<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 1999
REGISTRATION NO. 333-84297
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CHARLOTTE RUSSE HOLDING, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 5621 33-0724325
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification
Organization) No.)
</TABLE>
4645 MORENA BOULEVARD, SAN DIEGO, CA 92117, (858) 587-1500
(Address, including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
------------------------
BERNARD ZEICHNER
CHIEF EXECUTIVE OFFICER AND PRESIDENT
4645 MORENA BOULEVARD, SAN DIEGO, CA 92117, (858) 587-1500
(Name, Address, including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------------
COPIES TO:
DANIEL S. EVANS, ESQ. FAYE H. RUSSELL, ESQ.
ROPES & GRAY BROBECK, PHLEGER & HARRISON, LLP
ONE INTERNATIONAL PLACE 550 WEST C STREET, SUITE 1200
BOSTON, MASSACHUSETTS 02110-2624 SAN DIEGO, CA 92101
(617) 951-7000 (619) 234-1966
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 27, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE AND
THE SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND WE AND THE SELLING
STOCKHOLDERS ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[LOGO]
2,900,000 SHARES
COMMON STOCK
Charlotte Russe Holding, Inc. is offering 1,450,000 shares of its common
stock and the selling stockholders are selling an additional 1,450,000 shares.
This is our initial public offering and no public market currently exists for
our shares. We have applied to have the shares we are offering approved for
quotation on the Nasdaq National Market under the symbol "CHIC." We anticipate
that the initial public offering price will be between $13.00 and $15.00 per
share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 9.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- ----------
<S> <C> <C>
Public Offering Price..................................................................... $ $
Underwriting Discounts and Commissions.................................................... $ $
Proceeds to Charlotte Russe............................................................... $ $
Proceeds to the Selling Stockholders...................................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Some of the selling stockholders have granted the underwriters a 30-day
option to purchase up to an additional 435,000 shares of common stock to cover
over-allotments.
------------------------
BANCBOSTON ROBERTSON STEPHENS
BANC OF AMERICA SECURITIES LLC
PAINEWEBBER INCORPORATED
FIRST UNION CAPITAL MARKETS CORP.
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE>
THE FRONT COVER FEATURES A BRIEF DESCRIPTION OF THE CHARLOTTE RUSSE AND RAMPAGE
CONCEPTS, ILLUSTRATED WITH BOTH INTERIOR AND EXTERIOR PERSPECTIVES OF THE STORES
AND IMAGES OF THE CHARLOTTE RUSSE CUSTOMER.
THE BACK COVER DISPLAYS A COLLAGE OF YOUNG WOMEN DRESSED IN CHARLOTTE RUSSE AND
RAMPAGE FASHION APPAREL AND ACCESSORIES. ADDITIONALLY, A MAP IS PROVIDED TO SHOW
STORE LOCATIONS. THERE WILL ALSO BE A GRAPH SHOWING STORE PENETRATION THROUGHOUT
MULTIPLE REGIONS OF THE UNITED STATES.
2
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT, AND THE UNDERWRITERS HAVE NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE
YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR
INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT. WE ARE NOT, AND THE
UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT
THE INFORMATION APPEARING IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE ON
THE FRONT COVER OF THIS PROSPECTUS. OUR BUSINESS, FINANCIAL CONDITION, RESULTS
OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THAT DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary.................................................................................................... 4
Risk Factors............................................................................................... 9
Forward-Looking Statements................................................................................. 14
Use of Proceeds............................................................................................ 15
Dividend Policy............................................................................................ 15
Capitalization............................................................................................. 16
Dilution................................................................................................... 17
Selected Consolidated Financial and Operating Data......................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 20
Business................................................................................................... 28
Management................................................................................................. 39
Principal and Selling Stockholders......................................................................... 45
Related Transactions....................................................................................... 47
Description of Capital Stock............................................................................... 49
Shares Eligible for Future Sale............................................................................ 50
Underwriting............................................................................................... 52
Validity of Common Stock................................................................................... 55
Experts.................................................................................................... 55
Available Information...................................................................................... 55
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
------------------------
The Charlotte Russe-Registered Trademark- stylized trademark referred to in
this prospectus is federally registered in the United States and the Z-TM-,
nonstylized Charlotte Russe-TM- and Charlotte's Room-TM- trademarks referred to
in this prospectus are subject to pending applications for registration. These
trademarks are the property of Charlotte Russe Holding, Inc. or it subsidiaries.
The Rampage-Registered Trademark- trademark referred to in this prospectus is
federally registered in the United States and is used by Charlotte Russe under a
license agreement with Rampage Clothing Company. The use of the Rampage
trademark by other parties, including other apparel manufacturers and retailers,
should not be attributed to our business. See "Business--Intellectual Property."
All other trademarks or trade names referred to in this prospectus are the
property of their respective owners.
3
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION ABOUT OUR BUSINESS AND
THIS OFFERING CONTAINED ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD READ THE ENTIRE
PROSPECTUS, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS AND RELATED
NOTES, BEFORE MAKING AN INVESTMENT DECISION. OUR FISCAL YEAR CONSISTS OF THE 52
OR 53 WEEK PERIOD ENDING ON THE LAST SATURDAY IN SEPTEMBER. ALL REFERENCES TO
FISCAL YEARS IN THIS PROSPECTUS REFER TO THE FISCAL YEAR ENDING IN THE CALENDAR
YEAR INDICATED. FOR EXAMPLE, FISCAL 1998 REFERS TO THE FISCAL YEAR ENDED
SEPTEMBER 26, 1998 AND OUR CURRENT FISCAL YEAR REFERS TO THE FISCAL YEAR ENDED
SEPTEMBER 25, 1999.
CHARLOTTE RUSSE HOLDING, INC.
We are a rapidly growing mall-based specialty retailer of fashionable,
value-priced apparel and accessories targeting young women between the ages of
15 and 35. We have two distinct store concepts, "Charlotte Russe" and "Rampage,"
and operated a total of 96 stores as of the end of fiscal 1999. Through our
fashion content, merchandise mix, exciting store layout and design, and striking
merchandise presentation, we project fashion attitudes that appeal to customers
from a broad range of socioeconomic, demographic and cultural profiles. In
addition, our breadth of merchandise enables our customers to assemble
coordinated and complete outfits that satisfy many of their lifestyle needs. Our
success is dependent upon our ability to anticipate, identify and capitalize
upon the fashion preferences of our target customers.
Our Charlotte Russe stores offer fashionable, affordable apparel and
accessories that have been tested and accepted by the marketplace, thus
appealing to women who prefer established fashion trends. Our Rampage stores
feature emerging fashion trends and thus appeal to women with a flair for making
fashion statements who are willing to pay somewhat higher prices to create a
cutting-edge look. Our stores are located predominately in high visibility,
center court mall locations in spaces that average approximately 7,500 square
feet. These stores, which are generally twice as large as those of most of our
mall-based competitors, are designed to create an environment that is exciting
to shop and accentuates the fashion, breadth and value of our merchandise
selection.
We opened our first store in 1975 in Carlsbad, California and slowly
expanded to 35 stores in southern California, Arizona and Nevada by the end of
fiscal 1996. In September 1996, we were acquired by two funds managed by
Saunders Karp & Megrue, L.P., a private equity investment firm, and Bernard
Zeichner, our Chairman, Chief Executive Officer and President. Following the
acquisition, we implemented a series of strategic initiatives to position us to
support an accelerated national store roll-out, including:
- hiring a number of senior executives with national retail experience to
complement our senior management team;
- substantially upgrading our management information systems;
- adding a second store concept by acquiring 16 Rampage stores in five
states; and
- consolidating our corporate and distribution center operations into a
modern 125,000 square foot facility in San Diego.
These initiatives, together with superior store economics that on average
have historically generated a cash return on investment in excess of 90% in the
first year of operation, have allowed us to grow significantly since our
acquisition. There can be no assurance that our new stores will obtain this
level of performance in the future, and our continued high growth expansion
could strain our resources. As of the end of fiscal 1999, we operated 96 stores
throughout 15 states and Puerto Rico, an increase of 61 stores since our
acquisition at the beginning of fiscal 1997. Our net sales increased to $134.1
million in fiscal 1998 from $70.7 million in fiscal 1996, representing a
compound annual growth
4
<PAGE>
rate of 37.7%. Additionally, for the first three quarters of fiscal 1999, our
net sales increased to $126.4 million from $94.4 million, representing a 33.9%
increase over the same period last year.
OUR BUSINESS STRATEGY
The elements of our business strategy combine to create a merchandise
assortment and overall shopping experience that has broad consumer appeal and
differentiates us from our competitors. The principal elements of our business
strategy include:
- offering fashionable, quality merchandise at prices generally 20% to 30%
below most of our direct mall-based competitors;
- maintaining distinct brand images based on fashion attitude, value pricing
and quality, especially through our proprietary Charlotte Russe and [Russe
label] private label merchandise;
- targeting a highly desirable market of 15 to 35 year old women, which
represents a large and growing consumer segment of the United States
population;
- offering a broad, exciting merchandise assortment that conveys a
consistent fashion attitude;
- capitalizing on strong store economics, which we have consistently
achieved across a variety of mall types throughout the United States;
- leveraging our highly experienced management team and existing
infrastructure to support continued national expansion; and
- actively managing inventory through a test-and-reorder strategy designed
to minimize our exposure to fashion cycles and to contribute to rapid
inventory turnover and strong gross margins.
OUR EXPANSION STRATEGY
We currently operate stores in 15 states throughout the United States. Our
long-term objective is to become a leading national specialty retailer of
fashion-forward, affordable apparel and accessories to youthful-minded women. We
intend to achieve our objective by pursuing the following initiatives:
- OPEN NEW STORES. Based on our successful track record of penetrating new
markets and solid infrastructure to support national expansion, we believe
we are well positioned for accelerated growth over the next several years.
Our plan is to open approximately 30 stores during fiscal 2000, for which
we have already completed our site selection and evaluation.
- EXPAND PRODUCT OFFERINGS. We also plan to grow by increasing the breadth
and depth of our product categories, which may be sold in either existing
stores or through new store concepts. We have historically been able to
leverage our strong brand images to expand single item offerings into
entire collections of related merchandise.
OUR ADDRESS
We are incorporated in Delaware, and our principal executive offices are
located at 4645 Morena Boulevard, San Diego, CA 92117. Our telephone number is
(858) 587-1500.
5
<PAGE>
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES:
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION;
- A 100-FOR-ONE SPLIT OF OUR COMMON STOCK, EFFECTIVE UPON THE CLOSING OF
THIS OFFERING;
- AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION, EFFECTIVE UPON THE
CLOSING OF THIS OFFERING, TO INCREASE OUR AUTHORIZED COMMON STOCK TO
100,000,000 SHARES; AND
- THE CASHLESS EXERCISE OF OUTSTANDING WARRANTS FOR 384,236 SHARES OF OUR
COMMON STOCK.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Charlotte Russe...... 1,450,000 shares
Common stock offered by selling
stockholders............................... 1,450,000 shares
--------
Total.................................. 2,900,000 shares
Common stock outstanding after the
offering................................... 20,145,036 shares
Use of proceeds.............................. We intend to use all of the net proceeds to
repay substantially all of our secured
indebtedness outstanding under our revolving
credit facility.
Proposed Nasdaq National Market symbol....... CHIC
</TABLE>
This information is based on shares of common stock outstanding as of June
26, 1999. This information excludes:
- 1,824,600 shares of our common stock subject to options outstanding as of
June 26, 1999 at a weighted average exercise price of $1.80 per share;
- 1,965,440 shares of our common stock subject to warrants outstanding as of
June 26, 1999 at an exercise price of $1.00 per share, subject to
adjustment; and
- 750,000 additional shares of our common stock that have been reserved for
issuance upon future grants of options under our stock option plans.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR CHARLOTTE RUSSE
--------------------------------- -------------------------------------------
FISCAL YEAR ENDED FISCAL YEAR ENDED NINE MONTHS ENDED
--------------------------------- --------------------- -------------------
SEPT. 24, SEPT. 30, SEPT. 27, SEPT. 27, SEPT. 26, JUNE 27, JUNE 26,
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.......................... $59,307 $61,568 $70,663 $ 81,543 $ 134,091 $94,410 $126,378
Cost of goods sold................. 37,123 38,014 43,774 50,723 93,142 65,507 85,996
--------- --------- --------- --------- --------- -------- --------
Gross profit....................... 22,184 23,554 26,889 30,820 40,949 28,903 40,382
Selling, general and administrative
expenses......................... 12,223 12,652 15,266 17,168 26,989 19,052 24,743
Amortization of goodwill and other
intangibles...................... -- -- -- 815 895 712 672
Predecessor shareholders'
salaries......................... 9,000 10,200 8,000 1,200 -- -- --
--------- --------- --------- --------- --------- -------- --------
Operating income................... 961 702 3,623 11,637 13,065 9,139 14,967
Interest income (expense), net..... (159) (28) 42 (2,279) (3,026) (2,198) (2,043)
Other charges, net................. (94) (115) (143) (315) (280) (263) (204)
--------- --------- --------- --------- --------- -------- --------
Income before income taxes and
extraordinary item............... 708 559 3,522 9,043 9,759 6,678 12,720
Income taxes(1).................... -- -- -- 3,987 4,245 2,905 5,342
--------- --------- --------- --------- --------- -------- --------
Income before extraordinary item... 708 559 3,522 5,056 5,514 3,773 7,378
Extraordinary loss from early debt
retirement....................... -- -- -- -- -- -- (519)
--------- --------- --------- --------- --------- -------- --------
Net income......................... $ 708 $ 559 $ 3,522 $ 5,056 $ 5,514 $ 3,773 $ 6,859
--------- --------- --------- --------- --------- -------- --------
--------- --------- --------- --------- --------- -------- --------
Earnings per share(2):
Basic earnings per share
Income before extraordinary
item......................... $ 0.28 $ 0.30 $ 0.21 $ 0.40
--------- --------- -------- --------
--------- --------- -------- --------
Net income..................... $ 0.28 $ 0.30 $ 0.21 $ 0.37
--------- --------- -------- --------
--------- --------- -------- --------
Diluted earnings per share
Income before extraordinary
item......................... $ 0.25 $ 0.27 $ 0.18 $ 0.35
--------- --------- -------- --------
--------- --------- -------- --------
Net income..................... $ 0.25 $ 0.27 $ 0.18 $ 0.32
--------- --------- -------- --------
--------- --------- -------- --------
Weighted average shares
outstanding(2):
Basic............................ 18,300 18,300 18,300 18,300
Diluted.......................... 19,992 20,668 20,688 21,207
SELECTED OPERATING DATA:
Number of stores open at end of
period........................... 30 33 35 41 74 69 85
Average square footage per
store(3)......................... 8,994 8,363 8,290 8,206 7,603 7,618 7,558
Comparable store sales increase
(decrease)(4).................... (7.3)% 0.8% 4.7% 5.1% (5.8)% (9.2)% 6.9%
Average store sales(5)............. $ 2,068 $ 2,031 $ 2,048 $ 2,219 $ 2,097 $ 1,542 $ 1,564
Sales per square foot(6)........... $ 228 $ 231 $ 247 $ 268 $ 272 $ 199 $ 206
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 26, 1999
--------------------------
ACTUAL AS ADJUSTED(7)
--------- ---------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency).......................................................................... $ (7,420) $ (6,420)
Total assets.......................................................................................... 75,219 76,219
Total debt............................................................................................ 18,860 881
Total stockholders' equity............................................................................ 35,294 54,273
</TABLE>
- ------------
(1) The Predecessor had elected S corporation status for federal and state
income tax reporting purposes. Accordingly, the income of the Predecessor
was included in the tax returns of the shareholders and no provision for
income taxes was made. We have elected to operate as a C corporation since
our inception.
7
<PAGE>
(2) See Notes 1, 8 and 12 of Notes to the consolidated financial statements for
the method used to calculate the net income per share and weighted average
shares outstanding.
(3) Our average square footage per store is based on open stores at the end of
the period.
(4) Our comparable store percentages are based on net sales, and stores are
considered comparable beginning on the first day of the month following the
fourteenth full month of sales.
(5) Our average store sales are based on the time weighted average of open
stores in the period.
(6) Our sales per square foot consists of net sales divided by the time weighted
average of gross square footage of open stores.
(7) This column reflects our receipt of the net proceeds from the offering,
assuming an initial public offering price of $14.00 per share, after
deducting estimated and underwriting discounts and commissions and estimated
offering expenses. See "Use of Proceeds" and "Capitalization."
8
<PAGE>
RISK FACTORS
INVESTING IN OUR COMMON STOCK WILL PROVIDE YOU WITH AN EQUITY OWNERSHIP
INTEREST IN CHARLOTTE RUSSE. AS A CHARLOTTE RUSSE STOCKHOLDER, YOU WILL BE
SUBJECT TO RISKS INHERENT IN OUR BUSINESS. THE VALUE OF YOUR INVESTMENT MAY
INCREASE OR DECLINE AND YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY
OUR COMMON STOCK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AS WELL AS
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN
SHARES OF OUR COMMON STOCK.
RISKS RELATING TO OUR BUSINESS
WE WILL BE OPENING NEW STORES MORE RAPIDLY THAN WE HAVE IN THE PAST, WHICH COULD
STRAIN OUR RESOURCES AND CAUSE US TO EXECUTE OUR BUSINESS LESS EFFECTIVELY.
Our growth will largely be dependent on successfully opening and operating
new stores. During fiscal 1999, we opened 22 new stores, including 11 stores in
the fourth quarter. The addition of 22 stores in fiscal 1999 will represent an
increase of approximately 30% from the number of stores open at the end of
fiscal 1998. We plan to open approximately 30 new stores during fiscal 2000, an
increase of 31% from the end of fiscal 1999. We intend to continue to increase
our number of stores at approximately this rate for at least the next few years.
Our managerial and operational resources were significantly strained during our
acquisition of the 16 Rampage stores in fiscal 1998. Our proposed expansion is
more rapid than what we have experienced in the past, including the Rampage
acquisition, and will place increased demands on our managerial, operational and
administrative resources. These increased demands could cause us to execute our
business less effectively, which in turn could cause deterioration in the
financial performance of our individual stores and slow our new store growth.
OUR PLANNED EXPANSION INVOLVES A NUMBER OF RISKS THAT COULD PREVENT OR DELAY THE
SUCCESSFUL OPENING OF NEW STORES AS WELL AS IMPACT THE PERFORMANCE OF OUR
EXISTING STORES.
Our ability to open and operate new stores successfully depends on many
factors, including, among others, our ability to:
- identify suitable store locations;
- negotiate acceptable lease terms, including desired tenant improvement
allowances;
- source sufficient levels of inventory to meet the needs of new stores;
- hire and train store personnel;
- successfully integrate new stores into our existing operations; and
- satisfy the fashion preferences of new geographic areas.
In addition, many of our new stores will be opened in regions of the United
States and its territories in which we currently have few or no stores. The
expansion into new markets may present competitive, merchandising and
distribution challenges that are different from those currently encountered in
our existing markets. Any of these challenges could adversely affect our
business and results of operations. In addition, to the extent our new store
openings are in existing markets, we may experience reduced net sales volumes in
existing stores in those markets.
OUR STORES ARE HEAVILY DEPENDENT ON THE CUSTOMER TRAFFIC GENERATED BY SHOPPING
MALLS.
Most of our store locations are not sufficiently concentrated to make
significant marketing expenditures cost effective. As a result, we depend
heavily on locating our stores in prominent locations within successful shopping
malls in order to generate customer traffic. We cannot control the development
of new shopping malls, the availability or cost of appropriate locations within
existing or new shopping malls, or the success of individual shopping malls.
9
<PAGE>
IF AT ANY TIME OUR COMPARABLE STORE SALES AND QUARTERLY RESULTS OF OPERATIONS
DECLINE OR DO NOT MEET THE EXPECTATIONS OF RESEARCH ANALYSTS, THE PRICE OF OUR
COMMON STOCK COULD DECLINE SUBSTANTIALLY.
Our quarterly results of operations for our individual stores have
fluctuated in the past and can be expected to continue to fluctuate in the
future. For instance, while quarterly comparable store sales increased at least
4.1% in each of the fourth quarter of fiscal 1998 and the first three quarters
of fiscal 1999, we experienced quarterly comparable store sales decreases
ranging from 1.7% to 10.5% in each of the five quarters preceding the fourth
quarter of fiscal 1998. Our net sales and operating results are typically lower
in the second quarter of our fiscal year due to the traditional retail slowdown
immediately following the winter holiday season. Our comparable store sales and
quarterly results of operations are affected by a variety of factors, including:
- the timing of new store openings and the relative proportion of new stores
to mature stores;
- fashion trends;
- calendar shifts of holiday or seasonal periods;
- the effectiveness of our test-and-reorder strategy in maintaining
appropriate inventory levels;
- changes in our merchandise mix;
- timing of promotional events;
- general economic conditions and, in particular, the retail sales
environment;
- actions by competitors or mall anchor tenants;
- weather conditions; and
- the level of pre-opening expenses associated with new stores.
You should refer to the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for more information.
OUR BUSINESS AND REPUTATION MAY BE ADVERSELY AFFECTED IF OUR RAMPAGE STORES ARE
ASSOCIATED WITH NEGATIVE PUBLICITY RELATED TO THE USE OF THE RAMPAGE TRADEMARK
BY OTHER PARTIES.
In connection with the acquisition of our Rampage stores, we acquired the
exclusive right within the United States to use the Rampage trademark for use on
exterior or interior signages identifying our Rampage stores as well as the
non-exclusive right within the United States to use the Rampage trademark for
promotional and advertising materials. We do not, however, have the right to use
the Rampage trademark on our merchandise. The right to market merchandise under
the Rampage trademark was retained by Rampage Clothing Company. Further, nothing
in our license agreement with Rampage Clothing Company prohibits the sale of
merchandise bearing the Rampage trademark by other parties or the licensing of
the Rampage trademark to other parties. In fact, Rampage Clothing Company has
licensed the trademark to other parties. We believe a positive Rampage brand
image is important to our success. Accordingly, if the merchandise sold by the
Rampage Clothing Company or other parties under the Rampage trademark is of low
quality or if the Rampage Clothing Company or these parties otherwise engage in
activities that may negatively affect the Rampage trademark or are otherwise
inconsistent with our Rampage store concept, consumers could lose confidence in
our merchandise and our reputation and business could be materially adversely
affected. You should refer to the section entitled "Business--Intellectual
Property" for more information.
OUR SUCCESS DEPENDS ON OUR ABILITY TO IDENTIFY AND RAPIDLY RESPOND TO CONSUMERS'
FASHION TASTES.
The apparel industry is subject to rapidly evolving fashion trends and
shifting consumer demands. Accordingly, our success is heavily dependent both on
the priority our target customers place on fashion and on our ability to
anticipate, identify and capitalize upon emerging fashion trends. Current
10
<PAGE>
fashion tastes place significant emphasis on a fashionable look. In the past
this emphasis has increased and decreased through fashion cycles, and decreased
emphasis has adversely affected our results. Although we rely on a
test-and-reorder merchandise strategy to minimize our exposure to misjudging
fashion tastes and to reduce inventory risks, we can not assure you that this
strategy will continue to be successful. Our failure to anticipate, identify or
react appropriately to changes in styles, trends, desired images or brand
preferences could lead to, among other things, excess inventories and higher
markdowns, as well as decreased appeal of our brands.
OUR MARKET SHARE MAY BE ADVERSELY IMPACTED AT ANY TIME BY A SIGNIFICANT NUMBER
OF COMPETITORS.
We operate in a highly competitive environment characterized by low barriers
to entry. We compete against a diverse group of retailers, including national
and local specialty retail stores, regional retail chains, traditional
department stores and, to a lesser extent, mall merchandisers. Our market share
and results of operations may be adversely impacted by this significant number
of competitors. Many of our competitors also are larger and have substantially
greater resources than we do.
WE RELY ON OUR GOOD RELATIONSHIPS WITH VENDORS TO IMPLEMENT OUR BUSINESS
STRATEGY SUCCESSFULLY.
Our business is dependent on continued good relations with our vendors. In
particular, we believe that we generally are able to obtain attractive pricing
and other terms from vendors because we are perceived as a desirable customer.
Our test-and-reorder merchandise strategy also relies in large part on our
ability to obtain merchandise from our vendors within three to six weeks from
the date of order. Our failure to maintain good relations with our vendors could
increase our exposure to changing fashion cycles, which may in turn lead to
increased inventory markdown rates.
OUR SOUTHWESTERN UNITED STATES CONCENTRATION MAKES US SUSCEPTIBLE TO ADVERSE
CONDITIONS IN THIS REGION.
A majority of our stores are located in southern California, Arizona and
Nevada. As a result, our operations are more subject to regional factors than
the operations of more geographically diversified competitors. These factors
include, among others, economic and weather conditions, demographic and
population changes and fashion tastes.
In addition, our corporate offices and distribution center are located in
San Diego, and we transact business with vendors at our offices in the
California Merchandise Mart in Los Angeles. A natural disaster or other
catastrophic event, such as an earthquake, affecting southern California could
significantly disrupt our operations.
OUR FAILURE TO RETAIN OUR EXISTING SENIOR MANAGEMENT TEAM COULD ADVERSELY AFFECT
OUR BUSINESS.
Our business requires disciplined execution at all levels of our
organization in order to timely deliver and display fashionable merchandise in
appropriate quantities in our stores. This execution requires experienced and
talented management. We currently have a management team with a great deal of
experience with us and in apparel retailing. If we were to lose the benefit of
this experience, and in particular if we were to lose the services of Bernard
Zeichner, our President and Chief Executive Officer, or Harriet Sustarsic, our
Executive Vice President and General Merchandise Manager, our business could be
adversely affected. We do not have employment agreements with any member of our
senior management team other than Mr. Zeichner. We do not maintain key man
insurance on any of our management team. You should refer to the section
entitled "Management" for more information.
11
<PAGE>
WE RELY ON THIRD PARTIES FOR UPGRADING AND MAINTAINING OUR MANAGEMENT
INFORMATION SYSTEMS. IF THESE THIRD PARTIES DO NOT ADEQUATELY PERFORM THESE
FUNCTIONS APPROPRIATELY, OUR BUSINESS COULD BE DISRUPTED.
The efficient operation of our business is heavily dependent on our
information systems. In particular, we rely heavily on the automated sortation
system used in our distribution center and the merchandise management system
used to track sales and inventory. We depend on our vendors to maintain and
periodically upgrade these systems for the continued ability of these systems to
support our business as we expand. The software programs supporting our
automated sorting equipment and processing our inventory management information
were licensed to us by independent software developers. The inability of these
developers to continue to maintain and upgrade these software programs would
disrupt our operations if we are unable to convert to alternate systems in an
efficient and timely manner. You should refer to the section entitled
"Business--Management Information Systems" for more information.
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF OUR CRITICAL COMPUTER SYSTEMS DO NOT
PROPERLY HANDLE DATE INFORMATION AFTER DECEMBER 31, 1999.
Our operations may face risks associated with the fact that many computer
systems and software programs do not properly recognize dates after December 31,
1999. This could result in system failures or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to receive shipments, process financial information or credit card transactions,
deliver our merchandise to our stores or engage in other normal business
activities.
Despite preliminary testing of the hardware and software used in our
accounting, point of sale and inventory control, and distribution information
systems indicating that the versions of those products now used by us are Year
2000 compliant, those systems may nevertheless contain errors or defects
associated with Year 2000 date functions. We are unable to predict to what
extent our business may be affected if our internal systems experience a
material Year 2000 failure. The computer systems of financial institutions,
major credit card processors, utility companies, telecommunications providers
and other third-party service providers outside of our control may not be Year
2000 compliant. The failure by such entities to achieve timely Year 2000
compliance could result in significant disruptions in the services provided to
us, which could adversely affect our business, operating results and financial
condition.
We currently purchase merchandise from a significant number of vendors, and
do not make purchases or otherwise exchange data with our vendors
electronically. Because we purchase from such a diverse group of vendors, we do
not believe that we are dependent on the operations of any single vendor or
group of vendors. As a result, we do not intend to inquire systematically about
the Year 2000 readiness of our vendors. You should refer to the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Readiness Disclosure Statement" for more information.
RISKS RELATING TO THIS OFFERING
WE ARE CONTROLLED BY A SMALL GROUP OF EXISTING STOCKHOLDERS WHOSE INTERESTS MAY
DIFFER FROM OTHER STOCKHOLDERS.
Two investment funds managed by Saunders Karp & Megrue, L.P. (collectively,
the "SKM Funds") will beneficially own approximately 84.1% of our common stock
after the offering. Accordingly, they will have significant influence in
determining the outcome of all matters submitted to stockholders for approval,
including the election of directors and significant corporate transactions. The
interests of these stockholders may differ from the interests of other
stockholders and their concentration of ownership may have the effect of
delaying or preventing a change in our control that may be favored by other
stockholders. As long as the SKM Funds own a majority of our common stock, they
will have
12
<PAGE>
the power to elect our entire board of directors. In addition, under a
stockholders agreement, the SKM Funds have the power to (1) while they hold at
least 25% of our outstanding common stock, nominate three directors and
designate the chairman of the board of directors and (2) while they hold at
least 10% of the shares of common stock held by them immediately after the
completion of the offering, including shares of common stock issuable upon
exercise of outstanding warrants at such date, nominate two directors and
include one director elected by the SKM Funds on each committee of the board of
directors. You should refer to the sections entitled "Principal and Selling
Stockholders" and "Related Transactions" for more information.
THE LIQUIDITY OF OUR STOCK IS UNCERTAIN BECAUSE IT HAS NEVER BEEN PUBLICLY
TRADED, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE THE PRICE YOU
PAID.
There has not been a public market for our common stock. As a result, the
initial public offering price will be determined by negotiations among the
underwriters, the selling stockholders and us, and may not be indicative of
prices that will prevail in the public trading markets. Further, we cannot
predict the extent to which a trading market for our common stock will develop
or how liquid that market will be. You may not be able to resell your shares at
or above the initial public offering price.
THE MARKET PRICE OF OUR COMMON STOCK MAY BE MATERIALLY ADVERSELY AFFECTED BY
MARKET VOLATILITY.
The market price of our common stock is likely to fluctuate, both because of
actual and perceived changes in our financial results and prospects and because
of general volatility in the stock market. The factors that could cause
fluctuations in our stock price may include, among other factors discussed in
this section:
- actual or anticipated variations in comparable store sales or quarterly
operating results;
- changes in financial estimates by research analysts;
- actual or anticipated changes in the United States economy or the
retailing environment;
- changes in the market valuations of other specialty apparel or retail
companies;
- announcements by us or our competitors of significant acquisitions,
strategic partnerships, divestitures, joint ventures or other strategic
initiatives; and
- actual or anticipated sales of common stock by existing stockholders,
whether in the market or in a public offering.
THE PUBLIC SALE OF OUR STOCK BY EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT THE
PRICE OF OUR COMMON STOCK.
The market price of our common stock could decline as a result of market
sales by our existing stockholders after the offering, or the perception that
such sales will occur. These sales also might make it difficult for us to sell
equity securities in the future at a time and at a price that we deem
appropriate. You should refer to the section entitled "Shares Eligible for
Future Sale" for more information.
YOU WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
INVESTMENT IN OUR COMMON STOCK.
The initial public offering price per share will significantly exceed our
net tangible book value per share. Accordingly, you will suffer immediate and
substantial dilution of $12.89 per share, assuming an initial public offering
price of $14.00 per share. This dilution is due in large part to the fact that
earlier investors paid substantially less than the public offering price when
they purchased their shares of our common stock. The exercise of outstanding
options and warrants to purchase our common stock will result in additional
dilution per share. You should refer to the section entitled "Dilution" for more
information.
13
<PAGE>
FORWARD-LOOKING STATEMENTS
We have made statements under the captions "Summary," "Risk Factors," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and in other sections of this prospectus that
are forward-looking statements. You can identify these statements by
forward-looking words such as "may," "will," "expect," "intend," "anticipate,"
"believe," "estimate" and "continue" or similar words. These forward-looking
statements may also use different phrases. We have based these forward-looking
statements on our current expectations and projections about future events.
These forward-looking statements, which are subject to risks, uncertainties, and
assumptions about us, may include, among other things, projections of our future
results of operations or of our financial condition, our anticipated growth
strategies, and anticipated trends in our business.
We believe it is important to communicate our expectations to our investors.
However, there may be events in the future that we are not able to accurately
predict or which we do not fully control that could cause actual results to
differ materially from those expressed or implied in our forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements, including those factors discussed under the caption entitled "Risk
Factors."
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
14
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of the 1,450,000 shares of
common stock we are offering will be approximately $18.0 million, assuming an
initial public offering price of $14.00 and after deducting the estimated
underwriting discounts and offering expenses payable. We will not receive any
proceeds from the sale of common stock by the selling stockholders. Upon the
consummation of this offering, Mr. Bernard Zeichner, our Chief Executive Officer
and President, is required to repay a $1.0 million note receivable due to us.
We intend to use all of our approximately $18.0 million of the net proceeds
from this offering to repay substantially all of our secured indebtedness
outstanding under our revolving credit facility with BankBoston, N.A, as agent.
This debt has a maturity date of September 30, 2002 and bears interest at a rate
per annum equal to either (1) the base rate established by BankBoston, N.A. plus
1.00% or (2) the Eurodollar rate of BankBoston, N.A. plus 2.50%, at our option
and subject to adjustments. As of September 13, 1999, the interest rate on
borrowings under our revolving credit facility was 7.68%.
DIVIDEND POLICY
We do not intend to declare or pay a cash dividend on our common stock in
the foreseeable future. We currently intend to retain earnings to finance future
operations and expansions. We are prohibited by the terms of our revolving
credit facility from paying cash dividends without the prior written consent of
the lender.
15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 26, 1999 on an
actual basis and as adjusted to reflect (1) a 100-for-one split of our common
stock, (2) an increase in our authorized common stock to 100,000,000 shares, (3)
the sale of the shares of common stock offered by us at an assumed initial
public offering price of $14.00 per share, after deducting the underwriting
discount and estimated offering expenses payable by us, (4) the application of
the estimated net proceeds as described in "Use of Proceeds," (5) the cashless
exercise of warrants to purchase 384,236 shares of common stock by FSC Corp., an
affiliate of BankBoston, N.A. and (6) repayment of a $1.0 million note
receivable due to us from Mr. Bernard Zeichner, our Chief Executive Officer and
President. This table contains unaudited information and should be read in
conjunction with the consolidated financial statements appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 26, 1999
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Capital leases, current portion.......................................................... $ 428 $ 428
---------- -----------
---------- -----------
Capital leases, net of current portion................................................... 182 182
Notes payable to bank.................................................................... 18,250 271
---------- -----------
Total long-term debt................................................................. 18,432 453
Stockholder's equity:
Preferred stock, par value $0.01 per share; 3,000,000 shares authorized, none issued or
outstanding.......................................................................... -- --
Common stock, par value $0.01 per share; 100,000,000 shares authorized, 18,310,800
shares issued and outstanding; 20,145,036 shares issued and outstanding, as
adjusted............................................................................. 183 198
Additional paid-in capital............................................................. 19,422 37,386
Deferred compensation.................................................................. (720) (720)
Notes receivable from officers......................................................... (1,020) (20)
Retained earnings...................................................................... 17,429 17,429
---------- -----------
Total stockholders' equity........................................................... 35,294 54,273
---------- -----------
Total capitalization............................................................... $ 53,726 $ 54,726
---------- -----------
---------- -----------
</TABLE>
The share information in the table is based on our shares of common stock
outstanding as of June 26, 1999. This table does not include:
- 1,824,600 shares of our common stock subject to options outstanding as of
June 26, 1999 at a weighted average exercise price of $1.80 per share;
- 1,965,440 shares of our common stock subject to warrants outstanding as of
June 26, 1999 at an exercise price of $1.00 per share, subject to
adjustment; and
- 750,000 additional shares of our common stock that have been reserved for
issuance under our stock plans.
16
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 26, 1999 was approximately
$3.4 million or $0.19 per share of common stock. Our pro forma net tangible book
value per share represents our total tangible assets less total liabilities
divided by the pro forma total number of shares of common stock outstanding at
such date, assuming the cashless exercise of warrants to purchase 384,236 shares
of common stock at an exercise price of $1.00 per share.
Without taking into account any changes in net tangible book value after
June 26, 1999, other than to give effect to the sale of the shares of common
stock offered by us at an assumed initial public offering price of $14.00 per
share, after deducting the underwriting discount and estimated offering expenses
payable by us, our pro forma net tangible book value as of June 26, 1999 would
have been approximately $22.4 million or $1.11 per share of common stock. This
amount represents an immediate increase in pro forma net tangible book value of
$0.92 per share to the existing stockholders and an immediate dilution in pro
forma net tangible book value of $12.89 per share to new investors purchasing
shares in this offering. If the initial public offering price is higher or
lower, the dilution to new investors will be greater or less. The following
table illustrates the dilution in pro forma net tangible book value per share to
new investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $ 14.00
Pro forma net tangible book value per share as of June 26, 1999............ $ 0.19
Increase in net tangible book value per share attributable to new
investors................................................................ 0.92
---------
Pro forma net tangible book value per share after the offering............... 1.11
---------
Dilution per share to new investors.......................................... $ 12.89
---------
---------
</TABLE>
The following table summarizes on a pro forma basis, as of June 26, 1999,
the number of shares of common stock purchased from us, the aggregate cash
consideration paid to us and the average price per share paid by existing
stockholders and to be paid by new investors purchasing the shares of common
stock in this offering at an assumed initial public offering price of $14.00 per
share, before deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- -------- ------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.............. 18,695,036 92.8% $18,310,800 47.4% $ 1.00
New Investors...................... 1,450,000 7.2 20,300,000 52.6 14.00
------- -------- ------- --------
Total............................ 20,145,036 100.0% $38,610,800 100.0%
------- -------- ------- --------
------- -------- ------- --------
</TABLE>
The above information assumes no exercise of (1) the underwriters'
over-allotment option and (2) stock options or warrants after June 26, 1999. As
of June 26, 1999, we had reserved 1,824,600 shares of our common stock for
issuance upon exercise of outstanding options at a weighted average exercise
price of $1.80 per share and 1,965,440 shares of our common stock for issuance
upon exercise of outstanding warrants at an exercise price of $1.00 per share.
To the extent any of these options or warrants are exercised, there will be
further dilution to new investors.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data set forth below is qualified in its
entirety by, and should be read in conjunction with, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and notes thereto included elsewhere in this
prospectus. The selected consolidated balance sheet data as of September 27,
1997 and September 26, 1998 and the selected consolidated statement of income
data for the three years in the period ended September 26, 1998 have been
derived from our consolidated financial statements, which have been audited by
Ernst & Young LLP, independent auditors, and are included elsewhere in this
prospectus. The selected consolidated balance sheet data as of September 24,
1994, September 30, 1995 and September 27, 1996 and the selected consolidated
statement of income data for each of the two years in the period ended September
30, 1995 were derived from audited financial statements which are not included
in this prospectus. The selected consolidated balance sheet data as of June 27,
1998 and June 26, 1999 and the consolidated statement of income data for the
nine months ended June 27, 1998 and June 26, 1999 have been derived from
unaudited consolidated financial statements included elsewhere in this
prospectus. The unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, which in the
opinion of our management are necessary for the fair presentation of our
consolidated financial position and results of operations for those periods. Our
results for the nine months ended June 26, 1999 are not necessarily indicative
of the results that may be expected for the entire year or for any future
period.
<TABLE>
<CAPTION>
PREDECESSOR CHARLOTTE RUSSE
------------------------------- ------------------------------------------
FISCAL YEAR ENDED FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------- -------------------- --------------------
SEPT. 24, SEPT. 30, SEPT. 27, SEPT. 27, SEPT. 26, JUNE 27, JUNE 26,
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.................................. $ 59,307 $ 61,568 $ 70,663 $ 81,543 $ 134,091 $ 94,410 $ 126,378
Cost of goods sold......................... 37,123 38,014 43,774 50,723 93,142 65,507 85,996
--------- --------- --------- --------- --------- --------- ---------
Gross profit............................... 22,184 23,554 26,889 30,820 40,949 28,903 40,382
Selling, general and administrative
expenses................................. 12,223 12,652 15,266 17,168 26,989 19,052 24,743
Amortization of goodwill and other
intangibles.............................. -- -- -- 815 895 712 672
Predecessor shareholders' salaries......... 9,000 10,200 8,000 1,200 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Operating income........................... 961 702 3,623 11,637 13,065 9,139 14,967
Interest income (expense), net............. (159) (28) 42 (2,279) (3,026) (2,198) (2,043)
Other charges, net......................... (94) (115) (143) (315) (280) (263) (204)
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes and
extraordinary item....................... 708 559 3,522 9,043 9,759 6,678 12,720
Income taxes(1)............................ -- -- -- 3,987 4,245 2,905 5,342
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary item........... 708 559 3,522 5,056 5,514 3,773 7,378
Extraordinary loss from early debt
retirement............................... -- -- -- -- -- -- (519)
--------- --------- --------- --------- --------- --------- ---------
Net income................................. $ 708 $ 559 $ 3,522 $ 5,056 $ 5,514 $ 3,773 $ 6,859
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings per share(2):
Basic earnings per share:
Income before extraordinary item....... -- -- -- $ 0.28 $ 0.30 $ 0.21 $ 0.40
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income............................. -- -- -- $ 0.28 $ 0.30 $ 0.21 $ 0.37
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Diluted earnings per share:
Income before extraordinary item....... -- -- -- $ 0.25 $ 0.27 $ 0.18 $ 0.35
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income............................. -- -- -- $ 0.25 $ 0.27 $ 0.18 $ 0.32
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average shares outstanding(2):
Basic.................................... 18,300 18,300 18,300 18,300
Diluted.................................. 19,992 20,668 20,688 21,207
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR CHARLOTTE RUSSE
------------------------------- ------------------------------------------
FISCAL YEAR ENDED FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------- -------------------- --------------------
SEPT. 24, SEPT. 30, SEPT. 27, SEPT. 27, SEPT. 26, JUNE 27, JUNE 26,
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Number of stores open at end of period..... 30 33 35 41 74 69 85
Average square footage per store(3)........ 8,994 8,363 8,290 8,206 7,603 7,618 7,558
Comparable store sales increase
(decrease)(4)............................ (7.3)% 0.8% 4.7% 5.1% (5.8)% (9.2)% 6.9%
Average stores sales(5).................... $ 2,068 $ 2,031 $ 2,048 $ 2,219 $ 2,097 $ 1,542 $ 1,564
Sales per square foot(6)................... $ 228 $ 231 $ 247 $ 268 $ 272 $ 199 $ 206
BALANCE SHEET DATA:
Working capital (deficiency)............... $ 952 $ 1,285 $ (3,589) $ (2,676) $ (1,239) $ (1,210) $ (7,420)
Total assets............................... 15,613 17,705 49,641 57,128 74,427 71,577 75,219
Total debt................................. 4,903 5,459 21,900 22,325 28,525 29,900 18,860
Total stockholders' equity................. 4,583 5,142 18,923 23,980 29,445 27,672 35,294
</TABLE>
- ----------
(1) The Predecessor had elected S corporation status for federal and state
income tax reporting purposes. Accordingly, the income of the Predecessor
was included in the tax returns of the shareholders and no provision for
income taxes was made. We have elected to operate as a C corporation since
our inception.
(2) See Notes 1, 8 and 12 of Notes to the consolidated financial statements for
the method used to calculate the net income per share and weighted average
shares outstanding.
(3) Our average square footage per store is based on open stores at the end of
the period.
(4) Our comparable store percentages are based on net sales, and stores are
considered comparable beginning on the first day of the month following the
fourteenth full month of sales.
(5) Our average store sales are based on the time weighted average of open
stores in the period.
(6) Our sales per square foot consists of net sales divided by the time weighted
average of gross square footage of open stores.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS AND OTHER FINANCIAL
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We were founded in 1975 and opened our first store in Carlsbad, California.
As a result of the success achieved with this store, we gradually expanded our
business by adding 15 stores throughout southern California over the next 15
years. In 1990, we opened our first store in Arizona, and in 1992 we expanded
into the Nevada market. As of the end of fiscal 1996, we were operating a chain
of 35 stores in three states, generating over $70.0 million of net sales.
On September 26, 1996, two funds managed by Saunders Karp & Megrue, L.P., a
private equity investment firm, acquired Charlotte Russe from its founders with
the intention of pursuing an accelerated national new store expansion program.
Concurrent with the acquisition, Bernard Zeichner, who had joined us as
President in May 1996, acquired an ownership interest in the business from the
SKM Funds. The new owners believed a significant opportunity existed to leverage
the strength of our new store economics by further penetrating existing markets
and expanding the chain into other regions of the country. Mr. Zeichner
recognized the importance of developing the necessary infrastructure to execute
this strategic business plan and began hiring a number of key senior executives
with national retail experience to complement the existing management team.
In fiscal 1997, the first fiscal year under our new ownership, we opened
seven new stores compared to two new stores opened in the prior fiscal year, and
entered the northern California, Florida, Texas and Hawaii markets. As a result
of this new store growth and a 5.0% increase in our comparable store sales, our
net sales grew to $81.5 million in fiscal 1997 from $70.7 million in fiscal
1996, an increase of 15.4%.
In fiscal 1998, we undertook several strategic initiatives to enhance our
long-term national expansion plans. At the beginning of fiscal 1998, we acquired
16 stores in a bankruptcy proceeding from Rampage Retailing, Inc. for a total
purchase price of $10.5 million. These stores provided us with a second distinct
retail concept as well as an additional vehicle for growth. In addition, we
opened 17 new Charlotte Russe stores, primarily in markets we entered in the
prior fiscal year and in new markets such as Georgia and South Carolina.
Accordingly, our total store base increased by 80.5% during fiscal 1998.
Finally, we moved into new corporate offices and a larger, more automated
distribution center capable of supporting our expansion plans over the next
several years. These initiatives, particularly the Rampage acquisition,
significantly strained our managerial and other resources. Due to the expedited
timing of the Rampage acquisition, we initially diverted Charlotte Russe
merchandise to support the opening of these stores and devoted significant
managerial resources to integrating this new concept. As a result, our buying
department was distracted by having to purchase for two distinctly different
chains throughout much of the first half of fiscal 1998 until we were able to
establish separate and dedicated buying operations for each concept. While we
achieved significant growth in net sales during fiscal 1998, we were only able
to achieve a modest increase in our operating income.
Our strong operating performance in fiscal 1999 reflects the benefits of the
infrastructure building process that we undertook during fiscal 1998. Net sales
for the nine months ended June 26, 1999 increased to $126.4 million from $94.4
million, an increase of 33.9% over the same period last year. This increase
resulted from a rise in comparable store sales of 6.9% and our continued growth
of new stores. During the same period, our operating income grew to $15.0
million from $9.1 million, an increase of 63.8%. We opened 22 new stores during
fiscal 1999, including 11 during the fourth quarter of fiscal 1999. These stores
include our first locations in Michigan, Illinois, Pennsylvania, Connecticut,
North Carolina and Puerto Rico.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth our operating results, expressed as a
percentage of sales, and store information for the periods indicated. We
acquired our Rampage stores in the beginning of fiscal 1998 and, accordingly,
our results for fiscal 1996 and 1997 consist only of the results for our
Charlotte Russe stores.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ------------------------
------------------------------- JUNE 27, JUNE 26,
1996 1997 1998 1998 1999
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales..................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............................................ 61.9 62.2 69.5 69.4 68.0
--------- --------- --------- ----- -----
Gross profit.................................................. 38.1 37.8 30.5 30.6 32.0
Selling, general and administrative expenses.................. 21.6 21.1 20.1 20.2 19.6
Amortization of goodwill and other intangibles................ 0.0 1.0 0.7 0.7 0.6
Predecessor shareholders' salaries............................ 11.4 1.4 0.0 0.0 0.0
--------- --------- --------- ----- -----
Operating income.............................................. 5.1 14.3 9.7 9.7 11.8
Interest income (expense), net................................ 0.1 (2.8) (2.2) (2.3) (1.6)
Other charges, net............................................ (0.2) (0.4) (0.2) (0.3) (0.2)
--------- --------- --------- ----- -----
Income before income taxes and extraordinary item............. 5.0 11.1 7.3 7.1 10.0
Income taxes.................................................. 0.0 4.9 3.2 3.1 4.2
--------- --------- --------- ----- -----
Income before extraordinary item.............................. 5.0 6.2 4.1 4.0 5.8
Extraordinary loss from early debt retirement................. 0.0 0.0 0.0 0.0 (0.4)
--------- --------- --------- ----- -----
Net income.................................................... 5.0% 6.2% 4.1% 4.0% 5.4%
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
Number of stores open at end of period........................ 35 41 74 69 85
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
</TABLE>
NINE MONTHS ENDED JUNE 26, 1999 COMPARED TO NINE MONTHS ENDED JUNE 27, 1998
NET SALES. Net sales increased to $126.4 million from $94.4 million, an
increase of $32.0 million or 33.9% over the same period last year. This increase
is attributable primarily to $26.2 million of net sales for the 11 new stores
opened during fiscal 1999, as well as other stores opened in prior fiscal years
that did not qualify as comparable stores. Our comparable store sales increased
6.9% and contributed $5.8 million to the net sales increase during this period.
GROSS PROFIT. Gross profit represents net sales less cost of goods sold,
which includes buying, distribution and occupancy costs. Gross profit increased
to $40.4 million from $28.9 million, an increase of $11.5 million or 39.7% over
the same period last year. This increase is the result of higher net sales and
improved gross profit margins. As a percentage of net sales, gross profit rose
to 32.0% from 30.6%. The increase in gross profit as a percentage of net sales
was principally due to higher initial markups and the impact of leveraging
distribution center expenses over a higher sales base.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $24.7 million from $19.1 million, an
increase of $5.6 million or 29.9% over the same period last year. This increase
is attributable to new store expansion, increased corporate expenses, and a
$722,000 impairment charge related to the plan to close two stores. As a
percentage of sales, these expenses dropped to 19.6% from 20.2%, primarily due
to the impact of leveraging store operating expenses and corporate payroll
expenses over a higher sales base. The decline in expenses as a percentage of
net sales was partially offset by management bonus plan accruals, for which no
comparable charge was incurred during the same period of the prior year.
21
<PAGE>
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles expense decreased to $672,000 from $712,000, a decrease of
$40,000 or 5.6% over the same period last year. The decrease is a result of
adjustments recorded in the fourth quarter of fiscal 1998 to reduce the carrying
amounts on leasehold interest assets and liabilities of $1.9 million related to
the Rampage acquisition.
INCOME TAXES. The effective tax rate of 42.0% for the nine months ended
June 26, 1999 compares to an effective tax rate of 43.5% for the same period
last year. Our effective tax rate exceeds statutory tax rates due to
non-deductible amortization of goodwill associated with the acquisition of the
business in September 1996. Since amortization is a fixed amount, increases in
pre-tax earnings reduce the effect of this tax difference as a percentage of
pre-tax earnings.
NET INCOME. Net income increased to $6.9 million from $3.8 million, an
increase of $3.1 million or 81.8% over the same period last year. This increase
was primarily due to an increase in gross profit, and was partially offset by an
increase in selling, general and administrative expenses, an increase in income
taxes, and a $0.5 million charge relating to the early repayment of the 12.5%
subordinated debt in June 1999.
YEAR ENDED SEPTEMBER 26, 1998 COMPARED TO YEAR ENDED SEPTEMBER 27, 1997
NET SALES. Net sales increased to $134.1 million from $81.5 million, an
increase of $52.6 million or 64.4% over the prior fiscal year. The increase
reflects $35.5 million of net sales from the 17 Rampage stores that were
acquired or opened during fiscal 1998. An additional $21.6 million of net sales
increases are related to the 16 new Charlotte Russe stores opened in fiscal
1998, as well as other stores opened in prior fiscal years that did not qualify
as comparable stores. This increase was partially offset by a 5.8% decrease in
our comparable store sales, which resulted in decreased sales of $4.5 million
compared to the prior fiscal year.
GROSS PROFIT. Gross profit increased to $40.9 million from $30.8 million,
an increase of $10.1 million or 32.9% over the same period last year. This
increase is a result of increased net sales, offset in part by decreased gross
profit margins. As a percentage of net sales, gross profit decreased to 30.5%
from 37.8%. The decrease in gross profit as a percentage of sales resulted in
part from the inclusion of the Rampage stores acquired at the beginning of
fiscal 1998, which stores have higher occupancy costs. In addition, lower
comparable stores sales at our Charlotte Russe stores resulted in higher
markdowns and higher occupancy expenses as a percentage of net sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $27.0 million from $17.2 million, an
increase of $9.8 million or 57.2% over the same period last year. This increase
is attributable to new store expansion and increased corporate expenses. These
expenses as a percentage of net sales declined to 20.1% from 21.1% as corporate
expenses were leveraged by the significant increase in our sales base. This
decline was partially offset by an increase in store operating expenses
resulting from the inclusion of the Rampage stores, which have slightly higher
expense levels than our Charlotte Russe stores, and higher expenses for our
Charlotte Russe stores resulting from a drop in average store volumes.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles expense increased to $0.9 million from $0.8 million, an
increase of $0.1 million or 12.5% over the same period last year. This increase
is a result of our acquisition of a license agreement and other intangibles in
connection with the Rampage acquisition.
INCOME TAXES. The effective tax rate of 43.5% for the year ended September
26, 1998 compares to an effective tax rate of 44.1% for the prior fiscal year.
22
<PAGE>
NET INCOME. Net income increased to $5.5 million from $5.1 million, an
increase of $0.4 million or 9.0% over the prior fiscal year. This increase was
primarily due to an increase in gross profit and a $1.2 million reduction in
salaries paid to predecessor shareholders pursuant to terms of the September
1996 acquisition. This increase in net income was largely offset by higher
selling, corporate and interest expenses associated with the Rampage
acquisition.
YEAR ENDED SEPTEMBER 27, 1997 COMPARED TO YEAR ENDED SEPTEMBER 27, 1996
NET SALES. Net sales increased to $81.5 million from $70.7 million, an
increase of $10.8 million or 15.4% over the prior fiscal year. The increase
reflects $7.4 million attributable to net sales for the seven new stores opened
during fiscal 1997, as well as other stores opened in prior fiscal years that
did not qualify as comparable stores. Our comparable store sales increased 5.1%
and contributed $3.4 million to the net sales increase.
GROSS PROFIT. Gross profit increased to $30.8 million from $26.9 million,
an increase of $3.9 million or 14.6% over the same period last year. This
increase is a result of increased net sales, offset in part by decreased gross
profit margin. As a percent of sales, gross profit decreased to 37.8% from
38.1%, primarily due to increased distribution center and related expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $17.2 million from $15.3 million, an
increase of $1.9 million or 12.5% over the same period last year. This increase
is attributable to new store expansion and increased corporate expenses. As a
percentage of net sales, these expenses decreased to 21.1% from 21.6%, as a
result of the impact of leveraging store operating expenses over higher average
store sales volumes.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles expense increased to $0.8 million compared with no
amortization of goodwill and other intangibles expense during the prior year.
The increase is a result of our acquisition in September 1996.
PREDECESSOR SHAREHOLDERS' SALARIES. Predecessor shareholders' salaries
decreased to $1.2 million from $8.0 million, a decrease of $6.8 million or 85.0%
over the same period last year. The decrease is a result of our acquisition in
September 1996, which resulted in the substantial reduction in the salaries paid
to the predecessor shareholders. Salaries paid to the predecessor shareholders
subsequent to the acquisition date relate to services rendered to us during
fiscal 1997.
INCOME TAXES. The effective tax rate of 44.1% for the year ended September
27, 1997 compares to no income tax expense the prior year. We operated as an S
Corporation prior to fiscal 1997 and, as a result, had not been subject to
federal or certain state income taxes.
NET INCOME. Net income increased to $5.1 million from $3.5 million, an
increase of $1.6 million or 43.6% over the prior fiscal year. This increase was
primarily due to an increase in gross profit and the $6.8 million reduction in
salaries paid to predecessor shareholders pursuant to terms of the September
1996 acquisition. This increase in net income was partially offset by an
increase in selling, general and administrative expenses, the $0.8 million
increase in amortization of goodwill and other intangibles relating to our
acquisition, a $2.3 million increase in net interest expense primarily
attributable to higher levels of borrowing in connection with our acquisition,
and a $0.2 million increase in other charges relating to the payment of a
monitoring fee to Saunders Karp & Megrue, L.P.
QUARTERLY RESULTS AND SEASONALITY
We have historically experienced and expect to continue to experience
seasonal and quarterly fluctuations in our net sales and operating income. As is
the case with many retailers of apparel and related merchandise, our business is
subject to seasonal influences, characterized by strong sales during the
back-to-school, Easter and winter holiday seasons. The strength of each of these
three seasons
23
<PAGE>
generally provides relatively balanced sales during our first, third and fourth
fiscal quarters. We typically experience lower net sales and net income during
the second fiscal quarter ending in March of each year. Our quarterly results of
operations may fluctuate significantly as a result of a variety of factors,
including the timing of new store openings, fashion trends and shifts in timing
of certain holidays, as well as other factors discussed in the section entitled
"Risk Factors."
The following table includes our unaudited quarterly results of operations
data for each of the three quarters in the nine months ended June 26, 1999 and
for each of the four quarters in the year ended September 26, 1998. We believe
that this information has been prepared on the same basis as our audited
consolidated financial statements and that all necessary adjustments, consisting
only of normal recurring adjustments, have been included to present fairly the
selected quarterly information when read in conjunction with our audited
consolidated financial statements and the notes to those statements included
elsewhere in the prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR 1998 FISCAL YEAR 1999
--------------------------------------------- ---------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
--------------------------------------------- ---------------------------------
DEC. 27, MAR. 28, JUNE 27, SEPT. 26, DEC. 28, MAR. 27, JUNE 26,
1997 1998 1998 1998 1998 1999 1999
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................... $ 35,251 $ 27,202 $ 31,957 $ 39,681 $ 46,007 $ 35,689 $ 44,682
Gross profit................ 12,158 7,482 9,263 12,046 15,150 10,625 14,607
Operating income............ 5,324 1,532 2,283 3,926 6,385 2,784 5,798
Net income.................. 2,605 333 835 1,741 3,223 1,204 2,432
AS A PERCENTAGE OF NET SALES:
Net sales................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit................ 34.5 27.5 29.0 30.4 32.9 29.8 32.7
Operating income............ 15.1 5.6 7.1 9.9 13.9 7.8 13.0
Net income.................. 7.4 1.2 2.6 4.4 7.0 3.4 5.4
OPERATING DATA:
Comparable store sales
increase (decrease)....... (10.5)% (10.4)% (6.7)% 4.1% 4.4% 4.5% 11.3%
Stores open at end of
period.................... 61 62 69 74 80 82 85
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Our capital requirements result primarily from capital expenditures related
to new store openings. We have historically satisfied our cash requirements
principally through cash flow from operations. We have used borrowings under our
revolving credit facility in the past for acquisitions, including our
acquisition by the SKM Funds and the acquisition of 16 stores from Rampage
Retailing, Inc. Due to the rapid turnover of our inventory, we generate trade
payables and other accrued liabilities sufficient to offset our working capital
requirements. As of June 26, 1999, we had negative working capital of $7.4
million.
During fiscal years 1997, 1998 and the first nine months of fiscal 1999, net
cash provided by operations was $8.3 million, $9.4 million and $17.4 million. In
the first nine months of fiscal 1999, cash flows from operating activities
increased as a result of increased operating earnings and increased current
liabilities. In fiscal 1997 and 1998 cash used in investing activities included
$2.0 million and $7.3 million related to the acquisition of 16 stores from
Rampage Retailing, Inc. Cash flows used for new store openings and the
construction of our distribution center and corporate facility were $5.2
million, $8.5 million and $7.6 million in fiscal 1997, 1998 and the nine months
ended June 26, 1999.
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<PAGE>
Excluding the impact of financing activities related to the Rampage
acquisition, the net repayment of borrowings under our revolving credit facility
and capital lease obligations were $1.6 million and $2.6 million in fiscal 1997
and 1998. During the nine months ended June 26, 1999, we repaid $11.0 million of
our 12.5% subordinated debt to the SKM Funds, although net borrowings under our
revolving credit facility rose only $1.7 million during the same period.
Based on our experience with recent store openings, we estimate that the
average net investment to open a new store is approximately $450,000, which
includes capital expenditures, net of landlord contributions, and initial
inventory, net of payables. During the first year of operations, our new stores
opened during fiscal 1997 and 1998 generated store-level operating cash flow in
excess of $400,000, representing an average cash return on investment greater
than 90% although there can be no assurance that our new stores will obtain
these levels in the future. After taking into account store remodelings,
corporate capital projects and distribution center enhancements, total capital
expenditures for fiscal 2000 are projected to be approximately $18.0 million.
Our revolving credit facility with BankBoston, N.A., as agent, provides us
with a $32.0 million revolving line of credit under which borrowed funds bear
interest at either the Eurodollar rate plus 2.50% or the base rate plus 1.00%.
The revolving credit facility restricts levels of capital expenditures and
indebtedness. For example, in fiscal 1999, capital expenditures are limited to
the greater of $13.0 million or 54.0% of consolidated earnings before interest,
taxes, depreciation and amortization, and our debt level, other than permitted
indebtedness, is limited to $750,000. The revolving credit facility also
requires us to maintain specified financial ratios such as:
- funded debt to earnings before interest, taxes, depreciation and
amortization;
- earnings before interest, taxes, depreciation and amortization to total
debt service;
- interest coverage; and
- inventory turns.
The revolving credit facility is secured by substantially all of our assets. The
revolving credit facility terminates and all outstanding borrowings are due on
September 30, 2002. At June 26, 1999, our outstanding balance under the
revolving credit facility was $18.3 million. We intend to apply the net proceeds
from our offering to the outstanding balance of our credit facility. Upon paying
down this indebtedness, we plan to modify our relationship with BankBoston, N.A.
and amend the terms of our credit agreement.
We believe that the proceeds from this offering, together with anticipated
cash flow from operations and funds anticipated to be available under our
revolving credit facility, will be sufficient to fund our store expansion
program and working capital requirements through fiscal 2000. If our cash flow
from operations should decline significantly, or if we accelerate our store
expansion program, it may be necessary for us to seek additional sources of
capital.
Upon completion of the offering we expect to issue options to purchase
250,000 shares of our common stock at an exercise price equal to the initial
public offering price of our common stock. The terms of these options will be
substantially the same as other options previously issued under our 1996 and
1999 Long-Term Incentive Plans.
Upon completion of our initial public offering, vesting of options to
purchase 274,500 shares of common stock held by Mr. Bernard Zeichner, our
President and Chief Executive Officer, will accelerate and become fully vested.
If our initial public offering is not completed, these options will continue to
vest over the remaining terms of the option agreement. Accordingly, we have
determined the stock option award to be a fixed award and as such no
compensation will be recorded upon completion of the initial public offering.
25
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risks relate primarily to changes in interest rates. We bear this
risk in two specific ways. First, we have debt outstanding under our $32.0
million revolving credit facility. This debt has a maturity date of September
30, 2002 and bears interest at a rate per annum equal to either (1) the base
rate established by BankBoston, N.A. plus 1.00% or (2) the Eurodollar rate of
BankBoston, N.A. plus 2.50%, at our option and subject to adjustments. As of
September 13, 1999, the interest rate on outstanding borrowings was 7.68%. We
intend to use approximately $18.0 million of the net proceeds from this offering
to repay any of the secured indebtedness outstanding at the time of such
payment, but may borrow additional funds under our facility as needed. Our
revolving credit facility carries a variable interest rate pegged to market
indices and, therefore, our statement of income and our cash flows will be
exposed to changes in interest rates.
The second component of interest rate risk involves the short-term
investment of excess cash in short-term, investment-grade interest-bearing
securities. These are considered to be cash equivalents and are shown that way
on our balance sheet. Changes in interest rates affect the investment income we
earn on our investments and, therefore, impact our cash flows and results of
operations.
YEAR 2000 READINESS DISCLOSURE STATEMENT
The Year 2000 issue refers to the potential for system and processing
failures of date-related calculations after December 31, 1999, and is the result
of computer-controlled systems using two digits rather than four to define the
applicable year. For example, computer programs that have date sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000.
STATE OF READINESS. We have made a preliminary assessment of the Year 2000
readiness of our core management information systems, including the hardware
supporting those systems. We have either replaced or upgraded substantially all
of these systems within the past two years and we have been advised by the
vendors of the hardware and software used in our financial accounting,
point-of-sale and inventory management, and distribution center sortation
systems that the versions of their products now used by us are Year 2000
compliant. Each of these replacements and upgrades were part of our budgeted
expenses for upgrading our computer infrastructure and were not primarily part
of an attempt to address the Year 2000 issue. We have begun testing these
systems ourselves on a separate computer with simulated dates after December 31,
1999 to verify compliance, and plan to complete this testing by November 1,
1999. We believe that any issues identified will be corrected prior to December
31, 1999, although we cannot assure you that we will be able to complete any
necessary corrective actions in a timely manner.
We are also planning to investigate other less critical equipment and
machinery that may contain embedded technology with Year 2000 compliance
problems, such as our alarm system and uninterrupted power supply. We expect
that we will have completed our initial assessment and any corrective actions
with respect to these systems no later than November 30, 1999. We also have
material relationships with third-party service providers outside of our
control, such as financial institutions, major credit card processors,
telecommunications providers and public utilities, that may not have adequately
addressed the Year 2000 issue. We are contacting the financial institutions and
public utilities with which we do business to obtain their oral assurance that
they will be Year 2000 compliant. We have been orally advised by our major
credit card processors and telecommunications providers that they believe their
operations will not be significantly disrupted by Year 2000 issues. Other than
minimal testing of the systems of our major credit card processors, however, we
have no assurance that our third-party service providers will be Year 2000
compliant or that they are correct in their Year 2000 assessments. Significant
disruptions in the services provided to us would adversely affect our
operations. We currently purchase merchandise from a significant number of
vendors, but do not make purchases or otherwise exchange data with our vendors
electronically. In addition, because we purchase merchandise from a diverse
group of vendors we do not believe that we are dependent on
26
<PAGE>
the operations of any single vendor or group of vendors. As a result, we do not
intend to inquire systematically about the Year 2000 readiness of our vendors
and their ability to address Year 2000 issues.
OUR YEAR 2000 RISKS. We currently believe that our systems will be Year
2000 compliant and capable of functioning beyond December 31, 1999. In the most
reasonably likely worst case scenario, we could experience total system failure
for our management information systems. This would cause significant disruptions
in our operations, including a temporary inability to process financial
information or credit card transactions, receive shipments and timely deliver
our merchandise to our stores, execute our critical test-and-reorder strategy
effectively or otherwise engage in other normal business activities. We may also
suffer damage to our brand names if we are unable to execute our
test-and-reorder strategy to track changes in fashion trends, and we may
experience increased expenses associated with stabilization of operations after
critical systems failure and execution of contingency plans. In another
reasonably likely worst case scenario, a significant number of our vendors would
be unable to continue to supply adequate amounts of merchandise. Although the
adverse effects of any or all of these events are not quantifiable at this time,
any of these events would likely result in a loss of income and otherwise have a
material adverse effect on our business and operating results.
OUR CONTINGENCY PLANS. We have not yet developed and do not expect to
develop contingency plans to handle the most likely worst case Year 2000
scenarios because we believe our systems will be Year 2000 compliant and capable
of functioning beyond December 31, 1999. We expect, however, that the worst case
scenario involving the failure of our management information systems over a
sustained period would necessitate reverting to a number of manual systems for
recording sales, ordering merchandise and replenishing our store level
inventory. Further, we expect that the worst case scenario for the loss of a
significant number of vendors would require us to seek alternative sources of
supply, although there can be no assurance that such alternative sources would
be available on reasonable terms or at all. We intend to take appropriate
actions to mitigate the effects of third party failures to remediate Year 2000
issues and for unexpected failures in our systems. If it becomes necessary for
us to take corrective actions, it is uncertain whether these actions would
result in significant interruptions in service or delays in business operations
or whether it would have a material adverse effect on our results of operations,
financial position or cash flow.
OUR YEAR 2000 REMEDIATION COSTS. As of June 26, 1999, we have spent less
than $50,000 addressing the Year 2000 issue and expect to spend a comparable
amount during the remainder of this calendar year. These amounts do not reflect
the cost of our employees that are responsible for testing our systems for Year
2000 compliance. We currently have nine employees spending a significant portion
of their time resolving Year 2000 compliance problems. Until we have completed
our compliance testing, however, we cannot be sure that the costs associated
with remediating Year 2000 issues will not be materially more than our current
estimate.
INFLATION
We do not believe that inflation has had a material adverse impact on our
business or operating results during the periods presented.
27
<PAGE>
BUSINESS
We are a rapidly growing, mall-based specialty retailer of fashionable,
value-priced apparel and accessories targeting young women between the ages of
15 and 35. We have two distinct store concepts, "Charlotte Russe" and "Rampage,"
and operated a total of 96 stores in 15 states and Puerto Rico as of the end of
fiscal 1999. Through our fashion content, merchandise mix, exciting store layout
and design, and striking merchandise presentation, we project fashion attitudes
that appeal to customers across age and socioeconomic boundaries. Our Charlotte
Russe stores offer fashionable, affordable apparel and accessories that have
been tested and accepted by the marketplace, thus appealing to women who prefer
established fashion trends. Our Rampage stores feature emerging fashion trends
and thus appeal to women with a flair for making fashion statements who are
willing to pay somewhat higher prices to create a cutting-edge look. Our stores
are located predominantly in high-visibility, center court mall locations in
spaces that average approximately 7,500 square feet. These stores, which are
generally twice as large as those of most of our competitors, are designed to
create an environment that is exciting to shop and accentuates the fashion,
breadth and value of our merchandise selection.
Our broad assortment of merchandise is centered around styles that are
affordable, feminine and reflect the latest fashion trends. Our breadth of
merchandise enables our customers to assemble coordinated and complete outfits
that satisfy many of their lifestyle needs. Both our Charlotte Russe and Rampage
store concepts offer merchandise at value-oriented prices, generally 20% to 30%
less than prices for comparable items offered by most of our direct mall-based
competitors. Over 80% of our Charlotte Russe merchandise is sold under the
Charlotte Russe label and over 90% of our Rampage merchandise is sold under our
proprietary Z label. The remainder of our merchandise consists of
nationally-recognized brands popular with our customers.
OUR BUSINESS STRATEGY DIFFERENTIATES US FROM OUR COMPETITORS.
The elements of our business strategy combine to create a merchandise
assortment that appeals to consumers from a broad range of socioeconomic,
demographic and cultural profiles and that differentiates us from our
competitors. We believe this broad consumer appeal, coupled with our superior
new store cash returns on investment, creates a highly portable store concept
and a significant opportunity for growth. The principal elements of our business
strategy include the following:
OFFER CONSISTENT VALUE PRICING. We offer a broad assortment of fashionable,
quality merchandise at prices generally 20% to 30% below most of our direct
mall-based competitors. We employ this value-pricing strategy across both of our
store concepts, with an average sales price for apparel items at our Charlotte
Russe and Rampage stores of approximately $18.75 and $29.00. Because our prices
are affordable and our merchandise quality is comparable to higher priced
specialty retailers and department stores, we create a strong perception of
value that has enabled us to build a broad and loyal base of customers.
MAINTAIN DISTINCT BRAND IMAGES. We have created focused and differentiated
brand images based on fashion attitude, value pricing and quality. These images
are consistently communicated through all aspects of our business, including
merchandise assortments and in-store visual merchandising. We also enhance brand
recognition by offering over 80% of our Charlotte Russe merchandise under the
Charlotte Russe label and over 90% of our Rampage merchandise under our
proprietary Z label. We believe that the strength of our private label
merchandise, along with other nationally branded merchandise, provides
opportunities for expansion of our current merchandise categories and entry into
new product categories.
TARGET A HIGHLY DESIRABLE MARKET. Our stores and fashionable merchandise
target women between the ages of 15 and 35, a broad and large group that is
expected to grow over the next ten years. We believe that our target population
spent a total of $28.1 billion on apparel in 1998, up from $25.7
28
<PAGE>
billion in 1995. While our target customer base is expected to grow, the teenage
and early twenties population, a core group of our target market, is expected to
grow at a rate faster than that of the overall United States population
according to the United States Census Bureau. We believe that an increase in
minimum wage, higher employment and easier access to credit cards will continue
to contribute to substantial growth in the buying power of our target market.
OFFER BROAD, EXCITING MERCHANDISE ASSORTMENT. Our merchandising strategy is
founded on offering a broad assortment of apparel and accessories that conveys a
consistent fashion attitude. Our merchandise includes ready-to-wear apparel such
as knit and woven tops, dresses, shorts, pants and skirts, as well as
accessories such as shoes, handbags and jewelry that enable our customers to
create distinct ensembles complemented by color coordinated and fashion-forward
items. Our merchandise assortment is voguish enough to attract teenage customers
and yet stylish enough to retain those women as they mature into young adults.
We maintain a fresh and exciting shopping environment by frequently introducing
new merchandise into our stores and by regularly updating our merchandise
displays. In addition, our stores on average exceed 7,500 square feet and thus
provide a comfortable and spacious environment that accentuates the breadth of
our merchandise offerings.
CAPITALIZE ON STRONG STORE ECONOMICS. Based on our experience with recent
store openings, we estimate that the average net investment to open a new store
is approximately $450,000, which includes capital expenditures, net of landlord
contributions, and initial inventory, net of payables. During their first year
of operations, our new stores opened during fiscal 1997 and 1998 generated
average net sales of approximately $1.8 million and store-level operating cash
flow in excess of $400,000, or more than 22.0% of net sales. Accordingly, these
stores generated an average cash return on investment in excess of 90% in their
first year of operations, although there can be no assurance that our new stores
will obtain these levels in the future.
LEVERAGE HIGHLY EXPERIENCED MANAGEMENT TEAM. We believe our senior
management team combines a unique blend of experience with the company and other
national growth retailers. Following our acquisition in September 1996, Mr.
Zeichner recruited eight members of our highly experienced management team, who
have participated in the successful national expansion of retailers such as
Contempo Casuals, Guess? and Price Club. As a group, these officers currently
have an average of over 19 years of retail experience. These new managers
complemented our core group of buying and operations managers who had
participated in the evolution and growth of the Charlotte Russe concept and who
currently have an average of over 16 years of retail experience with us. The
successful integration of these distinct skill sets has produced a unique
corporate culture that leverages the talents of each group. Our management is
positioned to capitalize on the strong economics of the Charlotte Russe and
Rampage concepts and to successfully execute our national expansion program.
ACTIVELY MANAGE INVENTORY. The cornerstone of our merchandising strategy is
our test-and-reorder philosophy. This strategy allows us to minimize our
inventory risk by ordering small quantities of fashion merchandise to test
customer acceptance before placing larger purchase commitments. Our
test-and-reorder strategy is successful in large part because we deal primarily
with domestic vendors, which in management's experience has generally resulted
in short lead times of three to six weeks. These short lead times, together with
our ability to monitor store sales on a daily basis, permit us to quickly react
to sell-through trends and fashion preferences. We have one of the highest
inventory turn rates in the industry and we believe that our approach to
managing our merchandise mix has contributed to strong gross margins and
lower-than-average markdown rates.
WE INTEND TO BECOME A LEADING NATIONAL SPECIALTY RETAILER.
Our long-term objective is to become a leading national specialty retailer
of affordable fashion-forward apparel and accessories to youthful-minded women.
We intend to achieve this objective
29
<PAGE>
by pursuing an aggressive store opening campaign and by expanding the breadth of
our product categories.
OPEN NEW STORES. In connection with our acquisition in 1996, we initiated a
program to accelerate the rate of our new store openings and to expand our
operations to areas outside our core markets of southern California, Arizona and
Nevada. Since that time, we have more than doubled our store base from 35 stores
to 96 stores throughout 15 states and Puerto Rico as of the end of fiscal 1999.
Based on this successful track record, favorable demographic trends and a solid
infrastructure, we believe we are well positioned for accelerated growth over
the next several years. Our plan is to open approximately 30 stores during
fiscal 2000, for which we have already completed our site selection and
evaluation process. We expect to open new stores in existing markets as well as
in markets in which we currently do not have a presence. We believe that our
Charlotte Russe and Rampage stores are highly portable store concepts that
achieve superior new store cash returns on investment and can operate
successfully in a wide variety of geographic and demographic markets. Our
Charlotte Russe stores, for instance, have generated similar store-level
operating cash flow margins across a variety of mall types throughout different
geographic regions. In addition, we continually review our store base and have
identified two underperforming stores that we are considering closing prior to
the end of fiscal 2000.
EXPAND PRODUCT OFFERINGS. We also plan to grow by increasing the breadth
and depth of our product categories, which may be sold in either existing stores
or through new store concepts. We have historically been able to leverage our
strong brand images to expand single item offerings into an entire collection of
related merchandise. For example, over the past three fiscal years we have
expanded our initial offering of bras into an entire lingerie department
consisting of bras, panties, intimate nighttime apparel, robes and slippers. Our
sales of lingerie, as a percentage of net sales, increased from 1.6% to 5.4%
during this period. We experienced similar success in expanding our shoe product
category. We believe that a substantial market opportunity exists for adding
fashionable new products, particularly in the high-margin areas of accessories
and gift and decor items. To capitalize on this market opportunity, we intend to
test a new store concept called "Charlotte's Room," through which we will sell
themed products aimed at the teenage consumer. We initially plan to test this
concept in two stores later this calendar year.
OUR TARGET CUSTOMERS ARE YOUNG, FASHION-CONSCIOUS WOMEN.
Our two retail store concepts target young, fashion-conscious women. Our
Charlotte Russe customer is a woman who desires understandable trends at
substantial value. She is a hip teenager seeking the current fashion trends, as
well as the fashionable working woman looking for career dressing. Regardless of
her age, the Charlotte Russe customer is feminine and body conscious. Our
Rampage stores cater to women with definitive fashion sense who set rather than
follow trends. Our Rampage customer is hip, eclectic, body conscious and tapped
into pop culture. She wants her look to be cutting-edge, while recognizing the
value of competitive pricing.
WE MANAGE OUR INVENTORY THROUGH MERCHANDISE PLANNING AND ALLOCATION.
Our merchandise planning and allocation team works closely with our General
Merchandise Manager, merchants and store personnel to meet the requirements of
individual stores for appropriate merchandise in sufficient quantities. This
team is also responsible for managing inventory levels, allocating merchandise
to stores and replenishing inventory based upon information generated by our
management information systems. Our planning department allocates merchandise
for new store openings based on estimated units per square foot, and all new
stores are fully stocked prior to opening. Our inventory control systems monitor
current inventory levels at each store and for our operations as a whole. If
necessary, we shift slow moving inventory to other stores for sell-through prior
to instituting corporate-wide markdowns. We also monitor recent selling history
within each store by merchandise classification, style, color and size.
30
<PAGE>
OUR TWO RETAIL CONCEPTS OFFER ESTABLISHED FASHION AND CUTTING-EDGE MERCHANDISE.
CHARLOTTE RUSSE. Our Charlotte Russe stores provide an exciting,
fashionable assortment of merchandise that complements virtually every facet of
our customers' lifestyle. Our merchandise reflects established fashion trends
and includes a broad offering of ready-to-wear apparel, including knit and woven
tops, dresses, shorts, pants and skirts, as well as seasonal items such as prom
dresses and outerwear. This product assortment allows us to be fashionable
enough to attract teenage customers and yet stylish enough to retain customers
as they become young working women. We believe Charlotte Russe stores offer a
higher percentage of dresses as compared to other specialty retailers to better
meet our customers' broad lifestyle needs for casual, social, career and special
occasion wear. Our typical dresses range in price from $19.99 to $60.00,
although prices can be as high as $80.00 to $120.00 for special occasion
dresses. By offering a product mix that reflects a more mature stage of the
fashion cycle, our Charlotte Russe stores are able to learn from the experience
of our Rampage stores with emerging trends in order to more quickly identify
fashion that has a broad market appeal. Charlotte Russe stores also offer a
broad assortment of accessories, such as lingerie, shoes, jewelry, handbags and
cosmetics. Our expansive accessories category enables us to offer the
convenience of one-stop shopping to our customers, enabling them to complement
their ready-to-wear clothing with color coordinated items and fashion-forward
accessories. Over 80% of the merchandise sold in these stores carries the
Charlotte Russe label. Our average sales price for apparel items is $18.75, and
the average sales price for all of our merchandise, including accessories, is
$14.00.
RAMPAGE. Our Rampage stores offer essentially the same breadth of
ready-to-wear apparel as our Charlotte Russe stores, but the merchandise
reflects emerging trends and therefore a more cutting-edge look. There is also
less emphasis on the career customer in our Rampage stores. The retail prices
for our typical dresses range from $38.00 to $68.00, although prices can be
higher for special occasion dresses. Over 90% of the Rampage merchandise is
offered under our proprietary Z label. We work with our vendors to design a
majority of the merchandise that is carried in our Rampage stores. We also have
established a standard fit for all of our apparel to ensure consistent sizing
among our merchandise. Our Rampage stores also offer specialty accessories that
complement our higher-end merchandise. By offering the latest in emerging
fashions, our Rampage stores are able to command higher price points than
Charlotte Russe, but still below our competitors. The average sales price for
apparel items in our Rampage stores is $29.00, and the average sales price for
all of our merchandise, including accessories, is $23.00.
OUR VISUAL MERCHANDISING STRENGTHENS OUR BRAND NAME AND CREATES AN EXCITING
SHOPPING ENVIRONMENT.
We rely on a combination of merchandise presentation and complementary
in-store signage to communicate a consistent fashion point-of-view to our
customers and to encourage the purchase of coordinated outfits. Our visual
merchandising team also makes use of mannequins in store windows as well as on
the selling floor to enhance our merchandise presentation.
Within our Charlotte Russe stores, we seek to create an inviting environment
by grouping our fashionable merchandise into multiple in-store boutiques
centered around lifestyle themes. While shopping in our store, a customer will
observe separate and distinct areas devoted to her various lifestyle needs,
including casual, club and career wear, lingerie, shoes and accessories, each
offering a vast array of selections. Each lifestyle collection is complemented
by an extensive in-store image advertising campaign that reinforces the
lifestyles and aspirations of our target customers, while also strengthening our
brand image. We believe that this multi-boutique feel creates an attractive
atmosphere for our customers and that the breadth and depth of our lifestyle
categories makes us a destination location for their shopping needs.
At our Rampage stores, we employ a different, but equally effective visual
merchandising strategy in order to capture our customers' interest. Our Rampage
merchandise is grouped by color and fashion
31
<PAGE>
trends to keep the stores looking vibrant, hip and visually stimulating. We have
implemented a comprehensive marketing program that builds on our in-store sign
graphics to accentuate the fashion, quality and cutting-edge style of our
merchandise.
WE ORDER PRIMARILY FROM DOMESTIC SOURCES AND UTILIZE A TEST-AND-REORDER
STRATEGY.
All of our inventory is purchased from third party vendors. The cornerstone
of our merchandising strategy is our test-and-reorder philosophy. This strategy
allows us to manage our inventory risk by testing small quantities of fashion
merchandise in our stores before placing larger purchase commitments. Our
experienced buying staff then uses sophisticated information systems to track
the weekly sell-through of each merchandise item by classification, style, color
and size, and places appropriate reorders for popular merchandise. Accordingly,
our test-and-reorder strategy enables us to quickly react to sell-through trends
and fashion preferences.
Our test-and-reorder strategy is successful in large part because we deal
with domestic vendors, which in management's experience has generally resulted
in short lead times of three to six weeks. Accordingly, we have established
relationships with over 600 vendors to meet our ongoing fashion and inventory
needs. We believe that we generally are able to obtain attractive pricing and
other terms from vendors because of their desire to be associated with the
Charlotte Russe and Rampage images and the rapid consumer feedback provided by
our test-and-reorder philosophy. We maintain a buying office in the California
Merchandise Mart in Los Angeles, the primary apparel center in southern
California, to facilitate constant dialogue and feedback between our buying
staff and our vendors. During the nine months ended June 26, 1999, our top five
vendors accounted for less than 12.2% of our total purchases and no single
vendor accounted for more than 3.9% of our total purchases.
WE DISTRIBUTE MERCHANDISE THROUGH OUR MODERN SAN DIEGO FACILITY.
The timely and efficient distribution of merchandise to our stores is
critical to the success of our test-and-reorder strategy. We process all of our
merchandise through our modern 125,000 square foot distribution center in San
Diego, California, which we built and took possession in April 1998. Our
distribution facility employs an automated system for sorting apparel by store
and facilitating packaging for display in our stores. We estimate that
approximately 20% of our apparel merchandise is currently pre-ticketed by our
vendors, and we expect that this percentage will increase substantially over the
next twelve months. This pre-ticketing by vendors saves time, reduces labor
costs and enhances inventory management. Our merchandise is generally shipped to
stores within 24 hours of receipt at the distribution center for delivery on
common carrier within one to three business days. Our merchandise is available
for sale in our stores the same day it is received and, accordingly, the time
period from receipt of goods at our distribution center to display in our stores
is typically less than five days. Each store generally receives three to five
merchandise shipments per week. We believe our current distribution
infrastructure is sufficient to accommodate our expected store growth and
expanded product offerings over the next several years.
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<PAGE>
WE HAVE STORES IN NUMEROUS LOCATIONS THROUGHOUT THE UNITED STATES.
As of September 25, 1999, we operated 74 Charlotte Russe stores and 22
Rampage stores throughout 15 states and Puerto Rico. The number of our stores
located in each state is shown in the following map and store list according to
the state or territory in which such store is located.
[MAP]
33
<PAGE>
ARIZONA (8)
- ----------------------------------------
Arizona Mills (Tempe)+
Arrowhead Center (Glendale)
Fashion Square (Scottsdale)
Fiesta Mall (Mesa)
Metro Center (Phoenix)
Paradise Valley Mall (Phoenix)
Tucson Mall
CALIFORNIA (40)
- ----------------------------------------
Fresno Fashion Fair
Los Angeles
Beverly Center (R)
Brea Mall
Del Amo Fashion Center (Torrance)+
Fox Hills Mall (Culver City)
Glendale Galleria +
Laguna Hills Mall
Lakewood Fashion Center
Los Cerritos Center
Main Place (Santa Ana)
Mission Viejo (R)
Montclair Plaza
Montebello Town Center
Moreno Valley Mall
Northridge Fashion Center
Ontario Mills
Plaza at West Covina
Santa Anita Fashion Park
Sherman Oaks (R)
South Coast Plaza (Costa Mesa) (R)
Thousand Oaks Center
Topanga Plaza (Canoga Park)+
Westminster Mall
Westside Pavillion (R)
San Diego
Chula Vista Center
Fashion Valley Center
Grossmont Center (La Mesa)
Mission Valley
Plaza Camino Real (Carlsbad)
North County Fair (Escondido)
Parkway Plaza (El Cajon)
Plaza Bonita (National City)
University Towne Center
Santa Rosa Plaza
Serramonte Center (Daly City)
Sun Valley (Concord) (R)
Valley Plaza (Bakersfield)
CONNECTICUT (1)
- ----------------------------------------
Meriden Square
FLORIDA (15)
- ----------------------------------------
Aventura Mall (R)
Broward Mall (Plantation)
Citrus Park Center (Tampa)
Coral Square
Dadeland Mall (Miami) (R)
Edison Mall (Fort Meyers)
Melbourne Square
Orange Park Mall
Orlando Fashion Square
Oviedo Marketplace
Regency Square (Jacksonville)
Shops at Sunset (South Miami)
The Falls (Miami) (R)
Tyrone Square (St. Petersburg)
West Oaks Mall (Ococe)
GEORGIA (6)
- ----------------------------------------
Augusta Mall
Mall of Georgia at Mill Creek+
Northlake Mall (Atlanta)
Perimeter Mall (Atlanta)
Town Center at Cobb (Kennesaw)
HAWAII (1)
- ----------------------------------------
Pearlridge (Aiea)
ILLINOIS (2)
- ----------------------------------------
Stratford Square
Water Tower Place (Chicago)(R)
MICHIGAN (1)
- ----------------------------------------
Great Lakes Crossing (Auburn Hill)
NEW JERSEY (1)
- ----------------------------------------
Garden State Plaza (Paramus) (R)
NEW YORK (6)
- ----------------------------------------
Palisades Center (West Nyack)+
Roosevelt Field (Garden City)+
Soho (R)
Walden Galleria (Buffalo)
NEVADA (4)
- ----------------------------------------
Boulevard Mall (Las Vegas)+
Galleria (Henderson)
Meadows Mall (Las Vegas)
NORTH CAROLINA (1)
- ----------------------------------------
Concord Mills
PENNSYLVANIA (1)
- ----------------------------------------
Franklin Mills (Philadelphia)
PUERTO RICO (1)
- ----------------------------------------
Plaza Del Sol
SOUTH CAROLINA (1)
- ----------------------------------------
Haywood Mall (Greenville)
TEXAS (7)
- ----------------------------------------
Collin Creek Mall (Plano)
Grapevine Mills
Highland Mall (Austin)
Houston Galleria (R)
Lakeline Mall (Cedar Park)
Northpark Mall (Dallas) (R)
Valley View (Dallas)
- ---------
(R) Rampage store only
+ Both a Charlotte Russe and Rampage store
34
<PAGE>
The following table highlights the number of stores, by geographic region,
opened in each of the last five fiscal years:
<TABLE>
<CAPTION>
NORTHEAST
CALIFORNIA SOUTHWEST SOUTHEAST & OTHER TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Store count as of October 1, 1994.................... 24 6 -- -- 30
FISCAL 1995
Stores opened...................................... 3 1 -- -- 4
Store closed....................................... (1) 0 -- -- (1)
--------- --------- --------- --------- ---------
26 7 -- -- 33
FISCAL 1996
Stores opened...................................... 0 2 -- -- 2
--------- --------- --------- --------- ---------
26 9 -- -- 35
FISCAL 1997
Stores opened...................................... 3 1 2 1 7
Store closed....................................... (1) 0 0 0 (1)
--------- --------- --------- --------- ---------
28 10 2 1 41
FISCAL 1998
Stores acquired (Rampage).......................... 7 2 3 4 16
Stores opened...................................... 4 4 9 0 17
--------- --------- --------- --------- ---------
39 16 14 5 74
FISCAL 1999
Stores opened...................................... 1 3 9 9 22
--------- --------- --------- --------- ---------
Store count at end of fiscal 1999.................... 40 19 23 14 96
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
WE SEEK TO LOCATE OUR STORES IN LARGE, COMMANDING SPACES IN HIGH TRAFFIC AREAS
OF STRONG REGIONAL MALLS.
Our stores, which average approximately 7,500 square feet, are generally
twice the size of most of our mall-based competitors' stores and provide a
comfortable and spacious shopping environment that accentuates the breadth of
our merchandise offering. To distinguish our stores, we also seek prominent
center court locations with distinctive architectural features, such as high
angled ceilings, which our store designers and visual merchandisers can use to
create striking displays, facades and entrances. We believe that specialized
store design features, including finished ceilings, classic lighting and
detailed features, help create a differentiated store environment unique to
young women's apparel retailers in the mall. We have historically been able to
locate and profitably operate our stores in a variety of malls catering to
different socioeconomic, demographic and cultural profiles. We remodel our
stores as appropriate and economically feasible, generally in connection with
our lease renewals.
We engage an independent real estate consultant to initially identify
favorable store locations in existing or new markets. This consultant currently
does not advise any other operators within the women's apparel industry. Our
site selection criteria includes:
- a careful assessment of mall traffic;
- the performance of other retailers within the mall and in particular those
serving our target customers;
- the proposed location within the mall;
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<PAGE>
- population and demographic characteristics of the area; and
- projected profitability and cash return on investment.
Immediately after site approval, we simultaneously negotiate lease terms and
begin planning the store layout and design. We typically open a new store within
three months after lease execution and delivery of space.
STORE OPERATIONS
Our store operations are organized into a Western region with six districts
and an Eastern region with six districts. Each region is managed by a regional
manager and each district is managed by a district manager. Each district
manager is responsible for an average of eight stores. We expect to add two
additional district managers before the end of this fiscal year. Individual
store personnel generally consists of a store manager, one or two assistant
managers and seven to ten sales associates, the number of which generally
increases during our peak selling seasons. Our store managers are responsible
primarily for customer service training and hiring store level staff.
Merchandise selections, inventory management and visual merchandising strategies
for each store are determined at the corporate level. Our regional, district,
and store managers receive a base compensation plus incentive compensation based
on sales goals.
Our commitment to customer satisfaction and service is an integral part of
building customer loyalty. We strive to hire enthusiastic sales personnel and
provide them with extensive training to create a sales staff with a strong
fashion sense, a focus on customer service and a willingness to assist customers
with assembling, accessorizing and coordinating outfits.
Our standard training program for store managers includes an initial three
week session at a store managed by one of our approved training managers, as
well as frequent regional and district meetings. In addition, our training
manual provides practical information and skill development for all store level
positions. We develop new store managers by promoting from within and
selectively hiring from other retail organizations. In anticipation of our
accelerated store expansion, we have increased the number of people in our store
manager training program.
WE FOCUS MARKETING AND PROMOTION ON DEVELOPING OUR BRANDS.
Our marketing and promotional activities contribute greatly to the
development of our brands, and as our operations continue to grow nationally,
these activities will expand in scope and become increasingly important to us.
Historically, our marketing and promotional activities have been primarily
focused on in-store initiatives. For example, we maintain store signage and
in-store graphics, packaging, and displays that convey our fashion-forward
orientation and brand. We have also conducted direct mail campaigns in
association with new store openings and utilized limited outdoor advertising.
Additionally, our periodic promotional activities are designed to drive traffic
into our stores and to further our brand image of fashion and value. In the
future, we expect our marketing and promotional program will include national
and regional print advertising, radio and television advertising and billboard
and bus stop advertising. We also plan to develop an Internet site that we
believe will further enhance our brand image and that we may eventually use as a
new channel for selling our merchandise.
MANAGEMENT INFORMATION SYSTEMS ARE IMPORTANT TO OUR BUSINESS.
We are committed to investing in and continually upgrading our management
information systems, as we believe those systems are critical to implementing
our expansion strategy in an efficient manner and to maintaining a competitive
industry position. Our management information systems address, among others
things, our stock keeping unit and classification inventory tracking, purchase
order
36
<PAGE>
management, merchandise distribution, automated ticket making, general ledger,
sales audit, accounts payable, fixed asset management, payroll, integrated
financials and point-of-sale information. Our buying, allocation and
distribution functions are supported by an ICM merchandising system that is
tailored for Charlotte Russe and we utilize a Lawson Software package for our
financial reporting and human resource functions. We believe our current systems
are adequate to meet future expansion plans over the next several years.
Our sales are updated daily in the merchandise reporting system by polling
sales information from each store's point-of-sale terminal. Our point-of-sale
system consists of registers providing price look-up, time and attendance,
supply ordering, bill of lading tracking and automated charge card processing.
We believe these features improve transaction accuracy, increase speed of
checkout time and overall store efficiency, and enable us to track the
productivity of individual sales associates. Through automated nightly two-way
electronic communication with each store, we upload sales information, payroll
hours and messages to our host system, and download new merchandise pricing,
price changes for existing merchandise, carton receipts and system maintenance
tasks to the point-of-sale devices. Based upon the evaluation of information
obtained through daily polling, our planning department implements merchandising
decisions regarding inventory levels, reorders, price changes and allocation of
merchandise to stores.
WE LEASE ALL OF OUR PROPERTIES.
We operated 96 stores throughout 15 states and Puerto Rico at the end of
fiscal 1999. We currently lease all of our store locations. Most leases have an
initial term of at least ten years and do not contain options to extend the
lease. Our leases, however, often allow for termination after three years if
sales at that site do not exceed specified levels, although in some instances we
are required to pay back any landlord allowances received. We lease space
containing approximately 125,000 square feet for our executive offices and
distribution center in San Diego, California. This lease is for a term of twelve
years and is scheduled to expire on August 31, 2009. We believe our distribution
facility is adequate for our operations over the next several years. We also
lease approximately 4,100 square feet at the California Merchandise Mart in Los
Angeles. This lease expires May 31, 2002.
WE COMPETE WITH OTHER RETAILERS PRIMARILY ON THE BASIS OF TIMELINESS OF
FASHIONS, BREADTH OF MERCHANDISE, BRAND RECOGNITION, PRICING AND QUALITY.
We currently compete against a diverse group of retailers, including
national and local specialty retail stores, regional retail chains, traditional
retail department stores and, to a lesser extent, mass merchandisers. The
primary competitors of Charlotte Russe are Contempo/Wet Seal and Express, and
the primary competitors of Rampage are bebe and Arden B. Our competitors sell a
broad assortment of apparel and accessories that are similar and often identical
to those we sell. Furthermore, our competitors may at times sell their
merchandise at prices lower than what we charge for comparable merchandise. We
believe that the principal bases upon which we compete in our industry are
timeliness of fashions, breadth of merchandise, brand recognition, pricing and
quality. We believe that we have a significant competitive advantage over our
competitors because of our exciting shopping environment. Our stores are
generally twice as large as most of our mall-based competitors and provide a
feminine look that is exciting to shop and accentuates the value and breadth of
our merchandise selection. We also believe that we have a competitive advantage
because of high consumer recognition and acceptance of our brands, our strong
presence in major shopping malls throughout the United States, our relationship
with our vendors and the experience of our management. The retail and apparel
industries, however, are highly competitive and characterized by relatively low
barriers to entry.
37
<PAGE>
OUR INTELLECTUAL PROPERTY IS IMPORTANT TO OUR SUCCESS.
We believe that our trademarks are important to our success. Our Charlotte
Russe trademark is registered with the United States Patent and Trademark
Office. In addition, we have applications pending with the United States Patent
and Trademark Office for a number of additional marks, including Z and
Charlotte's Room. We have also submitted applications for additional uses
related to the Charlotte Russe trademark. In connection with the acquisition of
our Rampage stores, we acquired the exclusive right within the United States to
use the Rampage trademark for use on exterior or interior signages identifying
our Rampage stores, as well as for the non-exclusive right within the United
States to use the Rampage trademark for promotional and advertising materials.
The right to market merchandise under the Rampage trademark was retained by
Rampage Clothing Company and, accordingly, we do not have the right to use the
Rampage trademark on our merchandise. Further, nothing in our license agreement
prohibits the sale of merchandise bearing the Rampage trademark by other parties
or the licensing of the Rampage trademark to other parties. In fact, Rampage
Clothing Company has licensed the trademark to other parties. If the product
quality or activities of the Rampage Clothing Company or these other parties
negatively impact our business reputation, we have the right to rename our
Rampage stores and terminate the license agreement upon thirty (30) days written
notice. Furthermore, over 90% of the merchandise in our Rampage stores is sold
under our proprietary Z label, and only a nominal amount is sold under the
Rampage brand name. We pay a royalty under the license agreement equal to the
greater of a stated dollar amount or a percentage of net sales during the fiscal
year. The license agreement has an initial term of four years with an automatic
option to renew for another four years. We may also extend the license for ten
additional four-year periods. We may exercise each of these extension periods,
however, only if our net sales for the last fiscal year of the current four-year
extension period exceed by 10% our net sales for the fiscal year ending
immediately prior to the beginning of such extension period.
WE CONSIDER THE RELATIONSHIP WITH OUR EMPLOYEES TO BE GOOD.
As of June 26, 1999, we employed 636 full-time and 949 part-time employees.
Of our full-time employees, 128 were employed at our corporate offices, 87 were
employed at our distribution center and 421 were employed at our store
locations. The number of part-time employees fluctuates depending on our
seasonal needs. None of our employees are represented by a labor union, and we
consider the relationship with our employees to be good.
LEGAL PROCEEDINGS
We are party to various legal proceedings in the ordinary course of
business. There are currently no material legal proceedings pending against us.
38
<PAGE>
MANAGEMENT
The following table sets forth information concerning our executive
officers, directors and other key employees. We expect to add two independent
directors shortly after the completion of this offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Bernard Zeichner............................ 55 Chairman of the Board, Chief Executive Officer, President
and Director
Harriet A. Bailiss-Sustarsic................ 42 Executive Vice President, General Merchandise Manager
Daniel T. Carter............................ 43 Executive Vice President, Chief Financial Officer
R. Tina Kernohan............................ 46 Executive Vice President, Store Operations
Allan W. Karp............................... 44 Director
David J. Oddi............................... 29 Director
OTHER KEY EMPLOYEES
Renee L. Bell............................... 37 Vice President, Rampage Apparel
Jennifer L. Bolinger........................ 42 Vice President, Human Resources
Sheri E. Coury.............................. 40 Vice President, Charlotte Russe Apparel
Graham P. Luck.............................. 46 Vice President, Design and Construction
Rachel E. Luna.............................. 34 Vice President, Charlotte Russe and Rampage Accessories
Kalpana Makani.............................. 55 Vice President, Chief Information Officer
Nancy E. Mamann............................. 39 Vice President, Marketing
Jennifer D. Mitchell........................ 33 Vice President, Merchandise Planning and Allocation
Christopher M. Monier....................... 41 Vice President, Administration
</TABLE>
BERNARD ZEICHNER has been our President since May 1996. Mr. Zeichner also
serves as Chief Executive Officer and Chairman of the Board of Directors. Prior
to joining us, he was President of the retail division of Guess? from 1993 to
1995. Prior to that, Mr. Zeichner was employed by Contempo Casuals, serving as
President from 1982 to 1993 and as Chief Executive Officer from 1989 to 1993.
From 1977 to 1982, Mr. Zeichner was Executive Vice President of Joske's of
Texas, a department store chain.
HARRIET A. BAILISS-SUSTARSIC has been Executive Vice President and General
Merchandise Manager since October 1996. From 1993 to 1996, Ms. Sustarsic was
Director of Merchandising for the knits division of Rampage Clothing Company, a
junior apparel manufacturer. Previously, Ms. Sustarsic worked for Contempo
Casuals from 1987 to 1993, starting as a buyer and rising to a Divisional
Merchandise Manager. Ms. Sustarsic began her retail career in 1980 at The
Broadway department store chain and served in various merchandising positions.
DANIEL T. CARTER joined us in June 1998 as our Executive Vice President and
Chief Financial Officer. Prior to joining us, from September 1997 through May
1998, Mr. Carter was Chief Financial Officer for Advanced Marketing Services, a
public company that wholesales books to Costco and Sam's Club. From 1986 to
September 1997, Mr. Carter was employed by The Price Company, the operator of
Price Clubs, and follow-up entities, serving as Senior Vice President for
PriceCostco and Chief Financial Officer for Price Enterprises. Mr. Carter is a
Certified Public Accountant.
39
<PAGE>
R. TINA KERNOHAN began her employment with us in June 1996 as Regional
Manager and was promoted to Executive Vice President, Store Operations in
October 1997. From 1991 to 1996, Ms. Kernohan held the title of District Manager
at Miller's Outpost, where she supervised the operation of 20 stores. Ms.
Kernohan was employed by Contempo Casuals from 1974 to 1990, where she advanced
from sales to regional management, supervising 40 stores across five states.
ALLAN W. KARP has been a Director since September 1996. Since 1990, Mr. Karp
has been a Partner of Saunders Karp & Megrue Partners, L.L.C., or its
predecessor, which serves as the general partner of SKM Partners, L.P., which
serves as the general partner of the SKM Funds and Saunders Karp & Megrue, L.P.
Before founding Saunders Karp & Megrue, L.P., Mr. Karp was a Principal in the
Merchant Banking Department at Morgan Stanley & Co., Inc.
DAVID J. ODDI has been a Director since September 1996. Mr. Oddi joined
Saunders Karp & Megrue, L.P. as an Associate in 1994 and is currently a Partner
of Saunders Karp & Megrue Partners, L.L.C., which serves as the general partner
of SKM Partners, L.P., which serves as the general partner of the SKM Funds and
Saunders Karp & Megrue, L.P. Prior to joining Saunders Karp & Megrue, L.P., Mr.
Oddi was a financial analyst in the Leveraged Finance Group at Salomon Brothers
Inc. Mr. Oddi also serves on the board of directors of The Children's Place
Retail Stores, Inc., a specialty retailer of apparel and accessories for
children.
RENEE L. BELL joined us in October 1997 and has served as Vice President of
the Rampage Buying division since May 1999. Ms. Bell has 12 years of buying
experience and was previously a buyer at Rampage Clothing Company from 1994 to
1996, Contempo Casuals from 1993 to 1994, and bebe from 1991 to 1993. At bebe,
Ms. Bell was also responsible for developing private label merchandise in the
sportswear, leather, coats, accessory and jewelry categories.
JENNIFER L. BOLINGER began her employment with us in 1977 as a store sales
associate, and has served as Vice President of Human Resources since September
1997. Ms. Bolinger also held various positions in store operations, including
District Manager, leading up to her promotion to Director of Human Resources in
1993.
SHERI E. COURY began her employment with us in 1985 as a District
Merchandiser, and has served as Vice President of Charlotte Russe Apparel since
September, 1997, overseeing all apparel merchandising for these stores. Ms.
Coury came to us with over five years of previous retailing experience and has
served in a variety of merchandising capacities for us over the past 14 years as
the business has become a national retailer. Ms. Coury's background encompasses
a variety of merchandising functions, including visual operations,
merchandising, and seven years as a buyer.
GRAHAM P. LUCK joined us in 1997 as Vice President of Design and
Construction. Mr. Luck served as a Vice President at Guess? from 1994 to 1997.
From November 1986 to July of 1994, Mr. Luck served as Director of Store
Planning and Operations at Contempo Casuals. During the course of his retail and
construction career, Mr. Luck has been involved in all phases of store
negotiation, design and construction in high-growth retail companies.
RACHEL E. LUNA began her employment with us in 1981 as a store sales
associate, and has served as Vice President of Accessories for our Charlotte
Russe and Rampage stores since September 1997. Ms. Luna currently oversees
accessories merchandising for our Charlotte Russe and Rampage stores. During the
past 15 years as we have developed our national presence, Ms. Luna has worked
exclusively within the accessory, gift and intimate apparel product categories.
Ms. Luna has held numerous positions such as visual merchandiser, buyer, and
Divisional Manager.
KALPANA MAKANI joined us as Director of Management Information Systems in
September 1996 and was named Vice President, Chief Information Officer in
September, 1997. Prior to joining us, Ms. Makani spent two years, from 1994 to
1996, as the Director of Management Information Systems at Guess? and 18 years,
from 1981 to 1994 and 1974 to 1978, at Contempo Casuals where she served as
40
<PAGE>
Vice President of M.I.S. Ms. Makani received a Master's Degree in Statistics and
a Master's Degree in Computer Science from the University of California at
Berkeley.
NANCY E. MAMANN has served as Vice President of Marketing since joining us
in May, 1999. Ms. Mamann served as Vice President of Marketing for Jonathan
Martin from 1997 to 1999. For the previous six years, Ms. Mamann was the
President of Brand Communications at Rampage Clothing Company. Ms. Mamann's
other experience includes Advertising Coordinator for Guess?, Advertising and
Marketing Director for Jimmy'z, and Leon Max. Ms. Mamann has 17 years of
marketing experience in both retail and wholesale environments and founded an
advertising agency in 1989 that focused on the fashion and entertainment
industries.
JENNIFER D. MITCHELL began her employment with us in 1983 and was named Vice
President of Merchandise Planning and Allocations in September 1997. Ms.
Mitchell was directly responsible for creating our Merchandise Planning and
Allocation department in 1993. During her tenure at Charlotte Russe, Ms.
Mitchell has served in several other capacities, including District Accessory
Merchandiser, Assistant Apparel Buyer, and Office Manager.
CHRISTOPHER M. MONIER joined us in March 1997 and has served as Vice
President of Administration since September, 1997 and currently oversees all
aspects of distribution, traffic, purchasing and loss prevention. Prior to
joining us, Mr. Monier served in the distribution division of Skechers from 1995
to 1997. Prior to that time, Mr. Monier was a distribution center manager with
Contempo Casuals. Mr. Monier, who holds a Bachelor of Science Degree in
Industrial Engineering and Operation Research, has 19 years of experience in the
design and management of distribution centers, including such other companies as
LA. Gear and The Gap Stores.
BOARD OF DIRECTORS
Our by-laws provide for a board of directors of one or more directors, but
may consist of no more than seven or less than three persons. The number of
directors is currently fixed at three. Messrs. Karp, Oddi and Zeichner were
elected to serve as directors pursuant to the Stockholders Agreement. See
"Related Transactions--Stockholders Agreement" We expect to add two directors
shortly after the completion of this offering. Our executive officers are
elected by the board of directors and serve at the discretion of the board of
directors. In addition, our directors and officers have contractual rights under
indemnification agreements that obligate us to indemnify them against certain
claims in their capacities as agents of Charlotte Russe.
COMMITTEES
We have a compensation committee comprised of Messrs. Karp and Oddi and the
board of directors intends to establish an audit committee shortly after the
completion of this offering. The compensation committee has the authority to
approve salaries and bonuses and other compensation matters for our officers, to
approve employee health and benefit plans and to administer our stock option
plans. The audit committee, which will be comprised of a majority of independent
directors, will have the authority to recommend the appointment of our
independent auditors and to review the results and scope of audits, internal
accounting controls and other accounting related matters.
DIRECTOR COMPENSATION
Upon the completion of this offering, our by-laws require that each
non-employee director will be entitled to an annual fee of $10,000 plus $500 for
each meeting attended, which fee may be waived by any such director. Our
directors currently in office have indicated that they intend to waive these
fees. Our directors will also be eligible to participate in the 1999 Equity
Incentive Plan.
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<PAGE>
EXECUTIVE COMPENSATION
The following table shows the cash compensation paid or accrued for the
fiscal year ended September 26, 1998, to our Chief Executive Officer and the
only other executive officer other than the Chief Executive Officer who received
more than $100,000 in salary and bonus during the fiscal year ended September
26, 1998. We did not make any restricted stock awards or long-term incentive
plan payments in the fiscal year ended September 26, 1998. The amount of cash
compensation does not include the aggregate value of personal benefits or
securities, property or other non-cash compensation paid or distributed other
than pursuant to a plan which was less than the lesser of $50,000 and ten
percent (10)% of the cash compensation received by such officer.
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
----------------------
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)
- ------------------------------------------------------------------------------------------ ---------- ----------
<S> <C> <C>
Bernard Zeichner
Chief Executive Officer and President................................................... $ 275,001 --
Harriet A. Bailiss-Sustarsic
Executive Vice President, General Merchandise Manager................................... 161,231 --
</TABLE>
FISCAL YEAR-END OPTION VALUES
The table below sets forth information for the officers indicated below with
respect to options held as of September 26, 1998. There was no public trading
market for our common stock as of September 26, 1998. Accordingly, the values in
the table have been calculated on the basis of an initial public offering price
of $14.00 per share less the applicable exercise price.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END (#) FISCAL YEAR END ($)
-------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Bernard Zeichner......................................... 183,000 732,000 $ 2,324,100 $ 9,296,400
Harriet A. Bailiss-Sustarsic............................. 21,600 86,400 $ 280,800 $ 1,123,200
</TABLE>
EMPLOYMENT CONTRACT
We have entered into an employment agreement with Bernard Zeichner that will
remain effective through September 30, 2001. Under the terms of the employment
agreement, Mr. Zeichner has agreed to serve as the President and Chief Executive
Officer of our operating subsidiary and as a member of the board of directors of
such subsidiary. Mr. Zeichner will receive an annual base salary of $350,000, an
annual incentive bonus, lump sum cash payments in the amount of $25,000 in each
of fiscal years 2000 and 2001 and medical and other benefits. Such bonus will be
based on a percentage, up to 0.75%, of our earnings before interest, taxes,
depreciation and amortization, depending on the growth in such earnings. Upon
completion of the offering, the vesting for 75% of Mr. Zeichner's outstanding
unvested options will accelerate. This will result in accelerated vesting for
options to purchase 274,500 shares of our common stock. If Mr. Zeichner's
employment is terminated without cause or Mr. Zeichner resigns his position as a
consequence of a material alteration of his responsibilities, movement of our
headquarters outside San Diego or a material breach of the employment agreement
or the Stockholders Agreement, he will be entitled to one year of his base
salary at the time of termination, payable in 12 equal monthly installments.
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<PAGE>
STOCK OPTION PLANS
We have historically granted options for the purchase of our common stock
pursuant to our 1996 Long-Term Incentive Plan and our 1999 Long-Term Incentive
Plan. The board of directors has resolved, however, that no further grants may
be made under either the 1996 Long-Term Incentive Plan or the 1999 Long-Term
Incentive Plan. Each of these plans provides that, so long as the SKM Funds own
more than 25% of our outstanding common stock, the option holders have tag along
rights in the event of a private sale by the SKM Funds of their shares of common
stock. There are currently options to purchase 1,824,600 shares of our common
stock outstanding under these plans.
Our board of directors and stockholders adopted the 1999 Equity Incentive
Plan, effective as of the completion of this offering. Our 1999 Equity Incentive
Plan was adopted by the board of directors and our stockholders on July 29,
1999. The 1999 Equity Incentive Plan will be administered by the compensation
committee of our board of directors. The 1999 Equity Incentive Plan provides for
the grant of a variety of stock and stock-based awards and related benefits,
including stock options, restricted and unrestricted shares, deferred stock,
performance awards, rights to receive cash or shares with respect to an increase
in the value of the common stock. The 1999 Equity Incentive Plan's eligibility
criteria are intended to encompass those employees, officers, directors and
consultants who are in a position to make a significant contribution to the
success of Charlotte Russe.
The 1999 Equity Incentive Plan permits the grant of options that qualify as
incentive stock options and nonqualified options. The option exercise price of
each incentive stock option shall be determined by the compensation committee of
our board of directors. In the case of incentive stock options, however, the
exercise price shall not be less than 100% of the fair market value of the
shares on the date of grant. There is no minimum exercise price for nonqualified
options. Options granted at below the fair market value of the common stock on
the grant date could result in a charge against our reported earnings.
In general, and except as otherwise determined by the compensation committee
of our board of directors, all rights under awards granted pursuant to the 1999
Equity Incentive Plan to which the participant has not become irrevocably
entitled will terminate upon termination of the participant's employment,
consulting or service relationship with us. No award granted under the 1999
Equity Incentive Plan, other than an award in the form of an outright transfer
of cash or unrestricted stock, may be transferred other than by will or by the
laws of descent and distribution. During a participant's lifetime an award
requiring exercise may be exercised only by the participant, or in the event of
the participant's incapacity, the person legally appointed to act on the
participant's behalf.
Upon an acquisition of us by merger or asset sale, the compensation
committee shall have sole discretion to: (1) make any outstanding stock option
and stock appreciation right exercisable in full; (2) remove the restrictions
from any restricted stock; (3) cause us to make any payment and provide any
benefit under any deferred stock award or performance award; and (4) remove any
performance or other conditions or restrictions on any award. In lieu of the
action described above, the compensation committee may arrange to have the
successor corporation assume any outstanding award or grant a substantially
equivalent replacement award. Furthermore, if any person or entity acquires more
than 25% of our voting power, other than by consolidation or merger, or if the
majority of the members of our board of directors changes in any 24 month
period, then: (1) any options outstanding at such time shall become exercisable
to the full extent of the original grant and all shares of restricted stock not
otherwise vested shall vest; (2) holders of performance awards with unfilled
conditions shall be entitled to receive a cash payment per performance award
equal to the full value of the cash component of the award plus the fair value
of the stock included in the award; (3) options and stock appreciation awards
shall not be terminated as a result of termination of employment, other than by
reason of death, disability or retirement, until seven months after the
employment termination or the expiration of the original terms of the option or
stock appreciation right; and (4) neither the compensation committee
43
<PAGE>
nor our board of directors will be able to amend or further restrict any option,
stock appreciation right, share of restricted stock or performance award, or
amend the terms of the 1999 Equity Incentive Plan in any manner adverse to the
holder of an award without the written consent of that holder.
Subject to adjustment for stock splits and similar events, the total number
of shares of common stock that can be issued under the 1999 Equity Incentive
Plan is 750,000 shares. No options have been issued under the 1999 Equity
Incentive Plan. The maximum number of shares of common stock as to which options
or stock appreciation rights may be granted to any participant in any one
calendar year is 200,000. However, upon the completion of the offering, we
expect to issue options to purchase 250,000 shares of our common stock at an
exercise price equal to the initial public offering price of our common stock.
STOCK PURCHASE PLAN
We have adopted an employee stock purchase plan that is anticipated to be
implemented following the completion of this offering. The employee stock
purchase plan is designed to enable eligible employees to purchase shares of our
common stock at a discount on a periodic basis through payroll deductions. We
have reserved an aggregate of 350,000 shares of our common stock for issuance
pursuant to this plan. The purchases under the stock purchase plan will occur at
the beginning of each option period. The first option period will commence on
the date of this prospectus and will end on June 30, 2000. Thereafter, each
option period will be six months in duration. Our employees are eligible to
participate if they have been employed by us or our subsidiaries for at least
six months, as of the first day of any option period, and are scheduled to work
for at least 20 hours per week. Under the stock purchase plan, eligible
employees, including executive officers, are permitted to purchase on an
after-tax basis our common stock through payroll deductions that may not exceed
15% of their cash compensation, including commissions, bonuses, and overtime.
Notwithstanding the foregoing, no employee who is a 5% or greater holder of our
voting stock is eligible to participate in the plan. The amount contributed by
each participant over the course of an option period will be used to purchase
shares of our common stock at a purchase price equal to 85% of the fair market
value of the common stock at the beginning or the end of a purchase period,
whichever is lower. Participants may purchase no more than 83 1/3 shares of
common stock for each full month of the initial option period and 500 shares of
common stock for each option period thereafter. Unless terminated sooner, the
stock purchase plan will terminate following the end of the first option period
beginning ten years from its effective date. The employee stock purchase plan is
intended to qualify for favorable tax treatment under Section 423 of the
Internal Revenue Code. The board of directors has authority to amend or
terminate the stock purchase plan, provided no such action may adversely affect
the rights of any participant.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of June 26, 1999 and as adjusted to reflect the
sale of the shares in this offering for:
(1) each person who is known by us to own beneficially more than 5% of our
outstanding shares of common stock;
(2) each director and executive officer;
(3) all directors and executive officers as a group; and
(4) each selling stockholder.
As of June 26, 1999, there were 18,310,800 shares of outstanding common
stock prior to giving effect to the shares to be sold in this offering. Unless
otherwise indicated below, to our knowledge, all persons listed below have sole
voting and investment power with respect to their shares of common stock, except
to the extent authority is shared by spouses under applicable law. Unless
otherwise indicated, each entity or person listed below maintains a mailing
address of c/o Charlotte Russe Holding, Inc., 4645 Morena Boulevard, San Diego,
CA 92117.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
NUMBER OF TO OFFERING OFFERING
SHARES ------------------------- -------------------------
NAME OF BENEFICIAL OWNER OFFERED NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------------------- ---------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Bernard Zeichner(1)................................. 142,857 1,573,500 8.22% 1,430,643 6.82%
Harriet A. Bailiss-Sustarsic(2)..................... -- 64,800 * 64,800 *
Daniel T. Carter(3)................................. -- 20,000 * 20,000 *
R. Tina Kernohan(4)................................. -- 32,400 * 32,400 *
Allan W. Karp(5).................................... 922,907(6) 19,515,440 96.25 18,592,533 84.09
David J. Oddi(5).................................... 922,907(6) 19,515,440 96.25 18,592,533 84.09
All Directors and Executive Officers
as a Group........................................ 1,065,764 21,206,140 99.95 20,140,376 87.37
SELLING STOCKHOLDERS
SKM Funds(5)........................................ 922,907 19,515,440 96.25 18,592,533 84.09
Bernard Zeichner(1)................................. 142,857 1,573,500 8.22 1,430,643 6.82
FSC Corp.(7)
175 Federal Street
10th Floor
Boston, Massachusetts 02110....................... 384,236 384,236 2.06 -- --
FIVE PERCENT (5%) STOCKHOLDERS
John F. Megrue(5)................................... 922,907(6) 19,515,440 96.25 18,592,533 84.09
Thomas A. Saunders, III(5).......................... 922,907(6) 19,515,440 96.25 18,592,533 84.09
</TABLE>
- ---------
* Less than one percent
(1) Includes 549,000 shares of common stock subject to options exercisable
within sixty days after August 31, 1999 and options to purchase 274,500
shares of common stock which vest immediately upon the closing of the
offering.
(2) Includes 64,800 shares of common stock subject to options exercisable within
sixty days after August 31, 1999.
(3) Includes 20,000 shares of common stock subject to options exercisable within
sixty days after August 31, 1999.
45
<PAGE>
(4) Includes 32,400 shares of common stock subject to options exercisable within
sixty days after August 31, 1999.
(5) Includes (a) 17,369,250 shares of common stock owned by The SK Equity Fund,
L.P., (b) 180,750 shares of common stock owned by SK Investment Fund, L.P.
(collectively with The SK Equity Fund, L.P., the "SKM Funds") and (3)
1,965,440 shares of common stock which may be acquired by the SKM Funds
pursuant to the exercise of warrants. SKM Partners, L.P. is the general
partner of each of The SK Equity Fund, L.P. and SK Investment Fund, L.P.
Messrs. Karp, Megrue, Oddi and Saunders are partners of Saunders Karp &
Megrue Partners, L.L.C., which serves as the general partner of SKM
Partners, L.P. and, therefore, may be deemed to have beneficial ownership of
the shares of common stock shown as being owned by the SKM Funds above.
Messrs. Karp, Megrue, Oddi and Saunders disclaim beneficial ownership of
such shares, except to the extent that any of them has a limited partnership
interest in the SK Investment Fund, L.P. The address for each of these
entities or persons is 262 Harbor Drive, Stamford, CT 06902.
(6) Represent shares being offered by SKM Funds to which Messrs. Karp, Megrue,
Oddi and Saunders disclaim beneficial ownership, except to the extent any of
them has a limited partnership interest in the SK Investment Fund, L.P.
(7) Includes 384,236 shares of common stock subject to warrants exercisable
within sixty days after August 31, 1999.
The number of shares beneficially owned by each stockholder is determined in
accordance with the rules of the Securities and Exchange Commission and are not
necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes those share of common stock that the
stockholder has sole or shared voting of investment power and any shares of
common stock that the stockholder has right to acquire within sixty (60) days
after August 31, 1999 through the exercise of any option, warrant or other
right. The percentage ownership of the outstanding common stock, however, is
based on the assumption, expressly required by the rules of the Securities and
Exchange Commission, that only the person or entity whose ownership is being
reported has converted options or warrants into shares of common stock.
46
<PAGE>
RELATED TRANSACTIONS
TRANSACTIONS WITH AFFILIATES
In September 1996, in connection with our formation and the acquisition of
our business by the SKM Funds, Charlotte Russe issued shares of its common stock
to the following stockholders:
<TABLE>
<CAPTION>
NAME OF INVESTOR NUMBER OF SHARES PRICE PER SHARE
- ----------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
The SK Equity Fund, L.P.................................... 18,119,250 $ 1.00
SK Investment Fund, L.P.................................... 180,750 $ 1.00
</TABLE>
To partially fund our acquisition by the SKM Funds, we issued subordinated
notes to the SKM Funds in the aggregate principal amount of $11.0 million and
bearing interest, payable semi-annually, at the rate of 12.5% per annum. The
subordinated notes had a maturity date of September 27, 2003. On June 11, 1999,
we repaid the aggregate principal amount outstanding on the subordinated notes,
together with accrued interest and a prepayment premium of $440,000. In
connection with the issuance of the subordinated notes, we issued to (1) The SK
Equity Fund, L.P., warrants to purchase 1,945,010 shares of our common stock, at
an exercise price of $1.00 per share, and (2) SK Investment Fund, L.P., warrants
to purchase 19,400 shares of our common stock, at an exercise price of $1.00 per
share. Each of these warrants expires on September 27, 2006, and are subject to
adjustment for stock dividends, stock splits and combinations and other
dividends and distributions. The number of shares of common stock issuable under
these warrants increased by an aggregate of 1,030 shares pursuant to
anti-dilution provisions.
Mr. Bernard Zeichner, our Chief Executive Officer and President, purchased
750,000 shares of our common stock from the SKM Funds for $1.00 per share, or an
aggregate consideration of $750,000, shortly after their acquisition described
above.
In April, 1999, we agreed to loan Mr. Zeichner $1.5 million to fund the
purchase of a home. To date, Mr. Zeichner has borrowed an aggregate of $1.0
million. The loan is evidenced by a promissory note due April 26, 2004 and the
loan bears interest at a rate of 7.47% per annum. Mr. Zeichner is required to
use the net proceeds from the sale of shares of common stock in this offering to
repay the promissory note in full.
In March, 1999, we loaned Ms. Bailiss-Sustarsic $120,000 to fund the
purchase of a home. The loan was evidenced by a promissory note due March 12,
2004 bearing interest at a rate of 8.5% per annum. This loan was repaid in full
on July 1, 1999.
During fiscal 1998 and the nine months ended June 26, 1999, we purchased an
aggregate of approximately $110,000 of merchandise from Slant, Inc., a
manufacturer of women's apparel. Mr. Zeichner's daughter is the President and
Chief Executive Officer of Slant and his wife is also a principal officer. Mr.
Zeichner's wife and daughter also own a majority of the outstanding equity
interests in Slant, Inc.
We believe that our transactions have been no more favorable than could have
been obtained from a disinterested third party.
STOCKHOLDERS AGREEMENT
Charlotte Russe, the SKM Funds and Mr. Bernard Zeichner have entered into a
stockholders agreement. This agreement provides that (1) so long as the SKM
Funds own at least 25% of our total outstanding shares of common stock, they
will have the right to nominate three directors and designate the chairman of
the board of directors and (2) so long as the SKM Funds own at least 10% of the
shares of common stock held by them immediately after the completion of this
offering, including shares of common stock issuable upon exercise of outstanding
warrants at such date, they will have the right to nominate two directors and
include one director elected by the SKM Funds on each committee
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<PAGE>
of the board of directors. The stockholders agreement grants Mr. Zeichner tag
along rights in the event of a private sale by the SKM Funds of their shares of
common stock. The stockholders agreement also grants, subject to limitations and
exceptions, demand and piggyback registration rights to the SKM Funds and
piggyback registration rights to Mr. Zeichner. In the case of an underwritten
demand registration, we have agreed that we will not, without the managing
underwriter's consent, sell or otherwise dispose of our common stock or
securities convertible into our common stock for a period from 30 days prior to
the effective date of the registration statement until 180 days after the
effective date of the registration statement, other than pursuant to our equity
plans. See "Shares Eligible for Future Sale--Registration Rights."
The stockholders agreement provides for Saunders Karp & Megrue, L.P., an
affiliate of the SKM Funds, to render financial advisory services, including
review and analysis of operational results and budgets, to us in exchange for an
annual fee of $250,000, payable in advance, plus reimbursement for out-of-pocket
expenses. This fee terminates when the SKM Funds own less than 10% of the shares
of common stock held by them immediately after the completion of this offering,
including shares of common stock issuable upon exercise of outstanding warrants
at such date.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our certificate of incorporation, which will become effective upon the
closing of this offering, authorizes the issuance of up to 100,000,000 shares of
common stock, par value $0.01 per share, and 3,000,000 shares of preferred
stock, par value $0.01 per share, the rights and preferences of which may be
established from time to time by our board of directors. As of June 26, 1999,
18,310,800 shares of common stock were outstanding, held of record by four
stockholders.
COMMON STOCK
Under our certificate of incorporation, holders of our common stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders, including the election of directors. They do not have
cumulative voting rights. Subject to preferences that may be applicable to any
outstanding series of preferred stock, holders of our common stock are entitled
to share ratably in any dividends that may be declared by the board of directors
out of legally available funds. In case of a liquidation, dissolution or winding
up of Charlotte Russe, the holders of common stock will be entitled to share
ratably in the net assets legally available for distribution to shareholders, in
each case after payment of all of our liabilities and subject to preferences
that may be applicable to any series of preferred stock then outstanding. The
holders of common stock have no preemptive or conversion rights or other
subscription rights. See "Related Transactions--Stockholders Agreement." There
are no redemption or sinking fund provisions applicable to the common stock. The
rights, preferences and privileges of holders of common stock are subject to the
rights of the holders of shares of any series of preferred stock that we may
designate and issue in the future.
PREFERRED STOCK
Under our certificate of incorporation, our board of directors has the
authority, without further action by the stockholders, to issue from time to
time, shares of preferred stock in one or more series. The board of directors
may fix the number of shares, designations, preferences, powers and other
special rights of the preferred stock. The preferences, powers, rights and
restrictions of different series of preferred stock may differ. The issuance of
preferred stock could decrease the amount of earnings and assets available for
distribution to holders of common stock or adversely affect the rights and
powers, including voting rights, of the holders of common stock. The issuance
may also have the effect of discouraging, delaying or preventing a change in
control of Charlotte Russe, regardless of whether the transaction may be
beneficial to stockholders. There are no shares of preferred stock outstanding
and we have no current plans to issue any shares of preferred stock.
LIABILITY OF DIRECTORS
Our certificate of incorporation provides that our directors shall not be
liable to Charlotte Russe or its stockholders for monetary damages for any
breach of fiduciary duty, except to the extent otherwise required by the
Delaware General Corporation Law. This provision will not prevent our
stockholders from obtaining injunctive or other relief against our directors.
This provision also does not shield our directors from liability under federal
or state securities laws.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, this statue prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other
49
<PAGE>
transactions resulting in a financial benefit to the interested stockholder.
Subject to stated exceptions, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years prior to
the determination of such status did own, 15% or more of the voting stock of the
corporation, other than interested stockholders prior to the time our common
stock was listed in the Nasdaq National Market. This provision may be deemed to
have an anti-takeover effect and may discourage, delay or prevent a tender offer
or takeover attempt that a stockholder might consider in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders. In accordance with Section 203, the SKM
Funds and their affiliates are not considered interested stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, LLC.
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial amount of our common stock in the public market
after this offering could adversely affect the prevailing market price of our
common stock. Furthermore, because only a limited number of shares will be
available for sale shortly after this offering due to the contractual
restrictions on resale described in the section entitled "Underwriting" and the
legal restrictions on resale described below, the sale of a substantial amount
of common stock in the public market after these restrictions lapse could
adversely affect the prevailing market price of our common stock and our ability
to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
20,145,036 shares of our common stock. Of these shares, all of the shares sold
in this offering will be freely tradable without restriction or further
registration under the Securities Act, unless the shares are purchased by
"affiliates" as that term is defined in Rule 144 under the Securities Act. Any
shares purchased by an affiliate may not be resold except pursuant to an
effective registration statement or an applicable exemption from registration,
including an exemption under Rule 144 of the Securities Act. The remaining
shares of common stock held by existing stockholders are "restricted securities"
as that term is defined in Rule 144 under the Securities Act. These restricted
securities may be sold in the public market only if they are registered or if
they qualify for an exemption from registration under Rule 144 or Rule 701 under
the Securities Act. These rules are summarized below.
Upon the expiration of the lock-up agreements described in the section
entitled "Underwriting" and subject to the provisions of Rule 144 and Rule 701,
20,433,076 restricted shares, assuming the exercise of outstanding warrants and
vested stock options, will be available for sale in the public market 180 days
after the date of this prospectus. The sale of these restricted securities is
subject, in the case of shares held by affiliates, to the volume restrictions
contained in Rule 144.
RULE 144
In general, under Rule 144 as currently in effect, beginning ninety (90)
days after the date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year from the later of the date
those shares of common stock were acquired from us or from an affiliate of ours
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of:
(1) one percent of the number of shares of common stock then outstanding,
which will equal approximately 201,450 shares immediately after this
offering; or
50
<PAGE>
(2) the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale of any shares of common
stock.
The sales of any shares of common stock under Rule 144 are also subject to
manner of sale provisions and notice requirements and to the availability of
current public information about us. Affiliates may sell shares not constituting
restricted securities in accordance with the foregoing volume limitations and
other restrictions, but without regard to the one-year holding period.
In addition, under Rule 144(k), a person who is not one of our affiliates at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years from the later of
the date such shares of common stock were acquired from us or from an affiliate
of ours, including the holding period of any prior owner other than an
affiliate, is entitled to sell those shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted pursuant to the lock-up agreements or
otherwise, those shares may be sold immediately upon the completion of this
offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchased shares from us in
connection with a compensatory stock plan or other written agreement is eligible
to resell those shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with some of the restrictions,
including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
Under the terms of a stockholders agreement, the SKM Funds are entitled to
unlimited demand registration rights that require us to register under the
Securities Act up to a total of 19,515,440 shares of their common stock,
including shares issuable pursuant to warrants currently held by the SKM Funds.
Of this amount, 922,907 shares of common stock are being registered in this
offering. This right exists so long as the SKM Funds own at least 10% of the
shares of common stock. Mr. Zeichner has the right to participate in any demand
registrations initiated by the SKM Funds. Mr. Zeichner currently owns 750,000
shares of common stock and options to purchase 915,000 shares of common stock.
We are obligated to pay all fees, cash and expenses in connection with any such
registration. By exercising their registration rights and causing a large number
of shares to be registered and sold in the public market, these holders may
cause the price of the common stock to fall. Notwithstanding these demand
registration rights, we are not obligated to effect more than one demand
registration in any six-month period.
The stockholders agreement also grants, subject to limitations and
exceptions, piggyback registration rights to the SKM Funds and Mr. Zeichner in
the event we register any shares of common stock under the Securities Act. We
are obligated to pay all fees, costs and expenses in connection with any such
registration, other than underwriting discounts and commissions and transfer
taxes. The managing underwriters, however, of any such offering may exclude for
marketing reasons some or all of these shares of common stock from registration.
STOCK OPTIONS
At June 26, 1999, there were options to purchase 1,824,600 shares
outstanding under our stock option plans and otherwise. Shortly after the
effective date of this offering, we expect to file a registration statement
under the Securities Act covering 2,574,600 shares of common stock reserved for
issuance under our stock option plans. Upon the filing of this registration
statement and upon expiration of 180-day lock-up agreements, approximately
1,233,400 shares of common stock issuable upon exercise of stock options will be
immediately eligible for sale in the public market, subject to, Rule 144 volume
limitations applicable to our affiliates.
51
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Banc of America Securities LLC, PaineWebber
Incorporated, and First Union Capital Markets Corp. have severally agreed with
us and the selling stockholders, subject to the terms and conditions of the
underwriting agreement, to purchase from us and the selling stockholders the
number of shares of common stock set forth opposite their respective names. The
underwriters are committed to purchase and pay for all of these shares if any
are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
BancBoston Robertson Stephens Inc................................................
Banc of America Securities LLC...................................................
PaineWebber Incorporated.........................................................
First Union Capital Markets Corp.................................................
----------
Total...................................................................... 2,900,000
----------
----------
</TABLE>
The underwriters' representatives have advised us and the selling
stockholders that the underwriters propose to offer the shares of common stock
to the public at the public offering price located on the cover page of this
prospectus and to some dealers at such price less a concession of not more than
$ per share, of which $ may be reallowed to other
dealers. After the completion of this offering, the public offering price,
concession, and reallowance to dealers may be reduced by the representatives.
This reduction will not change the amount of proceeds to be received by us or
the selling stockholders as indicated on the cover page of this prospectus. The
common stock is offered by the underwriters as stated in this prospectus,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part.
OVER-ALLOTMENT OPTION. Some of the selling stockholders have granted to the
underwriters an option, exercisable during the 30-day period after the date of
this prospectus, to purchase up to 435,000 additional shares of common stock at
the price per share, less the underwriting discount, indicated on the cover of
this prospectus. To the extent that the underwriters exercise this option, each
of the underwriters will have a firm commitment, subject to conditions, to
purchase approximately the same percentage of the additional shares that the
number of shares of common stock to be purchased by it shown in the above table
represents as a percentage of the 2,900,000 shares offered hereby. If purchased,
those additional shares will be sold by the underwriters on the same terms as
those on which the 2,900,000 shares are being sold. The relevant selling
stockholders will be obligated, pursuant to the option, to sell shares to the
extent the option is exercised. The underwriters may exercise this option only
to cover over-allotments made in connection with the sale of the shares of
common stock offered in this prospectus.
52
<PAGE>
The following table shows the per share and total underwriting discounts and
commissions to be paid by us and the selling stockholders to the underwriters.
This information is presented assuming either no exercise or full exercise by
the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
----------- ------------ ------------
<S> <C> <C> <C>
Public offering price......................................................... $ $ $
Underwriting discounts and commissions paid by Charlotte Russe................ $ $ $
Proceeds, before expenses, to Charlotte Russe................................. $ $ $
Underwriting discounts and commissions paid by the selling stockholders....... $ $ $
Proceeds, before expenses, to the selling stockholders........................ $ $ $
</TABLE>
The expenses of the offering, other than underwriting discounts and commissions
referred to above, are estimated at $900,000 and are payable entirely by us.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common stock
to purchasers on , 1999.
DIRECTED SHARE PROGRAM. At our request, the underwriters have reserved up
to 125,000 shares of common stock to be issued by us and offered for sale in
this prospectus, at the initial public offering price, to our directors,
officers, employees, business associates and persons otherwise related to us and
Saunders Karp & Megrue, L.P. The number of shares of common stock available for
sale to the general public will be reduced to the extent these individuals
purchase these reserved shares. The underwriters will offer any reserved shares
that are not so purchased to the general public on the same basis as the other
shares offered in this prospectus.
The underwriters have advised us that they do not intend to confirm sales of
more than 5% of the common stock offered in this offering to any accounts over
which they exercise discretionary authority.
INDEMNITY. The underwriting agreement contains covenants of indemnity among
the underwriters, us and the selling stockholders against various civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.
LOCK-UP AGREEMENTS. All of our directors and executive officers,
substantially all existing stockholders, and all holders of outstanding options
and warrants have agreed, during the period ending 180 days after the date of
this prospectus, subject to various exceptions, not to offer to sell, contract
to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any shares of common stock or any options or warrants to purchase any
shares of common stock, or any securities convertible into or exchange for
shares of common stock owned as of the date of this prospectus or thereafter
acquired directly by these holders or with respect to which they have the power
of disposition, without the prior written consent of BancBoston Robertson
Stephens Inc. However, BancBoston Robertson Stephens Inc. may, in its sole
discretion and at any time or from time to time, without notice, release all or
any portion of the securities subject to the lock-up agreements. There are no
existing agreements between the representatives and any of our stockholders who
have executed a lock-up agreement providing consent to the sale of shares of
common stock before the expiration of the lock-up period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of BancBoston Robertson Stephens Inc., subject
to various exceptions:
- consent to the disposition of any shares held by stockholders subject to
lock-up agreements before the expiration of the lock-up period; or
53
<PAGE>
- issue, sell, contract to sell, or otherwise dispose of, any shares of
common stock, any options to purchase any shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares of
common stock other than our sale of shares in this offering, the issuance
of common stock upon the exercise of outstanding options and warrants, the
issuance of options under existing stock option and incentive plans
provided the options do not vest before the expiration of the lock-up
period.
See "Shares Eligible for Future Sale."
LISTING. The common stock is pending approval for quotation on the Nasdaq
National Market under the symbol "CHIC."
STABILIZATION. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, some persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of shares of common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price of
the common stock. A "syndicate covering transaction" is the bid for or the
purchase of common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such underwriter or syndicate member. The representatives have advised us that
these transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
NO PRIOR PUBLIC MARKET. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock offered by this prospectus has been determined through
negotiations between us, the selling stockholders, and the representatives of
the underwriters. Among the factors considered in these negotiations were
prevailing market conditions, our financial information, market valuations of
other companies that we and the representatives of the underwriters believe to
be comparable to us, estimates of our business potential, the present state of
our development and other factors deemed relevant.
CERTAIN RELATIONSHIPS. FSC Corp., an affiliate of BancBoston Robertson
Stephens Inc., owns a warrant to purchase 413,776 shares of our common stock,
which represents less than 2.5% of our outstanding common stock. In connection
with the offering, FSC Corp. plans to exercise its warrant and to sell all of
its shares of our common stock as a selling stockholder in the offering. See
"Principal and Selling Stockholders."
QUALIFIED INDEPENDENT UNDERWRITER. We intend to use more than 10% of the
net proceeds of the sale of our common stock to repay indebtedness under our
existing credit facilities owed by us to BankBoston, N.A., an affiliate of
BancBoston Robertson Stephens Inc., one of the underwriters' representatives.
You should refer to "Use of Proceeds" for more information. Accordingly, the
offering must comply with the requirements of Rule 2710(c)(8) of the National
Association of Securities Dealers, Inc. Conduct Rules. This rule provides
generally that if more than 10% of our net proceeds from the sale of our common
stock is paid to the underwriters or their affiliates, the initial public
offering price of the common stock may not be higher than recommended by a
"qualified independent underwriter" meeting specified standards. Accordingly,
PaineWebber Incorporated is assuming the responsibilities of acting as the
qualified independent underwriter in pricing the offering and
54
<PAGE>
conducting due diligence. The initial public offering price of the shares of our
common stock will be no higher than the price recommended by PaineWebber
Incorporated. PaineWebber Incorporated will not receive any additional
compensation in connection with its acting as a qualified independent
underwriter.
VALIDITY OF COMMON STOCK
The validity of the common stock offered by this prospectus will be passed
upon for Charlotte Russe Holding, Inc. by Ropes & Gray, Boston, Massachusetts.
Brobeck, Phleger & Harrison, LLP, San Diego, California, has acted as counsel
for the underwriters in connection with certain legal matters related to this
offering.
EXPERTS
The consolidated financial statements of Charlotte Russe Holding, Inc. at
September 27, 1997 and September 26, 1998, for each of the two years in the
period ended September 26, 1998 and for our Predecessor for the year ended
September 27, 1996, appearing in this prospectus and the registration statement,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1, including exhibits and schedules, under the Securities
Act with respect to the common stock to be sold in this offering. This
prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement or the
exhibits and schedules which are part of the Registration Statement. The rules
and regulations of the Securities and Exchange Commission allow us to omit
certain information included in the Registration Statement from this prospectus.
Accordingly, any statements made in this prospectus as to the contents of any
contract, agreement or other document are not necessarily complete. With respect
to each such contract, agreement or other document filed as an exhibit to the
Registration Statement, we refer you to the exhibit for a more complete
description of the matter involved, and each statement in this prospectus shall
be deemed qualified in its entirety by this reference. You may read and copy all
or any portion of the Registration Statement or any reports, statements or other
information in the files at the following public reference facilities of the
Securities and Exchange Commission:
<TABLE>
<S> <C> <C>
WASHINGTON, D.C. NEW YORK, NEW YORK CHICAGO, ILLINOIS
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, NY 10048 Chicago, IL 60661-2511
</TABLE>
You can request copies of these documents upon payment of a duplicating fee
by writing to the Securities and Exchange Commission. You may call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the operation of its public reference rooms. Our filings, including the
Registration Statement, will also be available to you on the Internet web site
maintained by the Securities and Exchange Commission at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing audited
financial statements, and make available to our stockholders quarterly reports
for the first three quarters of each year containing unaudited interim financial
information.
55
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
Report of Ernst & Young LLP, Independent Auditors.......................................................... F-2
Consolidated Balance Sheets as of September 27, 1997, September 26, 1998 and June 26, 1999 (unaudited)..... F-3
Consolidated Statements of Income of the Predecessor for the year ended September 27, 1996 and of the
Company for the years ended September 27, 1997 and September 26, 1998 and the nine months ended June 27,
1998 (unaudited) and June 26, 1999 (unaudited)........................................................... F-4
Consolidated Statement of the Predecessor's Retained Earnings for the year ended September 27, 1996........ F-5
Consolidated Statement of Stockholders' Equity for September 27, 1996 (date of initial capitalization) and
for the years ended September 27, 1997 and September 26, 1998, and the nine months ended June 26, 1999
(unaudited).............................................................................................. F-5
Consolidated Statements of Cash Flows of the Predecessor for the year ended September 27, 1996 and of the
Company for the one day period ended September 27, 1996 and the years ended September 27, 1997 and
September 26, 1998, and the nine months ended June 27, 1998 (unaudited) and June 26, 1999 (unaudited).... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Charlotte Russe Holding, Inc.
We have audited the accompanying consolidated balance sheets of Charlotte
Russe Holding, Inc. as of September 27, 1997 and September 26, 1998, and the
related consolidated statements of stockholders' equity for September 27, 1996
(date of initial capitalization) and for each of the two years in the period
ended September 26, 1998, the consolidated statements of income for each of the
two years in the period ended September 26, 1998, the consolidated statements of
cash flows for the one day period ended September 27, 1996 and each of the two
years in the period ended September 26, 1998; and the statements of income,
retained earnings and cash flows of the Company's predecessor for the year ended
September 27, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Charlotte Russe
Holding, Inc., at September 27, 1997 and September 26, 1998, the consolidated
results of its operations for each of the two years in the period ended
September 26, 1998 and its cash flows for the one day period ended September 27,
1996 and each of the two years in the period ended September 26, 1998 and the
results of operations and cash flows of the Company's predecessor for the year
ended September 27, 1996 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
November 12, 1998, except for Note 5,
as to which the date is December 30, 1998
and for the last two paragraphs of Note 8,
as to which the date is , 1999
- --------------------------------------------------------------------------------
The foregoing report is in the form that it will be signed upon the completion
of the restatement of the capital accounts described in Note 8 to the financial
statements.
/s/ ERNST & YOUNG LLP
San Diego, California
September 27, 1999
F-2
<PAGE>
CHARLOTTE RUSSE HOLDING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 26, JUNE 26,
1997 1998 1999
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 2,816,658 $ 1,003,906 $ 112,323
Inventories....................................................... 3,800,035 8,864,789 7,544,295
Other current assets.............................................. 856,768 2,013,474 1,369,058
Deferred tax assets............................................... 972,249 1,190,000 1,382,000
------------- ------------- -------------
Total current assets.............................................. 8,445,710 13,072,169 10,407,676
Fixed assets, net................................................... 15,439,623 27,625,046 32,136,530
Goodwill, net....................................................... 32,103,091 31,274,707 30,653,419
Deferred financing costs, net....................................... 1,111,961 1,100,159 600,430
Other assets........................................................ 27,410 1,354,886 1,421,031
------------- ------------- -------------
Total assets...................................................... $ 57,127,795 $ 74,426,967 $ 75,219,086
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable--trade........................................... $ 3,519,030 $ 7,398,038 $ 9,021,613
Accounts payable--other........................................... 2,101,135 2,914,331 2,247,882
Accrued payroll and related expense............................... 819,370 1,153,010 896,419
Income taxes payable.............................................. 320,782 615,163 145,141
Other accrued expenses............................................ 2,899,049 1,803,064 5,088,456
Notes payable to bank, current portion............................ 1,462,500 -- --
Capital leases, current portion................................... -- 428,000 428,000
------------- ------------- -------------
Total current liabilities......................................... 11,121,866 14,311,606 17,827,511
Notes payable to bank, net of current portion....................... 9,862,500 16,600,000 18,250,000
Subordinated notes payable to related parties....................... 11,000,000 11,000,000 --
Capital leases, net of current portion.............................. -- 496,874 182,087
Deferred rent....................................................... 218,024 955,633 1,681,206
Other liabilities................................................... 166,699 452,834 478,801
Deferred tax liabilities............................................ 779,195 1,165,000 1,505,000
------------- ------------- -------------
Total liabilities................................................. 33,148,284 44,981,947 39,924,605
Commitments
Stockholders' equity:
Preferred Stock $0.01 par value, 3,000,000 shares authorized, none
issued and outstanding.......................................... -- -- --
Common Stock $0.01 par value, 100,000,000 shares authorized,
issued and outstanding 18,300,000 shares at September 27, 1997
and September 26, 1998, 18,310,800 at June 26, 1999............. 183,000 183,000 183,108
Additional paid-in capital........................................ 18,739,981 18,691,381 19,422,073
Deferred compensation............................................. -- -- (720,000)
Notes receivable from officers.................................... -- -- (1,020,000)
Retained earnings................................................. 5,056,530 10,570,639 17,429,300
------------- ------------- -------------
Total stockholders' equity........................................ 23,979,511 29,445,020 35,294,481
------------- ------------- -------------
Total liabilities and stockholders' equity........................ $ 57,127,795 $ 74,426,967 $ 75,219,086
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
COMPANY
PREDECESSOR -------------------------------------------------------------
(NOTE 1)
------------- YEARS ENDED NINE MONTHS ENDED
YEAR ENDED ----------------------------- -----------------------------
SEPTEMBER 27, SEPTEMBER 27, SEPTEMBER 26, JUNE 27, JUNE 26,
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
Net sales.......................... $ 70,663,065 $ 81,543,232 $ 134,091,459 $ 94,409,890 $ 126,378,315
Cost of goods sold, including
buying, distribution and
occupancy costs.................. 43,774,147 50,722,934 93,142,372 65,506,640 85,996,435
------------- ------------- ------------- ------------- -------------
Gross profit....................... 26,888,918 30,820,298 40,949,087 28,903,250 40,381,880
Selling, general and administrative
expenses......................... 15,265,607 17,168,370 26,988,510 19,052,243 24,743,176
Amortization of goodwill and other
intangibles...................... -- 814,411 895,360 711,538 671,526
Predecessor shareholders'
salaries......................... 8,000,000 1,200,000 -- -- --
------------- ------------- ------------- ------------- -------------
Operating income................... 3,623,311 11,637,517 13,065,217 9,139,469 14,967,178
Other income (expense):
Interest income (expense), net... 42,001 (2,278,730) (3,025,378) (2,198,298) (2,042,507)
Other charges, net............... (143,594) (315,363) (280,354) (262,791) (204,393)
------------- ------------- ------------- ------------- -------------
Total other income (expense)... (101,593) (2,594,093) (3,305,732) (2,461,089) (2,246,900)
------------- ------------- ------------- ------------- -------------
Income before income taxes and
extraordinary item............... 3,521,718 9,043,424 9,759,485 6,678,380 12,720,278
Income taxes....................... -- 3,986,894 4,245,376 2,905,096 5,342,517
------------- ------------- ------------- ------------- -------------
Income before extraordinary item... 3,521,718 5,056,530 5,514,109 3,773,284 7,377,761
Extraordinary loss from early debt
retirement....................... -- -- -- -- (519,100)
------------- ------------- ------------- ------------- -------------
Net income......................... $ 3,521,718 $ 5,056,530 $ 5,514,109 $ 3,773,284 $ 6,858,661
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Basic earnings per share:
Income before extraordinary
item........................... $ 0.28 $ 0.30 $ 0.21 $ 0.40
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income....................... $ 0.28 $ 0.30 $ 0.21 $ 0.37
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted earnings per share:
Income before extraordinary
item........................... $ 0.25 $ 0.27 $ 0.18 $ 0.35
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income....................... $ 0.25 $ 0.27 $ 0.18 $ 0.32
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares
outstanding:
Basic............................ 18,300,000 18,300,000 18,300,000 18,300,100
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted.......................... 19,992,300 20,668,000 20,688,000 21,207,100
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
PREDECESSOR (NOTE 1)
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
<TABLE>
<CAPTION>
RETAINED EARNINGS
-----------------
<S> <C>
Balance at September 30, 1995.......................................... $ 5,079,691
Net income........................................................... 3,521,718
Distributions to Predecessor Shareholders............................ (6,300,000)
Retained earnings on September 27, 1996, date of sale................ (2,301,409)
-----------------
Balance at September 27, 1996.......................................... $ --
-----------------
-----------------
</TABLE>
CHARLOTTE RUSSE HOLDING, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NOTES TOTAL
-------------------- PAID-IN DEFERRED RECEIVABLE RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION FROM OFFICERS EARNINGS EQUITY
--------- --------- ---------- ------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization of
Charlotte Russe Holding, Inc.
on September 27, 1996:
Issuance of Common Stock..... 18,300,000 $ 183,000 $17,866,465 $ -- $ -- $ -- $18,049,465
Issuance of warrants to
purchase Common Stock...... -- -- 873,516 -- -- -- 873,516
--------- --------- ---------- ------------- ------------- ---------- ------------
Balance at September 27,
1996......................... 18,300,000 183,000 18,739,981 -- -- -- 18,922,981
Net income................... -- -- -- -- -- 5,056,530 5,056,530
--------- --------- ---------- ------------- ------------- ---------- ------------
Balance at September 27,
1997......................... 18,300,000 183,000 18,739,981 -- -- 5,056,530 23,979,511
Stock option transactions,
net of tax benefit......... -- -- (48,600) -- -- -- (48,600)
Net income................... -- -- -- -- -- 5,514,109 5,514,109
--------- --------- ---------- ------------- ------------- ---------- ------------
Balance at September 26,
1998......................... 18,300,000 183,000 18,691,381 -- -- 10,570,639 29,445,020
Stock option transactions
(unaudited)................ 10,800 108 10,692 -- -- -- 10,800
Deferred compensation related
to stock options
(unaudited)................ -- -- 720,000 (720,000) -- -- --
Notes receivable from
officers (unaudited)....... -- -- -- -- (1,020,000) -- (1,020,000)
Net income (unaudited)....... -- -- -- -- -- 6,858,661 6,858,661
--------- --------- ---------- ------------- ------------- ---------- ------------
Balance at June 26, 1999
(unaudited).................. 18,310,800 $ 183,108 $19,422,073 $(720,000) $(1,020,000) $17,429,300 $35,294,481
--------- --------- ---------- ------------- ------------- ---------- ------------
--------- --------- ---------- ------------- ------------- ---------- ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
(NOTE 1) --------------------------------------------------------------------------
------------- YEARS ENDED NINE MONTHS ENDED
YEAR ENDED ONE DAY ENDED ----------------------------- --------------------------
SEPTEMBER 27, SEPTEMBER 27, SEPTEMBER 27, SEPTEMBER 26, JUNE 27, JUNE 26,
1996 1996* 1997 1998 1998 1999
------------- ------------- ------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES
Reconciliation of net income to net
cash
provided by (used in) operating
activities:
Net income....................... $ 3,521,718 $ -- $ 5,056,530 $ 5,514,109 $ 3,773,284 $ 6,858,661
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and
amortization................. 1,726,281 -- 2,838,168 4,959,105 3,561,550 4,425,276
Deferred rent.................. (67,831) (848,338) 218,024 737,609 784,206 725,573
Loss on disposal of asset...... -- -- -- -- -- 49,720
Changes in operating assets and
liabilities:
Inventories.................. (186,589) -- (1,016,955) (5,064,754) (3,494,767) 1,320,494
Other current assets......... (718,349) -- 369,464 (1,156,706) (1,214,538) 644,416
Deferred financing costs..... -- (449,718) (4,319) (254,748) (254,748) (166,591)
Other assets................. 13,262 -- (6,542) (54,930) (55,764) (116,383)
Accounts payable............. 1,471,934 -- 356,192 4,692,204 2,700,238 957,126
Accrued payroll and related
expense.................... (265,897) -- 159,545 333,640 (561,606) (256,591)
Income taxes payable......... -- -- 320,782 294,381 343,096 (470,022)
Other accrued expenses....... 397,632 1,018,302 141,314 (1,095,985) (2,716,823) 3,285,392
Other liabilities............ 9,029 -- 30,000 286,136 427,522 25,967
Deferred taxes............... -- -- (193,054) 168,054 1,066,534 148,000
------------- ------------- ------------- ------------- ------------ ------------
Net cash provided by (used in)
operating activities............. 5,901,190 (279,754) 8,269,149 9,358,115 4,358,184 17,431,038
INVESTING ACTIVITIES
Net cash invested in acquisition of
Rampage assets................... -- -- (2,046,000) (7,276,463) (7,276,463) --
Purchases of fixed assets.......... (1,357,369) -- (5,245,194) (8,537,486) (6,996,405) (7,648,634)
Net cash invested in acquisition of
predecessor...................... -- (32,836,417) (419,591) -- -- --
Sale of marketable securities...... 100,000 -- -- -- -- --
------------- ------------- ------------- ------------- ------------ ------------
Net cash used in investing
activities....................... (1,257,369) (32,836,417) (7,710,785) (15,813,949) (14,272,868) (7,648,634)
FINANCING ACTIVITIES
Payments on capital leases......... -- -- -- (631,918) (361,461) (314,787)
Payments on notes payable to bank
and revolving credit facility.... -- (5,000,000) (2,575,000) (18,925,000) (11,100,000) (21,150,000)
Proceeds from notes payable to bank
and revolving credit facility.... 1,250,000 10,900,000 3,000,000 24,200,000 18,675,000 22,800,000
Proceeds from notes payable to
related parties.................. -- 11,000,000 -- -- -- --
Payments on notes payable to
related parties.................. (1,709,434) -- -- -- -- (11,000,000)
Funding of notes receivable from
officers......................... -- -- -- -- -- (1,120,000)
Repayments of notes receivable from
officers......................... -- -- -- -- -- 100,000
Proceeds from issuance of Common
Stock............................ -- 18,049,465 -- -- -- 10,800
Cash distributions to Predecessor
shareholders..................... (6,300,000) -- -- -- -- --
------------- ------------- ------------- ------------- ------------ ------------
Net cash provided by (used in)
financing activities............. (6,759,434) 34,949,465 425,000 4,643,082 7,213,539 (10,673,987)
------------- ------------- ------------- ------------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents................. (2,115,613) 1,833,294 983,364 (1,812,752) (2,701,145) (891,583)
Cash and cash equivalents at
beginning of period.............. 4,140,516 -- 1,833,294 2,816,658 2,816,658 1,003,906
------------- ------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------- ------------ ------------
Cash and cash equivalents at end of
period........................... $ 2,024,903 $ 1,833,294 $ 2,816,658 $ 1,003,906 $ 115,513 $ 112,323
------------- ------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------- ------------ ------------
SUPPLEMENTAL SCHEDULE OF NONCASH
ACTIVITIES
Issuance of warrants to purchase
Common Stock..................... $ -- $ 873,516 $ -- $ -- $ -- $ --
------------- ------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------- ------------ ------------
Stock option transactions, net of
tax benefit...................... $ -- $ -- $ -- $ 48,600 $ 48,600 $ --
------------- ------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------- ------------ ------------
Fixed assets acquired through
assumption of capital leases..... $ -- $ -- $ -- $ 1,567,313 $ -- $ --
------------- ------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------- ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest........................... $ 159,603 $ -- $ 2,211,966 $ 2,947,606 $ 2,450,496 $ 2,901,653
------------- ------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------- ------------ ------------
Income taxes, net.................. $ 86,061 $ -- $ 4,088,756 $ 3,751,000 $ 2,561,999 $ 5,436,638
------------- ------------- ------------- ------------- ------------ ------------
------------- ------------- ------------- ------------- ------------ ------------
</TABLE>
- ------------
* The Company's cash flow activity for September 27, 1996 (date of initial
capitalization) relates to the acquisition (see Note 1). Cash flow activity
relating to store operations on the date of acquisition have been included
in the Predecessor's cash flow statement for the year ended September 27,
1996.
See accompanying notes.
F-6
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO SEPTEMBER 26, 1998 AND THE NINE MONTHS ENDED JUNE 27,
1998
AND JUNE 26, 1999 IS UNAUDITED.)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Charlotte Russe Holding, Inc. (the "Company") was incorporated in Delaware
in July 1996. On September 27, 1996, the Company was capitalized through the
issuance of Common Stock and long-term debt. Effective September 27, 1996, the
Company acquired all of the stock of Lawrence Merchandising Corporation, a
California corporation, and its affiliates, Lawrence Merchandising Corporation
of Nevada and Lawrence Merchandising Corporation of Nevada II, both Nevada
corporations, (collectively, the "Predecessor" companies) for approximately $35
million in cash. In addition, the Company repaid $5 million of the Predecessor's
short-term borrowings concurrent with the consummation of the purchase
transaction.
The acquisition was accounted for using the purchase method of accounting.
The excess of the aggregate purchase price over the fair value of net assets
acquired of approximately $32.9 million was recognized as goodwill.
As the acquisition occurred on the last day of fiscal 1996, the accompanying
consolidated statements of retained earnings, income and cash flows of the
Predecessor for the year ended September 27, 1996 reflect the activity of the
Company. In addition, due to the capitalization of the Company on September 27,
1996, the Statement of Cash Flows of the Company for the one day period ended
September 27, 1996 relates to the initial capitalization and the acquisition of
the Predecessor.
DESCRIPTION OF BUSINESS
The Company operates in one segment selling clothing and accessories for
women through its retail stores that operate under the names Charlotte Russe and
Rampage (Note 2). As of June 26, 1999, the Company operated 85 mall-based retail
stores in Arizona, California, Florida, Georgia, Hawaii, Illinois, Michigan,
Nevada, New Jersey, New York, South Carolina, and Texas.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
FISCAL YEAR
The Company's fiscal year is (and its Predecessor's fiscal year was) the
52/53 week period ending on the last Saturday in September. Fiscal years ended
September 27, 1996 and 1997 and September 26, 1998 each contained 52 weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-7
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 26, 1998 AND THE NINE MONTHS ENDED JUNE 27,
1998
AND JUNE 26, 1999 IS UNAUDITED.)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL DATA
The consolidated financial statements as of June 26, 1999 and for the nine
months ended June 27, 1998 and June 26, 1999 are unaudited. The unaudited
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary to state fairly the financial information set forth therein, in
accordance with generally accepted accounting principles. The results of
operations for the interim period ended June 26, 1999 are not necessarily
indicative of the results which may be reported for any other interim period or
for the year ending September 25, 1999.
CASH EQUIVALENTS
The Company considers all liquid investments with maturities of three months
or less when purchased to be cash equivalents.
INVENTORIES
Inventories are accounted for by the retail method. The cost of inventory is
determined at the lower of the first-in, first-out (FIFO) method or market.
During fiscal 1997, the Company changed from the last-in, first-out (LIFO)
method to the FIFO method. The change did not have a material effect on fiscal
1997 results of operations.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
five to seven years. Leasehold improvements are amortized on a straight-line
basis over the estimated useful lives of the respective assets or the term of
the lease, whichever is less. Depreciation expense for the years ended September
27, 1996, September 27, 1997 and September 26, 1998 was $1,726,281 and
$1,808,165 and $3,797,195, respectively, and $2,702,428 and $3,542,107 for the
nine months ended June 27, 1998 and June 26, 1999, respectively.
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of the cost over the fair value of net assets
acquired by the Company. Goodwill is amortized on a straight-line basis over 40
years. The amortization period was determined based upon the following factors,
among others: operating history, brand name recognition, merchandising strategy,
vendor network, proven portability to new markets and demographics of the junior
women's market. Accumulated amortization for goodwill at September 27, 1997,
September 26, 1998 and June 26, 1999 was $814,411, $1,642,795 and $2,264,083,
respectively.
Other intangibles, included in Other Assets in the accompanying balance
sheet, result from the Company's acquisition of Rampage and represent amounts
attributable to a license agreement allowing the Company to utilize the Rampage
name and other intangibles. These assets are stated at cost and are amortized
using the straight-line method over the estimated useful life of 20 years. The
F-8
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 26, 1998 AND THE NINE MONTHS ENDED JUNE 27,
1998
AND JUNE 26, 1999 IS UNAUDITED.)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amortization period was primarily determined based on the expectation that the
Rampage license renewal options would be exercised. (See Note 7). Accumulated
amortization for other intangibles at September 26, 1998 and June 26, 1999 was
$66,976 and $117,214, respectively.
DEFERRED FINANCING COSTS
Debt issuance costs are amortized to interest expense using the straight
line method over the life of the related debt, ranging from September 30, 2002
to September 27, 2003. Unamortized issuance costs remaining upon early
retirement of debt are expensed. Accumulated amortization at September 27, 1997,
September 26, 1998 and June 26, 1999 was $216,000, $482,142 and $427,481,
respectively.
DEFERRED RENT
Rent expense on noncancellable leases containing known future scheduled rent
increases are recorded on a straight-line basis over the term of the respective
leases. The excess rent expense over rent paid is accounted for as deferred
rent.
INCOME TAXES
The Predecessor had elected S corporation status for federal income tax
reporting purposes and for those states which recognize S corporation status.
Accordingly, the income of the Predecessor was included in the tax returns of
the shareholders and no provision for federal income taxes was made in the
accompanying Predecessor's statement of income. The Company has elected to
operate as a C corporation from the date of its inception.
Upon completion of the purchase price allocation, deferred tax liabilities
were recognized for the tax effect of certain book to tax differences existing
at the acquisition date, with the offset recorded as an adjustment to goodwill.
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in operations in
the period that includes the enactment date.
The provision for income taxes for the nine month periods presented is based
on the effective tax rate estimated to be in effect for the respective year.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, whenever events or changes in circumstances indicate that the
carrying amount of its assets might not be recoverable, the
F-9
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 26, 1998 AND THE NINE MONTHS ENDED JUNE 27,
1998
AND JUNE 26, 1999 IS UNAUDITED.)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company, using its best estimates based upon reasonable and supportable
assumptions and projections, reviews the carrying value of long-lived assets for
impairment. Impairment is reviewed at the lowest levels for which there are
identifiable cash flows that are independent of the cash flows of other groups
of assets. The Company performs such analysis on an individual store basis and
estimates fair values based on sales prices for comparable assets. The Company
has identified two underperforming stores and plans to close these locations by
the end of fiscal 2000. Accordingly, the Company recorded an impairment loss of
$722,000, which is included in selling, general and administrative expenses. The
impairment loss includes $537,000 representing the net carrying value of
leasehold improvements net of the expected future cash flows through the end of
fiscal 2000. In addition, the impairment loss includes $185,000 for the
estimated unamortized landlord allowances that are refundable upon closure. The
Company does not plan to pay severance upon closure of the stores. The operating
results for the two stores is not material for the year ended September 26, 1998
or nine months ended June 26, 1999.
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, establishes the use of the fair value based method of
accounting for stock-based compensation arrangements, under which compensation
cost is determined using the fair value of stock-based compensation determined
as of the grant date, and is recognized over the periods in which the related
services are rendered. SFAS No. 123 also permits companies to elect to continue
using the current intrinsic value accounting method specified in Accounting
Principles Board Opinion (APB) No. 25 to account for stock-based compensation.
The Company has decided to retain the current intrinsic value based method, and
has disclosed the pro forma effect of using the fair value based method to
account for its stock-based compensation.
REVENUE RECOGNITION
Retail merchandise sales are recognized at the point of sale, less estimated
sales returns. A reserve is provided for on projected returns based on prior
experience.
STORE PRE-OPENING COSTS
Costs incurred in connection with the opening of a new store are expensed as
incurred.
EARNINGS PER SHARE
Basic earnings per share is computed based on the weighted average
outstanding common shares. Dilutive earnings per share is computed based on the
weighted average outstanding shares and potentially dilutive stock options and
warrants. Earnings per share data for periods prior to fiscal 1997 have not yet
been reported in the accompanying financial statements as the Predecessor had a
substantially different capital structure than the Company.
F-10
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 26, 1998 AND THE NINE MONTHS ENDED JUNE 27,
1998
AND JUNE 26, 1999 IS UNAUDITED.)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments, including cash and cash equivalents, accounts
payable, accrued expenses, income tax payable and capital lease obligations are
carried at cost, which management believes approximates fair value because of
the short-term maturity of these instruments. Interest on long-term debt is
primarily based on variable rates; therefore, management believes the carrying
amounts for the outstanding borrowings at September 27, 1997, September 26, 1998
and June 26, 1999 approximate fair value.
COMPREHENSIVE INCOME
In fiscal 1999, the Company adopted SFAS No. 130, REPORTING COMPREHENSIVE
INCOME. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components. The Company did not have any component
of other comprehensive income for any periods presented.
ADVERTISING COSTS
Advertising costs are expensed as incurred and were $50,704, $15,758 and
$241,603 for the years ended September 27, 1996, September 27, 1997 and
September 26, 1998, and $169,251 and $313,401 for the nine months ended June 27,
1998 and June 26, 1999, respectively.
RECLASSIFICATIONS
Certain amounts in the prior years financial statements have been
reclassified to conform with the 1999 presentation.
2. ACQUISITION OF RAMPAGE ASSETS
On September 30, 1997, the Company completed the acquisition of certain
assets of Rampage Retailing, Inc. (Rampage), a retailer of women's apparel, for
a purchase price of $10,500,000, consisting of cash of which $2,000,000 was
prepaid in fiscal year 1997 as a deposit, and the assumption of certain capital
lease obligations. The transaction was accounted for under the purchase method
and the purchase price was primarily allocated to fixed assets. The cash portion
of the purchase price was funded from the Company's credit facilities.
The Company's accompanying statements of income reflect the operating
results of Rampage since the date of acquisition. Prior to the acquisition,
Rampage operated in various business activities which consisted of manufacturing
operations and the sale of clothing through retail locations. The Company
acquired certain assets related to 16 retail store locations. The operating
results of the retail locations were computed through the retail location
operating profit level and combined into the operating results of a consolidated
entity. Therefore, the operating results of the retail locations did not include
any corporate expenses or other costs, such as interest, general and
administration, distribution or buying costs. The pro forma unaudited net sales
and gross profit for the year ended September 27, 1997, assuming the purchase of
Rampage had occurred on September 28, 1996 were $109,006,043 and $34,400,758,
respectively.
F-11
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 26, 1998 AND THE NINE MONTHS ENDED JUNE 27,
1998
AND JUNE 26, 1999 IS UNAUDITED.)
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 26, JUNE 26,
1997 1998 1999
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements.............................................. $ 11,444,071 $ 23,690,119 $ 28,253,154
Furniture and fixtures.............................................. 1,740,892 6,764,970 8,851,340
Equipment and vehicles.............................................. 2,354,904 3,113,396 3,450,789
Prepaid Rampage acquisition costs................................... 2,046,000 -- --
------------- ------------- -------------
17,585,867 33,568,485 40,555,283
Less accumulated depreciation and amortization...................... (2,146,244) (5,943,439) (8,418,753)
------------- ------------- -------------
$ 15,439,623 $ 27,625,046 $ 32,136,530
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
4. NOTES RECEIVABLE FROM OFFICERS
In April 1999, the Company loaned $1,000,000 under a note agreement to its
President and Chief Executive Officer. The full amount of the note is secured by
a pledge of 750,000 shares of Common Stock of the Company, plus any shares
obtained by the officer in the future. All principal and accrued interest (7.47%
per annum) is due and payable on April 26, 2004, except in the event that all or
any part of the pledged Common Stock is sold, the net proceeds of the sale of
such shares of Common Stock must be used to repay any outstanding principal and
interest.
In March 1999, the Company loaned $120,000 under a note agreement to an
Executive Vice President of the Company. The full amount of the note is secured
by a pledge of all shares of Common Stock of the Company obtained by the officer
in the future. All principal and accrued interest (8.5% per annum) is due and
payable on March 12, 2004. As of June 26, 1999, $20,000 was outstanding.
5. CREDIT ARRANGEMENTS
At September 26, 1998, the Company had a bank credit agreement which
provided a $17.0 million term loan and a $10.0 million revolving credit
facility. In December 1998, the bank credit agreement was amended. The amended
agreement eliminated the $17.0 million term loan and increased the revolving
credit facility. The amended revolving credit facility provides for aggregate
commitments of $26.0 million through September 1999; $24.5 million from October
1999 through September 2000; $20.0 million from October 2000 through September
2001; and $14.5 million from October 2001 through maturity. All outstanding
borrowings under the amended revolving credit facility are due on September 30,
2002. Substantially all of the Company's assets secure the amended bank credit
agreement. At June 26, 1999, there was $18.3 million outstanding under the
revolving credit facility.
Interest on the amended revolving credit facility is payable quarterly at
either (i) the bank's Base Rate, as defined, plus 1.00% or (ii) the bank's
Eurodollar rate plus 2.50%, at the Company's option, subject to certain
adjustments.
Pursuant to the terms of the amended bank credit agreement, the Company can
issue up to $5.0 million of commercial or standby letters of credit. The annual
fee incurred is 2.00% for
F-12
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 26, 1998 AND THE NINE MONTHS ENDED JUNE 27,
1998
AND JUNE 26, 1999 IS UNAUDITED.)
5. CREDIT ARRANGEMENTS (CONTINUED)
commercial and standby letters of credit plus customary issuance and amendment
charges. Fees are paid quarterly in arrears and charges are paid as incurred. At
September 26, 1998 and June 26, 1999, there were outstanding letters of credit
in the amount of $1.3 million and $0.5 million, respectively.
In June 1999, the bank credit agreement was amended to provide for aggregate
commitments of $32.0 million through September 1999; $30.5 million from October
1999 through September 2000; $25.0 million from October 2000 through September
2001; and $18.0 million from October 2001 through maturity, which remained
unchanged. In addition, the credit agreement was amended to permit the
redemption of the senior subordinated note agreements with affiliated investors.
(See Note 6)
The bank credit agreement requires that the Company maintain certain
financial ratios and restricts future liens and indebtedness, sales of assets,
and dividend payments. As of June 26, 1999, the Company is in compliance with
the terms of the bank credit agreement.
In connection with the original bank credit agreement, the Company issued
warrants to purchase approximately 413,560 shares of the Company's Common Stock
at $1.00 per share. The number of shares of common stock issuable under the
warrant increased by an aggregate of 216 shares pursuant to anti-dilution
provisions. The warrants are exercisable immediately and expire on September 27,
2006. The warrants were valued at approximately $152,000, which is included in
deferred financing costs and the warrants are being amortized on a straight-line
basis over the life of the agreement, as amended. The fair value of the warrants
was estimated at the date of grant using the minimum value method with the
following assumptions: risk free interest rate of 6.0%; an expected warrant life
of 7.5 years; and no annual dividends.
The Company has entered into an interest rate swap agreement to manage
certain of its interest rate exposure. The notional amount associated with this
agreement was established at $11.0 million with annual reductions of $2.0
million during the contract life until expiration in May 2001. The notional
amount is used to measure interest to be paid or received and does not represent
the exposure to credit loss. As a result of the agreement, a portion of the
Company's variable rate bank debt is effectively converted to fixed rate debt
and has a pay rate of 8.56%, subject to certain adjustments. The interest rate
differential to be received or paid is recognized as a component of interest
expense over the life of the agreement. This instrument is not recorded on the
balance sheet. However, if the instrument was recorded based on its fair value,
the Company would have recorded a liability of $260,000 and $28,000 at September
26, 1998 and June 26, 1999, respectively. Subsequent to June 26, 1999, the
Company paid approximately $20,000 to terminate the interest swap agreement.
6. SUBORDINATED NOTES PAYABLE TO RELATED PARTIES
The Company had two senior subordinated note agreements with affiliated
investors which were paid off in 1999. Interest accrued at 12.5% and was due
semi-annually. Principal was due upon maturity of the notes, September 27, 2003.
The Company recognized interest expense of $1,375,000 and $1,371,000 for the
years ended September 27, 1997 and September 26, 1998, and $1,042,707 and
$973,754 for the nine months ended June 27, 1998 and June 26, 1999,
respectively.
In conjunction with the issuance of the two senior subordinated notes, the
Company issued warrants to purchase approximately 1,964,410 shares of Common
Stock at $1 per share. The number of
F-13
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 26, 1998 AND THE NINE MONTHS ENDED JUNE 27,
1998
AND JUNE 26, 1999 IS UNAUDITED.)
6. SUBORDINATED NOTES PAYABLE TO RELATED PARTIES (CONTINUED)
shares of common stock issuable under these warrants increased by an aggregate
of 1,030 shares pursuant to anti-dilution provisions. The warrants are
exercisable immediately and expire on September 27, 2006. The warrants are
valued at approximately $722,000, which is included in deferred financing costs
and were being amortized on a straight-line basis over the term of the notes.
The fair value of the warrants was estimated at the date of grant using the
minimum value method with the following assumptions: risk free interest rate of
6.0%; an expected warrant life of 7.5 years; and no annual dividends.
In connection with the repayment of all outstanding principal under the two
agreements in June 1999, the Company incurred a prepayment fee of $255,200,
which was charged to income in the accompanying statement of income for the nine
months ended June 26, 1999 and accounted for as an extraordinary item. In
addition, unamortized warrant issue costs of approximately $263,900, were
written off in June 1999 resulting in total extraordinary item charges of
$519,100.
7. COMMITMENTS
LEASES
The Company leases its retail stores, warehouse, and office facilities under
various operating leases which expire between 1999 and 2010. Under certain
retail store leases, the Company is required to pay the greater of a minimum
lease payment or 5% to 11% of annual sales volume. Rent expense, including
reimbursement of our proportional share of common area maintenance expenses, for
the years ended September 27, 1996, September 27, 1997 and September 26, 1998
and the nine months ended June 27, 1998 and June 26, 1999 was $7,992,576,
$8,766,335, $17,049,570, $12,229,746 and $16,601,497, respectively, including
$1,428,780, $452,564, $610,267, $130,340 and $745,441, respectively, of
contingent rentals.
The following is a summary of the annual future minimum capital and
operating lease commitments as of September 26, 1998:
<TABLE>
<CAPTION>
CAPITAL
LEASES OPERATING LEASES
------------ ----------------
<S> <C> <C>
Year ending September:
1999.......................................................... $ 478,430 $ 14,714,057
2000.......................................................... 402,253 14,883,845
2001.......................................................... 92,922 15,021,579
2002.......................................................... 28,484 14,643,125
2003.......................................................... -- 13,980,522
Thereafter.................................................... -- 51,183,932
------------ ----------------
Total minimum lease payments.................................. 1,002,089 $ 124,427,060
----------------
----------------
Less amount representing interest............................. (77,215)
------------
Present value of net minimum lease payments, including
$428,000 which is current................................... $ 924,874
------------
------------
</TABLE>
F-14
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 26, 1998 AND THE NINE MONTHS ENDED JUNE 27,
1998
AND JUNE 26, 1999 IS UNAUDITED.)
7. COMMITMENTS (CONTINUED)
LICENSE AGREEMENT
In conjunction with the acquisition of Rampage assets on September 30, 1997,
the Company entered into a license agreement enabling the Company to operate
stores under the Rampage name. The license fee is calculated as the greater of
an annual fee (ranging between $300,000 to $450,000) or a percent of sales at
stores operating under the Rampage name (ranging between 1.0% and 1.5%). The
license agreement is for an initial term of four years with an automatic option
to renew for another four years. The agreement may be renewed for ten additional
four year periods, provided certain conditions are met. Currently, management
believes the license agreement will be renewed for at least four additional
periods. License fees are recorded monthly based on the greater of a percentage
of sales or the annual fee, as defined. License fees incurred during the years
ended September 27, 1997 and September 26, 1998 and during the nine months ended
June 27, 1998 and June 26, 1999 totaled $0, $354,526, $272,703 and $325,187,
respectively and are included in selling, general and administrative expenses.
8. EQUITY
STOCK OPTIONS
In 1996, the Company established a Long-Term Incentive Plan (the 1996 Plan).
The 1996 Plan provides for the issuance of shares of Common Stock under
incentive and non qualified stock options. Options vest ratably at 20% per year
over five years from the date of the grant, subject to certain acceleration
provisions and are exercisable for a period of up to ten years from the date of
grant. Incentive stock options are granted at prices which approximate the fair
value of the common shares at the date of grant as determined by the Board of
Directors.
In May 1999, the Company established a 1999 Long-Term Incentive Plan (the
1999 Plan). The 1999 Plan provides for the issuance of shares of common stock
under non qualified stock options and stock appreciation rights. The exercise
price of options shall not be less than 85% of the fair market value at the date
of grant, or 110% in the case of any person possessing 10% combined voting power
of all classes of stock of the Company. The Company's Board of Directors
determines the vesting and other provisions of option and stock appreciation
rights granted under the 1999 Plan.
Pursuant to the terms of the grant in October 1996, upon completion of the
Company's initial public offering, vesting for options to purchase 274,500
shares of Common Stock related to the President and CEO will accelerate and
become fully vested. If the Company's initial public offering is not completed,
the options to purchase 274,500 shares of common stock will continue to vest
over the remaining terms of the option agreement. Accordingly, the Company has
determined the stock option award to be a fixed award and as such, no
compensation will be recorded upon completion of the initial public offering.
In July 1999, the Company's Board of Directors resolved that no further
stock option grants will be made from the 1996 Plan or 1999 Plan.
F-15
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 26, 1998
AND THE NINE MONTHS ENDED JUNE 27, 1998 AND JUNE 26, 1999 IS UNAUDITED.)
8. EQUITY (CONTINUED)
A summary of the Company's stock option activity and related information for
the plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Outstanding at September 27, 1996.............................. -- $ --
Granted...................................................... 1,815,000 1.15
Cancelled.................................................... (57,000) 1.00
---------- -----
Outstanding at September 27, 1997.............................. 1,758,000 1.16
Granted...................................................... 216,000 3.65
Cancelled.................................................... (201,000) 1.58
---------- -----
Outstanding at September 26, 1998.............................. 1,773,000 1.41
Granted (unaudited).......................................... 120,000 7.00
Cancelled (unaudited)........................................ (57,600) 1.00
Exercised (unaudited)........................................ (10,800) 1.00
---------- -----
Outstanding at June 26, 1999 (unaudited)....................... 1,824,600 $ 1.80
---------- -----
---------- -----
Exercisable, September 27, 1997................................ -- --
Exercisable, September 26, 1998................................ 319,200 $ 1.17
</TABLE>
The following table summarizes information about stock options outstanding
as of June 26, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ------------------------------
NUMBER REMAINING CONTRACTUAL WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE OUTSTANDING EXERCISE PRICE
- -------------------------------- ----------- --------------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$1.00-$2.00..................... 1,527,600 7.3 $ 1.18 611,000 $ 1.18
$3.50........................... 150,000 8.9 3.50 30,000 3.50
$4.00........................... 27,000 8.3 4.00 5,400 4.00
$7.00........................... 120,000 9.9 7.00 -- 7.00
</TABLE>
The weighted average fair value of options granted was $.36, $1.30 and $2.56
for the years ended September 27, 1997 and September 26, 1998 and the nine
months ended June 26, 1999, respectively.
The Company has recorded deferred compensation in connection with the grants
of certain stock options to employees during the nine months ended June 26,
1999. The options were granted at the then deemed fair value of $7 per share. In
conjunction with the Company's initial public offering registration statement,
the Company revised the estimate of the deemed fair value of its Common Stock
($13.00 per share) resulting in $720,000 of deferred compensation. The deferred
compensation will be amortized ratably over the vesting period of the respective
options. No deferred compensation was recorded for option grants prior to this
period. The remaining options to purchase Common Stock were granted at exercise
prices equal to the deemed fair value, as determined by the Company's Board of
Directors based on valuation analyses of publicly traded peer companies.
F-16
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 26, 1998
AND THE NINE MONTHS ENDED JUNE 27, 1998 AND JUNE 26, 1999 IS UNAUDITED.)
8. EQUITY (CONTINUED)
Pro forma information regarding net income is required by SFAS No. 123, and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using the minimum value option
pricing model with the following weighted-average assumptions for 1997 and 1998:
risk-free interest rate of 6%; dividend yields of 0%; and a weighted-average
life of the option of 7.6 years.
The minimum value option pricing model is similar to the Black-Scholes
option valuation model which was developed for use in estimating the fair value
of traded options which have no vesting restrictions and are fully transferable,
except that it excludes the factor of volatility. In addition, option valuation
models require the input of highly subjective assumptions. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the related options.
The Company's pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
<S> <C> <C>
SEPTEMBER 27, 1997 SEPTEMBER 26, 1998
------------------ ------------------
Net income as reported................................ $ 5,056,530 $ 5,514,109
Pro forma net income.................................. $ 4,950,679 $ 5,396,784
Net income per share--basic as reported............... $ 0.28 $ 0.30
Pro forma............................................. $ 0.27 $ 0.29
Net income per share--diluted as reported............. $ 0.25 $ 0.27
Pro forma............................................. $ 0.25 $ 0.26
</TABLE>
1999 EQUITY INCENTIVE PLAN
The Company's Board of Directors and stockholders adopted the 1999 Equity
Incentive Plan, effective as of the completion of its initial public offering.
The 1999 Equity Incentive Plan permits the grant of options that qualify as
incentive stock options and nonqualified options. The option exercise price of
each option shall be determined by the compensation committee of the Board of
Directors. In the case of incentive stock options, however, the exercise price
shall not be less than 100% of the fair market value of the shares on the date
of grant, or 110% in the case of incentive stock options granted to an
individual with ownership in excess of certain limits. Subject to adjustment for
stock splits and similar events, the total number of shares of Common Stock that
can be issued under the 1999 Equity Incentive Plan is 750,000 shares. Upon
completion of the offering, the Company expects to issue options to purchase
250,000 shares of its common stock at an exercise price equal to the initial
public offering price of its common stock. The terms of these options will be
substantially the same as other options previously issued.
F-17
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 26, 1998
AND THE NINE MONTHS ENDED JUNE 27, 1998 AND JUNE 26, 1999 IS UNAUDITED.)
8. EQUITY (CONTINUED)
STOCK SPLIT
In connection with the filing of an initial public offering, the Company
approved a 100-for-1 stock split. In addition, the Company's certificate of
incorporation will be amended upon completion of its initial public offering, to
authorize the issuance of up to 100,000,000 shares of Common Stock and 3,000,000
shares of Preferred Stock. Consequently, the stock option data and per share
data, throughout the consolidated financial statements and the notes to the
consolidated financial statements, have been restated to reflect the stock
split.
9. INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
SEPTEMBER 27, 1997 SEPTEMBER 26, 1998
------------------ ------------------
<S> <C> <C>
Current:
Federal............................................. $ 3,505,000 $ 3,232,670
State............................................... 870,000 844,652
------------------ ------------------
4,375,000 4,077,322
Deferred:
Federal............................................. (369,984) 143,054
State............................................... (18,122) 25,000
------------------ ------------------
(388,106) 168,054
------------------ ------------------
Income taxes.......................................... $ 3,986,894 $ 4,245,376
------------------ ------------------
------------------ ------------------
</TABLE>
A reconciliation of income taxes at the federal statutory rate of 34% with
the provision for income taxes follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
SEPTEMBER 27, 1997 SEPTEMBER 26, 1998
------------------ ------------------
<S> <C> <C>
Tax at U.S. statutory rates........................... $ 3,074,795 $ 3,318,225
State income taxes, net of federal tax benefit........ 574,200 573,970
Non deductible expenses............................... 187,222 161,256
Other, net............................................ 150,677 191,925
------------------ ------------------
$ 3,986,894 $ 4,245,376
------------------ ------------------
------------------ ------------------
</TABLE>
F-18
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 26, 1998
AND THE NINE MONTHS ENDED JUNE 27, 1998 AND JUNE 26, 1999 IS UNAUDITED.)
9. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 27, 1997 SEPTEMBER 26, 1998
------------------ ------------------
<S> <C> <C>
Deferred tax assets:
Inventory........................................... $ 184,726 $ 525,547
Deferred rent....................................... 223,035 378,274
State income taxes.................................. 273,456 208,293
Employee benefit programs........................... 124,978 176,520
Other accrued expenses.............................. 389,089 279,640
------------------ ------------------
Total deferred tax assets............................. 1,195,284 1,568,274
Deferred tax liabilities:
Tax over book depreciation.......................... (743,193) (1,102,251)
Intangibles......................................... (259,037) (441,023)
------------------ ------------------
Total deferred tax liabilities........................ (1,002,230) (1,543,274)
------------------ ------------------
Net deferred tax assets............................... $ 193,054 $ 25,000
------------------ ------------------
------------------ ------------------
</TABLE>
10. RELATED PARTY TRANSACTIONS
The Company expensed a management fee of $250,000 to its majority
shareholder during each of the years ended September 27, 1997 and September 26,
1998 and $187,500 during each of the nine month periods ended June 27, 1998 and
June 26, 1999. This fee terminates at any time when the majority shareholder
owns less than 10% of the shares of common stock, including shares of common
stock issuable upon exercise of outstanding warrants at such date.
The Company's majority shareholder and its CEO have entered into a
stockholders agreement. This agreement provides that (1) as long as the majority
shareholder owns more than 25% but less than 50% of the Company's outstanding
shares, they will have the right to nominate three directors and (2) as long as
the majority shareholder own at least 10% of the shares of common stock held by
them immediately after the completion of this offering, they will have the right
to nominate two directors. The stockholders agreement grants the Company's CEO
certain tag along rights in the event of a private sale by the majority
shareholder of their shares of common stock. The stockholders agreement also
grants, subject to limitations and exceptions, demand and piggyback registration
rights to the majority shareholder and piggyback registration rights to the CEO.
For the year ended September 26, 1998 and the nine months ended June 26,
1999, the Company purchased approximately $24,000 and $86,000, respectively, of
merchandise from a company primarily owned by family members of one of our
officers.
F-19
<PAGE>
CHARLOTTE RUSSE HOLDING, INC. AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 26, 1998
AND THE NINE MONTHS ENDED JUNE 27, 1998 AND JUNE 26, 1999 IS UNAUDITED.)
11. EMPLOYEE SAVINGS PLAN
The Company has an Internal Revenue Code Section 401(k) profit-sharing plan
(the Plan) for eligible employees. The Plan is funded by employee contributions
and provides for the Company to make discretionary contributions. The Company
matches 25% of participants contributions up to 4% of eligible compensation.
Amounts contributed and expensed under this plan were $0 and $30,648 for the
years ended September 27, 1997 and September 26, 1998, respectively and $7,458
and $7,964 for the nine-month periods ended June 27, 1998 and June 26, 1999,
respectively.
12. EARNINGS PER SHARE
A reconciliation of the numerators and denominators used in basic and
diluted earnings per share is as follows:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 27, SEPTEMBER 26, JUNE 27, JUNE 26,
1997 1998 1998 1999
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
Net income.......................................... $ 5,056,530 $ 5,514,109 $ 3,773,284 $ 6,858,661
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Income before extraordinary item.................... $ 5,056,530 $ 5,514,109 $ 3,773,284 $ 7,377,761
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Income before extraordinary item per share:
Basic............................................. $ 0.28 $ 0.30 $ 0.21 $ 0.40
Effect of dilutive securities--stock options...... (0.02) (0.02) (0.02) (0.02)
Effect of dilutive securities--warrants........... (0.01) (0.01) (0.01) (0.03)
------------- ------------- ------------- -------------
Diluted........................................... $ 0.25 $ 0.27 $ 0.18 $ 0.35
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per share:
Basic............................................. $ 0.28 $ 0.30 $ 0.21 $ 0.37
Effect of dilutive securities--stock options...... (0.02) (0.02) (0.02) (0.04)
Effect of dilutive securities--warrants........... (0.01) (0.01) (0.01) (0.01)
------------- ------------- ------------- -------------
Diluted........................................... $ 0.25 $ 0.27 $ 0.18 $ 0.32
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of shares:
Basic............................................. 18,300,000 18,300,000 18,300,000 18,300,100
Effect of dilutive securities--stock options...... 444,000 627,000 633,000 839,000
Effect of dilutive securities--warrants........... 1,248,300 1,741,000 1,755,000 2,068,000
------------- ------------- ------------- -------------
Diluted........................................... 19,992,300 20,668,000 20,688,000 21,207,100
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
F-20
<PAGE>
[LOGO]
UNTIL , 1999, WHICH IS THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission Registration Fee and the National
Association of Securities Dealers, Inc. Filing Fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
- --------------------------------------------------------------------------- -------------
<S> <C>
Securities and Exchange Commission Registration Fee........................ $ 12,788
National Association of Securities Dealer, Inc. Filing Fee................. 5,100
Nasdaq National Market Listing Fee......................................... 17,500
Blue Sky Fees and Expenses................................................. 5,000
Transfer Agent and Registrar Fees.......................................... 3,000
Accounting Fees and Expenses............................................... 250,000
Legal Fees and Expenses.................................................... 300,000
Printing Expenses.......................................................... 225,000
Miscellaneous.............................................................. 81,612
-------------
Total.................................................................. $ 900,000
-------------
-------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation authorizes a court to award,
or the board of directors of a corporation to grant, indemnity to directors and
officers in terms sufficiently broad to permit indemnification under certain
circumstances for liabilities, including reimbursement for expenses incurred,
arising under the Securities Act of 1933.
As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation provides that its directors shall not be liable to
the Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent that the exculpation from liabilities
is not permitted under the Delaware General Corporation Law as in effect at the
time such liability is determined. As permitted by the Delaware General
Corporation Law, the By-Laws provide that the Registrant shall indemnify its
directors to the full extent permitted by the laws of the State of Delaware.
The Registrant currently has an insurance policy in place covering its
directors and officers from losses arising from the performance of their duties
with or on behalf of the Registrant. The maximum aggregate coverage amount under
such policy on an annual basis is $5.0 million and such policy is in effect
until March 1, 2000. The Registrant is in the process of obtaining additional
policies of insurance under which coverage will be provided (a) to its directors
and officers against loss arising from claims made by reason of breach of
fiduciary duty or other wrongful act and (b) to the Registrant with respect to
payments which may be made by the Registrant to such officers and directors
pursuant to the above indemnification provision or otherwise as a matter of law.
The Registrant has also entered into indemnification agreements with its
directors and officers obligating the Registrant to indemnify such directors and
officers against losses incurred in connection with certain claims in their
capacities as agents of the Registrant. The Underwriting Agreement provides for
the indemnification of officers and directors of the Registrant by the
Underwriters against certain liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since July 13, 1996, the Registrant has issued the following securities
without registration under the Securities Act of 1933, as amended (the
"Securities Act"):
(1) On September 27, 1996, The SK Equity Fund, L.P. purchased 18,119,250
shares of common stock for $18,119,250 in cash and SK Investment Fund, L.P.
purchased 180,750 shares of common stock for $180,750 in cash.
(2) On September 27, 1996, the Registrant issued (A) to The SK Equity
Fund, L.P., a 12.5% Senior Subordinated Note due 2003 in the aggregate
principal amount of $10,891,354 and (B) to SK Investment Fund, L.P., a 12.5%
Senior Subordinated Note due 2003 in the aggregate principal amount of
$108,646. In connection with the issuance of the Senior Subordinated Notes
due 2003, the Registrant issued warrants (A) to FSC Corp., an affiliate of
BankBoston, N.A., for the purchase of 413,560 shares of its common stock at
an initial exercise price of $1.00 per share, (B) to The SK Equity Fund,
L.P. for the purchase of 1,945,010 shares of its common stock at an initial
exercise price of $1.00 per share, and (C) to SK Investment Fund, L.P. for
the purchase of 19,400 shares of its common stock at an initial exercise
price of $1.00 per share.
(3) During the three year period ended September 26, 1998 and the nine
months ended June 26, 1999, the Registrant granted options to purchase a
total of 2,151,000 shares of its common stock at a weighted average exercise
price of $1.73. Of this amount, options to purchase 10,800 shares of common
stock have been exercised for an aggregate consideration of $10,800 and
options to purchase 315,600 shares of common stock have been forfeited or
repurchased by the Registrant.
The sale and issuance of securities listed above in (1) and (2) were deemed
to be exempt from registration under Section 4(2) of the Securities Act or
Regulation D thereunder as transactions not involving a public offering. The
sale and issuance of securities listed above in (3) were deemed to be exempt
from registration under the Securities Act by virtue of Rule 701 promulgated
thereunder. All of the foregoing securities are deemed restricted securities for
purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement
2.1 Stock Purchase Agreement dated as of August 26, 1996 by and among Charlotte Russe Holding, Inc., Daniel
Lawrence, Frank Lawrence and Larry Lawrence+
3.1 Certificate of Incorporation of Charlotte Russe Holding, Inc., as amended+
3.2 Certificate of Amendment to the Certificate of Incorporation of Charlotte Russe Holding, Inc. to be in
effect upon the closing of this offering
3.3 Amended and Restated By-laws of Charlotte Russe Holding, Inc.
4.1 Form of Common Stock Certificate
5.1 Opinion of Ropes & Gray
10.1 The Second Amended and Restated Revolving Credit Agreement dated as of December 23, 1998, as amended, by
and among Charlotte Russe, Inc., as Borrower, Charlotte Russe Holding, Inc., as Guarantor, and
BankBoston, N.A.+
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.2 The Second Amended and Restated Security Agreement dated as of December 23, 1998 by and among the
Charlotte Russe, Inc., Charlotte Russe Holding, Inc., Charlotte Russe Merchandising, Inc. of Charlotte
Russe Inc. and BankBoston, N.A.+
10.3 The Second Amended and Restated Trademark Collateral Security and Pledge Agreement dated as of December
23, 1998 by and between Charlotte Russe, Inc. and BankBoston, N.A.+
10.4 The Second Amended and Restated Stock Pledge Agreement dated as of December 23, 1998 by and between
Charlotte Russe Holding, Inc. and Bank Boston, N.A.+
10.5 The Stock Pledge Agreement, dated as of December 23, 1998 by and between Charlotte Russe, Inc. and
BankBoston, N.A.+
10.6 The Second Amended and Restated Guaranty dated as of December 23, 1998 by Charlotte Russe Holding, Inc.
in favor of BankBoston, N.A.+
10.7 Securityholders Rights Agreement dated as of September 27, 1996 among Charlotte Russe Holding, Inc., The
SK Equity Fund, L.P., SK Investment Fund, L.P., Bernard Zeicher and FSC Corp.
10.8 Charlotte Russe, Inc. Agency Account Agreement dated December 5, 1997 by and between Charlotte Russe,
Inc. and BankBoston, N.A.+
10.9 Employment Agreement by and between Charlotte Russe, Inc. and Bernard Zeichner dated October 1, 1996+
10.10 First Amendment to Employment Agreement entered into as of September 23, 1999, by and between Charlotte
Russe, Inc. and Bernard Zeichner
10.11 Trade Secret and Confidentiality Agreement dated as of October 1, 1996 by and between Charlotte Russe
Holding, Inc. and Bernard Zeichner+
10.12 Charlotte Russe Holding, Inc. 1999 Long-Term Incentive Plan+
10.13 Charlotte Russe Holding, Inc. 1996 Long-Term Incentive Plan+
10.14 Lease Agreement for San Diego Distribution Center dated July 24, 1997 by and between Price Enterprises,
Inc. and Charlotte Russe, Inc.+
10.15 Charlotte Russe Holding, Inc. 1999 Equity Incentive Plan
10.16 License Agreement dated September 30, 1997 by and between Rampage Clothing Company and Charlotte Russe,
Inc.+
10.17 Charlotte Russe Holding, Inc. 1999 Employee Stock Purchase Plan
10.18 Common Stock Purchase Warrant No. 1 by and between Charlotte Russe Holding, Inc. and FSC Corp., dated as
of September 27, 1996
10.19 Common Stock Purchase Warrant No. 2 by and between Charlotte Russe Holding, Inc. and The SK Equity Fund,
L.P., dated as of September 27, 1996
10.20 Common Stock Purchase Warrant No. 3 by and between Charlotte Russe Holding, Inc. and SK Investment Fund,
L.P., dated as of September 27, 1996
10.21 First Amendment dated October 1, 1999 to the Common Stock Purchase Warrant by and between Charlotte Russe
Holding, Inc. and FSC Corp., dated as of September 27, 1996
10.22 First Amendment dated October 1, 1999 to the Common Stock Purchase Warrant by and between Charlotte Russe
Holding, Inc. and The SK Equity Fund, L.P., dated as of September 27, 1996
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.23 First Amendment dated October 1, 1999 to the Common Stock Purchase Warrant by and between Charlotte Russe
Holding, Inc. and SK Investment Fund, L.P., dated as of September 27, 1996
10.24 Form of Indemnification Agreement for Directors and Officers of Charlotte Russe Holding, Inc.
10.25 Stockholders Agreement dated as of September 27, 1999 by and among Charlotte Russe Holding, Inc., The SK
Equity Fund, L.P., SK Investment Fund, L.P. and Bernard Zeichner
21 Subsidiaries+
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ropes & Gray (See Exhibit 5.1)
24 Power of Attorney (See Signature Page)+
27 Financial Data Schedule+
</TABLE>
- ---------
* To Be Filed With Amendment
+ Previously Filed
(b) Financial Statement Schedules
All financial statement schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission have
been omitted because they are not required under the related instructions or are
inapplicable as the information has been provided in the consolidated financial
statements or related notes thereto.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions described under "Item
14--Indemnification of Directors and Officers" above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the purchase agreements, certificates in
such denominations and registered in such names as required by the underwriters
to permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Diego, State of California on this 27th day of September, 1999.
<TABLE>
<S> <C> <C>
CHARLOTTE RUSSE HOLDING, INC.
By: /s/ BERNARD ZEICHNER
-----------------------------------------
Bernard Zeichner
CHIEF EXECUTIVE OFFICER AND PRESIDENT
</TABLE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chief Executive Officer,
/s/ BERNARD ZEICHNER President and Director
- ------------------------------ (Principal Executive September 27, 1999
Bernard Zeichner Officer)
Chief Financial Officer
/s/ DANIEL T. CARTER and Treasurer (Principal
- ------------------------------ Financial Officer and September 27, 1999
Daniel T. Carter Principal Accounting
Officer)
*
- ------------------------------ Director September 27, 1999
Allan W. Karp
*
- ------------------------------ Director September 27, 1999
David J. Oddi
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ DANIEL T. CARTER
-------------------------
Daniel T. Carter
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT 1
UNDERWRITING AGREEMENT
__________, 1999
BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Banc of America Securities LLC
9 West 57th Street
New York, NY 10019
PaineWebber Incorporated
1285 Avenue of the Americas, 13th Floor
New York, NY 10019
First Union Capital Markets Corp.
Riverfront Plaza, WF2035
901 East Byrd Street
Richmond, VA 23219
As Representatives of the several Underwriters
Ladies and Gentlemen:
Charlotte Russe Holding, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of [___] shares of its Common
Stock, par value $0.01 per share (the "Common Shares"), and the stockholders
of the Company named in Schedule B (collectively, the "Selling Stockholders")
severally propose to sell to the Underwriters an aggregate of [___] Common
Shares. The [___] Common Shares to be sold by the Company and the [___]
Common Shares to be sold by the Selling Stockholders are collectively called
the "Firm Shares." In addition, certain Selling Stockholders named in
SCHEDULE C have granted the Underwriters an option to purchase up to an
additional [___] Common Shares, each Selling Stockholder selling up to the
amount set forth opposite such Selling Stockholder's name in Schedule C, all
as provided in Section 2. The additional [___] Common Shares to be sold by
the Selling Stockholders pursuant to such option are collectively called the
"Option Shares." The Firm Shares and, if and to the extent such option is
exercised, the Option Shares are collectively called the "Shares."
BancBoston Robertson Stephens Inc., Banc of America Securities LLC,
PaineWebber Incorporated and First Union Capital Markets Corp. have agreed to
act as Representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Common
Shares.
<PAGE>
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333-84297), which contains a form of prospectus to be used in
connection with the public offering and sale of the Shares. Such
registration statement, as amended, including the financial statements,
exhibits and schedules thereto, in the form in which it was declared
effective by the Commission under the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (collectively, the
"Securities Act"), including any information deemed to be a part thereof at
the time of effectiveness pursuant to Rule 430A or Rule 434 under the
Securities Act, is called the "Registration Statement." Any registration
statement filed by the Company pursuant to Rule 462(b) under the Securities
Act is called the "Rule 462(b) Registration Statement," and from and after
the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Shares, is called the "Prospectus"; provided, however,
if the Company has, with the consent of the Representatives, elected to rely
upon Rule 434 under the Securities Act, the term "Prospectus" shall mean the
Company's prospectus subject to completion (each, a "preliminary prospectus")
dated [___] (such preliminary prospectus is called the "Rule 434 preliminary
prospectus"), together with the applicable term sheet (the "Term Sheet")
prepared and filed by the Company with the Commission under Rules 434 and
424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. All references
in this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
The Company and each of the Selling Stockholders hereby confirm
their respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SELLING STOCKHOLDERS.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS. The Company and each of the Selling Stockholders hereby
represent, warrant and covenant to each Underwriter as follows:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the Commission
for additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been
instituted or are pending or, to the best knowledge of the Company, are
contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale
of
2.
<PAGE>
the Shares. Each of the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto, at the time it became
effective and at all subsequent times, complied and will comply in all
material respects with the Securities Act and did not and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading. The Prospectus, as amended or supplemented, as of its date and
at all subsequent times, did not and will not contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. The representations and warranties set forth in
the two immediately preceding sentences do not apply to statements in or
omissions from the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment thereto, or the Prospectus, or any
amendments or supplements thereto, made in reliance upon and in conformity
with information relating to any Underwriter furnished to the Company in
writing by the Representatives expressly for use therein. There are no
contracts or other documents required to be described in the Prospectus or to
be filed as exhibits to the Registration Statement which have not been
described or filed as required.
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company has
delivered to the Representatives one complete conformed copy of the
Registration Statement and of each consent and certificate of experts filed
as a part thereof, and conformed copies of the Registration Statement
(without exhibits) and preliminary prospectuses and the Prospectus, as
amended or supplemented, in such quantities and at such places as the
Representatives have reasonably requested for each of the Underwriters.
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The Company
has not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights and remedies of creditors or by general equitable principles.
(e) AUTHORIZATION OF THE SHARES TO BE SOLD BY THE COMPANY. The
Shares to be purchased by the Underwriters from the Company have been duly
authorized for issuance and sale pursuant to this Agreement and, when issued
and delivered by the Company pursuant to this Agreement, will be validly
issued, fully paid and nonassessable.
(f) AUTHORIZATION OF THE SHARES TO BE SOLD BY THE SELLING
STOCKHOLDERS. The Common Shares to be purchased by the Underwriters from the
Selling Stockholders, when issued, were validly issued, fully paid and
nonassessable.
3.
<PAGE>
(g) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included
in the offering contemplated by this Agreement, other than the Selling
Stockholders with respect to the Shares included in the Registration
Statement, except for such rights as have been duly waived.
(h) NO MATERIAL ADVERSE CHANGE. Subsequent to the respective dates
as of which information is given in the Prospectus: (i) there has been no
material adverse change, or any development that could reasonably be expected
to result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business, operations or prospects, whether or
not arising from transactions in the ordinary course of business, of the
Company and its subsidiaries, considered as one entity (any such change or
effect, where the context so requires, is called a "Material Adverse Change"
or a "Material Adverse Effect"); (ii) the Company and its subsidiaries,
considered as one entity, have not incurred any material liability or
obligation, indirect, direct or contingent, not in the ordinary course of
business nor entered into any material transaction or agreement not in the
ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company or, except for
dividends paid to the Company or other subsidiaries, any of its subsidiaries
on any class of capital stock or repurchase or redemption by the Company or
any of its subsidiaries of any class of capital stock.
(i) INDEPENDENT ACCOUNTANTS. Ernst & Young LLP, who have expressed
their opinion with respect to the financial statements (which term as used in
this Agreement includes the related notes thereto) and supporting schedules
filed with the Commission as a part of the Registration Statement and
included in the Prospectus, are independent public or certified public
accountants as required by the Securities Act.
(j) PREPARATION OF THE FINANCIAL STATEMENTS. The financial
statements filed with the Commission as a part of the Registration Statement
and included in the Prospectus present fairly the consolidated financial
position of the Company and its subsidiaries as of and at the dates indicated
and the results of their operations and cash flows for the periods specified.
The supporting schedules included in the Registration Statement present
fairly the information required to be stated therein. Such financial
statements and supporting schedules have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules
are required to be included in the Registration Statement. The financial
data set forth in the Prospectus under the captions "Summary--Summary
Consolidated Financial and Operating Data", "Selected Consolidated Financial
and Operating Data" and "Capitalization" fairly present the information set
forth therein on a basis consistent with that of the audited financial
statements contained in the Registration Statement.
(k) COMPANY'S ACCOUNTING SYSTEM. The Company and each of its
subsidiaries maintain a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for
4.
<PAGE>
assets; (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 existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(l) SUBSIDIARIES OF THE COMPANY. The Company does not own or
control, directly or indirectly, any corporation, association or other entity
other than the subsidiaries listed in Exhibit 21 to the Registration
Statement.
(m) INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS
SUBSIDIARIES. Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation or limited liability
company, as the case may be, in good standing under the laws of the
jurisdiction in which it is organized with full corporate power and authority
to own its properties and conduct its business as described in the
prospectus, and is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each jurisdiction which requires such
qualification.
(n) CAPITALIZATION OF THE SUBSIDIARIES. All the outstanding shares
of capital stock of each subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise set
forth in the Prospectus, all outstanding shares of capital stock of the
subsidiaries are owned by the Company either directly or through wholly owned
subsidiaries free and clear of any security interests, claims, liens or
encumbrances.
(o) NO PROHIBITION ON SUBSIDIARIES FROM PAYING DIVIDENDS OR MAKING
OTHER DISTRIBUTIONS. No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from making
any other distribution on such subsidiary's capital stock, from repaying to
the Company any loans or advances to such subsidiary from the Company or from
transferring any of such subsidiary's property or assets to the Company or
any other subsidiary of the Company, except as described in or contemplated
by the Prospectus.
(p) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in
the Prospectus). The Common Shares (including the Shares) conform in all
material respects to the description thereof contained in the Prospectus.
All of the issued and outstanding Common Shares have been duly authorized and
validly issued, are fully paid and nonassessable and have been issued in
compliance with federal and state securities laws. None of the outstanding
Common Shares were issued in violation of any preemptive rights, rights of
first refusal or other similar rights to subscribe for or purchase securities
of the Company. There are no authorized or outstanding options, warrants,
preemptive rights, rights of first refusal or other rights to purchase, or
equity or debt securities convertible into or exchangeable or exercisable
for, any capital stock of the Company or any of its subsidiaries other than
those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or arrangements,
and the options or other rights granted thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights. All
options exercisable for any capital stock of the Company or any of its
subsidiaries granted by the Company from August 2, 1999 through the
5.
<PAGE>
date of this Agreement have a vesting schedule under which such options are
not exercisable before one year from the date of grant
(q) STOCK EXCHANGE LISTING. The Shares have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(r) NO CONSENTS, APPROVALS OR AUTHORIZATIONS REQUIRED. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares
by the Underwriters in the manner contemplated here and in the Prospectus,
(ii) by the National Association of Securities Dealers, Inc. and (iii) by the
federal and provincial laws of Canada.
(s) NON-CONTRAVENTION OF EXISTING INSTRUMENTS AGREEMENTS. Neither
the issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to, (i) the charter or by-laws of the Company or
any of its subsidiaries, (ii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to which the Company or any of
its subsidiaries is a party or bound or to which its or their property is
subject or (iii) any statute, law, rule, regulation, judgment, order or
decree applicable to the Company or any of its subsidiaries of any court,
regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or any of its
subsidiaries or any of its or their properties.
(t) NO DEFAULTS OR VIOLATIONS. Neither the Company nor any
subsidiary is in violation or default of (i) any provision of its charter or
by-laws, (ii) the terms of any indenture, contract, lease, mortgage, deed of
trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument to which it is a party or bound or to which
its property is subject or (iii) any statute, law, rule, regulation,
judgment, order or decree of any court, regulatory body, administrative
agency, governmental body, arbitrator or other authority having jurisdiction
over the Company or such subsidiary or any of its properties, as applicable,
except any such violation or default which would not, singly or in the
aggregate, result in a Material Adverse Change except as otherwise disclosed
in the Prospectus.
(u) NO ACTIONS, SUITS OR PROCEEDINGS. No action, suit or proceeding
by or before any court or governmental agency, authority or body or any
arbitrator involving the Company or any of its subsidiaries or its or their
property is pending or, to the best knowledge of the Company, threatened that
(i) could reasonably be expected to have a Material Adverse Effect on the
performance of this Agreement or the consummation of any of the transactions
contemplated hereby or (ii) could reasonably be expected to result in a
Material Adverse Effect.
(v) ALL NECESSARY PERMITS, ETC. The Company and each subsidiary
possess such valid and current certificates, authorizations or permits issued
by the appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct their respective businesses, and
6.
<PAGE>
neither the Company nor any subsidiary has received any notice of proceedings
relating to the revocation or modification of, or non-compliance with, any
such certificate, authorization or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, could result in
a Material Adverse Change.
(w) TITLE TO PROPERTIES. The Company and each of its subsidiaries
has good and marketable title to all the properties and assets reflected as
owned in the financial statements referred to in Section 1(A)(j) above or
elsewhere in the Prospectus, in each case free and clear of any security
interests, mortgages, liens, encumbrances, equities, claims and other
defects, except such as do not materially and adversely affect the value of
such property and do not materially interfere with the use made or proposed
to be made of such property by the Company or such subsidiary. The real
property, improvements, equipment and personal property held under lease by
the Company or any subsidiary are held under valid and enforceable leases,
with such exceptions as are not material and do not materially interfere with
the use made or proposed to be made of such real property, improvements,
equipment or personal property by the Company or such subsidiary.
(x) TAX LAW COMPLIANCE. The Company and its subsidiaries have filed
all necessary federal, state and foreign income and franchise tax returns or
have properly requested extensions thereof and have paid all taxes required
to be paid by any of them and, if due and payable, any related or similar
assessment, fine or penalty levied against any of them except as may be being
contested in good faith and by appropriate proceedings. The Company has made
adequate charges, accruals and reserves in the applicable financial
statements referred to in Section 1(A)(j) above in respect of all federal,
state and foreign income and franchise taxes for all periods as to which the
tax liability of the Company or any of its subsidiaries has not been finally
determined. The Company is not aware of any tax deficiency that has been or
might be asserted or threatened against the Company or its subsidiaries that
could result in a Material Adverse Change.
(y) INTELLECTUAL PROPERTY RIGHTS. Each of the Company and its
subsidiaries owns or possesses adequate rights to use all patents, patent
rights or licenses, inventions, collaborative research agreements, trade
secrets, know-how, trademarks, service marks, trade names and copyrights
which are necessary to conduct its businesses as described in the
Registration Statement and Prospectus; the expiration of any patents, patent
rights, trade secrets, trademarks, service marks, trade names or copyrights
would not result in a Material Adverse Change that is not otherwise disclosed
in the Prospectus; the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names or
copyrights; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names or copyrights which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a Material Adverse Change. There is no claim being made
against the Company regarding patents, patent rights or licenses, inventions,
collaborative research, trade secrets, know-how, trademarks, service marks,
trade names or copyrights. The Company and its subsidiaries do not in the
conduct of their business as now or proposed to be conducted as described in
the Prospectus infringe or conflict with any right or patent of any third
party, or any discovery, invention, product or process which is the subject
of a patent application filed by any
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third party, known to the Company or any of its subsidiaries, which such
infringement or conflict is reasonably likely to result in a Material Adverse
Change.
(z) YEAR 2000 PREPAREDNESS. There are no issues related to the
Company's, or any of its subsidiaries', preparedness for the Year 2000 that
(i) are of a character required to be described or referred to in the
Registration Statement or Prospectus by the Securities Act which have not
been accurately described in the Registration Statement or Prospectus or (ii)
might reasonably be expected to result in any Material Adverse Change or that
might materially affect their properties, assets or rights. All internal
computer systems and each Constituent Component of those systems and all
computer-related products and each Constituent Component of those products of
the Company and each of its subsidiaries fully comply with Year 2000
Qualification Requirements. "Year 2000 Qualifications Requirements" means
that the internal computer systems and each Constituent Component of those
systems and all computer-related products and each Constituent Component (as
defined below) of those products of the Company and each of its Subsidiaries
(i) have been reviewed to confirm that they store, process (including sorting
and performing mathematical operations, calculations and computations), input
and output data containing date and information correctly regardless of
whether the date contains dates and times before, on or after January 1,
2000, (ii) have been designated to ensure date and time entry recognition and
calculations, and date data interface values that reflect the century, (iii)
accurately manage and manipulate data involving dates and times, including
single century formulas and multi-century formulas, and will not cause an
abnormal ending scenario within the application or generate incorrect values
or invalid results involving such dates, (iv) accurately process any date
rollover, and (v) accept and respond to two-digit year date input in a manner
that resolves any ambiguities as to the century. "Constituent Component"
means all software (including operating systems, programs, packages and
utilities), firmware, hardware, networking components, and peripherals
provided as part of the configuration. The Company has inquired of material
vendors as to their preparedness for the Year 2000 and has disclosed in the
Registration Statement or Prospectus any issues that might reasonably be
expected to result in any Material Adverse Change.
(aa) NO TRANSFER TAXES OR OTHER FEES. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or
any political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the
Company of the shares.
(bb) COMPANY NOT AN "INVESTMENT COMPANY." The Company has been
advised of the rules and requirements under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Company is not, and
after receipt of payment for the Shares will not be, an "investment company"
or an entity "controlled" by an "investment company" within the meaning of
the Investment Company Act and will conduct its business in a manner so that
it will not become subject to the Investment Company Act.
(cc) INSURANCE. Each of the Company and its subsidiaries are insured
by recognized, financially sound and reputable institutions with policies in
such amounts and with such deductibles and covering such risks as are
generally deemed adequate and customary for their businesses including, but
not limited to, policies covering real and personal property owned or leased
by the Company and its subsidiaries against theft, damage, destruction, acts
of vandalism
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and earthquakes, general liability and Directors and Officers liability. The
Company has no reason to believe that it or any subsidiary will not be able
(i) to renew its existing insurance coverage as and when such policies expire
or (ii) to obtain comparable coverage from similar institutions as may be
necessary or appropriate to conduct its business as now conducted and at a
cost that would not result in a Material Adverse Change. Neither of the
Company nor any subsidiary has been denied any insurance coverage which it
has sought or for which it has applied.
(dd) LABOR MATTERS. To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists
or is imminent; and the Company is not aware of any existing or imminent
labor disturbance by the employees of any of its principal suppliers, that
might be expected to result in a Material Adverse Change.
(ee) NO PRICE STABILIZATION OR MANIPULATION. The Company has not
taken and will not take, directly or indirectly, any action designed to or
that might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of the Shares.
(ff) LOCK-UP AGREEMENTS. Each officer and director of the company,
each Selling Stockholder, each stockholder of the Company, except for Bibiana
Wiley, and each option holder of the Company has agreed to sign an agreement
substantially in the form attached hereto as EXHIBIT A (the "Lock-up
Agreements"). The Company has provided to counsel for the Underwriters a
complete and accurate list of all securityholders of the Company and the
number and type of securities held by each securityholder, including options
holders. The Company has provided to counsel for the Underwriters true,
accurate and complete copies of all of the Lock-up Agreements presently in
effect or effected hereby. The Company hereby represents and warrants that
it will not release any of its officers, directors, other stockholders or
option holders from any Lock-up Agreements currently existing or hereafter
effected without the prior written consent of BancBoston Robertson Stephens
Inc.
(gg) RELATED PARTY TRANSACTIONS. There are no business relationships
or related-party transactions involving the Company or any subsidiary or any
other person required to be described in the Prospectus which have not been
described as required.
(hh) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any contribution
or other payment to any official of, or candidate for, any federal, state or
foreign office in violation of any law or of the character required to be
disclosed in the Prospectus.
(ii) ENVIRONMENTAL LAWS. Except as otherwise disclosed in the
Prospectus, (i) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to its business, except where the failure to comply
would not result in a Material Adverse Change, (ii) the Company has received
no notice from any governmental authority or third party of an asserted claim
under Environmental Laws, which claim is required to be disclosed in the
Registration Statement and the Prospectus (iii) the
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Company will not be required to make future material capital expenditures to
comply with Environmental Laws and (iv) no property which is owned, leased or
occupied by the Company has been designated as a Superfund site pursuant to
the Comprehensive Response, Compensation, and Liability Act of 1980, as
amended (42 U.S.C. Section 9601, et seq.), or otherwise designated as a
contaminated site under applicable state or local law.
(jj) PERIODIC REVIEW OF COSTS OF ENVIRONMENTAL COMPLIANCE. In the
ordinary course of its business, the Company conducts a periodic review of
the effect of Environmental Laws on the business, operations and properties
of the Company and its subsidiaries, in the course of which it identifies and
evaluates associated costs and liabilities (including, without limitation,
any capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any permit, license or
approval, any related constraints on operating activities and any potential
liabilities to third parties). On the basis of such review and the amount of
its established reserves, the Company has reasonably concluded that such
associated costs and liabilities would not, individually or in the aggregate,
result in a Material Adverse Change.
(kk) ERISA COMPLIANCE. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained
by the Company, its subsidiaries or their "ERISA Affiliates" (as defined
below) are in compliance in all material respects with ERISA. "ERISA
Affiliate" means, with respect to the Company or a subsidiary, any member of
any group of organizations described in Sections 414(b),(c),(m) or (o) of the
Internal Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or such
subsidiary is a member. No "reportable event" (as defined under ERISA) has
occurred or is reasonably expected to occur with respect to any "employee
benefit plan" established or maintained by the Company, its subsidiaries or
any of their ERISA Affiliates. No "employee benefit plan" established or
maintained by the Company, its subsidiaries or any of their ERISA Affiliates,
if such "employee benefit plan" were terminated, would have any "amount of
unfounded benefit liabilities" (as defined under ERISA). Neither the
Company, its subsidiaries nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit
plan" established or maintained by the Company, its subsidiaries or any of
their ERISA Affiliates that is intended to be qualified under Section 401(a)
of the Code is so qualified and nothing has occurred, whether by action or
failure to act, which would cause the loss of such qualification.
(ll) CERTIFICATES. Any certificate signed by an officer of the
Company and delivered to the Representatives or to counsel for the
Underwriters shall be deemed to be a representation and warranty by the
Company to each Underwriter as to the matters set forth therein.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder represents, warrants and covenants to each Underwriter as
follows:
(a) The UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling
Stockholder and is a valid and binding
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agreement of such Selling Stockholder, enforceable in accordance with its
terms, except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles.
(b) THE CUSTODY AGREEMENT AND POWER OF ATTORNEY. Each of the (i)
Custody Agreement signed by such Selling Stockholder and [___], as custodian
(the "Custodian"), relating to the deposit of the Shares to be sold by such
Selling Stockholder (the "Custody Agreement") and (ii) Power of Attorney
appointing certain individuals named therein as such Selling Stockholder's
attorneys-in-fact (each, an "Attorney-in-Fact") to the extent set forth
therein relating to the transactions contemplated hereby and by the
Prospectus (the "Power of Attorney"), of such Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification thereunder may
be limited by applicable law and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or
by general equitable principles. Each Selling Stockholder agrees that the
Shares to be sold by such Selling Stockholder on deposit with the Custodian
is subject to the interests of the Underwriters, that the arrangements made
for such custody are to that extent irrevocable, and that the obligations of
such Selling Stockholder hereunder shall not be terminated, except as
provided in this Agreement or in the Custody Agreement, by any act of the
Selling Stockholder, by operation of law, by death or incapacity of such
Selling Stockholder or by the occurrence of any other event. If such Selling
Stockholder should die or become incapacitated, or in any other event should
occur, before the delivery of the Shares to be sold by such Selling
Stockholder hereunder, the documents evidencing the Shares to be sold by such
Selling Stockholder then on deposit with the Custodian shall be delivered by
the Custodian in accordance with the terms and conditions of this Agreement
as if such death, incapacity or other event had not occurred, regardless of
whether or not the Custodian shall have received notice thereof.
(c) TITLE TO SHARES TO BE SOLD. Such Selling Stockholder is the
lawful owner of the Shares to be sold by such Selling Stockholder hereunder
and upon sale and delivery of, and payment for, such Shares, as provided
herein, such Selling Stockholder will convey good and marketable title to
such Shares, free and clear of all liens, encumbrances, equities and claims
whatsoever.
(d) ALL AUTHORIZATIONS OBTAINED. Such Selling Stockholder has, and
on the First Closing Date and the Second Closing Date (as defined below) will
have, good and valid title to all of the Company Shares which may be sold by
such Selling Stockholder pursuant to this Agreement on such date and the
legal right and power, and all authorizations and approvals required by law
and under its charter, partnership agreements or by-laws, to enter into this
Agreement and its Custody Agreement and Power of Attorney, to sell, transfer
and deliver all of the Shares which may be sold by such Selling Stockholder
pursuant to this Agreement and to comply with its other obligations hereunder
and thereunder.
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(e) NO FURTHER CONSENTS, AUTHORIZATION OR APPROVALS. No consent,
approval, authorization or order of any court or governmental agency or body
is required for the consummation by such Selling Stockholder of the
transactions contemplated herein, except such as may have been obtained under
the Securities Act and such as may be required under the federal and
provincial securities laws of Canada or the blue sky laws or any jurisdiction
in connection with the purchase and distribution of the Shares by the
Underwriters and such other approvals as have been obtained.
(f) NON-CONTRAVENTION. Neither the sale of the Securities being sold
by such Selling Stockholder nor the consummation of any other of the
transactions herein contemplated by such Selling Stockholder or the
fulfillment of the terms hereof by such Selling Stockholder will conflict
with, result in a breach or violation of, or constitute a default under any
law or the terms of any indenture or other agreement or instrument to which
such Selling Stockholder is party or bound, any judgment, order or decree
applicable to such Selling Stockholder or any court or regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction
over such Selling Stockholder.
(g) NO REGISTRATION OR OTHER SIMILAR RIGHTS. Such Selling
Stockholder does not have any registration or other similar rights to have
any equity or debt securities registered for sale by the Company under the
Registration Statement or included in the offering contemplated by this
Agreement, except for such rights as are described in the Prospectus under
"Shares Eligible for Future Sale."
(h) NO PREEMPTIVE, CO-SALE OR OTHER RIGHTS. Such Selling Stockholder
does not have, or has waived prior to the date hereof, any preemptive right,
co-sale right or right of first refusal or other similar right to purchase
any of the Shares that are to be sold by the Company or any of the other
Selling Stockholders to the Underwriters pursuant to this Agreement; and such
Selling Stockholder does not own any warrants, options or similar rights to
acquire, and does not have any right or arrangement to acquire, any capital
stock, right, warrants, options or other securities from the Company, other
than those described in the Registration Statement and the Prospectus.
(i) DISCLOSURE MADE BY SUCH SELLING STOCKHOLDER IN THE PROSPECTUS.
All information furnished by or on behalf of such Selling Stockholder in
writing expressly for use in the Registration Statement and Prospectus is,
and on the First Closing Date and the Second Closing Date (as defined below)
will be, true, correct, and complete in all material respects, and does not,
and on the First Closing Date and the Second Closing Date will not, contain
any untrue statement of a material fact or omit to state any material fact
necessary to make such information not misleading. Such Selling Stockholder
confirms as accurate the number of shares of Company Shares set forth
opposite such Selling Stockholder's name in the Prospectus under the caption
"Principal and Selling Stockholders" (both prior to and after giving effect
to the sale of the Shares).
(j) NO PRICE STABILIZATION OR MANIPULATION. Such Selling Stockholder
has not taken and will not take, directly or indirectly, any action designed
to or that might be reasonably expected to cause or result in stabilization
or manipulation of the price of the Common Stock to facilitate the sale or
resale of the Shares.
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(k) NO TRANSFER TAXES OR OTHER FEES. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or
any political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the sale by the Selling
Stockholders of the Shares.
(l) DISTRIBUTION OF OFFERING MATERIALS BY THE SELLING STOCKHOLDERS.
The Selling Stockholders have not distributed and will not distribute, prior
to the later of the Second Closing Date (as defined below) and the completion
of the Underwriters' distribution of the Shares, any offering material in
connection with the offering and sale of the Shares by such Selling
Stockholder other than a preliminary prospectus, the Prospectus or the
Registration Statement.
(m) CONFIRMATION OF COMPANY REPRESENTATIONS AND WARRANTIES. Such
Selling Stockholder has no reason to believe that the representations and
warranties of the Company contained in Section 1(A) hereof are not true and
correct, is familiar with the Registration Statement and the Prospectus and
has no knowledge of any material fact, condition or information not disclosed
in the Registration Statement or the Prospectus which has had or may result
in a Material Adverse Change on the condition, financial or otherwise, or on
the earnings, business, operation or prospects, whether or not arising from
transactions in the ordinary course of business of the Company and its
subsidiaries, considered as one entity, and is not prompted to sell the
Shares to be sold by such Selling Stockholder by any information concerning
the Company which is not set forth in the Registration Statement and the
Prospectus.
(n) CERTIFICATES. Any certificate signed by or on behalf of any
Selling Stockholder and delivered to the Representatives or to counsel for
the Underwriters shall be deemed to be a representation and warranty by such
Selling Stockholder to each Underwriter as to the matters covered thereby.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) THE FIRM SHARES. Upon the terms herein set forth, (i) the
Company agrees to issue and sell to the several Underwriters an aggregate of
[ ] Firm Shares and (ii) the Selling Stockholders agree to sell to the
several Underwriters an aggregate of [ ] Firm Shares, each Selling
Stockholder selling the number of Firm Shares set forth opposite such Selling
Stockholder's name on SCHEDULE B. On the basis of the representations,
warranties and agreements herein contained, and upon the terms but subject to
the conditions herein set forth, the Underwriters agree, severally and not
jointly, to purchase from the Company and the Selling Stockholders the
respective number of Firm Shares set forth opposite their names on SCHEDULE
A. The purchase price per Firm Share to be paid by the several Underwriters
to the Company and the Selling Stockholders shall be $[ ] per share.
(b) THE FIRST CLOSING DATE. Delivery of the Firm Shares to be
purchased by the Underwriters and payment therefor shall be made by the
Company and the Representatives at 6:00 a.m. San Francisco time, at the San
Diego offices of Brobeck, Phleger & Harrison LLP, 550 West C Street, Suite
1300, San Diego, California 92101 (or at such other place as may be agreed
upon among the Representatives and the Company), (i) on the third (3rd) full
business day following the first day that Shares are traded, (ii) if this
Agreement is executed and delivered after 1:30 P.M., San Francisco time, the
fourth (4th) full business day following the day that this
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Agreement is executed and delivered or (iii) at such other time and date not
later that seven (7) full business days following the first day that Shares
are traded as the Representatives and the Company may determine (or at such
time and date to which payment and delivery shall have been postponed
pursuant to Section 8 hereof), such time and date of payment and delivery
being herein called the "Closing Date;" provided, however, that if the
Company has not made available to the Representatives copies of the
Prospectus within the time provided in Section 2(g) and 3(e) hereof, the
Representatives may, in its sole discretion, postpone the Closing Date until
no later than two (2) full business days following delivery of copies of the
Prospectus to the Representatives.
(c) THE OPTION SHARES; THE SECOND CLOSING DATE. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Selling
Stockholders named in SCHEDULE C hereby grant an option to the several
Underwriters to purchase, severally and not jointly, up to an aggregate of
[ ] Option Shares from the Selling Stockholders at the purchase price per
share to be paid by the Underwriters for the Firm Shares. The option granted
hereunder is for use by the Underwriters solely in covering any
over-allotments in connection with the sale and distribution of the Firm
Shares. The option granted hereunder may be exercised at any time upon
notice by the Representatives to the Selling Stockholders, which notice may
be given at any time within 30 days from the date of this Agreement. The
time and date of delivery of the Option Shares, if subsequent to the First
Closing Date, is called the "Second Closing Date" and shall be determined by
the Representatives and shall not be earlier than three nor later than five
full business days after delivery of such notice of exercise. If any Option
Shares are to be purchased, (i) each Underwriter agrees, severally and not
jointly, to purchase the number of Option Shares (subject to such adjustments
to eliminate fractional shares as the Representatives may determine) that
bears the same proportion to the total number of Option Shares to be
purchased as the number of Firm Shares set forth on SCHEDULE A opposite the
name of such Underwriter bears to the total number of Firm Shares and (ii)
each Selling Stockholder agrees, severally and not jointly, to sell the
number of Option Shares (subject to such adjustments to eliminate fractional
shares as the Representatives may determine) that bears the same proportion
to the total number of Option Shares to be sold as the number of Option
Shares set forth in SCHEDULE C opposite the name of such Selling Stockholder
bears to the total number of Option Shares. The Representatives may cancel
the option at any time prior to its expiration by giving written notice of
such cancellation to the Company and the Selling Stockholders.
(d) PUBLIC OFFERING OF THE SHARES. The Representatives hereby advise
the Company and the Selling Stockholders that the Underwriters intend to
offer for sale to the public, as described in the Prospectus, their
respective portions of the Shares as soon after this Agreement has been
executed and the Registration Statement has been declared effective as the
Representatives, in its sole judgment, has determined is advisable and
practicable.
(e) PAYMENT FOR THE SHARES. Payment for the Shares to be sold by the
Company shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to the
order of the Company. Payment for the Shares to be sold by the Selling
Stockholders shall be made at the First Closing Date (and, if applicable, at
the Second Closing Date) by wire transfer of immediately available funds to
the order of the Custodian.
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It is understood that the Representatives have been authorized,
for its own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
BancBoston Robertson Stephens Inc., individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Shares to be purchased by any Underwriter whose funds shall
not have been received by the Representatives by the First Closing Date or
the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any
of its obligations under this Agreement.
Each Selling Stockholder hereby agrees that (i) it will pay all
stock transfer taxes, stamp duties and other similar taxes, if any, payable
upon the sale or delivery of the Shares to be sold by such Selling
Stockholder to the several Underwriters, or otherwise in connection with the
performance of such Selling Stockholder's obligations hereunder and (ii) the
Custodian is authorized to deduct for such payment any such amounts from the
proceeds to such Selling Stockholder hereunder and to hold such amounts for
the account of such Selling Stockholder with the Custodian under the Custody
Agreement.
(f) DELIVERY OF THE SHARES. The Company and the Selling Stockholders
shall deliver, or cause to be delivered a credit representing the Firm Shares
to an account or accounts at The Depository Trust Company as designated by
the Representatives for the accounts of the Representatives and the several
Underwriters at the First Closing Date, against the irrevocable release of a
wire transfer of immediately available funds for the amount of the purchase
price therefor. The Selling Stockholders shall also deliver, or cause to be
delivered a credit representing the Option Shares to an account or accounts
at The Depository Trust Company as designated by the Representatives for the
accounts of the Representatives and the several Underwriters, at the First
Closing Date or the Second Closing Date, as the case may be, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. Time shall be of the essence, and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.
(g) DELIVERY OF PROSPECTUS TO THE UNDERWRITERS. Not later than 12:00
noon on the second business day following the date the Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause
to be delivered copies of the Prospectus in such quantities and at such
places as the Representatives shall request.
SECTION 3. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
A. COVENANTS OF THE COMPANY. The Company further covenants and
agrees with each Underwriter as follows:
(a) REGISTRATION STATEMENT MATTERS. The Company will (i) use its
best efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934
(the "Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b)
under the Securities Act a Prospectus in a
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form approved by the Representatives containing information previously
omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A of the Securities Act and (iii) not file any amendment
to the Registration Statement or supplement to the Prospectus of which the
Representatives shall not previously have been advised and furnished with a
copy or to which the Representatives shall have reasonably objected in
writing or which is not in compliance with the Securities Act. If the Company
elects to rely on Rule 462(b) under the Securities Act, the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) under the Securities Act prior to the time confirmations are
sent or given, as specified by Rule 462(b)(2) under the Securities Act, and
shall pay the applicable fees in accordance with Rule 111 under the
Securities Act.
(b) SECURITIES ACT COMPLIANCE. The Company will advise the
Representatives promptly (i) when the Registration Statement or any
post-effective amendment thereto shall have become effective, (ii) of receipt
of any comments from the Commission, (iii) of any request of the Commission
for amendment of the Registration Statement or for supplement to the
Prospectus or for any additional information and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending the use
of the Prospectus and to obtain as soon as possible the lifting thereof, if
issued.
(c) BLUE SKY COMPLIANCE. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify
the Shares for sale under the securities laws of such jurisdictions (both
national and foreign) as the Representatives may reasonably have designated
in writing and will make such applications, file such documents, and furnish
such information as may be reasonably required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or to file
a general consent to service of process in any jurisdiction where it is not
now so qualified or required to file such a consent. The Company will, from
time to time, prepare and file such statements, reports and other documents,
as are or may be required to continue such qualifications in effect for so
long a period as the Representatives may reasonably request for distribution
of the Shares.
(d) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER SECURITIES
ACT MATTERS. The Company will comply with the Securities Act and the
Exchange Act, and the rules and regulations of the Commission thereunder, so
as to permit the completion of the distribution of the Shares as contemplated
in this Agreement and the Prospectus. If during the period in which a
prospectus is required by law to be delivered by an Underwriter or dealer,
any event shall occur as a result of which, in the judgment of the Company or
in the reasonable opinion of the Representatives or counsel for the
Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
existing at the time the Prospectus is delivered to a purchaser, not
misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission, and furnish at its own expense to the Underwriters and
to dealers, an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
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(e) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS. The
Company agrees to furnish the Representatives, without charge, during the
period beginning on the date hereof and ending on the later of the First
Closing Date or such date, as in the opinion of counsel for the Underwriters,
the Prospectus is no longer required by law to be delivered in connection
with sales by an Underwriter or dealer (the "Prospectus Delivery Period"), as
many copies of the Prospectus and any amendments and supplements thereto as
the Representatives may request.
(f) INSURANCE. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) shall cause BancBoston Robertson
Stephens Inc., Banc of America Securities LLC, PaineWebber Incorporated, and
First Union Capital Markets Corp. to be added as an additional insureds to
such policy in respect of the offering contemplated hereby.
(g) NOTICE OF SUBSEQUENT EVENTS. If at any time during the ninety
(90) day period after the Registration Statement becomes effective, any
rumor, publication or event relating to or affecting the Company shall occur
as a result of which in your opinion the market price of the Common Shares
has been or is likely to be materially affected (regardless of whether such
rumor, publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on
such rumor, publication or event.
(h) USE OF PROCEEDS. The Company shall apply the net proceeds from
the sale of the Shares sold by it in the manner described under the caption
"Use of Proceeds" in the Prospectus.
(i) TRANSFER AGENT. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Shares.
(j) EARNINGS STATEMENT. As soon as practicable, the Company will
make generally available to its security holders and to the Representatives
an earnings statement (which need not be audited) covering the twelve-month
period ending September 30, 2000 that satisfies the provisions of Section
11(a) of the Securities Act.
(k) PERIODIC REPORTING OBLIGATIONS. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under
the Exchange Act.
(l) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. The Company
will not, without the prior written consent of BancBoston Robertson Stephens
Inc., for a period of 180 days following the date of the Prospectus, offer,
sell or contract to sell, or otherwise dispose of or enter into any
transaction which is designed to, or could be expected to, result in the
disposition (whether by actual disposition or effective economic disposition
due to cash settlement or otherwise by the Company or any affiliate of the
Company or any person in privity with the Company or any affiliate of the
Company) directly or indirectly, or announce the offering of, any other
Common Shares or any securities convertible into, or exchangeable for,
Common Shares; provided, however, that the Company may (i) issue and sell
Common Shares
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pursuant to any director or employee stock option plan, stock ownership plan
or dividend reinvestment plan of the Company in effect at the date of the
Prospectus and described in the Prospectus so long as (A) none of those
shares may be transferred during the period of 180 days from the date that
the Registration Statement is declared effective (the "Lock-Up Period") and
the Company shall enter stop transfer instructions with its transfer agent
and registrar against the transfer of any such Common Shares and (B) such
shares are subject to vesting which does not begin for at least one year
after the date of grant and (ii) the Company may issue Common Shares issuable
upon the conversion of securities or the exercise of warrants outstanding at
the date of the Prospectus and described in the Prospectus.
(m) FUTURE REPORTS TO THE REPRESENTATIVES. During the period of five
years hereafter, the Company will furnish to the Representatives (i) as soon
as practicable after the end of each fiscal year, copies of the Annual Report
of the Company containing the balance sheet of the Company as of the close of
such fiscal year and statements of income, stockholders' equity and cash
flows for the year then ended and the opinion thereon of the Company's
independent public or certified public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement, Annual
Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form
8-K or other report filed by the Company with the Commission, the National
Association of Securities Dealers, Inc. or any securities exchange; and (iii)
as soon as available, copies of any report or communication of the Company
mailed generally to holders of its capital stock.
B. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder
further covenants and agrees with each Underwriter:
(a) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. Such
Selling Stockholder will not, during the Lock-Up Period, make a disposition
of Securities (as defined in Exhibit A hereto) now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona
fide gift or gifts, provided the donee or donees thereof agree in writing to
be bound by this restriction, (ii) as a distribution to partners or
shareholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, (iii) with respect to
dispositions of Common Shares acquired on the open market or (iv) with the
prior written consent of BancBoston Robertson Stephens Inc. The foregoing
restriction has been expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is
designed to or reasonably expected to lead to or result in a disposition of
Securities during the Lock-Up Period, even if such Securities would be
disposed of by someone other than such holder. Such prohibited hedging or
other transactions would include, without limitation, any short sale (whether
or not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Securities. Furthermore, such person has also agreed and
consented to the entry of stop transfer instructions with the Company's
transfer agent against the transfer of the Securities held by such person
except in compliance with this restriction.
(b) DELIVERY OF FORMS W-8 AND W-9. To deliver to the Representatives
prior to the First Closing Date a properly completed and executed United
States Treasury Department
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Form W-8 (if the Selling Stockholder is a non-United States person) or Form
W-9 (if the Selling Stockholder is a United States Person).
(c) NOTIFICATION OF UNTRUE STATEMENTS, ETC. If, at any time prior to
the date on which the distribution of the Common Shares as contemplated
herein and in the Prospectus has been completed, as determined by the
Representatives, such Selling Stockholder has knowledge of the occurrence of
any event as a result of which the Prospectus or the Registration Statement,
in each case as then amended or supplemented, would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, such Selling Stockholder will promptly notify the
Company and the Representatives.
SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholders set forth in Sections 1(A) and 1(B) hereof as of the date hereof
and as of the First Closing Date as though then made and, with respect to the
Option Shares, as of the Second Closing Date as though then made, to the
timely performance by the Company and the Selling Stockholders of their
respective covenants and other obligations hereunder, and to each of the
following additional conditions:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER; NO
OBJECTION FROM THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. The
Registration Statement shall have become effective prior to the execution of
this Agreement, or at such later date as shall be consented to in writing by
you; no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to
the knowledge of the Company, any Selling Shareholder or any Underwriter,
threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel; and the National Association of Securities Dealers,
Inc. shall have raised no objection to the fairness and reasonableness of the
underwriting terms and arrangements.
(b) CORPORATE PROCEEDINGS. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to
Underwriters' Counsel, and such counsel shall have been furnished with such
papers and information as they may reasonably have requested to enable them
to pass upon the matters referred to in this Section.
(c) NO MATERIAL ADVERSE CHANGE. Subsequent to the execution and
delivery of this Agreement and prior to the First Closing Date, or the Second
Closing Date, as the case may be, there shall not have been any Material
Adverse Change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment,
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impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus.
(d) OPINION OF COUNSEL FOR THE COMPANY. You shall have received on
the First Closing Date, or the Second Closing Date, as the case may be, an
opinion of Ropes & Gray counsel for the Company substantially in the form of
EXHIBIT B attached hereto, dated the First Closing Date, or the Second
Closing Date, addressed to the Underwriters and with reproduced copies or
signed counterparts thereof for each of the Underwriters.
Counsel rendering the opinion contained in EXHIBIT B may rely as
to questions of law not involving the laws of the United States or the States
of Massachusetts or Delaware upon opinions of local counsel, and as to
questions of fact upon representations or certificates of officers of the
Company, the Selling Stockholders or officers of the Selling Stockholders
(when the Selling Stockholder is not a natural person), and of government
officials, in which case their opinion is to state that they are so relying
and that they have no knowledge of any material misstatement or inaccuracy in
any such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(e) OPINION OF COUNSEL FOR THE UNDERWRITERS. You shall have received
on the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Brobeck, Phleger & Harrison LLP, substantially in the form of
EXHIBIT C hereto. The Company shall have furnished to such counsel such
documents as they may have requested for the purpose of enabling them to pass
upon such matters.
(f) ACCOUNTANTS' COMFORT LETTER. You shall have received on the
First Closing Date and on the Second Closing Date, as the case may be, a
letter from Ernst & Young LLP addressed to the Underwriters, dated the First
Closing Date or the Second Closing Date, as the case may be, confirming that
they are independent certified public accountants with respect to the Company
within the meaning of the Act and the applicable published Rules and
Regulations and based upon the procedures described in such letter delivered
to you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than four (4) business
days prior to the First Closing Date or the Second Closing Date, as the case
may be, (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the First
Closing Date or the Second Closing Date, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth
in the Original Letter which are necessary to reflect any changes in the
facts described in the Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise
from that set forth in the Registration Statement or Prospectus, which, in
your sole judgment, is material and adverse and that makes it, in your sole
judgment, impracticable or inadvisable to proceed with the public offering of
the Shares as contemplated by the Prospectus. The Original Letter from Ernst
& Young LLP shall be addressed to or for the use of the Underwriters in form
and substance satisfactory to the Underwriters and shall (i) represent, to
the extent true, that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
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published Rules and Regulations, (ii) set forth their opinion with respect to
their examination of the consolidated balance sheets of the Company as of
September 27, 1997 and September 26, 1998, and the related consolidated
statements of shareholders' equity for September 27, 1996 and for each of the
two years in the period ended September 26, 1998, the consolidated statements
of income for the years ended September 27, 1997 and September 26, 1998, the
consolidated statements of cash flows for the one day period ended September
27, 1996 and years ended September 27, 1997 and September 26, 1998, and the
statements of income, retained earnings and cash flows of the Company's
predecessor for the one year period ended September 27, 1996, (iii) state
that Ernst & Young LLP has performed the procedures set out in Statement on
Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information and providing the report of Ernst & Young LLP as described in SAS
71 on the financial statements for each of the quarters in the three-quarter
period ended June 26, 1999 (the "Quarterly Financial Statements"), (iv) state
that in the course of such review, nothing came to their attention that leads
them to believe that any material modifications need to be made to any of the
Quarterly Financial Statements in order for them to be in compliance with
generally accepted accounting principles consistently applied across the
periods presented, and address other matters agreed upon by Ernst & Young and
you. In addition, you shall have received from Ernst & Young a letter
addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements
as of September 27, 1999 did not disclose any weaknesses in internal controls
that they considered to be material weaknesses.
(g) OFFICERS' CERTIFICATE. You shall have received on the First
Closing Date and the Second Closing Date, as the case may be, a certificate
of the Company, dated the First Closing Date or the Second Closing Date, as
the case may be, signed by the Chief Executive Officer and Chief Financial
Officer of the Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the First
Closing Date or the Second Closing Date, as the case may be, and the
Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
First Closing Date or the Second Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained all material information required to be
included therein by the Securities Act and in all material respects
conformed to the requirements of the Securities Act, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
did not and does not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; and, since the effective
date of the Registration Statement, there has occurred no event required
to
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be set forth in an amended or supplemented Prospectus which has not been
so set forth; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been
(a) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise, (b) any
transaction that is material to the Company and its subsidiaries
considered as one enterprise, except transactions entered into in the
ordinary course of business, (c) any obligation, direct or contingent,
that is material to the Company and its subsidiaries considered as one
enterprise, incurred by the Company or its subsidiaries, except
obligations incurred in the ordinary course of business, (d) any change
in the capital stock or outstanding indebtedness of the Company or any
of its subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (e) any dividend or distribution of any
kind declared, paid or made on the capital stock of the Company or any
of its subsidiaries, or (f) any loss or damage (whether or not insured)
to the property of the Company or any of its subsidiaries which has been
sustained or will have been sustained which has a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(h) LOCK-UP AGREEMENT FROM CERTAIN STOCKHOLDERS OF THE COMPANY. The
Company shall have obtained and delivered to you an agreement substantially
in the form of EXHIBIT A attached hereto from each officer and director of
the Company, each Selling Shareholder, each stockholder other than Bibiana
Wiley and each option holder of the Company.
(i) OPINION OF COUNSEL FOR THE SELLING STOCKHOLDERS. You shall have
received on the First Closing Date and the Second Closing Date, as the case
may be, the following opinion of Ropes & Gray, counsel for the Selling
Stockholders substantially in the form of EXHIBIT D attached hereto, dated as
of such Closing Date, addressed to the Underwriters and with reproduced
copies or signed counterparts thereof for each of the Underwriters.
In rendering such opinion, such counsel may rely as to questions
of law not involving the laws of the United States or the States of
Massachusetts or Delaware upon opinions of local counsel and as to questions
of fact upon representations or certificates of the Selling Stockholders or
officers of the Selling Stockholders (when the Selling Stockholder is not a
natural person), and of governmental officials, in which case their opinion
is to state that they are so relying and that they have no knowledge of any
material misstatement or inaccuracy of any material misstatement or
inaccuracy in any such opinion, representation or certificate so relied upon
shall be delivered to you, as Representatives of the Underwriters, and to
Underwriters' Counsel.
(j) SELLING STOCKHOLDERS' CERTIFICATE. On each of the First Closing
Date and the Second Closing Date, as the case may be, the Representatives
shall receive a written certificate executed by the Attorney-in-Fact of each
Selling Stockholder, dated as of such Closing Date, to the effect that:
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(i) the representations, warranties and covenants of such Selling
Stockholder set forth in Sections 1(A) and 1(B)of this Agreement are true
and correct with the same force and effect as though expressly made by such
Selling Stockholder on and as of such Closing Date; and
(ii) such Selling Stockholder has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(k) SELLING STOCKHOLDERS' DOCUMENTS. At least three business days
prior to the date hereof, the Company and the Selling Stockholders shall have
furnished for review by the Representatives copies of the Powers of Attorney
and Custody Agreements executed by each of the Selling Stockholders and such
further information, certificates and documents as the Representatives may
reasonably request.
(l) STOCK EXCHANGE LISTING. The Shares shall have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(m) COMPLIANCE WITH PROSPECTUS DELIVERY REQUIREMENTS. The Company
shall have complied with the provisions of Sections 2(f) and 3(e) hereof with
respect to the furnishing of Prospectuses.
(n) ADDITIONAL DOCUMENTS. On or before each of the First Closing
Date and the Second Closing Date, as the case may be, the Representatives and
counsel for the Underwriters shall have received such information, documents
and opinions as they may reasonably require for the purposes of enabling them
to pass upon the issuance and sale of the Shares as contemplated herein, or
in order to evidence the accuracy of any of the representations and
warranties, or the satisfaction of any of the conditions or agreements,
herein contained.
If any condition specified in this Section 4 is not satisfied
when and as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company and the Selling Stockholders at any
time on or prior to the First Closing Date and, with respect to the Option
Shares, at any time prior to the Second Closing Date, which termination shall
be without liability on the part of any party to any other party, except that
Section 5 (Payment of Expenses), Section 6 (Reimbursement of Underwriters'
Expenses), Section 7 (Indemnification and Contribution) and Section 10
(Representations and Indemnities to Survive Delivery) shall at all times be
effective and shall survive such termination.
SECTION 5. PAYMENT OF EXPENSES. The Company and the Selling
Stockholders, jointly and severally, agree to pay in such proportions as they
may agree upon among themselves all costs, fees and expenses incurred in
connection with the performance of their obligations hereunder and in
connection with the transactions contemplated hereby, including without
limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Shares to the Underwriters, (iv) all fees and
expenses of the Company's counsel, independent public or certified public
accountants and other advisors, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and
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distribution of the Registration Statement (including financial statements,
exhibits, schedules, consents and certificates of experts), each preliminary
prospectus and the Prospectus, and all amendments and supplements thereto,
and this Agreement, (vi) all filing fees, attorneys' fees and expenses
incurred by the Company or the Underwriters in connection with qualifying or
registering (or obtaining exemptions from the qualification or registration
of) all or any part of the Shares for offer and sale under the state
securities or blue sky laws or the provincial securities laws of Canada or
any other country, and, if requested by the Representatives, preparing and
printing a "Blue Sky Survey", an "International Blue Sky Survey" or other
memorandum, and any supplements thereto, advising the Underwriters of such
qualifications, registrations and exemptions, (vii) the filing fees incident
to, and the reasonable fees and expenses of counsel for the Underwriters in
connection with, the National Association of Securities Dealers, Inc. review
and approval of the Underwriters' participation in the offering and
distribution of the Common Shares, (viii) the fees and expenses associated
with inclusion the Common Shares on the Nasdaq National Market, (ix) all
costs and expenses incident to the preparation and undertaking of "road show"
preparations to be made to prospective investors, and (x) all other fees,
costs and expenses referred to in Item 14 of Part II of the Registration
Statement. Except as provided in this Section 5, Section 6, and Section 7
hereof, the Underwriters shall pay their own expenses, including the fees and
disbursements of their counsel.
The Selling Stockholders further agree with each Underwriter to
pay all fees and expenses incident to the performance of their obligations
under this Agreement which are not otherwise specifically provided for
herein, including but not limited to (i) fees and expenses of counsel and
other advisors for such Selling Stockholders, (ii) fees and expenses of the
Custodian and (iii) expenses and taxes incident to the sale and delivery of
the Common Shares to be sold by such Selling Stockholders to the Underwriters
hereunder (which taxes, if any, may be deducted by the Custodian under the
provisions of Section 2 of this Agreement).
This Section 5 shall not affect or modify any separate, valid
agreement relating to the allocation of payment of expenses between the
Company, on the one hand, and the Selling Stockholders, on the other hand.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this
Agreement is terminated by the Representatives pursuant to Section 4, Section
7, Section 8, Section 9 or Section 15, or if the sale to the Underwriters of
the Shares on the First Closing Date is not consummated because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholders to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and
sale of the Shares, including but not limited to fees and disbursements of
counsel, printing expenses, travel expenses, postage, facsimile and telephone
charges.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION OF THE UNDERWRITERS.
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(1) The Company and each of the Selling Stockholders, jointly and
severally, agree to indemnify and hold harmless each Underwriter, its
officers and employees, and each person, if any, who controls any Underwriter
within the meaning of the Securities Act and the Exchange Act against any
loss, claim, damage, liability or expense, as incurred, to which such
Underwriter or such controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company, which consent shall not be unreasonably withheld), insofar as such
loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based (i) upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information deemed to be a
part thereof pursuant to Rule 430A or Rule 434 under the Securities Act, or
the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading; or
(ii) upon any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; or (iii) in
whole or in part upon any inaccuracy in the representations and warranties of
the Company or the Selling Stockholders contained herein; or (iv) in whole or
in part upon any failure of the Company or the Selling Stockholders to
perform their respective obligations hereunder or under law; or (v) any act
or failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon any
matter covered by clause (i), (ii), (iii) or (iv) above, provided that the
Company and the Selling Stockholders shall not be liable under this clause
(v) to the extent that a court of competent jurisdiction shall have
determined by a final judgment that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its bad faith or willful
misconduct; and to reimburse each Underwriter and each such controlling
person for any and all expenses (including the fees and disbursements of
counsel chosen by BancBoston Robertson Stephens Inc.) as such expenses are
reasonably incurred by such Underwriter or such controlling person in
connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; provided,
however, that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company and the Selling Stockholders by
the Representatives expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and provided, further, that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit
of any Underwriter from whom the person asserting any loss, claim, damage,
liability or expense purchased Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at
or prior to the written
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confirmation of the sale of the Shares to such person, and if the Prospectus
(as so amended or supplemented) would have cured the defect giving rise to
such loss, claim, damage, liability or expense. The indemnity agreement set
forth in this Section 7(a) shall be in addition to any liabilities that the
Company and the Selling Stockholders may otherwise have.
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS AND
THE SELLING STOCKHOLDERS. Each Underwriter agrees, severally and not
jointly, to indemnify and hold harmless the Company, each of its directors,
each of its officers who signed the Registration Statement, the Selling
Stockholders and each person, if any, who controls the Company or any Selling
Stockholder within the meaning of the Securities Act or the Exchange Act,
against any loss, claim, damage, liability or expense, as incurred, to which
the Company, or any such director, officer, Selling Stockholder or
controlling person may become subject, under the Securities Act, the Exchange
Act, or other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent of such Underwriter), insofar as such
loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged
untrue statement of a material fact contained in the Registration Statement,
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any preliminary prospectus, the Prospectus (or any amendment or
supplement thereto), in reliance upon and in conformity with written
information furnished to the Company and the Selling Stockholders by the
Representatives expressly for use therein; and to reimburse the Company, or
any such director, officer, Selling Stockholder or controlling person for any
legal and other expense reasonably incurred by the Company, or any such
director, officer, Selling Stockholder or controlling person in connection
with investigating, defending, settling, compromising or payingany such loss,
claim, damage, liability, expense or action. The indemnity agreement set
forth in this Section 7(b) shall be in addition to any liabilities that each
Underwriter may otherwise have.
(c) INFORMATION PROVIDED BY THE UNDERWRITERS. The Company and each
of the Selling Stockholders hereby acknowledges that the only information
that the Underwriters have furnished to the Company and the Selling
Stockholders expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first paragraph and the second
paragraph under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct.
(d) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES. Promptly
after receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this
Section 7, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party for
contribution or otherwise than under the indemnity agreement contained in
this Section 7 or to the extent it is not prejudiced as a proximate result of
such failure. In case any such action is brought against any indemnified
party and such
26.
<PAGE>
indemnified party seeks or intends to seek indemnity from an indemnifying
party, the indemnifying party will be entitled to participate in, and, to the
extent that it shall elect, jointly with all other indemnifying parties
similarly notified, by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that a conflict may arise
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume
such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of
notice from the indemnifying party to such indemnified party of such
indemnifying party's election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will not
be liable to such indemnified party under this Section 7 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party shall not
be liable for the expenses of more than one separate counsel (together with
local counsel), approved by the indemnifying party (BancBoston Robertson
Stephens Inc. in the case of Section 7(b) and Section 8), representing the
indemnified parties who are parties to such action), (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice of
commencement of the action, or (iii) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party, in each of which cases the fees and expenses of counsel
shall be at the expense of the indemnifying party.
(e) SETTLEMENTS. The indemnifying party under this Section 7 shall
not be liable for any settlement of any proceeding effected without its
written consent, which consent shall not be unreasonably withheld, but if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party against any
loss, claim, damage, liability or expense by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by Section
7(d) hereof, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified
party is or could have been a party and indemnity was or could have been
sought hereunder by such indemnified party, unless such settlement,
compromise or consent includes (i) an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such action, suit or proceeding 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
any indemnified party.
27.
<PAGE>
(f) CONTRIBUTION. If the indemnification provided for in this
Section 7 is unavailable to or insufficient to hold harmless an indemnified
party under Section 7(a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) then
each indemnifying party shall contribute to the aggregate amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriter
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the
Company bears to the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. 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 Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission.
The Company and Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(f) were determined by
pro rata allocation (even if the Underwriters 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 above in this Section
7(f). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 7(f) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(f), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts
and commissions applicable to the Shares purchased by such Underwriter and
(ii) 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. The
Underwriters' obligations in this Section 7(f) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(g) TIMING OF ANY PAYMENTS OF INDEMNIFICATION. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled
to indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.
(h) SURVIVAL. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth
in this Agreement shall remain
28.
<PAGE>
operative and in full force and effect, regardless of (i) any investigation
made by or on behalf of any Underwriter or any person controlling any
Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(i) ACKNOWLEDGEMENTS OF PARTIES. The parties to this Agreement
hereby acknowledge that they are sophisticated business persons who were
represented by counsel during the negotiations regarding the provisions
hereof including, without limitation, the provisions of this Section 7, and
are fully informed regarding said provisions. They further acknowledge that
the provisions of this Section 7 fairly allocate the risks in light of the
ability of the parties to investigate the Company and its business in order
to assure that adequate disclosure is made in the Registration Statement and
Prospectus as required by the Securities Act and the Exchange Act.
(j) INDEMNIFICATION OF A QUALIFIED INDEPENDENT UNDERWRITER. Without
limitation and in addition to its obligations under the other subsections of
this Section 7, the Company and the Selling Stockholders agree to indemnify
and hold harmless Banc of America Securities LLC and each person, if any, who
controls Banc of America Securities LLC within the meaning of the Securities
Act or the Exchange Act from and against any loss, claim, damage, liabilities
or expense, as incurred, arising out of or based upon Banc of America
Securities LLC acting as a "qualified independent underwriter" (within the
meaning of Rule 2720 to the NASD's Conduct Rules) in connection with the
offering contemplated by this Agreement, and agrees to reimburse each such
indemnified person for any legal or other expense reasonably incurred by them
in connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; PROVIDED,
HOWEVER, that the Company and the Selling Stockholders shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
expense results from the gross negligence or willful misconduct of Banc of
America Securities LLC.
Section 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS.
If, on the First Closing Date or the Second Closing Date, as the case may be,
any one or more of the several Underwriters shall fail or refuse to purchase
Shares that it or they have agreed to purchase hereunder on such date, and
the aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of
the aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the
number of Firm Common Shares set forth opposite their respective names on
SCHEDULE A bears to the aggregate number of Firm Shares set forth opposite
the names of all such non-defaulting Underwriters, or in such other
proportions as may be specified by the Representatives with the consent of
the non-defaulting Underwriters, to purchase the Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date. If, on the First Closing Date or the Second Closing Date, as the case
may be, any one or more of the Underwriters shall fail or refuse to purchase
Shares and the aggregate number of Shares with respect to which such default
occurs exceeds 10% of the aggregate number of Shares to be purchased on such
date, and arrangements satisfactory to the
29.
<PAGE>
Representatives and the Company for the purchase of such Shares are not made
within 48 hours after such default, this Agreement shall terminate without
liability of any party to any other party except that the provisions of
Section 4, and Section 7 shall at all times be effective and shall survive
such termination. In any such case either the Representatives or the Company
shall have the right to postpone the First Closing Date or the Second Closing
Date, as the case may be, but in no event for longer than seven days in order
that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed
to include any person substituted for a defaulting Underwriter under this
Section 8. Any action taken under this Section 8 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 9. TERMINATION OF THIS AGREEMENT. Prior to the First
Closing Date, this Agreement may be terminated by the Representatives by
notice given to the Company and the Selling Stockholders if at any time (i)
trading or quotation in any of the Company's securities shall have been
suspended or limited by the Commission or by the Nasdaq Stock Market, or
trading in securities generally on either the Nasdaq Stock Market or the New
York Stock Exchange shall have been suspended or limited, or minimum or
maximum prices shall have been generally established on any of such stock
exchanges by the Commission or the National Association of Securities
Dealers, Inc.; (ii) a general banking moratorium shall have been declared by
any of federal, New York , Delaware or California authorities; (iii) there
shall have occurred any outbreak or escalation of national or international
hostilities or any crisis or calamity, or any change in the United States or
international financial markets, or any substantial change or development
involving a prospective change in United States' or international political,
financial or economic conditions, as in the judgment of the Representatives
is material and adverse and makes it impracticable or inadvisable to market
the Common Shares in the manner and on the terms described in the Prospectus
or to enforce contracts for the sale of securities; (iv) in the judgment of
the Representatives there shall have occurred any Material Adverse Change; or
(v) the Company shall have sustained a loss by strike, fire, flood,
earthquake, accident or other calamity of such character as in the judgment
of the Representatives may interfere materially with the conduct of the
business and operations of the Company regardless of whether or not such loss
shall have been insured. Any termination pursuant to this Section 9 shall be
without liability on the part of (a) the Company or the Selling Stockholders
to any Underwriter, except that the Company and the Selling Stockholders
shall be obligated to reimburse the expenses of the Representatives and the
Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to the
Company or the Selling Stockholders, or (c) of any party hereto to any other
party except that the provisions of Section 7 shall at all times be effective
and shall survive such termination.
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and
of the several Underwriters set forth in or made pursuant to this Agreement
will remain in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter or the Company or any of its or their
partners, officers or directors or any controlling person, or the Selling
Stockholders, as the case may be, and will
30.
<PAGE>
survive delivery of and payment for the Shares sold hereunder and any
termination of this Agreement.
SECTION 11. NOTICES. All communications hereunder shall be in
writing and shall be mailed, hand delivered or telecopied and confirmed to
the parties hereto as follows:
If to the Representatives:
BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
Banc of America Securities LLC
9 West 57th Street
New York, NY 10019
Facsimile: (212) 847-5565
Attention: General Counsel
PaineWebber Incorporated
1285 Avenue of the Americas, 13th Floor
New York, NY 10019
Facsimile: (212) 713-9684
Attention: General Counsel
First Union Capital Markets Corp.
Riverfront Plaza, WF2035
901 East Byrd Street
Richmond, VA 23219
Facsimile: (804) 782-3440
Attention: General Counsel
If to the Company:
Charlotte Russe
4645 Morena Boulevard
San Diego, CA 92117
Facsimile: (619) 587-0619
Attention: Chief Executive Officer
If to the Selling Stockholders:
31.
<PAGE>
[Custodian]
[address]
Facsimile: [___]
Attention: [___]
Any party hereto may change the address for receipt of communications by
giving written notice to the others.
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 8 hereof, and to the benefit of the employees, officers
and directors and controlling persons referred to in Section 7, and to their
respective successors, and personal Representatives, and no other person will
have any right or obligation hereunder. The term "successors" shall not
include any purchaser of the Shares as such from any of the Underwriters
merely by reason of such purchase.
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement
shall not affect the validity or enforceability of any other Section,
paragraph or provision hereof. If any Section, paragraph or provision of
this Agreement is for any reason determined to be invalid or unenforceable,
there shall be deemed to be made such minor changes (and only such minor
changes) as are necessary to make it valid and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS.
(a) GOVERNING LAW. This agreement shall be governed by and construed
in accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) CONSENT TO JURISDICTION. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or
the courts of the State of California in each case located in the City and
County of San Francisco (collectively, the "Specified Courts"), and each
party irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of any such
court (a "Related Judgment"), as to which such jurisdiction is non-exclusive)
of such courts in any such suit, action or proceeding. Service of any
process, summons, notice or document by mail to such party's address set
forth above shall be effective service of process for any suit, action or
other proceeding brought in any such court. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any suit,
action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that
any such suit, action or other proceeding brought in any such court has been
brought in an inconvenient forum. Each party not located in the United
States irrevocably appoints CT Corporation System, which currently maintains
a San Francisco office at 49 Stevenson Street, San Francisco, California
94105, United States of America, as its agent to receive service of process
or other legal summons for purposes of any such suit, action or proceeding
that may be instituted in any state or federal court in the City and County
of San Francisco.
32.
<PAGE>
(c) WAIVER OF IMMUNITY. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law,
all immunity (whether on the basis of sovereignty or otherwise) from
jurisdiction, service of process, attachment (both before and after judgment)
and execution to which it might otherwise be entitled in the Specified
Courts, and with respect to any Related Judgment, each party waives any such
immunity in the Specified Courts or any other court of competent
jurisdiction, and will not raise or claim or cause to be pleaded any such
immunity at or in respect of any such Related Proceeding or Related Judgment,
including, without limitation, any immunity pursuant to the United States
Foreign Sovereign Immunities Act of 1976, as amended.
SECTION 15. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO
SELL AND DELIVER COMMON SHARES. If one or more of the Selling Stockholders
shall fail to sell and deliver to the Underwriters the Shares to be sold and
delivered by such Selling Stockholders at the First Closing Date pursuant to
this Agreement, then the Underwriters may at their option, by written notice
from the Representatives to the Company and the Selling Stockholders, either
(i) terminate this Agreement without any liability on the part of any
Underwriter or, except as provided in Sections 5, 6, and 7 hereof, the
Company or the Selling Stockholders, or (ii) purchase the shares which the
Company and other Selling Stockholders have agreed to sell and deliver in
accordance with the terms hereof. If one or more of the Selling Stockholders
shall fail to sell and deliver to the Underwriters the Shares to be sold and
delivered by such Selling Stockholders pursuant to this Agreement at the
First Closing Date or the Second Closing Date, then the Underwriters shall
have the right, by written notice from the Representatives to the Company and
the Selling Stockholders, to postpone the First Closing Date or the Second
Closing Date, as the case may be, but in no event for longer than seven days
in order that the required changes, if any, to the Registration Statement and
the Prospectus or any other documents or arrangements may be effected.
SECTION 16. GENERAL PROVISIONS. This Agreement constitutes the
entire agreement of the parties to this Agreement and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may
be executed in two or more counterparts, each one of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement may not be amended or modified
unless in writing by all of the parties hereto, and no condition herein
(express or implied) may be waived unless waived in writing by each party
whom the condition is meant to benefit. The Table of Contents and the Section
headings herein are for the convenience of the parties only and shall not
affect the construction or interpretation of this Agreement.
[The remainder of this page has been intentionally left blank.]
33.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Custodian the
enclosed copies hereof, whereupon this instrument, along with all
counterparts hereof, shall become a binding agreement in accordance with its
terms.
Very truly yours,
CHARLOTTE RUSSE HOLDINGS, INC.
By:
-----------------------------------
Bernard Zeichner, President and
Chief Executive Officer
[SELLING SHAREHOLDERS]
By:
-----------------------------------
Attorney-in-fact for the Selling
Stockholders named in Schedule B
hereto
The foregoing Underwriting Agreement is hereby confirmed and
accepted by the Representatives as of the date first above written on their
behalf and on behalf of each of the several underwriters named in SCHEDULE A
hereto.
BANCBOSTON ROBERTSON STEPHENS INC.
By:
-------------------------------
Authorized Signatory
BANC OF AMERICA SECURITIES LLC
By:
-------------------------------
Authorized Signatory
34.
<PAGE>
PAINEWEBBER INCORPORATED
By:
-------------------------------
Authorized Signatory
FIRST UNION CAPITAL MARKETS CORP.
By:
-------------------------------
Authorized Signatory
35.
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM COMMON
UNDERWRITERS SHARES TO BE PURCHASED
- ---------------------------------------------------------------------------
<S> <C>
BancBoston Robertson Stephens Inc. and BancBoston
Robertson Stephens International Limited . . . . . . . [___]
Banc of America Securities LLC . . . . . . . . . . . . [___]
PaineWebber Incorporated . . . . . . . . . . . . . . . [___]
First Union Capital Markets Corp . . . . . . . . . . . [___]
Total . . . . . . . . . . . . . . . . . . . . . . [___]
</TABLE>
S-A
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF FIRM
SELLING STOCKHOLDER SHARES TO BE SOLD
- ---------------------------------------------------------------------------
<S> <C>
SK INVESTMENT FUND, L.P. . . . . . . . . . . . . . . [___]
THE SK EQUITY FUND, L.P. . . . . . . . . . . . . . . [___]
FSC CORP. . . . . . . . . . . . . . . . . . . . . . [___]
Total: . . . . . . . . . . . . . . . [___]
------------------
------------------
</TABLE>
S-B
<PAGE>
SCHEDULE C
<TABLE>
<CAPTION>
MAXIMUM NUMBER OF OPTION
SELLING STOCKHOLDER SHARES TO BE SOLD
- ---------------------------------------------------------------------------
<S> <C>
SK INVESTMENT FUND, L.P. . . . . . . . . . . . . [___]
THE SK EQUITY FUND, L.P. . . . . . . . . . . . . [___]
FSC CORP. . . . . . . . . . . . . . . . . . . . [___]
Total: . . . . . . . . . . . . . . . [___]
------------------
------------------
</TABLE>
S-C
<PAGE>
EXHIBIT B
MATTERS TO BE COVERED IN THE OPINION OF COMPANY COUNSEL
(i) The Company and each Subsidiary (as that term is defined in
Regulation S-X of the Act) has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Company and each Subsidiary has the corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus;
(iii) The Company and each Subsidiary is duly qualified to do business as
a foreign corporation and is in good standing in each jurisdiction, if any,
in which the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a Material Adverse Effect.
To such counsel's knowledge, the Company does not own or control, directly
or indirectly, any corporation, association or other entity other than
[list subsidiaries];
(iv) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus under the caption "Capitalization" as of
the dates stated therein, the issued and outstanding shares of capital
stock of the Company (including the Selling Stockholder Shares) have been
duly and validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, will not have been issued in violation of or subject
to any preemptive right, co-sale right, registration right, right of first
refusal or other similar right;
(v) All issued and outstanding shares of capital stock of each
Subsidiary of the Company have been duly authorized and validly issued and
are fully paid and nonassessable, and, to such counsel's knowledge, have
not been issued in violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar right
and are owned by the Company free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest;
(vi) The Firm Shares, to be issued by the Company pursuant to the terms
of this Agreement have been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms hereof, will be duly
and validly issued and fully paid and nonassessable, and will not have been
issued in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right.
(vii) The Company has the corporate power and authority to enter into
this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered
by the Company and,
B-1
<PAGE>
assuming due authorization, execution and delivery by you, is a valid
and binding agreement of the Company, enforceable in accordance with its
terms, except as rights to indemnification hereunder may be limited by
applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general
equitable principles;
(ix) The Registration Statement has become effective under the Act and,
to such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Securities Act;
(x) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares
or the Option Shares have been validly registered under the Securities Act
and the Rules and Regulations of the Exchange Act and the applicable rules
and regulations of the Commission thereunder;
(xi) The Registration Statement and the Prospectus, and each amendment
or supplement thereto (other than the financial statements (including
supporting schedules) and financial data derived therefrom as to which such
counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects with
the requirements of the Act and the applicable Rules and Regulations;
(xii) The information in the Prospectus under the caption "Description of
Capital Stock," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary of
such matters and conclusions; and the forms of certificates evidencing the
Common Stock and filed as exhibits to the Registration Statement comply
with Delaware law;
(xiii) The description in the Registration Statement and the Prospectus of
the charter and bylaws of the Company and of statutes are accurate and
fairly present the information required to be presented by the Securities
Act;
(xiv) To such counsel's knowledge, there are no agreements, contracts,
leases or documents to which the Company is a party of a character required
to be described or referred to in the Registration Statement or Prospectus
or to be filed as an exhibit to the Registration Statement which are not
described or referred to therein or filed as required;
(xv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default
under, any bond, debenture, note or other evidence of indebtedness, or any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument known to such counsel to which the
Company is a party or by which its properties are bound, or any applicable
statute, rule or regulation known to such
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counsel or, to such counsel's knowledge, any order, writ or decree of
any court, government or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries, or over any of their
properties or operations;
(xvi) No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over any of
their properties or operations is necessary in connection with the
consummation by the Company of the transactions herein contemplated, except
(i) such as have been obtained under the Securities Act, (ii) such as may
be required under state or other securities or Blue Sky laws in connection
with the purchase and the distribution of the Shares by the Underwriters,
(iii) such as may be required by the National Association of Securities
Dealers, Inc. and (iv) such as may be required under the federal or
provincial laws of Canada;
(xvii) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or any of its
subsidiaries of a character required to be disclosed in the Registration
Statement or the Prospectus, by the Securities Act or the applicable rules
and regulations of the Commission thereunder, other than those described
therein;
(xviii) To such counsel's knowledge, neither the Company nor any of its
subsidiaries is presently (a) in material violation of its respective
charter or bylaws, or (b) in material breach of any applicable statute,
rule or regulation known to such counsel or, to such counsel's knowledge,
any order, writ or decree of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries, or over
any of their properties or operations; and
(xix) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Shares or other
securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
rights known to such counsel to registration of such shares of Common
Shares or other securities, because of the filing of the Registration
Statement by the Company have, with respect to the offering contemplated
thereby, waived such rights or such rights have expired by reason of lapse
of time following notification of the Company's intent to file the
Registration Statement or have included securities in the Registration
Statement pursuant to the exercise of and in full satisfaction of such
rights.
(xx) The Company is not and, after giving effect to the offering and the
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(xxi) To such counsel's knowledge, the Company owns or possesses
sufficient trademarks, trade names, patent rights, copyrights, licenses,
approvals, trade secrets and other similar rights (collectively,
"Intellectual Property Rights") reasonably necessary to conduct their
business as now conducted; and the expected expiration of any such
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Intellectual Property Rights would not result in a Material Adverse
Effect. The Company has not received any notice of infringement or
conflict with asserted Intellectual Property Rights of others, which
infringement or conflict, if the subject of an unfavorable decision,
would result in a Material Adverse Effect. To such counsel's knowledge,
the Company's discoveries, inventions, products, or processes referred
to in the Registration Statement or Prospectus do not infringe or
conflict with any right or patent which is the subject of a patent
application known to the Company.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters
were discussed, and although they have not verified the accuracy or
completeness of the statements contained in the Registration Statement or the
Prospectus, nothing has come to the attention of such counsel which leads
them to believe that, at the time the Registration Statement became effective
and at all times subsequent thereto up to and on the First Closing Date or
Second Closing Date, as the case may be, the Registration Statement and any
amendment or supplement thereto (other than the financial statements
including supporting schedules and other financial and statistical
information derived therefrom, as to which such counsel need express no
comment) contained any 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 at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus
and any amendment or supplement thereto (except as aforesaid) contained any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
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EXHIBIT C
MATTERS TO BE COVERED IN THE OPINION OF UNDERWRITERS' COUNSEL
(i) The Firm Shares have been duly authorized and, upon issuance and
delivery and payment therefor in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and
non-assessable.
(ii) The Registration Statement complied as to form in all material
respects with the requirements of the Act; the Registration Statement has
become effective under the Act and, to such counsel's knowledge, no stop
order proceedings with respect thereto have been instituted or threatened
or are pending under the Securities Act.
(iii) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Shares have
been validly registered under the Securities Act and the Rules and
Regulations of the Exchange Act and the applicable rules and regulations of
the Commission thereunder;
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
(v) The Underwriting Agreement has been duly authorized, executed and
delivered by the Selling Stockholders.
Such counsel shall state that such counsel has reviewed the
opinions addressed to the Representatives from Ropes & Gray, dated the date
hereof, and furnished to you in accordance with the provisions of the
Underwriting Agreement. Such opinions appear on their face to be
appropriately responsive to the requirements of the Underwriting Agreement.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Company Counsel and the independent certified
public accountants of the Company, at which such conferences the contents of
the Registration Statement and Prospectus and related matters were discussed,
and although they have not verified the accuracy or completeness of the
statements contained in the Registration Statement or the Prospectus, nothing
has come to the attention of such counsel which leads them to believe that,
at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the First Closing Date or Second Closing
Date, as the case may be, the Registration Statement and any amendment or
supplement thereto (other than the financial statements including supporting
schedules and other financial and statistical information derived therefrom,
as to which such counsel need express no comment) contained any 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 at the First Closing Date or the Second Closing Date, as the case may be,
the Registration Statement, the Prospectus and any amendment or supplement
thereto (except as aforesaid) contained any untrue statement of a material
fact or omitted to state a material fact necessary to make the
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statements therein, in the light of the circumstances under which they were
made, not misleading.
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EXHIBIT D
MATTERS TO BE COVERED IN THE OPINION OF SELLING STOCKHOLDER COUNSEL
(i) The Underwriting Agreement has been duly authorized, executed and
delivered by or on behalf of, and is a valid and binding agreement of, each
Selling Stockholder, enforceable in accordance with its terms, except as
rights to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(ii) The execution and delivery by each Selling Stockholder of, and the
performance by each Selling Stockholder of his, her or its obligations
under, the Underwriting Agreement and the Custody Agreement and the Power
of Attorney will not contravene or conflict with, result in a breach of, or
constitute a default under, the charter or by-laws, partnership agreement,
trust agreement or other organization documents, as the case may be, of any
Selling Stockholder, or, to the best of such counsel's knowledge, violate,
result in a breach of or constitute a default under the terms of any other
agreement or instrument to which any Selling Stockholder is a party or by
which it is bound, or any judgement, order or decree applicable to such
Selling Stockholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Stockholder.
(iii) Such Selling Stockholder has good and valid title to all of the
Common Shares which may be sold by such Selling Stockholder under the
Underwriting Agreement and has the legal right and power, and all
authorization and approvals required to enter into the Underwriting
Agreement and its Custody Agreement and its Power of Attorney, to sell,
transfer and deliver all of the Common Shares which may be sold by such
Selling Stockholder under the Underwriting Agreement and to comply with its
other obligations under the Underwriting Agreement, its Custody Agreement
and its Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of such Selling
Stockholder has been duly authorized, executed and delivered by such
Selling Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(v) Assuming that the Underwriters purchase the Shares which are sold
by such Selling Stockholder pursuant to the Underwriting Agreement for
value, in good faith and without notice of any adverse claims, the delivery
of such Shares pursuant to the Underwriting Agreement will pass good and
valid title to such Shares, free and clear of any security interest,
mortgage, pledge, lieu encumbrance or other claim.
(vi) To the best of such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any court
or governmental authority or
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agency, is required for the consummation by such Selling Stockholder of the
transactions contemplated in the Underwriting Agreement, except as required
under the Securities Act, applicable state securities or blue sky laws, and
from the National Association of Securities Dealers, LLC.
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EXHIBIT 3.2
AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
CHARLOTTE RUSSE HOLDING, INC.
Charlotte Russe Holding, Inc. does hereby submit this Certificate
of Amendment to its Certificate of Incorporation, duly adopted pursuant to
Sections 228 and 242 of the General Corporation Law of the State of Delaware,
for the purpose of amending the Certificate of Incorporation, which was
originally filed with the Secretary of State of the State of Delaware on July
30, 1996, as subsequently amended on September 23, 1996.
It is hereby certified that the certificate of incorporation of the
corporation is hereby amended by striking out Article Fourth thereof and by
substituting in lieu of said Article IV the following:
"FOURTH:
The total number of shares of all classes of stock which the
corporation shall have authority to issue 53,000,000 shares, consisting of
50,000,000 shares of Common Stock, par value $1.00 per share (the "Common
Stock"), and (ii) 3,000,000 shares of Preferred Stock, par value $0.01 per
share (the "Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the corporation.
1. COMMON STOCK.
A. GENERAL. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the
Board of Directors upon any issuance of the Preferred Stock of any series.
The holders of the Common Stock shall have no preemptive rights to subscribe
for any shares of any class of stock of this corporation whether now or
hereafter authorized.
<PAGE>
B. VOTING. The holders of the Common Stock are entitled to one
vote for each share held at all meetings of stockholders. There shall be no
cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares hereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
C. DIVIDENDS. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as and when determined by the
Board of Directors and subject to any preferential dividend rights of any
then outstanding Preferred Stock.
D. LIQUIDATION. Upon the dissolution or liquidation of the
corporation, whether voluntary or involuntary, holders of Common Stock will
be entitled to receive all assets of the corporation available for
distribution to its stockholders, subject to any preferential rights of any
then outstanding Preferred Stock.
2. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more
series, each of such series to have such terms as stated or expressed herein
and in the resolution or resolutions providing for the issue of such series
adopted by the Board of Directors of the corporation as hereinafter provided.
Any shares of Preferred Stock which may be redeemed, purchased or acquired by
the corporation may be reissued except as otherwise provided by law or this
Certificate of Incorporation. Different series of Preferred Stock shall not
be construed to constitute different classes of shares for the purposes of
voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors
from time to time to the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix 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, including without
limitation thereof, dividend rights, conversion rights, redemption priveleges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the
foregoing, the resolutions providing for issuance of any series of Preferred
Stock may provide that such series shall be superior or rank equally or be
junior to the Preferred Stock of any other series to the extent permitted by
law and this Certificate of Incorporation. Except as otherwise provided in
this Certificate of Incorporation, no vote of the holders of the Preferred
Stock or Common Stock shall be a prerequisite to the designation or issuance
of any shares of any series of the Preferred Stock authorized by and
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complying with the conditions of this Certificate of Incorporation, the right
to have such vote being expressly waived by all present and future holders of
the capital stock of the corporation."
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<PAGE>
AMENDED AND RESTATED BYLAWS
OF
CHARLOTTE RUSSE HOLDING, INC.
* * * * *
ARTICLE I.
OFFICES
Section 1. REGISTERED OFFICE. The registered office shall be in
the City of Wilmington, County of New Castle, State of Delaware.
Section 2. 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 the business of the
Corporation may require.
Section 3. BOOKS. The books of the Corporation may be kept within
or without of the State of Delaware as the Board of Directors may from time to
time determine or the business of the Corporation may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. TIME AND PLACE OF MEETINGS. All meetings of
stockholders shall be held at such place, either within or without the State of
Delaware, on such date and at such time as may be determined from time to time
by the Board of Directors (or the Chairman in the absence of a designation by
the Board of Directors).
Section 2. ANNUAL MEETINGS. Annual meetings of stockholders,
commencing with the year 1996, shall be held to elect the Board of Directors and
transact such other business as may properly be brought before the meeting.
Section 3. SPECIAL MEETINGS. Special meetings of stockholders
may be called by the Board of Directors or the chairman of the Board and shall
be called by the Secretary at the request in writing of holders of record of a
majority of the outstanding capital stock of the Corporation entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
<PAGE>
Section 4. NOTICE OF MEETING AND ADJOURNED MEETINGS; WAIVERS OF
NOTICE.
(a) Whenever stockholders are required or permitted to take
any action at a meeting, a written notice of the meeting shall be given which
shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Unless
otherwise provided by the General Corporation Law of the State of Delaware as
the same exists or may hereafter be amended ("Delaware Law"), such notice shall
be given not less than 10 nor more than 60 days before the date of the meeting
to each stockholder of record entitled to vote at such meeting. Unless these
bylaws otherwise require, when a meeting is adjourned to another time or place
(whether or not a quorum is present), notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the Corporation may transact any
business which might have been transacted at the original meeting. If the
adjournment is for more than 30 days, or after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
(b) A written waiver of any such notice signed by the person
entitled thereto, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person 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. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 5. QUORUM. Unless otherwise provided under the
certificate of incorporation or these bylaws and subject to Delaware Law, the
presence, in person or by proxy, of the holders of a majority of the outstanding
capital stock of the Corporation entitled to vote at a meeting of stockholders
shall constitute a quorum for the transaction of business.
Section 6. VOTING.
(a) Unless otherwise provided in the certificate of
incorporation and subject to Delaware Law, each stockholder shall be entitled to
one vote for each outstanding share of capital stock of the Corporation held by
such stockholder. Unless otherwise provided in Delaware Law, the certificate of
incorporation or these bylaws, the affirmative vote of a majority of the shares
of capital stock of the Corporation present, in person or by proxy, at a meeting
of stockholders and entitled to vote on the subject matter shall be the act of
the stockholders.
(b) Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize
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another person or persons to act for him by proxy, but no such proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period.
Section 7. ACTION BY CONSENT.
(a) Unless otherwise provided in the certificate of
incorporation, any action required 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 or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding capital 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 and shall be delivered to the Corporation by
delivery to its registered office in 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. 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.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within 60
days of the earliest dated consent delivered in the manner required by this
Section and Delaware Law to the Corporation, written consents signed by a
sufficient number of holders to take action are delivered to the Corporation by
delivery to its registered office in 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.
Section 8. ORGANIZATION. At each meeting of stockholders, the
Chairman of the Board, if one shall have been elected, (or in his absence or if
one shall not have been elected, the President) shall act as chairman of the
meeting. The Secretary (or in his absence or inability to act, the person whom
the chairman of the meeting shall appoint secretary of the meeting) shall act as
secretary of the meeting and keep the minutes thereof.
Section 9. ORDER OF BUSINESS. The order of business at all
meetings of stockholders shall be as determined by the chairman of the meeting.
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<PAGE>
ARTICLE III.
DIRECTORS
Section 1. GENERAL POWERS. Except as otherwise provided in
Delaware Law or the certificate of incorporation, the business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors.
Section 2. NUMBER, ELECTION AND TERM OF OFFICE. The number of
directors which shall constitute the whole Board shall be fixed from time to
time by resolution of the Board of Directors but shall not be less than three
nor more than seven. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 12 of this Article III, and each
director so elected shall hold office until his successor is elected and
qualified or until his earlier death, resignation or removal. Directors need not
be stockholders.
Section 3. QUORUM AND MANNER OF ACTING. Unless the certificate
of incorporation or these bylaws require a greater number, a majority of the
total number of directors shall constitute a quorum for the transaction of
business, and the affirmative vote of a majority of the directors present at
meeting at which a quorum is present shall be the act of the Board of Directors.
When a meeting is adjourned to another time or place (whether or not a quorum is
present), notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the Board of Directors may transact any business which
might have been transacted at the original meeting. 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 shall be present.
Section 4. TIME AND PLACE OF MEETINGS. The Board of Directors
shall hold its meetings at such place, either within or without the State of
Delaware, and at such time as may be determined from time to time by the Board
of Directors (or the Chairman in the absence of a determination by the Board of
Directors).
Section 5. ANNUAL MEETING. The Board of Directors shall meet
for the purpose of organization, the election of officers and the transaction of
other business, as soon as practicable after each annual meeting of
stockholders, on the same day and at the same place where such annual meeting
shall be held. Notice of such meeting need not be given. In the event such
annual meeting is not so held, the annual meeting of the Board of Directors may
be held at such place either within or without the State of Delaware, on such
date and at such time as shall be specified in a notice thereof given as
hereinafter provided in Section 7 of this Article III or in a waiver of notice
thereof signed by any director who chooses to waive the requirement of notice.
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<PAGE>
Section 6. REGULAR MEETINGS. After the place and time of
regular meetings of the Board of Directors shall have been determined and notice
thereof shall have been once given to each member of the Board of Directors,
regular meetings may be held without further notice being given.
Section 7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President and shall
be called by the Chairman of the Board, President or Secretary on the written
request of three directors. Notice of special meetings of the Board of Directors
shall be given to each director at least three days before the date of the
meeting in such manner as is determined by the Board of Directors.
Section 8. 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. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
bylaws of the Corporation; and unless the resolution of the Board of Directors
or the certificate of incorporation expressly so provide, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
Section 9. ACTION BY CONSENT. Unless otherwise restricted by
the certificate of incorporation or these bylaws, 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 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.
Section 10. TELEPHONIC MEETINGS. Unless otherwise restricted
by the certificate of incorporation or these bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or 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
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<PAGE>
hear each other, and such participation in a meeting shall constitute
presence in person at the meeting.
Section 11. RESIGNATION. Any director may resign at any time
by giving written notice to the Board of Directors or to the Secretary of the
Corporation. The resignation of any director shall take effect upon receipt of
notice thereof or at such later time as shall be specified in such notice; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 12. VACANCIES. Unless otherwise provided in the
certificate of incorporation, vacancies and newly created directorships
resulting from any increase in the authorized number of directors elected by all
the stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by the certificate
of incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of directors elected by such class
or classes or series thereof then in office, or by a sole remaining director so
elected. Each director so chosen shall hold office until his successor is
elected and qualified, or until his earlier death, resignation or removal. If
there are no directors in office, then an election of directors may be held in
accordance with Delaware Law. Unless otherwise provided in the certificate of
incorporation, when one or more directors shall resign from the Board, effective
at a future date, a majority of the directors then in office, including those
who have so resigned, shall have the power to fill such vacancy or vacancies,
the vote thereon to take effect when such resignation or resignations shall
become effective, and each director so chosen shall hold office as provided in
the filling of other vacancies.
Section 13. REMOVAL. Any director or the entire Board of
Directors may be removed, with or without cause, at any time by the affirmative
vote of the holders of a majority of the outstanding capital stock of the
Corporation entitled to vote and the vacancies thus created may be filled in
accordance with Section 12 of this Article III.
Section 14. COMPENSATION. Unless otherwise restricted by the
certificate of incorporation or these bylaws, the Board of Directors shall have
authority to fix the compensation of directors, including fees and reimbursement
of expenses.
ARTICLE IV.
OFFICERS
Section 1. PRINCIPAL OFFICERS. The principal officers of the
Corporation shall be a President, one or more Vice Presidents, a Treasurer and a
Secretary who shall have the duty, among other things, to record the proceedings
of the meetings of stockholders and
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directors in a book kept for that purpose. The Corporation may also have such
other principal officers, including one or more Controllers, as the Board may
in its discretion appoint. One person may hold the offices and perform the
duties of any two or more of said offices, except that no one person shall
hold the offices and perform the duties of President and Secretary.
Section 2. ELECTION, TERM OF OFFICE AND REMUNERATION. The
principal officers of the Corporation shall be elected annually by the Board of
Directors at the annual meeting thereof. Each such officer shall hold office
until his successor is elected and qualified, or until his earlier death,
resignation or removal. The remuneration of all officers of the Corporation
shall be fixed by the Board of Directors. Any vacancy in any office shall be
filled in such manner as the Board of Directors shall determine.
Section 3. SUBORDINATE OFFICERS. In addition to the principal
officers enumerated in Section 1 of this Article IV, the Corporation may have
one or more Assistant Treasurers, Assistant Secretaries and Assistant
Controllers and such other subordinate officers, agents and employees as the
Board of Directors may deem necessary, each of whom shall hold office for such
period as the Board of Directors may from time to time determine. The Board of
Directors may delegate to any principal officer the power to appoint and to
remove any such subordinate officers, agents or employees.
Section 4. REMOVAL. Except as otherwise permitted with respect to
subordinate officers, any officer may be removed, with or without cause, at any
time, by resolution adopted by the Board of Directors.
Section 5. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors (or to a principal officer if
the Board of Directors has delegated to such principal officer the power to
appoint and to remove such officer). The resignation of any officer shall take
effect upon receipt of notice thereof or at such later time as shall be
specified in such notice; and unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
Section 6. POWERS AND DUTIES. The officers of the Corporation
shall have such powers and perform such duties incident to each of their
respective offices and such other duties as may from time to time be conferred
upon or assigned to them by the Board of Directors.
ARTICLE V.
GENERAL PROVISIONS
Section 1. FIXING THE RECORD DATE.
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<PAGE>
(a) 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 60 nor less than 10 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 that the Board of Directors may fix a new record date for
the adjourned meeting.
(b) 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 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,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by Delaware 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 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 Delaware 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.
(c) 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 60 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.
Section 2. DIVIDENDS. Subject to limitations contained in
Delaware Law and the certificate of incorporation, the Board of Directors may
declare and pay dividends upon the
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<PAGE>
shares of capital stock of the Corporation, which dividends may be paid
either in cash, in property or in shares of the capital stock of the
Corporation.
Section 3. FISCAL YEAR. The fiscal year of the Corporation shall
commence on the day after the last Saturday in September of each year.
Section 4. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or otherwise reproduced.
Section 5. VOTING OF STOCK OWNED BY THE CORPORATION. The Board
of Directors may authorize any person, on behalf of the Corporation, to attend,
vote at and grant proxies to be used at any meeting of stockholders of any
corporation (except this Corporation) in which the Corporation may hold stock.
Section 6. AMENDMENTS. These bylaws or any of them, may be
altered, amended or repealed, or new bylaws may be made, by the stockholders
entitled to vote thereon at any annual or special meeting thereof or by the
Board of Directors.
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<PAGE>
Exhibit 4.1
CHARLOTTE RUSSE
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK CUSIP (TO COME)
SEE REVERSE FOR CERTAIN DEFINITIONS
This Certifies that
Is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR
VALUE $.01 PER SHARE, OF
Charlotte Russe Holding, Inc., (the "Corporation"), a Delaware corporation.
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by the
holder's duly authorized attorney or legal representative, upon the surrender
of this certificate properly endorsed.
This certificate is not valid until countersigned by the Corporation's
transfer agent and registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
Dated: [Seal]
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
- ---------------------- --------------------------
SECRETARY CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
BY Transfer Agent and Registrar
Authorized Officer
<PAGE>
CHARLOTTE RUSSE HOLDING, INC.
A statement of the rights, preferences, privileges and restrictions
granted to or imposed upon the respective classes or series of shares of
stock of the Corporation, and upon the holders thereof as established by the
Certificate of Incorporation or by any certificate of determination of
preferences, and the number of shares constituting each series or class and
the designations thereof, may be obtained by any stockholder of the
Corporation upon request and without charge from the Secretary of the
Corporation at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - _____ Custodian _____
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _________________________
in common (State)
UNIF TRF MIN ACT - _____ Custodian (until age ____)
(Cust)
________ under Uniform Transfers
(Minor)
to Minors Act __________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------
- -----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE,
OF ASSIGNEE)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- ---------------------------------------------------------------------- Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ______________________________________
_________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE(S) GUARANTEED:
BY ___________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15
<PAGE>
September 28, 1999
Charlotte Russe Holding, Inc.
4645 Morena Boulevard
San Diego, CA 92117
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended, for the registration of 2,700,000 shares of Common
Stock, par value $.01 per share (the "Shares"), of Charlotte Russe Holding,
Inc., a Delaware corporation (the "Company"). The shares are to be sold
pursuant to an underwriting agreement (the "Underwriting Agreement") to be
entered into by and among the Company, the selling stockholders named therein
(the "Selling Stockholders") and BancBoston Robertson Stephens, Inc., Banc of
America Securities, LLC, PaineWebber Incorporated, and First Union Capital
Markets Corp., as representatives of the several underwriters named in
Schedule A to the Underwriting Agreement (the "Underwriters"). The Shares
consist of 1,300,000 shares being sold by the Company, 1,400,000 shares being
sold by the Selling Stockholders and 405,000 shares subject to an
over-allotment option granted by certain Selling Stockholders to the
Underwriters.
We have acted as counsel for the Company and certain Selling
Stockholders in connection with the issue and sale by the Company and such
Selling Stockholders of the Shares. For purposes of our opinion, we have
examined and relied upon such documents, record, certificates and other
instruments as we have deemed necessary.
We express no opinion as to the applicability or compliance with or
effect of Federal law or of the law of any jurisdiction other than The
Commonwealth of Massachusetts and the General Corporation Law of the State of
Delaware (the "Delaware General Corporation Law").
Based on the foregoing, we are of the opinion that (i) the Shares
have been duly authorized, (ii) the Shares being sold by the Selling
Stockholders (other than the Shares referred to in clause (iv)) are validly
issued, fully paid and nonassessable, (iii) when issued and sold in
accordance with the terms of the Underwriting Agreement, the Shares being
sold by the Company will be validly issued, fully paid and nonassessable and
(iv) the Shares
<PAGE>
Charlotte Russe Holding, Inc. -2- September 16, 1999
to be received by certain Selling Stockholders upon exercise of warrants,
when issued upon exercise of such warrants in accordance with the these
terms, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as part of the
Registration Statement and to the use of our name therein and in the related
prospectus under the caption "Validity of Common Stock."
This opinion is to be used only in connection with the offer and sale
of the Shares while the Registration Statement is in effect.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
<PAGE>
SECURITYHOLDERS RIGHTS AGREEMENT
SECURITYHOLDERS RIGHTS AGREEMENT dated as of September 27, 1996 among
Charlotte Russe Holding, Inc., a Delaware corporation (together with its
successors, "Holdings"), The SK Equity Fund, L.P. ("SKEF") and SK Investment
Fund, L.P. (together with SKEF, the "Fund"), Bernard Zeichner (the "Management
Stockholder") and FSC Corp. ("FSC") (the Fund and the Management Stockholder
together with any holder of Conversion Shares (as defined herein) and such other
stockholders of Holdings as may, from time to time, become parties to this
Agreement in accordance with the provisions hereof, the "Stockholders"; and FSC
and such other warrantholders of Holdings as may, from time to time, become
parties to this Agreement in accordance with the provisions hereof, the
"Warrantholders");
WHEREAS on the date hereof, the Fund is the beneficial owner of 183,000
shares of Common Stock, and FSC is the beneficial owner of the Warrants (as
defined herein) to purchase 4,135.6 shares of Common Stock; and
WHEREAS within seven days of the date hereof, the Fund will sell to the
Management Stockholder, and the Management Stockholder will purchase from the
Fund 7,500 shares of Common Stock of the Company (thereby reducing the Fund's
beneficial ownership in Holdings to 175,000 shares of Common Stock); and
WHEREAS Holdings and each Stockholder (other than the Management
Stockholder and the holders of the Conversion Shares) wish to provide to the
Management Stockholder and the Warrantholders and the holders of the Conversion
Shares the rights described herein;
NOW THEREFORE the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. Unless otherwise defined herein, the following
terms used in this Agreement shall have the meanings specified below.
"Affiliate" means, with respect to any Person, any of (i) a director or
executive officer of such Person or (ii) any other Person that, directly or
indirectly, controls, or is controlled by or is under common control with such
Person. For the purpose of this definition, "control" (including the terms
"controlling", "controlled by" and "under common control with"), as used with
respect to any Person, means 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 or by contract or
agency or otherwise.
<PAGE>
"Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock of Holdings, par value $1.00 per
share.
"Conversion Shares" means (i) any shares of Common Stock issued upon the
exercise of any Warrants and (ii) any securities issued with respect to any of
such shares or other securities referred to in clause (i) by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise;
PROVIDED that any of such securities shall cease to be Conversion Shares when
such securities shall have (x) been disposed of pursuant to a Public Sale or (y)
ceased to be outstanding.
"Initial Public Offering" means the first registration of an offering of
shares of Common Stock under the Securities Act which becomes effective (other
than by a registration on Form S-8 or any successor or similar forms).
"Minority Shareholder" means the Management Stockholder, each Warrantholder
and each holder of Conversion Shares.
"Permitted Transferee" shall mean (i) in the case of a transfer of any of
the Registrable Securities held by FSC, FSC, any Affiliate of FSC, any SKM
Entity or any other Person to which the Fund shall have given its prior written
consent and (ii) in the case of a transfer of any of the Registrable Securities
held by the Management Stockholder, the Management Stockholder, his spouse,
parent(s), sibling(s), descendant(s), a trust created by him the beneficiaries
of which include only such of his relations, any SKM Entity or any other Person
to which the Fund shall have given its prior written consent.
"Person" means a corporation, an association, a partnership, a trust, a
limited liability company, an organization, a business, an individual, a
government or a subdivision thereof or a governmental agency.
"Piggy-Back Right Expiration Date" means the fifth anniversary of a
Qualified IPO.
"Public Sale" means any sale of Common Stock to the public pursuant to an
offering registered under the Securities Act or to the public through a broker,
dealer or market maker pursuant to the provisions of Rule 144 (or any successor
provision then in effect) adopted under the Securities Act.
"Qualified IPO" means an Initial Public Offering (and, if necessary, a
subsequent registered public offering) that results in aggregate cash proceeds
to the Company and any selling Securityholders of $15,000,000 or more.
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<PAGE>
"Registrable Securities" means the shares of Common Stock held by the
Management Stockholder, the Warrants, the Conversion Shares and any securities
obtained upon exchange for or upon conversion or transfer of or as a
distribution on such shares of Common Stock, Warrants, Conversion Shares or
securities; PROVIDED that particular securities shall cease to be Registrable
Securities when such securities shall have (x) been disposed of pursuant to a
Public Sale, (y) been otherwise transferred or exchanged and new certificates
for them not bearing a legend restricting further transfer shall have been
delivered by Holdings and subsequent disposition of them shall not require
registration or qualification of them under the Securities Act or any similar
state law then in force or (z) ceased to be outstanding. Whenever any
particular securities cease to be Registrable Securities the holder thereof
shall be entitled to receive from the issuer thereof or its transfer agent,
without expense (other than transfer taxes, if any), new securities of like
tenor not bearing a legend of the character set forth in Section 2.2.
"Registration Expenses" means all expenses incident to Holdings'
performance of or compliance with Section 3.1 hereof, including (i) all
registration, filing and NASD fees, (ii) all fees and expenses of complying with
securities or blue sky laws, (iii) all word processing, duplicating and printing
expenses, (iv) all messenger and delivery expenses, (v) the fees and
disbursements of counsel for Holdings and of its independent public accountants,
including the expenses of any special audits or "cold comfort" letters required
by or incident to such performance and compliance, (vi) the fees and
disbursements of any one counsel and any one accountant retained by the holder
or holders of more than 50% of the Common Stock being registered, (vii) premiums
and other costs of policies of insurance (if any) against liabilities arising
out of the public offering of Common Stock being registered if Holdings desires
such insurance, (viii) any reasonable fees and expenses of any Securityholder
and (ix) any fees and disbursements of underwriters, including the fees and
expenses of underwriter's counsel, customarily paid by issuers or sellers of
securities, but not including underwriting discounts and commissions and
transfer taxes, if any, PROVIDED that, in any case where Registration Expenses
are not to be borne by Holdings, such expenses shall not include (i) salaries of
Holdings personnel or general overhead expenses of Holdings, (ii) auditing fees,
(iii) premiums or other expenses relating to liability insurance required by
underwriters of Holdings or (iv) other expenses for the preparation of financial
statements or other data, to the extent that any of the foregoing either is
normally prepared by Holdings in the ordinary course of its business or would
have been incurred by Holdings had no public offering taken place.
"SKM Entity" means each of the Fund, any partner of the Fund, any Affiliate
of the Fund and any partner of any such Affiliate.
"Securities Act" means the Securities Act of 1933, or any similar Federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time. Reference to a particular section of the
Securities Act of 1933 shall include a reference to the comparable section, if
any, of any such similar Federal statute.
"Securityholders" means the Stockholders and the Warrantholders.
-3-
<PAGE>
"Stockholders" has the meaning set forth in the introductory paragraph.
"Tag-Along Right Expiration Date" means the earlier of (i) the tenth
anniversary of the date hereof, (ii) the second anniversary of a Qualified IPO
and (iii) the date on which the Fund and its Affiliates shall cease to own at
least 25% of the then outstanding shares of Common Stock (calculated on a fully
diluted basis).
"Transfer Restriction Termination Date" means the earlier of (i) the date
on which the Fund shall cease to own beneficially (within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, as amended) at least 50%
of the outstanding stock of each class of capital stock of Holdings, (ii) the
seventh anniversary of the date hereof and (iii) the fifth anniversary of an
Initial Public Offering.
"Warrantholders" has the meaning set forth in the introductory paragraph.
"Warrants" means the Warrants originally issued to FSC, as such Warrants
may be transferred or otherwise assigned, but only to the extent not therefore
exercised, redeemed or expired in accordance with their respective terms.
All references herein to "days" shall mean calendar days unless otherwise
specified.
ARTICLE II
TRANSFER OF SECURITIES
SECTION 2.1 PARTIAL EXERCISE. Prior to an Initial Public Offering, the
Warrantholders will not exercise the Warrants in part except in connection with
sales pursuant to Sections 2.4 and 2.5.
SECTION 2.2 RESTRICTIONS ON TRANSFER; LEGEND ON CERTIFICATES.
(a) Except as otherwise provided in this Agreement, Registrable
Securities shall not be transferable except (i) pursuant to an effective
registration statement under the Securities Act, (ii) pursuant to Rule 144 or
144A (or any successor provisions) under the Securities Act or (iii) pursuant to
a transaction that is otherwise exempt from the registration requirements of the
Securities Act.
(b) Unless otherwise expressly provided herein, each certificate for
Registrable Securities and each certificate issued in exchange for or upon
transfer of any thereof shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
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<PAGE>
NOT BE SOLD OR OFFERED FOR SALE UNLESS REGISTERED UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. THE SECURITIES REPRESENTED BY THIS CERTIFICATE
ARE ALSO SUBJECT TO AND HAVE THE BENEFIT OF A SECURITYHOLDERS RIGHTS
AGREEMENT DATED AS OF SEPTEMBER 27, 1996 AMONG CHARLOTTE RUSSE HOLDING,
INC. AND THE STOCKHOLDERS AND WARRANTHOLDERS PARTIES THERETO, COPIES OF
WHICH ARE ON FILE WITH CHARLOTTE RUSSE HOLDING, INC."
(c) Any other provision of this Agreement to the contrary
notwithstanding, prior to the Transfer Restriction Termination Date, no transfer
of any Registrable Securities other than pursuant to a Public Sale may be made
to any Person unless such Person shall have agreed in writing that such Person,
as a holder of Registrable Securities, and the Registrable Securities it
acquires shall be bound by and be entitled to the benefits of all the provisions
of this Agreement applicable to such Registrable Securities (and upon such
agreement such Person shall be entitled to such benefits). Any purported
transfer of Registrable Securities without compliance with the applicable
provisions of this Agreement shall be void and of no effect, and the purported
transferee shall have no rights as a Warrantholder or Stockholder (as
applicable) or under this Agreement. In the event of such non-complying
transfer, Holdings shall not transfer any such Registrable Securities on its
books or recognize the purported transferee as a shareholder or warrantholder,
as the case may be, for any purpose, until all applicable provisions of this
Agreement have been complied with.
(d) Each Securityholder represents that it is acquiring the shares of
Common Stock or Warrants, as the case may be, for investment for its own account
and not with a view to, or for sale in connection with, any distribution
thereof. Each Securityholder (either alone or together with its advisors) has
sufficient knowledge and experience in financial and business matters so as to
be capable of evaluating the merits and risks of its investments in the
securities and is capable of bearing the economic risks of such investment.
SECTION 2.3 PERMITTED TRANSFERS. Until the Transfer Restriction
Termination Date, none of FSC, the Management Stockholder or any Permitted
Transferee of such Securityholders shall transfer any Registrable Securities
unless such transfer is made (i) pursuant to Sections 2.4, 2.5 or 3.1, (ii) to a
Permitted Transferee or (iii) after an Initial Public Offering, pursuant to
Rule 144 under the Securities Act. Any such transfer to a Permitted Transferee
shall be made only (i) in compliance with all applicable federal and state
securities laws and (ii) if such Permitted Transferee shall have agreed in
writing that such Permitted Transferee, as a Stockholder or Warrantholder (as
the case may be), and the shares of Common Stock or Warrants it acquires, shall
be bound by and be entitled to the benefits of all the provisions of this
Agreement applicable to Common Stock or Warrants (as the case may be), and upon
such agreement such Permitted Transferee shall be entitled to such benefits.
Notwithstanding anything to the contrary contained in this Section 2.3, if any
Affiliate that received Registrable
-5-
<PAGE>
Securities in a transfer pursuant to this Section 2.1 ceases to be a
Permitted Transferee, such Affiliate shall immediately transfer such
securities to FSC, the Management Stockholder or another Permitted Transferee.
SECTION 2.4 TAG-ALONG RIGHTS. If at any time prior to the Tag-Along
Right Expiration Date the Fund or any of its Affiliates (any such Person for
purposes of this Section 2.4, the "Transferor") wishes to transfer any shares of
Common Stock owned by the Transferor to any Person that is not a SKM Entity (the
"Transferee"), the Transferor shall first give to each Minority Shareholder
(pursuant to a list provided by Holdings) a written notice (a "Transfer Notice")
containing (i) the number of shares of Common Stock that the Transferee proposes
to acquire from the Transferor, (ii) the name and address of the Transferee,
(iii) the proposed purchase price, terms of payment and other material terms and
conditions of such proposed transfer, (iv) an estimate of the fair market value
of any non-cash consideration offered by the Transferee and (v) an offer by the
Transferee to purchase, upon the purchase by the Transferee of any shares of
Common Stock owned by the Transferor and for the same per share consideration,
that number of Registrable Securities (or if such number is not an integral
number, the next integral number which is greater than such number) owned by
each Minority Shareholder which shall be the product of (x) the aggregate number
of Registrable Securities either then owned, or issuable upon exercise of
Warrants then owned, by Minority Shareholders electing to transfer shares of
Common Stock pursuant to this Section 2.4 and (y) a fraction, the numerator of
which shall be the number of shares of Common Stock indicated in the Transfer
Notice as subject to purchase by the Transferee and the denominator of which
shall be the sum of (A) the total number of shares of Common Stock then owned by
the Transferor and its Affiliates plus (B) the total number of shares of
Registrable Securities either then owned, or issuable upon exercise of Warrants
then owned, by the Minority Shareholders electing to transfer shares of Common
Stock pursuant to this Section 2.4. Each Minority Shareholder shall have the
right, for a period of 10 days after the Transfer Notice is given, to accept
such offer in whole or in part, exercisable by delivering a written notice to
the Transferor and Holdings within such 10-day period, stating therein the
number of shares of Common Stock of Common Stock (which may be the number of
shares set forth in the offer by the Transferor or Transferee, as the case may
be, or a portion thereof) to be sold by such Minority Shareholder to the
Transferor or Transferee, and the case may be. Prior to the earlier of (x) the
end of such 10-day period or (y) the acceptance or rejection by each of the
Minority Shareholders of the Transferee's or Transferor's offer, as the case may
be, neither the Transferor nor its Affiliates will complete any sale of shares
of Common Stock to the Transferee. Thereafter, for a period of 90 days after
the prohibition under the preceding sentence shall have terminated, the
Transferor may sell to the Transferee for the consideration stated and on the
terms set forth in the Transfer Notice the shares of Common Stock stated in the
Transfer Notice as subject to purchase by the Transferee, PROVIDED that the
Transferor or Transferee, as the case may be, shall simultaneously purchase the
number of shares of Common Stock as calculated above from the Minority
Shareholders to the extent any of such parties have accepted the Transferor's or
Transferee's offer, as the case may be. The provisions of this Section 2.4
shall not apply to transfers between the Transferor and any of its Affiliates or
between Affiliates of the Transferor.
-6-
<PAGE>
SECTION 2.5 DRAG-ALONG RIGHTS. If at any time prior to an Initial
Public Offering, the Fund or any Affiliate thereof (any such Person for
purposes of this Section 2.5, the "Transferor") wishes to transfer 50% or
more of the then outstanding shares of Common Stock in a bona fide sale to
any Person that is not a SKM Entity (the "Proposed Transferee"), then the
Transferor shall have the right (the "Drag-Along Right") to require each
Minority Shareholder to sell to the Proposed Transferee for the same per
share consideration received by the Transferor a pro rata share of the
Registrable Securities (calculated, in the case of any Warrants, on the
number of Conversion Shares for which such Warrant is exercisable at such
time) held by such Minority Shareholder. To exercise the Drag-Along Right,
the Transferor shall first give to Holdings and each Minority Shareholder
(pursuant to a list provided by Holdings) a written notice (a "Drag-Along
Notice") executed by the Transferor and the Proposed Transferee and
containing (a) the number of shares of Common Stock that the Proposed
Transferee proposes to acquire from the Transferor and its Affiliates,
(b) the name and address of the Proposed Transferee, (c) the proposed purchase
price, terms of payment and other material terms and conditions of the
Proposed Transferee's offer and (d) the aggregate number of Registrable
Securities owned by each of the Minority Shareholders with respect to which
the Transferor wishes to exercise its Drag-Along Right pursuant to this
Section 2.5. Each Minority Shareholder shall thereafter be obligated to sell
to the Proposed Transferee the Registrable Securities subject to such
Drag-Along Notice, PROVIDED that the sale to the Proposed Transferee is
consummated within 90 days of delivery of the Drag-Along Notice. If the sale
is not consummated within such 90-day period, then each affected Minority
Shareholder may sell, but shall no longer be obligated to sell, such Minority
Shareholder's securities pursuant to such Drag-Along Notice; PROVIDED that no
such failure to consummate a sale shall affect the ability of the Transferor
to exercise its Drag-Along Right pursuant to this Section 2.5. The
provisions of this Section 2.5 shall not apply to transfers between the
Transferor and any of its Affiliates or between any of its Affiliates.
SECTION 2.6 NO INCONSISTENT AGREEMENTS. Holdings has not entered into
and will not enter into any registration rights agreement or similar
arrangements the performance by Holdings of the terms of which would in any
manner conflict with, restrict or be inconsistent with the performance by
Holdings or the Fund of its obligations under this Agreement. After an Initial
Public Offering, Holdings will use its reasonable best efforts to file such
reports as are required to be filed in order for Securityholders to sell shares
of Common Stock pursuant to Rule 144 under the Securities Act.
ARTICLE III
PIGGY-BACK REGISTRATION RIGHTS
SECTION 3.1 INCIDENTAL REGISTRATION.
(a) If Holdings at any time prior to the Piggy-back Right Expiration
Date proposes to register any of its securities under the Securities Act (other
than by a registration on
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<PAGE>
Form S-8 or any successor or similar forms) whether for its own account or
for the account of the Fund, it will each such time give prompt written
notice to each Minority Shareholder of its intention to do so and of such
holders' rights under this Section 3.1. Upon the written request of any such
holder made within 20 days after the receipt of any such notice (which
request shall specify the Registrable Securities intended to be disposed of
by such holder and the intended method of disposition thereof), Holdings will
use its best efforts in good faith to effect the registration under the
Securities Act of all Registrable Securities which Holdings has been so
requested to register by the holders thereof (on a pro rata basis as provided
in paragraph (b) below), to the extent requisite to permit the disposition
(in accordance with the intended methods thereof as aforesaid) of the
Registrable Securities so to be registered, by inclusion of such Registrable
Securities in the registration statement which covers the securities which
Holdings proposes to register; PROVIDED that if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, Holdings shall determine for any reason either not to register
or to delay registration of such securities, Holdings may, at its election,
give written notice of such determination to each holder of Registrable
Securities and, thereupon, (i) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable
Securities, for the same period as the delay in registering such other
securities. Holdings will pay all Registration Expenses in connection with
each registration of Registrable Securities pursuant to this Section 3.1.
(b) If Holdings at any time prior to the Piggy-Back Right Expiration
Date proposes to register any of its securities under the Securities Act as
contemplated by Section 3.1 and such securities are to be distributed by or
through one or more underwriters, Holdings will, if requested by any holder of
Registrable Securities as provided in this Section 3.1, use its best efforts in
good faith to arrange for such underwriters to include all the Registrable
Securities to be offered and sold by such holder among the securities to be
distributed by such underwriters, PROVIDED that if the managing underwriter of
such underwritten offering shall inform Holdings, the Fund and holders of the
Registrable Securities requesting such registration by letter of its belief that
inclusion in such distribution of all or a specified number of such securities
proposed to be distributed by such underwriters would interfere with the
successful marketing of the securities being distributed by such underwriters
(such letter to state the basis of such belief and the approximate number of
such Registrable Securities proposed so to be registered which may be
distributed without such effect), then Holdings may, upon written notice to the
Fund and all other holders of such Registrable Securities, reduce (if and to the
extent stated by such managing underwriter to be necessary to eliminate such
effect), the shares of Common Stock of all Securityholders (other than
Holdings) proposed to be included in such distribution pro rata in proportion to
their respective proposed participations in such distribution so that the
resultant aggregate number of such Registrable Securities so included in such
registration, together with the number of securities to be included in such
registration for the account of Holdings, shall be equal to the number of shares
stated in such managing underwriter's letter.
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<PAGE>
SECTION 3.2 LOCK-UP AGREEMENT. Each holder of Registrable Securities
agrees by acquisition of such Registrable Securities not to sell, make any short
sale of, loan, grant any option for the purchase of, effect any public sale or
distribution of or otherwise dispose of any equity securities of Holdings,
during the 14 days prior to and the 180 days after the effective date of any
underwritten registration pursuant to Section 3.1 has become effective, except
as part of such underwritten registration, whether or not such holder
participates in such registration, and except as otherwise permitted by the
managing underwriter of such underwriting (if any), PROVIDED that after an
Initial Public Offering the foregoing restriction will not apply to a
Securityholder owning less than 1% of the then outstanding shares of Common
Stock if such Securityholder is not participating in the public sale or
distribution. Each holder of Registrable Securities agrees that Holdings may
instruct its transfer agent to place stop transfer notations in its records to
enforce this Section 3.2.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 NOTICES. All notices and other communications to any party
hereunder shall be dated and in writing and shall be deemed to have been given
to such party (i) if given by telecopy, when such telecopy is transmitted to the
appropriate telecopy number and telephonic confirmation of receipt thereof is
obtained or (ii) if given by mail, prepaid overnight courier or any other means,
when received at the appropriate address or when delivery at such address is
refused. Such notices shall be addressed to the appropriate party to the
attention of the person who executed this Agreement at the address or telecopy
number set forth under such party's signature below (or to the attention of such
other Person or to such other Address or telecopy number as such party shall
have furnished to each other party in accordance with this Section 4.1).
SECTION 4.2 REPRESENTATION ON BOARD OF DIRECTORS OF THE FUND. Holdings
hereby agrees that during the term of this Agreement the Fund shall have the
right to designate in no event less than one director of the Board of Directors
of Holdings.
SECTION 4.3 FINANCIAL INFORMATION. Holdings shall deliver to the Fund
and each Minority Shareholder the following financial information:
(a) within forty-five (45) days after the end of each fiscal quarter,
a consolidated balance sheet of Holdings and its Subsidiaries as at the end of
such fiscal quarter and the related consolidated statements of operations and,
commencing with the fiscal quarter ending on June 30, 1997, cash flows for such
fiscal quarter and for the portion of the fiscal year ended at the end of such
fiscal quarter; and
(b) as soon as available and in any event within one hundred (100)
days after the end of each fiscal year, a consolidated balance sheet of Holdings
and its Subsidiaries as of the
-9-
<PAGE>
end of such fiscal year and the related consolidated statements of
operations, stockholders' equity and, cash flows for such fiscal year,
setting forth in each case in comparative form the figures for the previous
fiscal year, certified by independent public accountants of nationally
recognized standing.
SECTION 4.4 FEES.
(a) Holdings shall pay to Saunders Karp & Megrue, L.P. ("SKM") an
annual monitoring fee in an amount not to exceed $250,000. Such fee shall be
payable annually in advance. Holdings shall also pay all of SKM's out-of-pocket
expenses incurred in rendering financial advice to Holdings. Holdings shall
reimburse SKM for such expenses on an as-incurred basis. SKM may provide
additional monitoring services to Holdings in the future and, if it does so, may
only provide them on an arms' length basis.
(b) Holdings shall pay to SKM a $400,000 transaction fee payable on
or after the closing hereunder.
SECTION 4.5 BINDING NATURE OF AGREEMENTS. This Agreement shall be
binding upon an inure to the benefit of and be enforceable by the parties hereto
or their successors in interest, except as expressly otherwise provided herein.
SECTION 4.6 DESCRIPTIVE HEADINGS. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 4.7 SPECIFIC PERFORMANCE. Without limiting the rights of each
party hereto to pursue all other legal and equitable rights available to such
party for the other parties' failure to perform their obligations under this
Agreement, the parties hereto acknowledge and agree that the remedy at law for
any failure to perform their obligations hereunder would be inadequate and that
each of them, respectively, shall be entitled to specific performance,
injunctive relief or other equitable remedies in the event of any such failure.
SECTION 4.8 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAW.
SECTION 4.9 COUNTERPARTS. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute one and the same instrument.
SECTION 4.10 SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or
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<PAGE>
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
SECTION 4.11 CONFIDENTIALITY. Each Minority Shareholder hereby agrees
that it will hold, and will use its best efforts to cause its officers,
directors, employees, accountants, counsel, consultants, advisors and agents to
hold, in confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law or otherwise requested by any
governmental or regulatory authority having jurisdiction over such Minority
Shareholder, all confidential documents and information concerning Holdings and
its Subsidiaries furnished to it in connection with the transactions
contemplated by this Agreement, except to the extent that such information can
be shown to have been (i) previously known on a nonconfidential basis by it,
(ii) in the public domain through no fault of it or (iii) later lawfully
acquired by it from sources other than Holdings or any of its Subsidiaries;
PROVIDED that such Minority Shareholder may disclose such information to its
officers, directors, employees, accountants, counsel, consultants, advisors,
lenders and agents and, in the case of the Warrantholders, to other banks or
financial institutions who are assignees or participants in loans being made to
subsidiaries of the Companies so long as such Persons are informed by it of the
confidential nature of such information and are directed by it to treat such
information confidentially. the obligation of each Minority Shareholder to hold
any such information in confidence shall be satisfied if they exercise the same
care with respect to such information as they would take to preserve the
confidentiality of their own similar information.
SECTION 4.12 ENTIRE AGREEMENT. This Agreement is intended by the parties
hereto as a final and complete expression of their agreements and understanding
in respect to the subject matter contained herein. This Agreement supersedes
all prior agreement and understandings, written or oral, between the parties
with respect to such subject matter.
SECTION 4.13 AMENDMENT AND WAIVER. Any provisions of this Agreement may
be amended if, but only if, such amendment is in writing and is signed by
Holdings and Stockholders and Warrantholders owning, or having Warrants
exercisable for, at least a majority of shares of Common Stock either then
outstanding or issuable upon the exercise of all outstanding Warrants, PROVIDED
that no such amendment may adversely affect the rights of any Warrantholder or
holder of Conversion Shares unless signed by such Warrantholder or holder of
Conversion Shares. Any provision may be waived if, but only if, such waiver is
in writing and is signed by the party or parties waiving such provision and for
whose benefit such provision is intended.
SECTION 4.14 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement
shall convey any rights upon any person or entity which is not a party or an
assignee of a party to this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first above written.
CHARLOTTE RUSSE HOLDING, INC.
By:_______________________________
Title: President
c/o The SK Equity Fund, L.P.
2 Greenwich Plaza
Suite 100
Greenwich, CT 06830
Telefax: 203-622-7655
THE SK EQUITY FUND, L.P.
By: SKM Partners, L.P.,
as general partner
__________________________________
Allan Karp, as general partner
2 Greenwich Plaza
Suite 100
Greenwich, CT 06830
Telefax: 203-622-7655
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<PAGE>
SK INVESTMENT FUND, L.P.
By: SKM Partners, L.P.,
as general partner
__________________________________
Allan Karp, as general partner
2 Greenwich Plaza
Suite 100
Greenwich, CT 06830
Telefax: 203-622-7655
Bernard Zeichner, individually
By:_______________________________
10380 Wilshire Boulevard
Los Angeles, CA 90024
Telefax: 619-587-0619
FSC CORP.
By:_______________________________
Title:
100 Federal Street
Boston, MA 02110
Telefax: 617-434-1153
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<PAGE>
SCHEDULE 7.15
Charlotte Russe Holding, Inc.
Capital Structure
Authorized Shares = 250,000
<TABLE>
<CAPTION>
Primary Fully Diluted
------- -------------------------------
Amount Shares Ownership Shares Ownership
---------- ------ --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Subordinated Debt:
SKEP . . . . . . . $10,891,354 0.0 0.0% 19,450.0 8.6%
SKIF . . . . . . . 108,646 0.0 0.0% 194.0 0.1%
----------- --- --- -------- ---
TOTAL . . . . . $11,000,000 0.0 0.0% 19,644.1 8.7%
=========== === === ======== ====
Common Equity:
SKEP . . . . . . . $17,369,252 173,692.5 94.9% 173,692.5 76.6%
SKIF . . . . . . . 180,748 1,807.5 1.0% 1,807.5 0.8%
B. Zeichner . . . 750,000 7,500.0 4.1% 7,500.0 3.3%
BankBoston, N.A. . $0 0.0 0.0% 4,136.6 1.8%
Sub Debt Holders . $0 0.0 0.0% 19,644.1 8.7%
Stock Option Plan . $0 0.0 0.0% 20,000.0 8.8%
----------- --------- ----- --------- ------
TOTAL . . . . . $18,300,000 183,000.0 100.0% 226,779.7 100.0%
=========== ========= ===== ========= ======
</TABLE>
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<PAGE>
FIRST AMENDMENT
TO EMPLOYMENT AGREEMENT
This FIRST AMENDMENT TO EMPLOYMENT AGREEMENT ("First Amendment") is
entered into as of September 23, 1999, by and between Charlotte Russe, Inc., a
California corporation (the "Company"), formerly known as Lawrence Merchandising
Corporation, and Mr. Bernard Zeichner ("Mr. Zeichner"). Capitalized terms used
and not otherwise defined herein shall have the meanings ascribed to such terms
in the Employment Agreement (as defined below).
WHEREAS, the Company and Mr. Zeichner have entered into an Employment
Agreement (the "Employment Agreement"), dated October 1, 1996, which sets forth
the terms and conditions of Mr. Zeichner's employment by the Company;
WHEREAS, Section 7.01 of the Employment Agreement provides that the
Company and Mr. Zeichner may amend the Employment Agreement; and
WHEREAS, the Company and Mr. Zeichner desire to amend the Employment
Agreement as set forth in this First Amendment;
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, the Company and Mr. Zeichner hereby amend the Employment Agreement
as follows, effective as of October 1, 1999:
1. Section 3.01 of the Employment Agreement is hereby restated in
its entirety as follows:
"SECTION 3.01. TERM. Subject to earlier termination as
provided in this Agreement, Mr. Zeichner shall be employed commencing
on the date first mentioned above (the "Commencement Date") and ending
on the fifth anniversary of such date (the "Term"). Neither party is
under any obligation to extend or renew this Agreement. Any new
employment agreement shall only be effective after having been reduced
to writing and executed by both parties hereto. In the absence of
earlier termination as provided herein, this Agreement shall terminate
automatically on the fifth anniversary of the Commencement Date. In the
event Mr. Zeichner continues to perform services after this Agreement
has terminated, and pending execution of a new employment agreement, if
any, such services shall constitute employment for an unspecified term,
terminable at will, with or without cause or reason, with or without
advance notice, and with or without pay in lieu of advance notice."
2. Section 4.01 of the Employment Agreement is hereby restated in
its entirety as follows:
"SECTION 4.01. SALARY. The Company shall pay Mr. Zeichner an
annualized base salary of $350,000, to be paid in accordance with the
Company's pay policy. In addition, upon the completion of each of the
Company's fiscal years 2000 and 2001, the Company shall pay Mr.
Zeichner a lump-sum cash payment in an amount equal to $25,000 (each,
an "Additional Payment"); PROVIDED, HOWEVER, that in the event of a
termination of Mr.
<PAGE>
Zeichner's employment prior to the end of the applicable fiscal year,
the Company shall pay Mr. Zeichner, in lieu of the Additional
Payments, a prorated portion of the Additional Payment for such year
in an amount equal to the product of (x) $25,000, and (y) a fraction,
the numerator of which is the number of days from the first day of
such fiscal year to the date of Mr. Zeichner's termination of
employment, and the denominator of which is 365."
3. Section 4.03 of the Employment Agreement is hereby amended by
adding the following sentence to the end of such Section:
"For work performed during each of fiscal year 2000 and 2001
(ending September 30, 2000 and 2001, respectively), Mr. Zeichner shall
receive an annual bonus in an amount determined in accordance with
SCHEDULE A hereto."
4. The following new Sections 4.12, 4.13 and 4.14 are hereby
added to the Employment Agreement immediately following Section 4.11 thereof:
"SECTION 4.12. LIFE INSURANCE. The Company shall pay for,
or promptly reimburse Mr. Zeichner for, insurance premiums incurred by
Mr. Zeichner with respect to life insurance policy number #1530859,
provided that the amount of such payments shall in no event exceed
$25,000 per year.
SECTION 4.13. CERTAIN ADDITIONAL PAYMENTS. The Company shall
pay to Mr. Zeichner such additional amounts (the "Gross-Up Payment") as
are necessary to reimburse Mr. Zeichner, on an after-tax basis, for all
federal, state and local income and employment taxes (the "Taxes")
payable by Mr. Zeichner with respect to the payments or benefits
received by Mr. Zeichner pursuant to Sections 4.05, 4.06, and 4.12
hereof (the "Payments"), such that the net amount retained by Mr.
Zeichner, after deduction of any Taxes on the Payments and on the
Gross-Up Payment, shall be equal to the Payments.
5. This First Amendment shall be and is hereby incorporated in
and forms a part of the Employment Agreement.
6. Except as amended as set forth herein, the Employment
Agreement shall continue in full force and effect.
[SIGNATURE PAGE FOLLOWS]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this First
Amendment to Employment Agreement as of the date first set forth above.
BERNARD ZEICHNER CHARLOTTE RUSSE, INC.,
formerly known as LAWRENCE
MERCHANDISING CORPORATION
By: By:
----------------------------- ----------------------------
Title:
Dated: Dated:
-------------------------- -------------------------
3
<PAGE>
SCHEDULE A
BONUS DETERMINATION
For the Company's fiscal years 2000 and 2001, Mr. Zeichner shall be
eligible for a bonus based on achievement of annual EBITDA results. The bonus
amount shall be based on the Company's total consolidated earnings before
interest, taxes, depreciation and amortization (EBITDA) for each respective
year, computed pursuant to the definition provided in the Company's Second
Amended and Restated Revolving Credit Agreement, dated December 23, 1998, as
amended.
The annual bonus shall be an amount equal to the annual EBITDA amount
multiplied by a predetermined percentage. Such percentage shall be 0.00% in the
event that EBITDA for any particular year grows 10% or less over the prior
fiscal year, shall be 0.50% if EBITDA grows 20%, and shall be 0.75% if EBITDA
grows 30% or more.
Should EBITDA for any particular year reflect a growth rate between 10%
and 20%, the bonus percentage shall be a proportional interpolation between
0.00% and 0.50%. Should EBITDA reflect a growth rate between 20% and 30%, the
bonus percentage shall be a proportional interpolation between 0.50% and 0.75%.
The growth rates, bonus percentages and resultant bonus payments shall
be adjusted in the event of any extraordinary acquisition by the Company, as
such adjustments shall be established by the Board, in which deliberations Mr.
Zeichner shall be entitled to participate as a member thereof.
A-1
<PAGE>
EXHIBIT 10.15
CHARLOTTE RUSSE HOLDING, INC.
1999 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this Equity Incentive Plan (the "Plan") is to advance
the interests of Charlotte Russe Holding, Inc. (the "Company") and its
subsidiaries by enhancing their ability to attract and retain employees and
other persons or entities who are in a position to make significant
contributions to the success of the Company and its subsidiaries through
ownership of shares of the common stock, par value $1.00 par value
("Stock"),of the Company and cash incentives.
The Plan is intended to accomplish these goals by enabling the
Company to grant Awards in the form of Options, Stock Appreciation Rights,
Restricted Stock or Unrestricted Stock Awards, Deferred Stock Awards or
Performance Awards, or combinations thereof, all as more fully described
below.
2. ADMINISTRATION
Unless otherwise determined by the Board of Directors of the Company
(the "Board"), the Plan will be administered by a Committee of the Board
designated for such purpose (the "Committee"). The Committee shall consist of
at least two directors. A majority of the members of the Committee shall
constitute a quorum, and all determinations of the Committee shall be made by
a majority of its members. Any determination of the Committee under the Plan
may be made without notice or meeting of the Committee by a writing signed by
a majority of the Committee members. During such times as the Stock is
registered under the Securities Exchange Act of 1934 (the "1934 Act"), all
members of the Committee shall be "non-employee directors" within the meaning
of Rule 16b-3 promulgated under the 1934 Act and "outside directors" within
the meaning of Section 162(m)(4)(C)(i) of the Internal Revenue Code of 1986,
as amended (the "Code").
The Committee will have authority, not inconsistent with the express
provisions of the Plan and in addition to other authority granted under the
Plan, to (a) grant Awards at such time or times as it may choose; (b)
determine the size of each Award, including the number of shares of Stock
subject to the Award; (c) determine the type or types of each Award; (d)
determine the terms and conditions of each Award; (e) waive compliance by a
holder of an Award with any obligations to be performed by such holder under
an Award and waive any terms or conditions of an Award; (f) amend or cancel
an existing Award in whole or in part (and if an award is canceled, grant
another Award in its place on such terms and conditions as the Committee
shall specify), except that the
<PAGE>
Committee may not, without the consent of the holder of an Award, take any
action under this clausewith respect to such Award if such action would
adversely affect the rights of such holder; (g) prescribe the form or forms
of instruments that are required or deemed appropriate under the Plan,
including any written notices and elections required of Participants (as
defined below), and change such forms from time to time; (h) adopt, amend and
rescind rules and regulations for the administration of the Plan; and (i)
interpret the Plan and decide any questions and settle all controversies and
disputes that may arise in connection with the Plan. Such determinations and
actions of the Committee, and all other determinations and actions of the
Committee made or taken under authority granted by any provision of the Plan,
will be conclusive and will bind all parties. Nothing in this paragraph shall
be construed as limiting the power of the Committee to make adjustments under
Section 7.3 or Section 8.6.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is approved
by the stockholders of the Company. Awards may be made prior to such
stockholder approval if made subject thereto. No Award may be granted under
the Plan after August 1, 2009, but Awards previously granted may extend
beyond that date.
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 8.6, the aggregate
number of shares of Stock that may be delivered under the Plan will be
750,000. If any Award requiring exercise by the Participant for delivery of
Stock terminates without having been exercised in full, or if any Award
payable in Stock or cash is satisfied in cash rather than Stock, the number
of shares of Stock as to which such Award was not exercised or for which cash
was substituted will be available for future grants.
Subject to Section 8.6(a), the maximum number of shares of Stock as
to which Options or Stock Appreciation Rights may be granted to any
Participant in any one calendar year is 200,000, which limitation shall be
construed and applied consistently with the rules under Section 162(m) of the
Code.
Stock delivered under the Plan may be either authorized but unissued
Stock or previously issued Stock acquired by the Company and held in
treasury. No fractional shares of Stock will be delivered under the Plan.
5. ELIGIBILITY AND PARTICIPATION
Each key employee of the Company or any of its subsidiaries (an
"Employee") and each other person or entity (including without limitation
non-Employee directors of the Company or a subsidiary of the Company) who, in
the opinion of the Committee, is in a position to make a significant
contribution to the success of the Company or its subsidiaries will be eligible
to receive
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<PAGE>
Awards under the Plan (each such Employee, person or entity receiving an Award,
"a Participant"). A "subsidiary" for purposes of the Plan will be a corporation
in which the Company owns, directly or indirectly, stock possessing 50% or more
of the total combined voting power of all classes of stock.
6. TYPES OF AWARDS
6.1. OPTIONS
(a) NATURE OF OPTIONS. An Option is an Award giving the recipient the
right on exercise thereof to purchase Stock.
Both "incentive stock options," as defined in Section 422(b) of the
Code (any Option intended to qualify as an incentive stock option being
hereinafter referred to as an "ISO"), and Options that are not ISOs, may be
granted under the Plan. ISOs shall be awarded only to Employees. An Option
awarded under the Plan shall be a non-ISO unless it is expressly designated as
an ISO at time of grant.
(b) EXERCISE PRICE. The exercise price of an Option will be determined
by the Committee subject to the following:
(1) The exercise price of an ISO or an Option intended to
qualify as performance based compensation under Section 162(m) of the
Code shall not be less than 100% of the fair market value of the
Stock subject to the Option, determined as of the time the Option is
granted.
(2) In no case may the exercise price paid for Stock which is
part of an original issue of authorized Stock be less than the par
value per share of the Stock.
(c) DURATION OF OPTIONS. The latest date on which an Option may be
exercised will be the tenth anniversary of the day immediately preceding the
date the Option was granted, or such earlier date as may have been specified by
the Committee at the time the Option was granted.
(d) EXERCISE OF OPTIONS. An Option will become exercisable at such
time or times, and on such conditions, as the Committee may specify. The
Committee may at any time and from time to time accelerate the time at which
all or any part of the Option may be exercised. Any exercise of an Option
must be in writing, signed by the proper person and delivered or mailed to
the Company, accompanied by (1) any documents required by the Committee and
(2) payment in full in accordance with paragraph (e) below for the number of
shares for which the Option is exercised.
(e) PAYMENT FOR STOCK. Stock purchased on exercise of an Option must
be paid for as follows: (1) in cash or by check (acceptable to the Company in
accordance with guidelines
-3-
<PAGE>
established for this purpose), bank draft or money order payable to the order
of the Company or (2) if so permitted by the Committee at or after the grant
of the Option or by the instrument evidencing the Option, (i) through the
delivery of shares of Stock which have been held for at least six months
(unless the Committee approves a shorter period) and which have a fair market
value equal to the exercise price, (ii) by delivery of an unconditional and
irrevocable undertaking by a broker to deliver promptly to the Company
sufficient funds to pay the exercise price, or (iii) by any combination of
the foregoing permissible forms of payment.
(f) DISCRETIONARY PAYMENTS. If (i) the market price of shares of Stock
subject to an Option (other than an Option which is in tandem with a Stock
Appreciation Right as described in Section 6.2) exceeds the exercise price of
the Option at the time of its exercise, and (ii) the person exercising the
Option so requests the Committee in writing, the Committee may in its sole
discretion cancel the Option and cause the Company to pay in cash or in shares
of Common Stock (at a price per share equal to the fair market value per share)
to the person exercising the Option an amount equal to the difference between
the fair market value of the Stock which would have been purchased pursuant to
the exercise (determined on the date the Option is canceled) and the aggregate
exercise price which would have been paid.
6.2. STOCK APPRECIATION RIGHTS.
(a) NATURE OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right
(or "SAR") is an Award entitling the holder on exercise to receive an amount
in cash or Stock or a combination thereof (such form to be determined by the
Committee) determined in whole or in part by reference to appreciation, from
and after the date of grant, in the fair market value of a share of Stock.
SARs may be based solely on appreciation in the fair market value of Stock or
on a comparison of such appreciation with some other measure of market growth
such as (but not limited) to appreciation in a recognized market index. The
date as of which such appreciation or other measure is determined shall be
the exercise date unless another date is specified by the Committee.
(b) GRANT OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may
be granted in tandem with, or independently of, Options granted under the Plan.
(1) RULES APPLICABLE TO TANDEM AWARDS. When Stock Appreciation
Rights are granted in tandem with Options, (a) the Stock Appreciation
Right will be exercisable only at such time or times, and to the
extent, that the related Option is exercisable and will be exercisable
in accordance with the procedure required for exercise of the related
Option; (b) the Stock Appreciation Right will terminate and no longer
be exercisable upon the termination or exercise of the related Option,
except that a Stock Appreciation Right granted with respect to less
than the full number of shares covered by an Option will not be
reduced until the number of shares as to which the related Option has
been exercised or has terminated exceeds the number of shares not
covered by the Stock Appreciation Right; (c) the Option will terminate
and no longer be exercisable upon the exercise of the
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related Stock Appreciation Right; and (d) the Stock Appreciation Right
will be transferable only with the related Option.
(2) EXERCISE OF INDEPENDENT STOCK APPRECIATION RIGHTS. A Stock
Appreciation Right not granted in tandem with an Option will become
exercisable at such time or times, and on such conditions, as the
Committee may specify. The Committee may at any time accelerate the
time at which all or any part of the Right may be exercised.
Any exercise of an independent Stock Appreciation Right must be in
writing, signed by the proper person and delivered or mailed to the Company,
accompanied by any other documents required by the Committee.
6.3. RESTRICTED AND UNRESTRICTED STOCK.
(a) GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of
the Plan, the Committee may grant shares of Stock in such amounts and upon such
terms and conditions as the Committee shall determine subject to the
restrictions described below ("Restricted Stock").
(b) RESTRICTED STOCK AGREEMENT. The Committee may require, as a
condition to an Award, that a recipient of a Restricted Stock Award enter
into a Restricted Stock Award Agreement, setting forth the terms and
conditions of the Award. In lieu of a Restricted Stock Award Agreement, the
Committee may provide the terms and conditions of an Award in a notice to the
Participant of the Award, on the stock certificate representing the
Restricted Stock, in the resolution approving the Award, or in such other
manner as it deems appropriate.
(c) TRANSFERABILITY AND OTHER RESTRICTIONS. Except as otherwise
provided in this Section 6.3, the shares of Restricted Stock granted herein
may not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable period or periods established by
the Committee and the satisfaction of any other conditions or restrictions
established by the Committee (such period during which a share of Restricted
Stock is subject to such restrictions and conditions is referred to as the
"Restricted Period"). Except as the Committee may otherwise determine under
Section 7.1 or Section 7.2, if a Participant dies or suffers a Status Change
(as defined at Section 7.2(a)) for any reason during the Restricted Period,
the Company may purchase the shares of Restricted Stock subject to such
restrictions and conditions for the amount of cash paid by the Participant
for such shares; PROVIDED, that if no cash was paid by the Participant such
shares of Restricted Stock shall be automatically forfeited to the Company.
During the Restricted Period with respect to any shares of Restricted
Stock, the Company shall have the right to retain in the Company's possession
the certificate or certificates representing such shares.
(d) REMOVAL OF RESTRICTIONS. Except as otherwise provided in this
Section 6.3, a share of Restricted Stock covered by a Restricted Stock grant
shall become freely transferable by the
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Participant upon completion of the Restricted Period, including the passage
of any applicable period of time and satisfaction of any conditions to
vesting. The Committee, in its sole discretion, shall have the right at any
time immediately to waive all or any part of the restrictions and conditions
with regard to all or any part of the shares held by any Participant.
(e) VOTING RIGHTS, DIVIDENDS AND OTHER DISTRIBUTIONS. During the
Restricted Period, Participants holding shares of Restricted Stock granted
hereunder may exercise full voting rights and shall receive all regular cash
dividends paid with respect to such shares. Except as the Committee shall
otherwise determine, any other cash dividends and other distributions paid to
Participants with respect to shares of Restricted Stock, including any
dividends and distributions paid in shares, shall be subject to the same
restrictions and conditions as the shares of Restricted Stock with respect to
which they were paid.
(f) OTHER AWARDS SETTLED WITH RESTRICTED STOCK. The Committee may, at
the time any Award described in this Section 6 is granted, provide that any or
all the Stock delivered pursuant to the Award will be Restricted Stock.
(g) UNRESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee may grant shares of Stock free of restrictions under the
Plan in such amounts and upon such terms and conditions as the Committee
shall determine.
(h) NOTICE OF SECTION 83(b) ELECTION. Any Participant making an
election under Section 83(b) of the Code with respect to Restricted Stock must
provide a copy thereof to the Company within 10 days of filing such election
with the Internal Revenue Service.
6.4. DEFERRED STOCK.
A Deferred Stock Award entitles the recipient to receive shares of
Stock to be delivered in the future. Delivery of the Stock will take place at
such time or times, and on such conditions, as the Committee may specify. The
Committee may at any time accelerate the time at which delivery of all or any
part of the Stock will take place. At the time any Award described in this
Section 6.4 is granted, the Committee may provide that, at the time Stock would
otherwise be delivered pursuant to the Award, the Participant will instead
receive an instrument evidencing the Participant's right to future delivery of
Deferred Stock.
6.5. PERFORMANCE AWARDS; PERFORMANCE GOALS.
(a) NATURE OF PERFORMANCE AWARDS. A Performance Award entitles the
recipient to receive, without payment, an amount in cash or Stock or a
combination thereof (such form to be determined by the Committee) following the
attainment of Performance Goals (as hereinafter defined). Performance Goals may
be related to personal performance, corporate performance, departmental
performance or any other category of performance established by the Committee.
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The Committee will determine the Performance Goals, the period or periods
during which performance is to be measured and all other terms and conditions
applicable to the Award.
(b) OTHER AWARDS SUBJECT TO PERFORMANCE CONDITION. The Committee
may, at the time any Award described in this Section 6.5 is granted, impose
the condition (in addition to any conditions specified or authorized in this
Section 6 or any other provision of the Plan) that Performance Goals be met
prior to the Participant's realization of any payment or benefit under the
Award. Any such Award made subject to the achievement of Performance Goals
(other than an Option or SAR) shall be treated as a Performance Award for
purposes of Section 6.5(c) below.
(c) LIMITATIONS AND SPECIAL RULES. In the case of any Performance
Award intended to qualify for the performance-based remuneration exception
described in Section 162(m)(4)(C) of the Code and the regulations thereunder
(an "Exempt Award"), the Committee shall in writing preestablish specific
Performance Goals. A Performance Goal must be established prior to passage of
25% of the period of time over which attainment of such goal is to be
measured. "Performance Goal" means criteria based upon any one or more of the
following (on a consolidated, divisional, subsidiary, line of business or
geographical basis or in combinations thereof): (i) sales; revenues; assets;
expenses; earnings before or after deduction for all or any portion of
interest, taxes, depreciation or amortization, whether or not on a continuing
operations or an aggregate or per share basis; return on equity, investment,
capital or assets; inventory level or turns; one or more operating ratios;
borrowing levels, leverage ratios or credit rating; market share; capital
expenditures; cash flow; stock price; stockholder return; or any combination
of the foregoing; or (ii) acquisitions and divestitures (in whole or in
part); joint ventures and strategic alliances; spin-offs, split-ups and the
like; reorganizations; recapitalizations, restructurings, financings
(issuance of debt or equity) and refinancings; transactions that would
constitute a Change of Control; or any combination of the foregoing. A
Performance Goal and targets with respect thereto determined by the Committee
need not be based upon an increase, a positive or improved result or
avoidance of loss. The maximum Exempt Award payable to any Participant in
respect of any such Performance Goal for any year shall not exceed
$2,500,000. Payment of Exempt Awards based upon a Performance Goal for the
year ending September , 2005 and thereafter is conditioned upon reapproval
by Employer's shareholders no later than Employer's first meeting of
shareholders in the year ending September , 2004.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1. DEATH.
If a Participant dies, the following will apply:
(a) All Options and Stock Appreciation Rights held by the
Participant immediately prior to death, to the extent then exercisable, may
be exercised by the Participant's executor or administrator or the person or
persons to whom the Option or Right is transferred by will or the applicable
laws of descent and distribution, at any time within the one year period
ending with the
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first anniversary of the Participant's death (or such shorter or longer period
as the Committee may determine), and shall thereupon terminate. In no event,
however, shall an Option or Stock Appreciation Right remain exercisable beyond
the latest date on which it could have been exercised without regard to this
Section 7. Except as otherwise determined by the Committee, all Options and
Stock Appreciation Rights held by a Participant immediately prior to death that
are not then exercisable shall terminate at death.
(b) Except as otherwise determined by the Committee, all Restricted
Stock held by the Participant must be transferred to the Company (and, in the
event the certificates representing such Restricted Stock are held by the
Company, such Restricted Stock will be so transferred without any further
action by the Participant) in accordance with Section 6.3(c).
(c) Any payment or benefit under a Deferred Stock Award or
Performance Award to which the Participant was not irrevocably entitled prior
to death will be forfeited and the Award canceled as of the time of death,
except as otherwise determined the Committee.
7.2. TERMINATION OF SERVICE (OTHER THAN BY DEATH).
If a Participant who is an Employee ceases to be an Employee for any
reason other than death or retirement with consent of the Company after
attainment of age 65, or if there is a termination (other than by reason of
death) of the consulting, service or similar relationship in respect of which
a non-Employee Participant was granted an Award hereunder (such termination
of the employment or other relationship being hereinafter referred to as a
"Status Change"), the following will apply:
(a) Except as otherwise determined by the Committee, all Options and
Stock Appreciation Rights held by the Participant that were not exercisable
immediately prior to the Status Change shall terminate at the time of the
Status Change. Any Options or Rights that were exercisable immediately prior
to the Status Change will continue to be exercisable for a period of three
months (or such longer period as the Committee may determine), and shall
thereupon terminate, unless the Award provides by its terms for immediate
termination in the event of a Status Change (unless otherwise determined by
the Committee) or unless the Status Change results from a discharge for cause
which in the opinion of the Committee casts such discredit on the Participant
as to justify immediate termination of the Award. In no event, however, shall
an Option or Stock Appreciation Right remain exercisable beyond the latest
date on which it could have been exercised without regard to this Section 7.
For purposes of this paragraph, in the case of a Participant who is an
Employee, a Status Change shall not be deemed to have resulted by reason of
(i) a sick leave or other bona fide leave of absence approved for purposes of
the Plan by the Committee, so long as the Employee's right to reemployment is
guaranteed either by statute or by contract, or (ii) a transfer of employment
between the Company and a subsidiary or between subsidiaries, or to the
employment of a corporation (or a parent or subsidiary corporation of such
corporation) issuing or assuming an option in a transaction to which Section
424(a) of the Code applies.
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(b) Except as otherwise determined by the Committee, all Restricted
Stock held by the Participant at the time of the Status Change must be
transferred to the Company (and, in the event the certificates representing
such Restricted Stock are held by the Company, such Restricted Stock will be
so transferred without any further action by the Participant) in accordance
with Section 6.3(c) above.
(c) Any payment or benefit under a Deferred Stock Award or Performance
Award to which the Participant was not irrevocably entitled prior to the Status
Change will be forfeited and the Award cancelled as of the date of such Status
Change unless otherwise determined by the Committee.
7.3. CERTAIN CORPORATE TRANSACTIONS.
Except as otherwise provided by the Committee at the time of grant,
in the event of a consolidation or merger in which the Company is not the
surviving corporation or which results in the acquisition of substantially
all the Company's outstanding Stock by a single person or entity or by a
group of persons and/or entities acting in concert, or in the event of the
sale or transfer of substantially all the Company's assets or a dissolution
or liquidation of the Company (a "covered transaction"), the following rules
shall apply:
(a) Subject to paragraph (b) below, all outstanding Awards requiring
exercise will cease to be exercisable, and all other Awards to the extent not
fully vested (including Awards subject to conditions not yet satisfied or
determined) will be forfeited, as of the effective time of the covered
transaction, provided that the Committee may in its sole discretion (but
subject to Section 7.4), on or prior to the effective date of the covered
transaction, (1) make any outstanding Option and Stock Appreciation Right
exercisable in full, (2) remove the restrictions from any Restricted Stock,
(3) cause the Company to make any payment and provide any benefit under any
Deferred Stock Award or Performance Award and (4) remove any performance or
other conditions or restrictions on any Award; or
(b) With respect to an outstanding Award held by a participant who,
following the covered transaction, will be employed by or otherwise providing
services to an entity which is a surviving or acquiring entity in the covered
transaction or an affiliate of such an entity, the Committee may at or prior to
the effective time of the covered transaction, in its sole discretion and in
lieu of the action described in paragraph (a) above, arrange to have such
surviving or acquiring entity or affiliate assume any Award held by such
participant outstanding hereunder or grant a replacement award which, in the
judgment of the Committee, is substantially equivalent to any Award being
replaced.
7.4. CHANGE OF CONTROL PROVISIONS.
(a) IMPACT OF EVENT. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change of Control:
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(1) ACCELERATION OF OPTIONS AND SARS. Any Options and SARs
outstanding as of the date such Change of Control is determined to
have occurred and which are not then exercisable shall become
exercisable to the full extent of the original grant, and all shares
of Restricted Stock which are not otherwise vested shall vest. Holders
of Performance Awards granted hereunder as to which the relevant
performance period has not ended as of the date such Change of Control
is determined to have occurred shall be entitled at the time of such
Change of Control to receive a cash payment per Performance Award
equal to the full value of the cash component of such Award (if any)
plus the fair market value of Stock included in such Award.
(2) RESTRICTION ON APPLICATION OF PLAN PROVISIONS APPLICABLE
IN THE EVENT OF TERMINATION OF EMPLOYMENT. After a Change of Control,
Options and SARs shall not be terminated as a result of a termination
of employment other than by reason of death, disability (as determined
by the Company) or retirement for seven months following such
termination of employment or until expiration of the original terms of
the Option or SAR, whichever period is shorter.
(3) RESTRICTION ON AMENDMENT. In connection with or following
a Change of Control, neither the Committee nor the Board may impose
additional conditions upon exercise or otherwise amend or restrict an
Option, SAR, share of Restricted Stock or Performance Award, or amend
the terms of the Plan in any manner adverse to the holder thereof,
without the written consent of such holder.
Notwithstanding the foregoing, if any right granted pursuant to this
Section 7.4 would make a Change of Control transaction ineligible for pooling
of interests accounting under applicable accounting principles that but for
this Section 7.4 would otherwise be eligible for such accounting treatment,
the Committee shall have the authority to substitute stock for the cash which
would otherwise be payable pursuant to this Section 7.4 having a fair market
value equal to such cash.
(b) DEFINITION OF CHANGE OF CONTROL. A "Change of Control" shall be
deemed to have occurred if (i) any corporation, person or other entity (other
than the Company, a majority-owned subsidiary of the Company, any employee
benefit plan maintained by the Company or any of its subsidiaries or members
of the Board on the date the Plan is approved by the stockholders of the
Company), including a "group" as defined in Section 13(d)(3) of the 1934 Act
becomes the beneficial owner of Stock representing more than twenty-five
percent of the voting power of the Company (other than by consolidation or
merger) or (ii) within any 24 consecutive month period, persons who were
members of the Board immediately prior to such 24-month period, together with
any persons who were first elected as directors (other than as a result of
any settlement of a proxy or consent solicitation contest or any action taken
to avoid such a contest) during such 24-month period by or upon the
recommendation of persons who were members of the Board immediately
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prior to such 24-month period and who constituted a majority of the Board at
the time of such election, cease to constitute a majority of the Board.
8. GENERAL PROVISIONS
8.1. DOCUMENTATION OF AWARDS.
Awards will be evidenced by such written instruments, if any, as may
be prescribed by the Committee from time to time. Such instruments may be in
the form of agreements to be executed by both the Participant and the
Company, or certificates, letters or similar instruments, which need not be
executed by the Participant but acceptance of which will evidence agreement
to the terms thereof.
8.2. RIGHTS AS A STOCKHOLDER, DIVIDEND EQUIVALENTS.
Except as specifically provided by the Plan, the receipt of an Award
will not give a Participant rights as a stockholder; the Participant will
obtain such rights, subject to any limitations imposed by the Plan or the
instrument evidencing the Award, only upon the issuance of Stock. However,
the Committee may, on such conditions as it deems appropriate, provide that a
Participant will receive a benefit in lieu of cash dividends that would have
been payable on any or all Stock subject to the Participant's Award had such
Stock been outstanding. Without limitation, the Committee may provide for
payment to the Participant of amounts representing such dividends, either
currently or in the future, or for the investment of such amounts on behalf
of the Participant.
8.3. CONDITIONS ON DELIVERY OF STOCK.
The Company will not be obligated to deliver any shares of Stock
pursuant to the Plan or to remove restriction from shares previously
delivered under the Plan (a) until all conditions of the Award have been
satisfied or removed, (b) until, in the opinion of the Company's counsel, all
applicable federal and state laws and regulation have been complied with, (c)
if the outstanding Stock is at the time listed on any stock exchange or The
Nasdaq National Market, until the shares to be delivered have been listed or
authorized to be listed on such exchange or market upon official notice of
notice of issuance, and (d) until all other legal matters in connection with
the issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Stock has not been registered under the Securities
Act of 1933, as amended, the Company may require, as a condition to exercise
of the Award, such representations or agreements as counsel for the Company
may consider appropriate to avoid violation of such Act and may require that
the certificates evidencing such Stock bear an appropriate legend restricting
transfer.
If an Award is exercised by the Participant's legal representative,
the Company will be under no obligation to deliver Stock pursuant to such
exercise until the Company is satisfied as to the authority of such
representative.
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8.4. TAX WITHHOLDING.
The Company will withhold from any cash payment made pursuant to an
Award an amount sufficient to satisfy all federal, state and local withholding
tax requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered,
the Committee will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy the
withholding requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery of any
Stock or removal of restrictions thereon. If and to the extent that such
withholding is required, the Committee may permit the Participant or such
other person to elect at such time and in such manner as the Committee
provides to have the Company hold back from the shares to be delivered, or to
deliver to the Company, Stock having a value calculated to satisfy the
withholding requirement. The Committee may make such share withholding
mandatory with respect to any Award at the time such Award is made to a
Participant.
If at the time an ISO is exercised the Committee determines that the
Company could be liable for withholding requirements with respect to the
exercise or with respect to a disposition of the Stock received upon
exercise, the Committee may require as a condition of exercise that the
person exercising the ISO agree (a) to provide for withholding under the
preceding paragraph of this Section 8.4, if the Committee determines that a
withholding responsibility may arise in connection with tax exercise, (b) to
inform the Company promptly of any disposition (within the meaning of section
424(c) of the Code) of Stock received upon exercise, and (c) to give such
security as the Committee deems adequate to meet the potential liability of
the Company for the withholding requirements and to augment such security
from time to time in any amount reasonably deemed necessary by the Committee
to preserve the adequacy of such security.
8.5. TRANSFERABILITY OF AWARDS.
Unless otherwise permitted by the Committee, no Award (other than an
Award in the form of an outright transfer of cash or Unrestricted Stock) may be
transferred other than by will or by the laws of descent and distribution.
8.6. ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS.
(a) In the event of a stock dividend, stock split or combination of
shares, recapitalization or other change in the Company's capitalization, or
other distribution to holders of Stock other than normal cash dividends,
after the effective date of the Plan, the Committee will make any appropriate
adjustments to the maximum number of shares that may be delivered under the
Plan under the first paragraph of Section 4 above and to the limits described
in the second paragraph of Section 4 and in Section 6.5(c).
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(b) In any event referred to in paragraph (a), the Committee will
also make any appropriate adjustments to the number and kind of shares of
Stock or securities subject to Awards then outstanding or subsequently
granted, any exercise prices relating to Awards and any other provision of
Awards affected by such change. The Committee may also make such adjustments
to take into account material changes in law or in accounting practices or
principles, mergers, consolidations, acquisitions, dispositions or similar
corporate transactions, or any other event, if it is determined by the
Committee that adjustments are appropriate to avoid distortion in the
operation of the Plan; PROVIDED, that adjustments pursuant to this sentence
shall not be made to the extent it would cause any Award intended to be
exempt under Section 162(m)(4)(c) of the Code to fail to be so exempt.
(c) In the case of ISOs, the adjustments described in (a) and (b)
will be made only to the extent consistent with continued qualification of
the Option under Section 422 of the Code (in the case of an ISO) or Section
162(m) of the Code.
8.7. EMPLOYMENT RIGHTS, ETC.
Neither the adoption of the Plan nor the grant of Awards will confer
upon any person any right to continued retention by the Company or any
subsidiary as an Employee or otherwise, or affect in any way the right of the
Company or subsidiary to terminate an employment, service or similar
relationship at any time. Except as specifically provided by the Committee in
any particular case, the loss of existing or potential profit in Awards
granted under the Plan will not constitute an element of damages in the event
of termination of an employment, service or similar relationship even if the
termination is in violation of an obligation of the Company to the
Participant.
8.8. DEFERRAL OF PAYMENTS.
The Committee may agree at any time, upon request of the Participant,
to defer the date on which any payment under an Award will be made.
8.9. PAST SERVICES AS CONSIDERATION.
Where a Participant purchases Stock under an Award for a price equal
to the par value of the Stock the Committee may determine that such price has
been satisfied by past services rendered by the Participant.
9. EFFECT, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a
Participant will affect the Company's right to grant to such Participant
awards that are not subject to the Plan, to issue to such Participant Stock
as a bonus or otherwise, or to adopt other plans or arrangements under which
Stock may be issued to Employees.
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The Committee may at any time or times amend the Plan or any
outstanding Award for any purpose which may at the time be permitted by law, or
may at any time terminate the Plan as to any further grants of Awards, provided
that (except to the extent expressly required or permitted by the Plan) no such
amendment will, without the approval of the stockholders of the Company,
effectuate a change for which stockholder approval is required in order for the
Plan to continue to qualify for the award of ISOs under Section 422 of the Code
or for the award of performance-based compensation under Section 162(m) of the
Code.
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CHARLOTTE RUSSE HOLDING, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF PLAN
The Charlotte Russe Holding, Inc. 1999 Employee Stock Purchase Plan (the
"Plan") is intended to provide a method by which eligible employees of Charlotte
Russe Holding, Inc. (the "Company") and of such of the Company's subsidiaries as
the Company's Board of Directors (the "Board of Directors") may from time to
time designate (such subsidiaries, together with the Company, being hereinafter
referred to as the "Company") may use voluntary, systematic payroll deductions
to purchase shares of the Common Stock of the Company (the "Stock") and thereby
acquire an interest in the future of the Company. For purposes of the Plan, a
"subsidiary" is any corporation in which the Company owns, directly or
indirectly, stock possessing 50% or more of the total combined voting power of
all classes of stock.
SECTION 2. OPTIONS TO PURCHASE STOCK
Under the Plan, there is available an aggregate of not more than 350,000
shares of Stock (subject to adjustment as provided in Section 15) for sale
pursuant to the exercise of options ("Options") granted under the Plan to
employees of the Company ("Employees") who meet the eligibility requirements set
forth in Section 3 hereof ("Eligible Employees"). The Stock to be delivered
upon exercise of Options under the Plan may be either shares of authorized but
unissued Stock or previously issued shares acquired by the Company and held in
treasury, as the Board of Directors may determine.
SECTION 3. ELIGIBLE EMPLOYEES
Except as otherwise provided below, each Employee (a) who has completed six
months or more of continuous service in the employ of the Company, and (b) whose
customary employment is more than 20 hours per week, will be eligible to
participate in the Plan.
(a) Any Employee who immediately after the grant of an Option to him or
her would (in accordance with the provisions of Sections 423 and 424(d) of the
Internal Revenue Code of 1986, as amended (the "Code")) own stock possessing 5%
or more of the total combined
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voting power or value of all classes of stock of the employer corporation or
of its parent or subsidiary corporations, as defined in Section 424 of the
Code, will not be eligible to receive an Option to purchase stock pursuant to
the Plan.
(b) No Employee will be granted an Option under the Plan which would
permit his or her rights to purchase shares of stock under all employee stock
purchase plans of the Company and parent and subsidiary corporations to accrue
at a rate which exceeds $25,000 in fair market value of such stock (determined
at the time the Option is granted) for each calendar year during which any such
Option granted to such Employee is outstanding at any time, as provided in
Sections 423 and 424(d) of the Code.
(c) For purposes of determining eligibility hereunder, the Board of
Directors, acting by and through any other authorized officer, may grant past
service credit to Employees of the Company in a uniform and non-discriminatory
manner for periods of continuous service provided with respect to any company
acquired (whether by asset or stock purchase) by the Company.
SECTION 4. METHOD OF PARTICIPATION
The first stock option period (the "Initial Option Period") for which
Options may be granted hereunder shall commence on the date of the prospectus
used in connection with the Company's initial public offering and end on June
30, 2000. The Initial Option Period and each subsequent six-month period
following the end of the Initial Option Period shall be referred to as an
"Option Period". Each person who will be an Eligible Employee on the first
day of any Option Period may elect to participate in the Plan by executing
and delivering, at such time as may be determined by the Company prior to the
date on which the change is to be effective, a payroll deduction
authorization in accordance with Section 5. Such Eligible Employee will
thereby become a participant ("Participant") on the first day of such Option
Period and will remain a Participant until his or her participation is
terminated as provided in the Plan.
SECTION 5. PAYROLL DEDUCTION
The payroll deduction authorization will request withholding at a rate (in
whole percentages) of not less than one (1) percent nor more than fifteen (15)
percent of the Participant's Compensation by means of substantially equal
payroll deductions over the Option Period. For purposes of the Plan,
"Compensation" will mean all compensation paid to the Participant by the Company
and currently includible in his or her income, including bonuses, commissions,
and other amounts includible in the definition of compensation provided in the
Treasury Regulations promulgated under Section 415 of the Code, plus any amount
that would be so included but for the fact that it was contributed to a
qualified plan pursuant to an elective deferral under Section 401(k) of the
Code, but not including payments under stock option
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plans and other employee benefit plans or any other amounts excluded from the
definition of compensation provided in the Treasury Regulations under Section
415 of the Code. A Participant may reduce the withholding rate of his or her
payroll deduction authorization by one or more whole percentage points (but
not to below 1%) at any time during an Option Period by delivering written
notice to the Company, such reduction to take effect prospectively as soon as
practicable, as determined by the Board of Directors acting by and through
any other authorized officer, following receipt of such notice by the
Company. A Participant may increase or reduce the withholding rate of his or
her payroll deduction authorization for a future Option Period by written
notice delivered to the Company at such time as may be determined by the
Company prior to the first day of the Option Period as to which the change is
to be effective. All amounts withheld in accordance with a Participant's
payroll deduction authorization will be credited to a withholding account for
such Participant.
SECTION 6. GRANT OF OPTIONS
Each person who is a Participant on the first day of an Option Period will
as of such day be granted an Option for such Period. The maximum number of
shares of Stock covered by an Option will be eighty-three and one-third (831/3)
for each full month of the Initial Option Period and five hundred (500) for each
Option Period thereafter (subject to adjustment pursuant to Section 15 herein).
Such Option will be for the number of whole shares (not in excess of the share
maximum) of Stock to be determined by dividing (i) the balance in the
Participant's withholding account on the last day of the Option Period, by (ii)
the purchase price per share of the Stock determined under Section 7. The
number of shares of Stock receivable by each Participant upon exercise of his or
her Option for an Option Period will be reduced, on a substantially
proportionate basis, in the event that the number of shares then available under
the Plan is otherwise insufficient.
SECTION 7. PURCHASE PRICE
The purchase price of Stock issued pursuant to the exercise of an Option
will be 85% of the fair market value of the Stock at (a) the time of grant of
the Option or (b) the time at which the Option is deemed exercised, whichever is
less. Fair market value on any given day will mean the Closing Price of the
Stock on such day or, if there was no Closing Price on such day, the latest day
prior thereto on which there was a Closing Price, provided that in the case of
Options granted during the first Option Period, fair market value at the time of
grant of the Option shall mean the initial public offering price of the Stock.
The "Closing Price" of the Stock on any business day will be the last sale price
as reported on the principal market on which the Stock is traded or, if no last
sale is reported, then the fair market value as determined by the Board of
Directors. A good faith determination by the Board of Directors as to fair
market value shall be final and binding.
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SECTION 8. EXERCISE OF OPTIONS
Each Employee who is a Participant in the Plan on the last day of an Option
Period will be deemed to have exercised on the last day of the Option Period the
Option granted to him or her for that Option Period. Upon such exercise, the
balance of the Participant's withholding account will be applied to the purchase
of the number of whole shares of Stock determined under Section 6 and as soon as
practicable thereafter certificates for said shares will be issued and delivered
to the Participant. In the event that the balance of the Participant's
withholding account following an Option Period is in excess of the total
purchase price of the shares so issued, the balance of the account shall be
returned to the Participant; PROVIDED, HOWEVER, that if the balance left in the
account consists solely of an amount equal to the value of a fractional share,
it will be retained in the withholding account and carried over to the next
Option Period. The entire balance of the Participant's withholding account
following the final Option Period shall be returned to the Participant. No
fractional shares will be issued hereunder.
Notwithstanding anything herein to the contrary, The Company's obligation
to issue and deliver shares of Stock under the Plan is subject to the approval
required of any governmental authority in connection with the authorization,
issuance, sale or transfer of said shares, to any requirements of any national
securities exchange applicable thereto, and to compliance by the Company with
other applicable legal requirements in effect from time to time, including
without limitation any applicable tax withholding requirements.
SECTION 9. INTEREST
No interest will be payable on withholding accounts.
SECTION 10. CANCELLATION AND WITHDRAWAL
A Participant who holds an Option under the Plan may at any time prior to
exercise thereof under Section 8 cancel such Option as to all (but not less than
all) the Shares subject or to be subject to such Option by written notice
delivered to the Company. Upon such cancellation, the Participant's withholding
account balance will be returned to him or her.
A Participant may terminate a payroll deduction authorization as of any
date by written notice delivered to the Company and will thereby cease to be a
Participant as of such date. Any Participant who voluntarily terminates a
payroll deduction authorization prior to the last business day of an Option
Period will be deemed to have cancelled the related Option.
Any Participant who cancels an Option or terminates a payroll deduction
authorization may at any time thereafter again become a Participant in
accordance with Section 4.
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SECTION 11. TERMINATION OF EMPLOYMENT
Subject to Section 12, any person will cease to be a Participant upon
termination of employment with the Company for any reason, and any Option held
by such Participant under the Plan will be deemed cancelled. The Company will
return the balance of the withholding account to the Participant, who will have
no further rights under the Plan.
SECTION 12. DEATH OF PARTICIPANT
A Participant may file a written designation of beneficiary specifying who
is to receive any Stock and/or cash credited to the Participant under the Plan
in the event of the Participant's death, which designation will also provide for
the Participant's election to either (i) cancel the Participant's Option upon
his or her death, as provided in Section 10 or (ii) apply as of the last day of
the Option Period the balance of the deceased Participant's withholding account
at the time of death to the exercise of the related Option, pursuant to Section
8 of the Plan. In the absence of a valid election otherwise, a Participant's
death will be deemed to effect a cancellation of the Option. A designation of
beneficiary and election may be changed by the Participant at any time, by
written notice. In the event of the death of a Participant and receipt by the
Company of proof of the identity and existence at the Participant's death of a
beneficiary validly designated by him or her under the Plan, the Company will
deliver to such beneficiary such Stock and/or cash to which the beneficiary is
entitled under the Plan. In the event of the death of a Participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such Participant's death, the Company will deliver such Stock and/or
cash to the executor or administrator of the estate of the Participant, if the
Company is able to identify such executor or administrator. If the Company is
unable to identify such administrator or executor, the Company, in its
discretion, may deliver such stock and/or cash to the spouse or to any one or
more dependents of a Participant as the Company may determine. No beneficiary
will, prior to the death of the Participant by whom he has been designated,
acquire any interest in any Stock or cash credited to the Participant under the
Plan.
SECTION 13. PARTICIPANT'S RIGHTS NOT TRANSFERABLE
All Participants will have the same rights and privileges under the Plan.
All rights and privileges under any Option may be exercisable during a
Participant's lifetime only by the Participant, and may not be sold, pledged,
assigned, or transferred in any manner. In the event any Participant violates
the terms of this Section, any Option held by him or her may be terminated by
the Company and upon return to the Participant of the balance of his or her
withholding account, all his or her rights under the Plan will terminate.
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SECTION 14. EMPLOYMENT RIGHTS
Nothing contained in the provisions of the Plan will be construed to give
to any Employee the right to be retained in the employ of the Company or to
interfere with the right of the Company to discharge any Employee at any time.
SECTION 15. CHANGE IN CAPITALIZATION; MERGERS, ETC.
In the event of any change in the outstanding Stock by reason of a stock
dividend, split-up, recapitalization, or other capital change after the
effective date of this Plan, the aggregate number of shares available under the
Plan, the number of shares under Options granted but not exercised, and the
Option price will be appropriately adjusted.
In the event of a transaction that will result in the Common Stock not
being registered under Section 12 of the Securities Exchange Act of 1934, the
Board may cancel all Options and return all amounts withheld without interest to
the Participants, accelerate the final date of the then current Option Period,
subject to a Participant's right to cancel the Option and withdraw from the
Plan, or provide for the cancellation of the Option in exchange for a cash
payment equal to at least the amount withheld.
SECTION 16. ADMINISTRATION OF PLAN
The Plan will be administered by the Board of Directors (or a committee
thereof), which will have the right to determine any questions which may arise
regarding the interpretation and application of the provisions of the Plan and
to make, administer, and interpret such rules and regulations as it will deem
necessary or advisable. The determination of the Board of Directors (or its
delegate) hereunder shall be final and binding.
SECTION 17. AMENDMENT AND TERMINATION OF PLAN
The Company reserves the right at any time or times to amend the Plan to
any extent and in any manner it may deem advisable by vote of the Board of
Directors or its delegate; provided, however, that any amendment relating to the
aggregate number of shares which may be issued under the Plan (other than an
adjustment provided for in Section 15) or to the Employees (or class of
Employees) eligible to receive Options under the Plan will have no force or
effect unless it is approved by the shareholders within twelve months before or
after its adoption.
The Plan shall terminate automatically following the end of the first
Option Period beginning in 2009; PROVIDED, HOWEVER, that the Board of Directors
in its discretion may extend the Plan for one or more Option Periods. The Plan
may be earlier suspended or terminated by
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the Board of Directors or its delegate, but no such suspension or termination
will adversely affect the rights and privileges of holders of outstanding
Options. The Plan will terminate in any case when all or substantially all
the Stock reserved for the purposes of the Plan has been purchased.
SECTION 18. APPROVAL OF SHAREHOLDERS
The Plan is subject to the approval of the shareholders of The Company,
which approval must be secured within twelve months before or after the date the
Plan is adopted by the Board of Directors, and any Option granted hereunder
prior to such approval is conditioned on such approval being obtained prior to
the exercise thereof.
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NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OR
CONVERSION OF THIS WARRANT HAVE BEEN REGISTERED UNDER, AND ARE SUBJECT TO, THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE
1933 ACT OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE 1933 ACT.
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OR CONVERSION OF THIS
WARRANT ARE SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN A SECURITYHOLDERS
AGREEMENT, DATED AS OF SEPTEMBER 27, 1996. THE COMPANY WILL FURNISH COPIES OF
SUCH AGREEMENT TO THE HOLDER OF THIS WARRANT UPON WRITTEN REQUEST.
CHARLOTTE RUSSE HOLDING, INC.
COMMON STOCK PURCHASE WARRANT
Dated as of September 27, 1996
Void after September 27, 2006
No. 1 Common Stock
THIS CERTIFIES that FSC Corp. (the "HOLDER"), or registered assigns, is
entitled, at any time during the Warrant Exercise Period (as hereinafter
defined), to subscribe for and purchase from Charlotte Russe Holding, Inc., a
Delaware corporation (including any corporation which shall succeed to or assume
the obligations of the company hereunder, the "COMPANY"), up to 4135.6 fully
paid and non-assessable shares of the Company's common stock, $1.00 par value
per share (the "Common Stock"), at an initial purchase price per share of
$100.00 (such price per share as adjusted from time to time as provided herein
is referred to herein as the "EXERCISE PRICE"). The number and character of
such shares of Common Stock and the Exercise Price are subject to adjustment as
provided herein.
This Warrant is subject to the terms of that certain Securityholders Rights
Agreement, dated as of September 27, 1996 (herein, as so amended and from time
to time in effect, called the "SECURITYHOLDERS AGREEMENT"), between the Company,
certain of the stockholders of the Company and the original holder.
<PAGE>
Copies of the Securityholders Agreement are on file and available for
inspection at the principal office of the Company or at such other office of the
Company as the Company shall designate by notice in writing to the registered
holder hereof at the address of such holder appearing on the books of the
Company.
This Warrant is subject to the following terms and conditions:
Section 1. DEFINITIONS. As used herein the following terms, unless the
context otherwise requires, have the following respective meanings:
BANK shall have the meaning set forth in the preamble.
CAPITAL STOCK shall mean and include any share of capital stock of the
Company.
COMPANY shall have the meaning set forth in the preamble.
CONVERTIBLE SECURITIES shall mean any securities directly or indirectly
convertible into or exchangeable for Common Stock.
EXERCISE PRICE shall have the meaning set forth in the preamble.
EXERCISE SHARES shall have the meaning set forth in Section 2.1 hereof.
OPTIONS shall mean any outstanding rights, options or warrants to subscribe
for, purchase or otherwise acquire Capital Stock or Convertible Securities.
ORIGINAL ISSUE DATE shall mean September 27, 1996.
OTHER SECURITIES shall mean any stock (other than Common Stock) and other
securities of the Company or any other entity (corporate or otherwise) which (i)
the holder of this Warrant at any time shall be entitled to receive, or shall
have received, on the exercise of this Warrant, in lieu of or in addition to
Common Stock, or (ii) at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or other securities, in each case
pursuant to Sections 6, 7 or 8 hereof.
PERMITTED TRANSFEREE shall mean an affiliate of The First National Bank of
Boston or FSC Corp.
PERSON shall mean an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
WARRANT EXERCISE PERIOD shall mean the period beginning on the date of this
Warrant and ending on the Warrant Expiration Date.
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WARRANT EXPIRATION DATE shall have the meaning set forth in Section 2.3
hereof.
WARRANT STOCK shall mean: (i) the Company's Common Stock authorized as at
the date of this Warrant and issuable upon the exercise or conversion of this
Warrant or any warrants delivered in substitution or exchange therefor; and (ii)
shall include also any other shares of Capital Stock issued pursuant to an event
described in Section 7.1.
Section 2. EXERCISE OF WARRANT.
Section 2.1. EXERCISE. This Warrant may be exercised prior to its
expiration pursuant to Section 2.3 hereof by the holder hereof at any time or
from time to time, by surrender of this Warrant, with the form of subscription
attached as EXHIBIT A hereto duly executed by such holder, to the Company at its
principal office, accompanied by payment, by certified or official bank check
payable to the order of the Company or by wire transfer to its account, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then being exercised by the Exercise Price then in effect. In
the event the Warrant is not exercised in full, the Company, at its expense,
will forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder (upon payment by such holder of any applicable transfer taxes) may
request, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock equal (without giving effect to any adjustment therein)
to the number of such shares called for on the face of this Warrant minus the
number of such shares (without giving effect to any adjustment therein) for
which this Warrant shall have been exercised. Upon any exercise of this Warrant,
in whole or in part the holder hereof may pay the aggregate Exercise Price with
respect to the shares of Common Stock for which this Warrant is then being
exercised (collectively, the "EXERCISE SHARES") by surrendering its rights to a
number of Exercise Shares having a fair market value equal to or greater than
the required aggregate Exercise Price, in which case the holder hereof would
receive the number of Exercise Shares to which it would otherwise be entitled
upon such exercise, less the surrendered shares. For purposes of this Section
2.1, the fair market value of one share of Common Stock shall be equal to the
repurchase price of such share based on the fair market value of the Company
determined as of the last day of the calendar month immediately preceding such
date of exercise.
Section 2.2. CONFLICT WITH OTHER LAWS. Any other provisions hereof to the
contrary notwithstanding, neither the Holder nor any Permitted Transferee shall
be entitled to exercise the right under this Warrant to purchase any share or
shares of Common Stock if, under any law or under any regulation, rule or other
requirement of any governmental authority at any time applicable to the Holder
or any of its affiliates, (a) as a result of such purchase, the Holder and all
affiliates of the Holder, taken as a whole, would own, control or have power to
vote a greater quantity of securities of any kind than the Holder and its
affiliates shall be permitted to own, control or have power to vote, or (b) such
purchase would not be permitted. For purposes of this Section 2.2, a written
statement of the Holder or its affiliate exercising this Warrant, delivered upon
surrender of this Warrant to the effect that the Holder or its affiliate is
legally entitled to exercise its right under this Warrant to purchase securities
and that such
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purchase will not violate the prohibitions so forth in the preceding
sentence, shall be conclusive and binding upon the Company.
Section 2.3. EXPIRATION. This Warrant shall expire upon the earlier to
occur of (i) exercise in full, or (ii) September 27, 2006 (the "Warrant
Expiration Date").
Section 3. FINANCIAL INFORMATION. The Company shall deliver to the holder
of this Warrant the following financial information:
(a) within forty-five (45) days after the end of each fiscal quarter,
a consolidated balance sheet of the Company and its subsidiaries as at the
end of such fiscal quarter and the related consolidated statements of
operations and, commencing with the fiscal quarter ending on June 30, 1997,
cash flows for such fiscal quarter and for the portion of the fiscal year
ended at the end of such fiscal quarter; and
(b) as soon as available and in any event within one hundred (100)
days after the end of each fiscal year, a consolidated balance sheet of the
Company and its subsidiaries as of the end of such fiscal year and the
related consolidated statements of operations, stockholders' equity and
cash flows for such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, certified by independent
public accountants of nationally recognized standing.
Section 4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise or conversion
of this Warrant or any portion thereof. With respect to any fraction of a share
called for upon the exercise or conversion of this Warrant or any portion
thereof, an amount equal to such fraction multiplied by the then current fair
market value of a share of Warrant Stock (as determined in good faith by the
Board of Directors of the Company) shall be paid to the holder hereof in cash by
the Company.
Section 5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for
shares of Warrant Stock upon the exercise or conversion of this Warrant or
any portion thereof shall be made without charge to the holder hereof for any
issue or transfer taxes or any other incidental expenses in respect of the
issuance of such certificates, all of which taxes and expenses shall be paid
by the Company, and such certificates shall be issued in the name of the
holder of this Warrant; PROVIDED, HOWEVER, that any income taxes or capital
gains taxes or similar taxes shall be payable by the holder of this Warrant.
Section 6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
Section 6.1. CERTAIN ADJUSTMENTS. In case at any time or from time
to time, the Company shall (a) effect a capital reorganization, reclassification
or recapitalization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then in each such case, the holder of this Warrant, on the exercise
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hereof as provided in Section 2 hereof at any time after the consummation or
the effective date of any such transaction, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or effective date, the stock and Other Securities and property
(including cash) to which such holder would have been entitled in connection
with such transaction, if such holder had so exercised this Warrant
immediately prior thereto, all subject to further adjustment thereafter as
provided in Sections 7 and 8 hereof.
Section 6.2. CONTINUATION OF TERMS. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 6, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and Other
Securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or Other Securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 9 hereof.
Section 7. ADJUSTMENTS FOR STOCK DIVIDENDS, STOCK SPLITS AND
COMBINATIONS. The Exercise Price and number of shares of Warrant Stock issuable
upon exercise or conversion hereof shall be subject to adjustment from time to
time at any time after the Original Issue Date as follows:
Section 7.1. ADJUSTMENTS FOR STOCK DIVIDENDS, STOCK SPLITS AND
COMBINATIONS. If (and on each occasion that) the Company shall, at any
time after the Original Issue Date, (a) issue any shares of Capital Stock
as a dividend or distribution in respect of Common Stock, or (b) issue any
shares of Common Stock in subdivision of outstanding shares of Common Stock
by reclassification or otherwise, or (c) combine outstanding shares of
Common Stock by reclassification or otherwise, the then current number and
class of shares of Warrant Stock issuable upon exercise or conversion
hereof shall be adjusted to an amount equal to the number and class of
shares of Warrant Stock the holder hereof would have received had such
holder exercised or converted this Warrant immediately prior to such event
and received the shares of Capital Stock issued in connection with such
event and the Exercise Price shall be adjusted to the price that the holder
would have paid had such holder exercised or converted this Warrant
immediately prior to such event and received the shares of Capital Stock
issued in connection with such event.
Section 7.2. ADJUSTMENTS FOR CERTAIN OTHER DIVIDENDS AND
DISTRIBUTIONS. In case the Company shall, at any time after the Original
Issue Date, declare a dividend (other than regular quarterly cash dividends)
or make a distribution upon the Common Stock payable otherwise than in
Capital Stock, then thereafter the holder hereof, upon the exercise or
conversion of any of the rights represented by this Warrant, will be entitled
to receive the
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number of shares of Warrant Stock being purchased upon such exercise or
conversion and, in addition and without further payment, the cash, stock or
other securities and other property which the holder hereof would have
received by way of dividends and distributions (otherwise than in Capital
Stock) if such holder (a) had exercised or converted this Warrant immediately
prior to the declaration of such dividend or the making of such distribution
so as to be entitled thereto, and (b) had retained all dividends in stock or
securities payable in respect of such Common Stock or in respect of any stock
or securities paid as dividends and distributions and originating directly or
indirectly from such Common Stock.
Section 7.3. ADJUSTMENTS FOR DILUTIVE AND OTHER EVENTS.
(a) If at any time the Company shall issue any shares of Capital
Stock, or Options or Convertible Securities at a price less than the then
fair market value of such Capital Stock, Options or Convertible Securities
(in each case as determined by the board of directors of the Company for
good faith), then the Warrant Stock deliverable in connection with the
exercise or conversion of this warrant will be increased by an amount of
Capital Stock necessary to give the holder hereof the same percentage of
Capital Stock that it would have received had such holder exercised or
converted this Warrant immediately prior to such issuance (after adjusting
for the consideration actually received by the Company in connection with
the issuance). In the case of an issuance of Common Stock, the Warrant
Stock will generally be increased by a number of shares of Capital Stock
having a fair market value equal to 2% of the difference between (i) the
fair market value of the shares of Capital Stock and (ii) the issue price
of such shares of Capital Stock.
(b) If at any time the Company shall issue any shares of Capital Stock
pursuant to an employee stock option plan, then the Warrant Stock
deliverable in connection with the exercise or conversion of this Warrant
will be increased by an amount equal to 2% of such shares of Capital Stock.
(c) In connection with any increase in the number of shares of Warrant
Stock issued hereunder pursuant to this Section 7, the Exercise Price per
share of Warrant Stock shall be adjusted so that the aggregate Exercise
Price for all Warrant Stock after giving effect to any adjustment in the
number of shares of Warrant Stock pursuant to this Section 7, will equal
the aggregate Exercise Price for all shares of Warrant Stock immediately
prior to such adjustment in the number of shares.
Section 8. [INTENTIONALLY OMITTED]
Section 9. NO DILUTION. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger or dissolution, avoid or seek to avoid the observance or
performance of any of the terms of the Warrant. Without limiting the generality
of the foregoing, the Company (a) will not increase the par value of any shares
of stock receivable on the exercise of the Warrant above the amount
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payable therefor on such exercise, (b) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable shares of stock on the exercise of the
Warrant from time to time outstanding, and (c) will not transfer all or
substantially all of its properties and assets to any other entity (corporate
or otherwise), or consolidate with or merge into any other entity or permit
any such entity to consolidate with or merge into the Company (if the Company
is not the surviving entity), unless such other entity shall expressly assume
in writing and will be bound by all the terms of this Warrant and the
Securityholders Agreement.
Section 10. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In the case of
each event that may require any adjustment or readjustment in the shares of
Warrant Stock issuable on the exercise of this Warrant, the Company at its
expense will promptly prepare a certificate setting forth such adjustment or
readjustment, or stating the reasons why no adjustment or readjustment is being
made, and showing, in detail, the facts upon which any such adjustment or
readjustment is based, including a Statement of (a) the number of shares of the
Company's Common Stock then outstanding on a fully diluted basis, and (b) the
number of shares of Warrant Stock to be received upon exercise of this Warrant,
in effect immediately prior to such adjustment or readjustment and as adjusted
and readjusted (if required by Section 7 or Section 8) on account thereof. The
Company will forthwith mail a copy of each such certificate to each holder of a
Warrant, and will, on the written request at any time of any holder of a
Warrant, furnish to such holder a like certificate setting forth the
calculations used to determine such adjustment or readjustment. At its option,
the holder of a Warrant may confirm the adjustment noted on the certificate by
causing such adjustment to be computed by an independent certified public
accountant at the expense of the Company.
Section 11. NOTICES OF RECORD DATE. In the event of:
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any Other Securities or property, or to receive any other right;
or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or any consolidation
or merger of the Company with or into any other Person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(d) any proposed issue or grant by the Company of any shares of stock
of any class or any Other Securities, or any right or option to subscribe
for, purchase or
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otherwise acquire any shares of stock of any class or any Other Securities
(other than the issue of Warrant Stock on the exercise of this Warrant),
then, and in each such event, the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (a) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, (b)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is
anticipated to take place, and the time, if any is to be fixed, as of which the
holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for securities or
other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up and (c) the amount and character of any stock or Other Securities, or
rights or options with respect thereto, proposed to be issued or granted, the
date of such proposed issue or grant and the persons or class of persons to whom
such proposed issue or grant is to be offered or made. Such notice shall be
mailed at least thirty (30) days prior to the date specified in such notice on
which any such action is to be taken.
Section 12. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT.
Sufficient shares of authorized but unissued Common Stock of the Company have
been reserved by appropriate corporate action in connection with the prospective
exercise of the Warrant. The issuance of the Warrant or the shares of Warrant
Stock will not require any further corporate action by the stockholders or
directors of the Company, will not be subject to pre-emptive rights in any
present or future stockholders of the Company and will not conflict with any
provision of any agreement to which the Company is a party or by which it is
bound, and such Common Stock, when issued upon exercise of the Warrant in
accordance with their terms or upon such conversion, will be duly authorized,
fully paid and non-assessable.
Section 13. NO RIGHTS OR RESPONSIBILITIES AS SHAREHOLDER. This Warrant
neither entitles the holder hereof to any rights, nor subjects the holder hereof
to any responsibilities as a shareholder of the Company.
Section 14. EXCHANGE. This Warrant is exchangeable, upon the surrender
hereof by the registered holder at the principal office of the Company, for new
warrants of like tenor and date representing in the aggregate the right to
purchase the number of shares of Warrant Stock purchasable hereunder, each of
such new warrants to represent the right to purchase such number of shares of
Warrant Stock as shall be designated by said registered holder at the time of
such surrender.
Section 15. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses
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<PAGE>
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new warrant of like tenor and
date, in lieu of this Warrant.
Section 16. WARRANT AGENT. The Company may, by written notice to the
holder of this Warrant, appoint an agent having an office in New York, New York
or Boston, Massachusetts for the purpose of issuing Common Stock on the exercise
of this Warrant pursuant to Section 2 hereof, and exchanging or replacing this
Warrant pursuant to this Warrant and the Warrant Agreement, or any of the
foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
Section 17. REMEDIES. The Company stipulates that the remedies at law of
the holder of this Warrant in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
Section 18. TRANSFER OF WARRANT. This Warrant and all rights hereunder
are transferable to any Permitted Transferee, in whole but not in part, at the
office or agency of the Company by the registered holder hereof in person or by
a duly authorized attorney, upon surrender of this Warrant together with an
assignment hereof in the form of EXHIBIT B attached hereto properly endorsed.
Until transfer hereof on the registration books of the Company, the Company may
treat the registered holder hereof as the owner hereof for all purposes.
Section 19. COMMUNICATIONS AND NOTICES. All communications and notices
hereunder must be in writing, either delivered in hand or sent by first-class
mail, postage prepaid, or sent by telecopier, and, if to the Company, shall be
addressed to it at the address set forth on the first page hereof, or at such
other address as the Company may hereafter designate in writing by notice to the
registered holder of this Warrant, and, if to such registered holder, addressed
to such holder it the address of such holder as shown on the books of the
Company.
Section 20. SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the
taking of any action required or the expiration of any right granted herein
shall be a Sunday or a Saturday or shall be a legal holiday or a day on which
banking institutions in Boston, Massachusetts, are authorized or required by law
to remain closed, then such action may be taken or right may be exercised on the
next succeeding day which is not a Sunday, a Saturday or a legal holiday and not
a day on which banking institutions in Boston, Massachusetts, are authorized or
required by law to remain closed.
Section 21. MISCELLANEOUS.
(a) THIS WARRANT SHALL BE BINDING UPON THE COMPANY'S SUCCESSORS IN TITLE
AND ASSIGNS, THIS WARRANT SHALL BE CONSTRUED
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IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
(b) Reference is made to the Securityholders Agreement. For all purposes
of the Securityholders Agreement the original holder hereof and its Permitted
Transferees shall be bound by all of the terms and conditions contained in, and
entitled to all of the benefits of, the Securityholders Agreement.
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<PAGE>
IN WITNESS WHEREOF, Charlotte Russe Holding, Inc. has caused this COMMON
STOCK PURCHASE WARRANT to be signed in its corporate name and its corporate seal
to be impressed hereon by its duly authorized officers.
The Company:
------------
Dated as of: CHARLOTTE RUSSE HOLDING, INC.
September 27, 1996
By: /s/ David Oddi
------------------
David Oddi
Vice President
Attest:
/s/ Allan Karp
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<PAGE>
EXHIBIT A
FORM OF SUBSCRIPTION
(To be signed only on exercise or conversion of Common Stock Purchase Warrant)
TO: CHARLOTTE RUSSE HOLDING, INC.
The undersigned, the registered holder of the within Common Stock Purchase
Warrant of Charlotte Russe Holding, Inc., hereby irrevocably elects:
(check one)
A. to exercise this Common Stock Purchase Warrant for, and to purchase
thereunder, _____* shares of Common Stock of ____________________ and the
undersigned herewith makes payment of $________ therefor.
B. to convert ________* Warrants represented by this Common Stock Purchase
Warrant into ______ shares of Common Stock of ______________________.
The undersigned requests that the certificates for such shares be issued in the
name of and delivered to ________________, whose address is __________________.
Dated:
--------------- -------------------------------------------------
(Signature must conform in all respects to name of
registered holder as specified on the face of the
Warrant)
---------------------------------------
(Address)
Signed in the presence of:
- --------------------------
- --------------------------
*Insert here the number of shares (all or part of the number of shares
called for in the Common Stock Purchase Warrant) as to which the Common Stock
Purchase Warrant is being exercised or converted without making any adjustment
for any other stock or other securities or property or cash which, pursuant to
the adjustment provisions of the Common Stock Purchase Warrant, may be
deliverable on exercise or conversion.
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<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT
(To be signed only on transfer of Common Stock Purchase Warrant)
ASSIGNMENT
For value received, the undersigned, __________________, hereby sells,
assigns, and transfers unto _______________ the right represented by the within
Common Stock Purchase Warrant to purchase _______ shares of Common Stock of
Charlotte Russe Holding, Inc. to which the within Common Stock Purchase Warrant
relates, and appoints ______________ Attorney to transfer such right on the
books of Charlotte Russe Holding, Inc. with full power of substitution in the
premises.
Dated:
------------------- --------------------------------------------------
(Signature must conform in all respects to name of
registered holder as specified on the face of the
Warrant)
--------------------------------
(Address)
Signed in the presence of:
- --------------------------
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<PAGE>
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OR
CONVERSION OF THIS WARRANT HAVE BEEN REGISTERED UNDER, AND ARE SUBJECT TO, THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE
1933 ACT OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE 1933 ACT.
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OR CONVERSION OF THIS
WARRANT ARE SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN A SECURITYHOLDERS
AGREEMENT, DATED AS OF SEPTEMBER 27, 1996. THE COMPANY WILL FURNISH COPIES OF
SUCH AGREEMENT TO THE HOLDER OF THIS WARRANT UPON WRITTEN REQUEST.
CHARLOTTE RUSSE HOLDING, INC.
COMMON STOCK PURCHASE WARRANT
-----------------------------
Dated as of September 27, 1996
Void after September 27, 2006
No. 2 Common Stock
THIS CERTIFIES that The SK Equity Fund, L.P. (the "HOLDER"), or registered
assigns, is entitled, at any time during the Warrant Exercise Period (as
hereinafter defined), to subscribe for and purchase from Charlotte Russe
Holding, Inc., a Delaware corporation (including any corporation which shall
succeed to or assume the obligations of the company hereunder, the "COMPANY"),
up to 19,450.1 fully paid and non-assessable shares of the Company's common
stock, $1.00 par value per share (the "Common Stock"), at an initial purchase
price per share of $100.00 (such price per share as adjusted from time to time
as provided herein is referred to herein as the "EXERCISE PRICE"). The number
and character of such shares of Common Stock and the Exercise Price are subject
to adjustment as provided herein.
This Warrant is subject to the terms of that certain Securityholders Rights
Agreement, dated as of September 27, 1996 (herein, as so amended and from time
to time in effect, called the "SECURITYHOLDERS AGREEMENT"), between the Company,
certain of the stockholders of the Company and the original holder.
<PAGE>
Copies of the Securityholders Agreement are on file and available for
inspection at the principal office of the Company or at such other office of the
Company as the Company shall designate by notice in writing to the registered
holder hereof at the address of such holder appearing on the books of the
Company.
This Warrant is subject to the following terms and conditions:
Section 1. DEFINITIONS. As used herein the following terms, unless the
context otherwise requires, have the following respective meanings:
BANK shall have the meaning set forth in the preamble.
CAPITAL STOCK shall mean and include any share of capital stock of the
Company.
COMPANY shall have the meaning set forth in the preamble.
CONVERTIBLE SECURITIES shall mean any securities directly or indirectly
convertible into or exchangeable for Common Stock.
EXERCISE PRICE shall have the meaning set forth in the preamble.
EXERCISE SHARES shall have the meaning set forth in Section 2.1 hereof.
OPTIONS shall mean any outstanding rights, options or warrants to subscribe
for, purchase or otherwise acquire Capital Stock or Convertible Securities.
ORIGINAL ISSUE DATE shall mean September 27, 1996.
OTHER SECURITIES shall mean any stock (other than Common Stock) and other
securities of the Company or any other entity (corporate or otherwise) which (i)
the holder of this Warrant at any time shall be entitled to receive, or shall
have received, on the exercise of this Warrant, in lieu of or in addition to
Common Stock, or (ii) at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or other securities, in each case
pursuant to Sections 6, 7 or 8 hereof.
PERMITTED TRANSFEREE shall mean an affiliate of The First National Bank of
Boston or FSC Corp.
PERSON shall mean an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
WARRANT EXERCISE PERIOD shall mean the period beginning on the date of this
Warrant and ending on the Warrant Expiration Date.
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<PAGE>
WARRANT EXPIRATION DATE shall have the meaning set forth in Section 2.3
hereof.
WARRANT STOCK shall mean: (i) the Company's Common Stock authorized as at
the date of this Warrant and issuable upon the exercise or conversion of this
Warrant or any warrants delivered in substitution or exchange therefor; and (ii)
shall include also any other shares of Capital Stock issued pursuant to an event
described in Section 7.1.
SECTION 2. EXERCISE OF WARRANT.
Section 2.1. EXERCISE. This Warrant may be exercised prior to its
expiration pursuant to Section 2.3 hereof by the holder hereof at any time or
from time to time, by surrender of this Warrant, with the form of subscription
attached as EXHIBIT A hereto duly executed by such holder, to the Company at its
principal office, accompanied by payment, by certified or official bank check
payable to the order of the Company or by wire transfer to its account, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then being exercised by the Exercise Price then in effect. In
the event the Warrant is not exercised in full, the Company, at its expense,
will forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder (upon payment by such holder of any applicable transfer taxes) may
request, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock equal (without giving effect to any adjustment therein)
to the number of such shares called for on the face of this Warrant minus the
number of such shares (without giving effect to any adjustment therein) for
which this Warrant shall have been exercised. Upon any exercise of this Warrant,
in whole or in part the holder hereof may pay the aggregate Exercise Price with
respect to the shares of Common Stock for which this Warrant is then being
exercised (collectively, the "EXERCISE SHARES") by surrendering its rights to a
number of Exercise Shares having a fair market value equal to or greater than
the required aggregate Exercise Price, in which case the holder hereof would
receive the number of Exercise Shares to which it would otherwise be entitled
upon such exercise, less the surrendered shares. For purposes of this Section
2.1, the fair market value of one share of Common Stock shall be equal to the
repurchase price of such share based on the fair market value of the Company
determined as of the last day of the calendar month immediately preceding such
date of exercise.
SECTION 2.2. CONFLICT WITH OTHER LAWS. Any other provisions hereof to the
contrary notwithstanding, neither the Holder nor any Permitted Transferee shall
be entitled to exercise the right under this Warrant to purchase any share or
shares of Common Stock if, under any law or under any regulation, rule or other
requirement of any governmental authority at any time applicable to the Holder
or any of its affiliates, (a) as a result of such purchase, the Holder and all
affiliates of the Holder, taken as a whole, would own, control or have power to
vote a greater quantity of securities of any kind than the Holder and its
affiliates shall be permitted to own, control or have power to vote, or (b) such
purchase would not be permitted. For purposes of this Section 2.2, a written
statement of the Holder or its affiliate exercising this Warrant, delivered upon
surrender of this Warrant to the effect that the Holder or its affiliate is
legally entitled to exercise its right under this Warrant to purchase securities
and that such
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<PAGE>
purchase will not violate the prohibitions so forth in the preceding
sentence, shall be conclusive and binding upon the Company.
SECTION 2.3. EXPIRATION. This Warrant shall expire upon the earlier to
occur of (i) exercise in full, or (ii) September 27, 2006 (the "Warrant
Expiration Date").
SECTION 3. FINANCIAL INFORMATION. The Company shall deliver to the holder
of this Warrant the following financial information:
(a) within forty-five (45) days after the end of each fiscal quarter,
a consolidated balance sheet of the Company and its subsidiaries as at the
end of such fiscal quarter and the related consolidated statements of
operations and, commencing with the fiscal quarter ending on June 30, 1997,
cash flows for such fiscal quarter and for the portion of the fiscal year
ended at the end of such fiscal quarter; and
(b) as soon as available and in any event within one hundred (100)
days after the end of each fiscal year, a consolidated balance sheet of the
Company and its subsidiaries as of the end of such fiscal year and the
related consolidated statements of operations, stockholders' equity and
cash flows for such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, certified by independent
public accountants of nationally recognized standing.
SECTION 4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise or conversion
of this Warrant or any portion thereof. With respect to any fraction of a share
called for upon the exercise or conversion of this Warrant or any portion
thereof, an amount equal to such fraction multiplied by the then current fair
market value of a share of Warrant Stock (as determined in good faith by the
Board of Directors of the Company) shall be paid to the holder hereof in cash by
the Company.
SECTION 5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for
shares of Warrant Stock upon the exercise or conversion of this Warrant or any
portion thereof shall be made without charge to the holder hereof for any issue
or transfer taxes or any other incidental expenses in respect of the issuance of
such certificates, all of which taxes and expenses shall be paid by the Company,
and such certificates shall be issued in the name of the holder of this Warrant;
PROVIDED, HOWEVER, that any income taxes or capital gains taxes or similar taxes
shall be payable by the holder of this Warrant.
SECTION 6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
SECTION 6.1. CERTAIN ADJUSTMENTS. In case at any time or from time
to time, the Company shall (a) effect a capital reorganization, reclassification
or recapitalization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then in each such case, the holder of this Warrant, on the exercise
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<PAGE>
hereof as provided in Section 2 hereof at any time after the consummation or the
effective date of any such transaction, shall receive, in lieu of the Common
Stock (or Other Securities) issuable on such exercise prior to such consummation
or effective date, the stock and Other Securities and property (including cash)
to which such holder would have been entitled in connection with such
transaction, if such holder had so exercised this Warrant immediately prior
thereto, all subject to further adjustment thereafter as provided in Sections 7
and 8 hereof.
SECTION 6.2. CONTINUATION OF TERMS. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 6, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and Other
Securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or Other Securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 9 hereof.
SECTION 7. ADJUSTMENTS FOR STOCK DIVIDENDS, STOCK SPLITS AND
COMBINATIONS. The Exercise Price and number of shares of Warrant Stock issuable
upon exercise or conversion hereof shall be subject to adjustment from time to
time at any time after the Original Issue Date as follows:
SECTION 7.1. ADJUSTMENTS FOR STOCK DIVIDENDS, STOCK SPLITS AND
COMBINATIONS. If (and on each occasion that) the Company shall, at any
time after the Original Issue Date, (a) issue any shares of Capital Stock
as a dividend or distribution in respect of Common Stock, or (b) issue any
shares of Common Stock in subdivision of outstanding shares of Common Stock
by reclassification or otherwise, or (c) combine outstanding shares of
Common Stock by reclassification or otherwise, the then current number and
class of shares of Warrant Stock issuable upon exercise or conversion
hereof shall be adjusted to an amount equal to the number and class of
shares of Warrant Stock the holder hereof would have received had such
holder exercised or converted this Warrant immediately prior to such event
and received the shares of Capital Stock issued in connection with such
event and the Exercise Price shall be adjusted to the price that the holder
would have paid had such holder exercised or converted this Warrant
immediately prior to such event and received the shares of Capital Stock
issued in connection with such event.
SECTION 7.2. ADJUSTMENTS FOR CERTAIN OTHER DIVIDENDS AND
DISTRIBUTIONS. In case the
Company shall, at any time after the Original Issue Date, declare a dividend
(other than regular quarterly cash dividends) or make a distribution upon the
Common Stock payable otherwise than in Capital Stock, then thereafter the holder
hereof, upon the exercise or conversion of any of the rights represented by this
Warrant, will be entitled to receive the
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<PAGE>
number of shares of Warrant Stock being purchased upon such exercise or
conversion and, in addition and without further payment, the cash, stock or
other securities and other property which the holder hereof would have
received by way of dividends and distributions (otherwise than in Capital
Stock) if such holder (a) had exercised or converted this Warrant immediately
prior to the declaration of such dividend or the making of such distribution
so as to be entitled thereto, and (b) had retained all dividends in stock or
securities payable in respect of such Common Stock or in respect of any stock
or securities paid as dividends and distributions and originating directly or
indirectly from such Common Stock.
SECTION 7.3. ADJUSTMENTS FOR DILUTIVE AND OTHER EVENTS.
(a) If at any time the Company shall issue any shares of Capital
Stock, or Options or Convertible Securities at a price less than the
then fair market value of such Capital Stock, Options or Convertible
Securities (in each case as determined by the board of directors of
the Company for good faith), then the Warrant Stock deliverable in
connection with the exercise or conversion of this warrant will be
increased by an amount of Capital Stock necessary to give the holder
hereof the same percentage of Capital Stock that it would have received
had such holder exercised or converted this Warrant immediately prior
to such issuance (after adjusting for the consideration actually received
by the Company in connection with the issuance). In the case of an
issuance of Common Stock, the Warrant Stock will generally be increased by
a number of shares of Capital Stock having a fair market value equal to 2%
of the difference between (i) the fair market value of the shares of
Capital Stock and (ii) the issue price of such shares of Capital Stock.
(b) If at any time the Company shall issue any shares of Capital Stock
pursuant to an employee stock option plan, then the Warrant Stock
deliverable in connection with the exercise or conversion of this Warrant
will be increased by an amount equal to 2% of such shares of Capital Stock.
(c) In connection with any increase in the number of shares of Warrant
Stock issued hereunder pursuant to this Section 7, the Exercise Price per
share of Warrant Stock shall be adjusted so that the aggregate Exercise
Price for all Warrant Stock after giving effect to any adjustment in the
number of shares of Warrant Stock pursuant to this Section 7, will equal
the aggregate Exercise Price for all shares of Warrant Stock immediately
prior to such adjustment in the number of shares.
SECTION 8. [INTENTIONALLY OMITTED]
SECTION 9. NO DILUTION. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger or dissolution, avoid or seek to avoid the observance or
performance of any of the terms of the Warrant. Without limiting the generality
of the foregoing, the Company (a) will not increase the par value of any shares
of stock receivable on the exercise of the Warrant above the amount
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<PAGE>
payable therefor on such exercise, (b) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable shares of stock on the exercise of the
Warrant from time to time outstanding, and (c) will not transfer all or
substantially all of its properties and assets to any other entity (corporate
or otherwise), or consolidate with or merge into any other entity or permit
any such entity to consolidate with or merge into the Company (if the Company
is not the surviving entity), unless such other entity shall expressly assume
in writing and will be bound by all the terms of this Warrant and the
Securityholders Agreement.
SECTION 10. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In the case of
each event that may require any adjustment or readjustment in the shares of
Warrant Stock issuable on the exercise of this Warrant, the Company at its
expense will promptly prepare a certificate setting forth such adjustment or
readjustment, or stating the reasons why no adjustment or readjustment is being
made, and showing, in detail, the facts upon which any such adjustment or
readjustment is based, including a Statement of (a) the number of shares of the
Company's Common Stock then outstanding on a fully diluted basis, and (b) the
number of shares of Warrant Stock to be received upon exercise of this Warrant,
in effect immediately prior to such adjustment or readjustment and as adjusted
and readjusted (if required by Section 7 or Section 8) on account thereof. The
Company will forthwith mail a copy of each such certificate to each holder of a
Warrant, and will, on the written request at any time of any holder of a
Warrant, furnish to such holder a like certificate setting forth the
calculations used to determine such adjustment or readjustment. At its option,
the holder of a Warrant may confirm the adjustment noted on the certificate by
causing such adjustment to be computed by an independent certified public
accountant at the expense of the Company.
SECTION 11. NOTICES OF RECORD DATE. In the event of:
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any Other Securities or property, or to receive any other right;
or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or any consolidation
or merger of the Company with or into any other Person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(d) any proposed issue or grant by the Company of any shares of stock
of any class or any Other Securities, or any right or option to subscribe
for, purchase or
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otherwise acquire any shares of stock of any class or any Other Securities
(other than the issue of Warrant Stock on the exercise of this Warrant),
then, and in each such event, the Company will mail or cause to be mailed to
the holder of this Warrant a notice specifying (a) the date on which any such
record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, (b) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation
or winding-up is anticipated to take place, and the time, if any is to be
fixed, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock (or
Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up and (c) the amount and
character of any stock or Other Securities, or rights or options with respect
thereto, proposed to be issued or granted, the date of such proposed issue or
grant and the persons or class of persons to whom such proposed issue or
grant is to be offered or made. Such notice shall be mailed at least thirty
(30) days prior to the date specified in such notice on which any such action
is to be taken.
SECTION 12. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT.
Sufficient shares of authorized but unissued Common Stock of the Company have
been reserved by appropriate corporate action in connection with the prospective
exercise of the Warrant. The issuance of the Warrant or the shares of Warrant
Stock will not require any further corporate action by the stockholders or
directors of the Company, will not be subject to pre-emptive rights in any
present or future stockholders of the Company and will not conflict with any
provision of any agreement to which the Company is a party or by which it is
bound, and such Common Stock, when issued upon exercise of the Warrant in
accordance with their terms or upon such conversion, will be duly authorized,
fully paid and non-assessable.
SECTION 13. NO RIGHTS OR RESPONSIBILITIES AS SHAREHOLDER. This Warrant
neither entitles the holder hereof to any rights, nor subjects the holder hereof
to any responsibilities as a shareholder of the Company.
SECTION 14. EXCHANGE. This Warrant is exchangeable, upon the surrender
hereof by the registered holder at the principal office of the Company, for
new warrants of like tenor and date representing in the aggregate the right
to purchase the number of shares of Warrant Stock purchasable hereunder, each
of such new warrants to represent the right to purchase such number of shares
of Warrant Stock as shall be designated by said registered holder at the time
of such surrender.
SECTION 15. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses
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<PAGE>
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new warrant of like tenor and
date, in lieu of this Warrant.
SECTION 16. WARRANT AGENT. The Company may, by written notice to the
holder of this Warrant, appoint an agent having an office in New York, New York
or Boston, Massachusetts for the purpose of issuing Common Stock on the exercise
of this Warrant pursuant to Section 2 hereof, and exchanging or REPLACING THIS
WARRANT PURSUANT TO THIS WARRANT AND THE WARRANT AGREEMENT, OR ANY OF THE
FOREGOING, AND THEREAFTER ANY SUCH ISSUANCE, EXCHANGE OR REPLACEMENT, AS THE
CASE MAY BE, SHALL BE MADE AT SUCH OFFICE BY SUCH AGENT.
SECTION 17. REMEDIES. The Company stipulates that the remedies at law of
the holder of this Warrant in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
SECTION 18. TRANSFER OF WARRANT. This Warrant and all rights hereunder
are transferable to any Permitted Transferee, in whole but not in part, at the
office or agency of the Company by the registered holder hereof in person or by
a duly authorized attorney, upon surrender of this Warrant together with an
assignment hereof in the form of EXHIBIT B attached hereto properly endorsed.
Until transfer hereof on the registration books of the Company, the Company may
treat the registered holder hereof as the owner hereof for all purposes.
SECTION 19. COMMUNICATIONS AND NOTICES. All communications and notices
hereunder must be in writing, either delivered in hand or sent by first-class
mail, postage prepaid, or sent by telecopier, and, if to the Company, shall be
addressed to it at the address set forth on the first page hereof, or at such
other address as the Company may hereafter designate in writing by notice to the
registered holder of this Warrant, and, if to such registered holder, addressed
to such holder it the address of such holder as shown on the books of the
Company.
SECTION 20. SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the
taking of any action required or the expiration of any right granted herein
shall be a Sunday or a Saturday or shall be a legal holiday or a day on which
banking institutions in Boston, Massachusetts, are authorized or required by law
to remain closed, then such action may be taken or right may be exercised on the
next succeeding day which is not a Sunday, a Saturday or a legal holiday and not
a day on which banking institutions in Boston, Massachusetts, are authorized or
required by law to remain closed.
SECTION 21. MISCELLANEOUS.
(a) THIS WARRANT SHALL BE BINDING UPON THE COMPANY'S SUCCESSORS IN TITLE
AND ASSIGNS, THIS WARRANT SHALL BE CONSTRUED
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<PAGE>
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
(b) Reference is made to the Securityholders Agreement. For all purposes
of the Securityholders Agreement the original holder hereof and its Permitted
Transferees shall be bound by all of the terms and conditions contained in, and
entitled to all of the benefits of, the Securityholders Agreement.
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<PAGE>
IN WITNESS WHEREOF, Charlotte Russe Holding, Inc. has caused this COMMON
STOCK PURCHASE WARRANT to be signed in its corporate name and its corporate seal
to be impressed hereon by its duly authorized officers.
THE COMPANY:
------------
Dated as of: CHARLOTTE RUSSE HOLDING, INC.
September 27, 1996
By: /s/ DAVID ODDI
------------------
David Oddi
Vice President
Attest:
/s/ Allan Karp
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<PAGE>
EXHIBIT A
FORM OF SUBSCRIPTION
(To be signed only on exercise or conversion of Common Stock Purchase Warrant)
TO: CHARLOTTE RUSSE HOLDING, INC.
The undersigned, the registered holder of the within Common Stock Purchase
Warrant of Charlotte Russe Holding, Inc., hereby irrevocably elects:
(check one)
A. to exercise this Common Stock Purchase Warrant for, and to purchase
thereunder, _____ * shares of Common Stock of ____________________ and the
undersigned herewith makes payment of $________ therefor.
B. to convert ________ * Warrants represented by this Common Stock Purchase
Warrant into ______ shares of Common Stock of ______________________.
The undersigned requests that the certificates for such shares be issued in the
name of and delivered to ________________, whose address is ___________________.
Dated:
--------------- --------------------------------------------------
(Signature must conform in all respects to name of
registered holder as specified on the face of the
Warrant)
-------------------------------------------------
(Address)
Signed in the presence of:
- --------------------------
- --------------------------
*Insert here the number of shares (all or part of the number of shares
called for in the Common Stock Purchase Warrant) as to which the Common Stock
Purchase Warrant is being exercised or converted without making any adjustment
for any other stock or other securities or property or cash which, pursuant to
the adjustment provisions of the Common Stock Purchase Warrant, may be
deliverable on exercise or conversion.
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<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT
(To be signed only on transfer of Common Stock Purchase Warrant)
ASSIGNMENT
For value received, the undersigned, __________________, hereby sells,
assigns, and transfers unto _______________ the right represented by the within
Common Stock Purchase Warrant to purchase _______ shares of Common Stock of
Charlotte Russe Holding, Inc. to which the within Common Stock Purchase Warrant
relates, and appoints ______________ Attorney to transfer such right on the
books of Charlotte Russe Holding, Inc. with full power of substitution in the
premises.
Dated:
------------------- --------------------------------------------------
(Signature must conform in all respects to name of
registered holder as specified on the face of the
Warrant)
--------------------------------------------------
(Address)
Signed in the presence of:
- --------------------------
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<PAGE>
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OR
CONVERSION OF THIS WARRANT HAVE BEEN REGISTERED UNDER, AND ARE SUBJECT TO, THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE
1933 ACT OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE 1933 ACT.
THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OR CONVERSION OF THIS
WARRANT ARE SUBJECT TO CERTAIN RESTRICTIONS CONTAINED IN A SECURITYHOLDERS
AGREEMENT, DATED AS OF SEPTEMBER 27, 1996. THE COMPANY WILL FURNISH COPIES OF
SUCH AGREEMENT TO THE HOLDER OF THIS WARRANT UPON WRITTEN REQUEST.
CHARLOTTE RUSSE HOLDING, INC.
COMMON STOCK PURCHASE WARRANT
Dated as of September 27, 1996
Void after September 27, 2006
No. 3 Common Stock
THIS CERTIFIES that SK Investment Fund, L.P. (the "HOLDER"), or registered
assigns, is entitled, at any time during the Warrant Exercise Period (as
hereinafter defined), to subscribe for and purchase from Charlotte Russe
Holding, Inc., a Delaware corporation (including any corporation which shall
succeed to or assume the obligations of the company hereunder, the "COMPANY"),
up to 194 fully paid and non-assessable shares of the Company's common stock,
$1.00 par value per share (the "Common Stock"), at an initial purchase price per
share of $100.00 (such price per share as adjusted from time to time as provided
herein is referred to herein as the "EXERCISE PRICE"). The number and character
of such shares of Common Stock and the Exercise Price are subject to adjustment
as provided herein.
This Warrant is subject to the terms of that certain Securityholders Rights
Agreement, dated as of September 27, 1996 (herein, as so amended and from time
to time in effect, called the "SECURITYHOLDERS AGREEMENT"), between the Company,
certain of the stockholders of the Company and the original holder.
<PAGE>
Copies of the Securityholders Agreement are on file and available for
inspection at the principal office of the Company or at such other office of the
Company as the Company shall designate by notice in writing to the registered
holder hereof at the address of such holder appearing on the books of the
Company.
This Warrant is subject to the following terms and conditions:
Section 1. DEFINITIONS. As used herein the following terms, unless the
context otherwise requires, have the following respective meanings:
BANK shall have the meaning set forth in the preamble.
CAPITAL STOCK shall mean and include any share of capital stock of the
Company.
COMPANY shall have the meaning set forth in the preamble.
CONVERTIBLE SECURITIES shall mean any securities directly or indirectly
convertible into or exchangeable for Common Stock.
EXERCISE PRICE shall have the meaning set forth in the preamble.
EXERCISE SHARES shall have the meaning set forth in Section 2.1 hereof.
OPTIONS shall mean any outstanding rights, options or warrants to subscribe
for, purchase or otherwise acquire Capital Stock or Convertible Securities.
ORIGINAL ISSUE DATE shall mean September 27, 1996.
OTHER SECURITIES shall mean any stock (other than Common Stock) and other
securities of the Company or any other entity (corporate or otherwise) which (i)
the holder of this Warrant at any time shall be entitled to receive, or shall
have received, on the exercise of this Warrant, in lieu of or in addition to
Common Stock, or (ii) at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or other securities, in each case
pursuant to Sections 6, 7 or 8 hereof.
PERMITTED TRANSFEREE shall mean an affiliate of The First National Bank of
Boston or FSC Corp.
PERSON shall mean an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
WARRANT EXERCISE PERIOD shall mean the period beginning on the date of this
Warrant and ending on the Warrant Expiration Date.
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<PAGE>
WARRANT EXPIRATION DATE shall have the meaning set forth in Section 2.3
hereof.
WARRANT STOCK shall mean: (i) the Company's Common Stock authorized as at
the date of this Warrant and issuable upon the exercise or conversion of this
Warrant or any warrants delivered in substitution or exchange therefor; and (ii)
shall include also any other shares of Capital Stock issued pursuant to an event
described in Section 7.1.
Section 2. EXERCISE OF WARRANT.
Section 2.1. EXERCISE. This Warrant may be exercised prior to its
expiration pursuant to Section 2.3 hereof by the holder hereof at any time or
from time to time, by surrender of this Warrant, with the form of subscription
attached as EXHIBIT A hereto duly executed by such holder, to the Company at its
principal office, accompanied by payment, by certified or official bank check
payable to the order of the Company or by wire transfer to its account, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then being exercised by the Exercise Price then in effect. In
the event the Warrant is not exercised in full, the Company, at its expense,
will forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder (upon payment by such holder of any applicable transfer taxes) may
request, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock equal (without giving effect to any adjustment therein)
to the number of such shares called for on the face of this Warrant minus the
number of such shares (without giving effect to any adjustment therein) for
which this Warrant shall have been exercised. Upon any exercise of this Warrant,
in whole or in part the holder hereof may pay the aggregate Exercise Price with
respect to the shares of Common Stock for which this Warrant is then being
exercised (collectively, the "EXERCISE SHARES") by surrendering its rights to a
number of Exercise Shares having a fair market value equal to or greater than
the required aggregate Exercise Price, in which case the holder hereof would
receive the number of Exercise Shares to which it would otherwise be entitled
upon such exercise, less the surrendered shares. For purposes of this Section
2.1, the fair market value of one share of Common Stock shall be equal to the
repurchase price of such share based on the fair market value of the Company
determined as of the last day of the calendar month immediately preceding such
date of exercise.
Section 2.2. CONFLICT WITH OTHER LAWS. Any other provisions hereof to the
contrary notwithstanding, neither the Holder nor any Permitted Transferee shall
be entitled to exercise the right under this Warrant to purchase any share or
shares of Common Stock if, under any law or under any regulation, rule or other
requirement of any governmental authority at any time applicable to the Holder
or any of its affiliates, (a) as a result of such purchase, the Holder and all
affiliates of the Holder, taken as a whole, would own, control or have power to
vote a greater quantity of securities of any kind than the Holder and its
affiliates shall be permitted to own, control or have power to vote, or (b) such
purchase would not be permitted. For purposes of this Section 2.2, a written
statement of the Holder or its affiliate exercising this Warrant, delivered upon
surrender of this Warrant to the effect that the Holder or its affiliate is
legally entitled to exercise its right under this Warrant to purchase securities
and that such
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<PAGE>
purchase will not violate the prohibitions so forth in the preceding
sentence, shall be conclusive and binding upon the Company.
Section 2.3. EXPIRATION. This Warrant shall expire upon the earlier to
occur of (i) exercise in full, or (ii) September 27, 2006 (the "Warrant
Expiration Date").
Section 3. FINANCIAL INFORMATION. The Company shall deliver to the holder
of this Warrant the following financial information:
(a) within forty-five (45) days after the end of each fiscal quarter,
a consolidated balance sheet of the Company and its subsidiaries as at the
end of such fiscal quarter and the related consolidated statements of
operations and, commencing with the fiscal quarter ending on June 30, 1997,
cash flows for such fiscal quarter and for the portion of the fiscal year
ended at the end of such fiscal quarter; and
(b) as soon as available and in any event within one hundred (100)
days after the end of each fiscal year, a consolidated balance sheet of the
Company and its subsidiaries as of the end of such fiscal year and the
related consolidated statements of operations, stockholders' equity and
cash flows for such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, certified by independent
public accountants of nationally recognized standing.
Section 4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise or conversion
of this Warrant or any portion thereof. With respect to any fraction of a share
called for upon the exercise or conversion of this Warrant or any portion
thereof, an amount equal to such fraction multiplied by the then current fair
market value of a share of Warrant Stock (as determined in good faith by the
Board of Directors of the Company) shall be paid to the holder hereof in cash by
the Company.
Section 5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for
shares of Warrant Stock upon the exercise or conversion of this Warrant or any
portion thereof shall be made without charge to the holder hereof for any issue
or transfer taxes or any other incidental expenses in respect of the issuance of
such certificates, all of which taxes and expenses shall be paid by the Company,
and such certificates shall be issued in the name of the holder of this Warrant;
PROVIDED, HOWEVER, that any income taxes or capital gains taxes or similar taxes
shall be payable by the holder of this Warrant.
Section 6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
Section 6.1. CERTAIN ADJUSTMENTS. In case at any time or from time
to time, the Company shall (a) effect a capital reorganization, reclassification
or recapitalization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then in each such case, the holder of this Warrant, on the exercise
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<PAGE>
hereof as provided in Section 2 hereof at any time after the consummation or the
effective date of any such transaction, shall receive, in lieu of the Common
Stock (or Other Securities) issuable on such exercise prior to such consummation
or effective date, the stock and Other Securities and property (including cash)
to which such holder would have been entitled in connection with such
transaction, if such holder had so exercised this Warrant immediately prior
thereto, all subject to further adjustment thereafter as provided in Sections 7
and 8 hereof.
Section 6.2. CONTINUATION OF TERMS. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 6, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and Other
Securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or Other Securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 9 hereof.
Section 7. ADJUSTMENTS FOR STOCK DIVIDENDS, STOCK SPLITS AND
COMBINATIONS. The Exercise Price and number of shares of Warrant Stock issuable
upon exercise or conversion hereof shall be subject to adjustment from time to
time at any time after the Original Issue Date as follows:
Section 7.1. ADJUSTMENTS FOR STOCK DIVIDENDS, STOCK SPLITS AND
COMBINATIONS. If (and on each occasion that) the Company shall, at any
time after the Original Issue Date, (a) issue any shares of Capital Stock
as a dividend or distribution in respect of Common Stock, or (b) issue any
shares of Common Stock in subdivision of outstanding shares of Common Stock
by reclassification or otherwise, or (c) combine outstanding shares of
Common Stock by reclassification or otherwise, the then current number and
class of shares of Warrant Stock issuable upon exercise or conversion
hereof shall be adjusted to an amount equal to the number and class of
shares of Warrant Stock the holder hereof would have received had such
holder exercised or converted this Warrant immediately prior to such event
and received the shares of Capital Stock issued in connection with such
event and the Exercise Price shall be adjusted to the price that the holder
would have paid had such holder exercised or converted this Warrant
immediately prior to such event and received the shares of Capital Stock
issued in connection with such event.
Section 7.2. ADJUSTMENTS FOR CERTAIN OTHER DIVIDENDS AND
DISTRIBUTIONS. In case the Company shall, at any time after the Original
Issue Date, declare a dividend (other than regular quarterly cash
dividends) or make a distribution upon the Common Stock payable otherwise
than in Capital Stock, then thereafter the holder hereof, upon the exercise
or conversion of any of the rights represented by this Warrant, will be
entitled to receive the
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<PAGE>
number of shares of Warrant Stock being purchased upon such exercise or
conversion and, in addition and without further payment, the cash, stock
or other securities and other property which the holder hereof would
have received by way of dividends and distributions (otherwise than in
Capital Stock) if such holder (a) had exercised or converted this
Warrant immediately prior to the declaration of such dividend or the
making of such distribution so as to be entitled thereto, and (b) had
retained all dividends in stock or securities payable in respect of such
Common Stock or in respect of any stock or securities paid as dividends
and distributions and originating directly or indirectly from such
Common Stock.
Section 7.3. ADJUSTMENTS FOR DILUTIVE AND OTHER EVENTS.
(a) If at any time the Company shall issue any shares of Capital
Stock, or Options or Convertible Securities at a price less than the then
fair market value of such Capital Stock, Options or Convertible Securities
(in each case as determined by the board of directors of the Company for
good faith), then the Warrant Stock deliverable in connection with the
exercise or conversion of this warrant will be increased by an amount of
Capital Stock necessary to give the holder hereof the same percentage of
Capital Stock that it would have received had such holder exercised or
converted this Warrant immediately prior to such issuance (after adjusting
for the consideration actually received by the Company in connection with
the issuance). In the case of an issuance of Common Stock, the Warrant
Stock will generally be increased by a number of shares of Capital Stock
having a fair market value equal to 2% of the difference between (i) the
fair market value of the shares of Capital Stock and (ii) the issue price
of such shares of Capital Stock.
(b) If at any time the Company shall issue any shares of Capital Stock
pursuant to an employee stock option plan, then the Warrant Stock
deliverable in connection with the exercise or conversion of this Warrant
will be increased by an amount equal to 2% of such shares of Capital Stock.
(c) In connection with any increase in the number of shares of Warrant
Stock issued hereunder pursuant to this Section 7, the Exercise Price per
share of Warrant Stock shall be adjusted so that the aggregate Exercise
Price for all Warrant Stock after giving effect to any adjustment in the
number of shares of Warrant Stock pursuant to this Section 7, will equal
the aggregate Exercise Price for all shares of Warrant Stock immediately
prior to such adjustment in the number of shares.
Section 8. [INTENTIONALLY OMITTED]
Section 9. NO DILUTION. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger or dissolution, avoid or seek to avoid the observance or
performance of any of the terms of the Warrant. Without limiting the generality
of the foregoing, the Company (a) will not increase the par value of any shares
of stock receivable on the exercise of the Warrant above the amount
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<PAGE>
payable therefor on such exercise, (b) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable shares of stock on the exercise of the
Warrant from time to time outstanding, and (c) will not transfer all or
substantially all of its properties and assets to any other entity (corporate
or otherwise), or consolidate with or merge into any other entity or permit
any such entity to consolidate with or merge into the Company (if the Company
is not the surviving entity), unless such other entity shall expressly assume
in writing and will be bound by all the terms of this Warrant and the
Securityholders Agreement.
Section 10. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In the case of
each event that may require any adjustment or readjustment in the shares of
Warrant Stock issuable on the exercise of this Warrant, the Company at its
expense will promptly prepare a certificate setting forth such adjustment or
readjustment, or stating the reasons why no adjustment or readjustment is being
made, and showing, in detail, the facts upon which any such adjustment or
readjustment is based, including a Statement of (a) the number of shares of the
Company's Common Stock then outstanding on a fully diluted basis, and (b) the
number of shares of Warrant Stock to be received upon exercise of this Warrant,
in effect immediately prior to such adjustment or readjustment and as adjusted
and readjusted (if required by Section 7 or Section 8) on account thereof. The
Company will forthwith mail a copy of each such certificate to each holder of a
Warrant, and will, on the written request at any time of any holder of a
Warrant, furnish to such holder a like certificate setting forth the
calculations used to determine such adjustment or readjustment. At its option,
the holder of a Warrant may confirm the adjustment noted on the certificate by
causing such adjustment to be computed by an independent certified public
accountant at the expense of the Company.
Section 11. NOTICES OF RECORD DATE. In the event of:
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any Other Securities or property, or to receive any other right;
or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or any consolidation
or merger of the Company with or into any other Person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(d) any proposed issue or grant by the Company of any shares of stock
of any class or any Other Securities, or any right or option to subscribe
for, purchase or
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<PAGE>
otherwise acquire any shares of stock of any class or any Other
Securities (other than the issue of Warrant Stock on the exercise of
this Warrant),
then, and in each such event, the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (a) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, (b)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is
anticipated to take place, and the time, if any is to be fixed, as of which the
holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for securities or
other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up and (c) the amount and character of any stock or Other Securities, or
rights or options with respect thereto, proposed to be issued or granted, the
date of such proposed issue or grant and the persons or class of persons to whom
such proposed issue or grant is to be offered or made. Such notice shall be
mailed at least thirty (30) days prior to the date specified in such notice on
which any such action is to be taken.
Section 12. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT.
Sufficient shares of authorized but unissued Common Stock of the Company have
been reserved by appropriate corporate action in connection with the prospective
exercise of the Warrant. The issuance of the Warrant or the shares of Warrant
Stock will not require any further corporate action by the stockholders or
directors of the Company, will not be subject to pre-emptive rights in any
present or future stockholders of the Company and will not conflict with any
provision of any agreement to which the Company is a party or by which it is
bound, and such Common Stock, when issued upon exercise of the Warrant in
accordance with their terms or upon such conversion, will be duly authorized,
fully paid and non-assessable.
Section 13. NO RIGHTS OR RESPONSIBILITIES AS SHAREHOLDER. This Warrant
neither entitles the holder hereof to any rights, nor subjects the holder hereof
to any responsibilities as a shareholder of the Company.
Section 14. EXCHANGE. This Warrant is exchangeable, upon the surrender
hereof by the registered holder at the principal office of the Company, for new
warrants of like tenor and date representing in the aggregate the right to
purchase the number of shares of Warrant Stock purchasable hereunder, each of
such new warrants to represent the right to purchase such number of shares of
Warrant Stock as shall be designated by said registered holder at the time of
such surrender.
Section 15. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses
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<PAGE>
incidental thereto, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new warrant of like tenor and
date, in lieu of this Warrant.
Section 16. WARRANT AGENT. The Company may, by written notice to the
holder of this Warrant, appoint an agent having an office in New York, New York
or Boston, Massachusetts for the purpose of issuing Common Stock on the exercise
of this Warrant pursuant to Section 2 hereof, and exchanging or replacing this
Warrant pursuant to this Warrant and the Warrant Agreement, or any of the
foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
Section 17. REMEDIES. The Company stipulates that the remedies at law of
the holder of this Warrant in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
Section 18. TRANSFER OF WARRANT. This Warrant and all rights hereunder
are transferable to any Permitted Transferee, in whole but not in part, at the
office or agency of the Company by the registered holder hereof in person or by
a duly authorized attorney, upon surrender of this Warrant together with an
assignment hereof in the form of EXHIBIT B attached hereto properly endorsed.
Until transfer hereof on the registration books of the Company, the Company may
treat the registered holder hereof as the owner hereof for all purposes.
Section 19. COMMUNICATIONS AND NOTICES. All communications and notices
hereunder must be in writing, either delivered in hand or sent by first-class
mail, postage prepaid, or sent by telecopier, and, if to the Company, shall be
addressed to it at the address set forth on the first page hereof, or at such
other address as the Company may hereafter designate in writing by notice to the
registered holder of this Warrant, and, if to such registered holder, addressed
to such holder it the address of such holder as shown on the books of the
Company.
Section 20. SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the
taking of any action required or the expiration of any right granted herein
shall be a Sunday or a Saturday or shall be a legal holiday or a day on which
banking institutions in Boston, Massachusetts, are authorized or required by law
to remain closed, then such action may be taken or right may be exercised on the
next succeeding day which is not a Sunday, a Saturday or a legal holiday and not
a day on which banking institutions in Boston, Massachusetts, are authorized or
required by law to remain closed.
Section 21. MISCELLANEOUS.
(a) THIS WARRANT SHALL BE BINDING UPON THE COMPANY'S SUCCESSORS IN TITLE
AND ASSIGNS, THIS WARRANT SHALL BE CONSTRUED
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IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
(b) Reference is made to the Securityholders Agreement. For all purposes
of the Securityholders Agreement the original holder hereof and its Permitted
Transferees shall be bound by all of the terms and conditions contained in, and
entitled to all of the benefits of, the Securityholders Agreement.
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<PAGE>
IN WITNESS WHEREOF, Charlotte Russe Holding, Inc. has caused this COMMON
STOCK PURCHASE WARRANT to be signed in its corporate name and its corporate seal
to be impressed hereon by its duly authorized officers.
THE COMPANY:
Dated as of: CHARLOTTE RUSSE HOLDING, INC.
September 27, 1996
By: /s/ David Oddi
--------------------------------
David Oddi
Vice President
Attest:
/s/ Allan Karp
- ------------------------
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<PAGE>
EXHIBIT A
FORM OF SUBSCRIPTION
(To be signed only on exercise or conversion of Common Stock Purchase Warrant)
TO: CHARLOTTE RUSSE HOLDING, INC.
The undersigned, the registered holder of the within Common Stock Purchase
Warrant of Charlotte Russe Holding, Inc., hereby irrevocably elects:
(check one)
A. to exercise this Common Stock Purchase Warrant for, and to purchase
thereunder, _____ * shares of Common Stock of ____________________ and the
undersigned herewith makes payment of $________ therefor.
B. to convert ________ * Warrants represented by this Common Stock Purchase
Warrant into ______ shares of Common Stock of ______________________.
The undersigned requests that the certificates for such shares be issued in the
name of and delivered to ________________, whose address is
_______________________________.
Dated: _______________ _________________________________________________
(Signature must conform in all respects to name of
registered holder as specified on the face of the
Warrant)
_______________________________________
(Address)
Signed in the presence of:
__________________________
__________________________
*Insert here the number of shares (all or part of the number of shares
called for in the Common Stock Purchase Warrant) as to which the Common Stock
Purchase Warrant is being exercised or converted without making any adjustment
for any other stock or other securities or property or cash which, pursuant to
the adjustment provisions of the Common Stock Purchase Warrant, may be
deliverable on exercise or conversion.
-12-
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT
(To be signed only on transfer of Common Stock Purchase Warrant)
ASSIGNMENT
For value received, the undersigned, __________________, hereby sells,
assigns, and transfers unto _______________ the right represented by the within
Common Stock Purchase Warrant to purchase _______ shares of Common Stock of
Charlotte Russe Holding, Inc. to which the within Common Stock Purchase Warrant
relates, and appoints ______________ Attorney to transfer such right on the
books of Charlotte Russe Holding, Inc. with full power of substitution in the
premises.
Dated: ___________________ ________________________________________________
(Signature must conform in all respects to name of
registered holder as specified on the face of the
Warrant)
________________________________________________
(Address)
Signed in the presence of:
__________________________
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<PAGE>
FIRST AMENDMENT TO THE
COMMON STOCK PURCHASE WARRANT
This First Amendment to the Common Stock Purchase Warrant (the "Amendment")
is entered into as of September 27, 1999 by and between FSC Corp. (the "Holder")
and Charlotte Russe Holding, Inc. (the "Company").
WHEREAS, that certain Common Stock Purchase Warrant dated as of September
27, 1996 (the "Warrant") failed to accurately reflect the antidilution
provisions agreed to by the parties; and
WHEREAS, the parties to the Warrant wish to amend certain provisions of the
Warrant to reflect the original intent of the parties with respect to such
antidilution provisions and to reflect subsequent changes agreed to by the
parties.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Section 7.3(a) of the Warrant is hereby amended by substituting 2.00%
for 2% each time the latter appears in such Section.
2. Section 7.3(b) of the Warrant is hereby amended to read in its
entirety as follows:
"(b) If at any time prior to the consummation of the Initial Public
Offering (as defined in the Securityholders Rights Agreement dated as of
September 27, 1996 among Charlotte Russe Holding, Inc., a Delaware
corporation, The SK Equity Fund, L.P., SK Investment Fund, L.P., Bernard
Zeichner and FSC Corp.) the Company shall issue any shares of Capital Stock
pursuant to the exercise of awards granted under an employee stock option
plan, then the Warrant Stock deliverable in connection with the exercise or
conversion of this Warrant will be increased by an amount equal to 2.00% of
such shares of Capital Stock."
3. This Amendment may be executed in one or more counterparts, and by
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original, including counterparts transmitted by
facsimile, but all of which taken together shall constitute one and the same
agreement. This Amendment shall be effective when signed by the Company and the
Holder.
4. On and after the date hereof, each reference in the Warrant to the
"Warrant" shall mean the Warrant as amended hereby. Except as specifically
amended above, the Warrant shall remain in full force and effect and is hereby
ratified and confirmed. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver
<PAGE>
of any right, power or remedy of any party hereto, nor constitute a waiver of
any provision of the Warrant.
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<PAGE>
IN WITNESS HEREOF, the parties have entered into this Amendment as of the
date first written above.
CHARLOTTE RUSSE HOLDING, INC.
By: /s/ Bernard Zeichner
------------------------------------
Bernard Zeichner
Chief Executive Officer, President &
Director
FSC Corp.
By: /s/ Mary Reilly
------------------------------------
Mary Reilly
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<PAGE>
FIRST AMENDMENT TO THE
COMMON STOCK PURCHASE WARRANT
This First Amendment to the Common Stock Purchase Warrant (the "Amendment")
is entered into as of September 27, 1999 by and between The SK Equity Fund, L.P.
(the "Holder") and Charlotte Russe Holding, Inc. (the "Company").
WHEREAS, that certain Common Stock Purchase Warrant dated as of September
27, 1996 (the "Warrant") failed to accurately reflect the antidilution
provisions agreed to by the parties; and
WHEREAS, the parties to the Warrant wish to amend certain provisions of the
Warrant to reflect the original intent of the parties with respect to such
antidilution provisions and to reflect subsequent changes agreed by the parties.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Section 7.3(a) of the Warrant is hereby amended by substituting 9.41%
for 2% each time the latter appears in such Section.
2. Section 7.3(b) of the Warrant is hereby amended to read in its
entirety as follows:
"(b) If at any time prior to the consummation of the Initial Public
Offering (as defined in the Securityholders Rights Agreement dated as of
September 27, 1996 among Charlotte Russe Holding, Inc., a Delaware
corporation, The SK Equity Fund, L.P., SK Investment Fund, L.P., Bernard
Zeichner and FSC Corp.) the Company shall issue any shares of Capital Stock
pursuant to the exercise of awards granted under an employee stock option
plan, then the Warrant Stock deliverable in connection with the exercise or
conversion of this Warrant will be increased by an amount equal to 9.41% of
such shares of Capital Stock."
3. This Amendment may be executed in one or more counterparts, and by
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original, including counterparts transmitted by
facsimile, but all of which taken together shall constitute one and the same
agreement. This Amendment shall be effective when signed by the Company and the
Holder.
4. On and after the date hereof, each reference in the Warrant to the
"Warrant" shall mean the Warrant as amended hereby. Except as specifically
amended above, the Warrant shall remain in full force and effect and is hereby
ratified and confirmed. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver
<PAGE>
of any right, power or remedy of any party hereto, nor constitute a waiver of
any provision of the Warrant.
-2-
<PAGE>
IN WITNESS HEREOF, the parties have entered into this Amendment as of the
date first written above.
CHARLOTTE RUSSE HOLDING, INC.
By: /s/ Bernard Zeichner
------------------------------------
Bernard Zeichner
Chief Executive Officer, President &
Director
THE SK EQUITY FUND, L.P.
By: SKM Partners, L.P.,
as general partner
/s/ Allan Karp
----------------------------------------
Allan Karp, as general partner
-3-
<PAGE>
FIRST AMENDMENT TO THE
COMMON STOCK PURCHASE WARRANT
This First Amendment to the Common Stock Purchase Warrant (the "Amendment")
is entered into as of September 27, 1999 by and between SK Investment Fund, L.P.
(the "Holder") and Charlotte Russe Holding, Inc. (the "Company").
WHEREAS, that certain Common Stock Purchase Warrant dated as of September
27, 1996 (the "Warrant") failed to accurately reflect the antidilution
provisions agreed to by the parties; and
WHEREAS, the parties to the Warrant wish to amend certain provisions of the
Warrant to reflect the original intent of the parties with respect to such
antidilution provisions and to reflect subsequent changes agreed to by the
parties.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Section 7.3(a) of the Warrant is hereby amended by substituting 0.09%
for 2% each time the latter appears in such Section.
2. Section 7.3(b) of the Warrant is hereby amended to read in its
entirety as follows:
"(b) If at any time prior to the consummation of the Initial Public
Offering (as defined in the Securityholders Rights Agreement dated as of
September 27, 1996 among Charlotte Russe Holding, Inc., a Delaware
corporation, The SK Equity Fund, L.P., SK Investment Fund, L.P., Bernard
Zeichner and FSC Corp.) the Company shall issue any shares of Capital Stock
pursuant to the exercise of awards granted under an employee stock option
plan, then the Warrant Stock deliverable in connection with the exercise or
conversion of this Warrant will be increased by an amount equal to .09% of
such shares of Capital Stock."
3. This Amendment may be executed in one or more counterparts, and by
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original, including counterparts transmitted by
facsimile, but all of which taken together shall constitute one and the same
agreement. This Amendment shall be effective when signed by the Company and the
Holder.
4. On and after the date hereof, each reference in the Warrant to the
"Warrant" shall mean the Warrant as amended hereby. Except as specifically
amended above, the Warrant shall remain in full force and effect and is hereby
ratified and confirmed. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver
<PAGE>
of any right, power or remedy of any party hereto, nor constitute a waiver of
any provision of the Warrant.
-2-
<PAGE>
IN WITNESS HEREOF, the parties have entered into this Amendment as of the
date first written above.
CHARLOTTE RUSSE HOLDING, INC.
By: /s/ Bernard Zeichner
------------------------------------
Bernard Zeichner
Chief Executive Officer, President &
Director
SK INVESTMENT FUND, L.P.
By: SKM Partners, L.P.,
as general partner
/s/ Allan Karp
----------------------------------------
Allan Karp, as general partner
-3-
<PAGE>
INDEMNIFICATION AGREEMENT
This Agreement, made and entered into this th day of September, 1999,
("Agreement"), by and between Charlotte Russe Holding, Inc., a Delaware
corporation (the "Company"), and ("Indemnitee"):
WHEREAS, Indemnitee, a member of the Board of Directors and/or an Officer
of the Company, performs a valuable service in such capacity for the Company;
and
WHEREAS, the Certificate of Incorporation of the Company (the "Charter")
provides for the indemnification of the Officers and Directors of the Company to
the maximum extent authorized by the General Corporation Law of the State of
Delaware (the "Code"); and
WHEREAS, the Charter and the Code, by their non-exclusive nature, permit
contracts between the Company and the members of its Board of Directors and its
Officers with respect to indemnification of such Directors and Officers; and
WHEREAS, as a result of developments affecting the terms, scope and
availability of Directors and Officers Liability Insurance, there exists general
uncertainty as to the extent of protection afforded members of the Board of
Directors and Officers by such Directors and Officers Liability Insurance; and
WHEREAS, in order to induce Indemnitee to continue to serve as a member of
the Board of Directors and as an Officer of the Company, the Company has
determined and agreed to enter into this contract with Indemnitee.
NOW THEREFORE, in consideration of the premises and the covenants contained
herein, the Company and Indemnitee do hereby covenant and agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
(a) "Change of Control" shall be deemed to take place if hereafter
(i) any Person, other than The SK Equity Fund, L.P. or SK Investment Fund,
L.P. or their respective affiliates or the Company, any wholly owned
subsidiary of the Company, or any employee benefit plan of the Company or
such a subsidiary, becomes the "beneficial owner", as defined in Rule 13d-3
under the Act, of securities of the Company representing more than fifty
percent (50%) of the combined voting power of the then-outstanding
securities, (ii) the Company is a party to a merger, consolidation, sale of
assets or other reorganization, or a proxy contest, as a consequence of
which members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of
Directors thereafter, or (iii) individuals who, at the date hereof,
<PAGE>
constitute the Board of Directors (the "Continuing Directors") cease for
any reason to constitute a majority thereof, PROVIDED, HOWEVER, that any
director who is not in office at the date hereof but whose election by the
Board of Directors or whose nomination for election by the stockholders of
the Company was approved by (i) a vote of at least two-thirds of the
directors then still in office who either were directors at the date hereof
or whose election or nomination for election was previously so approved or
(ii) the Fund (as defined in the Stockholders Agreement dated August ,
1999 by and among the Company, the Fund and Bernard Zeichner), shall be
deemed to be a Continuing Director for purposes of this Agreement.
Notwithstanding the foregoing provisions of this paragraph, a "Change of
Control" will not be deemed to have occurred solely because of (i) the
acquisition of securities of the Company, or any reporting requirement
under the Act relating thereto, by an employment benefit plan maintained by
the Company for its employees or (ii) the occurrence of leveraged buy-out
or recapitalization of the Company in which Indemnitee participates as an
equity investor.
(b) "Common Stock" shall mean the then outstanding Common Stock of
Charlotte Russe Holdings, Inc. plus, for purposes of determining the stock
ownership of any Person, the number of unissued shares of Common Stock of
Charlotte Russe Holdings, Inc. which such Person has the right to
acquire,(whether such right is exercisable immediately or only after the
passage of time, upon the exercise of conversion rights, exchange rights,
warrants or options or otherwise.
(c) "Corporate Status" describes the status of an individual who is
or was or has agreed to become a Director of the Company or is or was or
has agreed to become an Officer or fiduciary of the Company or, in each
case, of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such individual is or was serving,
or has agreed to serve, at the request of the Company.
(d) "Disinterested Director" means a director of the Company who is
not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(e) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend or investigating a Proceeding, but shall not include
the amount of judgments, fines or penalties against Indemnitee.
(f) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent
the Company or Indemnitee in any matter material to either such party.
Notwithstanding the foregoing, the term "Independent Counsel" shall
-2-
<PAGE>
not include any Person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's
rights under this Agreement.
(g) "Person" shall have the meaning used in Section 13(d) of the
Exchange Act.
(h) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing,
appeal, or any other proceeding, whether civil, criminal, administrative or
investigative, arising on or after the date of this Agreement,(and
regardless of when Indemnitee's act or failure to act occurred, except one
initiated by an Indemnitee pursuant to Section 10 of this Agreement to
enforce his rights under this Agreement.
2. SERVICES BY INDEMNITEE. Indemnitee agrees to serve or continue to
serve as a Director or Officer of the Company. This Agreement shall not impose
any obligation on Indemnitee or the Company to continue Indemnitee's position
with the Company beyond any period otherwise applicable.
3. GENERAL. The Company shall indemnify, and shall advance Expenses to,
Indemnitee as provided in this Agreement and to the fullest extent permitted by
law.
4. PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section 4 if, by reason of his Corporate Status, he is, or is threatened to be
made, a party to any threatened, pending, or completed Proceeding other than a
Proceeding by or in the right of the Company. Pursuant to this Section 4,
Indemnitee shall be indemnified against Expenses, judgments, penalties and fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
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 Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
Notwithstanding the preceding, it is the intention of the parties hereto that
Indemnitee shall be indemnified to the full extent authorized or permitted by
Delaware law and, therefore, to the extent Delaware law shall permit broader
contractual indemnification, this contract shall be deemed amended to
incorporate such broader indemnification.
5. PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. Indemnitee shall be
entitled to the rights of indemnification provided in this Section 5 if, by
reason of his Corporate Status, he is, or is threatened to be made, a party to
any threatened, pending or completed Proceeding brought by or in the right of
the Company to procure a judgment in its favor. Pursuant to this Section,
Indemnitee shall be indemnified against Expenses and, to the extent permitted by
applicable law, amounts paid in settlement actually and reasonably incurred by
him or on his behalf in connection with such 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 Company. Notwithstanding the preceding, it is the
-3-
<PAGE>
intention of the parties hereto that Indemnitee shall be indemnified to the
full extent authorized or permitted by Delaware law and, therefore, to the
extent Delaware law shall permit broader contractual indemnification, this
contract shall be deemed amended to incorporate such broader indemnification.
Notwithstanding the foregoing, no indemnification against such Expenses
shall be made in respect of any claim, issue or matter as to which Indemnitee
shall have been adjudged to be liable to the Company; PROVIDED, HOWEVER, that
indemnification against Expenses shall nevertheless be made by the Company in
such event to the extent that the Court of Chancery of the State of Delaware,
or the court in which such Proceeding shall have been brought or is pending,
shall determine. Notwithstanding anything to the contrary in this Section 5,
no indemnification shall be made by the Company on account of any Proceeding
in which judgment is rendered against Indemnitee for an accounting of profits
made from the purchase or sale by Indemnitee of securities of the Company
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 as amended, or similar provisions of any federal, state or local
statutory law.
6. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY
SUCCESSFUL. Notwithstanding any other provision of this Agreement, but subject
to Section 14, to the extent that Indemnitee is, by reason of his Corporate
Status, a party to and is successful, on the merits or otherwise, in any
Proceeding, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith. If Indemnitee is not
wholly successful in such Proceeding but is successful, on the merits or
otherwise, as to one or more but less than all claims, issues or matters in such
Proceeding, the Company shall indemnify Indemnitee against all Expenses actually
and reasonably incurred by him or on his behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section and
without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal or withdrawal, with or without prejudice, shall be
deemed to be a successful result as to such claim, issue or matter.
7. ADVANCE OF EXPENSES. The Company shall advance all reasonable Expenses
incurred by or on behalf of Indemnitee in connection with any Proceeding within
twenty (20) days after the receipt by the Company of a statement or statements
from Indemnitee requesting such advance or advances from time to time, whether
prior to or after final disposition of such Proceeding. Such statement or
statements shall reasonably evidence the Expenses incurred or to be incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced to the extent it shall
ultimately be determined that Indemnitee is not entitled to be indemnified
against any such Expenses.
8. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee
and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification.
-4-
<PAGE>
(b) Upon written request by Indemnitee for indemnification pursuant
to Section 8(a) hereof, a determination, if required by applicable law,
with respect to Indemnitee's entitlement thereto under Delaware law, shall
be made in the specific case: (i) if a Change of Control shall have
occurred, by Independent Counsel (unless Indemnitee shall request that such
determination be made by the Board of Directors or the stockholders, in
which case the determination shall be made in the manner provided below in
clauses (ii) or (iii)) in a written opinion to the Board of Directors, a
copy of which shall be delivered to Indemnitee; (ii) if a Change of Control
shall not have occurred, (A) by the Board of Directors by a majority vote
of a quorum consisting of Disinterested Directors, or (B) if a quorum of
the Board of Directors consisting of Disinterested Directors is not
obtainable or, even if obtainable, such quorum of Disinterested Directors
so directs, by Independent Counsel in a written opinion to the Board of
Directors, a copy of which shall be delivered to Indemnitee or (C) by the
stockholders of the Company; or (iii) as provided in Section 9(b) of this
Agreement; and, if it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days
after such determination. Indemnitee shall cooperate with the person,
persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons
or entity upon reasonable advance request any documentation or information
which is not privileged or otherwise protected from disclosure and which is
reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or expenses, including attorneys' fees and
disbursements, incurred by Indemnitee in so cooperating shall be borne by
the Company irrespective of the determination as to Indemnitee's
entitlement to indemnification, and the Company hereby indemnifies and
agrees to hold Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 8(b) of this
Agreement, the Independent Counsel shall be selected as provided in this
Section 8(c). If a Change of Control shall not have occurred, the
Independent Counsel shall be selected by the Board of Directors, and the
Company shall give written notice to Indemnitee advising him of the
identity of the Independent Counsel so selected. If a Change of Control
shall have occurred, the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by
the Board of Directors, in which event the preceding sentence shall apply),
and Indemnitee shall give written notice to the Company advising it of the
identity of the Independent Counsel so selected. In either event,
Indemnitee or the Company, as the case may be, may, within seven (7) days
after such written notice of selection shall have been given, deliver to
the Company or to Indemnitee, as the case may be, a written objection to
such selection. Such objection may be asserted only on the ground that the
Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 1 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, the Independent Counsel so
selected may not serve as Independent Counsel unless and until a court has
determined that such objection is without merit. If, within twenty
-5-
<PAGE>
(20) days after submission by Indemnitee of a written request for
indemnification pursuant to Section 8(a) hereof, no Independent Counsel
shall have been selected, or if selected shall have been objected to, in
accordance with this Section 8(c), either the Company or Indemnitee may
petition the Court of Chancery of the State of Delaware or other court of
competent jurisdiction for resolution of any objection which shall have
been made by the Company or Indemnitee to the other's selection of
Independent Counsel and/or for the appointment as Independent Counsel of a
person selected by the Court or by such other person as the Court shall
designate, and the person with respect to whom an objection is favorably
resolved or the person so appointed shall act as Independent Counsel under
Section 8(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 8(b) hereof, and the Company
shall pay all reasonable fees and expenses incident to the procedures of
this Section 8(c), regardless of the manner in which such Independent
Counsel was selected or appointed.
9. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the person, persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification
under this Agreement if Indemnitee has submitted a request for
indemnification in accordance with Section 8(a) of this Agreement, and the
Company shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any
determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 8 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made such determination within sixty (60)
days after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have
been made and Indemnitee shall be entitled to such indemnification, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law; PROVIDED,
HOWEVER, that such sixty-day period may be extended for a reasonable time,
not to exceed an additional thirty (30) days, if the person, persons or
entity making the determination with respect to entitlement to
indemnification in good faith requires such additional time for the
obtaining or evaluating of documentation and/or information relating
thereto; and PROVIDED, FURTHER, that the foregoing provisions of this
Section 9(b) shall not apply if the determination of entitlement to
indemnification is to be made by the stockholders pursuant to Section 8(b)
of this Agreement and if (A) within fifteen (15) days after receipt of the
Company of the request for such determination the Board of Directors has
resolved to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy-five
(75) days after
-6-
<PAGE>
such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such
receipt for the purpose of making such determination, such meeting is
held for such purpose within sixty (60) days after having been so called
and such determination is made thereat.
(c) The termination of any Proceeding or of any claim, issue or
matter therein by judgment, order, settlement or conviction, or upon a plea
of NOLO CONTENDERE or its equivalent, shall not, except as otherwise
expressly provided in this Agreement, of itself adversely affect the right
of Indemnitee to indemnification or create a presumption that Indemnitee
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 Company or, with respect
to any criminal Proceeding, that Indemnitee had reasonable cause to believe
that his conduct was unlawful.
10. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to Section
8 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made
pursuant to Section 7 of this Agreement, (iii) payment of indemnification
is not made pursuant to Section 6 of this Agreement within ten (10) days
after receipt by the Company of a written request therefor, or (iv) payment
of indemnification is not made within ten (10) days after a determination
has been made that Indemnitee is entitled to indemnification or such
determination is deemed to have been made pursuant to Section 9(b) of this
Agreement, Indemnitee shall be entitled to an adjudication in an
appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of his entitlement to such indemnification or
advancement of Expenses. Alternatively, Indemnitee, at his option, may
seek an award in arbitration to be conducted by a single arbitrator
pursuant to the rules of the American Arbitration Association. The Company
shall not oppose Indemnitee's right to seek any such adjudication or award
in arbitration.
(b) In the event that a determination shall have been made pursuant
to Section 8 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant
to this Section 10 shall be conducted in all respects as a DE NOVO trial,
or arbitration, on the merits and Indemnitee shall not be prejudiced by
reason of that adverse determination. In any judicial proceeding or
arbitration commenced pursuant to this Section 10 the Company shall have
the burden of proving that Indemnitee is not entitled to indemnification or
advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been
made pursuant to Section 8 or 9 of this Agreement that Indemnitee is
entitled to indemnification, the Company shall be bound by such
determination in any judicial proceeding or arbitration commenced pursuant
to this Section 10, absent (i) a misstatement by Indemnitee
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of a material fact, or an omission of a material fact necessary to make
Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification
under applicable law.
(d) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 10 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this
Agreement.
(e) In the event that Indemnitee, pursuant to this Section 10, seeks
a judicial adjudication of or an award in arbitration to enforce his rights
under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by
the Company against, any and all expenses, of the types described in the
definition of Expenses in Section 1 of this Agreement, actually and
reasonably incurred by him in such judicial adjudication or arbitration,
but only if he prevails therein. If it shall be determined in said
judicial adjudication or arbitration that Indemnitee is entitled to receive
part but not all of the indemnification or advancement of expenses sought,
the expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be appropriately prorated.
(f) All agreements and obligations of the Company contained herein
shall continue during the period Indemnitee is a Director or Officer, or is
or was serving at the request of the Company as a Director or Officer of
another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise, and shall continue thereafter so long as
Indemnitee shall be subject to any possible claim or threatened, pending or
completed Proceeding by reason of his prior Corporate Status.
11. SECURITY. To the extent requested by Indemnitee and approved by the
Board of Directors, the Company may at any time and from time to time provide
security to the Indemnitee for the obligations of the Company hereunder through
an irrevocable bank line of credit, funded trust or other collateral. Any such
security, once provided to the Indemnitee, may not be revoked or released
without the prior written consent of Indemnitee.
12. NON-EXCLUSIVITY; DURATION OF AGREEMENT; SUBROGATION.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under
applicable law, the Charter or By-Laws, any other agreement, a vote of
stockholders or a resolution of the Board of Directors, or otherwise. This
Agreement shall continue as to Indemnitee even though he may have ceased to
be a Director or Officer and shall insure to the benefit of Indemnitee and
his heirs, executors and administrators.
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(b) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such
documents as are necessary to enable the Company to bring suit to enforce
such rights.
(c) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.
13. SEVERABILITY. If any provision or provisions of this Agreement shall be
held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the
validity, legality and enforceability of the remaining provisions of this
Agreement (including without limitation, each portion of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
14. EXCEPTION TO RIGHT OF INDEMNIFICATION OR ADVANCEMENT OF EXPENSES.
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to any Proceeding, or any claim therein, brought or made by him against
the Company without the prior written consent of the Company.
15. HEADINGS. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
16. MODIFICATION AND WAIVER. This Agreement may be amended from time to
time to reflect changes in Delaware law or for other reasons. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof, whether or not similar, nor shall such waiver constitute a
continuing waiver.
17. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or
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advancement of Expenses covered hereunder; PROVIDED, HOWEVER, that the
failure to give any such notice shall not disqualify the Indemnitee from
indemnification hereunder.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee to:
(b) If to the Company to:
Charlotte Russe Holding, Inc.
4645 Morena Boulevard
San Diego, CA 92117
Attention: Chief Financial Officer
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
19. GOVERNING LAW. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
CHARLOTTE RUSSE HOLDING, INC.
By
--------------------------------
INDEMNITEE
-----------------------------------
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STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT dated as of September 27 , 1999 by and among
Charlotte Russe Holding, Inc., a Delaware corporation ("Holdings"), The SK
Equity Fund, L.P. and SK Investment Fund, L.P. (collectively with The SK Equity
Fund, L.P., the "Fund") and Bernard Zeichner (the "Management Stockholder").
The Fund and the Management Stockholder, together with such other stockholders
of Holdings as may from time to time, become parties to this Agreement in
accordance with the provisions hereof, shall be referred to as the
"Stockholders."
WHEREAS on the date hereof the Fund, the Management Stockholder and FSC
Corp., an affiliate of BankBoston, N.A. ("FSC") are party to that certain
Securityholders Rights Agreement dated September 27, 1996 (the "Securityholders
Agreement");
WHEREAS Holdings is contemplating an Initial Public Offering of its Common
Stock, pursuant to which FSC will be selling all of its shares of Common Stock
issuable upon exercise of its warrant dated September 27, 1996;
WHEREAS after the sale by FSC of all of its shares of Common Stock in the
Initial Public Offering, FSC will no longer be subject to the benefits of the
Securityholders Agreement;
WHEREAS the Fund, the Management Stockholder and Holdings desire to
terminate the Securityholders Agreement effective upon the closing of the
Initial Public Offering and enter into this Agreement, which provides the Funds
and the Management Stockholder the rights described herein;
WHEREAS on the date hereof the Fund is the beneficial owner of 19,515,440
shares of Common Stock outstanding or issuable upon exercise of the Warrants and
Mr. Zeichner is currently the beneficial owner of 1,573,500 shares of Common
Stock outstanding or issuable upon exercise of outstanding stock options;
NOW THEREFORE the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. Unless otherwise defined herein, the following
terms used in this Agreement shall have the meanings specified below. All
references herein to "days" shall mean calendar days unless otherwise specified.
"Affiliate" means, with respect to any Person, any of (i) a director or
executive officer of such Person or (ii) any other Person that, directly or
indirectly, controls or is controlled by or is under
<PAGE>
common control with such Person. For the purpose of this definition,
"control," including the terms "controlling," "controlled by" and "under
common control with," as used with respect to any Person, means 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 or by contract or agency or otherwise.
"Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock of Holdings, par value $0.01 per
share.
"Conversion Shares" means (i) any shares of Common Stock issuable upon the
exercise of the Warrants and (ii) any securities issuable with respect to any of
such shares of Common Stock referred to in clause (i) by way of stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder, and any successor to
such statute or such rules and regulations.
"Initial Public Offering" means the first registration of an offering of
shares of Common Stock under the Securities Act which becomes effective, other
than by a Registration Statement on Form S-8 or any successor or similar forms.
"Permitted Transferee" shall mean in the case of a transfer of any of the
Registrable Securities held by the Management Stockholder, the Management
Stockholder, his spouse, parents, siblings, descendants, a trust created by him
the beneficiaries of which include only such of his relations, any SKM Entity or
any other Person to which the Fund shall have given its prior written consent.
"Person" means a corporation, an association, a partnership, a trust, a
limited liability company, an organization, a business, an individual, a
government or a subdivision thereof or a governmental agency.
"Piggy-Back Right Expiration Date" means the fifth anniversary of the
effective date hereof.
"Public Sale" means any sale of Common Stock to the public pursuant to an
offering registered under the Securities Act or pursuant to an exemption from
the registration requirements of the Securities Act.
"Registrable Securities" means the outstanding shares of Common Stock held
by the Management Stockholder or the Fund, the Conversion Shares, the shares of
Common Stock issuable upon exercise of outstanding stock options of Holdings
held by the Management Stockholder and
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any securities obtained upon exchange for or upon conversion or transfer of
or as a distribution on such shares of Common Stock, Warrants or Conversion
Shares; PROVIDED, HOWEVER, that particular securities shall cease to be
Registrable Securities when such securities shall have (i) been disposed of
pursuant to a Public Sale, (ii) been otherwise transferred or exchanged and
new certificates for them not bearing a legend restricting further transfer
shall have been delivered by Holdings and subsequent disposition of them
shall not require registration or qualification under the Securities Act or
(iii) ceased to be outstanding. Whenever any particular securities cease to
be Registrable Securities, the holder thereof shall be entitled to receive
from the issuer thereof or its transfer agent, without expense, other than
transfer taxes, if any, new securities of like tenor not bearing a legend of
the character set forth in Section 2.2.
"Registration Expenses" means all expenses incident to the performance of
or compliance with Section 3 hereof by Holdings, including (i) all registration,
filing and listing fees, (ii) all fees and expenses of complying with securities
or blue sky laws, (iii) all word processing, duplicating and printing expenses,
(iv) all messenger and delivery expenses, (v) the fees and disbursements of
counsel for Holdings and of its independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, (vi) the fees and disbursements of any one
counsel and any one accountant retained by the Fund for the benefit of the Fund
and the Management Stockholder if Registrable Securities are being registered,
(vii) premiums and other costs of policies of insurance, if any, against
liabilities arising out of the public offering of Common Stock being registered,
if Holdings desires such insurance, (viii) any reasonable fees and expenses of
any Stockholder and (ix) any fees and disbursements of underwriters, including
the fees and expenses of underwriter's counsel, customarily paid by issuers or
sellers of securities, but not including underwriting discounts and commissions
and transfer taxes, if any.
"SKM Entity" means each of the Fund, any partner of the Fund, any Affiliate
of the Fund and any partner of any such Affiliate.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder, all as the same shall be in effect
at the time. The reference to a particular section of the Securities Act of
1933 shall be deemed to include a reference to the comparable section, if any,
of any such similar Federal statute.
"Stockholders" has the meaning set forth in the introductory paragraph.
"Tag-Along Right Expiration Date" means the earlier of (i) the second
anniversary of the effective date of this Agreement and (ii) the date on which
the Fund and its Affiliates shall cease to own at least twenty five percent
(25%) of the then outstanding shares of Common Stock, calculated on a fully
diluted basis.
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<PAGE>
"Transfer Restriction Termination Date" means the earlier of (i) the date
on which the Fund shall cease to own beneficially, within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934, as amended, at least fifty
percent (50%) of the outstanding shares of Common Stock, calculated on a fully
diluted basis, and (ii) the fourth anniversary of the effective date of this
Agreement.
"Warrants" means the Warrants originally issued to the Fund on September
27, 1996, as such Warrants may be transferred or otherwise assigned, but only to
the extent not therefore exercised, redeemed or expired in accordance with their
respective terms.
ARTICLE II
TRANSFER OF SECURITIES
SECTION 2.1 RESTRICTIONS ON TRANSFER; LEGEND ON CERTIFICATES.
(a) Except as otherwise provided in this Agreement, Registrable Securities
shall not be transferable except (i) pursuant to an effective registration
statement under the Securities Act, (ii) pursuant to Rule 144 or 144A, or any
successor provisions, under the Securities Act or (iii) pursuant to a
transaction that is otherwise exempt from the registration requirements of the
Securities Act.
(b) Unless otherwise expressly provided herein, each certificate for
Registrable Securities and each certificate issued in exchange for or upon
transfer of any thereof shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR
OFFERED FOR SALE UNLESS REGISTERED UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO AND HAVE THE BENEFIT OF A STOCKHOLDERS RIGHTS AGREEMENT
DATED AS OF SEPTEMBER [ ], 1999, BY AND AMONG CHARLOTTE RUSSE
HOLDING, INC. AND THE STOCKHOLDERS PARTIES THERETO, COPIES OF WHICH
ARE ON FILE WITH CHARLOTTE RUSSE HOLDING, INC."
(c) Notwithstanding any other provision of this Agreement to the contrary,
prior to the Transfer Restriction Termination Date, the Management Stockholder
may not transfer any Registrable Securities, other than pursuant to a Public
Sale, to any Person unless such Person shall
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have agreed in writing that such Person, as a holder of such Registrable
Securities, and the Registrable Securities that such Person acquires shall be
bound by and be entitled to the benefits of all the provisions of this
Agreement applicable to such Registrable Securities. Any purported transfer
of Registrable Securities by the Management Stockholder without compliance
with the applicable provisions of this Agreement shall be void and of no
effect, and the purported transferee shall have no rights as a Stockholder
under this Agreement. In the event of such non-complying transfer, Holdings
shall not transfer any such Registrable Securities on its books or recognize
the purported transferee as a Stockholder for any purpose, until all
applicable provisions of this Agreement have been complied with.
SECTION 2.2 PERMITTED TRANSFERS. Until the Transfer Restriction
Termination Date, neither the Management Stockholder nor any Permitted
Transferee shall transfer any Registrable Securities unless such transfer is
made (i) pursuant to Section 2.3 or Section 3, (ii) to a Permitted Transferee or
(iii) pursuant to Rule 144 under the Securities Act. The transfer to a
Permitted Transferee shall be made only (i) in compliance with all applicable
federal and state securities laws and (ii) if such Permitted Transferee shall
have agreed in writing that such Permitted Transferee, as a Stockholder, and the
shares of Common Stock that such Permitted Transferee acquires, shall be bound
by and be entitled to the benefits of all the provisions of this Agreement, and
upon such agreement such Permitted Transferee shall be entitled to such
benefits. Notwithstanding anything to the contrary contained in this
Section 2.2, if any Person that received Registrable Securities in a transfer
pursuant to this Section 2.2 ceases to be a Permitted Transferee, such Person
shall immediately transfer such securities to the Management Stockholder or
another Permitted Transferee.
TAG-ALONG RIGHTS. If at any time prior to the Tag-Along Right Expiration Date,
the Fund or any of its Affiliates (any such Person for purposes of this
Section 2.3, the "Transferor") wishes to transfer any shares of Common Stock
owned by the Transferor to any Person that is not a SKM Entity (the
"Transferee"), the Transferor shall first give to the Management Stockholder a
written notice (a "Transfer Notice") containing (i) the number of shares of
Common Stock that the Transferee proposes to acquire from the Transferor,
(ii) the name and address of the Transferee, (iii) the proposed purchase price,
terms of payment and other material terms and conditions of such proposed
transfer, (iv) an estimate of the fair market value of any non-cash
consideration offered by the Transferee and (v) an offer by the Transferee to
purchase, upon the purchase by the Transferee of any shares of Common Stock
owned by the Transferor and for the same per share consideration, that number of
Registrable Securities (or if such number is not an integral number, the next
integral number which is greater than such number) owned by the Management
Stockholder which shall be the product of (x) the aggregate number of
Registrable Securities then owned by the Management Stockholder and (y) a
fraction, the numerator of which shall be the number of shares of Common Stock
indicated in the Transfer Notice as subject to purchase by the Transferee and
the denominator of which shall be the sum of (A) the total number of shares of
Registrable Securities then owned by the Transferor and its Affiliates plus
(B) the total number of shares of Registrable Securities then owned by the
Management Stockholder. The Management Stockholder shall have the right, for a
period of ten days after the Transfer Notice is given, to accept such offer in
whole or in part,
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exercisable by delivering a written notice to the Transferor and Holdings
within such ten-day period, stating therein the number of shares of Common
Stock (which may be the number of shares set forth in the offer by the
Transferee or a portion thereof) to be sold by the Management Stockholder to
the Transferee. Prior to the earlier of (i) the end of such ten-day period
or (ii) the acceptance or rejection by the Management Stockholder of the
offer of the Transferee, neither the Transferor nor its Affiliates will
complete any sale of shares of Common Stock to the Transferee. Thereafter,
for a period of ninety (90) days after the prohibition under the preceding
sentence shall have terminated, the Transferor may sell to the Transferee,
for the consideration stated and on the terms set forth in the Transfer
Notice, the shares of Common Stock stated in the Transfer Notice, as subject
to purchase by the Transferee, PROVIDED, HOWEVER, that the Transferee shall
simultaneously purchase the number of shares of Common Stock as calculated
above from the Management Stockholder to the extent that such Management
Stockholder shall have accepted the offer of the Transferee. The provisions
of this Section 2.3 shall not apply to transfers between the Transferor and
any of its Affiliates or between Affiliates of the Transferor.
ARTICLE III
REGISTRATION RIGHTS
SECTION 3.1 REQUIRED REGISTRATIONS.
(a) At any time after April 1, 2000, the Fund may, by written notice to
Holdings, request that Holdings effect the registration under the Securities Act
of Registrable Securities representing $10,000,000 or more in aggregate cash
proceeds to the Fund. If the Fund intends to distribute the Registrable
Securities in an underwritten offering, the Fund shall so state in its request.
The Fund shall have the right to designate the underwriter or underwriters to be
used in connection with any request for an underwritten offering. Promptly after
receipt of such notice, Holdings will give written notice of such requested
registration to all other holders of Registrable Securities. Holdings will then
use its best efforts expeditiously to effect the registration under the
Securities Act of the Registrable Securities which Holdings has been requested
to register by the Funds and all other Registrable Securities which Holdings
has been requested to register by other holders of Registrable Securities by
notice delivered to Holdings within twenty (20) days after the giving of such
notice by Holdings.
(b) At any time after Holdings becomes eligible to file a Registration
Statement on Form S-3, the Fund may request Holdings, in writing, to effect the
registration on a Registration Statement on Form S-3 of such number of
Registrable Securities representing $5,000,000 or more in aggregate cash
proceeds to the Fund. If the Fund intends to distribute the Registrable
Securities in an underwritten offering, the Fund shall so state in its request.
The Fund shall have the right to designate the underwriter or underwriters to be
used in connection with any request for an underwritten offering. Promptly after
receipt of such notice, Holdings will give written notice of such requested
registration to all other holders of Registrable Securities. Holdings will then
use
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its best efforts expeditiously to effect the registration under the
Securities Act of the Registrable Securities which Holdings has been
requested to register by the Fund and all other Registrable Securities which
Holdings has been requested to register by other holders of Registrable
Securities by notice delivered to Holdings within twenty (20) days after the
giving of such notice by Holdings.
(c) Holdings may postpone for a period of up to sixty (60) days the filing
or the effectiveness of any Registration Statement requested pursuant to this
Section 3.1 if the Board of Directors of Holdings in good faith determines that
such registration is likely to have an adverse effect on any plan, proposal or
agreement by Holdings with respect to any financing, acquisition,
recapitalization, reorganization or other material transaction; PROVIDED,
HOWEVER, that Holdings may not exercise such right of postponement more
frequently than one time in any twelve month period.
(d) Holdings shall not be required to effect more than five registrations
pursuant to Section 3.1(a). Each registration requested pursuant to Section
3.1(a) shall be effected by the filing of a Registration Statement on Form S-1,
or any other form which includes substantially the same information as would be
required to be included in a Registration Statement on Form S-1 as currently
constituted, unless the use of a different form has been agreed to in writing by
the Fund. No registration of Registrable Securities under Section 3.1(a) which
shall not have become and remained effective shall be deemed to be a
registration for any purpose of this Section 3.1(d). In addition, the Fund may
not require the registration of Registrable Securities pursuant to this Section
3.1 more than once in any six month period. Holdings shall pay all Registration
Expenses in connection with each registration of Registrable Securities pursuant
to this Section 3.1.
(e) In the case of a registration pursuant to this Section 3.1, whenever
the Fund shall request that such registration shall be effected pursuant to an
underwritten offering, such registration shall be so effected, and only
securities which are to be distributed by the underwriters designated by the
Fund may be included in such registration. If requested by such underwriters,
Holdings and each holder of Registrable Securities participating in the offering
will enter into an underwriting agreement with such underwriters for such
offering containing such representations and warranties by Holdings and such
other terms and provisions as are customarily contained in underwriting
agreements with respect to secondary distributions, including, without
limitation, indemnity and contribution.
If the managing underwriter advises the Fund and such other sellers
requesting registration of Registrable Securities that the number of shares to
be included in a Registration Statement pursuant to this Section 3.1 should be
limited due to market conditions or otherwise, then (i) all shares other than
Registrable Securities shall be excluded prior to the exclusion of any
Registrable Securities and (ii) thereafter, if additional shares must be
excluded from such registration, all shares of Registrable Securities shall be
excluded pro rata in proportion to their respective ownership of Registrable
Securities.
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(f) Notwithstanding anything else to the contrary in this Agreement, the
rights of the Fund described in this Section 3.1 shall terminate on the date on
which the Fund shall beneficially own less than ten percent (10%) of the
Registrable Securities held by the Fund immediately after the consummation of
the Initial Public Offering.
SECTION 3.2 INCIDENTAL REGISTRATION.
(a) If Holdings at any time prior to the Piggy-Back Right Expiration Date
proposes to register any of its securities under the Securities Act whether for
its own account or for the account of the Fund pursuant to Section 3.1, it will
each such time give prompt written notice to each holder of Registrable
Securities of its intention to do so and of the rights of each holder of
Registrable Securities under this Section 3.2. Upon the written request of such
holders of Registrable Securities made within twenty (20) days after the
receipt of any such notice, which request shall specify the Registrable
Securities intended to be disposed of by such holder and the intended method of
disposition thereof, Holdings will use its best efforts in good faith to effect
the registration under the Securities Act of all Registrable Securities which
Holdings has been so requested to register by such holders of Registrable
Securities, on a pro rata basis as provided below, to the extent requisite to
permit the dispositions, in accordance with the intended methods thereof as
aforesaid, of the Registrable Securities so to be registered, by inclusion of
such Registrable Securities in the Registration Statement which covers the
securities which Holdings proposes to register for its own account or the
account of the Fund, as the case may be; PROVIDED, HOWEVER, that if, at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the Registration Statement filed in connection
with such registration, Holdings shall determine for any reason either not to
register or to delay registration of such securities, Holdings may, at its
election, give written notice of such determination to each holder of
Registrable Securities and, thereupon, (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration, but not from its obligation to
pay the Registration Expenses in connection therewith, and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Securities for the same period as the delay in registering such
other securities. Holdings will pay all Registration Expenses in connection
with each registration of Registrable Securities pursuant to this Section 3.2.
No registration of Registrable Securities effected under this Section 3.2 shall
relieve Holdings of any of its obligations to effect registrations of
Registrable Securities pursuant to Section 3.1 hereof.
(b) If Holdings at any time prior to the Piggy-Back Right Expiration Date
proposes to register any of its securities under the Securities Act as
contemplated by this Section 3.2 and such securities are to be distributed by or
through one or more underwriters, Holdings will, if requested by the holders of
Registrable Securities as provided in this Section 3.2, use its best efforts in
good faith to arrange for such underwriters to include all the Registrable
Securities to be offered and sold by the holders of Registrable Securities among
the securities to be distributed by such underwriters; PROVIDED, HOWEVER, that
if the managing underwriter of such underwritten offering shall inform Holdings,
the Fund and such holders of Registrable Securities by letter of its belief that
inclusion in such distribution of all or a specified number of such securities
proposed to be distributed by such underwriters would interfere with the
successful marketing of the securities being distributed by such
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underwriters (such letter to state the basis of such belief and the
approximate number of such Registrable Securities proposed so to be
registered which may be distributed without such effect), then Holdings may,
upon written notice to the Fund and such holders of Registrable Securities,
reduce, if and to the extent stated by such managing underwriter to be
necessary to eliminate such effect the shares of Common Stock of such holders
of Registrable Securities, other than Holdings, pro rata in proportion to
their respective ownership of Registrable Securities so that the resultant
aggregate number of such Registrable Securities so included in such
registration, together with the number of securities to be included in such
registration for the account of Holdings, shall be equal to the number of
shares stated in such managing underwriter's letter. Holdings shall not be
obligated to effect any registration of Registrable Securities under this
Section 3.2 incidental to the registration of any of its securities in
connection with mergers, acquisitions, exchange offers, dividend reinvestment
plans or stock option or other employee benefit plans.
SECTION 3.3 LOCK-UP AGREEMENT. Each holder of Registrable Securities
agrees not to sell, make any short sale of, loan, grant any option for the
purchase of, effect any public sale or distribution of or otherwise dispose of
any equity securities of Holdings, during the 14 days prior to and the ninety
(90) days (or such shorter period as may be agreed to by the underwriters) after
the effective date of any underwritten registration pursuant to Section 3.1 or
Section 3.2 has become effective, except as part of such underwritten
registration, whether or not such holder participates in such registration, and
except as otherwise permitted by the managing underwriter of such underwriting,
if any. Each holder of Registrable Securities agrees that Holdings may instruct
its transfer agent to place stop transfer notations in its records to enforce
this Section 3.3.
SECTION 3.4 NO INCONSISTENT AGREEMENTS. Holdings has not entered into
and will not enter into any registration rights agreement or similar
arrangements the performance by Holdings of the terms of which would in any
manner conflict with, restrict or be inconsistent with the performance by
Holdings or the Fund of its obligations under this Agreement.
SECTION 3.5 REGISTRATION PROCEDURES. If and whenever Holdings is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in this Section 3, Holdings will
as expeditiously as reasonably possible:
(a) Prepare and, in the case of a registration required pursuant to
Section 3.1 hereof, promptly and in any event within sixty (60) days after the
end of the period within which requests for registration may be delivered to
Holdings, file with the Commission a Registration Statement with respect to such
Registrable Securities and use its best efforts to cause such Registration
Statement to become effective.
(b) Prepare and file with the Commission such amendments and supplements
to such Registration Statement and the prospectus used in connection therewith
as may be necessary to keep such Registration Statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
Registrable Securities and other securities, if any, covered
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by such Registration Statement until the later of (i) such time as all of
such Registrable Securities have been disposed of in accordance with the
intended methods of disposition set forth in such Registration Statement or
(ii) the expiration of the time when a prospectus relating to such
Registration Statement is required to be delivered under the Securities Act.
(c) Use its best efforts to cooperate in the disposition of the Common
Stock covered by such Registration Statement, including without limitation in
the case of an underwritten offering pursuant to Section 3.1, causing key
executives of Holdings and its subsidiaries to participate under the direction
of the managing underwriter in a "road show" scheduled by such managing
underwriter in such locations and of such duration as in the judgment of such
managing underwriter are appropriate for such underwritten offering.
(d) Furnish to the Fund and such other holders of Registrable Securities
selling in the offering such number of conformed copies of such Registration
Statement and of each such amendment and supplement thereto, such number of
copies of the prospectus included in such Registration Statement, including each
preliminary prospectus and any summary prospectus, each 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
seller may reasonably request in order to facilitate the disposition of its
Registrable Securities covered by such Registration Statement.
(e) Use its best efforts to register or qualify such Registrable
Securities under such securities or blue sky laws of such jurisdictions as the
sellers shall reasonably request, and do any and all other acts and things which
may be necessary or advisable to enable the Fund and such other holders of
Registrable Securities selling in the offering, to consummate the disposition
in such jurisdictions of its Registrable Securities covered by such Registration
Statement; PROVIDED, HOWEVER, that Holdings shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation or
subject Holdings to taxation in any jurisdiction in which it is not so
qualified.
(f) Use its best efforts to obtain all legal opinions, auditors' consents
and comfort letters and experts cooperation as may be required, including
furnishing to the Fund and such other holders of Registrable Securities selling
in the offering a signed counterpart, addressed or confirmed to the Fund and
such other holders of Registrable Securities selling in the offering, of (i) an
opinion of counsel for Holdings and (ii) a "cold comfort" letter signed by the
independent public accountants who have certified the financial statements
included in such Registration Statement, in each case covering substantially the
same matters as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public offerings
of securities.
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(g) Immediately notify the Fund and such other holders of Registrable
Securities selling in the offering, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the 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 any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing, and at the request of any such seller prepare and furnish to such
seller a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit 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.
(h) Enter into an underwriting agreement with such underwriters for such
offering containing such representations and warranties by Holdings and such
other terms and provisions as are customarily contained in underwriting
agreements, including, without limitation, indemnity and contribution.
(i) Otherwise use its best efforts to comply with the Securities Act, the
Exchange Act and any other applicable rules and regulations of the Commission,
and make available to its securities holders, as soon as reasonably practicable,
an earning statement covering the period of at least twelve months after the
effective date of such Registration Statement, which earning statement shall
satisfy Section 11(a) of the Securities Act and any applicable regulations
thereunder, including Rule 158.
(j) Use its best efforts to list such Registrable Securities on each
securities exchange on which any equity security of Holdings is then listed, if
such securities are not already so listed.
(k) In the case of an underwritten offering under Section 3.1 hereof,
refrain, without the consent of the managing underwriter, for a period from
thirty (30) days before the effective date of the Registration Statement until
180 days after such effective date, from directly or indirectly selling,
offering to sell, granting any option for the sale of, or otherwise disposing of
any Common Stock or securities convertible into Common Stock other than pursuant
to employee equity plans.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1 INDEMNITIES. In the event of any registration of
Registrable Securities under the Securities Act pursuant to Section 3 hereof,
Holdings will, and hereby does, indemnify and hold harmless each seller of
Registrable Securities, their respective partners, directors and officers, and
each other Person, if any, who controls any such seller of Registrable
Securities
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within the meaning of Section 15 of the Securities Act (each such Person
being referred to herein as a "Covered Person"), against any losses, claims,
damages or liabilities, joint or several, to which such Covered Person may be
or become subject under the Securities Act, the Exchange Act, any other
securities or other law of any jurisdiction, common law or otherwise, insofar
as such losses, claims, damages or liabilities, or actions or proceedings in
respect thereof, arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained or incorporated by
reference in any Registration Statement under the Securities Act, any
preliminary prospectus or final prospectus included therein, or any related
summary prospectus, or any amendment or supplement thereto, or any document
incorporated by reference therein, or (ii) 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, and will reimburse such
Covered Person for any legal or any other expenses incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; PROVIDED, HOWEVER, that Holdings shall not
be liable to any Covered Person in any such case for any such loss, claim,
damage, liability, action or proceeding (i) to the extent that it arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such Registration Statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement or incorporated document, in reliance upon and in conformity with
written information furnished to Holdings or on behalf of such Covered Person
expressly for inclusion therein or (ii) if 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 seller failed to deliver a copy of the final or amended prospectus at or
prior to the confirmation of the sale of the Registrable Securities to the
person asserting any such loss, claim, damage or liability in any case in
which such delivery is required by the Securities Act. The indemnities of
Holdings contained in this Section 4.1 shall remain in full force and effect
regardless of any investigation made by or on behalf of such Covered Person
and shall survive any transfer of Registrable Securities.
SECTION 4.2 INDEMNITIES TO HOLDINGS. In the event of any registration of
Registrable Securities pursuant to Section 3, each holder of Registrable
Securities selling in the offering will, and hereby does, indemnify and hold
harmless, in the same manner and to the same extent as set forth in Section 4.1
hereof, Holdings, each director of Holdings, each officer of Holdings who shall
sign such Registration Statement and each other Person, other than such holder
of Registrable Securities selling in the offering, if any, who controls Holdings
within the meaning of Section 15 of the Securities Act, with respect to any
statement in or omission from such Registration Statement, any preliminary
prospectus or final prospectus included therein, or any amendment or supplement
thereto, or any document incorporated therein, if such statement or omission was
made in reliance upon and in conformity with written information furnished to
Holdings by or on behalf of such seller expressly for inclusion therein,
provided that such seller shall not be liable to Holdings in any 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 Holdings 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
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<PAGE>
such loss, claim, damage or liability in any case in which such delivery is
required by the Securities Act. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of Holdings
or any such director, officer or controlling Person and shall survive any
transfer of Registrable Securities.
SECTION 4.3 INDEMNIFICATION PROCEDURES. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim of the type referred to in the foregoing provisions of this
Section 4, such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party, give written notice to each such
indemnifying party of the commencement of such action; PROVIDED, HOWEVER, that
the failure of any indemnified party to give notice to such indemnifying party
as provided herein shall not relieve such indemnifying party of its obligations
under the foregoing provisions of this Section 4, except and solely to the
extent that such indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
each indemnifying party will be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified,
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from an indemnifying party to such
indemnified party of its election so to assume the defense thereof, such
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof; PROVIDED, HOWEVER, that (i) if the indemnified party reasonably
determines that there may be a conflict between the positions of such
indemnifying party and the indemnified party in conducting the defense of such
action or that there may be defenses available to such indemnified party
different from or in addition to those available to such indemnifying party,
then counsel for the indemnified party shall conduct the defense to the extent
reasonably determined by such counsel to be necessary to protect the interests
of the indemnified party and such indemnifying party shall employ separate
counsel for its own defense, (ii) in any event, the indemnified party shall be
entitled to have counsel chosen by such indemnified party participate in, but
not conduct, the defense and (iii) the indemnifying party shall bear the legal
expenses incurred in connection with the conduct of, and the participation in,
the defense as referred to in clauses (i) and (ii) above. If, within a
reasonable time after receipt of the notice, such indemnifying party shall not
have elected to assume the defense of the action, such indemnifying party shall
be responsible for any legal or other expenses incurred by such indemnified
party in connection with the defense of the action, suit, investigation, inquiry
or proceeding. No indemnifying party will consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
SECTION 4.4 CONTRIBUTION. If the indemnification provided for in
Sections 4.1 or 4.2 hereof is unavailable to a party that would have been an
indemnified party under any such Section in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to therein, then each party that would have been an indemnifying party
thereunder shall, in lieu of indemnifying such indemnified party, contribute to
the amount paid
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or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative fault of such
indemnifying party on the one hand and such indemnified party on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings 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 such 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 parties
agree that it would not be just and equitable if contribution pursuant to
this Section 4.4 were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to in the preceding sentence. The amount paid or
payable by a contributing party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above
in this Section 4.4 shall include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. 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.
SECTION 4.5 LIMITATION ON LIABILITY OF HOLDERS OF REGISTRABLE
SECURITIES. The liability of each holder of Registrable Securities selling in
the offering in respect of any indemnification or contribution obligation
arising under this Section 4 shall not in any event exceed an amount equal to
the net proceeds to such holder of Registrable Securities selling in the
offering, after deduction of all underwriters' discounts and commissions and all
other expenses paid by such holder in connection with the Registration Statement
in question, from the disposition of the Registrable Securities disposed of by
such holder pursuant to such Registration Statement.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 NOTICES. All notices and other communications to any party
hereunder shall be dated and in writing and shall be deemed to have been given
to such party (i) if given by telecopy, when such telecopy is transmitted to the
appropriate telecopy number and telephonic confirmation of receipt thereof is
obtained or (ii) if given by mail, prepaid overnight courier or any other means,
when received at the appropriate address or when delivery at such address is
refused. Such notices shall be addressed to the appropriate party to the
attention of the person who executed this Agreement at the address or telecopy
number set forth under such party's signature below (or to the attention of such
other Person or to such other Address or telecopy number as such party shall
have furnished to each other party in accordance with this Section 5.1).
SECTION 5.2 BOARD OF DIRECTORS. Holdings hereby agrees that (i) so long
as the Fund beneficially owns twenty-five percent (25%) of the outstanding
shares of Common Stock of
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Holdings (A) the Fund shall have the right to designate for nomination three
members for election to the Board of Directors at each annual meeting of
stockholders and (B) the Fund shall have the right to designate the Chairman
of the Board and (ii) so long as the Fund shall continue to beneficially own
at least ten percent (10%) of the Registrable Securities held by the Fund
immediately after the Initial Public Offering (A) the Fund shall have the
right to nominate two members for election to the Board of Directors at each
annual meeting of stockholders and (B) each committee of the Board of
Directors of Holdings shall include at least one member of the Board of
Directors nominated by the Fund, such member to be selected by the Fund.
SECTION 5.3 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
to making available to the Fund and the Management Stockholder the benefits of
Rule 144 promulgated under the Securities Act and any other rule or regulation
of the Commission that may at any time permit the sale of securities to the
public without registration, and with a view to making it possible for the Fund
and the Management Stockholder to register the Registrable Securities pursuant
to a Registration Statement on Form S-3, Holdings agrees to:
(a) Use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144, at all
times commencing ninety one (91) days after the effective date of the
Registration Statement for its Initial Public Offering;
(b) Take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as will permit the Fund and
the Management Stockholder to use a Registration Statement on Form S-3 for
the sale of their Registrable Securities, such action to be taken as soon
as practicable, but not later than 120 days after the end of the fiscal
year in which the Registration Statement for the Initial Public Offering is
declared effective;
(c) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of Holdings under the
Securities Act and the Exchange Act; and
(d) Furnish to the Fund and the Management Stockholder forthwith upon
request (i) a written statement by Holdings as to its compliance with the
reporting requirements of Rule 144 (at any time more than ninety (90) days
after the effective date of the Registration Statement for the Initial
Public Offering) the Securities Act and the Exchange Act, at any time after
it has become subject to such reporting requirements, or as to its
qualification as a registrant whose securities may be resold pursuant to a
Registration Statement on Form S-3 at any time after it so qualifies, (ii)
a copy of the most recent annual or quarterly report of Holdings and such
other reports and documents so filed by Holdings, and (iii) such other
information as may be reasonably requested in availing the Fund and the
Management Stockholder of any rule or regulation of the Commission which
permits the selling of any such Registrable Securities without registration
or pursuant to such form.
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<PAGE>
SECTION 5.4 MONITORING FEES.
(a) Holdings shall pay to Saunders Karp & Megrue, L.P. ("SKM") an annual
monitoring fee in an amount not to exceed $250,000. Such fee shall be payable
annually in advance. Holdings shall also pay all out-of-pocket expenses of SKM
incurred in rendering financial advice to Holdings. Holdings shall reimburse
SKM for such expenses on an as-incurred basis. SKM may provide additional
monitoring services to Holdings in the future and, if it does so, may only
provide them on an arms' length basis.
(b) The obligations of Holdings under this Section 5.4 shall terminate
when the Fund beneficially owns less than ten percent (10%) of the Registrable
Securities held by the Fund immediately after the consummation of the Initial
Public Offering.
SECTION 5.5 BINDING NATURE OF AGREEMENTS. This Agreement shall be
binding upon an inure to the benefit of and be enforceable by the parties hereto
or their successors in interest, except as expressly otherwise provided herein.
THIS AGREEMENT SHALL NOT BECOME EFFECTIVE UNTIL THE CONSUMMATION OF THE INITIAL
PUBLIC OFFERING.
SECTION 5.6 DESCRIPTIVE HEADINGS. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 5.7 SPECIFIC PERFORMANCE. Without limiting the rights of each
party hereto to pursue all other legal and equitable rights available to such
party for the other parties' failure to perform their obligations under this
Agreement, the parties hereto acknowledge and agree that the remedy at law for
any failure to perform their obligations hereunder would be inadequate and that
each of them, respectively, shall be entitled to specific performance,
injunctive relief or other equitable remedies in the event of any such failure.
SECTION 5.8 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAW.
SECTION 5.9 COUNTERPARTS. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute one and the same instrument.
SECTION 5.10 SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired
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thereby, it being intended that all of the rights and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
SECTION 5.11 CONFIDENTIALITY. Each Stockholder hereby agrees that it
will hold, and will use its best efforts to cause its officers, directors,
employees, accountants, counsel, consultants, advisors and agents to hold, in
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law or otherwise requested by any governmental or
regulatory authority having jurisdiction over such Stockholder, all confidential
documents and information concerning Holdings and its Subsidiaries furnished to
it in connection with the transactions contemplated by this Agreement, except to
the extent that such information can be shown to have been (i) previously known
on a nonconfidential basis by it, (ii) in the public domain through no fault of
it or (iii) later lawfully acquired by it from sources other than Holdings or
any of its Subsidiaries; PROVIDED, HOWEVER, that a Stockholder may disclose such
information to its officers, directors, employees, accountants, counsel,
consultants, advisors, lenders and agents so long as such Persons are informed
by it of the confidential nature of such information and are directed by it to
treat such information confidentially. The obligation of each Stockholder to
hold any such information in confidence shall be satisfied if they exercise the
same care with respect to such information as they would take to preserve the
confidentiality of their own similar information.
SECTION 5.12 ENTIRE AGREEMENT. This Agreement is intended by the parties
hereto as a final and complete expression of their agreements and understanding
in respect to the subject matter contained herein. This Agreement supersedes
all prior agreement and understandings, written or oral, between the parties
with respect to such subject matter. In particular, this Agreement superseded
the Securityholders Rights Agreement dated September 27, 1996.
SECTION 5.13 AMENDMENT AND WAIVER. Any provisions of this Agreement may
be amended if, but only if, such amendment is in writing and is signed by
Holdings and Stockholders beneficially owning at least a majority of the
Registrable Securities; PROVIDED, HOWEVER, that no such amendment may adversely
affect the rights of any Stockholder unless signed by such Stockholder. Any
provision may be waived if, but only if, such waiver is in writing and is signed
by the party or parties waiving such provision and for whose benefit such
provision is intended.
SECTION 5.14 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement
shall convey any rights upon any person or entity which is not a party or an
assignee of a party to this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first above written.
CHARLOTTE RUSSE HOLDING, INC.
By: /s/ Daniel T. Carter
---------------------------
Title: CFO
THE SK EQUITY FUND, L.P.
By: SKM Partners, L.P.,
as general partner
/s/ Allan Karp
-------------------------------
Allan Karp, as general partner
262 Harbor Drive
Stamford, CT 06902
SK INVESTMENT FUND, L.P.
By: SKM Partners, L.P.,
as general partner
/s/ Allan Karp
-------------------------------
Allan Karp, as general partner
262 Harbor Drive
Stamford, CT 06902
/s/ Bernard Zeichner
-------------------------------
Bernard Zeichner
7325 Remley Place
La Jolla, CA 92037
Telephone: (858) 454-7143
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial and Operating Data" and "Experts" and to the use of
our report dated November 12, 1998 (except for Note 5, as to which the date
is December 30, 1998 and for the last two paragraphs of Note 8, as to which
the date is _______, 1999) in Amendment No. 2 to the Registration Statement
(Form S-1 No. 333-84297) and related Prospectus of Charlotte Russe Holding,
Inc. for the registration of 2,900,000 shares of its common stock.
ERNST & YOUNG LLP
San Diego, California
________________________________________________________________________________
The foregoing consent is in the form that will be signed upon the completion
of the restatement of the capital accounts described in Note 8 to the
financial statements.
/s/ ERNST & YOUNG LLP
San Diego, California
September 27, 1999
