magnivision
Litigation and related litigation described in Section 2.3(b) hereof."
(c) A new sentence is hereby added at the end of Section 8.1 to
read as follows:
"Provided, however, that on and after the Effective Date,
Purchaser and AAi waive any claim for indemnification pursuant to this
Section 8.1 whenever arising, other than indemnification claims based
upon Litigation Liabilities and Litigation Costs defined in Section 2.4
hereof, and indemnification claims based upon Income Tax liabilities of
the Foster Grant Group, with respect to which the Seller's obligation
to indemnify shall extend until the applicable statutes of limitations
on enforcement thereof has expired, but in no event more than seven (7)
years after the Closing Date, or until the conclusion of any proceeding
commenced within such period."
(d) The first sentence of sub-section (a) of Section 8.3 of the
Agreement is hereby amended and restated in its entirety as follows:
"No indemnification shall be payable by either party with
respect to claims asserted by an Indemnified Party on or after the
Effective Date, and AAi and Purchaser hereby waive any claims asserted
on or before the Effective Date, other than Litigation Liabilities and
Litigation Costs defined in Section 2.4 hereof, and indemnification
claims based upon Income Tax liabilities of the Foster Grant Group,
with respect to which the Seller's obligation to indemnify shall extend
until the applicable statutes of limitations on enforcement thereof has
expired, but in no event more than seven (7) years after the Closing
Date, or until the conclusion of any proceeding commenced within such
period."
(e) Except as modified herein, the Agreement is hereby ratified
and affirmed.
3
<PAGE> 4
2. PAYMENT PURSUANT TO SECTION 2.4 OF THE AGREEMENT. On the execution
hereof, AAi has paid to Bolle, and Bolle acknowledges the receipt of $100,000,
said payment thereby satisfying the obligation of AAi pursuant to Section 2.4(b)
of the Agreement, as amended hereby.
3. FGH SERIES A PREFERRED STOCK. AAi and Bolle hereby agree as follows:
(a) That effective as of the date hereof, that certain Exchange
and Registration Rights Agreement dated December 11, 1996 by and between AAi and
Bolle granting to Bolle certain registration and exchange rights with regard to
shares of FGH Series A Preferred Stock issued by FGH to Bolle pursuant to the
Agreement is null and void and of no further force and effect.
(b) That Article Fourth of the Certificate of Incorporation of
Foster Grant Holdings, Inc. shall be amended (the "FGH Amendment"), by deleting
Section 5 in its entirety and substituting the following therefor:
5. REDEMPTION RIGHTS
5.1 MANDATORY REDEMPTION. Except as otherwise provided in this
Certificate of Amendment, the Series A Preferred Shares shall be redeemed by the
Corporation in immediately available funds on February 28, 2000 (the "Redemption
Date") by payment of an amount determined by reference to the combined net sales
of sun glasses, reading glasses, and accessories by FGG and AAi for the year
ending January 1, 2000, determined in accordance with generally accepted
accounting principals consistently applied, and excluding an amount equal to the
net sales of AAi of sunglasses, reading glasses, and accessories for the year
ending December 31, 1996 (the "Redemption Amount"). On or before February 28,
2000, the Holder shall deliver to AAi at its principal offices, all Series A
Preferred Shares owned by such Holder endorsed in blank for transfer or with
blank stock powers attached. The Redemption Amount per share shall be calculated
pursuant to the formula set forth below. The amounts payable to the Holder upon
redemption shall be pro-rated for net sales between the amounts specified below.
<TABLE>
<CAPTION>
NET SALES REDEMPTION AMOUNT PER SHARE
--------- ---------------------------
<S> <C>
Less than $90,000,000 $10,000
$90,000,000 but
less than $110,000,000 $20,000
$110,000,000 or more $40,000
</TABLE>
5.2 EARLY REDEMPTION. Subsection 5.1 notwithstanding, in the event
that at any time on or prior to the Redemption Date (i) AAi completes an initial
public offering of its
4
<PAGE> 5
common stock (an "IPO") where the Pre-Money Valuation (as hereinafter defined)
equals or exceeds $75,000,000 or (ii) a Transaction (as hereinafter defined) is
consummated where the Transaction Amount (as hereinafter defined) equals or
exceeds $75,000,000 (or $37,500,000 in the event of an Equity Transaction (as
hereinafter defined)) (both an IPO and a Transaction are sometimes referenced
herein as a "Redemption Event"), Subsection 5.1 shall not be operative, and the
Redemption Amount will be calculated as specified in this Subsection 5.2 (the
"Redemption Event Amount"). For purposes of this Section 5, "Transaction" shall
mean (x) AAi effects a capital reorganization or reclassification of its stock
(other than a change in par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or the consolidation or merger
of AAi with or into another person (other than a consolidation or merger in
which AAi is the continuing corporation and which does not result in any change
in the AAi common stock, or in change in ownership of the AAi common stock which
constitutes an Equity Transaction, or sells or otherwise disposes of all or
substantially all its properties and assets as an entirety to any other person
or persons or (y) at least 50% of the shares of AAi common stock is acquired by
any person or group (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) (the "Exchange Act") who was not an
officer, director or shareholder of AAi on the effective date of the Certificate
of Amendment (a "New Investor") or (z) AAi issues additional equity securities,
or securities convertible into equity securities, other than in an IPO, which
results in any New Investor being the "beneficial owner" (as such term is
defined in Section 13(d)(3) of the Exchange Act) of more than 50% of the shares
of AAi common stock (an "Equity Transaction"). If the Redemption Event is an
IPO, the per share Redemption Event Amount will be based upon the Pre-Money
Valuation (as hereinafter defined) of AAi immediately prior to the IPO according
to the formula set forth below. For this purpose, "Pre-Money Valuation" shall be
calculated by dividing the gross IPO proceeds by the percentage of the total
issued and outstanding AAi common stock owned by the public immediately after
and as a result of such IPO, excluding, however, from such calculation any
common stock sold by persons who were holders of AAi common stock immediately
prior to the IPO. The amounts payable to the Holder upon redemption shall be
pro-rated for Pre-Money Valuations between the amounts specified below provided,
however, that in no event shall the Redemption Event Amount exceed $40,000 per
share.
<TABLE>
<CAPTION>
PRE-MONEY VALUATION REDEMPTION EVENT AMOUNT PER SHARE
------------------- ---------------------------------
<S> <C>
$75,000,000 $35,000
More than $75,000,000 $35,000, plus an additional
$0.025 for each dollar that
the Pre-Money Valuation is in
excess of $75,000,000
</TABLE>
If the Redemption Event is a Transaction, the Redemption Event Amount
will be based on the gross dollar value of the consideration (the "Transaction
Consideration") (i) received in the Transaction (other than an Equity
Transaction) by holders of the common
5
<PAGE> 6
and convertible preferred stock of AAi or (ii) by AAi in the event the
Transaction involves an Equity Transaction . In the event of a Transaction, the
per share Redemption Event Amount will be calculated according to the formula
set forth below. The amounts payable to the Holder upon redemption shall be
pro-rated for Transaction Consideration that is between the amounts specified
below provided, however, that in no event shall the Redemption Event Amount
exceed $40,000 per share.
<TABLE>
<CAPTION>
Transaction Consideration Redemption Event Amount Per Share
------------------------- ---------------------------------
<S> <C>
$75,000,000 ($37,500,000 $35,000
in the event of an Equity
Transaction)
More than $75,000,000 $35,000, plus an additional $0.025
(more than $37,5000,000 in the for each dollar that the Transaction
event of an Equity Transaction) Consideration is in excess of
$75,000,000 (or in the event of an
Equity Transaction, $35,000, plus an
additional $0.50 for each dollar
that the Transaction Consideration
is in excess of $37,500,00)
</TABLE>
On or before the tenth day following notice delivered in accordance
with Subsection 5.6 hereof, the Holder shall deliver to AAi at its principal
offices, all Series A Preferred Shares owned by such Holder endorsed in blank
for transfer or with blank stock powers attached. The Redemption Event Amount
pursuant to this Subsection 5.2 shall be payable by AAi in immediately available
funds within ten (10) days of the later of (i) the completion of a Redemption
Event, or (ii) delivery by Holder of all of its Series A Preferred Shares.
5.3 SUPPLEMENTAL PAYMENT. Subsection 5.2 notwithstanding, if (i) a
Redemption Event occurs after the Redemption Date, and (ii) the per share
Redemption Amount received by the Holder pursuant to Section 5.1 was less than
the per share Redemption Event Amount that would have been received had the
Redemption Event occurred on or prior to the Redemption Date pursuant to Section
5.2, the Corporation shall pay the persons who were Holders on the Redemption
Date an amount equal to the difference, if any, between the per share Redemption
Amount paid to such Holders on the Redemption Date and the per share Redemption
Event Amount that would have been received had the Redemption Event occurred on
or prior to the Redemption Date (the "Supplemental Payment"). The Corporation's
obligation to pay the Supplemental Payment shall survive the redemption of the
Series A Preferred Shares pursuant to Subsection 5.1, and shall be payable in
immediately available funds within ten (10) days following the completion of a
Redemption Event pursuant to this Subsection 5.3.
6
<PAGE> 7
5.4 RIGHT OF INSPECTION. On request, the Corporation will provide
Holder with an opportunity at Holder's sole cost and expense to inspect the
Corporation's books and records upon reasonable notice during normal business
hours and for a reasonable period of time in order to determine the accuracy of
the Corporation's determination of the Redemption Amount or the Redemption Event
Amount. In the event of any dispute over the Redemption Amount or the Redemption
Event Amount, the parties shall first attempt to resolve such dispute through
mutual consultation. If such dispute cannot be resolved within thirty (30) days
of the Holder's written notice, the dispute shall be submitted to an independent
certified accountant acceptable to the parties for resolution. The determination
of such accountant shall be final and binding on the parties.
5.5 NOTICE OF REDEMPTION. Written notice of Redemption pursuant to
Subsection 5.1 shall be given by the Corporation not fewer than thirty (30) days
prior to the Redemption Date by first class mail, postage prepaid, to each
Holder of record of Series A Preferred Shares at the address of such Holder on
the books of the Corporation. Each such notice shall state: (a) the Redemption
Date; (b) the number of shares of the Series A Preferred Stock to be redeemed;
(c) the Redemption Amount; and (d) the place or places where certificates for
such shares are to be surrendered for payment of the Redemption Amount.
5.6 NOTICE OF EARLY REDEMPTION. Written notice of a Redemption
Event pursuant to Subsection 5.2 shall be given by the Corporation not more than
ten (10) days following the completion of the Redemption Event by first class
mail, postage prepaid, to each Holder of record of Series A Preferred Shares at
the address of such Holder on the books of the Corporation. Each such notice
shall state: (a) the date of the Redemption Event; (b) the number of shares of
the Series A Preferred Stock to be redeemed; (c) the Redemption Event Amount;
and (d) the place or places where certificates for such shares are to be
surrendered for payment of the Redemption Event Amount.
5.7 NOTICE OF SUPPLEMENTAL PAYMENT. Written notice of the
completion of Redemption Event pursuant to Subsection 5.3 shall be given by the
Corporation not more than five (5) days following the completion of the
Redemption Event by first class mail, postage prepaid to each former Holder of
Series A Preferred Shares on the Redemption Date at the last known address of
such Holder on the books of the Corporation. Such notice shall state: (a) the
date of the completion of the Redemption Event; (b) the number of Series A
Preferred Shares previously redeemed; (c) the Redemption Amount; (e) the
Redemption Event Amount; and (f) the Supplemental Payment, if any.
5.8 SPECIFIC PERFORMANCE If any Holder becomes obligated so to
deliver any shares of Series A Preferred Shares to the Corporation upon any
redemption under Section 5 hereof and fails to deliver the certificate therefor
in accordance with this Certificate of Amendment, the Corporation may, at its
option, irrevocably deposit or set aside funds sufficient to pay (i) the
Redemption Amount (if such redemption is pursuant to Section 5.1 hereof) or (ii)
the Redemption Event Amount (if such redemption is pursuant to Section 5.2
hereof) against delivery of such certificates and in addition to all other
7
<PAGE> 8
remedies it may have, cancel on its books such certificate representing such
shares to be redeemed."
(c) Bolle hereby consents to the approval of the FGH Amendment as
set forth in Section (b) hereof and agrees that in any circumstance upon which a
vote, consent or other approval of the FGH Amendment as set forth in Section (b)
hereof is sought, Bolle will vote, or cause to be voted, its FGH Series A
Preferred Stock in favor the FGH Amendment, and does hereby irrevocably grant to
and appoint, AAi and Gerald F. Cerce, President of AAi, and Duane M. DeSisto,
Chief Financial Officer of AAi, in their respective capacities as officers of
AAi, and any individual who shall hereafter succeed to any such office of AAi,
and each of them individually, Bolle's proxy and attorney-in-fact (with full
power of substitution), for and in the name, place and stead of Bolle, to vote
Bolle's FGH Series A Preferred Stock, or grant a consent or approval in respect
of such shares in favor of the FGH Amendment. Bolle hereby affirms that this
irrevocable proxy is coupled with an interest and may not be revoked.
(d) That the FGH Amendment shall take effect immediately upon
filing said FGH Amendment with the Secretary of State of Delaware which filing
shall take place immediately following approval of said FHG Amendment by the
Board of Directors and stockholders of FGH in accordance with Delaware law.
4. COMPLETE AGREEMENT. This Agreement contains the entire agreement and
understanding of the parties with respect to its subject matter. There are no
agreements, premises, warranties, covenants, or undertakings other than those
expressly set forth herein. This Agreement supersedes all prior agreements and
understandings between and among the parties, both oral and written, with
respect to its subject matter.
5. COUNTERPARTS. This Agreement may be executed in one or more
counterparts all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
6. GOVERNING LAW. This Agreement shall be governed in accordance with the
laws of the State of Rhode Island.
7. HEADINGS. The Section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8. CONSENT TO ASSIGNMENT. AAi and FGH hereby acknowledge and agree that
they have consented to the assignment by BEC Group, Inc. to Bolle of all of its
rights, duties and obligations under the Agreement and any ancillary agreements,
and to the assumption by Bolle of all such rights, duties and obligations. AAi
and FGH further acknowledge and agree that they have released BEC Group, Inc.
from any and all liabilities or claims related to or arising from the Agreement
and any such ancillary agreements.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
BOLLE INC.
By: /s/ Gary Kiedaisch
-----------------------------------
Name: Gary Kiedaisch
Title: Chief Executive Officer
FOSTER GRANT GROUP, L.P.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
----------------------------
Title: Chairman
----------------------------
FOSTER GRANT HOLDINGS, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
----------------------------
Title: Chairman
----------------------------
AAI.FOSTERGRANT, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Name: Gerald F. Cerce
----------------------------
Title: Chairman
----------------------------
9
<PAGE> 1
EXHIBIT 10.3
STOCK PURCHASE AGREEMENT
BY AND AMONG
BEC GROUP, INC.,
FOSTER GRANT GROUP, L.P.,
FOSTER GRANT HOLDINGS, INC. AND
ACCESSORIES ASSOCIATES, INC.
DATED AS OF NOVEMBER 13, 1996
<PAGE> 2
TABLE OF CONTENTS
Page
No.
-----
1. Definitions............................................................ 2
2. Purchase and Sale of Shares; Adjustment to Purchase Price;
Excluded Liabilities .................................................. 5
2.1 Purchase and Sale of Shares..................................... 5
2.2 Consideration .................................................. 6
2.3 Excluded Liabilities and Transfer of Dallas Property ........... 6
2.4 Litigation Liabilities.......................................... 7
3. Closing .............................................................. 8
3.1 The Closing .................................................... 8
3.2 Deliveries at the Closing ...................................... 8
3.3 Generally....................................................... 8
4. Representations and Warranties of the Seller .......................... 8
4.1 Organization, Qualification and Corporate Power................. 8
4.2 Capitalization.................................................. 9
4.3 Financial Statements ........................................... 9
4.4 Absence of Undisclosed Liabilities ............................. 10
4.5 Income Taxes ................................................... 10
4.6 Litigation and Claims........................................... 11
4.7 Status of Property Owned or Leased.............................. 12
4.8 Contracts and Other Instruments................................. 15
4.9 Employee Benefits .............................................. 16
4.10 Intellectual Property .......................................... 18
4.11 Authority to Sell............................................... 21
4.12 Environmental Matters........................................... 22
4.13 Labor Practices................................................. 23
4.14 Compliance with Laws, Permits and Licenses...................... 23
4.15 Directors, Officers and Key Employees .......................... 23
4.16 Absence of Certain Changes...................................... 24
4.17 Insurance ...................................................... 24
4.18 Transactions With Interested Persons............................ 25
4.19 Brokers' Fees................................................... 25
4.20 Sales Representatives........................................... 25
4.21 Processes and Customer Lists.................................... 25
4.22 General Representation.......................................... 25
4.23 Non-Distributive Intent......................................... 25
i
<PAGE> 3
Page
No.
-----
5. Representations and Warranties of the Purchaser........................ 26
5.1 Organization.................................................... 26
5.2 Authorization of Transaction.................................... 26
5.3 Validity of Preferred Stock..................................... 26
5.4 Litigation...................................................... 26
5.5 Non-Distributive Intent ........................................ 27
5.6 No Conflicts ................................................... 27
5.7 Brokers' Fees................................................... 27
5.8 Independent Investigation....................................... 27
6. Conditions to the Obligations of the Purchaser and the Seller.......... 28
6.1 Conditions to the Obligations of the Purchaser.................. 28
6.2 Conditions to the Obligations of the Seller .................... 32
7. Covenants and Agreements of the Purchaser and the Seller............... 33
7.1 Confidentiality................................................. 33
7.2 Best Efforts.................................................... 34
7.3 Operation of Business .......................................... 34
7.4 Full Access..................................................... 36
7.5 Occupation of the Dallas Property............................... 36
7.6 Payment of Certain Employee Bonuses............................. 36
7.7 Further Assurances.............................................. 36
7.8 Name Change..................................................... 36
7.9 Bolle(R)Brand................................................... 36
7.10 Non-Competition................................................. 37
7.11 Income Taxes and Income Tax Preparation......................... 37
7.12 Characterization of Certain Payments............................ 40
7.13 Inventory Price Adjustment...................................... 40
7.14 Certain Employee Benefits....................................... 40
7.15 Hart-Scott Rodino............................................... 41
7.16 Release of Guaranties........................................... 41
8. Indemnification ....................................................... 41
8.1 By the Seller................................................... 41
8.2 By the Purchaser and AAi........................................ 42
8.3 Limitations..................................................... 42
8.4 Indemnity Procedures............................................ 43
ii
<PAGE> 4
Page
No.
-----
9. Miscellaneous.......................................................... 44
9.1 Public Statements............................................... 44
9.2 Survival of Representations, Warranties and Covenants........... 44
9.3 No Third-Party Beneficiaries.................................... 45
9.4 Entire Agreement ............................................... 45
9.5 Succession and Assignment....................................... 45
9.6 Counterparts.................................................... 45
9.7 Headings and Recitals........................................... 45
9.8 Notices......................................................... 45
9.9 Governing Law................................................... 47
9.10 Amendments and Waivers.......................................... 47
9.11 Severability ................................................... 48
9.12 Agreements, Documents and Instruments........................... 48
9.13 Expenses........................................................ 48
9.14 AAi Guaranty ................................................... 48
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of November 13, 1996, by and among
BEC GROUP, INC., a Delaware corporation with offices at 555 Theodore Fremd
Avenue, Rye, New York 10580 (the "Seller"), FOSTER GRANT GROUP, L.P., a Delaware
limited partnership with offices at 1601 Valley View Lane, Dallas, Texas 75234
(the "Partnership"), FOSTER GRANT HOLDINGS, INC., a Delaware corporation with
offices at 1601 Valley View Lane, Dallas, Texas 75234 (the "Purchaser") and
Accessories Associates, Inc., a Rhode Island corporation with offices at 500
George Washington Highway, Smithfield, Rhode Island 02917 (the "AAi").
WHEREAS, the Seller owns all of the issued and outstanding shares of
capital stock of The Bonneau Company, a corporation organized under Texas law
("Bonneau"), Opti-Ray, Inc., a corporation organized under New York law
("Opti-Ray"), and Asian Buying Source, Inc., a corporation organized under
Delaware law ("ABS");
WHEREAS, Opti-Ray owns all of the issued and outstanding shares of
capital stock of O-Ray Holdings, Inc., a corporation organized under Delaware
law ("O-Ray Holdings");
WHEREAS, Bonneau owns all of the issued and outstanding shares of
capital stock of BEC Distribution, Inc., a Delaware corporation ("BEC
Distribution"), Bonneau General, Inc., a Delaware corporation ("Bonneau
General"), Bonneau Holdings, a Delaware corporation ("Bonneau Holdings") and
Maximum Merchandising, Inc., a New York corporation ("MMI");
WHEREAS, Bonneau General is the sole general partner, and Bonneau
Holdings and O-Ray Holdings are all of the limited partners, of the Partnership;
WHEREAS, Bonneau, Opti-Ray and ABS, together with their respective
subsidiaries, and the Partnership (collectively, the "Foster Grant Group", and
individually, a "member" of the Foster Grant Group);
WHEREAS, AAi owns all of the issued and outstanding shares of capital
stock of the Purchaser;
WHEREAS, the Purchaser desires to acquire the Foster Grant Group from
the Seller, and the Seller desires to sell the Foster Grant Group to the
Purchaser;
WHEREAS, AAi desires to facilitate such transaction and in connection
therewith desires to guarantee the performance by the Purchaser of its
obligations hereunder and to enter into the agreements set forth herein;
WHEREAS, in order to effect such purchase and sale, the Seller will
sell, and the Purchaser will purchase, all issued and outstanding shares of
capital stock owned by the Seller of Bonneau (the "Bonneau Shares"), Opti-Ray
(the "Opti-Ray Shares") and ABS (the "ABS
<PAGE> 6
Shares") (the Bonneau Shares, ABS Shares and Opti-Ray Shares are collectively
referred to as the "Shares"), all in accordance with and subject to the terms
and conditions of this Agreement.
NOW THEREFORE, the parties hereto, in consideration of the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged hereby, agree as
follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the following definitions:
"AAi" has the meaning set forth in the preface, above.
"ABS Shares" has the meaning set forth in the preface, above.
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common
control with such Person and the officers, directors, and partners of
such Person and such other Persons.
"Bonneau Shares" has the meaning set forth in the preface, above.
"Cash Consideration" has the meaning set forth in Section 2.2, below.
"Closing" has the meaning set forth in Section 3.1, below.
"Closing Date" is the date on which the Closing occurs.
"Code" has the meaning set forth in Section 4.9(b), below.
"Confidential Information" means all non-public information, of
whatever kind and in whatever form, concerning the businesses and
affairs of the Seller, the Foster Grant Group, the Purchaser and AAi,
provided such information has been adequately identified as or can
reasonably be construed to be confidential, and excluding the
exceptions set forth in Section 7.1(b), below.
"Contaminants" means (i) any pollutant, contaminant, petroleum, crude
oil or any fraction thereof or hazardous substance (within the meaning
of such terms under the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (and any
implementing regulations) ("CERCLA") or any similar applicable state or
local legal requirements); (ii) any hazardous or toxic substance or
material within the meaning of any law applicable to the Foster Grant
Group; or (iii) any hazardous waste within the meaning of the Federal
Resource Conservation and Recovery Act, as amended (and any
implementing regulations) ("RCRA").
"Contract" means any contract, agreement, letter agreement or other
obligation, written or oral.
2
<PAGE> 7
"Copyrights" has the meaning set forth in Section 4.10(a).
"Dallas Property" means the real property described more fully in
Attachment I hereto, including the buildings located thereon, and
located at 1601 Valley View Lane, Farmer's Branch, Texas 75234.
"Closing Date" has the meaning set forth in Section 3.1, below.
"Employee Benefit Plan" mean any (a) Employee Pension Benefit Plan
(including any Multiemployer Plan), (b) Employee Welfare Benefit Plan,
(c) other employee benefit, deferred compensation, excess benefit,
stock and incentive plans, contracts, program, funds, or arrangements
(whether written or oral, qualified or nonqualified, funded or
unfunded, foreign or domestic, currently effective), or (d) any trust,
escrow or similar agreement related thereto.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).
"Encumbrance" has the meaning set forth in Sec. 4.7(a)(ii).
"Environmental Laws" means all federal, state and location
environmental, health and safety laws, codes and ordinances and all
rules, regulations and ecological standards promulgated thereunder,
including without limitation, laws relation to emissions, discharges,
releases or threatened releases of Contaminants, into the environment
(including, without limitation, air, surface water, ground water, land,
surface or subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
generation, refining, production, transportation or handling of
Contaminants.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Liabilities" has the meaning set forth in Section 2.3, below.
"Financial Statements" has the meaning set forth in Section 4.3, below.
"Foster Grant Group" has the meaning set forth in the preface.
"Income Tax" means any applicable federal, state, local, or foreign
income tax, including any interest, penalty, or addition thereto.
"Income Tax Return" means any federal, state, local, or foreign income
tax return, declaration, report, claim for refund or information return
or statement relating to Income Taxes, including any schedule or
attachment thereto.
3
<PAGE> 8
"Indemnified Loss" has the meaning set forth in Section 8.1, below.
"Indemnified Party" has the meaning set forth in Section 8.4(a), below.
"Indemnifying Party" has the meaning set forth in Section 8.4(a),
below.
"Intellectual Property" has the meaning set forth in Section 4.10,
below.
"Last Balance Sheet" has the meaning set forth in Section 4.3, below.
"Leases" has the meaning set forth in Section 4.7(a)(v).
"Litigation Costs" has the meaning set forth in Section 2.4(b), below.
"Litigation Liabilities" has the meaning set forth in Section 2.4(a),
below.
"Material Adverse Effect" means a material adverse effect upon the
business, assets, financial condition, results of operations, income,
properties or liabilities taken as a whole of either (i) the Foster
Grant Group or of (ii) any member of the Foster Grant Group.
"Mortgage" has the meaning set forth in Section 2.3, below.
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Net Working Capital" means the positive difference, if any, between
(x) sum of (a) Net Receivables and (b) Net Inventory less (y) Accounts
Payable representing amounts due to non-Affiliates, all determined in
accordance with Generally Accepted Accounting Principles and consistent
with prior practices of Foster Grant Group.
"Opti-Ray Shares" has the meaning set forth in the preface, above.
"Ordinary Course of Business" means the conduct of business consistent
with past custom and practice; provided, that Purchaser acknowledges
that Seller has actively sought to divest the Foster Grant Group, and
Purchaser agrees that actions taken through the date of this Agreement
and disclosed to Purchaser and any actions permitted by this Agreement
to be taken by Seller prior to the Closing by Seller, members of the
Foster Grant Group and/or the Partnership in connection with or in
preparation for such proposed transaction, together with actions
expressly contemplated by this Agreement, shall for the purposes of
this Agreement be deemed to have been taken or done in the Ordinary
Course of Business.
"Partnership" has the meaning set forth in the preface.
"Patents" has the meaning set forth in Section 4.10(a).
4
<PAGE> 9
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Preferred Stock" has the meaning set forth in Section 2.2, below.
"Purchase Price" has the meaning set forth in Section 2.2, below.
"Records" has the meaning set forth in Section 7.4, below.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest other than any of the following that
has been disclosed to the Purchaser in this Agreement (a) mechanic's,
materialmen's, and similar liens, (b) liens for taxes not yet due and
payable (or for taxes that the taxpayer is contesting in good faith
through appropriate proceedings), (c) purchase money, security
interests, or liens, arising in the Ordinary Course of Business, and
liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not
incurred in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Seller's Knowledge" means (i) actual knowledge of the management of
the Seller and of the senior management of the Partnership or (ii)
knowledge that any such individual should or could reasonably be
expected to discover or otherwise become aware of in the course of
performing his or her duties and/or conducting a reasonably
comprehensive investigation in connection with the negotiation of this
Agreement and the transactions contemplated hereby.
"Shares" has the meaning set forth in the preface, above.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or
has the power to vote or direct the voting of sufficient securities to
elect a majority of the directors.
"Threshold" has the meaning set forth in Section 8.3(a), below.
"Trademarks" has the meaning set forth in Section 4.10(a).
2. PURCHASE AND SALE OF SHARES; ADJUSTMENT TO PURCHASE PRICE; EXCLUDED
LIABILITIES:
2.1 PURCHASE AND SALE OF SHARES. Subject to the terms and
conditions of this Agreement, the Seller shall sell, assign, transfer,
and convey to the Purchaser at the Closing (as hereinafter defined) all
of the issued and outstanding Bonneau Shares, which consist of 1,000
shares of common stock, par value $1.00 per share; Opti-Ray Shares,
5
<PAGE> 10
which consist of 100 shares of common stock, no par value per share;
and ABS Shares, which consist of 1,000 shares of common stock, par
value $.001 per share.
2.2 CONSIDERATION. (i) In consideration for the sale of the
Shares, at the Closing the Purchaser shall deliver: $29,000,000 (the
"Cash Consideration") in immediately available funds to the Seller,
together with (ii) a certificate, registered in the Seller's name,
representing 100 shares of Purchaser's Class A Non-Dividend Preferred
Stock (the "Preferred Stock") having an aggregate face and liquidation
value and such other rights as are described in SCHEDULE 5.3 hereto and
(iii) an amount equal to all cash advances to the Foster Grant Group or
any member of the Foster Grant Group made by the Seller and approved by
AAi during the period from November 13, 1996 to the Closing Date
provided, however, that notwithstanding any approval by AAi of any such
advance, Purchaser shall not be obligated to make any payments under
this clause (iii) in excess of the increase, if any, in the Net Working
Capital on the Closing Date as determined by AAi's independent public
accountants over $21,931,693 being the Net Working Capital determined
at September 30, 1996 according to the Balance Sheet of such date.
Purchaser and Seller shall make an estimate of the amount due hereunder
on or prior to the Closing (the "Estimated Payment"). If the Estimated
Payment shall be greater or less than the amount determined due under
clause (iii) by Purchaser's accountant, then the party who shall have
overpaid or underpaid, as the case may be, shall pay the amount due to
the other party within ten (10) days. The Cash Consideration and the
Preferred Stock are referred to hereinafter jointly as the "Purchase
Price."
2.3 EXCLUDED LIABILITIES AND TRANSFER OF DALLAS PROPERTY. In
connection with the Purchaser's purchase of the Shares, the Purchaser
will assume all liabilities of the Foster Grant Group (subject to the
indemnification provisions set forth in Section 8.1, below) excluding:
(a) any liabilities arising under or in connection with
that certain Contingency Agreement, dated as of June 30, 1993
between Benson Eyecare Corporation and Edwin Bonneau;
(b) any liabilities arising under or in connection with
patent litigation previously initiated by Al-Site Corporation
against Bonneau and Pennsylvania Optical Company;
(c) any liabilities arising under or in connection with a
mortgage attached to the Dallas Property dated March 31, 1995
by and between the Partnership as mortgagor, Seller as
guarantor and First Interstate Bank of Texas, N.A. (the
"Mortgage") and all amendments to the Mortgage. In connection
with this subsection 2.4(c), the Seller (or its designee)
shall on or before the Closing Date acquire from the
Partnership all right, title and interest in and to the Dallas
Property, and in connection therewith shall assume all
liability in connection with such existing mortgage.
6
<PAGE> 11
(The foregoing liabilities are hereafter referred to as the
"Excluded Liabilities").
The Seller shall be solely responsible for satisfying and or
defending against any and all claims, demands or other
liabilities with respect to the Excluded Liabilities, and
shall have sole control and direction of any defense in
connection therewith; provided, that Purchaser shall, and
after the Closing Date shall cause the Foster Grant Group
and/or its members to, cooperate reasonably with the Seller in
connection with any such defense, and the Seller shall
reimburse promptly any and all direct out-of-pocket expenses
incurred in connection with or as a result of providing such
cooperation.
2.4 LITIGATION LIABILITIES.
(a) In connection with the Purchaser's purchase of the
Shares, the Purchaser will, subject to Section 2.4(b) below,
assume any and all liabilities of the Foster Grant Group
and/or the Partnership other than the Excluded Liabilities,
including (without limitation) liabilities arising out of any
litigation pending, threatened or commenced against any member
of the Foster Grant Group or the Partnership or pending,
threatened or commenced against the Seller and relating to the
Foster Grant Group or its business and not referred to in
Section 2.3 hereinabove, including any litigation or
administrative or governmental proceeding (i) pending prior to
the Closing Date or (ii) arising out of or relating to any
events occurring prior to the Closing Date, including, without
limitation, liabilities resulting from any past or present
violation of any environmental laws (the liabilities described
in this Section 2.4(a) are referred to as the "Litigation
Liabilities"). No such assumption of liability shall release
Seller from any breach of any representations or warranties
made by Seller herein. Without limiting the generality of the
foregoing, Purchaser, and after the Closing, the members of
the Foster Grant Group and the Partnership, shall be solely
responsible for defending against any such Litigation
Liabilities and shall have sole direction of any defense
thereof; provided, that Purchaser shall consult periodically
with Seller and its counsel regarding the status of individual
claims or cases and the Purchaser shall not enter into any
settlement agreement or otherwise compromise or settle any
Litigation Liability, claim or case without the prior written
consent of Seller, which approval shall not be withheld or
delayed unreasonably.
(b) It is understood and agreed that, as between the
Purchaser and the Seller, Purchaser shall have no liability
for any direct out-of-pocket costs or expenses relating to or
arising from the Litigation Liabilities (including, without
limitation, defense costs, attorneys fees, amounts assessed as
damages and settlement costs) ("Litigation Costs") to the
extent such Litigation Costs exceed $500,000. Purchaser shall
be solely responsible for the first $100,000 of any and all
Litigation Costs, and Purchaser and Seller shall share equally
all Litigation Costs exceeding $100,000 and up to $500,000. To
the extent any such Litigation Costs are recoverable from
third parties or indemnified against by applicable insurance
7
<PAGE> 12
policies, Purchaser shall seek to recover the same and Seller
shall be entitled to receive from the proceeds of any such
recovery (reduced by the legal fees and other expenses
incurred by Purchaser) fifty percent (50%) of all recoveries
in excess of $100,000 but less than $500,000 and one hundred
percent (100%) of all recoveries in excess of $500,000.
3. CLOSING.
3.1 THE CLOSING. The closing of the purchase of the Shares
contemplated by this Agreement (the "Closing") shall take place at the
offices of Hinckley, Allen & Snyder, at 1500 fleet Center, Providence,
Rhode Island 02903, no more than five days after the conditions
precedent to Purchaser's obligations have been satisfied or waived.
3.2 DELIVERIES AT THE CLOSING. (i) The Seller shall deliver or
cause the delivery to the Purchaser of the various certificates,
instruments, and documents referred to in Section 6.1 below, including,
without limitation, one or more share certificates representing all the
Shares and registered in the name of Purchaser, or duly endorsed in
blank and accompanied by stock powers duly endorsed in blank, in each
case in proper form for transfer, and with all stock transfer and any
other required documentary stamps affixed thereto; (ii) the Purchaser
shall deliver or cause the delivery to the Seller of the various
certificates, instruments, and documents referred to in Section 6.2
below and (iii) the Purchaser shall deliver to the Seller the Purchase
Price as provided in Section 2.2.
3.3 GENERALLY. All proceedings to be taken and all documents to be
executed and delivered at the Closing shall be deemed to have been
taken, executed and delivered simultaneously as of the Closing Date
unless otherwise expressly stated, and no proceeding shall be deemed
taken or documents deemed executed or delivered until all have been
taken, executed and delivered.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents and
warrants to the Purchaser with respect to the Seller and on behalf of each
member of Foster Grant Group, as follows:
4.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The Seller
owns directly all the outstanding shares of common stock of Bonneau,
Opti-Ray and ABS. Bonneau owns directly all the outstanding shares of
common stock of BEC Distribution, Bonneau General, Bonneau Holdings and
MMI. Opti-Ray owns directly all the outstanding shares of common stock
of O-Ray Holdings. Bonneau General is the sole general partner, and
Bonneau Holdings and O-Ray Holdings are all of the limited partners, of
the Partnership. Bonneau, Opti-Ray and ABS, together with their
respective subsidiaries, including the Partnership, comprise all of the
members of the Foster Grant Group. SCHEDULE 4.1 sets forth as to each
member of the Foster Grant Group, its place of incorporation, principal
place of business, jurisdictions in which it is qualified to do
business, its authorized capitalization, its shares of common stock
outstanding, and the record and beneficial owner of those shares. Each
member of the Foster Grant Group is a corporation or a
8
<PAGE> 13
partnership (in the case of the Partnership), duly organized or formed
(in the case of the Partnership), validly existing, and in good
standing under the laws of its jurisdiction of incorporation or
formation (in the case of the Partnership). Each member of the Foster
Grant Group has all requisite corporate or partnership (in the case of
the Partnership) power and authority, and all necessary material
consents, authorization, approvals, orders, licenses, certificates, and
permits of and from, and declaration and filings with, all federal,
state, local, and other governmental authorities and all courts and
other tribunals, to own, lease, license, and use its properties and
assets and to carry on the business in which it is now engaged, except
where the failure to have the same would not have a Material Adverse
Effect. Each member of the Foster Grant Group is duly qualified to
transact the business in which it is engaged and is in good standing as
a foreign corporation or partnership (in the case of the Partnership)
in every jurisdiction in which its ownership, leasing, licensing, or
use of property or assets or the conduct of the Foster Grant Group
makes such qualification necessary, except where the failure to be so
qualified would not have a Material Adverse Effect. No member of the
Foster Grant Group is in violation or breach of, or in default with
respect to, and term of its certificate of incorporation (or other
charter document) or by-laws or in the case of the Partnership, its
partnership agreement. Complete copies of the Articles of Incorporation
and Bylaws or the Certificate and Agreement of Limited Partnership (in
the case of the Partnership) of such member of the Foster Grant Group
have been previously delivered to Purchaser and AAi.
4.2 CAPITALIZATION. The authorized, issued and outstanding shares
of capital stock or other equity interest of each member of the Foster
Grant Group are set forth on SCHEDULE 4.1. None of the Shares are held
in treasury. Each of such outstanding shares of capital stock or other
equity interests is duly authorized, validly issued, fully paid, and
nonassessable, has not been issued and is not owned or held in
violation of any preemptive right of stockholders, and is owned of
record and beneficially by those Persons set forth on SCHEDULE 4.1, in
each case free and clear of all Security Interests, stockholders'
agreements, and voting trusts, other than as set forth on SCHEDULE 4.2.
There are no outstanding or existing options, warrants, conversion
rights, subscriptions or other rights obligating any member of the
Foster Grant Group to issue, deliver or sell any stock or securities or
partnership interest (in the case of the Partnership) or any
agreements, understandings or commitments to issue the same.
4.3 FINANCIAL STATEMENTS. The Seller has delivered to the
Purchaser true and correct copies of the unaudited consolidated balance
sheet of the Foster Grant Group and the unaudited consolidated
statements of income and cash flows of the Foster Grant Group as of and
for the fiscal year ended December 31, 1995 (the "Last Balance Sheet"),
which have been extracted from the Seller's audited financial
statements as of and for the year ended December 31, 1995, together
with the unaudited consolidated balance sheet and statements of income
and cash flows of the Foster Grant Group as of and for the nine month
period ended September 30, 1996 (which have been prepared by management
of the Foster Grant Group) (all of the foregoing collectively referred
to as the "Financial Statements"). The Last Balance Sheet and the
September 30, 1996 Balance Sheet are attached hereto as EXHIBIT A and
EXHIBIT B, respectfully. The Financial Statements,
9
<PAGE> 14
subject to the purchase accounting entries detailed on the September
30, 1996 Balance Sheet,: (a) have been prepared in accordance with the
books of account and records of the Foster Grant Group; (b) fairly
present, in all material respects, the Foster Grant Group's financial
condition and the results of their operations at the dates and for the
periods specified in those statements; and (c) have been prepared in
accordance with generally accepted accounting principles consistently
applied with all prior periods, except for changes noted therein.
4.4 ABSENCE OF UNDISCLOSED LIABILITIES. No member of the Foster
Grant Group has any material liabilities, commitments or obligations of
any nature whatsoever, whether written, oral, absolute, accrued or
contingent, which are required to be reflected or reserved against in
the Financial Statements (or disclosed in a footnote thereto) in
accordance with generally accepted accounting principles, except for
those (a) disclosed or reflected as liabilities or reserved for on the
Financial Statements, (b) incurred or accrued since September 30, 1996
in the Ordinary Course of Business, or (c) set forth on SCHEDULE 4.4 or
any other Schedule hereto and, to the Seller's Knowledge, there is no
basis for assertion against any member of the Foster Grant Group of any
such material liability, commitment or obligation.
4.5 TAXES.
(a) Each corporate member of the Foster Grant Group is a
member of the Seller's consolidated tax group, and the Seller has paid
or caused to be paid all federal, state, local, foreign, and other
taxes, including without limitation income taxes, estimated taxes,
alternative minimum taxes, excise taxes, sales taxes, use taxes,
value-added taxes, gross receipts taxes, franchise taxes, capital stock
taxes, employment and payroll-related taxes, withholding taxes, stamp
taxes, transfer taxes and property taxes, whether or not measured in
whole or in part by net income, and all deficiencies, or other
additions to tax, interest, fines and penalties owed by it
(collectively, "Taxes"), required to be paid by it through the date
hereof, whether disputed or not, except as disclosed in SCHEDULE 4.5
attached hereto.
(b) Except as disclosed in SCHEDULE 4.5 attached hereto,
the Seller has in accordance with applicable law filed (or has filed
for available extensions) all federal, state, local and foreign tax
returns required to be filed by it through the date hereof, and all
such returns correctly and accurately set forth the amount of any Taxes
relating to the applicable period. SCHEDULE 4.5 contains a description
of those returns that have been audited or currently are the subject of
an audit. Furthermore, SCHEDULE 4.5 contains a schedule of all
examination reports and statements of deficiencies assessed against or
agreed to by the Seller or any member of the Foster Grant Group.
SCHEDULE 4.5 attached hereto sets forth all federal tax elections under
the Internal Revenue Code of 1986, as amended (the "Code"), that are in
effect with respect to each member of the Foster Grant Group or for
which an application by any member of the Foster Grant Group is
pending.
10
<PAGE> 15
(c) Except as disclosed in SCHEDULE 4.5 attached hereto,
neither the Internal Revenue Service nor any other governmental
authority is now asserting or, to the best knowledge of the Seller,
threatening to assert against the Seller or any member of the Foster
Grant Group, any deficiency or claim for additional Taxes. Except as
disclosed in SCHEDULE 4.5 attached hereto, no claim has ever been made
by any authority in a jurisdiction where the Seller does not file
reports and returns that the Seller is or may be subject to taxation by
that jurisdiction. There are no material Security Interests on any of
the assets of the Seller or any member of the Foster Grant Group that
arose in connection with any failure (or alleged failure) to pay any
tax. Neither the Seller nor any member of the Foster Grant Group has
entered into a closing agreement pursuant to Section 7121 of the Code.
(d) Except as set forth in SCHEDULE 4.5 attached hereto,
there has not been any audit of any tax return filed by the Seller or
any member of the Foster Grant Group since June 30, 1992 or, to the
Seller's knowledge, prior thereto, no audit of any tax return of the
Seller or any member of the Foster Grant Group is in progress, and
neither the Seller nor any member of the Foster Grant Group has been
notified by any tax authority that any such audit is contemplated or
pending. Except as set forth in SCHEDULE 4.5, no extension of time with
respect to any date on which a tax return was or is to be filed by the
Seller or any member of the Foster Grant Group is in force, and no
waiver or agreement by the Seller or any member of the Foster Grant
Group is in force for the extension of time for the assessment or
payment of any Taxes.
(e) Neither the Seller nor any member of the Foster Grant
Group have ever consented to have the provisions of Section 341(f)(2)
of the Code applied to it. Neither the Seller nor any member of the
Foster Grant Group have agreed to, and neither the Seller nor any
member of the Foster Grant Group have been requested by any
governmental authority to, make any adjustments under Section 281(a) of
the Code by reason of a change in accounting method or otherwise.
Neither the Seller nor any member of the Foster Grant Group have ever
made any payments, is obligated to make any payments, or is a party to
any agreement that under certain circumstances would obligate it to
make any payments, that will not be deductible under Section 280G of
the Code. The Seller disclosed in its consolidated federal income tax
returns all positions taken therein that could give rise to a penalty
for underpayment of federal Tax under Section 6662 of the Code. Neither
the Seller nor any member of the Foster Grant Group ever had any
liability for unpaid Taxes because it was a member of an "affiliated
group" (as defined in Section 1504(a) of the Code). Except as set forth
in SCHEDULE 4.5 attached hereto, none of the members of the Foster
Grant Group are a party to any tax sharing agreement.
(f) For purposes of this Section 4.5 all references to
Sections of the Code shall include any predecessor provision to such
Sections and any similar provisions of federal, state, local or foreign
law.
4.6 LITIGATION AND CLAIMS. Except as set forth on SCHEDULE 4.6:
None of the members of the Foster Grant Group is involved in any
pending or, to Seller's knowledge, threatened
11
<PAGE> 16
litigation, action, suit, proceeding, claim or investigation which,
singly or in the aggregate, could have a Material Adverse Effect upon
the members of the Foster Grant Group, or which would prevent or hinder
the consummation of the transactions contemplated by this Agreement
including, without limitation, the execution, delivery and performance
of any related documents; and no member of the Foster Grant Group is
subject to or bound by any agreement, judgment, decree or order which
could have a Material Adverse Effect upon the members of the Foster
Grant Group.
4.7 STATUS OF PROPERTY OWNED OR LEASED.
(a) REAL PROPERTY. The real property identified as being
owned by the members of the Foster Grant Group on SCHEDULE 4.7 is
collectively referred to herein as the "Owned Real Property"; the real
property identified as being leased by the members of the Foster Grant
Group on SCHEDULE 4.7 is collectively referred to herein as the "Leased
Real Property"; the Owned Real Property and the Leased Real Property
are collectively referred to herein as the "Real Property." The Owned
Real Property constitutes all the real property owned by the members of
the Foster Grant Group and the Leased Real Property constitutes all the
real property leased by the members of the Foster Grant Group.
(i) TITLE. Each member of the Foster Grant Group
has good, clear, record, marketable and insurable fee simple title to
the Owned Real Property owned by it, in all cases free and clear of all
Encumbrances, liens, assessments, licenses, claims, rights of first
offer or refusal, options, or options to purchase, or any covenants,
conditions, restrictions, rights of way, easements, judgments or other
encumbrances or matters affecting title, except as set forth on
SCHEDULE 4.8. There are no leases, tenancies or occupancy rights of any
kind affecting any of the Owned Real Property. Each member of the
Foster Grant Group has a valid leasehold interest in all of the Leased
Real Property leased by it, free and clear of all Encumbrances.
(ii) SECURITY INTERESTS. All of the mortgages,
deeds of trust, ground leases, security interests or similar
encumbrances on the Real Property are set forth on SCHEDULE 4.8
(collectively, the "Encumbrances"). All payments required under each
Encumbrance to the date hereof have been made in full or are accrued in
accordance with Section 4.3. There is not now, nor, as a result of the
consummation of the transactions contemplated hereby, will there by,
any default under the terms and provisions of any Encumbrance. No
condition or fact does or will exist, as a result of the consummation
of the transactions contemplated hereby, which, with the lapse of time
or the giving of notice or both, would constitute a material default
thereunder or result in any acceleration of the indebtedness secured
thereby or any increase in the amount of interest, premiums or
penalties payable on such indebtedness. SCHEDULE 4.8 also specifically
indicates all Encumbrances which are, by their terms, by means of a
separate guaranty or otherwise, recourse, in whole or in part, to the
members of the Foster Grant Group.
12
<PAGE> 17
(iii) LEASES. All of the leases of any of the
Leased Real Property (collectively, the "Leases") are as set forth on
SCHEDULE 4.7. The copies of the Leases delivered or furnished by the
Seller to AAi constitute all of the leases or tenancy agreements of or
with respect to the Leased Real Property, and are complete and correct
copies of each of the Leases. All Leases are currently in full force
and effect. Each party to the Leases has performed all of its
obligations under each of such Leases in all material respects and is
not in default thereunder, and the Seller is not aware of any event or
condition which exists or as a result of the passage of time or the
giving of notice could result in a default under any such Lease. Except
as disclosed on SCHEDULE 4.7, the consummation of the transactions
contemplated by this Agreement will not result in any modification,
termination, breach or default or require any consent under any such
Lease.
(iv) COMMISSIONS. There are no brokerage or
leasing fees or commissions or other compensation due or payable on an
absolute or contingent basis to any person, firm, corporation, or other
entity with respect to or on account of any of the Leases, the
Encumbrances or the Real Property, and no such fees, commissions or
other compensation shall, by reason of any existing agreement, become
due after the date hereof.
(v) PHYSICAL CONDITION. There is no material
defect in the physical condition of any of the Owned Real Property or
the Leased Real Property. There is no material defect in any
improvements located on or constituting a part of any of the Real
Property, including, without limitation, the structural elements
thereof, the mechanical systems (including without limitation all
heating, ventilating, air conditioning, plumbing, electrical, elevator,
security, telephone, utility, and sprinkler systems) therein, the roofs
or the parking and loading areas (collectively, the "Improvements").
All of the improvements located on or constituting a part of any of the
Real Property, including, without limitation, the structural elements
thereof, the mechanical systems therein, the roofs and the parking and
loading areas are in generally good operating condition and repair and
have been maintained in the Ordinary Course of Business, normal wear
and tear excepted.
(vi) UTILITIES. All water, sewer, gas, electric,
telephone, drainage and other utility equipment, facilities and
services required by law or necessary for the operation of the Real
Property as it is now being operated and as required for operation are
installed and connected pursuant to valid permits, are sufficient to
service the Real Property and as a whole are in generally good repair
and operating condition, normal wear and tear excepted. Neither the
Seller nor any member of the Foster Grant Group has received any notice
of and the Seller and each member of the Foster Grant Group has no
knowledge of any fact, condition or proceeding which would result in
the termination or impairment of the furnishing of, or any material
increase in rates for, services to any of the Real Property of water,
sewer, gas electric, telephone, drainage and other utility services,
except ordinary and usual rate increases applicable to all customers
(or all customers of a certain class) of a utility provider. To the
best knowledge of the Seller, the facilities servicing the Real
Property are in compliance, in all material respects, with all
applicable governmental statutes, ordinances, rules and regulations.
13
<PAGE> 18
(vii) COMPLIANCE. Neither the Seller nor any
member of the Foster Grant Group has received any notice from any
municipal, state, federal or other governmental authority with respect
to, and the Seller has no knowledge of, any violation of any zoning,
building, fire, water, use, health, environmental or other statute,
ordinance, code or regulation issued in respect of any of the Real
Property that has not been heretofore corrected, and no such violation
or violations now exist which would have a material adverse effect on
the operation or Improvements on the Real Property. The construction,
installation, use and operation of the Real Property or the
Improvements thereon (including, without limitation, the construction,
installation, use and operation of any signs located thereon) were
completed and installed and are in compliance, in all material
respects, with all applicable municipal and governmental laws,
ordinances, regulations, licenses, permits and authorizations,
including, without limitation, applicable building, zoning,
environmental and fire safety laws and regulations, and there are
presently in effect all material certificates of occupancy, licenses,
permits, authorizations and approvals required by law or by any
governmental or private authority having jurisdiction over any of the
Real Property or any portion thereof, occupancy thereof or any present
use thereof, including but not limited to such other permits as are
necessary for the operation of the Real Property.
(viii) GOVERNMENT APPROVALS. Neither the Seller nor
any member of the Foster Grant Group has received any notice of and the
Seller has no knowledge of any plan, study or effort by any
governmental agency or authority which would adversely affect the
present use, zoning or value of any of the Real Property or which would
modify or realign any adjacent street or highway. All of the Real
Property has access from a publicly dedicated roadway and all such
access is at least the minimum access required by applicable
subdivision or similar law for all Improvements constituting a part of
the Real Property. All lessee improvements are in substantial
accordance with applicable Lease requirements.
(ix) REAL PROPERTY TAXES. Other than the amounts
disclosed by the copies of the tax bills for the Owned Real Property
delivered to AAi by Seller, no other taxes have been or, to the best
knowledge of the Seller, will be assessed on any of the Owned Real
Property or any portion thereof, in respect of the current tax year or
any prior year, except as set forth in SCHEDULE 4.8.
(x) SERVICE CONTRACTS. A complete and correct
list of all material existing service, management, supply or
maintenance and equipment lease contracts and other contractual
agreements affecting the Real Property or any portion thereof (the
"Service Contracts") as set forth on SCHEDULE. 4.8. Each of the Service
Contracts is currently valid and in full force and effect and, with
respect to each of the Service Contracts, no situation exists which,
with the passage of time or notice or both, would cause any member of
the Foster Grant Group to be in default thereunder, except where such
default would not have a Material Adverse Effect.
14
<PAGE> 19
(b) PERSONAL PROPERTY. The personal property located on
the Real Property is all of the personal property necessary for the
continued operation of the business of each member of the Foster Grant
Group as currently conducted. Except as specifically disclosed in
SCHEDULE 4.8, each member of the Foster Grant Group has good and
marketable title to all of the personal property owned by it. None of
such personal property or assets is subject to any Encumbrance or other
charge except as specifically disclosed in SCHEDULE 4.8. The Financial
Statements reflect all material personal property of each member of the
Foster Grant Group, subject to dispositions and additions in the
ordinary course of business consistent with this Agreement. Except as
otherwise specified in SCHEDULE 4.8, all material leasehold
improvements, furnishings, machinery and equipment of the Foster Grant
Group are in generally good repair, normal wear and tear excepted, have
been well maintained, and conform in all material respects with all
applicable ordinances, regulations and other laws.
4.8 CONTRACTS AND OTHER INSTRUMENTS. Except as disclosed in
SCHEDULE 4.8 hereto, neither the Partnership nor any member of the
Foster Grant Group is a party to or bound by any executory oral or
written:
(a) Contract or agreement for the purchase of any
materials or equipment necessary for the continued operation of the
Foster Grant Group, except purchase orders in the Ordinary Course of
Business;
(b) Contract or agreement providing for the purchase from
a particular supplier of all or substantially all of the Foster Grant
Group's requirements of any material product or other item sold or used
by the Foster Grant Group in the Ordinary Course of Business;
(c) Contract or commitment in connection with the Foster
Grant Group which by its terms does not terminate or is not terminable
without penalty by any member of the Foster Grant Group or any
successor or assign within thirty (30) days after notice from such
party thereto;
(d) Contract or agreement related to the Foster Grant
Group not made in the Ordinary Course of Business;
(e) Contract or agreement with any officer, director or
stockholder of the Foster Grant Group or with any Affiliate and which
relates to the Foster Grant Group;
(f) Employment, agency, consulting, or similar contract
in connection with the members of the Foster Grant Group that cannot be
canceled by it without cost or penalty on less than thirty (30) days'
notice;
(g) License or secrecy agreements involving intellectual
property rights or non-competition agreements;
15
<PAGE> 20
(h) Loan or guaranty agreement, credit agreement, note or
other agreement or instrument evidencing indebtedness of any member of
the Foster Grant Group to any third party or of any third party to any
member of the Foster Grant Group, and any related forbearance, waiver
or after amending agreement or any conditional sale agreement,
sale-leaseback agreement, mortgage, pledge, indenture or other
agreement or instrument evidencing a Security Interest or secured
transactions;
(i) Lease, sublease or other occupancy agreement
affecting the Real Property or any option, right of first refusal or
agreement for sale affecting such property in any material respect; or
(j) Other contracts or agreements creating any material
obligation on any member of the Foster Grant Group with respect to the
Foster Grant Group or the transactions contemplated by this Agreement.
The Seller has delivered to the Purchaser and AAi a correct
and complete copy of each Contract (or, in the case of similar form
Contracts, a copy of the form of such Contract together with a list of
parties having executed such form) (as amended to date) listed on or
described in SCHEDULE 4.8. Except as specifically disclosed on SCHEDULE
4.8, the Foster Grant Group, or the relevant member thereof, has
performed all material obligations required to be performed by it to
date under all such Contracts. Except to the extent any of the same may
have been terminated or expired prior to the Closing Date, or as
disclosed in SCHEDULE 4.8, no member of the Foster Grant Group is, nor,
to the Seller's knowledge, is any other party to any such contract,
agreement, instrument, lease, or license in violation or breach of, or
in default with respect to complying with, any material provision
thereof, and each such contract, agreement, instrument, lease, or
license is in full force and is the legal, valid, and binding
obligation of such member of the Foster Grant Group, as the case may
be, and is enforceable as to it in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium or other similar
laws in effect relating to creditors rights generally, and that the
remedy of specific performance and injunctive and other forms of
equitable relief may be subject to general principles of equity.
4.9 EMPLOYEE BENEFITS. Except as set forth in SCHEDULE 4.9:
(a) Neither the Partnership nor any member of the Foster Grant
Group has in the period since their respective dates of acquisition by
the Seller contributed to a Multiemployer Plan, and to Seller's
knowledge no member of the Foster Grant Group has contributed to any
Multiemployer Plan prior to the acquisition by Seller. No member of the
Foster Grant Group currently maintains, or is a participating employer
in, or contributes to, any pension, profit-sharing, option, other
incentive plan, or any other type of Employee Benefit Plan, or has any
obligation to or customary arrangement with employees for bonuses,
incentive compensation, vacations, severance pay, insurance, or other
benefits. The Seller has furnished to the Purchaser copies of all
material documents evidencing such plans, obligations, or arrangements
referred to in SCHEDULE 4.9 (or written
16
<PAGE> 21
summaries of such plans, obligations, or arrangements to the extent not
evidenced by documents) and copies of all documents evidencing trusts
relating to any such plans.
(b) There has been no violation of the reporting and
disclosure requirements imposed either under ERISA or the Internal
Revenue Code of 1986, as amended ("Code"), for which a penalty has been
or may be imposed with respect to any such Employee Benefit Plan of the
Foster Grant Group. There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), pending and, to
the knowledge of the Seller, there is no litigation, arbitration,
claim, governmental or other proceeding (formal or informal), or
investigation threatened with respect to any such Employee Benefit Plan
or related trust or with respect to any fiduciary, administrator, or
sponsor (in its capacity as such) of any such Employee Benefit Plan. No
event has occurred or (to the knowledge of the Seller) is threatened
which would constitute a non-exempt prohibited transaction under
Section 406 of ERISA.
(c) Each Employee Benefit Plan has been maintained,
operated and administered in accordance with its terms and any related
document and agreements and complies in all material respects with the
applicable requirements of ERISA and the Internal Revenue Code.
(d) Each Employee Benefit Plan intended to qualify under
the Internal Revenue Code Sec. 401(a) is so qualified, and each trust
maintained in connection with each such plan is tax exempt under the
Internal Revenue Code Sec. 501(a).
(e) With respect to each Employee Benefit Plan that is a
group health plan subject to Internal Revenue Code Sec. 4980B or
162(k), the Foster Grant Group has complied in all material respects
with the continuation coverage requirements of Internal Revenue Code
Sec. 4980B and 162(k), as applicable, and Part 6 of Subtitle B of Title
I of ERISA.
(f) With respect to each Employee Benefit Plan that is a
group health plan subject to section 1862(b)(1) of the Social Security
Act (42 U.S.C. ss. 1395y(b)), the Foster Grant Group has complied in
all material respects with the secondary payer requirements of section
1862(b)(1) of such Act.
(g) Any Employee Benefit Plan that provides for
"parachute payments" within the meaning of Internal Revenue Code Sec.
280G provides that "excess parachute payments" will not be paid
thereunder.
(h) No Employee Benefit Plan is funded through a "welfare
benefit fund" as defined in Internal Revenue Code Sec. 419(e).
(i) The execution and performance of this Agreement will
not constitute a stated triggering event under any Employee Benefit
Plan that will result in the payment (whether of severance pay or
otherwise) becoming due from the Foster Grant Group to
17
<PAGE> 22
any officer, employee or former employee (or dependents of such
employee), or accelerate the time of payment or vesting, or increase
the amount of compensation due to any employee, officer or trustee of
the Foster Grant Group.
(j) The Foster Grant Group has reserved all rights
necessary to amend or terminate each of the Employee Benefit Plan,
other than Employee Benefit Plans maintained or sponsored by Seller and
with respect to which the members of the Foster Grant Group are
participating employers.
(k) Each "fiduciary" and every "plan official" (as
defined in ERISA Sec. 412) of each Employee Benefit Plan is bonded to
the extent required under ERISA Sec. 412.
4.10 INTELLECTUAL PROPERTY.
(a) Intellectual Property" means:
(i) all rights and incidents of interest in and
to all trademarks, service marks, trademark registrations, service mark
registrations, and trade names (whether registered or arising under
common law, state law, federal law or the law of a foreign country) and
applications for registration of trademarks and service marks used in
or necessary to the conduct of the business of the Foster Grant Group
as of the Closing Date (collectively, "Trademarks"), including, without
limitation, all and any rights to any variations thereof, together with
the good will of the Foster Grant Group in connection with which each
Trademark is used and which is symbolized by each such Trademark;
(ii) all licenses granted by or to the Foster
Grant Group and any other agreements to which the Foster Grant Group is
a party which create rights in or to the Trademarks, or trade name
properties described in subsection (i), above and in effect as of the
Closing Date;
(iii) all rights and incidents of interest in and
to all works of authorship, including all copyrights, copyright
registrations, certificates of copyright, copyrighted literary
interests, applications for copyrights and all literary, property and
author rights related thereto (collectively, "Copyrights") as of the
Closing Date that are embodied in or associated with the assets of the
Foster Grant Group or used in or necessary to the conduct of the
business of the Foster Grant Group as of the Closing Date;
(iv) all inventions, whether patentable or
unpatentable and whether or not reduced to practice, all improvements
thereto and letters patent, design patents and utility patents, all
applications for grant of any such patents pending as of the Closing
Date, industrial models, industrial designs, petty patents, patents of
importation, patents of addition, utility models, certificate of
invention and other government issued or granted indicia of invention
ownership, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations
thereof, ("Patents"), that are owned by
18
<PAGE> 23
Foster Grant Group or are part of or used in or necessary to the
conduct of the business of the Foster Grant Group.
(v) all renewals, modifications, and extensions
of any items referred to in subsections (i) through (iv), above;
(vi) all rights and incidents of interest in and
to all technical documentation, trade secrets (including trade secret
rights arising under common law, state law, federal law, and the law of
a foreign country), designs, plans, new product development, formulas,
know-how and show-how, that are as of the Closing Date part of, used in
or necessary to the conduct of the business of the Foster Grant Group;
(vii) all marketing, export, import, and licensing
records, sales literature, supplier lists, vendor lists, customer
lists, trade lists, sales forces and distributor networks, form manuals
and forms, advertising, marketing and promotional materials and
know-how, sales tools, and other customer or potential customer data or
marketing and service information, customer contracts (whether form or
custom-developed) that are as of the Closing Date used in or necessary
for the conduct of the business of the Foster Grant Group;
(viii) all rights to develop, manufacture, use or
sell under all licenses in effect as of the Closing Date granted to the
Foster Grant Group that are part of, used in or necessary to the
conduct of the business of the Foster Grant Group;
(ix) all rights and incidents of interest in and
to all noncompetition confidentiality agreements in effect as of the
Closing Date that were entered into or made in connection with the
business of the Foster Grant Group;
(x) all of the Foster Grant Group's software and
computer programs, applicable to various environments ("Software"),
including all such software and computer programs in human readable
source code forms and in machine executable object code forms and all
related specifications (including, without limitation, all logic
architectures, algorithms and logic flows and all physical, functional,
operating and design parameters), all work in progress relating to
corrections, modifications or enhancements, current and prior versions,
operating systems and procedures (including development methodology),
designs, design revisions, related applications software in any
language, concepts, ideas, processes, techniques, software design and
test tools, third party software interfaces written by such party and
all methods of implementation and packaging, together with all
associated know-how and show-how and all related documentation,
specifications, manuals and other materials relating thereto which are
used to install, operate, maintain, correct, test, repair, enhance,
modify, prepare derivative works based upon, design, develop, reproduce
and package such software and computer programs.
19
<PAGE> 24
(xi) all goodwill associated with any of the
foregoing and all rights to sue and recover damages for present and
past infringement of any rights of ownership or use of any of the
foregoing items listed in subsections (i) through (xi), above.
(xii) Notwithstanding the foregoing, "Intellectual
Property" does not include the names or marks "Benson", "BEC", "Bolle",
"Optical Radiation Corporation" or "ORC" or any name or mark including
or incorporating such names, or any right or license therein or
thereto.
(b) Except as set forth in SCHEDULE 4.10, the members of
the Foster Grant Group own or are licensed to use (as the case may be)
all rights and incidents of interest as of the Closing Date in and to
all material Intellectual Property used in or intended for use in, part
of or necessary for the operation of the business as presently
conducted and as presently proposed to be conducted by the members of
the Foster Grant Group. Each item of Intellectual Property owned or
used by the Foster Grant Group immediately prior to the Closing Date
will be owned or available for use by them on identical terms and
conditions immediately subsequent to the Closing Date, and except as
set forth in SCHEDULE 4.10, the Foster Grant Group is not in default
under any agreement pursuant to which it uses or has the right to use
any such Intellectual Property right. To Seller's Knowledge, the Foster
Grant Group has taken all necessary and desirable action to maintain
and protect each item of Intellectual Property that it owns. Except as
set forth in SCHEDULE 4.10, no owned item of Intellectual Property has
been abandoned except where and to the extent such abandonment has
occurred in the ordinary course of business and does not have a
Material Adverse Effect. To Seller's Knowledge, each item of
Intellectual Property used by the Foster Grant Group pursuant to
license or other authorization of a third party is used with the
authorization of every other claimant thereto and the execution,
delivery and performance of this Agreement by the Foster Grant Group
will not impair such use.
(c) Except as set forth in SCHEDULE 4.10, (i) to the
Seller's Knowledge, none of the members of the Foster Grant Group have
interfered with, infringed upon misappropriated or otherwise come into
conflict with any Intellectual Property rights of any third party, and
(ii) no member of the Foster Grant Group has received any unresolved
charge, complaint, claim demand or notice alleging any such
interference, infringement, misappropriation or violation (including
any claim that the Foster Grant Group must license or refrain from
using any intellectual property rights of any third party). Except as
set forth in SCHEDULE 4.10, to the Seller's Knowledge, no third party
has interfered with, infringed upon, misappropriated or otherwise come
into conflict with any Intellectual Property rights of any member of
the Foster Grant Group.
(d) SCHEDULE 4.10 identifies each material Patent,
Trademark, Copyright or other Intellectual Property covered by a
governmental registration or registration certificate, or application
for registration, whether from the United States or any foreign
country, and identifies each license, agreement or other permission
that the Foster Grant Group has granted to any third party with respect
to any of its Intellectual Property
20
<PAGE> 25
(together with any exceptions thereto). Except as set forth on SCHEDULE
4.10, with respect to each item of Intellectual Property required to be
identified therein:
(i) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling or charge;
(ii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand is pending, or the
knowledge of the Foster Grant Group, is threatened which challenges the
legality, validity, enforceability, use or ownership of the item;
(iii) the Foster Grant Group has not licensed or
permitted any third party to use any such item; and
(iv) all royalties or other payments to any third
party relating to or arising out of the Foster Grant Group's marketing,
sale, or use of any Intellectual Property owed by the Foster Grant
Group for the period up to and including the Closing Date have been
paid or accrued consistent with Section 4.3.
(e) The Foster Grant Group has the right to use the name
"Foster Grant" in connection with its business in the United States and
in such other countries where the name has been registered as a
trademark and are identified in SCHEDULE 4.10; provided, that Eyecare
Products, plc, a United Kingdom company holds all right, title and
interest in and to the name "Foster Grant" throughout the whole of
Europe and the Middle East (excluding Israel).
4.11 AUTHORITY TO SELL. The Seller and the Partnership each has all
requisite corporate (or partnership, as applicable) power and authority
to execute, deliver, and perform this Agreement. This Agreement has
been duly authorized, executed, and delivered by the Seller and the
Partnership, is the legal, valid, and binding obligation of each of
them, and is enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium or other similar
laws in effect relating to creditors rights generally, and that the
remedy relating to creditors rights generally, and that the remedy of
specific performance and injunctive and other forms of equitable relief
may be subject to general principles of equitable relief may be subject
to general principles of equity. No material consent, authorization,
approval, order, license, certificate, or permit of or form, or
declaration or filing with, any federal, state, local, or other
governmental authority or any court or other tribunal is required by
the Seller or the Partnership for the execution, delivery, or
performance of this Agreement by the Seller or the Partnership, other
than the filings and approvals required by the Hart-Scott Rodino
Antitrust Improvements Act of 1976. Except as set forth on SCHEDULE
4.11, no consent of any party to any material contract, agreement,
instrument, lease, license, arrangement, or understanding to which the
Foster Grant Group is a party, or to which any of its material
properties or assets are subject, is required for the execution,
delivery, or performance of this Agreement (except such consents
referred to in SCHEDULE 4.11 as have been obtained at or prior to the
date of
21
<PAGE> 26
this Agreement, copies of which have been delivered to the Purchaser);
and the execution, delivery, and performance of this Agreement will not
violate, result in a breach of, conflict with, or (with or without the
giving of notice or the passage of time or both) entitle any party to
terminate or call a default under any such material contract,
agreement, instrument, lease, license, arrangement, or understanding;
or violate or result in a breach of any term of the certificate of
incorporation (or other charter document) or by-laws, or partnership
agreement, as applicable, of any member of the Foster Grant Group; or
in any material respect, violate, result in a breach of, or conflict
with any material law, rule, regulation, order, judgment, or decree
binding on the Seller or any member of the Foster Grant Group or to
which any of its material operations, business, properties, or assets
are subject.
4.12 ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 4.12,
to the Seller's knowledge:
(a) No Contaminants have at any time been treated,
recycled or disposed of in any way by any member of the Foster Grant
Group in or about any real estate owned, leased or operated by any
member of the Foster Grant Group except as permitted under and in
accordance with applicable law;
(b) There are no locations not presently owned, leased or
operated by any member of the Foster Grant Group where Contaminants
from the operation of the business of any member of the Foster Grant
Group have been stored, treated, recycled or disposed of except as
permitted under and in accordance with applicable law;
(c) There are no underground storage tanks located on or
about real property owned, leased or operated by any member of the
Foster Grant Group;
(d) There are no past or continuing releases of
Contaminants into the environment from real property owned, leased or
operated by any member of the Foster Grant Group or from other
locations where wastes from the operation of the Foster Grant Group's
properties or business have been or are located;
(e) No member of the Foster Grant Group has treated,
stored or disposed of any hazardous waste (within the meaning of such
terms under the federal Resource Conservation and Recovery Act, as
amended (and any implementing regulations)), or any similar state or
local legal requirements except as permitted under and in accordance
with applicable law; and
(f) Neither the Seller nor any member of the Foster Grant
Group has received any notice from any Person advising the Seller or
any member of the Foster Grant Group that any member of the Foster
Grant Group is potentially responsible for response costs with respect
to a release or threatened release of Contaminants.
22
<PAGE> 27
4.13 LABOR PRACTICES. To Seller's Knowledge, there are no material
claims for unfair labor practices or threatened between any member of
the Foster Grant Group and any of their employees. No strikes, work
slowdowns or stoppages or other labor disputes involving any member of
the Foster Grant Group's employees are pending or, to the Seller's
Knowledge, threatened. There is not pending any material grievance
procedure or arbitration proceeding under any collective bargaining
agreement covering any member of the Foster Grant Group's employees or
former employees. Except as disclosed in SCHEDULE 4.6, no charges,
audits, investigations or complaint proceedings are pending, or are to
Seller's Knowledge threatened, before the Equal Employment Opportunity
Commission or any state or local agency responsible for the prevention
of unlawful employment practices. No member of the Foster Grant Group
has experienced any work stoppage or other similar labor difficulty.
4.14 COMPLIANCE WITH LAWS, PERMITS AND LICENSES. Except as
disclosed on SCHEDULE 4.14, each member of the Foster Grant Group has
complied with all material applicable laws, rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder (collectively "Laws") of federal, state, local, and foreign
governments (and all agencies thereof), except where the failure to
comply would not have a Material Adverse Effect. Except as disclosed on
SCHEDULE 4.14, no material expenditures or actions are, or will be,
required by any member of the Foster Grant Group to bring the Foster
Grant Group into compliance with such Laws. Except as set forth on
SCHEDULE 4.14, to Seller's Knowledge, neither the Seller nor any member
of the Foster Grant Group, nor any of their respective executive
officers, employees or agents has received any written or oral notice
of or citation for material noncompliance with any Laws including,
without limitation, Environmental Laws (as defined herein), directly in
connection with the Foster Grant Group. To the Seller's Knowledge
except as set forth on SCHEDULE 4.14, there exists no fact, condition,
situation or circumstance, which individually or in the aggregate, and
after notice or lapse of time or both, would constitute material
noncompliance with or give rise to material future liability with
respect to any such Laws. All material permits and licenses required
under applicable Laws to operate the Foster Grant Group as currently
operated are listed in SCHEDULE 4.14 hereto.
4.15 DIRECTORS, OFFICERS AND KEY EMPLOYEES. SCHEDULE 4.15 sets
forth a true and complete list of the names and work addresses and
total compensation received from Foster Grant Group or any member
thereof of all current directors and officers of the members of the
Foster Grant Group, and each other current employee of the Foster Grant
Group who received base compensation of $50,000 or more in calendar
year 1995 or as of October 31, 1996 would receive or accrue base
compensation of $50,000 or more of projected remuneration for the
calendar year 1996. Except as set forth in SCHEDULE 4.15 or in any
Contract disclosed pursuant to Section 4.8, none of the persons listed
therein have received any wage or salary increase or bonus since
October 31, 1996, other than in the Ordinary Course of Business and
consistent with the Foster Grant Group's policies and procedures, and
there has not been any accrual for or commitment or agreement by any
member of the Foster Grant Group to pay the same. Set forth on SCHEDULE
4.15 is a correct and complete list of each employee of each member of
the Foster Grant Group
23
<PAGE> 28
whose employment terminated, whether voluntarily or involuntarily and
whether temporarily or permanently, within thirty (30) days prior to
the Closing Date. No member of the Foster Grant Group employs any
person in a manner that violates any non-competition, non-disclosure or
other similar agreement (including without limitation those entered
into in connection with any former employment).
4.16 ABSENCE OF CERTAIN CHANGES. Since September 30, 1996, there
has not been:
(a) Any change in the financial condition, properties,
assets, liabilities, or operations related to the Foster Grant
Group, which change by itself or in conjunction with all other
such changes, whether or not arising in the ordinary course of
business, has a Material Adverse Effect;
(b) Any material Security Interest placed on any assets
of the Foster Grant Group that remains undischarged on the
Closing Date;
(c) Any obligation, liability or commitment incurred by
any member of the Foster Grant Group that has a Material
Adverse Effect;
(d) Any purchase, sale or other disposition or any
agreement or other arrangement for the purchase, sale or other
disposition of any of assets of the Foster Grant Group, other
than those that are immaterial or are in the Ordinary Course
of Business, except those expressly contemplated by this
Agreement;
(e) Any lease, license or other agreement that has had a
Material Adverse Effect, other than as set forth on SCHEDULE
4.16;
(f) Any damage, destruction or loss, whether or not fully
covered by insurance, that has a Material Adverse Effect; or
(g) Any other matter that has a Material Adverse Effect
that has not been disclosed herein or in a schedule or
attachment furnished herewith.
4.17 INSURANCE. SCHEDULE 4.17 sets forth a list of all material
insurance policies providing insurance coverage of any nature to the
Foster Grant Group. The Seller has previously made available to the
Purchaser a copy of all of such insurance policies, as amended to the
date hereof. Such policies are sufficient for compliance in all
material respects by the Foster Grant Group with all material
requirements of law and all material agreements to which the Foster
Grant Group is a party or by which any of its assets are bound. All of
such policies are in full force and effect and to the knowledge of the
Seller, are valid and enforceable in accordance with their terms, and
the Foster Grant Group has complied with all material terms and
conditions of such policies, including premium payments. None of the
insurance carriers has provided written notice to the Seller an
intention to cancel any such policy. Purchaser acknowledges that all
such policies are
24
<PAGE> 29
issued in the name of Seller and will remain the property of Seller in
all respects from and after the Closing Date.
4.18 TRANSACTIONS WITH INTERESTED PERSONS. Other than as disclosed
on SCHEDULE 4.18 no officer, supervisory employee, director or
shareholder of any member of the Foster Grant Group, and no spouse or
children of any of such persons owns, directly or indirectly, on an
individual or joint basis, any interest in or serves as an officer or
director of any of the Foster Grant Group's customers, competitors or
suppliers, or any organization that has a contract or arrangement with
any member of the Foster Grant Group relating to the Foster Grant
Group.
4.19 BROKERS' FEES. No finder, broker, or similar agent has acted
on behalf of, or has been retained by the Seller or is entitled to any
fee from the Sellers as a result of any of the transactions
contemplated by this Agreement.
4.20 SALES REPRESENTATIVES. Attached as SCHEDULE 4.20 is an
accurate list of all sales agents, dealers, or distributors of any
member of the Foster Grant Group. Copies of all written agreements
currently or previously in effect with such representatives will be
furnished to Buyer prior to Closing. Except as disclosed in SCHEDULE
4.20, to its knowledge, no member of the Foster Grant Group has
received notice of nor does any member of the Foster Grant Group have
reason to believe that any sales representative listed on SCHEDULE 4.20
intends to terminate its relationship with such member (notwithstanding
the expiration of any written agency agreement) or to decline to renew
any written agreement.
4.21 PROCESSES AND CUSTOMER LISTS. Each member of the Foster Grant
Group has the right to use, free and clear of any material claims or
rights of others, its customer lists and all material processes
required for or incident to the distribution or marketing of products
in connection with the Foster Grant Group. To the Seller's Knowledge,
the Foster Grant Group is not using or in any way making use of any
confidential information or trade secrets of any third party.
4.22 GENERAL REPRESENTATION. None of the information contained in
this Agreement, the Financial Statements, or any of the related
documents or schedules attached or related hereto is or will be
materially false or misleading or contains any misstatement of fact or
omits any fact necessary to be stated in order to make the statements
herein or therein not misleading in any material respect. Neither the
Seller nor any officer of the Foster Grant Group knows of any fact
relating to the Foster Grant Group that has not been disclosed herein
or in any document or schedule attached thereto or delivered in
connection herewith and which has a Material Adverse Effect or
materially and adversely affects the ability of the Seller to perform
its obligations under this Agreement and related documents or to
consummate the transactions contemplated herein.
4.23 NON-DISTRIBUTIVE INTENT. The Seller is acquiring the Preferred
Stock for its own account (and not for the account of others) for
investment and not with a view to the
25
<PAGE> 30
distribution thereof. The Seller will not sell or otherwise dispose of
such Preferred Stock without registration under the Securities Act of
1933, as amended (the "Securities Act"), or an exemption therefrom, and
the certificate or certificates representing such Preferred Stock may
contain a legend to the foregoing effect. The Seller understands that
it may not sell or otherwise dispose of such Preferred Stock in the
absence of either a registration statement under the Securities Act or
an exemption from the registration provisions of the Securities Act.
Nothing contained herein shall be deemed to preclude the Seller from
disposing the Preferred Stock acquired by it under this Agreement in
accordance with applicable federal and state securities laws.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser and AAi
represent and warrant to the Seller as follows:
5.1 ORGANIZATION. The Purchaser and AAi are corporations duly
organized, validly existing, and in good standing under the laws of the
jurisdictions of their incorporation, with all requisite power and
authority to own, lease, license, and use their properties and assets
and to carry on the business in which they are now engaged and in which
they contemplate engaging.
5.2 AUTHORIZATION OF TRANSACTION. The Purchaser and AAi have all
requisite corporate power and authority to execute, deliver, and
perform this Agreement. All necessary corporate proceedings of the
Purchaser and AAi have been duly taken to authorize the execution,
delivery, and performance of this Agreement by the Purchaser and AAi.
This Agreement has been duly authorized, executed, and delivered by the
Purchaser and AAi, is the legal, valid, and binding obligation of the
Purchaser and AAi, and is enforceable in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws in effect relating to creditors rights generally, and the
remedies of specific performance and injunctive and other forms of
equitable relief may be subject to general principles of equity.
5.3 VALIDITY OF PREFERRED STOCK. Upon delivery to the Seller
pursuant to the terms hereof, the Preferred Stock will be duly
authorized, validly issued, fully paid and nonassessable, and the
Seller will own the Preferred Stock free and clear of all liens,
encumbrances, claims, charges or interests of others, subject to no
restrictions with respect to transferability, other than applicable
securities laws. At the Closing, the Purchaser's capital structure will
be as described in detail in SCHEDULE 5.3 hereto, including (without
limitation) a description of all classes of capital stock and their
respective rights and numbers of shares authorized, issued and
outstanding of each such class. Purchaser has not authorized or issued
any other class of capital stock or any other instrument convertible
into or exchangeable for capital stock of the Purchaser. There are no
outstanding options, warrants or other rights granting any person a
right to purchase or otherwise acquire capital stock of the Purchaser.
5.4 LITIGATION. No action, suit, claim, arbitration, proceedings
or investigation is pending or, to the knowledge of the Purchaser or
AAi, threatened which questions or
26
<PAGE> 31
challenges the validity of this Agreement or any other agreement
identified herein or any action taken or to be taken in connection with
the transaction contemplated hereby or thereby.
5.5 NON-DISTRIBUTIVE INTENT. The Purchaser is acquiring the Shares
for its own account (and not for the account of others) for investment
and not with a view to the distribution thereof. The Purchaser will not
sell or otherwise dispose of such Shares without registration under the
Securities Act of 1933, as amended (the "Securities Act"), or an
exemption therefrom, and the certificate or certificates representing
such Shares may contain a legend to the foregoing effect. By virtue of
its position, the Purchaser has access to the kind of financial and
other information about the Foster Grant Group as would be contained in
a registration statement filed under the Securities Act. The Purchaser
understands that it may not sell or otherwise dispose of such Shares in
the absence of either a registration statement under the Securities Act
or an exemption from the registration provisions of the Securities Act.
Nothing contained herein shall be deemed to preclude the Purchaser from
disposing the Shares acquired by it under this Agreement in accordance
with applicable federal and state securities laws.
5.6 NO CONFLICTS. No consent, authorization, approval, order,
license, certificate, or permit of or form, or declaration or filing
with, any federal, state, local, or other governmental authority or any
court or other tribunal is required by the Purchaser or AAi for the
execution, delivery, or performance of this Agreement by the Purchaser,
other than the filings and approvals required by the Hart-Scott Rodino
Antitrust Improvements Act of 1976. No consent of any party to any
material contract, agreement, instrument lease, license arrangement, or
understanding to which the Purchaser or AAi is a party, or to which any
of their properties or assets are subject, is required for the
execution, delivery, and performance of this Agreement by the Purchaser
or AAi will not violate, result in a breach of, conflict with, or (with
or without the giving of notice or the passage of time or both) entitle
any party to terminate or call a default under any material contract,
agreement, instrument, lease, license, arrangement, or understanding of
the Purchaser or AAi; or violate or result in a breach of any term of
the certificate of incorporation (or other charter document) or by-laws
of the Purchaser or AAi; or violate, result in a breach of, or conflict
with any law, rule, regulation, order, judgment, or decree binding on
the Purchaser or AAi or to which any of their operations, business,
properties or assets are subject.
5.7 BROKERS' FEE. No finder, broker, or similar agent has acted on
behalf of, or has been retained by the Purchaser or AAi and no finder,
broker or similar agent is entitled to any fee as a result of any of
the transactions contemplated by this Agreement, which fee the
Purchaser and AAi represent will be paid by the Purchaser or AAi, as
the case may be.
5.8 INDEPENDENT INVESTIGATION. Purchaser and AAi, or their
independent accountants, attorneys and agents acting on its behalf, (i)
have reviewed the Financial Statements, and has had the opportunity to
review information related to the Financial Statements, (ii) have
reviewed the corporate records of the members of the Foster Grant
Group, material
27
<PAGE> 32
agreements and other information relating to the Foster Grant Group and
such documents that have been made available to Purchaser or AAi by
Seller and the Partnership in response to Purchaser's or AAi's due
diligence requests, and (iii) have had the opportunity to ask questions
of and receive such information from Seller and the Partnership, as
well as the members of the Foster Grant Group, and their
representatives, with respect to the Foster Grant Group and its
business and operations, which Purchaser and AAi believe is material to
their assessment of the Foster Grant Group and Purchaser's purchase of
the Shares pursuant to this Agreement. Purchaser and AAi have (i) had
access to the books and records, financial and otherwise, of the
members of the Foster Grant Group and the Partnership, and have
inspected such books and records as they have deemed appropriate in
connection with their investigation of the Foster Grant Group, (ii)
been afforded an opportunity to investigate and make inquiries
regarding the condition of the members of the Foster Grant Group, the
Partnership and the assets, financial and otherwise, of the Foster
Grant Group, and in the course thereof has not received actual
knowledge of any matters or things that are inconsistent with any
representation or warranty of Seller contained in this Agreement or
that may give rise to any liability on the part of Seller under the
Agreement, and Purchaser and AAi are not relying on any representations
(other than those contained in this Agreement), oral or otherwise, by
Seller or any of its officers, employees, directors, shareholders,
agents or representatives, in regard to the purchase of the Shares.
6. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER AND THE SELLER.
6.1 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER. The
obligations of Purchaser and AAi under this Agreement are subject, at
the option of the Purchaser and AAi, to the following conditions:
(a) The representations and warranties of the Seller and
the Partnership contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date
as though made on and as of such date, except for changes
contemplated by this Agreement.
(b) The Seller shall have performed and complied in all
material respects with all covenants and agreements required
to be performed or complied with by it on or prior to the
Closing Date.
(c) The parties to this Agreement shall have obtained at
or prior to the Closing all consents required for the
consummation of the transactions contemplated by this
Agreement from any party to any contract, agreement,
instrument, lease, license, arrangement, or understanding to
which any of them is a party, or to which any of their
respective businesses, properties, or assets are subject,
except where the failure to obtain the same would not have a
Material Adverse Effect.
28
<PAGE> 33
(d) There shall not be any injunction, judgment, order,
decree, ruling, or charge in effect preventing consummation of
any of the transactions contemplated by this Agreement.
(e) The Seller shall have delivered to Purchaser and AAi
a certificate to the effect that each of the conditions
specified above in Section 6.1(a)-(n) is satisfied in all
material respects; provided, however, that with respect to the
condition set forth in Section 6.1(c), the Seller shall only
provide such certification with respect to those consents that
the Seller or any member of the Foster Grant Group is required
to obtain.
(f) The Partnership shall have delivered to the Purchaser
and AAi a certificate to the effect that the condition
specified above in Section 6.1(a) is satisfied in all respects
with respect to the Partnership.
(g) The Seller shall have delivered to the Purchaser and
AAi at the Closing: certified copies of each member of the
Foster Grant Group's Certificate or Articles of Incorporation
and By-laws; the partnership agreement; a good standing
certificate from the Secretary of State of each state of
incorporation of each member of the Foster Grant Group is
incorporated, as of a date not more than thirty (30) business
days prior to the Closing Date; original stock certificates or
other evidences of equity ownership of each member of the
Foster Grant Group. The Seller shall deliver at the Closing or
thereafter: all stock books, minute books and corporate
records of the Foster Grant Group; and all other material
original agreements computer disks, documents, books and
records relating to the Foster Grant Group and necessary to
conduct the Foster Grant Group as currently or heretofore
conducted. For the purposes of this paragraph, items described
herein and located on the premises of the Partnership or any
member of the Foster Grant Group shall be deemed delivered
upon Closing by virtue of Purchaser taking control of such
premises.
(h) All directors of each member of the Foster Grant
Group shall have resigned at or prior to the Closing as
directors and members of all committees of the Board of
Directors in writing effective immediately after the Closing.
All non-employee officers of each member of the Foster Grant
Group shall have resigned at or prior to the Closing in
writing effective immediately after the Closing.
(i) All applicable waiting periods in respect of the
transactions contemplated under this Agreement under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 shall
have expired at or prior to the Closing or there shall have
been an early termination of such periods in accordance with
the parties' (or their affiliates', as appropriate) request
therefor.
(j) AAi on the one hand and Marlin Capital, L.P. and its
affiliates (jointly, "Marlin"), on the other shall, at or
prior to the Closing, have executed and
29
<PAGE> 34
delivered a Shareholder Agreement, containing terms and
conditions mutually agreed by and among such parties, pursuant
to which AAi and Marlin shall have each invested in Purchaser
$5,000,000; and all such commitments shall have been fully
funded on or before the Closing.
(k) The parties to this Agreement shall have obtained at
or prior to the Closing an agreement by and between Purchaser
and Eyecare Products PLC ( the "Eyecare") granting Purchaser
the right to purchase from Eyecare, for Fair Market Value, the
trademarks assigned to Eyecare as provided under the terms and
conditions set forth in the Trademark Assignment and
Conditional Agreements between Kitty Little, plc and Bonneau
(the "Agreements"), if at any time after the Closing (i)
Seller has fewer than two (2) appointed individuals on the
Eyecare board of directors or (ii) Seller's ownership interest
in the issued and outstanding common stock of Eyecare
decreases to less than ten percent (10%). No provision of this
or any other agreement will in any way diminish any right held
by Purchaser under the Agreements, and in particular no
provision of this or any other agreement shall in anyway
diminish the buy back rights provided to Bonneau in the
Agreements.
(l) At or prior to the Closing, a sales representative
agreement by and between the Partnership and Jacobs Marketing,
Inc., ("Jacobs") shall have been executed and a copy thereof
delivered to Purchaser whereby the Partnership agrees to
appoint and Jacobs agrees to act as the Partnership's
exclusive sales representative to Target Stores division of
Dayton Hudson Corporation under terms and conditions
reasonably satisfactory to Purchaser.
(m) The Seller shall have executed and delivered to
Purchaser and AAi at or prior to the Closing a copy of a
settlement and release by and between Oakley, Inc., Seller and
Bonneau whereby the parties thereto forever discharge each
other from any and all claims, complaints, causes of action,
demands or liabilities with regard to the acts set forth in
Civil Action No. 96-3420 B CGA, United District Court for the
Southern District of California.
(n) The Seller shall have delivered to Purchaser and AAi
a letter from Seller's accountants to the effect that Seller's
independent accountants agree to provide Purchaser and AAi
with (i) stand alone audited consolidated financial statements
for the Foster Grant Group for the years 1995 and 1996 and an
estimate of the costs of such audits; and (ii) at the
appropriate time in connection therewith, a written consent of
such accountants to permit the Purchaser and AAi to use the
stand alone audited financial statements described herein in
any registration statements prepared in connection with an
initial public offering by AAi, subject to being provided
normal satisfaction from the "Big Six" accounting firm then
auditing AAi.
30
<PAGE> 35
(o) Michael A. Aviles, at or prior to the Closing, shall
have executed and delivered to Purchaser an agreement
modifying certain provisions of his Offer of Employment dated
January 15, 1996, and any amendments thereto, and in
particular such modifications shall include the re-defining of
"severance" whereby Mr. Aviles shall not receive severance as
a result of the consummation of the transaction contemplated
hereby.
(p) At or prior to the Closing, the Seller shall have
delivered to the Purchaser and AAi a copy of the Finance and
Security Agreement by and between the Partnership and
NATIONSBANK, N.A. (the "Operating Loan"), and such agreement
shall be in a form and of a substance reasonably satisfactory
to the Purchaser and AAi, including (without limitation) the
right to draw down not less than 19 million dollars at the
Closing to be used towards the Purchase Price as set forth in
this Agreement.
(q) At or prior to the Closing, the Seller shall have
delivered to the Purchaser a release of any and all
obligations of the Partnership as set forth in the Deed of
Trust and First Amendment to Loan Agreements dated May 3, 1996
by and between First Interstate Bank of Texas, N.A. (the
"Bank"), BEC Group, Inc. and the Partnership. Such release
shall be in form and substance reasonably satisfactory to the
Purchaser and AAi.
(r) At or prior to the Closing the Seller shall have
delivered to the Purchaser a release from any and all
liability and obligations of the Partnership under the Essilor
Indemnity Agreement dated as of February 11, 1996 by and
between Essilor International S.A. and BEC Group, Inc. to
which the Partnership is a party. Such release shall be in
form and substance reasonably satisfactory to the Purchaser
and AAi.
(s) The Purchaser and AAi shall have received from Kane
Kessler, P.C. counsel for the Seller, a favorable opinion,
dated as of the Closing Date and reasonably satisfactory in
form and substance to AAi and AAi's counsel, to the effect as
stated in 4.1, 4.2, and 4.6, as well as to the effect that the
consummation by the Seller of the transactions contemplated by
this Agreement and the documents described herein have been
duly authorized by all necessary corporate action of the
Seller.
(t) At or prior to the Closing, the Partnership shall
have conveyed the Dallas Property to the Seller (or its
designee), and the Seller (or its designee) shall have assumed
the existing mortgage on such Dallas Property; and Seller (or
such designee) and the Partnership shall have executed and
delivered a lease agreement, in accordance with Section 7.5
below, pursuant to which the Foster Grant Group shall lease
its current premises located at the Dallas Property.
31
<PAGE> 36
(u) Subject to Section 2.2 (iii), above, at or prior to
Closing, all intercompany loans and advances existing among
the Seller and the members of the Foster Grant Group shall
have been forgiven and released in full.
(v) At or prior to the Closing, AAi will have concluded
discussions with HMG World Wide In Store Marketing, Inc. to
the effect that the terms and provisions of the Display
Purchase Agreement dated September 30, 1995 are in form and
substance reasonably satisfactory to the Purchaser and AAi.
6.2 CONDITIONS TO THE OBLIGATIONS OF THE SELLER. The obligations
of the Seller under this Agreement are subject, at the option of the
Seller, to the following conditions:
(a) The representations and warranties of the Purchaser
and AAi contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date as
though made on and as of such date, except for changes
contemplated by this Agreement.
(b) The Purchaser and AAi shall have performed and
complied in all material respects with all covenants and
agreements required to be performed or complied with by it on
or prior to the Closing Date.
(c) There shall not be any injunction, judgment, order,
decree, ruling, or charge in effect preventing consummation of
any of the transactions contemplated by this Agreement.
(d) The Purchaser and AAi shall have delivered to the
Seller a certificate to the effect that each of the conditions
specified above in Section 6.2(a)-(l) is satisfied in all
material respects; provided, however, that with respect to the
condition set forth in Section 6.2(c), the Purchaser shall
only provide such certification with respect to consents the
Purchaser is required to obtain.
(e) The Purchaser and the Partnership shall have
delivered the Purchase Price to the Seller.
(f) The Purchaser shall have delivered to the Seller at
the Closing: a certified copy of the Purchaser's Certificate
or Articles of Incorporation and By-laws, and a good standing
certificate from the Secretary of State of the Purchaser's
state of incorporation, as of a date not more than thirty (30)
business days prior to the Closing Date.
(g) All applicable waiting periods in respect of the
transactions contemplated under this Agreement under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 shall
have expired at or prior to the Closing or there shall have
been an early termination of such periods in accordance with
the parties' (or their affiliates', as appropriate) request
therefor.
32
<PAGE> 37
(h) The Seller shall have received from Hinckley, Allen &
Snyder, counsel for the Purchaser and AAi, a favorable
opinion, dated as of the Closing Date and reasonably
satisfactory in form and substance to Seller and Seller's
counsel, to the effect as stated in 5.1, 5.2, and 5.3, as well
as to the effect that the consummation by the Purchaser and
AAi of the transactions contemplated by this Agreement and the
documents described herein have been duly authorized by all
necessary corporate action of the Purchaser and AAi.
7. COVENANTS AND AGREEMENTS OF THE PURCHASER AND THE SELLER.
The Purchaser and the Seller covenant and agree with each other as
follows:
7.1 CONFIDENTIALITY.
(a) In order to consummate the transactions contemplated
by this Agreement Confidential Information may be disclosed
among the parties. Therefore, the Seller, on its own behalf
and on behalf of each member of the Foster Grant Group, the
Partnership, on its own behalf, and the Purchaser agree that
in consideration of the other party's disclosure of
Confidential Information the receiving party hereunder shall:
(i) treat and safeguard such Confidential
Information with at least the same degree of care as
it normally exercises to protect its own confidential
information but in no event with less than a
reasonable degree of care;
(ii) restrict disclosure of Confidential
Information solely to its employees, advisors or
representatives ("Representatives") with a need to
know and not disclose such Confidential Information
to any other parties; and
(iii) use the Confidential Information provided
hereunder only in connection with the performance of
its duties hereunder and for no other purposes.
(b) The parties agree that the foregoing restrictions
shall not apply to information that:
(i) is known by the recipient at the time of
disclosure;
(ii) is or becomes, through no fault of the
recipient, available to the public;
33
<PAGE> 38
(iii) is obtained by the recipient from a third
party without breach of any agreement with, or
obligation or confidentiality to the disclosing
party;
(iv) is independently developed by the recipient
without use of Confidential Information received from
the disclosing party;
(v) is required by law or court order to be
disclosed.
If this Agreement is terminated for any reason whatsoever, each party
shall (i) return to the other all tangible embodiments (and all copies)
of such Confidential Information that are in its possession; (ii) not
use any such Confidential Information in its own operations or (iii)
not disclose any such Confidential Information to any Person for any
purpose or reason whatsoever unless required to do so by law. Without
limiting the generality of the foregoing, the existing Confidentiality
Agreement between AAi and Seller, dated October 2, 1996, shall remain
in full force and effect according to its terms.
7.2 BEST EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties shall use their respective best
efforts in good faith to take or cause to be taken as promptly as
practicable all reasonable actions that are within its power to cause
to be fulfilled each of the conditions precedent to its obligations or
the obligations of the other parties to consummate the transactions
contemplated by this Agreement that are dependent upon its actions,
including obtaining all necessary consents, authorizations, orders,
approvals and waivers.
7.3 OPERATION OF BUSINESS. The Seller and the Partnership, with
respect to itself only, covenant with the Purchaser as follows: without
the prior written consent of the Purchaser, between the date hereof and
the Closing Date they shall not, in connection with the Foster Grant
Group, cause or permit any member of the Foster Grant Group to, and no
member of the Foster Grant Group shall in any material respect:
(a) adopt, amend or modify any material employment or
personnel contract or plan, or increase the level of
compensation payable to any officer, director or employee of
the Foster Grant Group, other than increases not greater than
4% annually over the current level of compensation and in
accordance with past practice;
(b) make any change in its authorized capital stock
including, without limitation, any stock split or
reclassification in respect of its outstanding capital stock,
or declaration, payment or setting aside for payment of any
dividend, fees, or other distribution, including the grant of
any stock options, in respect of any of the Foster Grant
Group's capital stock or any redemption, purchase or other
acquisition of any shares of the capital stock or other
securities of the Foster Grant Group;
34
<PAGE> 39
(c) sell, transfer or otherwise dispose of any assets of
the Foster Grant Group, except for sales of inventory in the
Ordinary Course of Business consistent with past practices;
(d) incur any obligation or liability (fixed or
contingent) relating to the Foster Grant Group, except trade
or business obligations incurred in the Ordinary Course of
Business consistent with past practice;
(e) cancel or compromise any material debt or claim, or
waive or release any rights of value other than in the
Ordinary Course of Business;
(f) transfer, abandon, fail to maintain in good standing
or grant any rights under or with respect to any material
leases, licenses, agreements or Intellectual Property, or
enter into any agreement limiting the Foster Grant Group's
ability in any material respect to conduct its operations or
distribute its products anywhere in the world;
(g) issue, sell, or otherwise dispose of any shares of
capital stock or any evidences of indebtedness or other
securities (except extensions or renewals or replacements of
evidences of indebtedness which extensions, renewals or
replacements are issued in the Ordinary Course of Business
consistent with past practice with respect to evidences of
indebtedness reflected in the Financial Statements);
(h) except as expressly contemplated hereby, amend
articles of incorporation or bylaws or the partnership
agreement;
(i) enter into any material contract or arrangement other
than in the Ordinary Course of Business;
(j) fail to maintain the material properties and assets
of the Foster Grant Group, whether owned or leased, in their
current operating condition and repair, reasonable wear and
tear excepted;
(k) fail to maintain in full force and effect insurance
for the Foster Grant Group providing coverage and amounts of
coverage in accordance with its current and industry practice;
(l) merge or consolidate with any other corporation or
acquire any stock, business, or substantially all of the
property or assets of any other Person;
(m) do any act which, with or without the giving of
notice or the passage of time, or both, would result in a
material breach of or material default under any Contract
required to be listed in SCHEDULE 4.8;
35
<PAGE> 40
(n) enter into any material agreement or understanding to
do any of the foregoing; or
(o) do or omit to do anything else that has a Material
Adverse Effect.
7.4 FULL ACCESS. The Seller shall permit and shall cause each
member of the Foster Grant Group to permit representatives of the
Purchaser and AAi to have reasonable access at all reasonable times,
and in a manner so as not to unreasonably interfere with the normal
business operations of the Foster Grant Group, to all premises,
properties, personnel, personnel records (including tax records),
contracts, and documents ("Records") of or pertaining to the Foster
Grant Group. The Purchaser shall treat and hold such Records in
accordance with the provisions of Section 7.1 hereof.
7.5 OCCUPATION OF THE DALLAS PROPERTY. The Purchaser and the
Seller shall execute and deliver a Lease and Services Agreement, in
form mutually agreed pursuant to which the Partnership shall occupy the
space currently occupied by the Partner at the Dallas Property and
pursuant to which the Seller shall provide the Partnership certain
services to be agreed therein.
7.6 PAYMENT OF CERTAIN EMPLOYEE BONUSES. The Purchaser shall pay
(or shall cause Foster Grant Group to pay), no later than April 30,
1997, up to $500,000 in the aggregate in bonuses to certain key
employees, in accordance with Attachment II to SCHEDULE 4.15.
7.7 FURTHER ASSURANCES. At any time and from time to time, each
party agrees, at its or his expense, to take such actions and to
execute and deliver such documents as may be reasonably necessary to
effectuate the purposes of this Agreement.
7.8 NAME CHANGE. On or before the Closing Date, Seller shall have
effected a change of the corporate name of BEC Distribution, Inc. The
Purchaser shall have designated a name of its choosing. In the event
such name change has not been effected prior to Closing, the parities
shall cooperate after the Closing to effect the name change. After the
Closing Date or the Closing Date, whichever is earlier, the Purchaser,
the members of the Foster Grant Group and the Partnership shall not
have any right, title or other interest in or to the names "BEC",
"Benson" or "Bolle" or any variations thereof or any names containing
or incorporating such names.
7.9 BOLLE(R) BRAND. The Purchaser agrees for itself and on behalf
of the members of the Foster Grant Group and the Partnership, from and
after the Closing, not to copy, or to sell, market or otherwise
distribute products copying Bolle(R) brand products in violation of any
applicable statute, law, ordinance or regulation; provided, that the
parties acknowledge and agree hereby that the Foster Grant Group and
the Partnership may, notwithstanding anything contained in this Section
7.9 to the contrary, such, market and distribute any such product
presently included in their product lines for the 1997 season.
36
<PAGE> 41
7.10 NON-COMPETITION. The Seller hereby agrees that for a period of
three (3) years from the Closing Date, neither the Seller nor any other
individual, partnership, firm, corporation, association, trust,
unincorporated organization or other entity that directly or indirectly
controls or is controlled by the Seller shall directly or indirectly
engage in, own, manage, operate, join, assist, advise or control, any
person, corporation or entity engaged in a business directly
competitive with the Foster Grant Group as it exists as of the Closing
Date. Notwithstanding anything contained herein to the contrary,
(i) The restrictions set forth herein shall not apply to
or to be deemed in any way to restrict the existing
business, as of the Closing Date, of Seller Bolle(R)
America, Inc.; Optical Radiation Corporation; or
Eyecare Products, PLC; and
(ii) The following shall not be deemed to be in violation
of the above restrictions:
(1) ownership of publicly traded securities
having no more than 5% of the outstanding voting
power of any competitive entity, or
(2) any association by the Seller or any of its
affiliates subsequent to the Closing Date which
results from the acquisition by the Seller or any of
its affiliates of an entity who is engaged in a
business directly competitive with the Foster Grant
Group, if such entity's gross revenues resulting from
such competitive activities are less than $10,000,000
per year.
7.11 INCOME TAXES AND INCOME TAX PREPARATION.
(a) The companies making up the Foster Grant Group shall
be included in the consolidated federal Income Tax Return
filed by the Seller for the period from January 1, 1996
through the end of the day on the Closing Date, and Seller
shall be responsible for making all required Income Tax
payments for such period pursuant to such consolidated Income
Tax Return. The parties agree that for the purpose of
preparing such consolidated federal Income Tax Return, as well
as any Income Tax Returns for which the taxable year does not
close at the end of the day on the Closing Date, there will be
an interim closing of the books of the members of the Foster
Grant Group and of the Partnership as of the end of the day on
the Closing Date and all payments (if any) representing
cancellation of options to purchase shares of the Seller held
by Foster Grant Group employees shall be treated as
extraordinary items within the meaning of Reg. Section
1.1502-76(b)(2)(ii)(C) which shall be allocated to the period
ending at the end of the day on the Closing Date for all tax
purposes.
(b) Seller shall be responsible for the preparation and
filing of all Income Tax Returns in respect of federal and
state income taxes for the Foster Grant Group, the Partnership
or any member of the Foster Grant Group for taxable years or
37
<PAGE> 42
periods ending on or before the end of the day of the Closing
Date and shall be responsible for the payment of any Income
Taxes. The Seller shall also be responsible for preparing and
filing the Partnership's 1996 calendar year federal, state and
local Income Tax Returns. The Purchaser shall be responsible
for the preparation and filing of any other federal, state and
local Income Tax Returns for the Foster Grant Group, the
Partnership, or the members of the Foster Grant Group for
periods beginning after the Closing Date.
(c) With respect to any period beginning before and
ending after the Closing Date, the determination of income,
losses and taxes for the portion of the year or period ending
on, and the portion of the year or period beginning after, the
Closing Date shall be made by an interim closing of the books
at the end of the day of the Closing Date, except that
extraordinary items shall be allocated in accordance with the
principles of Reg. Section 1.1502-76(b)(2)(ii)(C) and that any
exemptions, allowances or deductions that are calculated on a
calendar year basis and annual property taxes shall be
prorated on the basis of the number of days in the calendar
year elapsed through the Closing Date as compared to the
number of days in the calendar year elapsing after the Closing
Date. All such Income Tax Returns shall be prepared in
accordance with prior practice. Any taxes due with respect to
any such periods shall be pro rated in accordance with the
interim closing of the books as herein provided. In addition,
notwithstanding anything to the contrary contained herein, the
Seller shall prepare the 1996 calendar year Income Tax Return
of the Partnership on the basis of an interim closing of the
books at the end of the day of the Closing Date and based on a
package of Income Tax information provided by Purchaser
covering the period from the day after the Closing date
through the end of the calendar year 1996 and delivered to
Seller no later than forty-five (45) days after the end of the
calendar year 1996. Except as indicated above, such package
shall be completed in accordance with the past practice of the
Seller as to the method of computation of taxable income and
other relevant measures of income.
(d) At least thirty (30) days prior to the due date
(including extensions) for the filing of Seller's 1996
consolidated federal Income Tax Return, Seller shall provide
Purchaser, for its approval and the signature (with respect to
the Partnership income tax return) of the appropriate officers
or partners, copies of the Seller's 1996 consolidated federal
income tax return and the Partnership's 1996 calendar year
Income Tax Return or Returns. No later than thirty (30) days
before the due date thereof, Purchaser shall provide Seller,
for its approval, copies of all other Income Tax Returns for
which Seller may have an obligation for a portion or all of
the Incomes Taxes shown thereon. Approval by either party
shall not be unreasonably withheld, and signed Returns shall
be returned no less than fifteen (15) days prior to the due
date; notwithstanding the foregoing, the Purchaser's right to
approve the Seller's 1996 consolidated Income Tax Return shall
be limited to those items included therein which relate
directly to the Foster Grant Group or any member thereof. No
later than 5 business days before the due date for
38
<PAGE> 43
payments of Income Taxes with respect to any such Income Tax
Return prepared by Purchaser but for which Seller has an
obligation for a portion or all of the Income Taxes shown
thereon, Seller shall pay to Purchaser an amount equal to the
Income Taxes agreed to be allocable to Seller pursuant to this
Agreement, if any.
(e) In addition to the foregoing, the parties agree to
cooperate with each other in the preparation of any Income Tax
Return and in the conduct of any audit or other proceedings
involving the Foster Grant Group or any member thereof, and to
provide each other such assistance and documents as may be
reasonably requested in connection with the preparation of any
return or the conduct of any audit or other proceeding. The
provisions of Section 8.4 shall apply to any audit or contest
of any Income Tax Return.
(f) The Purchaser will not, nor will it permit members of
the Foster Grant Group, to make any changes in Income Tax
accounting methods or conventions, make or rescind any
election, or report or treat any specified item on any Income
Tax Return for any taxable period ending after the Closing
Date in a manner inconsistent with the manner in which such
specific item was reported or treated on any such Income Tax
Return for a taxable period ending on or prior to the Closing
Date, if such action would have an effect of either increasing
the Income Tax liability or reducing the Income Tax benefits
of the Foster Grant Group on or prior to the Closing Date or
of the Seller for any taxable period. The Purchaser agrees
that any sales of assets by the Foster Grant Group after the
Closing Date but before the end of the calendar year shall be
treated as an extraordinary item for Income Tax purposes.
(g) If Purchaser or any member of the Foster Grant Group
receives any refund of Income Taxes or utilizes the benefit of
any overpayment of Income Taxes which relates to an income Tax
paid by Seller or the Foster Grant Group with respect to a
period ending on or prior to the Closing Date, the Purchaser
shall make a payment to Seller at the time of and equal to the
amount of the refund or overpayment utilized. Purchaser
agrees, that without the express permission of Seller, it will
not carry back to periods ending on or before the Closing Date
any loss or credit recognized by the Foster Grant Group
subsequent to the Closing Date.
(h) In addition to (and not in limitation of) the
indemnities provided in Section 8, Seller shall indemnify and
save Purchaser and AAi harmless from any and all Taxes imposed
on Purchaser or AAi either (i) arising as a result of the
transactions contemplated by this Agreement; (ii) with respect
to or relating to any period ending on or before the Closing
Date, or, in the case of any taxable period that includes, but
does not end on, the Closing Date, the portion of said period
ending on the Closing Date; (iii) resulting from any member of
the Foster Grant Group ceasing to be affiliated with Seller;
and (iv) attributable to Seller for any taxable period.
39
<PAGE> 44
(i) Notwithstanding anything contained in this Agreement
to the contrary, the Seller shall have the benefit (without
reimbursement to the Partnership) of any tax losses through
the Closing Date, other than tax loss carry-forwards not
utilized as of such Closing Date.
7.12 CHARACTERIZATION OF CERTAIN PAYMENTS. All payments paid by the
Seller or the Purchaser under Sections 2.2 and 7.11 and Section 8 shall
be treated for all tax purposes as adjustments to the Purchase Price.
7.13 INVENTORY PRICE ADJUSTMENT. If the Purchaser or the Foster
Grant Group (as the case may be) has not realized, and is not
reasonably in a position to realize, within two (2) years from the
Closing Date at least $15,355,000 from the inventory appearing on the
September 30, 1996 Balance Sheet, the Seller will promptly pay the
Purchaser the difference in cash; any amount due hereunder may be
offset against the redemption of the Preferred Stock.
7.14 CERTAIN EMPLOYEE BENEFITS.
(a) Notwithstanding anything contained in this Agreement
to the contrary, the Seller hereby acknowledges that the
Purchaser is not acquiring and shall not assume sponsorship of
any Employee Benefit Plan maintained by the Seller and in
which employees of the Foster Grant Group, the Partnership or
any members of the Foster Grant Group participate, including
(without limitation) the BEC Group, Inc. 401(K) Retirement
Plan and any group health and welfare insurance plans
sponsored by the Seller.
(b) Effective on the Closing Date, all employees of the
Foster Grant Group, the Partnership and the members of the
Foster Grant Group shall cease to be active participants in
the BEC Group, Inc. 401(k) Retirement Plan (the "401(k)
Plan"), and they shall be fully vested in their account
balances under the Plan without regard to their years of
service under the Plan. The parties acknowledge and agree that
Seller shall, to the extent permitted by applicable law and
the effective terms and conditions of any such Employee
Benefit Plan other than the 401(k) Plan, permit employees of
the Foster Grant Group, the Partnership and the members of the
Foster Grant Group to participate in existing health and
welfare Employee Benefit Plans after the Closing Date for a
reasonable transition period, provided, that the Purchaser
hereby agrees to reimburse Seller any and all extraordinary,
out-of-pocket or other costs or expenses incurred by Seller as
a result of or in connection with the participation of any
such employees in any such Employee Benefit Plans, and the
Purchaser (for itself and, after the Closing Date, on behalf
of the Foster Grant Group, the Partnership and the members of
the Foster Grant Group) agrees that it (or such entities, as
appropriate) shall be solely responsible for all employer
contributions, costs, or other expenses relating to or
resulting from the participation of any such employees.
40
<PAGE> 45
(c) From and after the Closing Date, the Purchaser and
the Foster Grant Group shall be solely responsible for (i)
health insurance coverage with respect to any former employee
of the Foster Grant Group, the Partnership or any member of
the Foster Grant Group who (1) has in place, as of the Closing
Date, a valid health care contribution election pursuant to
Section 601 ET SEQ. of ERISA (known as "COBRA") or (2) has
retired from the employ of any such entities and is entitled
to coverage under any retiree or other medical plan, policy or
arrangement.
(d) Nothing herein contained shall serve as a guarantee
to any of the individuals referred to in Section 7.14 (c)
above with regard to any health insurance coverage other than
health insurance coverage available to persons actively
employed by the Purchaser or AAi.
7.15 HART- SCOTT RODINO The Purchaser and the Seller shall execute
all filings required under the Hart- Scott Rodino Anti Trust
Improvements Act of 1976 prior to the Closing. The Parties agree that
any and all fees associated with such filings, excluding attorneys
fees, shall be borne equally by the Purchaser and the Seller and each
party agrees to submit its respective portion of the fee upon filing
its submission.
7.16 RELEASE OF GUARANTIES. From and after the Closing Date, the
Purchaser shall cooperate, and shall cause the Foster Grant Group, to
provide the Seller reasonable assistance in obtaining the release of
any guaranties by Seller or its predecessor, Benson Eyecare
Corporation, of obligations of the Foster Grant Group or any of its
members. The Purchaser or the Foster Grant Group agrees to provide
equivalent guaranties, to the extent reasonably requested. The Seller
shall reimburse any direct out-of-pocket expenses and costs incurred as
a result of cooperation provided under this Section 7.16.
8. INDEMNIFICATION.
8.1 BY THE SELLER. The Seller and its respective successors and
permitted assigns agree to indemnify the Purchaser and AAi (including
each of their employees, directors and officers and agents), and any
permitted successor or assignee of the Purchaser and AAi, to hold each
of them harmless from and against any and all actual costs, losses,
claims, obligations, liabilities, fines, penalties, damages,
deficiencies, actions, suits, proceedings, demands, assessments,
orders, judgments, costs and expenses, including fees, disbursements
and expenses of attorneys, accountants and consultants of any kind or
nature whatsoever (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of
the foregoing) sustained, suffered or incurred by any of them
(hereafter, an "Indemnified Loss") in connection with, or incident to:
(a) Conditions, circumstances or occurrences which
constitute or result in any breach of any representation,
warranty or covenant of the Seller on its own behalf or on
behalf of any member of the Foster Grant Group contained in
this
41
<PAGE> 46
Agreement or in any agreement, Schedule or Exhibit referred to
herein or attached hereto, or in the Financial Statements or
in any other certificate or related document delivered at or
prior to the Closing, or by reason of any claim, action or
proceeding asserted or instituted arising out of any matter or
thing covered by any such representations, warranty or
covenants made by the Seller;
(b) Any liabilities arising out of the Excluded
Liabilities.
Provided, however, that no indemnification shall be payable
with respect to claims asserted by the Purchaser to the extent
the Indemnified Parties have insurance that would cover such
Indemnified Losses.
8.2. BY THE PURCHASER AND AAI. The Purchaser and AAi agree to
indemnify the Seller (including its employees, directors and officers),
and any other permitted successor or assignee of the Seller, to hold
harmless from and against any and all Indemnified Losses incurred by
any of them in connection with, or incident to:
(a) conditions, circumstances or occurrences which
constitute or result in any breach in any representation,
warranty, covenant or agreement of the Purchaser contained in
this Agreement or in any Schedule or Exhibit referred to
herein attached hereto, or in any agreement referred to herein
or in any schedule, certificate or other related document
delivered at or prior to the Closing, or by reason of any
claim, action or proceeding asserted or instituted arising out
of any matter or thing covered by any such representations,
warranty or covenants made by the Purchaser or AAi (other than
as a result of a breach or violation actually known to the
Indemnified Party, hereafter defined, prior to the Closing).
(b) any failure by the Purchaser, or, after the Closing
Date, by any member of the Foster Grant Group or the
Partnership, to pay amounts due third parties or other
indebtedness, or otherwise arising from or relating to (i)
obligations or liabilities of the members of the Foster Grant
Group or the Partnership (other than the Excluded Liabilities)
or (ii) the liabilities described in Section 2.6, above.
Provided, however, that no indemnification shall be payable with
respect to claims asserted by the Seller to the extent the Indemnified
Parties have insurance that would cover such Indemnified Losses.
8.3 LIMITATIONS.
(a) No indemnification shall be payable by either party
through claims asserted by an Indemnified Party more than two
(2) years after the Closing Date, other than indemnification
claims based upon Income Tax liabilities of the Foster Grant
Group, with respect to which the Seller's obligation to
indemnify shall extend until the applicable statutes of
limitations on enforcement thereof has expired, but in no
event more than seven (7) years after the Closing Date, or
until the conclusion of
42
<PAGE> 47
any proceeding commenced within such period. Seller and
Purchaser, respectively, shall not be liable for
indemnification under Section 8.1(a) or Section 8.2(a) unless
and until the aggregate amount of Indemnified Loss for the
Indemnified Party under the appropriate Section referred to
above shall equal or exceed $250,000 (the "Threshold"), and in
no case shall either party assert any claim for
indemnification under this Article 8 for any Indemnified Loss
included within such party's Threshold; provided, that,
notwithstanding anything contained in the foregoing to the
contrary, the Threshold shall not apply in the case of an
Indemnified Loss described in Section 8.1(b) or Section
8.2(b). Notwithstanding anything contained in this Agreement
to the contrary, in no event shall Seller be liable for any
Indemnified Losses in excess of the Purchase Price, as
adjusted pursuant to this Agreement.
(b) Notwithstanding anything contained in this Article 8
to the contrary, the parties have agreed to share in the
Litigation Costs as set forth more fully in Section 2.4(b),
above. Such agreed cost sharing shall apply with respect to
such Litigation Costs and the Litigation Liabilities, and
neither party shall assert a claim for indemnification under
this Article 8 unless and until the other party shall have
failed to perform its obligations under such Section 2.4, in
which case the Threshold provided in Section 8.3(a), above,
shall not apply; or, in the event aggregate Litigation Costs
exceed $500,000, in which case Purchaser may assert a claim
for indemnification hereunder and the Threshold provided in
Section 8.3(a) shall not apply.
8.4 INDEMNITY PROCEDURES.
(a) Any party entitled to indemnification hereunder
("Indemnified Party") shall give prompt, written notice to the
other party ("Indemnifying Party") of any claim hereunder
specifying the amount and nature of the claim. The failure to
so notify an Indemnifying Party will not relieve the
Indemnifying Party of any liability that it may otherwise have
under this Agreement, unless such failure materially and
adversely prejudices the Indemnifying Party;
(b) The Indemnifying Party shall have the right to take
such action as in its judgment is necessary or desirable to
contest any matter involving a third party that gives rise to
an Indemnified Loss and shall conduct at its expense the
defense, by counsel mutually and reasonably satisfactory to
the parties, of any claim or legal proceeding commenced by a
third party insofar as it relates to an Indemnified Loss;
(c) The Indemnified party will not pay or satisfy any
obligation constituting and Indemnified Loss if it is advised
in writing that such amount is being contested in good faith
by the Indemnifying Party, and if and so long as the
Indemnifying Party in fact actively contests the same, or, in
the case of a proceeding described in clause (b) above,
actively defends the same as set forth in (b) above. No
43
<PAGE> 48
settlement of any such proceeding shall be made without the
consent of the Indemnifying Party, which consent will not be
unreasonably withheld, delayed or conditioned. The Indemnified
Party shall have the right to participate in (but not to
control, unless the Indemnified Party, after receiving notice
of a claim, has failed to take any action with respect to such
claim) the defense of any such legal proceeding at its expense
by counsel of its choice and shall cooperate in the defense of
any such claim (including providing such access to its books,
records and properties as the Indemnifying Party shall
reasonably request with respect to any matter for which
indemnification is sought hereunder), but shall be entitled to
be reimbursed as provided herein for all costs and expenses
(including reasonable attorney's fees) incurred in connection
with cooperation furnished at the request of the Indemnifying
Party. The parties shall use all reasonable efforts to resolve
equitably and expeditiously any dispute between them as to an
Indemnified Loss, pursuant to Section 8.1 hereof.
(d) With regard to claims of third parties for which
indemnification is payable hereunder, such indemnification
shall be paid the Indemnifying Party upon the earlier to occur
of: (1) the entry of a judgment against the Indemnified Party
and the expiration of any applicable appeal period, or if
earlier, five (5) days prior to the date that the judgment
creditor has the right to execute the judgment; (2) the entry
of an unappealable judgment or final appellate decision
against the Indemnified Party; or (3) a settlement of the
claim. With regard to other Indemnified Losses payable
hereunder, such indemnification shall be paid promptly by the
Indemnifying Party upon demand by the Indemnified Party.
9. MISCELLANEOUS.
9.1 PUBLIC STATEMENTS. Except as may be required by law, or as
otherwise provided under Section 7.1 of this Agreement, before any
party hereto shall release any information concerning this Agreement
that is intended for or may result in public dissemination thereof,
they shall cooperate with the other party hereto, shall furnish drafts
of all documents or proposed oral statements to each other for
comments, and shall not release any such information without the
consent of the other party hereto, which consent shall not be
unreasonably withheld. Nothing contained herein shall prevent any party
from furnishing any information required by law, rule or regulation,
including the rules of a national securities exchange; or to any
governmental authority if required to do so by law or court order.
9.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties and covenants herein or in any attached
schedule, certificate, statement or other supporting document shall be
deemed to have been relied upon by the party in whose favor such
provisions operate and, subject to applicable time and recovery
limitations thereon in Section 8 hereof, shall survive the execution
and delivery of this Agreement and the Closing Date and continue in
full force and effect regardless of any investigation made by or on
behalf of such party at any time, except to the extent that a party had
actual,
44
<PAGE> 49
specific knowledge of a breach or violation thereof prior to the
Closing Date, which the party alleging such knowledge must prove by a
preponderance of the evidence.
9.3 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any person other than the parties hereto
and the Indemnified Parties and their respective successors and
permitted assigns and other than the Foster Grant Group employees
identified pursuant to the Schedules hereto as intended recipients of
certain bonuses pursuant to Section 7.6 hereto.
9.4 ENTIRE AGREEMENT. This Agreement, including the Schedules,
Exhibits and other documents attached hereto and referred to herein,
constitutes the entire agreement among the parties and supersedes and
prior understandings, agreements, or representations by or among the
parties, written or oral, to the extent they have related in any way to
the subject matter hereof.
9.5 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of and be binding upon the parties named
herein and their respective successors (including, without limitation,
successors by operation of law) and permitted assigns. No party may
assign either this Agreement or any of its rights, interests, or
obligations hereunder, except to a wholly-owned subsidiary, without the
consent of the other party, which shall not be unreasonably withheld.
9.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
9.7 HEADINGS AND RECITALS. The section Headings and Recitals
contained in this Agreement are inserted for convenience only and shall
not affect in any way the meaning or interpretation of this Agreement.
9.8 NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly
given if it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Seller:
BEC Group, Inc.
555 Theodore Fremd Avenue
Suite B-302
Rye, New York 10580
Telecopier: (914) 967-9405
Attn: Martin Franklin, CEO
45
<PAGE> 50
with a copy to:
Kane Kessler, P.C.
1350 Avenue of the Americas
New York, New York 10019-4896
Attn: Robert Lawrence
If to the Purchaser:
Foster Grant Holdings, Inc.
1601 Valley View Lane
Dallas, Texas 75234
Attn: Duane DeSisto
with a copy to:
Stephen J. Carlotti, Esq.
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, Rhode Island 02903
If to AAi:
Accessories Associates, Inc
500 George Washington Highway
Smithfield, Rhode Island 02917
Attn: Gerald F. Cerce
with a copy to:
Stephen J. Carlotti, Esq.
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, Rhode Island 02903
Any party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set
forth above using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail,
or electronic mail), but no such notice, request, demand, claim, or
other communication shall be deemed to have been duly given unless and
until it actually is received by the intended recipient. Any party may
change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other
parties notice in the manner herein set forth.
46
<PAGE> 51
9.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal substantive laws of the State
of New York, without regard to its principles of conflicts of law.
9.10 AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed
by authorized representatives of the Purchaser, AAi and the Seller. No
waiver by any party or any default,
[THIS SPACE INTENTIONALLY LEFT BLANK]
47
<PAGE> 52
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights incorporated herein
by reference and made a part hereof.
9.11 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction.
9.12 AGREEMENTS, DOCUMENTS AND INSTRUMENTS. Unless otherwise
expressly provided or unless the context requires otherwise, references
to any agreement, document or instrument shall be deemed to mean and
include such agreement, document or instrument as amended, modified or
supplemented from time to time in accordance with the terms hereof.
9.13 EXPENSES. Except as expressly provided in Section 7.15, above,
each party agrees to pay, without right of reimbursement from the other
party, the costs incurred by it incident to the performance of its
obligations under this Agreement and the consummation of the
transactions contemplated hereby, including, without limitation, costs
incident to the preparation of this Agreement, and the fees and
disbursements of counsel, accountants and consultants employed by such
party in connection herewith.
9.14 AAI GUARANTY. AAi hereby guarantees the full and complete
performance by the Purchaser of all of the Purchaser's obligations
under this Agreement, subject to the terms and conditions contained
herein.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
FOSTER GRANT HOLDINGS, INC.
By: /s/ Duane DeSisto
-------------------------------------
Title: Treasurer
-----------------------------------
BEC GROUP, INC.
By: /s/ Martin Franklin
-------------------------------------
Title: Chairman
-----------------------------------
48
<PAGE> 53
FOSTER GRANT GROUP, L.P.
By: /s/ Martin Franklin
-------------------------------------
Title:
----------------------------------
ACCESSORIES ASSOCIATES, INC.
By: /s/ Duane DeSisto
-------------------------------------
Title: Chief Financial Officer
----------------------------------
49
<PAGE> 54
SCHEDULE 5.3
CAPITAL STRUCTURE
Class A Preferred Non-Voting Stock:
Voting Rights: None
Dividend Rights: None
Convertible: No
Redemption Date: February 28, 2000
Redemption Pay-Out: Will be redeemed by the Purchaser by
payment of an amount determined with
reference to the combined net sales of
sunglasses, reading glasses and
accessories by the Foster Grant Group
and AAi for the year ending December 31,
1999, determined in accordance with
generally accepted accounting principles
consistently applied and excluding an
amount equal to the net sales determined
in accordance with generally accepted
accounting principles consistently
applied, by AAi of such products for the
year ending December 31, 1996, as
follows:
<TABLE>
<CAPTION>
FOSTER GRANT GROUP NET SALES: REDEMPTION AMOUNT:
----------------------------- ------------------
<S> <C>
$90,000,000 or less: $1,000,000
> $100,000,000: $2,000,000
> $110,000,000: $4,000,000
> $120,000,000: $6,000,000
</TABLE>
The amount payable by Purchaser shall be prorated for net
sales between the targets specified above.
Optional Payment: AAi will agree that Seller may, at its
option, exchange the Preferred Stock for
shares of AAi common stock in the event
AAi completes an initial public offering
("IPO") at any time within three (3)
years of the Closing Date. The Seller
shall have sixty (60) days from the date
of the closing of the IPO in which to
exchange the Preferred Stock. In the
event that the Seller shall fail to
exchange the Preferred Stock in
accordance with the terms of this
Optional Payment, then the Seller shall
forever forfeit the right and privilege
to effect such exchange. The number of
shares to be issued by AAi upon such
exchange shall be equal to the maximum
potential Redemption Pay-Out divided by
the per share initial offering price,
multiplied by .85. Any AAi shares so
issued will be restricted securities.
AAi will afford the holder "piggyback"
registration rights.
Common Stock: Ten thousand (10,000) shares of common
stock, par value of $.01 per share.
<PAGE> 55
Exhibit 10.3
BEC Group, Inc.
555 Theodore Fremd Avenue
Suite B-302
Rye, New York 10580
December 11, 1996
Accessories Associates, Inc.
500 George Washington Highway
Smithfield, RI 02917
Gentlemen:
Reference is made to that certain Stock Purchase Agreement dated
November 13, 1996 (the "Purchase Agreement") amongst BEC Group, Inc., Foster
Grant Holdings, Inc., a Delaware corporation ("Holdings") and Accessories
Associates, Inc., a Rhode Island corporation ("AAI"), and certain other persons,
whereby Holdings acquired all the issued and outstanding capital stock as well
as partnership interests in certain subsidiaries and affiliates of BEC. The
Purchase Agreement contemplated, and had as a condition to closing, a
satisfactory bank loan and security agreement amongst Holdings and its
subsidiaries and NationsBank, as agent for certain lenders (the "Financing
Agreement"). Capitalized terms contained herein referring to the Financing
Agreement shall have the same meaning as set forth in the Financing Agreement.
Section 2.l.1(c) of the Financing Agreement provides that the Borrowers
therein will have the right to an over-advance of $2,000,000 for a limited
period of time provided that the Borrowers shall have caused to be provided to
the Agent a $2,000,000 irrevocable letter of credit in the form of Exhibit F to
the Financing Agreement. In order to induce you to close the transactions
contemplated by the Purchase Agreement, we agree that at your request if you
require the use of the over-line, we will provide to NationsBank one or more
letters of credit at no cost and expense to you in the amount of the over-line
drawing in the aggregate not to exceed $2,000,000 in the form of Exhibit F to
the Financing Agreement within five (5) days of receipt of written notice from
you. As part of the Purchase Agreement, you have delivered to us 100 shares of
the Series A Preferred Stock of Holdings. We agree that in the event that we
shall fail to provide the letters of credit as aforesaid, we will forthwith
return all shares of Series A Preferred Stock to you endorsed to the bank for
transfer or with blank stock powers attached, and we will
<PAGE> 56
thereby forfeit our interest in said Preferred Stock. You shall have the right
to specific performance to enforce the provisions requiring return of such
Preferred Stock if we fail to do so after being requested to do so under this
Agreement. If the foregoing is satisfactory to you, please acknowledge your
acceptance of this Agreement on the copy of this letter which is enclosed.
Very truly yours,
BEC Group, Inc.
By: /s/ Ian Ashken
-----------------------------------
Accepted:
Foster Grant Holdings, Inc.
By: /s/ Duane DeSisto
---------------------------
Accessories Associates, Inc.
By: /s/ Duane DeSisto
---------------------------
Enclosure
<PAGE> 1
- --------------------------------------------------------------------------------
EXHIBIT 10.4
SECURITIES PURCHASE AGREEMENT
Among
ACCESSORIES ASSOCIATES, INC.
WESTON PRESIDIO CAPITAL II, L.P.
AND CERTAIN OTHER INVESTORS
As of May 31, 1996
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
1. DEFINITIONS.................................................................1
2. SALE AND PURCHASE OF SECURITIES.............................................7
2.1. Investor Securities....................................................7
2.2. Agreement to Sell and Purchase.........................................8
2.3. Closing................................................................8
2.4. Use of Proceeds........................................................8
3. CONDITIONS TO PURCHASE......................................................8
3.1. Investor Agreements....................................................9
3.2. Accountants Report.....................................................9
3.3. Legal Opinion..........................................................9
3.4. Representations and Warranties; Officer's Certificate..................9
3.5. Issuance of Investor Securities........................................9
3.6. SBA Compliance.........................................................9
3.7. Key Executive Insurance...............................................10
3.8. Legality; Governmental Authorization..................................10
3.9. General...............................................................10
4. REPRESENTATIONS AND WARRANTIES.............................................10
4.1. Material Agreements...................................................10
4.2. Organization and Subsidiaries; Business...............................11
4.2.1. The Company......................................................11
4.2.2. Subsidiaries.....................................................11
4.2.3. Conduct of Business..............................................11
4.3. Capitalization........................................................11
4.3.1. Capital Stock of the Company.....................................12
4.3.2. Options, etc.....................................................12
4.3.3. Capital Stock of the Subsidiaries................................12
4.3.4. Subsidiary Options, etc..........................................12
4.4. Reports, Financial Statements and Other Documents.....................12
4.5. Changes in Condition..................................................13
4.5.1. Material Adverse Effect..........................................13
4.5.2. Extraordinary Transactions, etc..................................13
4.6. Solvency..............................................................14
4.7. Contractual Obligations, etc..........................................14
4.7.1. Certain Contracts................................................14
4.7.2. Nature of Contracts..............................................15
4.7.3. Charter or By-Laws...............................................15
4.7.4. Insurance........................................................15
4.7.5. Transactions with Affiliates.....................................15
4.8. Operations in Conformity With Law, etc................................15
4.9. Environmental Matters.................................................16
4.10. Employee Benefit Plans...............................................16
4.11. Labor Relations......................................................16
4.12. Taxes................................................................17
4.13. Litigation...........................................................17
4.14. Violation of Other Instruments.......................................17
4.15. Filings, Broker's Fees, etc..........................................18
4.16. SBA Matters..........................................................18
4.17. Governmental Regulation..............................................18
4.18. Margin Stock.........................................................18
4.19. Real Property Holding Corporation....................................18
4.20. Disclosure...........................................................18
-i-
<PAGE> 3
5. GENERAL COVENANTS..........................................................18
5.1. Covenants Relating to the Company's Board of Directors................18
5.1.1. Board of Directors.................................................19
5.1.2. Directors Expenses.................................................19
5.1.3. Indemnity..........................................................19
5.2. Information and Reports to be Furnished...............................19
5.2.1. Annual Statements..................................................19
5.2.2. Quarterly Reports..................................................20
5.2.3. Monthly Reports....................................................20
5.2.4. Annual Budgets.....................................................20
5.2.5. Officers' Certificates.............................................20
5.2.6. Notice of Litigation, Defaults, etc................................20
5.2.7. Notices under Material Agreements..................................21
5.2.8. Information Provided to Stockholders...............................21
5.2.9. Information Provided to Banks......................................21
5.2.10. Other Information.................................................21
5.2.11. Interview Rights..................................................21
5.3. Conduct of Business...................................................21
5.3.1. Type of Business.................................................21
5.3.2. Maintenance of Properties, etc...................................22
5.3.3. Compliance with Laws.............................................22
5.3.4. Insurance........................................................22
5.3.5. Foreign Qualification............................................22
5.4. Charter Amendment, etc................................................22
5.5. Merger, Consolidation and Sale of Assets..............................23
5.6. Indebtedness..........................................................23
5.7. Guarantees............................................................23
5.8. Liens.................................................................24
5.9. Investments and Acquisitions..........................................25
5.10. Distributions........................................................25
5.11. Capital Expenditures.................................................26
5.12. Lease Obligations....................................................26
5.13. Compensation, etc....................................................26
5.14. Stock Issuance, Etc..................................................27
5.15. Closing Costs........................................................27
5.16. Amendment of Material Agreements, etc................................27
5.17. Replacement of Chief Executive.......................................27
5.18. Ownership of Subsidiary Stock........................................28
5.19. Transactions with Affiliates........................................28
5.21. SBA Requirements.....................................................28
5.21.1. Information......................................................28
5.21.2. Compliance; Rescission Right.....................................28
5.22. Annual Meeting.......................................................29
5.23. Listing of Shares....................................................29
5.24. Real Property Holding Corporation...................................29
5.25. Regulatory Compliance Cooperation....................................29
6. INVESTOR SECURITIES; RESTRICTIONS ON TRANSFER.............................30
6.1. Representations and Warranties of the Investors.......................30
6.2. Home Office Payment...................................................31
6.3. Replacement of Lost Securities........................................31
6.4. Transfer, Exchange and Conversion of Capital Stock....................31
6.5. Restrictions on Transfer.................................................32
-ii-
<PAGE> 4
6.5.1. Restrictive Legend..................................................32
6.5.2. Transfer Restrictions; Notice of Proposed Transfer;
Opinions of Counsel................................................32
6.5.3. Termination of Restrictions........................................33
7. EXPENSES, ETC..............................................................33
7.1. Expenses.............................................................33
7.2. Indemnification......................................................33
7.3. Survival.............................................................34
8. NOTICES....................................................................34
9. CONFIDENTIALITY............................................................34
10. AMENDMENTS AND WAIVERS....................................................34
11. SURVIVAL AND TERMINATION OF COVENANTS.....................................35
12. SERVICE OF PROCESS........................................................35
13. WAIVER OF JURY TRIAL......................................................35
14. GENERAL...................................................................36
-iii-
<PAGE> 5
EXHIBITS
1 Investors, Preferred Stock and Purchase Price
2.1A Warrant
2.1B Investor Note
2.1C Certificate of Designation
2.4 Use of Proceeds on Closing Date
3.3 Opinion of Counsel to the Company
4.1.1 Stock Option Plan
4.1.2 Employment Agreements
4.2.2 Subsidiaries
4.3.1 Capitalization and Stock Ownership
4.3.3 Capital Stock of Subsidiaries
4.4 Pro Forma Balance Sheet and Projections
4.5.2 Extraordinary Transactions
4.7 Contracts, etc.
4.9 Environmental Matters
4.10 Employee Benefit Plans
4.12 Taxes
4.15 Filings, Broker's Fees, etc.
5.7 Guarantees
5.13 Compensation
-iv-
<PAGE> 6
SECURITIES PURCHASE AGREEMENT
This Agreement, dated as of May 31, 1996, is among Accessories
Associates, Inc., a Rhode Island corporation (the "COMPANY"), Weston Presidio
Capital II, L.P. and the other Investors set forth in Exhibit 1 hereto. The
parties agree as follows:
1. Certain capitalized terms are used in this Agreement as
specifically defined below in this Section 1. Except as the context otherwise
explicitly requires, (a) the capitalized term "Section" refers to sections of
this Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this
Agreement, (c) references to a particular Section include all subsections
thereof, (d) the word "including" shall be construed as "including without
limitation", (e) accounting terms not otherwise defined herein have the meaning
provided under GAAP, (f) references to a particular statute or regulation
include all rules and regulations thereunder and any successor statute,
regulation or rules, in each case as from time to time in effect and (g)
references to a particular Person include such Person's successors and assigns
to the extent not prohibited by this Agreement and the other Investor Documents.
References to "the date hereof" mean the date first set forth above.
1.1. "AFFILIATE" means any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with the
Company (or other specified Person) and shall include (a) any Person who is an
officer, director or beneficial holder of at least 10% of the outstanding
capital stock of the Company (or other specified Person), (b) any Person of
which the Company (or other specified Person) or an Affiliate (as defined in
clause (a) above) of the Company (or other specified Person) shall, directly or
indirectly, either beneficially own at least 10% of the outstanding equity
securities or constitute at least a 10% participant, and (c) in the case of a
specified Person who is an individual, Members of the Immediate Family of such
Person; PROVIDED, HOWEVER, that the Investors shall not be Affiliates of the
Company for purposes of this Agreement.
1.2. "BALANCE SHEET" is defined in Section 4.4.
1.3. "BY-LAWS" means all written rules, regulations, procedures and
by-laws and all other similar documents, relating to the management, governance
or internal regulation of a Person other than an individual, or interpretive of
the Charter of such Person, each as from time to time amended or modified.
1.4. "CAPITAL EXPENDITURES" means amounts which should in
accordance with GAAP be added to the fixed assets account on the consolidated
balance sheet of the Company and its Subsidiaries, in respect of (a) the
acquisition, construction, improvement or replacement of assets or leaseholds,
and (b) to the extent related to and not included in clause (a) above,
<PAGE> 7
expenditures on account of materials, contract labor and director labor
(excluding expenditures properly chargeable to repairs and maintenance in
accordance with GAAP).
1.5. "CAPITALIZED LEASE" means any lease which is or should be
capitalized on the balance sheet of the lessee in accordance with GAAP and
Statement No. 13 of the Financial Accounting Standards Board.
1.6. "CERTIFICATE OF DESIGNATION" is defined in Section 2.1.
1.7. "CFR" is defined in Section 4.16.
1.8. "CHARTER" means the articles of organization, certificate of
incorporation, statute, constitution, joint venture or partnership agreement,
management agreement or other charter of any Person other than an individual,
each as from time to time amended or modified.
1.9. "CLOSING" is defined in Section 2.3.
1.10. "CLOSING COSTS" means the sum of expenses recognized in the
Company's fiscal year ending in December 1996 for amortization of transaction
expenses, including investment banker's fees and legal fees and expenses
relating to the financings contemplated by this Agreement and the Investor
Agreements.
1.11. "CLOSING DATE" is defined in Section 2.3.
1.12. "CODE" means the federal Internal Revenue Code of 1986.
1.13. "COMMON STOCK" means the common stock, $0.01 par value, of
the Company.
1.14. "COMMISSION" means the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act, the
Exchange Act or both.
1.15. "COMPANY" is defined in the Preamble.
1.16. "COMPENSATION" as applied to any Person means the aggregate
of all salaries, compensation, remuneration or bonuses of any character,
retirement or pension benefits of any kind, or other payments of any kind
whatsoever (other than health and medical benefits made available to employees
generally and advances and reimbursements of business expenses) made directly or
indirectly by the Company, any of its Subsidiaries or other specified Persons to
such Person and Affiliates of such Person.
1.17. "CONSOLIDATED", when used with reference to any term, means
that term as applied to the accounts of the Company or other indicated Person
and each of its respective
-2-
<PAGE> 8
Subsidiaries, consolidated or combined in accordance with GAAP after eliminating
all inter-company items and with appropriate deductions for minority interests
in Subsidiaries.
1.18. "CONTRACTUAL OBLIGATION" means, with respect to any Person,
any contracts, agreements, deeds, mortgages, leases, licenses, other
instruments, commitments, undertakings, arrangements or understandings, written
or oral, or other documents, including any Charter or By-law provisions and any
document or instrument evidencing Indebtedness, to which any such Person is a
party or otherwise subject to or bound by or to which any asset of any such
Person is subject.
1.19. "DISTRIBUTION" means (a) the declaration or payment of any
dividend on or in respect of any shares of any class of capital stock of the
Company, any of its Subsidiaries or other specified Person, other than dividends
payable solely in shares of the common stock of the payor; (b) the purchase,
redemption or other retirement of any shares of any class of capital stock of
the Company, any of its Subsidiaries or other specified Person directly, or
indirectly through a Subsidiary or otherwise; or (c) any other distribution on
or in respect of any shares of any class of capital stock of the Company, any of
its Subsidiaries or other specified Person.
1.20. "EMPLOYEE BENEFIT PLAN" means each "employee benefit plan" as
defined in section 3(3) of ERISA, maintained or contributed to by the Company,
any of its Affiliates of any of their respective predecessors, or in which the
Company, any of its Affiliates or any of their respective predecessors
participates or participated and which provides benefits to employees of the
Company or their spouses or covered dependents or with respect to which the
Company has or may have a material liability, including, (i) any such plans that
are "employee welfare plans" as defined in section 3(1) of ERISA and (ii) any
such plans that are "employee pension benefit plans" as defined in section 3(2)
of ERISA.
1.21. "ERISA" means the federal Employee Retirement Income Security
Act of 1974.
1.22. "ERISA GROUP", with respect to any entity, means any Person
which is a member of the same "controlled group" or under "common control",
within the meaning of section 414(b) or (c) of the Code or section 4001(b)(1) of
ERISA, with such entity.
1.23. "EXCHANGE ACT" means the federal Securities Exchange Act of
1934.
1.24. "GAAP" means generally accepted accounting principles, as in
effect from time to time, applied on a basis consistent with that used in
preparation of the financial statements referred to in Section 4.4, consistently
applied.
1.25. "GUARANTEE" means (a) any guarantee of the payment or
performance of, or any contingent obligation in respect of, any Indebtedness or
other obligation of any other Person, (b) any other arrangement whereby credit
is extended to one obligor on the basis of any promise
-3-
<PAGE> 9
or undertaking of another Person (i) to pay the Indebtedness of such obligor,
(ii) to purchase any obligation owed by such obligor, or (iii) to maintain the
capital, working capital, solvency or general financial condition of such
obligor, whether or not such arrangement is disclosed in the balance sheet of
such other Person or is referred to in a footnote thereto or appears in a "keep
well" agreement, "comfort letter" or "take or pay" agreement, and (c) any
liability of the Company or any of its Subsidiaries as general partner of a
partnership or as a venturer in a joint venture in respect of Indebtedness or
other obligations of such partnership or venture; PROVIDED, HOWEVER, that in no
event shall Guarantees include product warranties given in the ordinary course
of business.
1.26. "HAZARDOUS MATERIAL" is defined in Section 4.9.
1.27. "INDEBTEDNESS" means (a) all debt for borrowed money and
similar monetary obligations evidenced by bonds, notes, debentures, capitalized
lease obligations, deferred purchase price of property (other than ordinary
trade payables) or otherwise, whether direct or indirect; and (b) all
liabilities secured by any Liens existing on property owned or acquired, whether
or not the liability secured thereby shall have been assumed.
1.28. "INVESTMENT" means (a) any share of capital stock, evidence
of Indebtedness or other security issued by any other Person, (b) any loan,
advance, or extension of credit to, or contribution to the capital of, any other
Person, (c) any purchase of the securities or assets constituting a business or
a division or similar portion of the business of any other Person, (d) any
commitment or option to make such an investment if, in the case of an option,
the consideration therefor exceeds $100,000, and (e) any other investment;
PROVIDED, HOWEVER, that the term "Investment" shall not include (i) current
trade and customer accounts receivable arising in the ordinary course of
business and payable in accordance with customary trade terms or prepaid assets
arising in the ordinary course of business, (ii) advances to employees for
travel expenses, drawing accounts and similar expenditures, (iii) stock or other
securities acquired in connection with the satisfaction or enforcement of
Indebtedness or claims due to the Company or any of its Subsidiaries or as
security for any such Indebtedness or claim or (iv) demand deposits in banks or
trust companies. The amount of an Investment outstanding at any time shall be
determined in accordance with GAAP; PROVIDED, HOWEVER, that no Investment shall
be increased as a result of an increase in the undistributed retained earnings
of the Person in whom an Investment was made or decreased as a result of an
equity in the losses of any such Person.
1.29. "INVESTOR AGREEMENTS" is defined in Section 3.1.
1.30. "INVESTOR NOTES" means the $2,000,000 aggregate principal
amount 7.04% notes due 2002 issued by the Company to the Investors on the
Closing Date in substantially the form of Exhibit 2.1B.
1.31. "INVESTOR SECURITIES" is defined in Section 2.1.
-4-
<PAGE> 10
1.32. "INVESTORS" means the holders of Investor Securities, the
original holders of which are listed in Exhibit 1.
1.33. "LEGAL REQUIREMENT" means any federal, state, local or
foreign law, statute, standard, ordinance, code, order, rule, regulation,
resolution, promulgation or any final order, judgment or decree of any court,
arbitrator, tribunal or governmental authority, or any license, franchise,
permit or similar right granted under any of the foregoing.
1.34. "LIEN" means (a) any mortgage, pledge, lien, charge, security
interest or other similar encumbrance upon any property or assets of any
character, or upon the income or profits therefrom; or (b) any conditional sale
or other title retention agreement or arrangement (including a capitalized
lease); or (c) any sale, assignment, pledge or other transfer for security of
any accounts, general intangibles, or chattel paper, with or without recourse.
1.35. "MANAGEMENT NOTES" means, collectively, (a) the $3,000,000
aggregate principal amount 7.04% notes due 2006 issued by the Company to its
existing stockholders on the Closing Date in the form previously furnished to
the Investors and (b) the notes in an aggregate principal amount equal to the
excess, if any, of the "accumulated adjustments account" (as defined in section
1368(e) of the Code) of the Company as of the Closing Date over $13,000,000 and
issued by the Company to its existing stockholders (other than the Investors) in
the form previously furnished to the Investors.
1.36. "MARGIN STOCK" means "margin stock" within the meaning of any
regulation, interpretation or ruling of the Board of Governors of the Federal
Reserve System, all as from time to time in effect.
1.37. "MATERIAL AGREEMENTS" is defined in Section 4.1.
1.38. "MATERIAL ADVERSE EFFECT" means a material adverse effect
upon the business, assets, financial condition, income or prospects of the
Company and its Subsidiaries on a Consolidated basis.
1.39. "MEMBERS OF THE IMMEDIATE FAMILY," as applied to any
individual, means each parent, spouse, child, brother, sister or the spouse of a
child, brother or sister of the individual, and each trust created for the
benefit of one or more of such persons and each custodian of a property of one
or more such persons.
1.40. "PENSION PLAN" means each pension plan (as defined in section
3(2) of ERISA) established or maintained, or to which contributions are or were
made, by the Company or any of its Subsidiaries or former Subsidiaries, or any
Person which is a member of the same ERISA Group with any of the foregoing.
-5-
<PAGE> 11
1.41. "PERSON" means an individual, partnership, corporation,
company, association, trust, joint venture, unincorporated organization,
business trust, limited liability company and any governmental department or
agency or political subdivision.
1.42. "PREFERRED DIRECTOR" is defined in Section 5.1.1.
1.43. "PREFERRED STOCK" means the Series A Redeemable Convertible
Preferred Stock, par value $0.01 per share, of the Company.
1.44. "PRINCIPAL HOLDER" means each original holder of Preferred
Stock set forth on Exhibit 1 (and their Affiliates) so long as it holds any
Investor Securities originally purchased at an aggregate cost of at least $1
million and any other Person holding Preferred Stock originally purchased at an
aggregate cost of $1 million or more.
1.45. "PROJECTIONS" is defined in Section 4.4.
1.46. "QUALIFIED PUBLIC OFFERING" is defined in section 8.2 of the
Certificate of Designation.
1.47. "REGISTRATION RIGHTS AGREEMENT" is defined in Section 3.1.
1.48. "REGULATED INVESTOR" means BancBoston Ventures, Inc.,
National City Capital Corporation, St. Paul Fire and Marine Insurance Company
and any other Investor subject to regulation by a Regulatory Agency.
1.49. "REGULATORY AGENCY" means the U.S. Small Business
Administration (or any successor body or agency), the Board of Governors of the
Federal Reserve System (or any successor body or agency) or any other
governmental body or agency charged with the administration of the federal Small
Business Investment Act of 1958, the federal Holding Company Act of 1956 or any
similar, related or successor laws regulating banks, bank holding companies,
insurance companies, insurance holding companies, SBICs and their respective
subsidiaries.
1.50. "REGULATORY PROBLEM" means the assertion by any Regulatory
Agency (or the reasonable belief by a Regulated Investor that a substantial risk
of such assertion exists) that a Regulated Investor is not entitled to hold, or
exercise any significant right with respect to, the Investor Securities.
1.51. "REQUIRED HOLDERS" means the holders at the relevant time
(excluding the Company or any of its Subsidiaries) of two thirds or more of the
voting power of all classes and types of capital stock constituting Investor
Securities (calculated to give pro forma effect to the conversion of all
Preferred Stock), voting together as a single class.
-6-
<PAGE> 12
1.52. "SBA" is defined in Section 3.6.
1.53. "SBIC" means a small business investment company licensed by
the SBA pursuant to the Small Business Investment Act.
1.54. "SECURITIES ACT" means the federal Securities Act of 1933.
1.55. "SHAREHOLDERS' EQUITY" means, at any date, stockholders'
equity of the Company and its Subsidiaries determined in accordance with GAAP on
a consolidated basis, excluding the effect of any foreign currency translation
adjustment.
1.56. "SMALL BUSINESS INVESTMENT ACT" is defined in Section 4.16.
1.57. "STOCK OPTION PLAN" is defined in Section 4.1.1.
1.58. "SUBSIDIARY" means any Person of which the Company or other
specified Person now or hereafter shall at the time (a) own directly or
indirectly through a Subsidiary at least 50% of the outstanding capital stock
(or other shares of beneficial interest) entitled to vote generally or (b)
constitute a general partner.
1.59. "TAG-ALONG AGREEMENT" is defined in Section 3.1.
1.60. "WARRANTS" is defined in Section 2.1.
1.61. "WELFARE PLAN" means each welfare plan as defined in section
3(1) of ERISA) established or maintained, or to which any contributions are or
were made, by the Company or any of its Subsidiaries or any Person which is a
member of the same ERISA Group with any of the foregoing.
1.62. "WPC" means Weston Presidio Capital II, L.P.
2. SALE AND PURCHASE OF SECURITIES.
2.1. The following securities are referred to collectively as the
"INVESTOR SECURITIES": (a) the Preferred Stock being purchased by the Investors
hereunder, together with any securities issued with respect thereto, upon
exercise, conversion or transfer thereof or in exchange therefor, including the
Common Stock issuable upon conversion of the Preferred Stock and the Warrants in
substantially the form of Exhibit 2.1A (the "WARRANTS") (and the Common Stock
issuable upon exercise of the Warrant), (b) the Common Stock being purchased by
the Investors hereunder and (c) the Investor Notes being purchased by the
Investors hereunder in substantially the form of Exhibit 2.1B; PROVIDED,
HOWEVER, that once any such securities have been sold in a Qualified Public
Offering they shall cease to be Investor Securities for all purposes of this
Agreement. The powers, preferences and rights of the Preferred Stock are
-7-
<PAGE> 13
set forth in Article Fourth of the Company's Articles of Incorporation, as
amended as of May 30, 1996 in the form set forth in Exhibit 2.1C (the
"CERTIFICATE OF DESIGNATION").
2.2. AGREEMENT TO SELL AND PURCHASE. Based on the Investors'
representations and warranties contained in Section 6, the Company agrees to
issue and sell to the Investors and, subject to all of the terms and conditions
hereof and in reliance on the representations and warranties of the Company set
forth or referred to herein, the Investors severally, and not jointly or jointly
and severally, agree to purchase at the Closing the number of shares of
Preferred Stock and Common Stock, and the principal amount of Investor Notes,
all specified in Exhibit 1 for each Investor at the purchase price, payable by
wire transfer or Investor check, so specified in such Exhibit. The Company shall
have the right to terminate this Agreement without recourse or liability if the
total purchase price set forth in Exhibit 1 is not delivered for any reason.
2.3. CLOSING. The closing of the purchase and sale of Investor
Securities (the "CLOSING") shall take place in Boston, Massachusetts at the
offices of Ropes & Gray on May 31, 1996 or at such other place and on such other
date as the Company and the Required Holders may agree upon (the "CLOSING
DATE"). At the Closing the Company will delivery to the Investors certificates
and promissory notes evidencing the respective Investor Securities set forth in
Exhibit 1 against payment of the purchase price therefor in immediately
available funds.
2.4. USE OF PROCEEDS. The Company covenants that it will apply the
cash proceeds of the Investor Securities solely for the following lawful
purposes: (a) repayment of its existing debt, (b) paying its stockholders a
dividend not exceeding $10,500,000 and other Distributions permitted by Section
5.10, (c) transaction costs and (d) working capital. No portion of such proceeds
will be used: (i) to acquire or maintain Margin Stock, (ii) to provide capital
to a corporation licensed under the Small Business Investment Act, (iii) outside
the United States (except (A) to acquire abroad materials and industrial
property rights for a domestic operation or (B) for transfer to a controlled
foreign subsidiary, so long as at least 51% of the assets and activities of the
Company will remain within the United States), or (iv) for any purpose contrary
to the public interest (including activities which are in violation of law) or
inconsistent with free competitive enterprise, in each case, within the meaning
of 13 CFR ' 107.901. The Company's primary business activity does not involve,
directly or indirectly, providing funds to others, the purchase or discounting
of debt obligations, factoring or long-term leasing of equipment with no
provision for maintenance or repair, and the Company is not classified under
Major Group 65 (Real Estate) of the federal Standard Industrial Code Manual.
Exhibit 2.4 sets forth the specific use of proceeds to be disbursed on or about
the Closing Date.
3. CONDITIONS TO PURCHASE. The Investors' several obligations to
purchase the Investor Securities pursuant to this Agreement on the Closing Date
are subject to the satisfaction, on or prior to such Closing Date, of the
following conditions:
-8-
<PAGE> 14
3.1. INVESTOR AGREEMENTS. The Company and the stockholders
(other than the Investors) party thereto shall have duly authorized, executed
and delivered to WPC the following agreements:
(a) Tag-Along, Transfer Restriction and Voting Agreement
dated as of the Closing Date among the Company, the Investors and
certain other stockholders of the Company (as from time to time in
effect, the "TAG-ALONG AGREEMENT").
(b) Registration Rights Agreement dated as of the Initial
Closing Date among the Company, the Investors and certain other
stockholders of the Company (as from time to time in effect, the
"REGISTRATION RIGHTS AGREEMENT").
The Investor Agreements referred to in Section 3.1 shall be in full
force and effect in the respective forms referred to in Section 3.1 with no term
or condition thereof having been amended, modified or waived without the prior
written consent of the Required Holders. All material covenants and conditions
contained in the Investor Agreements which are to be performed or complied with
by the Company and its Subsidiaries at or prior to closing under the Investor
Agreements shall have been performed, complied with or waived prior thereto.
3.2. ACCOUNTANTS REPORT. The Investors have received a report
about the Company's financial condition and the Projections prepared by
independent accountants selected by the Investors, which report is satisfactory
in all respects to the Investors.
3.3. LEGAL OPINION. On the Closing Date, the Investors shall
have received from Hinckley, Allen & Snyder, counsel to the Company and its
Subsidiaries, their opinion in substantially the form of Exhibit 3.3.
3.4. REPRESENTATIONS AND WARRANTIES; OFFICER'S CERTIFICATE.
The representations and warranties contained herein shall be true and correct on
and as of the Closing Date with the same force and effect as though made on and
as of such Closing Date; between the Balance Sheet Date and such Closing Date,
no Material Adverse Effect shall have occurred (in the judgment of the Required
Holders); the Company shall have performed all obligations required to be
performed by it under this Agreement, the Certificate of Designation and the
Investor Agreements; and the Investors shall have received on the Closing Date a
certificate to these effects signed by the Chairman and the President of the
Company.
3.5. ISSUANCE OF INVESTOR SECURITIES. The Company shall have
issued to the Investors shown on Exhibit 1 the number of shares of Preferred
Stock and Common Stock, and the principal amount of Investor Notes, shown
opposite their names in Exhibit 1 for an aggregate consideration as shown in
Exhibit 1.
3.6. SBA COMPLIANCE. The Company shall have furnished to the
Investors that are SBICs all forms which such Investors shall have informed the
Company are required by the Small
-9-
<PAGE> 15
Business Administration ("SBA") in connection with the transactions contemplated
hereby, including a Size Status Declaration on SBA Form 480, an Assurance of
Compliance on SBA Form 652D and a Portfolio Financing Report on SBA Form 1031,
which forms shall be in proper form for filing with the SBA.
3.7. KEY EXECUTIVE INSURANCE. The Company will have received
from its existing stockholders the life insurance policies on its existing
stockholders in effect on the Closing Date, including a policy covering the life
of Gerald Cerce in an amount of at least $1,000,000, the proceeds of all of
which shall be payable to the Company.
3.8. LEGALITY; GOVERNMENTAL AUTHORIZATION. The purchase of the
Investor Securities shall not be prohibited by any law or governmental order or
regulation, and shall not subject the Investors to any penalty or special tax
(other than a penalty or special tax that has been reimbursed by the Company).
All necessary consents, approvals, licenses, permits, orders and authorizations
of, or registrations, declarations or filings with, any governmental or
administrative agency or of any other Person, if any, with respect to any of the
transactions contemplated by this Agreement or the Investor Agreements, the
absence of which could have a Material Adverse Effect, shall have been duly
obtained or made and shall be in full force and effect.
3.9. GENERAL. All instruments and legal and corporate
proceedings in connection with the transactions contemplated by this Agreement
and the Investor Agreements shall be reasonably satisfactory in form and
substance to the Required Holders, and the Investors shall have received copies
of all documents, including records of corporate proceedings and officers
certificates, which the Required Holders may have reasonably requested in
connection therewith.
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Investors to
enter into this Agreement and to purchase the Investor Securities hereunder, the
Company represents and warrants that:
4.1. MATERIAL AGREEMENTS. The Company has furnished to the
Investors correct and complete copies of the documents listed below which have
been executed on or prior to the date hereof and any amendments thereto,
modifications thereof or waivers granted thereunder as of the date hereof. The
documents listed below, are referred to collectively as the "MATERIAL
AGREEMENTS". References to any of the Material Agreements mean the Material
Agreements in the form so furnished to the Investors, without regard to any
amendment, modification, waiver or termination of such document which is made or
otherwise becomes effective after the date hereof, unless such amendment,
modification, waiver or termination has been consented to in writing by the
Required Holders:
4.1.1. Stock Option Plan and the related form of Stock
Option Agreement in substantially the form of Exhibit 4.1.1 (the
"STOCK OPTION PLAN"), indicating the allocation of at least 5% of
the shares of Common Stock to be reserved for options to be granted
to outside directors, directors selected by the Company's
management
-10-
<PAGE> 16
(which directors are not also employees or officers of the Company)
or other employees approved by the Board of Directors.
4.1.2. Employment Agreements and non-competition
agreements dated on or about the date hereof between the Company
and Gerald F. Cerce, Felix A. Porcaro, Jr., John H. Flynn, Jr.,
Duane DeSisto and Robert V. Lallo, respectively, in substantially
the form of Exhibit 4.1.2.
4.1.3. Revolving Term and Loan Agreement dated November
5, 1991 between the Company and Fleet Precious Metals, Inc., as
amended.
Other than customary subscription agreements with respect to the
issuance of shares of Common Stock to the stockholders listed in Exhibit 4.3.1
or as otherwise set forth in Exhibit 4.3.1, neither the Company nor any of its
Subsidiaries is a party to or bound by any agreement or understanding affecting
the capital stock of the Company or its Subsidiaries or the voting thereof which
is not a Material Agreement or contemplated by or referred to in the Material
Agreements.
4.2. ORGANIZATION AND SUBSIDIARIES; BUSINESS.
4.2.1. THE COMPANY. The Company is a duly organized and
validly existing corporation in good standing under the laws of
Rhode Island. The Company has all necessary corporate power and
authority to enter into and perform this Agreement and the Investor
Agreements to which it is party, to issue and sell the Investor
Securities to be issued and sold by it hereunder, and to carry on
the businesses now conducted or presently proposed to be conducted
by it. The Company has taken all corporate action necessary to
authorize the Investor Agreements to which it is party and the
issuance of the Investor Securities to be issued and sold by it
hereunder. The Investor Agreements to which the Company is party
and the Investor Securities to be issued and sold by the Company
hereunder have been duly executed and delivered by the Company and
are the legal, valid and binding obligations of the Company,
enforceable in accordance with their terms.
4.2.2. SUBSIDIARIES. The Company does not own or control,
directly or indirectly, or have an interest in, any other
corporation, partnership, association or business entity, except
for the corporations described in Exhibit 4.2.2.
4.2.3. CONDUCT OF BUSINESS. The Company has conducted no
business other than developing, manufacturing, distributing and
marketing consumer jewelry and accessory products.
-11-
<PAGE> 17
4.3. CAPITALIZATION.
4.3.1. CAPITAL STOCK OF THE COMPANY. The authorized
capital stock of the Company is set forth in Exhibit 4.3.1. On the
Closing Date, after giving effect to the issuance of the Investor
Securities and the consummation of the Investor Agreements, the
Company will have no outstanding capital stock except for the
shares of Common Stock and Preferred Stock owned beneficially and
of record as set forth in Exhibit 4.3.1, all of which will be
validly issued, fully paid, nonassessable and, to the best
knowledge of the Company, subject to no lien or restriction on
transfer, except restrictions on transfer imposed by the Investor
Agreements and applicable securities laws or as otherwise set forth
in Exhibit 4.3.1.
4.3.2. OPTIONS, ETC. Other than as set forth in Exhibit
4.3.1 or in the Investor Agreements, the Company does not have
outstanding (a) any rights (either preemptive or otherwise) or
options to subscribe for or purchase, or any warrants or other
agreements providing for or requiring the issuance of, any capital
stock or any securities convertible into or exchangeable for its
capital stock, (b) any obligation to repurchase or otherwise
acquire or retire any of its capital stock, any securities
convertible into or exchangeable for its capital stock or any
rights, options or warrants with respect thereto, (c) any rights to
require the Company to register the offering of any of its
securities under the Securities Act or (d) any restrictions on
voting any of the Company's securities.
4.3.3. CAPITAL STOCK OF THE SUBSIDIARIES. The authorized
capital stock of each Subsidiary of the Company is set forth in
Exhibit 4.3.3. Each such Subsidiary has no outstanding capital
stock except for shares of capital stock owned beneficially and of
record by the Company, all of which will be validly issued, fully
paid, nonassessable and subject to no lien or restriction on
transfer, except restrictions on transfer imposed by the Investor
Agreements, the Material Agreements and applicable securities laws
and Liens.
4.3.4. SUBSIDIARY OPTIONS, ETC. Except as set forth in
Exhibit 4.3.3, none of the Company's Subsidiaries has outstanding
(a) any rights (either preemptive or otherwise) or options to
subscribe for or purchase, or any warrants or other agreements
providing for or acquiring the issuance of, any capital stock or
any securities convertible into or exchangeable for its capital
stock, (b) any obligation to repurchase or otherwise acquire or
retire any of its capital stock, any securities convertible into or
exchangeable for its capital stock or any rights, options or
warrants with respect thereto, (c) any rights to require the
Subsidiary to register the offering of any of its securities under
the Securities Act or (d) any restrictions on voting any of the
Subsidiary's securities.
4.4. REPORTS, FINANCIAL STATEMENTS AND OTHER DOCUMENTS. The
Investors have been furnished with complete and correct copies of the following:
-12-
<PAGE> 18
(a) Audited consolidated balance sheet (the "BALANCE
SHEET") of the Company and its Subsidiaries as of December 31, 1995
(the "BALANCE SHEET DATE"), together with the related statements of
income, cash flows and stockholders' equity for the year then
ended, accompanied by the audit report of Arthur Andersen & Co.
(b) Balance sheet of the Company and its Subsidiaries as
of March 31, 1996, together with the related statement of income
for the three-month period then ended.
(c) Pro forma opening balance sheet, operating budget and
three-year projections, including income statements, balance sheets
and cash flow statements, set forth in Exhibit 4.4 (the
"PROJECTIONS").
The financial statements referred to in clauses (a) and (b) above
have been prepared in accordance with GAAP and fairly present the financial
condition of the Company and its Subsidiaries at the dates thereof and the
results of their operations for the periods covered thereby, subject to normal
year-end adjustments in the case of the financial statements referred to in
clause (b) above. Except as set forth in Exhibit 4.4, neither the Company nor
any of its Subsidiaries has any material liabilities, contingent or otherwise,
which are not referred to in the Balance Sheet.
The Projections were based on (i) assumptions and accounting
methods consistent with the historical financial statements described in
paragraph (a) above and (ii) the financings contemplated hereby. To the best
knowledge of the Company the Projections constitute a reasonable basis for
assessing the future performance of the Company and its Subsidiaries, but no
representation or warranty is made that the Company and its Subsidiaries can
actually achieve the results set forth in the Projections.
4.5. CHANGES IN CONDITION. Since the Balance Sheet Date:
4.5.1. MATERIAL ADVERSE EFFECT. No Material Adverse
Effect has occurred.
4.5.2. EXTRAORDINARY TRANSACTIONS, ETC. Other than as set
forth in Exhibit 4.5.2, neither the Company nor any of its
Subsidiaries has (a) declared any dividend or other distribution on
any shares of its capital stock, (b) made any payment (other than
compensation of its directors, officers and employees at rates in
effect prior to the Balance Sheet Date or for bonuses accrued in
accordance with normal practice prior to the Balance Sheet Date) to
any of its Affiliates, (c) increased the Compensation, including
bonuses, payable or to be payable to any of its directors,
officers, employees or Affiliates by more than 10%, or (d) entered
into any Contractual Obligation, or entered into or performed any
other transaction, not in the ordinary and usual course of business
and consistent with past practice, other than as specifically
contemplated by this Agreement.
-13-
<PAGE> 19
4.6. SOLVENCY. After giving effect to the financing
contemplated hereby, the Company is solvent (within the meaning contemplated by
section 548 of Title 11 of the United States Code and any similar state statutes
which may be applicable).
4.7. CONTRACTUAL OBLIGATIONS, ETC.
4.7.1. CERTAIN CONTRACTS. Exhibit 4.7 contains,
together with a reference to the subparagraph pursuant to which
each item is being disclosed, a correct and complete list of all
Contractual Obligations of the Company and its Subsidiaries of the
types described below:
(a) All collective bargaining agreements; all
employment, profit sharing, profit participation,
deferred compensation, bonus, stock option, stock
purchase, pension, retainer, consulting, retirement,
welfare or incentive plans or agreements; and all plans,
agreements or practices which constitute "fringe
benefits" to any of the employees of the Company or its
Subsidiaries, including vacation programs, sick leave
programs, group medical insurance, group life insurance,
disability insurance and related benefits.
(b) All Contractual Obligations under which the
Company or its Subsidiaries are restricted from carrying
on any business, venture or other activities anywhere in
the world.
(c) All Contractual Obligations (including
options) to sell or lease (as lessor) any of the
properties or assets of the Company or its Subsidiaries
except in the ordinary course of business.
(d) All Contractual Obligations pursuant to
which the Company or its Subsidiaries guarantees any
liability of any Person, or pursuant to which any Person
guarantees any liability of the Company or its
Subsidiaries.
(e) All Contractual Obligations with any
Affiliate of the Company or its Subsidiaries.
(f) All Contractual Obligations constituting
license agreements, consulting agreements and employment
agreements.
(g) All Contractual Obligations under which the
Company or any of its Subsidiaries leases real property
or is obligated to lease or purchase real property.
(h) All Contractual Obligations of the Company
or any of its Subsidiaries relating to the borrowing of
money or to the mortgaging or pledging of, or otherwise
placing a lien on, any asset of the Company or any
-14-
<PAGE> 20
of its Subsidiaries (except liens imposed by operation of
law in favor of landlords, suppliers, mechanics or others
who provide services to the Company).
4.7.2. NATURE OF CONTRACTS. All of the Contractual
Obligations of the Company and its Subsidiaries at the Closing are
enforceable against the Company and, to its knowledge, the other
parties thereto in accordance with their terms, except for
Contractual Obligations the failure of which to be so enforceable
does not and will not result in a Material Adverse Effect. To the
Company's knowledge, neither the Company nor any of its
Subsidiaries is now in default under, nor are there any liabilities
arising from any breach or default by any Person prior to the date
of this Agreement of, any provision of any such Contractual
Obligation.
4.7.3. CHARTER OR BY-LAWS. Neither the Company nor any of
its Subsidiaries is in violation of, or in default under, any
provision of its Charter or By-Laws and the Investors have been
furnished with copies of such Charter and By-Laws.
4.7.4. INSURANCE. Each of the Company and its
Subsidiaries has insurance policies in full force and effect,
written by reputable insurers licensed to write insurance in the
states in which the Company and its Subsidiaries conduct their
business, which insurance contracts provide for coverages which are
usual and customary in their respective businesses as to amount and
scope.
4.7.5. TRANSACTIONS WITH AFFILIATES. Other than as set
forth in Exhibit 4.7, no Affiliate of the Company or its
Subsidiaries is a competitor, customer or supplier of, or is party
to any Contractual Obligation with, the Company or any of its
Subsidiaries.
4.8. OPERATIONS IN CONFORMITY WITH LAW, ETC. The operations of
the Company and its Subsidiaries as now conducted are not in violation of, nor
is the Company or its Subsidiaries in default under, any Legal Requirements
presently in effect, except for such violations and defaults as do not and will
not, in the aggregate, have a Material Adverse Effect. The Company has received
no notice of any such violation or default and has no knowledge of any basis on
which the operations of the Company or its Subsidiaries, when conducted as
currently proposed to be conducted after the Closing Date, would be held so as
to violate or to give rise to any such violation or default. The Company and its
Subsidiaries have all franchises, licenses, permits or other authority presently
necessary for the conduct of their business as now conducted. Based on the facts
presently known to the Company, all future expenditures on the part of the
Company or its Subsidiaries required to meet the provisions of any presently
existing Legal Requirement (including Legal Requirements relating to employment
practices or to occupational or health standards or to environmental
considerations) will not, in the aggregate, have a Material Adverse Effect.
-15-
<PAGE> 21
4.9. ENVIRONMENTAL MATTERS. Except as set forth in Exhibit
4.9, to its knowledge, each of the Company and its Subsidiaries is in compliance
in all material respects with all applicable published rules and regulations of
the United States Environmental Protection Agency and similar agencies in states
in which the Company or its Subsidiaries conducts its business. No suit, claim,
action or proceeding is now pending before any court, governmental agency or
board or other forum or threatened by any Person for, and the Company and its
Subsidiaries have received no written correspondence from any federal, state or
local governmental authority with respect to, (a) noncompliance by the Company
or its Subsidiaries with any environmental law, rule or regulation, (b) personal
injury, wrongful death or other tortious conduct relating to materials,
commodities or products used, sold, transferred or manufactured by the Company
or its Subsidiaries (including products containing or incorporating asbestos,
lead or other hazardous materials) or (c) the release into the environment by
the Company or its Subsidiaries of any pollutant, toxic or hazardous material or
waste (including any "hazardous substance" or "pollutant" or "contaminant" as
defined in section 101(14) of the Comprehensive Environmental Response,
Compensation and Liability act, as amended) (collectively, "HAZARDOUS MATERIAL")
generated by the Company or its Subsidiaries whether or not occurring at or on a
site owned, leased or operated by the Company or its Subsidiaries. Exhibit 4.9
lists all waste disposal or dump sites, if any, at which any material amount of
Hazardous Material generated by either the Company or its Subsidiaries have been
disposed of or finally came to be located or lists the hauler who has taken such
Hazardous Material from the Company for disposal, indicates all such sites which
have been included (including as a potential or suspect site) in any published
federal, state or local "superfund" or other list of hazardous or toxic waste
sites and lists any material amount of Hazardous Material present at the
Company's or any of its Subsidiaries' facilities. Except as set forth in Exhibit
4.9, to the Company's knowledge, but without having conducted special boring or
drilling, no material amount of Hazardous Material is present in any real
property currently or formerly owned or leased by it or its Subsidiaries.
4.10. EMPLOYEE BENEFIT PLANS. Exhibit 4.10 sets forth a
complete list of all Employee Benefit Plans and all Welfare Plans applicable to
the Company's and its Subsidiaries' employees. To the knowledge of the Company,
each Employee Benefit Plan and Welfare Plan has been administered in substantial
compliance with its terms and all applicable laws, including, the Code and
ERISA, to the extent that failure to do so would have a Material Adverse Effect.
The Company and its Subsidiaries have no obligation under any Welfare Plan to
provide for the continuation of benefits (other than disability payments and
medical benefits incurred for illness arising in the course of employment) for
more than one year after retirement or other termination of employment. No
"reportable events" within the meaning of section 4043 of ERISA have occurred
with respect to any Employee Benefit Plan. No Pension Plan is a "multiemployer
plan" as defined in ERISA. The present value of benefits liabilities as
described in Title IV of ERISA of Employee Benefit Plans does not exceed the
current value of such Employee Benefit Plans assets allocable to such benefits
liabilities by more than $100,000.
4.11. LABOR RELATIONS. None of the employees of the Company or
any of its Subsidiaries is presently represented by a labor union, and no
petition has been filed or
-16-
<PAGE> 22
proceedings instituted by any employee or group of employees with any labor
relations board seeing recognition of a bargaining representative. No
controversies or disputes are pending between the Company or any of its
Subsidiaries and any of its employees, except for such controversies and
disputes as do not and will not, in the aggregate, have a Material Adverse
Effect.
4.12. TAXES. Since January 1, 1993, each of the Company and its
Subsidiaries has filed all material tax and information which are required to be
filed by it with taxing authorities of the United States government and of the
states of Rhode Island, New York and any other state in which the Company and
its Subsidiaries owns or leases real property and has paid, or made adequate
provision for the payment of, all taxes which have or may become due pursuant to
such returns or to any assessment received by it. Except as set forth in Exhibit
4.12, neither the Company nor any of its Subsidiaries has knowledge of any
material additional assessments from such taxing authorities or any basis
therefor. The Company reasonably believes that the charges, accruals and
reserves on the Financial Statements in respect of taxes or other governmental
charges are adequate.
4.13. LITIGATION. No litigation or proceeding before, or
investigation by, any foreign, federal, state or municipal board or other
governmental or administrative agency or any arbitrator, is pending or to the
knowledge of the Company threatened (or to the knowledge of the Company does any
basis exist therefor), against the Company or its Subsidiaries or, to the
Company's knowledge, any officer of the Company or its Subsidiaries, which in
the aggregate could result in any material liability or which may otherwise
result in a Material Adverse Effect, or which seeks rescission of, seeks to
enjoin the consummation of, or which questions the validity of, this Agreement
or any other Investor or Material Agreement or any of the transactions
contemplated hereby or thereby. Neither the Company nor its Subsidiaries has
been charged, nor to the Company's knowledge is it threatened to be charged,
with infringement of any trademark, trade name, service mark, copyright, patent,
patent right or other proprietary right of any Person.
4.14. VIOLATION OF OTHER INSTRUMENTS. Neither the execution and
delivery of this Agreement or any other Investor Agreement by the Company or its
Subsidiaries party thereto, nor the consummation of any of the transactions
contemplated hereby or thereby, will (a) constitute a breach of or a default
under any Contractual Obligation of the Company or its Subsidiaries or, to the
Company's knowledge, any officer of the Company or its Subsidiaries, (b) result
in acceleration in the time for performance of any obligation of the Company or
its Subsidiaries under any such Contractual Obligation, (c) result in the
creation of any Lien upon any asset of the Company or its Subsidiaries, (d)
require any consent, waiver or amendment to any such Contractual Obligation that
has not been obtained, (e) give rise to any severance payment, right of
termination, securities repurchase right or other right under any such
Contractual Obligation, or (f) violate or give rise to a default under any Legal
Requirement, except for events or conditions described in clauses (a) through
(f) above which will not in the aggregate have any Material Adverse Effect.
-17-
<PAGE> 23
4.15. FILINGS, BROKER'S FEES, ETC. No approval, consent,
authorization or other order of, and no declaration, filing, registration,
qualification or recording with, any governmental authority or any other Person
is required to be made by or on behalf of the Company or its Subsidiaries in
connection with the execution, delivery or performance of this Agreement or any
other Investor Agreement, or any of the transactions contemplated hereby or
thereby, other than filing the Certificate of Designation with the Rhode Island
Secretary of State. Other than as provided on Exhibit 4.15, neither the Company
nor any of its Subsidiaries is obligated to pay any broker's fee, finder's fee,
investment banker's fee or other similar transaction fee in connection with any
Investor Agreement or the transactions contemplated hereby or thereby.
4.16. SBA MATTERS. The Company is a "small business concern"
within the meaning of the federal Small Business Investment Act of 1958 (the
"SMALL BUSINESS INVESTMENT ACT"), and Part 121 of Title 13 of the United States
Code of Federal Regulations ("CFR") by virtue of having net worth of less than
$18,000,000 as of the end of its last fiscal year and average net income (after
federal taxes) for its last two fiscal years of less than $6,000,000. The
information set forth on SBA Forms 480, 652D and 1031 previously furnished by
the Company to the Investors that are SBICs is complete and correct in all
material respects.
4.17. GOVERNMENTAL REGULATION. Neither the Company nor its
Subsidiaries is subject to regulation under the Investment Company Act of 1940,
or subject to any statute or regulation which regulates the incurring of
indebtedness by the Company for borrowed money.
4.18. MARGIN STOCK. Neither the Company nor its Subsidiaries
owns any Margin Stock.
4.19. REAL PROPERTY HOLDING CORPORATION. Neither the Company
nor its Subsidiaries is a "United States real property holding corporation," as
defined in section 897(c)(2) of the Code and Treasury Regulation section
1.897-2(b).
4.20. DISCLOSURE. To the best knowledge of the Company, neither
this Agreement, nor any agreement, certificate, statement or document furnished
in writing by or on behalf of the Company to the Investors in connection
herewith or therewith, contains any untrue statement of material fact or omits
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in any material respect (except that no
representation or warranty is made as to the Projections).
5. GENERAL COVENANTS. The Company covenants that, until the earlier
to occur of (a) the closing of a Qualified Public Offering or (b) such time as
less than 25% of the shares of Preferred Stock outstanding on the Closing Date
remain outstanding, it will comply, and will cause each of its Subsidiaries to
comply, with the following provisions:
-18-
<PAGE> 24
5.1. COVENANTS RELATING TO THE COMPANY'S BOARD OF DIRECTORS.
5.1.1. BOARD OF DIRECTORS. Except to the extent provided
to the contrary in the Certificate of Designation, the Board of
Directors of the Company shall consist of seven members, including
two representatives of the Investors who shall be elected by a
majority of the holders of Preferred Stock (the "PREFERRED
DIRECTORS"). The Board of Directors of the Company, (a) shall meet
at least quarterly and each Principal Holder shall be notified at
least 10 days in advance of such meetings of the Board of Directors
and each Principal Holder shall have the right to have a
representative attend all such meetings in a nonvoting observer
capacity, and (b) shall establish and maintain an Audit Committee
and a Compensation Committee, each of which committees shall
include as a member a Preferred Director. The Company shall approve
all replacements of the initial Preferred Directors who are not
general partners of WPC, such approval not to be unreasonably
withheld.
5.1.2. DIRECTORS EXPENSES. The Company will pay all
direct out-of-pocket expenses reasonably incurred by any director
of the Company who is nominated by the Investors in attending each
meeting of the Board of Directors, or any committee thereof. All
other Director fees and incentives shall be subject to the approval
of a majority of the Board of Directors, which majority shall
include the Preferred Directors.
5.1.3. INDEMNITY. The Company and each of its
Subsidiaries will adopt and maintain in their respective Charter or
Bylaws provisions indemnifying the directors of each such Person to
the fullest extent permitted by applicable law and will also adopt
the provisions of section 7-1.1 -- 4.1 of the Rhode Island Business
Corporation Act] or any similar provisions of the laws of other
states applicable to any such subsidiary.
5.2. INFORMATION AND REPORTS TO BE FURNISHED. The Company and
its Subsidiaries will maintain a system of accounting, consistent with the
Company's past practice, in which correct and complete entries will be made of
all dealings and transactions in relation to their business and affairs in
accordance with GAAP. The Company's internal financial control systems will at
all times be reasonably satisfactory to the Required Holders. Until a Qualified
Public Offering occurs, the Company will furnish the following information to
each Principal Holder:
5.2.1. ANNUAL STATEMENTS. As soon as available, and in
any event within 90 days after the end of each fiscal year of the
Company, the audited consolidated balance sheet of the Company and
its Subsidiaries as of the end of such fiscal year and the audited
consolidated statements of income, stockholders' equity and cash
flows for such year of the Company and its Subsidiaries, together
with the consolidated figures for the preceding fiscal year, if any
(all in reasonable detail), such statements being accompanied by
the unqualified reports thereon of Arthur Andersen & Co. or other
independent certified public accountants, reasonably satisfactory
to the Required
-19-
<PAGE> 25
Holders, to the effect that such consolidated financial statements
have been prepared in accordance with GAAP and present fairly in
all material respects the financial position of the Company and its
Subsidiaries as of the dates specified and the results of their
operations and changes in financial position with respect to the
periods specified.
5.2.2. QUARTERLY REPORTS. As soon as available, and in
any event within 45 days after the end of each of the first three
fiscal quarters in each fiscal year of the Company, the unaudited
consolidated balance sheets of the Company and its Subsidiaries as
of the end of such quarter and the consolidated statements of
income, stockholders' equity and cash flows for such quarter and
the portion of the fiscal year then ended of the Company and its
Subsidiaries, together with comparative consolidated figures for
the corresponding periods of the preceding fiscal year (all in
reasonable detail).
5.2.3. MONTHLY REPORTS. As soon as practicable, and in
any event within 30 days after the end of each calendar month, the
financial statements of the Company and its Subsidiaries as of the
end of such month in the form customarily prepared by management
for internal use.
5.2.4. ANNUAL BUDGETS. Not later than the end of each
fiscal year of the Company a proposed month by month operating and
capital budget for the following fiscal year of the Company,
including projected cash flows.
5.2.5. OFFICERS' CERTIFICATES. Together with delivery of
financial statements of the Company and its Subsidiaries pursuant
to Sections 5.2.1 and 5.2.2 above as of the end of each fiscal
quarter of the Company, a certificate of the Chief Executive
Officer or the Chief Financial Officer of the Company, that such
statements have been prepared in accordance with GAAP and present
fairly in all material respects the financial position of the
Company and its Subsidiaries as of the dates specified and the
results of their operations and cash flows with respect to the
periods specified (subject in the case of interim financial
statements only to normal year-end audit adjustments and the
addition of footnotes).
5.2.6. NOTICE OF LITIGATION, DEFAULTS, ETC. The Company
will promptly, and in any event within 30 days after the Company
has knowledge of such event, give written notice to the Preferred
Directors of (a) any litigation or any administrative proceeding to
which it or any of its Subsidiaries may hereafter become a party
which after giving effect to applicable insurance may result in a
charge against income in excess of $100,000, (b) any resignation of
or other change in senior management of the Company or any serious
illness of any member of such senior management, and (c) any offers
to purchase a majority (or greater) interest in the Company
(whether by means of purchase of securities or assets or
otherwise). The Company will promptly, and in any event within
seven days after any officer of the Company or any of its
Subsidiaries
-20-
<PAGE> 26
obtains knowledge of any material default by the Company under this
Agreement, any other Investor Agreement or any other Contractual
Obligation, furnish notice to each Principal Holder specifying the
nature of the material default and stating the action the Company
has taken or proposes to take with respect thereto. Promptly after
the receipt thereof, the Company will furnish to each Principal
Holder copies of any reports as to adequacies in accounting
controls submitted by independent accountants.
5.2.7. NOTICES UNDER MATERIAL AGREEMENTS. The Company
will furnish to its Board of Directors (including the Preferred
Directors) copies of all amendments, modifications, notices of
defaults, waivers and consents given to it or to any of its
Subsidiaries pursuant to any Material Agreement.
5.2.8. INFORMATION PROVIDED TO STOCKHOLDERS. Within 10
days after its release to stockholders, the Company will furnish
the holders of Investor Securities with copies of all information,
proxy statements, notices, reports and other stockholder material
mailed to stockholders.
5.2.9. INFORMATION PROVIDED TO BANKS. Within 10 days
after its release to its senior bank lender, the Company will
furnish the holders of Investor Securities with copies of all
required information sent to its senior bank lender.
5.2.10. OTHER INFORMATION. From time to time upon the
reasonable request of any authorized officer of any Principal
Holder, the Company will furnish to any such authorized officer
such information regarding the business, assets or financial
condition of the Company and its Subsidiaries as such officer may
reasonably request. Each such officer shall have the right during
normal business hours at reasonable intervals and upon reasonable
notice to examine the books and records of the Company and its
Subsidiaries, to make copies and notes therefrom, and to make an
independent examination of the books and records of the Company and
its Subsidiaries at the expense of such Principal Holder and in a
manner that does not interfere with the business operations of the
Company and its Subsidiaries.
5.2.11. INTERVIEW RIGHTS. For the purpose of conducting
independent investigations pursuant to Section 5.2.11, the Company
shall make available to an authorized officer of any Principal
Holder upon reasonable notice and at reasonable times (a) the Chief
Financial Officer or the Chief Executive Officer, and (b) any
officers, including accountants and internal control personnel. The
Company shall use its best efforts to make available any directors
of the Company who are not officers.
5.3. CONDUCT OF BUSINESS.
5.3.1. TYPE OF BUSINESS. The Company and its Subsidiaries
will engage only in the business of developing, manufacturing,
distributing and marketing ladies' and
-21-
<PAGE> 27
mens' soft line consumer products sold in retail stores, and in
lines of business ancillary or related thereto.
5.3.2. MAINTENANCE OF PROPERTIES, ETC. Each of the
Company and its Subsidiaries (a) will keep its properties and
assets in such repair, working order and condition, and will from
time to time make such repairs, renewals, replacements, additions
and improvements thereto, as its management deems reasonably
necessary and appropriate, and will comply at all times in all
material respects with the provisions of all Contractual
Obligations (including its Charter, Bylaws and Material Agreements)
applicable to it so as to prevent any loss or forfeiture thereof or
thereunder unless compliance therewith is being at the time
contested in good faith by appropriate proceedings, and (b) will do
all things necessary to preserve, renew and keep in full force and
effect and in good standing its corporate existence and authority
necessary to continue its business.
5.3.3. COMPLIANCE WITH LAWS. Each of the Company and its
Subsidiaries will comply in all material respects with all Legal
Requirements, as in effect from time to time, applicable to it,
except where compliance therewith shall at the time be contested in
good faith by appropriate proceedings.
5.3.4. INSURANCE. Each of the Company and its
Subsidiaries will keep its assets which are of an insurable
character insured against loss or damage by fire, explosion or
other hazards which may be insured against by extended coverage in
an amount sufficient to prevent it from becoming a co-insurer and
in any event not less than 80% of the insurable value of the
property insured, and will maintain insurance against liability to
persons and property and other hazards and risks to the extent and
in the manner customary for companies in similar businesses
similarly situated. All such insurance shall be provided by
reputable insurers licensed to write insurance in the jurisdiction
where the insured entity is located; PROVIDED, HOWEVER, that the
Company and its Subsidiaries may effect workers' compensation
insurance or similar coverage with respect to operations in any
particular state or other jurisdiction through an insurance fund
operated by such state or jurisdiction. The Company will maintain
in effect the key executive life insurance policy referred to in
Section 3.7.
5.3.5. FOREIGN QUALIFICATION. Each of the Company and its
Subsidiaries will be qualified as a foreign corporation in each
jurisdiction in which it is required to qualify, except for such
jurisdictions in which the failure to be so qualified could not
have a Material Adverse Effect.
5.4. CHARTER AMENDMENT, ETC. The Charter and By-laws of the
Company and its Subsidiaries shall not be amended without the express written
consent of the Required Holders.
-22-
<PAGE> 28
5.5. MERGER, CONSOLIDATION AND SALE OF ASSETS. Neither the
Company nor any of its Subsidiaries will become a party to or authorize any
merger or consolidation, or sell, lease, sublease or otherwise transfer or
dispose of any assets or enter into or authorize any such transaction or any
liquidation or dissolution, except the following:
5.5.1. The Company and any of its Subsidiaries may sell
or otherwise dispose of (a) inventory in the ordinary course of
business, (b) tangible assets to be replaced in the ordinary course
of business within 30 days by other tangible assets of equal or
greater value and (c) tangible assets that are no longer used or
useful in the ordinary course of business of the Company or such
Subsidiary
5.5.2. Any wholly owned Subsidiary of the Company may
merge or be liquidated into the Company or any other Wholly Owned
Subsidiary of the Company so long as after giving effect to any
such merger to which the Company is a party the Company shall be
the surviving or resulting Person.
5.5.3. Mergers constituting Investments permitted by
Section 5.9.
5.5.4. Sales or dispositions of assets made with the
prior written consent of the Required Holders.
5.5.5. Assets having an aggregate fair market value of
less than 25% of total assets of the Company and its Subsidiaries
as of the Balance Sheet Date on an aggregate basis since the date
hereof.
5.6. INDEBTEDNESS. Except with the prior written consent of
the Required Holders, neither the Company nor any of its Subsidiaries shall
incur or permit Indebtedness to exist or remain outstanding, except for:
5.6.1. Accounts payable for goods, services and taxes
incurred in the ordinary course of business.
5.6.2. Redemption obligations with respect to Preferred
Stock under the Certificate of Designation.
5.6.3. The Investor Notes and the Management Notes.
5.6.4. Other Indebtedness not in excess of 350% of
Shareholders' Equity at any one time outstanding.
5.7. GUARANTEES. Neither the Company nor any of its
Subsidiaries will make, have outstanding or otherwise become or remain liable
with respect to any Guarantee except for:
-23-
<PAGE> 29
5.7.1. Endorsements for collection or deposit in the
ordinary course of business.
5.7.2. Guarantees by the Company of any Indebtedness of
its wholly owned Subsidiaries.
5.7.3. Guarantees by the Company consisting of inventory
buyback credits and gross margin support arrangements with its
customers consistent with past practices and in the ordinary course
of business.
5.7.4. Guarantees described in Exhibit 5.7.
5.8. LIENS. Neither the Company nor any of its Subsidiaries
will create or incur or suffer to be created or incurred or to exist any Lien;
PROVIDED, HOWEVER, that the Company and its Subsidiaries may create or incur or
suffer to be created or incurred or to exist:
5.8.1. Liens created by the Material Agreements.
5.8.2. Purchase money Liens (including mortgages,
conditional sales, Capitalized Leases and any other title retention
or deferred purchase devices or similar Contractual Obligations) on
assets of the Company or any of its Subsidiaries existing or
created at the time of acquisition thereof, and Liens securing the
renewal, extension and refunding of Indebtedness secured by an
assets subject to such a Lien in an amount not exceeding the amount
thereof remaining unpaid; PROVIDED, HOWEVER, that the aggregate
principal amount of Indebtedness (including Indebtedness in respect
of Capitalized Lease Obligations) secured by Liens permitted by
this Section 5.8.2 shall not exceed the amount permitted by Section
5.6.3, Indebtedness secured by each such Lien in each asset shall
not exceed the cost of the asset subject thereto and such Lien
shall attach solely to the particular asset so acquired and any
additions or accessions thereto.
5.8.3. Liens to secure taxes, assessments and other
governmental charges or claims for labor, material or supplies
incurred in the ordinary course of business.
5.8.4. Deposits or pledges made in connection with, or to
secure payment of, workers' compensation, unemployment insurance,
old age pensions or other social security or in connection with
bids or contexts to the extent incurred in the ordinary course of
business.
5.8.5. Encumbrances in the nature of zoning restrictions,
easements, rights or restrictions of record on the use of real
property and landlord's and lessor's liens under leases on the
premises rented, which do not materially detract from the value of
such property or impair the use thereof in the business of the
Company or any of its Subsidiaries.
-24-
<PAGE> 30
5.9. INVESTMENTS AND ACQUISITIONS. Neither the Company nor any
of its Subsidiaries will have outstanding or acquire or commit itself to acquire
or hold any Investment (including the acquisition of any other business) except:
5.9.1. Investments of the Company and its Subsidiaries
in: (a) negotiable certificates of deposit, time deposits, money
market accounts and bankers' acceptances issued by any United
States bank or trust company, having a combined capital, surplus
and undivided profits of not less than $100,000,000; (b) short-term
corporate obligations rated Prime-1 by Moody's Investors Service
Inc. or A-1 by Standard & Poor's Ratings Group; (c) any direct
obligation of the United States of America or any agency or
instrumentality thereof (i) which has a remaining maturity at the
time of purchase of not more than one year or (ii) which is subject
to a repurchase agreement with a bank described in clause (a) above
exercisable within one year from the time of purchase; and (d) any
registered investment company substantially all of the assets of
which consist of Investments described in clauses (a), (b) and (c)
above.
5.9.2. Investments of the Company to acquire Subsidiaries
or make other acquisitions for an aggregate consideration not
exceeding 125% of the amount shown in the Projections through the
date of such Investment.
5.9.3. Loans and advances to employees not in excess of
$100,000 in the aggregate at any one time outstanding.
5.9.4. Investments in any of the Company's wholly owned
Subsidiaries.
5.9.5. Investments made with the prior written consent of
the Required Holders.
5.10. DISTRIBUTIONS. Neither the Company nor any of its
Subsidiaries shall make any Distribution except, so long as no Default shall
exist immediately after giving effect to such Distribution:
5.10.1. Any Subsidiary may make Distributions to the
Company or to any wholly owned Subsidiary which is its immediate
parent.
5.10.2. The Company may repurchase shares of Common Stock
in accordance with the Tag-Along and Stockholders Agreement.
5.10.3. The Company may pay dividends on the Preferred
Stock in accordance with its terms.
-25-
<PAGE> 31
5.10.4. The Company may repurchase shares of Common Stock
from its employees at cost or fair market value upon termination of
employment.
5.10.5. On or prior to the Closing Date the Company may
make a Distribution to its stockholders of up to $13,500,000, of
which $3,000,000 shall be used to acquire the Management Notes on
the Closing Date.
5.10.6. The Company may distribute to persons who were
its stockholders prior to the date hereof 40% of the amount of
additional deductions permitted to be taken by the Company after
the Closing Date for expenditures made by it prior to the Closing
Date on account of the resolution of the tax audit procedures
described in Exhibit 4.12.
5.11. CAPITAL EXPENDITURES. The Company and its Subsidiaries
will not make Capital Expenditures which exceed in any fiscal quarter 125% of
Capital Expenditures provided in the Projections (or in the capital budget
approved by the Board of Directors with the affirmative vote of the Preferred
Directors) for such quarter.
5.12. LEASE OBLIGATIONS. Neither the Company nor any of its
Subsidiaries shall be or become obligated as lessee under any lease except:
5.12.1. Capitalized Leases, if any, permitted by Section
5.6.2.
5.12.2. Leases expressly contemplated by the Projections,
except for leases entered into with the prior written consent (or
affirmative director votes) of the Preferred Directors.
5.13. COMPENSATION, ETC. The aggregate annual Compensation paid
by the Company and its Subsidiaries to the five most highly compensated officers
or employees of the Company and its Subsidiaries or their Affiliates shall not
exceed the amounts set forth in Exhibit 5.13, adjusted annually to provide for
cost of living increases corresponding to the Consumer Price Index, unless such
compensation is increased with the approval of the Compensation Committee of the
Board of Directors, which committee shall include a Preferred Director. At no
time shall the annual Compensation paid to any officer or other employee of the
Company or any of its Subsidiaries or to any of their Affiliates exceed
arm's-length Compensation, except with the approval of the Compensation
Committee, including the approval of the Preferred Director who is a member
thereof. Any severance arrangements with respect to any employee shall in no
event exceed one year salary except to the extent expressly approved by the
Compensation Committee or as set forth in Exhibit 5.13 or the Material
Agreements. The Company and its Subsidiaries shall not enter into written
employment or management contracts except as set forth on Exhibit 5.13. The
Company shall purchase disability insurance sufficient to cover its obligations
to pay disability compensation under the employment agreements included in the
Material Agreements.
-26-
<PAGE> 32
5.14. STOCK ISSUANCE, ETC. Except with the prior written
consent of the Required Holders, neither the Company nor any Subsidiary will (a)
issue, sell, give away, transfer, pledge, mortgage, assign or otherwise dispose
of, (b) grant any rights (either preemptive or other) or options to subscribe
for or purchase, or (c) enter into any agreements or issue any warrant providing
for the issuance of any of the capital stock of the Company or any stock or
securities convertible into or exchangeable for any of the capital stock of the
Company, other than as expressly contemplated by the Investor Agreements
(including Investments permitted by Section 5.9) or the Material Agreements. The
Company shall issue options for, or shares of, Common Stock only upon direction
of the Compensation Committee of the Company's Board of Directors, including the
approval of the Preferred Director who is a member thereof. Except as
contemplated by the Material Agreements, the Company shall not, or shall not
subject itself to any obligation to, repurchase or otherwise acquire or retire
any shares of the capital stock of the Company or any securities convertible
into or exchangeable for any of the capital stock of the Company.
5.15. CLOSING COSTS. Closing Costs shall not exceed $540,000 as
shown on the schedule previously furnished to the Investors.
5.16. AMENDMENT OF MATERIAL AGREEMENTS, ETC. Except with the
prior written consent of the Board of Directors, including the affirmative vote
of the Preferred Directors, the Company shall not agree to any amendment or
modification of, or grant any waiver or fail to enforce any of its rights
pursuant to, any of the Material Agreements if such amendment, modification,
waiver or failure has or could have, directly or indirectly, any Material
Adverse Effect or any adverse effect on any holder of any then outstanding
Investor Securities or on the rights, remedies or interests of such holder
hereunder or under any of the Material Agreements. Except to the extent
prohibited by the Company's principal senior bank credit facility as from time
to time in effect, neither the Company nor any of its Subsidiaries shall remain
or become a party to or be bound by any agreement, deed, lease or other
instrument which imposes any restriction or limitation on Distributions that are
required to be made by the Company on or in respect of the Investor Securities
or which restricts the ability of the Company's Subsidiaries to pay dividends or
to make advances to the Company; PROVIDED, HOWEVER, that the Company and its
Subsidiaries may become and remain party to the Material Agreements as in effect
on the date hereof, with such changes therein as the Board of Directors, with
the affirmative vote of the Preferred Directors may agree to in writing, and may
perform their respective obligations thereunder to the extent not otherwise
inconsistent with this Agreement. Except to the extent required by applicable
law, neither the Company nor any of its Subsidiaries shall transfer any of its
surplus to capital if as a result thereof the Company's ability to perform any
of the terms of the Investor Agreements would be impaired.
5.17. REPLACEMENT OF CHIEF EXECUTIVE. Upon the death,
resignation, retirement or removal of Gerald Cerce as Chief Executive Officer of
the Company, a majority of the Investors shall have the right to participate in
searching for, and to approve, his replacement.
-27-
<PAGE> 33
5.18. OWNERSHIP OF SUBSIDIARY STOCK. The Company shall not have
any Subsidiary that is not a wholly owned Subsidiary other than Subsidiaries for
which either (a) the Required Holders have provided their written consent, which
may not be unreasonably withheld or (b) the Board of Directors, with the
affirmative vote of the Preferred Directors, has provided its prior written
consent.
5.19. TRANSACTIONS WITH AFFILIATES. Except for transactions
expressly contemplated by the Investor Agreements, neither the Company nor any
of its Subsidiaries shall effect or remain obligated with respect to any
transaction with any Affiliate other than with the Company or any Wholly Owned
Subsidiary of the Company except on terms no less favorable to the Company or
any of its Subsidiaries than it could obtain in an arm's-length transaction with
an unrelated party.
5.20. COMPLIANCE WITH ERISA, ETC. The Company and its
Subsidiaries will meet all minimum funding requirements applicable to the
Pension Plans imposed by ERISA or the Code (without giving effect to any waivers
of such requirements or extensions of the related amortization periods which may
be granted) and will at all times comply in all material respects with all other
provisions of ERISA and the Code which are applicable to the Pension Plans and
the Employee Benefit Plans.
5.21. SBA REQUIREMENTS.
5.21.1. INFORMATION. The Company will promptly furnish to
the Investors that are SBICs upon request all forms that may be
required to be filed with the SBA from time to time in connection
with the transactions contemplated by this Agreement and such
Investors' ownership of Investor Securities and shall provide such
Investors and the SBA with such other information and forms
(including all information necessary for the Investors to prepare
SBA Form 468 and an accompanying assessment of economic impact
under 13 CFR ss. 107.304(c)) as such Investors, in their reasonable
discretion, or the SBA may from time to time request with respect
to the transactions contemplated by this Agreement and such
Investors' ownership of Investor Securities. The Company shall at
all times permit any Investor that is an SBIC and, if necessary, a
representative of the SBA, reasonable access to the Company's
records during normal business hours upon prior notice and the
Company shall provide such information as such Investor or the SBA
may reasonably request in order to verify compliance with this
Agreement, including an officer's certificate indicating such
compliance.
5.21.2. COMPLIANCE; RESCISSION RIGHT. The Company will
not engage in any discriminatory activities prohibited by 13 CFR
parts 112, 113 and 117. The Company will not use directly or
indirectly the proceeds of the issuance and sale of the Investor
Securities for any purpose for which an SBIC is prohibited from
providing funds under 13 CFR ss. 107.901. The Company shall not
change its business activity in any manner which, by reason of such
change in business activity, would render the Company
-28-
<PAGE> 34
ineligible as a "small business concern" under the Small Business
Investment Act. The Company agrees that (a) any diversion of the
proceeds from their intended use as specified in Section 2.5 or (b)
the Company's becoming ineligible as a "small business concern" by
reason of a change in the Company's business activity within one
year from the Closing Date, shall entitle any Investor that
constitutes an SBIC, upon demand, and in addition to any other
remedies that may exist, to immediate rescission of this Agreement
and repayment in full of the funds invested by it hereunder as
contemplated by 13 CFR ss. 107.305 and 13 CFR ss. 107.706.
5.22. ANNUAL MEETING. Within 90 days after the Company's annual
financial statements are required to be furnished in accordance with Section
5.2.1 and on not less than 10 days prior written notice, the Company will hold
an annual meeting for the benefit of its stockholders, including the holders of
Investor Securities. At such annual meeting the principal executive, financial
and operations officers of the Company and its Subsidiaries will present a
review of, and will discuss with those in attendance, in reasonable detail, the
general affairs, management, financial condition, results of operations and
business prospects of the Company and its Subsidiaries.
5.23. LISTING OF SHARES. If the shares of Common Stock issued
to the Investors hereunder (including Common Stock issuable upon conversion of
the Preferred Stock or upon exercise of the Warrants) require listing on any
national securities exchange or quotation system, the Company will, at its
expense and as expeditiously as possible, use its best efforts to cause such
shares to be listed or duly approved for listing on such national securities
exchange or quotation system, subject to official notice of issuance of such
shares.
5.24. REAL PROPERTY HOLDING CORPORATION. Neither the Company
nor any of its Subsidiaries shall become a "United States real property holding
corporation" as defined in section 897(c)(2) of the Code and Treasury Regulation
section 1.897-2(b).
5.25. REGULATORY COMPLIANCE COOPERATION.
5.25.1. EXCHANGE FOR NONVOTING SECURITIES. In the event
that any Regulated Investor determines that it has a Regulatory
Problem, the Company shall take such actions as are reasonably
requested by such Regulated Investor in order (a) to facilitate any
transfer by such Regulated Investor of any Investor Securities then
held by it to any Person designated by such Regulated Investor, (b)
to permit such Regulated Investor (or any of its Affiliates) to
exchange all or any portion of the voting Investor Securities then
held by it on a share-for-share basis for shares of a class of
nonvoting securities of the Company, which nonvoting securities
shall be identical in all respects to such voting Investor
Securities, except that such new securities shall be nonvoting and
shall be convertible into voting securities on such terms as are
reasonably requested by each Regulated Investor in light of
regulatory considerations then prevailing, and (c) to continue the
respective allocation of the voting interests with respect to the
Company
-29-
<PAGE> 35
and with respect to each Regulated Investor=s ownership of the
voting Investor Securities. Such actions may include, but shall not
necessarily be limited to:
(i) entering into such additional agreements as
are requested by each Regulated Investor to permit any
Person designated by it to exercise any voting power
which is relinquished by such Regulated Investor upon any
exchange of voting Investor Securities for nonvoting
securities of the Company; and
(ii) entering into such additional agreements,
adopting such amendments to the Certificate of
Incorporation and bylaws of the Company and taking such
additional actions as are reasonably requested by each
Regulated Investor in order to effectuate the intent of
the foregoing.
5.25.2. FUTURE SECURITIES ISSUANCES. In the Event a
Regulated Investor has the right to acquire any securities of the
Company (as the result of a preemptive offer, pro rata offer or
otherwise), at such Regulated Investor=s request the Company will
offer to sell to such Regulated Investor non-voting securities on
the same terms as would have existed had such Regulated Investor
acquired the securities so offered and immediately requested their
exchange for non-voting securities pursuant to Section 5.25.1. The
Company shall grant to any subsequent holder of Investor Securities
originally acquired by any Investor, upon such Person's request,
the same rights granted to the Regulated Investors pursuant to this
Section 5.25. In the event that any Subsidiary of the Company ever
offers to sell any of its securities, then the Company will cause
such Subsidiary to enter into agreements with the Regulated
Investors substantially similar to this Section 5.25.
6. INVESTOR SECURITIES; RESTRICTIONS ON TRANSFER
6.1. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each of
the Investors severally represents and warrants to the Company that:
(a) It is an "accredited investor" for purposes of
Regulation D under the Securities Act and that it is acquiring the
Investor Securities at the Closing for investment for its own
account, and not with a view to selling or otherwise distributing
the Investor Securities in violation of the Securities Act;
PROVIDED, HOWEVER, that nothing shall prevent the Investors from
transferring the Investor Securities in compliance with this
Section 6; and PROVIDED, FURTHER, that the disposition of the
Investors' property shall at all times remain in the Investors'
control.
(b) It has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the
Company's stage of development so as to be
-30-
<PAGE> 36
able to evaluate the risks and merits of its investment in the
Company and it is able financially to bear the risks thereof.
(c) It has had an opportunity to discuss the Company,
business, management and financial affairs with the Company's
management and has received (or had made available to it) any
financial and business documents requested by it.
(d) It understands that (i) the shares of Investor
Securities purchased by it have not been registered under the
Securities Act by reason of their issuance in a transaction exempt
from the registration requirements of the Securities Act pursuant
to section 4(2) thereof or Rules 505 or 506 under the Securities
Act, (ii) such shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) such shares will bear a legend
to such effect and (iv) the Company will make a notation on its
transfer books to such effect.
(e) All offers to purchase the Investor Securities were
made to it in The Commonwealth of Massachusetts or the State of
Rhode Island.
(f) It has no contract, arrangement or understanding with
any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
6.2. HOME OFFICE PAYMENT. All payments made in respect of the
Investor Securities held by the Investors shall be paid by Company check or
wired to the address shown on Exhibit 1, accompanied by sufficient information
to identify the source and application thereof or by such other method or at
such other address as the Investors shall have from time to time given timely
notice of to the Company.
6.3. REPLACEMENT OF LOST SECURITIES. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a security and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity bond in such reasonable amount as the
Company may determine (or, in the case of a security held by the Investors or
any institutional holder or by the Investors or such institutional holder's
nominee, of an unsecured indemnity agreement from the Investors or such other
holder reasonably satisfactory to the Company), or, in the case of any such
mutilation, upon the surrender of the security for cancellation to the Company
at its principal office, the Company at its expense will execute and deliver in
lieu thereof, a new security of like tenor. Any security in lieu of which any
such new security has been so executed and delivered by the Company shall not be
deemed to be an outstanding security for any purpose.
6.4. TRANSFER, EXCHANGE AND CONVERSION OF CAPITAL STOCK. The
Company shall keep at its principal office a register in which shall be entered
the names and addresses of the holders of the capital stock of the Company and
particulars of the respective shares of Common
-31-
<PAGE> 37
Stock, Preferred Stock (including the classes thereof) and Warrants held by them
and of all transfers, exchanges, conversions and redemptions of such capital
stock. Upon surrender at such office or such other place as shall be duly
specified by the Company of any certificate representing shares of capital stock
for exchange or (subject to compliance with the applicable provisions of this
Agreement, including the conditions set forth in Section 6.5) transfer or for
exchange or conversion, the Company shall as appropriate issue, at its expense,
one or more new certificates in such denomination or denominations as may be
requested, and registered as such holder may request. Any certificate
representing shares of capital stock surrendered for registration or transfer
shall be duly endorsed, or accompanied by a written instrument of transfer duly
executed by the holder of such certificate or his attorney duly authorized in
writing. The Company will pay shipping and insurance charges, from and to each
holder's principal office, upon any transfer, exchange or conversion provided
for in this Section 6.4.
6.5. RESTRICTIONS ON TRANSFER. Investor Securities shall be
transferable only upon satisfaction of the applicable conditions specified in
this Section 6.5 or unless sold in an offering registered under the Securities
Act or pursuant to an exemption from the registration requirements of the
Securities Act.
6.5.1. RESTRICTIVE LEGEND. Except as otherwise permitted
by Section 6.5.3, each certificate representing shares of Investor
Securities shall bear a legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended,
or under the securities laws of any state, and may not be
sold, or otherwise transferred, in the absence of such
registration or an exemption therefrom under such Act and
under any such applicable state laws. In addition, the
shares represented by this certificate are subject to
restrictions on transfer contained in a Securities
Purchase Agreement dated as of May 31, 1996, a copy of
which is available at the issuer's office and will be
furnished free of charge to the holder hereof"
6.5.2. TRANSFER RESTRICTIONS; NOTICE OF PROPOSED
TRANSFER; OPINIONS OF COUNSEL. Except for transfers (a) in
connection with the liquidation, termination, winding up or death
of a holder of Investor Securities or (b) pursuant to an effective
registration statement under the Securities Act or (c) to
Affiliates of such holder or (d) to other Investors, a holder of
Investor Securities may not transfer such securities to more than
three Persons except with the consent of the Company, which consent
may not be unreasonably withheld. Prior to any transfer of any
Investor Securities other than pursuant to an effective
registration statement under the Securities Act, the holder thereof
will give written notice to the Company of such holder's intention
to effect such transfer, describing in reasonable detail the manner
of the proposed transfer. If any such holder delivers to the
Company (a) an opinion of counsel in form and substance
-32-
<PAGE> 38
reasonably acceptable to the Company addressed to the Company to
the effect that the proposed transfer may be effected without
registration of such Investor Securities under the Securities Act
or applicable state securities laws (or a certificate of an officer
of such holder that the transfer is being made to a wholly owned
Subsidiary of the holder's corporate parent) and (b) the written
agreement of the proposed transferee to be bound by all of the
terms and conditions of this Agreement (including this Section 6.5)
and applicable to the Investors, such holder shall thereupon be
entitled, within 10 days thereafter, to transfer such Investor
Securities in accordance with the terms of this Agreement and the
notice delivered by such holder to the Company. Each certificate
representing such shares issued upon or in connection with such
transfer shall bear the restrictive legend set forth in Section
6.5.1, in each case unless the restrictions on transfer provided
for in Section 6.5 shall have ceased and terminated as to such
Investor Securities pursuant to Section 6.5.3.
6.5.3. TERMINATION OF RESTRICTIONS. The restrictions
imposed by Sections 6.5.1 and 6.5.2 upon the transferability of
Investor Securities shall terminate as to any particular Investor
Securities and any securities issued in exchange therefor or upon
transfer thereof when, in the opinion of counsel reasonably
acceptable to the Company, such restrictions are no longer required
in order to assure compliance with the Securities Act. Whenever any
of such restrictions shall terminate as to any Investor Securities,
the holder thereof shall be entitled to receive from the Company,
without expense, new certificates not bearing the legend set forth
in Section 6.5.1.
7. EXPENSES, ETC.
7.1. EXPENSES. The Company hereby agrees to pay on demand all
reasonable out-of-pocket expenses incurred by WPC in connection with the
transactions contemplated by this Agreement and by any Investors in connection
with any amendments or waivers (whether or not the same become effective) hereof
and all expenses incurred by the Investors or any holder of any Investor
Securities issued hereunder in connection with the enforcement in good faith of
any rights hereunder or under any other Investor or Material Agreement,
including (a) the reasonable fees, expenses and disbursements of WPC's special
counsel in connection with the transactions contemplated by this Agreement and
the other transactions consummated on or prior to the Closing Dates in an amount
not exceeding $45,000 through the Closing Date; (b) reasonable expenses up to
$16,000 in connection with the accountant's report as contemplated by Section
3.2; and (c) all taxes (other than taxes determined with respect to income),
including any recording fees and filing fees and documentary stamp and similar
taxes, at any time payable in respect of this Agreement, any other Investor
Agreement or the issuance of any of the Investor Securities.
7.2. INDEMNIFICATION. The Company shall indemnify and hold the
Investors and each of the Investors' partners, stockholders, officers,
directors, employees and agents free and harmless from and against all actions,
causes of action, suits, litigation, losses, liabilities and
-33-
<PAGE> 39
damages, investigations or proceedings instituted by any governmental agency or
any other Person and expenses in connection therewith, including reasonable
attorneys' fees and disbursements, incurred by the indemnitee or any of them as
a result of, or arising out of, or relating to (a) any transaction financed or
to be financed in whole or in part directly or indirectly with proceeds from the
sale by the Company of any of the Investor Securities, or (b) the execution,
delivery, performance or enforcement of this Agreement or any instrument
contemplated hereby by any of the indemnities, except in each such case for any
such indemnified liabilities arising on account of any indemnitee's gross
negligence or willful misconduct.
7.3. SURVIVAL. The obligations of the Company to the Investors
under this Section 7 shall survive the redemption, repurchase or transfer of any
or all of the Investor Securities.
8. NOTICES. Any notice or other communication in connection with this
Agreement or the Investor Securities shall be deemed to be delivered if in
writing addressed as provided below and if either (a) actually delivered at said
address, (b) in the case of a letter, seven business days shall have elapsed
after the same shall have been deposited in the United States mails, postage
prepaid and registered or certified, return receipt requested or (c) transmitted
to any address outside of the United States, by telecopy and confirmed by
overnight or two-day courier:
If to the Company, to it at 500 George Washington Highway,
Smithfield, RI 02197, telecopy: (401) 231-3212, telephone: (401) 231-3800 or at
such other address as the Company shall have specified by notice actually
received by the Principal Holders.
If to the Investors, to the Investors' respective addresses set
forth on Exhibit 1, or at such other address as the Investors shall have
specified by notice actually received by the Company, in each case with a copy
to WPC.
If to any other holder of record of any Investor Security, to it at
its address set forth in the registers of the Company.
9. CONFIDENTIALITY. Each Investor will maintain the confidential nature of
information obtained from the Company concerning the Company and its
Subsidiaries; PROVIDED, HOWEVER, that such Investor shall not be precluded from
making disclosure regarding such information: (a) to counsel for WPC or any such
Investor, accountants or other professional advisors on a need-to-know basis,
(b) to any other Investor, (c) as required by law or applicable regulation, (d)
to any participant in or assignee of any Investor Securities after notice to the
Company so long as such participant or assignee has agreed to be bound by this
Section 9 or (e) to the extent such information has become publicly available
other than as a result of the violation of this Section 9.
10. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular
-34-
<PAGE> 40
instance and either retroactively or prospectively) only with the written
consent of the Required Holders. Any amendment or waiver effected in accordance
with this Section 10 shall be binding upon each holder of any Investor
Securities and the Company and each of its Subsidiaries.
11. SURVIVAL AND TERMINATION OF COVENANTS. All covenants, agreements,
representations and warranties made herein or in any closing certificate or
other certificate or written report delivered to the Investors pursuant to an
express requirement hereof shall be deemed to have been material and relied on
by the Investors, notwithstanding any investigation made by the Investors or on
the Investors' behalf, shall survive the execution and delivery to the Investors
hereof of the Investor Securities and shall terminate upon the closing of a
Qualified Public Offering.
12. SERVICE OF PROCESS. Each of the Company and the Investors (a)
irrevocably submits to the non-exclusive jurisdiction of the state courts of The
Commonwealth of Massachusetts and to the non-exclusive jurisdiction of the
United States District Court for the District of Massachusetts, for the purpose
of any suit, action or other proceeding arising out of or based upon this
Agreement or the subject matter hereof brought by any party hereto or such
party's successors or assigns, and (b) waives to the extent not prohibited by
law that cannot be waived, and agrees not to assert, by way of motion, as a
defense, or otherwise, in any such proceeding, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is
exempt or immune from attachment or execution, that any such proceeding brought
in one of the above-named courts is improper, or that this Agreement or the
Investor Securities, or the subject matter hereof or thereof, may not be
enforced in or by such court. Each of the Company and the Investors consents to
service of process in any such proceeding in any manner permitted by Chapter
223A of the General Laws of The Commonwealth of Massachusetts, and agrees that
service of process registered or certified mail, return receipt requested, at
its address specified in or pursuant to Section 8 is reasonably calculated to
give actual notice.
13. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW WHICH CANNOT BE WAIVED, THE INVESTORS AND THE COMPANY HEREBY WAIVE, AND
COVENANT THAT NEITHER THE COMPANY NOR THE INVESTORS WILL ASSERT, ANY RIGHT TO
TRIAL BY JURY ON ANY ISSUE IN ANY PROCEEDING, WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE, IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN
ANY WAY CONNECTED WITH, RELATED OR INCIDENTAL TO THE DEALINGS OF THE INVESTORS
AND THE COMPANY HEREUNDER, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER IN TORT OR CONTRACT OR OTHERWISE. The Company acknowledges
that it has been informed by WPC that the provisions of this Section 13
constitute a material inducement upon which the Investors are relying and will
rely in entering into this Agreement and purchasing the Investor Securities
-35-
<PAGE> 41
pursuant hereto. Any of Investors or the Company may file an original
counterpart or a copy of this Section 13 with any court as written evidence of
the consent of the Investors and the Company to the waiver of its right to trial
by jury.
14. GENERAL. The invalidity or unenforceability of any term or
provision hereof shall not affect the validity or enforceability of any other
term or provision hereof. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. This
Agreement, the other Investor Agreements and the other items referred to herein
or therein constitute the entire understanding of the parties hereto with
respect to the subject matter hereof and thereof and supersede all present and
prior agreements, whether written or oral. This Agreement is intended to take
effect as a sealed instrument and may be executed in any number of counterparts
which together shall constitute one instrument and shall be governed by and
construed in accordance with the laws (other than the conflict of laws rules) of
The Commonwealth of Massachusetts, and shall bind and inure to the benefit of
the parties hereto and their respective successors and assigns. Whether or not
any express assignment has been made of this Agreement, provisions of this
Agreement that are for the Investors' benefit as the holder of any Investor
Securities are also for the benefit of, and enforceable by, all subsequent
holders of Investor Securities.
-36-
<PAGE> 42
The undersigned have executed this Agreement under seal as of the
date first above written.
ACCESSORIES ASSOCIATES, INC.
By /s/ Gerald F. Cerce
--------------------------------
Title: Chairman
WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
By /s/ Michael F. Cronin
--------------------------
General Partner
BANCBOSTON VENTURES, INC.
By /s/ Charles Grant
--------------------------------
Title: Vice President
ST. PAUL FIRE AND MARINE
INSURANCE COMPANY
By /s/ Everett V. Cox
--------------------------------
Title: Authorized Representative
NATIONAL CITY CAPITAL CORPORATION
By /s/ Carl E. Baldassarre
--------------------------------
Title: Managing Director
<PAGE> 43
EXHIBIT 1 TO SECURITIES
PURCHASE AGREEMENT
INVESTORS
<TABLE>
<CAPTION>
Number Number Principal Aggregate
of Preferred of Common Amount Purchase
Shares Shares of Note Price
------------ --------- ---------- -----------
<S> <C> <C> <C> <C>
Name and Address
- ----------------
Weston Presidio 17,100 19,000 $1,000,000 $10,050,000
Capital II, L.P. $ (9,000,000)
40 William Street - Suite 300 $ (50,000)
Wellesley, MA 02181
Telephone: (617) 237-4700
Telecopy: (617) 237-6270
BancBoston Ventures, Inc. 6,840 7,600 400,000 $ 4,020,000
100 Federal Street - 31st Floor $ (3,600,000)
Boston, Massachusetts 02110 $ (20,000)
Telephone: (617) 434-2442
Telecopy: (617) 434-1153
St. Paul Fire and Marine Insurance 6,840 7,600 400,000 $ 4,020,000
Company $ (3,600,000) $ (20,000)
c/o St. Paul Venture Capital, Inc.
8500 Normandale Lake Blvd.
Suite 1940
Bloomington, Minnesota 55437
Telephone: (612) 830-7474
Telecopy: (612) 830-7475
National City Capital Corporation 3,420 3,800 200,000 $ 2,010,000
1965 E. 6th Street $ (1,800,000)
Suite 1010 $ (10,000)
Cleveland, OH 44114
Telephone: (216) 575-9482
Telecopy: (216) 575-9965
------------ --------- ---------- -----------
Total: 34,200 38,000 $2,000,000 $20,100,000
$(18,000,000) $(100,000)
</TABLE>
-38-
<PAGE> 1
EXHIBIT 10.5
REGISTRATION RIGHTS AGREEMENT
This Agreement, dated as of May 31, 1996 is among Accessories
Associates, Inc., a Rhode Island corporation (the "COMPANY"), Weston Presidio
Capital II, L.P. and the other Investors listed in SCHEDULE A (collectively, and
together with their permitted successors and assigns, the "INVESTORS") and the
other stockholders and stock optionholders of the Company listed in SCHEDULE B.
The parties agree as follows:
1. DEFINITIONS. Except as the context otherwise explicitly requires, (a)
the capitalized term "Section" refers to sections of this Agreement, (b) the
capitalized term "Exhibit" refers to exhibits to this Agreement, (c) references
to a particular Section include all subsections thereof and (d) the word
"including" shall be construed as "including without limitation". Accounting
terms used in this Agreement and not otherwise defined herein shall have the
meanings provided in GAAP. Certain capitalized terms are used in this Agreement
as specifically defined in this Section 1 as follows:
1.1. "COMMON STOCK" means the common stock, $0.01 par value, of the
Company.
1.2. "COMPANY" is defined in the preamble.
1.3. "EXCHANGE ACT" means the federal Securities and Exchange Act
of 1934.
1.4. "FORM S-2", "FORM S-3", "FORM S-4" and "FORM S-8" mean such
respective forms under the Securities Act as in effect on the date hereof or any
successor registration forms under the Securities Act subsequently adopted by
the SEC.
1.5. "HOLDER" means any person owning or having the right to
acquire Registrable Securities.
1.6. "INVESTORS" is defined in the preamble.
1.7. "MANAGEMENT STOCKHOLDERS" means the stockholders of the
Company listed as Management Stockholders on Schedule B.
1.8. "PREFERRED STOCK" means the Series A Redeemable Convertible
Preferred Stock, par value $0.01 per share, of the Company.
1.9. "PURCHASE AGREEMENT" means the Securities Purchase Agreement
dated as of the date hereof among the Company and the Investors.
1.10. "REGISTER", "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act.
1.11. "REGISTRABLE SECURITIES" means (a) the Common Stock issued or
issuable upon conversion, exchange or exercise of the Preferred Stock and the
Warrants, (b) any Common
<PAGE> 2
Stock issued to the Investors pursuant to the Purchase Agreement, (c) any Common
Stock issued (or issuable upon the conversion, exchange or exercise of any
warrant, right or other security which is issued) as a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Preferred Stock and Warrants, or the Common Stock or Preferred Stock issued or
issuable upon conversion, exchange or exercise of such Preferred Stock and
Warrants, or the Common Stock described in clause (b) above, and (d) any Common
Stock issued to the Management Stockholders, either directly or pursuant to
options, warrants and other rights under employee plans permitted by the
Purchase Agreement or hereafter issued or issuable as a dividend or other
distribution with respect thereto or in exchange therefor or replacement
thereof; PROVIDED, HOWEVER, that any shares previously sold to the public
pursuant to a registered public offering or pursuant to Rule 144 under the
Securities Act shall cease to be Registrable Securities.
1.12. "REGISTRABLE SECURITIES THEN OUTSTANDING" means the sum of (a)
the number of shares of Common Stock outstanding which are Registrable
Securities PLUS (b) the number of shares of Common Stock issuable pursuant to
then exercisable, exchangeable or convertible securities which upon issuance
would be Registrable Securities.
1.13. "REQUIRED INVESTORS" means those Investors who own at least
two thirds of the Registrable Securities then outstanding owned by all
Investors.
1.14. "SEC" means the Securities and Exchange Commission or any
successor agency.
1.15. "SECURITIES ACT" means the federal Securities Act of 1933.
1.16. "VIOLATION" is defined in Section 8.1.
1.17. "WARRANTS" means the Warrants to purchase Common Stock issued
pursuant to the Purchase Agreement.
2. REQUEST FOR REGISTRATION.
2.1. INVESTORS REQUEST RIGHTS. If the Company shall receive at any
time after the earlier of (a) May 1, 2000 or (b) the date six months after the
effective date of the first registration statement for a public offering of
securities of the Company, a written request from the Investors owning at least
25% of the Registrable Securities then outstanding and owned by the Investors
that the Company effect the registration under the Securities Act of at least
25% of the Registrable Securities then outstanding and owned by the Investors,
then the Company shall, within five days after the receipt thereof, give written
notice of such request to all Holders. Subject to the limitations of this
Section 2, the Company shall use its best efforts to effect such a registration
as soon as practicable, and in any event to file within 150 days after the
receipt of such request or 90 days after approval of the selection of a managing
underwriter pursuant to Section 2.2, whichever is later, a registration
statement under the Securities Act covering all the Registrable Securities which
the Holders shall request in writing within 20 days after receipt of such notice
and any shares that the Company may wish to include, subject to any limitation
imposed by the managing underwriters as set forth in Section 2.2. The Company
shall use its best
2
<PAGE> 3
efforts to cause such registration statement to become effective. The Company
shall not be obligated to effect a registration under this Section 2 if the
Registrable Securities requested to be registered have an expected aggregate
public offering price of less than $10,000,000 as determined by the managing
underwriter or by any other reasonable method.
2.2. UNDERWRITTEN OFFERING. The managing underwriter for the
proposed offering to be registered under this Section 2 shall be selected by the
Company's Board of Directors , with the approval of the Directors elected by the
Investors pursuant to Section 5.2.1 of the Certificate of Designation for the
Preferred Stock. In addition, approval by a disinterested majority of the Board
of Directors is required if an affiliate of an Investor is selected as a
managing underwriter. The right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting. All Holders proposing to sell
Registrable Securities in such offering shall (together with the Company as
provided in Section 4.5) enter into an underwriting agreement in customary form
with the managing underwriter for such underwriting. Notwithstanding any other
provision of this Section 2, if the managing underwriter for the offering
advises the Company in writing that marketing factors require a limitation of
the number of shares to be so underwritten, then the Company shall so advise all
Holders of Registrable Securities which would otherwise be so underwritten, and
the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated as follows:
(a) for the initial public offering hereunder:
(i) First, to the Company for the shares requested to be
sold by it in such offering.
(ii) Second, to the Investors requesting registration in
such offering pro rata in accordance with the number of Registrable
Securities requested by the Investors to be included in such offering.
(iii) Third, to all other Holders pro rata in accordance
with the number of Registrable Securities requested by such Holders to
be included in such offering.
(b) for any subsequent public offering hereunder:
(i) First, to the Investors requesting registration in
such offering pro rata in accordance with the number of Registrable
Securities requested by the Investors to be included in such offering;
(ii) Second, to all other Holders pro rata in accordance
with the number of Registrable Securities requested by such Holders to
be included in such offering;
(iii) Third, to the Company for the shares requested to be
sold by it in such offering.
2.3. NUMBER OF REQUESTS. Subject to the further provisions of this
Section 2.3, the Company is obligated to effect only two registrations on Form
S-1 pursuant to this Section 2, and only one such registration in any 12-month
period. For purposes of this Section 2.3, a registered
3
<PAGE> 4
offering on Form S-1 made pursuant to this Section 2 will not count as a
registration described above in the event that (a) less than 25% of the stock
sold in such offering are Registrable Securities owned by Investors after the
Investors requested that such Registrable Securities constitute at least 25% of
the stock to be included in such offering or (b) the Holders selling in such
offering pay all the expenses of such offering otherwise payable by the Company
under Section 7.
2.4. DEFERRAL OF REGISTRATION. Notwithstanding the foregoing
provisions of this Section 2, the Company shall not be obligated to effect the
filing of a registration statement pursuant to this Section 2 (a) during the
period starting with the date 30 days prior to the Company's good faith estimate
of the date of filing of, and ending on the date 180 days following the
effective date of, a registration statement pertaining to the underwritten
public offering of securities for the account of the Company, provided the
Company is at all times during such period diligently pursuing such
registration, or (b) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2 a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would not be in the best interests of the Company
and its stockholders generally for such registration statement to be filed.
Under clause (b) the Company shall have the right to defer such filing for a
period of not more than 180 days after receipt of the request for a registration
under this Section 2; PROVIDED, HOWEVER, that the Company may not utilize the
right set forth in clause (b) more than once in any 12-month period.
3. INCIDENTAL ("PIGGY-BACK") REGISTRATION. If the Company proposes to
register any of its capital stock or other securities under the Securities Act
in connection with the public offering of such securities solely for cash (other
than a registration on Form S-8 relating solely to the sale of securities to
participants in a Company stock plan or a registration on Form S-4 relating to
an acquisition), the Company shall promptly give each Holder written notice of
such registration. Upon the written request of any Holder given within 30 days
after such notice, the Company shall use its best efforts to cause a
registration statement covering all of the Registrable Securities that each such
Holder has requested to be registered to become effective under the Securities
Act. The Company shall be under no obligation to complete any offering of its
securities it proposes to make under this Section 3 and shall incur no liability
to any Holder for its failure to do so. Notwithstanding any other provisions of
this Section 3, if the managing underwriter for the offering advises the Company
in writing that marketing factors require a limitation of the number of shares
to be underwritten, then the Company shall so advise all Holders of Registrable
Securities which would otherwise be so underwritten, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated as follows:
(a) First to the Company for shares requested to be sold
by it in such offering.
(b) Second to the Holders requesting registration in such
offering pro rata in accordance with the number of Registrable
Securities requested by the Holders to be included in such offering.
4
<PAGE> 5
The Holders' rights under this Section 3 shall terminate on the second
anniversary of the closing of an underwritten public offering of the Company's
stock registered under the Securities Act that results in net proceeds of at
least $20,000,000.
4. OBLIGATIONS OF THE COMPANY. Whenever required under Sections 2 or 3 to
use its best efforts to effect the registration of any Registrable Securities,
the Company shall take the following actions, as expeditiously as reasonably
possible:
4.1. EFFECTIVENESS OF REGISTRATION. In cooperation with the selling
Holders as contemplated by Section 5.2, the Company shall prepare and file with
the SEC a registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become effective.
Upon the request of the Holders of a majority of the Registrable Securities
registered thereunder, the Company shall keep such registration statement
effective for up to nine months or until the Holders have informed the Company
in writing that the distribution of their securities has been completed.
4.2. AMENDMENTS. The Company shall prepare and file with the SEC
such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement, and use its best
efforts to cause each such amendment to become effective, as may be necessary to
comply with the Securities Act with respect to the disposition of all securities
covered by such registration statement.
4.3. COPIES OF REGISTRATION STATEMENT. The Company shall furnish to
each Holder such number of conformed copies of such registration statement and
of each such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, such documents
incorporated by reference in such registration statement or prospectus, and such
other documents, as such Holder may reasonably request in order to facilitate
the disposition of its Registrable Securities covered by such registration
statement.
4.4. STATE QUALIFICATIONS. The Company shall use its best efforts
to register or qualify such Registrable Securities under the securities or blue
sky laws of such jurisdictions as each Holder shall reasonably request, and do
all other acts which may be necessary or advisable to enable such Holder to
consummate the disposition in such jurisdictions of its Registrable Securities
covered by such registration statement; PROVIDED, HOWEVER, that the Company
shall not be required to qualify as a foreign corporation in any state where it
is not then required to qualify.
4.5. UNDERWRITING AGREEMENT. The Company shall enter into and
perform its obligations under an underwriting agreement, in customary form not
inconsistent with this Agreement, with the managing underwriter of such
offering.
4.6. CHANGES IN PROSPECTUS. The Company shall notify each Holder of
Registrable Securities covered by such registration statement, at any time when
a prospectus relating thereto covered by such registration statement is required
to be delivered under the Securities Act, of the
5
<PAGE> 6
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing. The Company shall promptly file such amendments and
supplements which may be required pursuant to Section 4.2 on account of such
event and use its best efforts to cause each such amendment and supplement to
become effective.
4.7. OPINIONS AND COMFORT LETTERS. The Company shall furnish on the
date that such Registrable Securities are delivered to the underwriters for sale
in connection with a registration pursuant to this Agreement (a) an opinion,
dated such date, of the counsel representing the Company for the purposes of
such registration, in form and substance as is customarily given by issuer's
counsel to the underwriters in an underwritten public offering, addressed to the
underwriters and to the Holders requesting registration of Registrable
Securities and (b) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is customarily given
by the issuer's independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters and to the Holders
requesting registration of Registrable Securities.
4.8. TRANSFER AGENT. The Company shall provide a transfer agent and
registrar for such Registrable Securities not later than the effective date of
such registration statement.
4.9. LISTING SHARES. The Company shall apply for listing and use
its best efforts to list the Registrable Securities being registered on any
national securities exchange on which a class of the Company's equity securities
are listed. If the Company does not have a class of equity securities listed on
a national securities exchange, the Company shall apply for qualification and
use its best efforts to qualify the Registrable Securities being registered for
inclusion on the automated quotation system of the National Association of
Securities Dealers, Inc. or an exchange.
5. PREPARATION OF REGISTRATION STATEMENT.
5.1. INFORMATION BY SELLING HOLDERS. The selling Holders shall
furnish to the Company such information regarding themselves, the Registrable
Securities held by them, and the intended method of disposition of such
securities as shall be required to effect the registration of their Registrable
Securities.
5.2. PARTICIPATION IN PREPARATION OF REGISTRATION STATEMENT. In
connection with the preparation and filing of each registration statement
registering Registrable Securities under the Securities Act, the Company will
give the selling Holders, their underwriters and one counsel selected by the
selling Holders and approved in writing by the Required Investors, the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the SEC, and each amendment
thereof or supplement thereto, and will give each of them such access to its
books and records and such opportunities to discuss the business of the Company
with its officers and the independent public accountants who have certified its
financial statements as shall be necessary, in the opinion of such selling
Holder and such underwriters or
6
<PAGE> 7
their respective counsel, to conduct a reasonable investigation within the
meaning of the Securities Act to protect themselves from liability thereunder.
5.3. UNDERWRITING AGREEMENT. Each selling Holder shall enter into
and perform its obligations under an underwriting agreement with the managing
underwriter for such offering in customary form not inconsistent with this
Agreement, including furnishing any opinion of counsel and agreeing to
indemnification obligations reasonably requested by the managing underwriter,
but in no event will any holder be liable for indemnification obligations in
excess of the net offering proceeds received by such Holder.
6. FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder a written request that the Company effect a registration on Form S-3 and
any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
6.1. NOTICE TO HOLDERS. Promptly give written notice of the
proposed registration, and any related qualification or compliance, to all other
Holders.
6.2. SHORT-FORM REGISTRATION. Use its best efforts to effect, as
soon as practicable, such registration, qualification or compliance as may be so
requested and as would permit or facilitate the sale and distribution of all of
such Holder's Registrable Securities as are specified in such request, together
with all of the Registrable Securities of any other Holders joining in such
request as are specified in a written request given within 30 days after mailing
of such written notice by the Company; PROVIDED, HOWEVER, that the Company shall
not be obligated to effect any such registration, qualification or compliance
pursuant to this Section 6 if: (a) Form S-3 is not available for such offering
by the Holders; (b) the aggregate offering price, minus underwriting discounts
and commissions, of the Registrable Securities specified in such request is not
at least $1,000,000; (c) the Company shall furnish to the Holders a certificate
signed by the president of the Company stating that in the good faith judgment
of the Board of Directors of the Company, it would not be in the best interests
of the Company and its stockholders for such Form S-3 registration to be
effected at such time, in which event the Company shall have the right to defer
the filing of the Form S-3 registration for a period of not more than 180 days
after receipt of the request of the Holder or Holders under this Section 6;
PROVIDED, HOWEVER, that the Company shall not utilize this right more than once
in any 12-month period and (d) the Company shall not be required to keep such
registration statement effective for more than 180 days.
7. EXPENSES OF REGISTRATION. All expenses other than underwriting
discounts and commissions relating to Registrable Securities incurred in
connection with each of the registrations, filings or qualifications pursuant to
Sections 2, 3 or 6 including (without limitation) all registration, filing and
qualification fees, all fees and expenses in connection with compliance with
state securities or blue sky laws, printing and delivery expenses, fees and
disbursements of counsel and independent public accountants for the Company, and
the reasonable fees and disbursements of one law firm acting as counsel for the
selling Holders shall be paid by the Company; PROVIDED, HOWEVER, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 2 if the registration request is
subsequently
7
<PAGE> 8
withdrawn at any time at the request of the Investors (in which case all
participating Holders shall bear such expenses), unless the Required Investors
agree to forfeit their right to one demand registration pursuant to Section 2;
PROVIDED FURTHER, however, that if at the time of such withdrawal, the Holders
have learned of a material adverse change in the financial condition, business
or prospects of the Company from that known to the Investors at the time of
their request that makes the proposed offering unreasonable in the good faith
judgment of the Investors, then the Holders shall not be required to pay any of
such expenses. Underwriting discounts and commissions relating to Registrable
Securities will be paid ratably by the Holders of such Registrable Securities.
8. INDEMNIFICATION.
8.1. COMPANY INDEMNIFICATION. To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the officers, directors,
partners, agents and employees of each Holder, any underwriter (as defined in
the Securities Act) for such Holder, and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages or liabilities (joint or several) to
which any of them may become subject under the Securities Act, the Exchange Act,
other federal or state law or otherwise, and to reimburse them for any legal or
any other expenses reasonably incurred by them in connection with investigating
any claim, or defending any action or proceeding, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (a "VIOLATION"): (a) any untrue statement or alleged untrue statement
of a material fact contained or incorporated by reference in any registration
statement under which Registrable Securities were registered, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (b) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or (c) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law. The indemnity provisions in this Section 8.1 shall not apply to amounts
paid in settlement of any loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable to a Holder in
any such case for any such loss, claim, damage, liability or action (i) to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by or on behalf of such Holder,
underwriter or controlling person or (ii) in the case of a sale directly by a
Holder of Registrable Securities (including a sale of such Registrable
Securities through any underwriter retained by such Holder to engage in a
distribution solely on behalf of such Holder) such untrue statement or alleged
untrue statement or omission or alleged omission was contained in a preliminary
prospectus and corrected in a final or amended prospectus, and such Holder
failed to deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the Registrable Securities, as the case may be, to
the person asserting any such loss, claim, damage or liability in any case where
such delivery is required by the Securities Act.
8
<PAGE> 9
8.2. HOLDER INDEMNIFICATION. To the extent permitted by law, each
selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, each agent and any underwriter for the Company, and any other Holder
selling securities in such registration statement or any of its directors,
officers, partners, agents or employees or any person who controls such Holder
or underwriter, against any losses, claims, damages or liabilities (joint or
several) to which the Company or any such director, officer, controlling person,
agent, or underwriter or controlling person, or other such Holder or director,
officer or controlling person may become subject, under the Securities Act, the
Exchange Act or other federal or state law or otherwise, and to reimburse them
for any legal or any other expenses reasonably incurred by them in connection
with investigating any claim, or defending any action or proceeding, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by or on behalf of such Holder
expressly for use in connection with such registration; PROVIDED, HOWEVER, that
the liability of any Holder hereunder shall be limited to the amount of proceeds
received by such Holder in the offering giving rise to the Violation or if the
offering is terminated, the amount such Holder would have received; and
PROVIDED, FURTHER, that the indemnity provisions in this Section 8.2 shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Holder
(which consent shall not be unreasonably withheld), nor shall the Holder be
liable to the Company in any such case in which such untrue statement or alleged
untrue statement or omission or alleged omission was contained in a preliminary
prospectus and corrected in a final or amended prospectus, and the Company
failed to deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the securities to the person asserting any such
loss, claim, damage or liability in any case where such delivery is required by
the Securities Act.
8.3. NOTICE, DEFENSE AND COUNSEL. Promptly after receipt by an
indemnified party under this Section 8 of notice of the commencement of any
action (including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 8, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume and control the
defense thereof with counsel mutually reasonably satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of any liability to the indemnified
party under this Section 8 only to the extent the indemnifying party is actually
prejudiced in its ability to defend such action, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 8.
9
<PAGE> 10
8.4. CONTRIBUTION IN LIEU OF INDEMNIFICATION. If the
indemnification provided for in Sections 8.1 or 8.2 is unavailable to a person
that would have been an indemnified party in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
each person that would have been an indemnifying party thereunder shall, in lieu
of indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand and such
indemnified party on the other in connection with the untrue or alleged untrue
statements of a material fact or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
indemnifying party or such indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 8.4 shall include any such action or
claim (which shall be limited as provided in Section 8.3 if the indemnifying
party has assumed the defense of any such action in accordance with the
provisions thereof). No person guilty of fraudulent misrepresentation (within
the meaning of section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
8.5. SURVIVAL OF RIGHTS AND OBLIGATIONS. The obligations of the
Company, the Holders under this Section 8 shall survive the completion of any
offering of Registrable Securities in a registration statement whether under
this Agreement or otherwise.
9. REPORTS UNDER EXCHANGE ACT. In order to provide to the Holders the
benefits of Rule 144 under the Securities Act and any other rule or regulation
of the SEC that may at any time permit a Holder to sell securities of the
Company to the public without registration, and in order to make it possible for
Holders to register the Registrable Securities pursuant to a registration on
Form S-3, the Company agrees to:
9.1. PUBLIC INFORMATION. Make and keep public information
available, as those terms are understood and defined in Rule 144, at all times
after 90 days after the effective date of the first registration statement filed
by the Company for the offering of its securities to the general public.
9.2. EXCHANGE ACT REGISTRATION. Take such action, including the
voluntary registration of its Common Stock under section 12 of the Exchange Act,
as is necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable (but not
later than 90 days) after the end of the fiscal year in which the first
registration statement filed by the Company for the offering of its securities
to the general public is declared effective.
9.3. TIMELY FILING. File with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act.
10
<PAGE> 11
9.4. COMPLIANCE; INFORMATION. Furnish to any Holder, so long as the
Holder owns any Registrable Securities, forthwith upon request (a) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144 (at any time after 90 days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold in a secondary offering pursuant to Form S-3 (at any time after it so
qualifies), (b) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (c)
such other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
10. LOCK-UP AGREEMENTS. If requested by the managing underwriter in
connection with an underwritten offering hereunder, the Holders shall enter into
lock-up agreements pursuant to which they will not, for a period of seven days
prior to, and 180 days (90 days for offerings subsequent to the initial public
offering hereunder) following, the effective date of a registration statement
for the offering of the Company's securities, or any other period reasonably
requested by the managing underwriter, publicly offer or sell any of the
Registrable Securities without the prior consent of the managing underwriter,
provided that (a) the officers and directors of the Company enter into lock-up
agreements with terms at least as restrictive and (b) the Holders shall be able
to offer publicly and sell Registrable Securities free from the lock-up
provisions contemplated by this Section 10 for at least 90 consecutive days in
each period of 360 consecutive days.
11. LIMITATIONS ON OTHER REGISTRATION RIGHTS. The Company shall not,
without the prior written consent of the Investors owning at least two thirds of
the Registrable Securities then outstanding owned by all Investors, enter into
any agreement with any holder or prospective holder of any securities of the
Company which would allow such holder or prospective holder to (a) require the
Company to effect a registration, or (b) include any securities in any
registration filed under Sections 2 or 3 unless, under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of such securities will
not reduce the amount of Registrable Securities to be included by the Holders or
the Company.
12. TERMINATION OF REGISTRATION RIGHTS. In addition to the termination
provisions set forth in Section 3, the registration rights contained in Section
2, 3 and 6 shall terminate on the date when (a) the Investors own less than 25%
of the Registrable Securities owned by them on the date hereof AND (b) the
Investors may sell all their then Registrable Securities under Rule 144.
13. GENERAL.
13.1. NOTICES. All notices or other communications required or
permitted to be delivered hereunder shall be in writing and shall be delivered
to each of the parties at their respective addresses as set forth in Schedules A
or B. Any party to this Agreement may at any time change the address to which
notice to such party shall be delivered by giving notice of such change to the
other parties to this Agreement and such notice shall be deemed given when
received by the other
11
<PAGE> 12
parties hereto. Notices shall be deemed effectively given when personally
delivered or sent to the recipient at the address set forth above by telex or a
facsimile transmission, one business day after having been delivered to a
receipted, nationally recognized courier, properly addressed or five business
days after having been deposited into the United States mail, postage prepaid,
PROVIDED, that any notice to any party outside of the United States shall be
sent by telecopy and confirmed by overnight or two-day courier.
13.2. AMENDMENTS, WAIVERS AND CONSENTS. Any provision in this
Agreement to the contrary notwithstanding, changes in or additions to this
Agreement may be made, and compliance with any covenant or provision herein set
forth may be omitted or waived, if the Company (a) shall obtain consent thereto
in writing from Investors holding an aggregate of at least two thirds of the
Registrable Securities then outstanding owned by the Investors and (b) shall, in
each such case, deliver copies of such consent in writing to any Holders who did
not execute the same; PROVIDED, HOWEVER, that any such amendment or waiver
adversely affecting the Management Stockholders in a manner distinct from the
effect of such amendment or waiver on the other Holders shall require the
written consent of the Management Stockholders holding a majority of the
Registrable Securities then outstanding owned by all Management Stockholders.
13.3. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the personal representatives, successors and
assigns of the respective parties hereto. The Company shall not have the right
to assign its rights or obligations hereunder or any interest herein without
obtaining the prior written consent of the Investors holding a majority of the
Registrable Securities then outstanding owned by the Investors. The Holders may
assign or transfer their rights under this Agreement to the extent (a) permitted
by the other agreements between the respective Holders and the Company and (b)
to the extent that such assignee or transferee owns or obtains Registrable
Securities having a fair value of at least $100,000.
13.4. SEVERABILITY. If any provision of this Agreement shall be
found by any court of competent jurisdiction to be invalid or unenforceable, the
parties waive such provision to the extent that it is found to be invalid or
unenforceable. Such provision shall, to the maximum extent allowable by law, be
modified by such court so that it becomes enforceable and, as modified, shall be
enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.
13.5. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
13.6. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous understandings, whether written or
oral.
13.7. COUNTERPARTS. This Agreement may be executed in counterparts,
all of which together shall constitute one and the same instrument.
12
<PAGE> 13
13.8. CHOICE OF LAW. This Agreement shall be governed by and
construed in accordance with the laws (other than the conflict of laws rules) of
The Commonwealth of Massachusetts.
The parties have caused this Agreement to be duly executed under seal
as of the date first above written.
ACCESSORIES ASSOCIATES, INC.
By /s/ Gerald F. Cerce
------------------------------------
Title: Chairman
INVESTORS:
WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
By /s/ Michael F. Cronin
------------------------------------
General Partner
BANCBOSTON VENTURES, INC.
By /s/ Charles Grant
------------------------------------
Title: Vice President
ST. PAUL FIRE AND MARINE
INSURANCE COMPANY
By /s/ Everett V. Cox
------------------------------------
Title: Authorized Representative
NATIONAL CITY CAPITAL CORPORATION
By /s/ Carl E. Baldassarre
------------------------------------
Title: Managing Director
13
<PAGE> 14
MANAGEMENT STOCKHOLDERS
-----------------------------------
Name:
-----------------------------------
Name:
-----------------------------------
Name:
14
<PAGE> 15
SCHEDULE A TO REGISTRATION
RIGHTS AGREEMENT
INVESTORS
<TABLE>
<CAPTION>
Number Number
Name and Address Preferred Shares of Common Shares
- ---------------- ---------------- ----------------
<S> <C> <C>
Weston Presidio Capital II, L.P. 17,100 19,000
40 William Street - Suite 300
Wellesley, MA 02181
Telephone: (617) 237-4700
Telecopy: (617) 237-6270
BancBoston Ventures, Inc.
100 Federal Street - 31st Floor 6,840 7,600
Boston, Massachusetts 02110
Telephone: (617) 434-2442
Telecopy: (617) 434-1153
St. Paul Fire and Marine Insurance 6,840 7,600
Company
c/o St. Paul Venture Capital, Inc.
8500 Normandale Lake Blvd.
Suite 1940
Bloomington, Minnesota 55437
Telephone: (612) 830-7474
Telecopy: (612) 830-7475
National City Capital Corporation 3,420 3,800
1965 E. 6th Street
Suite 1010
Cleveland, OH 44114
Telephone: (216)575-9482
Telecopy: (216)575-9965
------ ------
Total: 34,200 38,000
</TABLE>
<PAGE> 16
SCHEDULE B TO REGISTRATION
RIGHTS AGREEMENT
Management Stockholders
<TABLE>
<CAPTION>
Number of Common Stock
Stockholders and Address Shares Held at Closing
- ------------------------ ----------------------
<S> <C>
John H. Flynn, Jr. 28,500 shares
52 Second Street
Newport, RI 02840
Felix A. Porcaro, Jr. 171,000 shares
5 Lori Ellen Drive
Lincoln, RI 02865
Robert V. Lallo 28,500 shares
132 Division Street
East Greenwich, RI 02818
Gerald F. Cerce 342,000 shares
143 Meeting Street
Providence, RI 02906
</TABLE>
<PAGE> 17
EXHIBIT 10.5
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
This First Amendment to Registration Rights Agreement made and entered
into as of this 11th day of December, 1996 by and between Accessories
Associates, Inc., a Rhode Island corporation (the "Company"), Weston Presidio
Capital II, L.P. and the other Investors executing this First Amendment
(collectively, and together with their permitted successors and assigns the
"Investors") and the other Stockholders and Stock Optionholders of the Company
listed in Schedule B.
RECITALS
On May 31, 1996, the Company and Weston Presidio Capital Management II
L.P., BancBoston Ventures, Inc., St. Paul Fire and Marine Insurance Company and
National City Corporation (the "Initial Investors")together with the persons
listed in Schedule B attached hereto entered into a Registration Rights
Agreement (the "Agreement") granting to the Initial Investors certain
registration and other rights. The Initial Investors have authorized the
issuance of ninety-five hundred (9,500) additional shares of the Company's
Series A Redeemable Convertible Preferred Stock, par value $0.01 per share (the
"Shares"). The Company proposes to issue the ninety-five hundred (9,500) Shares
in the amounts indicated to the persons listed hereto on Schedule C hereto
(collectively referred to as the "Subsequent Investors"). As consideration in
part for their purchase of the Shares, the Subsequent Investors have requested
to become parties to the Registration Rights Agreement. The Company, the Initial
Investors and the persons listed on Schedule B are willing to do so.
NOW THEREFORE, in consideration of the promises and agreements herein
contained and for other good and valuable consideration, the receipt and
sufficiency whereof is hereby acknowledged, it is agreed as follows:
1. Effective upon the execution of this Agreement, each
Subsequent Investor shall become, and shall be, a party to the Agreement and the
term "Investors" wherever set forth in the Agreement shall be deemed to include
each of the Initial Investors and the Subsequent Investors.
2. Except as modified herein, the Agreement is hereby ratified,
confirmed and approved.
IN WITNESS WHEREOF, the parties have executed this agreement as of the
day and date first above written.
ACCESSORIES ASSOCIATES, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Chairman
<PAGE> 18
INITIAL INVESTORS:
WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
General Partner
By: /s/ Michael F. Cronin
-------------------------------
BANCBOSTON VENTURES, INC.
By: /s/ Charles Grant
-----------------------------------
ST. PAUL FIRE AND MARINE
INSURANCE COMPANY
By: /s/ Everett V. Cox
-----------------------------------
NATIONAL CITY CAPITAL CORPORATION
By: /s/ Carl E. Baldassarre
-----------------------------------
SUBSEQUENT INVESTORS:
MARLIN CAPITAL, L.P.
By: MARLIN HOLDINGS, INC.,
General Partner
By: /s/ Martin E. Franklin
-------------------------------
2
<PAGE> 19
FIRST GLOBAL INVESTMENTS LIMITED
By: /s/ Elizabeth LePoidevin
-----------------------------------
IONIC HOLDINGS L.D.C.
By: /s/ Elizabeth LePoidevin
-----------------------------------
NEW HENLEY OVERSEAS INVESTMENTS, INC.
By: /s/ Elias S. Zilkha
-----------------------------------
ORACLE INVESTMENTS AND HOLDINGS, LIMITED
By: /s/ Elizabeth LePoidevin
-----------------------------------
BRAHMAN PARTNERS II, L.P.
By: /s/ Peter A. Hochfelder
-----------------------------------
B.Y. PARTNERS, L.P.
By: /s/ Peter A. Hochfelder
-----------------------------------
QUASAR INTERNATIONAL PARTNERS CV
By: /s/ Peter A. Hochfelder
-----------------------------------
3
<PAGE> 20
BRAHMAN PARTNERS II OVERSHORE LTD.
By: /s/ Peter A. Hochfelder
-----------------------------------
SCHEDULE B PERSONS
/s/ Gerald F. Cerce
---------------------------------------
Gerald F. Cerce
/s/ John H. Flynn, Jr.
---------------------------------------
John H. Flynn, Jr.
/s/ Robert V. Lallo
---------------------------------------
Robert V. Lallo
/s/ Felix A. Poccaro
---------------------------------------
Felix A. Poccaro
/s/ Michael Aviles
---------------------------------------
Michael Aviles
/s/ Duane M. DeSisto
---------------------------------------
Duane M. DeSisto
/s/ Thomas E. McCarthy
---------------------------------------
Thomas E. McCarthy
/s/ Daniel A. Triangolo
---------------------------------------
Daniel A. Triangolo
4
<PAGE> 1
EXHIBIT 10.6
MEMBER AGREEMENT
ROGER D. DREYER
INTRODUCTION
THIS AGREEMENT, is by and among AAi.FOSTERGRANT, Inc., a Rhode Island
corporation, ("AAi"), and Roger D. Dreyer, a resident of the State of New York,
("Dreyer") and Houdini Capital LTD, a New York corporation ("Capital").
RECITALS
AAi purchased a 67.0% membership interest in Fantasma, LLC, a Delaware
limited liability company, (the "Company") from Overdrive Capital Corp. pursuant
to an AGREEMENT (Purchase and Sale of Percentage Interest), dated the date
hereof, by and between Overdrive Capital Corp., as seller, and AAi, as buyer,
and AAi purchased a 13.0% membership interest from Dreyer pursuant to an
AGREEMENT (Purchase and Sale of Percentage interest), dated the date hereof, by
and between Roger D. Dreyer, as seller, and AAi, as buyer. Simultaneously, Roger
D. Dreyer assigned his remaining 20% Percentage Interest in Capital in exchange
for 100% of the authorized and issued shares of stock of Capital.
Consequent to the above-described transactions, AAi is the owner of a
majority of the membership interests of Fantasma. Dreyer is an officer and
employee of the Company and owns 100% of the authorized and issued shares of
capital stock of Capital. AAi is prepared to offer additional membership
interests to Capital upon the terms and subject to the conditions set forth
below.
AGREEMENT
A. OPTION TO PURCHASE BY CAPITAL.
1. Provided the Company's EBIT meets or exceeds the following Target EBIT
for the applicable Year set forth below, Capital shall have the following
options to purchase from AAi up to eight percent (8%) of total membership
interests of the Company (the "Percentage") for the Purchase Prices set forth
below with the respective exercise dates ("Exercise Date") set forth below:
<TABLE>
<CAPTION>
Option Year Exercise Date Percentage Target EBIT Purchase Price
- ------ ---- ------------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
#1. 1998 30 days after the date the 2 2/3% $2,549,812 $92,422
EBIT calculations are provided
to Dreyer
#2. 1999 30 days after the date the 2 2/3% * $92,422
EBIT calculations are provided
to Dreyer
</TABLE>
- --------
* To be based on sales consistent with EXHIBIT A-1, and expenses consistent, on
a percentage of net sales basis, with EXHIBIT A-2.
<PAGE> 2
<TABLE>
<CAPTION>
Option Year Exercise Date Percentage Target EBIT Purchase Price
- ------ ---- ------------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
#3. 2000 30 days after the date the 2 2/3% * $92,422
EBIT calculations are provided
to Dreyer
</TABLE>
2. Notwithstanding the foregoing, in the event that Dreyer's employment
with the Company is terminated by the Company pursuant to SECTION 5.b of the
Employment Agreement between Dreyer and the Company dated this date, then
Capital shall have the option to purchase the balance of the 8% Percentage that
it has not theretofore purchased, with an Exercise Date of twenty (20) days
after the said termination of employment. Upon the earlier of the expiration of
the Exercise Date without its exercise of such option or the purchase of
membership interests after such exercise, all of its rights to the options set
forth above shall terminate. The Purchase Price per one percent (1%) membership
interest pursuant to this paragraph shall be the greater of (a) $34,615 or (b)
four times EBIT divided by 100.
3. Notwithstanding the foregoing, at any time, whether or not the Target
EBIT have been met, Capital shall have the option to purchase the entire balance
of the 8% Percentage that he has not theretofore purchased, provided that if it
does not exercise such option by the Exercise Date or purchase the membership
interests after such exercise, the options with respect thereto shall terminate,
and upon such purchase all of its rights to the options set forth in SECTION 1
shall terminate. The Purchase Price per one percent (1%) membership interest
pursuant to this SECTION 3 shall be the greater of (a) $34,615 or (b) four times
the Company's EBIT divided by 100.
4. If Paul Michaels has not elected to purchase all of the 5% of
membership interests under the options granted to him by AAi under the
Membership Agreement between him and AAi , dated this date, Capital shall be
entitled to purchase the excess of 5% over what Paul Michaels previously
purchased, by Capital electing to do so with an Exercise Date of sixty (60) days
after Paul Michael's Exercise Date. The purchase price per 1% membership
interest shall be four times the Company's EBIT divided by 100.
5. Except as set forth in SECTIONS A.2 AND 3, the Company's EBIT meeting
or exceeding the Target EBIT set forth above for the applicable Year shall be an
absolute precondition to the option for that Year, and there shall be no option
for any Year for which the Company's EBIT did not meet or exceed the Target EBIT
for such Year. Each Option shall be a separate option, and shall not be
transferable or assignable. Each Option shall be exercisable in a writing
delivered by Capital to AAi no earlier than 30 days before the Exercise Date set
forth above and no later than the Exercise Date set forth above. The exercise of
the option granted hereby shall not be valid unless accompanied by a certified
or bank check payable to AAi in the amount to the Purchase Price set forth
above. If an option is not validly exercised by the Exercise Date set forth
above, the option shall expire and may not be later exercised. The options are
personal to Capital and no Transfer shall be effective without the prior written
consent of AAi, which consent may be withheld in its sole and absolute
discretion. All of Capital's rights to the options, and all rights to receive
membership interests from AAi pursuant to any
2
<PAGE> 3
exercise of the options, shall automatically and irrevocably expire immediately
at the earlier of the following: (a) any Transfer or attempted Transfer of an
option, a membership interest in the Company or the capital stock of Capital,
without AAi's consent; (b) Dreyer's death; (c) the termination (for any reason)
of Dreyer's employment with the Company, its affiliates and any respective
successors in interest; (d) at any time AAi holds more than 81% of all
membership interests in the Company; or (e) the Company's tangible net worth as
calculated by the Company's independent auditors in accordance with generally
accepted accounting principles consistently applied becomes less than $400,000
at the end of any fiscal year. For purposes of this SECTION A, calculation of
EBIT shall not include amortization of goodwill or expenses associated with
AAi's acquisition of its membership interests in the Company, but include
expenses of affiliated companies allocated to the Company; provided, however,
for specific categories of expenses set forth on EXHIBIT A, attached hereto,
such expenses shall not exceed the percentages represented by the amounts set
forth in such expense categories set forth on EXHIBIT A.
6. Notwithstanding the foregoing, at and after an initial public offering
of AAi's common stock, all options outstanding thereunder, including but not
limited to any that have been exercised, but membership interests not purchased
or transferred, shall be satisfied through the issuance of shares of AAi's
common stock with the amount of stock to be issued hereunder to be determined by
taking the aggregate purchase price payable pursuant to the option and dividing
it by the average selling price of a share of AAi common stock during the ten
(10) trading days immediately prior to the exercise (or, if the exercise is
after the filing of AAi's registration statement with the United States
Securities and Exchange Commission in connection with AAi's initial public
offering, such exercise to be effective at or before the initial public
offering, then at the initial public offering price).
B. TRANSFER OF MEMBERSHIP INTERESTS.
1. Upon the death or disability of Dreyer (as defined in Dreyer's
employment agreement with the Company, its affiliates or their respective
successors then currently in effect or, if there is no such employment agreement
then currently in effect, defined as Dreyer's inability to perform major
functions of his job description for a period of six (6) consecutive months, as
determined by the Chairman of his employer), or the termination of Dreyer's
employment with the Company, its affiliates and their respective successors or
any reason, Capital shall transfer and assign to AAi all, and not less than all,
of its membership interests in the Company and any rights to additional
interests in the Company, for a purchase price equal to the following, and AAi
shall purchase and pay such purchase price:
a. Death or disability - the Purchase Price shall be an amount equal to
the Valuation, calculated as of the date of death or disability, and
shall be payable in twenty-four (24) equal monthly installments
commencing sixty (60) days from the date of disability, with interest
equal to the prevailing prime rate as published in the Wall Street
Journal.
b. If Dreyer resigns or otherwise terminates his employment, or his
employment is terminated by employer for Cause or his Employment
Agreement, dated this date, expires and AAi's offer of continued
employment is not accepted, unless AAi elects to convert pursuant to
SECTION C.1.d. (ii), below - the Purchase Price shall be an amount
equal to the Valuation, calculated as of the
3
<PAGE> 4
date of termination of employment, and shall be paid in thirty-six (36)
equal monthly installments without interest, commencing on the second
anniversary of his termination.
c. If Dreyer's employment is terminated by employer for other than Cause
or his Employment Agreement, dated this date, expires and AAi does not
offer continued employment, unless Dreyer elects to convert pursuant to
SECTION C.1.c. (ii), below - the Purchase Price shall be an amount
equal to the Valuation, calculated as of the date of termination of
employment, and shall be paid in twenty-four (24) equal monthly
installments commencing sixty (60) days after his termination, with
interest at an annual rate equal to the prevailing prime rate published
in the Wall Street Journal.
2. For purposes of this SECTION B, "Cause" shall mean the events or
circumstances referred to as cause for employer's termination of Dreyer's
employment in the then current employment agreement or, if there is not such a
then current employment agreement, then it shall mean the events or
circumstances referred to as cause for employer's termination of his employment
in the last effective employment agreement between Dreyer and the Company, its
affiliates or their respective successors.
3. For purposes of SECTION B and SECTION C, the "Determination Date" shall
mean the date of death or disability under SECTION B.1. a. and the date of
termination under SECTIONS 1. b. AND 1.c.
C. AAI INITIAL PUBLIC OFFERING.
1. In the event that there is an initial public offering of AAi's common
stock ("IPO"), Dreyer and AAi shall each have the option to exchange all, but
not less than all, of the capital stock of Capital for AAi common stock, as set
forth below:
a. The option shall be exercised in writing;
b. The option shall be exercisable only with respect to the
conversion of all, and not less than all, of the capital stock
of Capital;
c. The option may be exercised by Capital only (i) upon the
filing of a registration statement by AAi with the United
States Securities and Exchange Commission, (ii) during the six
(6) month period commencing with the effective date of AAi's
IPO or (iii) during the six (6) month period after (x)
Dreyer's termination of employment by employer for other than
Cause or (y) expiration of Dreyer's employment agreement and
the Company not offering continued employment at terms
reasonably equivalent to the then expiring agreement;
d. The option may be exercisable by AAi (i) upon the filing of a
registration statement by AAi with the United States
Securities and Exchange Commission (ii) during the (i) six (6)
month period commencing with the effective date of AAi's IPO
or (iii) during the six (6) month period after (x) Dreyer
resigns or otherwise terminates his employment or his
employment is terminated by employer for Cause or (y)
expiration of Dreyer's
4
<PAGE> 5
employment agreement and Company's offer of continued
employment at terms reasonably equivalent to the then expiring
agreement is not accepted by Dreyer;
e. The conversion shall take place on the basis of Dreyer's
receiving a number of common shares of AAi equal to the
product of (i) the Valuation divided by (ii) the average
selling price of a share of AAi's common stock during the ten
(10) trading days immediately prior to the exercise of the
option or, if after the filing of AAi's registration statement
with the United States Security Exchange Commission to be
effective at or before the IPO, at the IPO price;
f. The AAi common stock shall not be registered and may not be
readily transferable or tradable, and shall be subject to such
restrictions on transfer as may be imposed by AAi's
underwriters or as may be required under state or federal
securities laws.
g. The option to convert at the IPO will be exercisable within
twenty (20) days after the earlier of (i) AAi's notice to
Capital of its intent to file a registration statement or (ii)
the date of filing of the registration statement. AAi shall
provide financial information to Capital.
2. For purposes of this SECTION C, the "Determination Date" shall mean the
date of the exercise of the option.
3. Capital's registration rights with respect to AAi common stock are the
subject of a Piggyback Registration Agreement dated this date.
D. RESTRICTIONS ON TRANSFERS.
No Transfer of an option set forth at SECTION A, a membership interest in the
Company or any capital stock of Capital shall be effective without the prior
written consent of AAi, which consent may be withheld in its sole and absolute
discretion. Any Transfer or attempted Transfer without AAi's prior written
consent shall be null and void and of no effect.
E. DEFINITIONS. For purposes of SECTIONS A, B, C AND D:
1. "Valuation" shall mean the product of (a) the percentage of all
membership interests of the Company held by Capital MULTIPLIED BY (b) four (4)
times EBIT.
2. "EBIT" shall mean earnings of the Company before interest and taxes for
the twelve (12) month period ending at the end of the last complete calendar
quarter immediately preceding the applicable Determination Date.
3. The Valuation and EBIT shall be determined by AAi using generally
accepted accounting principles applied on a consistent basis and, in the event
of any dispute, shall be determined by AAi's regularly retained independent
accounting firm, whose determination shall be final and binding upon the
parties.
5
<PAGE> 6
4. "Transfer" shall mean any sale, pledge, assignment, gift, bequest or
other Transfer, in whole or in part, directly or indirectly, including but not
limited to a transfer by operation of law or otherwise to the estate of Dreyer
in a Transfer by a personal representative or creditor representative.
Notwithstanding the generality of the foregoing, any one or more of the
following events or conditions shall be deemed to constitute a Transfer: (a)
Bankruptcy as defined at EXHIBIT B and (b) any other event which, were it not
for the provisions of this Agreement, would cause or result in a sale,
assignment, pledge, encumbrance, award, confirmation or other transfer, for
consideration or otherwise, to any person, whether voluntarily, involuntarily or
by operation of law under circumstances not constituting an approved means of
Transfer under this Agreement.
F. PLEDGE AGREEMENT; REPRESENTATIONS AND WARRANTIES.
1. As collateral for Capital's and Dreyer's obligations under this
Agreement, including without limitation Capital's obligation to transfer its
membership interests in the Company to AAi in certain circumstances as described
in SECTION B and Dreyer's obligation to exchange the capital stock of Capital
under SECTION C.1 Dreyer does hereby pledge, assign, transfer and grant a
security interest in and general collateral security for the performance of such
obligations, or any amendment or modification thereof in 100% of the issued and
outstanding capital stock in Capital (the "Capital Stock"), which outstanding
equity interest is issued and represented by a stock certificate which Dreyer
shall deliver to AAi upon the execution hereof accompanied by all necessary or
desirable instruments of transfer or assignment, duly executed in blank and any
required UCC financing statements. and (2) Capital does hereby pledge, sign,
transfer and grant a security in and as collateral security for the performance
of such obligations, or any amendment or modification thereof, in 100% of the
membership interest in the Company held by Capital, which outstanding membership
interest are not certificated and for which Capital shall deliver to AAi upon
execution hereof all necessary or desirable instruments of transfer or
assignment and any required UCC financing statements.
2. Dreyer and Capital, jointly and severally, represent and warrant to AAi
as follows, which representations and warranties shall continue to be true and
correct in all respects during the term of this Agreement: (i) the authorized
capital stock of Capital consists of 200 shares authorized of which 100 shares
are issued and outstanding and fully paid and non-assessable; (ii) Dreyer is the
owner of 100% of the issued and outstanding capital stock of Capital free and
clear of all liens and encumbrances or other interests of third parties; (iii)
Dreyer has the full power and lawful rights to pledge, assign and grant a
security interest in the Capital Stock to AAi hereunder; (iv) Dreyer will
warrant and defend the title to the Capital stock against the claims and demands
of any person, firm, corporation, trust, partnership or other entity; (v) there
are no restrictions on the transfer, assignment or pledge of such Capital stock;
(vi) the pledge agreement specified above will be duly noted in the books and
records of Capital; and (vii) Capital is a holding company, and shall no conduct
any business other than to hold membership interests in the Company and to
engage in activities directly related thereto, and shall not incur any
liabilities other than those associated with the previously-described
activities. In addition to its other remedies available to AAi at law or in
equity for a breach of this Agreement by either Capital or Dreyer, AAi's
obligations hereunder are specifically contingent on the above-noted
representations and warranties being true and correct. In the event that any of
these representations or warranties are not true, or the Capital stock when
delivered to AAi pursuant to this Agreement is not free and clear of
6
<PAGE> 7
all liens, claims and encumbrances and is not fully paid and non-assessable, or
the membership interests in the Company held by Capital are not free and clear
of all liens, claims and encumbrances or Capital shall have total liabilities in
excess of $100 or Dreyer or Capital are the subject of a Bankruptcy as defined
at EXHIBIT B, all of the rights of Capital to exercise the options set forth in
this Agreement shall terminate and all rights of Dreyer and/or Capital hereunder
shall terminate, or AAi may elect, instead of purchasing the capital stock of
Capital from Dreyer, to instead purchase all of the membership interests in the
Company held by Capital, free and clear of all liens, claims and encumbrances.
3. AAi agrees to provide, or cause to be provided, services and loans for
working capital to meet the projections agreed upon by AAi and Dreyer.
G. MISCELLANEOUS.
1. NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be given in writing and shall be delivered by registered
mail, postage prepaid, return receipt requested, or by telefacsimile, addressed
as follows:
TO AAi: AAi.FOSTERGRANT, Inc.
500 George Washington Highway
Smithfield, Rhode Island 02917
Telefacsimile: 401-231-3212
Attn: Mr. Gerald Cerce
WITH COPY TO:
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, Rhode Island 02903
Telefacsimile: 401-277-9600
Attn: Pasco Gasbarro Jr., Esq.
To Dreyer:
Roger D. Dreyer
345 E. 69th Street, Apt. 14H
New York, N.Y. 10021
TO CAPITAL:
Houdini Capital LTD
c/o Roger D. Dreyer
345 East 69th Street, Apt. 14H
New York, NY 10021
7
<PAGE> 8
WITH COPY TO:
` Feltman, Karesh, Major & Farbman, LLP
152 West 57th Street
New York, NY 10019
Fax: 212-586-0951
Attention: Jerome Kowalski
or to such other address as the parties shall designate by written notice as
provided in this PARAGRAPH. Any such notice, proposal or communication shall be
deemed delivered and given on, or when so delivered by telefacsimile with a copy
to follow by mail or on, the fifth (5th) business day after deposit thereof,
postage prepaid by registered mail, return receipt requested.
2. GOVERNING LAW. This Agreement has been made in and its validity,
interpretation, construction and performance shall be governed by and be in
accordance with the laws of the State of Rhode Island, without reference to its
laws governing conflicts of law. Each party irrevocably agrees that any legal
action or proceedings against with respect to this Agreement may be brought in
the courts of the State of Rhode Island, or in any United States District Court
of Rhode Island, and, by its execution and delivery of this Agreement, each
party hereby irrevocably submits to each such jurisdiction and hereby
irrevocably waives any and all objections which it may have as to venue in any
of the above courts. Each party further consents and agrees that any process or
notice of motion or other application to either of said courts or any judge
thereof, or any notice in connection with any proceedings hereunder, may be
served inside or outside the State of Rhode Island or the District of Rhode
Island by
[Signatures Appear On Next Page]
8
<PAGE> 9
registered or certified mail, return receipt requested, postage prepaid, and be
effective as of the receipt thereof, or in such other manner as may be
permissible under the rules of said courts. Each party hereby waives trial by
jury in any action or proceeding in connection with this Agreement.
3. INTEGRATION. This Agreement and the other agreements executed between
the parties dated this date constitute the entire agreement between the parties
with respect to the subject matter hereof, and any and all agreements, oral or
written, in relation thereto are hereby expressly superseded and canceled. Any
amendment hereto shall be evidenced by a writing signed by a duly authorized
representative of the party affected.
4. SEVERABILITY. If any term of provision of this Agreement, or the
application thereof to any person or under any circumstance, shall to any extent
be invalid or unenforceable, the remainder of this Agreement, or the application
of such terms to the persons or under circumstances other than those as to which
it is invalid or unenforceable, shall be considered severable and shall not be
affected thereby, and each term of this Agreement shall be valid and enforceable
to the fullest permitted by law. The invalid or unenforceable provisions shall,
to the extent permitted by law, be deemed amended and given such interpretation
as to achieve the economic intent of this Agreement.
5. THIRD PARTY BENEFICIARIES. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
6. HEADINGS. Any headings in this Agreement are inserted for convenience
and shall not control or affect the meaning or construction of any provision of
this Agreement.
7. SEVERAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by different parties on different counterparts, all of which
shall constitute a single agreement. In enforcing this Agreement, it shall be
necessary to produce and account for only one counterpart hereof executed by the
party against which enforcement is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 23rd day of June, 1998.
AAi.FOSTERGRANT, Inc.
By /s/ Duane DeSisto
------------------------------------
Title: Chief Financial Officer and
Treasurer
9
<PAGE> 10
/s/ Roger D. Dreyer
---------------------------------------
Roger D. Dreyer
HOUDINI CAPITAL LTD.
By /s/ Roger D. Dreyer
------------------------------------
Roger D. Dreyer, President
10
<PAGE> 11
EXHIBIT B
BANKRUPTCY
"BANKRUPTCY" means, with reference to Dreyer: (a) the entry of an order
for relief (or similar court order) against Dreyer which authorizes a case
brought under Chapter 7, 11 or 13 of Title 11 of the United States Code to
proceed; (b) the commencement of a federal, state or foreign bankruptcy,
insolvency, reorganization, arrangement or liquidation proceeding by such
Member; (c) the commencement of a federal, state or foreign bankruptcy,
insolvency, reorganization, arrangement or liquidation proceeding against Dreyer
if such proceeding is not dismissed within 60 days after the commencement
thereof; (d) the entry of a court decree or court order which remains unstayed
and in effect for a period of 30 consecutive days: (i) adjudging Dreyer
insolvent under any federal, state or foreign law relating to bankruptcy,
insolvency, reorganization, arrangement, liquidation, receivership or the like;
(ii) approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of, or in respect of, Dreyer or Dreyer's properties
under any federal, state or foreign law relating to insolvency, reorganization,
arrangement, liquidation, receivership or the like; (iii) appointing a receiver,
liquidator, assignee, trustee, conservator, or sequester (or other similar
official) of Dreyer, or of all, or of a substantial part, of Dreyer's
properties; or (iv) ordering the winding up, dissolution or liquidation of the
affairs of Dreyer; (e) the written consent by Dreyer to the institution against
it of any proceeding of the type described in the preceding CLAUSE (a), (b), (c)
or (d); (f) the written consent by Dreyer to the appointment of a receiver,
liquidator, assignee, trustee, conservator or sequester (or other similar
official) of Dreyer, or of all, or of a substantial part, of its properties; (g)
the making by Dreyer of an assignment for the benefit of creditors; (h) the
admission in writing by Dreyer of its inability to pay its debts generally as
they come due; (i) the taking of any corporate or other action by Dreyer in
furtherance of any of the foregoing; or (j) if Dreyer becomes insolvent by the
taking of any act or the making of any Transfer, or otherwise, as "insolvency"
is or may be defined pursuant to the Federal Bankruptcy Code, the Federal
Bankruptcy Act, the Uniform Fraudulent Conveyances Act, any state or federal
act, or the ruling of any court.
11
<PAGE> 1
EXHIBIT 10.7
MEMBER AGREEMENT
INTRODUCTION
THIS AGREEMENT is by and between AAi.FOSTERGRANT, Inc. a Rhode Island
corporation, ("AAi"), and Paul Michaels, a resident of Shoreview, Minnesota,
("Michaels").
RECITALS
AAi purchased a 67.0% membership interest in Fantasma, LLC, a Delaware
limited liability company, (the "Company") from Overdrive Capital Corp. pursuant
to an AGREEMENT (Purchase and Sale of Percentage Interest), dated the date
hereof, by and between Overdrive Capital Corp., as seller, and AAi, as buyer,
and AAi purchased a 13.0% membership interest from Roger D. Dreyer pursuant to
an AGREEMENT (Purchase and Sale of Percentage interest), dated the date hereof,
by and between Roger D. Dreyer, as seller, and AAi, as buyer.
Consequent to the above-described transactions, AAi is the owner of a
majority of the membership interests of the Company. Michaels is an officer and
employee of the Company. AAi is prepared to offer membership interests to
Michaels upon the terms and subject to the conditions set forth below.
AGREEMENTS
IT IS MUTUALLY agreed by and between the parties hereto as follows:
A. OPTIONS TO PURCHASE BY MICHAELS.
1. AAi shall make available to Michaels for purchase the following
percentage membership interests of the Company, for the prices set forth below
upon the terms and conditions set forth below. For the period commencing on the
date hereof, and ending ninety (90) days thereafter ("First Exercise Date"),
Michaels shall have the option to purchase two percent (2%) of the membership
interests of the Company ("2% Option"). Michaels shall additionally have the
following options to purchase additional membership interests, provided the
following Target EBIT are met, ("Performance Options"):
<PAGE> 2
<TABLE>
<CAPTION>
Pertinent
Options Year Exercise Date Percentage Target Ebit
------- ---- ------------- ---------- -----------
<S> <C> <C> <C> <C>
1 1998 30 days after the 1% $2,549,812
date the EBIT
calculations are
provided to Michaels *
2 1999 30 days after the 1%
date the EBIT
calculations are
provided to Michaels
3 2000 30 days after the 1% *
date the EBIT
calculations are
provided to Michaels
</TABLE>
(Hereinafter, the First Exercise Date and the Pertinent Exercise Date are
referred to as the "Exercise Date".)
2. The Purchase Price shall be $34,615 per 1% membership interest. All
options shall be exercised by written notice by Michaels to AAi by the
applicable Exercise Date. With respect to the 2% Option, AAi or the Company
shall assist in a loan to Michaels to fund the Purchase Price, or shall loan
funds to Michaels, subject to receiving a promissory note and pledge of the
membership interests to secure such loan in form and substance satisfactory to
the lender.
3. Upon the exercise of any option to purchase a membership interest in
the Company, Michaels shall become a party to the Amended and Restated Operating
Agreement of the Company then in effect by executing the Agreement in the form
attached hereto as EXHIBIT C.
4. Notwithstanding the foregoing, in the event that Michaels' employment
with the Company is terminated by the Company pursuant to SECTION 5.B of the
Employment Agreement between Michaels and the Company dated this date, then
Michaels shall have the option to purchase all or a portion of the balance of
the 3% Percentage that it has not theretofore purchased, with an Exercise Date
of twenty (20) days after the said termination of employment. Upon the earlier
of the expiration of the Exercise Date without his exercise of such option or
the purchase of membership interests after such exercise, all of his rights to
the options set forth above shall terminate. The Purchase Price per one percent
(1%) membership interest pursuant to this paragraph shall be the greater of (a)
$34,615 or (b) four times EBIT divided by 100; PROVIDED HOWEVER, if his
employment is so terminated within one (1) year from the date hereof the
Purchase
- ---------------
* TO BE BASED ON SALES CONSISTENT WITH EXHIBIT A-1, AND EXPENSES CONSISTENT,
ON A PERCENTAGE OF NET SALES BASIS, WITH EXHIBIT A-2.
2
<PAGE> 3
the expiration of the Exercise Date without his exercise of such option or the
purchase of membership interests after such exercise, all of his rights to the
options set forth above shall terminate. The Purchase Price per one percent (1%)
membership interest pursuant to this paragraph shall be the greater of (a)
$34,615 or (b) four times EBIT divided by 100; PROVIDED HOWEVER, if his
employment is so terminated within one (1) year from the date hereof the
Purchase Price for the first 1% Percentage shall be $34,615 and for the balance
shall be as set forth earlier in this sentence.
6. Each option shall be a separate option, and shall be not be
transferable or assignable. The Company's EBIT meeting or exceeding the Target
EBIT set forth above for the applicable Year shall be an absolute precondition
to each Performance Option for that Year, and there shall be no Performance
Option for any Year for which the Company's EBIT did not meet or exceed the
Target EBIT for such Year. Each Option shall be exercisable in a writing by
Michaels to AAi no earlier than 30 days before the Exercise Date set forth above
and no later than the Exercise Date set forth above. The exercise shall not be
valid unless accompanied by a certified or bank check payable to AAi in the
amount to the Purchase Price set forth above. If an option is not validly
exercised by the Exercise Date set forth above, the option shall expire and may
not be later exercised. The options are personal to Michaels and no Transfer
shall be effective without the prior written consent of AAi, which consent may
be withheld in its sole and absolute discretion. All of Michaels' rights to the
options, and all rights to receive membership interests from AAi pursuant to any
exercise of the options, shall automatically and irrevocably expire immediately
at the earlier of the following: (a) any Transfer or attempted Transfer of an
option or a membership interest in the Company without AAi's consent; (b)
Michaels' death; (c) subject to the provisions of SECTION A.5, the termination
(for any reason) of Michaels' employment with the Company, its affiliates and
any respective successors in interest; or (d) the Company's tangible net worth
as calculated by the Company's independent auditors in accordance with generally
accepted accounting principles consistently applied becomes less than $400,000
at the end of any fiscal year. For purposes of this SECTION A, calculation of
EBIT shall include expenses of affiliated companies allocated to the Company;
PROVIDED, HOWEVER, for specific categories of expenses set forth on EXHIBIT A,
attached hereto, such expenses shall not exceed the percentages represented by
the amounts set forth in such expense categories set forth on EXHIBIT A.
Notwithstanding the foregoing, at and after an initial public offering of AAi's
common stock, all options outstanding thereunder, including but not limited to
any that have been exercised, but membership interests not purchased or
transferred, shall be satisfied through the issuance of shares of AAi's common
stock determined by taking the aggregate purchase price payable pursuant to the
option and dividing it by the average selling price of a share of AAi common
stock during the ten (10) trading days immediately prior to the exercise (or, if
the exercise is at the date of the initial public offering, then at the initial
public offering price).
B. TRANSFER OF MICHAELS' MEMBERSHIP INTERESTS.
1. Upon the death, disability (as defined in Michaels' employment
agreement with the Company, its affiliates or their respective successors then
currently in effect or, if there is no such employment agreement then currently
in effect, defined as Michaels' inability to perform major
3
<PAGE> 4
functions of his job description for a period of six (6) consecutive months, as
determined by the President or Chairman of his employer), or the termination of
Michaels' employment with the Company, its affiliates and their respective
successors or any reason, Michaels shall transfer and assign to AAi all, and not
less than all, of his membership interests in the Company and any rights to
additional interests in the Company, and AAi shall purchase, for a purchase
price equal to the following:
a. Death or disability - the Purchase Price shall be an amount
equal the Valuation, calculated as of the date of death or
disability, and shall be payable, in twenty-four (24) equal
monthly installments commencing sixty (60) days from the date
of disability, with interest equal to the prime rate as
published in the Wall Street Journal.
b. Michaels resigns or otherwise terminates his employment, or
his employment is terminated by employer for Cause - the
Purchase Price shall be amount equal to the Valuation,
calculated as of the date of termination of employment, and
shall be paid in thirty-six (36) equal monthly installments
without interest, commencing on the second anniversary of his
termination.
c. Michaels' employment is terminated by employer for other than
Cause or his Employment Agreement, dated this date, - the
Purchase Price shall be an amount equal to the Valuation,
calculated as of the date of termination of employment, and
shall be paid in twenty-four (24) equal monthly installments
commencing sixty (60) days after his termination, with
interest at an annual rate equal to the prime rate published
in the Wall Street Journal.
2. For purposes of this SECTION B, "Cause" shall mean the events or
circumstances referred to as cause for employer's termination of Michaels'
employment in the then current employment agreement or, if there is not such a
then current employment agreement, then it shall mean the events or
circumstances referred to as cause for employer's termination of his employment
in the last effective employment agreement between Michaels and the Company, its
affiliates or their respective successors.
3. For purposes of this SECTION B, the "Date" shall mean the date of death
or disability under SECTION B.1.A. and the date of termination under SECTIONS
1.B. AND 1.C.
C. AAI INITIAL PUBLIC OFFERING.
1. In the event that there is an initial public offering of AAi's common
stock ("IPO"), AAi and Michaels each shall have the options to convert all, but
not less than all, of Michaels' membership interests in the Company into AAi
common stock, as set forth below:
a. The option shall be exercised in writing;
4
<PAGE> 5
b. The option shall be exercisable only with respect to the
conversion of all, and not less than all, of Michaels'
membership interests in the Company;
c. The option may be exercised by Michaels only (i) at the IPO
and (ii) during the six (6) month period commencing at the
date of the IPO";
d. The option may be exercisable by AAi (i) at the IPO or (ii)
during the (i) six (6) month period commencing at the date of
the IPO";
e. The conversion shall take place on the basis of Michaels'
receiving a number of common shares of AAi equal to the
resultant of (i) the Valuation divided by (ii) the average
selling price of a share of AAi's common stock during the ten
(10) trading days immediately prior to the exercise of the
option;
f. The AAi common stock shall not be registered and may not be
readily transferable or tradable, and shall be subject to such
restrictions on transfer as may be imposed by AAi's
underwriters of as may be required under state or federal
securities laws.
g. The option to convert at the IPO will be exercisable within
ten (10) days after the earlier of (i) AAi's notice to Michael
of its intent to file a registration statement or (ii) the
date of filing of the registration statement.
2. For purposes of this SECTION C, the "Determination Date" shall mean the
date of the IPO the exercise of the option.
D. RESTRICTIONS ON TRANSFER.
No Transfer of an option set forth in SECTION A or a membership interest in the
Company shall be effective without the prior written consent of AAi, which
consent may be withheld in its sole and absolute discretion. Any Transfer or
attempted Transfer without AAi's prior written consent shall be null and void
and of no effect.
E. DEFINITIONS. For purposes of SECTIONS A, B, C AND D:
1. "Valuation" shall mean the resultant of (a) the percentage of all
membership interests of the Company held by Michaels MULTIPLIED BY (b) four (4)
times EBIT.
2. "EBIT" shall mean earnings of the Company before interest and taxes for
the twelve (12) month period ending at the end of the last complete calendar
month immediately preceding the applicable Determination Date.
3. The Valuation and EBIT shall be determined by AAi using generally
accepted accounting principles applied on a consistent basis and, in the event
of any dispute, shall be determined in such manner by AAi's regularly retained
independent accounting firm, whose determination shall be final and binding upon
the parties.
5
<PAGE> 6
4. "Transfer" shall mean any sale, pledge, assignment, gift, bequest or
other Transfer, in whole or in part, directly or indirectly, including but not
limited to a transfer by operation of law or otherwise to the estate of Michaels
in a Transfer by a personal representative or creditor representative.
Notwithstanding the generality of the foregoing, any one or more of the
following events or conditions shall be deemed to constitute a Transfer: (a) the
filing of a petition in bankruptcy by or against Michaels or any assignment by
Michaels for the benefit of his creditors; (b) any transfer, award, or
confirmation to Michaels' spouse pursuant to a decree of divorce, dissolution,
or separate maintenance or pursuant to a property settlement or separation
agreement; (c) a determination that Michaels is incompetent, and for this
purpose an individual shall be deemed to be incompetent if (i) a conservator of
the person or estate has been appointed for the individual, (ii) a court with
jurisdiction has determined that the individual is incompetent or lacks capacity
or (iii) two licensed physicians have certified in writing that in their opinion
the individual is substantially unable to manage his financial resources or
resist fraud or undue influence; (d) any testamentary or other similar
disposition upon Michaels' death to a person other than his estate; and (e) any
other event which, were it not for the provisions of this Agreement, would cause
or result in a sale, assignment, pledge, encumbrance, award, confirmation or
other transfer, for consideration or otherwise, to any person, whether
voluntarily, involuntarily or by operation of law under circumstances not
constituting an approved means of Transfer under this Agreement.
F. PLEDGE AGREEMENT.
1. As collateral for Michaels' obligations under this Agreement, including
without limitation Michael's obligation to transfer his membership interests in
the Company to AAi in certain circumstances as described in SECTIONS B AND C.
Michael does hereby pledge, assign, transfer and grant a security in and as
collateral security for the performance of such obligations, or any amendment or
modification thereof, in 100% of his membership interest in the Company, which
outstanding membership interest are not certificated and for which Michael shall
deliver to AAi upon execution hereof and from time to time hereafter all
necessary or desirable instruments of transfer or assignment and any required
UCC financing statements.
2. Michaels represents and warrants to AAi as follows, which
representations and warranties shall continue to be true and correct in all
respects during the term of this Agreement: (i) Michaels has the full power and
lawful rights to pledge, assign and grant a security interest as specified
above; (ii) Michaels will warrant and defend the title to such membership
interests against the claims and demands of any person, firm, corporation,
trust, partnership or other entity; and (iii) the pledge agreement specified
above will be duly noted in the books and records of the Company. In addition to
its other remedies available to AAi at law or in equity for a breach of this
Agreement by Michaels, AAi's obligations hereunder are specifically contingent
on the above-noted representations and warranties being true and correct. In the
event that any of these representations or warranties are not true, or the
membership interests in the Company held by Michaels are not free and clear of
all liens, claims and encumbrances or Michaels is the subject of a Bankruptcy as
defined at EXHIBIT B, all of the rights of Michaels to exercise the options set
forth in this Agreement shall terminate and all rights of Michaels hereunder
shall terminate, or AAi may
6
<PAGE> 7
elect, to purchase all of the membership interests in the Company held by
Michaels, free and clear of all liens, claims and encumbrances.
G. MISCELLANEOUS.
1. Notices. Any notice or other communication required or permitted to be
given hereunder shall be given in writing and shall be delivered by registered
mail, postage prepaid, return receipt requested, or by telefacsimile, addressed
as follows:
TO AAi: AAi.FOSTERGRANT, Inc.
500 George Washington Highway
Smithfield, Rhode Island 02917
Telefacsimile: 401-231-3212
Attn: Mr. Gerald Cerce
WITH COPY TO:
Hinckley, Allen & Snyder
1500 Fleet Center
Providence, Rhode Island 02903
Telefacsimile: 401-277-9600
Attn: Pasco Gasbarro Jr., Esq.
TO MICHAELS:
Paul Michaels
5983 Highview Place
Shoreview, Minnesota 55126
Telefacsimile: 612-481-0561
or to such other address as the parties shall designate by written notice as
provided in this PARAGRAPH. Any such notice, proposal or communication shall be
deemed delivered and given on, or when so delivered by telefacsimile with a copy
to follow by mail or on, the fifth (5th) business day after deposit thereof,
postage prepaid by registered mail, return receipt requested.
2. GOVERNING LAW. This Agreement has been made in and its validity,
interpretation, construction and performance shall be governed by and be in
accordance with the laws of the State of Rhode Island, without reference to its
laws governing conflicts of law. Each party irrevocably agrees that any legal
action or proceedings against with respect to this Agreement may be brought in
the courts of the State of Rhode Island, or in any United States District Court
of Rhode Island, and, by its execution and delivery of this Agreement, each
party hereby irrevocably submits to each such jurisdiction and hereby
irrevocably waives any and all objections which it may have as to venue in any
of the above courts. Each party further consents and agrees that any process or
notice of motion or other application to either of said courts or any judge
thereof, or any notice in connection with any proceedings hereunder, may be
served inside or
7
<PAGE> 8
outside the State of Rhode Island or the District of Rhode Island by registered
or certified mail, return receipt requested, postage prepaid, and be effective
as of the receipt thereof, or in such other manner as may be permissible under
the rules of said courts. Each party hereby waives trial by jury in any action
or proceeding in connection with this Agreement.
3. INTEGRATION. This Agreement, and other agreements executed between the
parties and dated this date, constitute the entire agreement between the parties
with respect to the subject matter hereof, and any and all agreements, oral or
written, in relation thereto are hereby expressly superseded and canceled. Any
amendment hereto shall be evidenced by a writing signed by a duly authorized
representative of the party affected.
[Signatures Appear on Next Page]
8
<PAGE> 9
4. SEVERABILITY. If any term of provision of this Agreement, or the
application thereof to any person or under any circumstance, shall to any extent
be invalid or unenforceable, the remainder of this Agreement, or the application
of such terms to the persons or under circumstances other than those as to which
it is invalid or unenforceable, shall be considered severable and shall not be
affected thereby, and each term of this Agreement shall be valid and enforceable
to the fullest permitted by law. The invalid or unenforceable provisions shall,
to the extent permitted by law, be deemed amended and given such interpretation
as to achieve the economic intent of this Agreement.
5. THIRD PARTY BENEFICIARIES. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
6. HEADINGS. Any headings in this Agreement are inserted for convenience
and shall not control or affect the meaning or construction of any provision of
this Agreement.
7. SEVERAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by different parties on different counterparts, all of which
shall constitute a single agreement. In enforcing this Agreement, it shall be
necessary to produce and account for only one counterpart hereof executed by the
party against which enforcement is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the 23rd day of June, 1998.
AAi.FOSTERGRANT, Inc.
By /s/ Duane M. DeSisto
-----------------------------------
Title: Chief Financial Officer
and Treasurer
/s/ Paul Michaels
--------------------------------------
Paul Michaels
9
<PAGE> 1
Exhibit 10.8
ACCESSORIES ASSOCIATES, INC.
1996 INCENTIVE STOCK OPTION PLAN
Effective May 31, 1996
<PAGE> 2
ACCESSORIES ASSOCIATES, INC.
1996 INCENTIVE STOCK OPTION PLAN
1. Purpose
Accessories Associates, Inc. (the "Company") desires to
attract and retain the best available talent and encourage the highest level of
performance by employees and other persons who perform services for the Company
in order to serve the best interests of the Company and stockholders. By
affording eligible persons the opportunity to acquire proprietary interests in
the Company and by providing them incentives to put forth maximum efforts for
the success of the Company's business, the Accessories Associates, Inc. 1996
Incentive Stock Option Plan (the "1996 Plan") is expected to contribute to the
attainment of those objectives.
2. Scope and Duration
Awards under the 1996 Plan may be granted in the form of
incentive stock options ("incentive stock options") as provided in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), in the form of
non-qualified stock options ("non-qualified options") (unless otherwise
indicated, references in the 1996 Plan to "options" include incentive stock
options and non-qualified options), in the form of shares of the common stock,
par value, of the Company (the "Common Stock") that are restricted as provided
in paragraph 11 ("restricted shares"), in the form of units to acquire shares of
Common Stock that are restricted as provided in paragraph 11 ("restricted
units") or in the form of stock appreciation rights ("rights") or limited stock
appreciation rights ("limited rights"). The maximum aggregate number of shares
of Common Stock as to which awards may be granted from time to time under the
1996 Plan is 50,000 shares. The shares available may be in whole or in part, as
the Board of Directors of the Company (the "Board of Directors") shall from time
to time determine, authorized but unissued shares or issued shares reacquired by
the Company. Unless otherwise provided by the Compensation Committee, shares
covered by expired or terminated options and forfeited restricted shares or
restricted units will be available for subsequent awards under the 1996 Plan,
except to the extent prohibited by Rule 16b-3, as amended, or any successor
provision thereto ("Rule 16b-3"), or other applicable rules under Section 16(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Any
shares issued by the Company in respect of the assumption or substitution of
outstanding awards from a corporation or other business entity by the Company
shall not reduce the number of shares available for awards under the 1996 Plan.
No incentive stock option shall be granted more than 10 years after May 31,
1996.
3. Administration
The 1996 Plan shall be administered by the Compensation
Committee of the Board of Directors, consisting of not less than two members who
shall qualify to administer the 1996 Plan as contemplated by Rule 16b-3 (unless
Rule 16b-3 shall permit fewer than two members to so qualify); PROVIDED,
HOWEVER, that, with respect to individual participants who are not subject to
Section 16(b) of the Exchange Act, the Compensation Committee of the Board of
Directors may delegate authority to administer the 1996 Plan to another
committee of directors (the "Employee
<PAGE> 3
Committee") which committee may include directors who do not meet the standards
set forth immediately above. Unless the context otherwise requires, the term
"Committee" shall refer to both the Compensation Committee and the [Employee]
Committee.
The Committee shall have plenary authority in its discretion,
subject to and not inconsistent with the express provisions of the 1996 Plan to
grant options, to determine the purchase price of the shares of Common Stock
covered by each option, the term of each option, the persons to whom, and the
time or times at which options shall be granted, and the number of shares to be
covered by each option; to designate options as incentive stock options or
non-qualified options and to determine which options shall be accompanied by
rights and limited rights; to grant rights and to determine the terms and
conditions applicable to such rights; to grant restricted shares and restricted
units and to determine the term of the restricted period and other conditions
applicable to such shares or units, the persons to whom, and the time or times
at which, restricted shares or restricted units shall be granted and the number
of shares or units to be covered by each grant; to interpret the 1996 Plan; to
prescribe, amend and rescind rules and regulations relating to the 1996 Plan; to
determine the terms and provisions of the option and rights agreements (which
need not be identical) and the restricted share and restricted units agreements
(which need not be identical) entered into in connection with awards under the
1996 Plan; and to make all other determinations deemed necessary or advisable
for the administration of the 1996 Plan. The Committee may delegate to one or
more of its members or to one or more agents such administrative duties as it
may deem advisable, and the Committee or any person to whom it has delegated
duties as aforesaid may employ one or more persons to render advice with respect
to any responsibility the Committee or such person may have under the 1996 Plan.
The Committee may employ attorneys, consultants, accountants
or other persons and the Committee, the Company and its officers and directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee in good faith shall be final and binding upon all persons who have
received awards, the Company and all other interested persons. No member or
agent of the Committee shall be personally liable for any action, determination
or interpretation taken or made in good faith with respect to the 1996 Plan or
awards made thereunder, and all members and agents of the Committee shall be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation.
4. Eligibility; Factors to be Considered in Granting Awards
Awards will be limited to officers and other key employees of
the Company and its subsidiaries, and except in the case of incentive stock
options, any other non-employees who may provide services to the Company or its
subsidiaries (all such persons being hereinafter referred to as "employees"). In
determining the employees to whom awards shall be granted and the number of
shares or units to be covered by each award, the Committee shall take into
account the nature of the employees' duties, their present and potential
contributions to the success of the Company and such other factors as it shall
deem relevant in connection with accomplishing the purposes of the 1996 Plan.
2
<PAGE> 4
Awards may be granted singly, in combination or in tandem and
may be made in combination or in tandem with, in replacement of, or as
alternatives to, awards or grants under any other employee plan maintained by
the Company, its present and future subsidiaries. An employee who has been
granted an award or awards under the 1996 Plan may be granted an additional
award or awards, subject to such limitations as may be imposed by the Code on
the grant of incentive stock options. No award of incentive stock options shall
result in the aggregate fair market value of Common Stock with respect to which
incentive stock options are exercisable for the first time by any employee
during any calendar year (determined at the time the incentive stock option is
granted) exceeding $100,000. The Committee, in its sole discretion, may grant to
an employee who has been granted an award under the 1996 Plan or any other
employee plan maintained by the Company or its subsidiaries, or any predecessors
or successors thereto, in exchange for the surrender and cancellation of such
award, a new award in the same or a different form and containing such terms,
including without limitation a price which is different (either higher or lower)
than any price provided in the award so surrendered and cancelled, as the
Committee may deem appropriate.
5. Option Price
The purchase price of the Common Stock covered by each option
shall be determined by the Committee, but in the case of an incentive stock
option shall not be less than 100% of the fair market value (110% in the case of
a 10% shareholder of the Company) of the Common Stock on the date the option is
granted, as determined in good faith by the Board or, should the Company
complete an initial public offering of Common Stock, which shall be deemed to
equal the closing price of the Common Stock as quoted by NASDAQ or any
registered securities exchange on which the Common Stock is admitted for trading
(the "Mean Value") for the date on which the option is granted, or if there are
no sales on such date, on the next preceding day on which there were sales. The
Committee shall determine the date on which an option is granted, PROVIDED that
such date is consistent with the Code and any applicable rules or regulations
thereunder. In the absence of such determination, the date on which the
Committee adopts a resolution granting an option shall be considered the date on
which such option is granted, PROVIDED the employee to whom the option is
granted is promptly notified of the grant and an option agreement is duly
executed as of the date of the resolution. The purchase price of the Common
Stock covered by each option shall also be applicable in connection with the
exercise of any related right or limited right. The purchase price shall be
subject to adjustment as provided in paragraph 14.
6. Terms of Options
The term of each incentive stock option granted under the 1996
Plan shall not be more than 10 years (5 years in the case of a 10% shareholder
of the Company) from the date of grant, as the Committee shall determine,
subject to earlier termination as provided in paragraphs 12 and 13. The term of
each non-qualified stock option granted under the 1996 Plan shall be such period
of time as the Committee shall determine, subject to earlier termination as
provided in paragraphs 12 and 13.
3
<PAGE> 5
7. Exercise of Options; Loans
(a) Subject to the provisions of the 1996 Plan, an option
granted under the 1996 Plan shall become vested as determined by the Committee.
The Committee may, in its discretion, determine as a condition of any option,
that all or a stated percentage of the options shall become exercisable, in
installments or otherwise, only after completion of a specified service
requirement. The Committee may also, in its discretion, accelerate the
exercisability of any option at any time and provide, in any option agreement,
that the option shall become immediately exercisable as to all shares of Common
Stock remaining subject to the option on or following either (i) the first
purchase of shares of Common Stock pursuant to a tender offer or exchange offer
(other than an offer by the Company or any of its subsidiaries) for all, or any
part of, the Common Stock ("Offer"), (ii) a change in control of the Company (as
defined in this paragraph), (iii) approval by the Company's stockholders of a
merger in which the Company does not survive as an independent, publicly owned
corporation, a consolidation, or a sale, exchange or other disposition of all or
substantially all the Company's assets (other than a merger of the Company for
purposes of reincorporating under Delaware law), or (iv) a change in the
composition of the Board of Directors (other than that resulting from a Remedy
Event as that term is defined in the rights, preference and privileges of the
Company's Series A Redeemable Convertible Preferred Stock) during any period of
two consecutive years such that individuals who at the beginning of such period
were members of the Board of Directors cease for any reason to constitute at
least a majority thereof, unless the election, or the nomination for election by
the Company's stockholders, of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors at the
beginning of the period (the date upon which an event described in clause (i),
(ii), (iii) or (iv) of this paragraph 7(a) occurs shall be referred to herein as
an "acceleration date"). A "change in control" is deemed to occur at the time of
any acquisition of voting securities of the Company by any person or group (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), but
excluding (i) the Company or any of its subsidiaries, (ii) any person who was a
stockholder, officer or director of the Company on May 31, 1996, or (iii) any
savings, pension or other benefits plan for the benefit of employees of the
Company or any of its subsidiaries, which theretofore did not beneficially own
voting securities representing more than 30% of the voting power of all
outstanding voting securities of the Company, if such acquisition results in
such entity, person or group owning beneficially securities representing more
than 30% of the voting power of all outstanding voting securities of the
Company. As used herein, "voting power" means ordinary voting power for the
election of directors of the Company.
(b) An option may be exercised at any time or from time to
time (subject, in the case of an incentive stock option, to such restrictions as
may be imposed by the Code), as to any or all full shares as to which the option
has become exercisable. Notwithstanding the foregoing provision, no option may
be exercised without the prior consent of the Committee by an employee who is
subject to Section 16(b) of the Exchange Act until the expiration of six months
from the date of the grant of the option.
(c) The purchase price of the shares as to which an option is
exercised shall be paid in full at the time of exercise; payment may be made in
cash, which may be paid by check, or other instrument acceptable to the Company,
or, with the consent of the Committee, in shares of
4
<PAGE> 6
the Common Stock, valued at the Mean Value on the date of exercise, or if there
were no sales on such date, on the next preceding day on which there were sales
or (if permitted by the Committee and subject to such terms and conditions as it
may determine) by surrender of outstanding awards under the 1996 Plan. In
addition, any amount necessary to satisfy applicable federal, state or local tax
requirements shall be paid promptly upon notification of the amount due. The
Committee may permit such amount to be paid in shares of Common Stock previously
owned by the employee, or a portion of the shares of Common Stock that otherwise
would be distributed to such employee upon exercise of the option, or a
combination of cash and shares of such Common Stock.
(d) Except as provided in paragraphs 12 and 13, no option may
be exercised at any time unless the holder thereof is then an employee of or
performing services for the Company or one of its subsidiaries. For this
purpose, "subsidiary" shall include, as under Treasury Regulations Section
1.421-7(h)(3) and (4), Example (3), any corporation that is a subsidiary of the
Company during the entire portion of the requisite period of employment during
which it is the employer of the holder.
(e) The Committee, in its sole discretion, may elect, in lieu
of delivering all or a portion of the shares of Common Stock as to which an
option has been exercised, if the fair market value of the Common Stock exceeds
the exercise price of the option (i) to pay the employee in cash or in shares of
Common Stock, or a combination of cash and Common Stock, an amount equal to the
excess of (A) the Mean Value on the exercise date of the shares of Common Stock
as to which such option has been exercised, or if there were no sales on such
date, on the next preceding day on which there were sales over (B) the option
price, or (ii) in the case of an option which is a non-qualified option, to
defer payment and to credit the amount of such excess on the Company's books for
the account of the optionee and either (a) to treat the amount in such account
as if it had been invested in the manner from time to time determined by the
Committee, with dividends or other income therein being deemed to have been so
reinvested or (b) for the Company's convenience, to contribute the amount
credited to such account to a trust, which may be revocable by the Company, for
investment in the manner from time to time determined by the Committee and set
forth in the instrument creating such trust; PROVIDED, HOWEVER, that, to the
extent required by Rule 16b-3 or other applicable rules under Section 16(b) of
the Exchange Act, in order to perfect the exemption provided thereunder for cash
settlements of stock appreciation rights, the Committee shall not exercise its
discretion to grant cash to any employee who is subject to the provisions of
Section 16(b) of the Exchange Act unless the exercise occurs during any period
commencing on the third business day following the date of release for
publication of any annual or quarterly summary statements of the Company's sales
and earnings and ending on the twelfth business day following such date (a
"Window Period"). The Committee's election pursuant to this subparagraph shall
be made by giving written notice of such election to the employee (or other
person exercising the option). Shares of Common Stock paid pursuant to this
subparagraph will be valued at the Mean Value on the exercise date, or if there
were no sales on such date, on the next preceding day on which there were sales.
(f) Subject to any terms and conditions that the Committee may
determine in respect of the exercise of options involving the surrender of
outstanding awards, upon, but not
5
<PAGE> 7
until, the exercise of an option or portion thereof in accordance with the 1996
Plan, the option agreement and such rules and regulations as may be established
by the Committee, the holder thereof shall have the rights of a stockholder with
respect to the shares issued as a result of such exercise.
(g) The Company may make loans to such option holders as the
Committee, in its discretion, may determine (including a holder who is a
director or officer of the Company) in connection with the exercise of options
granted under the 1996 Plan; PROVIDED, HOWEVER, that the Committee shall not
authorize the making of any loan where the possession of such discretion or the
making of such loan would result in a "modification" (as defined in Section 424
of the Code) of any incentive stock option. Such loans shall be subject to the
following terms and conditions and such other terms and conditions as the
Committee shall determine not inconsistent with the 1996 Plan. Such loans shall
bear interest at such rates as the Committee shall determine from time to time,
which rates may be below then current market rates (except in the case of
incentive stock options). In no event may any such loan exceed the fair market
value, at the date of exercise, of the shares covered by the option, or portion
thereof, exercised by the holder. No loan shall have an initial term exceeding
five years, but any such loan may be renewable at the discretion of the
Committee. When a loan shall have been made, shares of Common Stock having a
fair market value at least equal to the principal amount of the loan shall be
pledged by the holder to the Company as security for payment of the unpaid
balance of the loan. Every loan shall comply with all applicable laws,
regulations and rules of the Board of Governors of the Federal Reserve System
and any other governmental agency having jurisdiction.
8. Award and Exercise of Rights
(a) A right may be awarded by the Committee in connection with
any option granted under the 1996 Plan (a "tandem right"), either at the time
the option is granted or thereafter at any time prior to the exercise,
termination or expiration of the option. A right may also be awarded separately
(a "free- standing right"). Each tandem right shall be subject to the same terms
and conditions as the related option and shall be exercisable only to the extent
the option is exercisable.
The term of each freestanding right granted under the 1996
Plan shall be such period of time as the Committee shall determine. Subject to
the provisions of the 1996 Plan, such right shall become vested as determined by
the Committee. Prior to becoming 100% vested, each freestanding right shall
become exercisable, in installments or otherwise, as the Committee shall
determine. The Committee may also, in its discretion, accelerate the
exercisability of any freestanding right at any time and provide, in the
agreement covering a freestanding right, that the right shall become immediately
exercisable on or following an acceleration date (as defined in paragraph 7(a)).
No right shall be exercisable by an employee who is subject to
the provisions of Section 16(b) of the Exchange Act without the prior consent of
the Committee prior to the expiration of six months from the date the right is
awarded (and then, as to a tandem right, only to the extent the related option
is exercisable). Notwithstanding the foregoing, no right shall be
6
<PAGE> 8
exercisable by an employee who is subject to the provisions of Section 16(b) of
the Exchange Act without the prior consent of the Committee prior to the
expiration of one year from the date of the initial sale of shares of Common
Stock of the Company to the public.
(b) A right shall entitle the employee upon exercise in
accordance with its terms (subject, in the case of a tandem right, to the
surrender unexercised of the related option or any portion or portions thereof
which the employee from time to time determines to surrender for this purpose)
to receive, subject to the provisions of the 1996 Plan and such rules and
regulations as from time to time may be established by the Committee, a payment
having an aggregate value equal to (A) the excess of (I) the fair market value
on the exercise date of one share over (II) the option price per share, in the
case of a tandem right, or the price per share specified in the terms of the
right, in the case of a freestanding right, times (B) the number of shares with
respect to which the right shall have been exercised. The payment shall be made
in the form of all cash, all shares of Common Stock, or a combination thereof,
as elected by the employee, PROVIDED that, unless otherwise approved by the
Committee, the election by an employee who is subject to the provisions of
Section 16(b) of the Exchange Act to receive all or a part of a payment in cash,
as well as the exercise by the employee of the right for cash, shall be made
only during a Window Period (as defined in paragraph 7(e) hereof); and PROVIDED
FURTHER, that the Committee shall have sole discretion to consent to or
disapprove the election of an officer or director to receive all or part of a
payment in cash (which consent or disapproval may be given at any time after the
election to which it relates). The price per share specified in a freestanding
right shall be determined by the Committee but in no event shall be less than an
amount determined in good faith by the Board of Directors, or if the Company
completes a public offering of its Common Stock the average of the daily closing
prices for the Common Stock as reported by NASDAQ or such other registered
securities exchange to which the Common Stock is admitted for trading during a
period determined by the Committee in its sole discretion that shall consist of
any Trading Day or any number of consecutive Trading Days, not exceeding 30,
during the period of 30 Trading Days ending on the Trading Day immediately
preceding the date the right is granted, PROVIDED that, in the absence of a
different determination by the Committee, the price per share shall be
determined on the basis of a period consisting of 30 Trading Days. Such price
shall be subject to adjustment as provided in paragraph 14. The Committee shall
determine the date on which a freestanding right is granted. In the absence of
such determination, the date on which the Committee adopts a resolution granting
such right shall be considered the date of grant, provided the employee is
promptly notified of the grant and an agreement is duly executed as of the date
of the resolution.
If upon exercise of a right the employee is to receive a
portion of the payment in shares of Common Stock, the number of shares received
shall be determined by dividing such portion by the fair market value of a share
on the exercise date. The number of shares received may not exceed the number of
shares covered by any option or portion thereof surrendered. Cash will be paid
in lieu of any fractional share.
No payment will be required from the employee upon exercise of
a right, except that any amount necessary to satisfy applicable federal, state
or local tax requirements shall be withheld or paid promptly upon notification
of the amount due and prior to or concurrently with
7
<PAGE> 9
delivery of cash or a certificate representing shares. The Committee may permit
such amount to be paid in shares of Common Stock previously owned by the
employee, or a portion of the shares of Common Stock that otherwise would be
distributed to such employee upon exercise of the right, or a combination of
cash and shares of such Common Stock.
(c) For purposes of this paragraph 8, the fair market value of
a share on any particular date shall mean the Mean Value of such share on such
date, or if there are no sales on such date, on the next preceding day on which
there were sales; PROVIDED, HOWEVER, that with respect to exercises of rights by
an employee who is subject to the provisions of Section 16(b) of the Exchange
Act during any Window Period, the Committee may prescribe, by rule of general
application, such other measure of fair market value per share as the Committee
may, in its discretion, determine but not in excess of the highest sale price of
the Common Stock during such Window Period and, in the case of rights that
relate to an incentive stock option, not in excess of the maximum amount that
would be permissible under Section 422 of the Code and the Treasury Regulations
thereunder without disqualifying such option as an incentive stock option under
Section 422.
(d) Upon exercise of a tandem right, the number of shares
subject to exercise under the related option shall automatically be reduced by
the number of shares represented by the option or portion thereof surrendered.
(e) A right related to an incentive stock option may only be
exercised if the fair market value of a share of Common Stock on the exercise
date exceeds the option price.
(f) Whether payments to employees upon exercise of tandem
rights related to non-qualified options or of freestanding rights are made in
cash, shares of Common Stock or a combination thereof, the Committee shall have
sole discretion as to timing of the payments, whether in one lump sum or in
annual installments or otherwise deferred, which deferred payments may in the
Committee's sole discretion (i) bear amounts equivalent to interest or cash
dividends, (ii) be treated as invested in the manner from time to time
determined by the Committee, with dividends or other income thereon being deemed
to have been so reinvested, or (iii) for the convenience of the Company,
contributed to a trust, which may be revocable by the Company or subject to the
claims of its creditors, for investment in the manner from time to time
determined by the Committee and set forth in the instrument creating such trust,
all as the Committee shall determine.
(g) If a freestanding right is not exercised, or neither a
tandem right nor the related option is exercised, before the end of the day on
which the right ceases to be exercisable and the fair market value of a share on
such date exceeds (i) the option price per share in the case of a tandem right
or (ii) the price per share specified in the terms of the right in the case of a
freestanding right, such right shall be deemed exercised and a payment in the
amount prescribed by subparagraph 8(b), less any applicable taxes, shall be paid
to the employee in cash.
8
<PAGE> 10
9. Award and Exercise of Limited Rights
(a) A limited right may be awarded by the Committee in
connection with any option granted under the 1996 Plan with respect to all or
some of the shares of Common Stock covered by such related option. A limited
right may be granted either at the time the option is granted or thereafter at
any time prior to the exercise, termination or expiration of the option. A
limited right may be granted to an employee irrespective of whether such
employee is being granted or has been granted a right under paragraph 8 hereof.
A limited right may be exercised only during the ninety-day period beginning on
an acceleration date (as defined in paragraph 7(a)). In addition, each limited
right shall be exercisable only if, and to the extent that, the related option
is exercisable and, in the case of a limited right granted in respect of an
incentive stock option, only when the fair market value per share of the Common
Stock exceeds the option price per share. Upon exercise of a limited right, such
related option shall cease to be exercisable to the extent of the shares of
Common Stock with respect to which such limited right is exercised. Upon the
exercise or termination of a related option, the limited right with respect to
such related option shall terminate to the extent of the shares of Common Stock
with respect to which the related option was exercised or terminated.
(b) Upon the exercise of limited rights, the holder thereof
shall receive in cash whichever of the following amounts is applicable:
(i) in the case of an exercise of limited rights by reason of
the occurrence of an Offer (as defined in paragraph 7(a)(i)), an amount equal to
the Offer Spread (as defined in paragraph 9(d));
(ii) in the case of an exercise of limited rights by reason of
an acquisition of Common Stock described in paragraph 7(a)(ii), an amount equal
to the Acquisition Spread (as defined in paragraph 9(h) hereof);
(iii) in the case of an exercise of limited rights by reason
of an event described in paragraph 7(a)(iii), an amount equal to the Merger
Spread (as defined in paragraph 9(f) hereof); or
(iv) in the case of an exercise of limited rights by reason of
a change in the composition of the Board of Directors as described in paragraph
7(a)(iv), an amount equal to the Spread (as defined in paragraph 9(i) hereof).
Notwithstanding the foregoing, in the case of a limited right
granted in respect of an incentive stock option, the holder may not receive an
amount in excess of such amount as will enable such option to qualify as an
incentive stock option.
(c) The term "Offer Price per Share" as used in this paragraph
9 shall mean, with respect to the exercise of any limited right by reason of the
occurrence of an Offer, the greater of (i) the highest price per share of Common
Stock paid in any Offer, which Offer is in effect at any time during the
ninety-day period ending on the date on which such limited right is exercised,
or
9
<PAGE> 11
(ii) the highest fair market value per share of Common Stock during such
ninety-day period. Any securities or property which are part or all of the
consideration paid for shares of Common Stock in the Offer shall be valued in
determining the Offer Price per Share at the higher of (A) the valuation placed
on such securities or property by the corporation, person or other entity making
such Offer or (B) the valuation placed on such securities or property by the
Committee.
(d) The term "Offer Spread" as used in this paragraph 9 shall
mean an amount equal to the product computed by multiplying (i) the excess of
(A) the Offer Price per Share over (B) the option price per share of Common
Stock at which the related option is exercisable, by (ii) the number of shares
of Common Stock with respect to which such limited right is being exercised.
(e) The term "Merger Price per Share" as used in this
paragraph 9 shall mean, with respect to the exercise of any limited right by
reason of an event described in paragraph 7(a) (iii), the greater of (i) the
fixed or formula price for the acquisition of shares of Common Stock occurring
pursuant to such event if such fixed or formula price is determinable on the
date on which such limited right is exercised, and (ii) the highest fair market
value per share of Common Stock during the ninety-day period ending on the date
on which such limited right is exercised. Any securities or property which are
part or all of the consideration paid for shares of Common Stock pursuant to
such event shall be valued in determining the Merger Price per Share at the
higher of (A) the valuation placed on such securities or property by the
corporation, person or other entity which is a party with the Company to such
event or (B) the valuation placed on such securities or property by the
Committee.
(f) The term "Merger Spread" as used in this paragraph 9 shall
mean an amount equal to the product computed by multiplying (i) the excess of
(A) the Merger Price per Share over (B) the option price per share of Common
Stock at which the related option is exercisable, by (ii) the number of shares
of Common Stock with respect to which such limited right is being exercised.
(g) The term "Acquisition Price per Share" as used in this
paragraph 9 shall mean, with respect to the exercise of any limited right by
reason of an acquisition of Common Stock described in paragraph 7(a)(ii), the
greater of (i) the highest price per share stated on the Schedule 13D or any
amendment thereto filed by the holder of 30% or more of the Company's voting
power which gives rise to the exercise of such limited right, and (ii) the
highest fair market value per share of Common Stock during the ninety-day period
ending on the date the limited right is exercised.
(h) The term "Acquisition Spread" as used in this paragraph 9
shall mean an amount equal to the product computed by multiplying (i) the excess
of (A) the Acquisition Price per Share over (B) the option price per share of
Common Stock at which the related option is exercisable, by (ii) the number of
shares of Common Stock with respect to which such limited right is being
exercised.
10
<PAGE> 12
(i) The term "Spread" as used in this paragraph 9 shall mean,
with respect to the exercise of any limited right by reason of a change in the
composition of the Board described in paragraph 7(a) (iv), an amount equal to
the product computed by multiplying (i) the excess of (A) the highest fair
market value per share of Common Stock during the ninety-day period ending on
the date the limited right is exercised over (B) the option price per share of
Common Stock at which the related option is exercisable, by (ii) the number of
shares of Common Stock with respect to which the limited right is being
exercised.
(j) Notwithstanding any other provision of the 1996 Plan,
rights granted pursuant to paragraph 8 may not be exercised to the extent that
any limited rights granted with respect to the same option are then exercisable.
(k) For purposes of this paragraph 9, "fair market value per
share of Common Stock" for any day shall mean the Mean Value for such day (or if
there were no sales on such day, on the next preceding day on which there were
sales).
10. Non-Transferability of Options and Rights
Options, rights and limited rights granted under the 1996 Plan
shall not be transferable otherwise than by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations order as defined by
Section 414(p) of the Code. Options, rights and limited rights may be exercised
during the lifetime of the employee only by the employee or by the employee's
guardian or legal representative (unless such exercise would disqualify an
option as an incentive stock option).
11. Award and Delivery of Restricted Shares or Restricted Units
(a) At the time an award of restricted shares or restricted
units is made, the Committee shall establish a period of time (the "Restricted
Period") applicable to such award. Each award of restricted shares or restricted
units may have a different Restricted Period. The Committee may, in its sole
discretion, at the time an award is made, prescribe conditions for the
incremental lapse of restrictions during the Restricted Period, for the lapse or
termination of restrictions upon the satisfaction of other conditions in
addition to or other than the expiration of the Restricted Period with respect
to all or any portion of the restricted shares or restricted units and provide
for the lapse of all restrictions with respect to all restricted shares or
restricted units covered by the award upon the occurrence of an acceleration
date as defined in paragraph 7(a). The Committee may also, in its sole
discretion, shorten or terminate the Restricted Period or waive any conditions
for the lapse or termination of restrictions with respect to all or any portion
of the restricted shares or restricted units. Notwithstanding the foregoing, all
restrictions shall lapse or terminate with respect to all restricted shares or
restricted units upon death or total disability (as defined in paragraph 13).
(b) Upon the grant of an award of restricted shares, a stock
certificate representing a number of shares of Common Stock equal to the number
of restricted shares granted to an employee shall be registered in the
employee's name but shall be held in custody by the Company
11
<PAGE> 13
for the employee's account. The employee shall generally have the rights and
privileges of a stockholder as to such restricted shares, including the right to
vote such restricted shares, except that, subject to the provisions of paragraph
12, the following restrictions shall apply: (i) the employee shall not be
entitled to delivery of the certificate until the expiration or termination of
the Restricted Period and the satisfaction of any other conditions prescribed by
the Committee; (ii) none of the restricted shares may be sold, transferred,
assigned, pledged, or otherwise encumbered or disposed of during the Restricted
Period and until the satisfaction of any other conditions prescribed by the
Committee; and (iii) all of the restricted shares shall be forfeited and all
rights of the employee to such restricted shares shall terminate without further
obligation on the part of the Company unless the employee has remained an
employee of the Company or any of its subsidiaries or any combination thereof
until the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Committee applicable to
such restricted shares. At the discretion of the Committee, cash and stock
dividends with respect to the restricted shares may be either currently paid or
withheld by the Company for the employee's account, and interest may be paid on
the amount of cash dividends withheld at a rate and subject to such terms as
determined by the Committee. Upon the forfeiture of any restricted shares, such
forfeited restricted shares shall be transferred to the Company without further
action by the employee. The employee shall have the same rights and privileges,
and be subject to the same restrictions, with respect to any shares received
pursuant to paragraph 14.
(c) Upon the expiration or termination of the Restricted
Period and the satisfaction of any other conditions prescribed by the Committee
or at such earlier time as provided for in paragraph 12, the restrictions
applicable to the restricted shares shall lapse and a stock certificate for the
number of shares of Common Stock with respect to which the restrictions have
lapsed shall be delivered, free of all such restrictions, except any that may be
imposed by law, to the employee or the employee's beneficiary or estate, as the
case may be. The Company shall not be required to deliver any fractional share
of Common Stock but will pay, in lieu thereof, the fair market value (determined
as of the date the restrictions lapse) of such fractional share to the employee
or the employee's beneficiary or estate, as the case may be. No payment will be
required from the employee upon the issuance or delivery of any restricted
shares, except that any amount necessary to satisfy applicable federal, state or
local tax requirements shall be withheld or paid promptly upon notification of
the amount due and prior to or concurrently with the issuance or delivery of a
certificate representing such shares. The Committee may permit such amount to be
paid in (i) shares of Common Stock previously owned by the employee, (ii) a
portion of the shares of Common Stock that otherwise would be distributed to
such employee upon the lapse of the restrictions applicable to the restricted
shares, or (iii) a combination of cash and shares of such Common Stock;
PROVIDED, HOWEVER, unless otherwise approved by the Committee, that an election
by an employee subject to Section 16(b) of the Exchange Act to use shares of
Common Stock described in clause (ii) above to satisfy any federal, state or
local tax requirement shall be made only during a Window Period (as defined in
paragraph 7(e) hereof), and PROVIDED FURTHER that the Committee shall have sole
discretion to consent to or disapprove of any such election (which consent or
disapproval may be given at any time after the election to which it relates).
(d) In the case of an award of restricted units, no shares of
Common Stock shall be issued at the time the award is made, and the Company
shall not be required to set aside a fund
12
<PAGE> 14
for the payment of any such award. At the discretion of the Committee, cash and
stock dividends with respect to the Common Stock ("Dividend Equivalents") may be
currently paid or withheld by the Company for the employee's account, and
interest may be paid on the amount of cash dividends withheld at a rate and
subject to such terms as determined by the Committee.
Upon the expiration or termination of the Restricted Period
and the satisfaction of any other conditions prescribed by the Committee or at
such earlier time as provided for in paragraph 12, the Company shall deliver to
the employee or the employee's beneficiary or estate, as the case may be, one
share of Common Stock for each restricted unit with respect to which the
restrictions have lapsed ("vested unit"), and cash equal to any Dividend
Equivalents credited with respect to each such vested unit and any interest
thereon; PROVIDED, HOWEVER, that the Committee may, in its sole discretion,
elect to pay cash or part cash and part Common Stock in lieu of delivering only
Common Stock for vested units. If a cash payment is made in lieu of delivering
Common Stock, the amount of such cash payment shall be equal to the Mean Value
for the date on which the Restricted Period lapsed with respect to such vested
unit, or if there are no sales on such date, on the next preceding day on which
there were sales. No payment will be required from the employee upon the award
of any restricted units, the crediting or payment of any Dividend Equivalents,
or the delivery of Common Stock or the payment of cash in respect of vested
units, except that any amount necessary to satisfy applicable federal, state or
local tax requirements shall be withheld or paid promptly upon notification of
the amount due. The Committee may permit such amount to be paid in (i) shares of
Common Stock previously owned by the employee, (ii) a portion of the shares of
Common Stock that otherwise would be distributed to such employee in respect of
vested units, or (iii) a combination of cash and shares of such Common Stock;
PROVIDED, HOWEVER, unless otherwise approved by the Committee, that an election
by an employee subject to Section 16(b) of the Exchange Act to use the shares of
Common Stock described in clause (ii) above to satisfy any federal, state or
local tax requirement shall be made only during a Window Period (as defined in
paragraph 7(e) hereof); and PROVIDED FURTHER that the Committee shall have sole
discretion to consent to or disapprove of any such election (which consent or
disapproval may be given at any time after the election to which it relates).
Upon the occurrence of an acceleration date (as defined in
paragraph 7(a)), all outstanding vested units (including any restricted units
whose restrictions have lapsed as a result of the occurrence of such
acceleration date) and credited Dividend Equivalents shall be payable as soon as
practicable but in no event later than 90 days after such acceleration date in
cash, in shares of Common Stock, or part in cash and part in Common Stock, as
the Committee, in its sole discretion, shall determine. To the extent that an
employee receives cash in payment for his vested units, such employee shall
receive an amount equal to the product of (i) the number of vested units
credited to such employee's account for which such employee is receiving payment
in cash times (ii) the Multiplication Factor (as defined below). To the extent
that an employee receives Common Stock in payment for his vested units, such
employee shall receive the number of shares of Common Stock determined by
dividing (i) the product of (x) the number of vested units credited to such
employee's account for which such employee is receiving payment in Common Stock
times (z) the Multiplication Factor, by (ii) the fair market value per share of
the Common Stock as of the day preceding the payment date. "Multiplication
Factor" shall mean (i) in
13
<PAGE> 15
the event of the occurrence of an Offer as defined in paragraph 7(a)(i), the
Offer Price per Share as modified below, (ii) in the case of an acquisition of
Common Stock described in paragraph 7(a) (ii), the Acquisition Price per Share
as modified below, (iii) in the case of an event described in paragraph
7(a)(iii), the Merger Price per Share as modified below, or (iv) in the case of
a change in the composition of the Board of Directors as described in paragraph
7(a)(iv), the highest fair market value per share of the Common Stock for any
day during the applicable ninety-day period described below. For purposes of the
preceding sentence, (i) the applicable ninety-day period described in paragraphs
9(c), (e) and (g) and in clause (iv) above shall mean the ninety-day period
ending on or within 89 days following an acceleration date which the Committee,
in its sole discretion, shall select and (ii) fair market value per share of the
Common Stock shall mean the Mean Value.
(e) The restricted unit award agreement may permit an employee
to request that the payment of vested units (and Dividend Equivalents and the
interest thereon with respect to such vested units) be deferred beyond the
payment date specified in the agreement. The Committee shall, in its sole
discretion, determine whether to permit such deferment and to specify the terms
and conditions, which are not inconsistent with the 1996 Plan, to be contained
in the agreement. In the event of such deferment, the Committee may determine
that interest shall be credited annually on the Dividend Equivalents, at a rate
to be determined by the Committee. The Committee may also determine to compound
such interest.
12. Termination of Employment
Unless otherwise determined by the Committee, and subject to
such restrictions as may be imposed by the Code in the case of any incentive
stock options, in the event that the employment of an employee to whom an
option, right or limited right has been granted under the 1996 Plan shall be
terminated (except as set forth in paragraph 13), such option, right or limited
right may, subject to the provisions of the 1996 Plan, be exercised (to the
extent that the employee was entitled to do so at the termination of his
employment) at any time within three months after such termination, or, in the
case of an employee whose termination results from retirement from active
employment at or after the earliest permissible retirement date specified in the
qualified retirement plan of the Company or one of its subsidiaries covering
such employee, within one year after such termination, but in no case later than
the date on which the option, right or limited right terminates; PROVIDED,
HOWEVER, that any option, right or limited right held by an employee whose
employment is terminated for cause shall forthwith terminate, to the extent not
theretofore exercised.
Unless otherwise determined by the Committee, if an employee
to whom restricted shares or restricted units have been granted ceases to be an
employee of the Company or of a subsidiary prior to the end of the Restricted
Period and the satisfaction of any other conditions prescribed by the Committee
for any reason other than death or total disability (as defined in paragraph
13), the employee shall immediately forfeit all restricted shares and restricted
units. Awards granted under the 1996 Plan shall not be affected by any change of
duties or position so long as the holder continues to be an employee of the
Company or any of its subsidiaries. Any option, right, limited right, restricted
share or restricted unit agreement, or any rules and
14
<PAGE> 16
regulations relating to the 1996 Plan, may contain such provisions as the
Committee shall approve with reference to the determination of the date
employment terminates and the effect of leaves of absence. Any such rules and
regulations with reference to any option agreement shall be consistent with the
provisions of the Code and any applicable rules and regulations thereunder.
Nothing in the 1996 Plan or in any award granted pursuant to the 1996 Plan shall
confer upon any employee any right to continue in the employ of the Company or
any of its subsidiaries or interfere in any way with the right of the Company or
any such subsidiary to terminate such employment at any time.
Notwithstanding anything else in the 1996 Plan to the
contrary, if the corporation employing an individual to whom an option, right,
limited right, restricted unit or restricted share has been granted under the
1996 Plan ceases to be a subsidiary of the Company, then the Committee may
provide that service with such employer or its direct or indirect or
subsidiaries in any capacity shall be considered employment with the Company for
purposes of the 1996 Plan.
13. Death or Total Disability of Employee
If an employee to whom an option, right or limited right has
been granted under the 1996 Plan shall die or suffer a "total disability" while
employed by the Company or its subsidiaries or within three months (or, in the
case of an employee whose termination results from retirement from active
employment at or after the earliest permissible retirement date specified in the
qualified retirement plan of the Company or its subsidiaries covering such
employee, or age 55 for non-employees of the Company, within one year) after the
termination of such employment (other than termination for cause), such option,
right or limited right may be exercised, to the extent that the employee was
entitled to do so at the termination of employment (including by reason of death
or total disability), as set forth herein (subject to the restrictions set forth
in paragraphs 8 and 9 with respect to persons subject to Section 16(b) of the
Exchange Act) by the employee, the legal guardian of the employee (unless such
exercise would disqualify an option as an incentive stock option), a legatee or
legatees of the employee under the employee's last will, or by the employee's
personal representatives or distributees, whichever is applicable, at any time
within one year after the date of the employee's death or total disability, but
in no case later than the date on which the option, right or limited right
terminates. For purposes hereof, "total disability" is defined as the permanent
inability of an employee, as a result of accident or sickness, to perform any
and every duty pertaining to such employee's occupation or employment for which
the employee is suited by reason of the employee's previous training, education
and experience.
14. Adjustment upon Changes in Capitalization, etc.
Notwithstanding any other provision of the 1996 Plan, the
Committee may at any time make or provide for such adjustments to the 1996 Plan,
to the number and class of shares available thereunder or to any outstanding
options, rights, restricted shares or restricted units as it shall deem
appropriate to prevent dilution or enlargement of rights, including adjustments
in the event of distributions to holders of Common Stock other than a normal
cash dividend, changes in the outstanding Common Stock by reason of stock
dividends, split-ups, recapitalizations, mergers, consolidations, combinations
or exchanges of shares, separations, reorganizations, liquidations
15
<PAGE> 17
and the like. In the event of any offer to holders of Common Stock generally
relating to the acquisition of their shares, the Committee may make such
adjustment as it deems equitable in respect of outstanding options, rights,
limited rights and restricted units, including in the Committee's discretion
revision of outstanding options, rights, limited rights and restricted units so
that they may be exercisable for or payable in the consideration payable in the
acquisition transaction. Any such determination by the Committee shall be
conclusive. No adjustment shall be made in respect of an incentive stock option
if such adjustment would disqualify such option as an incentive stock option
under Section 422 of the Code and the Treasury Regulations thereunder. No
adjustment shall be made in the minimum number of shares with respect to which
an option may be exercised at any time. Any fractional shares resulting from
such adjustments to options, rights, limited rights or restricted units shall be
eliminated.
15. Effective Date
The 1996 Plan shall be effective as of May 28, 1996, provided
that the adoption of the 1996 Plan shall have been approved by the stockholders
of the Company. The Committee thereafter may, in its discretion, grant awards
under the 1996 Plan, the grant, exercise or payment of which shall be expressly
subject to the conditions that, to the extent required at the time of grant,
exercise or payment, (i) if the Company deems it necessary or desirable, a
Registration Statement under the Securities Act of 1933 with respect to such
shares shall be effective, and (ii) any requisite approval or consent of any
governmental authority of any kind having jurisdiction over awards granted under
the 1996 Plan shall be obtained.
16. Termination and Amendment
The Board of Directors of the Company may suspend, terminate,
modify or amend the 1996 Plan, provided that any amendment that would increase
the aggregate number of shares that may be issued under the 1996 Plan,
materially increase the benefits accruing to participants under the 1996 Plan,
or materially modify the requirements as to eligibility for participation in the
1996 Plan shall be subject to the approval of the Company's stockholders to the
extent required by Rule 16b-3, applicable law or any other governing rules or
regulations, except that any such increase or modification that may result from
adjustments authorized by paragraph 14 does not require such approval. If the
1996 Plan is terminated, the terms of the 1996 Plan shall, notwithstanding such
termination, continue to apply to awards granted prior to such termination. In
addition, no suspension, termination, modification or amendment of the 1996 Plan
may, without the consent of the employee to whom an award shall theretofore have
been granted, adversely affect the rights of such employee under such award.
17. Written Agreements
Each award of options, rights, limited rights, restricted
shares or restricted units shall be evidenced by a written agreement, executed
by the employee and the Company, which shall contain such restrictions, terms
and conditions as the Committee may require.
16
<PAGE> 18
18. Effect on Other Stock Plans
The adoption of the 1996 Plan shall have no effect on awards
made or to be made pursuant to other stock plans covering employees of the
Company or its subsidiaries, or any predecessors or successors thereto.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer
to execute this Plan as of the 28th day of May, 1996.
ACCESSORIES ASSOCIATES, INC.
By: /s/ Gerald F. Cerce
------------------------------
Title: Chairman
17
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of the
31st day of May, 1996, by and between ACCESSORIES ASSOCIATES, INC., a Rhode
Island corporation with a mailing address of 500 George Washington Highway,
Smithfield, Rhode Island 02917 (the "Company"), and GERALD R. CERCE, an
individual with a residence address of 143 Meeting Street, Providence, Rhode
Island 02906 ("Executive").
INTRODUCTION
1. The Company is in the business of developing, manufacturing,
distributing and marketing ladies' and men's consumer soft lines sold in retail
stores (the "Accessories Business"). Executive conceived and developed the
concepts currently used in the Company's operations and possesses other skills
and knowledge advantageous to the Company.
2. The Company desires to employ Executive and Executive desires
to accept such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT PERIOD. The term of this Agreement (the
"Employment Period") shall commence on the date hereof and, subject to earlier
termination as hereinafter provided, shall terminate ten (10) years from the
date hereof. Thereafter, Executive's employment will continue automatically on a
year to year basis terminable by either party consistent with the terms of this
Agreement.
2. EMPLOYMENT; DUTIES. Subject to the terms and
conditions set forth herein, the Company hereby employs Executive to act as
Chairman and Chief Executive Officer of the Company during the Employment
Period, and Executive hereby accepts such employment. The duties assigned and
authority granted to Executive shall be as set forth in the By-laws of the
Company and as determined by its Board of Directors from time to time. Executive
agrees to perform his duties for the Company diligently, competently, and in a
good faith manner. The Executive may also engage in civic and charitable
activities to the extent they are not inconsistent with Executive's duties
hereunder.
3. SALARY AND BONUS.
(a) BASE SALARY. During the first year of the
Employment Period, the Company agrees to pay Executive $625,000 per year,
payable weekly in arrears. Executive's base
-1-
<PAGE> 2
salary shall not be decreased, and shall be increased on each anniversary date
of this Agreement (the "Anniversary Date"), based upon the increase in the
Consumer Price Index for all Urban Consumers (CPI-U), Boston, Massachusetts,
published by the Bureau of Labor Statistics of the United States Department of
Labor (1982-1984=100) (the "Index"). If, on an Anniversary Date, the Index shows
an increase from the base date of May 31, 1996 (the "Base Date"), then
Executive's annual base salary for the ensuing 12 months shall be the product of
(a) $601,000 and (b) one plus a percentage equal to the percentage increase in
the Index on each such Anniversary Date over the Index on the Base Date. In the
event the Bureau of Labor Statistics no longer publishes the Index the Company
shall use that index then available which most closely replicates the Index. In
addition, after the first year of the Employment Period, the Board of Directors
of the Company (or any appropriate committee thereof) shall review and may
increase the Executive's annual base salary in its discretion, based upon the
Company's performance and the Executive's particular contributions.
(b) BONUS. Executive shall be eligible for and
shall receive an annual cash bonus under the Company's Executive Incentive
Compensation Plan, subject to the discretion of the Company's Board of
Directors.
4. OTHER BENEFITS.
(a) INSURANCE AND OTHER BENEFITS. The Executive
shall be entitled to participate in, and shall receive the maximum benefits
available under, the Company's insurance programs (including health and life
insurance) and any ERISA benefit plans, as the same may be adopted and/or
amended from time to time, and shall receive all other fringe benefits that are
provided by the Company to other senior executives. The Company shall purchase a
disability insurance policy which shall provide Executive with the maximum
monthly benefit available to Executive, based upon Executive's monthly base
salary, after a six-month period of disability. The Company shall contribute the
maximum amount permitted under current law to the Executive's 401(k) Plan, and
any other Company pension or retirement plan during the Employment Period.
(b) VACATION. Executive shall be entitled to an
annual vacation of such duration as may be determined by the Board of Directors,
but not less than that generally established for other executives of Company and
in no event less than four (4) weeks, without interruption of salary.
(c) AUTOMOBILE ALLOWANCE. The Company shall
provide Executive with an automobile consistent with past practice.
(d) REIMBURSEMENT OF EXPENSES. The Company shall
reimburse Executive for all reasonable travel, entertainment and other expenses
incurred or paid by the Executive in connection with, or related to, the
performance of his duties or responsibilities under this Agreement, provided
that Executive submits to the Company substantiation of such expenses sufficient
to satisfy the record keeping guidelines promulgated from time to time by the
Internal Revenue Service. All domestic and international airline travel may be
in first class accommodations at the Executive's sole discretion.
-2-
<PAGE> 3
(e) MEMBERSHIP AND SERVICE FEES. The Company
shall pay the professional and other fees reasonably incurred by Executive in
connection with (i) an annual medical examination of Executive, (ii) the annual
planning for and preparation of Executive's personal income tax returns, (iii)
annual review of and planning Executive's financial situation by a financial
planner, (iv) annual membership in an airline travel club, (v) annual membership
in a social or health club of Executive's choice, and (vi) annual membership in
a golf or country club of Executive's choice.
(f) LODGING IN NEW YORK. Executive currently
owns an apartment unit located at 415 East 54th Street, New York, New York. The
Company shall reimburse Executive for all reasonable lodging, entertainment and
other expenses incurred or paid by the Executive in connection with, or related
to, the performance of his duties or responsibilities in New York City. The
Company shall reimburse Executive for actual lodging at the apartment on a per
diem basis at a rate equal to the daily rate charged in Manhattan to business
travellers by first-class hotels in a premium location.
(g) SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN. The
Company shall pay all annual payments for the Executive's Supplemental Employee
Retirement Plan ("SERP"). Notwithstanding any other provisions in this Agreement
to the contrary, the Company shall continue to make all payments on behalf of
the Executive to the SERP during and after the Employment Period. Upon
termination of the SERP, the Company shall deliver the proceeds of such SERP to
Executive or the Executive's beneficiaries in accordance with the SERP.
5. TERMINATION BY THE COMPANY WITH CAUSE. Upon prior
written notice to Executive, the Company may terminate this Agreement if any of
the following events shall occur:
(a) the conviction of Executive for a crime
involving fraud or moral turpitude;
(b) deliberate dishonesty of the Executive with
respect to the Company or any of its subsidiaries; or
(c) the refusal of the Executive to follow the
reasonable and lawful written instructions of the Board of Directors of the
Company with respect to the services to be rendered and the manner of rendering
such services by Executive, provided such refusal is material and repetitive and
is not justified or excused either by the terms of this Agreement or by actions
taken by the Company in violation of this Agreement, and with respect to the
first two refusals Executive has been given reasonable written notice and
explanation thereof and reasonable opportunity to cure and no cure has been
effected within a reasonable time after such notice.
6. TERMINATION BY THE EXECUTIVE; TERMINATION BY THE
COMPANY WITHOUT CAUSE.
6.1 NOTICE/EVENTS/DEFINED TERMS.
-3-
<PAGE> 4
(a) Executive may terminate this Agreement at
any time by providing written notice to the Company.
(b) The Company may terminate this Agreement at
any time, WITHOUT CAUSE, as defined below, upon six (6) months prior written
notice to Executive.
(c) As used in this Agreement, the term "WITHOUT
CAUSE" shall mean termination for any reason not specified in Section 5 hereof,
and shall include, without limitation: (i) the Company's materially reducing
Executive's duties or authority as Chief Executive Officer; and (ii) the
disability of Executive; or (iii) the Executive's death.
6.2 SEVERANCE.
(a) If the Company terminates this Agreement,
WITHOUT CAUSE, the Company shall provide Executive with a severance package
which shall consist of the following: (i) payment on the first business day of
each month of an amount equal to one-twelfth of the Executive's then current
annual base salary under Section 3(a) hereof; (ii) payment on the first business
day of each month of an amount equal to one-twelfth of Executive's most recent
bonus under Section 3(b) hereof; and (iii) continuation of all benefits under
Section 4.
(b) The Company's obligation to make the
payments and provide the benefits required by this Section 6.2 shall commence on
the date of termination of this Agreement by the Company, WITHOUT CAUSE, and
continue for a period equal to the greater of: (i) two (2) years, or (ii) the
duration of the Non-compete Period under Section 8 hereof.
7. DEATH OR DISABILITY. In the event of the Executive's
death or disability, employment will automatically terminate effective as of the
date of such death or disability. As used in this Agreement, the term
"disability" shall mean inability on the part of Executive for a period of more
than six (6) months in the aggregate during any twelve (12) month period to
perform the services contemplated under this Agreement. A determination of
disability shall be made by a physician satisfactory to both the Executive and
the Company, provided that if the Executive and the Company do not agree on a
physician, the Executive and the Company shall each select a physician and these
two physicians together shall select a third physician, whose determination as
to disability shall be binding on all parties.
8. NON-COMPETITION. During the Employment Period and
after termination of this Agreement by the Executive under Section 6.1(a), or by
the Company under Section 5 or Section 6.1(b), the Company may restrict the
Executive's subsequent involvement in the Restricted Business Activities, as
defined below, for the period ending two (2) years after the date of termination
of this Agreement (the "Non-compete Period"). As used in this Agreement, the
term "Restricted Business Activities" shall mean the marketing and sale of
ladies' and men's consumer soft lines to retail stores, which the Company sold
and marketed during Executive's employment with the Company. During the
Non-compete Period, Executive shall not, without the written approval of the
Company, directly or indirectly, either as an individual, partner, joint
venturer, employee or agent for any person, company, corporation or association,
or as an officer, director
-4-
<PAGE> 5
or stockholder of a corporation or otherwise, enter into or engage in or have a
proprietary interest in the Restricted Business Activities other than the
ownership of (a) the stock of the Company then held by Executive, and (b) no
more than five percent (5%) of the securities of any other publicly-held
company. The minimum period for which Executive shall be provided the severance
package set forth in Section 6.2 hereof shall be two (2) years. The Non-compete
period may be extended for up to an additional three (3) years, at the option of
the Company, provided that the Company continues to make the monthly payments
and provides the benefits required under Section 6.2 hereof, for such additional
period.
The Executive recognizes and agrees that because a violation
by him of his obligations under this Section 8 will cause irreparable harm to
the Company that would be difficult to quantify and for which money damages
would be inadequate, the Company shall have the right to injunctive relief to
prevent or restrain any such violation, without the necessity of posting a bond.
Executive expressly agrees that the character, duration and
scope of this covenant not to compete are reasonable in light of the
circumstances as they exist at the date upon which this Agreement has been
executed. However, should a determination nonetheless be made by a court of
competent jurisdiction at a later date that the character, duration or
geographical scope of this covenant not to compete is unreasonable in light of
the circumstances as they then exist, then it is the intention of both Executive
and the Company that this covenant not to compete shall be construed by the
court in such a manner as to impose only those restrictions on the conduct of
Executive which are reasonable in light of the circumstances as they then exist
and necessary to assure the Company of the intended benefit of this covenant to
compete.
9. CONFIDENTIALITY COVENANTS. Executive understands that
Company may impart to him confidential business information including, without
limitation, designs, financial information, personnel information, real estate
information, and the like (collectively "Confidential Information"). Executive
hereby acknowledges Company's exclusive ownership of such Confidential
Information.
Executive agrees as follows: (1) only to use the Confidential
Information to provide services to Company; (2) only to communicate the
Confidential Information to fellow employees, agents and representatives on a
need-to-know basis; and (3) not to otherwise disclose or use any Confidential
Information. Upon demand by Company or upon termination of Executive's
employment, Executive will deliver to Company all manuals, photographs,
recordings, and any other instrument or device by which, through which, or on
which Confidential Information has been recorded and/or preserved, which are in
my Executive's possession, custody or control.
10. GOVERNING LAW/JURISDICTION. This Agreement shall be
governed by and interpreted and governed in accordance with the laws of the
State of Rhode Island. The parties agree that this Agreement was made and
entered into in Rhode Island and each party hereby consents to the jurisdiction
of a competent court in Rhode Island to hear any dispute arising out of this
Agreement.
-5-
<PAGE> 6
11. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and thereof and supercedes any and all previous agreements, written and
oral, regarding the subject matter hereof between the parties hereto. This
Agreement shall not be changed, altered, modified or amended, except by a
written agreement signed by both parties hereto.
12. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
certified mail, return receipt requested.
(a) to the Company at:
500 George Washington Highway
Smithfield, Rhode Island 02917
(b) to the Executive at:
143 Meeting Street
Providence, Rhode Island 02906
Any such notice or other communication will be considered to
have been given (i) on the date of delivery in person, (ii) on the third day
after mailing by certified mail, provided that receipt of delivery is confirmed
in writing, (iii) on the first business day following delivery to a commercial
overnight courier or (iv) on the date of facsimile transmission (telecopy)
provided that the giver of the notice obtains telephone confirmation of receipt.
Either party may, by notice given to the other party in
accordance with this Section, designate another address or person for receipt of
notices hereunder.
13. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
14. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
-6-
<PAGE> 7
15. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the Company and any successors and assigns of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ACCESSORIES ASSOCIATES, INC.
By: /s/ Gerald F. Cerce
------------------------------------
Title: Chairman
EXECUTIVE:
/s/ Gerald F. Cerce
----------------------------------------
Gerald F. Cerce
-7-
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of the
31st day of May, 1996, by and between ACCESSORIES ASSOCIATES, INC., a Rhode
Island corporation with a mailing address of 500 George Washington Highway,
Smithfield, Rhode Island 02917 (the "Company"), and DUANE DeSISTO, an individual
with a residence address of 93 Betty Pond Road, Scituate, Rhode Island 02831
("Executive").
INTRODUCTION
1. The Company is in the business of developing, manufacturing,
distributing and marketing ladies' and men's consumer soft lines sold in retail
stores (the "Accessories Business"). Executive is familiar with the Company's
operations and possesses other skills and knowledge advantageous to the Company.
2. The Company desires to employ Executive and Executive desires
to accept such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT PERIOD. The term of this Agreement (the
"Employment Period") shall commence on the date hereof and, subject to earlier
termination as hereinafter provided, shall terminate three (3) years from the
date hereof. Thereafter, Executive's employment will continue automatically on a
year to year basis terminable by either party consistent with the terms of this
Agreement.
2. EMPLOYMENT; DUTIES. Subject to the terms and
conditions set forth herein, the Company hereby employs Executive to act as Vice
President and Chief Financial Officer of the Company during the Employment
Period, and Executive hereby accepts such employment. The duties assigned and
authority granted to Executive shall be as set forth in the By-laws of the
Company and as determined by its Board of Directors from time to time. Executive
agrees to perform his duties for the Company diligently, competently, and in a
good faith manner. The Executive may also engage in civic and charitable
activities to the extent they are not inconsistent with Executive's duties
hereunder.
3. SALARY AND BONUS.
-1-
<PAGE> 2
(a) BASE SALARY. During the first year of the
Employment Period, the Company agrees to pay Executive $156,000 per year,
payable weekly in arrears. Executive's base salary shall not be decreased, and
shall be increased on each anniversary date of this Agreement (the "Anniversary
Date"), based upon the increase in the Consumer Price Index for all Urban
Consumers (CPI-U), Boston, Massachusetts, published by the Bureau of Labor
Statistics of the United States Department of Labor (1982-1984=100) (the
"Index"). If, on an Anniversary Date, the Index shows an increase from the base
date of May 31, 1996 (the "Base Date"), then Executive's annual base salary for
the ensuing 12 months shall be equal to the product of (a) $156,000 and (b) one
plus a percentage equal to the percentage increase in the Index on each such
Anniversary Date over the Index on the Base Date. In the event the Bureau of
Labor Statistics no longer publishes the Index the Company shall use that index
then available which most closely replicates the Index. In addition, after the
first year of the Employment Period, the Board of Directors of the the Company
(or any appropriate committee thereof) shall review and may increase the
Executive's annual base salary in its discretion, based upon the Company's
performance and the Executive's particular contributions.
(b) BONUS. Executive shall be eligible for and
shall receive an annual cash bonus under the Company's Executive Incentive
Compensation Plan, subject to the discretion of the Company's Board of
Directors.
4. OTHER BENEFITS.
(a) INSURANCE AND OTHER BENEFITS. The Executive
shall be entitled to participate in, and shall receive the maximum benefits
available under, the Company's insurance programs (including health and life
insurance) and any ERISA benefit plans, as the same may be adopted and/or
amended from time to time, and shall receive all other fringe benefits that are
provided by the Company to other senior executives. The Company shall purchase a
disability insurance policy which shall provide Executive with a minimum monthly
benefit equal to sixty percent (60%) of Executive's monthly base salary, subject
to a maximum monthly benefit of $15,000 after a six-month period of disability.
The Company shall contribute the maximum amount permitted under current law to
the Executive's 401(k) Plan, and any other Company pension or retirement plan
during the Employment Period.
(b) VACATION. Executive shall be entitled to an
annual vacation of such duration as may be determined by the Board of Directors,
but not less than that generally established for other executives of Company and
in no event less than four (4) weeks, without interruption of salary.
(c) AUTOMOBILE ALLOWANCE. The Company shall
provide Executive with an automobile consistent with past practice.
(d) REIMBURSEMENT OF EXPENSES. The Company shall
reimburse Executive for all reasonable travel, entertainment and other expenses
incurred or paid by the Executive in connection with, or related to, the
performance of his duties or responsibilities under this Agreement, provided
that Executive submits to the Company substantiation of such expenses
-2-
<PAGE> 3
sufficient to satisfy the record keeping guidelines promulgated from time to
time by the Internal Revenue Service. All domestic and international airline
travel may be in first class accommodations at the Executive's sole discretion.
5. TERMINATION BY THE COMPANY WITH CAUSE. Upon prior
written notice to Executive, the Company may terminate this Agreement if any of
the following events shall occur:
(a) the conviction of Executive for a crime
involving fraud or moral turpitude;
(b) deliberate dishonesty of the Executive with
respect to the Company or any of its subsidiaries; or
(c) the refusal of the Executive to follow the
reasonable and lawful written instructions of the Board of Directors of the
Company with respect to the services to be rendered and the manner of rendering
such services by Executive, provided such refusal is material and repetitive and
is not justified or excused either by the terms of this Agreement or by actions
taken by the Company in violation of this Agreement, and with respect to the
first two refusals Executive has been given reasonable written notice and
explanation thereof and reasonable opportunity to cure and no cure has been
effected within a reasonable time after such notice.
6. TERMINATION BY THE EXECUTIVE; TERMINATION BY THE
COMPANY WITHOUT CAUSE.
6.1 NOTICE/EVENTS/DEFINED TERMS.
(a) Executive may terminate this Agreement at
any time by providing written notice to the Company.
(b) The Company may terminate this Agreement at
any time, WITHOUT CAUSE, by providing written notice to Executive. As used in
this Agreement, the term "WITHOUT CAUSE" shall mean termination for any reason
not specified in Section 5 hereof, and shall include, without limitation: (i)
the Company's materially reducing Executive's duties or authority as Chief
Operating Officer of the Company; or (ii) disability of Executive; or (iii) the
Executive's death.
6.2 SEVERANCE.
(a) If the Company terminates this Agreement,
WITHOUT CAUSE, the Company shall provide Executive with a severance package
which shall consist of the following: (i) payment on the first business day of
each month of an amount equal to one-twelfth of the Executive's then current
annual base salary under Section 3(a) hereof; (ii) payment on the first business
day of each month of an amount equal to one-twelfth of Executive's most recent
bonus under Section 3(b) hereof; and (iii) continuation of all benefits under
Section 4.
(b) The Company's obligation to make the
payments and provide the benefits required by this Section 6.2 shall commence on
the date of termination of this Agreement
-3-
<PAGE> 4
by the Company, WITHOUT CAUSE, and continue for a period equal to the greater
of: (i) two (2) years, or (ii) the duration of the Executive's obligations under
Section 8 hereof.
7. DEATH OR DISABILITY. In the event of the Executive's
death or disability, employment will automatically terminate effective as of the
date of such death or disability. As used in this Agreement, the term
"disability" shall mean inability on the part of Executive for a period of more
than six (6) months in the aggregate during any twelve (12) month period to
perform the services contemplated under this Agreement. A determination of
disability shall be made by a physician satisfactory to both the Executive and
the Company, provided that if the Executive and the Company do not agree on a
physician, the Executive and the Company shall each select a physician and these
two physicians together shall select a third physician, whose determination as
to disability shall be binding on all parties.
8. NON-COMPETITION. During the Employment Period and
after termination of this Agreement by Executive under Section 6.1(a), or the
Company under Section 5 or 6.1(b), the Company may restrict the Executive's
subsequent involvement in the Restricted Business Activities, as defined below,
for the period ending one (1) year after the date of termination of this
Agreement (the "Non-compete Period"). As used in this Agreement, the term
"Restricted Business Activities" shall mean the marketing and sale of ladies'
and men's consumer soft lines to retail stores, which the Company sold and
marketed during Executive's employment with the Company. During the Non-compete
Period, Executive shall not, without the written approval of the Company,
directly or indirectly, either as an individual, partner, joint venturer,
employee or agent for any person, company, corporation or association, or as an
officer, director or stockholder of a corporation or otherwise, enter into or
engage in or have a proprietary interest in the Restricted Business Activities
other than the ownership of (a) the stock of the Company then held by Executive,
and (b) no more than five percent (5%) of the securities of any other
publicly-held company. The Non-compete period may be extended for up to an
additional two (2) years, at the option of the Company, provided that the
Company continues to make the monthly payments and provides the benefits
required under Section 6.2 hereof, for such additional period.
The Executive recognizes and agrees that because a violation
by him of his obligations under this Section 8 will cause irreparable harm to
the Company that would be difficult to quantify and for which money damages
would be inadequate, the Company shall have the right to injunctive relief to
prevent or restrain any such violation, without the necessity of posting a bond.
Executive expressly agrees that the character, duration and
scope of this covenant not to compete are reasonable in light of the
circumstances as they exist at the date upon which this Agreement has been
executed. However, should a determination nonetheless be made by a court of
competent jurisdiction at a later date that the character, duration or
geographical scope of this covenant not to compete is unreasonable in light of
the circumstances as they then exist, then it is the intention of both Executive
and the Company that this covenant not to compete shall be construed by the
court in such a manner as to impose only those restrictions on the conduct of
Executive which are reasonable in light of the circumstances as they then exist
and necessary to assure the Company of the intended benefit of this covenant to
compete.
-4-
<PAGE> 5
9. CONFIDENTIALITY COVENANTS. Executive understands that
Company may impart to him confidential business information including, without
limitation, designs, financial information, personnel information, real estate
information, and the like (collectively "Confidential Information"). Executive
hereby acknowledges Company's exclusive ownership of such Confidential
Information.
Executive agrees as follows: (1) only to use the Confidential
Information to provide services to Company; (2) only to communicate the
Confidential Information to fellow employees, agents and representatives on a
need-to-know basis; and (3) not to otherwise disclose or use any Confidential
Information. Upon demand by Company or upon termination of Executive's
employment, Executive will deliver to Company all manuals, photographs,
recordings, and any other instrument or device by which, through which, or on
which Confidential Information has been recorded and/or preserved, which are in
my Executive's possession, custody or control.
10. GOVERNING LAW/JURISDICTION. This Agreement shall be
governed by and interpreted and governed in accordance with the laws of the
State of Rhode Island. The parties agree that this Agreement was made and
entered into in Rhode Island and each party hereby consents to the jurisdiction
of a competent court in Rhode Island to hear any dispute arising out of this
Agreement.
11. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and thereof and supercedes any and all previous agreements, written and
oral, regarding the subject matter hereof between the parties hereto. This
Agreement shall not be changed, altered, modified or amended, except by a
written agreement signed by both parties hereto.
12. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
certified mail, return receipt requested.
(a) to the Company at:
500 George Washington Highway
Smithfield, Rhode Island 02917
(b) to the Executive at:
93 Betty Pond Road
Scituate, Rhode Island 02831
Any such notice or other communication will be considered to
have been given (i) on the date of delivery in person, (ii) on the third day
after mailing by certified mail, provided that receipt of delivery is confirmed
in writing, (iii) on the first business day following delivery to a
-5-
<PAGE> 6
commercial overnight courier or (iv) on the date of facsimile transmission
(telecopy) provided that the giver of the notice obtains telephone confirmation
of receipt.
Either party may, by notice given to the other party in
accordance with this Section, designate another address or person for receipt of
notices hereunder.
13. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
14. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the Company and any successors and assigns of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ACCESSORIES ASSOCIATES, INC.
By: /s/ Gerald F. Cerce
---------------------------------------
Title: Chairman
EXECUTIVE:
/s/ Duane DeSisto
---------------------------------------
DUANE DeSISTO
-6-
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of the
31st day of May, 1996, by and between ACCESSORIES ASSOCIATES, INC., a Rhode
Island corporation with a mailing address of 500 George Washington Highway,
Smithfield, Rhode Island 02917 (the "Company"), and JOHN H. FLYNN, JR. an
individual with a residence address of 52 Second Street, Newport, Rhode Island
02840 ("Executive").
INTRODUCTION
1. The Company is in the business of developing, manufacturing,
distributing and marketing ladies' and men's consumer soft lines sold in retail
stores (the "Accessories Business"). Executive assisted in the conception and
development of the concepts currently used in the Company's operations and
possesses other skills and knowledge advantageous to the Company.
2. The Company desires to employ Executive and Executive desires
to accept such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT PERIOD. The term of this Agreement (the
"Employment Period") shall commence on the date hereof and, subject to earlier
termination as hereinafter provided, shall terminate three (3) years from the
date hereof. Thereafter, Executive's employment will continue automatically on a
year to year basis terminable by either party consistent with the terms of this
Agreement.
2. EMPLOYMENT; DUTIES. Subject to the terms and
conditions set forth herein, the Company hereby employs Executive to act as
President and Chief Executive Officer of the Company during the Employment
Period, and Executive hereby accepts such employment. The duties assigned and
authority granted to Executive shall be as set forth in the By-laws of the
Company and as determined by its Board of Directors from time to time. Executive
agrees to perform his duties for the Company diligently, competently, and in a
good faith manner. The Executive may also engage in civic and charitable
activities to the extent they are not inconsistent with Executive's duties
hereunder.
3. SALARY AND BONUS.
(a) BASE SALARY. During the first year of the
Employment Period, the Company agrees to pay Executive $295,277 per year,
payable weekly in arrears. Executive's base
-1-
<PAGE> 2
salary shall not be decreased, and shall be increased on each anniversary date
of this Agreement (the "Anniversary Date"), based upon the increase in the
Consumer Price Index for all Urban Consumers (CPI-U), Boston, Massachusetts,
published by the Bureau of Labor Statistics of the United States Department of
Labor (1982-1984=100) (the "Index"). If, on an Anniversary Date, the Index shows
an increase from the base date of May 31, 1996 (the "Base Date"), then
Executive's annual base salary for the ensuing 12 months shall be equal to the
product of (a) $295,277 and (b) one plus a percentage equal to the percentage
increase in the Index on each such Anniversary Date over the Index on the Base
Date. In the event the Bureau of Labor Statistics no longer publishes the Index
the Company shall use that index then available which most closely replicates
the Index. In addition, after the first year of the Employment Period, the Board
of Directors of the the Company (or any appropriate committee thereof) shall
review and may increase the Executive's annual base salary in its discretion,
based upon the Company's performance and the Executive's particular
contributions.
(b) BONUS. Executive shall be eligible for and
shall receive an annual cash bonus under the Company's Executive Incentive
Compensation Plan, subject to the discretion of the Company's Board of
Directors.
4. OTHER BENEFITS.
(a) INSURANCE AND OTHER BENEFITS. The Executive
shall be entitled to participate in, and shall receive the maximum benefits
available under, the Company's insurance programs (including health and life
insurance) and any ERISA benefit plans, as the same may be adopted and/or
amended from time to time, and shall receive all other fringe benefits that are
provided by the Company to other senior executives. The Company shall purchase a
disability insurance policy which shall provide Executive with a minimum monthly
benefit equal to sixty percent (60%) of Executive's monthly base salary, subject
to a maximum monthly benefit of $15,000 after a six-month period of disability.
The Company shall contribute the maximum amount permitted under current law to
the Executive's 401(k) Plan, and any other Company pension or retirement plan
during the Employment Period.
(b) VACATION. Executive shall be entitled to an
annual vacation of such duration as may be determined by the Board of Directors,
but not less than that generally established for other executives of Company and
in no event less than four (4) weeks, without interruption of salary.
(c) AUTOMOBILE ALLOWANCE. The Company shall
provide Executive with an automobile consistent with past practice.
(d) REIMBURSEMENT OF EXPENSES. The Company shall
reimburse Executive for all reasonable travel, entertainment and other expenses
incurred or paid by the Executive in connection with, or related to, the
performance of his duties or responsibilities under this Agreement, provided
that Executive submits to the Company substantiation of such expenses sufficient
to satisfy the record keeping guidelines promulgated from time to time by the
Internal
-2-
<PAGE> 3
Revenue Service. All domestic and international airline travel may be in first
class accommodations at the Executive's sole discretion.
5. TERMINATION BY THE COMPANY WITH CAUSE. Upon prior
written notice to Executive, the Company may terminate this Agreement if any of
the following events shall occur:
(a) the conviction of Executive for a crime
involving fraud or moral turpitude;
(b) deliberate dishonesty of the Executive with
respect to the Company or any of its subsidiaries; or
(c) the refusal of the Executive to follow the
reasonable and lawful written instructions of the Board of Directors of the
Company with respect to the services to be rendered and the manner of rendering
such services by Executive, provided such refusal is material and repetitive and
is not justified or excused either by the terms of this Agreement or by actions
taken by the Company in violation of this Agreement, and with respect to the
first two refusals Executive has been given reasonable written notice and
explanation thereof and reasonable opportunity to cure and no cure has been
effected within a reasonable time after such notice.
6. TERMINATION BY THE EXECUTIVE; TERMINATION BY THE
COMPANY WITHOUT CAUSE.
6.1 NOTICE/EVENTS/DEFINED TERMS.
(a) Executive may terminate this Agreement at
any time by providing written notice to the Company.
(b) The Company may terminate this Agreement at
any time, WITHOUT CAUSE, by providing written notice to the Executive. As used
in this Agreement, the term "WITHOUT CAUSE" shall mean termination for any
reason not specified in Section 5 hereof, and shall include, without limitation:
(i) the Company's materially reducing Executive's duties or authority as
President and Chief Executive Officer; or (ii) the disability of Executive; or
(iii) the Executive's death.
6.2 SEVERANCE.
(a) If the Company terminates this Agreement,
WITHOUT CAUSE, the Company shall provide Executive with a severance package
which shall consist of the following: (i) payment on the first business day of
each month of an amount equal to one-twelfth of the Executive's then current
annual base salary under Section 3(a) hereof; (ii) payment on the first business
day of each month of an amount equal to one-twelfth of Executive's most recent
bonus under Section 3(b) hereof; and (iii) continuation of all benefits under
Section 4.
(b) The Company's obligation to make the
payments and provide the benefits required by this Section 6.2 shall commence on
the date of termination of this Agreement
-3-
<PAGE> 4
by the Company, WITHOUT CAUSE, and continue for a period equal to the greater
of: (i) two (2) years, or (ii) the duration of the Non-compete Period under
Section 8 hereof.
7. DEATH OR DISABILITY. In the event of the Executive's
death or disability, employment will automatically terminate effective as of the
date of such death or disability. As used in this Agreement, the term
"disability" shall mean inability on the part of Executive for a period of more
than six (6) months in the aggregate during any twelve (12) month period to
perform the services contemplated under this Agreement. A determination of
disability shall be made by a physician satisfactory to both the Executive and
the Company, provided that if the Executive and the Company do not agree on a
physician, the Executive and the Company shall each select a physician and these
two physicians together shall select a third physician, whose determination as
to disability shall be binding on all parties.
8. NON-COMPETITION. During the Employment Period and
after termination of this Agreement by the Executive under Section6.1(a), or by
the Company under Section 5 or Section 6.1(b), the Company may restrict the
Executive's subsequent involvement in the Restricted Business Activities, as
defined below, for the period ending two (2) years after the date of termination
of this Agreement (the "Non-compete Period"). As used in this Agreement, the
term "Restricted Business Activities" shall mean the marketing and sale of
ladies' and men's consumer soft lines to retail stores, which the Company sold
and marketed during Executive's employment with the Company. During the
Non-compete Period, if the Company requests in writing a restriction on
Executive's Restricted Business Activities, Executive shall not, without the
written approval of the Company, directly or indirectly, either as an
individual, partner, joint venturer, employee or agent for any person, company,
corporation or association, or as an officer, director or stockholder of a
corporation or otherwise, enter into or engage in or have a proprietary interest
in the Restricted Business Activities other than the ownership of (a) the stock
of the Company then held by Executive, and (b) no more than five percent (5%) of
the securities of any other publicly-held company. The minimum period for which
Executive shall be provided the severance package set forth in Section 6.2
hereof shall be two (2) years. The Non-compete period may be extended for up to
an additional three (3) years, at the option of the Company, provided that the
Company continues to make the monthly payments and provides the benefits
required under Section 6.2 hereof, for such additional period.
The Executive recognizes and agrees that because a violation
by him of his obligations under this Section 8 will cause irreparable harm to
the Company that would be difficult to quantify and for which money damages
would be inadequate, the Company shall have the right to injunctive relief to
prevent or restrain any such violation, without the necessity of posting a bond.
Executive expressly agrees that the character, duration and
scope of this covenant not to compete are reasonable in light of the
circumstances as they exist at the date upon which this Agreement has been
executed. However, should a determination nonetheless be made by a court of
competent jurisdiction at a later date that the character, duration or
geographical scope of this covenant not to compete is unreasonable in light of
the circumstances as they then exist, then it is the intention of both Executive
and the Company that this covenant not to compete shall
-4-
<PAGE> 5
be construed by the court in such a manner as to impose only those restrictions
on the conduct of Executive which are reasonable in light of the circumstances
as they then exist and necessary to assure the Company of the intended benefit
of this covenant to compete.
9. CONFIDENTIALITY COVENANTS. Executive understands that
Company may impart to him confidential business information including, without
limitation, designs, financial information, personnel information, real estate
information, and the like (collectively "Confidential Information"). Executive
hereby acknowledges Company's exclusive ownership of such Confidential
Information.
Executive agrees as follows: (1) only to use the Confidential
Information to provide services to Company; (2) only to communicate the
Confidential Information to fellow employees, agents and representatives on a
need-to-know basis; and (3) not to otherwise disclose or use any Confidential
Information. Upon demand by Company or upon termination of Executive's
employment, Executive will deliver to Company all manuals, photographs,
recordings, and any other instrument or device by which, through which, or on
which Confidential Information has been recorded and/or preserved, which are in
my Executive's possession, custody or control.
10. GOVERNING LAW/JURISDICTION. This Agreement shall be
governed by and interpreted and governed in accordance with the laws of the
State of Rhode Island. The parties agree that this Agreement was made and
entered into in Rhode Island and each party hereby consents to the jurisdiction
of a competent court in Rhode Island to hear any dispute arising out of this
Agreement.
11. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and thereof and supercedes any and all previous agreements, written and
oral, regarding the subject matter hereof between the parties hereto. This
Agreement shall not be changed, altered, modified or amended, except by a
written agreement signed by both parties hereto.
12. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
certified mail, return receipt requested.
(a) to the Company at:
500 George Washington Highway
Smithfield, Rhode Island 02917
(b) to the Executive at:
52 Second Street
Newport, Rhode Island 02840
-5-
<PAGE> 6
Any such notice or other communication will be considered to
have been given (i) on the date of delivery in person, (ii) on the third day
after mailing by certified mail, provided that receipt of delivery is confirmed
in writing, (iii) on the first business day following delivery to a commercial
overnight courier or (iv) on the date of facsimile transmission (telecopy)
provided that the giver of the notice obtains telephone confirmation of receipt.
Either party may, by notice given to the other party in
accordance with this Section, designate another address or person for receipt of
notices hereunder.
13. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
14. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the Company and any successors and assigns of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ACCESSORIES ASSOCIATES, INC.
By: /s/ Gerald F. Cerce
----------------------------------------
Title: Chairman
EXECUTIVE:
/s/ John H. Flynn, Jr.
-------------------------------------
John H. Flynn, Jr.
-6-
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of the
31st day of May, 1996, by and between ACCESSORIES ASSOCIATES, INC., a Rhode
Island corporation with a mailing address of 500 George Washington Highway,
Smithfield, Rhode Island 02917 (the "Company"), and ROBERT V. LALLO, an
individual with a residence address of 132 Division Street, E. Greenwich, Rhode
Island 02818 ("Executive").
INTRODUCTION
1. The Company is in the business of developing, manufacturing,
distributing and marketing ladies' and men's consumer soft lines sold in retail
stores (the "Accessories Business"). Executive assisted in the conception and
development of the concepts currently used in the Company's operations and
possesses other skills and knowledge advantageous to the Company.
2. The Company desires to employ Executive and Executive desires
to accept such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT PERIOD. The term of this Agreement (the
"Employment Period") shall commence on the date hereof and, subject to earlier
termination as hereinafter provided, shall terminate three (3) years from the
date hereof. Thereafter, Executive's employment will continue automatically on a
year to year basis terminable by either party consistent with the terms of this
Agreement.
2. EMPLOYMENT; DUTIES. Subject to the terms and
conditions set forth herein, the Company hereby employs Executive to act as
Chief Operating Officer of the Company during the Employment Period, and
Executive hereby accepts such employment. The duties assigned and authority
granted to Executive shall be as set forth in the By-laws of the Company and as
determined by its Board of Directors from time to time. Executive agrees to
perform his duties for the Company diligently, competently, and in a good faith
manner. The Executive may also engage in civic and charitable activities to the
extent they are not inconsistent with Executive's duties hereunder.
3. SALARY AND BONUS.
(a) BASE SALARY. During the first year of the
Employment Period, the Company agrees to pay Executive $156,707 per year,
payable weekly in arrears. Executive's base
-1-
<PAGE> 2
salary shall not be decreased, and shall be increased on each anniversary date
of this Agreement (the "Anniversary Date"), based upon the increase in the
Consumer Price Index for all Urban Consumers (CPI-U), Boston, Massachusetts,
published by the Bureau of Labor Statistics of the United States Department of
Labor (1982-1984=100) (the "Index"). If, on an Anniversary Date, the Index shows
an increase from the base date of May 31, 1996 (the "Base Date"), then
Executive's annual base salary for the ensuing 12 months shall be equal to the
product of (a) $156,707 and (b) one plus a percentage equal to the percentage
increase in the Index on each such Anniversary Date over the Index on the Base
Date. In the event the Bureau of Labor Statistics no longer publishes the Index
the Company shall use that index then available which most closely replicates
the Index. In addition, after the first year of the Employment Period, the Board
of Directors of the the Company (or any appropriate committee thereof) shall
review and may increase the Executive's annual base salary in its discretion,
based upon the Company's performance and the Executive's particular
contributions.
(b) BONUS. Executive shall be eligible for and
shall receive an annual cash bonus under the Company's Executive Incentive
Compensation Plan, subject to the discretion of the Company's Board of
Directors.
4. OTHER BENEFITS.
(a) INSURANCE AND OTHER BENEFITS. The Executive
shall be entitled to participate in, and shall receive the maximum benefits
available under, the Company's insurance programs (including health and life
insurance) and any ERISA benefit plans, as the same may be adopted and/or
amended from time to time, and shall receive all other fringe benefits that are
provided by the Company to other senior executives. The Company shall purchase a
disability insurance policy which shall provide Executive with a minimum monthly
benefit equal to sixty percent (60%) of Executive's monthly base salary, subject
to a maximum monthly benefit of $15,000 after a six-month period of disability.
The Company shall contribute the maximum amount permitted under current law to
the Executive's 401(k) Plan, and any other Company pension or retirement plan
during the Employment Period.
(b) VACATION. Executive shall be entitled to an
annual vacation of such duration as may be determined by the Board of Directors,
but not less than that generally established for other executives of Company and
in no event less than four (4) weeks, without interruption of salary.
(c) AUTOMOBILE ALLOWANCE. The Company shall
provide Executive with an automobile consistent with past practice.
(d) REIMBURSEMENT OF EXPENSES. The Company shall
reimburse Executive for all reasonable travel, entertainment and other expenses
incurred or paid by the Executive in connection with, or related to, the
performance of his duties or responsibilities under this Agreement, provided
that Executive submits to the Company substantiation of such expenses sufficient
to satisfy the record keeping guidelines promulgated from time to time by the
Internal
-2-
<PAGE> 3
Revenue Service. All domestic and international airline travel may be in first
class accommodations at the Executive's sole discretion.
5. TERMINATION BY THE COMPANY WITH CAUSE. Upon prior
written notice to Executive, the Company may terminate this Agreement if any of
the following events shall occur:
(a) the conviction of Executive for a crime
involving fraud or moral turpitude;
(b) deliberate dishonesty of the Executive with
respect to the Company or any of its subsidiaries; or
(c) the refusal of the Executive to follow the
reasonable and lawful written instructions of the Board of Directors of the
Company with respect to the services to be rendered and the manner of rendering
such services by Executive, provided such refusal is material and repetitive and
is not justified or excused either by the terms of this Agreement or by actions
taken by the Company in violation of this Agreement, and with respect to the
first two refusals Executive has been given reasonable written notice and
explanation thereof and reasonable opportunity to cure and no cure has been
effected within a reasonable time after such notice.
6. TERMINATION BY THE EXECUTIVE; TERMINATION BY THE
COMPANY WITHOUT CAUSE.
6.1 NOTICE/EVENTS/DEFINED TERMS.
(a) Executive may terminate this Agreement at
any time by providing written notice to the Company.
(b) The Company may terminate this Agreement at
any time, WITHOUT CAUSE, by providing written notice to Executive. As used in
this Agreement, the term "WITHOUT CAUSE" shall mean termination for any reason
not specified in Section 5 hereof, and shall include, without limitation: (i)
the Company's materially reducing Executive's duties or authority as Chief
Operating Officer of the Company; or (ii) disability of Executive; or (iii) the
Executive's death.
6.2 SEVERANCE.
(a) If the Company terminates this Agreement,
WITHOUT CAUSE, the Company shall provide Executive with a severance package
which shall consist of the following: (i) payment on the first business day of
each month of an amount equal to one-twelfth of the Executive's then current
annual base salary under Section 3(a) hereof; (ii) payment on the first business
day of each month of an amount equal to one-twelfth of Executive's most recent
bonus under Section 3(b) hereof; and (iii) continuation of all benefits under
Section 4.
(b) The Company's obligation to make the
payments and provide the benefits required by this Section 6.2 shall commence on
the date of termination of this Agreement
-3-
<PAGE> 4
by the Company, WITHOUT CAUSE, and continue for a period equal to the greater
of: (i) two (2) years, or (ii) the duration of the Executive's obligations under
Section 8 hereof.
7. DEATH OR DISABILITY. In the event of the Executive's
death or disability, employment will automatically terminate effective as of the
date of such death or disability. As used in this Agreement, the term
"disability" shall mean inability on the part of Executive for a period of more
than six (6) months in the aggregate during any twelve (12) month period to
perform the services contemplated under this Agreement. A determination of
disability shall be made by a physician satisfactory to both the Executive and
the Company, provided that if the Executive and the Company do not agree on a
physician, the Executive and the Company shall each select a physician and these
two physicians together shall select a third physician, whose determination as
to disability shall be binding on all parties.
8. NON-COMPETITION. During the Employment Period and
after termination of this Agreement by Executive under Section 6.1(a), or the
Company under Section 5 or Section 6.1(b) of Executive's employment under
Section 5, the Company may restrict the Executive's subsequent involvement in
the Restricted Business Activities, as defined below, for the period ending one
(1) year after the date of termination of this Agreement (the "Non-compete
Period"). As used in this Agreement, the term "Restricted Business Activities"
shall mean the marketing and sale of ladies' and men's consumer soft lines to
retail stores, which the Company sold and marketed during Executive's employment
with the Company. During the Non-compete Period, Executive shall not, without
the written approval of the Company, directly or indirectly, either as an
individual, partner, joint venturer, employee or agent for any person, company,
corporation or association, or as an officer, director or stockholder of a
corporation or otherwise, enter into or engage in or have a proprietary interest
in the Restricted Business Activities other than the ownership of (a) the stock
of the Company then held by Executive, and (b) no more than five percent (5%) of
the securities of any other publicly-held company. The Non-compete period may be
extended for up to an additional two (2) years, at the option of the Company,
provided that the Company continues to make the monthly payments and provides
the benefits required under Section 6.2 hereof, for such additional period.
The Executive recognizes and agrees that because a violation
by him of his obligations under this Section 8 will cause irreparable harm to
the Company that would be difficult to quantify and for which money damages
would be inadequate, the Company shall have the right to injunctive relief to
prevent or restrain any such violation, without the necessity of posting a bond.
Executive expressly agrees that the character, duration and
scope of this covenant not to compete are reasonable in light of the
circumstances as they exist at the date upon which this Agreement has been
executed. However, should a determination nonetheless be made by a court of
competent jurisdiction at a later date that the character, duration or
geographical scope of this covenant not to compete is unreasonable in light of
the circumstances as they then exist, then it is the intention of both Executive
and the Company that this covenant not to compete shall be construed by the
court in such a manner as to impose only those restrictions on the conduct of
-4-
<PAGE> 5
Executive which are reasonable in light of the circumstances as they then exist
and necessary to assure the Company of the intended benefit of this covenant to
compete.
9. CONFIDENTIALITY COVENANTS. Executive understands that
Company may impart to him confidential business information including, without
limitation, designs, financial information, personnel information, real estate
information, and the like (collectively "Confidential Information"). Executive
hereby acknowledges Company's exclusive ownership of such Confidential
Information.
Executive agrees as follows: (1) only to use the Confidential
Information to provide services to Company; (2) only to communicate the
Confidential Information to fellow employees, agents and representatives on a
need-to-know basis; and (3) not to otherwise disclose or use any Confidential
Information. Upon demand by Company or upon termination of Executive's
employment, Executive will deliver to Company all manuals, photographs,
recordings, and any other instrument or device by which, through which, or on
which Confidential Information has been recorded and/or preserved, which are in
my Executive's possession, custody or control.
10. GOVERNING LAW/JURISDICTION. This Agreement shall be
governed by and interpreted and governed in accordance with the laws of the
State of Rhode Island. The parties agree that this Agreement was made and
entered into in Rhode Island and each party hereby consents to the jurisdiction
of a competent court in Rhode Island to hear any dispute arising out of this
Agreement.
11. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and thereof and supercedes any and all previous agreements, written and
oral, regarding the subject matter hereof between the parties hereto. This
Agreement shall not be changed, altered, modified or amended, except by a
written agreement signed by both parties hereto.
12. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
certified mail, return receipt requested.
(a) to the Company at:
500 George Washington Highway
Smithfield, Rhode Island 02917
(b) to the Executive at:
132 Division Street
E. Greenwich, Rhode Island 02818
Any such notice or other communication will be considered to
have been given (i) on the date of delivery in person, (ii) on the third day
after mailing by certified mail, provided that
-5-
<PAGE> 6
receipt of delivery is confirmed in writing, (iii) on the first business day
following delivery to a commercial overnight courier or (iv) on the date of
facsimile transmission (telecopy) provided that the giver of the notice obtains
telephone confirmation of receipt.
Either party may, by notice given to the other party in
accordance with this Section, designate another address or person for receipt of
notices hereunder.
13. SEVERABILITY. If any term or provision of this
Agreement, or the application thereof to any person or under any circumstance,
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such terms to the persons or under
circumstances other than those as to which it is invalid or unenforceable, shall
be considered severable and shall not be affected thereby, and each term of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
The invalid or unenforceable provisions shall, to the extent permitted by law,
be deemed amended and given such interpretation as to achieve the economic
intent of this Agreement.
14. WAIVER. The failure of any party to insist in any one
instance or more upon strict performance of any of the terms and conditions
hereof, or to exercise any right or privilege herein conferred, shall not be
construed as a waiver of such terms, conditions, rights or privileges, but same
shall continue to remain in full force and effect. Any waiver by any party of
any violation of, breach of or default under any provision of this Agreement by
the other party shall not be construed as, or constitute, a continuing waiver of
such provision, or waiver of any other violation of, breach of or default under
any other provision of this Agreement.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the Company and any successors and assigns of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ACCESSORIES ASSOCIATES, INC.
By: /s/ Gerald F. Cerce
---------------------------------------
Title: Chairman
EXECUTIVE:
/s/ Robert V. Lallo
-------------------------------------------
Robert V. Lallo
-6-
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of the
31st day of May, 1996, by and between ACCESSORIES ASSOCIATES, INC., a Rhode
Island corporation with a mailing address of 500 George Washington Highway,
Smithfield, Rhode Island 02917 (the "Company"), and FELIX PORCARO, JR., an
individual with a residence address of 5 Lori Ellen Drive, Lincoln, Rhode Island
02865 ("Executive").
INTRODUCTION
1. The Company is in the business of developing, manufacturing,
distributing and marketing ladies' and men's consumer soft lines sold in retail
stores (the "Accessories Business"). Executive assisted in the conception and
development of the concepts currently used in the Company's operations and
possesses other skills and knowledge advantageous to the Company.
2. The Company desires to employ Executive and Executive desires
to accept such employment on the terms and conditions set forth herein.
AGREEMENT
In consideration of the premises and mutual promises hereinbelow set
forth, the parties hereby agree as follows:
1. EMPLOYMENT PERIOD. The term of this Agreement (the "Employment
Period") shall commence on the date hereof and, subject to earlier termination
as hereinafter provided, shall terminate three (3) years from the date hereof.
Thereafter, Executive's employment will continue automatically on a year to year
basis terminable by either party consistent with the terms of this Agreement.
2. EMPLOYMENT; DUTIES. Subject to the terms and conditions set
forth herein, the Company hereby employs Executive to act as Vice Chairman of
the Company during the Employment Period, and Executive hereby accepts such
employment. The duties assigned and authority granted to Executive shall be as
set forth in the By-laws of the Company and as determined by its Board of
Directors from time to time. Executive agrees to perform his duties for the
Company diligently, competently, and in a good faith manner. The Executive may
also engage in civic and charitable activities to the extent they are not
inconsistent with Executive's duties hereunder.
<PAGE> 2
3. SALARY AND BONUS.
(a) BASE SALARY. During the first year of the Employment
Period, the Company agrees to pay Executive $201,400 per year, payable weekly in
arrears. Executive's base salary shall not be decreased, and shall be increased
on each anniversary date of this Agreement (the "Anniversary Date"), based upon
the increase in the Consumer Price Index for all Urban Consumers (CPI-U),
Boston, Massachusetts, published by the Bureau of Labor Statistics of the United
States Department of Labor (1982-1984=100) (the "Index"). If, on an Anniversary
Date, the Index shows an increase from the base date of May 31, 1996 (the "Base
Date"), then Executive's annual base salary for the ensuing 12 months shall be
equal to the product of (a) $201,400 and (b) one plus a percentage equal to the
percentage increase in the Index on each such Anniversary Date over the Index on
the Base Date. In the event the Bureau of Labor Statistics no longer publishes
the Index the Company shall use that index then available which most closely
replicates the Index. In addition, after the first year of the Employment
Period, the Board of Directors of the Company (or any appropriate committee
thereof) shall review and may increase the Executive's annual base salary in its
discretion, based upon the Company's performance and the Executive's particular
contributions.
(b) BONUS. Executive shall be eligible for and shall
receive an annual cash bonus under the Company's Executive Incentive
Compensation Plan, subject to the discretion of the Company's Board of
Directors.
4. OTHER BENEFITS.
(a) INSURANCE AND OTHER BENEFITS. The Executive shall be
entitled to participate in, and shall receive the maximum benefits available
under, the Company's insurance programs (including health and life insurance)
and any ERISA benefit plans, as the same may be adopted and/or amended from time
to time, and shall receive all other fringe benefits that are provided by the
Company to other senior executives. The Company shall purchase a disability
insurance policy which shall provide Executive with a minimum monthly benefit
equal to sixty percent (60%) of Executive's monthly base salary, subject to a
maximum monthly benefit of $15,000 after a six-month period of disability. The
Company shall contribute the maximum amount permitted under current law to the
Executive's 401(k) Plan, and any other Company pension or retirement plan during
the Employment Period.
(b) VACATION. Executive shall be entitled to an annual
vacation of such duration as may be determined by the
-2-
<PAGE> 3
Board of Directors, but not less than that generally established for other
executives of Company and in no event less than four (4) weeks, without
interruption of salary.
(c) AUTOMOBILE ALLOWANCE. The Company shall provide
Executive with an automobile consistent with past practice.
(d) REIMBURSEMENT OF EXPENSES. The Company shall
reimburse Executive for all reasonable travel, entertainment and other expenses
incurred or paid by the Executive in connection with, or related to, the
performance of his duties or responsibilities under this Agreement, provided
that Executive submits to the Company substantiation of such expenses sufficient
to satisfy the record keeping guidelines promulgated from time to time by the
Internal Revenue Service. All domestic and international airline travel may be
in first class accommodations at the Executive's sole discretion.
5. TERMINATION BY THE COMPANY WITH CAUSE. Upon prior written
notice to Executive, the Company may terminate this Agreement if any of the
following events shall occur:
(a) the conviction of Executive for a crime involving
fraud or moral turpitude;
(b) deliberate dishonesty of the Executive with respect
to the Company or any of its subsidiaries; or
(c) the refusal of the Executive to follow the reasonable
and lawful written instructions of the Board of Directors of the Company with
respect to the services to be rendered and the manner of rendering such services
by Executive, provided such refusal is material and repetitive and is not
justified or excused either by the terms of this Agreement or by actions taken
by the Company in violation of this Agreement, and with respect to the first two
refusals Executive has been given reasonable written notice and explanation
thereof and reasonable opportunity to cure and no cure has been effected within
a reasonable time after such notice.
6. TERMINATION BY THE EXECUTIVE; TERMINATION BY THE COMPANY
WITHOUT CAUSE.
6.1 NOTICE/EVENTS/DEFINED TERMS.
(a) Executive may terminate this Agreement at
any time by providing written notice to the Company.
(b) The Company may terminate this Agreement at
any time, WITHOUT CAUSE, by providing written notice to the
-3-
<PAGE> 4
Executive. As used in this Agreement, the term "WITHOUT CAUSE" shall mean
termination for any reason not specified in Section 5 hereof, and shall include,
without limitation: (i) the Company's materially reducing Executive's duties or
authority as Vice Chairman of the Company; or (ii) the disability of Executive;
or (iii) the Executive's death.
6.2 SEVERANCE.
(a) If the Company terminates this Agreement,
WITHOUT CAUSE, the Company shall provide Executive with a severance package
which shall consist of the following: (i) payment on the first business day of
each month of an amount equal to one-twelfth of the Executive's then current
annual base salary under Section 3(a) hereof; (ii) payment on the first business
day of each month of an amount equal to one-twelfth of Executive's most recent
bonus under Section 3(b) hereof; and (iii) continuation of all benefits under
Section 4.
(b) The Company's obligation to make the
payments and provide the benefits required by this Section 6.2 shall commence on
the date of termination of this Agreement by the Company, WITHOUT CAUSE, and
continue for a period equal to the greater of: (i) two (2) years, or (ii) the
duration of the Executive's obligations under Section 8 hereof.
7. DEATH OR DISABILITY. In the event of the Executive's death or
disability, employment will automatically terminate effective as of the date of
such death or disability. As used in this Agreement, the term "disability" shall
mean inability on the part of Executive for a period of more than six (6) months
in the aggregate during any twelve (12) month period to perform the services
contemplated under this Agreement. A determination of disability shall be made
by a physician satisfactory to both the Executive and the Company, provided that
if the Executive and the Company do not agree on a physician, the Executive and
the Company shall each select a physician and these two physicians together
shall select a third physician, whose determination as to disability shall be
binding on all parties.
8. NON-COMPETITION. During the Employment Period and after
termination of this Agreement by the Executive under Section 6.1(a), or by the
Company under Section 5 or 6.1(b), the Company may restrict the Executive's
subsequent involvement in the Restricted Business Activities, as defined below,
for the period ending one (1) year after the date of termination of this
Agreement (the "Non-compete Period"). As used in this Agreement, the term
"Restricted Business Activities" shall mean the marketing and sale of ladies'
and men's consumer soft lines to retail stores, which the Company sold and
marketed during
-4-
<PAGE> 5
Executive's employment with the Company. During the Non-compete Period,
Executive shall not, without the written approval of the Company, directly or
indirectly, either as an individual, partner, joint venturer, employee or agent
for any person, company, corporation or association, or as an officer, director
or stockholder of a corporation or otherwise, enter into or engage in or have a
proprietary interest in the Restricted Business Activities other than the
ownership of (a) the stock of the Company then held by Executive, and (b) no
more than five percent (5%) of the securities of any other publicly-held
company. The Non-compete period may be extended for up to an additional two (2)
years, at the option of the Company, provided that the Company continues to make
the monthly payments and provides the benefits required under Section 6.2
hereof, for such additional period.
The Executive recognizes and agrees that because a violation
by him of his obligations under this Section 8 will cause irreparable harm to
the Company that would be difficult to quantify and for which money damages
would be inadequate, the Company shall have the right to injunctive relief to
prevent or restrain any such violation, without the necessity of posting a bond.
Executive expressly agrees that the character, duration and
scope of this covenant not to compete are reasonable in light of the
circumstances as they exist at the date upon which this Agreement has been
executed. However, should a determination nonetheless be made by a court of
competent jurisdiction at a later date that the character, duration or
geographical scope of this covenant not to compete is unreasonable in light of
the circumstances as they then exist, then it is the intention of both Executive
and the Company that this covenant not to compete shall be construed by the
court in such a manner as to impose only those restrictions on the conduct of
Executive which are reasonable in light of the circumstances as they then exist
and necessary to assure the Company of the intended benefit of this covenant to
compete.
9. CONFIDENTIALITY COVENANTS. Executive understands that Company
may impart to him confidential business information including, without
limitation, designs, financial information, personnel information, real estate
information, and the like (collectively "Confidential Information"). Executive
hereby acknowledges Company's exclusive ownership of such Confidential
Information.
Executive agrees as follows: (1) only to use the Confidential
Information to provide services to Company; (2) only to communicate the
Confidential Information to fellow employees,
-5-
<PAGE> 6
agents and representatives on a need-to-know basis; and (3) not to otherwise
disclose or use any Confidential Information. Upon demand by Company or upon
termination of Executive's employment, Executive will deliver to Company all
manuals, photographs, recordings, and any other instrument or device by which,
through which, or on which Confidential Information has been recorded and/or
preserved, which are in my Executive's possession, custody or control.
10. GOVERNING LAW/JURISDICTION. This Agreement shall be governed
by and interpreted and governed in accordance with the laws of the State of
Rhode Island. The parties agree that this Agreement was made and entered into in
Rhode Island and each party hereby consents to the jurisdiction of a competent
court in Rhode Island to hear any dispute arising out of this Agreement.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and thereof and supersedes any and all previous agreements, written and oral,
regarding the subject matter hereof between the parties hereto. This Agreement
shall not be changed, altered, modified or amended, except by a written
agreement signed by both parties hereto.
12. NOTICES. All notices, requests, demands and other
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been given if delivered by hand,
sent by generally recognized overnight courier service, telex or telecopy, or
certified mail, return receipt requested.
(a) to the Company at:
500 George Washington Highway
Smithfield, Rhode Island 02917
(b) to the Executive at:
5 Lori Ellen Drive
Lincoln, Rhode Island 02865
Any such notice or other communication will be considered to
have been given (i) on the date of delivery in person, (ii) on the third day
after mailing by certified mail, provided that receipt of delivery is confirmed
in writing, (iii) on the first business day following delivery to a commercial
overnight courier or (iv) on the date of facsimile transmission (telecopy)
provided that the giver of the notice obtains telephone confirmation of receipt.
-6-
<PAGE> 7
Either party may, by notice given to the other party in
accordance with this Section, designate another address or person for receipt of
notices hereunder.
13. SEVERABILITY. If any term or provision of this Agreement, or
the application thereof to any person or under any circumstance, shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such terms to the persons or under circumstances other than those
as to which it is invalid or unenforceable, shall be considered severable and
shall not be affected thereby, and each term of this Agreement shall be valid
and enforceable to the fullest extent permitted by law. The invalid or
unenforceable provisions shall, to the extent permitted by law, be deemed
amended and given such interpretation as to achieve the economic intent of this
Agreement.
14. WAIVER. The failure of any party to insist in any one instance
or more upon strict performance of any of the terms and conditions hereof, or to
exercise any right or privilege herein conferred, shall not be construed as a
waiver of such terms, conditions, rights or privileges, but same shall continue
to remain in full force and effect. Any waiver by any party of any violation of,
breach of or default under any provision of this Agreement by the other party
shall not be construed as, or constitute, a continuing waiver of such provision,
or waiver of any other violation of, breach of or default under any other
provision of this Agreement.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Company and any successors and assigns of the Company.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ACCESSORIES ASSOCIATES, INC.
By: /s/ Gerald F. Cerce
----------------------------------
Title: Chairman
--------------------------------
EXECUTIVE:
/s/ Felix Porcaro, Jr.
--------------------------------------
Felix Porcaro, Jr.
-8-
<PAGE> 1
EXHIBIT 10.14
ACCESSORIES ASSOCIATES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This Supplemental Executive Retirement Plan (the "Plan") is adopted by
Accessories Associates, Inc., a Rhode Island corporation (the "Company"), for
the purpose of providing supplemental retirement, death, disability and
severance benefits to Gerald F. Cerce (the "Participant") in consideration for
his performance of services as a key executive of the Company. It is intended
that the Plan constitute a non-qualified plan of deferred compensation.
1. DEFINITIONS. For purposes of this Plan, the following terms shall have
the meanings set forth below:
"BOARD" means the Board of Directors of Accessories Associates, Inc.
"CHANGE OF CONTROL" means (i) the first purchase of shares of the common
stock of the Company pursuant to a tender offer or exchange offer (other than by
the Company) for all, or any part of, the common stock, (ii) approval by the
Company's shareholders of a merger in which the Company does not survive, a
consolidation, or a sale, exchange or other disposition of all or substantially
all the Company's assets, (iii) any acquisition of 25% or more of the voting
securities of the Company by any person, including the Company, any of its
subsidiaries, and any existing shareholder, or (iv) a change in the composition
of the Board during any period of two consecutive years such that individuals
who at the beginning of such period were members of the Board cease for any
reason to constitute at least a majority thereof, unless the election, or the
nomination for election by the Company's shareholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period.
"DESIGNATED BENEFICIARY" means the person who is legally married to the
Participant at the time of his death (the "Spouse"). In the event the Spouse
dies prior to receiving the total benefits due under this Plan, or the
Participant is not survived by a Spouse, the Designated Beneficiary shall be the
person designated in writing by the Participant, or in the absence of any such
designation, the Participant's estate.
"DISABILITY" means a determination by the Board that the Participant is
unable to perform the duties required of him by the Company as a result of
physical or mental impairment.
"EFFECTIVE DATE" means October 22, 1993.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
<PAGE> 2
"POLICY" means the insurance policy insuring the life of the Participant
for the purpose of funding the Company's obligations hereunder attached hereto
as EXHIBIT A or a substitute policy or policies as mutually agreed upon in
writing by the Participant and the Company.
"RETIREMENT" means the date of the Participant's voluntary termination of
employment with the Company for any reason on or after age 60.
"TRUST" means the rabbi trust established by the Company pursuant to that
certain Trust Agreement attached hereto as EXHIBIT B.
2. FUNDING. On or within thirty (30) days after the Effective Date, the
Company shall purchase the Policy, and at all times thereafter until the
satisfaction of the Company's obligations to make benefit payments hereunder,
pay (or cause the Trustee of the Trust to pay) all required premiums for and
otherwise maintain the Policy for the purpose of funding the Company's
obligations hereunder. The Participant and any Designated Beneficiary shall not
have any rights under the Policy.
No later than October 7, 1994, and at all times thereafter until all
benefits payable under the Plan are paid, the Policy shall be held in the Trust.
It is intended that the Trust will not cause the Plan to be considered "funded"
for purposes of ERISA. Under the terms of the Trust, the Participant shall have
only the rights of a general unsecured creditor of the Company with respect to
any rights under the Plan in the event of the Company's insolvency as defined in
the Trust agreement. Nothing contained in the Plan shall constitute a guaranty
by the Company or any other entity or person that the assets of the Company will
be sufficient to pay any benefit hereunder. Notwithstanding the foregoing, the
Company's obligation to make benefit payments under the Plan shall not be
limited to the Policy or other assets held in the Trust.
3. RETIREMENT BENEFIT. Subject to the terms and conditions contained
herein, upon the Participant's Retirement, the Company shall pay to Participant
the greater of (i) the existing cash surrender value of the Policy, or (ii) an
amount equal to the total premiums paid on the Policy by the Company prior to
Retirement, together with interest at a rate of 7%, compounded annually, through
the date of Retirement. Payment shall be made, at the sole discretion of the
Board, in a single lump sum payment no later than 90 days after Retirement, or
in monthly installments over a 10 year period in accordance with Paragraph 8
hereof; provided, however, in the event the Participant's Retirement occurs
within one year after a Change in Control, the retirement benefit payable
pursuant to this Paragraph 3 shall be paid in a single lump sum no later than 90
days after Retirement.
4. DEATH BENEFIT. In the event the Participant dies while still employed
by the Company, the Company shall pay a death benefit to the Designated
Beneficiary in an amount equal to the death benefit payable under the Policy.
The death benefit shall be paid in monthly installments over a 15 year period in
accordance with Paragraph 8 hereof; provided, however, in the event the
Participant's death occurs within one year after a Change of Control, the death
benefit payable pursuant to this Paragraph 4 shall be paid in a single lump sum
no later than 90 days after death.
2
<PAGE> 3
5. DISABILITY BENEFITS. In the event the Participant terminates employment
with the Company by reason of Disability, the Company shall pay a disability
benefit to the Participant in an amount equal to the greater of (i) the existing
cash surrender value of the Policy, or (ii) an amount equal to the total
premiums paid on the Policy by the Company prior to Disability, together with
interest at a rate of 7%, compounded annually, through the date of Disability.
The disability benefit shall be paid, in the sole discretion of the Board, in a
single lump sum no later than 90 days after Disability, or in monthly
installments over a 10 year period in accordance with Paragraph 8 hereof;
provided, however, in the event the Participant's Disability occurs within one
year after a Change of Control, the disability benefit payable pursuant to this
Paragraph 5 shall be paid in a single lump sum no later than 90 days after
Disability.
6. OTHER TERMINATION OF EMPLOYMENT. In the event the Participant's
employment with the Company is terminated for any reason other than Retirement,
death or Disability, including voluntary termination prior to age 60, the
Participant shall be entitled to receive the existing cash surrender value of
the Policy. Payment shall be made, at the sole discretion of the Board, in a
single lump sum payment no later than 90 days after termination of employment,
or in monthly installments over a 10 year period in accordance with Paragraph 8
hereof; provided, however, in the event the Participant's termination occurs
within one year after a Change of Control, the severance benefit payable
pursuant to this Paragraph 6 shall be paid in a single lump sum no later than 90
days after termination of employment.
7. ELECTION TO RECEIVE POLICY IN LIEU OF LUMP SUM PAYMENT. In the event
the Board determines that the benefits to be paid to the Participant pursuant to
Paragraphs 3, 4 or 6 hereof shall be paid in a single lump sum, the Participant
may, in lieu of receiving such benefits, elect to receive all right, title and
interest in and to the Policy by sending written notice to the Company. Upon
receipt of such notice, the Company shall cause the Trustee to so transfer the
Policy to the Participant.
8. PAYMENT OF BENEFITS IN INSTALLMENTS. In the event the Board determines
that the benefits under the Plan are to be paid in installments, the Company
shall establish an Installment Account on its books for the benefit of the
Participant or his Designated Beneficiary. The Installment Account shall be
credited with the total benefit to be paid to the Participant or his Designated
Beneficiary in accordance with Paragraphs 3, 4, 5 or 6 hereof. As of the end of
each calendar quarter until such time as the full balance of the Installment
Account has been distributed, the Installment Account shall be credited with
interest at the rate of 7% of the average Installment Account balance during
such calendar quarter.
The amount of each installment shall be equal to the amount of the
Participant's Installment Account balance divided by the number of remaining
installment payments. The first installment shall be paid no later than the last
day of the month following the month in which the Retirement, death, Disability,
or termination of employment of the Participant occurs. Subsequent monthly
installments shall be paid no later than the last day of each successive month
until one hundred twenty (120) installments have been paid.
3
<PAGE> 4
In the event the Participant dies after the commencement of installment
payments but prior to receiving one hundred twenty (120) monthly payments, the
Company shall continue making payments to the Participant's Designated
Beneficiary until the Participant and his Designated Beneficiary or
Beneficiaries, in the aggregate, have received one hundred twenty (120)
payments.
Notwithstanding the foregoing, in the event of a Change of Control after
the commencement of installment payments but prior to the receipt by the
Participant and his Designated Beneficiary of one hundred twenty (120) payments,
in the aggregate, the remaining Installment Account balance shall be distributed
to the Participant or his Designated Beneficiary, as applicable, in a single
lump sum payment within 30 days of such Change of Control.
9. COMPANY'S RIGHTS TO THE POLICY. Upon the full payment of benefits due
to the Participant pursuant to Paragraphs 3, 4 or 6 hereof in a single lump sum
distribution from a source other than the Policy, the Company may direct the
Trustee to transfer all right, title and interest in the Policy to the Company.
In the event that the Board elects to make benefit distributions to the
Participant in installment payments, at any time prior to the last installment
payment, the Company may direct the Trustee to transfer all right, title and
interest in the Policy to the Company upon payment to the Trust of an amount
equal to the existing cash surrender value of the Policy.
10. AMENDMENT AND TERMINATION. The Plan may not be amended and/or
terminated at any time without the mutual consent of the parties hereto in
writing.
11. NO GUARANTY OF EMPLOYMENT. Nothing contained in this Plan shall be
construed as a contract of employment between the Company and the Participant,
or as a right of the Participant to be continued in the employment of the
Company, or as a limitation of the right of the Company to discharge the
Participant, with or without cause.
12. NON-TRANSFERABILITY. The benefits payable under this Plan may not be
subject to alienation, assignment, transfer, garnishment, execution or levy of
any kind, and any attempt to cause any benefits to be so subjected shall not be
recognized.
13. TAX WITHHOLDING. The Company may withhold from any benefits payable
under this Plan all federal, state, local or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
14. NOTICE. Notice to the Company hereunder shall be addressed to it at
its office, 4 Warren Avenue, North Providence, Rhode Island 02860, Attention:
Board of Directors, and any notice to the Participant hereunder shall be
addressed to the Participant at the address reflected on the payroll records of
the Company, subject to the right of either party to designate at any time
hereafter in writing a different address.
15. GOVERNING LAW. The Plan is executed under and will be construed
according to the laws of the State of Rhode Island, to the extent that such laws
are not preempted by ERISA and valid regulations published thereunder.
4
<PAGE> 5
IN WITNESS WHEREOF, this Plan has been executed this 29th day of
September, 1994.
ACCESSORIES ASSOCIATES, INC.
By: /s/ Gerald F. Cerce
----------------------
Title: CHAIRMAN
------------------
/s/ Gerald F. Cerce
--------------------------
Gerald F. Cerce
<PAGE> 6
FIRST AMENDMENT
TO
ACCESSORIES ASSOCIATES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This First Amendment to the Accessories Associates, Inc. Supplemental
Executive Retirement Plan (hereinafter referred to as the "First Amendment") as
made and entered into as of the 29th day of December, 1995, by and between
Accessories Associates, Inc., a Rhode Island corporation (hereinafter referred
to as the "Company"), and Gerald F. Cerce of Providence, Rhode Island
(hereinafter referred to as the "Participant").
W I T N E S S E T H:
WHEREAS, Participant and Company entered into the Accessories
Associates, Inc. Supplemental Executive Retirement Plan (hereinafter referred to
as the "Plan") on September 29, 1994, and
WHEREAS, said Plan was effective as of October 22, 1993, and
WHEREAS, Company and Participant are desirous of amending said Plan and
certain
particulars.
NOW, THEREFORE, in consideration of the promises and agreements herein
contained, and for other good and valuable consideration, the receipt whereof is
hereby acknowledged, Company and Participant agree as follows:
<PAGE> 7
1. The first sentence of Paragraph 3 of the said Plan is hereby
amended to read as follows:
"Subject to the terms and conditions contained herein, upon the
Participant's Retirement, the Company shall pay to Participant
the existing cash surrender value of the Policy."
2. The first sentence of Paragraph 5 is hereby amended to read as
follows:
"In the event the Participant terminates employment with the
Company by reason of disability, the Company shall pay a
disability benefit to the Participant in an amount equal to the
cash surrender value of the Policy."
3. Except as modified herein, the Plan is hereby ratified and
confirmed.
IN WITNESS WHEREOF, the Company has caused this First Amendment
to the Plan to be executed by its proper officer hereunto duly authorized and
the Participant has executed this Plan both as of the 29th day of December,
1995.
ACCESSORIES ASSOCIATES, INC.
By: /s/ Gerald F. Cerce, Chairman
-------------------------------
/s/ Gerald F. Cerce
-----------------------------------
Gerald F. Cerce
2
<PAGE> 8
SECOND AMENDMENT TO
ACCESSORIES ASSOCIATES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This Second Amendment to the Accessories Associates, Inc. Supplemental
Executive Retirement Plan (hereinafter referred to as the "Second Amendment") as
made and entered into as of the 31st day of May, 1996, by and between
Accessories Associates, Inc., a Rhode Island corporation (hereinafter referred
to as "Company"), and Gerald F. Cerce of Providence, Rhode Island (hereinafter
referred to as "Participant").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Participant and Company entered into the Accessories
Associates, Inc. Supplemental Executive Retirement Plan (hereinafter referred to
as the "Plan") on September 29, 1994, and
WHEREAS, said Plan was effective as of October 22, 1993, and
WHEREAS, the First Amendment to said Plan was adopted as of December
29, 1995, and
WHEREAS, Company and Participant are desirous of amending said Plan and
certain particulars.
NOW, THEREFORE, in consideration of the promises and agreements
contained herein, and for other good and valuable consideration, the receipt
whereof is hereby acknowledged, Company and Participant agree as follows:
<PAGE> 9
1. Paragraph 1 of the said Plan is hereby amended by deleting the
definition of "Change of Control" in its entirety and by inserting the following
new definition in lieu thereof:
"Change of Control" means:
(i) the first purchase of shares of the common
stock of the Company pursuant to a tender offer or exchange offer
(other than by the Company) for all or any part of, the common stock;
or
(ii) approval by the Company's shareholders of a
merger in which the Company does not survive, a consolidation, or a
sale, exchange or other disposition of all or substantially all the
Company's assets (other than a merger of the Company for purposes of
reincorporating under Delaware law); or
(iii) any acquisition of 25% or more of the voting
securities of the Company, any of its subsidiaries, and any existing
shareholder (other than the acquisition of 25% or more of the voting
securities of the Company pursuant to that certain Securities Stock
Purchase Agreement and related agreements by and between Accessories
Associates, Inc, Weston Presidio II, L.P., BancBoston Ventures, Inc.,
St. Paul Fire and Marine Insurance Company and National City Capital
Corporation dated as of the 31st day of May, 1996); or
(iv) a change in the composition of the Board of
Directors (other than that resulting from a Remedy Event as that term
is defined in the rights, preference and privileges of the Company's
Series A Redeemable Convertible Preferred Stock) during any period of
two consecutive years such that individuals who at the beginning of
such period were members of the Board cease for any reason to
constitute at least a majority thereof, unless the election, or the
nomination for election by the Company's shareholders, of each new
director was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period.
2. Except as modified herein, the Plan is hereby ratified and
confirmed.
IN WITNESS WHEREOF, the Company has caused this Second Amendment to the
Plan to be executed by its proper officer hereunto duly authorized and the
Participant has executed this Plan both as of the 31st day of May, 1996.
ACCESSORIES ASSOCIATES, INC.
By: /s/ Gerald F. Cerce
-----------------------------------
Its: Chairman
/s/ Gerald F. Cerce
---------------------------------------
Gerald F. Cerce
<PAGE> 1
Exhibit 12.1
AAI.FOSTERGRANT, INC. AND SUBSIDIARIES
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of
AAi.FosterGrant, Inc. and Subsidiaries for each of the five years in the period
ended December 31, 1997, the three months ended March 31, 1997 and April 4,
1998 and on a pro forma basis for the year ended December 31, 1997 and the
three months ended April 4, 1998. The ratio of earnings to fixed charges is
computed by dividing net fixed charges (interest expense, amortization of debt
issuance costs, accretion and noncash dividends and the portion of rental
expense that is representative of the interest factor) into earnings before
income taxes and fixed charges.
<TABLE>
<CAPTION>
Three Months Ended,
Year Ended December 31 ------------------------------
---------------------------------------------------------------- March 31, April 4, April 4,
1993 1994 1995 1996 1997 1997 1997 1998 1998
------ ------ ------ ---- ------ -------- --------- -------- --------
(Pro Forma) (Pro Forma)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings before
income taxes
excluding accretion
and non cash
dividends $4,954 $2,820 $8,467 $ 987 $ 2,015 $(1,107) $ 165 $ 543 $ (443)
Interest expense
including interest
portion of rental
expense 679 506 1,150 1,574 4,316 8,915 953 1,189 2,192
Undistributed earnings
of unconsolidated
subsidiaries -- (447) (275) -- -- -- -- -- (60)
------ ------ ------ ------ ------- ------- ------ ------ ------
Earnings before fixed
charges 5,633 2,879 9,342 2,561 6,331 7,808 1,118 1,732 1,689
------ ------ ------ ------ ------- ------- ------ ------ ------
Fixed Charges:
Interest expense
including interest
portion of rental
expense 679 506 1,150 1,574 4,316 8,915 953 1,189 2,192
Accretion and
noncash dividends -- -- -- 1,872 6,138 6,138 1,471 1,246 1,246
------ ------ ------ ------ ------- ------- ------ ------ ------
Fixed charges 679 506 1,150 3,446 10,454 15,053 2,424 2,435 3,438
------ ------ ------ ------ ------- ------- ------ ------ ------
Ratio of earnings to
fixed charges 8.30x 5.69x 8.12x -- -- -- -- -- --
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF AAi.FOSTERGRANT, INC. ("AAi")
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Organization Shareholder
- ------------------ ---------------------------- -----------
<S> <C> <C>
Foster Grant Holdings, Inc. ("Holdings") Delaware Common - AAi
Preferred - Bolle, Inc.
The Bonneau Company Texas Holdings
Bonneau General, Inc. Delaware The Bonneau Company
Bonneau Holdings, Inc. Delaware The Bonneau Company
F.G.G. Investments, Inc. Delaware The Bonneau Company
Opti-Ray, Inc. New York Holdings
O-Ray Holdings, Inc. Delaware Opti-Ray, Inc.
Foster Grant Group, L.P. Delaware 1% G.P. - Bonneau General Inc.
64% L.P. - Bonneau Holdings, Inc.
35% L.P. - O-Ray Holdings, Inc.
Fantasma, LLC Delaware 80% - AAi
20% - Houdini Capital Ltd.
AAi Company of Canada Nova Scotia AAi
Canada
Vendome Accessories Limited Nova Scotia 51% - AAi Company of Canada
Canada 49% - Place Vendome Accessories, Inc.
AAi.Foster Grant Limited United Kingdom AAi
AAi/JOSKE'S, S. de R.L. de C.V. Mexico 55% - AAi
45% - Joske's de Mexico, S.A. de C.V.
</TABLE>
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 5, 1998
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of AAi.FosterGrant Inc. of our report dated
December 30, 1997, relating to the consolidated financial statements of Foster
Grant Group LP, which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
August 6, 1998
<PAGE> 1
Exhibit 24.1
AAi.FOSTERGRANT, INC.
POWER OF ATTORNEY TO SIGN REGISTRATION STATEMENT ON FORM S-4
KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby constitute
and appoint Gerald F. Cerce, Duane M. DeSisto and Stephen J. Carlotti, and each
of them, with full power of substitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of the undersigned,
individually and in each capacity stated below, a Registration Statement on Form
S-4 of AAi.FOSTERGRANT, Inc. (the "Company") relating to Company's 10 3/4%
Series B Notes due 2006 and Guarantees by the Company's subsidiaries of the
10 3/4% Series B Notes due 2006, and any and all amendments (including
post-effective amendments) thereto, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may do or cause to be done by virtue hereof.
This Power of Attorney has been signed by the following persons in the
capacities and on the date or dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Gerald F. Cerce Chairman, President and August 4, 1998
- --------------------------- Chief Executive Officer
Gerald F. Cerce
/s/ Duane M. DeSisto Chief Financial Officer August 4, 1998
- --------------------------- and Treasurer
Duane M. DeSisto
/s/ Stephen J. Korotsky Controller August 4, 1998
- ---------------------------
Stephen J. Korotsky
/s/ John H. Flynn, Jr. Director August 4, 1998
- ---------------------------
John H. Flynn, Jr.
/s/ Stephen J. Carlotti Director July 24, 1998
- ---------------------------
Stephen J. Carlotti
/s/ Michael F. Cronin Director August 4, 1998
- ---------------------------
Michael F. Cronin
/s/ Martin E. Franklin Director August 4, 1998
- ---------------------------
Martin E. Franklin
/s/ George Graboys Director August 4, 1998
- ---------------------------
George Graboys
<PAGE> 1
Exhibit 24.2
THE BONNEAU COMPANY
POWER OF ATTORNEY TO SIGN REGISTRATION STATEMENT ON FORM S-4
KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby constitute
and appoint Gerald F. Cerce, Duane M. DeSisto and Stephen J. Carlotti, and each
of them, with full power of substitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of the undersigned,
individually and in each capacity stated below, a Registration Statement on Form
S-4 of The Bonneau Company (the "Company") relating to the 10 3/4% Series B
Notes due 2006 of AAi.FOSTERGRANT, Inc. ("AAi") and the Guarantees of the
10 3/4% Series B Notes due 2006 by several of AAi's subsidiaries, including the
Company, and any and all amendments (including post-effective amendments)
thereto, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
This Power of Attorney has been signed by the following persons in the
capacities and on the date or dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gerald F. Cerce President and Director August 4, 1998
- ------------------------ (Principal Executive Officer)
Gerald F. Cerce
/s/ Duane M. DeSisto Chief Financial Officer and Director August 4, 1998
- ------------------------ (Principal Financial Officer)
Duane M. DeSisto
/s/ Stephen J. Korotky Controller August 4, 1998
- ------------------------ (Principal Accounting Officer)
Stephen J. Korotsky
/s/ John H. Flynn, Jr. Director August 4, 1998
- ------------------------
John H. Flynn, Jr.
<PAGE> 1
Exhibit 24.3
BONNEAU GENERAL, INC.
POWER OF ATTORNEY TO SIGN REGISTRATION STATEMENT ON FORM S-4
KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby constitute
and appoint Gerald F. Cerce, Duane M. DeSisto and Stephen J. Carlotti, and each
of them, with full power of substitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of the undersigned,
individually and in each capacity stated below, a Registration Statement on Form
S-4 of Bonneau General, Inc. (the "Company") relating to the 10 3/4% Series B
Notes due 2006 of AAi.FOSTERGRANT, Inc. ("AAi") and the Guarantees of the
10 3/4% Series B Notes due 2006 by several of AAi's subsidiaries, including the
Company, and any and all amendments (including post-effective amendments)
thereto, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
This Power of Attorney has been signed by the following persons in the
capacities and on the date or dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gerald F. Cerce President and Director August 4, 1998
- ------------------------ (Principal Executive Officer)
Gerald F. Cerce
/s/ Duane M. DeSisto Chief Financial Officer and Director August 4, 1998
- ------------------------ (Principal Financial Officer)
Duane M. DeSisto
/s/ Stephen J. Korotsky Controller August 4, 1998
- ------------------------ (Principal Accounting Officer)
Stephen J. Korotsky
/s/ John H. Flynn, Jr. Director August 4, 1998
- ------------------------
John H. Flynn, Jr.
<PAGE> 1
Exhibit 24.4
BONNEAU HOLDINGS, INC.
POWER OF ATTORNEY TO SIGN REGISTRATION STATEMENT ON FORM S-4
KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby constitute
and appoint Gerald F. Cerce, Duane M. DeSisto and Stephen J. Carlotti, and each
of them, with full power of substitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of the undersigned,
individually and in each capacity stated below, a Registration Statement on Form
S-4 of Bonneau Holdings, Inc. (the "Company") relating to the 10 3/4% Series B
Notes due 2006 of AAi.FOSTERGRANT, Inc. ("AAi") and the Guarantees of the 10
3/4% Series B Notes due 2006 by several of AAi's subsidiaries, including the
Company, and any and all amendments (including post-effective amendments)
thereto, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
This Power of Attorney has been signed by the following persons in the
capacities and on the date or dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gerald F. Cerce President and Director August 4, 1998
- ------------------------- (Principal Executive Officer)
Gerald F. Cerce
/s/ Duane M. DeSisto Chief Financial Officer and Director August 4, 1998
- ------------------------- (Principal Financial Officer)
Duane M. DeSisto
/s/ Stephen J. Korotsky Controller August 4, 1998
- ------------------------- (Principal Accounting Officer)
Stephen J. Korotsky
/s/ John H. Flynn, Jr. Director August 4, 1998
- -------------------------
John H. Flynn, Jr.
<PAGE> 1
Exhibit 24.5
F.G.G. INVESTMENTS, INC.
POWER OF ATTORNEY TO SIGN REGISTRATION STATEMENT ON FORM S-4
KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby constitute
and appoint Gerald F. Cerce, Duane M. DeSisto and Stephen J. Carlotti, and each
of them, with full power of substitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of the undersigned,
individually and in each capacity stated below, a Registration Statement on Form
S-4 of F.G.G. Investments, Inc. (the "Company") relating to the 10 3/4% Series B
Notes due 2006 of AAi.FOSTERGRANT, Inc. ("AAi") and the Guarantees of the
10 3/4% Series B Notes due 2006 by several of AAi's subsidiaries, including the
Company, and any and all amendments (including post-effective amendments)
thereto, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
This Power of Attorney has been signed by the following persons in the
capacities and on the date or dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gerald F. Cerce President and Director August 4, 1998
- ------------------------- (Principal Executive Officer)
Gerald F. Cerce
/s/ Duane M. DeSisto Chief Financial Officer August 4, 1998
- ------------------------- (Principal Financial Officer)
Duane M. DeSisto
/s/ Stephen J. Korotsky Controller August 4, 1998
- ------------------------- (Principal Accounting Officer)
Stephen J. Korotsky
/s/ John H. Flynn, Jr. Director August 4, 1998
- -------------------------
John H. Flynn, Jr.
/s/ Thomas M. Strauss Director August 4, 1998
- -------------------------
Thomas M. Strauss
<PAGE> 1
Exhibit 24.7
FOSTER GRANT GROUP, L.P.
POWER OF ATTORNEY TO SIGN REGISTRATION STATEMENT ON FORM S-4
KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby constitute
and appoint Gerald F. Cerce, Duane M. DeSisto and Stephen J. Carlotti, and each
of them, with full power of substitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of the undersigned,
individually and in each capacity stated below, a Registration Statement on Form
S-4 of Foster Grant Group, L.P. (the "Partnership") relating to the 10 3/4%
Series B Notes due 2006 of AAi.FOSTERGRANT, Inc. ("AAi") and the Guarantees of
the 10 3/4% Series B Notes due 2006 by several of AAi's subsidiaries, including
the Partnership, and any and all amendments (including post-effective
amendments) thereto, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-fact, or their
substitute or substitutes, may do or cause to be done by virtue hereof.
This Power of Attorney has been signed by the following persons in the
capacities and on the date or dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gerald F. Cerce President and Chief August 4, 1998
- ------------------------- Executive Officer
Gerald F. Cerce (Principal Executive Officer)
/s/ Duane M. DeSisto Chief Financial Officer August 4, 1998
- ------------------------- (Principal Financial Officer)
Duane M. DeSisto
/s/ Stephen J. Korotsky Controller August 4, 1998
- ------------------------- (Principal Accounting Officer)
Stephen J. Korotsky
<PAGE> 1
Exhibit 24.8
FOSTER GRANT HOLDINGS, INC.
POWER OF ATTORNEY TO SIGN REGISTRATION STATEMENT ON FORM S-4
KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby constitute
and appoint Gerald F. Cerce, Duane M. DeSisto and Stephen J. Carlotti, and each
of them, with full power of substitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of the undersigned,
individually and in each capacity stated below, a Registration Statement on Form
S-4 of Foster Grant Holdings, Inc. (the "Company") relating to the 10 3/4%
Series B Notes due 2006 of AAi.FOSTERGRANT, Inc. ("AAi") and the Guarantees of
the 10 3/4% Series B Notes due 2006 by several of AAi's subsidiaries, including
the Company, and any and all amendments (including post-effective amendments)
thereto, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
This Power of Attorney has been signed by the following persons in the
capacities and on the date or dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gerald F. Cerce President and Director August 4, 1998
- -------------------------- (Principal Executive Officer)
Gerald F. Cerce
/s/ Duane M. DeSisto Treasurer and Director August 4, 1998
- -------------------------- (Principal Financial Officer)
Duane M. DeSisto
/s/ Stephen J. Korotsky Controller August 4, 1998
- -------------------------- (Principal Accounting Officer)
Stephen J. Korotsky
/s/ John H. Flynn, Jr. Director August 4, 1998
- --------------------------
John H. Flynn, Jr.
<PAGE> 1
Exhibit 24.9
OPTI-RAY, INC.
POWER OF ATTORNEY TO SIGN REGISTRATION STATEMENT ON FORM S-4
KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby constitute
and appoint Gerald F. Cerce, Duane M. DeSisto and Stephen J. Carlotti, and each
of them, with full power of substitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of the undersigned,
individually and in each capacity stated below, a Registration Statement on Form
S-4 of Opti-Ray, Inc. (the "Company") relating to the 10 3/4% Series B Notes due
2006 of AAi.FOSTERGRANT, Inc. ("AAi") and the Guarantees of the 10 3/4% Series B
Notes due 2006 by several of AAi's subsidiaries, including the Company, and any
and all amendments (including post-effective amendments) thereto, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or substitutes, may do or cause
to be done by virtue hereof.
This Power of Attorney has been signed by the following persons in the
capacities and on the date or dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gerald F. Cerce President and Director August 4, 1998
- ------------------------- (Principal Executive Officer)
Gerald F. Cerce
/s/ Duane M. DeSisto Chief Financial Officer and Director August 4, 1998
- ------------------------- (Principal Financial Officer)
Duane M. DeSisto
/s/ Stephen J. Korotsky Controller August 4, 1998
- ------------------------- (Principal Accounting Officer)
Stephen J. Korotsky
/s/ John H. Flynn, Jr. Director August 4, 1998
- -------------------------
John H. Flynn, Jr.
<PAGE> 1
Exhibit 24.10
O-RAY HOLDINGS, INC.
POWER OF ATTORNEY TO SIGN REGISTRATION STATEMENT ON FORM S-4
KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby constitute
and appoint Gerald F. Cerce, Duane M. DeSisto and Stephen J. Carlotti, and each
of them, with full power of substitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of the undersigned,
individually and in each capacity stated below, a Registration Statement on Form
S-4 of O-Ray Holdings, Inc. (the "Company") relating to the 10 3/4% Series B
Notes due 2006 of AAi.FOSTERGRANT, Inc. ("AAi") and the Guarantees of the 10
3/4% Series B Notes due 2006 by several of AAi's subsidiaries, including the
Company, and any and all amendments (including post-effective amendments)
thereto, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
This Power of Attorney has been signed by the following persons in the
capacities and on the date or dates indicated.
Signature Title Date
--------- ----- ----
/s/ Gerald F. Cerce President and Director August 4, 1998
- ------------------------- (Principal Executive Officer)
Gerald F. Cerce
/s/ Duane M. DeSisto Chief Financial Officer and Director August 4, 1998
- ------------------------- (Principal Financial Officer)
Duane M. DeSisto
/s/ Stephen J. Korotsky Controller August 4, 1998
- ------------------------- (Principal Accounting Officer)
Stephen J. Korotsky
/s/ John H. Flynn, Jr. Director August 4, 1998
- -------------------------
John H. Flynn, Jr.
<PAGE> 1
Exhibit 25.1
------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)/_/
-----------------------
IBJ SCHRODER BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-5375195
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. national bank) Identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
IBJ SCHRODER BANK & TRUST COMPANY
One State Street
New York, New York 10004
(212) 858-2000
(Name, address and telephone number of agent for service)
AAI.FOSTERGRANT, INC.
(Exact name of obligor as specified in its charter)
Rhode Island 05-0419304
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
<PAGE> 2
THE BONNEAU COMPANY
(Exact name of obligor as specified in its charter)
Texas 75-1280454
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
BONNEAU GENERAL, INC.
(Exact name of obligor as specified in its charter)
Delaware 75-2572796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
BONNEAU HOLDINGS, INC.
(Exact name of obligor as specified in its charter)
Delaware 51-0364025
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
F.G.G. INVESTMENTS, INC.
(Exact name of obligor as specified in its charter)
Delaware 36-3956826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
FANTASMA, LLC
(Exact name of obligor as specified in its charter)
Delaware 11-3340245
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
FOSTER GRANT GROUP, L.P.
(Exact name of obligor as specified in its charter)
Delaware 75-2572797
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
FOSTER GRANT HOLDINGS, INC.
(Exact name of obligor as specified in its charter)
Delaware 05-050018
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
<PAGE> 3
O-RAY HOLDINGS, INC.
(Exact name of obligor as specified in its charter)
Delaware 51-0364026
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
OPTI-RAY, INC.
(Exact name of obligor as specified in its charter)
New York 11-1812045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 George Washington Highway
Smithfield, Rhode Island 02917
(Address of principal executive offices) (Zip code)
-----------------------
10 3/4% SERIES B SENIOR NOTES DUE 2006
(Title of Indenture Securities)
--------------------------------------------------------
<PAGE> 4
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or
supervising authority to which it is subject.
New York State Banking Department
Two Rector Street, New York, New York
Federal Deposit Insurance Corporation
Washington, D.C.
Federal Reserve Bank of New York Second District
33 Liberty Street
New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee.
Defaults by the Obligor.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such
default.
None
(b) If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, or is trustee for more than one outstanding series
of securities under the indenture, state whether there has been a
default under any such indenture or series,
<PAGE> 5
identify the indenture or series affected, and explain the nature
of any such default.
None
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such
default.
Not Applicable
(b) If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or
participation in any other securities, of the obligor are
outstanding, or is trustee for more than one outstanding series
of securities under the indenture, state whether there has been a
default under any such indenture or series, identify the
indenture or series affected, and explain the nature of any such
default.
Not Applicable
Item 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust Company
as amended to date. (See Exhibit 1A to Form T-1, Securities
and Exchange Commission File No. 22-18460).
*2. A copy of the Certificate of Authority of the trustee to
Commence Business (Included in Exhibit 1 above).
*3. A copy of the Authorization of the trustee to exercise
corporate trust powers, as amended to date (See Exhibit 4 to
Form T-1, Securities and Exchange Commission File No.
22-19146).
<PAGE> 6
*4. A copy of the existing By-Laws of the trustee, as amended to
date (See Exhibit 4 to Form T-1, Securities and Exchange
Commission File No. 22-19146).
5. Not Applicable
6. The consent of United States institutional trustee required
by Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a
reference to the copy of the Exhibit heretofore filed with the
Securities and Exchange Commission, to which there have been no
amendments or changes.
NOTE
In answering any item in this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor and its
directors or officers, the trustee has relied upon information
furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base responsive answers to Item 2,
the answer to said Item are based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an
amendment to this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items
1, 2 and 16 of this form since to the best knowledge of the trustee,
the obligor is not in default under any indenture under which the
applicant is trustee.
<PAGE> 7
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
IBJ Schroder Bank & Trust Company, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of New York, and State of New York, on the 31st day of July 1998.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/Stephen J. Giurlando
-------------------------------
Stephen J. Giurlando
Assistant Vice President
<PAGE> 8
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939, as amended, in connection with the issue by AAI.FOSTERGRANT, INC. of its
10 3/4% SERIES B SENIOR NOTES DUE 2006, we hereby consent that reports of
examinations by Federal, State, Territorial, or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Stephen J. Giurlando
-------------------------------
Stephen J. Giurlando
Assistant Vice President
Dated: July 31, 1998
<PAGE> 9
EXHIBIT 7
REPORT OF CONDITION
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
of New York, New York
And Foreign and Domestic Subsidiaries
Report as of June 30, 1998
Dollar Amounts
in Thousands
ASSETS
1. Cash and balance due from depository institutions:
a. Non-interest-bearing balances and currency and coin $ 36,963
b. Interest-bearing balances $ 13,296
2. Securities:
a. Held-to-maturity securities $ 189,538
b. Available-for-sale securities $ 101,159
3. Federal funds sold and securities purchased under
agreements to resell in domestic offices of the bank
and of its Edge and Agreement subsidiaries and in IBFs:
Federal Funds sold and Securities purchased under agreements to resell
$327,500
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income $ 1,800,351
b. LESS: Allowance for loan and lease losses $ 65,836
c. LESS: Allocated transfer risk reserve $ -0-
d. Loans and leases, net of unearned income, allowance, and reserve
$ 1,814,515
5. Trading assets held in trading accounts $ 572
6. Premises and fixed assets (including capitalized leases) $ 2,194
7. Other real estate owned $ 819
8. Investments in unconsolidated subsidiaries and associated companies
$ -0-
9. Customers' liability to this bank on acceptances outstanding $ 640
10. Intangible assets $ 11,293
11. Other assets $ 58,872
12. TOTAL ASSETS $ 2,557,361
<PAGE> 10
LIABILITIES
13. Deposits:
a. In domestic offices $ 657,513
(1) Noninterest-bearing $ 178,024
(2) Interest-bearing . . . . . . . . . . . . . . . . . $ 479,489
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
$ 1,362,365
(1) Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . $ 20,278
(2) Interest-bearing . . . . . . . . . . . . . . . . . . . . . .
$ 1,342,087
14. Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBFs:
Federal Funds purchased and Securities sold under agreements to repurchase
$ 60,000
15. a. Demand notes issued to the U.S. Treasury $ 5,000
b. Trading Liabilities $ 406
16. Other borrowed money:
a. With a remaining maturity of one year or less $ 49,916
b. With a remaining maturity of more than one year $ 1,375
c. With a remaining maturity of more than three years $ 1,550
17. Not applicable.
18. Bank's liability on acceptances executed and outstanding $ 640
19. Subordinated notes and debentures $ 100,000
20. Other liabilities $ 69,920
21. TOTAL LIABILITIES $ 2,308,685
22. Limited-life preferred stock and related surplus $ N/A
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus $ -0-
24. Common stock $ 29,649
25. Surplus (exclude all surplus related to preferred stock) $ 217,008
26. a. Undivided profits and capital reserves $ 1,885
<PAGE> 11
b. Net unrealized gains (losses) on available-for-sale securities
$ 134
27. Cumulative foreign currency translation adjustments $ -0-
28. TOTAL EQUITY CAPITAL $ 248,676
29. TOTAL LIABILITIES AND EQUITY CAPITAL $ 2,557,361
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH REGISTRATION STATEMENT FORM S-4.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,779
<SECURITIES> 0
<RECEIVABLES> 28,714
<ALLOWANCES> 10,338
<INVENTORY> 32,795
<CURRENT-ASSETS> 63,624
<PP&E> 21,616
<DEPRECIATION> 11,431
<TOTAL-ASSETS> 94,915
<CURRENT-LIABILITIES> 58,402
<BONDS> 18,501
26,918
0
<COMMON> 6
<OTHER-SE> (6,240)
<TOTAL-LIABILITY-AND-EQUITY> 94,915
<SALES> 149,411
<TOTAL-REVENUES> 149,411
<CGS> 77,928
<TOTAL-COSTS> 77,928
<OTHER-EXPENSES> 65,285
<LOSS-PROVISION> 28,386
<INTEREST-EXPENSE> 4,214
<INCOME-PRETAX> 2,015
<INCOME-TAX> 1,177
<INCOME-CONTINUING> 838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,658)
<EPS-PRIMARY> (2.73)
<EPS-DILUTED> (2.73)
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF APRIL 4, 1998 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 4, 1998 (UNAUDITED) AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REGISTRATION STATEMENT FORM
S-4.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> APR-04-1998
<EXCHANGE-RATE> 1
<CASH> 439
<SECURITIES> 0
<RECEIVABLES> 48,223
<ALLOWANCES> 11,080
<INVENTORY> 34,873
<CURRENT-ASSETS> 79,604
<PP&E> 30,865
<DEPRECIATION> 12,688
<TOTAL-ASSETS> 121,759
<CURRENT-LIABILITIES> 84,555
<BONDS> 20,934
27,613
0
<COMMON> 6
<OTHER-SE> (6,596)
<TOTAL-LIABILITY-AND-EQUITY> 121,759
<SALES> 42,703
<TOTAL-REVENUES> 42,703
<CGS> 23,431
<TOTAL-COSTS> 23,431
<OTHER-EXPENSES> 17,627
<LOSS-PROVISION> 9,569
<INTEREST-EXPENSE> 1,178
<INCOME-PRETAX> 543
<INCOME-TAX> 239
<INCOME-CONTINUING> 304
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (379)
<EPS-PRIMARY> (.62)
<EPS-DILUTED> (.62)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
_________,1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
AAi.FOSTERGRANT, INC.
LETTER OF TRANSMITTAL
10 3/4% NOTES DUE 2006
TO: IBJ SCHRODER BANK & TRUST COMPANY, THE EXCHANGE AGENT
By Registered or Certified Mail: By Hand or Overnight Delivery:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attention: Securities Processing Window
Attention: Reorganization Subcellar One, (SC-1)
Operations Department
By Facsimile:
(212) 858-2611
Attention: Customer Service
Confirm by telephone:
(212) 858-2103
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.
The undersigned acknowledges that he or she has received the Prospectus
dated _________, 1998, (the "Prospectus") of AAi.FosterGrant, Inc. (the
"Company") and this Letter of Transmittal (the "Letter of Transmittal"), which
together constitute the Company's offer (the "Exchange Offer") to exchange
$1,000 principal amount of its 10 3/4% Series B Senior Notes due 2006 (the "New
Notes") which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which the
Prospectus is a part, for each $1,000 principal amount of its
<PAGE> 2
outstanding 10 3/4% Series A Senior Notes due 2006 (the "Old Notes"), of which
$75,000,000 principal amount is outstanding. The Old Notes and the New Notes are
sometimes collectively referred to as the "Notes." Other capitalized terms used
but not defined herein have the meanings given to them in the Prospectus.
This Letter of Transmittal is to be used by Holders of Old Notes (i) if
certificates representing the Old Notes are to be physically delivered herewith;
or (ii) if tender of Old Notes is to be made by book-entry transfer to the
Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to
the procedures set forth in the Prospectus under "The Exchange Offer --
Procedures for Tendering" by any financial institution that is a participant in
DTC and whose name appears on a security position listing as the owner of Old
Notes; or (iii) if tender of Old Notes is to be made according to the guaranteed
delivery procedures set forth in the Prospectus under "The Exchange Offer --
Guaranteed Delivery Procedures." Delivery of documents to DTC does not
constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person (i)
in whose name Old 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; or (ii) whose Old Notes are held of record by DTC who desires to deliver
such Old Notes by book-entry transfer at DTC. The undersigned has completed,
executed and delivered this Letter of Transmittal to indicate the action the
undersigned desires to take with respect to the Exchange Offer. Holders who wish
to tender their Old Notes must complete this Letter of Transmittal in its
entirety.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
- --------------------------------------------------------------------------------
DESCRIPTION OF 10 3/4% SERIES A SENIOR NOTES DUE 2006 ("OLD NOTES"):
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT TENDERED AGGREGATE PRINCIPAL AMOUNT
REPRESENTED BY CERTIFICATE(S)
- -------------------------- -----------------------------
(MUST BE IN INTEGRAL
MULTIPLES OF $1,000)*
NAME(S) AND ADDRESS(ES) OF
REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK)
- --------------------------------------------------------------------------------
-----------------------------
-----------------------------
-----------------------------
-----------------------------
2
<PAGE> 3
-----------------------------
-----------------------------
-----------------------------
Total
* Need not be completed if Old Notes are being tendered by book-entry
transfer. Unless indicated in the column labeled "Principal Amount Tendered,"
any tendering Holder of Old Notes will be deemed to have tendered the entire
aggregate principal amount in the column labeled "Aggregate Principal Amount
Represented by Certificate(s)."
If the space provided above is inadequate, list the principal amounts on a
separate signed schedule and affix the list to this Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount of Old Notes.
All other tenders must be in integral multiples of $1,000.
- --------------------------------------------------------------------------------
LADIES AND GENTLEMEN:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the principal amount of Old Notes indicated above.
Subject to and effective upon the acceptance for exchange of the principal
amount of Old Notes tendered in accordance with this Letter of Transmittal, the
undersigned sells, assigns and transfers to, or upon the order of, the Company
all right, title and interest in and to the Old Notes tendered hereby. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent its
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Company) with respect to the tendered Old Notes with
full power of substitution to (i) deliver certificates for such Old Notes to the
Company, or transfer ownership of such Old Notes on the account books maintained
by DTC, and deliver all accompanying evidences of transfer and authenticity to,
or upon the order of, the Company; and (ii) present such Old Notes for transfer
on the books of the Company and receive all benefits and otherwise exercise all
rights of beneficial ownership of such Old Notes, all in accordance with the
terms of the Exchange Offer. The power of attorney granted in this paragraph
shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign, and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim, when such Notes are acquired by the Company. THE
UNDERSIGNED HEREBY FURTHER REPRESENTS THAT ANY NEW NOTES ACQUIRED IN EXCHANGE
FOR OLD NOTES TENDERED HEREBY WILL HAVE BEEN ACQUIRED IN THE ORDINARY COURSE OF
BUSINESS OF THE HOLDER RECEIVING SUCH NEW NOTES, THAT NEITHER THE HOLDER NOR ANY
SUCH OTHER PERSON HAS AN ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO
PARTICIPATE IN THE DISTRIBUTION OF SUCH NEW NOTES AND THAT NEITHER THE HOLDER
NOR ANY SUCH OTHER PERSON IS AN "AFFILIATE," AS DEFINED UNDER RULE 405 OF THE
SECURITIES ACT, OF THE COMPANY OR ANY OF ITS SUBSIDIARIES. If the undersigned is
not a broker-dealer, the undersigned represents
3
<PAGE> 4
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes. If the undersigned is a broker-dealer that will receive New Notes, it
represents that the Old Notes to be exchanged for New Notes were acquired as a
result of market-making activities or other trading activities and not acquired
directly from the Company, and it acknowledges that it will deliver a prospectus
in connection with any resale of such New Notes; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. The undersigned
will, upon request, execute and deliver any additional documents deemed by the
Exchange Agent or the Company to be necessary or desirable to complete the
assignment, transfer and purchase of the Old Notes tendered hereby.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Old Notes when, as and if the Company has given oral
or written notice thereof to the Exchange Agent.
If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Old Notes
will be returned (except as noted below with respect to tenders through DTC),
without expense, to the undersigned at the address shown below or at a different
address as may be indicated herein under "Special Payment Instructions" as
promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company in accordance with the
terms and subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Payment Instructions," please
issue the certificates representing the New Notes issued in exchange for the Old
Notes accepted for exchange and return any Old Notes not tendered or not
exchanged, in the name(s) of the undersigned (or in either such event in the
case of Old Notes tendered by DTC, by credit to the undersigned's account at
DTC). Similarly, unless otherwise indicated under "Special Delivery
Instructions," please send the certificates representing the New Notes issued in
exchange for the Old Notes accepted for exchange and any certificates for Old
Notes not tendered or not exchanged (and accompanying documents, as appropriate)
to the undersigned at the address shown above in the box entitled "Description
of 10 3/4% Series A Senior Notes due 2006", unless, in either event, tender is
being made through DTC. In the event that both "Special Payment Instructions"
and "Special Delivery Instructions" are completed, please issue the certificates
representing the New Notes issued in exchange for the Old Notes accepted for
exchange and return any Old Notes not tendered or not exchanged in the name(s)
of, and send said certificates to, the person(s) so indicated. The undersigned
recognizes that the Company has no obligation pursuant to the "Special Payment
Instructions" and "Special Delivery Instructions" to transfer any Old Notes from
the name of the
4
<PAGE> 5
registered holder(s) thereof if the Company does not accept for exchange any of
the Old Notes so tendered.
Holders of Old Notes who wish to tender their Old Notes and (i) whose Old
Notes are not immediately available, or (ii) who cannot deliver their Old Notes,
this Letter of Transmittal or any other documents required hereby to the
Exchange Agent, or cannot complete the procedure for book-entry transfer, prior
to the Expiration Date, may tender their Old Notes according to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 1 regarding the
completion of this Letter of Transmittal printed below.
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 7)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered or not accepted for exchange, or New Notes issued in exchange for
Old Notes accepted for exchange, are to be issued in the name of someone other
than the undersigned, or if the Old Notes tendered by book-entry transfer that
are not accepted for exchange are to be credited to an account maintained by DTC
other than the account indicated below from which the Old Notes were tendered.
ISSUE CERTIFICATE(S) TO:
Name
____________________________________
(PLEASE PRINT)
Address
____________________________________
____________________________________
(INCLUDE ZIP CODE)
____________________________________
(SOCIAL SECURITY OR EMPLOYER IDENTIFICATION NUMBER)
[ ] Credit unexchanged Old Notes delivered by book-entry transfer to an account
maintained by DTC other than the account indicated below from which the Old
Notes were tendered.
(BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER, IF APPLICABLE)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if certificates for Old Notes in a principal amount
not tendered or not accepted for exchange, or New Notes issued in exchange for
Old Notes accepted for exchange, are to be sent to someone other than the
undersigned, or to the undersigned at an address other than that shown above.
5
<PAGE> 6
MAIL TO :
Name
____________________________________
(PLEASE PRINT)
Address
____________________________________
____________________________________
(INCLUDE ZIP CODE)
[__] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY DTC TO THE EXCHANGE
AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
DTC Participant No.:
DTC Book-Entry Account No.:
Transaction Code No.:
[__] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s):
Window Ticket Number (if any):
Date of Execution of Notice of Guaranteed Delivery:
Name of Institution which guaranteed delivery:
IF DELIVERY BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number:
Transaction Code Number:
[__] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
Address:
6
<PAGE> 7
PLEASE SIGN HERE WHETHER OR NOT OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
____________________________________ _____________________________
SIGNATURE(S) OF HOLDER(S) DATE
OR AUTHORIZED SIGNATORY
Area Code and Telephone Number:
The above lines must be signed by the Holder(s) of Old Notes as their
name(s) appear(s) on the Old Notes or, if the Old Notes are tendered by a
participant in DTC, as such participant's name appears on a security position
listing as the owner of the Old Notes, or by person(s) authorized to become
Holder(s) by a properly completed bond power from the Holder(s), a copy of which
must be transmitted with this Letter of Transmittal. If Old Notes to which this
Letter of Transmittal relates are held of record by two or more joint Holders,
then all such Holders must sign this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person must (i) set forth his or her full title below and (ii) unless
waived by the Company, submit evidence satisfactory to the Company of such
person's authority so to act. See Instruction 4 regarding the completion of this
Letter of Transmittal printed below.
Name(s): ___________________________
(PLEASE PRINT)
Capacity: __________________________
Address: ___________________________
____________________________________
(INCLUDE ZIP CODE)
SIGNATURE(S) GUARANTEED BY AN ELIGIBLE INSTITUTION:
(IF REQUIRED BY INSTRUCTION 4)
____________________________________
(AUTHORIZED SIGNATURE)
____________________________________
(TITLE)
____________________________________
(NAME OF FIRM)
Dated: _________, 1998
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES. The tendered Old
Notes (or a confirmation of a book-entry transfer into the Exchange Agent's
account at DTC of all Old Notes delivered electronically), as well as a properly
completed and duly executed copy of this Letter of Transmittal or facsimile
hereof and any other documents required by this Letter of Transmittal, must be
received by the Exchange Agent at its address set forth herein prior to 5:00
P.M., New York City time, on the Expiration Date. The method of delivery of the
tendered Old Notes, this Letter of Transmittal and all other required documents
to the Exchange Agent is at the election and risk of the Holder and, except as
otherwise provided below, the delivery will be deemed made only when actually
received or confirmed by the Exchange Agent. Instead of delivery by mail, it is
recommended that the Holder use an overnight or hand-delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. No Letter of
Transmittal or Old Notes should be sent to the Company.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available; or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal or any other documents required hereby to the Exchange Agent, or
cannot complete the procedure for book-entry transfer, prior to 5:00 P.M., New
York City time, on the Expiration Date must tender their Old Notes according to
the guaranteed delivery procedures set forth in the Prospectus. Pursuant to such
procedures: (i) such tender must be made by or through a 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 institution which falls within the
definition of "Eligible Guarantor Institution" contained in Rule 17Ad-15
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended (each, an "Eligible Institution"); (ii) prior
to 5:00 P.M., New York City time, on the Expiration Date, the Exchange Agent
must have received from the Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the Holder of the Old Notes and
the principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three New York Stock Exchange trading
days after the date of execution of the Notice of Guaranteed Delivery, this
Letter of Transmittal (or facsimile hereof) together with the certificate(s)
representing the Old Notes to be tendered in proper form for transfer (or a
confirmation of electronic delivery of book-entry transfer into the Exchange
Agent's account at DTC) and any other required documents will be deposited by
the Eligible Institution with the Exchange Agent; and (iii) such properly
completed and executed Letter of Transmittal (or facsimile hereof), as well as
all other documents required by this Letter of Transmittal and the
certificate(s) representing all tendered Old Notes in proper form for transfer
(or a confirmation of electronic delivery of book-entry transfer into the
Exchange Agent's account at DTC), must be received by the Exchange Agent within
three New York Stock Exchange trading days after the date of execution of the
Notice of Guaranteed Delivery, all as provided in the Prospectus under the
caption "Exchange Offer -- Guaranteed Delivery Procedures." Any Holder of Old
Notes who wishes to tender his or her Old Notes pursuant to the guaranteed
delivery procedures described above must ensure that the Exchange Agent receives
the Notice of Guaranteed Delivery prior to 5:00 P.M., New York City time, on the
Expiration Date. Upon request to the Exchange
8
<PAGE> 9
Agent, a Notice of Guaranteed Delivery will be sent to Holders who wish to
tender their Old Notes according to the guaranteed delivery procedures set forth
above.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
absolute right to reject any and all Old Notes not properly tendered or any Old
Notes the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any defects
or irregularities or conditions of tender as to the Exchange Offer and/or
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in this Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as the Company shall determine. None of the Company, the Exchange Agent nor
any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which any defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering
Holder(s) of Old Notes, unless otherwise provided in this Letter of Transmittal,
as soon as practicable following the Expiration Date.
2. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any tendering Holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instructions.
3. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in integral
multiples of $1,000. If less than the entire principal amount of any Old Note is
tendered, the tendering Holder should fill in the principal amount tendered in
the last column of the box entitled "Description of 10 3/4% Series A Senior
Notes due 2006 ("Old Notes")" above. The entire principal amount of Old Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. If the entire principal amount of all Old Notes is not
tendered, then Old Notes for the principal amount of Old Notes not tendered and
a certificate or certificates representing New Notes issued in exchange for any
Old Notes accepted will be sent to the Holder at his or her registered address,
unless a different address is provided in the appropriate box on this Letter of
Transmittal, or credited to an appropriate account at DTC, if applicable,
promptly after the Old Notes are accepted for exchange.
4. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof) is
signed by the record Holder(s) of the Old Notes tendered hereby, the signature
must correspond with the name(s) as written on the face of the Old Notes or, if
the Old Notes are tendered by a participant in DTC, as such participant's name
appears on a security position listing as the owner of the Old Notes, without
alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
Holder(s) of the Old Notes tendered hereby and the certificate or certificates
for New Notes issued in exchange therefor are to
9
<PAGE> 10
be issued (or any untendered principal amount of Old Notes is to be reissued) to
the Holder, said Holder need not and should not endorse any tendered Old Notes,
nor provide a separate bond power. In any other case, such Holder must either
properly endorse the Old Notes tendered or transmit a properly completed
separate bond power with this Letter of Transmittal, with the signatures on the
endorsement or bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the Holder(s) of the Old Notes tendered hereby, such Old Notes must
be endorsed or accompanied by appropriate bond powers signed as the name(s) of
the registered Holder(s) appear(s) on the Old Notes, with the signatures on the
endorsement or bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) or any Old 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 so to act must be submitted with this Letter of Transmittal.
Except as otherwise provided below, all signatures on this Letter of
Transmittal (or facsimile hereof) must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed if (i) this
Letter of Transmittal is signed by the Holder(s) of the Old Notes tendered
herewith (which term, for these purposes, includes any participant in DTC whose
name appears on a security position listing as the holder of such Old Notes) and
such Holder(s) have not completed the box set forth herein entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions"; or
(ii) such Old Notes are tendered for the account of an Eligible Institution.
5. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable box or boxes, the name and address to which New
Notes or substitute Old Notes for principal amounts not tendered or not accepted
for exchange are to be issued or sent, if different from the name and address of
the person signing this Letter of Transmittal (or in the case of tender of Old
Notes through DTC, if different from DTC). In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
6. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a Holder
whose offered Old Notes are accepted for exchange must provide the Company (as
payer) with his, her or its correct Taxpayer Identification Number ("TIN"),
which, in the case of an exchanging Holder who is an individual, is his or her
social security number. If the Company is not provided with the correct TIN or
an adequate basis for exemption, such Holder may be subject to a $50 penalty
imposed by the Internal Revenue Service (the "IRS"). In addition, delivery to
such Holder of New Notes may be subject to backup withholding in an amount equal
to 31% of the gross proceeds resulting from the Exchange Offer. If withholding
results in an overpayment of taxes, a refund may be obtained from the IRS by the
Holder. Exempt Holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. See instructions to the enclosed Guidelines of Certificate of
Taxpayer Identification Number on Substitute Form W-9.
10
<PAGE> 11
To prevent backup withholding, each exchanging Holder must provide his, her
or its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN) and that (i) the Holder is exempt from backup withholding; (ii) the Holder
has not been notified by the IRS that he, she or it is subject to backup
withholding as a result of a failure to report all interest or dividends; or
(iii) the IRS has notified the Holder that he, she or it is no longer subject to
backup withholding. In order to satisfy the Exchange Agent that a foreign
individual qualifies as an exempt recipient, such Holder must submit a statement
signed under penalty of perjury attesting to such exempt status. Such statements
may be obtained from the Exchange Agent. If the Old Notes are in more than one
name or are not in the name of the actual owner, consult the Form W-9 for
information on which TIN to report. If you do not provide your TIN to the
Company within 60 days, backup withholding will begin and continue until you
furnish your TIN to the Company.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Old 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 Holder of the Old
Notes tendered hereby, or if tendered Old Notes are registered in the name of
any person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the Holder or on any other person(s)) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with this Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
8. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Old Notes tendered.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at the address specified
above. Holders may also contact their broker, dealer, commercial bank, trust
company or other nominee for assistance concerning the Exchange Offer.
11
<PAGE> 12
(DO NOT WRITE IN SPACE BELOW)
CERTIFICATE(S) OLD NOTES OLD NOTES
SURRENDERED TENDERED ACCEPTED
================================================================================
================================================================================
Delivery Prepared by Checked By Date
================================================================================
================================================================================
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 6)
PAYER'S NAME: AAi.FOSTERGRANT, INC.
- --------------------------------------------------------------------------------
SUBSTITUTE PART 1-PLEASE PROVIDE YOUR TIN IN THE BOX SOCIAL SECURITY
FORM W-9 AT RIGHT AND CERTIFY BY SIGNING AND NUMBER OR
DEPARTMENT DATING BELOW EMPLOYER
OF THE TREASURY IDENTIFICATION
INTERNAL REVENUE NUMBER
SERVICE
---------------------------------------------------------------
Certification-Under the penalties of perjury, I certify that:
PAYER'S REQUEST 1. The number shown on this form is my correct taxpayer
FOR TAXPAYER identification number (or I am waiting for a number to be
IDENTIFICATION issued to me), and
NUMBER ("TIN") 2. I am not subject to backup withholding because: (a) I am
exempt from backup withholding, or (b) I have not been notified
by the Internal Revenue Service that I am subject to backup
withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding. Certification Instructions-You
must cross out item 2 above if you have been notified by the
IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax
return.
12
<PAGE> 13
Name
_______________________________
(PLEASE PRINT)
Address ____________________________
____________________________________
(INCLUDE ZIP CODE)
Signature __________________________ PART 2-Awaiting TIN [__]
Date _______________________________
-----------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATION IF YOU
CHECKED THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand
that, notwithstanding that I have checked the box in Part 2 (and have completed
this Certificate of Awaiting Taxpayer Identification Number), all reportable
payments made to me prior to the time I provide the US Depository with a
properly certified taxpayer identification number will be subject to a 31%
back-up withholding tax.
===============================================
SIGNATURE DATE
_____________________________ ___________________________
_____________________________ ___________________________
13
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
10 3/4% SERIES A SENIOR NOTES DUE 2006
OF
AAi.FOSTERGRANT, INC.
This form or one substantially equivalent hereto must be used to accept
the Exchange Offer of AAi.FosterGrant, Inc. (the "Company") made pursuant to the
Prospectus dated _________, 1998 (the "Prospectus") if certificates for the 10
3/4% Series A Senior Notes due 2006 (the "Old Notes") of the Company are not
immediately available or if the Old Notes, the Letter of Transmittal or any
other documents required thereby cannot be delivered to the Exchange Agent or
the procedure for book-entry transfer cannot be completed, prior to 5:00 P.M.,
New York City time, on the Expiration Date (as defined in the Prospectus). Such
form may be delivered by hand or transmitted by facsimile transmission,
overnight courier or mail to the Exchange Agent. Capitalized terms used by not
defined herein have the meanings given to them in the Prospectus.
TO: IBJ SCHRODER BANK & TRUST COMPANY, THE EXCHANGE AGENT
By Registered or Certified Mail: By Hand or Overnight Delivery:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
Bowling Green Station One State Street
P.O. Box 84 New York, New York 10004
New York, New York 10274-0084 Attention: Securities Processing Window
Attention: Reorganization Operations Subcellar One, (SC-1)
Department
By Facsimile:
(212) 858-2611
Attention: Customer Service
Confirm by telephone:
(212) 858-2103
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE
A VALID DELIVERY.
<PAGE> 2
This form is not to be used to guarantee signatures. If a signature on
the Letter of Transmittal to be used to tender Old Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal.
LADIES AND GENTLEMEN:
The undersigned hereby tenders to AAi.FosterGrant, Inc., a Rhode Island
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus and the Letter of Transmittal (which together constitute
the "Exchange Offer"), receipt of which is hereby acknowledged, the principal
amount of Old Notes pursuant to the guaranteed delivery procedures set forth in
"The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
Name and address of registered
holder as it appears on the
10 3/4% Senior Notes due Certificate Number(s) Principal Amount
2006 ("Notes") of Notes Tendered of Notes Tendered
(Please Print)
<S> <C> <C>
- --------------------- --------------------- ---------------------
- --------------------- --------------------- ---------------------
- --------------------- --------------------- ---------------------
- --------------------- --------------------- ---------------------
- --------------------- --------------------- ---------------------
</TABLE>
Area Code and Tel. No.
-----------------------------------------------
Certificate Nos. (if available) Signature(s)
- ------------------------------ -----------------
Dated:
-----------
If Old Notes will be delivered by book-entry transfer at The Depository Trust
Company ("DTC"), Depository Account No.:
----------------------------------------
This Notice of Guaranteed Delivery must be signed by the Holder(s) of
Old Notes exactly as its (their) name(s) appear(s) on certificates for Old Notes
or on a security position listing as the owner of the Old Notes, or by person(s)
authorized to become Holder(s) by endorsements and documents transmitted with
this Notice of Guaranteed Delivery. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person must
provide the following information:
2
<PAGE> 3
Please print name(s) and address(es)
Name(s):
-----------------------------------------
-----------------------------------------
Capacity:
----------------------------------------
Address(es):
----------------------------------------
----------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a 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 Securities Exchange Act of 1934, as amended (the "Exchange Act"),
hereby guarantees that delivery to the Exchange Agent of certificates for the
Old Notes tendered hereby, in proper form for transfer (or confirmation of
electronic delivery of book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC, pursuant to the procedures for book-entry transfer set
forth in the Prospectus), with delivery of a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) with any
required signature guarantees and any other required documents, will be received
by the Exchange Agent at one of its addresses set forth above within three New
York Stock Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery.
Name of Firm:
-------------------------- ---------------------------
(Authorized Signature)
Address: Title:
------------------------------- ----------------------
Name:
- --------------------------------------- ----------------------
(Zip Code) (Please type or print)
Area Code and Telephone Number: Date:
-----------------------
- ---------------------------------------
NOTE: DO NOT SEND OLD NOTES WITH THIS FORM; OLD NOTES SHOULD BE SENT WITH YOUR
LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE EXCHANGE AGENT WITHIN
THREE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER THE DATE OF EXECUTION OF THE
NOTICE OF GUARANTEED DELIVERY.
3
<PAGE> 1
EXHIBIT 99.3
AAi.FosterGrant, Inc.
OFFER TO EXCHANGE ITS
10 3/4% SERIES B SENIOR NOTES DUE 2006
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
10 3/4% SERIES A SENIOR NOTES DUE 2006
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON _____, 1998, UNLESS THE OFFER IS EXTENDED.
August ___, 1998
To Brokers, Dealers, Commercial
Banks, Trust Companies and
Other Nominees:
We are enclosing the material listed below relating to the offer of
AAi.FosterGrant, Inc., a Rhode Island corporation (the "Company"), to exchange
$1,000 principal amount of its 10 3/4% Series B Senior Notes due 2006 (the "New
Notes"), which have been registered under the Securities Act of 1933, as
amended, pursuant to a registration statement, for each $1,000 principal amount
of its 10 3/4% Series A Senior Notes due 2006 (the "Old Notes"), of which
$75,000,000 principal amount is outstanding, upon the terms and subject to the
conditions set forth in the Prospectus, dated _________, 1998 (the "Prospectus")
and in the related Letter of Transmittal (which together constitute the
"Exchange Offer").
THE EXCHANGE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF OLD NOTES
BEING TENDERED. The Exchange Offer is, however, subject to other conditions. See
the section "The Exchange Offer -- Conditions" in the Prospectus.
We are asking you to contact your clients for whom you hold Old Notes
registered in your name (or in the name of your nominee) or who hold Old Notes
registered in their own names. Please bring the Exchange Offer to their
attention as promptly as possible.
For your information and for forwarding to your clients, we are enclosing
the following documents:
1. The Prospectus, dated _________, 1998;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. The Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if the Old Notes are not immediately available or if the Old Notes and all
other required documents cannot be delivered to the Exchange Agent, IBJ Schroder
Bank & Trust Company, by the Expiration Date (as defined in the Prospectus) or
if the procedure for book-entry transfer cannot be completed on a timely basis;
and
<PAGE> 2
4. A form of letter which may be sent to your clients for whose account you
hold Old Notes registered in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the Exchange
Offer.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON _________, 1998, UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Old Notes should be delivered
to the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures described
in the Prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures."
Any questions or requests for assistance or additional copies of the
enclosed materials may be directed to IBJ Schroder Bank & Trust Company, the
Exchange Agent, at the address and telephone number set forth below:
BY REGISTERED OR CERTIFIED MAIL:
IBJ Schroder Bank & Trust Company
P.O. box 84
Bowling Green Station
New York, New York 10274-0084
Attention: Reorganization Operations Department
BY HAND OR OVERNIGHT DELIVERY:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Securities Processing Window
Subcellar one, (SC-1)
By facsimile: (212) 858-2611
Attention: Customer Service
Confirm by telephone: (212) 858-2103
Very truly yours,
AAi.FosterGrant, Inc.
2
